Annual Report 201 1 - UBI Factor Factor - Annual...In 2011, the company collected credit insurance...

Annual Report 201

UBI Factor S.p.A.

UBI Factor S.p.A. is a member of:

Associazione Bancaria Italiana Associazione Italiana per il Factoring Factors Chain International

1

Registered Offi ce: 20121 Milano - Via F.lli Gabba, 1 - Tel. +39 02 77 661 - Fax +39 02 76 000 009Operation Unit: 33170 Pordenone - Via Giardini Cattaneo, 4 - Tel. +39 0434 22 42 11 - Fax +39 0434 22 43 50R.E.A. 1075242 - Share Capital fully paid-up Euro 36,115,820 - Reserves Euro 88,701,613Tax code, VAT and company registration no. 06195820151 - Cod. ABI 13565 - C.P. 568 - 20101 Milano

www.ubifactor.it • [email protected] • www.factors-chain.com

Annual Report 2011 Annual Report 2011

3Annual Report 2011 Annual Report 2011

Contents

Company officers 4

Calling of the shareholders’ meeting 5

Directors’ report 7

Allocation of profit for the year 15

Statutory auditors’ report 17

Independent auditors’ report 21

Financial statements as at and for the year ended 31 December 2011 25• Statement of financial position 26• Income statement 27

Statement of comprehensive income 28

Statement of changes in equity 29

Statement of cash flows 30

Notes to the financial statements – Part A “Accounting policies” 31

Notes to the financial statements – Part B “Notes to the statement of financial position - assets” 41• Loans and receivables - Caption 60 42• Current and deferred tax assets – Caption 120 48• Current and deferred tax liabilities – Caption 70 49• Other assets – Caption 140 51

Notes to the financial statements – Part B “Notes to the statement of financial position - liabilities” 52• Financial liabilities Caption 10 52• Other liabilities – Caption 90 52• Provisions for risks and charges – Caption 110 54

Notes to the financial statements – Part C “Notes to the income statement” 57• Interest – Captions 10 and 20 57• Commissions – Captions 30 and 40 58• Net impairment losses/reversals of impairment losses – Caption 100 59• Administrative expenses – Caption 110 - Personnel expense 60 - Other administrative expenses 61• Net accruals to the provision for risks and charges – Caption 150 63• Other operating income and expenses – Caption 160 63• Income taxes – Caption 190 64

Notes to the financial statements – Part D “Other information” 67• B. Factoring and transfers of loans and receivables 67 - Factoring with recourse 68 - Factoring without recourse 68 - Impairment losses 69 - Turnover 69 * D. Guarantees given and commitments 70

Highlights of the parent 71

Section 3: Risks and risk management policies 72

Section 4: Capital requirements 89

Section 5: Analytical statement of comprehensive income 92

Section 6: Related party transactions 92

4 Annual Report 2011 Annual Report 2011

COMPANY OFFICERS

Board of Directors

CHAIRMAN * Angelo Rampinelli Rota

DEPUTY CHAIRMAN * Gaudenzio Cattaneo * Federico Ghiano

DIRECTORS Sergio Borlenghi (1) Alberto Ciocca Bruno Degrandi Piero Fenaroli Valotti * Giovanni Lupinacci Fausto Minelli Simona Pezzolo De Rossi (2)

Carlo Porcari Gian Cesare Toffetti

* Members of the Executive Committee

(1) in office until 8 April 2011

(2) appointed on 8 April 2011

Board of Statutory Auditors

Chairman Marco Confalonieri

Standing Auditors Giorgio Ferrino Paolo Golia

General Management Gianpiero Bertoli Deputy General Manager Attilio Serioli

Independent Auditors KPMG S.p.A.


Calling of the ordinary shareholders’ meeting

The shareholders of UBI Factor – Unione di Banche Italiane per il Factoring S.p.A. are

called for an ordinary meeting at the registered office of UBI Leasing S.p.A., in Brescia, Via

Cefalonia 74, on 4 April 2012, at 10:30 am, on first call and, if necessary, at the same place

and time on 5 April 2012 on second call, to discuss and resolve on the following agenda:

1. Directors’ and Statutory Auditors’ reports;

2. approval of the 2011 annual report;

3. any other business.

Milan, 14 March 2012

The Chairman Angelo Rampinelli Rota


Annual Report 2011

Directors’ Report


DIRECTORS’ REPORT 2011

Dear shareholders,

The financial statements as at and for the year ended 31 December 2011, prepared in accordance with IFRS, relate to the company’s thirtieth year. They show a profit for the year of € 6.8 million, net of income tax of € 6.5 million.

The company’s results were affected by the non-recurring adjustment of receivables of Fondazione Centro San Raffaele del Monte Tabor, which had a net impact of € 6.9 million, as well as the greater portfolio risk due to the deterioration of the macroeconomic situation, the impact of legal expenses relating to the management of performing loans to the public administration (€ 2.0 million) which is, moreover, no longer the company’s core business, and the 0.75% increase in the IRAP (regional productivity tax) rate for banks and financial companies, introduced by Decree law no. 98 of 6 July 2011, which adding € 0.3 million to the tax charge.

R.O.E. was affected by the above, amounting to 5.58%, down sharply on 2010 (17.30%), and reflecting the company’s policy of strengthening capital in recent years, as instructed by its parent and to meet the requirements of supervisory regulations and the Basel Accord.

In terms of the company’s competitive position, in 2011, it remained fourth in its sector in terms of both outstanding loans (€ 3.378 billion) and advances with recourse and receivables without recourse, with a market share of 5.90% and 6.41%, respectively (source: Assifact).

Total turnover from factoring transactions, the company’s core business, totals € 7.8 billion for 2011, up 10.0% on the € 7.1 billion of 2010. The total volume of brokered transactions amounts to € 8.2 billion, up 8.6% on the € 7.6 billion of the previous year.

Total loans and advances to customers amount to € 2.9 billion, up 4.4% on 2010 (€ 2.7 billion).

Average loans rose 11.8% to € 2.39 billion, from € 2.14 billion in 2010.

The profit for the year highlights the company’s sound profitability and significant overall growth in operations. Revenue from the core business is the result of the ongoing consolidation of the company’s business strategy, which, as risk is increasingly concentrated among large corporate counterparties whose suppliers turn to maturity factoring, shows that the company has achieved its aim of substantial returns on greater loans.

Net trading income of € 50.9 million, substantially in line with 2010, is mainly due to net interest income of € 38.3 million, up 10.0% on 2010, while net commission income amounts to € 12.6 million, down on 2010.

The trend in net interest income is due, on the one hand, to the company’s commercial decision to privilege spreads within the present market situation, focusing on more profitable transactions, and, on the other hand, to the positive effect of operating volumes.

Furthermore, the trend in net commissions was significantly affected by commission expense paid to UBI Group network banks in exchange for reporting business opportunities. These commissions grew from € 3.4 million in 2010 to € 6.7 million in 2011 (+95.6%), demonstrating the considerable degree of sound collaboration with the network banks, due to the cooperation agreement in place between the company and such banks, while commissions to the parent for guarantees received to support supervisory capital requirements increased from € 1.6 million in 2010 to € 2.0 million in 2011 (+28.1%).

The company continued to pursue its strategy of gradually reducing business with transferor customers factoring receivables due from the public administration, which enabled it to attain high commissions. The reasons underlying this dramatic shift away from this type of factoring consist, on the one hand of the sharp growth in late payments from the Public Administration (especially in central and southern Italy), and specifically in regions where repeated violation of the Italian “stability pact” has generated a freeze in the payment of “current” receivables, particularly in the health sector. On the other hand, the government measure was renewed - for


the third time in three years - suspending executive proceedings against such regional authorities undergoing chronic financial difficulties. Consequently, these government measures prevent any judicial enforcement proceedings until 31 December 2012.

In addition, in line with the European CRD legislation and the Basel Framework, effective as of 1 January 2012, supervisory legislation for prudent capital requirements shortens the term for the classification of loans and receivables past due under impaired assets from over 180 days to over 90 days, with a significant impact on assets. This further limits the range of potential action that can be taken, even with the regional authorities that are more scrupulous in their compliance with payment terms, but still pay after the due date.

The suspension of these activities – which, in 2011, generated turnover of € 400.5 million, down 39.8% on the € 664.9 million of 2010 – underscored the need, in order to facilitate credit collection, to promote transactions that, while reducing the overall exposure in this segment, have required the company to waive the collection of default interest due from those regional authorities owing the receivables factored without recourse, as such interest, although legally assigned to the company, has been suspended by legislation and subject to a number of adjustments.

The company will continue the strategy described above, in 2012 as well, focusing exclusively on the captive counterparties promoted by the network banks and devoting specific and ongoing attention to monitoring due dates and the effective quality of transferors in terms of their overall credit rating.

In 2011, as mentioned above, the receivable due from Fondazione Centre San Raffaele del Monte Tabor (ordered to commence court-approved creditors’ agreement proceedings by decree of the Milan insolvency court on 27 October 2011) was impaired. It had been acquired for a nominal amount of € 31.0 million and was impaired by € 9.5 million, which includes the IFRS-compliant discounting of approximately 30% of its nominal amount on the basis of collection forecasts for 2012-13. Specifically, these are advance payments of considerations for receivables factored with recourse in 2004 relating to VAT refund claims (€ 137 million). The amounts were found to be unrecoverable in court in relation to the dispute between the transferor and the tax authorities. This is a completely exceptional event. Moreover, the company has decided, in any event, to no longer perform this type of factoring in the future.

Net impaired assets due to non-performing loans grew to € 36.5 million (31 December 2010: € 11.5 million), € 20.5 million of which relates to the net amount due from Fondazione Centre San Raffaele del Monte Tabor, constituting 1.28% of loans (0.42% in 2010), with a percentage of coverage of 36.95%, while doubtful positions amount to € 4.5 million (31 December 2010: € 4.2 million), and make up 0.15% of loans (0.15% in 2010).

Individual impairment losses on loans and receivables total € 17.3 million, including € 13.0 million due from public administration counterparties, which no longer form part of the company’s core business.

Moreover, doubtful positions mainly relate to acquired receivables due from the public administration and, more specifically, commissioners, with residual collection periods that require classification in this category, although the amounts are expected to be fully collected, as demonstrated by activities underway for the recovery of amounts classified as doubtful.

In 2011, the company collected credit insurance compensation of € 2.3 million from Coface Belgium S.A. for claims relating to 2007-09. These collections had a net positive impact of € 1.0 million on profit or loss.

Administrative expenses amount to € 26.2 million, compared to € 21.0 million in 2010 (+24.4%). Other administrative expenses, totalling € 14.4 million, include, in particular, legal expenses of € 6.3 million – mainly relating to legal activities to collect receivables in the Lazio regional health sector – and, to a much lesser extent, non-recurring items in connection with the project to replace the company’s information system (factoring management system), amounting to € 0.9 million. It focused particularly on trends in legal expenses – for the future as well – in relation to all legal steps taken against the Lazio regional local health units, in order to collect significant receivables in the company’s portfolio.

The cost/income ratio, which is equal to administrative costs plus net reversals of impairment losses/impairment losses on property and equipment and intangible assets divided by net trading income plus other operating income/costs, came to 49.08%, compared to 40.74% in the previous year, worsening by 8.34%.


In 2011, UBI Factor made the strategic choice to focus its business on the customers referred by the UBI Group network banks, providing them with effective support, especially in tense, credit crunch market situations.

Indeed, in the fourth quarter of 2011, 80% of UBI Factor loans targeted UBI Banca Group customers, in order to ensure that their operations and business did not suffer from the current difficult market scenario, or if they did, to the smallest extent possible.

To date, the customers shared with the network banks constitute nearly 80% of the company’s counterparties, and this is the result of a project launched several years ago, which has seen UBI Factor, in its role as “Product Factory” within the UBI Banca Group, undertaking commercial development jointly with the network banks.

Over the years, the results of this synergy have been brilliant. Volumes generated by customers referred by the banks accounted for approximately 19% of total volumes in 2008, while in December 2011, the percentage of transactions referred by the network banks represented 42.7% of UBI Factor turnover, generating € 3.5 billion.

This collaborative commercial strategy with the network banks has not only been successful in terms of volumes, as described above, but it has generated sound profits as well, while concurrently ensuring effective credit risk monitoring. Through its activities in 2011, UBI Factor generated € 6.7 million for the group’s network banks, up 109% on 2010.

The company plans to continue focusing particularly on synergies with the network banks in the near future, in order to ensure it provides utmost support to UBI Group customers in close collaboration with the network banks, as well as the comprehensive and complete offer worthy of a premier banking group.

Business abroad continues to grow steadily, targeting high-standing customers through export and import factoring, which boasts sound profitability and very contained credit risk. The company operates in both consolidated and developing markets.

Over the past three years, the development of international activities has contributed to the growth of UBI Factor’s operations, both directly and through partnerships with foreign correspondent factors within Factors Chain International.The table below provides a summary of the trend in domestic and international turnover (€ millions).

2011 2010 2009

Turnover domestic 4,497.9 4,674.2 3,890.6

Turnover export 2,544.7 2,151.8 1,102.2

- Quota diretta 2,523.4 2,134.7 1,090.5

- Quota FCI 21.3 17.1 11.7

Turnover import 1,167.9 696.3 452.4

- Quota diretta 618.9 421.9 367.3

- Quota FCI 549.0 274.4 85.1

The growth in business on the international market is due, on the one hand, to the company’s growing ability to work directly and on a captive basis with leading multinational groups in the household appliance, automotive, electronics and steel industries, and, on the other hand, to the positive effect of commercial initiatives undertaken within the Factors Chain International network on traditional export markets, such as Turkey.

Captive business is centred on sound and consolidated business partnerships with multinationals that traditionally use factoring to streamline and develop cooperation with their suppliers, while enjoying financial benefits in terms of prices and payment/collection dynamics. In this business segment, in addition to the company’s traditional business partners, continuing operations developed through the international supplier payment platform played a significant part. Management of this system gives the company very close and effective control over the quality of factored credit and, accordingly, substantially shifts credit risk towards counterparties with higher credit standing.


Direct activities were developed through partnerships with multinational groups that are widely present in Italy and other, highly diversified markets for their products. These partnerships enabled the company to acquire credit portfolios consisting of receivables from counterparties of good standing, or that were reinsured with third parties, thereby constantly refining the quality of its portfolio, even in markets and/or product segments that present complex economic situations, such as the automotive or consumer appliance industries.

The business initiative launched in 2008 on the Turkish market, originally aimed at establishing a local base for operations, found significant support within the Factors Chain International network, in part due to the expansion of its geographical coverage, as it is no longer limited to the Italian market alone, but has extended to the EU, with significant market shares in areas where the UBI Banca Group or even UBI Factor operate directly through their local branches (Poland, Spain and Germany), with significant product segment diversification.

The expansion of these operations has given UBI Factor growing visibility within the network, naturally translating into the development of operations with other correspondents, mainly in Turkey, but in Spain as well, where the company is developing infragroup synergies with UBI International.

The substantial growth in import factoring has enabled UBI Factor to gain a significant market share within Factors Chain International, boasting the network’s highest growth rates. Total Turkish export factoring activities continue with growing levels due to similar agreements with the eight leading Turkish factoring companies. This has made it possible for UBI Factor to distinguish itself as the top factoring company in the FCI network in terms of factoring in relation to Turkish exports to Europe.

Activities developed by the Polish branch were consolidated, as the branch generated a gross operating profit of € 1.6 million (2010: € 1.2 million), with net trading income of approximately € 1.9 million (2010: € 1.4 million). Turnover came to € 386 million, compared to € 334 million in 2010, and average loans to customers amount to € 72.3 million, versus € 57.4 million in 2010.

Negotiations for the acquisition of the Turkish company Strateji Factoring Hizmetleri A.S. were suspended due to a change in the guidelines of part of the target company’s owners, with the decision to make changes to certain contractual conditions and policies, which UBI Factor and its parent UBI Banca did not deem legitimate and rendered acquisition no longer worth pursuing. Accordingly, the negotiations were suspended. However, this decision did not entail the termination of the export factoring agreement in place with Strateji Factoring. In 2011, the export factoring transactions benefited from growth in volumes.

In terms of investments, Tex Factor S.p.A. completed its liquidation stage, with the refund of equity interests to shareholders, as resolved by the shareholders during the extraordinary meeting held on 11 February 2011. In this respect, UBI Factor fully impaired its investment in this company, which had been recognised at cost, recognising a gain of € 84 thousand on the equity investment.

Siderfactor S.p.A. began voluntary liquidation following the decision of the shareholders during their extraordinary meeting held on 12 December 2011. This decision became effective when it was registered with the Milan company registrar on 11 January 2012. The liquidation stage is expected to be completed in 2012, with the sale of all assets and settlement of liabilities. The financial statements at 31 December 2011 show a profit for the year of € 763 thousand.

With respect to the contract portfolio acquired from the Italcementi Group in 2010, the related intangible asset, originally stated at € 864 thousand and presenting a residual value of € 312 thousand at 31 December 2011, was not impaired in 2011, as the profit margin on the portfolio exceeded that forecast when the intangible asset was measured.

With respect to the content of Banca d’Italia/Consob/ISVAP document no. 2 of 6 February 2009, the Banca d’Italia, Consob and ISVAP coordination forum on applying IFRS, concerning “Disclosures in financial reports on the going concern assumption, financial risks, impairment testing of assets and uncertainties in the use of estimates”, together with article 2428 of the Italian Civil Code, it is noted that the company is currently able to continue as a going concern for the foreseeable future, and the financial statements that follow have been prepared on the basis of this assumption.


Considering the range of factors relating to the company’s current and expected profitability, the payment and collection plan of contractual counterparties, sources of funding – mainly the parent, UBI Banca – the company does not currently present any factors of uncertainty and/or doubt regarding its ability to continue as a going concern. To this end, there are no negative indicators, such as, but not limited to, those provided for by Document 570 “Going concern” recommended by Consob in its resolution no. 16231 of 21 November 2007.

As required by article 6.2 of Banca d’Italia regulation of 31 July 1992, and on the basis of article 2428 of the Italian Civil Code, the following information is provided:

a) Research and development: the company did not carry out any research and development activities during the year.

b) Number and nominal amount of treasury shares and shares of the parent: the company does not directly or

indirectly own treasury shares or shares of its parent. It did not acquire and/or sell treasury shares or shares of the parent either directly or through trustees or nominees during the year.

c) Outlook: preliminary activities continue for the implementation of the company’s new information system, scheduled for 2012 in the most recently revised plan.

In 2012, the company expects to take the following development steps, in line with the approved 2012 budget:• commercial focus on the percentage impact of customers referred by network banks;• focus on maintaining total activities with captive customers;• increase in business spread, with focus on the more profitable loans;• substantial maintenance of the current commission rate;• decrease in operations with non-captive customers and continued reduction in activities involving the

public administration;• containment of administrative expenses to offset the adverse economic context.

d) Related party transactions: pursuant to article 2497-bis.4 of the Italian Civil Code, it is noted that within the scope of management and coordination by UBI Banca S.c.p.A., as parent, the company benefitted from synergies arising from its membership in the group, using such synergies to improve business management and development.

Transactions with the parent UBI Banca and the group companies, which main consist of bank credit facilities, are carried out on an arm’s length basis, including in terms of the potential interests of directors.

Guarantees issued by UBI Banca cover large risks on important debtors. Commission expense is recognised on such guarantees.

The costs of other services provided by the parent or group companies (relating to the activities described in the “General service catalogue” in connection with auditing services, accounting and administration coordination, human resources, cost optimisation, loans and receivables, risk management and information technology) are charged on the basis of master agreements for the provision of technical and administrative services.

Furthermore, a business partnership agreement is in place with the group’s network banks for the acquisition of factoring transactions, whereby commissions are recharged for the referral of business opportunities.

The company participates in the UBI Banca Group national tax consolidation scheme.

The nature of the captions and amounts is detailed in the individual statement of financial position and income statement captions in Section 6 - “Related party transactions”.

e) Subsequent events: in the light of the information reported to the Board of Directors on 28 February 2012 and subsequent updates, significant legal expenses have arisen for services provided by a lawyer who assists the company in relation to the management of a significant credit portfolio acquired as part of a factoring transaction. The receivables are due from local health units in the Lazio region. Accordingly, accruals of € 2.0 million have been recognised as “Invoices to be received”, with a related accrual of € 0.5 million under


“Invoices to be issued”, for the expected partial recovery of the same legal expenses from the transferor customer.

f) Derivatives: the company has no derivatives at the reporting date. Accordingly, there is no fair value

disclosure to provide.

g) Other information: during the year, the company met its reporting obligations to Banca d’Italia with respect to supervisory activities, the Credit Information Centre and usury.

In accordance with safety legislation (Legislative decree no. 81/08), the company has adopted a specific internal procedure for the management of the requirements of article 26 of Legislative decree no. 81/2008 “Obligations in connection with tenders, public works contracts or provision contracts” in the event that work, services or supplies are entrusted to third parties. It has also expanded the “Emergency management plan” for the Milan offices.

In March 2011, the company issued the revised “Data Protection Document”.

The company has complied with legislative provisions concerning the obligations of banks/financial company personnel (article 136 of the Consolidated Banking Act), related party transactions and the interests of directors, in accordance with IAS 24.

In terms of the transparency of banking and financial services, in the first half of the year, the company

updated its organisational and procedural system, in accordance with the new provisions of Legislative decree no. 141 of 13 August 2010 and Legislative decree no. 28/2010, relating to mediation for the settlement of disputes.

In conjunction with its parent, the company meets the legal requirements concerning the correct keeping of

the “Register of persons with access to privileged information” established by UBI Banca pursuant to article 115-bis of the Consolidated finance act and, in general, all legal requirements applicable to the company.

In accordance with anti-money laundering and counter-terrorism legislation (Legislative decree no. 231/2007), the company has revised its internal regulations by progressively adopting its own “Consolidated anti-money laundering policy” that is consistent with the parent’s. During the year, the company applied for and was admitted to the “new reporting system” for suspicious transactions under Banca d’Italia provisions. With respect to reporting suspicious transactions, in accordance with the provisions of the Optimisation project for the anti-money laundering model, the UBI Group centralised the suspicious transaction reporting process under the parent’s anti-money laundering division (effective as of 1 January 2012), along with certain money laundering risk prevention and management activities (effective as of 1 July 2012). In terms of “Aggregate anti-money laundering reports”, with the measure of 22 December 2011 Banca d’Italia’s Financial Information Unit established that the new procedure would take effect on 12 March 2012. Accordingly, as instructed by the Financial Information Unit, the company registered on the website, signing a proxy for the service provider Edoss Consulenze S.r.l. to forward the relevant reports.

The company complies with legislation concerning the liability of entities for administrative offences deriving from crimes (Legislative decree no. 231/2001). In the first half of the year, the company adopted the “Summary of the document describing the Organisational, Management and Control Model pursuant to Legislative decree no. 231/2001 of UBI Fator S.p.A.”. Furthermore, in accordance with instructions from the parent UBI Banca S.c.p.A., the company adopted and distributed (to all personnel, among others) a new Code of Ethics (UBI Banca Code of Ethics), recently completed with the addition of the “UBI Factor Code of Conduct” (approved by the company’s Board of Directors on 27 January 2012), which will soon be distributed in the same manner as the Code of Ethics. In the second half of the year, in the course of updating the document describing the Organisational, Management and Control Model, the company informed all personnel of the issue of Legislative decree no. 121 of 7 July 2011, which changed the series of crimes covered by Legislative decree no. 231/2001 with the introduction of article 25-undecies concerning crimes against the environment. The company’s Supervisory Body continued to monitor the functioning of the Model and the related compliance.

With Law no. 136 of 13 August 2010 “Extraordinary plan against the mafia and anti-mafia legislation proxy


to the government”, the company adopted specific operating procedures to ensure compliance with the obligations of article 3 “Traceability of cash flows”.

Finally, on 21 March 2011, at group level, the parent UBI Banca signed the new “Credit agreement for small and medium-sized businesses” with ABI, the Ministry of the Economy and Finance and other business associations. In order to implement this agreement, the company adopted a specific internal procedure.

Overall, the company complies with the legislative provisions applicable to financial intermediaries included in the list pursuant to article 107 of Legislative decree no. 385/1993 (the Consolidated Banking Act).

h) Risk exposure and risk management techniques: reference should be made to Section 3 – “Risks and risk management policies” of the notes to the financial statements in its entirety. There are no risks of fluctuations in cash flows and no other significant risks or uncertainties in addition to those detailed in Section 3.

i) Personnel: during the year, in collaboration with its parent, the company provided specific employee training initiatives, both in compliance with legislative requirements and voluntarily at its own initiative. Reference should be made to the notes to the financial statements for details on personnel in service and the related trends of the year.

l) Branches: the company does not have any branches.

Allocation of the profit for the year

We propose allocating the profit for 2011 of € 6,755,786 as follows:

- € 5,713,984 to other reserves

- € 1,041,802 to the shareholders in the form of a dividend amounting to € 0.015 (€ 0.07 in 2010) for each of the 69,453,500 shares.

We ask that you approve the financial statements and the allocation of the profit for the year as proposed above.

Chairman of the board of directors Angelo Rampinelli Rota

Milan, 14 March 2012

16 Annual Report 2011

17

Annual Report 201

Statutory Auditors’ Report

1

Annual Report 2011

17

Annual Report 201

Statutory Auditors’ Report

1


Report pursuant to article 2429 of the Italian Civil Code

Dear shareholders,

As UBI Factor S.p.A., pursuant to the provisions of section V of Legislative decree no. 39 of 27 January 2010,

is a public interest entity, the board of statutory auditors does not perform the legally-required audit, which is

instead performed by KPMG S.p.A.

Furthermore, due to the aforementioned Legislative decree no. 39/2010, the board of statutory auditors also

serves as the internal control and audit committee.

In accordance with our responsibilities under article 2429 of the Italian Civil Code, we note the following:

1) Financial statements

The company has prepared the financial statements as at and for the year ended 31 December 2011 in accordance

with IFRS, in the format required by Banca d’Italia.

We, the board of statutory auditors have monitored the preparation of the financial statements as at and for the

year ended 31 December 2011 and the general compliance of their preparation and structure with the law. We

have nothing to report in this respect.

We note that:

a) in summary, the financial statements show a profit for the year of € 6,755,786 and equity of € 127,925,061

(including the above profit for the year);

b) we have read the independent auditors’ report dated 23 March 2012, prepared pursuant to articles 14 and 16

of Legislative decree no. 39 of 27 January 2010 and article 165 of Legislative decree no. 58 of 24 February 1998,

in which the auditors express that, on the basis of their work, the financial statements are compliant with the

rules governing the preparation of financial statements and, accordingly, they have been prepared clearly and

give a true and fair view of the company’s financial position, results of operations, changes in equity, cash flows

and comprehensive income.

The independent auditors’ report also attests to the consistency of the directors’ report with the financial

statements;

c) we have also read the independent auditors’ report dated 23 March 2012, provided for by article 19.3 of

Legislative decree no. 39 of 27 January 2010, with respect to fundamental matters that arose during the legally-

required audit, noting no significant weaknesses in internal controls on financial reporting;

d) we have explicitly approved the capitalisation of deferred costs in the statement of financial position;

e) given the fact that the Board of Directors only approved the draft financial statements as at and for the

year ended 31 December 2011 on 14 March 2012, and the fact that the shareholders’ meeting to approve the

financial statements at 31 December 2011, was scheduled, on first call, for 4 April 2012 and, if necessary, on

second call, for the following day, the Board of Statutory Auditors has allowed the waiver of the terms pursuant

to article 2429.1 of the Italian Civil Code, acknowledging that the sole shareholder UBI Banca S.c.p.A. has, in


turn, waived the terms in its favour as well, as provided for by article 2429.3 of the Italian Civil Code;

f) with reference to article 2429.2 of the Italian Civil Code, the company has not used any of the waivers pursuant

to article 2423.4 of the Italian Civil Code in the preparation of the financial statements;

g) the financial statements and accompanying directors’ report provide a thorough description of the company’s

financial position, the trends seen in operations in the year and outlook;

h) subsequent events include, as noted by the directors and described in their report, the significant legal expenses

that arose for the services provided by a lawyer who assists the company in relation to the management of a

significant credit portfolio acquired as part of a factoring transaction. The receivables are due from local health

units in the Lazio region. Accordingly, the Board of Directors has recognised accruals of € 2,097,590 have been

recognised as “Invoices to be received”, with a related accrual of € 457,380 under “Invoices to be issued”, for

the expected partial recovery of the same legal expenses from the transferor customer.

2) Code of conduct and activities performed

a) During the year, we have performed the activities required by law, also considering the code of conduct

recommended by the Italian Accounting Profession. In particular, we have:

• attended the ordinary shareholders’ meeting of 8 April 2011, the meetings of the board of directors, those

of the Executive Committee and the meetings of the Supervisory Board pursuant to article 6 of Legislative

decree no. 231/2001;

• performed routine checks, also with the assistance of the organisational structures that perform the internal

control functions, the Internal Audit (which is outsourced to the parent UBI Banca S.c.p.A.), Risk Management

and Anti-money Laundering and Compliance functions in particular;

• held routine meetings with the independent auditors in order to exchange relevant data and information for

the purposes of fulfilling our respective duties and to analyse the independent auditors’ findings. They also

informed this board that they had not noted any censurable events;

• monitored, in our role of Internal Control and Audit Committee, that the company complied with article 19

of Legislative decree no. 39 of 27 January 2010;

• monitored the company’s compliance with legislation concerning anti-money laundering, counter-terrorism,

anti-usury, data protection, suspicious transactions, the administrative liability of companies, the obligations

of bank/financial company personnel, related party transactions and the interests of the directors;

• monitored that Banca d’Italia instructions on the transparency of services and the economic conditions of

individual facilities summarised in the “Compilation”, had been correctly applied, also in relation to the

proposed unilateral changes to the contractual terms, and monitored the application of the provisions of

Banca d’Italia for the specific activity;

• monitored that Banca d’Italia’s risk concentration rules are correctly applied.

b) Following these activities, we have also:

• ascertained that the company is compliant with the principles of sound management, the law and the

memorandum of incorporation;


• evaluated the adequacy (in terms of the company’s size, configuration and operations) of the organisational

structure, for as far as it is concerned, of the internal control system, with specific focus on credit, market,

interest rate and operational risk controls, as well as of the IT/accounting system.

3) Management and coordination

With respect to article 2497-bis of the Italian Civil Code, which requires the disclosure of the company that

manages and coordinates UBI Factor S.p.A., a specific section of the notes to the financial statements provides

the key financial figures of the most recently approved financial statements of the company that manages and

coordinates UBI Factor S.p.A.. Furthermore, the director’ report provides information on transactions with the

company that manages and coordinates UBI Factor S.p.A. and the other companies managed and coordinated

thereby, as well as the impact of such transactions on the statement of financial position and income statement.

4) Conclusions

Dear shareholders,

As a result of the above, we are in favour of approving the financial statements as at and for the year ended

31 December 2011, accompanied by the directors’ report, and allocating the profit for the year as proposed by

the directors, noting that residual available reserves sufficiently cover undepreciable costs pursuant to article

2426.1.5 of the Italian Civil Code.

The legal reserve of € 7,223,164 has reached the maximum limit under article 2430 of the Italian Civil Code.

Milan, 23 March 2012.

The Board of Statutory Auditors

Report of the Auditors


Report of the Auditors


Annual Report 201Financial statements of financial intermediaries pursuant to article 107

of the Consolidated Banking Act (Banca d’Italia instructions of 13 March 2012)

1


Financial statements of financial intermediaries pursuant to article 107 of the Consolidated Banking Act (Banca d’Italia instructions of 13 March 2012)

STATEMENT OF FINANCIAL POSITION(Euros)

Assets 31/12/2011 31/12/2010

10. Cash and cash equivalents 19,558 16,199

50. Held-to-maturity investments 8,716,506 8,456,007

60. Loans and receivables 2,869,680,555 2,747,618,900

90. Equity investments 715,336 958,071

100. Property and equipment 529,284 537,018

110. Intangible assets 1,091,188 1,611,821

120. Tax assets 4,946,873 3,375,513

a) current 2,548,616 2,650,651

b) deferred 2,398,257 724,862

140. Other assets 13,059,046 12,475,213

Total assets 2,898,758,346 2,775,048,741

Liabilities 31/12/2011 31/12/2010

10. Financial liabilities 2,739,036,619 2,621,621,567

70. Tax liabilities 3,444,810 2,869,421

a) current 3,443,250 2,866,151

b) deferred 1,560 3,270

90. Other liabilities 25,108,426 21,015,046

100. Post-employment benefits 2,648,025 2,576,829

110. Provisions for risks and charges: 595,405 866,406

b) other provisions 595,405 866,406

120. Share capital 36,115,820 36,115,820

150. Share premium 2,065,828 2,065,828

160. Reserves 83,110,866 69,371,593

170. Valuation reserves (123,238) (54,787)

180. Profit for the year 6,755,786 18,601,018

Total liabilities and equity 2,898,758,346 2,775,048,741


Financial statements of financial intermediaries pursuant to article 107 of the Consolidated Banking Act (Banca d’Italia instructions of 13 March 2012)

INCOME STATEMENT(Euros)

31/12/2011 31/12/2010

10. Interest and similar income 68,132,262 50,237,038

20. Interest and similar expense (29,836,849) (15,416,431)

Net interest income 38,295,413 34,820,607

30. Commission income 23,498,606 24,420,633

40. Commission expense (10,861,831) (8,170,209)

Net commission income 12,636,775 16,250,424

Net trading income 50,932,188 51,071,031

100. Net impairment losses/reversals of impairment losses on: (14,812,528) (3,147,046)

a) financial assets (14,812,528) (3,147,046)

110. Administrative expenses: (26,162,294) (21,038,421)

a) personnel expense (11,750,362) (11,179,529)

a) other administrative expenses (14,411,933) (9,858,892)

120. Net impairment losses/reversals of impairment losses on property and equipment (252,850) (237,669)

130. Net impairment losses/reversals of impairment losses on intangible assets (570,325) (410,948)

150. Net accruals to provision for risks and charges (801) (1,000)

160. Other operating income and expenses 4,045,161 2,158,625

Operating income 13,178,551 28,394,572

170. Gains (losses) on equity investments 84,219 -

Profit from continuing operations before income tax 13,262,770 28,394,572

190. Income taxes on continuing operations (6,506,984) (9,793,554)

Profit from continuing operations, net of income tax 6,755,786 18,601,018

Profit for the year 6,755,786 18,601,018


STATEMENT OF COMPREHENSIVE INCOME(Euros)

31/12/2011 31/12/2010

10. Profit for the year 6,755,786 18,601,018

Other comprehensive income, net of income tax

20. Available-for-sale financial assets - -

30. Property and equipment - -

40. Intangible assets - -

50. Hedge of foreign investments - -

60. Cash flow hedges - -

70. Exchange rate gains (losses) - -

80. Non-current assets available for sale - -

90. Actuarial gains (losses) on defined benefit plans (68,451) (82,418)

100. Portion of valuation reserves of equity-accounted investees - -

110. Total other comprehensive income, net of income tax (68,451) (82,418)

120. Comprehensive income (Captions 10+110) 6,687,335 18,518,600


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STATEMENT OF CASH FLOWS (Direct method)(Euros)

A. OPERATING ACTIVITIES 31/12/2011 31/12/2010

1. OPERATIONS 20,717,183 22,574,462- Interest income collected 68,132,262 50,237,038- Interest expense paid (29,836,849) (15,416,431)- Dividends and similar income - -- Net commission income 12,636,775 16,250,424- Personnel expense (11,750,362) (11,179,529)- Other expense (14,411,933) (9,858,892)- Other revenue 4,129,380 2,158,625- Taxes and duties (8,182,090) (9,616,773)- Expense/revenue of disposal groups, net of tax effect - -

2. CASH FLOWS GENERATED BY/(USED IN) FINANCING ASSETS (139,281,699) (413,808,459)- Financial assets held for trading - -- Financial assets at fair value - -- Available-for-sale financial assets - -- Loans and advances to banks (221,893) 1,819,198- Loans and advances to financial institutions 55,764,218 (21,782,525)- Loans and advances to customers (194,342,227) (393,189,829)- Other assets (481,797) (655,303)

3. CASH FLOWS GENERATED BY/(USED IN) FINANCIAL LIABILITIES 121,816,474 380,642,929- Due to banks 121,793,529 387,444,541- Due to financial institutions - -- Due to customers (4,378,477) (6,406,808)- Outstanding securities - -- Financial liabilities held for trading - -- Financial liabilities at fair value - -- Other liabilities 4,401,422 (394,804)

NET CASH FLOWS GENERATED BY/(USED IN) OPERATING ACTIVITIES 3,251,958 (10,591,068)

B. INVESTING ACTIVITIES 31/12/2011 31/12/2010

1. CASH FLOWS GENERATED BY 242,735 2,151,340- Sales of equity investments 242,735 -- Dividends collected - -- Sales/repayments of held-to-maturity investments - 2,151,340- Sales of property and equipment - -- Sales of intangible assets - -- Sales of business units - -

2. CASH FLOWS USED IN (555,307) (1,721,659)- Acquisitions of equity investments - -- Acquisitions of held-to-maturity investments (260,499) -- Purchases of property and equipment (245,116) (38,218)- Acquisitions of intangible assets (49,692) (1,683,441)- Acquisitions of business units - -

NET CASH FLOWS GENERATED BY/(USED IN) INVESTING ACTIVITIES (312,572) 429,681

C. FINANCING ACTIVITIES 31/12/2011 31/12/2010

- Issue/purchase of treasury shares - -- Issue/purchase of equity instruments - -- Distribution of dividends and other allocations (4,861,745) (4,861,745)

NET CASH FLOWS GENERATED BY/(USED IN) FINANCING ACTIVITIES (4,861,745) (4,861,745)

NET CASH FLOWS OF THE YEAR A+B+C (1,922,359) (15,023,132)

RECONCILIATION Opening cash and cash equivalents 2,876,770 17,899,902 Total net cash flows of the year (1,922,359) (15,023,132) Closing cash and cash equivalents 954,411 2,876,770


NOTES TO THE FINANCIAL STATEMENTSThe notes to the financial statements include the following parts:

1) Part A – Accounting policies2) Part B – Notes to the statement of financial position3) Part C – Notes to the income statement4) Part D – Other information

Each part of these notes is divided into sections, each of which illustrates an individual aspect of company operations. The sections provide both qualitative and quantitative information.

Part A - ACCOUNTING POLICIES

A.1 - GENERAL PART

Section 1 - Statement of compliance

The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the IASB and endorsed by the European Commission, as established by EU regulation 1606 of 19 July 2002 regulating the endorsement of IFRS and subsequent modifications and integrations. The financial statements have been prepared using the formats contained in the instructions of Banca d’Italia Governor’s regulation dated 13 march 2012 “Instructions for the preparation of the financial statements of financial intermediaries pursuant to article 107 of the Consolidated Banking Act, payment institutions, electronic money institutions (IMEL), fund management companies (SGR) and asset management companies (SIM), which fully supersede the instructions attached to the regulation of 14 February 2006.

Section 2 - Basis of preparation

The company has applied the IFRS also with reference to the “Framework for the preparation and presentation of financial statements” with particular regard to the essential clauses for the preparation of financial statements relating to the principle of substance over form and the concept of information relevance and materiality.The financial statements have been prepared on an accruals basis. The statement of cash flows has been prepared on a cash basis.Assets and liabilities and expense and revenue are only offset if this is required or permitted by a standard or interpretation.The financial statements consist of the statement of financial position, the income statement, the statement of comprehensive income, the statement of cash flows, the statement of changes in equity and the notes thereto. The financial statements are accompanied by the directors’ report on the company’s performance and financial position. The financial statements have been prepared on a going concern basis, in accordance with IAS 1.

The presentation and classification criteria of the financial statements captions are consistent from one year to the next, unless a change therein is required by a standard or interpretation or unless this is necessary in order to increase the significance and reliability of presentation. In the event that a standard is revised, this is applied retrospectively and the nature, reason and amount of the captions concerned by the revision are indicated.The tables provided in the notes to the financial statements are in thousands of Euros and also present prior year comparative figures.


Section 3 - Subsequent events

As required by IAS 10, it is reported that in the period between the reporting date and the date of approval of the financial statements, significant legal expenses arose for the services provided by a lawyer who assists the company in relation to the management of a significant credit portfolio acquired as part of a factoring transaction. The receivables are due from local health units in the Lazio region. Accordingly, accruals of € 2.0 million have been recognised, with a related accrual of € 0.5 million for the expected partial recovery of the same legal expenses from the transferor customer.

Section 4 - Other matters

When preparing the financial statements, management is required to make judgements, estimates and assumptions that affect the application of the accounting policies, as well as the carrying amounts of assets, liabilities, expenses and revenue. These estimates and the related assumptions are based on past experience and factors that management considers reasonable in each case, and are used to estimate the carrying amount of assets and liabilities that would not be easily calculated using other sources.These estimates and assumptions are reviewed regularly. Any changes due to revisions of estimates are recognised in the year in which the revision is applied, if it only affects that year. If the revision affects current and future years, the change is recognised in the year in which the revision was applied and in subsequent years.

The financial statements have been audited, as required by article 14 of Legislative decree no. 39 of 27 January 2010 and articles 156 and 165 of Legislative decree no. 58 of 24 February 1998, by the independent auditors KPMG S.p.A. on which the shareholders, during the meeting of 5 April 2007, conferred the legally-required audit engagement for 2007-2015.

A.2 – NOTES TO THE MAIN FINANCIAL STATEMENTS CAPTIONS

The recognition, classification, measurement and derecognition criteria for the main financial statements captions are described below.

A.2.2 Held-to-maturity investments

Held-to-maturity investments are non-derivative financial instruments with fixed or determinable payments and fixed maturity which the company intends and is able to hold to maturity.

The company has classified as such variable yield investment insurance policies that guarantee the surety given to the tax authorities to secure a VAT receivable for which the company is factor and for which it is contractually obligated to hold to maturity.

Measurement

These assets are recognised at the purchase option amount at the preparation date of the financial statements. The amortised cost is recognised under “Interest and similar income” in the income statement, as a reduction in the carrying amount of the investment (yield capitalisation).

Derecognition

Held-to-maturity investments are derecognised when the contractual rights to cash flows from such assets expire or when the asset is transferred with the substantial transfer of all the risks and rewards of ownership.


A.2.3 Loans and receivables

Loans and receivables consist of non-derivative financial assets from customers and banks with fixed or determinable payments, which are not listed on an active market.

Recognition

In accordance with the general principle of substance over form, an entity may derecognise a financial asset only if, due to transfer, it has transferred the risks and rewards associated with that asset.

Indeed, IAS 39 requires an entity to derecognise a financial asset if and only if:a) the financial asset has been transferred and, with it, substantially all the risks and contractual rights to cash flows from the asset expire;b) the rewards associated with ownership of the asset no longer exist.

A company transfers a financial asset if, and only if, it either:a) transfers the contractual rights to receive the cash flows of the financial asset;b) retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in an arrangement that meets all the following conditions:• the company has no obligation to pay amounts to the eventual recipients unless it collects equivalent

amounts from the original asset;• the company cannot sell or pledge the financial asset;• the company has an obligation to remit any cash flows it collects on behalf of the eventual recipients

without material delay. In addition, the company is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents during the short settlement period from the collection date to the date of required remittance to the eventual recipients, nor is it entitled to any interest earned on such investments.

When the company transfers a financial asset resulting in its derecognition in the transferor’s financial statements, upon transfer, the company must evaluate the extent to which it retains the risks and rewards of ownership of the financial asset.

The transfer of risks and rewards is evaluated by comparing the transferor company’s exposure, before and after the transfer, to the variability in the amounts and timing of the net cash flows of the transferred asset.

The transferor substantially retains all the risks and rewards of ownership of a financial asset if its exposure to the variability in the present value of the future net cash flows from the financial asset does not change significantly as a result of the transfer. Conversely, it substantially transfers all the risks and rewards of ownership of a financial asset if its exposure to such variability is no longer significant.

In short, one of three situations may arise, with certain specific effects, as follows:1) if the company transfers substantially all the risks and rewards of ownership of the financial asset, the company shall derecognise the financial asset and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer;2) if the company retains substantially all the risks and rewards of ownership of the financial asset, the company shall continue to recognise the financial asset;3) if the company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, the company shall determine whether it has retained control of the financial asset. In this case:• if the company has not retained control, it shall derecognise the financial asset and recognise separately as

assets or liabilities any rights and obligations created or retained in the transfer;• if the company has retained control, it shall continue to recognise the financial asset to the extent of its

continuing involvement in the financial asset.

Whether the company has retained control of the transferred asset depends on the transferee’s ability to sell the asset. If the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without needing to impose additional restrictions on the transfer, the company has not retained control. In all other cases, the company has retained control.


The accounting treatments for the most frequently used types of transfer of a financial asset are significantly different:1) in the event of factoring without recourse (without any guarantee), the transferor may derecognise the transferred assets;2) in most cases of factoring with recourse, the risk associated with the transferred asset remains with the seller and, accordingly, the transfer does not meet the requirements for derecognition of the transferred asset.

The company has recognised receivables acquired without recourse only after verifying that there are no contractual clauses that would eliminate the effect of the substantial transfer of all risks and rewards. With respect to the portfolio of receivables transferred with recourse, only the amounts paid to the transferor as advances on the fee are recognised and maintained in the financial statements.More specifically, these types of contracts relate to the following: a) receivables transferred with recourse and without legal recourse (without derecognition by the transferor) are recognised, but only to the extent of amounts paid to the transferor as an advance on the fee, including interest and accrued charges. They are initially recognised on the basis of the advanced fee to the transferor for the transfer of the receivables.b) receivables acquired definitively without recourse, with the substantial transfer of risks and rewards and maturity receivables paid at the due date are recognised at the nominal amount of the transferred invoices (with derecognition by the transferor). They are initially recognised at the nominal amount of the receivable (equal to fair value).c) receivables acquired for significantly less than their nominal amount are recognised at the amount actually paid upon acquisition, due to the transferred debtor’s financial situation.d) loans granted for future receivables not underlying factoring transactions and instalment loans are recognised at the amount of the loan, including interest and accrued fees.

Measurement

Loans and receivables are initially recognised at their nominal amount and subsequently measured at amortised cost, using the effective interest method.Other than performing loans and receivables, which consist of those classified as non-performing, doubtful and restructured, are measured analytically, considering the objective possibility of impairment.The criteria applied when calculating the impairment losses to be recognised on loans and receivables are based on the discounting of expected cash flows, including both principal and interest, considering any guarantees securing the amounts. In order to calculate the present value of the flows, the identification of estimated collections, the related due dates and the discount rate to be applied are fundamental elements when each of the loans/receivables is classified as non-performing.When projecting the recovery of other than performing loans and receivables, the company refers to analytical recovery plans, if such are available, and, if they are, estimated, flat amounts based on internal historical data, research in the sector and third party experts. These estimates are performed considering both the specific solvency of the debtor, the factoring party and the guarantor.A loan or receivable is considered “other than performing” when it is probable that the company will not recover the entire amount, on the basis of the original contractual terms, or an equivalent amount. It is fully impaired when it is believed to be unrecoverable or if it is entirely derecognised.Impairment losses recognised on impaired loans or receivables are reversed only when it is reasonably certain that more of the loan or receivable will be recovered than the post-impairment amount, within the limit of amortised cost.Performing loans and receivables, including those over 180 days past due, provided that they are due from the public administration, relate to assets for which the company has not noted any objective losses and, accordingly, has measured collectively. The year-end portfolio of performing loans is collectively measured by applying a flat percentage that is substantially in line with the loss rates for financial intermediaries published by Banca d’Italia, suitably weighted on the basis of UBI Factor S.p.A.’s turnover from its trade portfolio.

Derecognition

Loans are derecognised when the contractual rights to their cash flows expire, when they are sold, with the substantial transfer of all the risks and rewards of ownership or when they are considered definitively


unrecoverable. They are reinstated when the reasons for their impairment no longer apply. The amount of the losses is recognised in profit or loss, net of previous impairment losses. Reversals of previously impaired amounts are recognised in profit or loss, as a reduction in net impairment losses/reversals of impairment losses on loans and receivables.

A.2.4 Equity investments

Recognition and measurement

This caption consists of investments in associates, which the company has acquired and holds as long-term investments. Investments in associates are measured at cost, adjusted to reflect any necessary impairment losses.When there is evidence of an impairment loss, the recoverable amount of the equity investment is estimated, considering the present value of future cash flows that the equity investment could generate, including its final sale price. The impairment process begins when there are indications that lead the company to assume that the investment’s carrying amount may not be recovered. These indications may be either qualitative or quantitative. Qualitative indications relate to the investee’s profitability and future earning prospects, while quantitative indications relate to an estimate of a significant or prolonged decline in the investment’s fair value to below its carrying amount.If the recoverable amount of an equity investment is less than its carrying amount, the difference is recognised in profit or loss. If the reasons for the impairment no longer apply following an event that occurs after the recognition of the impairment loss, it is reversed in profit or loss, up to the amount of historical cost.

Derecognition

Equity investments are derecognised when the contractual rights cash flows arising from the assets expire or when the financial asset is sold, with the substantial transfer of all associated risks and rewards.

A.2.5 Property and equipment

Recognition and classification

This caption includes furniture, plant and other machines and equipment owned for use by the company for a period longer than one year.Property and equipment are initially recognised at cost, including all expenses directly related to the use of the asset. Ordinary maintenance costs are recognised directly in profit or loss.

Measurement

Subsequent to initial recognition, items of property and equipment are measured at cost, net of accumulated depreciation and any impairment losses. Their depreciable amount, which is equal to cost less residual value (i.e., the amount the company would normally expect to receive from disposal, less expected disposal costs), is distributed systematically over their useful life, with depreciation charged on a straight-line basis. Depreciation begins when the asset becomes available for use and ends when the asset is derecognised. Accordingly, depreciation does not end when an asset is idle or withdrawn from use, unless it has already been completely depreciated.Material leasehold improvements, which mainly relate to the cost of renovating leased property, are depreciated for no longer than the term of the related lease agreement.


Derecognition

An item of property and equipment is derecognised when sold or when it is permanently withdrawn from use and the company does not expect any future economic benefits from its disposal.

A.2.6 Intangible assets

An intangible asset is an identifiable, non-monetary asset without physical substance used in the company’s activity.An asset is identifiable when:• it is separable, i.e. capable of being separated or divided and sold, transferred, licensed, rented or exchanged;• it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable

from other rights and obligations.Assets are characterised by the fact that they can be controlled by the company as the result of past events and it is assumed that the asset will generate future economic benefits that will flow to the company and that the company may limit third parties from accessing such benefits.The future economic benefits of an intangible asset may include income from the sale of goods or services, cost savings or other benefit arising from the company’s use of the asset.An intangible asset is recognised as such if, and only if:a) it is probable that the future estimated economic benefits attributable to the asset will flow to the company;b) the cost of the asset can be reliably determined.

Recognition and classification

Intangible assets mainly consist of application software to be used in the long-term and the intangible asset arising from the acquisition of the factoring customer portfolio. They are recognised at cost, and any expenses incurred following initial recognition are capitalised only if they generate future economic benefits and only if they can be reliably determined and allocated to the asset.

Measurement

Intangible assets with definite useful lives are recognised at cost, net of accumulated amortisation and any impairment losses.Amortisation is calculated systematically over the best estimate of the asset’s useful life, on a straight-line basis. Amortisation begins when the asset becomes available for use and ends when the asset is derecognised.

Derecognition

Intangible assets are derecognised upon disposal or when the asset is permanently withdrawn from use.

A.2.7 Tax assets and liabilities

Tax assets and liabilities are recognised in statement of financial position captions 120 – Tax assets and 70 – Tax liabilities.

Current tax assets and liabilities

Current taxes and those relative to prior years, but not yet paid, are recognised as liabilities. Any amounts paid in excess of the balance due are recognised as assets.


Current tax assets and liabilities relative to the current or prior years are measured at the amount expected to be paid to/recovered from the tax authorities, applying current tax rates and tax legislation. Tax assets/liabilities also include the risk of any tax dispute.

As the company has opted to participate in the national tax consolidation scheme with its parent, the above applies only to IRAP (regional tax on production activities).Assets and liabilities from/to the parent in relation to IRES (corporate income tax) are recognised under Other assets and Other liabilities.

Deferred tax assets and liabilities

Deferred tax liabilities are recognised on all taxable temporary differences. Deferred tax liabilities are recognised in statement of financial position caption 70 – Deferred tax liabilities.Deferred tax assets are recognised on deductible temporary differences if it is probable that taxable profit will be generated against which the deductible temporary difference may be used.Deferred tax assets are recognised in statement of financial position caption 120 – Deferred tax assets.Deferred tax assets and liabilities are constantly monitored and calculated at the tax rates expected to be applicable when the tax asset will be realised or the tax liability settled, considering tax legislation currently in effect.

A.2.8 Financial liabilities

Recognition

Financial liabilities include both bank borrowings and the residual fee not yet paid to transferors for the definitive acquisition of receivables without recourse.These liabilities are recognised when the funds raised are received. They are recognised at their fair value, which includes any additional income/expense that is directly attributable to the transaction and determinable from inception, regardless of when it is paid.

Measurement

After initial recognition, financial liabilities are measured at amortised cost, using the effective interest method. Financial liabilities with an original term of less than one year are recognised at the nominal amount collected, as the use of amortised cost does not give rise to significant changes. In these cases, any income and expense directly attributable to the transaction are recognised in profit or loss, under the relevant captions.

Derecognition

Financial liabilities are derecognised when settled or expired.

A.2.9 Post-employment benefits

Recognition

Post-employment benefits are considered defined benefit plans and, as such, the relevant obligation must be calculated using actuarial techniques and discounted, as the liability can be settled long after the employees provided the related service. The amount recognised as a liability is equal to:a) the present value of the defined benefit obligation at the reporting date;b) plus any actuarial gains (less any actuarial losses) recognised in a specific equity reserve;


c) less any past service cost not yet recognised;d) less the fair value of any plan assets at the reporting date.

Measurement

For discounting purposes, the projected unit credit method is used, which considers each individual service period as separately giving rise to an additional unit of post-employment benefits, together forming the final obligation. This additional unit is calculated by dividing the total expected service by the number of years from hire to the expected payment date. This method provides for the projection of future expenditure on the basis of historical/statistical analyses and the demographic curve and the discounting of such flows at the market interest rate.

A.2.10 Provisions for risks and charges

Recognition and measurement

The provisions for risks and charges relate to certain or probable costs and charges of a specific nature, the amount or due date of which is unknown at the reporting date. Accruals to the provisions for risks and charges are recognised only when:• there is a present obligation (legal or constructive) as a result of a past event;• it is probable that an outflow of resources will be required to settle the obligation;• a reliable estimate can be made of the obligation.

The accrual recognised reflects the best estimate of the outflow required to settle the obligation at the reporting date, as well as the risks and uncertainties that inevitably characterise a plurality of factors and circumstances. The accrual is equal to the present value of the amount expected to be needed to settle the obligation if the time value of money is material. Future events that could affect the amount needed to settle the obligation are considered only if there is sufficient objective evidence that they will occur.

Potential liabilities are not recognised but are disclosed, unless they are deemed remote.

A.2.11 Foreign currency transactions

Recognition

Foreign currency transactions are initially recognised in the presentation currency, by applying the exchange rate ruling at the date of the transaction.

Measurement

At each reporting date, foreign currency captions are translated at the closing rate. Exchange rate gains and losses arising from the translation of foreign currency items at rates that differ from those applied at initial recognition during the year or in previous financial statements are recognised in profit or loss in the year in which they arise.


A.2.12 Recognition of revenue and expense

Definition

Revenue is the gross inflow of economic benefits arising from the company’s ordinary operating activities, when such flows generate increases in equity other than increases due to shareholders’ injections.

RecognitionRevenue is measured at the fair value of the consideration received or due and is recognised when it can be reliably estimated.Revenue from the provision of services can be reliably estimated when all of the following conditions have been met:• the amount of the revenue can be reliably measured;• it is probable that the economic benefits arising from the transaction will flow to the company;• the transaction’s percentage of completion at the reporting date can be reliably measured;• costs incurred for the transaction and costs to completion can be reliably calculated.Revenue recognised on the provision of services is recognised on a percentage of completion basis.Revenue is only recognised when it is probable that the economic benefits of the transaction will flow to the company. However, when the recoverability of an amount already recognised as revenue become uncertain, the non-recoverable amount, or the amount that is no longer probable to be recovered, is recognised as an expense rather than as an adjustment to the original revenue.Revenue from third party use of the company’s assets, generating interest or dividends, is recognised when:• it is probable that the economic benefits of the transaction will flow to the company;• the amount of the revenue can be reliably measured.Interest is recognised on an accruals basis considering the actual yield of the asset.Dividends are recognised as from when the shareholders have the right to receive payment.Expense is recognised when it is incurred, in accordance with the principle of matching expense and revenue that derive directly or jointly from the same transactions or events. Expense that cannot be associated with revenue is immediately recognised in profit or loss.

Other matters

Although the company owns investments in associates, it has exercised its right under current legislation to not prepare consolidated financial statements, as such are prepared by the parent, UBI Banca S.c.p.A., with registered office in Piazza V. Veneto 8 – Bergamo.


A.3 – FAIR VALUE DISCLOSURE

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The fair value of financial assets and liabilities is calculated with reference to prices on financial markets, for financial instruments listed on active markets, or using valuation techniques for other financial instruments.In accordance with IAS 39, official prices in an active market offer the best evidence of fair value. These prices therefore take priority in the measurement of financial assets and liabilities (level 1 fair value).A financial instrument is regarded as listed in an active market if listed prices are readily and regularly available from an exchange, dealer or information provider and those prices represent actual regularly occurring market transactions on an arm’s length basis. The purpose is to calculate the fair value of a financial instrument that is traded in an active market and to determine the price that would be applied to the transaction at the reporting date in such market.If there is an active market, the fair value of financial instruments is the spot price at the reporting date (bid, ask or average price, depending on the relevant financial instrument). Financial instruments that are not considered as listed in an active market are mainly measured using techniques that aim to adequately reflect their market price at the measurement date. The measurement techniques used include: reference to market values indirectly associated with the instrument to be measured, based on similar products in terms of risk profile (level 2 fair value); measurements using, even only in part, non-market input, based on estimates and assumptions (level 3 fair value).The company believes that the carrying amount, net of the collective/individual impairment, constitutes a reliable approximation of fair value for assets and liabilities with unknown or short-term maturities recognised in the financial statements at cost or amortised cost.


Part B – NOTES TO THE STATEMENT OF FINANCIAL POSITION

Assets

Section 1 – Cash and cash equivalents - Caption 10€ 20 thousand (+ € 4 thousand)

This caption consists of banknotes and coins with legal tender, bank cheques, banker’s drafts and tax stamps.

31/12/2011 31/12/2010

a) Cash 20 16

b) Deposits with Central Banks - -

Total 20 16

Section 5 – Held-to-maturity investments - Caption 50€ 8,717 thousand (+ € 261 thousand)

This caption includes variable yield life investment policies with SAI Fondiaria, with yield not lower than 2.0%, which are pledged to guarantee the surety given to the tax authorities to secure a VAT receivable for which the company is factor and for which it is contractually obligated to hold to maturity (December 2015).

The change shown in point B.4 of Table 5.2 relates to the capitalisation of interest accrued in the year.

5.1 Held-to-maturity investments: analysis by debtor/issuer

Carrying amount 31/12/2011

Fair value 31/12/2011 Carrying amount 31/12/2010

Fair value 31/12/2010

L1 L2 L3 L1 L2 L3

1. Debt instruments - - - - - - - -

1.1 Structured instruments - - - - - - - -

a) Government and Central Banks - - - - - - - -

b) Other public bodies - - - - - - - -

c) Banks - - - - - - - -

d) Financial institutions - - - - - - - -

e) Other issuers - - - - - - - -

1.2 Other instruments - - - - - - - -

a) Government and Central Banks - - - - - - - -

b) Other public bodies - - - - - - - -

c) Banks - - - - - - - -

d) Financial institutions - - - - - - - -

e) Other issuers 8,717 - 8,717 - 8,456 - 8,456 -

2. Loans - - - - - - - -

a) Banks - - - - - - - -

b) Financial institutions - - - - - - - -

c) Customers - - - - - - - -

Total 8,717 - 8,717 - 8,456 - 8,456 -

Key: L1 - listed price on an active market; L2 - input of various prices on a listed market, which can be observed directly (prices) or indirectly (price derivatives) on the market; L3 – input not based on observable market data.


5.2 Held-to-maturity investments: changes in the year

Debt instruments Loans Total

A. Opening balance 8,456 - 8,456

B. Increases 261 - 261

B1. Purchases - - -

B2. Reversals of impairment losses - - -

B3. Reclassifications from other portfolios - - -

B4. Other changes 261 - 261

C. Decreases - - -

C1. Sales - - -

C2. Repayments - - -

C3. Impairment losses - - -

C4. Reclassifications to other portfolios - - -

C5. Other changes - - -

D. Closing balance 8,717 - 8,717

Section 6 – Loans and receivables - Caption 60€ 2,869,680 thousand (+ € 122,061 thousand)

This caption mainly consists of loans and advances to transferors and receivables from debtors as a result of factoring activities.

6.1 Loans and advances to banks€ 6,844 thousand (- € 1,703 thousand)

These mainly consist of positive balances due to temporary liquidity in current accounts and deposits with banks. Financing relates to factoring activities.

Total at 31/12/2011 Total at 31/12/2010

1. Deposits and current accounts 935 2,861

2. Financing 5,909 5,686

2.1 Repurchase agreements - -

2.2 Finance leases - -

2.3 Factoring 5,884 5,661

- with recourse - -

- without recourse 5,884 5,661

2.4 Other loans 25 25

3. Debt instruments - -

- structured instruments - -

- other debt instruments - -

4. Other assets - -

Total carrying amount 6,844 8,547

Total fair value 6,844 8,547

The fair value corresponds with the carrying amount since these are current amounts.


6.2 Loans and advances to financial institutions€ 86,604 thousand (- € 55,765 thousand)

Total at 31/12/2011 Total at 31/12/2010

Performing Impaired Performing Impaired

1. Financing 86,604 - 142,369 -

1.1 Repurchase agreements - - - -

1.2 Finance leases - - - -

1.3 Factoring 53,981 - 70,216 -

- with recourse 52,194 - 63,645 -

- without recourse 1,787 - 6,571 -

1.4 Other loans 32,623 - 72,153 -

2. Debt instruments - - - -

- structured instruments - - - -

- other debt instruments - - - -

3. Other assets - - - -

Total carrying amount 86,604 - 142,369 -

Total fair value 86,604 - 142,369 -

Caption 1.4 Other loans includes loans to Siderfactor S.p.A. in liquidation of € 32,546 thousand.

The fair value corresponds with the carrying amount since these are current amounts.

6.3 Loans and advances to customers€ 2,776,232 thousand (+ € 179,529 thousand)

These consist of loans and advances to customers, mainly in relation to factoring activities, the granting of loans and loans for a specific purpose.

Loans and advances consist of:1) receivables factored with recourse, which are recognised in line with the amount advanced;2) receivables factored without legal recourse, i.e., which do not meet the requirements for recognition, and, accordingly, only the amount advanced is recognised; 3) receivables factored without recourse, which have been definitively acquired;4) paid at maturity receivables with debtor payment deferrals;5) receivables acquired for an amount significantly lower than their nominal amount (price paid);6) advances against future en bloc receivables (without the transfer of the underlying receivable);7) loans for specific purposes.

Total at 31/12/2011 Total at 31/12/2010

Performing Impaired Performing Impaired

1. Finance leases - - - - including: without final purchase option - - - -2. Factoring 2,595,430 62,250 2,404,816 43,597 - with recourse 1,439,969 44,530 1,427,104 14,292 - without recourse 1,155,461 17,720 977,712 29,3053. Consumer credit - - - -4. Credit cards - - - -5. Loans granted in relation to payment - - - - services provided - - - -6. Other loans 117,217 1,335 147,051 983 including: from enforcement of guarantees and commitments - - - -7. Debt instruments - - - - - structured instruments - - - -8. Other assets - - 256 -

Total carrying amount 2,712,647 63,585 2,552,123 44,580Total fair value 2,712,647 63,585 2,552,123 44,580

Total loans and advances relating to the Poland branch amount to € 82,165 thousand.The fair value corresponds with the carrying amount since these are current amounts.


6.4 Loans and receivables: guaranteed assets

Total at 31/12/2011 Total at 31/12/2010

Loans and advances to

banks


financial institutions

Loans and advances to customers


banks

Loans and advances

to financial institutions

Loans and advances to customers

CA FV CA FV CA FV CA FV CA FV CA FV

1. Performing assets guaranteed by: - - - - - - - - - - - -

- Assets under finance lease - - - - - - - - - - - -

- Factoring loans - - - - 1,536,693 1,536,693 - - - - 1,505,041 1,505,041

- Mortgages - - - - - - - - - - - -

- Pledges - - - - - - - - - - - -

- Personal guarantees - - - - - - - - - - - -

- Derivatives on loans and receivables - - - - - - - - - - - -

- - - - - - - - - - - -

2. Impaired assets guaranteed by: - - - - - - - - - - - -

- Assets under finance lease - - - - - - - - - - - -

- Factoring loans - - - - - - - - - - - -

- Mortgages - - - - - - - - - - - -

- Pledges - - - - - - - - - - - -

- Personal guarantees - - - - - - - - - - - -

- Derivatives on loans and receivables - - - - - - - - - - - -

Total - - - - 1,536,693 1,536,693 - - - - 1,505,041 1,505,041

CA = carrying amount of assets

FV = fair value of the guarantees

The fair value of guarantees of factoring receivables relates to the total amount of receivables for with recourse factoring.

Section 9 – Equity investments - Caption 90€ 715 thousand (- € 243 thousand)

This caption includes the company’s interest in Siderfactor S.p.A. in liquidation, an unlisted financial company that operates in the factoring sector and which is not part of the UBI Banca Group. In addition, it includes the interest in the group company UBI Sistemi e Servizi S.c.p.A..

Siderfactor S.p.A. commenced voluntary liquidation procedures by decision of its shareholders passed during the extraordinary meeting on 12 December 2011.

9.1 Equity investments: information on relationships with investees

CompanyCarrying amount

% of investment% of available

votesReg. office

Total assets

Total revenue

EquityProfit for previous

year

Listed (Yes/No)

A. Wholly owned - - - - - - - - -

B. Jointly controlled - - - - - - - - -

C. Subject to significant influence

* Siderfactor S.p.A. in liquidation 324 27.00% 27.00% Milan 93,050 2,346 2,689 669 No

* UBI Sistemi e Servizi S.p.A. 391 0.74% 0.74% Brescia 205,614 311,975 51,664 - No

Total 715 - - - - - - - -

Although the company’s investment in UBI Sistemi e Servizi S.c.p.A. is less than 20%, it is not classified as an available-for-sale financial asset, but rather under equity investments because of the UBI Banca Group’s investment therein, notwithstanding the fact that exclusive control can only be attributed to the parent UBI Banca S.c.p.A.. Accordingly, UBI Factor S.p.A. classifies this investee as “subject to significant influence”.


Equity of the companies indicated does not include the profit for 2011. Based on the data in the draft financial statements of Siderfactor S.p.A. in liquidation, to be submitted to the shareholders during the meeting scheduled for 16 March 2012, it generated a profit for the year of € 763 thousand, up on 2010.

The carrying amounts of assets, revenue and equity refer to the most recent set of approved financial statements (2010).

There is no qualitative and/or quantitative evidence of impairment losses on the carrying amounts.

9.2 Equity investments: changes in the year

Group equityinvestments

Non-Group equityinvestments

Total

A. Opening balance 391 567 958

B. Increases - - -

B.1 Purchases - - -

B.2 Reverals of impaiment losses - - -

B.3 Revaluations - - -

B.4 Other changes - - -

C. Decreases - (243) (243)

C.1 Sales - - -

C.2 Impairment losses - - -

C.3 Other changes - (243) (243)

D. Closing balance 391 324 715

The change of the year relates to the complete impairment of the equity investment in Tex Factor S.p.A. in liquidation. It was repaid to UBI Factor S.p.A., in accordance with the shareholder allocation plan approved by the shareholders of Tex Factor S.p.A. in liquidation during the extraordinary meeting held on 11 February 2011.

9.3 There are no equity investments securing liabilities or commitments.

9.4 There are no commitments relating to equity investments.

Section 10 – Property and equipment - Caption 100€ 529 thousand (- € 8 thousand)

This caption consists of property and equipment used in operations. It is depreciated in accordance with IAS 16 on the basis of each asset’s useful life.


10.1 Analysis of caption 100 Property and equipment

Total at 31/12/2011 Total at 31/12/2010

Assets measured at cost

Assets measured at fair value or deemed

cost

Assets measured at cost

Assets measured at fair value or deemed

cost

1. Assets used in operations - - - -

1.1 owned 529 - 537 -

a) land - - - -

b) buildings - - - -

c) furniture 115 - 47 -

d) equipment 43 - 28 -

e) other 371 - 462 -

1.2 under finance lease - - - -

a) land - - - -

b) buildings - - - -

c) furniture - - - -

d) equipment - - - -

e) other - - - -

Total 1 529 - 537 -

2. Assets under finance lease - - - -

2.1 assets with unexercised purchase option - - - -

2.2 assets withdrawn following termination - - - -

2.3 other assets - - - -

Total 2 - - - -

3. Investment property- - - -

including: assets under operating lease

including: assets under operating lease - - - -

Total 3 - - - -Total (1+2+3) 529 - 537 -Totale (assets at cost and deemed cost) - 529 - 537

Owned assets used in operations include “Other”, which substantially relates to furnishings and improvements to the Milan office and the Polish branch’s new operating office.

10.2 Property and equipment: changes in the year

Land Buildings Furniture Equipment Other Total

A. Opening balance - - 47 28 462 537

B. Increases - - 88 50 107 245

B.1 Purchases - - 88 50 107 245

B.2 Reverals of impaiment losses - - - - - -

B.3 Increases in fair value recognised in: - - - - - -

a) equity - - - - - -

b) profit or loss - - - - -

B.4 Other changes - - - - - -

C. Decreases - - (20) (35) (198) (253)

C.1 Sales - - - - - -

C.2 Depreciation - - (20) (35) (198) (253)

C.3 Impairment losses recognised in: - - - - - -

a) equity - - - - - -

b) profit or loss - - - - - -

C.4 Decreases in fair value recognised in: - - - - - -

a) equity - - - - - -

b) profit or loss - - - - - -

C.5 Other changes - - - - - -

D. Closing balance - - 115 43 371 529

B.1 Purchases mainly relate to the expansion of the Milan offices and the furnishing of the Polish branch’s new operating offices.


Analysis of useful life (in years) of each item of property and equipment:

Useful life Years

Furniture 8.3

Equipment 2.5

Other:

- Cars 2.0

- Officine machines 8.3

- Communication systems 4.0

- Branch outfitting 6.0

Section 11 – Intangible assets - Caption 110€ 1,091 thousand (- € 521 thousand)

Intangible assets consist of software licences and the intangible asset recognised on the acquisition of the factoring customer portfolio. They are amortised in accordance with IAS 38 on the basis of each asset’s useful life.

11.1 Analysis of caption 110 Intangible assets

31/12/2011 31/12/2010Assets measured at

costFinancial assets at

fair valueAssets measured at

costFinancial assets at

fair value

1. Goodwill - - - -2. Other intangible assets: - - - - 2.1 owned 1,091 - 1,612 - - internally generated - - - - - other 1,091 - 1,612 - 2.2 under finance lease - - - -Total 1,091 - 1,612 -3. Assets under finance lease: - - - - 3.1 assets with unexercised purchase option - - - - 3.2 assets withdrawn following termination - - - - 3.3 other assets - - - -Total 3 - - - -

4. Assets under operating lease - - - -

Total (1+2+3+4) 1,091 - 1,612 -Total (assets at cost + assets at fair value) - 1,091 - 1,612


11.2 Intangible assets: changes in the year

Total

A. Opening balance 1,612B. Increases 49 B.1 Purchases 49 B.2 Reverals of impaiment losses - B.3 Increases in fair value - - equity - - profit or loss - B.4 Other changes -C. Decreases (570) C.1 Sales - C.2 Depreciation (570) C.3 Impairment losses - - equity - - profit or loss - C.4 Decreases in fair value - - equity - - profit or loss - C.5 Other changes -D. Closing balance 1,091

The useful life of software licences is five years, while the intangible asset on the acquisition of the factoring customer portfolio is reasonably estimated to have a useful life of three years, given the term of the future receivables underlying the transfer agreements.

The intangible asset was not impaired in 2011, as the profit margin on the customer portfolio exceeded the profit margin forecast when it was measured.

Section 12 – Tax assets and liabilities

12.1 Analysis of caption 120 Tax assets: current and deferred€ 4,947 thousand (+ € 1,571 thousand)

31/12/2011 31/12/2010

A) Current tax assets 2,549 2,651

B) Deferred tax assets 2,398 725

Deferred tax assets with balancing entry in profit or loss 2,271 624 - Impairment losses on loans and receivables 2,020 348 - Accruals to the provision for risks and charges 161 225 - Personnel expenses 55 27 - Other sundry 35 24Deferred tax assets with balancing entry in equity 127 101 - Personnel expenses 127 101Total deferred tax assets 2,398 725 - Temporary differences not included in the calculation of deferred tax assets - -Total recognisable deferred tax assets 2,398 725


12.2 Analysis of caption 70 Tax liabilities: current and deferred€ 3,444 thousand (+ € 575 thousand)

31/12/2011 31/12/2010

A) Current tax liabiliites 3,443 2,866

B) Deferred tax liabilities 1 3

Deferred tax liabilities with balancing entry in profit or loss 1 3 - Accruals to the allowance for impairment - - - Other 1 3Deferred tax liabilities with balancing entry in equity - - - Other sundry - -Total recognised deferred tax liabilities 1 3 - Temporary differences not included in the calculation of deferred tax liabilities - -Total recognisable deferred tax liabilities 1 3

12.3 Changes in deferred tax assets (balancing entry in profit or loss)

31/12/2011 31/12/2010

1. Opening balance 624 8342. Increases 1,785 50 2.1 Deferred tax assets recognised in the year 1,785 50 a) relative to prior years - - b) due to change in accounting policies - - c) reversal of impairment losses - - d) other 1,785 50 2.2 New taxes or increases in tax rates - - 2.3 Other increases - -3. Decreases (138) (260) 3.1 Deferred tax assets derecognised in the year (138) (260) a) reversals (138) (211) b) impairment losses due to non-recoverability - - c) due to change in accounting policies - - d) other - (49) 3.2 Reduction in tax rates - - 3.3 Other decreases - -4. Closing balance 2,271 624

The increase (2.d) is mainly due to the accrual of deferred tax assets (IRES 27.50%) on the portion of impairment losses recognised on individual receivables exceeding the 0.3% permitted under tax legislation (€ 6.2 million), and deductible over 18 years (pursuant to article 106.3 of the Consolidated income tax code).


12.4 Changes in deferred tax liabilities (balancing entry in profit or loss)

31/12/2011 31/12/2010

1. Opening balance 3 45

2. Increases - -

2.1 Deferred tax liabilities recognised in the year - -

a) relative to prior years - -

b) due to change in accounting policies - -

c) other - -

2.2 New taxes or increases in tax rates - -

2.3 Other increases - -

3. Decreases (2) (42)

3.1 Deferred tax liabilities derecognised in the year (1) (2)

a) reversals (1) (2)


c) other - -

3.2 Reduction in tax rates - -

3.3 Other decreases (1) (40)

4. Closing balance 1 3

12.5 Changes in deferred tax assets (balancing entry in equity)

31/12/2011 31/12/2010

1. Opening balance 101 110

2. Increases 26 31

2.1 Deferred tax assets recognised in the year 26 31

a) relative to prior years - -


c) other 26 31

2.2 New taxes or increases in tax rates - -

2.3 Other increases - -

3. Decreases - (40)

3.1 Deferred tax assets derecognised in the year - -

a) reversals - -

b) impairment losses due to non-recoverability - -

c) due to change in accounting policies - -

d) other - -

3.2 Reduction in tax rates - -

3.3 Other decreases - (40)

4. Closing balance 127 101

12.6 Changes in deferred tax liabilities (balancing entry in equity)

There were no changes in the year.


Section 14 – Other assets – Caption 140 € 13,059 thousand (+ € 584 thousand)

14.1 Analysis of caption 140 Other assets

This caption consists mainly of the following:

31/12/2011 31/12/2010

Tax consolidation receivables from the parent 4,905 8,065

Receivables from social security institutions 1,038 1,038

Receivables from the public administration - 1,906

UUR portfolio 5,885 -

Other items 941 1,225

Prepayments and accrued income (not allocated) 290 241

Total 13,059 12,475

Receivables from the parent consist of IRES advances paid in 2011 and other receivables that arose as part of the national tax consolidation scheme.

Receivables from social security institutions consist of the amount initial recognised in relation to the dispute arising from the classification of contributions as due to INPS (the Italian social security institution) or INPDAI (the Italian pension institution for managers of industrial companies) when the body changed at the end of the 1990’s. The company contested the amounts at that time. In 2005, the documentation supporting the company’s receivable for contributions was sent to INPS.

Receivables due from the public administration have been reclassified to Caption 60 – Loans and receivables, because, following the conclusion of the legal proceedings against the counterparty, they returned to the original debtor. The company classified these receivables as non-performing in 2011.

The UUR portfolio balances relate to amounts credited to the company in the first few days of January 2012.

Other items mainly relate to invoices issued and to be issued to extra-factoring counterparties, in addition to advances to service providers.


Liabilities

Section 1 – Financial liabilities - Caption 10€ 2,739,037 thousand (+ € 117,415 thousand)

1.1 Financial liabilities

This caption includes accrued interest expense of € 663 thousand on bank current account overdrafts and loans.

31/12/2011 31/12/2010

banks financial

institutions customers banks

financial institutions

customers

1. Financing 2,638,597 - - 2,117,804 - -

1.1 Repurchase agreements - - - - - -

1. Other loans 2,638,597 - - 2,117,804 - -

2. Other financial liabilities 95,279 - 5,161 494,279 - 9,539

Total 2,733,876 - 5,161 2,612,083 - 9,539

Fair value 2,733,876 - 5,161 2,612,083 - 9,539

Total financial liabilities relating to the Poland branch amount to € 85,473 thousand.

Loans mainly consist of funding from the parent UBI Banca. Other financial liabilities relate to current account overdrafts.

Other amounts due to customers relate to the residual amount of the consideration due to transferors for receivables acquired without recourse.

1.2 There are no subordinated liabilities.

Section 7 – Tax liabilities - Caption 70€ 3,444 thousand (+ € 575 thousand)

Reference should be made to Section 12 of Assets - Tax assets and liabilities for an analysis of this caption.

Section 9 – Other liabilities – Caption 90€ 25,109 thousand (+ € 4,094 thousand)

9.1 Analysis of caption 90 Other liabilities

31/12/2011 31/12/2010

Tax consolidation liabilities from the parent 6,251 7,947

Trade payables 3,219 1,085

Invoices to be received 6,549 4,014

Liabilities for guarantee deposits received 698 -

Due to employees 401 343

Social security charges payable 860 757

Collections pending allocation 6,173 4,826

Payable to transferor Fenig - 1,029

Guarantees issued to UBI Leasing 294 294

Other financial liabilities 662 717

Accrued expenses (unallocated) 2 3

Total 25,109 21,015


Payables to the parent relate to the IRES tax liability for 2011, under the national tax consolidation scheme.Invoices to be received include invoices that have not yet been received from lawyers, and one in particular, mainly in relation to the management of the acquired factoring portfolio of receivables due from the local health units of the Lazio region, as well as from suppliers for services provided, including from the parent.Collections pending allocation relate to payments received in relation to factored receivables, which, at the reporting date, the company has not been able to allocate to the relevant transferor position. This allocation was completed in 2012.Following the legal procedure, the amount of the payable to the transferor Fenig that had been previously collected from the debtor and taken to a bank book deposit account was definitively paid in 2011 to the tran-sferor.

Section 10 – Post-employment benefits - Caption 100€ 2,648 thousand (+ € 71 thousand)

10.1 Post-employment benefits: changes in the year

31/12/2011 31/12/2010

A. Opening balance 2,577 2,457

B. Increases 144 161

B.1 Accrual 50 48

B.2 Other increases 94 113

C. Decreases (73) (41)

C.1 Pay-outs (73) (41)

C.2 Other decreases - -

D. Closing balance 2,648 2,577

10.2 Other information

In accordance with IAS 19, the post-employment benefit liability can be classified as a defined benefit plan, requiring the calculation of the amount of the obligation using actuarial techniques.In particular, this accrual should consider the amount that has already vested at the reporting date, projected into the future in order to estimate the amount that will be due when employment ends. This amount is then discounted to reflect the time value of money.

The present value of commitments is calculated by an independent expert using the projected unit credit method. This method considers future salary increases up to the termination of employment, outlays to be made on the basis of historical/statistical analyses and the demographic curve, with the discounting of such flows on the basis of a market interest rate. Contributions paid each year are considered separate and additional units.

Demographic assumptions (termination of employment, disability, death, etc.) are formulated using historical personnel data, suitably integrated and equalised to taken into account redundancies provided for by the business plan and current legislation on the maximum retirement age.The financial and economic assumptions are based on prudent forecasts, whereas labour market variables reflect historical data and trends in line with the economy.

The cost of living index for white and blue collar families, amounting to 2.0%, has been used as the revaluation rate.

The Euro Composite A rate curve at the measurement date has been used to calculate the discount rate. This rate curve is the yield of low-risk securities issued only by corporate issuers that are rated “A” and within the Eurozone (source: Bloomberg). The rate is the average calculated on the curve of rates ranging from 2.14% (1 year) to 4.99% (30 years).


Section 11 – Provisions for risks and charges - Caption 110€ 595 thousand (- € 271 thousand)

11.1 Analysis of caption 110 Provisions for risks and charges

31/12/2011 31/12/2010

1. Company pension funds - -

2. Other provisions for risks and charges 595 866

2.1 litigation 394 477

2.2 personnel 65 253

2.3 other 136 136

Total 595 866

11.2 Changes in the year in caption 110 Provisions for risks and charges

31/12/2011 31/12/2010

Pension and similar costs

Other provisionsPension and similar

costsOther provisions

A. Opening balance - 866 - 1,185

B. Increases (+) - 3 - 7

B.1 Accrual - - - -

B.2 Changes due to passage of time - 3 - 7

B.3 Changes due to adjustments to the discount rate - - - -

B.4 Other changes - - - -

C. Decreases (-) - (274) - (326)

C.1 Utilisations - (274) - (326)

C.2 Changes due to adjustments to the discount rate - - - -

C.3 Other changes - - - -

D. Closing balance - 595 - 866

C.1 Utilisations relate to termination benefits, legal expenses and claw-back actions in insolvency proceedings.

Section 12 – Equity – Captions 120, 130, 140 and 150

12.1 Analysis of caption 120 Share capital€ 36,116 thousand (no change)

31/12/2011 31/12/2010

1. Share capital

1.1 Ordinary shares 36,116 36,116

1.2 Other shares - -

Total 36,116 36,116

The fully subscribed and paid-up share capital includes 69,453,500 shares with a nominal amount of € 0.52 each.


12.4 Analysis of caption 150 Share premium€ 2,066 thousand (no change)

This caption was set up in 1993 following the share capital increase.

12.5 Other information

Analysis of caption 160 Reserves€ 83,111 thousand (+ € 13,739 thousand)

Legal reserve Retained earnings Other Total

A. Opening balance 7,223 2 62,147 69,372

B. Increases - - 13,739 13,739

B.1 Allocation of profit - - 13,739 13,739

B.2 Other changes - - - -

C. Decreases - - - -

C.1 Utilisations - - - -

- to cover losses - - - -

- dividends - - - -

- transfer of share capital - - - -

C.2 Other changes - - - -

D. Closing balance 7,223 2 75,886 83,111

B.1 - The increase is due to the allocation of the profit for 2010, as resolved by the shareholders on 8 April 2011.

An analysis of other reserves is provided below:

Analysis of other reserves:

Extraordinary reserve 67,672

Negative goodwill 6,573

General financial risks 2,484

FTA reserves (843)

Total 75,886

The FTA reserves substantially consist of the effects of discounting impaired assets (IAS 39) and the actuarial valuation of post-employment benefits (IAS 19).

EQUITY CAPTION DISCLOSURE PURSUANT ARTICLE 2427.7-bis OF THE ITALIAN CIVIL CODE

Amount Possibility of use Available portionSummary of uses in the previous three

years

To cover losses For other reasons

Share capital 36,116

Share premium 2,066

Income-related reserves:

- legal reserve 7,223 B

- extraordinary reserve 67,672 A,B,C 67,672

Other reserves 8,216 A,B,C 8,216

Valuation reserve (123)

Retained earnings 6,756 A,B,C 6,756

Total 82,644

- Non-distributable portion -

- Residual distributable portion 82,644

(key: A - to increase share capital; B) - to cover losses; C - dividends)

No reserves are non-distributable.


12.6 Analysis of caption 170 Valuation reserves and changes in the year- € 123 thousand (- € 68 thousand)

Available-for-sale financial

assets

Property and equipment

Intangible assets

Cash flow hedges

Special reva-luation laws

Actuarial gains (+)/losses (-) on post-

employment benefits

Total

A. Opening balance - - - - - (55) (55)

B. Increases - - - - - - -

B.1 Increases in fair value - - - - - - -

B.2 Other changes - - - - - - -

C. Decreases - - - - - (68) (68)

C.1 Decreases in fair value - - - - - - -

C.2 Other changes - - - - - (68) (68)

D. Closing balance - - - - - (123) (123)


Part C – NOTES TO THE INCOME STATEMENT

Section 1 – Interest – Captions 10 and 20

1.1 Analysis of caption 10 Interest and similar income€ 68,132 thousand (+€ 17,895 thousand)

Debt instruments

FinancingOther

transactionsTotal

31/12/2011Total

31/12/2010

1. Financial assets held for trading - - - - -

2. Financial assets at fair value - - - - -

3. Available-for-sale financial assets - - - - -

4. Held-to-maturity investments 261 - - 261 118

5. Loans and advances - - - - -

5.1 Loans and advances to banks - 79 - 79 51

5.2 Loans and advances to financial institutions - - - - -

5.3 Loans and advances to customers - 67,792 - 67,792 50,068

6. Other assets - - - - -

7. Hedging derivatives - - - - -

Total 261 67,871 - 68,132 50,237

1.2 Interest and similar income: other information

Interest on held-to-maturity investments relates to the portion of yield on the insurance policies classified under asset caption 50 in the statement of financial position. Interest on loans and advances to banks relates to temporary positive current account balances with banks. Interest on loans and advances to customers relates to factoring activities and is collected on advances to transferors and with debtors as a result of payment deferrals, in addition to contract loans. Furthermore, this caption includes interest income on loans for specific purposes.

The significant increase in the year is due to both the growth in average loans and trends in market interest rates, to which the loans to customers are indexed.

1.3 Analysis of caption 20 Interest and similar expense€ 29,837 thousand (+ € 14,421 thousand)

Lending Securities OtherTotal

31/12/2011Total

31/12/2010

1. Due to banks (29,837) - - (29,837) (15,377)

2. Due to financial institutions - - - - -

3. Due to customers - - - - -

4. Outstanding securities - - - - -

5. Financial liabilities held for trading - - - - -

6. Financial liabilities at fair value - - - - -

7. Other liabilities - - - - (39)

8. Hedging derivatives - - - - -

Total (29,837) - - (29,837) (15,416)

Interest mainly includes that paid to banks for current account overdrafts and loans. The amounts shown do not include expenses for subordinated liabilities.The significant increase is due to both the growth in average funding balances and the trend in market interest rates, to which the bank borrowings are indexed.


Section 2 – Commissions – Captions 30 and 40

2.1 Analysis of caption 30 Commission income€ 23,499 thousand (- € 922 thousand)

Total 31/12/2011 Total 31/12/2010

1. finance leases - -

2. factoring 23,482 24,352

3. consumer credit - -

4. merchant banking - -

5. guarantees given - 9

6. services: - -

- third party mandated fund management - -

- forex brokerage - -

- product distribution - -

- other 17 60

7. collection and payment services - -

8. securitisation servicing - -

9. other commissions - -

Total 23,499 24,421

This caption mainly consists of flat commissions for with and without recourse factoring, analysed below:

Factoring commission income Total 31/12/2011 Total 31/12/2010

1. with recourse commissions 17,591 18,435

2. without recourse commission 4,110 4,036

3. mandate commissions 317 431

4. expense recoveries with mark-ups 425 523

5. other 1,039 927

Total 23,482 24,352

Commissions relate to factoring activities and are analysed on the basis of the life of the receivables. Other mainly relates to credit management commissions and commissions invoices to debtors.

Expense recoveries with mark-ups mainly relate to: preliminary investigation fees, handling expenses, chamber of commerce inquiry and information expenses, debtor assessment fees, account statement processing and postage, account expenses, account closing expenses and home-factoring fees.

2.2 Analysis of caption 40 Commission expense€ 10,862 thousand (+ € 2,692 thousand)

Total 31/12/2011 Total 31/12/2010

1. guarantees received (2,049) (1,600)

2. third party distribution of services - -

3. collection and payment services - -

4. other commissions: - -

4.1 reversal of commissions to third parties (8,438) (6,153)

4.2 credit insurance premiums - (17)

4.3 bank charges (375) (400)

Total (10,862) (8,170)

This caption mainly relates to commissions paid to group banks in connection with the business partnership agreement and to third parties for the referral of factoring transactions, in addition to commissions on guarantees from the parent to support supervisory capital.


Section 3 – Dividends and similar income – Caption 50

3.1 Analysis of caption 50 Dividends and similar income

This caption has a nil balance for the year.

Section 8 – Net impairment losses/reversals of impairment losses – Caption 100

8.1 Net impairment losses/reversals of impairment losses on loans and receivables € 14,813 thousand (+ € 11,666 thousand)

Impairment losses Reversals of impairment losses Total31/12/2011

Total31/12/2010specific portfolio specific portfolio

1. Loans and advances to banks - - - - - -

- leases - - - - - -

- factoring - - - - - -

- other loans and receivables - - - - - -

2. Loans and advances to financial institutions - - - - - -

- leases - - - - - -

- factoring - - - - - -

- other loans and receivables - - - - - -

3. Loans and advances to customers (17,946) - 3,133 - (14,813) (3,147)

- leases - - - - - -

- factoring (17,763) - 3,059 - (14,704) (2,538)

- consumer credit - - - - - -

- other loans and receivables (183) - 74 - (109) (609)

Total (17,946) - 3,133 - (14,813) (3,147)

In detail, these changes relate to the following:

Total 31/12/2011 Total 31/12/2010

1) Individual impairment losses: (17,946) (4,687)

Loans and receivables (17,313) (4,485)

Adjustments on the discounting of impaired assets (633) (202)

2) Reversals of individual impairment losses: 3,133 1,540

Reversals of impairment on loans and receivables 3,133 1,540

Adjustments on the discounting of impaired assets - -

Total (14,813) (3,147)

The significant growth in specific impairment losses is mainly due to the receivables due from the public administration (health sector - Fondazione S.Raffaele and VAT receivables), which are no longer part of the company’s core business.

In 2011, the company received insurance compensation of € 2.3 million, recognised as reversals of impairment losses.


8.4 Analysis of sub-caption 100 b) “Net impairment losses/reversals of impairment losses on other financial transactions”

This caption has a nil balance for the year.

Section 9 – Administrative expenses – Caption 110

9.1 Analysis of caption 110 a) Personnel expense€ 11,750 thousand (+ € 570 thousand)

Total 31/12/2011 Total 31/12/2010

1. Employees (10,412) (9,867)

a) wages and salaries (7,245) (6,763)

b) social security contributions (2,108) (1,930)

c) post-employment benefits - -

d) pension and similar costs - -

e) accrual for post-employment benefits (50) (48)

f) accrual for pension and similar costs: (139) (148)

- defined contribution plans (139) (148)

- defined benefit plans - -

g) payments to external complementary pension funds: (548) (442)

- defined contribution plans (548) (442)

- defined benefit plans - -

h) other expenses (322) (536)

2. Other personnel (491) (529)

3. Directors and statutory auditors (285) (371)

4. Retired personnel - -

5. Expense recoveries for personnel seconded to other companies 193 77

6. Refunds for employees seconded to the company (755) (490)

Total (11,750) (11,180)

Employees include accruals for:- change in the provision for vacation, holiday pay and comp time;- the accrual for the 2011 performance bonus and the related contributions of € 195 thousand ;- other expenses, which include training, restaurant vouchers and employee insurance policies.

Other personnel includes fees paid to contract workers.

9.2 Average number of employees by category

Workforce31/12/2011 31/12/2010

average year-end average year-end

Employees: 146 144 144 145

a) managers 7 6 8 8

b) total senior and junior managers 56 57 52 53

- including 3rd and 4th level managers 34 35 29 32

c) residual employees 83 81 83 84

Other personnel 14 14 15 15

At 31 December 2011, the company’s workforce consists of:- employees, numbering 144 (-1 on 31 December 2010), with an average for the year of 146 (+2 on 2010); - other resources, numbering 14 (-1 on 31 December 2010), with an average for the year of 14 (-1 on 2010).Other personnel includes: - seconded employees;- contract workers;


9.3 Analysis of caption 110 b) Other administrative expenses€ 14,412 thousand (+ € 4,553 thousand)

Other administrative expenses Total 31/12/2011 Total 31/12/2010

Lease expense (1,507) (1,386)

Professional ICT services (372) (240)

Legal and corporate advisory services (836) (766)

Car and furniture rental (332) (349)

Hardware lease (389) (327)

Hardware maintenance and assistance (11) (13)

Software maintenance and assistance - (7)

Other building management expenses (14) (17)

Cleaning (93) (86)

Building maintenance (43) (46)

Membership fees (73) (74)

Information and chamber of commerce queries (604) (429)

Periodicals and volumes (22) (23)

Postal costs (259) (226)

Insurance premiums (45) (40)

Advertising and publicity (39) (246)

Entertainment expenses (2) (3)

Electronic transmission and telephone networks (137) (165)

Outsourcing to third parties (876) (673)

Outsourcing to group companies (346) (440)

Travel expenses (326) (171)

Credit recovery expenses (6,265) (2,693)

Printed matter, stationary and consumables (65) (90)

Transport and relocations (23) (29)

Work experience stipends (54) (57)

Information system migration expenses (916) (191)

Other expenses (235) (576)

Total administrative expenses (13,884) (9,363)

Indirect taxes and duties (528) (496)

- Indirect taxes and duties (non-deductible VAT) - -

- VAT on infragroup contracts (294) (263)

- Stamp tax (219) (215)

- Other taxes (15) (18)

Totale (14,412) (9,859)N.B. – Under the VAT system adopted by the company, in accordance with article 36-bis of Presidential decree no. 633/72, the related VAT is also recognised

at cost, where applicable.

The most significant changes on 2010 mainly relate to the legal expenses for the management of the factored portfolio of receivables due from the local health units of the Lazio region and, to a lesser extent, to credit recovery activities and the cost of migrating to the new information system (ICT and consultancy expenses). In this respect, the company has created a caption for “Information system migration expenses”, reclassifying the 2010 amounts from “Legal and corporate advisory services” (€ 56 thousand) and “Outsourced services” (€ 135 thousand).


Section 10 – Net impairment losses/reversals of impairment losses on property and equipment – Caption 120

10.1 Analysis of caption 120 Net impairment losses/reversals of impairment losses on property and equipment€ 253 thousand (+ € 15 thousand)

DepreciationImpairment

lossesReversals of

impairment losses31/12/2011 31/12/2010

1. Assets used in operations

1.1 owned (253) - - (253) (238)

a) land - - - - -

b) buildings - - - - -

c) furniture (20) - - (20) (14)

d) equipment (35) - - (35) (39)

e) other (198) - - (198) (185)

1.2 under finance lease - - - - -

a) land - - - - -

b) buildings - - - - -

c) furniture - - - - -

d) equipment - - - - -

e) other - - - - -

2. Assets under finance lease - - - - -

3. Investment property - - - - -

including: assets under operating lease - - - - -

Totale (253) - - (253) (238)

Section 11 – Net impairment losses/reversals of impairment losses on intangible assets – Caption 130

11.1 Analysis of caption 130 Net impairment losses/reversals of impairment losses on intangible assets€ 570 thousand (+ € 159 thousand)

DepreciationImpairment

lossesReversals of

impairment losses31/12/2011 31/12/2010

1. Goodwill - - - - -

2. Other intangible assets (570) - - (570) (411)

2.1 owned (570) - - (570) (411)

2.2 under finance lease - - - - -

3. Assets under finance lease - - - - -

4. Assets under operating lease - - - - -

Total (570) - - (570) (411)


Section 13 – Net accruals to the provision for risks and charges – Caption 150

13.1 Analysis of caption 150 Net accruals to the provision for risks and charges€ 1 thousand (no change)

31/12/2011 31/12/2010

Insolvency litigation and legal expenses - -

Risks for lawsuits by third parties and legal expenses - -

Other risks and charges (1) (1)

Total (1) (1)

In addition, utilisations of provision for risks and charges are allocated to the individual income statement captions in which the expense covered by the accrual are classified.Furthermore, this caption includes the effect of the time reversal following the discounting of the amounts accrued, in accordance with IAS 37, at the current market rate (IRS) at the reporting date, on the basis of the expected financial outlay.

Section 14 – Other operating income and expenses – Caption 160

14.1 Analysis of caption 160 Other operating income and expenses€ 4,045 thousand (+ € 1,886 thousand)

a) Other operating income 31/12/2011 31/12/2010

Expense recoveries 3,725 1,495

Factoring 418 377

Services 236 542

Prior year income 198 37

Other sundry 33 3

Total a 4,610 2,454

b) Other operating expenses 31/12/2011 31/12/2011

Prior year expense and losses (565) (295)

Other sundry - -

Total b (565) (295)

Total a+b 4,045 2,159

Expense recoveries refer to recharges to transferors without mark-ups, including legal expenses, registration taxes and bank expenses. Factoring revenue mainly relates to gains recognised on the collection of receivables which were acquired at prices significantly lower than their nominal amount. The decrease in “Turnover from services” on 2010 is substantially due to the service for Tex Factor S.p.A., which completed the liquidation process in December 2010.

Prior year expense is substantially due to the cost of legal disputes.


Section 15 - Gains (losses) on equity investments - Caption 170

15.1 Analysis of caption 170 Gains (losses) on equity investments€ 84 thousand (+ € 84 thousand)

31/12/2011 31/12/2010

1. Gains 84 -

1.1 Revaluations - -

1.2 Gains on sale - -

1.3 Reversals of impairment losses - -

1.4 Other 84 -

2. Losses - -

2.1 Impairment losses - -

2.2 Losses on sale - -

2.3 Impairment losses due to deterioration - -

2.4 Other - -

Net gains 84 -

The gain recognised is due to the collection of the relevant equity of Tex Factor S.p.A. in liquidation in March 2011, which was repaid to UBI Factor S.p.A., in accordance with the shareholder allocation plan approved by Tex Factor S.p.A.’s shareholders during the extraordinary meeting on 11 February 2011, with the resulting full impairment of the equity investment.

Section 17 – Income taxes on profit from continuing operations – Caption 190

17.1 Analysis of caption 190 Income taxes on profit from continuing operations€ 6,507 thousand (- € 3,287 thousand)

31/12/2011 31/12/2010

1. Current taxes (8,278) (9,742)

2. Changes in current taxes of prior years 122 156

3. Decrease in current taxes of the year - -

4. Change in deferred tax assets 1,647 (210)

5. Change in deferred tax liabilities 2 2

Income taxes of the year (6,507) (9,794)

Current taxes and the effects of deferred tax assets/liabilities are calculated at the rates currently in effect: IRES 27.50% and IRAP 5.57% considering the effects of Law no. 214 of 22 December 2011, converting Decree law no. 201 of 6 December 2011 (the “Monti Decree”). Furthermore, the IRAP rate includes the 0.75% increase for banks and financial companies, introduced by Decree law no. 98 of 6 July 2011.

The effects of deferred tax assets mainly relate to accruals to the allowance for impairment losses on loans and receivables.


17.2 Reconciliation of the theoretical tax charge with the effective tax charge

Tax base Tax % Tax base Tax %Other tax

effectsTotal

IRES IRAP

Profit before tax 13,263 - - 13,263 - - - 13,263

Net trading income - - - 50,932 - - - -

Theoretical tax (at the ordinary rate) - 3,647 27.50% - 2,837 5.57% - 6,484

Permanent decreases (784) (216) (1.63)% (16,980) (946) (1.86)% - (1,161)

Permanent increases 4,300 1,183 8.92% 7,648 426 0.84% - 1,608

Temporary differences:

- Differences that will reverse in upcoming years

6,494 1,786 13.46% - - 0.00% - 1,786

- Reversals of differences of prior years (542) (149) (1.12)% (67) (4) (0.01)% - (153)

Actual tax - 6,251 47.13% - 2,313 4.54% - 8,563

Adjustment for income generated abroad (Poland)

- 108 - - (72) - - 36

Tax consolidation adjustment (assets from the parent)

- (322) - - - - - (322)

Total current taxes - 6,037 - - 2,241 - - 8,278

Change in deferred tax assets/liabilities - - - - - - (1,649) (1,649)

Change in prior year current taxes - - - - - - (122) (122)

Recognised income taxes - 6,037 - - 2,241 (1,771) 6,507

IRES is calculated as a percentage of profit before tax. However, IRAP is calculated as a percentage of net trading income.

In 2011, the Polish branch’s activities generated taxable profit under Italian legislation of approximately € 1,561 thousand. This profit, adjusted by the tax reversals provided for by Polish legislation (mainly in application of the thin capitalisation rule, which entails the non-deductibility of interest expense paid to the parent, UBI Banca) and subject to the rate of 19%, generated a greater direct tax charge of € 108 thousand than that calculated under Italian tax law (IRES).


Section 19 – Income statement: other information

19.1 Analysis of interest and commission income

Interest income Commission income

31/12/2011 31/12/2010

BanksFinancial

institutionsCustomers Banks

Financial institutions

Customers

1. Finance leases - - - - - - - -

- buildings - - - - - - - -

- chattels - - - - - - - -

- equipment - - - - - - - -

- intangible assets - - - - - - - -

2. Factoring - - 66,281 - - 23,482 89,763 72,420

- current receivables - - 49,515 - - 19,361 68,876 57,206

- future receivables - - 76 - - 7 83 111

- receivables acquired definitively - - 15,430 - - 4,114 19,544 13,917

- receivables acquired at below

the nominal amount - - - - - - -

- other loans - - 1,260 - - - 1,260 1,186

3. Consumer credit - - - - - - - -

- personal loans - - - - - - - -

- loans for specific purposes - - - - - - - -

- transfer of 1/5 of salary - - - - - - - -

4. Guarantees and commitments - - - - - - - 9

- trade - - - - - - - -

- financial - - - - - - 9

Total - - 66,281 - - 23,482 89,763 72,429

In addition to that disclosed above, additional non-factoring interest income of € 1,851 thousand has been recognised in profit or loss. It is analysed below:

- loans for specific purposes of € 1,511 thousand- positive current account balances of € 79 thousand- insurance policy return of € 261 thousand

Furthermore, additional non-factoring commission income of € 17 thousand was recognised in profit or loss in relation to expense recoveries with mark-ups on loans for specific purposes.


Part D – OTHER INFORMATION

B. FACTORING AND TRANSFERS OF LOANS AND RECEIVABLES

B.1 - Gross amount and carrying amount

31/12/2011 31/12/2010

Gross amount

Adjustments Carrying amount

Gross amount

Adjustments Carrying amount

1. Performing assets 2,659,029 (3,734) 2,655,295 2,484,792 (4,099) 2,480,693

- exposure to transferors (with recourse): 1,494,191 (2,028) 1,492,163 1,493,144 (2,395) 1,490,749

- transfers of future receivables 2,070 - 2,070 1,773 - 1,773

- other 1,492,121 (2,028) 1,490,093 1,491,371 (2,395) 1,488,976

- exposure to transferred debtors (without recourse) 1,164,838 (1,706) 1,163,132 991,648 (1,704) 989,944

2. Impaired assets 81,675 (19,425) 62,250 54,720 (11,123) 43,597

2.1 Non-performing 55,336 (18,962) 36,374 21,486 (10,485) 11,001

- exposure to transferors (with recourse): 50,207 (15,976) 34,231 18,371 (7,776) 10,595

- transfers of future receivables 112 (30) 82 438 (358) 80

- other 50,095 (15,946) 34,149 17,933 (7,418) 10,515

- exposure to transferred debtors (without recourse): 5,129 (2,986) 2,143 3,115 (2,709) 406

- acquired at below nominal amount 1,296 (1,296) - 1,356 (1,343) 13

- other 3,833 (1,690) 2,143 1,759 (1,366) 393

2.2 Doubtful 3,769 (463) 3,306 4,335 (638) 3,697

- exposure to transferors (with recourse): 3,288 (410) 2,878 4,317 (620) 3,697

- transfers of future receivables - - - - - -

- other 3,288 (410) 2,878 4,317 (620) 3,697

- exposure to transferred debtors (without recourse): 481 (53) 428 18 (18) -

- acquired at below nominal amount - - - - - -

- other 481 (53) 428 18 (18) -

2.3 Restructured - - - - - -

- exposure to transferors (with recourse): - - - - - -


- other - - - - - -

- exposure to transferred debtors (without recourse): - - - - - -


- other - - - - - -

2.4 Past due 22,570 - 22,570 28,899 - 28,899

- exposure to transferors (with recourse): 7,421 - 7,421 - - -


- other 7,421 - 7,421 - - -

- exposure to transferred debtors (without recourse): 15,149 - 15,149 28,899 - 28,899


- other 15,149 - 15,149 28,899 - 28,899

Total 2,740,704 (23,159) 2,717,545 2,539,512 (15,222) 2,524,290

As required by Banca d’Italia circular no. 216 of 5 August 1996, past due exposure includes amounts over 180 days past due (the 90 day limit may be extended to 180 days up to 31 December 2011) totalling € 22,570 thousand, for which € 3,640 thousand has been collected at January 2012, with a residual amount of € 18,930 thousand. This residual amount mainly consists of receivables from the public administration, which generally pay over 200 days late.


B.2 - Residual life of exposure and total loans

B.2.1 - Factoring with recourse: advances and total loans

Maturities Advances Total loans

31/12/2011 31/12/2010 31/12/2011 31/12/2010

- on demand - - - -

- up to 3 months 768,654 682,146 984,764 905,183

- from 3 to 6 months 138,313 120,967 155,172 139,537

- from 6 months to 1 year 394,862 438,521 630,117 776,578

- over 1 year 15,433 34,274 19,429 38,369

- undetermined 219,431 229,133 395,687 367,197

Total 1,536,693 1,505,041 2,185,169 2,226,864

The balance includes advances to the transferor for factoring with recourse, advances for receivables factored without “legal recourse”, i.e., when the factoring has not given rise to substantial transfer (“derecognition”) to the factor of the risks and rewards of the transferred receivables, on the basis of IAS 39, and advances for future receivables.

B.2.2 - Factoring without recourse: exposure

Maturities Exposure

Total at 31/12/2011 Total at 31/12/2010

- on demand - -

- up to 3 months 760,975 602,565

- from 3 to 6 months 59,689 64,266

- from 6 months to 1 year 132,210 153,410

- over 1 year 22,981 13,333

- undetermined 204,997 185,675

Total 1,180,852 1,019,249

This balance consists of total receivables acquired definitively without recourse, i.e., when the factoring has given rise to substantial transfer (“derecognition”) to the factor of the risks and rewards of the transferred receivables, on the basis of IAS 39. Loans and receivables classified in the “undetermined life” category substantially consist of with and without recourse factoring of receivables from the tax authorities (due to higher VAT), from the government (mainly the ministries), the payment of which is subject to measures for payment and access to earmarked funds, and, lastly, from local health units for healthcare receivables, the collection of which will follow specific judicial orders or government/regional payment measures, which are currently under negotiation between the parties.

Finally, a portion of the loans classified in this category is subject to the provisions of article 17.4 of Law no. 111 of 15 July 2011, which further confirmed the suspension of seizure against the Lazio Region at least until 31 December 2012, guaranteeing interest paid, and extending the previously defined suspension period until 31 December 2011 under Law no. 220 of 13 December 2010.


B.3 - Impairment losses

Opening impairment

losses

Increases Decreases

Closing impairment

lossesImpairment losses

Reclassifications from other

Other increases

Reversals of impairment

losses

Reclassifications to other

DerecognitionOther

increases

Individual impairment losses on impaired assets

11,123 12,175 2,010 51 194 251 5,384 105 19,425

Exposure to transferors 8,396 11,358 251 45 26 251 3,311 76 16,386

- Non-performing 7,776 11,225 251 45 10 - 3,311 - 15,976

- Doubtful 620 133 - - 16 251 - 76 410

- Restructured - - - - - - - - -

- Past due - - - - - - - - -

Exposure to transferred debtors 2,727 817 1,759 6 168 - 2,073 29 3,039

- Non-performing 2,709 773 1,752 - 146 - 2,073 29 2,986

- Doubtful 18 44 7 6 22 - - - 53

- Restructured - - - - - - - - -

- Past due - - - - - - - - -

Individual impairment losses on performing assets

604 1,318 - - 4 1,760 - - 158

- Exposure to transferors 604 1,318 - - 4 1,760 - - 158

- Exposure to transferred debtors - - - - - - - - -

Portfolio impairment losses on other assets

3,495 81 2 - - 2 - - 3,576

- Exposure to transferors 1,791 81 - - - 2 - - 1,870

- Exposure to transferred debtors 1,704 - 2 - - - - - 1,706

Total 15,222 13,574 2,012 51 198 2,013 5,384 105 23,159

Individual impairment losses on performing assets of € 158 thousand relate to transferred positions classified as “obligation pending non-performing”, in line with the company’s Credit Regulation, as the transferred debtor is already insolvent.

In factoring transactions without recourse, past due receivables pending the term for any payment of a sub-guarantee to the transferor, the contractual obligation to the transferor is classified as “obligation pending non-performing”. Only when the sub-guarantee is actually paid to the transferor is the amount paid classified as “non-performing”.

B.4 - Other information

B.4.1 - Turnover from factored receivables

31/12/2011 31/12/2010

1. Without recourse 2,610,848 2,213,328

- including: acquired at below nominal amount - -

2. With recourse 5,225,300 4,904,355

Total turnover from factoring 7,836,148 7,117,683

Loans for a specific purpose 4,071 37,442

Other transactions 374,391 408,328

Total operating volumes 8,214,610 7,563,453


B.4.2 - Collection services

31/12/2011 31/12/2010

Loans and receivables collected during the year 267,930 176,545

Loans and receivables in place at the reporting date 84,791 53,923

B.4.3 Nominal amount of factoring agreements for future receivables

31/12/2011 31/12/2010

Flow of agreements to acquire future receivables in the year 41,415 105,969

Agreements in place at the reporting date 54,287 69,954

D. Guarantees given and commitments

D.1 - Value of guarantees given and commitments

Transactions 31/12/2011 31/12/2010

1. Financial guarantees given 897 1,202

a) Banks - -

b) Financial institutions 897 1,202

c) Customers - -

2. Trade guarantees given 18 18

a) Banks - -

b) Financial institutions - -

c) Customers 18 18

3. Irrevocable commitments to provide funds 157,387 127,206

a) Banks - -

i) of certain use - -

ii) of uncertain use - -

b) Financial institutions - -


ii) of uncertain use - -

c) Customers 157,387 127,206


ii) of uncertain use 157,387 127,206

4. Commitments underlying derivatives on loans and receivables: hedge sales - -

5. Assets pledged to guarantee third party obligations - -

6. Other irrevocable commitments - -

Total 158,302 128,426

The value of firm commitments to disburse funds is calculated as the difference between the total approved amount and the total financed amount within the scope of non-IAS without recourse factoring transactions.


Name and registered office of the parent preparing the consolidated financial statements

The company’s financial statements will be consolidated by: UBI Banca S.c.p.A, Piazza V.Veneto 8 - Bergamo (which directly wholly owns the company).In accordance with article 2497-bis.4 of the Italian Civil Code, the highlights of the parent’s most recent set of approved financial statements are provided below (thousands of Euros):

FINANCIAL STATEMENTS OF THE COMPANY THAT MANAGES AND COORDINATES UBI FACTOR S.p.A.

HIGHLIGHTS (art. 2497-bis.4 of the Italian Civil Code – FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2010 – UBI Banca S.c.p.A

Statement of financial position (in thousands of Euros)

Assets

Cash and cash equivalents 195,060

Financial assets held for trading 3,143,191

Financial assets at fair value 147,286

Available-for-sale financial assets 8,698,209

Loans and advances to banks 28,424,384

Loans and advances to customers 14,536,121

Hedging derivatives 164,595

Equity investments 13,336,899

Non-current assets 1,167,699

Tax assets 725,032

Non-current assets held for sale and discontinued operations 6,023

Other assets 353,102

Total assets 70,897,601

Liabilities

Due to customers and outstanding securities 34,790,516

Due to banks 22,589,437

Financial liabilities held for trading 1,542,534

Heading derivatives 599,874

Tax liabilities 381,642

Other liabilities 613,923

Post-employment benefits 38,130

Provisions for risks and charges 13,279

Equity 10,044,546

Profit for the year 283,720

Total Liabilities 70,897,601

Net interest expense (87,435)

Net commission income 13,925

Net trading income 356,403

Net income from financial activities 307,038

Operating costs (170,029)

Profit from continuing operations before income tax 204,669

Income taxes (4,317)

Profit from disposal groups net of income tax 83,368

Profit for the year 283,720

Income statement(in thousands of Euros)


Section 3 - Risks and risk management policies

3.1 CREDIT RISK

QUALITATIVE INFORMATION

1 General information

Factoring consists of establishing a continuous relationship in which the company transfers, in accordance with Law no. 52 of 1991 or pursuant to the Italian Civil Code, a significant portion of its portfolio of existing or future receivables to the factor, which provides a customised service based on three specific activities: credit management, guaranteeing against debtor default and lending by providing advances on the same receivables (the financing, therefore, is self-paying and, normally short-term, depending on the collection time of the outstanding trade receivables). Through this credit management service (accounting, checking due dates, collecting receivables, sending payment reminders and credit collection activities, etc.), the factor forges a continuous relationship with the transferor and, accordingly, with the latter’s debtors, acquiring in-depth knowledge of the trade receivable policy developed. Indeed, the factor enters into a business relationship that is already in place between the parties, or that will take place between them in the future, in the event of the factoring of future receivables. Accordingly, the relationship between the factor, transferor and debtors is not merely occasional and/or temporary, but must instead develop systematically and continuously, enabling the intermediary to monitor the counterparties financial positions and performance.In this context, risk monitoring and consequent risk management (credit risk, in particular) based on factoring logic use analytical/subjective evaluations of the transferors and the transferees that are both quantitative (primarily based on previous, current and prospective financial conditions) and qualitative (level of management, competitiveness and prospects of the product, acquirer market and its economic circumstances), with the large-scale digitalisation of information and settlement of flows, within the scope of an overall activity in which the various company functions operate synergetically, constantly, reactively and flexibly.Risk containment is then supplemented by the diversification policy, which, first and foremost, considers individual counterparties (concentration of imports, types of credit granted, duration, type of factored credit and the possibility of its assessment-management-recovery). Risk diversification must then extend to the company’s total portfolio of factored receivables, diversifying by product, region, size and financial and service content of the company’s overall business, in line with the parent’s guidelines.In the light of the above, the company has developed commercial activities with the aim of providing the most up-to-date offer possible, in response to changes in demand, and making the most of the resources in the Milan office, the operating unit in Pordenone and the Polish branch. The company has also ramped up the development of synergies with the UBI Banca Group’s network.

2 Credit risk management policies

The main principles and operating methods are set forth in the “Governance and control rules” approved by the parent’s relevant bodies and implemented by UBI Factor S.p.A.. In this way, on the basis of a structured series of guidelines, the company’s “institutional” aspects (corporate officers, extraordinary equity transactions, strategic business plans, relationships with the supervisory bodies, etc.) and “functional” relationships with the parent (Planning and Control, Organisation and Human Resources, Operations and Services, entering new sectors and products) are regulated as part of a centralised control and monitoring system. Accordingly, credit risk management policies also fall under this system.

The main risk factors As factor, the company’s activities are characterised by its offer of customised services (lending, management and guarantee services) and enable it to outline the following main risk factors:


Lending Without lending

With recourse Management service

No management service

Management service


Without recourse Management service


Management service


Credit risk originating from cash exposure

Credit risk originating from guarantee exposure

No credit risk

The purpose of the lending service is to provide customers with advances on receivables that have not yet fallen due. It leads to cash exposure for the factor equal to the agreed advance, which does not generally exceed an established percentage of the transferred receivables.Guarantees against insolvency guarantee transferors against default by the transferred debtor, with the exception of cases explicitly governed by the factoring agreement (e.g.: non-existent receivable, offsetting and contested supplies). Except for certain specific products, the factor undertakes to pay, in the absence of an advance, the amount of the transferred receivables after a certain number of days have passed from when they fell due. If the receivables are not acquired definitively or if no advance is provided, this service gives rise to guarantee exposure for the factor, equal to the revolving plafond (which becomes available again as the transferred receivables are collected) within which the factor undertakes to guarantee payment of receivables to the transferor. In order to mitigate the assumed risk, the factor may negotiate specific types of restrictions to the guarantee.Factoring transactions therefore provide for the structural and concurrent presence of three parties: the transferor, the factor and the transferred debtor(s). Accordingly, in order to measure risk, the unit of observation is the transferor/transferee relationship (except for direct lending, in which the financed debtor constitutes the observation unit) in which the intermediary may be exposed in a variety of ways: part of the transferred receivables may be with recourse and part may be without; part of the transferred receivables may be advanced and part not, etc.. The composition of the individual exposures in each transferor/transferee relationship is a crucial element for the factor, as it enables the latter to measure the actual risk level of its exposure. Indeed, the types of factoring transactions are determined on the basis of the transferor/transferee relationship. Similarly, the acquisition of any guarantees from third parties is generally based on that relationship and not the individual transfer.

2.1 Organisational information

• In the light of the above, risks are monitored using an organisational structure in order to separately analyse and grant credit to counterparties (transferor, debtor/s) and manage the related financial transactions. Risks are monitored throughout all core phases of the lending process and may be summarised as follows:

• “analysis and evaluation”: quantitative and qualitative information is gathered from the relevant counterparties and from the system in order to assign a credit rating to the counterparty and quantify the proposed credit line;

• “approval and formalisation”: once the proposal has been approved, the contractual documentation is prepared for the transferor’s signature;

• “monitoring”: continuous monitoring of counterparties to whom credit has been granted, both in relationships with the factor and in the system, in order to identify any irregularities and, accordingly, act in a timely manner; with specific reference to past due loans, monitoring includes out-of-court activities involving automated and customised reminders, and, if necessary, legal action with the support of legal advisors.


2.2 Risk management, measurement and control

Risk classification

The internal classification rules for loans and receivables are set forth in the new “Credit Regulation”, which has been approved by the board of directors and which considers the parent’s guidelines. It is an integral part of the company’s currently applicable service orders.Reclassifications between the various categories are specifically defined by company regulations, which have been approved by the board of directors, with the identification of specific circumstances in terms of form and/or substance.

The Credit Committee is specifically responsible for the classification and proposed management of default assets (continuously past due by over 180 days, restructured, doubtful and non-performing), after having requested and received an opinion of consistency with group credit guidelines in advance from the parent’s Credit or Irregular Credit and Credit Recovery Departments.

Under the aforementioned “Credit Regulation”, such amounts are initially classified as follows:• “first level risk” (direct risks), which identifies the party to which the factoring company is initially exposed;• “second level risk”, which identifies the credit granted to the counterparty of the party to which the factoring

company is initially exposed.Furthermore, within this macro classification, there are sub-groups depending on the type of counterparty with which the obligation has been assumed and the type of underlying transaction.

In order to more efficiently monitor the lending process, additional sub-categories have been created for performing assets (operating, under monitoring, suspended, under elimination, start-up and revoked).

Assets are classified as “default” (continuously past due by over 180 days, restructured loans, doubtful loans and non-performing loans) in accordance with the criteria established in the “Credit Regulation” and the parent’s directives. Classification as such is not the result of discretionary assessment, but it is based on counterparty conduct, which is deemed to anticipate a temporary or definitive difficulty in meeting obligations. Given the particular risk of these loans, they are managed by a specific organisational unit (Irregular Credit Service).

Control systems

Credit risk monitoring involves the entire structure responsible for managing relationships with transferors and transferred debtors. It is defined in the specific internal “Credit Monitoring Manual”.

Risk measurement systems

The definition of a credit risk measurement system in the factoring segment relates closely to this specific type of activity, which, as noted above, differs in structure from that of a banking business. The related conceptual model can be summarised as follows:


The credit risk of the factoring transaction therefore arises from default risk and dilution risk1, which must be measured separately and then reconciled. Default risk relates to all borrower ratings and transaction ratings. The former can be defi ned by the probability of default (PD) regulatory parameter, related to the counterparty’s credit quality, while the latter is an overall rating of the characteristics of the transaction taken as a whole, which, summarised to the extreme, can be expressed by the loss given default (LGD) regulatory parameter.This logical scheme serves as the company’s guideline for the development of internal credit risk measurement models.

Moreover, until internal rating-based (IRB) models are developed with the parent, the company has decided to use the standardised method provided for by the New Basel Accord (and implemented by the “Supervisory instructions for fi nancial intermediaries included in the Special List – circular no. 216 of 5 August 1996, 7th update dated 9 July 2007 and subsequent updates), in accordance with the agreement signed by the parent, UBI Banca with the rating agency, Lince S.p.A., which is an ECAI recognised by Banca d’Italia.Accordingly, in this context, PD has not yet been measured. It follows that the borrower rating is still incomplete and the result of a joint analysis of quantitative information based on the fi nancial statements of the previous three years (using data provided by a third party market leader approved by the parent) and qualitative information gathered informally by the sales managers.

Although the calculation of the LGD with respect to the transaction rating uses an advanced approach, the company believes that it is strategically advantageous for the factoring segment. It is waiting to agree on a calculation method with the parent for the subsequent preparation of the overall model.

1 As indicated in paragraph 369 of the New Basel Accord, “Dilution refers to the possibility that the receivable amount is reduced through cash or non-cash

credits to the receivable’s obligor.[...] Examples include offsets or allowances arising from returns of goods sold, disputes regarding product quality, possible

debts of the borrower to a receivables obligor, and any payment or promotional discounts offered by the borrower”


QUANTITATIVE INFORMATION

1 Credit exposure by portfolio and credit quality (Thousands of Euros)

Portfolio/qualityNon-

performing Doubtful Restructured Past due

Othersassets

Total

1. Financial assets held for trading - - - - - -

2. Financial assets at fair value - - - - - -

3. Available-for-sale financial assets - - - - - -

4. Held-to-maturity investments - - - - 8,716 8,716

5. Loans and advances to banks - - - - 6,844 6,844

6. Loans and advances to financial institutions - - - - 86,604 86,604

7. Loans and advances to customers 36,553 4,463 - 22,570 2,712,646 2,776,232

8. Hedging derivatives - - - - - -

Total (31/12/2011) 36,553 4,463 - 22,570 2,814,810 2,878,396

Total (31/12/2010) 11,515 4,166 - 28,899 2,711,495 2,756,075

2 Credit exposure

2.1 Loans and advances to customers: gross and net exposure

Gross exposure Specific impairment

lossesPortfolio impairment

losses Net exposure

A. IMPAIRED ASSETS 85,584 21,998 - 63,586

CASH EXPOSURE: 85,584 21,998 - 63,586

- Non-performing 57,976 21,423 - 36,553

- Doubtful 5,038 575 - 4,463

- Restructured - - - -

- Impaired past due 22,570 - - 22,570

EXPOSURE NOT RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION:

- - - -

- Non-performing - - - -

- Doubtful - - - -


- Impaired past due - - - -

Total A 85,584 21,998 - 63,586

B. PERFORMING ASSETS: 2,716,658 159 3,853 2,712,646

- Unimpaired past due 315,917 - - 315,917

- Other 2,400,741 159 3,853 2,396,729

Total B 2,716,658 159 3,853 2,712,646

Total (A+B) 2,802,242 22,157 3,853 2,776,232

As required by the Banca d’Italia letter of 22 February 2011, and in line with IFRS 7, unimpaired past due exposure is detailed below:

Up to 3 months From 3 to 6 months Total exposure

Unimpaired past due: 286,360 29,557 315,917

- Due from transferors (with recourse) 199,632 9,753 209,385

- Due from transferred debtors (without recourse) 85,367 19,804 105,171

- Other 1,361 - 1,361


2.2 Loans and advances to banks and financial institutions: gross and net exposure



losses Net exposure

A. IMPAIRED ASSETS - - - -

CASH EXPOSURE: - - - -


- Doubtful - - - -




- - - -


- Doubtful - - - -



Total A - - - -

B. PERFORMING ASSETS: 93,576 - 128 93,448

- Unimpaired past due - - - -

- Other 93,576 - 128 93,448

Total B 93,576 - 128 93,448

Total (A+B) 93,576 - 128 93,448

2.3 Classification of exposure based on third party and internal ratings

2.3.1 Distribution of cash and off-statement of financial position credit exposure by third party rating

ExposureThird party ratings

Aa1 / Baa7 Baa8 Baa9 / B13 B14 / B15 B16 / C19 No rating Total

A. Cash exposure 891,438 143,033 422,822 25,588 103,861 1,189,490 2,776,232

B. Derivatives - - - - - - -

B.1 Financial derivatives - - - - - - -

B. Credit derivatives - - - - - - -

C. Guarantees given - - - - - 915 915

D. Commitments to disburse funds

- - - - - 157,387 157,387

Total 891,438 143,033 422,822 25,588 103,861 1,347,792 2,934,534

2.3.2 Distribution of cash and off-statement of financial position credit exposure by internal rating

ExposureInternal ratings

Rating 1 Rating 2 Rating 3 Rating 4 No rating Impaired Total

A. Cash exposure - - - - 2,776,232 - 2,776,232

B. Derivatives - - - - - - -

B.1 Financial derivatives - - - - - - -

B. Credit derivatives - - - - - - -

C. Guarantees given - - - - 915 - 915

D. Commitments to disburse funds

- - - - 157,387 - 157,387

Total - - - - 2,934,534 - 2,934,534


3 Credit concentration (Thousands of Euros)

3.1 Loans to customers by counterparty business segment: gross and net exposure

a) Public administration



losses Net exposure

A. IMPAIRED ASSETS 18,765 498 - 18,267

CASH EXPOSURE: 18,765 498 - 18,267

- Non-performing 2,421 457 - 1,964

- Doubtful 1,928 41 - 1,887




- - - -


- Doubtful - - - -



Total A 18,765 498 - 18,267

B. PERFORMING ASSETS: 211,024 - - 211,024


- Other 211,024 - - 211,024

Total B 211,024 - - 211,024

Total (A+B) 229,789 498 - 229,291

b) Households



losses Net exposure

A. IMPAIRED ASSETS 502 343 - 159

CASH EXPOSURE: 502 343 - 159

- Non-performing 427 341 - 86

- Doubtful 75 2 - 73




- - - -


- Doubtful - - - -



Total A 502 343 - 159



- Other 5,000 - 7 4,993

Total B 5,000 - 7 4,993

Total (A+B) 5,502 343 7 5,152


c) Not-for-profit associations serving families



losses Net exposure


CASH EXPOSURE: 31,180 9,640 - 21,540

- Non-performing 31,180 9,640 - 21,540

- Doubtful - - - -




- - - -


- Doubtful - - - -



Total A 31,180 9,640 - 21,540



- Other 210,781 - 351 210,430

Total B 210,781 - 351 210,430

Total (A+B) 241,961 9,640 351 231,970

d) Rest of the world



losses Net exposure

A. IMPAIRED ASSETS 1,230 98 - 1,132

CASH EXPOSURE: 1,230 98 - 1,132

- Non-performing 532 98 - 434

- Doubtful - - - -


- Impaired past due 698 - - 698


- - - -


- Doubtful - - - -



Total A 1,230 98 - 1,132

B. PERFORMING ASSETS: 630,152 100 953 629,099


- Other 630,152 100 953 629,099

Total B 630,152 100 953 629,099

Total (A+B) 631,382 198 953 630,231


e) Non-financial companies



losses Net exposure


CASH EXPOSURE: 33,907 11,419 - 22,488

- Non-performing 23,416 10,887 - 12,529

- Doubtful 3,035 532 - 2,503




- - - -


- Doubtful - - - -



Total A 33,907 11,419 - 22,488

B. PERFORMING ASSETS: 1,659,701 59 2,542 1,657,100


- Other 1,659,701 59 2,542 1,657,100

Total B 1,659,701 59 2,542 1,657,100

Total (A+B) 1,693,608 11,478 2,542 1,679,588

3.2 Loans to customers by counterparty geographical segment: net exposure

a) Public administration

Northwest Northeast Centre South Islands Abroad Total

A. IMPAIRED ASSETS 728 3,327 4,547 9,636 29 - 18,267

CASH EXPOSURE: 728 3,327 4,547 9,636 29 - 18,267

- Non-performing - - - 1,964 - - 1,964

- Doubtful - - - 1,887 - - 1,887

- Restructured - - - - - - -

- Impaired past due 728 3,327 4,547 5,785 29 - 14,416


- - - - - - -

- Non-performing - - - - - - -

- Doubtful - - - - - - -


- Impaired past due - - - - - - -

Total A 728 3,327 4,547 9,636 29 - 18,267

B. PERFORMING ASSETS: 31,270 27,711 80,834 71,209 - - 211,024

- Unimpaired past due - - - - - - -

- Other 31,270 27,711 80,834 71,209 - - 211,024

Total B 31,270 27,711 80,834 71,209 - - 211,024

Total (A+B) 31,998 31,038 85,381 80,845 29 - 229,291


b) Households


A. IMPAIRED ASSETS - - 33 126 - - 159

CASH EXPOSURE: - - 33 126 - - 159

- Non-performing - - 22 64 - - 86

- Doubtful - - 11 62 - - 73




- - - - - - -


- Doubtful - - - - - - -



Total A - - 33 126 - - 159

B. PERFORMING ASSETS: 2,061 1,487 1,151 199 95 - 4,993


- Other 2,061 1,487 1,151 199 95 - 4,993

Total B 2,061 1,487 1,151 199 95 - 4,993

Total (A+B) 2,061 1,487 1,184 325 95 - 5,152

c) Not-for-profit associations serving families


A. IMPAIRED ASSETS 21,490 - 50 - - - 21,540

CASH EXPOSURE: 21,490 - 50 - - - 21,540

- Non-performing 21,490 - 50 - - - 21,540

- Doubtful - - - - - - -




- - - - - - -


- Doubtful - - - - - - -



Total A 21,490 - 50 - - - 21,540

B. PERFORMING ASSETS: 6,867 716 202,847 - - - 210,430


- Other 6,867 716 202,847 - - - 210,430

Total B 6,867 716 202,847 - - - 210,430

Total (A+B) 28,357 716 202,897 - - - 231,970


d) Rest of the world


A. IMPAIRED ASSETS - - - - - 1,132 1,132

CASH EXPOSURE: - - - - - 1,132 1,132

- Non-performing - - - - - 434 434

- Doubtful - - - - - - -


- Impaired past due - - - - - 698 698


- - - - - - -


- Doubtful - - - - - - -



Total A - - - - - 1,132 1,132

B. PERFORMING ASSETS: - - - - - 629,099 629,099


- Other - - - - - 629,099 629,099

Total B - - - - - 629,099 629,099

Total (A+B) - - - - - 630,231 630,231

e) Non-financial companies


A. IMPAIRED ASSETS 7,500 1,492 7,899 5,393 204 - 22,488

CASH EXPOSURE: 7,500 1,492 7,899 5,393 204 - 22,488

- Non-performing 2,904 67 4,719 4,749 90 - 12,529

- Doubtful 574 150 1,103 562 114 - 2,503


- Impaired past due 4,022 1,275 2,077 82 - - 7,456


- - - - - - -


- Doubtful - - - - - - -



Total A 7,500 1,492 7,899 5,393 204 - 22,488

B. PERFORMING ASSETS: 799,550 290,702 494,253 69,160 3,435 - 1,657,100


- Other 799,550 290,702 494,253 69,160 3,435 - 1,657,100

Total B 799,550 290,702 494,253 69,160 3,435 - 1,657,100

Total (A+B) 807,050 292,194 502,152 74,553 3,639 - 1,679,588

3.3 Large risks

31/12/2011

a) weighted total of large risks 733,114

b) number 18


3.2 MARKET RISK

3.2.1 INTEREST RATE RISK



Interest rate risk, i.e., the transformation of due dates or unbalance between the average due dates of assets and liabilities, is immaterial in the scope of the company’s activities, as its assets consist of loans and advances to customers with clear and well-defined due dates. Furthermore, the company does not trade on the market and, accordingly, the average ageing of assets is closely monitored and not subject to unexpected fluctuations.Accordingly, the company’s sources of funding are structured on the basis of the lending.Financial management is not speculative and even average spreads remain at more or less steady levels throughout the year.There are no substantial differences between sources of funding and the application of funds, as the company uses index-linked instruments on both ends.

2 Interest rate risk management

In the light of the above, overall, the company does not use advanced cash management models, as it finds it sufficient to carefully monitor the sources and application of funds, which have short-term lives on average.Cash management is integrated in the Factoring and General Ledger functions and bank balances are continuously updated using the remote banking services of one of the group’s banks. Accordingly, funding rates are monitored continuously and on a daily basis.


1 Residual life of financial assets and liabilities

Up to 3 months From 3 to 6

monthsFrom 6 months

to 1 yearFrom 1 to 5

years From 5 to 10

yearsOver 10 years Undetermined

1. Assets 1,658,412 202,800 535,259 48,781 - - 424,428

1.1 Debt instruments - - - - - - -

1.2 Loans and receivables 1,658,412 202,800 535,259 48,781 - - 424,428

1.3 Other assets - - - - - - -

2. Liabilities 2,739,037 - - - - - -

2.1 Financial liabilities 2,739,037 - - - - - -

2.1 Debt instruments - - - - - - -

2.3 Other liabilities - - - - - - -

3. Financial derivatives - - - - - - -

Options - - - - - - -

3.1 Long - - - - - - -

3.2 Short - - - - - - -

Other derivatives - - - - - - -

3.3 Long - - - - - - -

3.4 Short - - - - - - -


2 Interest rate risk measurement and management model and other methods

In the light of the above, overall, the company does not use advanced cash management models, as it finds it sufficient to carefully monitor the sources and application of funds, which have short-term lives on average.Cash management is integrated in the Factoring and General Ledger functions and bank balances are continuously updated using the remote banking services of one of the group’s banks. Accordingly, funding rates are monitored continuously and on a daily basis

3.2.2 PRICE RISK



The company is not exposed to price risk, intended as the possibility of incurring losses in the trading of securities, as it does not trade on the market. Its application of funds relates solely to self-paying or cash loans and receivables held to maturity.The company does not use derivatives. It does not perform securitisation either.

2 Price risk management

In the light of the above, the company’s reduced exposure to price risk does not require the use of any particular instruments other than those for ordinary operations.


1 Price risk measurement and management model and other methods

In the light of the above, the company’s reduced exposure to price risk does not require the use of any particular instruments other than those for ordinary operations.

3.2.3 CURRENCY RISK



The portion of the portfolio in foreign currency is greater than in the past. This is a trend due to the company’s growing operations in foreign markets.The overall impact is, however, so limited that currency risk cannot currently be considered material.

2 Currency risk management

With respect to currency risk, operating procedures require foreign currency transactions to be hedged with the same currency and due date.



1 Assets, liabilities and derivatives by currency (Thousands of Euros)

Currencies

USdollar

Polishzloty

Danishkrone

Britishpound

Australiandollar

Othercurrencies

1. Financial assets 265,682 99,890 17,757 5,577 5,333 4

1.1 Debt instruments - - - - - -

1.2 Equity instruments - - - - - -

1.3 Loans and receivables 265,682 99,890 17,757 5,577 5,333 4

1.4 Other financial assets - - - - - -

2. Other assets - 662 - - - -

3. Financial liabilities 265,543 100,005 17,749 6,310 5,328 -

3.1 Financial liabilities 265,543 100,005 17,749 6,310 5,328 -

3.1 Debt instruments - - - - - -

3.3 Other financial liabilities - - - - - -

4. Other liabilities - 709 - - - -

5. Derivatives - - - - - -

5.1 Long - - - - - -

5.2 Short - - - - - -

Total assets 265,682 100,552 17,757 5,577 5,333 4

Total liabilities 265,543 100,714 17,749 6,310 5,328 -

Unbalance (+/-) 139 (162) 8 (733) 5 4

2 Currency risk measurement and management model and other methods

With respect to currency risk, operating procedures require foreign currency transactions to be hedged with the same currency and due date.

3.3 OPERATIONAL RISKS


1 General information, operational risk management processes and measurement methods

Within the scope of business risks, operational risks consist of an extremely broad range, and they are often considered residually after credit and market risks.In the light of the indications issued in the New Basel Accord (and implemented by the “Supervisory instructions for financial intermediaries included in the Special List – circular no. 216 of 5 August 1996 and subsequent updates), the concept of operational risk relates to the following causal categories:• human resource: events due to error, fraud, violations of rules and internal procedures and, in general issues

relating to the incompetence or negligence of personnel;• systems: this category consists of everything relating to the technological systems in use. Accordingly, it

encompasses IT system issues, programming errors and interruptions in the network and telecommunications infrastructure.

• processes: these are factors connected to the general credit process, such as violations of IT security due to insufficient controls, transaction registration and accounting errors and errors in the measurement models;

• external factors: these are generally everything that slips past controls, such as changes in the general legislative context (with adverse effects on the company’s profitability), criminal acts of any kind (theft, arson, etc.). In one sense, this category could also include reputational risk, i.e., potential losses due to poor conduct with counterparties in general. However, the company treats that separately, in line with the New Basel Accord.

• The logical scheme described above has been shared with the parent as part of the “Operational risk management policy” of UBI Banca, with significant effects on the risk management and measurement system.


2 Operational risk management policies

Operational risk management begins with the consideration that risks related, in particular, to human resources, systems and processes, can be minimised by introducing clear and well-defined management procedures when responsibilities are assigned and with the appropriate internal control policies.Accordingly, in this scope, company processes are documented in internal procedures that provide for specific level 1 controls to monitor that the activities provided for are actually carried out. Any irregularities that arise are investigated through a level 2 control system, in order to assess the content of each irregularity in terms of operational risk (with or without an impact on profit or loss).As the efficiency and effectiveness of processes is believed to be key to ensuring the company’s ability to continue as a going concern, a series of level 3 controls are also performed to identify any steps to be taken on the individual stages of operating activities.With respect to operational risk arising from external circumstances, the company takes specific precautions (insurance policies and advisory services from third parties) with the aim of minimising any events that, by their very nature, cannot be directly controlled.

2.1 Organisational information

Operational risks are managed, on the basis of the guidelines indicated above, in accordance with the parent UBI Banca’s “Operational risk management policy”, with significant effects on the risk management and measurement system.In particular, the following four positions have been identified:• Operational Risk Manager (ORM), responsible, within their legal entity, for preparing the group operating risk

management policy with respect to operational risk management aspects, reporting to the parent’s General Manager and participating, when invited, in the parent’s Operational Risk Committee meetings. This position is filled by UBI Factor’s General Manager.

• Local Operational Risk Support (LORS), mainly supporting the Operational Risk Manager in overall governance of the operational risk management process for their legal entity and verifying that the operational risk system meets suitability requirements. This is position is filled by UBI Factor’s Risk Management and Anti-money Laundering Manager.

• Risk Champions (RC), operationally overseeing the operational risk management process - in relation to their business area - for the purposes of providing an overall validation, coordinating and supporting the Risk Owners, supporting the risk monitoring process and participating in the definition and implementation of mitigation strategies. This position is filled by UBI Factor’s Area/Service/Function Managers who, within the scope of operational risk management, directly report to the ORM via the LORS”.

• Risk Owners (RO), who are responsible for recognising and reporting any loss events (loss data collection, “LDC”) and/or potential loss events (risk assessment, “RSA”) that arise. They participate in the implementation of corrective and improvement measures.

Within UBI Factor, this position is held by people who, as they operate in the Organisational Units of the aforementioned Risk Champions, can recognise actual and/or potential loss events due to operational risk factors in the course of their daily activities.

The Risk Management and Anti-money Laundering Manager perform level 2 controls (risk controls).However, considering the importance of the operational risk management process, the entire company structure is involved in continuous monitoring activities, and not just necessarily when performing a specific level 1 control.


2.2 Risk management, measurement and control

Risk classification

Operational risk events are classified in accordance with the “UBI Banca Group’s operational risk management policy” approved by the parent and in line with the New Basel Accord.In particular, any irregularities detected electronically by the Risk Owners are electronically investigated by the Risk Champions who, after performing a check, report the content of the check to the Risk Management and Anti-money Laundering Function in order to highlight any impact in terms of operational risk.• Periodically, when operating losses are recognised following new events or losses are updated on events

that were previously reported, the Risk Management and Anti-money Laundering manager informs the parent’s Operational Risk Service.

Measurement system

As provided for by the “Operational risk management policy”, the detection of operating losses and consequent measurement are performed on the basis of two macro activities: loss data collection and risk assessment.With respect to loss data collection, periodically, when irregular events occur with operational risk to which a loss recognised in profit or loss is associated, the Risk Management and Anti-money Laundering Manager (who also fills the position of “LORS”) accesses a specific application on the UBI Banca intranet and updates the group’s operating loss database. The actual losses are calculated mainly in order for the parent to report them to ABI (the Italian Banking Association), as part of the “DIPO Project”. Moreover, the Risk Management and Anti-money Laundering Department shares this information within the company with the Risk Champions so the necessary steps can be taken to counteract the losses.The purpose of risk assessment activities is to estimate the company’s potential operating losses. The company began performing these activities in 2007, with an initial risk mapping stage, mainly by analysing internal rules and external regulations, historical losses and general market losses and by interviewing business unit experts throughout the entire process. The second stage of self risk assessment involved the experts’ assessment of the level of operational risk exposure of the analysed activities, through a combination of evaluations of the probability of potential events actually occurring, the potential cost for the company is they were to occur and the perceived effectiveness of controls in place at the time. In 2011, similar activities were performed and the findings were substantially in line with those of previous years. They are currently under discussion with the parent. In terms of the approach to be taken, in accordance with the approaches provided for by the New Basel Accord (and implemented by the “Supervisory instructions for financial intermediaries included in the Special List – circular no. 216 of 5 August 1996 and subsequent updates), with the parent’s prior approval, in 2008, the board of directors resolved to adopt the standardised method (TSA), also informing the Supervisory Board through the parent. This decision is still in place at present.


In 2011, loss data collection activities recorded operating losses of € 376 thousand (0.74% of net trading income).This amount is almost entirely due to legal expenses recognised in profit or loss by utilising amounts previously accrued to the provision for risks and charges in relation to specific positions. It also relates to prior year expense recognised in profit or loss in connection with the dispute pending (non-revocatory case).


3.4 LIQUIDITY RISK


3 General information, liquidity risk management processes and measurement methods

In general, this risk can arise from the company’s inability to gather funds or its ability to gather them but at higher-than-market costs (funding liquidity risk), or from limits to the sale of assets (“market liquidity risk”), leading to losses.

1 Liquidity risk management

In general, this risk is limited for the company as its funding is almost totally concentrated with UBI Banca Group banks, as it shares its funding policy in line with the characteristics of loans.Despite the group’s substantially sound situation, conditions on the general financial market are unfavourable, leading the parent to significantly contain the resources allocated to group companies (including UBI Factor) with a drop in loans.However, definitive discounting (IFRS-compliant) generates medium-range liquidity risk associated with the correct estimate of the stress time agreed by the parties. This is the term after which, in the event of non-collection or late collection, the company could suffer loss of revenue.


In the light of the above, in 2011, due to incorrect estimates of the stress time of definitive discounting (IFRS-compliant), the company recognised “loss of revenue” (i.e., lower revenue in profit or loss) of approximately € 132 thousand (including € 99 thousand which arose in the first half of 2011).


Section 4 Equity information

4.1 Equity

4.1.1 Qualitative information

The company’s equity is composed of the fully paid-up share capital, share premium, income-related reserves (in accordance with the pay-out instructions of the parent, the company’s sole shareholder), negative goodwill, reserves arising from gains on the sale of business activities and FTA reserves. There are no valuation reserves, except for the reserve for the actuarial gain/loss on post-employment benefits. The company holds no treasury shares and no equity instruments.

4.1.2 Quantitative information

4.1.2.1 Equity: analysis

31/12/2011 31/12/2010

1. Share capital 36,116 36,116

2. Share premium 2,066 2,066

3. Reserves 83,110 69,371

- income-related 74,895 61,156

a) legal reserve 7,223 7,223

b) statutory reserve - -

c) treasury shares - -

d) other 67,672 53,933

- other 8,215 8,215

4. (Treasury shares) - -

5. Valuation reserves (123) (55)

- Available-for-sale financial assets - -

- Property and equipment - -

- Intangible assets - -

- Hedge of foreign investments - -

- Cash flow hedges - -

- Exchange rate gains (losses) - -

- Non-current assets held for sale and discontinued operations - -

- Special revaluation laws - -

- Actuarial gains/losses on defined benefit plans (123) (55)

- Portion of valuation reserves relating to equity-accounted investees - -

6. Equity instruments - -

7. Profit for the year 6,756 18,601

Total 127,925 126,099

4.2 Equity and reporting capital requirements

4.2.1 Reporting capital

4.2.1.1 Qualitative information

Capital requirements are calculated using assets, liabilities and profit or loss determined in accordance with IFRS, on the basis of the “Supervisory instructions for financial intermediaries included in the Special List – circular no. 216 of 5 August 1996 and subsequent updates”, as well as the “Instructions for the preparation of financial statements of financial intermediaries included in the Special List – December 2009”, both issued by Banca d’Italia. Reporting capital is calculated as the algebraic sum of a series of positive and negative elements, which are admitted to the calculation - with or without limits - depending on its equity quality.


In order to be used, assets, less any tax expense, must be free of restrictions or delays to cover risks and company losses when such risks or losses arise.UBI Factor’s reporting capital includes tier 1 and tier 2 (there are no deductions such as “prudential filters”2 which would be calculated as increases and/or decreases depending on their nature). Specifically, UBI Factor’s:• Tier 1 includes paid-up share capital (caption 120 of the statement of financial position), reserves (captions

150 and 160 of the statement of financial position), profit for the year, net of any amount potentially allocable as dividends and other pay-outs (caption 180 of the statement of financial position). Intangible assets (caption 110 of the statement of financial position) is then deducted from the sum of these items.

• The algebraic sum of the positive and negative elements of tier 1 constitutes “tier 1 before the elements to be deducted”, which, summed with the “elements to be deducted from tier 1” (50% of equity investments of over 10% in banks and financial companies - in this case, the equity investment in Siderfactor S.p.A. in liquidation), determines “Total tier 1”.

• Tier 2 includes the valuation reserves generated upon first-time adoption of IFRS, with specific reference to the effects of post-employment benefits (caption 170 of the statement of financial position).

• As UBI Factor does not have any prudential filters, this amount constitutes “tier 2 before the elements to be deducted”, which, less the “elements to be deducted from tier 2” (50% of equity investments of over 10% in banks and financial companies - in this case, the equity investment in Siderfactor S.p.A. in liquidation), determines “Total tier 2”.

• Reporting capital is the algebraic sum of tier 1 and tier 2, as UBI Factor has no additional elements to deduct or any other amounts that would constitute tier 3.

4.2.1.2 Quantitative information

Total at 31/12/2011 Total at 31/12/2010

A. Tier 1 capital before the application of prudential filters 125,915 107,214

B. Tier 1 prudential filters: - -

B.1 Positive IFRS prudential filters (+) - -

B.2 Negative IFRS prudential filters (-) - -

C. Tier 1 capital before deductions (A+B) 125,915 107,214

D. Deductions from tier 1 capital 162 283

E. Total tier 1 captial (C-D) 125,753 106,931

F. Tier 2 capital before the application of prudential filters (123) (55)

G. Tier 2 prudential filters: - -

G.1 Positive IFRS prudential filters (+) - -

G.2 Negative IFRS prudential filters (-) - -

H. Tier 2 capital before deductions (F+G) (123) (55)

I. Tier 2 capital deductions 162 283

L. Total tier 2 capital (H-I) (285) (338)

M. Total tier 1 and tier 2 deductions - -

N. Reporting capital (E+L-M) 125,468 106,593

O. Tier 2 capital - -

P. Reporting capital including tier 3 capital (N+O) 125,468 106,593

4.2.2 Capital adequacy

4.2.2.1 Qualitative information

The new reporting capital requirements issued by Banca d’Italia (“New reporting capital requirements for banks” – circular no. 263 of December 2006 and subsequent updates and the “Supervisory instructions for financial intermediaries included in the Special List – circular no. 216 of 5 August 1996 and subsequent updates”) emphasise the importance of the reporting capital adequacy evaluation process, requiring, in general, banks and intermediaries to define an internal reporting capital adequacy assessment process for determining total current and prospective reporting capital adequacy in order to cover all relevant risks (the “ICAAP process”).

2 Prudential filters are adjustments to equity captions in order to safeguard the quality of reporting capital and reduce potential volatility caused by the

application of IFRS.


The parent, UBI Banca, has, in this respect, established a specific organisation unit called the ICAAP Service within its Risk Management Area, which it has made responsible for activities related to the current and prospective reporting capital adequacy assessment process.For UBI Factor, the relevant legislation (“Supervisory instructions for financial intermediaries included in the Special List – circular no. 216 of 5 August and subsequent updates”) does not provide for individual obligation, as the company is part of the UBI Group which is already subject to supervision on a consolidated basis.UBI Factor’s Risk Management and Anti-Money Laundering Department also internally monitors the composition of risk capital and its adequacy in terms of regulatory obligations and the company’s risk propensity (which is agreed with the parent as part of the company mission defined jointly with the parent in the guidelines approved by UBI Factor’s board of directors), continuously discussing them with its General Manager and reporting thereon to the board of directors each half year. Furthermore, on the basis of instructions received from the parent’s ICAAP Service, it feeds the routine reporting flows with specific respect to reporting capital requirements in terms of credit and operational risk, as well as for interest rate risk.UBI Factor’s General Manager also collaborates with the parent (by participating on the parent’s Steering Committees and holding meetings with UBI Banca’s top management) to evaluate specific measures (on capital or to, for example, mitigate the underlying credit risk) to be taken as a result of transaction that could have a particularly significant impact on capital.UBI Factor adopts the standardised method of individual reporting capital adequacy for both operational and credit risk.

4.2.2.2 Quantitative information

Unweighted Weighted/required

31/12/2011 31/12/2010 31/12/2011 31/12/2010

A. RISK ASSETS - - - -

A.1 Credit and counterpary risk - - - -

1. Standardised method 6,632,977 6,802,334 1,773,417 1,581,741

2. Internal rating-based method - - - -

2.1 Basic - - - -

2.2 Advanced - - - -

3. Securitisation - - - -

B. CAPITAL REQUIREMENTS - -

B.1 Credit and counterpary risk 106,405 94,904

B.2 Market risk - -

1. Standard method - -

2. Internal models - -

3. Concentration risk - -

B.3 Operational risk - -

1. Basic method - -

2. Standardised method 7,848 7,764

3. Advanced method - -

B.4 Other reporting capital requirements - -

B.5 Other calculation elements (28,563) (25,667)

B.6 Total reporting capital requirements 85,690 77,001

C. RISK ASSETS AND REPORTING CAPITAL REQUIREMENTS - -

C.1 Risk-weighted assets 1,773,417 1,581,741

C.2 Tier 1/risk-weighted assets (Tier 1 ratio) 7.09% 7.55%

C.3 Reporting capital including tier 3/Risk-weighted assets (Total reporting capital ratio) 7.07% 7.53%

The figures given above are based on the processing of Tier capital report 5. In particular:

1) A.1.1. Credit risk: the weighted amounts are calculated by applying the weighting rates provided for by Banca d’Italia regulations on the basis of the

customer type to the equivalent positions;

2) B.1. Capital requirement: this is calculated at a fixed rate of 6% of the total weighted amounts;

3) B.3.2. Operational risk: this is calculated at a fixed rate of 15% of average net trading income in the previous three years;

4) B.5 Reduction in capital requirements: this is calculated at a fixed rate of 25% of the above requirements, as the company is part of a consolidating

banking group;

5) B.6 Total capital requirements: these are equal to the sum of B.1, B.3.2 and B.5.


Section 5: Analytical statement of comprehensive income

Gross amount Income taxes Net amount

10. Profit for the year 13,262 (6,507) 6,755

Other comprehensive income

20. Available-for-sale financial assets:

a) changes in fair value - - -

b) reversals to profit or loss - - -

- impairment losses - - -

- gains/losses on sales - - -

c) other changes - - -

30. Property and equipment - - -

40. Intangible assets - - -

50. Hedge of foreign investments:




60. Cash flow hedges:




70. Exchange rate gains (losses):

a) changes in value - - -



80. Non-current assets available for sale:




90. Actuarial gains (losses) on defined benefit plans (94) 26 (68)

100. Portion of valuation reserves of equity-accounted investees

recognised in equity:



- impairment losses - - -

- gains/losses on sales - - -


110. Total other comprehensive income (94) 26 (68)

120. Comprehensive income (Caption 10+110) 13,168 (6,481) 6,687

Section 6: Related party transactions

As required by IAS 24, the following disclosure is provided concerning related party transactions.

6.1 Remuneration of key managers (Euros)

Total at 31/12/2011

Directors 163,307

Statutory auditors 121,759

Managers 279,569


6.2 Loans and guarantees to Directors and Statutory Auditors

As required by IAS 24, the company reports that there are no loans or guarantees to directors or statutory auditors or any other related parties.

6.3 Information on related party transactions

The following table details the effects of transactions with group companies and other related parties on the statement of financial position and income statement:

ASSETS LIABILITIES EXPENSE REVENUE

Parent

UBI Banca 5,193,603 2,712,137,653 (31,727,138) 14,949

Group companies

Banco di Brescia - 5,325,482 (1,056,926) 16,364

Banca Regionale Europea 239,356 626,688 (3,646,282) 3,859

Banco S.Giorgio - 89,751 (148,228) -

Banca Valle Camonica 253,848 64,769 (205,245) 547

UBI Private Investment - 226 (7,320) -

UBI Leasing 50,632 - - 200,723

UBI Sistemi Servizi - - (155,014) -

Coralis Rent - 771 (7,995) -

Banca Popolare Bergamo 50,729 1,063,442 (3,228,196) 13,730

Banca Popolare Commercio Industria 195,242 185,874 (441,335) 20,777

Banca Popolare Ancona - 18,983 (75,660) -

IW Bank - 1,087 (34,418) -

Associates

Siderfactor S.p.A. in liquidation 32,581,615 5,308 (5,308) 1,272,564

The assets and liabilities detailed above may be described as follows:

- UBI Banca: overdrafts relating to credit facilities granted to the company, tax assets and liabilities for direct taxes within the scope of the tax consolidation scheme and invoices to be received for guarantee commissions and services provided;

- group companies: positive and negative current account balances, invoices to be received for referral commissions and services provided, receivables and payables for employees seconded in/out;

- associates: the balance of the financing granted by the company and invoices to be received.

The revenue and expense detailed above may be described as follows:

- UBI Banca: interest expense paid on the credit facilities granted to the company, bank charges, guarantee commission expense and the cost of services;

- group companies: current account interest income and expense, bank charges, referral commission expense, expense and revenue for employees seconded in/out, lease expense and the cost of services;

- associates: interest income on the financing granted by the company, administrative service revenue and referral commission expense.


Disclosure of fees for the legally-required audit (*) and other non-audit services pursuant to article 149-duodecies of the Consob Issuers Regulation.

As required by article 149-duodecies of the Consob Issuer Regulation, the following table provides information on fees paid to the independent auditors, KPMG S.p.A., and its network companies for the following services:

1) Audit services, which include:

• legally-required audit of the annual financial statements to express an opinion; • review of the interim reports.

2) Attestation services, which consist of engagements in which the auditor assesses a specific element that has been determined by another party responsible therefor, applying the suitable criteria, in order to conclude as to the reliability of such specific element.

3) Tax advisory services. 4) Other services, which consist of all other engagements.

The audit fees shown in the table, which relate to 2011, are regulated by contract, including any indexing (they exclude out-of-pocket expenses, the supervisory contribution, where applicable, and VAT).

As per explicit instructions, they do not include fees paid to any secondary auditors or members of the respective networks.

Service provider ClientFees

(Euros)

Legally-required audit (*): KPMG S.p.A. UBI Factor S.p.A.

- annual report 87,800

- review of half-year reporting package 27,165

Attestation services:

- UNICO, IRAP, simplified and ordinary 770 tax forms KPMG S.p.A. UBI Factor S.p.A. 3,080

Other services:

- methodological support for the information system KPMG Advisory S.p.A. UBI Factor S.p.A. 298,000

migration project

- review of English-language annual report KPMG S.p.A. UBI Factor S.p.A. 10,000

- consultancy Poland KPMG Tax M.Michna Sp.k. UBI Factor S.p.A. 46,510

Total 472,555

(*) As defined by Legislative decree no. 39 of 27 January 2010

96 Annual Report 2011

Annual Report 201 1 - UBI Factor Factor - Annual...In 2011, the company collected credit insurance...

Documents

Transcript of Annual Report 201 1 - UBI Factor Factor - Annual...In 2011, the company collected credit insurance...