CONDENSED INTERIM CONSOLIDATED REPORT AT 30 JUNE 2015€¦ · 4 CONSOLIDATED HIGHLIGHTS AND...

Credito Valtellinese Società CooperativaCredito Valtellinese Società CooperativaCredito Valtellinese Società CooperativaCredito Valtellinese Società Cooperativa Registered Offices in Piazza Quadrivio 8 - Sondrio, Italy

Tax code and Sondrio Company Registration No. 00043260140 - Register of Banks No. 489 Parent of the Credito Valtellinese Banking Group - Register of Banking Groups No. 5216.7

Website: http://www.creval.it E-mail: [email protected] Share capital fully subscribed and paid-up EUR 1,846,816,830.42

Member of the Interbank Guarantee Fund

CONDENSED INTERIM CONSOLIDATED REPORT

AT 30 JUNE 2015

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Company Officers of Credito Valtellinese

Board of Directors

Chairman Giovanni De Censi

Deputy Chairman Alberto Ribolla

Managing Director Miro Fiordi

Directors Mariarosa Borroni

Isabella Bruno Tolomei Frigerio

Gabriele Cogliati

Michele Colombo

Paolo De Santis

Paolo Stefano Giudici

Gionni Gritti

Antonio Leonardi

Livia Martinelli

Francesco Naccarato

Valter Pasqua

Paolo Scarallo

Board of Statutory Auditors

Chairman Angelo Garavaglia

Standing Auditors Giuliana Pedranzini

Luca Valdameri

Substitute Auditors Edoardo Della Cagnoletta

Anna Valli

General Management

General Manager Miro Fiordi

Co-General Manager Luciano Camagni

Deputy General Managers Umberto Colli

Enzo Rocca

Mauro Selvetti

Manager in charge of financial reporting Simona Orietti

Audit Company KPMG S.p.A.

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Contents

CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS AT 30 JUNE

2015 4

ORGANISATIONAL MODEL AND BREAKDOWN OF THE CREDITO VALTELLINESE BANKING

GROUP .......................................................................................................... 7

REPORT ON OPERATIONS .................................................................................... 9

Macroeconomic reference context .................................................................................. 9

Events of bank operations during the first half-year ........................................................ 13

The operational structure, the customers and the commercial performance indicators ......... 15

Performance of Credito Valtellinese shares ..................................................................... 17

Information on the main statement of financial position items and on consolidated income statement figures ....................................................................................................... 20

Related party transactions, risks and going concern prospects ......................................... 28

Events after the close of the half-year ........................................................................... 36

Current-year outlook ................................................................................................... 36

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS .................................. 37

Condensed interim consolidated financial statements ...................................................... 38

Notes to the condensed interim consolidated financial statements .................................... 45

CERTIFICATION OF THE CONDENSED INTERIM CONSOLIDATED REPORT PURSUANT TO

ARTICLE 81-TER OF CONSOB REGULATION NO. 11971/99 ................................... 135

REPORT OF THE AUDITORS .............................................................................. 136

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CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE

PERFORMANCE INDICATORS AT 30 JUNE 2015

STATEMENT OF FINANCIAL POSITION 30/06/2015 31/12/2014 % change 30/06/2014 %

change

(in thousands of EUR)

Loans and receivables with customers 18,590,813 19,004,863 -2.18 19,446,613 -4.40

Financial assets and liabilities 5,367,230 6,539,442 -17.93 3,451,610 55.50

Equity Investments 30,303 200,797 -84.91 188,779 -83.95

Total assets 27,062,432 28,813,556 -6.08 26,900,395 0.60

Direct funding from customers 21,898,623 20,745,569 5.56 20,424,825 7.22

Indirect funding from customers 12,279,545 11,963,332 2.64 11,890,562 3.27

of which:

- Managed funds 6,602,765 5,848,254 12.90 5,633,991 17.20

Total funding 34,178,168 32,708,901 4.49 32,315,387 5.76

Equity 2,010,927 2,020,106 -0.45 2,362,029 -14.86

At 30 June 2015, the equity investment in Istituto Centrale delle Banche Popolari was classified as "150. Non-current assets held for sale and disposal groups" by 18.39%, whereas the remaining 2% was included under item "100. Equity investments". SOLVENCY RATIOS 30/06/2015 31/12/2014

Common Equity Tier 1 capital / Risk-weighted assets (CET1 capital ratio) 11.5% 11%

Tier 1 capital/Risk-weighted assets (Tier1 capital ratio) 11.5% 11%

Total own funds/Risk-weighted assets (Total capital ratio) 13.8% 14%

FINANCIAL STATEMENT RATIOS 30/06/2015 31/12/2014

Indirect funding from customers / Total funding 35.9% 36.6%

Managed funds / Indirect funding from customers 53.8% 48.9%

Direct funding from customers/ Total liabilities 80.9% 72.0%

Customer loans / Direct funding from customers 84.9% 91.6%

Customer loans / Total assets 68.7% 66.0%

CREDIT RISK 30/06/2015 31/12/2014 % change

Net bad loans (in thousands of EUR) 1,195,809 1,101,939 8.52

Other net doubtful loans (in thousands of EUR) 2,138,160 2,090,157 2.30

Net non-performing loans (in thousands of EUR) 3,333,969 3,192,096 4.44

Net bad loans / Loans and receivables with customers 6.4% 5.8%

Other net doubtful loans / Loans and receivables with customers 11.5% 11.0%

Net non-performing loans / Loans and receivables with customers 17.9% 16.8%

Coverage ratio of bad loans 55.8% 56.0%

Coverage ratio of other doubtful loans 19.0% 18.9%

Coverage ratio of non-performing loans 37.6% 37.2%

Cost of credit (*) 1.71% 3.41%

(*) Calculated as the ratio between net impairment losses on loans and year-end loans.

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ORGANISATIONAL DATA 30/06/2015 31/12/2014 % change

Number of employees 4,116 4,275 -3.72

Number of branches 539 539 -

Banc@perta line users 254,933 243,557 4.67

INCOME STATEMENT DATA 1st

half of 2015

1st half of 2014

% change


Net interest income 237,533 247,977 -4.21%

Operating income 452,859 489,178 -7.42%

Operating costs (250,142) (256,122) -2.33%

Net operating profit 202,717 233,056 -13.02%

Pre-tax profit from continuing operations 40,553 16,663 143.37%

Post-tax profit from continuing operations 32,999 5,121 n.s.

Profit for the period 50,867 3,144 n.s.

OTHER FINANCIAL INFORMATION 1st half of 2015 2014

1st half of 2014

Cost/Income ratio 55.2% 55.8% 52.4%

Personnel expenses / Number of employees 69 69 68

2014 figure calculated net of non-recurring expenses related to the implementation of the "Solidarity Fund" and of the impairment of the customer lists; figure of the first half-year of 2014 restated in accordance with the provisions of IFRS 5.

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ASSIGNED RATINGS

Fitch Ratings

Long-Term IDR BB

Short-Term IDR B

Viability Rating bb

Support Rating 5

Support Rating Floor No floor

Outlook Stable

Last "rating action" on 2 July 2015

Moody’s Ratings

Long-term Ratings Ba2

Short-term Ratings Not-Prime

Outlook Stable

Last "rating action" on 22 June 2015

DBRS Ratings

Senior Long-Term Debt & Deposit BBB (low)

Short-term Debt & Deposits R-2 (low)

Intrinsic Assessment BBB (low)

Support Assessment SA-3

Trend Negative

Last "rating action" on 18 June 2015

INFORMATION ON SHARES 30/06/2015 31/12/2014

Number of ordinary shares 1,108,872,369 1,108,872,369

Listed price at end of the period 1.19 0.793

Average listed price for the period 1.1522 0.9276

Average stock-market capitalisation (millions of EUR) 1,278 790

Group equity per share (*) 1.814 1.822

(*) The calculation does not consider treasury shares in portfolio.

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ORGANISATIONAL MODEL AND BREAKDOWN OF THE

CREDITO VALTELLINESE BANKING GROUP

The Credito Valtellinese Banking Group currently consists of territorial banks, specialised

companies and special purpose companies for the provision of services - with a view to

achieving synergies and economies of scale - to all the companies of the Group, as

graphically represented below (at 30 June 2015).

STRUCTURE OF THE CREDITO VALTELLINESE GROUP

The Organisational Model of the Group, defined as a "network company" model, assigns

the reference market share to the territorial banks and the required operating support to

the specialised finance and special purpose companies. Therefore, it is based on the full

enhancement of the distinctive skills of each member, with the purpose of achieving the

maximum efficiency and competitiveness, on their functional and operational correlation,

on the adoption in the corporate process management of the same rules and methods.

This allows to overcome size restrictions and to fully benefit from the advantage of

proximity with regard to the areas of choice, combining effectively specialisation and

flexibility, production and distribution functions.

At 30 June 2015, the Credito Valtellinese Group is present in Italy with a network of 539

Branches, in eleven regions, through the territorial banks characterising the "Market

Segment":

- Credito Valtellinese S.c., the Parent, present with its own network of 363 branches,

most of which - 231 - are in Lombardia, as well as in Valle d’Aosta, Piemonte, Veneto,

Trentino Alto Adige, Emilia Romagna, Toscana and Lazio.

- Carifano S.p.A., with a branch network of 40 branches, mainly in the Marche region, as

well as in Umbria, Perugia and Orvieto.

- Credito Siciliano S.p.A. is present in all the provinces of Sicilia with 136 branches and

in Roma, Torino and Milano with three branches dedicated to loans against pledges.

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The following companies characterise the "Specialised Companies Segment":

- Global Assicurazioni S.p.A.1, a multifirm insurance agency specialised in the

brokerage and management of standard insurance policies in favour of individuals and

household customers.

- Global Broker S.p.A.2, insurance broker specialised in the brokerage and management

of insurance policies in favour of companies.

The companies providing services complementary to banking business characterising the

"Corporate Centre Segment" complete the Group:

- Bankadati Servizi Informatici società consortile per Azioni is the Group’s centre

for ICT management and development, organisation, back office and support processes.

- Stelline Servizi Immobiliari S.p.A. manages the real estate holdings of the Group

companies, prepares real estate valuations to support the disbursement of credit by the

territorial banks and independently develops initiatives in favour of the local communities

of reference.

1 The company carrying out the insurance activities is subject to management and coordination by Credito

Valtellinese and therefore included in the consolidation scope, even if not included in the Banking Group,

pursuant to the supervisory provisions.

2 See previous note.

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REPORT ON OPERATIONS

Macroeconomic reference context3

The general economic framework

The global economic recovery continues but shows signs of slowdown due to temporary

factors in advanced economies, more persistent in emerging economies; an acceleration

of world trade is expected in the current year. The persistence of conditions of oversupply

in the oil market has so far helped to limit the price of crude oil at levels slightly above the

lows earlier this year. Factors of uncertainty such as the growth rate of official US rates

and financial instability in China, which revealed itself with a sharp decline in the stock

market interrupted only by massive interventions of the authorities, which could curb the

growth of that country, weigh on global economy.

The uncertainty on the prospects of Greece quickly increased after the interruption of the

negotiations with institutions and creditor countries for the extension of the support

programme, as well as following the results of the surprise referendum held by the Greek

authorities. The developments over the last few weeks significantly increased the volatility

of financial markets and share prices in the Eurozone. The increase in risk premiums on

Government bonds of the Eurozone was however limited as a whole, thanks to the range

of instruments at the disposal of the Eurosystem, to the progress in European governance

and to the reforms undertaken in each country.

After a difficult negotiation, on 13 July, the Eurozone leaders reached an agreement with

Greece; this agreement affects the start of negotiations for a third programme supporting

the approval, by the Greek Parliament, of a package of stringent and detailed measures,

the first of which voted with a positive outcome already on 15 July. After the

announcement of the agreement, the conditions of the financial markets have been

improved. Looking ahead, a strong action by the European and national economic policies

aimed at promoting the resumption of growth in Greece and in the Eurozone is essential

to counter the surfacing of tensions.

After starting the purchase programme of bonds of the Eurosystem, long-term interest

rates of the Eurozone decreased considerably until mid April; then, they started to

increase, also in response to the improved prospects for inflation and growth induced by

the programme, recovering much of the previous decline. The conditions of the financial

and currency markets as a whole continued to support the economic recovery and the

trend of prices; inflation turned positive in May, 0.3 per cent, for the first time since the

end of last year. The Executive Council of the ECB confirmed its determination to fully

implement the programme; it will react to any unwanted restrictions of monetary

conditions.

The Italian economy started to expand again. The improvement in the confidence indexes

of businesses and households was accompanied by a recovery in domestic demand that

contributed again to growth. Investments, which decreased almost continuously since

2008, increased, with the first favourable signs also in the construction segment. Business

plans envisage a decisive expansion of accumulation during the year for bigger companies,

against a more cautious approach of medium and especially small companies. The most

recent economic indicators report that growth continued in second quarter at a rate similar

to that of the first quarter.

3 Source: Bank of Italy Economic Bulletin no. 3 – 2015. Updated with the figures available on 10 July 2015, unless otherwise

indicated.

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In the April-May time interval, employment began to grow again. The unemployment rate

stabilised. So far this year, the share of recruitment with permanent contracts increased

significantly, encouraged by recent measures of the Government. In spring, the use of the

CIG (Cassa integrazione guadagni) decreased. The percentage of companies that

envisaged an expansion of employment increased, albeit the opinions of stability prevail.

Inflation, negative at the beginning of the year, turned positive, but remained at

historically low levels. The expectations of households and businesses foreshadow a

further increase.

The Italian banking system

The expansive monetary conditions are gradually being transmitted to the credit market.

The decline in the cost of loans continued; the easing of the lending conditions is also

extending to small and medium businesses; the credit crunch for businesses eased; loans

to households and manufacturing businesses increased for the first time in more than

three years.

In the three months ending in May, the credit crunch to the private non-financial sector

was cancelled (net of seasonal effects, from -1.5 in February, year on year). The decline in

loans to non-financial companies decreased (-0.5 per cent, from -2.5). The credit to

households recorded a moderate increase (0.4 per cent) for the first time since March

2012; in the first quarter of the year, the new disbursement of loans increased by 15 per

cent compared to the corresponding period of 2014, in line with the more favourable signs

in the real estate market and benefiting from low interest rates.

The drop in loans to non-financial companies decreased both for bigger companies (-1.4

per cent in the 12 months ending in May) and for smaller companies (-3.6). The trend

remained different among business segments: the change in loans to manufacturing

businesses turned positive (0.7 per cent), whereas loans to services and constructions

continued to decrease (-1.5 and -2.6 per cent, respectively), albeit at a slower pace

compared to the end of last year (-2.6 and -3.5).

From February to May, total funding of Italian banks increased, reflecting both the further

expansion of the deposits of residents, which more than offset the drop in bonds held by

households, and the increase in Eurosystem refinancing. As a whole, deposits by non-

residents and reverse repurchase agreements towards central counterparties, which

represent interbank transactions with foreign operators, remained unchanged.

The easing of monetary conditions continued to be transmitted to the cost of credit. From

February to May, interest rates on loans to businesses decreased further, by two and

three-tenths of a point for new loans and for existing short-term loans, respectively, to

2.2 and 3.8 per cent; the cost of new loans to households fell by a tenth to 2.7 per cent.

The decreases were more pronounced for fixed-rate loans, in line with the sharp drop in

long-term yields recorded until mid-April. The differential with respect to the average rates

applied in the Eurozone decreased by two-tenths for new loans to businesses, zeroing for

those amounting to more than EUR 1 million; it remained unchanged, at approximately 40

basis points, for loans to households.

The reduction in the cost of loans to businesses concerned both big and small businesses;

in the first quarter, the decline continued to extend also to businesses oriented to the

domestic market and to those with less balanced financial conditions.

In the first three months of 2015, the flow of new bad loans adjusted in relation to loans,

net of seasonal effects and year on year, decreased to 2.4 per cent, three tenths of a

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point less than in the end of 2014. The growth is attributable to loans to businesses (the

rate of new classifications as bad loans decreased by six tenths, reaching 3.9) and was

spread to all sectors of economic activity. The rate remained almost unchanged for

households at 1.5 per cent. The decrease in the deterioration of credit quality, observed

from 2013 to 2014, is slow in consolidating, especially due to the still modest strength of

economic recovery. Preliminary information indicates that, in the second quarter of 2015,

total exposure to debtors identified for the first time as bad increased.

According to the consolidated quarterly reports, in the first quarter of 2015, the

profitability of the five major Italian banking groups increased compared to the same

period of the previous year: the annualised return on capital and reserves (ROE) increased

by approximately three percentage points, reaching 6.6 per cent. The slight decrease in

net interest income (-1.3 per cent), due to the decline in trade volumes, was more than

offset by the increase in commission revenues (9.7 per cent) and in income from trading.

Total income increased by 9.6 per cent. The increase in the operating result (22.8 per

cent) reflected the substantial stability of operating costs, which continue to benefit from

the containment measures undertaken by the banks. Impairment losses on loans and

receivables, albeit high, decreased (-11.8 per cent).

On 11 June 2015, the Bank of Italy issued the minor provisions for implementing the

reform of cooperative banks envisaged by Decree Law no. 3/2015, converted by Italian

law no. 33/2015. The period of 18 months, provided by law, within which the cooperative

banks with assets more than EUR 8 billion must become joint-stock companies, is effective

as from the coming into force of the minor provisions.

The financial market in Italy

The significant easing of the conditions of the Italian financial markets in progress since

the beginning of the year recorded a partial correction in the second quarter. On the

sector of Government bonds, this mainly affected the rise in medium and long-term

German yields. Events related to Greece led to a marked increase in financial market

volatility and risk premiums, but with limited effects all in all on the primary and

secondary markets of Italian Government bonds.

After the sharp drop due to expectations and the start of purchases of Government bonds

by the Eurosystem, from the second half of April, the yields on medium and long-term

Government bonds started to increase again. The increase followed that of German rates.

In the second quarter as a whole, the rate on the Italian ten-year bond increased by 89

basis points (to 2.1 per cent). The spread compared to the corresponding German bond

increased by 17 basis points (to 124), affected to a limited extent by the continued

uncertainty concerning the outcome of the negotiations on the help programmes for

Greece.

Tensions in Greece had limited effects all in all also on the primary market of Government

bonds. The average rate of return upon issue increased from 0.4 per cent in April to 0.7

per cent in June; in the subsequent auctions carried out with settlement date until 14 July,

the rate stood at 0.9 per cent. Even in times of increased tension, overall demand was

large and in line with the levels of the previous months. The average rate of new issues

remains well below the average cost of issuance of securities issued (3.4 per cent last

March).

The repercussions of the situation in Greece were limited also on credit risk premiums on

banks: spread on credit default swaps of major Italian banks increased by 27 basis points.

The yield differentials between the bonds of Italian non-financial companies and

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Government bonds of the Eurozone with a high creditworthiness increased by 16 basis

points to 111 points.

After a sharp increase in the first three months of the year, there were significant losses in

share prices against the rise in yields on Government bonds, and then the intensification

of tensions arising from the situation in Greece. From the end of March, the general Borsa

Italiana index decreased by 1.8 per cent (by 3.6 per cent in the Eurozone). The negative

contribution due to the increase in interest rates and to the increase in premium for the

risk requested by the investors was only partially offset by the improvement of

expectations concerning company profits. The expected volatility of share prices, derived

from the prices of the options on the stock market indexes, increased considerably.

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Events of bank operations during the first half-year

The most important events that characterised the management of the Creval Group during

the first half of 2015 and that, if necessary, were the subject-matter of specific disclosures

to markets are mentioned below.

Agreement with Cerved Credit Management. Sale of the subsidiary Finanziaria

San Giacomo and "REOCO" project

The agreement signed on last December between Credito Valtellinese and Cerved

Information Solutions S.p.A. - by means of the subsidiary Cerved Credit Management

Group S.r.l. (CCMG) - for the development of a long-term industrial partnership for the

management of bad loans was finalised on 1 April 2015.

In this context, the sale of 100% of Finanziaria San Giacomo S.p.A. (FSG), company

wholly owned by Creval and specialised in the management of bad loans of the Group, to

CCMG was completed on the same date for a consideration of EUR 21.7 million.

At the same time, a multi-year contract was signed for the service management by CCMG

of the bad loans book of the Creval Group (85% in terms of Gross Book Value, GBV).

The servicing contract envisaged the exclusive outsourcing management of the more

"standardised" and "time consuming" part of the bad loans of the Creval Group in addition

to the new flows that will be generated in the future (85% of total current and future bad

loans), on the basis of variable market fees mainly related to annual actual collections on

the managed portfolio. Creval will retain the management of the Large Tickets, as well as

the operational coordination and control of the credit recovery process and of the servicing

activities.

The transaction, consistent with the objectives defined in the Business Plan with reference

to the management of bad loans, will allow the Creval Group to extract greater value from

the optimisation of the recovery, reducing the level of operating costs, and to improve the

recovery rates.

As part of the same agreement, a specific project was started aimed at the dynamic

management and valuation of bad loans with securities on property in sales by the court

(Real Estate Owned Company, REOCO). Asset repossessing of properties used as collateral

for bad loans granted by the banks of the Group, initially developed by Stelline, may be

further enhanced thanks to the distinctive skills of the Cerved Group combined with the

experience gained in the field of real estate by Stelline.

Agreement with Yard Credit Asset Management

On 16 March 2015, a collaboration agreement was signed with Yard Credit & Asset

Management - company of the Yard Group among the main operators of credit

management present in Italy, with a high expertise for consultancy, management, credit

recovery and surfacing of real assets' value services - for the management of "distressed"

real estate loans of the Creval Group.

Initially, the collaboration will concern a portfolio of approximately EUR 500 million of non-

performing loans, but not yet classified as bad loans. The management of these loans and

receivables focused on the protection of claims requires today a new approach, more

based on asset management logics, with a view to enhance the real estate property as

collateral, avoiding the gradual worsening and the related increase in the Group's cost of

risk. This dynamic management is particularly important in Italy, considering the time

required by real estate implementations, which have a significant impact on settlement

costs of guarantees.

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Therefore, the collaboration agreement paves the way for a better management of all

distressed real estate assets of the Creval group, by enhancing again the expertise gained

by Stelline, combined with the distinctive skills of a highly specialised operator.

A special Non Core Unit was established within the Loans Area, in support of the new

operating process, with deleveraging and derisking objectives on the assigned portfolio.

This agreement, in line with the objectives defined by the Strategic Plan, will allow to

extract value from "non-core" activities, releasing financial resources for development and

growth, and will contribute to reduce the stock of the assets not functional to the core

business of the bank.

Further simplification of the Group structure. Operating reconfiguration of

Stelline and Bankadati

On 17 June 2015 – following their board resolutions – the demerger of the business unit

consisting of the property and facility management and property valuation of Stelline in

favour of Bankadati, consortium company that manages the activities concerning the

Information and Communication Technology (ICT), the organisation, the back office and

the support processes of the Group, was approved.

The demerged company will change its name in "Stelline Real Estate S.p.A." and will

assume the role of REOCO of the Creval Group with a new mission exclusively dedicated

to asset repossessing.

As a result of the transfer of the activities of the business unit of Stelline, Bankadati will

expand the operating size, providing all the support services to the banking business that

will be centralised in a single consortium company. At the same time, it will change its

name in "Creval Sistemi e Servizi – società consortile per azioni".

The operational reorganisation of the subsidiaries, which is expected to be completed no

later than 30 September 2015, is in line with the objectives stated by the Strategic Plan

on the simplification and rationalisation of the corporate centre structure. The new

configuration will allow to further optimise the intra-group operating costs, improving the

efficiency of the organisational structure, and, at the same time, develop in a more

effective manner the asset repossessing activity through a dedicated vehicle.

Agreement for the sale of the majority of the share capital of Istituto Centrale

delle Banche Popolari

On 19 June 2015, an agreement was signed for the sale to Mercury Italy S.r.l. (vehicle

indirectly owned by the Bain Capital, Advent International and Clessidra Sgr funds) of the

majority (85.79%) of the share capital of Istituto Centrale delle Banche Popolari Italiane

(ICBPI) by the current shareholders, based on a valuation of 100% of the capital of ICBPI

of EUR 2,150 million or EUR 2,000 million, depending on the final structure of the

transaction compared to two cases already identified.

Credito Valtellinese – which holds 20.4% of the share capital of ICBPI - undertook to sell

18.4% of the share capital of ICBPI, thereby maintaining a residual investment of 2%.

The transaction, which is expected to be finalised within the current year, subject to the

authorisations of the competent Authorities, will result in a significant net economic effect,

including the effect of revaluation of the investment held in ICBPI.

In view of the sale, at 30 June 2015, the investment was classified under discontinued

operations.

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The operational structure, the customers and the commercial

performance indicators

The territorial network

At 30 June 2015, the branches forming the territorial network of the Credito Valtellinese

Group are 539 as represented below.

Other distribution channels

The following other distribution channels complete the operational structure:

ORGANISATIONAL DATA 30/06/2015 30/06/2014 % change

Number of ATMs 647 649 -0.31

Number of POS 25,707 24,542 4.75

At the end of June 2015, "active" Internet users in the Creval Group - customers who

have performed at least one transaction in the last six months - total 254,933, compared

to 243,557 at the end of the prior year, with an increase of 4.67%.

Customers and commercial performance indicators

At 30 June 2015, the Group’s customers numbered 985,378. They numbered 935,051 at

the end of 2014 and 981,559 at the end of the first quarter of 2015. The constant growth

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confirms the Group's capacity to attract new customers and maintain its customer base in

its territories of origin, with a retention rate of approximately 97%.

The cross selling indicator - equal to 4.24 products on average per customer (calculated

on the basis of the "ABI method"), attests also a high degree of optimisation of

commercial relations.

The personnel

At the end of June 2015, the registered workforce of the companies included in the

consolidation scope of the Group consisted of 4,149 workers. These include 33

collaborators employed by companies or entities outside the Group, among them

Fondazione Gruppo Credito Valtellinese, Global Assistance, the Pension Fund for the

Employees of the Credito Valtellinese Group, Alba Leasing and Cerved Group. The figure

for the end of 2014 was 4,280.

In terms of professional categories, the total workforce of 4,149 can be broken down as

follows:

- 56 executives;

- 1,516 middle managers;

- 2,577 workers in other professional categories.

Workforce by contract category at 30 June 2015

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Performance of Credito Valtellinese shares

The financial market in Italy in the first half-year was first characterised by a significant

improvement after the announcement, at the end of 2014, of the implementation of the

"Quantitative Easing" plan by the ECB. Share prices recorded sharp rises and volatility

decreased. In the first quarter of the year, the general Borsa Italiana index increased by

26 per cent. The increase in listed prices was determined by the drop in interest rates and

by the decrease of the premium for the risk requested by the investors, which more than

offset the negative contribution due to the downsizing of expectations concerning

company profits.

Subsequently, the markets recorded a partial correction, especially to coincide with the

escalation of the Greek crisis, which led to a marked increase in financial market volatility

and risk premiums, even if, all things considered, with limited effects on the primary and

secondary markets of Italian Government bonds. After the sharp increase in the first three

months of the year, there were significant losses on the stock market against the rise in

yields on Government bonds, and the intensification of tensions arising from the situation

in Greece. From the end of March, the general Borsa Italiana index decreased by 1.8%.

Volatility increased considerably.

The reform introduced by the Government earlier this year and subsequently ratified by

the Parliament helped to support the listed prices in the banking sector, especially of

securities of cooperative banks. The compulsory transformation of cooperative banks set

up as cooperatives into joint-stock companies determines the possibility, after completing

the procedure of change, of a greater opposability and, above all, increases the possibility

of accessing financial markets to raise new funds designed to support growth, beyond the

traditional territories through the shareholding structure.

The listed prices of the Italian banking sector, similar to the European one, were affected

in June by the dynamics related to the Greek crisis and to the risk of exit of Greece from

the EMU and the Single Currency, averted only after the close of the half-year.

The European Union, in agreement with the International Monetary Fund and the

European Central Bank, managed to agree a new aid and financing package with the

Greek authorities. At the time of preparation of this document, the political and economic

situation that concerns Greece was relatively stabilised and, as a result, the prices of the

shares of the European banking system returned to "pre-crisis" levels.

The performance of the Credito Valtellinese share was affected by all these factors, in line

with the trends of the Italian banking system. The succession and changing of the

represented trends resulted in a significant growth of the historical volatility of the

security, as seen also for the other bank securities listed on Piazza Affari.

As a whole, the positive overtone of the economy, the recovery of the credit market, the

growth of the importance of institutional investors, in addition to some special factors –

the announcement of the sale of the investment in ICBPI – allowed the Credito Valtellinese

security to outperform the segment index, recovering the losses accumulated in the past

years, with a supported recovery in volumes. Liquidity as a percentage of share capital is

growing strongly, with weighted average prices on the up.

In the first quarter of 2015, performance was positive (+58.1%), more than that of the

Italian market as a whole (+21.8%) and that of the panel of Italian (+44.4%) and foreign

(-5.8%) comparable companies. In the second quarter, performance was negative (-

5.1%), more pronounced compared both to the overall performance of the market (-3%),

and to that of the panel of foreign comparable companies (-0.2%), vice versa more

limited if compared to that of the panel of domestic comparable companies (-5.8%). The

18

trade value decreased compared to the first quarter, as well as liquidity as a percentage of

share capital, whereas the weighted average prices were almost unchanged.

The presence of institutional investors in the share capital is constantly growing and the

coverage of the security by financial analysts expanded similarly. Currently, nine brokers

express recommendations - all positive - on the Creval share.

Taking as reference the values adjusted according to the AIAF method, in the first half of

2015, the average listed price for the Credito Valtellinese share was EUR 1.15, with a

minimum of EUR 0.72 recorded on 12 January and a maximum of EUR 1.34 on 11 March.

The average listed price of the half-year increased by 45.3% on the closing price of 2014,

while the FTSE-IT Financials index recorded an 18.6% increase for the same period. FTSE

Italia All-Share increased by 17.6%.

The traded value of the Credito Valtellinese shares on the Italian Stock Exchange in the

first half of 2015 increased considerably compared to the same period of 2014. The daily

average volume in the first six months of the year stood at approximately 6.94 million

shares compared to 5.3 million of the same period of 2014. Therefore, the increase was of

approximately 31% in average volumes traded daily.

The charts below show the trend of Credito Valtellinese share prices in the first half of

2015.

The second chart shows the Credito Valtellinese share performance compared with FTSE -

ALL SHARE and FTSE-IT Financial indices.

20

Information on the main statement of financial position items and

on consolidated income statement figures

The interim results are commented upon in summary format, drawn up on a consolidated

basis, reclassified according to the presentation criteria considered most appropriate for

presenting a fair view of the Group’s operating performance.

The aggregates and reclassifications regarding items of the financial statements as

envisaged in Bank of Italy Circular no. 262/05 as amended are detailed below.

The reclassified consolidated statement of financial position is shown below.


ASSETS 30/06/2015 31/12/2014 % change

Cash and cash equivalents 151,760 194,289 -21.89

Financial assets held for trading 114,593 61,787 85.46

Available-for-sale financial assets 5,519,379 6,789,606 -18.71

Loans and receivables with banks 709,547 839,489 -15.48

Loans and receivables with customers 18,590,813 19,004,863 -2.18

Equity Investments (3) 30,303 200,797 -84.91

Property, equipment and investment property and intangible assets (1) 657,695 663,968 -0.94

Non-current assets held for sale and disposal groups (3) 176,947 3,191 n.s.

Other assets (2) 1,111,395 1,055,566 5.29

Total assets 27,062,432 28,813,556 -6.08

(1) Include the items "120. Property, equipment and investment property" and "130. Intangible assets"; (2) Include the items "140. Tax assets" and "160. Other assets"; (3) At 30 June 2015, the investment in Istituto Centrale delle Banche Popolari was classified as "150. Non-current assets held for sale and disposal groups" by 18.39%, whereas the remaining 2% was included under item "100. Equity investments".

LIABILITIES AND EQUITY 30/06/2015 31/12/2014 % change

Due to banks 1,759,167 4,837,374 -63.63

Direct funding from customers (1) 21,898,623 20,745,569 5.56

Financial liabilities held for trading 3,450 3,233 6.71

Hedging derivatives 263,292 308,718 -14.71

Liabilities associated with disposal groups - 573 -100.00

Other liabilities 922,617 635,058 45.28

Provisions for specific purpose (2) 200,087 258,471 -22.59

Equity attributable to non-controlling interests 4,269 4,454 -4.15

Equity (3) 2,010,927 2,020,106 -0.45

Total liabilities and equity 27,062,432 28,813,556 -6.08

(1) Include the items "20. Due to customers" and "30. Securities issued"; (2) Include the items "80. Tax liabilities", "110. Post-employment benefits" and "120. Provisions for risks and charges"; (3) Includes items "140. Valuation reserves", "170. Reserves", "180. Share premium reserve", "190. Share Capital", "200. Treasury shares" and "220. Profit (loss) for the period".

21

Loans and receivables with customers

At 30 June 2015, loans and receivables with customers stood at EUR 18.6 billion,

down 2.2% compared to EUR 19 billion at 31 December 2014. However, the drop is

reducing gradually, albeit with a different trend among business segments: the sign is

already positive for manufacturing companies, whereas the construction and service

sectors are still decreasing. The results of commercial operations confirm an improving

trend. The new mortgages to private individuals in the half-year exceeded EUR 300 million

and more than doubled compared to the same period last year. With reference to the

same period, loans to businesses increased by 50%, going against the trend of recent

years. The demand for new investments by manufacturing companies, which decreased

almost continuously since 2008, increased.

(in thousands of EUR) 30/06/2015 31/12/2014 % change

Current accounts 3,679,434 3,878,825 -5.14

Reverse repurchase agreements 152,459 818,262 -81.37

Mortgages 8,703,692 8,778,572 -0.85

Credit cards, personal loans and salary-backed loans 226,751 213,145 6.38

Finance leases 551,622 582,255 -5.26

Other loans 1,909,528 1,532,325 24.62

Debt instruments 33,358 9,383 255.52

Total net performing loans and receivables 15,256,844 15,812,767 -3.52

-

Bad loans 1,195,809 1,101,939 8.52

Unlikely to pay 1,638,142 1,578,552 3.77

Past due non-performing loans 500,018 511,605 -2.26

Total net non -performing loans and receivables 3,333,969 3,192,096 4.44

-

Total net loans and receivables 18,590,813 19,004,863 -2.18

Figures at 31 December 2014 restated for a consistent comparison.

Positive signs also appear with regard to credit quality. During the period, there was a

slowdown in the flow of new non-performing loans, especially for the less risky categories.

At the close of the half-year, non-performing loans, net of impairment losses, amounted

to EUR 3.3 billion, compared to EUR 3.2 billion at 31 December 2014.

Net bad loans totalled EUR 1,196 million, increasing by 8.5% compared to EUR 1,102

million as at 31 December 2014, with a coverage ratio of 55.8%. Based on the new

definitions of non-performing exposure (NPE), other doubtful loans amounted to EUR

2,138 million, of which EUR 1,638 million due to "unlikely to pay" and EUR 500 million due

to past-due non-performing loans. At the end of 2014, other doubtful loans, based on the

definitions of non-performing financial assets in force then, totalled EUR 2,090 million.

22


30/06/2015 31/12/2014

Gross amount

Impairment losses

Carrying amount

coverage %

Gross amount

Impairment losses

Carrying amount

coverage %

Non-performing loans

Bad loans 2,706,345 -1,510,536 1,195,809 55.8 2,503,424 -1,401,485 1,101,939 56.0

Unlikely to pay (*) 2,089,482 -451,340 1,638,142 21.6 2,012,676 -434,124 1,578,552 21.6

Past due non-performing loans 551,020 -51,002 500,018 9.3 566,036 -54,431 511,605 9.6

Total non-performing loans 5,346,847 -2,012,878 3,333,969 37.6 5,082,136 -1,890,040 3,192,096 37.2

Performing loans 15,373,460 -116,616 15,256,844 0.76 15,942,016 -129,249 15,812,767 0.81

Total loans and receivables with customers 20,720,307 -2,129,494 18,590,813 21,024,152 -2,019,289 19,004,863

(*) The figures as at 31 December 2014 are calculated as the sum of substandard and restructured loans.

Funding from customers

Direct funding amounted to EUR 21.9 billion, up by 5.6% compared to December 2014.


Current accounts and deposit accounts 13,390,435 13,096,125 2.25

Repurchase agreements 2,139,271 242,227 n.s.

Term deposits 1,321,099 2,008,847 -34.24

Other 322,842 205,477 57.12

Due to customers 17,173,647 15,552,676 10.42

Securities issued 4,724,976 5,192,893 -9.01

Total direct funding from customers 21,898,623 20,745,569 5.56

The change in repurchase agreements mainly refers to the increase in transactions with

Cassa di Compensazione e Garanzia.

Indirect funding amounted to EUR 12.3 billion, up by 2.6% compared to EUR 12 billion

at the end of December 2014, driven by the component referring to "assets under

management", which totalled EUR 6.6 billion, up by 12.9% compared to EUR 5.8 billion at

the end of last year.

The flows of net deposits of assets under management are growing significantly,

exceeding EUR 400 million from the beginning of the year. The market characterised by

interest rates at record lows and abundant liquidity encourages the customers' propensity

to diversify the financial saving. In this context, the strategic partnership in managed

funds recently signed with the Anima group, thanks to a wide and diversified offer,

contributes significantly to the development of managed assets, allowing to make the

most of the particularly favourable market trend.

23


Asset management 2,245,469 2,117,430 6.05

Mutual funds 2,371,859 1,977,051 19.97

Insurance funds 1,985,437 1,753,773 13.21

Total Managed funds 6,602,765 5,848,254 12.90

Assets under administration 5,676,780 6,115,078 -7.17

Total indirect funding 12,279,545 11,963,332 2.64

Financial assets/liabilities held for trading and available-for-sale financial assets

Financial assets amounted to EUR 5.6 billion. Of these, EUR 5.4 billion were represented

by Italian Government bonds, mainly classified in the AFS (Available for sale) portfolio.

The valuation reserve on AFS securities, recorded among equity items net of related tax

effects, was EUR 49 million (negative) compared to EUR 98 million (positive) in March

2015. The negative reserve relating to Government bonds of EUR 95 million is significantly

affected by the widening of the spread on total debt in the last days of June due to the

intensification of the crisis in Greece.


Financial assets and liabilities held for trading

Debt instruments 111,414 58,144 91.62

Equity instruments and OEIC units 1,473 1,500 -1.80

Derivative financial instruments with positive fair value 1,706 2,143 -20.39

Total assets 114,593 61,787 85.46

Derivative financial instruments with negative fair value -3,450 -3,233 6.71

Total assets and liabilities 111,143 58,554 89.81

Available -for -sale financial assets

Debt instruments 5,350,683 6,662,097 -19.68

Equity instruments and OEIC units 168,696 127,509 32.30

Total 5,519,379 6,789,606 -18.71

Equity investments

The total value of equity investments at 30 June 2015, measured at equity, was EUR 207

million, up compared to December 2014, mainly due to operating results (net of dividend

distribution) and changes in valuation reserves. The investment in Istituto Centrale delle

Banche Popolari was classified as "150. Non-current assets held for sale and disposal

groups" by 18.39%, whereas the remaining 2% was included under item "100. Equity

investments".

The portfolio represents only investments in companies subject to joint control and to

significant influence - companies in which Credito Valtellinese has a direct or indirect

holding of at least 20% of voting rights, "potential" voting rights or, albeit with a lower

percentage, has the power to influence financial and management policy through specific

legal positions.

The main equity investments are summarised.

24

(in thousands of EUR) 30/06/2015 equity investment %

Istituto Centrale delle Banche Popolari Italiane S.p.A. 196,076 20.39

Global Assistance S.p.A. 3,555 40.00

Creset S.p.A. 2,353 40.00

Istifid S.p.A. 2,232 31.06

Other 3,034 -

Total 207,250

Equity attributable to the owners of the parent

The equity attributable to the owners of the parent as at 30 June 2015 amounted to EUR

2,011 million, substantially stable compared to the value recognised at the end of 2014

(EUR 2,020 million), mainly due to the profit for the period and the changes in AFS

reserves.

The statement of reconciliation between the Parent’s equity and profit for the period and

the corresponding amounts resulting from the consolidated financial statements at the

same date, is illustrated below.

30/06/2015

31/12/2014

Equity of which: profit for

the period Equity

of which:

profit for the

period

Parent financial statements 1,963,589 54,280 1,971,585 -342,529

Investee results as per separate financial statements:

- consolidated on a line-by-line basis 3,582 3,582 -101,767 -101,767

- equity accounted 10,311 10,311 20,458 20,458

Amortisation of positive differences:

- past years -33,599 - -33,599 -

Differences compared to carrying amounts for:

- companies consolidated on a line-by-line basis -63,639 184 -58,983 -

- equity investment impairment reversal and goodwill impairment recognition - - 112,714 112,714

- equity accounted companies 144,888 - 128,079 -

Adjustments to dividends collected during the year:

- on retained earnings - -18,219 - -10,761

Other consolidation adjustments:

- elimination of intragroup profit and loss -11,329 -10 -14,767 -3,086

- other impairment losses -2,876 739 -3,614 -115

Consolidated financial statements 2,010,927 50,867 2,020,106 -325,086

25

Regulatory capital and capital ratios

As at 30 June 2015, total own funds, calculated by applying the rules of Basel 3 according

to the transitional methods in force in 2015 and taking into account the share of the profit

for the period allocated to reserves, was EUR 2,274 million, down compared to EUR 2,325

million at the end of 2014.

The capital ratios, always determined on the basis of transitional methods in force in

2015, stood at:

- 11.50% for the phased in Common Equity Tier1 and Tier 1

- 13.82% for the phased in Total Capital ratio.

30/06/2015 31/12/2014

Common Equity Tier 1 capital (CET1) 1,891,771 1,824,881

Tier 1 capital 1,891,771 1,824,881

Total Own Funds 2,274,172 2,325,187

Credit risk and counterparty risk 1,196,126 1,210,859

Credit valuation adjustment risk 2,297 2,353

Settlement risks - -

Market risks 1,389 1,406

Operational risk 116,200 116,200

Other calculation elements - -

Total capital requirements 1,316,012 1,330,818

Risk -weighted assets 16,450,156 16,635,237

Common Equity Tier 1 capital / Risk -weighted assets (CET1 capital ratio) 11.50% 10.97%

Tier 1 capital /Risk -weighted assets (Tier1 capital ratio) 11.50% 10.97%

Total own funds/Risk -weighted assets (Total capital ratio) 13.82% 13.98%

26

Income statement

The reclassified consolidated income statement is shown below.


ITEMS 1st half of

2015 1st half of

2014 %

change

Net interest income 237,533 247,977 -4.21

Net fee and commission income 141,280 132,488 6.64

Dividends and similar income 1,989 1,321 50.57

Profit of equity-accounted investments (1) 10,091 7,656 31.81

Net trading and hedging income (expense) and profit (loss) on sales/repurchases 50,720 89,887 -43.57

Other operating net income (4) 11,246 9,849 14.18

Operating income 452,859 489,178 -7.42

Personnel expenses (144,766) (149,269) -3.02

Other administrative expenses (2) (87,847) (88,437) -0.67

Depreciation.s.mortisation and net impairment losses on property, equipment and investment property and intangible assets (3) (17,529) (18,416) -4.82

Operating costs (250,142) (256,122) -2.33

Net operating profit 202,717 233,056 -13.02

Net impairment losses on loans and receivables and other financial assets (158,315) (212,692) -25.57

Net accruals to provisions for risks and charges (3,855) (3,544) 8.78

Net gains on sales of investments 6 (157) -103.82

Pre-tax profit from continuing operations 40,553 16,663 143.37

Income taxes (7,554) (11,542) -34.55

Post -tax profit from continuing operations 32,999 5,121 n.s.

Profit from discontinued operations 20,070 (462) n.s.

Profit for the period attributable to non-controlling interests (2,202) (1,515) 45.35

Profit (loss ) for the period 50,867 3,144 n.s.

(1) Profit of equity-accounted investments include net gains/losses on equity-accounted investments included in item 240 "Net gains on investments". The residual amount of that item is included in gains on sales of investments, together with item 270 "Net gains on sales of investments"; (2) Other administrative expenses include recoveries of taxes and other recoveries recognised in item 220 "Other operating net income" (EUR 29,962 thousand in the first half of 2015 and EUR 29,137 thousand in the first half of 2014); (3) Depreciation.s.mortisation and net impairment losses on property, equipment and investment property and intangible assets include items 200 "Depreciation and net impairment losses on property, equipment and investment property", 210 "Amortisation and net impairment losses on intangible assets" and the accumulated depreciation of costs incurred for leasehold improvements, included in item 220 "Other operating net income" (EUR 1,442 thousand in the first half of 2015 and EUR 1,940 thousand in the first half of 2014); (4) Other income and costs correspond to item 220 "Other operating net income" net of the above reclassifications. The corresponding prior year figures were restated, in accordance with the provisions of IFRS 5, as a result of the agreement signed on 22 December 2014 with the Cerved Group whose subject matter was the development of a long-term industrial partnership for the management of non-performing loans. This agreement also included the sale of the subsidiary Finanziaria San Giacomo S.p.A. that took place on 1 April 2015.

In the first half of 2015, the net interest income stood at EUR 238 million, decreasing by

4.2%, compared to EUR 248 million of the first half of last year, however improving on a

quarterly basis. The net interest income shows a good performance thanks to the

persistent effects of repricing of funding, notwithstanding the low levels of interest rates,

27

the absence of a strong recovery in volumes and a lower contribution of interest on

securities.

Net fee and commission income amounted to EUR 141 million, up by 6.6% year on

year, mainly due to the particularly strong trend of the fee and commissions of the finance

area (placement of managed funds and bancassurance), which offsets the deceleration of

the components relating to lending and current account management.

Net trading and hedging income and profit on sales/repurchases stood at EUR 51 million,

compared to EUR 90 million of the prior year, characterised by non-recurring results.

Net gains on equity-accounted investments contributed by EUR 10.1 million compared to

EUR 7.7 million of the same period of 2014.

Operating income totalled EUR 453 million, down compared to EUR 489 million of the

first half of 2014, considering, however, that the corresponding period includes non-

recurring income from financial activities.

Operating costs totalled EUR 250 million further decreasing by 256 million compared to

the corresponding period of 2014.

The net operating profit reached EUR 203 million, compared to EUR 233 million of the

first half of 2014.

Net impairment losses on loans and receivables and other financial assets totalled EUR

158 million. The cost of credit risk stood at 171 basis points and seems to move towards a

phase of gradual normalisation. Provisions for risks and charges stood at EUR 4 million

and include the contribution to the resolution fund envisaged by the new European

regulations (Single Resolution Fund) of EUR 4 million.

Pre-tax profit from continuing operations amounted to EUR 41 million, compared to

EUR 17 million in the first half of 2014, which were however considerably affected by

adjustment to loans related to the exercise of the Asset Quality Review then in progress.

Considering the gains of approximately EUR 20 million, net of taxes, related to the sale of

100% of Finanziaria San Giacomo, income taxes estimated at EUR 8 million and profit

attributable to non-controlling interests of EUR 2 million, the profit for the period

amounted to EUR 51 million.

28

Related party transactions, risks and going concern prospects

Related party and intragroup transactions

The matter is mainly regulated:

- by Article 2391-bis of the Italian Civil Code, whereby the governing bodies of

companies resorting to the equity market adopt, according to general principles

indicated by Consob, rules that assure "the transparency and substantial and

procedural correctness of related party transactions" carried out directly or through

subsidiaries,

- by the "Related Party Transaction Regulation" adopted by Consob with Resolution no.

17221 of 12 March 2010, as amended, (hereinafter also the "Consob Regulation"),

implementing the delegation contained in Article 2391-bis of the Italian Civil Code, as

well as, in relation to the specific business,

- by the provisions of Article 136 of the Consolidated Banking Act - as amended by

Italian Law 221/2012 and lastly by Italian Legislative Decree no. 72 of 12 May 2015,

on obligations of banking representatives and,

- by the supervisory provisions issued by the Bank of Italy on December 2011 on risk

assets and conflicts of interest of banks and banking groups with respect to

"Associated Parties" (9th update to Circular 263 of 27 December 2006 - hereinafter

also referred to as the "Bank of Italy Regulation"), provisions that complement what is

provided by the Consob regulation.

In compliance with the combined provision of the above-mentioned regulations, the Board

of Directors approved the new "Procedures concerning Related Party Transactions and

Related Subjects" (hereinafter also the "RPT Creval Procedures"), effective as from 31

December 2012. In accordance with current regulations, the document was published on

the Website, at http://www.creval.it - Governance section.

The RPT Creval Procedures establish the procedures and rules for ensuring transparency

and substantive and procedural correctness in related party transactions and associated

parties carried out directly by Credito Valtellinese or by means of its subsidiaries. They

also define the cases, methods, conditions and circumstances in which, without prejudice

to the obligations required, the partial or full exclusion of the application of the RPT Creval

Procedures is allowed.

The provisions monitoring this kind of transactions concern the following aspects:

- the process of investigation, resolution and information to the Company Officers for

the transactions carried out with related and associated parties,

- the information to the market for related party transactions,

- limits to risk assets towards associated parties.

More in detail, the RPT Creval Procedures:

- define the area of related and associated parties for each bank of the Group and for

the Creval Group as a whole,

- identify the most significant transactions,

- identify the cases of partial or complete exclusion from the enforcement of the

decision-making procedures (transactions involving small amounts, ordinary

transactions completed at conditions equivalent to market or standard ones,

transactions as per Article 136 of the Consolidated Banking Act);

29

- exclude from the enforcement of the provisions of the RPT Creval Procedures the

transactions carried out with or between subsidiaries, even jointly, and transactions

with associates provided that there are no significant interests of other related parties.

Still on the basis of the provisions of the Bank of Italy Regulation, the Board of Directors

of the Parent approved the "Policies regarding controls on risk activities and on conflicts of

interest towards associated parties" (hereinafter also the "Policy"), document that defines

the internal policies regarding controls on risk activities and on conflicts of interest

towards associated parties, and was made known to the Ordinary Shareholders’ Meeting

held on 27 April 2013.

The Policy describes, in relation to the operational features and the strategies of the Bank

and of the Group, the business segments and the types of business relations, also other

than those implying the assumption of risk assets, in relation to which conflicts of interest

may arise, as well as the safeguards inserted in the organisational structures and in the

internal control system to ensure constant compliance with prudential limits and the above

decision-making procedures. The document also summarises the principles and rules

applicable to transactions with associated parties that were used for the preparation of the

relevant Procedures.

In the period in question, no significant transactions were carried out, as defined by the

RPT Creval Procedures, involving the obligation to publish a market disclosure.

With reference to intra-group transactions, relations with companies in the Credito

Valtellinese Banking Group were established within a "company-network" organisational

model - as widely illustrated in this report – based on which each legal entity focuses only

on its own core business, in an industrial framework that offers effective and efficient

management of overall Group resources.

The purpose of this approach is to achieve any form of synergy among the companies of

the Group, assures to all members the access to specialised high-quality services and

allows to achieve significant economies of scale to reduce operating costs relating to

activities and common services.

The common focus of activities and specialist services is regulated on the basis of

appropriate intragroup contractual agreements, which concern in particular the provision

of services by the Parent to the subsidiary company in the sector of finance, insurance,

legal and corporate affairs, administrative, accounting and management, internal auditing,

risk management and compliance, management and administration of the Personnel. The

contracts between specialised and complementary companies and the other companies of

the Group concern the management of the information system, the organisational and

back office services and the payment systems in Italy and abroad (Bankadati), the

management of real estate assets and safety, the design and construction of real estate

works, and the technical support to the disbursement of credit and leasing (Stelline Servizi

Immobiliari).

The financial effects are regulated on the basis of specific contractual agreements that,

with the main objective of optimising synergies and economies of scale and purpose at the

Group level, refer to long-term objective and constant parameters, distinguished by

material transparency and fairness. The quantification of the expected fees for services

was defined and formalised according to tested parameters that take into account actual

utilisation by each user company.

The Board of Directors is exclusively responsible for the definition of intragroup

contractual agreements and approval and possible amendment of the related economic

conditions.

30

No atypical or unusual transactions, with Group companies or related parties - as defined

by Article 2427, second paragraph, of the Italian Civil Code, or according to the IFRS

endorsed by the European Union - that impacted significantly on the financial position or

results of operations of the company has taken place during the financial year.

Detailed information on intragroup and related party transactions, including information on

the effects of transactions or existing positions with such counterparties on the statement

of financial position and on the income statement, accompanied by summary tables of

such effects, are contained in the Notes to the condensed interim consolidated financial

statements.

Risk management

The Creval Group attaches strategic importance to risk management, measurement and

control, essential activities for the creation of sustainable value in time and the

consolidation of its reputation on the markets of reference and with regard to

stakeholders.

The clear identification of risks to which the Credito Valtellinese Banking Group is actually

and potentially exposed constitutes the essential prerequisite for a knowledgeable

assumption of said risks and their effective management, making use of the appropriate

mitigation and transfer tools and techniques.

The identification of the risks represents, on the one hand, the logical premise for defining

the Risk Appetite and its Risk Statement, which is expressed in the planning for the year,

and on the other hand, forms the initial phase both of the Internal Capital Adequacy

Assessment Process (ICAAP) and of the Internal Liquidity Adequacy Assessment Process

(ILAAP).

Therefore, the risk assumes the role of point of convergence of strategic planning, capital

management and risk management, and the process defining the Risk Appetite

Framework (RAF), ICAAP, ILAAP and the annual operational planning - based on the

identification of risks - start.

The set of company risks is monitored within a precise organisational context, defined in

the Group, according to a model that integrates control methods at various levels, all

converging with the objectives of ensuring efficiency and effectiveness of operating

processes, safeguarding the integrity of corporate assets, protecting from losses, ensuring

reliability and integrity of information and verifying proper execution of activities with

respect to the internal and external regulations.

For a full description of the organisational structure and operational procedures in order to

oversee the different risk areas and the methods used for the measurement and

prevention of such risks, please refer to the section "Information on risks and related

hedging policies" of this report.

For a description of the overall approach of the Internal Audit System, reference should be

made to the Report on Corporate Governance and Ownership Structures pursuant to

Article 123-bis of the Consolidated Finance Act, document available at the Bank’s website:

http://www.creval.it - Governance section.

Information on main risks and uncertainties to which the Group is exposed

Consistent with the Bank's retail business model and according to the classification

adopted both from academics and in the context of prudential supervision, the main types

of risks that the Group is exposed to are the credit and operational risks (First Pillar

Risks), liquidity and interest-rate risks (Second Pillar Risks); the current composition of

31

the assets also involves an exposure to the sovereign risk, whereas the other risks, in

particular market and concentration risks are of lesser significance.

The risk profile at the end of the reporting period is consistent with the risk appetite

defined by the Board of Directors for the current year, which, in line with the identity,

values, business model and strategic input of the Group, resolved to allocate the main

part of the capital to the credit risk, which represents the core business of a retail Banking

Group; confirm a low propensity to other risks with business purpose; confirm the aim of

limiting/minimising exposure for pure risks to which no return is associated.

The actual risk exposure complies with the tolerance thresholds set taking into account

the maximum technically assumable risk.

The identification and assessment of the importance of the risks to which the Group is

exposed to are carried out by considering the identity, the values, the business model and

the strategic objectives of the Group, the Risk Appetite Framework (RAF), the

organisational structure and the operating plans.

Number of factors are considered such as products and services offered to customers,

markets of reference, the size and characteristics of operations with related parties in

relation to company operations, the amount of statement of financial position aggregates

and corresponding capital requirements, the economic situation and further events, both

internal and external, with possible impact on the operations and strategies of the Group.

In accordance with Italian and Community law, the Group defined a specific regulation for

the current and future internal capital adequacy assessment process, in relation to the

risks taken and to company strategies (ICAAP). This assessment also uses stress testing

to estimate the effects on the risk of specific events (sensitivity analysis) or of joint

movements of a set of economic and financial variables (scenario analysis) and to identify

any potential vulnerability profiles.

The main risks identified, included in the first and second pillar, subject matter of regular

management assessment and summarised in the ICAAP process are set below:

- credit and counterparty risk (including country and transfer risk): the possibility for

the creditor that a financial obligation will not be paid at maturity or later.

The credit risk occurs also as:

- deterioration of the creditworthiness of counterparties with a credit line

(migration risk);

- increase in exposure before the insolvency of a counterparty with a credit line

(exposure risk);

- decrease in the rate of collection of delinquent loans (collection risk).

Counterparty risk is the risk that the counterparty to a transaction concerning

certain financial instruments could default before the settlement of the transaction

itself.

Country risk is the risk of losses caused by events that occur in a country other

than Italy.

Transfer risk is the risk that a bank, exposed to a subject that raises funds in a

currency other than that in which it receives its main sources of income, makes

losses due to the difficulties of the debtor to convert its currency into the currency

of the exposure.

32

- market risk for the trading book (including the basis risk): the components that are

relevant for the Banks of the Group are:

- interest rate risk: risk of losses caused by adverse changes in interest rates;

- price risk: risk of losses caused by adverse changes in share prices;

- currency risk: risk of losses caused by adverse changes in prices of foreign

currencies.

The basis risk represents the risk of losses caused by misalignments in opposite

sign positions, similar but not identical.

- operational risk: the risk of incurring losses due to the inadequacy or inefficiency of

procedures, human resources and internal systems or due to external events,

including the legal risk;

- IT risk (or ICT): the risk of incurring economic, reputation and market share losses

in relation to the use of the Information and Communication Technology - ICT).

- interest rate risk for the banking book: risk deriving from potential changes in

interest rates, in particular, it is the risk of incurring:

- reduction in net interest income and, as a result, in bank profits (cash flow

risk),

- reduction in the present value of assets and liabilities and, as a result, of the

economic value of the bank (fair value risk), due to adverse changes in interest

rates.

- concentration risk of the loans and receivables from customers portfolio: risk

deriving from exposures to counterparties, including central counterparties, group

of related counterparties and counterparties of the same economic sector,

belonging to the same geographic area or carrying on the same business or dealing

with the same goods, as well as from the application of credit risk mitigation

techniques, including in particular, risks related to indirect exposures, such as, for

example, with regard to individual guarantee providers.

- liquidity risk: risk that the banks will not be able to meet their payment

commitments. The failure to meet its payment commitments may be due to the

following inability to:

- procure the funds (funding liquidity risk);

- divest their assets (market liquidity risk).

Liquidity risk also includes the risk of meeting payment commitments at costs that

are outside market costs, i.e. incurring high funding costs or (and sometimes

concurrently) incurring capital losses in the event of divesting assets.

- real-estate risk: current or prospective risk of potential losses arising from

fluctuations of the value of the real estate portfolio owned by the Group, or by the

reduction of the income generated by it. Therefore, the real-estate risk is

configured as the possible occurrence of events that may generate negative

impacts on the Group's assets such as to require a specific capital cover.

- strategic risk (including risk from investments): the strategic risk is the current or

future risk of drop in profits or capital arising from changes in the operating context

or from wrong company decisions, inadequate decision implementation and poor

responsiveness to changes in the competitive context.

33

The risk from investments, in relation to the different investment purposes, is the

risk of:

- non- or partial implementation of the strategy behind the acquisition;

- non recording of the expected profits as a result of the performance of the

investee.

- compliance risk: the risk of incurring legal or administrative sanctions, significant

financial losses or damage to reputation as a consequence of violation of

mandatory provisions, laws or regulations, or self-regulation (e.g. articles of

association, codes of conduct, and codes of self-discipline).

- risk of money laundering and terrorist financing: money-laundering risk is the risk

of incurring legal and reputational risks deriving from the possible involvement in

unlawful transactions related to money laundering and financing of terrorism.

- reputational risk: the current or future risk of drop in profits or capital arising from

the negative perception of the image of the bank by the customers, counterparts,

bank shareholders, investors or supervisory authorities.

- risk towards associated parties: the risk that the proximity of certain persons to

decision-making centres of the Bank might compromise the objectivity and

impartiality of decisions relating to the granting of loans and other transactions

with regard to these subjects, with possible distortions in the allocation of

resources, the Bank’s exposure to risks not adequately measured or monitored,

potential damage to depositors and shareholders.

− risk deriving from securitisations: risk that the economic substance of the

securitisation transaction may not be fully reflected in the decisions of risk

assessment and management.

− the risk of excessive leverage: the risk that a particularly high level of debt

compared to equity makes the bank vulnerable, making it necessary to take

corrective measures for its business plan, including the sale of assets with

recognition of losses that could result in impairment losses also on the remaining

assets.

− residual risk: risk that the generally accepted techniques to mitigate credit risk

used by banks are less effective than expected.

− sovereign risk: risk associated with the possibility that a Government or another

sovereign issuer fails to meet its financial obligations.

− risks related to outsourcing: refer to the different types of risks already identified

(including operational, compliance, strategic and reputational risks).

For detailed information on the objectives and policies on financial risk management, as

well as on the exposure of the Group to the risks, please refer to the section "Information

on risks and related hedging policies" of this report.

More in general, risks related to the economy and financial market trends are shown in

the foreword of this report, in the chapter on the macroeconomic scenario of reference,

and in the following chapter on business outlook.

34

Information on disputes

For detailed information on disputes, tax or otherwise, and on the main pending legal

actions, please refer to the Notes to the condensed interim consolidated financial

statements.

35

Information on business outlook, with a particular reference to going concern

assumptions

With regard to the going concern assumption, the Board of Directors confirms its

reasonable expectations that the company and the Group will remain a going concern in

the foreseeable future and, consequently, confirms that the condensed interim

consolidated report was prepared on a going concern basis.

The Board confirms that the financial position of the companies and of the Group and the

result of operations have brought to light no symptoms that could imply the uncertainty of

going concern assumptions.

As regards the requirements relating to impairment testing and uncertainties in the use of

estimates, please refer to the information provided in the special sections in the Notes to

the condensed interim consolidated financial statements.

36

Events after the close of the half-year

There were no events after the close of the half-year.

Current-year outlook

The most recent projections outline, also for Italy, the gradual consolidation of economic

recovery, still limited in 2015, higher in 2016, driven by the strengthening of investment

spending, up again from the beginning of this year. Loan applications of businesses and

households, up from the previous quarter, may strengthen further in the current quarter,

favoured by the effects of monetary stimulus and by the normalisation of credit

conditions. The recovery also affects employment data, which is expected to improve in

two years and decrease below 12% in 2016.

The strengthening of more favourable conditions gives greater visibility to the

achievement of the objectives outlined in the Business Plan of the bank. A stable credit

recovery is confirmed starting from the end of this year, with positive effects on net

interest income and a gradual improvement in credit quality. The margins of commercial

banking will be supported by the improvement of spread from customers, also due to a

further reduction in funding costs, and from the increase in net fee and commission

income, offsetting the expected lower contribution from interest on securities. The core

operating costs are expected to further decrease in the second half of the year,

incorporating the savings deriving from the implementation of the labour agreement

signed in December last year. On the other hand, adjustments to loans, albeit expected to

decrease gradually, will continue to affect the comprehensive income.

Sondrio, 6 August 2015

The Board of Directors

37

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

38

Condensed interim consolidated financial statements

Consolidated statement of financial position


ASSETS 30/06/2015 31/12/2014

10. Cash and cash equivalents 151,760 194,289

20. Financial assets held for trading 114,593 61,787

40. Available-for-sale financial assets 5,519,379 6,789,606

60. Loans and receivables with banks 709,547 839,489

70. Loans and receivables with customers 18,590,813 19,004,863

100. Equity Investments 30,303 200,797

120. Property, equipment and investment property 449,592 453,568

130. Intangible assets 208,103 210,400

of which:

- goodwill 172,154 172,154

140. Tax assets 723,832 780,831

a) current 106,682 126,410

b) deferred 617,150 654,421

as per Italian Law 214/2011 523,036 605,788

150. Non-current assets held for sale and disposal groups 176,947 3,191

160. Other assets 387,563 274,735

Total assets 27,062,432 28,813,556

LIABILITIES AND EQUITY 30/06/2015 31/12/2014

10. Due to banks 1,759,167 4,837,374

20. Due to customers 17,173,647 15,552,676

30. Securities issued 4,724,976 5,192,893

40. Financial liabilities held for trading 3,450 3,233

60. Hedging derivatives 263,292 308,718

80. Tax liabilities: 42,475 84,522

a) current 31,175 75,736

b) deferred 11,300 8,786

90. Liabilities associated with disposal groups - 573

100. Other liabilities 922,617 635,058

110. Post employment benefits 57,073 65,812

120. Provisions for risks and charges: 100,539 108,137

a) pension and similar obligations 33,269 34,936

b) other provisions 67,270 73,201

140. Valuation reserves -46,434 16,079

of which: associated with discontinued operations 13,228

-

170. Reserves 120,773 131,548

180. Share premium reserve 39,004 350,848

190. Share capital 1,846,817 1,846,817

200. Treasury shares (-) -100 -100

210. Equity attributable to non-controlling interests (+/-) 4,269 4,454

220. Profit (loss) for the period (+/-) 50,867 -325,086

Total liabilities and equity 27,062,432 28,813,556

39

Consolidated Income Statement


ITEMS 1st half of 2015 1st half of 2014

10. Interest and similar income 366,807 424,854

20. Interest and similar expense (129,274) (176,877)

30. Net interest income 237,533 247,977

40. Fee and commission income 154,795 153,497

50. Fee and commission expense (13,515) (21,009)

60. Net fee and commission income 141,280 132,488

70. Dividends and similar income 1,989 1,321

80. Net trading income (16,165) 139

90. Net hedging expense (260) (61)

100. Profit (loss) on sale or repurchase of: 67,145 89,809

a) loans and receivables 702 (476)

b) available-for-sale financial assets 67,038 90,109

d) financial liabilities (595) 176

120. Total income 431,522 471,673

130. Net impairment losses on: (158,315) (212,692)

a) loans and receivables (158,536) (210,193)

b) available-for-sale financial assets (403) (443)

d) other financial transactions 624 (2,056)

140. Net financial income 273,207 258,981

180. Administrative expenses: (262,575) (266,843)

a) personnel expenses (144,766) (149,269)

b) other administrative expenses (117,809) (117,574)

190. Net accruals to provisions for risks and charges (3,855) (3,544)

200. Depreciation and net impairment losses on property, equipment and investment property

(10,733) (10,720)

210. Amortisation and net impairment losses on intangible assets (5,354) (5,756)

220. Other operating net income 39,766 37,046

230. Operating costs (242,751) (249,817)

240. Net gains on investments 10,091 7,656

270. Net gains (losses) on sales of investments 6 (157)

280. Pre-tax profit from continuing operations 40,553 16,663

290. Income taxes (7,554) (11,542)

300. Post -tax profit from continuing operations 32,999 5,121

310. Post-tax profit from discontinuing operations

20,070 (462)

320. Profit for the period 53,069 4,659

330. Profit for the period attributable to non-controlling interests (2,202) (1,515)

340. Profit for the period attributable to the owners of the parent 50,867 3,144

Basic EPS – in EUR 0.046 0.006

Diluted EPS – in EUR 0.046 0.006

Basic earnings per share from continuing operations - in EUR 0.028 0.007

Diluted earnings per share from continuing operations - in EUR 0.028 0.007

40

Consolidated Statement of Comprehensive Income


Items 1st

half of 2015

1st half of 2014

10. Profit for the year 53,069 4,659

Other comprehensive income net of income taxes without reclassification to profit or loss

20. Property, equipment and investment property - -

30. Intangible assets - -

40. Defined-benefit plans 2,452 (3,310)

50. Non-current assets held for sale - -

60. Portion of valuation reserves of equity-accounted investments 152 (187)

Other comprehensive income net of income taxes with reclassification to profit or loss

70. Hedging of investments in foreign operations - -

80. Exchange rate differences - -

90. Cash flow hedges - -

100. Available-for-sale financial assets (62,939) 41,145

110. Non-current assets held for sale - -

120. Portion of valuation reserves of equity-accounted investments (934) 3,307

130. Total other comprehensive income net of income taxe s (61,269) 40,955

140. Comprehensive income (Item 10+130) (8,200) 45,614

150. Consolidated comprehensive income attributable to non-controlling interests (2,231) (1,576)

140. Consolidated comprehensive income attributable to t he owners of the parent (10,431) 44,038

41

Statement of changes in consolidated equity (in thousands of EUR)

Equity

Balance at

31/12/2014

Change in opening

balances

Balance at

1/1/2015

Allocation of prior year profit

Changes during the year

Equity

attributable to owners of the parent at

30/06/2015

Equity attributable

to non-controlling interests at

30/06/2015

Changes in

reserves

Equity

Comprehensive income

30/06/2015

transactions

Reserves

Dividends and other

allocations

Issue of new

shares

Purchase of treasury

shares

Extraordinary dividend

distribution

Change in equity

instruments

Derivatives on treasury

shares

Stock

options

Changes in equity

investments

Share capital:

a) ordinary shares 1,849,683 1,849,683 -11 1,846,817 2,855 b) other

shares

Share premium reserve 351,827 351,827 -301,244 -10,982 -1 39,004 596

Reserves:

a) income related 130,318 130,318 -13,275 2,406 120,773 -1,325

b) other -868 -868 -9,786 10,653

Valuation

reserves 16,017 16,017 -1,291 50 -61,269 -46,434 -59

Equity

instruments

Treasury shares -100 -100 -100

Profit (Loss) for the period -322,317 -322,317 325,596 -3,279 53,069 50,867 2,202

Equity

attributable to the owners of

the parent 2,020,106 2,020,106 1,253 -10,431 2,010,927

Equity

attributable to non-controlling

interests 4,454 4,454 -3,279 874 -12 2,231 4,269

42

Equity Balance at 31/12/2013

Change

in opening balances

Balance at 1/1/2014

Allocation of prior year profit

Changes during the year

Equity

attributable to owners of

the parent at 30/06/2014

Equity

attributable to non-

controlling interests at 30/06/2014

Changes in reserves

Equity

Comprehensive income 30/06/2014

transactions

Reserves

Dividends and other allocations

Issue of new shares

Purchase

of treasury shares

Extraordinary dividend distribution

Change in equity instruments

Derivatives

on treasury shares

Stock options

Changes in equity investments

Share capital: a) ordinary shares 1,530,531 1,530,531 319,160 5 1,846,817 2,879

b) other shares

Share premium reserve 259,076 259,076 -2,235 95,068 -77 350,848 984

Reserves: a) income

related 124,613 124,613 3,022 -2,170 21 137,948 -692

b) other 2,398 2,398 11,770 7,389 -8,858 929 0

Valuation reserves -16,877 -16,877 -1,665 19 40,955 22,443 -11

Equity instruments - -

Treasury shares -787 -787 1,962 -1,275 -100

Profit (Loss) for

the period 14,305 14,305 -11,770 -2,535 4,659 3,144 1,515

Equity

attributable to the owners

of the parent 1,908,071 1,908,071 5,993 407,332 -1,275 -2,170 40 44,038 2,362,029

Equity

attributable to non-

controlling interests 5,188 5,188 -2,535 518 -72 1,576 4,675

43

Consolidated Statement of cash flows – Direct method (in thousands of EUR)

1st half of 2015

1st half of 2014

A. OPERATING ACTIVITIES

1. Cash flow from operating activities 295,900 209,472

- interest income received (+) 397,905 420,954

- interest expense paid (-) -98,963 -167,314

- dividends and similar income (+) 1,989 1,321

- net fee and commission income (+/-) 145,613 146,603

- personnel expenses (-) -155,171 -133,797

- other costs (-) -110,207 -113,060

- other revenue (+) 105,137 138,941

- taxes (-) 9,913 -83,714

- costs/revenues related to disposal groups

net of tax (+/-) -316 -462

2. Cash flow generated/used by financial assets 1,323,238 169,637

- financial assets held for trading -54,673 23,888

- available-for-sale financial assets 1,099,795 378,111

- loans and receivables with customers 235,740 143,636

- loans and receivables with banks: on sight 10,803 55,542

- loans and receivables with banks: other 139,593 -332,829

- other assets -108,020 -98,711

3. Cash flow generated/used by financial liabilities -1,674,144 -822,490

- due to banks: on sight 8,579 71,101

- due to banks: other -3,124,359 -1,005,972

- due to customers 1,495,824 -23,409

- securities issued -342,310 -209,277

- financial liabilities held for trading 853 -8,483

- other liabilities 287,269 353,550

Cash flow from (used in) operating activities -55,006 -443,381

B. INVESTING ACTIVITIES

1. Cash flow generated by 26,198 4,143

- dividends from equity investments 3,982 3,830

- sales of property, equipment and investment property 630 313

- sales of subsidiaries and business units 21,586 -

2. Cash flow used for -10,444 -10,877

- purchase of property, equipment and investment property -7,387 -7,713

- purchase of intangible assets -3,057 -3,131

- purchase of subsidiaries and business units - -33

Cash flow from (used in) investing activities 15,754 -6,734

C. FINANCING ACTIVITIES

- issue/repurchase of treasury shares - 414,916

- dividend distribution and other -3,277 -2,535

Cash flow from (used in) financing activities -3,277 412,381

NET CASH FLOW GENERATED/USED DURING THE PERIOD -42,529 -37,734

Key: (+) generated (-) used Reconciliation

44

Financial statement items 1st half of 2015

1st half of 2014

Cash and cash equivalents at the beginning of the period 194,289 204,947

Net liquidity generated/used during the period -42,529 -37,734

Cash and cash equivalents at the end of the period 151,760 167,213

Key: (+) generated (-) used

45

Notes to the condensed interim consolidated financial statements

Accounting Policies

General part

The condensed interim consolidated report of the Credito Valtellinese Group is prepared in

consolidated format as prescribed by Article 154-ter, Italian Legislative Decree no. 58 of 24

February 1998 (the Consolidated Finance Act) and in compliance with IFRS issued by IASB

(the International Accounting Standards Board) endorsed by the European Union, whose

application was compulsory at the date of preparation of the condensed interim consolidated

report.

In preparing this condensed interim consolidated report, the financial reporting standards

applied in accordance with IAS 34 - Interim Financial Reporting comply with those adopted in

the consolidated annual report at 31 December 2014, except for those amended by IASB and

endorsed through the issue of new EU Regulations.

With regard to the standards included in the annual financial statements at 31 December

2014, it should be noted that the following came into force:

- Commission Regulation (EU) 1361/2014 amending IFRS 3 "Business combination"

with regard to the scope of application of the standard, IFRS 13 "Fair Value

Measurement" related to the fair value measurement on a net basis of a portfolio of

assets and liabilities and IAS 40 "Investment property" concerning its interrelation

with IFRS 3;

- Commission Regulation (EU) No. 2015/28 that implemented the «Annual

Improvements to International Financial Reporting Standards 2010-2012 Cycle», with

reference to IFRS 2 (introduction of the definition of "service condition" and

"performance condition"), IFRS 3 (amendments to the definition of contingent

consideration regarding classification and measurement), IFRS 8 (introduction of new

disclosure requirements regarding general disclosure and explanations regarding the

reconciliation between assets of operating segments and total assets of the entity),

IAS 16 and 38 regarding the application of the revaluation model and IAS 24, 37 and

39;

- Commission Regulation (EU) No. 2015/29 amending IAS 19 "Employee benefits" that

provides for the possibility, for defined benefit plans, of recognising the benefits of

employees or third parties as reductions of the service costs under certain conditions.

These amendments to IAS/IFRS apply as from the 2015 financial year. There were no

significant impacts.

The Group accounting policies used for preparing the condensed interim consolidated report,

with reference to the recognition, measurement and derecognition criteria for each asset and

liability item, as with the recognition methods for revenue and costs, remained the same as

those used for the financial statements at 31 December 2014, to which reference should be

made.

In drawing up the condensed interim consolidated financial statements, estimates and

assumptions were used, which may affect the values recorded in the statement of financial

position, income statement and the Notes to the condensed interim consolidated financial

statements.

46

The subjective assessments relevant in the application of the Group’s accounting policies and

the main sources of uncertainty in estimates were the same included in the consolidated

financial statements for the year ended 31 December 2014.

The most important valuation processes, such as the assessment of any impairment loss on

assets, are only carried out completely for the preparation of the annual financial statements

when all necessary information is available. Important impairment indicators requiring

immediate assessment are an exception.

On 9 January 2015, the European Commission approved the Implementing Regulation

2015/227 published on the Official Gazette of the European Union on 20 February 2015,

implementing a specific "technical standard", issued by the EBA (European Banking

Authority) on 21 October 2013, related to the definition of "Non-performing exposures" and

"Forborne exposures". Therefore, the Bank of Italy published the update to Circular 272 that

defines the reporting practices to be followed for the classification of credit quality as of 1

January 2015. In detail, the previous categories of non-performing loans (due to past-due

impaired, substandard, restructured and non-performing) were replaced by the new

categories of "due to past-due non-performing", "unlikely to pay" and "bad loans".

The disclosure on credit quality represented in the condensed interim consolidated financial

statements is provided by using the new categories. The comparative figures referring to 31

December 2014 were restated to include in the category of unlikely to pay exposures

previously defined as substandard loans and restructured loans.

The new supervisory regulations also introduced the obligation to highlight the "Forbearance

exposures" defined as exposures to customers in financial difficulties to whom the bank

granted a contractual concession. These exposures form a subset of non-performing and

performing loans, in relation to the risk of the exposure.

With reference to contributions to deposit guarantee schemes and mechanisms of resolution,

the following information is provided.

The BRRD (Bank Recovery and Resolution Directive – 2014/59/EU) sets out the new rules for

resolution that will be applied as from 1 January 2015 to all the banks of the European

Union. The measures of the BRRD will be financed by the National Fund for the resolution

that each of the 28 Member States will have to set up. It is expected for the funds to be paid

in advance to reach by 31 December 2024 a minimum target level of 1% of guaranteed

deposits. The contributions of each entity are calculated as the ratio of the amount of its

liabilities (net of own funds and protected deposits) compared to the total amount of

liabilities of all the authorised banks in the territory of the country. In order to reach the

target level, the financial means provided by the banks may include payment commitments

to a maximum of 30%. The Single Resolution Mechanism Regulation 2014/806/EU, which will

be effective as from 1 January 2016, establishes also the creation of the Single Resolution

Fund (SRF), which will be managed by the new European resolution authority (Single

Resolution Board – SRB).

The Deposit Guarantee Schemes Directive 2014/49/EU strengthens the protection of the

depositors and harmonises the regulatory framework at EU level. The new directive requires

all Member States to adopt an ex-ante financing system, whose target level is set at 0.8% of

guaranteed deposits to be reached in 10 years. Only for 2015, given that the directive

becomes effective on 3 July 2015 and expects to achieve the target level by 3 July 2024,

only a half-yearly portion is believed to be due.

At the date of preparation of this report, the Parliament approved the 2014 European

delegation law that includes the delegation to the Government to issue decrees for the

47

implementation of the two directives that have not yet been issued. In this context of

uncertainty, the accounting described below was defined.

The contribution to the charge of Credito Valtellinese for the Single Resolution Fund (SRF) for

the whole 2015 financial year was estimated in EUR 5.8 million on the basis of the

information currently available. The expense was charged to the income statement in the

item "net accruals to provisions for risks and charges" of EUR 4 million. In determining the

portion of the annual contribution to be charged to the income statement in the first half-

year, it was assumed that 30% of the above-mentioned contribution may be covered by

making payment commitments secured by collaterals consisting of low-risk assets, not

encumbered by third-party rights without charging the income statement.

Note that the amount of the actual contribution of the Single Resolution Board may be

different from the amount charged to the income statement of the first quarter depending on

the latest figures concerning the amount of liabilities, on own funds and covered deposits, on

the correction of the portion of contribution based on the relevant risk of different debtor

banks, etc. The amount to be charged to the income statement for the year may also vary in

function of possible different interpretations regarding the method for recognising the case in

question.

With reference to the contribution to be paid to the Deposit Guarantee Schemes 2014/49/EU,

the expense is not recognised in the income statement in the first half of 2015 considering

that the event determining the need to set aside will occur in the second half of 2015.

Basis of preparation

The condensed interim consolidated report comprises the Statement of financial position,

Income Statement, Statement of Comprehensive Income, Statement of changes in equity,

Statement of cash flows (Financial Statements) and Notes to the condensed interim

consolidated financial statements.

The financial statements were prepared in compliance with the "Instructions for the

preparation of the separate financial statements and of the consolidated financial statements

of banks and financial companies that are parents of banking groups" contained in Circular

no. 262/2005 of Bank of Italy and following updates.

The amounts reported in the Financial Statements and in the Notes to the condensed interim

consolidated financial statements are in thousands of EUR, unless indicated otherwise.

Together with the amounts for the reporting period, the Financial statements and the Notes

to the condensed interim consolidated financial statements also show the corresponding

amounts at 31 December 2014 for statement of financial position data, and for the first half

of 2014 for income statement and statement of comprehensive income data.

In the Statement of financial position, Income Statement and Statement of Comprehensive

Income, any item equal to zero in the reporting period of reference or in the previous period

is not shown. In the Income Statement and Statement of Comprehensive Income, negative

amounts are shown in brackets.

On 22 December 2014, Credito Valtellinese S.c. and Cerved Information Solutions S.p.A.

signed an agreement for the development of a long-term industrial partnership for the

management of bad loans. This agreement envisaged the sale of the subsidiary Finanziaria

San Giacomo S.p.A to Cerved Crediti Management Group S.r.l., carried out on 1 April 2015

after the sale of part of the assets to Credito Valtellinese S.c.

48

The transaction, in compliance with what was required by IFRS 5, was classified as "assets

held for sale". Costs and revenue of the same corresponding period related to assets held for

sale, net of intragroup items, were reported separately in the income statement under "Post-

tax profit (loss) from discontinued operations", the same corresponding period was restated

consistently.

The following table shows the income statement items of the first half of 2014 subject to

reclassification. The same reclassification was made on the Statement of cash flows of the

first half of 2014.

INCOME STATEMENT ITEMS First half of 2014 IFRS 5

reclassifications 1st half of 2014

Restated

180. Administrative expenses: (267,422) (266,843)

a) personnel expenses (149,767) 498 (149,269)

b) other administrative expenses (117,655) 81 (117,574)

200. Depreciation and net impairment losses on property, equipment and investment property

(10,726) 6 (10,720)

220. Other operating net income 37,046 - 37,046

290. Income taxes (11,419) (123) (11,542)

The condensed interim consolidated financial statements at 30 June 2015 are accompanied

by the certification of the Managing Director and of the Manager in charge of financial

reporting envisaged by Article 154 bis of the Consolidated Finance Act, and is subject to a

limited audit by KPMG S.p.A.

Business performance and outlook

With reference to the Bank of Italy, Consob and Isvap Document no. 2 of 6 February 2009,

as well as to the subsequent Document no. 4 of 3 March 2010, relevant to the information to

be provided in the financial statements on business outlook, with particular reference to

going concern assumptions, financial risk, impairment testing and uncertainties in the use of

estimates, the Credito Valtellinese Directors confirm their reasonable expectations that the

bank and the Group companies will remain a going concern in the foreseeable future and,

consequently, the condensed interim consolidated report at 30 June 2015 was prepared on a

going concern basis. The Directors also confirm that the financial position and the result of

operations have brought to light no symptoms that could imply the uncertainty of going

concern assumptions.

As regards the requirements related to the disclosure on financial risks, impairment testing

and uncertainties in the use of estimates, please refer to the information provided in this

report as well as the information provided in the Directors’ report, within the discussion of

the related items.

Information on risks is described in the chapter of the Notes to the condensed interim

consolidated financial statements dedicated to risk management. Moreover, the Notes to the

condensed interim consolidated financial statements provide the fair value of the financial

instruments determined on the basis of the methods indicated in the financial statements at

31 December 2014, document to which reference is made for detailed information.

In particular, specific tests were carried out to ascertain any impairment of equity

investments, securities available-for-sale, intangible assets and goodwill, subject to the

49

analysis of the presence of impairment indicators. The same methods and criteria shown in

the 2014 Annual financial statements were used in order to determine any impairment loss.

Consolidation scope and methods

The condensed interim consolidated financial statements include Credito Valtellinese and the

companies directly or indirectly controlled by it. The financial statements used for preparing

the condensed interim consolidated financial statements have the same reporting date.

Investments in companies subject to exclusive control are those in respect of which Credito

Valtellinese has the power over the investee, is subject to exposure or rights to variable

returns from its involvement with the investee and has the ability to use its power over the

investee to affect the amount of the investor’s returns. Investments in companies subject to

joint control are those in respect of which the Parent, together with other parties subject to

the terms of an agreement, has the power of governing the decisions relating to the relevant

activities of the Agreement, with the unanimous consent of the parties sharing control.

The financial statements of subsidiaries are consolidated on a line-by-line basis from when

the Parent starts to exercise control until the date on which this control ends. The carrying

amount of the equity investments in these companies is offset against the corresponding

share in the equity. The differences arising from this transaction, after recording the

subsidiary’s assets and liabilities, are recorded, if positive under "Intangible assets -

Goodwill"; if negative, they are directly recognised in the income statement. Non-controlling

interests are assigned the corresponding shares of equity and profit (loss).

Assets, liabilities, income and expenses among consolidated companies are eliminated. The

financial statements of subsidiaries are prepared at the same reference date and adopting

financial reporting standards consistent with the Parent. In case of discrepancy between the

evaluation criteria adopted by a subsidiary and those used in the consolidated financial

statements, the subsidiary’s financial statements are adjusted for consolidation purposes.

Associates are those under significant influence, i.e. the Parent has the power of participating

in the determination of financial and management policies, but has no control or joint control

over those policies.

Investments in associates and subsidiaries subject to joint control have been accounted at

equity. The investment is initially recognised at cost, the amount later being increased or

decreased due to the effect of investee profits or losses, recorded according to the equity

ratios under "Net gains (losses) on equity investments", of dividends received and other

changes in the equity of the investees. Other changes are booked to reserves. The

differences between the carrying amount of the equity investment and the equity of the

related investee are included in the carrying amount of the investee.

Dividends booked to the Parent’s financial statements and concerning equity investments in

companies included in the consolidation scope or equity-accounted have been cancelled.

Taxes associated with consolidation adjustments have been accounted for, where applicable.

Commitments for the repurchase of own equity instruments, including commitments to

purchase equity instruments of companies consolidated in full, give rise to a financial liability

for the current amount payable. The initial recognition of the liability occurs by using the

equity as an offsetting item.

Compared to the financial statements at 31 December 2014, the consolidation scope at 30

June 2015 does not include Finanziaria San Giacomo S.p.A. sold to Cerved Credit

Management Group S.r.l. on 1 April 2015 and Quadrivio Finance S.r.l since the related

securitisation transaction ended in the half-year.

50

A list of equity investments in fully consolidated subsidiaries is provided in the table below.

1. Investments in companies subject to exclusive control

Company name Operating office

Registered office Type of relationship

Type of equity investment

Investor company % held

1. Credito Valtellinese Soc. Coop. Sondrio Sondrio 1

2. Credito Siciliano S.p.A. Palermo Palermo 1 1 98.01

3. Bankadati Soc. Cons. P.A. Sondrio Sondrio 1 1 85.00

2 4.00

4 1.00

5 1.00

6 1.00

7 4.00

4. Stelline Servizi Immobiliari S.p.A. Sondrio Sondrio 1 1 100.00

5. Global Assicurazioni S.p.A. Milano Milano 1 1 60.00

6. Global Broker S.p.A. Milano Milano 1 1 51.00

7. Cassa di Risparmio di Fano S.p.A. Fano Fano 1 1 100.00

8. Quadrivio Rmbs 2011 S.r.l. Conegliano Conegliano 4

9. Quadrivio Sme 2012 S.r.l. Conegliano Conegliano 4

10. Quadrivio Rmbs 2013 S.r.l. Conegliano Conegliano 4

11. Quadrivio Sme 2014 S.r.l. Conegliano Conegliano 4

Key: Type of relationship: 1 = majority of voting rights in the ordinary shareholders’/quotaholders’ meeting; 2 = dominant influence in the ordinary shareholders’/quotaholders’ meeting; 3 = agreements with other shareholders/quotaholders; 4 = other forms of control; 5 = sole management pursuant to Article 26, paragraph 1, of "Italian legislative decree 87/92"; 6 = sole management pursuant to Article 26, paragraph 2, of "Italian legislative decree 87/92" Events after the reporting period

There were no events after the close of the half-year that have had a significant impact on

the financial and economic situation of the company.

51

Fair value information

This section includes the information on financial instruments subject to reclassification from

one portfolio to another according to the rules laid down by IAS 39, and the information on

the fair value hierarchy as defined by IFRS 13.

The fair value is the price at which an asset can be sold or a liability can be transferred in a

transaction between market participants at a certain valuation date. Therefore, it is an exit

price and not an entry price.

The fair value of a financial liability that is due (for example, a sight deposit) cannot be less

than the amount payable on demand, discounted from the first date on which payment may

be required.

In particular, the criteria adopted are as follows:

- Mark to Market: valuation method that coincides with the Level 1 classification of the

fair value hierarchy;

- Comparable Approach: valuation method based on the use of inputs observable on

the market, the use of which implies a Level 2 classification of the fair value

hierarchy;

- Mark to Model: valuation method related to the application of pricing models whose

inputs determine the Level 3 classification (use of at least one significant input that

cannot be observed) of the fair value hierarchy.

With regard to the criteria for determining the fair value, please refer to what is contained in

the financial statements at 31 December 2014.

In the first half of 2015, the Group did not make any transfers between portfolios of financial

assets.

No transfers related to financial assets and liabilities measured at level 3 were made.

Transfers were recorded from level 2 to level 1 of financial assets of EUR 13 thousand and

transfers from level 1 to level 2 of financial assets of EUR 200.

52

Assets and liabilities measured at fair value on a recurring basis: division by level of fair value 30/06/2015 31/12/2014 Financial assets/liabilities at fair value L1 L2 L3 L1 L2 L3

1. Financial assets held for trading 110,927 3,666 - 56,666 5,121 -

2. Financial assets at fair value through profit or loss - - - - - -

3. Available-for-sale financial assets 5,412,854 3,082 103,443 6,696,680 28 92,898

4. Hedging derivatives - - - - - -

5. Property, equipment and investment property - - - - - -

6. Intangible assets - - - - - -

Total 5,523,781 6,748 103,443 6,753,346 5,149 92,898

1. Financial liabilities held for trading - 3,450 - - 3,233 -

2. Financial liabilities at fair value through profit or loss - - - - - -

3. Hedging derivatives - 263,292 - - 308,718 -

Total - 266,742 - - 311,951 -

Key: L1= Level 1 L2= Level 2 L3= Level 3 The Credit Value Adjustment (CVA) and the Debit Value Adjustment (DVA) that form the Fair value of derivatives amount to EUR 1 thousand and EUR 16 thousand, respectively. The portfolio of instruments measured at fair value on a recurring basis and classified within

level 3 of the fair value hierarchy mainly consists of shareholdings, subject to impairment

test should the conditions occur, and of investments in fund units. The Bank has carried out

an assessment of potential impacts of sensitivity to unobservable market parameters in the

valuation of instruments classified in level 3 of the fair value hierarchy and measured at fair

value on a recurring basis, which showed that these impacts are not significant compared to

the represented situation.

At 30 June 2015, the portfolio of available-for-sale financial assets, within level 3, includes

the equity investment in Alba Leasing, the real estate fund FAB III and FAB IV, the Italian

investment trust for SMEs, the Anthilia fund and the Fenice fund, in particular.

53

Annual changes of assets at fair value on a recurring basis (level 3)

Financial assets held for trading

Financial assets at fair value through profit or loss

Available-for-sale financial

assets

Hedging derivatives

Property, equipment

and investment

property

Intangible assets

1.Opening balance - - 92,898 - - -

2. Increases - - 11,356 - - -

2.1 Purchases - - 10,614 - - -

2.2 Gains recognised in: - - 703 - - -

2.2.1 Profit or loss - - - - - -

- of which gains on sales - - - - - -

2.2.2 Equity X X 703 - - -

2.3 Transfers to other levels - - - - - -

2.4 Other increases - - 39 - - -

3. Decreases - - -811 - - -

3.1 Sales - - -139 - - -

3.2 Redemptions - - -269 - - -

3.3 Losses recognised in: - - -403 - - -

3.3.1 Profit or loss - - -403 - - -

- of which losses on sales - - -403 - - -

3.3.2 Equity X X - - - -

3.4 Transfers to other levels - - - - - -

3.5 Other decreases - - - - - -

4.Closing balance - - 103,443 - - -

Annual changes of liabilities at fair value on a recurring basis (level 3).

There are no financial liabilities at fair value on a recurring basis (level 3).

54

Breakdown of the main statement of financial position items

SECTION 1 – LOANS AND RECEIVABLES WITH BANKS AND CUSTOMERS AND DUE TO BANKS AND CUSTOMERS

Breakdown by type of item 60 of assets "Loans and receivables with banks"

Type of transaction.s.mounts 30/06/2015 31/12/2014

A. Loans and Receivables with Central Banks 67,092 135,486

1. Term deposits - -

2. Obligatory reserve 67,092 135,486

3. Reverse repurchase agreements - -

4. Other - -

B. Loans and receivables with banks 642,455 704,003

1. Loans 603,984 674,989

1.1. Current accounts and deposit accounts 30,119 38,275

1.2. Term deposits 748 1,308

1.3. Other loans: 573,117 635,406

- Reverse repurchase agreements - -

- Finance leases - -

- Other 573,117 635,406

2. Debt instruments 38,471 29,014

2.1 Structured instruments - -

2.2 Other debt instruments 38,471 29,014

Total 709,547 839,489

Total fair value 709,544 839,674

Other loans mainly include the items related to the carried out securitisation transactions and margin tradings paid on hedging derivatives.

55

Breakdown by type of item 70 of assets "Loans and receivables with customers"

30/06/2015 31/12/2014

Type of transaction.s.mounts Performing

Non-performing

Performing

Non-performing

Purchased Other Purchased Other

Loans 15,223,486 - 3,333,969 15,803,384 - 3,192,096

1. Current accounts 3,679,434 - 1,372,381 3,878,825 - 1,335,576

2. Reverse repurchase agreements 152,459 - - 818,262 - -

3. Mortgages 8,703,692 - 1,672,939 8,778,572 - 1,557,352

4. Credit cards, personal and salary-backed loans 226,751 - 19,040 213,145 - 19,723

5. Finance leases 551,622 - 108,143 582,255 - 114,921

6. Factoring - - - - - -

7. Other loans 1,909,528 - 161,466 1,532,325 - 164,524

Debt instruments 33,358 - - 9,383 - -

8.Structured instruments - - - - - -

9.Other debt instruments 33,358 - - 9,383 - -

Total 15,256,844 - 3,333,969 15,812,767 - 3,192,096

Total fair value 19,615,383 19,433,361

Data at 31 December 2014 restated for a consistent comparison.

Breakdown by debtor/issuer of item 70 of assets "Loans and receivables with customers"

30/06/2015 31/12/2014

Non-performing Non-performing

Type of transaction.s.mounts Performing Purchased Other Performing Purchased Other

1. Debt instruments 33,358 - - 9,383 - -

a) Governments - - - - - -

b) Other government agencies - - - - - -

c) Other issuers 33,358 - - 9,383 - -

- non-financial companies 4,411 - - 4,310 - -

- financial companies 28,947 - - 5,073 - -

- insurance companies - - - - - -

- other - - - - - -

2. Loans to: 15,223,486 - 3,333,969 15,803,384 - 3,192,096

a) Governments 40,743 - 2 4,123 - -

b) Other government agencies 54,953 - 1 55,412 - 5,014

c) Other parties 15,127,790 - 3,333,966 15,743,849 - 3,187,082

- non-financial companies 10,113,303 - 2,896,398 10,504,837 - 2,785,222

- financial companies 1,052,696 - 75,606 1,323,627 - 57,197

- insurance companies 9,553 - 23 10,562 - 26

- other 3,952,238 - 361,939 3,904,823 - 344,637

Total 15,256,844 - 3,333,969 15,812,767 - 3,192,096

56

Breakdown by type of item 10 of liabilities "Due to banks"


1. Due to central banks 1,503,212 4,536,247

2. Due to banks 255,955 301,127

2.1 Current accounts and deposit accounts 58,008 49,429

2.2 Term deposits 25,539 65,119

2.3 Loans 140,496 161,806

2.3.1 repurchase agreements - -

2.3.2 other 140,496 161,806

2.4 Payables for commitments to repurchase own equity instruments - -

2.5 Other payables 31,912 24,773

Total 1,759,167 4,837,374

Total fair value 1,683,516 4,830,954

Breakdown of item 20 of liabilities "Due to customers"


1. Current accounts and deposit accounts 13,390,435 13,096,125

2. Term deposits 1,321,099 2,008,847

3. Loans 2,374,812 343,457

3.1 repurchase agreements 2,139,271 242,227

3.2 other 235,541 101,230

4. Payables for commitments to repurchase own equity instruments 51,700 52,568

5. Other payables 35,601 51,679

Total 17,173,647 15,552,676

Total fair value 17,179,839 15,554,129

Repos also refer mainly to transactions with “Cassa di Compensazione e Garanzia”.

57

SECTION 2 – OTHER FINANCIAL INSTRUMENTS

Breakdown by type of item 20 of assets "Financial assets held for trading"

Item/Amounts 30/06/2015 31/12/2014

Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

A. On-statement of financial position assets

1. Debt instruments 109,453 1,961 - 55,165 2,979 -

2. Equity instruments 1,473 - - 1,500 - -

3. OEIC units - - - - - -

4. Loans - - - - - -

Total A 110,926 1,961 - 56,665 2,979 -

B. Derivatives

1. Financial derivatives 1 1,705 - 1 2,142 -

2. Credit derivatives - - - - - -

Total B 1 1,705 - 1 2,142 -

Total (A+B) 110,927 3,666 - 56,666 5,121 -

Breakdown by debtor/issuer of item 20 of assets "Financial assets held for trading"

30/06/2015 31/12/2014

A. On-statement of financial position assets

1. Debt instruments 111,414 58,144

a) Governments and Central Banks 71,276 16,863

b) Other government agencies 655 764

c) Banks 39,483 40,517

d) Other issuers - -

2. Equity instruments 1,473 1,500

a) Banks 4 3

b) Other issuers: 1,469 1,497

- insurance companies - -

- financial companies - -

- non-financial companies 1,469 1,497

- other - -

3. OEIC units - -

4. Loans - -

a) Governments and Central Banks - -

b) Other government agencies - -

c) Banks - -

d) Other parties - -

Total A 112,887 59,644

B. Derivatives

a) Banks 917 1,307

b) Customers 789 836

Total B 1,706 2,143

Total (A+B) 114,593 61,787

58

Breakdown by type of item 40 of assets "Available-for-sale financial assets"

Item/Amounts

30/06/2015 31/12/2014


1. Debt instruments 5,347,227 3,082 374 6,661,708 15 374

2. Equity instruments 65,627 - 52,792 34,972 13 51,019

3. OEIC units - - 50,277 - - 41,505

4. Loans - - - - - -

Total 5,412,854 3,082 103,443 6,696,680 28 92,898

Level 3 also contains equity instruments measured at cost.

Breakdown by debtor/issuer: Available-for-sale financial assets

Item/Amounts 30/06/2015 31/12/2014

1. Debt instruments 5,350,683 6,662,097

a) Governments and Central Banks 5,314,286 6,634,218


c) Banks 36,023 27,505

d) Other issuers 374 374

2. Equity instruments 118,419 86,004

a) Banks 8,789 8,803

b) Other issuers: 109,630 77,201

- insurance companies - 418

- financial companies 98,977 35,137

- non-financial companies 10,638 41,631

- other 15 15

3. OEIC units 50,277 41,505

4. Loans - -

a) Governments and Central Banks - -


c) Banks - -

d) Other parties - -

Total 5,519,379 6,789,606

59

Information on shareholding relationships of investments in companies subject to joint control (carried at equity) and in companies subject to significant influence

Name

Registered office

Operating office

Type of relationship

Type of equity investment

Investor company % held

A. Companies subject to joint control

1. Rajna Immobiliare S.r.l. Sondrio Sondrio 1 Credito Valtellinese 50.00

B. Companies subject to significant influence

1. Global Assistance S.p.A. Milano Milano 2 Credito Valtellinese 40.00

2. Istituto Centrale delle Banche Popolari S.p.A. Milano Milano 2 Credito Valtellinese 20.39

3. Sondrio Città Futura S.r.l. Milano Milano 2 Stelline S.I. 49.00

4. Sondrio Città Centro S.r.l. in liquidation Sondrio Sondrio 2 Stelline S.I. 30.00

5. Istifid S.p.A. Milano Milano 2 Credito Valtellinese 31.06

6. Finanziaria Laziale S.p.A. in liquidation Frosinone Frosinone 2 Credito Valtellinese 20.00

7. Adamello S.p.A. Milano Milano 2 Stelline S.I. 10.00

8. Valtellina Golf Club S.p.A Caiolo Caiolo 2 Credito Valtellinese 43.20

9. Fidipersona Società Cooperativa Ancona Ancona 2 Cassa di Risparmio di Fano 18.90

10. Creset S.p.A. Sondrio Sondrio 2 Credito Valtellinese 40.00

Key Type of relationship: 1 = joint control 2 = significant influence

Although the investments are less than 20% of the share capital, equity investments in Fidipersona Società Cooperativa and in Adamello S.p.A. are included among equity investments in companies subject to significant influence by virtue of the significant presence in their Board of Directors and Board of Statutory Auditors of parties related to the Creval Group.

At 30 June 2015, the investment in Istituto Centrale delle Banche Popolari was classified as "150. Non-current assets held for sale and disposal groups" by 18.39%, whereas the remaining 2% was included under item "100. Equity investments".

Breakdown by type of item 30 of liabilities "Securities issued"

Type of instrument/ Amounts

30/06/2015 31/12/2014

Carrying amount

Fair value

Carrying amount

Fair value


A. Securities

1. bonds 4,576,973 414,135 3,626,138 574,034 5,018,008 417,534 3,986,292 696,029

1.1 structured - - - - - - - -

1.2 other 4,576,973 414,135 3,626,138 574,034 5,018,008 417,534 3,986,292 696,029

2. other securities 148,003 - 148,003 - 174,885 - 174,885 -

2.1 structured - - - - - - - -

2.2 other 148,003 - 148,003 - 174,885 - 174,885 -

Total 4,724,976 414,135 3,774,141 574,034 5,192,893 417,534 4,161,177 696,029

Financial instruments indicated in level 3 refer to the securities sold in connection with the securitisation Quadrivio SME 2014 and Quadrivio RMBS 2011.

60

Breakdown by type of item 40 of liabilities "Financial liabilities held for trading"

Transaction type/Group elements

30/06/2015 31/12/2014

NV

Fair value

Fair value

L1 L2 L3 NV L1 L2 L3

A. On-statement of financial position liabilities

1. Due to banks - - - - - - - -

2. Due to customers - - - - - - - -

3. Debt instruments - - - - - - - -

Total A - - - - - - - -

B. Derivatives

1. Financial derivatives X - 3,450 - X - 3,233 -

2. Credit derivatives X - - - X - - -

Total B X - 3,450 - X - 3,233 -

Total (A+B) - - 3,450 - - - 3,233 -

Key: NV = nominal or notional value L1: Level 1 L2: Level 2 L3: Level 3

Hedging derivatives: breakdown by type of hedge and level

30/06/2015 31/12/2014 Fair value

NV Fair value

NV L1 L2 L3 L1 L2 L3

A. Financial derivatives - 263,292 - 600,000 - 308,718 - 600,000

1) Fair value - 263,292 - 600,000 - 308,718 - 600,000

2) Cash flows - - - - - - - -

3) Investments in foreign operations - - - - - - - -

B. Credit derivatives - - - - - - - -

1) Fair value - - - - - - - -

2) Cash flows - - - - - - - -

Total - 263,292 - 600,000 - 308,718 - 600,000

Key NV = nominal value L1= Level 1 L2= Level 2 L3= Level 3

61

SECTION 3 – OTHER ASSET AND LIABILITY ITEMS

Breakdown of item 120 of assets "Property, equipment and investment property" - operational property, equipment and investment property measured at cost

Asset/Amounts 30/06/2015 31/12/2014 1. Owned 401,133 405,536

a) land 59,812 60,839

b) buildings 308,266 309,461

c) furniture 20,217 21,418

d) electronic systems 4,045 4,024

e) other 8,793 9,794

2. Assets acquired under finance lease - -

a) land - -

b) buildings - -

c) furniture - -

d) electronic systems - -

e) other - -

Total 401,133 405,536

Breakdown of item 120 of assets "Property, equipment and investment property" - property, equipment and investment property held for investment measured at cost

30/06/2015 31/12/2014 Asset/Amounts

1. Owned 48,459 48,032

a) land 7,262 6,287

b) buildings 41,197 41,745

2. Assets acquired under finance lease - -

a) land - -

b) buildings - -

Total 48,459 48,032

1) Fair value 58,092 56,162

62

Breakdown of item 130 of assets "Intangible assets"

Asset/Amounts

30/06/2015 31/12/2014

Definite life Indefinite life Definite life Indefinite

life

A.1 Goodwill X 172,154 X 172,154

A.1.1 attributable to the owners of the parent X 172,154 X 172,154

A.1.2 attributable to non-controlling interests X - X -

A.2 Other intangible assets 35,949 - 38,246 -

A.2.1 Assets measured at cost: 35,949 - 38,246 -

a) internally generated intangible assets 662 - 795 -

b) other assets 35,287 - 37,451 -

A.2.2 Assets measured at fair value: - - - -

a) internally generated intangible assets - - - -

b) other assets - - - -

Total 35,949 172,154 38,246 172,154

According to IAS 36, goodwill must be subject to impairment test on an annual basis or every

time there is objective evidence that events may have reduced the recoverable amount

below its carrying amount. The IFRS require the impairment test to be made by comparing

the carrying amount of the item being assessed with its recoverable amount. An impairment

loss must be recognised where the recoverable amount is lower than the carrying amount. To

this end, goodwill must be allocated to individual cash generating units of the acquirer or

groups of such cash generating units (hereinafter "CGU") so that these units may benefit

from the synergy of the combination, independently of whether the other assets or liabilities

related to the acquisition were assigned to that unit or group of units. The recoverable

amount of the equity investment is the higher between its fair value net of costs to sell and

its value in use. For the purpose of the impairment procedure, the Group used the value in

use for the recoverability check of the recorded goodwill.

The value in use is determined by discounting future cash flows defined on the basis of

forecasts that cover a 5-year period of the CGUs approved by the Directors.

The projections after the period covered by the plan, based on a constant growth rate of 2%,

i.e. the long-term growth average rate estimated on the basis of the forecasts on the

expected inflation rate.

The cash flows generated over the selected time period of planning and that can be

distributed to shareholders allow in any case to maintain a satisfactory degree of

capitalisation in terms of Tier 1 and Total Capital (10% Tier 1 ratio target and 10.5% Total

capital ratio) compatible with the nature and the expected development of assets. Already in

the 2014 financial statements, compared to the parameters defined in the 2013 financial

statements, steps were taken to increase the capitalisation coefficient target in compliance

with the preliminary indications formulated to date by the Bank of Italy on "prudential

monitoring threshold" for the Creval Group.

Moreover, it is pointed out that the results of the impairment test carried out on the goodwill

recorded in the consolidated financial statements at 31 December 2014 showed the need for

a full goodwill impairment loss of approximately EUR 56 million with regard to the Carifano

market CGU and of EUR 75 million with regard to the Credito Valtellinese market CGU.

63

With reference to the goodwill recorded at 30 June 2015, analyses were carried out in order

to check the possible presence of impairment indicators and the subsequent need to calculate

again the recoverable amount of the different CGUs.

The CGUs, in line with what was defined in the 2014 financial statements - considering the

absence of residual intangible assets referable to Carifano - were identified as the individual

legal entities, (Credito Valtellinese market CGU, Credito Siciliano market CGU and Global

Assicurazioni Finance CGU), less the investments in associates and companies subject to

joint control classified in the portfolios of Equity investments and Available-for-sale financial

assets.

They actually represent the lowest level at which group management estimates the return on

investment and this level is not greater than the operating segments identified for the

segment reporting of the group prepared in accordance with IFRS 8 Operating segments.

The analyses carried out, using the same methodological approach adopted during evaluation

in the financial statements at 31 December 2014, showed the following:

– with reference to the estimate of the cash flows, final data at 30 June 2015 was

compared with the interim forecasts pointing out their deviations. The economic

results of the first half of 2015 increased as a whole compared to what was defined in

the budget. The higher contribution to the comprehensive income, compared to the

budget, is primarily due to the positive trend of the net interest income, favoured by a

significant reduction in funding costs, as well as by higher profits made as a result of

the sale and subsequent reorganisation of the treasury securities portfolio. The higher

benefit of the mentioned income statement components more than offset the higher -

than expected - impairment losses on loans and receivables;

– with reference to forecast figures, the expected comprehensive income identified

during the impairment test for the 2014 financial statements - albeit in the presence

of its partial reorganisation among the different income statement elements - is

substantially confirmed;

– the long-term growth rate (g) of the cash flows used to estimate the so-called

"terminal value" is in line with the one used in the impairment test for the 2014

financial statements (2%);

– with reference to the discount rate of the cash flows, it was updated on the basis of

the new information available at 30 June 2015. In particular, the cost of capital at 30

June 2015 accounts for 8.0% and, as a result, lower than the value (8.8%) referring

to 31 December 2014 due to the combined effect of changes recorded on the Risk free

rate (from 2.87% to 2.04%) and on the average beta associated with a sample of

major listed Italian banks (from 1.18 to 1.20).

Albeit the outlines of the scenario as well as the parameters used during evaluation may vary

significantly as a result of the events that management cannot influence, the results of the

aforesaid analyses do not show the presence of factors and circumstances of impairment

presumption and, as a result, confirm the carrying amounts. It is highlighted that the

persisting volatility of the share prices, also following the uncertainty in the macroeconomic

situation, as already observed in the 2013-2014 financial statements, does not allow the

stock market quotations, or the multipliers that they derive from, to fully express the bank's

listed value based on the future growth opportunities and the ability to create sustainable

value in the medium term.

With reference to intangible assets with definite lives, mainly represented by the customer

lists, whose amounts (all in all equal to EUR 19.1 million at 30 June 2015) are the subject-

64

matter of progressive amortisation, analyses on the important variables for the purposes of

their enhancement were carried out. No critical factors were to report compared to the

situation and to the estimate of the recoverable amount calculated for the 2014 financial

statements and therefore, the amounts recorded are confirmed.

65

Breakdown of item 120 of liabilities "Provisions for risks and charges"

Item/Amounts 30/06/2015 31/12/2014

1. Company pension funds 33,269 34,936

2. Other provisions for risks and charges 67,270 73,201

2.1 legal disputes 16,793 17,166

2.2 personnel expenses 42,796 52,385

2.3 other 7,681 3,650

Total 100,539 108,137

Breakdown of item 160 of assets "Other assets"

30/06/2015 31/12/2014

Amounts due from the tax authorities for withholdings on interest paid to customers and other amounts due

83,604 78,744

Cheques drawn on the bank to be settled 70,710 49,304

Counterparts for securities and coupon payments to be received 9,092 228

Sundry items to be charged to customers and banks 95,572 42,539

Real estate inventory 45,944 44,906

Costs and other advance payments 4,122 5,953

Receivables related to the supply of goods and services 7,606 10,070

Leasehold improvements 5,260 6,396

Accruals not recorded separately 166 110

Other items 65,487 36,485

Total 387,563 274,735

Breakdown of item 100 of liabilities "Other liabilities"

30/06/2015 31/12/2014

Amounts due to tax authorities for indirect taxes 4,457 5,940

Amounts due to social security and welfare institutions 8,413 12,467

Amounts due to government agencies on behalf of third parties 74,772 42,000

Sundry items to be credited to customers and banks 36,765 32,705

Amounts available to customers 84,663 83,413

Amounts payable to employees 21,123 10,926

Value date differences on portfolio transactions 336,401 120,763

Items in transit between branches 6,743 4,051

Guarantees given and commitments 9,256 9,880

Accruals other than those capitalised 5,643 6,798

Payables related to the supply of goods and services 27,815 34,713

Sundry and residual items 306,566 271,402

Total 922,617 635,058

66

Non-current assets held for sale and disposal groups: breakdown by type of asset

30/06/2015 31/12/2014

A. Individual assets:

A.1 Financial assets - -

A.2 Equity investments 176,947 -

A.3 Property, equipment and investment property - -

A.4 Intangible assets - -

A.5 Other non-current assets - -

Total A 176,947 -

B. Groups of discontinued operations

B.1. Financial assets held for trading - -

B.2 Financial assets at fair value through profit or loss - -

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

B.4 Held-to-maturity investments - -

B.5 Loans and receivables with banks - -

B.6 Loans and receivables with customers - 53

B.7 Equity investments - -

B.8 Property, equipment and investment property - -

B.9 Intangible assets - -

B.10 Other assets - 3,138

Total B - 3,191

C. Liabilities associated with discontinued operations

C.1 Payables - -

C.2 Securities - -

B.3 Other liabilities - -

Total C - -

D. Liabilities associated with disposal groups - -

D.1 Due to banks - 261

D.2 Due to customers - -

D.3 Securities issued - -

D.4 Financial liabilities held for trading - -

D.5 Financial liabilities at fair value - -

D.6 Provisions - 132

D.7 Other liabilities - 180

Total D - 573

On 19 June 2015, an agreement was signed for the sale to Mercury Italy S.r.l. (vehicle

indirectly owned by the Bain Capital, Advent International and Clessidra Sgr funds) of the

majority (85.79%) of the share capital of Istituto Centrale delle Banche Popolari Italiane

(ICBPI) by the current shareholders.

Credito Valtellinese – which holds 20.39% of the share capital of ICBPI - undertook to sell

18.39% of the share capital of ICBPI, thereby maintaining a residual investment of 2%.

In view of the sale, at 30 June 2015, the equity investment, for the portion of 18.39%, is

classified as discontinued operations and belongs to the segment other assets of segment

reporting.

67

With reference to 31 December 2014, the above-mentioned figures refer to the sale of the

subsidiary Finanziaria San Giacomo to Cerved Credit Management Group, occurred on first

April 2015.

Information on Group share capital and reserves

At 30 June 2015, equity attributable to the owners of the parent amounted to EUR 2,011

million, compared to EUR 2,020 million recorded at the end of December 2014.

The main changes in the half-year are due to:

- negative change in the AFS reserve mainly due to Government bonds and to the

equity investment in Anima held in portfolio of EUR 63 million,

- positive change in actuarial reserves of approximately EUR 2 million,

- profit for the period of EUR 51 million.

At 30 June 2015, the portfolio contained 60,000 treasury shares of EUR 100 thousand, i.e.

0.005% of total shares outstanding at the end of the period.

68

SECTION 4 – OTHER INFORMATION

Breakdown of guarantees given and commitments

Transactions 30/06/2015 31/12/2014

1) Financial guarantees

a) Banks 25,990 25,817

b) Customers 37,563 19,922

2) Commercial guarantees

a) Banks 13,774 15,091

b) Customers 828,371 908,027

3) Irrevocable commitments to grant finance

a) Banks

i) certain to be called on 1,485 2,510

ii) not certain to be called on 7 7

b) Customers

i) certain to be called on 6,870 10,508

ii) not certain to be called on 720,230 862,734

4) Commitments underlying credit derivatives: protection sales - -

5) Assets pledged as guarantee for third-party commitments - -

6) Other commitments - -

Total 1,634,290 1,844,616

Assets pledged as guarantee for the Group’s liabilities and commitments

Portfolios 30/06/2015 31/12/2014

1. Financial assets held for trading 54,815 50,906

2. Financial assets at fair value through profit or loss - -

3. Available-for-sale financial assets 2,237,066 3,213,841

4. Held-to-maturity investments - -

5. Loans and receivables with banks 286,388 317,491

6. Loans and receivables with customers 4,069,910 3,404,244

7. Property, equipment and investment property - -

The assets indicated above were used as a guarantee for funding repurchase agreements, issue of bank drafts, derivatives and loan received from the European Central Bank.

69

Breakdown of management and trading services

Type of service 30/06/2015 31/12/2014

1. Execution of orders on behalf of customers

a) Purchases

1. settled - -

2. unsettled - -

b) Sales

1. settled - -

2. unsettled - -

2. Portfolio management

a) individual - -

b) collective - -

3. Custody and administration of securities

a) third-party securities held on deposit: when acting as custodian bank (excluding portfolio management)

1. securities issued by companies included in the consolidation scope - -

2. other securities - -

b) other third-party securities held on deposit (excluding portfolio management): others

1. securities issued by companies included in the consolidation scope 3,385,284 3,670,467

2. other securities 6,471,421 6,290,140

c) third-party securities deposited with third parties 10,610,902 10,312,681

d) treasury securities deposited with third parties 5,752,026 6,106,564

4. Other transactions 1,985,437 1,753,773

70

Breakdown of the main income statement items

Breakdown of item 10 of the income statement "Interest and similar income"

Items 1st half of 2015

1st half of 2014

% change

1. Financial assets held for trading 3,741 1,340 179.18

2. Financial assets at fair value through profit or loss - - -

3. Available-for-sale financial assets 43,848 41,910 4.62

4. Held-to-maturity investments - - -

5. Loans and receivables with banks 938 2,910 -67.77

6. Loans and receivables with customers 317,374 378,673 -16.19

7. Hedging derivatives - - -

8. Other assets 906 21 n.s.

Total 366,807 424,854 -13.66

Item 8. Other assets conventionally includes interest income on financial liabilities that are remunerated with a negative rate.

Breakdown of item 20 of the income statement "Interest and similar expense"

Items 1st

half of 2015

1st half of 2014

% change

1. Due to central banks (1,081) (3,155) -65.74

2. Due to banks (844) (2,033) -58.48

3. Due to customers (52,484) (89,546) -41.39

4. Securities issued (62,481) (70,376) -11.22

5. Financial liabilities held for trading (461) (572) -19.41

6. Financial liabilities at fair value through profit or loss - - -

7. Other liabilities and provisions (29) - -

8. Hedging derivatives (11,894) (11,195) 6.24

Total (129,274) (176,877) -26.91

Interest income on foreign currency financial assets

1st

half of 2015

1st half of 2014

% change

Interest income on foreign currency assets 501 898 -44.21

71

Interest expense on foreign currency financial liabilities

1st

half of 2015

1st half of 2014

% change

Interest expense on foreign currency liabilities (153) (317) -51.74

Breakdown of item 40 of the income statement "Fee and commission income"

Type of service/Sectors 1st

half of 2015

1st half of 2014

% change

a) guarantees given 4,762 5,076 -6.19

b) credit derivatives - - -

c) management, trading and consulting services: 44,993 36,968 21.71

1. trading of financial instruments 1 3 -66.67

2. currency trading 2,432 2,404 1.16

3. portfolio management - - -

3.1 individual - - -

3.2 collective - - -

4. custody and administration of securities 393 464 -15.30

5. custodian bank - - -

6. placement of securities 11,141 6,562 69.78

7. order acceptance and transmission 4,286 4,667 -8.16

8. consulting services 155 934 -83.40

8.1 on investments - 18 -100.00

8.2 on financial structuring 155 916 -83.08

9. distribution of third party services 26,585 21,934 21.20

9.1. portfolio management 7,841 6,967 12.54

9.1.1. individual 7,841 6,967 12.54

9.1.2. collective - - -

9.2. insurance products 17,399 13,289 30.93

9.3. other products 1,345 1,678 -19.85

d) collection and payment services 41,618 40,682 2.30

e) servicing for securitisation transactions - - -

f) factoring transaction services - - -

g) tax collection services - 912 -100.00

h) management of multilateral trading facilities - - -

i) current account management 28,137 29,921 -5.96

j) other services 35,285 39,938 -11.65

Total 154,795 153,497 0.85

Fee and commission income included under "j) other services" mainly refers to commissions on loan transactions of EUR 32,005 thousand and commissions for rights and pledges of EUR 1,840 thousand.

72

Breakdown of item 50 "Fee and commission expense"

Services/Sectors 1st

half of 2015

1st half of 2014

% change

a) guarantees received (891) (7,804) -88.58

b) credit derivatives - - -

c) management and trading services: (735) (769) -4.42

1. trading of financial instruments (3) (6) -50.00

2. currency trading (4) (2) 100.00

3. portfolio management: - - -

3.1 own account - - -

3.2 for third parties - - -

4. custody and administration of securities (728) (761) -4.34

5. placement of financial instruments - - -

6. off-premises provision of financial instruments, products and services - - -

d) collection and payment services (11,169) (10,951) 1.99

e) other services (720) (1,485) -51.52

Total (13,515) (21,009) -35.67

Fee and commission expense of the first half of 2014 mainly include fees and commissions paid to the Italian Government on bonds issued by the Bank and fully repaid during 2014.

73

Breakdown of item 80 "Net trading income (expense)"

Transactions/Income components Gains (A) Trading income (B) Losses (C) Trading

losses (D)

Net trading income [(A+B)-(C+D)]

1. Financial assets held for trading 130 3,408 (4,042) (18,809) (19,313)

1.1 Debt instruments 117 3,407 (4,000) (18,809) (19,285)

1.2 Equity instruments 13 1 (42) - (28)

1.3 OEIC units - - - - -

1.4 Loans - - - - -

1.5 Other - - - - -

2. Financial liabilities held for trading - - - - -

2.1 Debt instruments - - - - -

2.2 Payables - - - - -

2.3 Other - - - - -

3. Financial assets and liabilities: exchange rate dif ferences X X X X 1,176

4. Derivatives 396 4,766 (4) (4,766) 1,972

4.1 Financial derivatives:

- On debt instruments and interest rates 396 4,766 (4) (4,766) 392

- On equity instruments and stock market share indices - - - - -

- On currencies and gold X X X X 1,580

- Other - - - - -

4.2 Credit derivatives - - - - -

Total 526 8,174 (4,046) (23,575) (16,165)

Trading losses on debt instruments mainly refer to transactions on Government bonds.

74

Breakdown of item 90 "Net hedging income (expense)"

Income components/Amounts 1st

half of 2015

1st half of 2014

% change

A. Gains on:

A.1 Fair value hedges 44,407 - -

A.2 Financial assets with fair value hedges - 65,936 -100.00

A.3 Financial liabilities with fair value hedges - - -

Total hedging income (A) 44,407 65,936 -32.65

B. Losses on:

B.1 Fair value hedges (65,997) -100.00

B.2 Financial assets with fair value hedges (44,667) - -

B.3 Financial liabilities with fair value hedges - - -

Total hedging expense (B) (44,667) (65,997) -32.32

C. Net hedging expense (A -B) (260) (61) 326.23

Net impairment losses on loans and receivables: breakdown

Impairment losses

Reversals of

impairment losses

1st half of 2015

1st half of 2014

Transactions/Income components Individual Collective Individual

Collective

Derecognition Other A B A B

A. Loans and receivables with banks - - - - - - - - -

- Loans - - - - - - - - -

- Debt instruments - - - - - - - - -

B. Loans and receivables with customers (10,153) (249,579) (240) 32,210 56,818 - 12,408 (158,536) (210,193)

Purchased non-performing loans and receivables - - - - - - -

- Loans - - X - - X X - -

- Debt instruments - - X - - X X - -

Other loans and receivables (10,153) (249,579) (240) 32,210 56,818 - 12,408 (158,536) (210,193)

- Loans (10,153) (249,579) (240) 32,210 56,818 - 12,408 (158,536) (210,193)

- Debt instruments - - - - - - - - -

C. Total (10,153) (249,579) (240) 32,210 56,818 - 12,408 (158,536) (210,193)

Key A = from interest B = other recoveries

75

Net accruals to provisions for risks and charges: breakdown

Items 1st

half of 2015

1st half of 2014

% change

Provision for legal disputes and claims from liquidators (333) (2,379) -86.00

Provision for sundry risks and charges (3,522) (1,165) 202.32

Total (3,855) (3,544) 8.78

Provisions for sundry risks and charges include the contribution to the resolution fund envisaged by the new European regulations (Single Resolution Fund) of EUR 4 million.

Breakdown of item 180 "Personnel expenses"

Type of expense/Amounts 1st

half of 2015

1st half of 2014

% change

1) Employees (141,228) (145,677) -3.05

a) wages and salaries (97,390) (97,584) -0.20

b) social security charges (30,255) (30,571) -1.03

c) post-employment benefits (6,117) (5,478) 11.66

d) pension expenses - - -

e) accrual for post-employment benefits 272 (1,293) -121.04

f) accruals for pension and similar provisions: -

- defined contribution - - -

- defined benefit (306) (474) -35.44

g) payments to external supplementary pension funds: -

- defined contribution (5,059) (4,755) 6.39

- defined benefit (164) (113) 45.13

h) costs of share-based payment plans - - -

i) other employee benefits (2,209) (5,409) -59.16

2) Other personnel in service (317) (369) -14.09

3) Directors and statutory auditors (2,402) (2,411) -0.37

4) Retired personnel (819) (812) 0.86

Total (144,766) (149,269) -3.02

The item e) accrual for post-employment benefits includes in the first half of 2015 a plan amendment in relation to the revaluation of post-employment benefits changed from 11% to 17% as from 1 January 2015.

76

Breakdown of item 180 "Other administrative expenses"

1st

half of 2015

1st half of 2014

% change

Fees for professional and consulting services (18,674) (16,330) 14.35

Insurance premiums (1,953) (1,953) 0.00

Advertising (2,156) (2,016) 6.94

Postage, telephone and data transfer (4,204) (4,641) -9.42

Printed materials and stationery (969) (1,015) -4.53

Maintenance and lease of hardware and software (2,666) (2,807) -5.02

Data processing services (13,931) (14,899) -6.50

Electricity, heating and shared property service charges (5,141) (5,586) -7.97

Administrative and logistics costs (2,578) (2,692) -4.23

Property management (4,989) (5,011) -0.44

Transport and travel (1,913) (2,017) -5.16

Security and transport of valuables (3,626) (3,925) -7.62

Membership fees (1,555) (1,258) 23.61

Audit fees (758) (741) 2.29

Commercial and financial information (3,581) (3,591) -0.28

Rent payable (11,638) (12,127) -4.03

Indirect personnel expenses (2,042) (1,787) 14.27

Entertainment expenses (244) (266) -8.27

Taxes (31,489) (30,489) 3.28

Contractual charges for treasury management services (609) (719) -15.30

Meeting costs (1,430) (1,436) -0.42

Miscellaneous items (1,663) (2,268) -26.68

Total (117,809) (117,574) 0.20

Average number of employees by category

1st

half of 2015

1st half of 2014

Employees: 4,022 4,153

a) executives 58 60

b) total middle managers 1,542 1,543

- 3rd and 4th level 701 711

c) other employees 2,422 2,550

Other personnel 7 12

Total 4,029 4,165

77

Breakdown of item other operating costs

1st

half of 2015

1st half of 2014

% change

Amortisation of leasehold improvements (1,442) (1,940) -25.67

Other expenses (7,312) (8,275) -11.64

Total (8,754) (10,215) -14.30

Other operating costs mainly include costs to produce and manage property of EUR 6,232 thousand.

Breakdown of item other operating income

1st

half of 2015

1st half of 2014

% change

Rent receivable 727 528 37.69

Recovery of loan setup fees 2,316 2,671 -13.29

Income from real estate services (including income from review of prices on real estate agreements underway)

318 229 38.86

Income from data processing services 6,147 5,652 8.76

Income from other services 273 260 5.00

Recovery of indirect taxes 22,582 22,093 2.21

Recovery of insurance policy payments 488 460 6.09

Recovery of legal and notarial costs 6,892 6,583 4.69

Other income 8,777 8,785 -0.08

Total 48,520 47,261 2.67

The other operating income includes proceeds from sales of property of EUR 4,340 thousand, changes in property works in progress of EUR 850 thousand, income and recoveries for leasing services of EUR 1,207 thousand and insurance repayments of EUR 198 thousand.

78

Post-tax profit (loss) from discontinued operations: breakdown

Income components/Sectors 1st

half of 2015

1st half of 2014

% change

Group of assets/liabilities

1. Revenue 2 - -

2. Costs (305) (585) -47.86

3. Gain (loss) on disposal groups and associated liabilities - - -

4. Gains (losses) on sales 20,697 - -

5. Taxes (324) 123 -363.41

Profit (loss) 20,070 (462) n.s.

Item "Gains (losses) on sales" includes the gain recorded in the second quarter of 2015, related to the sale of 100% of Finanziaria San Giacomo, for approximately EUR 20 million net of taxes.

Breakdown of income taxes on discontinued operations

1st

half of 2015

1st half of 2014

% change

1. Current taxation (-) (356) (36) 888.89

2. Change in deferred tax assets (+/-) (47) 159 -129.56

3. Change in deferred tax liabilities (-/+) 79 - -

4. Income taxes for the period (-1+/-2 +/-3) (324) 123 -363.41

79

Earnings per share

The basic earnings per share and diluted earnings per share are calculated in accordance

with the methods described in IAS 33 - Earnings per share. The basic earnings per share are

defined as the profit or loss or the result from continuing operations attributable to the

owners of the parent (therefore, excluding the post-tax result from discontinued operations)

attributable to ordinary equity holders and the weighted average number of ordinary shares

outstanding during the year.

The following table displays the basic earnings per share with the calculation details.

1st half of 2015 1st half of

2014

Profit (loss) attributable to holders of ordinary shares 50,867 3,144

Profit (loss) from continuing operations attributable to holders of ordinary shares

30,796 3,605

Weighted average number of ordinary shares 1,108,812,369 484,693,674

Basic earnings (loss) per share 0.046 0.006

Basic earnings (loss) per share from continuing operations 0.028 0.007

It is specified that earnings per share from discontinued operations are equal to EUR 0.018

for the first half of 2015 (0.001 in the first half of 2014).

There are no outstanding instruments with potential dilutive effect; therefore, diluted

earnings per share are equal to basic earnings per share.

80

Information on risks and related hedging policies

The clear identification of risks to which the Credito Valtellinese Banking Group is actually

and potentially exposed constitutes the essential prerequisite for a knowledgeable

assumption of said risks and their effective management, making use of the appropriate

mitigation and transfer tools and techniques.

In line with the operational and organisational characteristics that derive from its identity as

a subject belonging to the co-operative credit system, from the features that characterised it

in over a hundred years of its history and from its mission of service to the economic and

social development of the territories where it is established, the different types of risk that

the Group assumes and manages in the carrying on of its activities are:

- credit and counterparty risk (including country and transfer risk);

- market risk (including the basis risk);

- operational risk;

- IT risk;

- interest rate risk;

- concentration risk;

- liquidity risk;

- real estate risk;

- compliance risk;

- money-laundering risk;

- risk towards associated parties;

- reputational risk;

- risk deriving from securitisations;

- residual risk;

- strategic risk (including risk from investments);

- risk of excessive leverage;

- sovereign risk.

The risks related to the outsourcing of corporate functions and of the information system

refer to the different types of risks already identified.

The review of the current exposure to risk, carried out on the basis of the assessment made

on the occasion of the preparation of the ICAAP Report, and the future risk assessment,

carried out also on the basis of the commercial programming provided by the different

competent organisational units, did not report substantial changes in risk types and profiles.

In line with its focus on retail banking, the Group is mainly exposed to credit risk. In terms of

internal capital, the exposure to operational risks is also significant: these risks are assumed

in that they serve as a means for carrying out the banking business.

The exposure to financial and market risks is quite limited, given that the objective of limiting

the volatility of the forecast results would not be compatible with an intensive speculative

financial activity, with a pronounced transformation of maturities and with treasury

management as a profit centre rather than a service.

The risk profile at the end of the reporting period is consistent with the risk appetite defined

81

by the Board of Directors for the current year, which, in line with the identity, values,

business model and strategic input of the Group, resolved to allocate the main part of the

capital to the credit risk, which represents the core business of a retail Banking Group;

confirm a low propensity to other risks with business purpose; confirm the aim of

limiting/minimising exposure for pure risks to which no return is associated.

The actual risk exposure complies with the tolerance thresholds set taking into account the

maximum technically assumable risk.

Annually, the Board of Directors of the Parent reviews the risk appetite framework and, if the

conditions are met, updates them.

The risk appetite, which is a reference for defining the strategic plan and the logical premise

for planning, is defined for the risks considered relevant for the Internal Capital Adequacy

Assessment Process (ICAAP). The results of the above described process are summarised in

the relevant Report that represents the point of convergence and synthesis of the equity,

economic and financial plans, the risk management and capital management on the one

hand, and an essential instrument to support strategic planning and the implementation of

the corporate decisions on the other. The regular monitoring activities have pointed out the

current and future adequacy of the total capital to meet the relevant risks and maintain an

adequate standing on the markets.

The strategic coordination of the Group and the unit operational management are insured,

within the framework of the strategic guidelines resolved by the Board of Directors of the

Parent and, on the basis of the system of delegated powers, by the Managing Directors and

by the General Management of the Parent Credito Valtellinese. These also make use of the

Management Committee and of the Group Committees for the purpose of a shared decision-

making.

The organisational structure of the Group meets the requirement of ensuring the constant

carrying-out by the Parent Credito Valtellinese of a deep and incisive controlling action with

regard to the members of the Group, from a strategic, management, technical and

operational viewpoint, and this as a result of a stringent institutional, operational and

functional connection with the subsidiaries.

Four Areas of Coordination (Commercial, Credit, Finance and Operations, Risks and Controls)

referable to the members of the General Management became operational as from last year.

In particular, the task of the Risk and Control Area, under the Managing Director, among

other things, is to monitor the activities and the development of the Group’s internal control

and risk management system, favouring the coordination and integration between the

company’s development and control functions in order to create a full protection of the risk

management processes of the Group.

The company's control functions are based, from an organisational viewpoint, in three

separate Departments of Credito Valtellinese:

- the Auditing Department, responsible for the activities related to the internal audit

function;

- the Risk Management Department, responsible for the activities related to the risk control

and validation functions;

- the Compliance Department, responsible for the activities related to compliance and anti-

money laundering functions.

The three control functions form the internal control system, regulated by the prudential

supervisory regulations and by the company policy defined in the "Control coordination

82

document".

In particular, the Risk Management Department, broken down in specialised Divisions and

Services, is responsible for:

- contributing to the definition of the Risk Appetite Framework (RAF) of the Group and the

operational limits to the assumption of various types of risk; proposing the quantity and

quality parameters required for defining the RAF, which also refer to stress scenarios and,

in case of amendments to the operating contexts of the bank, the adjustment of such

parameters; verifying compliance with RAF;

- expressing opinions in advance on the compliance with RAF of most significant

transactions, by acquiring if possible, depending on the type of operation, the opinion of

other departments involved in the risk management process;

- overseeing the internal capital adequacy assessment (ICAAP) and the internal liquidity

adequacy assessment processes provided by the prudential supervisory regulations;

- providing the Banks and the Group with reliable models and instruments, updated and

adjusted for the management of risks implied in the business activity and in compliance

with the regulatory provisions;

- identifying, measuring and monitoring the relevant risks, verifying compliance with the

exposure limits that may be established and assessing capital adequacy.

The Management makes also use of the collaboration of contacts at the other Companies of

the Group.

Risk management processes - i.e. all the rules, procedures, resources (human, technological

and organisational) and control activities for identifying, measuring or assessing, monitoring,

preventing or mitigating as well as communicating to the appropriate hierarchical levels the

assumed risks - involve corporate governance systems through a number of Bodies, each

with its own specific functions.

The risk management processes are properly documented and the various responsibilities are

clearly assigned. The actual adequacy of the main risk management processes is assessed at

regular intervals by the Risk Management Department; the results are submitted to internal

audit by the Auditing Department and reported to the Board of Directors, showing any

anomaly and shortfall of the improvement actions.

1. CREDIT RISK

General aspects

The credit risk is primarily defined as the insolvency risk or default of the counterparty, i.e.

as "the possibility for the creditor that a financial obligation will not be paid at maturity or

later". The credit risk occurs also as:

- deterioration of the creditworthiness of counterparties with a credit line (migration risk);

- increase in exposure before the insolvency of a counterparty with a credit line (exposure

risk);

- decrease in the rate of collection of delinquent loans (collection risk).

Therefore, as part of the lending activity, the Bank, acting as lender, is exposed to the risk

that some loans may not be paid, due to the deterioration of the financial conditions of the

83

debtor, either at maturity or later and should therefore be derecognised in all or in part. The

possible causes of non-fulfilment are mainly due to the inability of the borrower to repay the

debt (liquidity shortage, insolvency, etc.). This risk is taken on when carrying out the

traditional lending activity, regardless of the specific technical form in which the loan is

granted.

The purpose of the credit policies defined by the Group is:

- to make concrete and operational the statutory principles that express the corporate

identity - a Group with a vocation as a cooperative Bank oriented to financing the real

economy of the areas in which the Group operates, SMEs and households in particular -

and inspire its guidelines for carrying out its lending activity;

- direct the loans portfolio composition towards the optimisation of the ratio between the

expected return and credit risk, with a view to realigning the risk-adjusted profitability to

the cost of capital and limiting the concentration of exposures on single

counterparties/groups, on single business segments or geographical areas;

- support the monitoring of the credit risk management by applying policies, processes,

methods and standard IT procedures.

Organisational aspects

Two Parent Areas are mainly involved in the credit risk monitoring: the Loans Area, focused

on the monitoring of credit quality by controlling all the variables of risk management,

guidance and monitoring (including the segment of medium to long term loans and corporate

finance) and the Risk and Control Area that, as already reported, monitors the activities and

the development of the Group’s internal control and risk management system.

The Loans Area reports directly to:

- the Loans Department of the Parent, whose task is to manage and check the risk-taking

process related to credit disbursement and monitor the global activities concerning the

granting of loans for requests from Italian or foreign banks; and for Financial companies,

monitoring constantly their trend and related uses;

- the Dispute Department, whose main task is to supervise and coordinate the issues

related to the management and disposal of non-performing loans according to

management policies and the strategic objectives defined at the Group level, monitoring

their consistency and effectiveness over time. Moreover, the Dispute Department handles

the relations with the Servicer Cerved Credit Management Group S.r.l. with which on 1

April 2015, the Parent finalised an agreement for the development of a long-term

industrial partnership for the management of bad loans;

- the Business Finance Department, which is responsible for monitoring the valuation and

structuring the medium to long-term loans such as Specialized Lending, Acquisition

Finance, Corporate Lending and Syndicated loans. Moreover, it must ensure, also by

coordinating the work of external lawyers, the monitoring of all aspects (contractual,

pricing and guarantees) related to pertaining operations, and coordinate the Advisory

activities (Mini Bond and Restructuring) in addition to monitoring the restructuring

process of the relevant positions of the Bank and coordinating the activities related to the

operations included in the scope of structured finance and restructuring;

- the Loan Policies and Monitoring Service that has the task of monitoring the credit

process, defining the policies and methods required for assessing and managing credit

risks, by supporting the member of the General Management responsible for the "Loans

Area" and by coordinating the activity carried out by the Loans Department of the Parent

84

and of the Banks of the Group, as well as by the structures of the other Companies of the

Group with reference to the credit system, in order to implement a shared guideline for a

coordinated management of the credit risk within the Group.

The organisational model of the Loans Department of the Parent is broken down in Divisions

and Services. In detail:

- the Private, Retail Enterprises and Corporate SME Origination Department oversees the

granting of loans to customers belonging to the Private, Retail Enterprises and Corporate

SME segment;

- the Corporate and Relevant Position Origination Department oversees the granting of

loans to customers belonging to the Corporate segment and/or relevant positions;

- the Credit Performance Management Department supervises the systematic monitoring of

irregular loans for the Group – shown by the company processes – ensuring the effective

management of positions, including support to regional networks, in order to guarantee

the minimisation of the risk. The structure also manages and coordinates the operating

units of territorial banks by analysing the causes that led to impairment;

- the Secretary and Guarantee Management Service carries out secretarial duties for the Loans Department and releases sureties in favour of third parties, carrying out operations concerning their accounting and management;

- the Non Core Unit Service manages the deleverage of credit exposures identified as non

strategic, ensuring the identification of the best way-out strategies with a view to

reducing the business cost and by means of a proactive and dynamic management. The

Service was established by signing an agreement with the company Yard Credit & Asset

Management aimed at identifying practical way-out strategies to place on the market

guaranteed assets with reference to an overall portfolio of approximately EUR 500 million

of real estate loans classified as unlikely to pay.

The organisational structures of Loans Departments of subsidiary Banks, more simplified than

the Parent, are engaged in loan origination and trend management.

With reference to the Risk and Control Area, already described in the previous paragraph,

note the role of the Risk Management Department in loans. In particular, by means of the

Credit Risk Department, the Management:

- assesses the adequacy of the loan trend management process, verifies the adequacy of

the recovery process, monitors the evaluation of guarantees;

- develops, manages and maintains methods and models of credit risk measurement,

concentration and determination of impairment losses on loans portfolio;

- monitors, with the support of the competent corporate functions, the data quality system

with reference to the figures used as part of the internal systems for the measurement of

credit risks;

- identifies, measures or assesses, monitors, prevents or mitigates as well as

communicates to the appropriate hierarchical levels the credit risks (including insolvency

and concentration risk, counterparty risk, residual risk, country risk and transfer risk) to

which the business is exposed, by using the models developed by the competent Service

and methodology approaches, techniques, procedures, applications and instruments

reliable and consistent with the level of complexity of the Bank and Group operations;

- prepares the interim report related to the monitored risks for the Governing and control

Bodies and for the company structures involved.

85

By means of the Risk Validation and Integration Department, the Management:

- ensures the independent verification of minimum quantitative and organisational

requirements contemplated by the Supervisory Regulations for the validation of the

Internal Rating Systems, through controls centralised on internal estimate models of risk

components, on the main affected processes and on the related supporting IT systems;

- sees to the integration of the risk measures in the business processes and supports the

competent departments in the preparation of the internal reference regulations;

- coordinates, in collaboration with the development functions and with the Internal

Validation Service, the planning activities for the adoption, updating and development of

internal systems for the measurement of credit risk consistently with the suggestions

made by the internal control functions.

Finally, by means of the Rating Desk Service, the Management monitors the rating

assignment process by assigning the final rating to the Corporate positions and by evaluating

the override proposals formulated by the branches with regard to the Corporate SMEs and

Retail Enterprises.

With regard to the credit rating process, approval and management of positions, each Bank

carries out the lending activity on the basis of guidelines and standard processes defined by

the Parent and on the basis of delegated powers to authorise loans. With regard to all the

macro-segment credit risks (Corporate, Retail and Private), the credit rating process is based

on the internal rating system, which is essential for assessing the creditworthiness of

borrowers. During the half-year, the granting and resolution process was updated

significantly by entering the Expected Loss as a decisive element for the decision-making

body. The innovation of the model for determining the decision-making scopes based on

expected loss brackets allows to best direct the risk-taking policies. The decision-making

process related to the credit is supported by internal procedures (Electronic Credit Line and

Rating) that manage the credit process (contact with customers, set up, credit disbursement

and management) and the rating assignment process, respectively.

The entire credit process is constantly reviewed and subject to careful inspections. All the

territorial banks of the Group renewed the quality certification of the "Loan application,

granting and management" process that Credito Valtellinese has been awarded since 1995.

The certification activities entail a constant and stringent verification of the entire lending

process, the drafting of documents (Quality Manual and Operating Instructions) adequately

examined by top management and distributed to the various departments of the company,

as well as the timely updating of controls carried out by the appropriate Loans Department

and by the Auditing Department. The purpose of this process is to ensure the most precision

in assessing risk, maintaining a lean, efficient assessment and management process.

86

Management, measurement and control systems

The Credito Valtellinese Group makes use of a set of parameters and instruments for

managing the credit risk, which includes an important element such as the internal ratings

calculated through differentiated and estimated models specifically by customer segment

(Corporate, SME Corporate, Small Retail, Micro Retail and Private).

The rating has an important role in the process of granting, renewal and review of the credit,

in that it represents an essential and indispensable element for assessing the counterparty’s

creditworthiness. The rating assignment activities summarise the analyses of all the

quantitative and qualitative information available in support of the credit set up process,

enhancing at the same time the direct relation with the customers and the knowledge gained

over time of their specific characteristics.

The Group’s master scale consists of 9 rating classes to which the related PDs (Probability of

Default) correspond, i.e., the probability that a counterparty belonging to a particular rating

class passes to the default state within a time horizon of one year.

The rating models are estimated on the basis of statistical analysis of historical data of the

Credito Valtellinese Group and their purpose is to assess the counterparty risk both during

the process of granting a new credit line and during the process of monitoring the

development of the risk profile of each counterparty and of the overall loans portfolio.

In particular, the final rating assigned to a counterparty belonging to the Corporate and

Retail macro-segments is the result of a statistical calculation process, supplemented by a

quality component. The statistical rating summarises the information concerning the financial

statements (financial statements module), the performance of the counterparty with regard

to the bank (internal performance module) and to the banking system and financial

companies (external performance module – CR or CRIF module) and the economic and

environmental context in which the enterprise operates (geo-sectorial module). The result

expressed by the statistical rating is supplemented by the information coming from a quality

questionnaire and can be changed in relation to adverse events and to the possible belonging

to an economic group.

The rating model for the Private Retail segment is broken down to the acceptation

component - in order to assess the creditworthiness of the counterparty in the case of first

application for a credit line/increase in the existing credit lines and in the monitoring

component, in order to assess the creditworthiness of the counterparty with the credit line

unchanged. In order to take due account of the different risk profiles associated with the

macro-types of products, components of acceptance and monitoring are differentiated on the

basis of the product required and for which the counterparty has already a credit line. The

final overall rating assigned to a counterparty belonging to the Private segment is the result

of a statistical calculation process. The statistical rating summarises in a different way -

depending on whether the acceptance or monitoring component is being assessed - the

information concerning the social and demographic component (social and demographic

module), the performance of the counterparty with regard to the bank (internal performance

module) and to the banking system and financial companies (external performance module

and CRIF module). The result expressed by the statistical rating can be changed in relation to

adverse events.

Another parameter used by the Group for measuring the credit risk is the Loss Given Default

(LGD) that represents a loss rate in case of default, i.e. the expected value (possibly affected

by adverse scenarios) of the ratio, expressed in percentage terms, between the loss due to

default and the amount of exposure at the moment of default (Exposure At Default, EAD). In

87

order to calculate the value of LGD, bad loans LGD and the Danger Rate are estimated and

then two additional components are applied: the downturn effect and indirect costs.

In addition to be used in the assessment and granting process of the loan, the rating also

affects the calculation of the risk-based pricing and guides the decision of the managers

when classifying positions based on their performance. Moreover, with respect to the

valuation of the Performing Loans and receivables from customers portfolio, the Group

developed the method of "Incurred but not reported losses", which uses the values of

expected loss duly adjusted to take account of the average delay between the deterioration

of the financial conditions of the debtor and the actual classification under default status of

each exposure. As part of this process, the Risk Management Department defined the

method for determining the "Rate of depreciation of performing loans" considering, in

particular, in addition to the estimate of the PD and LGD parameters, the determination of

the Loss Confirmation Period (LCP) parameter.

The rating system as a whole is constantly verified by the internal validation function and by

the internal audit function in order to guarantee the compliance with what is provided by the

Supervisory Regulations in order to use the internal models for determining prudential capital

requirements.

For the company portfolio (Corporate and Retail) and Private Retail, the distributions by

official rating classes at 30 June 2015 and at 31 December 2014 are indicated below.

Chart 1 - Distribution of loans to companies and private by rating class

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With regard to the concentration risk, the objectives with respect to exposure are defined as

part of the Risk Appetite Framework resolved by the Board of Directors of Credito Valtellinese

and are duly considered when carrying out strategic and operational planning, and at the

time of lending. The risk management process is regulated by a specific regulation that

formalises the performance of the risk management activities regarding such types of risks,

defines the tasks and responsibilities assigned to the various organisational units in charge,

and sets out, among other things, the strategic guidelines, management policies,

measurement methods, exposure limits, information flows and any corrective action that

may be necessary.

Concentration risk is limited by splitting up and diversifying the portfolio and through the

resolution, by the Board of Directors, of maximum credit line amounts divided by Bank and

maximum exposure limits vis-à-vis Banks and Financial companies.

Concentration risk measurement is the responsibility of the Risk Management Department

and it makes these measurements on a centralised basis on behalf of all Group Banks. Risk

measurement is carried out at both an individual and consolidated level in order to fully

identify and allocate the main sources of exposure to risk at the legal entity level. The

approach followed in order to measure the concentration risk of the loans and receivables

from customers portfolio differs in accordance with whether it is generated by concentration

per single party or group of related customers or geo-sectorial concentration. The Granularity

Adjustment approach noted in the regulatory provisions in force is used to measure the

concentration risk per single party or group of related customers. This approach allows the

Bank to determine the internal capital in connection with the concentration risk per single

party or per group of related customers of a portfolio characterised by imperfect

diversification. Information on the positions classified as "large exposure" is also important as

part of the risk concentration per single party or group of related customers. In order to

measure the geo-sectorial concentration risk, the method proposed by ABI is followed. This

method allows the bank to estimate the internal capital in connection with the geo-sectorial

concentration risk as "add-on" of the capital requirement for credit risk hedging, according to

the distance of the level of concentration by economic sector/ATECO business code of the

Group’s loans portfolio compared to the concentration level of the national banking system.

The distance is measured by comparing the Herfindahl concentration index by economic

sector/ATECO business code of the Group’s loans portfolio and the same index calculated

using the figures of the national banking system. By comparing the two indices, using a

simulation algorithm, the internal capital for hedging the geo-sectorial concentration risk is

calculated.

With regard to counterparty risk, that is to say the risk that the counterparty of a transaction

concerning certain financial instruments is in default before the settlement of the transaction

itself, the operations carried out - limited in terms of volumes and focused on non-complex

instruments traded on regulated markets or with counterparties of high credit standing -

involve a very modest exposure. In line with the adopted business model, these types of

transactions are limited in number and size.

Credit risk mitigation techniques

In the granting of loans, guarantees are an accessory element. The granting of loans is, in

fact, based on the borrower’s actual capacity to repayment of the loan.

The guarantees used by the Group are normally collaterals - relating to real estate property

or financial instruments - and to a lesser extent, personal guarantees.

As mentioned in the previous paragraphs, during the half-year, the Group signed important

agreements in order to improve the management of guarantees with a special reference to

89

the non-performing portfolio. Specifically:

- As part of the agreement with Cerved Credit Management Group S.r.l. for the

management of non-performing loans (bad loans), a specific project was formally started

for strengthening the management and enhancement monitoring of non-performing loans

(NPLs) with securities on property in sales by the court (Real Estate Owned Company,

REOCO). This project includes the strengthening of asset repossessing and enhancement

of the securities on properties, through the distinctive skills of the Cerved Group

combined with the experience gained in the field of real estate by Stelline, company that

has actually always been in charge of the management of real estate assets of the Group

and provides - both within the Group and to external customers - valuation, consultancy

and management services in the real estate sector;

- the Board of Directors of the Parent approved the demerger of the business unit

consisting of the property and facility management and property valuation of Stelline in

favour of Bankadati, consortium company that manages the activities concerning the

Information and Communication Technology (ICT), the organisation, the back office and

the support processes of the Group. In line with what is stated in the previous point, the

demerged company, with the new name "Stelline Real Estate S.p.A.", assumes the role of

REOCO of the Group with a mission, also with the support of the industrial partner Cerved

Credit Management, exclusively dedicated to asset repossessing;

- a collaboration agreement was started between the Parent and Yard Credit & Asset

Management - company of the Yard Group ("Yard") among the main operators of credit

management present in Italy, with a high expertise for consultancy, management, credit

recovery and surfacing of real assets' value services - for the management of "distressed"

real estate loans of the Creval Group. The collaboration will initially focus on a portfolio of

approximately EUR 500 million of positions classified as unlikely to pay. As part of the

agreement, the Group set up also a special Non Core Unit, within the Loans Area, in

support of the process, with deleveraging and derisking objectives on the assigned

portfolio.

The indicated agreements pave the way for a better management of all real estate assets of

the Creval group, thanks to the distinctive skills of the partner Companies, by enhancing also

the expertise gained by Stelline Servizi Immobiliari ("Stelline").

As part of the ICAAP process, the Group has also provided for the assessment of residual

risk, i.e. the risk that the recognised techniques used to mitigate credit risk are less effective

than expected. The use of these techniques may in fact expose the Group to a series of

further risks (for example of an operational or legal nature) which, if they occur, may lead to

a greater lending risk than had been expected due to the lower effectiveness or actual

unavailability of the protection. The residual risk is mainly managed by acting on the

procedural and organisational plan. In order to reduce the residual risk, organisational

changes were introduced aimed at strengthening the second level controls.

The Auditing Department is assigned the third-level controls designed to ensure timely

compliance with the obligations relating to the management of guarantees.

With reference to the eligibility of guarantees for determining asset requirements, the Group

reviewed and regulated in a more stringent manner the process that guides and applies their

eligibility and admissibility requirements.

Non-performing financial assets

The irregularly performing loans are classified in compliance with what is provided by

90

supervisory regulations as: past due and/or overdue non-performing (divided by, if any,

mortgage lien), unlikely to pay and bad loans. This new classification was introduced as from

1 January 2015 and replaces the one previously in force that envisaged the categories of

past due, substandard, restructured and non-performing loans.

The valuation of impairment losses occurs analytically for each position on the basis of

uniform rules for all Banks in the Group. For non-performing loans classified as "unlikely to

pay loans", which have a limited unitary amount, or as "past due loans", the expected loss is

calculated by homogenous categories according to internal statistical models and analytically

applied to each position. The other doubtful loans are individually assessed by the Group

Bank Loans Departments and by the Dispute Department of the Parent (for bad loans

portfolio) on the basis of methods and rules defined by the internal policy on the matter.

As mentioned in the previous paragraphs, during the half-year, the Group signed some

important agreements in order to improve the management of non-performing portfolio:

- with Cerved Information Solutions S.p.A, by means of the subsidiary Cerved Credit

Management Group S.r.l., for the development of a long-term industrial partnership for

the management of bad loans, in order to increase the efficiency of the management and

recovery of non-performing loans. The Group will retain the strategic monitoring in the

management of major exposures, in the operational coordination and control of the credit

recovery process and of the servicing activities;

- with Yard Credit & Asset Management for the management of "distressed" real estate

loans of the Group. The collaboration will initially focus on a portfolio of approximately

EUR 500 million of positions classified as unlikely to pay.

Moreover, during the half-year, the loan trend management process was strengthened. In

particular, the processing of regular positions showing signs of potential impairment (known

as predictive monitoring) had become mandatory.

Moreover, during the half-year, the Group further fine-tuned the valuation model of

impairment losses. In particular, during the half-year, the internal Regulation "Methods for

the assessment of non-performing loans" that defines valuation processes and uniform rules

for all Banks in the Group was revised.

91

Banking Group - On and off-statement of financial position credit exposures with

banks: gross amount and carrying amount

30/06/2015

Type of exposure/Amounts Gross amount

Individual impairment

Collective impairment

Carrying amount

A. ON-STATEMENT OF FINANCIAL POSITION EXPOSURES

a) Bad loans - - X -

b) Unlikely to pay - - X -

c) Past due non-performing loans - - X -

d) Other assets 490,215 X - 490,215

TOTAL A 490,215 - - 490,215

B. OFF-STATEMENT OF FINANCIAL POSITION EXPOSURES

a) Non-performing - - X -

b) Other 43,318 X -852 42,466

TOTAL B 43,318 - -852 42,466

TOTAL (A+B) 533,533 - -852 532,681

Banking Group - On and off-statement of financial position credit exposures with

customers: gross amount and carrying amount

30/06/2015

Type of exposure/Amounts Gross amount



Carrying amount

A. ON-STATEMENT OF FINANCIAL POSITION EXPOSURES

a) Bad loans 2,706,345 -1,510,536 X 1,195,809

b) Unlikely to pay 2,089,856 -451,340 X 1,638,516

c) Past due non-performing loans 551,020 -51,002 X 500,018

d) Other assets 21,052,965 X -116,616 20,936,349

TOTAL A 26,400,186 -2,012,878 -116,616 24,270,692

B. OFF-STATEMENT OF FINANCIAL POSITION EXPOSURES

a) Non-performing 18,942 -4,260 X 14,682

b) Other 1,583,491 X -4,144 1,579,347

TOTAL B 1,602,433 -4,260 -4,144 1,594,029

TOTAL (A+B) 28,002,619 -2,017,138 -120,760 25,864,721

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Distribution of credit exposures by portfolio and credit quality (carrying amounts)

Banking group Other companies Total

Portfolio/Quality Bad loans Unlikely to pay Past due non-performing loans

Past due performing

loans Other assets Non-performing Other

1. Financial assets held for trading - - - - 113,120 - - 113,120

2. Available-for-sale financial assets - 374 - - 5,350,309 - - 5,350,683

3. Held-to-maturity investments - - - - - - - -

4. Loans and receivables with banks - - - - 414,708 - 294,839 709,547

5. Loans and receivables with customers 1,195,809 1,638,142 500,018 924,259 14,325,518 - 7,067 18,590,813

6. Financial assets at fair value through profit or loss - - - - - - - -

7. Financial assets held for sale - - - - - - - -

8. Hedging derivatives - - - - - - - -

Total at 30/06/2015 1,195,809 1,638,516 500,018 924,259 20,203,655 - 301,906 24,764,163

Total at 31/12/2014 1,101,939 1,578,925 511,606 964,599 22,126,478 - 283,242 26,566,789

Data at 31 December 2014 restated for a consistent comparison.

Other assets include EUR 915,659 thousand (EUR 1,610,971 thousand at 31 December 2014)

of loans past due from 1 day.

Non-performing loans include exposures subject to granting of EUR 513,970 thousand,

whereas performing loans include exposures subject to granting of EUR 419,963 thousand.

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Distribution of credit exposures by portfolio and credit quality (gross amount and carrying amount) Portfolio/Quality Non-performing assets Performing Total

Gross amount


Carrying amount

Gross amount


Carrying amount

Carrying amount

A. Banking group

1. Financial assets held for trading - - - X X 113,120 113,120

2. Available-for-sale financial assets 374 - 374 5,350,309 - 5,350,309 5,350,683

3. Held-to-maturity investments - - - - - - -

4. Loans and receivables with banks - - - 414,708 - 414,708 414,708

5. Loans and receivables with customers 5,346,847 -2,012,878 3,333,969 15,366,393 -116,616 15,249,777 18,583,746

6. Financial assets at fair value through profit or loss - - - X X - -

7. Financial assets held for sale - - - - - - -

8. Hedging derivatives - - - X X - -

Total A 5,347,221 -2,012,878 3,334,343 21,131,410 -116,616 21,127,914 24,462,257

B. Other companies included in the consolidation scope

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

2. Available-for-sale financial assets - - - - - - -

3. Held-to-maturity investments - - - - - - -

4. Loans and receivables with banks - - - 294,838 - 294,838 294,838

5. Loans and receivables with customers - - - 7,067 - 7,067 7,067

6. Financial assets at fair value through profit or loss - - - X X - -

7. Financial assets held for sale - - - - - - -

8. Hedging derivatives - - - X X - -

Total B - - - 301,905 - 301,905 301,905

Total at 30/06/2015 5,347,221 -2,012,878 3,334,343 21,433,315 -116,616 21,429,819 24,764,162

Total at 31/12/2014 5,082,510 -1,890,040 3,192,470 23,443,281 -129,249 23,374,319 26,566,789

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Distribution of on and off-statement of financial position credit exposures with customers by

business segment

Exposures/Counterparts Governments Other government agencies

Carrying amount



Carrying amount



A. On-statement of financial position exposures

A.1 Bad loans - - X - - X

A.2 Unlikely to pay - - X 1 - X

A.3 Past due non-performing loans 1 - X - - X

A.4 Other exposures 5,426,306 X - 55,608 X -3,480

TOTAL A 5,426,307 - - 55,609 - -3,480

B. Off -statement of financial position exposures

B.1 Bad loans - - X - - X

B.2 Unlikely to pay - - X - - X

B.3 Other non-performing assets - - X 5 - X

B.4 Other exposures 5,613 X - 432,791 X -3

TOTAL B 5,613 - - 432,796 - -3

Total at 30/06/2015 5,431,920 - - 488,405 - -3,483

Total at 31/12/2014 6,667,016 - - 470,326 -1,982 -269

Exposures/Counterparts Financial companies Insurance

companies

Carrying amount



Carrying amount




A.1 Bad loans 33,166 -41,076 X - - X

A.2 Unlikely to pay 34,462 -6,740 X 23 -12 X

A.3 Past due non-performing loans 7,978 -824 X - - X

A.4 Other exposures 1,377,679 X -2,587 9,553 X -

TOTAL A 1,453,285 -48,640 -2,587 9,576 -12 -


B.1 Bad loans - - X - - X

B.2 Unlikely to pay 126 -23 X - - X

B.3 Other non-performing assets - - X - - X

B.4 Other exposures 19,826 X -634 1,160 X -5

TOTAL B 19,952 -23 -634 1,160 - -5

Total at 30/06/2015 1,473,237 -48,663 -3,221 10,736 -12 -5

Total at 31/12/2014 1,420,058 -46,204 -2,194 11,752 -7 -1

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Exposures/Counterparts Non financial companies Other parties

Carrying amount



Carrying amount




A.1 Bad loans 1,034,666 -1,290,387 X 127,978 -179,073 X

A.2 Unlikely to pay 1,448,839 -404,801 X 155,191 -39,788 X

A.3 Past due non-performing loans 413,321 -42,297 X 78,718 -7,880 X

A.4 Other exposures 10,119,147 X -105,025 3,948,055 X -5,524

TOTAL A 13,015,973 -1,737,485 -105,025 4,309,942 -226,741 -5,524


B.1 Bad loans 2,480 -2,282 X 254 -31 X

B.2 Unlikely to pay 10,952 -1,809 X 317 -59 X

B.3 Other non-performing assets 509 -52 X 40 -4 X

B.4 Other exposures 981,450 X -2,408 138,506 X -1,094

TOTAL B 995,391 -4,143 -2,408 139,117 -94 -1,094

Total at 30/06/2015 14,011,364 -1,741,628 -107,433 4,449,059 -226,835 -6,618

Total at 31/12/2014 14,469,665 -1,630,842 -123,934 4,418,508 -216,557 -6,327

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2. MARKET RISK

2.1 - INTEREST RATE RISK AND PRICE RISK - REGULATORY TRADING BOOK

"Regulatory trading book" means the portfolio of financial instruments subject to the capital

requirements for the market risks, as stated by the measures regarding supervisory reports.

General aspects

The trading book comprises bonds, shares and trading derivatives.

The bond component of the book consists mainly of fixed-rate securities with a quite limited

duration and hedged against interest rate risk. The bonds held are almost exclusively issued

by banks and by the Italian Republic. The direct equity investments, residual in size, mainly

involve shares listed on the Italian Stock Exchange and with high degree of liquidity. The

financial instruments in the book are mostly in Euro.

The risk is allocated almost entirely to the Parent and the exposure remains well within

established limits.

The issuer risk component is the main portion of the portfolio risk.

Management process and measurement methods for the interest rate risk and the

price risk

Investment policies are based on criteria that aim to limit market risk for the components

that the Group intends to consciously assume:

- interest rate risk;

- price risk;

- currency risk.

As a general rule, the Bank does not enter into transactions that entail exposure to

commodity risks.

At the end of the period, there are no positions of this type.

Risk hedging tools and techniques are used in the management of the portfolio.

The risk management process regarding the market risk for the trading book is governed by

a specific corporate regulation approved by the Board of Directors of the Parent Company

and periodically reviewed. This regulation formalises the performance of the risk

management activities regarding such types of risks, defines the tasks and responsibilities

assigned to the various organisational units in charge, and sets out, among other things, the

strategic directions, management policy, measurement methods, exposure limits,

information flows and any corrective action that may be necessary. Therefore, investment

and trading is carried out in compliance with the mentioned policies and is implemented as

part of an extensive system of assigned management powers and according to detailed

regulations envisaging defined management limits in terms of instruments, amounts,

investment markets, issue and issuer types, sectors and ratings.

In accordance with the mission of the retail banking Group that mainly assumes credit risk

with respect to specific customer segments, the financial assets are mainly used to ensure

protection of the overall technical equilibrium of the Banks and the Group. Management of

the trading book is specifically aimed at optimising income from the financial resources

available, with the obligation of restraining variability of the forecast results from the Finance

Area and individual and consolidated profits.

The Risk Management Department is responsible for the identification of algorithms, rules

97

and parameters required for the development of methods and models for measuring the

market risk, as well for their implementation and maintenance in computing applications. The

Risk Management Department monitors on a daily basis the exposure of the banks of the

Group to the market risk and verifies the consistency with the risk appetite defined by

corporate bodies and the compliance with the system of limits. Adequate information flows

are provided on a regular basis and timely to corporate bodies and functions of management

and control.

Risk is measured using both analytical techniques (establishing the duration of the bond

portfolio with regard to interest rate risk exposure) and statistical estimate techniques of the

Value at Risk (VaR).

The VaR measures the maximum loss the trading book may incur based on volatility and

historic correlation of the individual market risk factors (interest rates, share prices and

exchange rates) and credit risk of the issuer. The estimate is carried out by using the

parametric approach, based on the volatility and the correlations of risk factors observed in a

certain period, over a 10-day period and a 99% confidence interval. The data used is

provided by Prometeia (RiskSize).

This model is not used to determine the minimum capital requirement with respect to market

risk.

The Group uses a single model to monitor the risk to which the trading book is exposed.

Therefore, the tables below illustrate information on VaR, inclusive of all risk factors that

determine it.

During the half-year, the VaR recorded quite limited values with relation to the book’s size

and to the allocated VaR. However, due to the sudden increase in the volatility of risk factors,

on two occasions VaR rose above the reporting limit identified by the internal regulations.

At the end of the reporting period, the main factor to which the portfolio is exposed is the

issuer risk. The importance of the issuer risk is mainly ascribable to the still modest

creditworthiness of the banks and of the Italian Republic.

The backtesting activities carried out with reference to the trading book confirm the reliability

of the estimates carried out.

Regulatory trading book – VaR performance

First half of 2015 2014

Average Minimum Maximum 30/06/2015 Average Minimum Maximum

5,292,666 661,228 12,075,781 2,238,007 465,955 257,855 766,860

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Regulatory trading book – VaR performance

Regulatory trading book – Contribution of risk factors to calculation of VaR

Situation at 30/06/2015

Price and specific risk

Interest rate risk Currency risk Issuer risk Benefit of diversification

8.7% 31.2% 38.3% 95.5% -73.6%

Regulatory trading book – Breakdown of bond exposures by issuer type

Situation at 30/06/2015

Sovereign

issuers

Public issuers

Banks Insurance companies and other financial companies

Corporate

64.1% 0.6% 35.4% 0.0% 0.0%

The sensitivity of the portfolio to interest rate variations is limited (the amended duration of

the bond component equals 2.1).

In the event of parallel shifts in the interest rate curve by -100 basis points (under the non-

negativity restriction in nominal interest rates), the consequent decrease in the interest

income, over a time horizon of 12 months, would equal EUR -10 thousand, whereas it would

equal EUR 601 thousand in the event of shifts of +100 basis points.

The indicated changes, which are directly reflected on the net interest income, would be

more than offset by changes of opposite sign of the value of the book (EUR +1,652 thousand

and -2,149 thousand, respectively, in the two assumed scenarios).

The overall asset and income impact, taking also account of tax effects, would be limited.

99

2.2 - INTEREST RATE RISK AND PRICE RISK - BANKING BOOK

The banking book consists of all financial instruments payable and receivable not included in

the trading book. It mainly comprises loans and receivables with banks and customers and

amounts due to banks and customers.

General aspects, management procedures and methods of measuring interest rate

risk and price risk

The risk management process regarding the interest rate risk for the banking book is

governed by a specific corporate regulation approved by the Board of Directors of the Parent

and periodically reviewed. This regulation formalises the various activities carried out by the

different company departments within the scope of rate risk management and sets out,

among other things, the strategies, the management policies, the measurement methods,

the exposure limits, the information flows and any mitigation procedure.

Interest rate risk management aims to minimise the impact of unfavourable variations in the

rates curve on the value of the Group and on cash flows generated by statement of financial

position items. Limiting exposure to interest rate risk is achieved primarily by index-linking

asset and liability items to money market benchmarks (usually the Euribor rate) and by

balancing the duration of the asset or liability at low levels. The objectives with respect to

interest rate risk exposure are considered when carrying out strategic and operational

planning, both when identifying and developing new products.

Measurement of interest rate risk on the bank portfolio is based on the economic value

approach, defined as the current value of expected net financial flows generated by assets,

liabilities and off-statement of financial positions. Given that the present value of the

expected cash flows depends on the interest rates, their variation affects the fair value of

each bank and of the Group as a whole. This measurement is based on pre-set variations of

the structure of the rates applied to on and off-statement of financial position items at the

end of the reporting period. The reactivity to interest rate variations is measured by both

sensitivity indicators (approximate amended duration in the simplified regulatory model) and

revaluation of the assets, liabilities and unrecognised items (internal management model).

The changes in the economic value that result are then normalised in proportion to own

funds.


and parameters required for the development of methods and models for measuring the

interest rate risk, as well for their implementation and maintenance in computing

applications.

In order to better assess the exposure to the interest rate risk, a model was updated to treat

on demand items with a theoretical maturity and frequency of rate review of one day

(contractual profile) but deemed to be more stable on the basis of the statistical analysis of

the persistence of volumes and the stickiness of the rates (behavioural profile). The

statistical analysis identified a "core" component of the on demand items whose behaviour is

replicated by a portfolio that, given a suitable combination of fixed rate and floating rate

instruments, allows both the expected decrease in volume and the stickiness of the interest

rates to be considered. The time decay profile of the core component was made endogenous

by using the "mean life", which represents a development of the volume analysis model and

allows to represent the profile of behavioural maturity of on demand items on a holding

period not determined in advance. In order to seize any significant behavioural difference

between the different categories of customers, the analysis was performed separately for

each customer segment (Retail, SME and Other).

100

Regarding exposure to interest rate risk, reporting limits and actions at consolidated level

were approved, defined in terms of fair value variation at the end of the reporting period

(static ALM) resulting from instantaneous movements of the rate curve. To this end, both

parallel shifts of fixed size (typically 200 basis points) and specific variations for each node of

the interest-rate structure are considered, determined on the basis of major decreases and

increases actually recorded in an observation period of 6 years (considering the 1st and 99th

percentile of the distribution, respectively). Moreover, non-parallel shifts of the yield curve

that are able to change its inclination (flattening, steepening and reversal of the interest rate

structure) are also taken into consideration.

The Risk Management Department monitors on a daily basis the exposure of the Banks and

of the Group to the market risk and verifies the consistency with the risk appetite defined by

corporate bodies and the compliance with the system of limits. Adequate information flows

are provided on a regular basis and timely to corporate bodies and functions of management

and control.

The banking book consists also of the shares that are held as part of more in-depth relations

with specific companies or represent the instrument supporting significant initiatives

undertaken in the Group’s reference territory. The price risk management methods for such

financial instruments, therefore, tend more towards the management approach for

investments in associates and companies subject to joint control, rather than the risk

measurement techniques and instruments used for the trading book.

Fair value hedges

The hedging of interest rate risk aims to protect the banking book from fair value changes of

loans caused by the movements of the interest rate curve; types of derivatives used are

represented by interest rate swap (IRS) carried out with third parties.

The hedge accounting of the Credito Valtellinese Group is carried out through the specific fair

value hedge of assets specifically identified (specific hedging).

The Risk Management is responsible for verifying the effectiveness of the hedging of interest

rate risk for the purpose of hedge accounting, in compliance with the IFRS.

At the end of the period, Italian Government bonds (BTP) in the banking book of Available-

for-sale financial assets are hedged, with the objective of hedging the variability of the

relevant fair value component linked to changes in interest rates, excluding the residual

component of the credit risk, whose effects remain in the relevant Equity reserve.

To this end, IRS were used. They were entered into together with the purchase of underlying

securities. The effectiveness tests carried out on a monthly basis confirmed a very high

effectiveness and, anyway, within the range required by the IFRS.

The hedge effectiveness is measured, specifically for each hedged tranche, as follows:

- at the initial date, the hedged component is defined by identifying the fixed coupon of a

theoretical security (inclusive of the base component between the target hedging rate,

i.e. 6-month Euribor, and the risk free rate, represented by the Eonia rate) in such a way

that it has, on the basis of the current rate curve, a fair value equal to the amortised cost

of the hedged BTP on the effective date of the relevant hedging derivative;

- the following fair value changes of this theoretical security are calculated (after adjusting

the new base component) by comparing the new value, on the basis of the rate curve

existing on the date of analysis, with the amortised cost of the BTP existing on that date

(or with the amortised cost on the effective date, if the reference date is before) and are

recorded in the Income Statement when the adjustment in the price (fair value) of the

101

BTP is recorded in the financial statements (whereas the residual fair value change is

recorded in equity);

- these fair value changes are compared to the fair value changes recorded by the relevant

hedging IRS, less (only for the purposes of the effectiveness test) the previous described

component of reverse entry in the Income Statement (net interest income) of the upfront

implicitly received at source.

Cash flow hedges

No cash flow hedges are pending or were carried out.

Banking book: internal models and other sensitivity analysis methods

The measurement of the exposure to interest rate risk is performed through an internal

model that provides a full-valuation approach to all positions that are interest-bearing assets

and liabilities, as well as off-statement of financial position items. In detail, the model

includes the following phases:

- calculation of net present value of assets, liabilities and off-statement of financial position

items and calculation of the previously translated as fair value;

- definition of a scenario with regard to a change in the interest-rate curve (i.e., parallel

translation or steepening, flattening or reversal of the curve with respect to deadlines

deemed most relevant);

- recalculation of the net present value of on and off-statement of financial position

instruments with the new interest-rate curve and calculation of the new economic value

in connection with the revalued instruments;

- calculation of the variation in the economic value as the difference of the ante and post-

shock value of the rates.

As mentioned in the section dedicated to "Qualitative information", the proper representation

in terms of risk and profitability of demand negotiations required their modelling to estimate

both the persistence of aggregates and the actual index-linking level of interest rates.

Customer loyalty gives on-sight items a much higher actual duration than contractual

duration. Moreover, for these items, the extent and ways of redefining the interest rate

depends, in addition to the market rate trend, also on the specific characteristics of each

relation between the bank and the customer.

At the end of the period, the changed duration calculated for all financial statements assets

and liabilities as well as the duration gap are moderate. Assuming that the rate structure

makes a parallel shift upwards of 100 basis points, the fair value would decrease by EUR

78.8 million. In case of an equal downward shift, under the non-negativity restriction in

nominal interest rates, the value would increase of EUR 69.6 million.

As regards income profiles, in the hypothesis of instantaneous and parallel shifts of the

interest rate curve by -100 basis points (under the non-negativity restriction in nominal

interest rates), the variation of the net interest income generated by the banking book, over

a time horizon of 12 months, would equal EUR -0.4 million, whereas it would equal EUR 50.0

million in the case of shifts of +100 basis points. These amounts express the effect of

changes in the interest rates on the banking book, excluding modifications to the composition

and size of the financial statements items. As a result, these cannot be considered as an

indicator in forecasting the expected level of the net interest income. However, under the

assumptions indicated, changes in the net interest income would result in equal changes in

total income and minor changes in profit, if we consider the related tax effects.

102

2.3 CURRENCY RISK

General aspects, management processes and measurement methods for currency

risk

The Group, as a rule, does not operate on the foreign exchange market on its own account

for speculative purposes. Foreign currency transactions are mainly related to the operations

of spot and forward customers. The amounts of assets and liabilities in foreign currency are

modest. Currency derivatives consist of forward trading.

As regards management processes and measurement methods for currency risk in the

trading book, refer to that set forth in the paragraph "Interest rate risk and price risk -

Regulatory trading book - Qualitative information".

All foreign currency positions generated by transactions with customers are managed

together with the Finance Department of the Parent through analysis of open gaps (non-

offset positions). The monitoring of currency risk is based on defined limits in terms of

maximum acceptable loss, forward gap position and overall open gap position.

3. LIQUIDITY RISK

General aspects, management processes and measurement methods for liquidity

risk

The liquidity risk to which the banks are normally exposed due to the phenomenon of

transformation of maturities is the "risk that the banks will not be able to meet its payment

commitments. The failure to meet its payment commitments may be due to the following

inability to:

- procure the funds (funding liquidity risk);

- divest their assets (market liquidity risk).

Liquidity management is aimed primarily at ensuring the solvency of each individual Group

Bank also in stressful or crisis conditions, not at achieving profits (an objective that may

involve a trade-off with the ability of the banks to meet their commitments when they fall

due and reduce the effectiveness of the risk management system). Therefore, the actual

assumption of risk is subordinate to maintaining the bank’s technical equilibrium. The

opportunity cost associated with the holding of liquid assets is taken into account within the

Bank’s profitability valuations. The pursuit of a limited exposure to liquidity risk is reflected in

the composition of statement of financial position aggregates of the Banks, characterised by a

moderate transformation of maturities.

The approach adopted for risk management envisages integration of the cash flow matching

approach (which tends to make expected cash inflows coincide with expected cash outflows

for each time horizon) with the liquid assets approach (which requires the financial

statements to include a set number of financial instruments that can be readily converted

into cash). In order to face up to the possible occurrence of unexpected liquidity

requirements and thus to mitigate the relevant risk exposure, the Group provides itself with

adequate short-term cash reserves (liquidity buffer).

The threshold of tolerance to liquidity risk is understood as a maximum risk exposure

considered sustainable within the "ordinary course of business" (going concern)

supplemented by "stress scenarios" and is measured by using the techniques outlined below.

During the meeting of 9 December 2014, the Board of Directors of the Parent, as part of the

annual review of the Group RAF and when defining the Risk Appetite Statement for 2015,

103

indicated the relevant techniques and thresholds that define the risk appetite.

The exposure to risk occurs and is managed according to four different profiles compared to

the considered time horizon:

- intraday liquidity that deals with the daily management of treasury balances and the

settlement of transactions in the payment method;

- short-term liquidity that aims at optimising cash flows and balancing the liquidity

requirements in a quarterly horizon;

- medium-term liquidity in perspective, concerning the implementation of the funding plan

of the financial year or of 3-12 months following the end of the reporting period;

- structural liquidity that forms part of planning and assumes an overall business strategy.

Each of them has different exposure profiles, methodology approaches, techniques,

mitigation instruments, corrective actions.

As the considered time horizon increases, the levels of freedom of management increase:

they cover structural and strategic interventions (e.g. securitisations, operations on the

capital, amendments to the Group structure, acquisitions and transfers,

supervision.s.bandonment of market segments). On the other hand, in the very short term,

the reaction to unexpected and sudden tensions is based on the use of existing cash reserves

(liquidity buffer).

Limiting liquidity risk exposure, aimed at ensuring Group solvency, including in highly critical

situations, is mainly pursued through a distinct set of organisational management decisions

and safeguarding measures, the more significant being:

- constant attention to the technical situations of the Bank and Group in terms of balanced

structuring of asset and liability expiry dates, with special regard to short term

maturities;

- the diversification of funding sources, with respect to the technical form, counterparties

and markets. The Group intends to maintain a highly stable retail funding both in the

form of deposits and in the form of debt represented by securities placed directly through

the branch network. Reliance on market funds (interbank funding and issues targeting

institutional investors) is therefore reduced and in line with a limited exposure to liquidity

risk;

- the holding of assets readily convertible into cash to be used as guarantees for financing

transactions or that can be sold directly in the event of stressful situations;

- the preparation of a Contingency Funding Plan.

The liquidity risk management process mainly involves some specific structures.

The A.L.Co. Committee provides advice to the top management for deciding the proposals of

risk assumption and mitigation and defining any corrective action aimed at re-balancing risk

positions of the Group or of each Bank.

The Finance Department is in charge of the treasury management and of the supply on the

inter-bank market; it manages the intraday and short-term liquidity risk by using financial

instruments on reference markets and can propose funding and mitigation operations of the

structural liquidity risk. The definition of the structure and responsibilities of the unit

responsible for managing the treasury as a supplier or recipient of funds for different

business units considers the fact that it operates primarily as a service function.

The Planning, Control and General Affairs Department, within the annual and multi-annual

104

planning process of the different Group components, participates in defining the structural

liquidity balance of the Banks and of the Group as a whole.

The Risk Management Department - independently from the "operational management" of

the liquidity risk - contributes to the definition of the policies and processes of risk

management, develops the evaluation process of liquidity risk, supports the governing bodies

in defining and carrying out activities related to the observance of the prudential regulations,

and ensures accurate, complete and timely information.

The carrying-out of stress tests plays an important role in risk management because it allows

to evaluate more accurately the exposure to risks and their trend in adverse conditions, their

mitigation and control systems and the adequacy of capital and organisational methods.

Stress tests consider both idiosyncratic adverse events (bank specific) and systemic adverse

events (market wide) based on their importance for company operations in terms of liquidity

and assess the possible impacts of their occurrence both individually (uni-factorial analysis)

or jointly (multi-factorial analysis; combined scenarios). With the aim of capturing and

highlighting different aspects of potential vulnerability, some basic tests are performed

concerning:

- the profile of concentration of financing sources (tests with different levels of severity)

and the outflow of wholesale deposits;

- the reduction in retail deposits;

- the increased use of irrevocable credit lines to large corporates;

- the reduction of liquidity reserves due to the decrease in market values, the loss of

eligibility requirements or the application of further haircuts.

The combined impact of the said tests on the Group’s overall liquidity net balance is

analysed.

In order to identify in advance the onset of potential adverse situations that - due to specific

factors concerning the Group or to system factors - could change the expected trend of the

net balance of cumulated liquidity and cause the exceeding of the limits, several variables are

monitored. The large set of examined quantitative and qualitative elements is summarised in

two anticipating indicators that aim to represent the potential deterioration of the specific

situation of the Group or of the more general market conditions. The two summary indicators

are used either separately or together in the assessment of the exposure to liquidity risk.

Exposure to risk is monitored in relation to all the time horizons of the structural maturity

ladder in terms of unbalance between liabilities and assets of the same time horizon; the

reference indicator is represented by the "Gap ratio" beyond one year. The model for dealing

with on sight items, which is mentioned in the paragraph relating to the interest rate risk, is

also used in the assessment of the exposure to liquidity risk.

In addition to the maturity ladder, through which the structural liquidity profile is

investigated, the liquidity risk is also assessed in the short and very short term as part of the

treasury activity based on the amount of "Overall liquidity net balance" (sum between the

"Cumulative net balance of positions due" and liquidity reserves), recognised over a period of

three months and with reference to specific and different time ranges.

The definition of reporting thresholds and operating limits constitutes a fundamental tool for

managing and reducing both the short-term and structural liquidity risk.

With regard to the medium-term perspective, the planning prepared annually for Banks and

for the Group as a whole also shows the potential liquidity requirements and the effects of

the expected trend of the aggregates on the profile of operational and structural liquidity; the

105

Funding Plan defines for the planned year the funding objectives and activities consistent with

the short-term requirements and with the preservation of the structural balance.

The different organisational structures involved in the management of liquidity risk produce,

in relation to their operational and monitoring activities, special reports for corporate bodies.

The Risk Management Department monitors the current and future exposure to risk on the

basis of liquidity balances and anticipating indicators, verifies the consistency with the risk

appetite defined by corporate bodies and the compliance with the system of limits; prepares

weekly an analysis on the historical trend of the operational liquidity position of the Group for

the Management Committee. With the same frequency, the Finance Department prepares a

report on the General situation of liquidity for the General Management; another report is

produced on a monthly basis for the A.L.Co. Committee. On a monthly basis, the Risk

Management Department submits a report on the exposure to operational and structural

liquidity risk (including the results of the stress tests and the analyses on the concentration

profile of the funding) to the A.L.Co. Committee and to the Board of Directors of the Parent.

The budget, showing the liquidity requirements of the Banks and of the Group is prepared

every year by the Planning, Control and General Affairs Department; on a monthly basis, the

A.L.Co. Committee examines the situation identified and, if necessary, proposes change to

the original financial planning according to the needs.

The Group’s regulations contemplate specific procedures for managing situations where limits

are exceeded and for handling issues, which define information flows, corporate bodies

involved and possible interventions. As already mentioned, the Group adopted a Contingency

Funding Plan which, prepared in accordance with the prudential supervisory provisions,

defines and formalises the organisational escalation, the objectives and the management

leverage required for protecting - through the preparation of strategies for managing the

crisis and procedures for finding financing sources in the case of emergency - company

assets in situations of extreme and unexpected cash drain. The elements characterising the

emergency plan are set below:

- definition and formalisation of an action strategy – approved by the corporate bodies –

defining specific policies on certain aspects in the management of liquidity risk;

- cataloguing of the various types of liquidity stress to identify the nature (specific or

systemic);

- legitimation of the emergency actions by the management. The management strategy to

be adopted in case of liquidity tensions clearly outlines responsibilities and related tasks

during a crisis situation;

- estimates of the liquidity that can be obtained from the different financing sources.

The Group’s liquidity situation did not require the Contingency Funding Plan procedures to be

implemented.

At 30 June 2015, the Group had a negative net interbank position of EUR 1 billion, in respect

of which it held liquidity reserves mostly consisting of Italian Government bonds and deemed

appropriate to the contingent and perspective requirements of the Group as a whole. In

particular, EUR 7.3 billion (amount already reduced by the haircuts) of assets eligible for

refinancing with the European Central Bank, including securities coming from securitisations

and loans that meet the eligibility requirements. At the end of the reporting period,

approximately 30% of these assets were used with market counterparties and 21% secured

the transactions with the ECB; assets amounting to EUR 3.6 billion are free. With reference to

a three-month time horizon, not tied up liquidity reserves amounted to EUR 4.9 billion. As

part of the centralised treasury model that concentrates with the Parent the management of

106

cash flows and the holding of liquid assets, the assets readily convertible into cash are mainly

allocated in the portfolios of the Parent Credito Valtellinese. A portion of the securities

resulting from securitisation and appropriate loans pertain, however, to the other banks of

the Group.

At 30 June 2015, the main source of funding consisted of retail customers (EUR 18.3 billion,

accounting for 77.4% of total funding), stable and diversified. Funding from ECB (EUR 1.5

billion for long-term refinancing transactions) accounts for 6.4% of the total.

In consideration of the current composition of deposits carried out by the Group, in order to

assess the concentration, the degree of dependence on a limited number of counterparties is

analysed, in particular, whereas transactions in currencies other than the euro and the

concentration on special technical forms such as securitisations are not important. The Group

monitors the stock of liabilities on sight or with a short-term maturity to the major wholesale

counterparts (institutional investors, large companies or groups, non-economic institutions)

considered more sensitive to the market situation and to the real or perceived situation of the

Group Banks. The degree of concentration at the end of June 2015 slightly increased

compared to that at the end of the previous year and still remains at low levels.

From the structural perspective, the Group carries out a modest transformation of maturities.

The loan and deposit ratio was 84.9%, down from 91.6% at the end of the previous year.

Based on the results of the Internal Liquidity Adequacy Assessment Process (ILAAP), the

liquidity position that the Group undertook during the half-year was adequate and consistent

with the business model and with the actual operations of the various entities and of the

Group as a whole.

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4. SECURITISATION TRANSACTIONS

The risk deriving from securitisations is defined as the "risk that the economic substance of

the securitisation transaction may not be fully reflected in the decisions of risk assessment

and management".

The definition of the risk appetite deriving from securitisations pertains to the Board of

Directors of the Parent Credito Valtellinese, which considers the existing prudential rules, in

line with the adopted business model. During the meeting of 9 December 2014, the Board of

Directors, when defining the Risk Appetite Statement for 2015, resolved a low propensity to

risk deriving from securitisations.

The carrying out of securitisations also involves an exposure to other types of risks, different

by type and entity in relation to the structure of the transactions. The following risks -

considered as significant within the Risk Appetite Framework as well - are identified:

- operational risk (with relevance of the legal component as well);

- counterparty risk;

- credit risk;

- reputational risk;

- liquidity risk;

- interest rate risk for the banking book;

- compliance risk.

The Group is also exposed to cross collateralisation risk.

As part of the medium-term planning and management of liquidity requirements, the

subscribed securities resulting from own loans securitisation are one of the instruments that

form the so-called counterbalancing capacity (which, in a broader horizon and in more

complex scenarios, monitors the solvency entrusted in the short term to liquidity reserves).

According to this definition, securitisations are carried out in order to increase the degree of

liquidity of the assets and the availability of financial instruments eligible for refinancing with

the European Central Bank or usable as collateral for funding transactions with institutional

and market counterparties. Always responding to funding needs in the medium to long term,

the Group can structure a securitisation with subscription of the securities by third parties,

thereby obtaining an immediate supply of liquidity.

The need to structure securitisations of loan assets can also arise as part of capital

management decisions, if the Groups want to implement a strategy for the transfer of credit

risk, resulting in lower capital absorption and enhancement of prudential ratios. In

operational terms, the exposure to risks coming from securitisations is generated by the

Finance Department, which deals with the structuring and finalisation of the transactions

based on the resolutions of the Board of Directors of the Parent and of the Bank that

participate in the transaction and on the indications of the Managing Director and of the

General Management of each Bank, where appropriate.

Limiting exposure to risks originating from the securitisation is achieved through

organisational, procedural and methodological choices. The overall management is carried

out on a centralised basis for all Group Banks. In view of the complexity of securitisations,

the Group has a dedicated organisational supervision within the Finance Department of the

Parent, with both structuring and transaction management tasks. We also make use of

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consultants and partners of high standing. In general, the internal audit system of the Group

makes sure that the risks deriving from such transactions - including the reputational risks

originating, for example, from the use of structures or complex products - are managed and

evaluated by means of policies and procedures to ensure that the economic substance of

these transactions is fully in line with their risk assessment and with the decisions of the

Company bodies.

Upon the occurrence of the management need to structure a new securitisation, where this

qualifies as the most important transaction, the Risk Management Department receives

before the Finance Department all the details required for assessing the specific risk profiles

in relation to the Group RAF. Appropriate new instruments for monitoring, managing and

mitigating risk exposure are activated, if necessary. From the management viewpoint, the

Finance Department monitors on a regular basis the performance of flows and payments

related to securitised loans and relevant securities; collaborates to the production of reports

for different structures of the Group competent in this field; produces the informative reports

contractually agreed upon and the information requested by and intended for administrative

and financial counterparties, rating agencies, investors.

With regard to assessment of exposure to risk, the different profiles are taken in

consideration as part of the ordinary course of business related to the different types of risk.

In particular, the Risk Management Department prepares on a quarterly basis the Risk

Management Report for the General Management and the Board of Directors of the Group

Banks, which also monitors the exposure to credit risk, interest rate risk of the banking book,

liquidity risk, operational risk, reputational risk and risks related to banking book securities.

The analyses carried out by the Management on the profiles of operational liquidity,

structural liquidity and interest rate risk exposure take also into account the impact of the

securitisations.

The relevant risk profiles with respect to existing securitisations are also assessed as part of

the annual ICAAP Report.

During the half-year, the multi-originator securitisation carried out in May 2009, was paid in

advance by means of the Special purpose entity Quadrivio Finance S.r.l., through (i) the

repurchase of residual securitised loans by Credito Valtellinese S.C., Credito Siciliano S.p.A.

and Banca Popolare di Cividale S.c.p.A. (company outside the Credito Valtellinese Banking

Group), (ii) the early repayment of securities and (iii) the termination of the securitisation

contracts.

During the half-year, Credito Valtellinese has also subscribed the following senior tranches of

ABS securities issued as part of the securitisations carried out pursuant to Italian Law

130/1999:

- securities originated by the company Agos Ducato S.p.a. by means of the Special purpose

entity Sunrise S.r.l., with underlying consumer credits for a total equivalent value of EUR

10,000,000;

- securities originated by the company Alba Leasing S.p.a. by means of the Special purpose

entity Alba 7 SPV S.r.l., with underlying leases for a total equivalent value of EUR

10,000,000;

- securities originated by the company Futuro S.p.a. by means of the Special purpose

entity Quarzo CQS S.r.l., with underlying consumer credits repayable by means of the

transfer of one fifth of the salary or pension and by means of extensions of payments for

a total equivalent value of EUR 4,000,000.

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5. OPERATIONAL RISK

General aspects, management processes and measurement methods for

operational risk

The operational risk is defined as the risk of incurring losses due to the inadequacy or

inefficiency of procedures, human resources and internal systems or due to external events,

including the legal risk. It includes, inter alia, losses deriving from fraud, human error,

interruption of operations, system break-down, contractual non-performance and natural

disasters.

The wide variety of operational risks is not normally associated with banking or business

activities. These risks may originate either internally or externally and their scope may

extend beyond the corporate structure.

As a result of the process defining the risk appetite, the Board of Directors of the Parent, in

line with the adopted business model and considering that the operational risk is not

associated with any return, set as its management objective the minimisation of exposure to

operational risk. Consistently, the Board established the strategic guidelines and risk

management policies, which were made known to the internal departments and are reviewed

on a regular basis.

Operational risk management is part of an integrated management strategy that aims to

contain overall risk also by preventing propagation and transformation of the risks.

Operational risk management is based on the following guidelines:

- to increase overall operating efficiency;

- to avoid the occurrence or reduce the likelihood of events that may potentially generate

operating losses through appropriate regulatory, organisational, procedural and training

measures;

- to mitigate the expected impact of said events;

- through insurance arrangements, to transfer risk that the Bank does not intend to

maintain;

- to protect the reputation and brand of the Banks and of the Group.

The identification, assessment and monitoring of operational risks tend to carry out

mitigation interventions.

Finally, specific types of risks are transferred through a series of insurance policies offering a

wide-ranging coverage on different types of potentially damaging events.

With respect to the organisational structures and management processes, the Risk

Management Department contributes to the definition of the risk management policy at

Group level, develops the operational risk assessment process, supports the Governing

Bodies in defining and carrying out the activities related to the observance of the prudential

regulations and ensures accurate, complete and timely information.

In particular, the Operational Risk Service deals with the development and management of

the models concerning operational risks, supervises the systematic and structured loss data

collection from various departments of the company, carries out the analyses required,

assesses the operational risks on an adequate basis and can propose appropriate

management measures and mitigation instruments.

The timely and accurate recognition of the events that may actually or potentially generate

operating losses is carried out by a network of company contacts using a special application

110

that allows to register and keep identifying information, damage estimates, accounting and

extra-accounting final data and the effects of mitigation through insurance instruments.


and parameters required for the development of methods and models for assessing and

measuring the operational risk and performs this task on a centralised basis on behalf of all

Group Banks.

Risk exposure is assessed and measured, at a separate and consolidated level, with

reference to a wide range of phenomena that can lead to operating losses.

The model for the assessment and measurement of operational risk is based on the

combined use of:

- internal operating loss data, collected by the network of company contacts;

- assessments in perspective, prepared with an appropriate statistical technique and based

on subjective estimates concerning the probability of occurrence, extent of the impact

and the effectiveness of the controls related to certain events (risk self-assessment);

- operational context factors and of the internal control system, called Key Risk Indicators,

aimed at a forward-looking representation, which reflect the improvement or the

worsening of the bank risk profile in a timely manner, following any changes in the

operational segments, human resources, technology and organisation, or the internal

control system;

- external data of operational loss, surveyed in the Italian Database of Operational Losses

(DIPO), to which the Group belongs with the status of "total group member".

The analyses, assessments and comparisons carried out allow to formulate an overall

assessment by relevant operating segments of the level of exposure to operational risks, and

to understand any change in the reporting period.

Moreover, the carrying out of stress tests allows to check the effects of the general increase

of operational risk associated with the manifestation of widespread and significant operating

losses.

The results of the assessment are used for management purposes to prevent and mitigate

operational risks.

In order to ensure corporate bodies full knowledge and governance of the risk factors and

make available to the persons in charge of the company departments the information

pertaining to them, the Risk Management Department produces and distributes at regular

intervals (quarterly, half-yearly and yearly) information flows on operational risks that offer a

full representation of the different operational risk profiles and of the mitigation measures

implemented during the reporting period or that are expected to be implemented in the

future.

Moreover, specific reports are prepared at the end of the risk self-assessment and the

relevant follow-up.

The Risk Management Department receives in turn information flows, both by other control

departments (Auditing and Compliance) and by other management departments (e.g.

Operations, ICT, Human Resources, Legal, physical and logical safety), which complete the

knowledge of operational risk profiles and allow to monitor activities and projects for

mitigating operational risks.

111

The manifestation of any critical situation gives rise to corrective and mitigating actions, the

effects of which are monitored and made known to the corporate bodies according to the

ordinary reporting methods.

The disaster recovery plan laying down the technical and organisational measures to deal

with events that result in the unavailability of data processing centres is part of problem

management. The plan, designed to allow the operation of relevant computerised procedures

in sites other than those of production, is an integral part of the business continuity plan,

controlled by the Business Continuity and Compliance Service of Bankadati.

As from the 31 December 2014, the Group extended to all of its components the use of the

Traditional Standardised Approach (TSA) for calculating the capital requirement to meet

operational risks.

A number of requirements are necessary for the supervisory regulations to adopt the

standardised method; in particular, the body must have a properly documented management

and assessing system of the operational risk and the various responsibilities must be clearly

assigned; and this system must be subject to independent regular reviews carried out by an

internal or external subject with the skills required.

In this regard, a self-assessment is carried out as well as a specific series of checks by the

internal audit function.

The self-assessment process, carried out annually, consists of a formalised set of procedures

and activities aimed at assessing the quality of the operational risk management system, as

well as its compliance over time with regulatory requirements, company operational

requirements and the development of the market of reference.

The process is carried out by the Risk Management Department, which also uses the

documents prepared by the Planning, Control and General Affairs Department and other

organisational units of the Group.

The process develops along the applicable guidelines outlined in the Group Policy concerning

"The assessment of the risk management processes" and is based on the following profiles:

governance; credit risk management policies; organisation of the risk management

department; methods and instruments for identifying, measuring and managing risks;

monitoring and reporting; prevention and mitigation of risks; management of critical issues.

These profiles also include the information and assessment elements concerning the

components characterising the operational risk management system according to the

supervisory regulations. The assessment of each profile is complemented by the indication of

areas and lines of improvement. An overall rating is then formulated on the basis of the

profile assessments.

The assessment of the risk management system is complemented by the assessments

related to the process of production of the supervisory reports, with a special reference to

the calculation of the capital requirement to meet the operational risk and to the reporting of

the operational losses recorded for the different business lines.

The results, verified by the internal audit function, are submitted on an annual basis to the

Board of Directors, which resolves on the existence of the eligibility requirements for the

adoption of the standardised approach.

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Legal risks

A provision was made in the financial statements, appropriate and consistent with the

international financial reporting standards compliant with the policy for calculating the

provisions adopted by the Group, in order to cover the economic risks resulting from the

pending legal proceedings with regard to the Banks and the other companies belonging to

the Group. The amount of the provision is estimated on the basis of a number of elements

mainly concerning the estimate on the outcome of the case and, in particular, the likelihood

of losing the case with the conviction of the Bank, and the elements of quantification of the

amount that the Bank could be obliged to pay to the counterparty if it loses the case.

The estimate on the outcome of the case (risk of losing in a lawsuit) considers, for each

position, the legal aspects inferred in court, assessed in the light of the case law, actual

evidences presented during the proceedings and the development of the proceedings, as well

as, for subsequent encumbrances, the outcome of the first level judgement, as well as past

experience and any other useful element, including the opinions of experts, making it

possible to take into proper account the expected unfolding of the dispute.

The amount due in case of an adverse outcome is expressed in absolute value and shows the

estimated value based on the court findings, considering the amount requested by the

counterparty, the technical estimate carried out internally based on the accounting records

and/or presented during the trial and, in particular, the amount assessed by the court-

appointed expert (ctu) - if provided - as well as legal interests, calculated from the

notification of the application initiating proceedings and any expense due for adverse

outcome.

If it is not possible to obtain a reliable estimate (failure to quantify the claims for

compensation by the claimant, presence of uncertainties of law and of facts that make any

estimate unreliable), no provisions are made as long as it is impossible to foresee the

outcome of the proceedings and reliably estimate the amount of any loss.

At 30 June 2015, there are 529 actions brought against the companies belonging to the

Group for an overall amount of EUR 170.3 million against which a total loss of EUR 14.2

million is expected.

The cases mainly refer to requests for restitution for compound interests and bankruptcy

clawbacks, claims for compensation for losses accrued in investments in financial instruments

and other cases of damages broken down as follows.

Type of cases No. of cases

Relief sought (in millions of

EUR)

Provision made (in millions of

EUR)

Compound interests 258 42.9 4.9

Bankruptcy clawbacks 46 27.7 4.7

Investment services 59 7.1 1.4

Other 166 92.6 3.2

Total 529 170.3 14.2

The Group pursues careful settlement procedures, based on an in-depth analysis of the

concrete grounds on which the actions are based, meaning the existence of both the

subjective and objective elements.

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Some information concerning important actions against the Bank is summarised below.

Formenti Seleco in A.S.

In 2010, the Procedure started before the Court of Milan two separate legal proceedings

against Credito Artigiano, now Credito Valtellinese. The first proceeding concerns the

bankruptcy clawback pursuant to Article 67 of the Bankruptcy Law of the settlement

remittances quantified by the counterparty in EUR 7.8 million. The second proceeding

consists of an action for damages related to the case of abusive lending that the receiver

started against the 19 banks severally liable totalling EUR 45 million. These disputes had a

completely independent and separate process. In fact, with regard to the bankruptcy

clawback, a settlement agreement of the dispute was completed and achieved. With respect

to the action for damages, the Court first, and the Court of Appeal then, rejected in toto the

opposing claims as groundless. Currently, the judgement is pending with the Court of

Cassation.

Gianfranco Ferrè in A.S.

In 2012, the Procedure started a bankruptcy clawback proceedings against Credito Artigiano,

now Credito Valtellinese, pursuant to Article 67 of the Bankruptcy Law with reference to the

settlement remittances paid into the a/c of the bankrupt company quantified by the

counterparty in EUR 10.4 million. The case, which is pending before the Court of Isernia, is in

the preliminary stage. In the light of internal accounting evidences and of the opinion of the

court-appointed expert in the course of proceedings, a provision of EUR 1.1 million was made

to the provision for risks.

Ministry of Economy and Finance

On 3 February 2014, a claim form was notified to Credito Valtellinese by the MEF, in relation

to the alleged non-payment by the Bank of interest due as a result of the exercise of the

right of redemption of the financial instruments issued pursuant to Article 12 of Italian Law

Decree no. 185 of 29 November 2008, amended and converted by Italian Law no. 2 of 28

January 2009 (Tremontibond). The MEF asked the Court of Rome to order the Bank to pay a

total amount of EUR 16.86 million. In this regard, on 18 June 2013 the Bank had informed

the Ministry of its intention not to pay the amount of EUR 16.86 million (corresponding to the

interests accrued on a pro rata basis up to the date of redemption and calculated in

proportion to the interest paid on the date of payment of the immediately previous interests)

in that such interest is considered not due on the basis of an interpretation of the applicable

regulations and of the issue prospectus formalised, together with the related interpretative

uncertainties, in an opinion issued by a leading law firm. The Bank appeared before the court

maintaining that, at the time of redemption of the Financial Instruments, there was no

payment obligation of interests to Creval, in that the last consolidated financial statements

available on the redemption date, or the 2012 financial statements, approved by the Board of

Directors of Credito Valtellinese on 19 March 2013, showed a loss for the year. At the first

hearing, held on 15 January 2015, the Court granted the parties the terms pursuant to

Article 183, paragraph VI, of the Italian Code of Civil Procedure for the filing of the briefs and

fixed the next hearing on 25 June 2015, subsequently adjourned until 16 November 2015

due to the unavailability of the Judge. These financial instruments were included among the

equity instruments that fall within the scope of IAS 32 and 39; therefore, they do not fall

within the scope of IAS 37 Provisions, contingent liabilities and contingent assets. There were

no specific provisions in the income statement.

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Italval Group srl

Italval Group Srl started a legal action against Credito Valtellinese concerning a claim for the

return of undue payment due to compound interest on current account. The plaintiff’s claim

is quantified in the summons in EUR 10.043 million against which a provision for risks and

charges of EUR 1.1 million was prepared. The Bank appeared before the court challenging

the other party’s claim and raising objections to the prescription of the claim started in court.

The accounting court-appointed expert ascertained a compound interest risk limited to

approximately EUR 0.4 million applying the methods of the plenary session.

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Tax dispute

During the first half of 2015, there are no tax audits or notices of assessment of significant

amount.

With reference to previous disputes, the Parent Credito Valtellinese and the company

Mediocreval S.p.A., today merged by the same Parent, received in 2013 notices of payment

and imposition of penalties with reference to the substitute tax on syndicate loans signed

abroad for a total amount of about EUR 200 thousand among taxes, interests and sanctions,

divided almost equally between the two banks. Appeals were immediately filed with the

competent Tax Commissions against the notices of settlement to defend the correct

operations of the banks. In this regard, the following is provided:

- with reference to the notice of settlement related to Credito Valtellinese, on 15 May 2015,

the competent Tax Authorities ordered the request for nullification by internal review;

- with reference to the notice of settlement related to Mediocreval, noting that the enacting

clause of the sentence of inadmissibility of the appeal of first instance before the

Provincial Tax Commission of Sondrio was notified on 15 April 2014, against which an

appeal was immediately filed to the Regional Tax Commission, the appeal hearing was

held on 25 June 2015. The judgement is still pending.

With reference to the Parent, a tax dispute for the purchase of bank branches was also

positively settled, within a procedure requested by the Competition Authority, whose claim

amounts to EUR 1.3 million by way of stamp duty, in relation to the higher goodwill assigned

compared to the one recognised and paid to the counterparty and declared in the deeds. The

Provincial Tax Commission of Milano upheld the appeal of the Bank, with judgement

confirmed later on by the Regional Tax Commission of Milano. The judgement is definitive.

During the second half of 2014, a request for refund of the portion of tax paid pending

judgement was made. Payment is still pending.

Always with reference to Credito Valtellinese, the notice of contention concerning the non-

disclosure of a money transfer operation abroad was settled, as part of the so-called currency

tax monitoring.

With reference to other Group companies, there are no significant tax disputes to report.

The rights of the Group companies are protected by external professionals with special skills

and experience, with the intention to enforce the rights of the companies in the competent

administrative and legal venues.

Labour related lawsuits

In terms of numbers, during the half-year ended 30 June 2015, the number of labour-related

lawsuits is substantially stable compared to those at group level at 31 December 2014, with

an increase of just one event during the first six months of 2015.

In terms of risk quality, labour disputes in which the companies of the Group are involved at

30 June 2015 are divided equally between actions undertaken for alleged de-skilling or for

disputes concerning the application of contractual regulations and/or laws governing salary

aspects of the employment relationship and actions concerning the contestation of dismissals

with regard to the employee.

In terms of risk quantification, against the overall relief sought resulting from the set of

judgements registered at 30 June 2015, the capital requirement of the globally considered

labour dispute - adequately covered by the provisions made by the Group Companies

concerned - can be prudentially estimated at just over EUR 1 million; this risk is slightly

increasing compared to the value recognised at 31 December 2014.

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IT (or ICT) risk

IT risk is the risk of incurring economic, reputation and market share losses in relation to the

use of the Information and Communication Technology - ICT. In the integrated

representation of business risks for prudential purposes (ICAAP), this type of risk is

considered, in accordance with the specific aspects, among operational, reputational and

strategic risks.

The IT risk analysis is a tool guaranteeing the efficiency and effectiveness of the protection

measures of the ICT resources.

In the light of the supervisory provisions on this matter, the Group defined the overall

framework for managing the IT risk as well as the methods of risk analysis and assessment.

The process of IT risk analysis consists of several departments, in particular of the ICT

Management and Safety Department and Risk Management Department and consists of the

following phases:

- determining the potential risk to which a business or internal product/service is exposed

as a result of a potential occurrence of an IT risk scenario. The potential risk is

determined by combining the impact assessments expressed by the Users in charge of

the business or internal products/services of direct concern, with the probability of

occurrence of the threats applicable to IT services used for the supply of business or

internal products/services, in the absence of any kind of technical, procedural or

organisational counter-measures;

- determining the residual risk to which a business or internal product/service is exposed as

a result of a potential occurrence of an IT risk scenario, considering the state of

implementation of existing controls on IT services used for the supply of business or

internal products/services;

- processing the residual risk aimed at identifying technical or organisational mitigation

measures suitable for limiting any residual risk exceeding the company acceptance

threshold, by adopting alternative or further measures of risk limitation, submitted to the

approval of the Body with management responsibilities.

When assessing the risks on the components of the IT system and already existing

applications, the Group takes into account the data available concerning IT security incidents

occurred in the past.

The process of risk analysis is repeated annually and, in any case, in the presence of

situations that can affect the overall IT risk level.

The percentage distribution of operational losses recognised in the internal database during

the period is shown in terms of frequency and impact.

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Operational losses - Distribution by type of event

The events reported during the half-year are mainly attributable in terms of frequency to the

following event types: "Execution, delivery and management of processes" (52.2%),

"External fraud" (31.1%) and "Customers, products and business practices" (9%).

In terms of impact, losses are attributable to "External fraud" by 71.6%, to "Execution,

delivery and management of processes" by 24.4% and to "Customers, products and business

practices" to 3.7%; losses attributable to other event types are of lesser importance.

6. OTHER RISKS

In addition to the risks described above, the Credito Valtellinese Group identified and

monitors the following other risks.

Risk of excessive leverage

The risk of excessive leverage is defined by the prudential regulations as "the risk that a

particularly high level of debt compared to equity makes the bank vulnerable, making it

necessary to take corrective measures for its business plan, including the sale of assets with

recognition of losses that could result in impairment losses also on the remaining assets".

During the meeting of 9 December 2014, the Board of Directors of the Parent Credito

Valtellinese, when defining the Risk Appetite Statement for 2015, confirmed a low propensity

to the risk of leverage. The strategic and management objective is the control of the risk by

reducing the asset trend within the limits compatible with a long-term equilibrium, so as not

to risk the stability of the Group.

The risk of excessive leverage concerns the entire financial statements, the exposures

deriving from the holding of derivatives and the unrecognised assets of the Banks and of the

Group and is taken when carrying on the core business. It is closely related to the activities

of planning and capital management; the degree of exposure to risk is an expression of the

strategic lines and development prepared by the Board of Directors of the Parent, by the

Managing Director and by the General Management to the extent of its authority.

The exposure to risk is mitigated by means of capital management and asset management,

within the lines defined by the Group’s strategic plan in force each time. Moreover, the

possible increase in the risk related to the recognition of expected or realised losses that

could reduce the equity available is also considered.

118

The measurement of the risk of excessive leverage is based on the regulatory parameter

"leverage ratio"; since this amount does not include corrections/weightings for risk, it acts as

a completion of the Pillar I capital requirements. Moreover, this contributes to limit the

accumulation of the leverage at the system level. The risk exposure assessment is also

carried out through other indicators that can recognise any imbalance between assets and

liabilities.

For the purposes of managing and reducing the risk, a range of values considered normal, a

reporting limit and an intervention limit, are expected at a consolidated level for the leverage

ratio.

The Risk Management Department monitors on a quarterly basis the trend of the leverage

ratio and the structural balance indicators; corporate bodies are provided with regular

disclosure.

In order to assess more accurately the exposure to risks and their trend in adverse

conditions, their mitigation and control systems and the adequacy of capital and

organisational methods, stress tests that consider, either separately or jointly, the decrease

in own funds and the increase in exposures of different size are also carried out.

At 30 June 2015, the leverage ratio was considerably higher than the minimum threshold

proposed by the international standards.

Sovereign risk

The investment in Italian Government bonds, placed almost entirely in the AFS portfolio,

involves the exposure to the credit risk of the Italian Republic that, as with any other issuer,

may occur in the form of a decrease in creditworthiness or, in extreme cases, of insolvency.

The investment in Spanish Government bonds, residual in size and placed in the AFS

portfolio, generates a marginal exposure to the credit risk of Spain.

The exposure is monitored on a regular basis and referred to corporate bodies.

The outlook of the exposure to the sovereign risk profile is weighed considering adverse

scenarios of varying intensity, also based on historical simulations, and their impact on the

value of the portfolio and on the own funds.

The exposure stood at values below those recorded at the end of the previous year, due to

the decrease in total volumes.

The table below shows the carrying amount of the exposures to sovereign debt risk, broken

down by portfolio (AFS - Available-for-sale financial assets, HFT - Financial assets held for

trading, HTM - Held-to-maturity investments, L&R - Loans and receivables with banks and

Loans and receivables with customers).

Countries AFS HFT HTM L&R Total AFS reserve

Italy 5,261,807 71,912 - - 5,333,719 -94,118

Other (*) 52,479 19 - - 52,498 -472

Total 5,314,286 71,931 - - 5,386,217 -94,590

(*) Mainly Spanish securities AFS reserve net of tax effect

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Additionally, loans and receivables with customers referred to loans granted to central and

local public administrations totalling EUR 100,661 thousand are recognised.

The following table provides information on the expiry of exposures in securities exposed to

sovereign debt risk.

Portfolio 2015 2016 2017 2018-2020

2021-2025

Beyond 2025 TOTAL

AFS 780,296 213,918 197,089 797,532 2,498,364 827,087 5,314,286

HFT 34,512 612 1,518 - 35,204 85 71,931

HTM - - - - - - -

L&R - - - - - - -

Total 814,808 214,530 198,607 797,532 2,533,568 827,172 5,386,217

Government bonds were measured mainly referring to prices inferred from markets (Level 1

of fair value hierarchy).

Strategic risk

The strategic risk is the current or future risk of drop in profits or capital arising from

changes in the operating context or from wrong company decisions, inadequate decision

implementation, and poor responsiveness to changes in the competitive context.

The exposure to strategic risk is not related to specific operations but to the adequacy of the

choices and effectiveness of the implementation. In particular, the risk refers to the phases

of definition of business strategies and to the related implementation phases consisting of the

definition of the business plan, commercial planning, budgeting, management control and

monitoring of the markets and of the competitive context, capital allocation and capital

management.

The strategic risk, when configured as a mere strategic risk, business strategic risk and

equity investment strategic risk, is primarily assumed by the Parent, which is responsible for

defining the overall business plan and the coordination and control of the Group Companies

for the purposes of its implementation. The Parent, by defining, approving and monitoring

the annual planning and the progress of the Strategic Plan, exercises a strategic control on

the development of the different business areas in which the Group operates and of the risks

related to the activities carried on.

Compliance risk

Compliance risk is the risk of incurring legal or administrative sanctions, significant financial

losses or damage to reputation as a consequence of violation of mandatory provisions (laws

or regulations) or self-regulation (e.g. articles of association, codes of conduct, and codes of

self-discipline).

The Group considers the adoption of the highest standards of compliance with the regulations

a distinctive feature of its corporate identity, an expression of the exercise of its own social

responsibility, a control for maintaining the reputation acquired over time and an effective

contribution to the process of creation of value.

The management of the compliance risk is based on the Compliance Policy and on the

Compliance Plan.

The aim of the Compliance Policy is to configure a structural system of principles and

organisational and control procedures, designed to prevent, manage or mitigate the risk of

non-compliance with heteroregulations and self-regulations.

120

The Compliance Plan refers to the identification and assessment of the main risks of non-

compliance to which the Group is exposed and proposes the planning of the relevant

interventions.

The assessment of the risk uses the following instruments:

- methods of self-assessment based on scorecards and the like;

- direct investigations on processes, procedures and operating units (analyses and

interviews);

- any other IT tool designed to produce compliance checks in a structured form.

Considering the extent of the compliance risk and the large number of factors from which it

can originate, all the Group’s companies are exposed to such risk albeit of different intensity.

Money-laundering risk

Money-laundering risk is the risk of incurring legal and reputational risks deriving from the

possible involvement in unlawful transactions related to money laundering and financing of

terrorism.

In order to measure/assess this risk, the recycling risks implied in the operational procedures

of the Group related to the following processes were mapped:

- proper verification of customers;

- cash transactions and bearer securities;

- AUI entries;

- reporting suspicious transactions.

Given the objective importance of the money-laundering risk as well as the increasing

complexity of the regulatory framework and of the obligations arising therefrom, the Group

has progressively strengthened its regulatory, organisational, procedural, application and

training control.

Reputational risk

Reputational risk is the current or future risk of drop in profits or capital arising from the

negative perception of the image of the bank by the customers, counterparts, bank

shareholders, investors or supervisory authorities; the business analyses also include

employees, the company and the territory.

Reputation is an essential intangible resource and is considered by the Group as a distinctive

element that underpins a lasting competitive advantage.

The risk refers primarily to the area of relations with stakeholders and with the community; it

can also arise from factors placed outside the corporate structure and outside the work of the

Group (e.g. from the dissemination of inaccurate or unsubstantiated information or from

phenomena concerning the system and can involve each institution without distinction).

The risk is limited mainly by defining organisational controls for limiting the occurrence of

adverse events in the company.

An additional control consists of the sharing by all Group employees of the system of values,

principles and rules of conduct on which their behaviour is based formalised in the Code of

Conduct.

The Group adopted also the Charter of Values, in order to identify recognisable and uniform

principles for all the employees, on which the Group bases its distinctive identity, marked by

121

tension to work for sustainable growth.

The currently good and solid reputation is constantly monitored, protected and enhanced,

and does not appear at the time to be exposed to particular risks, albeit the current crisis has

to some extent affected the entire financial system.

Risk towards associated parties

This is the risk that the proximity of certain persons to decision-making centres of the Bank

might compromise the objectivity and impartiality of decisions relating to the granting of

loans and other transactions with regard to these subjects, with possible distortions in the

allocation of resources, the Bank’s exposure to risks not adequately measured or monitored,

potential damage to depositors and shareholders.

In order to preserve decision-making objectivity and impartiality and avoid allocative

distortions, the Group adopted strict procedures and limits more stringent than regulatory,

regularly monitored.

During the period, the limits of intervention were not exceeded.

Real estate risk

This is the current or prospective risk of potential losses arising from fluctuations of the value

of the real estate portfolio owned by the Group, or by the reduction of the income generated

by it. The Group - in line with the risk appetite defined by the Board of Directors - assumes,

to a limited extent, a real estate risk for investment purposes and for protecting its own

claims. The real estate risk is assumed indirectly also by subscribing shares in real estate

funds.

The real estate portfolio owned by the Group, managed by an ad hoc company, represents a

residual component compared to total assets at consolidated level and consists mostly in

operating assets.

The risk is mitigated through management and maintenance interventions aimed at

preserving the functionality and value of the assets and partially transferred through

insurance policies covering the real estate properties.

Risks related to outsourcing

The outsourcing of business functions, processes, services or activities involves careful

assessment of risks and the implementation of appropriate monitoring and limitation

measures.

The potential risks arising from outsourcing are mostly operational, compliance, strategic and

reputational risks; therefore, they refer to specific types already identified and described

above.

122

INFORMATION ON CONSOLIDATED EQUITY

On 1 January 2014, the new prudential regulations that envisaged the observance of a

minimum ratio of CET 1 equal to 4.5%, of Tier 1 equal to 5.5% (6% from 2015) and of Total

Capital Ratio equal to 8% came into force.

The following reserves (buffer) of CET1 are added to these binding minimum values:

- as from 1 January 2014, the capital conservation buffer of 2.5%;

- from 2016, the counter-cyclical buffer in periods of excessive growth in loans and the

systemic buffer for banks important at global or local level (G-SII, O-SII).

The sum of regulatory requirements and of additional buffers determine the level of minimum

capital conservation requested from the banking groups at the consolidated level; for 2015,

this level is as follows:

- CET1 equal to 7%;

- Tier 1 equal to 8.5%;

- Total Capital Ratio equal to 10.5%.

At 30 June 2015, own funds were calculated by applying the new regulations mentioned

above. However, this regulation envisages transitional regulatory provisions that envisage, in

general until 2017, the gradual introduction of the new regulatory framework, through a

transitional period during which some elements are deductible or can be calculated in

Common Equity Tier 1 capital only for a percentage share, whereas the residual percentage

compared to the applicable percentage is calculated/deducted from the Additional Tier 1

capital and from Tier 2 capital or considered in the risk-weighted assets. This transitional

regime is also envisaged for some subordinated instruments that do not comply with the

requirements of the new regulatory provisions, aimed at excluding gradually from own funds

(over a period of 8 years) the instruments that can no longer be calculated.

The elements forming Own Funds are set below:

- Common Equity Tier 1 – CET1;

- Additional Tier 1 – AT1;

- Tier 2 – T2.

CET1 and AT1 form the Total Tier 1 capital that together with Tier 2 capital allows to

determine Total Own Funds.

Total Common Equity Tier 1 (CET1), which includes the share of the profit for the period

allocated to reserves, amounted to EUR 1,981.8 million. The item includes, in addition to the

already mentioned profit allocated to reserves, equity instruments of EUR 1,846.8 million,

share premium reserves of EUR 39 million, other accumulated comprehensive income of EUR

-55.7 million and other reserves of EUR 179.7 million.

As for the items to be deducted, goodwill of EUR 172.9 million, other property, equipment

and investment property of EUR 35.9 million and significant investments in Common Equity

Tier 1 capital instruments held in subjects of the financial sector above the exemption limits

of EUR 22.8 million are recorded.

In relation to the transitional regime, the item includes in particular the sterilisation of

unrealised gains on available-for-sale securities of the Group and of the subsidiaries of EUR

123

31.3 million, the neutralisation of losses of EUR 94.6 million related to the AFS reserve

related to securities issued by central governments of countries belonging to the European

Union and the positive filter related to the inclusion of equity investments held in CET1

instruments issued by companies in the financial sector in which the bank has a significant

investment of EUR 6.8 million.

On 30 June 2015, the Tier 2 capital included in T2 instruments the subordinated loans issued

by Credito Valtellinese of EUR 327.3 million and instruments issued by filiations of EUR 37.2

million. The Tier 2 capital, considering the effects of the transitional regime by deduction of

the remaining 50% of the residual amount related to direct equity investments held in CET1

instruments issued by companies in the financial sector in which the bank has a significant

investment of 6.8 million and the positive filter related to the inclusion of unrealised gains on

AFS securities of the Group and associates of EUR 15.6 million, amounted to EUR 382.4

million.

124

Own Funds

30/06/2015 31/12/2014

A. Common Equity Tier 1 capital (CET1) before the a pplication of prudential filters 2,052,812 2,077,979

of which instruments of CET1 subject to transitional provisions - -

B. CET 1 prudential filters (+/-) -200 -65

C. CET1 gross of elements to be deducted and of the effects of the transitional regime (A+/-B) 2,052,612 2,077,914

D. Elements to be deducted from CET1 232,414 238,463

E. Transitional regime - Impact on CET1 (+/-), incl uding minority interests subject to transitional pr ovisions 71,573 -14,570

F. Total Common Equity Tier 1 capital (CET1) (C-D+/ -E) 1,891,771 1,824,881

G. Additional Tier 1 capital (AT1) gross of element s to be deducted and of the effects of the transiti onal regime 677 -

of which instruments of AT1 subject to transitional provisions - -

H. Elements to be deducted from AT1 - -

I. Transitional regime - Impact on AT1 (+/-), inclu ding the instruments issued by filiations and inclu ded in AT1 due to transitional provisions -677 -

L. Total Additional Tier 1 capital (AT1) (G-H+/-I) - -

M. Tier 2 capital (T2) gross of elements to be dedu cted and of the effects of transitional regime 373,368 497,339

of which instruments of T2 subject to transitional provisions 36,714 53,845

N. Elements to be deducted from T2 - -

O. Transitional regime - Impact on T2 (+/-), includ ing the instruments issued by filiations and includ ed in T2 due to transitional provisions 9,033 2,967

P. Total Tier 2 capital (T2) (M-N+/-O) 382,401 500,306

Q. Total own funds (F+L+P) 2,274,172 2,325,187

Unrealised gains or losses related to exposures towards the governments classified in the

category "Available-for-sale financial assets" are not included in own funds. This

neutralisation option provided by Article 467 of the CRR was confirmed also with reference to

the new circular 285 in chapter 14 related to transitional provisions concerning own funds

and this treatment will apply until the adoption by the Commission of a regulation that

approves the International Financial Reporting Standard in place of IAS 39. At 30 June 2015,

the fully neutralised AFS reserve related to securities issued by central government of

countries belonging to the European Union was negative by the amount for EUR 94.6 million

(compared to EUR 2.5 million at 31 December 2014). In the absence of such an approach,

the effect on own funds would have resulted in a decrease in Common Equity Tier 1 capital of

this amount and therefore in total own funds of EUR 2,179.6 million; the capital ratios would

have amounted to 10.93% and 13.25%, respectively.

Items "E" and "I" of 31 December 2014 included the amounts relating to the surplus of the

loss for the year from AT1 to CET1 due to the application of the transitional regime envisaged

by CRR.

It should be noted that starting from 2013, as communicated by the Bank of Italy on 9 May

2013, the recognition in the regulatory capital of the benefits associated with the exemptions

following the initial exemption of the same goodwill - carried out within the same group at

the consolidated level or the same intermediary on an individual basis - occur only when the

related DTA are transformed into current taxation. The transformation occurred in full at the

end of the half-year of 2015 following the conversion of the DTA in tax asset resulting from

losses recorded by group banks in 2014.

125

Capital adequacy

30/6/2015 31/12/2014 30/6/2015 31/12/2014

Categories/Amounts Non-weighted amounts Weighted amounts/requirements

A. RISK ASSETS

A.1 Credit and counterparty risk 28,812,806 28,908,760 14,951,581 15,135,741

1. Standardised approach 28,788,938 28,908,760 14,946,807 15,135,741

2. Internal rating based approach - - - -

2.1 Base - - - -

2.2 Advanced - - - -

3. Securitisations 23,868 - 4,774 -

B. REGULATORY CAPITAL REQUIREMENTS

B.1 Credit and counterparty risk X X 1,196,126 1,210,859

B.2 Credit valuation adjustment risk X X 2,297 2,353

B.3 Settlement risk X X - -

B.4 Market risks X X 1,389 1,406

1. Standardised approach X X 1,389 1,406

2. Internal models X X - -

3. Concentration risk X X - -

B.5 Operational risk X X 116,200 116,200

1. Basic indicator approach X X - -

2. Standardised approach X X 116,200 116,200

3. Advanced measurement approach X X - -

B.6 Other calculation elements X X - -

B.7 Total capital requirements X X 1,316,012 1,330,818

C. RISK ASSETS AND CAPITAL RATIOS

C.1 Risk-weighted assets X X 16,450,156 16,635,237

C.2 Common Equity Tier 1 capital / Risk-weighted assets (CET1 capital ratio) X X 11.50% 10.97%

C.3 Tier 1 capital/Risk-weighted assets (Tier1 capital ratio) X X 11.50% 10.97%

C.4 Total own funds / Risk-weighted assets (Total capital ratio) X X 13.82% 13.98%

At 30 June 2015, risk-weighted assets amounted to EUR 16,450 million. A comparison with

the figure from the previous year shows that they decreased by EUR 135 million, mainly

attributable to the change in volumes of loans granted in the first half of 2015 partially offset

by the change in doubtful loans.

The capital ratios, determined on the basis of transitional methods in force in 2015, stood at:

- 11.50% for Common Equity Tier 1 ratio and Tier 1;

- 13.82% for Total Capital ratio.

126

Business combinations

During the first half of 2015, no business combinations were carried out with entities outside

the Group regulated by IFRS 3 or business combinations between parties under common

control.

127

Related party transactions

Related party transactions are mainly regulated:

- by Article 2391-bis of the Italian Civil Code, whereby the governing bodies of companies

resorting to the equity market adopt, according to general principles indicated by Consob,

rules that assure "the transparency and substantial and procedural correctness of related

party transactions" carried out directly or through subsidiaries,

- by the "Related Party Transaction Regulation" adopted by Consob with resolution no.

17221 of 12 March 2010, as amended, (hereinafter also the "Consob Regulation"),

implementing the delegation contained in Article 2391-bis of the Italian Civil Code, as well

as, in relation to the specific business,

- by the provisions of Article 136 of the Consolidated Banking Act - as amended by Italian

Law 221/2012 - on obligations of banking representatives and,

- by the supervisory provisions issued by the Bank of Italy in December 2011 on risk assets

and conflicts of interest of banks and banking groups with respect to "Associated Parties"

(the Bank of Italy communicated that Chapter 5 of Title V of Circular no. 263 of 27

December 2006 as updated will converge in the Third Part of Circular no. 285 of 17

December 2013), provisions that complement what is provided by the Consob Regulation.

In compliance with the combined provision of the above-mentioned regulations, the Board of

Directors approved the new "Procedures concerning Related Party Transactions and

Associated Parties" (hereinafter also the "RPT Creval Procedures"), effective as from 31

December 2012. In accordance with current regulations, the document was published on the

Website, at http://www.creval.it - Governance section – Corporate documents.

On the basis of the provisions of the Bank of Italy Regulation, the Board of Directors of the

Parent approved the "Policies regarding controls on risk activities and on conflicts of interest

towards associated parties" (hereinafter also the "Policy"), document that defines the internal

policies regarding controls on risk activities and on conflicts of interest towards associated

parties, and was made known to the Ordinary Shareholders’ Meeting held on 27 April 2013.

The Policy describes, in relation to the operational features and the strategies of the Bank

and of the Group, the business segments and the types of business relations, also other than

those implying the assumption of risk assets, in relation to which conflicts of interest may

arise, as well as the safeguards inserted in the organisational structures and in the internal

control system to ensure constant compliance with prudential limits and the above decision-

making procedures. The document also summarises the principles and rules applicable to

transactions with associated parties that were used for the preparation of the relevant

Procedures.

Information on remuneration of key management personnel is indicated below.

128

Information on remuneration of key management personnel

FEES 1st half of 2015

a) short-term benefits (*) 3,496

b) post-employment benefits 168

c) other long-term benefits -

d) termination benefits -

e) share-based payments -

Total 3,664

(*) The amount indicated includes payments to Directors and the Board of Statutory Auditors of EUR 1,584 thousand.

Information on related party transactions

On the basis of the instructions of IAS 24 applied to the organisational and governance

structure of the Bank and of the Credito Valtellinese Banking Group, the following natural

persons and corporate bodies are considered related parties:

- subsidiaries, companies over which the Parent directly or indirectly exercises control,

as defined by IFRS 10;

- associates, companies over which the Parent directly or indirectly exercises significant

influence, as defined by IAS 28 and their subsidiaries;

- companies subject to joint control, companies in which the Parent directly or indirectly

exercises joint control, as defined by IFRS 11;

- key management personnel and directors and statutory auditors, namely Directors,

Statutory Auditors, the General Manager, the Co-General Manager and Deputy

General Managers of the parent and of the companies belonging to the Group;

- other related parties, which include:

- immediate family members - relatives until the second degree of kinship and

the spouse or common law spouses as well as their children - of key

management personnel and Directors and statutory auditors as defined above;

- subsidiaries subject to joint control by key management personnel and

supervisory authorities, as well as their immediate family members, as defined

above;

- pension funds established by companies of the Group.

Related party transactions, both intragroup and with parties not belonging to the Creval

Group, are regulated at market or standard conditions.

In particular, the economic effects of the transaction between the companies of the Group

are regulated on the basis of specific contractual agreements that, with the main objective of

optimising synergies and economies of scale and purpose at Group level, refer to long-term

objective and constant parameters, distinguished by material transparency and fairness. The

quantification of the expected fees for services was defined and formalised according to

standard parameters that take into account actual utilisation by each user company.

The Board of Directors is exclusively responsible for the definition of intragroup contractual

agreements and approval and possible amendment of the related economic conditions.

Related party transactions with parties other than companies in the Credito Valtellinese

Group are part of normal banking activities and are generally regulated at arm’s length for

129

specific transactions, or aligned to the most favourable measure that may have been agreed

for employees.

In relation to the specific business, the provisions of Article 136 of the Consolidated Banking

Act on obligations of banking representatives also apply to the companies.

For the most significant transactions, as defined in the Consob Regulation, the procedural

regulations and the reporting obligations specified by the RPT Procedures apply. No most

significant transactions were carried out in the half-year.

No atypical or unusual transactions that impacted significantly on the financial position or

results of operations of the company have taken place during the half-year.

Related party transactions carried out in the half-year include the following transactions:

- the multi-originator securitisation carried out in May 2009, paid in advance by means

of the Special purpose entity Quadrivio Finance S.r.l., through (i) the repurchase of

residual securitised loans by Credito Valtellinese S.C., Credito Siciliano S.p.A. and

Banca Popolare di Cividale S.c.p.A., (ii) the early repayment of securities and (iii) the

termination of the securitisation contracts;

- the acquisition by Credito Valtellinese of the bad positions and of the equity

investments by Finanziaria San Giacomo before selling the company to the Cerved

Group, sale already described in the interim Report on operations;

- the capital increase carried out by the subsidiary Credito Siciliano. On 10 July 2015,

the exercise period of the option rights related to the subscription of maximum

3,549,090 Credito Siciliano ordinary shares came to an end. Credito Valtellinese S.c.

subscribed all the shares pertaining to it by option and exercised the pre-emption

right on all the unsubscribed portion. As part of the capital increase, Credito

Valtellinese subscribed all in all 3,548,110 shares at the price of EUR 14 each;

- the subscription by Credito Valtellinese of a convertible bond loan issued by Cassa di

Risparmio di Fano totalling EUR 10 million.

Credit and debt balances at 30 June 2015 from related parties in accordance with IAS 24 as

well as the percentage impact of these transactions on the corresponding financial

statements data are provided below. The impact of transactions completed with Group

companies has not been included, as their line-by-line consolidation requires the netting of

intragroup balances and transactions.

130

30/06/2015

TRANSACTIONS WITH RELATED PARTIES Associates Companies subject to joint control

Executives and control bodies Other related parties

% weight on financial

statement items

STATEMENT OF FINANCIAL POSITION ITEMS

60. Loans and receivables with banks 643 - - - 0.1

70. Loans and receivables with customers 30,192 - 2,496 111,694 0.8

160. Other assets 2,384 - - 93 0.6

TOTAL ASSETS 33,219 - 2,496 111,787

10. Due to banks 24,386 - - - 1.4

20. Due to customers 12,942 97 4,808 28,236 0.3

30. Securities issued - - 340 4,891 0.1

100. Other liabilities 917 - 52 35 0.1

TOTAL LIABILITIES AND EQUITY 38,245 97 5,200 33,162

GUARANTEES AND COMMITMENTS

Guarantees given 10,032 - - 21,508 3.5

TOTAL GUARANTEES AND COMMITMENTS 10,032 - - 21,508

1st half of 2015

TRANSACTIONS WITH RELATED PARTIES Associates Companies subject to joint control

Executives and control bodies Other related parties

% weight on financial

statement items

INCOME STATEMENT ITEMS

10. Interest and similar income 316 - 27 1,472 0.5

20. Interest and similar expense (32) - (241) (236) 0.4

40. Fee and commission income 13,281 - 22 148 8.7

50. Fee and commission expense (7,682) - - - 56.8

150. Administrative expenses: a) personnel expenses 38 - (3,664) (157) 2.6

150. Administrative expenses a) other administrative expenses

(4,307) - - - 3.7

220. Other operating net income 4,255 - - 1 10.7

TOTAL 5,869 - (3,856) 1,228

131

Segment Reporting

In compliance with IFRS 8, segment reporting is prepared on the basis of elements used by

management to make operational and strategic decisions.

The following operating segments were identified for the Credito Valtellinese Group:

- The Market segment: generates its revenue from the production and sale of lending

products and services, investment and transfer services for the Group’s customers

(traditionally households, trades, professionals and SMEs) in addition to provision and

management of medium to long-term financing;

- The Specialised Companies segment: generates its revenue from the distribution of

bancassurance products;

- The Corporate Centre segment: monitors the management and development of

Information and Communication Technology and manages the Group’s real estate

assets.

On 1 April 2015, the agreement for the development of a long-term industrial partnership for

the management of non-performing loans was finalised; on the same date, the sale of 100%

of Finanziaria S. Giacomo S.p.A., company wholly owned by Creval, was completed. For this

reason, Finanziaria S. Giacomo was reclassified from the Specialised Companies segment to

the Market segment also for the comparison period.

132

The summary statements are provided below:


Market

Specialised Companies

30/06/2015 31/12/2014 % 30/06/2015 31/12/2014 %

STATEMENT OF FINANCIAL POSITION

Loans and receivables with customers 18,579,694 18,994,692 -2.2 7,066 6,210 13.8

Loans and receivables with banks 709,547 839,489 -15.5 - - -

Treasury securities and equity investments 5,513,847 6,763,246 -18.5 - - -

Non-current assets held for sale and disposal groups - 3,191 -100.0 - - -

Due to banks 1,759,167 4,837,374 -63.6 - - -

Direct funding 21,846,471 20,687,949 5.6 52,153 57,620 -9.5

- Due to customers 17,121,494 15,495,056 10.5 52,153 57,620 -9.5

- Securities issued 4,724,976 5,192,893 -9.0 - - -

Indirect funding 12,279,545 11,963,332 2.6 - - -

ORGANISATIONAL DATA

Personnel 3,610 3,775 -4.4 36 35 2.9


Corporate Centre

Other Activities

30/06/2015 31/12/2014 % 30/06/2015 31/12/2014 %

STATEMENT OF FINANCIAL POSITION

Loans and receivables with customers 4,052 3,961 2.3 - - -

Loans and receivables with banks - - - - - -

Treasury securities and equity investments - - - 148,722 286,801 -48.1

Non-current assets held for sale and disposal groups - - 176,947 - n.s.

Due to banks - - - - - -

Direct funding - - - - - -

- Due to customers - - - - - -

- Securities issued - - - - - -

Indirect funding - - - - -

ORGANISATIONAL DATA

Personnel 468 462 1.3 2 3 -33.3

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Market

Specialised Companies

1st half of 2015 1st half of 2014 % 1st half of 2015 1st half of 2014 %

INCOME STATEMENT DATA

Net interest income 238,080 252,116 -5.6 - 160 -100.0

Net fee and commission income 123,827 125,070 -1.0 17,453 7,418 135.3

Dividends and similar income - - - - - -

Profit of equity-accounted investments - - - - - -

Net trading and hedging income (expense) and profit (loss) on sales/repurchases 50,932 89,858 -43.3 - - -

Other operating net income 3,915 3,096 26.5 14 81 -82.7

Operating income 416,754 470,140 -11.4 17,467 7,659 128.1

Personnel expenses (133,384) (137,957) -3.3 (1,419) (1,938) -26.8

Other administrative expenses (63,027) (61,943) 1.7 (293) (638) -54.1

Depreciation.s.mortisation and net impairment losses on property, equipment and investment property and intangible assets

(12,527) (13,869) -9.7 (6) (7) -14.3

Operating costs (208,938) (213,769) -2.3 (1,718) (2,583) -33.5

Operating profit 207,816 256,371 -18.9 15,749 5,076 210.3

Net impairment losses on loans and receivables and other financial assets (157,912) (212,262) -25.6 - 11 -100.0

Net accruals to provisions for risks and charges (3,855) (3,544) 8.8 - - -

Goodwill impairment losses - - - - - -

Net gains (losses) on sales of investments 8 (158) 105.1 - - -

Pre-tax profit (loss) from continuing operations 46,057 40,407 14.0 15,749 5,087 209.6

Profit (loss) from discontinued operations 20,070 (462) n.s. - - -


Corporate Centre

Other Activities

1st half of 2015 1st half of 2014 % 1st half of 2015 1st half of 2014 %

INCOME STATEMENT DATA

Net interest income 91 (260) 135.0 (638) (4,039) -84.2

Net fee and commission income - - - - - -

Dividends and similar income - - - 1,989 1,321 50.6

Profit of equity-accounted investments - - - 10,091 7,656 31.8

Net trading and hedging income (expense) and profit (loss) on sales/repurchases - - - (212) 29 n.s.

Other operating net income 7,317 6,672 9.7 - - -

Operating income 7,408 6,412 15.5 11,230 4,967 126.1

Personnel expenses (9,893) (9,252) 6.9 (70) (122) -42.6

Other administrative expenses (24,470) (25,708) -4.8 (57) (148) -61.5

Depreciation.s.mortisation and net impairment losses on property, equipment and investment property and intangible assets

(4,996) (4,540) 10.0 - - -

Operating costs (39,359) (39,500) -0.4 (127) (270) -53.0

Operating profit (31,951) (33,088) -3.4 11,103 4,697 136.4

Net impairment losses on loans and receivables and other financial assets - - - (403) (441) -8.6

Net accruals to provisions for risks and charges - - - - - -

Goodwill impairment losses - - - - - -

Net gains on sales of investments (2) 1 -300.0 - - -

Pre-tax profit (loss) from continuing operations (31,953) (33,087) -3.4 10,700 4,256 151.4

Profit (loss) from discontinued operations - - - - - -

134

Market segment

The market segment is the core business of the Group, as it includes all the (lending,

investment and transfer) products and services offered to Group customers, traditionally

represented by households, trades, professionals and small and medium-sized enterprises.

In the first half of 2015, the market segment generated operating income of EUR 416.8

million. The segment accounts for 92% of the operating income of the Group. Operating

costs stood at EUR 208.9 million whereas pre-tax loss from continuing operations amounted

to EUR 46.1 million.

The direct funding of the market segment amounted to EUR 21,846 million. Indirect funding

reached EUR 12,279 million. Loans and receivables with customers slightly decreased (-

2.2%) reaching EUR 18,580 million. At the end of the half-year, the market segment had

539 branches. There were 3,610 human resources employed in the segment, equal to 87.7%

of the total employees of the Group.

Specialised Companies segment

The segment includes the distribution of bancassurance products.

During the first half of 2015, the segment generated operating income of EUR 17.5 million,

accounting for 3.9% of Group operating income, and recorded pre-tax profit from continuing

operations of EUR 15.8 million.

At the end of the half-year, the resources for this segment totalled 36, i.e. about 0.9% of the

Group's total workforce.

Corporate Centre segment

The segment only includes operations of the Group’s special purpose vehicles (Bankadati and

Stelline).

Operating costs of the Corporate Centre segment amounted to EUR 39.4 million. The loss of

the segment was EUR - 32 million.

The employees of the segment amounted to 468, equal to about 11.4% of the Group’s

workforce.

135

CERTIFICATION OF THE CONDENSED INTERIM CONSOLIDATED

REPORT PURSUANT TO ARTICLE 81-TER OF CONSOB REGULATION

NO. 11971/99

1. The undersigned, Miro Fiordi, as Managing Director, and Simona Orietti, as the Manager incharge of financial reporting of Credito Valtellinese S.c., also considering the provisions of article 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of 24 February 1998, hereby certify:

• the adequacy, in relation to the business characteristics and• the effective application of administrative and accounting procedures for preparing

the condensed interim consolidated report during the period 1 January - 31 June2015.

2. The assessment of the adequacy and the effective application of the administrative andaccounting procedures for preparing the condensed interim consolidated report during theperiod between 1 January – 30 June 2015, is based on a model conceived by CreditoValtellinese S.c., in line with the “Internal Control - Integrated Framework (CoSO)” andwith the “Control Objective for IT and Related Technologies (Cobit)”, which representreference standards for the internal control system and for financial reporting inparticular, generally accepted at international level.

3. We also certify that:3.1 the condensed interim consolidated report:

a) was prepared in compliance with applicable IFRS endorsed in the EuropeanCommunity pursuant to (EC) Regulation no. 1606/2002 of the European Parliamentand Council, dated 19 July 2002;

b) is consistent with accounting books and records;c) provides a true and fair view of the financial position and performance of the issuer

and the group of companies included in the scope of consolidation.

3.2 the interim report on operations includes a reliable analysis of the references to the important events that occurred in the first six months of the year and to the effect they had on the condensed interim consolidated report, together with a description of the main risks and uncertainties for the remaining six months of the year. The interim report on operations also includes a reliable analysis of the information on significant transactions with related parties.

Sondrio, 6 August 2015

Manager in charge of financial The Managing Director reporting

Miro Fiordi Simona Orietti

(signed on the original) (signed on the original)

KPMG S.p.A. Revisione e organizzazione contabile Via Vittor Pisani, 25 20124 M ILANO Ml

Telefono +39 02 6763.1 Telefax +39 02 67632445 e-mail [email protected] PEC [email protected]

(Translation from the Italian originai which remains the definitive version)

Report on review of condensed interim consolidated financial statements

To the shareholders of Credito Valtellinese S.C.

Introduction

We have reviewed the accompanying condensed interim consolidated financial statements of Credito Valtellinese Group comprising the statement offinancial position, income statement and statement of comprehensive income, statement of changes in equity, statement of cash flows and notes thereto, as at and for the six months ended 30 June 2015. The parent's directors are responsible for the preparati on of these condensed interim consolidated financial statements in accordance with the International Financial Reporting Standard applicable to interim financial reporting (IAS 34), endorsed by the European Union. Our responsibility is to express a conclusion on these condensed interim consolidated financial statements based on our review.

Scope of Review

We conducted our review in accordance with Consob (the Italian Commission for Listed Companies and the Stock Exchange) guidelines set out in Consob resolution no. I 0867 dated 31 July 1997. A review of condensed interim consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (ISA Italia) and, consequently, does not enable us to obtain assurance that we would become aware of ali significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the condensed interim consolidated financial statements.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed interim consolidated financial statements of Credito Valtellinese Group as at and for the six months ended 3 O J une 2015 ha ve not been prepared, in ali materiai respects, in accordance with the lnternational Financial Reporting Standard applicable to interim financial reporting (IAS 34), endorsed by the European Union.

Milan, 11 August 2015

KPMG S.p.A.

(signed on the originai)

Roberto Fabbri Director of Audit

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