INTERIM REPORT ON OPERATIONS AS AT 30 SEPTEMBER 2013

Transcription

1 INTERIM REPORT ON OPERATIONS AS AT 30 SEPTEMBER 2013 Credito Valtellinese Società Cooperativa Registered Offices in Piazza Quadrivio 8 Sondrio, Italy Tax code and Sondrio Company Registration No Register of Banks No. 489 Parent of the Credito Valtellinese Banking Group Register of Banking Groups No Website: creval@creval.it Share Capital EUR 1,527,656, Member of the Interbank Guarantee Fund This is an English translation of the Italian language original Resoconto intermedio di gestione al 30 settembre 2013 that has been prepared solely for the convenience of the reader. The Italian language original Resoconto intermedio di Gestione al 30 settembre 2013 is available on 1

2 Company Officers of Credito Valtellinese Board of Directors Chairman Giovanni De Censi Deputy Chairman Aldo Fumagalli Romario Managing Director Miro Fiordi Directors Mario Anolli Mariarosa Borroni Isabella Bruno Tolomei Frigerio Gabriele Cogliati Michele Colombo Paolo De Santis Gionni Gritti Antonio Leonardi Livia Martinelli Alberto Ribolla Francesco Naccarato Paolo Scarallo Board of Statutory Auditors Chairman Standing Auditors Substitute Auditors Angelo Garavaglia Giuliana Pedranzini Luca Valdameri Edoardo Della Cagnoletta Anna Valli General Management General Manager Co-General Manager Deputy General Managers Miro Fiordi Luciano Camagni Umberto Colli Enzo Rocca Franco Sala Mauro Selvetti Manager in charge of financial reporting Simona Orietti Audit Company KPMG S.p.A. 2

3 Contents CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS AS AT 30 SEPTEMBER ORGANISATIONAL MODEL OF THE CREDITO VALTELLINESE GROUP... 6 THE GENERAL ECONOMIC FRAMEWORK... 8 SIGNIFICANT EVENTS OF BANK MANAGEMENT IN THE THIRD QUARTER THE OPERATIONAL STRUCTURE, THE CUSTOMERS, THE PERSONNEL.. 13 RECLASSIFIED CONSOLIDATED FINANCIAL STATEMENTS COMMENTS ON THE FINANCIAL STATEMENTS...18 INFORMATION ON RISKS AND RELATED HEDGING POLICIES CURRENT-YEAR OUTLOOK NOTES TO THE FINANCIAL STATEMENTS

4 CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS AS AT 30 SEPTEMBER 2013 STATEMENT OF FINANCIAL POSITION 30/09/ /12/2012 % change 30/09/2012 % change (in thousands of EUR) Loans and receivables with customers 20,580,787 22,007, ,430, Financial assets and liabilities 5,623,285 3,653, ,872, Equity Investments 176, , , Total assets 29,944,972 29,896, ,538, Direct funding from customers 22,639,044 22,102, ,722, Indirect funding from customers 10,927,048 11,200, ,578, of which: - Managed funds 5,023,259 4,937, ,872, Total funding 33,566,092 33,303, ,301, Equity 1,852,394 1,981, ,260, SOLVENCY RATIOS 30/09/ /12/2012 Tier 1 Capital/Risk-weighted assets 8.21% 8.13% Regulatory Capital/Risk-weighted assets 11.10% 11.49% FINANCIAL STATEMENT RATIOS 30/09/ /12/2012 Indirect funding from customers / Total funding 32.6% 33.6% Managed funds / Indirect funding from customers 46.0% 44.1% Direct funding from customers / Total liabilities 75.6% 73.9% Customer loans / Direct funding from customers 90.9% 99.6% Customer loans / Total assets 68.7% 73.6% CREDIT RISK 30/09/ /12/2012 % change Net non-performing loans (in thousands of EUR) 790, , Other net doubtful loans (in thousands of EUR) 1,981,165 1,484, Net non-performing loans / Loans and receivables with customers 3.8% 2.8% Other net doubtful loans / Loans and receivables with customers 9.6% 6.7% Hedging of non-performing loans 57.9% 59.7% Hedging of other doubtful loans 11.0% 13.4% (*) Cost of credit 1.19% 1.61% (*) Calculated as the ratio between net impairment losses on loans and year-end loans. 4

5 FIGURES PER EMPLOYEE 30/09/ /12/2012 % change (thousands of EUR, number of employees at period end) Operating income / Number of employees Total assets / Number of employees 6,911 6, Personnel expenses (*) / Number of employees (*) Costs non chargeable to employees removed. ORGANISATIONAL DATA 30/09/ /12/2012 % change Number of employees 4,333 4, Number of branches Banc@perta line users 218, , INCOME STATEMENT DATA (in thousands of EUR) Q /01/ /09/2013 Q /01/ /09/2012 % change (1) % change (2) Net interest income 123, , , , Operating income 204, , , , Operating costs (129,915) (389,483) (136,354) (407,426) Operating profit 74, ,152 68, , Pre-tax profit from continuing operations 17,879 39,763 14,056 52, Post-tax profit from continuing operations 7,549 11,474 1,225 32,472 n/a Profit for the period attributable to the owners of the parent 7,221 10,053 2,680 31, (1) Calculated as compared to Q3 of the previous year. (2) Calculated as compared to 01/01-30/09 of the previous year. The corresponding prior year figures were restated in compliance with the application of the new IAS 19. OTHER FINANCIAL INFORMATION 01/01/ /09/2013 Cost/Income ratio 64.4% 65.8%

6 ORGANISATIONAL MODEL OF THE CREDITO VALTELLINESE 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. The current Group structure is graphically represented below. Structure of the Credito Valtellinese Group MARKET SPECIALISED FINANCE CORPORATE CENTER Credito Valtellinese Mediocreval Bankadati Credito Siciliano Carifano Finanziaria San Giacomo Creset Servizi Territoriali Stelline Global Assicurazioni (*) Global Broker (*) (*) Insurance companies subject to management and coordination by Credito Valtellinese pursuant to Articles 2497 et sequitur of the Italian Civil Code 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 fully to benefit from the advantage of proximity with regard to the areas of choice, combining effectively specialisation and flexibility, production and distribution functions. As at 30 September 2013, the Credito Valtellinese Group is present in Italy with a network of 542 Branches, in eleven regions, through the territorial banks characterising the Market Segment : 6

7 - Credito Valtellinese S.c., the Parent, present with its own network of 366 branches, most of which 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 and Torino with two branches dedicated to loans against pledges. The following companies characterise the Specialised Finance Sector : - Mediocreval S.p.A., a company specialised in disbursing medium to long-term loans, business finance and leases. - Finanziaria San Giacomo S.p.A., company specialised in the management of non-performing loans mainly of the financial intermediaries of the Group. - Creset Servizi Territoriali S.p.A., company specialised in the management of local tax services, treasury and cash services on behalf of public local authorities present in the territories of the Group banks. - Global Assicurazioni S.p.A. 1, is a multifirm insurance agency in the bancassurance sector and, more in general, in the sales network distribution of standard insurance policies. - Global Broker S.p.A. 2 company specialised in the insurance sector targeting the SME segment. The companies providing services complementary to banking business characterising the Production 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 Company 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, in that it carries out insurance activities. 2 See previous note. 7

8 THE GENERAL ECONOMIC FRAMEWORK The general economic framework 3 The expansion of global economic activity continued but was affected by a loss of momentum in emerging economies. Growth forecasts were revised downwards by international bodies, albeit the slowdown in the Chinese economy seems to have stopped over the last few months. In the Eurozone, there were signs of recovery. The product started to grow in the second quarter of this year after six consecutive drops. According to the most recent economic indicators, recovery is expected to continue at a moderate pace in the second half of However, the signs are still uncertain. In the summer months, the conditions on the international financial markets and the Eurozone remained all-in-all relaxed, albeit in a context of high volatility. However, the uncertainty on whether the monetary stimulus would continue in the United States triggered a rise in long-term interest rates worldwide, interrupted in September, also as a result of the decisions of the Federal Reserve. The ECB maintains expansionary monetary conditions. The ECB s Executive Council reaffirmed its intention to keep the official rates at levels equal to or lower than the current levels for a prolonged period of time, in a context of low inflation, weakness of the economy and a low monetary and credit growth. The Council is ready to use all the instruments, including new refinancing operations, to keep short-term rates at levels consistent with inflation prospects in the medium term. In Italy, the conditions in the market for Italian government securities improved compared to summer, reflecting also the strengthening of growth prospects in the Eurozone; however, they remain exposed to changes in the internal framework. In September, due to the increase in political uncertainty, the yield differential with German securities temporarily increased; it started to drop in October until it reached around 230 basis points in the middle of the month. In the last few months, also because of the improvement of the European economic cycle, some positive quality signals emerged in the Italian economy. The opinion of the companies on the conditions for investing improved, by showing values close to those before the crisis of the summer of 2011, both in industry and in services. The drop in industrial production continued in July and, to a lesser extent, in August; the pace of GDP decline should be almost cancelled over the summer quarter. A turnaround in the economic activity is expected by the end of the year, to which the recovery of investments would provide a significant contribution. The economic activity is currently benefiting from the good performance of exports. A support to domestic demand, on which the consolidation of the recovery largely depends, could be provided by the gradual strengthening in the confidence of households and companies. However, company surveys lead the company to be cautious on the fact that a cyclical reversal is imminent, indicating that prospects remain fragile. 3 Extracted from the Bank of Italy Economic Bulletin no. 72 April published on 17 April

9 The payment of trade payables of public administrations supported the liquidity of the companies. A good part of the companies that had previous trade receivables with regard to public administrations and received significant payments declared the intention to allocate the amounts to reduce liabilities with suppliers and employees, reduce bank borrowing and finance new investments. Therefore, it seems that the payment of trade payables is associated with an improvement in the prospects of the companies that received them. In the first seven months of this year, despite the appreciation of the exchange rates, the improvement of the current account balance - which recorded a surplus of 3.9 billion - became consolidated. In addition to the ongoing drop in imports, in the second quarter this occurred also thanks to the growth in exports towards the markets within the European Union in which Italy has benefited from the recovery in demand, maintaining market shares. The decline in employment, intense in the first quarter of this year, decreased in the second. The unemployment rate reached 12.0 per cent in the second quarter, increasing less than the previous rates. In September, inflation fell to 0.9 percent over twelve months, a very low level compared to the past; pressures as regards to costs remain week. The increase in VAT effective at the beginning of October is expected to exercise a temporary upward pressure of the consumer price index, in the event of total shift, less than half a percentage point. Financial markets From the beginning of July, the conditions of the Italian stock markets and private debt gradually improved, benefiting from the positive signals on growth prospects in the Eurozone and from the ECB's intention to maintain relaxed monetary conditions for an extended period of time, albeit with some tensions related to the uncertainty regarding the monetary policy trend in the United States and to the temporary worsening of the crisis in Syria. In the last days of September, the markets were affected by the development of internal uncertainty. After the clarification of the internal framework, the interest differential between the 10-year Italian Government bonds and the corresponding German bonds quickly dropped to approximately 230 basis points in mid- October. In the same month, the issue of Government bonds met with a very strong demand. From the end of June, the general Borsa Italiana index increased by 20 per cent compared to a 14 per cent increase in the Eurozone as a whole. The rise in prices is due to the reduction in risk premiums, which more than offset the negative effects deriving from current and expected profits of listed companies and from the increase in long-term rates on activities considered risk-free. The rise in share prices, which covered all the main areas, was particularly pronounced in the banking sector (46 per cent). The Italian banking system Bank deposits remain solid. Loans to businesses and households did not show any sign of recovery, reflecting the weakness of the economic situation that affects the demand as well as the lending conditions, despite some signs of attenuation of tensions. The unfavourable economic environment continued to affect negatively asset quality and limit the profitability of the intermediaries, whose financial position further improved. 9

10 The performance of the Italian Banking System and its capacity to deal with adverse macroeconomic scenarios was confirmed by the Financial Sector Assessment Program of the International Monetary Fund. The ECB is going to start the comprehensive assessment of the conditions of the banks that, with the coming into operation of the unique supervision mechanism, will be supervised on a centralised basis. Between the end of May and August, resident customer deposits with Italian banks increased by approximately EUR 4 billion. The growth rate over 12 months stood at 5.5 per cent. The negative balance between gross issues and redemptions of bonds, both at the branch and wholesale (net of the interbank component), decreased to -11 billion (from -30 in the three previous months). Bank loans to the private non-financial sector continued to drop at the same pace (-3.7 per cent during the three months ending in August year on year), reflecting the performance of loans to households and to businesses (-5.4 and -1.6 per cent, respectively). The drop over twelve months of loans to businesses affected banks of all sizes The Bank Lending Survey of the second quarter of 2013 shows that the trend of loans continued to suffer both from the weak demand as well as from the tensions of the availability related to the high credit risk. However, the most recent company surveys report a lower credit squeeze, which is still high compared to the past. In the second quarter of 2013, the flow of new doubtful loans in relation to total loans (net of seasonal effects and year on year) remained high at 2.9 per cent; it increased by two-tenths, to 4.7 per cent, for loans to businesses, whereas it decreased by two-tenths, to 1.3 per cent for loans to households. Preliminary information for July and August indicates that total exposure to debtors identified for the first time as doubtful was slightly higher than the corresponding period of Net of seasonal effects, the aggregate would be decreasing in comparison with the previous period of two months. 10

11 SIGNIFICANT EVENTS OF BANK MANAGEMENT IN THE THIRD QUARTER The most important events that characterised the management of the Creval Group during the third quarter of 2013 and that, if necessary, were the subject-matter of specific disclosures to markets are mentioned below. Update on the group restructuring project The sale of Aperta Fiduciaria S.r.l., a company wholly owned by Credito Valtellinese, to Istifid Società Fiduciaria e di Revisione S.p.A. for an equivalent value of EUR 405,000, was completed with legal effect as from 1 July New Creval Group - Banca Popolare di Cividale Group agreements The sale of the investment held in Banca di Cividale S.p.A. originally consisting of 2,505,000 shares corresponding to 20% of its share capital as defined under the new agreements signed at the beginning of June by and between the Creval Group and the Banca Popolare di Cividale Group was completed on 26 September The first tranche of the transaction was completed on 17 June 2013 with the sale of 1,628,250 Banca di Cividale shares for a consideration of EUR 47,919,397.50, and ended on 26 September 2013 with the sale of the remaining 876,750 Banca di Cividale shares for a consideration of EUR 25,802,752.50, for a total of EUR 73,722,150, basically in line with the carrying amount in the consolidated financial statements as at 31 December 2012 On the same date, Credito Valtellinese purchased 169,277 Banca Popolare di Cividale shares, corresponding to an investment accounting for 1% of the related share capital, for a consideration of EUR 4,147, Moreover, the agreements require the subscription by Creval of a convertible bond loan issued by Banca Popolare di Cividale of EUR 15 million. In this way, Creval and Banca Popolare di Cividale confirm, also for the future, the willingness to maintain the close partnership relation, which led to mutual satisfaction in the pursuit of the identified common objectives, while respecting their autonomy, with the signing of the original agreements in In particular, the agreements for the supply of the services by the Creval Group were extended to 2016, specifically as part of the ICT, by using the new application infrastructure (Active Bank Creval, ABC) developed by the Creval Group in collaboration with Microsoft. Securitisation of residential mortgage loans At the beginning of August, the Group, through the Quadrivio RMBS 2013, completed a multioriginator securitisation on a portfolio of residential mortgage loans to households, trade and personal businesses for a total of approximately EUR 1 billion. The aim of the transaction, divided 11

12 in two senior tranches (class A1 and A2) of EUR 550 and 200 million, respectively (listed on the Luxembourg stock exchange, with an AA+/AAA rating by Fitch Ratings and DBRS) and a junior tranche (class B) of an amount of EUR million, is the prudential extension of eligible assets for refinancing through the European Central Bank. Both security classes are fully subscribed by the individual Originator banks participating in the securitisation, i.e. Credito Valtellinese, Credito Siciliano and Carifano. 12

13 THE OPERATIONAL STRUCTURE, THE CUSTOMERS, THE PERSONNEL The territorial network As at 30 September 2013, the branches forming the territorial network of the Credito Valtellinese Group are 542 as represented below. 231 BRANCHES (CREVAL) 1 BRANCH (CREVAL) 29 BRANCHES CREVAL 28 CR. SICILIANO 1 14 BRANCHES (CREVAL) 11 BRANCHES (CREVAL) 22 BRANCHES (CREVAL) 8 BRANCHES (CREVAL) 37 BRANCHES (CARIFANO) CREDITO VALTELLINESE 366 CREDITO SICILIANO 136 CARIFANO 40 CREVAL GROUP BRANCHES CREVAL 51 CR. SICILIANO 1 3 BRANCHES (CARIFANO) 134 BRANCHES (CR. SICILIANO) Other distribution channels The following other distribution channels complete the operational structure: DISTRIBUTION CHANNELS 30/09/2013 Number of ATMs 653 Number of POS 22,525 13

14 As at the end of September 2013, active Internet users in the Creval Group - customers who have performed at least one transaction in the last six months - total 218,865 compared to 204,458 users at the end of the previous year, with an increase of more than 7%. The customer base As at 30 September 2013, the Group s customers numbered 936,892, up year-on-year (+1.6%), confirming the Group's capacity to attract new customers and maintain its customer base in its territories of origin, with a retention rate of 96%. 922, , , , ,892 30/09/ /12/ /03/ /06/ /09/2013 The personnel At the end of September, the workforce of the companies included in the consolidation scope of the Group consisted of 4,333 workers. 15 more workers are employed by companies or entities outside the Group, among them Fondazione Gruppo Credito Valtellinese, Global Assistance, Fondo Pensione per i Dipendenti del Gruppo Credito Valtellinese, AMH and Istifid. The figure for the end of 2012 was 4,362. In terms of professional categories, the Group s total workforce of 4,333 can be broken down as follows: - 57 executives; - 1,537 middle managers; - 2,739 workers in other professional categories. 14

15 Workforce as at 30 September % 63% Executives 36% Middle managers Professional categories 15

16 RECLASSIFIED CONSOLIDATED FINANCIAL STATEMENTS The analysis of the financial and economic position of the year, represented below, uses summary and reclassified statements. The aggregates and reclassifications regarding items of the Statement of Financial Position and of the Income Statement prescribed by Bank of Italy Circular no. 262/05 are detailed in the Notes to the Financial Statements. ASSETS 30/09/ /06/ /12/2012 (in thousands of EUR) % change % change (*) (**) Cash and cash equivalents 188, , , Financial assets held for trading 90,740 94, , Available-for-sale financial assets 5,528,728 5,838,790 3,489, Held-to-maturity investments 193, , , Loans and receivables with banks 1,264, ,479 1,630, Loans and receivables with customers 20,580,787 20,802,952 22,007, Equity Investments 176, , , Property, equipment and investment property and intangible assets (1) 806, , , Non-current assets held for sale and disposal groups - 23,430 - n/a. - Other assets (2) 1,115,713 1,031,310 1,058, Total assets 29,944,972 30,070,852 29,896, (*) Calculated compared to 30/06. (**) Calculated compared to 31/12. (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". LIABILITIES AND EQUITY 30/09/ /06/ /12/2012 (in thousands of EUR) % change % change (*) (**) Due to banks 4,094,050 5,966,774 4,545, Direct funding from customers (1) 22,639,044 21,175,548 22,102, Financial liabilities held for trading 6,458 7,271 15, Hedging derivatives 182, , , Liabilities associated with disposal groups - 1,339 - n/a - Other liabilities 941, , , Provisions for specific purpose (2) 223, , , Equity attributable to non-controlling interests 4,814 4,864 5, Equity (3) 1,852,394 1,820,360 1,981, Total liabilities and equity 29,944,972 30,070,852 29,896, (*) Calculated compared to 30/06. (**) Calculated compared to 31/12. (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", "160. Equity instruments", "170. Reserves", "180. Share premium reserve", "190. Share Capital", "200. Treasury shares" and "220. Profit (loss) for the period". 16

17 Items Q /01/ /09/2013 Q (in thousands of EUR) 01/01/ /09/2012 % change % (*) % change % (**) Net interest income 123, , , , Net fee and commission income 63, ,146 65, , Dividends and similar income Profit (loss) of equity-accounted investments (1) 5,729 4,386 5,188 13, Net trading and hedging income (expense) and profit (loss) on sales/repurchases 7,443 46,223 8,462 24, Other operating net income (4) 4,990 16,412 5,038 11, Operating income 204, , , , Personnel expenses (76,122) (227,048) (81,233) (242,354) Other administrative expenses (2) (44,018) (133,746) (45,035) (135,429) Depreciation/amortisation and net impairment losses on property, equipment and investment property and intangible assets (3) (9,775) (28,689) (10,086) (29,643) Operating costs (129,915) (389,483) (136,354) (407,426) Operating profit 74, ,152 68, , Net impairment losses on loans and receivables and other financial assets (59,198) (183,019) (53,215) (138,138) Net accruals to provisions for risks and charges (1,070) (1,643) (1,410) (4,189) Net gains (losses) on sales of investments 3,181 9,273 (150) (156) n/a n/a Pre-tax profit from continuing operations 17,879 39,763 14,056 52, Income taxes (10,330) (28,289) (12,831) (19,596) Post-tax profit from continuing operations 7,549 11,474 1,225 32,472 n/a Profit from discontinued operations , Profit for the period attributable to non-controlling interests (328) (1,421) 560 (4,045) Profit for the period attributable to the owners of the parent 7,221 10,053 2,680 31, (*) Calculated as compared to Q3 of the previous year; (**) Calculated as compared to 01/01-30/09 of the previous year. (1) Profit (loss) of equity-accounted investments include the amount of 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 (losses) on sales of investments"; (2) Other administrative expenses include recoveries of taxes and other recoveries recognised in item 220 Other operating net income (EUR 40,985 thousand as at 30 September 2013 and EUR 39,421 thousand as at 30 September 2012); (3) Depreciation/amortisation 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 4,576 thousand as at 30 September 2013 and EUR 4,467 thousand as at 30 September 2012); (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 compliance with the application of the new IAS 19. Accordingly, actuarial gains/losses were reclassified from item 180 a) Personnel expenses of EUR 96 thousand, net of the relevant tax included in item 290. Income taxes of EUR 26 thousand, to item 140. Valuation reserves. 17

18 COMMENTS ON THE FINANCIAL STATEMENTS Statement of financial position aggregates As at 30 September 2013, loans and receivables with customers stood at EUR 20.6 billion, down 6.5% compared to EUR 22 billion at the end of December This trend, consistent with sector performance, reflects continued weakness in demand, mainly by businesses, due to the decrease in investments. The credit quality reflects the persistent economic recession underway. At the end of the period, impaired loans, net of impairment losses, totalled EUR 2.8 billion, compared to EUR 2.1 billion at the end of the 2012 financial year. More specifically, non-performing loans, net of impairment losses, stood at EUR 791 million compared to EUR 615 million at the end of December 2012, up by 28.7%, representing 3.8% of the loans portfolio and a hedging degree close to 58%. Other doubtful loans totalled EUR 1,981 million, up by 33.4% compared to EUR 1,485 million at the end of the year, representing 9.6% of the total loans portfolio. Of these, EUR 1,046 million - compared to EUR 798 million at the end of December are watchlist loans, EUR 183 million - compared to EUR 180 million at the end of December consist of restructured loans, whilst EUR 752 million are represented by past due loans, compared to EUR 506 million at the end of The following table shows detailed information on credit quality as at 30 September (figures in thousands of EUR) Impaired loans Gross exposure Impairment losses Net exposure % hedging Non-performing loans 1,878,396-1,087, , Substandard loans 1,240, ,654 1,046, Restructured exposures 205,844-22, , Past due exposures 780,702-29, , Total impaired loans 4,105,039-1,333,091 2,771, Performing loans 17,914, ,614 17,808, Total loans and receivables with customers 22,019,492-1,438,705 20,580, Direct funding, amounting to EUR 22.6 billion, increased by 2.4% compared to EUR 22.1 billion in December Indirect funding, whose trend continues to be affected by market volatility, amounted to EUR 10.9 billion at the end of the period, down 2.4% compared to the end of December The component referred to Managed funds, i.e. EUR 5 billion, increased by 1.7%, while the administered component of EUR 5.9 billion, decreased compared to EUR 6.3 billion as at 31 December Financial assets amounted to EUR 5.8 billion and are primarily represented by Italian government securities (mainly classified in the AFS portfolio), of EUR 5.3 billion, with a modified duration of less than 1.7 years. 18

19 The excellent liquidity position was confirmed. The net balance of overall liquidity at three months is currently equal to approximately EUR 3.5 billion. Similarly, the loans and receivables with customers/direct funding ratio stood at 90.9% as at 30 September Equity and capital ratios As at 30 September 2013, equity attributable to the owners of the parent amounted to EUR 1,852 million. The Regulatory Capital amounted to EUR 2,013 million in connection with riskweighted assets of EUR 18,133 million. The core capital ratio was 8.2%, compared to 8.1% in December The total capital ratio was equal to 11.1% compared to 11.5% at the end of Income statement As at 30 September 2013, the net interest income was EUR 343 million, down year-on-year (- 4.3%), albeit considerably up compared to the last quarter (+11.1%). This result the best of the last six quarters mainly reflected the effects of a persistent renegotiation and re-composition of more expensive funding resources or of marginal conditions, albeit in a market characterised by short-term interest rates that remain at low levels and by the reduction in loans and receivables with customers. Net fee and commission income totalled EUR 194 million and were substantially stable compared to the previous year. Profit from trading, sales/repurchases of AFS and hedging transactions amounted to EUR 46 million and showed a notable increase compared to EUR 24 million of the first nine months of In total, operating income amounted to EUR 605 million, compared to EUR 602 million of the same corresponding period. Operating costs, totalling EUR 390 million, decreased by 4.4% year on year, as a result of strict actions undertaken aimed at structural cost containment. More marked, at more than 6%, was the reduction in personnel expenses, favoured also by the decrease in staff as part of the agreement signed with the Trade Unions last year. In detail, personnel expenses stood at EUR 227 million, compared to EUR 242 million in the same period of 2012, whereas other administrative expenses of EUR 134 million decreased by 1.2%. The operating profit reached EUR 215 million, up by 10.6% compared to EUR million of the corresponding prior period. Net impairment losses on loans and receivables and other financial assets reached EUR 183 million, compared to EUR 138 million of the first nine months of 2012, with a cost of credit, expressed as a percentage of total loans and receivables with customers, of 119 basis points. Taking also account of net gains on sales of investments of EUR 9 million mainly referring to the sale of the equity in Banca di Cividale S.p.A., completed in September 2013 pre-tax profit from continuing operations amounted to EUR 40 million compared to EUR 52 million of the previous year. 19

20 Income taxes for the period, estimated at EUR 28 million, reflect the effect of IRAP taxes that, with the considerable decline in revenue, have a more than proportional impact on profit, as a result on the basis of the pro tempore legislation in force - of the non-deductibility of impairment losses on loans and receivables and personnel expenses. Considering the profit attributable to non-controlling interests of EUR 1.4 million, the profit for the period was EUR 10 million. INFORMATION ON RISKS AND RELATED HEDGING POLICIES During the quarter, the Group's risk profile was substantially consistent with the strategic guidelines defined by the control bodies and with the relevant risk-taking and risk management policies. Credit risk stands on historically high levels and still remains on an upward trend. As at 30 September 2013, the regulatory capital of the Group of EUR 2,013 million meets the requirements established by the prudential supervisory provisions. Credit risk The persisting economic downturn reduced the demand for loans by businesses, whose higher level of risk contributed to reduce and make more selective the financing offer by the Banks. This results in the drop in loans with customers and the deterioration of credit quality. The degree of concentration of loans, both by counterparty and by geographical area and economic sector, did not report significant changes; exposures classified as high risk are equally limited. Stress tests carried out do not show significant changes in the risk profile. At the end of the quarter, the capital requirement for credit risk hedging amounted to EUR 1,334 million compared to a regulatory capital of EUR 2,013 million; the impact on the regulatory capital amounted to approximately 66.3%. Market risk As at 30 September 2013, the portfolio has a limited risk profile in terms of both market risk factors (interest rate, price and currency risk). The portfolio consists almost completely of bonds (mainly Italian Government bonds and securities issued by banks) in Euro and with a low duration. During the quarter, the Value at Risk (VaR) of the portfolio, estimated over a 10-day period and a 99% confidence interval, varied from EUR 576,000 to EUR 1,099,000, ranging from 0.64% to 1.18% in relation to the value of the portfolio. At the date of this Report, the capital requirement in connection with market risks, which includes the derivative trading instruments, amounted to EUR 3.3 million; the impact on the regulatory capital amounted to approximately 0.2%. 20

21 Interest rate risk on the banking book Considering the persistence of volumes and the stickiness of the rates of on sight items (behavioural profile), the exposure of the Group to instantaneous shocks to the rate curve is quite moderate. Under ordinary conditions, the internal capital in connection with interest rate risk is EUR 57.6 million, 2.9% of the regulatory capital. In a stress scenario, the exposure would stand at EUR million, 8.1% of the regulatory capital. Liquidity risk As at 30 September 2013, the Group liquidity situation does not show critical issues either from the structural perspective or with regard to the short-term position. In the quarter, the Banks of the Group regularly fulfilled all their obligations upon expiry and the funding operations falling due were renewed without particular problems or tensions. There are assets readily convertible into cash, mainly allocated in the portfolios of Credito Valtellinese, deemed appropriate to the current and perspective requirements of the Group as a whole. In particularly serious adverse scenarios, constructed by combining both idiosyncratic and systemic stress tests, these reserves would ensure full coverage of the supposed outflows for a period longer than 60 days (the minimum regulatory survival period is 30 days). During the quarter, the overall liquidity net balance was largely above the minimum limit. Operational risk During the quarter, there were no significant changes in operational risk, which remains limited. As from the supervisory reports of 31 December 2012, the Group adopted the Traditional Standardised Approach (TSA) for calculating the capital requirement to meet operational risks at the individual level for the Parent Credito Valtellinese and for the subsidiaries Credito Siciliano, Carifano and Mediocreval, in combined use with the BIA method, at the consolidated level. On the date of preparation of this report, the capital requirement in connection with operational risks amounts approximately to EUR 113 million. The impact on the regulatory capital amounted to 5.6%. CURRENT-YEAR OUTLOOK Although there are some signs of reversal of the cycle also in Italy, the economic environment is characterised by a persistent weakness. The uncertain likelihood of recovery and the fragility that still characterise the financial markets lead to prudent assessments on the profitability trend, which will remain affected by unfavourable operating conditions and, in particular, by the worsening of credit risk due to the prolonged recession. 21

22 NOTES TO THE FINANCIAL STATEMENTS FORM AND CONTENT OF THE INTERIM REPORT ON OPERATIONS The Interim Report on Operations as at 30 September 2013 provides an overview of the situation of Credito Valtellinese and of the companies that it directly or indirectly controls, or in which it directly holds the majority of the share capital or has a number of votes that is high enough to ensure a considerable influence on the Ordinary Shareholders Meeting. Special purpose vehicles are included as required in compliance with SIC 12. This financial report was drafted pursuant to Article ter, paragraph 5 of Italian Legislative Decree no. 58 of 24 February 1998 (the Consolidated Finance Act), and does not comply with IAS 34 Interim Financial Reporting. CONSOLIDATION PRINCIPLES The consolidation principles used are the international accounting standards (IAS/IFRS) formally approved by the European Union and mandatory at the time of preparing the interim report, including their relative interpretations. These principles are explained in the consolidated financial statements as at 31 December 2012, to which reference should be made for further details. The consolidated interim report was prepared on the basis of accounting schedules prepared for this purpose by companies included in the consolidation scope as at 30 September The consolidation scope has changed compared to 31 December 2012 mainly as a result of the sale, effective as from 1 July 2013, of Aperta Fiduciaria S.r.l., company wholly owned by Credito Valtellinese, to Istifid Società Fiduciaria e di Revisione S.p.A. ACCOUNTING POLICIES The accounting policies used to represent corporate accounting events (recognition, classification and assessment) have not been changed with respect to those adopted in the financial statements as at 31 December 2012, drafted according to IAS/IFRS international accounting standards (to which reference should be made for further details), except for those amended by IASB and approved through the issue of new EU Regulations. In comparison with the standards included in the financial statements, it is pointed out that as from 1 January 2013 IFRS 13 Fair Value Measurement came into force, a standard that defines the fair value, a reference framework for its measurement and requires additional disclosures on the measurements. 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 report when all necessary information is available. With regard to the accounting position for the third quarter of 2012 (the corresponding prior year), the financial statements were restated to reflect the application of the amendments to IAS 19 - adopted in advance in the 2012 annual report - as required by IAS 8. Accordingly, actuarial gains/losses were reclassified from item 180 a) Personnel expenses of EUR 96 thousand, net of 22

23 the relevant tax included in item 290. Income taxes of EUR 26 thousand, to item 140. Valuation reserves. The reclassification did not impact the carrying amount of equity, in that the actuarial gains/losses were recorded in an equity reserve instead of being recorded as an offsetting item to profit. Suspended items and portfolio items non-liquid due to the settlement currency were not recognised in the related statement of financial position items, as their effect was considered insignificant. The consolidated interim report on operations as at 30 September 2013 was not subject to audit by the independent auditor. 23

24 DECLARATION OF THE MANAGER IN CHARGE OF FINANCIAL REPORTING The undersigned manager in charge of financial reporting, Simona Orietti, pursuant to Article 154 bis of the Consolidated Law on Finance hereby declares that the accounting information provided in this interim report on operations as at 30 September 2013 matches the information reported on the company s documents, books and accounting records. The Manager in charge of financial reporting. Simona Orietti 24