Credito Valtellinese Società Cooperativa Registered Offices in Piazza Quadrivio 8, Sondrio, Italy Tax Code and Sondrio Companies Register No.

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1 Credito Valtellinese Società Cooperativa Registered Offices in Piazza Quadrivio 8, Sondrio, Italy Tax Code and Sondrio Companies Register No Registered Bank No 489 Parent Bank of the Credito Valtellinese Group Registered Banking Group No Internet site: Data as at : Share capital 235,405,446 fully paid up Reserves 526,854,836 Member of the Fondo Interbancario di Tutela dei Depositi (Interbank Deposit Protection Fund) Quarterly Report as at 31 st March 2006

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3 Contents GROUP STRUCTURE... 4 THE SCOPE OF CONSOLIDATION...4 CONSOLIDATED FINANCIAL AND ECONOMIC HIGHLIGHTS AS AT 31ST MARCH CONSOLIDATED ACCOUNTING SCHEDULES AS AT 31ST MARCH COMMENTS ON THE FINANCIAL STATEMENTS THE MAIN CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT AGGREGATES...11 Total deposits...11 Loans...11 The Interbank Market...12 Financial Assets and Liabilities...12 Net shareholders equity...12 Economic Performance for the Period...12 COMMENTS BY THE MEMBERS OF THE BOARD OF DIRECTORS PERFORMANCE OF THE CREDITO VALTELLINESE STOCK...13 SIGNIFICANT EVENTS DURING THE QUARTER...14 International economic situation...14 The evolution of the Group's operating structure...16 The Commercial Activities...17 The Internal Control System...19 The reorganization project for the group s lending area...19 Euro Medium Term Notes...19 Banca della Ciociaria...20 The Rileno project...20 Promoting the Local Area...20 SIGNIFICANT EVENTS AFTER THE END OF THE FIRST QUARTER The development of the branch network...22 Conversion of the second instalment of the Credito Valtellinese 2.8% Convertible Bond...22 Disposal of non-performing loans from Mediocreval S.p.A. to Finanziaria San Giacomo S.p.A Disposal of the Private Banking division from Creval Banking S.p.A. to Bancaperta S.p.A OUTLOOK FOR THE WHOLE PERIOD EXPLANATORY NOTES FORM AND CONTENTS OF THE CONSOLIDATED QUARTERLY REPORT...24 CONSOLIDATION PRINCIPLES...24 ACCOUNTING PRINCIPLES

4 GROUP STRUCTURE Composition of the Credito Valtellinese Banking Group as at 31st March 2006 CREDITO VALTELLINESE Parent Company 65.70% 39.24% 39.67% CREDITO ARTIGIANO 20.81% BANCA DELL ARTIGIANATO E DELL INDUSTRIA CREDITO SICILIANO 35.79% 89.40% 100% CREVAL BANKING RILENO APERTA SGR APERTA FIDUCIARIA 100% 24.45% 63.44% BANCAPERTA 100% 12.11% 100% FINANZIARIA SAN GIACOMO (*) 31.24% MEDIOCREVAL 37.44% 31.29% 10% 10% BANKADATI DELTAS STELLINE CRYPTO 80% 50% 80% 70% 20% 50% 20% 10% TERRITORIAL BANKS SPECIALISED BANKS AND COMPANIES PRODUCTION COMPANIES (*) Its insertion in the banking group is currently being completed. THE SCOPE OF CONSOLIDATION According to consolidated network configuration, as at 31 st March 2006 the Credito Valtellinese banking group consisted of four territorial banks, seven companies active in the specialized financial area (three of which are configured as banks) and four production companies. The traditional finance brokerage activity is carried out within the respective territorial areas of competence which cover five regions by the parent company Credito Valtellinese Soc. Coop., Credito Artigiano S.p.A., Credito Siciliano S.p.A. and the Banca dell Artigianato e dell Industria S.p.A.. 4

5 The specialized finance sector of the Group is handled by: - Bancaperta S.p.A., a bank with activities focused on the financial sector, payment systems and bank assurance; - Mediocreval S.p.A. [formerly Cassa San Giacomo S.p.A.), a bank dedicated to the monitoring of the group s loans, managing disputes, providing legal services, administering leasing contracts and medium/long term loans. - Finanziaria San Giacomo S.p.A., a company specialized in funding activities as these apply to the purchase, management and the unblocking of non-performing loans. - Rileno S.p.A., a company which is specialized in the collection of taxes on behalf of public entities; - Aperta Fiduciaria S.r.l., a company specialized in administration, fiduciary and custody services; - Aperta SGR S.p.A., specialized in asset management; - Creval Banking S.p.A. (formerly Julius Baer Creval Private Banking S.p.A.), specialized in private banking. Finally, the operating companies are: - Bankadati Servizi Informatici S.p.A., Information Technology management; - Stelline Servizi Immobiliari S.p.A., which is specialized in the supervision of matters relating to real estate; - Deltas S.p.A., which is involved in providing support to the parent company in strategic planning, management consulting and the direct management of the main phases of the group s productive processes; - Crypto S.p.A., which supervises the development of application software. We note the establishment, on 12 th January 2006, of Finanziaria San Giacomo S.p.A., with share capital of EUR 3 million, which is owned in its entirety by Mediocreval S.p.A.. The companies financial statements set forth in the preceding table have been consolidated with those of the parent company Credito Valtellinese on the basis of the line by line method, except for the equity investment in Finanziaria San Giacomo S.p.A., which was measured at cost as it was not yet operative on 31 st March JOINTLY CONTROLLED AND AFFILIATED COMPANIES These companies were valuated using the equity method: - Ripoval S.p.A., tax collection service concessionaire for the province of Sondrio, with head offices in Sondrio, of which Credito Valtellinese owns 50% of the share capital of EUR 2,583,000Global Assistance S.p.A., an insurance company with head offices in Milan and share capital amounting to EUR 2,583,000, 40% of which is held by the parent company Credito Valtellinese; - Global Assicurazioni S.p.A., a company operating in the insurance sector, with head offices in Milan, in which Bancaperta holds a 40% equity investment, corresponding to EUR 120,000 of share capital. - Istituto Centrale delle Banche Popolari S.p.A., with head offices in Milan and share capital of EUR 33,148,239, of which Credito Valtellinese owns 22.5% of voting rights exercisable at ordinary shareholders meetings; 5

6 - Aperta Gestioni SA, with head offices in Lugano (Switzerland), in which Bancaperta has a 48% stake, amounting to CHF 3,500, Banca di Cividale S.p.A., with head offices in Cividale del Friuli (Udine) and share capital amounting to EUR 54,000,000, of which Credito Valtellinese holds a 25% stake. 6

7 CONSOLIDATED FINANCIAL AND ECONOMIC HIGHLIGHTS AS AT 31 ST MARCH 2006 BALANCE SHEET FIGURES 31/03/ /12/2005 (in thousands of euros) % change Loans to customers 10,178,838 9,863, % Securities 1,277,972 1,100, % Equity investments 154, , % Total assets 13,486,122 12,981, % Direct deposits from customers 11,178,693 10,488, % Indirect deposits from customers 11,968,486 11,587, % Of which: - managed savings 6,021,281 5,910, % Total deposits 23,147,179 22,076, % Shareholders equity 771, , % PROFIT AND LOSS ACCOUNT FIGURES (in thousands of euros) 1st Quarter st Quarter 2005 % change Interest margin 81,007 72, % Net interest and other banking income 136, , % Net financial management result 126, , % Gross operating result 34,952 26, % Net profit for the period 16,068 13, % BALANCE SHEET RATIOS 31/03/ /12/2005 Indirect deposits from customers / Total deposits 51.7% 52.5% Managed savings / Indirect deposits from customers 50.3% 51.0% Direct deposits from customers / Total liabilities 82.9% 80.8% Customer loans / Direct deposits from customers 91.1% 94.0% Customer loans / Total assets 75.5% 76.0% CREDIT RISK 31/03/ /12/2005 % change Net non-performing loans (in thousands of euros) 168, , % Other net doubtful loans (in thousands of euros) 204, , % Net non-performing loans / Loans to customers 1.7% 1.7% Other net doubtful loans / Loans to customers 2.0% 1.8% Accumulated allowance for Non-performing loans/gross non performing loans to customers 74.6% 74.4% Accumulated allowance for other doubtful loans/other gross doubtful loans towards customers 6.4% 6.5% INFORMATION ON EMPLOYEES (thousands of Euro, no. employees at period end) 31/03/ /12/ % change Net interest and other banking income / Number of employees % Total assets / Number of employees 4,025 3, %

8 Payroll costs (*) / Number of employees % (*) Extracted from the cost attributed to Other staff OTHER INFORMATION 31/03/ /12/2005 % change Number of employees 3,351 3, % Number of branches % Banc@perta line users 228, , % 8

9 CONSOLIDATED ACCOUNTING SCHEDULES AS AT 31ST MARCH 2006 RECLASSIFIED CONSOLIDATED BALANCE SHEET euros) (amounts in thousands of ASSETS 31/03/2006 Comp.% 31/12/2005 % Comp. % change Cash at banks and on hand 101, % 123, % % Financial assets held for trading 1,241, % 1,080, % 14.88% Available for sale financial assets 38, % 30, % 26.53% Financial assets held until maturity % % 0.00% Loans to banks 666, % 681, % -2.09% Loans to customers 10,178, % 9,863, % 3.20% Derivative hedging contracts 3, % 3, % 3.68% Equity investments 154, % 151, % 2.56% Tangible and intangible fixed assets 578, % 574, % 0.83% Other assets 521, % 474, % 9.93% Total assets 13,486, % 12,981, % 3.89% LIABILITIES 31/03/2006 % Comp. 31/12/2005 % Comp. % change Due to banks 544, % 859, % % Direct deposits from customers 11,178, % 10,488, % 6.58% Trading financial liabilities 5, % 13, % % Other liability items 542, % 444, % 21.96% Provisions for specific purposes 240, % 220, % 9.23% Third party equity 202, % 197, % 2.39% Shareholders equity 771, % 756, % 2.02% Total liabilities and shareholders equity 13,486, % 12,981, % 3.89% 9

10 RECLASSIFIED CONSOLIDATED INCOME STATEMENT (amounts in thousands of euros) ITEMS 1 Quarter Quarter 2005 % change Interest income and similar revenues 131, , % Interest expense and similar charges -50,519-37, % Interest margin 81,007 72, % Net commission 49,206 44, % Dividends and other revenues % Net profit (loss) of trading activities and instruments measured at fair value 6,446 3, % Net profit (loss) from hedging activities % Profit (loss) from disposals or repurchase of other assets and financial liabilities % Net interest and other banking income 136, , % Value adjustments for impairment of other financial assets -9,707-9, % Net profit (loss) from financial management 126, , % Payroll -53,585-49, % Other administrative expenses -39,732-37, % Net provisions to risks and charges reserves -1,266-1, % Net value adjustments to tangible and intangible fixed assets -6,569-5, % Other operating income 9,238 9, % Operational costs -91,914-84, % Gross operating result 34,952 26, % Profit/Loss from equity investments 2,774 2, % Value adjustments to goodwill % Profit/Loss from disposal of equity investments % Income taxes for the current period -19,017-13, % Profit/Loss pertaining to third parties -2,652-2, % Profit/Loss pertaining to the parent company 16,068 13, % 10

11 COMMENTS ON THE FINANCIAL STATEMENTS In conformance to the provisions of Legislative Decree n. 38/2005 which assimilates Regulation (EC) N. 1606/2002, the quarterly report as at 31 st March 2006 has been prepared according to the IASs and IFRSs. In pursuance of art. 82 of the Regulation approved by Consob with its resolution n of 14 th March 1999 as it is currently applicable, the quarterly report has been prepared according to the schedule in Attachment 3D of said regulation. The profit and loss account figures as at 31 st March 2006 have been compared with the corresponding figures registered on 31 st December 2005 and the income statement aggregates relating to the first quarter 2006 have been compared with those recorded for the same period in THE MAIN CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT AGGREGATES Total deposits Direct customer deposits at the end of the first quarter 2006 totalled EUR 11,178.7 million, a figure that has grown by 6.6% as compared to the EUR 10,488.9 million at the end of Indirect customer deposits as at 31 st March 2006 reached EUR 11,968.5 million, a 3.3% increase as compared to the EUR 11,587.1 million of the previous period. Administered savings which consist of mutual investment funds, portfolio management and insurance savings totalled EUR 6,021.3 million, +1.9% as compared to the EUR 5,910.6 million recorded on 31 st December Managed savings which involves securities that the customers deposit with the bank reached EUR 5,947.2 million (+4.8% as compared to the figure recorded at the end of December 2005). Managed savings accounts for 50.3% of total savings, while held savings accounts for the remaining 49.7%. Total customer deposits, calculated as the sum of direct and indirect deposits, reached EUR 23,147.2 million, a growth of 4.9% as compared to the EUR 22, million at the end of December EUR million of this increase is due to the growth in direct deposits and EUR million to the growth in indirect deposits, to reach 51.7% of total deposits. Loans At the end of March 2006, the volume of loans granted to customers amounted to EUR 10,178.8 million, a growth of million (3.2%) compared to the EUR 9,863.2 million at the end of Net non-performing loans amounted to EUR million, a decrease of 0.5% over the figures at the end December This amount is 1.7% of total loans, a percentage which is 11

12 in line with that of 31 st December The level of coverage of non-performing loans is 74.6%. The Interbank Market The Group s net value on the interbank market as a lender is EUR million. Financial Assets and Liabilities 1 Financial assets and liabilities totalled EUR 1,278 million on 31 st March 2006, a 16.1% increase when compared to the end of December This item was 9.5% of total assets, as compared to 8.5% for the previous period. Financial assets held for trading were EUR 1,241.4 million, or 97.1% of the Groups financial assets. Net shareholders equity On 31 st March 2006, the consolidated shareholders equity of the Group increased by 2%, from EUR million on 31 st December 2005 to EUR million. Economic Performance for the Period Analysis of the income statement demonstrates that interest margin during the first quarter of 2006 amounted to EUR 81 million, a growth of 12.2% as compared to the EUR 72.2 million in March Interest income reached EUR million (+19.8%), while interest expenses were EUR 50.5 million (+34.5%). Net interest and other banking income for the first quarter of 2006 amounted to EUR million, a growth of 13.1% as compared to the EUR million for the first three months of Net income from financial management for the first quarter of 2006 was EUR million, which is an increase of EUR 15.6 million (+14%) over the corresponding period in Operating costs, consisting of payroll costs, other administrative expenses, provisions for risks and charges and value adjustments to tangible and intangible fixed assets, adjusted by other net income, amounted to EUR 91.9 million in the first quarter 2006 (EUR 84.9 million in the first quarter of 2005). The gross operating result for the quarter reached EUR 35 million, as compared to the EUR 26.3 million in the first quarter of 2005, an increase of 32.7%. The Group s profit after deducting income taxes and profit for the period pertaining to minority interests, amounted to EUR 16.1 million for the quarter, up 16.2% compared to the EUR 13.8 million of the first quarter (*) Includes the items: Financial assets held for trading, Available for sale financial assets, financial assets held until maturity, derivative hedging contracts, net of trading financial liabilities. 12

13 COMMENTS BY THE MEMBERS OF THE BOARD OF DIRECTORS PERFORMANCE OF THE CREDITO VALTELLINESE STOCK During the first quarter of 2006, the Credito Valtellinese stock maintained an average value of 12.23, which is higher than the lowest level recorded on 2 nd January 2004, while its highest price was on 27 th February The minimal fluctuation in the price of the stock during the quarter confirms its low volatility. The chart below compares the performance of the Credito Valtellinese share as of the beginning of 2006 with the COMIT banking index. Performance of the Credito Valtellinese Stock in the first three months of , , , , , /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /02/ /02/ /02/ /02/ /02/ /02/ /03/ /03/ /03/ /03/ /03/ /03/ /03/ /03/ ,0 Volume Prezzo Orange = volume Blue= price Source: Bloomberg, adjusted values 13

14 Performance of the Credito Valtellinese stock compared with the COMIT banking index during the first three months of 2006 (base 31 st December 2005 = 100) /12/ /01/ /01/ /01/ /01/ /02/ /02/ /02/ /02/ /03/ /03/ /03/ /03/ /03/2006 Prezzo azione Credito Valtellinese Indice Comit Bancari Blue - Credito Valtellinese stock price Pink Comit banking index Source: Bloomberg, adjusted values SIGNIFICANT EVENTS DURING THE QUARTER International economic situation The revival of the global economy for the fourth consecutive year appears to be sustainable and still growing. Growth is generalized across all countries, from the United States, to the developing countries, Japan and Germany, with all the other European nations in tow. Italy too is showing signs of revival. The more recent analyses of the European monetary authorities confirm an improvement in the prospects for the area s economic expansion. After the contained dynamics observed towards the end of 2005, growth appears to be gaining ground and continuing into the first half of Furthermore, the conditions for strong growth in the next quarters seem to be present. The perspective for economic activity at the global level remains positive, supporting 14

15 exports from the Euro area. Credit terms remain positive, the improvement in profits and equity sustain the investment costs of businesses in the major economies. Consumption is expected to increase in time, in line with growth in disposable income, the latter being on an upward trend due to the improvement of the situation in the labour market. Though substantially balanced in the short term, the risks to economic growth are essentially connected to the persistent volatility of oil prices and the tenacity of economic unbalance at a global level. In Europe, the growing level of indebtedness of certain countries, including Italy, is worrisome. According to Eurostat estimates, the possibility of a progressive rise in inflation rates in the medium term due to further increases in the price of energy related products appears to be more and more real, as does the possibility that these increases could affect retail prices to a greater extent than was originally anticipated. Also new increases in administered prices and indirect taxes, and, to a more substantial degree, salary and price dynamics that are more vigorous than expected. An analysis of monetary trends confirms the growth trend for liquidity as a consequence of the low interest rate levels. Private sector credit continued to rise during the last months at a sustained rate especially insofar as loans to families and mainly consisted of mortgages for the purchase of homes and non-financial companies. Overall, the growth in the monetary mass and credit in a context of ample liquidity, poses a further threat to price stability in the medium-long term. Rates are on the upturn at all maturity levels, with an emphasis on those with longer maturities, and reflect the strength of the economic upturn. However, they remain at moderate levels as compared to interest rates in the past, in nominal and real terms. Monetary conditions continue to favour growth. Global stock exchanges have posted continuous gains within a context of increased corporate profits and positive growth outlooks for the main economies. The implicit volatility of stock exchanges has remained unchanged in the Euro area, the USA and Japan. In the Euro area, the stock listings for the initial months of the year confirmed the strong dynamics of the previous months and held up well against the increase in the real returns on long-term bonds. Stock performances are supported by the continuing relatively high growth of actual and forecasted corporate profits and appear to benefit from the better than originally expected perceptions of players insofar as the economic outlook of the area. On the currency markets, the Euro has appreciated against most currencies included in the nominal effective exchange rate index, in light of growing concerns regarding the widening of the trade deficit of the United States and the expectation that economic growth in the Euro area will be higher than anticipated. In Italy as well, many trend indicators point to marked signs of improvement. The confidence of manufacturing companies, turnover, orders and exports have been pointing towards progress for several months now, though this does not apply to industrial production which was led by the automobile sector to reach the maximum levels of 2003 only in February. The sustainability of this upturn, though moderate, is strongly influenced by political instability, which to date does not allow for rigorous, coherent and clear economic policies 15

16 and the adoption of credible measures for the progressive shrinkage of the public deficit, which together can reinforce the current climate of confidence, mainly as this is applicable to families. Conditions for the expansion of the credit market in Italy remain favourable, though the dynamics appeared to be slightly levelled during the initial months of the year, due to the trend towards an increase in the cost of money. Demand for short-term credit by companies as well as families is also on the upturn, though at rates that are still contained, due to the expansion of retail loans. Though medium-long term loans are growing at rates that remain steady, there are some signs of deceleration, due to the contained demand on the part of companies, while housing loans for families continue to lead demand. In fact, the indebtedness level of families is increasing further due to convenient credit terms and the growing propensity to use financing mainly for purchases of homes, but also of durable goods, consumer goods and services, highlighting the fact that the behaviour of Italian families is moving towards the model set by the more advanced western countries. Bank rates are on the increase, though the recent interventions of the ECB last December and March appear to have produced a contained effect. It is not unreasonable to expect further increases in the upcoming months. The evolution of the Group's operating structure As at 31 st March 2006, the Credito Valtellinese territorial network comprised 350 branches, after the four new branches that opened during the quarter. During the first days of the years, the parent company inaugurated the new Santa Caterina Valour branch and then the Treviglio branch in Bergamo. During the first quarter, the Banca dell Artigianato e dell Industria opened new branches in the communities of San Giovanni Lupatoto and San Bonifacio, both in the Verona area. As at 30 th March 2006, the Group numbered 3,351 staff members, as compared to the 3,307 strong staff as at 31 st December The territorial structure by province of the Credito Valtellinese Group as at 31 st March 2006 is illustrated in the table below. 16

17 BANK PROVINCE NO. OF BRANCHES Credito Valtellinese Sondrio 43 Como 21 Lecco 14 Bergamo 8 Varese 16 Total branches 102 Credito Artigiano Milan 72 Pavia 1 Florence 7 Prato 2 Pistoia 1 Rome 15 Total branches 98 Banca dell'artigianato e dell'industria Vicenza 5 Verona 3 Brescia 9 Total branches 17 Credito Siciliano Agrigento 1 Caltanissetta 10 Catania 52 Enna 3 Messina 19 Palermo 25 Ragusa 7 Siracusa 6 Trapani 10 Total branches 133 TOTAL GROUP BRANCHES 350 The Commercial Activities New products The Mutuo Casa Facile and Mutuo Relax fixed rate loans were launched in the first quarter of These two products feature a fixed instalment amortisation schedule having a maximum duration of 20 years and enrich the range of housing loans the Group makes available to private customers, thus satisfying the requirements of a customer segment that now represents one third of loans granted at the system level. 17

18 At the same time, the business offer to small and medium sized companies was extended with the addition of financing products using funds from the European Investment Bank (EIB). In November 2005 the Credito Valtellinese Group and EIB had executed an agreement that allowed the Group to obtain a credit line of EUR 70 million to be used for financing projects undertaken by small and medium size companies. In the current account area, the Armonia line was restyled and the monthly fee for access to the Conto Armonia Web was reduced to 1, while the Bancomat card was added to the services provided with the Silver and Gold formulas. Furthermore, a 50% discount on the fee for members of Credito Valtellinese, Credito Artigiano and Credito Siciliano was provided in order to promote the idea of the Partner-customer. Furthermore, the promotion offering free access to the Silver and Gold Armonia accounts against the cumulative transferral of securities was extended for 6 months. The initiative is part of the Cambiobanca service, through which the Credito Valtellinese Group handles all administrative matters relating to the transfer of current accounts from other banks. Furthermore, the insurance offer was extended with the introduction of a new formula named Famiglia Sicura Light, which offers liability insurance for any damages caused to third parties in daily life and within the home, in addition to a series of accompanying coverages and vehicle and family assistance services. Finally, a new Index Linked policy named Global Domani 2 was issued through Global Assicurazioni in collaboration with AXA Interlife. This new issue is based on a bond that guarantees repayment of the capital at maturity and a minimum return of 2% and a further option for a floating return linked to the performance of a basket of stocks from the three major global stock indices. Commercial business planning During the quarter, new advertising campaigns were launched to support the business objectives set by the budget. These were aimed at: - Fostering the growth of the client base and converting ordinary accounts held by private customers into Conto Armonia; - Sustaining the growth of the client base in the asset management area; - Increasing the sales of the new Famiglia Sicura Light insurance policy. Tools for the monitoring and analysis of the Group s planning and management system were put into place. These tools are accessible by the Group s commercial entities through the intranet and are aimed at managing the degree to which objectives set by the campaigns for the semester are reached on a daily basis. Banc@perta Line As at the end of March 2006, the Banc@perta line had a total of 228,147 customers, which is a 4.1% increase over the 219,115 customers registered as at 31 st December The Banc@perta line includes the whole range of online products and services offered by the group. 18

19 The Internal Control System During the quarter, work on the development of the Internal Control System continued. The objective of this project is the introduction of a new organizational and managerial model which is based on the participation of the entire corporate structure in control processes, the enhancement of on-line control activities and the development of new web-based applications. A new control which relates to loans had been developed and implemented as part of this project, which pertains to problem loans. The reorganization project for the group s lending area During the quarter, the project aimed at rationalising the operations in the finance sector continued. This project began in 2005 as a part of the Strategic Plan with the modification of Mediocreval s corporate purpose, which became a bank specialised in loans beyond the short term. Mediocreval s extraordinary assembly of shareholders was held in December 2005 and included the approval of a strengthening of equity up to EUR 51.4 million to take place in several tranches in order to support the bank s development plans for the new market segment. The Board of Directors had then set the terms for the first segment of the capital increase in an amount of EUR 29.4 million, of which EUR 14.7 million was the value of the share and EUR 14.7 million was the premium. During the quarter, the enhancement of Mediocreval s capital was concluded with the subscription of 4,896,000 share options to shareholders; the bank s share capital therefore increased from EUR 29,376,000 to EUR 44,064,000. As announced in the report accompanying the 2005 financial statements, Finanziaria San Giacomo S.p.A. was established as an entity responsible for managing and unblocking nonperforming loans relating to the banks of the Credito Valtellinese Group. The new company s share capital is EUR 3 million, which is owned in its entirety by Mediocreval. All nonperforming loans currently held by Mediocreval S.p.A. will be transferred to Finanziaria San Giacomo, which will in future also acquire the non-performing loans of all other Banks belonging to the Group; it was then registered as a company operating in the finance sector as per article 106 of the Consolidated Law on banking and finance. Euro Medium Term Notes During the quarter, the Credito Valtellinese launched a EUR 350 million floating rate bond on the Euromarket. This security which was issued as part of the Credito Valtellinese s Euro Medium Term Notes Program, was listed on the Luxembourg Stock Exchange. International investors, which comprised 45.5% of the total, were distributed as follows: Luxembourg 10%, Germany 10%, Ireland 7%, UK 7%, Austria 4%, Belgium 3%, Greece 2%, Holland 2% and Switzerland 0.5%. 19

20 Banca della Ciociaria As part of the strategic agreement between Credito Valtellinese and Banca della Ciociaria SpA, which is aimed at developing commercial and operational synergies in central Italy, Credito Valtellinese obtained authorization from the Banca D Italia and acquired 600,000 shares or 10% of the share capital of this bank on February 24 at a price of EUR 6.9 million. Through the strategic collaboration with Banca della Ciociaria which owns a network of 15 branches in Frosinone, Latina and Rome, the Credito Valtellinese group has expanded its presence in central Italy, where it is currently represented through the Credito Artigiano. The latter also operates in Lazio and Tuscany. The Rileno project In its meeting on 21 st March, the Board of Directors of the Credito Valtellinese, approved the reorganization of Rileno, a company that is entirely controlled by the parent company which is specialised in the collection of tax payments for the provinces of Como and Lecco. This project which is part of the new legislative regime applying to collections as per law 248/2005, provides for the demerger from Rileno of the division relating to local taxation; a new company will result which will continue to be entirely owned by Credito Valtellinese and which will carry out the collection of local tax payments for the entire group. The demerger will be based on the company s financial position as at 31 st December The newly established company s share capital will be EUR 2,600,000 and the operation will be completed by 30th September 2006, upon issuance of all required authorizations as stipulated by the law. By the end of September 2006, the parent company will sell its shares in Rileno to Riscossioni S.p.A., an investee company of the Revenue Office and the INPS (National Institute for Social insurance) which has been operating in the tax collection area since 1 st October Promoting the Local Area During the quarter, the Fondazione Gruppo Credito Valtellinese worked intensively in favour of the local areas served by the Group, starting various initiatives in different sectors of institutional competence. Insofar as culture and art, we would like to mention the following exhibitions: Pietro Donzelli. Photographs, the first retrospective of one of the most significant representatives of the Italian culture of photography after the war, exhibited from 1 st March at the Galleria Gruppo Credito Valtellinese in Milan; The Ancient Cartography of Rezia, Valtellina Valchiavenna and Grisons at the Galleria Credito Valtellinese di Palazzo Sertoli in Sondrio, which included the exhibition of approximately 50 maps dating from the end of the 5th century up to the 20th century. Frances Lansing , a personal exhibition of works by the American artist at the Galleria Credito Siciliano di Acireale. With regard to education and training, during the quarter the Foundation held a conference in Sondrio on the theme Identities and aspirations of young persons in the province of Sondrio, to present the results of the research Identities of Valtellina and Valchiavenna youth. Furthermore, the Foundation promoted an initiative aimed at promoting and increasing awareness of the traditional professions of Valtellina and Valchiavenna, in 20

21 collaboration with the Craftsmen s Union of the province of Sondrio. Finally, we mention the support granted to the Model for a technological hub in Valtellina, convention that was held in Sondrio on 3 rd March, during which a structural and organizational proposal for a technological hub in Valtellina was presented. 21

22 SIGNIFICANT EVENTS AFTER THE END OF THE FIRST QUARTER 2006 The development of the branch network In the period after 31 st March 2006, the Group s branch network was extended with the opening, by the Credito Artigiano, of branch 22 in Milan and branch 15 in Rome. The Group had 352 branches on the date this report was prepared. Conversion of the second instalment of the Credito Valtellinese 2.8% Convertible Bond The second instalment of the Credito Valtellinese 2.8% convertible bond matured on 11 th April 2006, amounting to a nominal value of EUR 300 for each bond held with an original nominal value of EUR 1, The total amount which matured was EUR 88,014,000. During the period between 20 th March and 11 th April, the bond holders were given the option to request the conversion of the relative amount into 43 Credito Valtellinese shares, in lieu of repayment of the instalment. This corresponded to a conversion value of EUR per share. At the end of the aforementioned period, 12,502,809 new shares were issued, which corresponded to a 99.1% conversion rate. Due to this transaction, the share capital increased from EUR 235,405,446 to EUR 272,913,873, divided into 90,971,291 each with a face value of EUR 3. Disposal of non-performing loans from Mediocreval S.p.A. to Finanziaria San Giacomo S.p.A. As part of the rationalisation of the Credito Valtellinese Group s activities in the medium to long term financing sector which was discussed above, the Boards of Directors of Mediocreval and Finanziaria San Giacomo approved the disposal to the latter in conformance to art. 58 of the Legislative Decree n , of all non performing loans belonging to Mediocreval at the cumulative price of EUR million, which is equal to the value of the loans as at 31 st March 2006, as these were measured according to IASs /IFRSs. The final consideration for the disposal will be determined on the basis of the values of the loans in question as these are recorded on the date of the disposal. This transaction, which is subject to the authorization of the Banca d Italia, is expected to take place at the end of June/beginning of July Upon completion of the disposal of these non-performing loans, Mediocreval will be able to begin its operations in medium and long term financing. 22

23 Disposal of the Private Banking division from Creval Banking S.p.A. to Bancaperta S.p.A. In the 2005 financial statements, the resolution of the joint venture agreement executed in 2003 between the parent company and the Swiss Julius Baer group and the purchase by Credito Valtellinese of a first tranche of Creval Banking shares equal to 41% of the share capital was announced. In conformance to the strategy for repositioning Creval Banking within the Credito Valtellinese Group, starting 1 st April 2006 the private banking division of the former bank was transferred according to article 58 of the Consolidated Banking Law to Bancaperta s new wealth management division. Using the financial statement data of Creval Banking as at 31 st December 2005 as a temporary reference, this provides for the disposal of assets equalling EUR 3.9 million inclusive of goodwill of EUR 0.8 million, as per the due diligence executed by a major auditing firm and liabilities of EUR 2.6 million, with an agreed upon price of approximately EUR 1.3 million; the volume of the indirect deposits being transferred totals EUR 81.5 million. OUTLOOK FOR THE WHOLE PERIOD Given an economic scenario which, though improving, is dominated by elements of uncertainty, the Board of Directors of the parent company considers that the Group s activity for the remaining months of 2006 can continue along regular and constant lines to reach the budget objectives. 23

24 EXPLANATORY NOTES FORM AND CONTENTS OF THE CONSOLIDATED QUARTERLY REPORT The consolidated quarterly report as at 31 st March 2006 covers the Credito Valtellinese (parent company) and the companies in which the latter owns the majority of the share capital or voting rights that allow it to exercise a dominant influence in the ordinary Assembly. CONSOLIDATION PRINCIPLES The consolidation principles applied are those set forth by the International Accounting Standards (IAS/IFRS), as these have been formally approved by the European Union and are applicable on the date this quarterly report was drafted, including the interpretations. The consolidated quarterly report has been drawn up on the basis of accounting schedules specifically prepared by the companies included in the scope of consolidation as at 31 st March ACCOUNTING PRINCIPLES The accounting principles have not been modified with respect to the report of the year ended 31/12/2005. Consequently, please refer to said document for detailed information. Note that the non-liquid portfolio items were not recorded in the relevant accounts of the balance sheet for settlement. THE BOARD OF DIRECTORS Sondrio, Thursday, 11 th May