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

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1 Credito Valtellinese Società Cooperativa Registered Offices in Piazza Quadrivio 8 Sondrio, Italy Tax code and Sondrio Company Register No Register of Banks No. 489 Parent Company of the Credito Valtellinese Banking Group Register of Banking Groups No Internet: creval@creval.it Data as at 30/09/2011: Share Capital EUR 945,604, Reserves EUR 153,296,749 Member of the Interbank Guarantee Fund Interim report on operations as at 30 September 2011

2 Company Officers of Credito Valtellinese Board of Directors Chairman Giovanni De Censi Substitute Vice Chairman Angelo Maria Palma Vice Chairman Giuliano Zuccoli Managing Director Miro Fiordi Directors Fabio Bresesti Gabriele Cogliati Michele Colombo Paolo De Santis Aldo Fumagalli Romario Paolo Stefano Giudici Gian Maria Gros Pietro Franco Moro Valter Pasqua Alberto Ribolla Paolo Scarallo Members of the Executive Committee Board of Statutory Auditors Chairman Permanent Auditors Substitute Auditors Angelo Garavaglia Marco Barassi Alfonso Rapella Aldo Cottica Edoardo Della Cagnoletta Panel of Arbitrators Permanent Arbitrators Substitute Arbitrators Francesco Bertini Emilio Rigamonti Adriano Bassi Silvano Valenti General Management General Manager Co-General Manager Vice General Manager Vice General Manager Vice General Manager Manager in charge of preparing the corporate accounting documents Independent auditing firm Miro Fiordi Luciano Camagni Umberto Colli Mauro Selvetti Enzo Rocca Simona Orietti Reconta Ernst & Young S.p.A. 2

3 Contents CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS AS AT 30 SEPTEMBER ORGANISATIONAL MODEL AND BREAKDOWN OF THE CREDITO VALTELLINESE BANKING GROUP... 7 MANAGEMENT PERFORMANCE DURING THE QUARTER THE GENERAL ECONOMIC FRAMEWORK SIGNIFICANT EVENTS DURING THE QUARTER THE GROUP'S OPERATIONAL STRUCTURE RECLASSIFIED CONSOLIDATED FINANCIAL STATEMENTS COMMENTS ON THE FINANCIAL STATEMENTS SIGNIFICANT EVENTS OCCURRING AFTER THE CLOSE OF THE QUARTER BUSINESS OUTLOOK NOTES TO THE FINANCIAL STATEMENTS DECLARATION OF THE MANAGER IN CHARGE OF PREPARING THE CORPORATE ACCOUNTING DOCUMENTS

4 CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS AS AT 30 SEPTEMBER 2011 STATEMENT OF FINANCIAL POSITION DATA (in thousands of EUR) 30/09/ /12/2010 % change 30/09/2010 % change Loans to customers 22,860,076 22,004, ,501, Financial assets and liabilities 1,991,192 1,458, , Investments in associates and companies subject to joint control 215, , , Total assets 28,315,300 26,760, ,333, Direct deposits from customers 22,523,825 21,664, ,086, Indirect deposits from customers 12,073,839 12,609, ,734, of which: - Managed savings 5,471,577 6,008, ,144, Total deposits 34,597,664 34,273, ,821, Shareholders equity 1,919,392 2,002, ,998, SOLVENCY RATIOS 30/09/ /12/2010 Tier 1 Regulatory Capital/Risk-weighted assets 6.70% 6.31% Regulatory Capital/Risk-weighted assets 9.80% 9.52% FINANCIAL STATEMENT RATIOS 30/09/ /06/ /12/2010 Indirect deposits from customers / Total deposits 34.9% 36.4% 36.8% Managed savings / Indirect deposits from customers 45.3% 45.3% 47.6% Direct deposits from customers / Total liabilities 79.5% 78.8% 81.0% Customer loans / Direct deposits from customers 101.5% 102.4% 101.6% Customer loans / Total assets 80.7% 80.7% 82.2% CREDIT RISK 30/09/ /06/ /12/2010 % change (1) % change (2) Net doubtful loans (in thousands of EUR) 537, , , % 15.62% Other net doubtful loans (in thousands of EUR) 1,076, , , % 42.07% Net doubtful loans / Loans to customers 2.3% 2.2% 2.1% Other net doubtful loans / Loans to customers 4.7% 4.0% 3.4% Hedging of doubtful loans 58.1% 60.0% 60.4% Hedging of other doubtful loans 7.3% 7.2% 7.2% Cost of credit (*) 0.65% 0.63% 0.61% (1) Calculated as compared to 30/06. (2) Calculated as compared to 31/12 of the previous year. (*) Calculated as the annualised ratio between the net value adjustments due to deterioration of loans and year-end loans. 4

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6 ORGANISATIONAL DATA 30/09/ /06/ /12/2010 % change (1) % change (2) Number of employees 4,487 4,516 4, % -0.60% Number of branches Banc@perta line users 179, , , % 11.85% (1) Calculated as compared to 30/06. (2) Calculated as compared to 31/12 of the previous year. OTHER ECONOMIC INFORMATION 01/01/ /09/2011 1st half of Cost/Income ratio 66.5% 66.2% 64.9% 6

7 ORGANISATIONAL MODEL AND BREAKDOWN OF THE CREDITO VALTELLINESE BANKING GROUP The Credito Valtellinese Banking Group currently consists of territorial banks, specialised finance 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 at 30 September 2011, the Creval Group is broken down as follows: The Organisational Model of the Group, defined a company network 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 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 2011, the Credito Valtellinese Group is present on the national territory with a network of 543 Branches, in ten regions, through the territorial banks characterising the Market Segment, each focused exclusively on the specific areas of origin: - Credito Valtellinese S.c., Parent Company of the Group, present with its network of 128 branches in Lombardia, in the provinces of Sondrio, Lecco, Como, Varese, Bergamo, and in Trentino Alto Adige. 7

8 - Credito Artigiano S.p.A., with 144 branches, is present in Lombardia - in Milano and in the provinces of Monza and Brianza, Pavia, Cremona and Lodi - in Piacenza, in Toscana - in the areas of Firenze and Prato in addition to Lucca, Pisa and Pistoia - as well as in Lazio, Roma, Grottaferrata and Pomezia. - Credito Siciliano S.p.A. is present in all the provinces of Sicilia with 136 branches and in Roma with a branch dedicated to loan against pledge. - Banca dell Artigianato e dell Industria S.p.A., present in the provinces of Brescia, Padova, Verona and Vicenza with 37 branches. - Credito Piemontese S.p.A., present with a network of 29 branches, all in the cisalpine region. - Carifano Cassa di Risparmio di Fano S.p.A, with a significant presence in the Marche region, in addition to the provinces of Forlì-Cesena, Rimini and Perugia, through a network of 46 branches. - Banca Cattolica S.p.A., is present in the provinces of Viterbo and Terni with 8 branches. - Credito del Lazio S.p.A., present with 15 branches in the provinces of Frosinone, Latina and Roma. The following companies characterise the Specialised Finance Sector : - Bancaperta S.p.A., financial centre of the Group, bank specialised in financial asset management services, private banking, as well as real estate financial services and centralised group treasury management. This bank controls: Aperta SGR S.p.A., an asset management company, in which the asset management activities are centralised. Lussemburgo Gestioni S.A., Luxembourg-based management company, specialising in the management and administration of UCIs. Global Assicurazioni S.p.A. is a multifirm insurance agency in the bancassurance sector and, more in general, in the sales network distribution of standard insurance policies 1. 1 companies subject to management and coordination by Credito Valtellinese and therefore included in the Group consolidation area, even if not included in the banking group, pursuant to the supervisory provisions, in that they carry on insurance activities 8

9 Global Broker S.p.A. company specialised in the insurance sector targeting the SME segment. Aperta Fiduciaria S.r.l., a company authorised to perform what is known as static fiduciary services, administration of third party assets and fiduciary registration. - Mediocreval S.p.A., company specialised in disbursing medium to long-term loans, business finance and leasing. - Finanziaria San Giacomo S.p.A., for the management of impaired loans mainly of the financial intermediaries of the Group. - Creset Servizi Territoriali S.p.A., for the management of local tax services, treasury and cash services on behalf of local authorities present in the territories of the Group banks. The companies providing services complementary to banking business characterising the Production Segment complete the Group: - Deltas soc. consortile P.A., forms the Corporate centre of the Group, supports the Parent Company in defining and governing the overall business plan, coordinates and provides support for administration, planning, human resource management, marketing, auditing, legal affairs, compliance and risk management. - Bankadati Servizi Informatici Soc consortile P.A. 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 develops independently initiatives in favour of the local communities of reference. 9

10 MANAGEMENT PERFORMANCE DURING THE QUARTER THE GENERAL ECONOMIC FRAMEWORK 2 The world economy has slowed down: Global economic prospects have worsened sharply since the summer. The activity in advanced economies has slowed down significantly, curbed not only by temporary factors such as the increase in energy prices and the consequences of the earthquake in Japan, but also by the continuing weakness in employment, the less expansive overtone adopted by budgetary policies and the widespread uncertainty about the solution of financial imbalances. In developing countries, economic activity has slightly slowed down, albeit remaining at a high rate. International bodies have significantly revised downwards their global growth forecasts this year and next. The sudden downsizing of growth prospects has led to a marked instability in financial markets. Tensions have affected the total debt securities of a growing number of countries of the Eurozone, with repercussions also on the deposits and savings capacity and stock market valuations of banks. Volatility has increased. A generalised "flight towards quality" has driven the demand for government bonds in the United States and Germany, for low risk investments and currencies such as gold and the Swiss franc. It has caused sharp declines in private share and bond prices, more pronounced in the banking segment. It resulted in an outflow of capital from emerging countries. As regards the Eurozone, the downward revision of prospects for world economic growth and the expansion of the financial tensions have slackened the economic activity and weakened significantly the growth of European countries. Growth declined in the second quarter and a further weakening is expected in the third quarter: the monthly -coin indicator, which estimates the basic component of the change in GDP, has recorded a gradual deterioration over the summer, down to values close to zero in September. Consumer price inflation, up in September, should diminish in the coming months, reflecting the decline in commodity prices and the slowdown in the world cycle. The ECB Council has adopted a series of measures to support the liquidity of intermediaries and to prevent the turmoil in progress from compromising the orderly functioning of financial markets and hence the transmission mechanism of monetary policy. In August, the Eurosystem central banks have stepped up purchases of government bonds on the secondary market within the Securities Markets Programme; interventions have prevented the escalation of tensions. At the beginning of October, the Council has further strengthened the tools in support of liquidity and, therefore, of the banks' lending activity: the existing tools were accompanied by refinancing auctions with a yearly expiry with unlimited satisfaction of the demand and the purchase program of covered bonds issued by banks was reactivated. Italy was particularly affected by the global economy trend, tensions and turmoil on the markets. Despite the substantial soundness of the banking system, the low level of household debt and the absence of significant 2 Source: Bank of Italy Economic Bulletin no. 66 October 2011, updated with data available on 10 October

11 imbalances in the real estate market, our country has been hit by the crisis with particular intensity due to the high level of public debt, the strong dependence of economic activity by the trend of international trade and weak growth prospects over the medium term. In the second quarter of 2011, GDP in Italy increased by 0.3 percent compared to the previous period, after two quarters of broad stagnation. Exports continued to provide the main support for growth, domestic demand remained weak. During the summer, the economic situation worsened: the indicators confirm the weakness of internal demand, which is affected by unfavourable prospects for employment and increased uncertainty on the general economic situation; foreign sales slowdown, in a context of a less lively global demand. In September, consumer price inflation rose to 3.1 percent over the same period of 2010; prices may have already reflected in part the increase in VAT decided earlier this month, whose effects will continue to pursue modest upward pressures during the autumn. The underlying inflation remains moderate; the pressures on input costs are easing, as reported by companies in the most recent economic surveys. During the summer, in response to the tensions in financial markets, the Government has launched two corrective manoeuvres of public accounts for the years The first intervention, placed at the beginning of July, aimed at achieving a break-even point in 2014, in line with the commitments made in Europe. Due to the worsening of the turmoil in the markets, on 13 August, the Government launched a second decree-law aimed at anticipating to 2013 the break-even point. In the course of conversion into law, the decree was strengthened by certain amendments concerning mainly the revenue. The Italian banking system Tensions on the total debt market have had repercussions on the deposits and savings capacity of intermediaries, in particular for the wholesale component. There is a risk that these difficulties affect increasingly the lending criteria. The growth of deposits in Italian banks, net of the domestic interbank and liabilities to the Eurosystem and central counterparties, was 0.6 percent in the 12 months ending in August (from 1.8 percent in May). The slowdown was mainly due to the dynamics of deposits by non-residents, most of which collected on the foreign interbank market, turned negative in August (-2.5 percent, from 6.6 in May). Bond issues net of the interbank component grew by 4.2 percent (from 4.4), supported by the issues made in the first half of the year; in July and August deposits and savings on wholesale markets are almost zero. The decline of deposits from residents ( -0.1 percent, from -1.3 in May) decreased; among them, the growth of deposits of households and non-financial companies remains positive. As a result of the difficulty of bank deposits on wholesale markets, the use of the Italian banks of refinancing with the Eurosystem increased to around 89 billion at the end of August (from approx. 34 billion in May). The change of monetary conditions and the recent tensions on total debt are reflected on the cost of bank deposits. Compared to May, the yield on household current accounts increased by a tenth of a percentage point (0.4 percent), by four-tenths the one offered on fixed term deposits up to two years (2.1 percent) and by seven tenths the one on new bond issues with a variable interest rate (3.8 percent). 11

12 The growth of bank lending to the private non-financial sector has weakened reaching in August 4.0 percent over three months (from 4.8 percent in May), net of the seasonal component and per year. This trend reflected both the slowing down of loans to households (3.7 percent), and in particular of consumer credit and other loans other than mortgage loans, and the deceleration of loans to businesses (4.2 percent). The trend of loans to businesses was affected both by demand factors, in particular, the downsizing of investment plans and the lower financing needs for inventory and working capital, and by supply factors. In the third quarter of 2011, the lending criteria for loans to businesses reported a tightening. According to the monthly Istat survey and the quarterly survey carried out in September by the Bank of Italy in collaboration with Il Sole 24 Ore, the share of companies reporting a credit squeeze increased (to 28.6 percent from 15.2 in June according to the quarterly survey). The trend of loans to households mainly reflected the dynamics of demand, which suffered from the weakness of purchases of durable goods. Compared to May, the average rates on new loans have risen, reflecting the increase in the money market rates; the increase in the cost of bank deposits began to be transmitted also to the lending rates. There is a risk that current levels of yields on government bonds, if protracted in time, will result in a further increase in the cost of bank loans. In August, the average cost of new loans to businesses increased by half a percentage point to 3.4 percent. The increase concerned both the rates applied to credit lines for an amount higher than one million euros and those of a lower amount (3.0 and 4.2, respectively). The average rate on the new variable-rate mortgage loans to households increased by four-tenths (3.1 percent) compared to the stability of the rate of fixed-rate payments (4.8 percent). The APR on consumer credit continued to grow (9.2 percent). In the second quarter of 2011, intermediaries operating in Italy continued to record a consistent flow of new adjusted doubtful loans. This flow, net of seasonal factors and per year, amounted to 1.8 percent of the loans, unchanged compared to the first quarter of this year and less than two tenths of a point compared to the end of The entry rate in doubtful loans showed signs of improvement for loans to households and businesses in Central North; the rate of businesses in the South increased. Preliminary figures show that the total exposure for debtors recorded as doubtful for the first time in July and August decreased compared to the same period in However, loans to businesses in difficulty (substandard and restructured loans) remained high in August (equal to 6.0 percent of loans), indicating that doubtful loans for banks could grow at significant rates in the coming months. According to the consolidated reports of the five major groups, in the first half of 2011 bank profitability has remained essentially unchanged compared to the same period in 2010, albeit at low levels. The return on capital and reserves (ROE), assessed on an annual basis, amounted to 4.5 percent. The slight decline in interest income (-1.8 percent) was more than offset by the increase in profits on trading. In connection with an increasing net interest and other banking income (2.5%) and with stable operating costs, the income from banking activities grew by 6.3 percent. Total provisions decreased by 13.1 percent; internally, those in connection with impairment of loans decreased by The net profit increased by 8,5 percent. The financial market in Italy Since the beginning of July, the gross yield on ten-year T-bills marked a sharp rise, reflecting the spreading to 12

13 Italy of the tensions on the government bond markets of some Eurozone countries; in early August, it reached the highest levels since the introduction of the Euro, exceeding 6 percent. As of 8 August, purchases of government bonds carried out by the European Central Bank (ECB) within the Securities Markets Programme have helped to reduce the long-term T-bill yield around 5 percent and significantly improve the liquidity conditions of their market, as reported by the sharp decline in the bid-ask differential. However, from the first days of September, the yield on ten-year T-bills reached approx. 5.5 percent, reflecting the uncertainties with which the public finance measures were approved and the doubts on growth prospects of the Italian economy. Between mid September and the first decade of October, the three major rating agencies (Standard & Poor 's, Moody's and Fitch Ratings) have reduced the credit worthiness of Italy, with negative prospects. Since the beginning of July, the general Borsa Italiana index fell by 19 percent, in line with the decline recorded by the index of the major listed companies of the Eurozone. The trend of stock prices was affected by the worsening of the total debt crisis in the Eurozone and by the fears about the slowdown in business at a global and national level. The fall in prices has affected all sectors of the Italian stock market. In particular, the general Borsa Italiana index was affected by the high incidence and the sharp decline in the banking sector (-25 percent), more exposed to tensions on the total debt markets. The Standard & Poor's and Moody's, following the downgrading of Italian government bonds, have reduced the creditworthiness of different banks. 13

14 SIGNIFICANT EVENTS DURING THE QUARTER The new strategic plan The Strategic Plan of the Credito Valtellinese Group, approved on 22 February 2011, outlines the guidelines for the development of the Credito Valtellinese Group for the next four years and defines the actions for achieving the pre-established key objectives of efficiency, competitiveness and profitability, in a path oriented to the creation of sustainable value in the medium to long term in favour of all shareholders. The company restructuring project To achieve the outlined objectives, a well-structured company restructuring project of the Creval Group - and mainly of the branch network - was outlined, to be carried out also through merger operations. In particular, the project contemplates: - the merger by incorporation in the Credito Valtellinese S.c. Parent Company of Bancaperta S.p.A., Credito Piemontese S.p.A. and Banca dell Artigianato e dell Industria S.p.A.; - the merger in Credito Artigiano S.p.A. of Banca Cattolica S.p.A., Credito del Lazio S.p.A. and Carifano Cassa di Risparmio di Fano S.p.A. and the subsequent conferment of the branch network present in the Marche and Umbria regions, in a newly set-up bank that, with the Carifano brand, will keep the territorial monitoring of those regions - the overall reorganisation of the branch network and the establishment of Regional Areas, with the aim of further enhancing the proximity to the territories of origin. The said company restructuring project is expected to be implemented as a whole within the current year, subject to obtaining the necessary authorisations by the competent authorities. As at the date of this report, the implementation steps detailed below were already formalised. The merger by incorporation of Bancaperta, Credito Piemontese and Banca dell Artigianato e dell Industria in the Credito Valtellinese Parent Company was definitely approved on 11 October The merger deed was signed on 8 November 2011, with legal effects as from 28 November 2011 for what concerns the incorporation of Bancaperta and as from 12 December 2011 for Credito Piemontese and Banca dell Artigianato e dell Industria. The merger by incorporation of Banca Cattolica and Credito del Lazio in Credito Artigiano was approved by their Boards of Directors on 6 September On 4 October 2011, the merger deed was signed with legal effects as from 24 October The merger by incorporation of Carifano in Credito Artigiano was approved by their Board of Directors on 9 August 2011 and, after obtaining the authorisation of the Bank of Italy on 18 October 2011, will be submitted to the approval of the Extraordinary Shareholders' meetings of the relevant companies both called on 25 November The reorganisation of the branch network started from Credito Artigiano with the establishment of the Regional Areas Milano and Centre and the approval of the new organisational structure of the company, effective as from last 18 July. 14

15 The branches located in Lombardy are functionally assigned to the Milano Regional Area in addition to the Piacenza branch and the Centre Regional Area, to which the Branches located in Toscana and Lazio refer. The new structures are assigned functions of commercial and operational coordination, with appropriate autonomy also concerning credit risk monitoring, with the aim to further enhance the competitive advantage represented by the proximity of the Territories concerned. THE GROUP'S OPERATIONAL STRUCTURE Branch network. As at 30 September 2011, the branch network of the Credito Valtellinese Group, unchanged compared to the end of the 2010 financial year, consists of 543 branches, broken down as follows. Other sales channels. Alongside its traditional branch networks, the Credito Valtellinese Group boasts a network of alternative channels for the distribution of banking products and services. At the end of September these channels consisted of: DISTRIBUTION CHANNELS 30/09/ /09/2010 Number of ATMs Number of Internet users (active) 179, ,866 Number of POS 20,557 20,612 Workforce. As at 30 September 2011, the Group numbered 4,487 staff members, compared to 4,514 as at 31 December 2010, with the following breakdown of functions. - Executives: 71 - Middle managers: 1,558 - Professional categories: 2,858 15

16 Group workforce as at 30 September 2011 Middle Managers; 34,7% Executives; 1,6% 16

17 RECLASSIFIED CONSOLIDATED FINANCIAL STATEMENTS RECLASSIFIED BALANCE SHEET ASSETS 30/09/ /06/ /12/2010 (in thousands of EUR) change % (*) change % (**) Cash and cash equivalents 171, , , Financial assets held for trading 119, , , Financial assets available for sale 1,505,293 1,591, , Financial assets held to maturity 519, , , Due from banks 997, ,176 1,089, Loans to customers 22,860,076 22,819,881 22,004, Hedging derivatives Investments in associates and companies subject to joint control Property, plant and equipment and intangible assets (1) 215, , , ,234,024 1,237,408 1,249, Other assets (2) 692, , , Total assets 28,315,300 28,269,181 26,760, (*) Calculated as compared to 30/06. (**) Calculated as compared to 31/12. (1) Includes the items "120. Property, plant and equipment and 130. Intangible assets. (2) Includes the items 140. Tax assets and "160. Other assets". LIABILITIES AND SHAREHOLDERS EQUITY 30/09/ /06/ /12/2010 (in thousands of EUR) change % (*) change % (**) Due to banks 2,200,844 2,280,555 1,887, Direct customer deposits (1) 22,523,825 22,278,026 21,664, Financial liabilities held for trading 10,150 9,856 14, Hedging derivatives 142,942 42,420 - n/a - Other liabilities 1,026,999 1,099, , Provisions for specific purpose (2) 224, , , Minority interests 266, , , Shareholders equity (3) 1,919,392 2,078,149 2,002, Total liabilities and shareholders equity 28,315,300 28,269,181 26,760, (*) Calculated as compared to 30/06. (**) Calculated as compared to 31/12. (1) Includes the items "20. Due to customers" and "30. Securities issued". (2) Includes the items 80. Tax liabilities, 110. Employee termination indemnities and 120. Provisions for risks and charges. (3) Includes items "140. Valuation reserves", "160. Equity instruments", "170. Reserves", "180. Share premium reserve", "190. Capital", "200. Treasury shares and "220. Profit (loss) for the period". RECLASSIFIED INCOME STATEMENT 17

18 Items Q /01/ /09/2011 Q /01/ /09/2010 (in thousands of EUR) % change % (*) % chang e % (**) Interest margin 137, , , , Net fee and commission income 72, ,411 72, , Dividends and similar income 36 1,335 (51) 2,057 n/a Income from investments in associates and companies subject to joint control measured at equity (1) Profit (losses) on trading, hedging activities and disposals/repurchases 3,487 11,479 4,250 11, (3,363) 8,114 5,958 23,877 n/a Other operating expenses/income (4) 3,594 11,734 4,632 12, Operating income 213, , , , Personnel expenses (87,047) (262,589) (82,058) (248,815) Other administrative expenses (2) (45,198) (134,510) (46,828) (136,610) Net adjustments to/recoveries on property, plant and equipment and intangible assets (3) (10,267) (30,156) (10,441) (30,299) Operating costs (142,512) (427,255) (139,327) (415,724) Net operating margin Net losses/recoveries on impairment of loans and other financial assets 70, ,696 67, , (40,356) (112,966) (32,926) (100,032) Net provisions for risks and charges (748) (2,907) (561) (2,038) Profit (losses) on disposal of investments in associates and companies subject to joint control Income (loss) before tax from continuing operations Taxes on income from continuing operations Income after tax from continuing operations 242 1, n/a n/a 29, ,425 33, , (15,020) (49,617) (16,637) (48,405) ,749 51,808 17,164 52, Minority interests (2,771) (7,553) (3,254) (8,668) Profit for the period 11,978 44,255 13,910 43, (*) Calculated as compared to Q3 of the previous year; (**) Calculated as compared to 01/01-30/09 of the previous year. (1) Income from investments in associates and companies subject to joint control carried at equity include the profit (loss) on investments carried at equity included in item 240 "Profits (losses) on investments in associates and companies subject to joint control". The residual amount of that item is included in profits (loss) from disposal of investments in associates and companies subject to joint control, together with item 270 "Profits (losses) on disposal of investments"; (2) Other administrative expenses include recoveries of taxes and other recoveries recognised in item 220 "Other operating expenses/income" (EUR 37,515 thousand as at 30 September 2011 and EUR 37,164 thousand as at 30 September 2010); (3) Net adjustments to/recoveries on property, plant and equipment and intangible assets include items 200 "Net adjustments to/recoveries on property, plant and equipment", 210 "Net adjustments to/recoveries on intangible assets" and the accumulated depreciation of costs incurred for leasehold improvements, under item 220 "Other operating expenses/income" (EUR 4,595 thousand as at 30 September 2011 and EUR 4,835 thousand as at 30 September 2010). (4) Other income and charges correspond to item 220 "Other operating expenses/income" net of the above reclassifications. 18

19 COMMENTS ON THE FINANCIAL STATEMENTS Balance sheet aggregates Total deposits At the end of September 2011, direct deposits stood at EUR 22,524 million, an increase of 4% compared to EUR 21,664 million recognised as at 31 December 2010 and of 6.8% compared to September Indirect deposits amounted to EUR 12,074 million, a decrease of 4.2% over the year-end figure for 2010 of EUR 12,609 million and of 5.2% on September Within this aggregate it should be mentioned that managed savings i.e. mutual investment funds, managed customer assets and insurance savings reached EUR 5,472 million, down 8.9% on the year-end figure for 2010, reflecting the negative financial market trend, whereas administered funds - representing customer securities deposited with the Group banks - reached EUR 6,602 million showing substantially no change compared to the figure of December Total deposits amounting to EUR 34,598 million recorded a 0.9% increase on the EUR 34,273 million as at the end of December 2010 and 2.3% on September Loans Loans to customers reached EUR 22,860 million in September 2011, an increase of 3.9% compared to EUR 22,004 million as at 31 December 2010 and 6.3% on the figure for September 2010, percentages that confirm the constant and uninterrupted attention of the Bank in support of the production company system of the operating areas, with a special attention to SMEs and to households, albeit within a strict credit risk framework. Credit quality reflects the ongoing and widespread weakness of the economic cycle: At the close of the third quarter, impaired loans amounted to EUR 1,613 million net of value adjustments, compared to EUR 1,433 million in the first half of 2011 and to EUR 1,222 million as at 31 December The ratio of impaired loans to total loans to customers stood at 7.06%, up compared to 5.55% at the end of More in detail, doubtful loans, net of value adjustments, amounted to EUR 537 million, compared to the EUR 510 million recorded in June 2011 and EUR 464 million recorded at the end of December 2010, accounting for 2.3% of aggregate loans to customers, against the 2.1% recorded at the end of 2010, of which 58.1% was hedged. Other net doubtful loans stood at EUR 1,076 million, compared to EUR 923 million as at the end of June 2011 and EUR 758 million of December 2010, representing 4.7% of all loans to customers, against the 3.4% recorded at the of end 2010, of which 7.3% was hedged. 19

20 Investments in associates and companies subject to joint control The value of investments in companies outside the Banking Group totalled EUR 215 million, down compared to EUR 230 million recorded as at 31 December 2010, mainly due to the transfer of the investment held in Banca di Cividale. Financial assets and liabilities held for trading and Financial assets available for sale Financial assets and liabilities held for trading as at 30 September 2011, represented by debt and equity securities and derivative contracts, amounted to EUR 119 million, an 18.3% decrease compared to June 2011 and 48.7% compared to the end of December Financial assets available for sale totalled EUR 1,505 million, representing a 5.4% drop on the figure as at the end of June Shareholder' equity As at 30 September 2011, the Consolidated shareholders' equity of the Group stood at EUR 1,919 million, up by 4.2% compared to EUR 2,003 million of December The Regulatory Capital amounted to EUR 2,133.7 million in connection with risk-weighted assets of EUR 21,767.9 million. The core capital ratio amounted to 6.70% compared to 6.31% as at 31 December The total capital ratio was equal to 9.80% compared to 9.52% at the end of December Economic trend of operations As at 30 September 2011, the interest margin stood at EUR 389 million and recorded an increase of 9.2% compared to EUR 356 million at the end of September 2010, thanks to the increase in trade volumes and also to the slight recovery of market interest rates recorded as from the fourth quarter of 2010 and in the first half of the current year. The positive trend of net fee and commission income reached EUR 221 million, up by 4.4% compared to EUR 212 million of the previous year. Dividends and income from investments in associates and companies subject to joint control measured at equity amounted to EUR 12.8 million compared to EUR 13.1 million of the first nine months of Profit (losses) on trading, hedging and AFS disposal/repurchases activities stood at EUR 8 million, down compared to EUR 24 million of the previous year also due to the volatility that characterised the financial market trend especially in the last quarter. The operating income totalling EUR 643 million are increasing by 4% compared to the EUR 618 million of the previous year. Operating costs, totalling EUR 427 million, increased by 2.8% compared to September In detail, personnel costs, amounting to EUR million, marked an increase by 5.5%, whilst other administrative expenses, which stood at million (-1.5%), decreased. 20

21 The cost/income ratio the ratio of operating costs to operating income stood at 66.5% compared to 67.3% in September last year. The net income from banking activities reached EUR 216 million, marking an increase of 6.5% against EUR 202 million recorded for the corresponding period of the previous year. Adjustments on loans reached EUR 113 million, compared to EUR 100 million of the same period last year, with a cost of credit, expressed as a percentage of total loans to customers, of 65 basis points, compared to 61 b.p. at the end of the reporting period last year. Income (loss) before tax from continuing operations amounted to EUR million, just over EUR million compared to the previous year. Tax expenses for the period were estimated as EUR 49.6 million compared to EUR 48.4 million at the end of September Minority interests, amounting to EUR 7.5 million, compared to EUR 8.7 million in September last year, determine a net profit for the period of EUR 44.3 million, up 2% year-on-year. 21

22 SIGNIFICANT EVENTS OCCURRING AFTER THE CLOSE OF THE QUARTER Apart from what is indicated in the previous chapters, within the broader context of the implementation of the Strategic Plan, no significant event occurred that could have a material effect on the state of affairs of the company or on the report provided hereunder from the close of the third quarter. 22

23 BUSINESS OUTLOOK The continuing instability and the permanent uncertainties of the macroeconomic scenario imply prudent assessments on the management performance of the remaining part of the year. However, for the current period, it is considered likely that there will be a positive development in balance sheet aggregates and changes in profitability consistent with the one pointed out in the first nine months of the financial period. 23

24 NOTES TO THE FINANCIAL STATEMENTS FORM AND CONTENT OF THE INTERIM REPORT ON OPERATIONS The Interim Report on Operations as at 30 September 2011 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. This financial report was drafted pursuant to Article 154-ter, subsection 5 of Italian Legislative Decree no. 58 of 24 February 1998 (the Consolidated Law on Finance), 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 interpretations. These principles are explained in the consolidated financial statements as at 31 December 2010 and in the condensed interim report as at 30 June 2011, 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 area as at 30 September 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 2010, 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. The main changes to the international accounting standards that had to be adopted as from 1 January 2011 concern IAS 24 - Related Party Disclosures. Other changes to the international accounting standards have had no significant impact on this report. In 2011, the useful life of certain categories of properties was reviewed by increasing its durability. During 2011, the Strategic Plan of the Credito Valtellinese Group implemented the intragroup transfer of equity investments of Bancaperta and Banca dell Artigianato e dell Industria and the intragroup transfer of the branch of Orvieto from Banca Cattolica to Carifano. 24

25 The operation of intragroup transfer of equity investments of Bancaperta and Banca dell Artigianato e dell Industria, whose economic effect was cancelled out, resulted in the acquisition of minority shares of subsidiaries. According to the international accounting standards, these operations are considered like transactions between shareholders and therefore recorded as a contra-entry in the shareholders equity. The operation of intragroup transfer of the branch of Orvieto from Banca Cattolica to Carifano, excluded from the scope of application of IFRS 3, entailed the transfer of company branches among companies belonging to the Credito Valtellinese Group (under common control) without affecting the consolidated interim report. Given the reorganisational purpose of the operation, the latter was recorded in continuity of accounting values, without the recognition of economic effects. In particular, the acquired values of assets and liabilities have been recorded at the values resulting from the consolidated financial statements. With regard to the accounting position for the third quarter of 2010 (comparison period), it should be specified that the interim report included a provisional cost allocation for acquisition of Banca Cattolica S.p.A. on 23 November 2009 and concluded in the consolidated financial statements as at 31 December In this report, the economic figures for the third quarter of 2010 were reclassified assuming that the cost allocation process for that transaction had been completed on the date of acquisition. A positive change of the interest margin of EUR 367 thousand was recorded and higher taxes of EUR 119 thousand were included. Considering a change in minority interests of EUR 44 thousand, an increase was recorded for the third quarter of 2010 of EUR 204 thousand. Following the specifications issued by the Bank of Italy with the letter dated 16 February 2011, in the comparison period, the training costs previously classified in item "180.b Other administrative expenses" were reclassified in item "180.a Personnel expenses" for an amount of EUR 789 thousand. Suspended items and non-liquid portfolio items by settlement currency were not recognised in the related balance sheet items, as their effect was considered insignificant. The consolidated report on operations as at 30 September 2011 was not subject to audit by the independent auditor. THE BOARD OF DIRECTORS Sondrio, Tuesday, 8 November

26 DECLARATION OF THE MANAGER IN CHARGE OF PREPARING THE CORPORATE ACCOUNTING DOCUMENTS The undersigned manager in charge of preparing the corporate accounting documents, Simona Orietti, pursuant to Article 154 bis of the Consolidated Law on Finance hereby declares that the accounting information provided in this interim report matches the information reported on the company s documents, books and accounting records. Manager in charge of preparing the corporate accounting documents Simona Orietti 26