INTERIM REPORT AS AT 30 June 2010

Transcription

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 Register of Banking Groups No Internet: creval@creval.it Data as at 30/06/2010: Share Capital EUR 728,667, Reserves EUR 1,198,721, INTERIM REPORT AS AT 30 June 2010

2 Interim Report Credito Valtellinese Group

3 Company Officers of Credito Valtellinese as at the approval date of the interim report Board of Directors Chairman Substitute Vice Chairman Vice Chairman Managing Director Directors Members of the Executive Committee Board of Statutory Auditors Chairman Permanent Auditors Substitute Auditors Giovanni De Censi Angelo Palma Giuliano Zuccoli Miro Fiordi Fabio Bresesti Gabriele Cogliati Michele Colombo Paolo De Santis Aldo Fumagalli Romario Gian Maria Gros Pietro Paolo Stefano Giudici Franco Moro Valter Pasqua Alberto Ribolla Paolo Scarallo Angelo Garavaglia Marco Barassi Alfonso Rapella Aldo Cottica Edoardo Della Cagnoletta Panel of Arbitrators Permanent Arbitrators Substitute Arbitrators General Management General Manager Substitute Vice General Manager Vice General Manager Vice General Manager and Executive in charge of drawing up the corporate accounting documents Emilio Berbenni Francesco Bertini Emilio Rigamonti Adriano Bassi Silvano Valenti Miro Fiordi Giovanni Paolo Monti Franco Sala Enzo Rocca Independent auditing firm Reconta Ernst & Young S.p.A.

4 Contents INTERIM REPORT ON OPERATIONS...6 Consolidated highlights and alternative performance indicators...7 Organisational model and breakdown of the...9 The reference operating context...13 Operating performance and significant events in the half year...15 Transactions between Group Companies and other related parties...34 Business Outlook...35 Significant events occurring after the end of the first half of CONDENSED CONSOLIDATED INTERIM REPORT AS AT 30 JUNE 2010: FINANCIAL STATEMENTS...36 Consolidated Statement of Financial Position...37 Consolidated Income Statement...38 Consolidated Statement of Comprehensive Income...39 Statement of changes in consolidated shareholders equity...40 Consolidated cash flow statement Direct method...42 NOTES TO THE FINANCIAL STATEMENT...44 Accounting policies...45 Breakdown of the main statement financial position items...52 Breakdown of the main income statement items...63 Information on risks and hedging policies...72 Information on consolidated equity...87 Business combination...89 Transactions with related parties...91 Segment reporting...92 DISCLOSURE PURSUANT TO ART. 81-TER OF CONSOB REGULATION NO.11971/ AUDITOR S REPORT...100

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6 Interim report on operations

7 Consolidated highlights and alternative performance indicators STATEMENT OF FINANCIAL POSITION DATA 30/06/ /12/2009 (in thousands of EUR) % change 30/06/2009 % change Loans to customers 21,239,185 20,373, ,393, Financial assets and liabilities 780, , , Investments in associates and companies subject to joint control 216, , , Total assets 25,473,408 24,895, ,400, Direct deposits from customers 21,146,400 20,216, ,300, Indirect deposits from customers 12,687,553 12,636, ,289, of which: - Managed savings 6,206,136 5,874, ,504, Total deposits 33,833,953 32,852, ,590, Shareholders equity 1,886,011 1,927, ,751, SOLVENCY RATIOS 30/06/ /12/2009 Tier 1 Regulatory Capital/Risk-weighted assets 6.32% 6.62% Regulatory Capital/Risk-weighted assets 9.55% 9.27% FINANCIAL STATEMENT RATIOS 30/06/ /12/2009 Indirect deposits from customers / Total deposits 37.5% 38.5% Managed savings / Indirect deposits from customers 48.9% 46.5% Direct deposits from customers / Total liabilities 83.0% 81.2% Customer loans / Direct deposits from customers 100.4% 100.8% Customer loans / Total assets 83.4% 81.8% CREDIT RISK 30/06/ /12/2009 % change Net doubtful loans (in thousands of EUR) 433, , Other net doubtful loans (in thousands of EUR) 884, , Net doubtful loans / Loans to customers 2.0% 1.7% Other net doubtful loans / Loans to customers 4.2% 3.6% Hedging of doubtful loans 60.2% 62.6% Hedging of other doubtful loans 4.4% 5.2% Cost of credit (*) 0.60% 0.76% (*) Calculated as the ratio between the net value adjustments due to deterioration of loans and year-end loans (annualised amount). ORGANISATIONAL DATA 30/06/ /12/2009 % change Number of employees 4,504 4, Number of branches Banc@perta line users 149, ,

8 INCOME STATEMENT DATA (in thousands of EUR) 1st half of st half of 2009 % change Interest margin 237, , Operating income 411, , Operating expenses -276, , Net income from banking activities 134, , Income (loss) before tax from continuing operations 66,386 74, Income (loss) after tax from continuing operations 34,698 47, Net income 29,314 41, OTHER ECONOMIC INFORMATION 1st half of st half of 2009 Cost/Income ratio 67.2% 66.40% Basic EPS Diluted EPS Fitch Ratings Issuer Default (long term) A-; negative Short term F2 Individual C Support 3 Moody's Ratings Long Term Rating A3; stable Short term Rating P-2 Bank Financial Strength C- 31/12/ /12/2008 Number of ordinary shares 208,190, ,955,310 Listed price at end of the year Average listed price for the year Average stock-market capitalisation (millions of EUR) 1,283 1,237 Group shareholders equity per share (*) (*) The calculation does not consider treasury shares in portfolio 8

9 Organisational model and breakdown of the The Credito Valtellinese Group adopts a banking operations model that seeks to enhance its relations with customers and with the territory, by creating a network formed by a series of local banks, specialised and complementary companies, enhanced by consolidated partnerships with highly qualified banking and financial organisations. Creval s DNA is based on the archetypal matrix of the cooperative bank, therefore the philosophy underlying corporate activities is centred on territorial origins, seeking to become a clear and constant reference point for the local community and to act in close synergy with its economic and social fabric. In order to soundly implement this corporate mission, the Group s organisational and corporate structure incorporates companies focused on the banking business, on the provision of specialist financial services and on support activities, with the aim of pursuing scale and specialist economies and the highest levels of service. Group Structure as at the date of this Interim Report (*) not included in the banking group as it is an insurance company. The Group currently operates in 537 branches in the reference territory, through other retail banks as follows: - Credito Valtellinese S.c., parent company, cooperative bank listed on the Italian Stock Exchange Market (MTA), organised and managed by Borsa Italiana S.p.A., whose business is centred on principles of solidarity and whose primary objective is to guarantee the improvement of economic, cultural and social well-being in the reference territory. Credito Valtellinese is characterised by its 9

10 constant focus on the territory and on small-scale businesses. It operates in the provinces of Sondrio, Lecco, Como, Varese, Bergamo and Trento through a network of 126 branches. - Credito Artigiano S.p.A., established in 1946 in Milano. In 1995 it joined the Credito Valtellinese Group and in July 1999 was listed on the Stock Market. The Bank currently has 142 branches in Milano, Monza & Brianza, Lodi, Pavia, Cremona, Roma, Firenze, Prato, Pisa, Lucca, Pistoia and Piacenza. - Credito Siciliano S.p.A., established in 2002 from the merger by incorporation of Banca Popolare Santa Venera S.p.A. and Leasingroup Sicilia S.p.A. into Banca Regionale Sant Angelo S.p.A. On 1 July 2002, Credito Siciliano also acquired the network of Cassa San Giacomo branches to become one of the largest banks in Sicilia. Its mission is to actively contribute to the island s economy and community through its own commercial network present in all the provinces of Sicilia with 135 branches and in Roma with a branch dedicated to loan against pledge. - Banca dell Artigianato e dell Industria S.p.A., established in Brescia in 1997 at the initiative of a committee of promoters comprising local tradesmen, business men and freelance professionals, with the aim of contributing to economic development in the Brescia area. In 2000 it became a member of the Credito Valtellinese Group. Without neglecting reinforcement of its traditional reference territory, the bank is also expanding into the Veneto region, implementing a project that envisages extension of the Credito Valtellinese Group influence to this region. The Bank currently operates in the provinces of Brescia, Vicenza, Verona and Padova with 36 branches. - Credito Piemontese S.p.A., operative since 25 February 2008 following the acquisition of 23 branches including 10 in Torino, 9 in the province of Torino and 4 in the Alessandria area from the Intesa Sanpaolo Group. The Bank later acquired the Verbania and Novara branches from Credito Valtellinese and Credito Artigiano, and opened the Borgomanero (NO), Arona (NO) and Asti branches to increase its total network to 28 branches. - Cassa di Risparmio di Fano S.p.A., founded in 1843, joined the Credito Valtellinese banking group as of 3 December 2008 following the Parent Company s acquisition of a controlling interest in the bank s share capital. Carifano operates 45 branches in the provinces of Pesaro, Ancona, Forlì- Cesena, Perugia and Rimini. - Banca Cattolica S.p.A., established in 1928 and based in Montefiascone (VT), joined the Group in 2009 following the Parent Company s acquisition of the 80% controlling interest in the bank s share capital. Banca Cattolica is present in the provinces of Viterbo and Terni with 9 branches. - Banca della Ciociaria S.p.A. - founded in is based in Frosinone and it joined the Group on 19 May It operates in the provinces of Frosinone, Latina and Roma with a network of 15 branches. Banca della Ciociaria is included in the Creval Group, with a 53% investment of the Parent Company. A number of other companies providing specialised financial services ( Specialised Finance Sector ) are also included in the Group consolidation area: - Bancaperta S.p.A. is the bank specialised in financial asset management services, private banking and real estate financial services; it also acts as the financial centre, coordinating the activities of its subsidiaries and associated companies: Aperta SGR, Global Assicurazioni, Aperta Fiduciaria, Lussemburgo Gestioni, Aperta Gestioni and Global Broker; - Aperta SGR S.p.A., an asset management company, wholly controlled by Bancaperta and enrolled on the specific register held by the Bank of Italy. In October 2005, the asset 10

11 management business previously handled directly by Bancaperta was transferred to Aperta SGR; - Lussemburgo Gestioni SA, Luxembourg-based management company, specialising in the management and administration of UCIs, established with the purpose of widening the range of financial products offered to the customers and of contributing to the development of new business areas, by enhancing the experience gained by the Group in the asset management sector; - Global Assicurazioni S.p.A. is a multifirm insurance agency acting as partner of excellence in the bancassurance sector and, more in general, in the sales network distribution of standard insurance policies; 60% of the share capital of the company is owned by Bancaperta and therefore will be included in the Group consolidation area, even of not included in the baking group, in that it carries on insurance activities. - Aperta Fiduciaria S.r.l, a company authorised to perform what is known as static fiduciary services, including the administration of third party assets, the fiduciary registration of the same, mediation in the exercise of related rights, and the representation of shareholders and bondholders; - Mediocreval S.p.A., a bank specialised in the provision and management of medium to longterm financing. The supervision of the business finance sector and the administrative service for the leasing segment are centred in the company; - Finanziaria San Giacomo S.p.A. is a company included on the Special Register of Intermediaries operating in the financial sector pursuant to Article 107 of the TUB (Italian Banking Law). The company purpose is to provide financial activities consisting in the acquisition, management and disposal of problem loans for financial intermediary activities of the Group and its associated companies. - Creset Servizi Territoriali S.p.A., established in 2006 in line with the strategic plan to strengthen the Group in the payment systems and public authority services sectors. The company was formed following the tax collection reform (Article 3, Italian Legislative Decree no. 203 of 30 September 2005) from a business branch split from Rileno S.p.A., former concessionary for the provinces of Como and Lecco. It should also be noted that, on 23 July 2010, Global Broker was established in partnership with the Ri-Fin Group. 51% of the share capital of the company is owned by Bancaperta and therefore is included in the Group consolidation area, even of not included in the banking group, in that it carries on insurance activities. Global Broker operates in the insurance brokerage segment, mainly in the insurance sector targeting the SME segment. The scope of the Group also includes a number of entities that provide services complementary to the banking business, with a view to achieving synergies and economies of scale ( Production sector ): With the objective of guaranteeing a greater management economic efficiency of the Group and stronger compliance between the modus operandi and the company organisation, in the first half of 2010 the transformation of Bankadati and Deltas in limited consortium companies was resolved. - Deltas Soc. Cons. p.a., consortium company that plays a role of coordination and monitoring to ensure that the various business areas follow the guidelines established by Credito Valtellinese as being in the interests of stability and growth. This role, given the title of Corporate Centre, involves the provision of support for administration, planning, human resource management, marketing, auditing, legal affairs, compliance and risk management; - Bankadati Servizi Informatici Soc. Cons. p A. is the Group s centre for the management and development of ICT activities, organisation, back office and support processes; - Stelline Servizi Immobiliari S.p.A. manages the property and artistic assets of all companies in the Group. The company also provides other services such as the preparation of real estate 11

12 valuations to support the disbursement of credit by the territorial banks and develops initiatives in favour of the local communities. The Credito Valtellinese network is completed by several associated companies: - Banca di Cividale S.p.A., a retail bank that operates in Friuli Venezia Giulia and in the Veneto provinces of Belluno, Treviso and Venezia through a network of 64 branches. The Parent company holds 25% of its share capital; - Istituto Centrale delle Banche Popolari Italiane S.p.A., of which Credito Valtellinese is one of the majority shareholders (20.6%), provides support in the development of customer financial institutions; this is achieved by promoting initiatives and providing services that aim to increase the efficiency and competitiveness of payment systems and in areas related to the administration of securities and finance; - Global Assistance S.p.A., an insurance company specialised in the non-life sector, in which the Parent company has a 40% investment. - Istifid S.p.A., financial company and auditing firm, 28.66% owned by Credito Valtellinese; - Finanziaria Laziale S.p.A., an associated company of Finaziaria San Giacomo (20%). The following subsidiary or associated companies are also included in the Group scope of consolidation: - Omega S.r.l., an associated company of Stelline Servizi Immobiliari S.p.A. (100.00%); - Sondrio Città Centro S.r.l., an associated company of Stelline Servizi Immobiliari S.p.A. (30.00%); - Progetti Industriali Valtellina S.r.l., an associated company of Stelline Servizi Immobiliari S.p.A. (20.00%); - Sondrio Città Futura S.r.l., an associated company of Stelline Servizi Immobiliari S.p.A. (49.00%). - Programma Ciociaria S.r.l., dormant company, associate of Banca della Ciociaria S.p.A. (98.31%). Lastly, the map of consolidation is completed with Quadrivio Finance S.r.l., a special purpose company associated with the securitisation implemented in the first half of

13 The reference operating context The general economic framework 1 The recovery in the world economy continued during the first six months of the current year. Growth rates were high in emerging economies, strong in the United States and in Japan, still modest in Europe. International trade gained most of the ground lost compared to In advanced countries, wide margins of idle capacity reduced inflationary pressures. The most updated projections of international bodies and private forecast experts discounted a slowdown in growth rates in the following months. The development of the world economy still partially depends on anti-crisis expansive policies, it is curbed by the unfavourable conditions of the employment market and by recurring financial tensions. Prospects are better in economies where domestic consumer and investment demand seems stronger. In the results of the Toronto summit of June, the G20 leaders indicated as a priority the support to the continuation of the recovery, and underlined the risks deriving from the widening of deficits and public debts. Advanced countries committed to halve the deficits by 2013 and to stabilise or reduce the debt/gdp ratio by The Eurozone - In the Eurozone, GDP increased only by 0.2 per cent in the first quarter of 2010 compared to the previous quarter, after the moderate 0.1 at the end of The economic activity was greatly supported by re-stocking. Net of this component, the domestic demand recorded a new decline; private consumption was at a standstill. The sharp rise in imports more than offset the contribution to GDP growth coming from exports. According to the economic indicators, the activity strengthened considerably in the second quarter, obtaining support mainly from foreign demand. In the Eurozone, year-on-year consumer price inflation has been gradually accelerating of approximately half a percentage point in the first few months of the year, driven by the acceleration in energy prices. In June, it reached 1.4 per cent. In the absence of pressures on the demand side, the year-on-year growth of the index net of the most volatile components (food and energy) remained just under 1 per cent from the beginning of Always in June, inflation prospects for 2010 of professional operators, slightly revised upwards from the figures of April, set at 1.4 per cent. Italy - The Italian GDP increased only 0.4 per cent in the first quarter of Exports contributed most to this increase. Domestic demand remained weak: The accumulation of machinery and equipment was modest, investments in constructions and household consumption were at a standstill. According to the economic indicators, the growth in the second quarter continued, still driven by exports. Investments are held back by uncertainties on the future conditions of demand and by the still wide margins of idle capacity. However, the recovery of industrial activity continues: production increased by 1.7 per cent in the first quarter and would still grow by 2 per cent in the second quarter; outstanding orders, especially foreign, grew stronger; price competitiveness improved. Manufacturing productivity increased in the first quarter compared to a year ago, also due to the reduction of worked hours. In the twelve months ending in March, company profitability increased, after two years of almost continuous decline. The production levels in the industry are less than almost 20 percentage points compared to the 2008 peak value. The recovery of the economic activity was not sufficient for reversing the employment trend, which however in the first quarter stopped declining; according to provisional figures, it did not improve significantly in the second quarter. The unemployment rate, net of seasonal factors, stood at 8.7 per cent, lay-off hours slightly decreased. Consumer price inflation continued to remain at historically moderate levels. Italian banking system Bank lending showed signs of recovery due to an increase in demand. In May, the gradual growth of bank lending in the non-financial private sector continued (1.3 per cent year-on-year, adjusted for the accounting effect of securitisations, from 0.1 of February). The increase in the quarter was 3.2 per cent, net of the seasonal component and per year (from 0.9 in February); business credit sector, which continued to decrease until February (-1.4 per cent), increased by 2.1 per cent; household credit sector by Source: Bank of Italy Economic Bulletin no. 61 July

14 In May, the overall credit disbursed by the first five Italian banking groups (net of doubtful loans and repurchase agreements) still declined by 1.9 per cent compared to the same month in 2009; the credit granted by other banks grew by 3.1 per cent. The difference can be observed both for household loans and for business loans and, for the latter, both for bigger and smaller companies. The growth of business loans mainly showed the increase in demand, related to the recovery of the business. According to the answers of the Italian banks participating in the Bank Lending Survey of Eurosistema on bank lending in the Eurozone, in the first quarter of 2010, the lending criteria remained essentially unchanged. According to the monthly survey of ISAE and the quarterly survey carried out together with the Bank of Italy and Il Sole 24 Ore, the net percentage of businesses reporting a credit squeeze further decreased in June. Over the last months, the interest rates on the new loans recorded very moderate changes. In May, the cost of short-term loans to businesses, including those on current accounts, stood at 3.7 per cent, compared to 3.8 in February; the cost of new household loans remained unchanged at 2.2 per cent for floating-rate transactions and decreased by two tenths, to 4.4 per cent, for fixed-rate transactions. Credit quality remains at low levels. In the first quarter of this year the ratio between the flow of new adjusted doubtful loans and total loans, net of seasonal factors, was 2.0 per cent, essentially in line with the previous quarter and approximately twice the average level of 2008 and Based on preliminary figures of the second quarter of this year, the total exposure for debtors recorded as doubtful for the first time did not record significant changes compared to the same period in There were some signs of improvement for businesses in the manufacturing sector whereas there was a further deterioration for consumer households. The high level of other types of impaired loans to businesses (substandard, restructured, expired or overdue exposures), which were equal to 7.9 per cent of loans in May, shows that the flow of new doubtful loans could remain considerable also in the following months. The growth of total deposits in Italian banks continued to decrease, almost zeroing in May (0.2 per cent, compared to 1.0 in February). Bond issues (0.2 per cent) and resident deposits (3.5 per cent) slowed down. Within the latter, the expansion of current accounts was high (7.7 per cent) in a context characterised by the extremely low level of interest rates. The decline of yields on bonds continued, in line with the yields of market interest rates, 2.6 and 1.7 per cent, respectively, due to fixed rate bonds and variable rate bonds. The decline in banking profitability continued. According to the consolidated reports of the first five banking groups, in the first quarter of 2010 the drop in profits continued. They fell on average by about one third compared to a year ago. The return on equity (ROE) was approx. 4 per cent (6 per cent in March 2009). In the presence of a decrease in trading volumes and the difference between the return on assets and funding costs, the interest margin dropped by 13 per cent; the decline was totally offset by the increase in other revenues, especially those deriving from the trading assets and fees and commissions. The income from banking activities remained stable, reflecting also the sluggishness of operating expenses. Provisions and adjustments to loans remained high and absorbed more than 50 per cent of the income from banking activities. In some cases, the drop in profits reflected the increase in taxes, due to the inexistence of the benefits related to the tax treatment of goodwill. According to the expectations of financial analysts, the recovery of the banking profitability should be gradual: results in line with 2008 would be achieved again in In March 2010, the coefficient related to the core tier 1 ratio of the first five groups could have been estimated at 7.6 per cent (compared to 7.2 in December 2009); the coefficients related to the tier 1 ratio and to total capital ratio stood at 8.6 (compared to 8.3) and to 12.2 per cent (compared to 11.8), respectively. Financial markets In the second quarter of the year, the trend of share prices was characterised by high volatility. In April and May, the persisting worries on the sustainability of national debt of some countries of the Eurozone were reflected in strong declines of stock market indices; as from the end of May, the stabilisation measures taken by the government of the Eurozone and the dissemination of some positive macroeconomic figures contributed to ease off, favouring a recovery of share prices. However, in the last days of June, recovery was interrupted and further declines occurred. In the second quarter as a whole, the general Borsa Italiana index dropped by 15 per cent, more than the index of the main listed companies in the Eurozone (minus 11 per cent). The slight worsening of income prospects of the listed companies could have contributed to the drop in prices. The decline in prices was stronger for insurance and bank shares (-20 and -18 per cent, respectively), on the wake of the fears that the total debt crisis could affect the financial segment. 14

15 Operating performance and significant events in the half year Comments are provided below on the main consolidated economic and financial data for the first half. To enable a better comprehension of the financial results, the reclassified consolidated statement of financial position is provided. For general information concerning the macroeconomic scenario of reference, reference is made to the introductory capital. RECLASSIFIED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in thousands of EUR) ASSETS 30/06/ /12/2009 % change Cash and cash equivalents 171, , Financial assets held for trading 274, , Financial assets available for sale 438, , Financial assets held to maturity 88,487 1 n/a Due from banks 1,301,455 1,437, Loans to customers 21,239,185 20,373, Hedging derivatives Investments in associates and companies subject to joint control 216, , Property, plant and equipment and intangible assets (1) 1,242,871 1,207, Other assets (2) 499, , Total assets 25,473,408 24,895, (1) Include the items "120. Property, plant and equipment and 130. Intangible assets. (2) Include the items 140. Tax assets and "160. Other assets". LIABILITIES AND SHAREHOLDERS EQUITY 30/06/ /12/2009 % change Due to banks 942,567 1,470, Direct customer deposits (1) 21,146,400 20,216, Financial liabilities held for trading 21,323 39, Other liabilities 994, , Provisions for specific purpose (2) 199, , Minority interests 283, , Shareholders equity (3) 1,886,011 1,927, Total liabilities and shareholders equity 25,473,408 24,895, (1) Include the items "20. Due to customers" and "30. Securities issued". (2) Include 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". 15

16 Deposits At the end of the first half, total deposits amounted to EUR 33,833.9 million, recording a 3% increase with respect to EUR 32,852.6 million at the end of December Direct deposits 2 totalled EUR 21,146.4 million, recording a rise of 4.6% compared to EUR 20,216.5 million recorded last year. By analysing its components, it can be seen that direct deposits from customers, corresponding to EUR 14,607.6 million increased by 3.6%, while securities issued, corresponding to EUR 6,538.8 million, rose by 7%. In terms of breakdown by technical form, it can be noted that current accounts, totalling EUR 13,213.1 million, represent 62.5% of total deposits. As at 30 June 2010, the Group s indirect deposits totalled EUR 12,687.6 million, showing substantially no change compared to EUR 12,636 million of the previous year. The increase in "managed" deposits was more marked, comprising mutual investment funds, customer assets and insurance savings (+5.6%), reaching EUR 6,206.1 million and representing 48.9% of the overall aggregate, whilst the "administered" component, representing customer securities deposited with the Group banks, recorded a 4.14% decrease compared to 31 December Loans At the end of the first half of 2010, loans to customers amounted to EUR 21,239.2 million, a 4.2% increase compared to the EUR 20,373.6 million recorded at the end of December Financing was specifically focused on small and medium-sized companies, trades and households, which have always been the fundamental customer base of the Group. The breakdown by technical type is provided below. Technical form (in millions of EUR) % Change Current accounts 7, , Mortgages 9, , Credit cards, personal loans and salary-backed loans Financial leasing 1, , Other transactions 2, , Debt securities n/a Total 21, , Quality of loans Net doubtful loans to customers amounted to EUR 433 million, compared to EUR at the end of the previous year. The ratio of net doubtful loans and net loans to customers was 2%, up on the 1.7% recorded last year. Other net doubtful loans, corresponding to EUR million, recorded an increase compared to the EUR million recorded at the end of This aggregate (comprising substandard loans and overdue/past due), net of the relative value adjustments, accounted for 4.2% of net customer loans. The ratio between total impaired loans and net loans was 6.2%, recording an increase compared to the end of the previous year (5.3%). Increase in risks of the lending portfolio, which still remains quite limited, is due to the worsening of the economic cycle. The breakdown of impaired loans is provided below. 2 This figure comprises the items 20 "Due to Customers" and 30 "Securities issued". 16

17 Gross exposure Value adjustments Net exposure Gross exposure Value adjustments Net exposure (in millions of EUR) as at 30/06/2010 as at 31/12/2009 Doubtful loans 1, Substandard loans Restructured exposures Past-due exposures The coverage ratios of impaired loans are as follows: Coverage ratio Coverage ratio as at 30/06/2010 Doubtful loans 60.2% Substandard loans 6.0% Restructured exposures 2.8% Past-due exposures 2.0% Impaired loans 34.54% Other financial assets and liabilities Other financial assets, represented by investments in securities and derivative contracts with a positive fair value amounted to EUR million as at 30 June 2010, an 11.4% increase compared to the figure recorded at the end of December 2009 (EUR million). Financial liabilities, represented by derivative contracts with a negative fair value totalled EUR 21.3 million compared to EUR 39.4 million at the end of The breakdown is provided below. % change Financial assets held for trading % Bonds and other debt securities % Equity securities and UCI quotas n/a Derivative contracts % Financial assets available for sale % Financial assets held to maturity n/a Hedging derivative contracts Total other financial assets % Financial liabilities held for trading % Total other financial assets/liabilities % Group shareholders equity As at 30 June 2010, Group shareholders equity amounted to EUR 1,886 million, a 2.1% decrease compared to the EUR 1,927 million recorded in December The decrease in the aggregate was mainly due to the increase in the investment in the share capital of Banca dell Artigianato e dell Industria (B.A.I.) and to the acquisition of control of Banca della Ciociaria. The ratio of shareholders equity to profit for the year of the Parent Company, as shown in the financial statements as at 30 June 2010, and the corresponding values of the consolidated situation on the same date, are illustrated below. 17

18 Regulatory capital and capital ratios The consolidated regulatory capital as at 30 June 2010, a detailed breakdown of which is provided in a specific section of the Notes to the Financial Statements, amounted to EUR 1,859.5 million, compared to EUR 1,787.9 million as at 31 December The change is mainly due to the issue of the 2010/2017 Credito Valtellinese subordinated loan, in part offset by the increase in the investment in the share capital of Banca dell Artigianato e dell Industria (B.A.I.) and by the acquisition of control of Banca della Ciociaria. The regulatory capital and level of the core capital ratio, standing at 6.3%, and the total capital ratio of 9.5%, guarantee that the capital requirements under current law are met and adequately support the Group's business development. The following table shows the values for regulatory capital, risk-weighted assets and capital ratios. Risk-weighted assets and capital ratios Risk-weighted assets 19,478,850 19,285,775 Tier 1 capital 1,230,524 1,277,676 Tier 2 capital 632, ,849 Regulatory capital 1,859,546 1,787, Capital ratios Core capital ratio 6.3% 6.6% Total capital ratio 9.5% 9.3% With the successful conclusion of the 2010 Warrant exercise, during July, the regulatory capital amounted to approximately EUR 2 billion. Including the effects of this transaction, the core capital ratio should amount to 6.8% and the total capital ratio to 10%. 18

19 At the end of the half year, the Group had one loan legally classified as significant exposure under current regulations (loans exceeding 10% of regulatory capital), for a total of EUR million. The position mainly refers to an existing commitment towards an associate. Consolidated economic results To enable a better comprehension of the economic results, the reclassified consolidated income statement is provided. RECLASSIFIED CONSOLIDATED INCOME STATEMENT (in thousands of EUR) ITEMS 1st half of st half of 2009 % change Interest margin 237, , Net fee and commission income 139, , Dividends and similar income 2,108 1, Income from investments in associates and companies subject to joint control carried at equity (1) 6,806 7, Profit (loss) on trading, hedging activities and disposals/repurchases 17,919 18, Other operating expenses/income (4) 8,355 9, Operating income 411, , Personnel expenses (166,088) (156,399) 6.20 Other administrative expenses (2) (90,451) (88,338) 2.39 Net adjustments to/recoveries on property, plant and equipment and intangible assets (3) (19,858) (17,877) Operating costs (276,397) (262,614) 5.25 Net operating margin 134, , Net losses/recoveries on impairment of loans and other financial assets (67,106) (57,609) Net provisions for risks and charges (1,477) (1,105) Profit (losses) on disposal of investments in associates and companies subject to joint control n/a Income (loss) before tax from continuing operations 66,386 74, Taxes on income from continuing operations (31,688) (26,748) Income after tax from continuing operations 34,698 47, Minority interests (5,384) (5,962) Profit for the period 29,314 41, (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 25,695 thousand in the first half of 2010 and EUR 23,883 thousand in the first half of 2009); (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, included in item 220 Other operating expenses/income (EUR 3,297 thousand in the first half of 2010 and EUR 3,257 thousand in the first half of 2009); (4) Other income and charges correspond to item 220 "Other operating expenses/income" net of the above reclassifications. The Income statement shows a net income for the period of EUR 29.3 million, down 29.4% on the June 2009 figure, due to a positive 4% change in net operating income and an increase in operating expense which recorded an overall increase of 5.3%. 19

20 Following the drop in both interest income and income expense, due to falling market rates, the interest margin was significantly affected, recording EUR million compared to EUR million in June Net commissions amounted to EUR million and mark a positive development of 36.2% compared to the same period last year, and are mainly affected by the increase in commissions linked to traditional commercial banking activities, such as current account management (+6.8% y-o-y) and collection and payment services (+9.7% y-o-y). Moreover, a significant rise (+27.7 y-o-y) was recorded in commissions for management, trading and consulting services. Similar dividends and income amounted to EUR 2.1 million (+24.9%), whereas profit from investments in associates and companies subject to joint control carried at equity recorded EUR 6.8 million, a 7.4% decrease compared to June Profit (losses) on trading, hedging activities and disposals/repurchases reaching EUR 17.9 million compared to EUR 18.8 million in June In particular, gains from the disposal of financial assets available for sale decreased from EUR 6.6 million last year to EUR 0.8 million. Other operating income/expenses decreasing by 13.1% recorded 8.4 million compared to 9.6 of June Operating income recorded an increase of 4% year on year and totalled EUR 411 million compared to 396 million of the first half of 2009 which, however, included non-recurring of approximately EUR 4 million. Operating costs, the sum of personnel expenses, other administrative expenses and net adjustments to/recoveries on property, plant and equipment and intangible assets, amounted to EUR million, an increase of 5.3% compared to the corresponding period of 2009 (EUR million). More specifically, personnel expenses rose from EUR million to EUR million (+6.2%) and other administrative expenses amounted to EUR 90.5 million, an increase of 2.4%. These increases are the result of further branch network expansion; on the date of this report the Group had 536 branches compared to 498 on 30 June 2009, mainly due to acquisition of the controlling interest in Banca Cattolica di Montefiascone and Banca della Ciociaria. Net adjustments to/recoveries on property, plant and equipment and intangible assets amounted to EUR 19.9 million, an increase of 11.1% compared to the EUR 17.9 million recorded in the first half of The cost/income ratio the ratio of operating expenses to operating income stood at 67.2% compared to 66.4% in the first half of last year. The net operating margin reached EUR million, marking an increase of 1.5% against the EUR million recorded for the corresponding period of the previous year. In confirmation of the weak economic cycle, write-downs for impairment of loans increased from EUR 57.6 million in the first half of 2009 to the current EUR 67.1 million. Income (loss) before tax from continuing operations stood at EUR 66.4 million, down 10.5% year on year on the previous figure of EUR 74.2 million. Tax expenses for the period were estimated as EUR 31.7 million compared to EUR 26.7 million in the first half of 2009, a value that also included non-recurring positive effects of EUR 5.8 million. Lastly, income pertaining to third parties, amounting to EUR 5.4 million, led to a profit for the period of EUR 29.3 million, a decrease of 29.4% compared to the EUR 41.5 million recorded in the corresponding period of the previous year. 20

21 Customer base and commercial indicators. As at 30 June 2010, Group customers totalled 900,096, up 2.7% on the 876,290 at the end of Group customers as at 30/06/ /12/ /03/ /06/2010 Customers are distributed among eight territorial banks (Credito Valtellinese 24%, Credito Artigiano 26%, Credito Siciliano 32%, Banca dell Artigianato e dell Industria 2%, Credito Piemontese 5%, Carifano 7% Banca Cattolica (2%) and Banca della Ciociaria (2%), which, within the scope of the Creval Group, are the organisations in charge of the local reference markets. Breakdown of Group customers as at 30 June 2010 by bank CARIFANO 7% CREDITO PIEMONTESE 5% BANCA DELLA CIOCIARIA 2% BANCA CATTOLICA 2% CREDITO VALTELLINESE 24% CREDITO SICILIANO 32% BAI 2% CREDITO ARTIGIANO 26% 21

22 Breakdown of Group customers as at 30 June 2010 by area of residence South & Islands 31,8% Foreign 0,3% North 51,4% Centre 16,6% Breakdown of Group customers as at 30 June 2010 by segment Authorities & Other 2,7% Companies 9,9% Private 87,3% As at 30 June 2010, figures regarding cross-selling at Group level were

23 Cross-selling for Group banks as at 30/06/10 3,35 3,04 3,15 2,25 2,59 3,01 CREDITO VALTELLINESE CREDITO ARTIGIANO BAI CREDITO SICILIANO CREDITO PIEMONTESE CARIFANO Development of the territorial network. As at 30 June 2010, the Credito Valtellinese Group s branch network comprised 536 branches, 126 of which belonging to the Parent company Credito Valtellinese, 142 to Credito Artigiano, 136 to Credito Siciliano, 36 to Banca dell Artigianato e dell Industria, 28 to Credito Piemontese, 45 to Cassa di Risparmio di Fano, 9 to Banca Cattolica and 15 to Banca della Ciociaria. During the half year, the Group further increased its presence throughout the country, in addition to the acquisition of Banca della Ciociaria present in the provinces of Frosinone, Roma and Latina with the opening of four new branches by Banca dell Artigianato e dell Industria in Brescia (Branch no. 3), Vigonza (PD), Orzinuovi (BS) and Verona (Branch no. 1), of the branch of Melegnano (MI) by Credito Artigiano, as well as of the opening in Asti by Credito Piemontese. Commercial network structure Other sales channels. The Group s traditional expertise in developing on-line banking services has been met with the approval of users, who, as at 30 June 2010 numbered 151,921 (+16.4% compared to 30 June 2009). The POS service offered to customers has seen the progressive increase in the number of installation and transactions: 20,566 terminals were active as at the end of the first half, up 7.9% on the end 23

24 of 30 June The number of installed ATMs in the first half of 2010 totalled 658, compared to 594 the previous year. DISTRIBUTION CHANNELS % change Number of ATMs % Number of Internet users (active) 151, , % Number of POS 20,566 19, % Workforce As at 30 June 2010, the number of employees of Credito Valtellinese Group companies totalled 4,504 against 4,415 as at 31 December In terms of professional categories, the Group s workforce can be broken down as follows: 73 executives; 1,511 middle managers; 2,920 resources in other professional categories. Middle managers 33% Top managers 2% Other professional categories 65% 24

25 Commercial operations profile The Credito Valtellinese Group offers its customers - private and business - a wide range of offers able to meet any need for financing, investment and transfer expressed by the customers, using to this end specialised structures within the Group or connected through the company network business model. Another element characterising the offer of the Group is the wide range of on-line based services, guaranteeing the customer the highest autonomy possible in the management of banking relationships and a gradual reduction in costs. The main changes concerning products and services that characterise the offer of the Group are broken down below. Lending products The Group made effective, as from March 2010, a collaboration agreement with Compass S.p.A., leading company of the Gruppo Mediobanca Group working in the consumer credit sector, specialised in disbursing loans through the banking channel, in particular. The agreement, which is the result of an important alternative in this field with a special reference to newly acquired customers and in the areas of recent branch openings, allows to offer four different products of personal loans, characterised by fixed rate for all the period of validity of the contract and maturities of the repayment plan up to 84 months. Always with reference to loans to private customers, Creval Mutuo Protetto, a long-term mortgage loan with maturity of up to 10, 15 or 20 years, was made available. This loan, directed to the requirements related to the purchase, construction or renovation of a building, has a floating rate (indexed to Euribor or ECB) and a maximum rate that cannot be exceeded during the period of validity. Therefore, it combines the advantage of having an interest rate that is always in line with the market trend with the certainty that the amount of the instalment does not exceed a level determined beforehand, therefore by protecting the customer from any strong increases in the reference rate. With the entry of the Group's territorial banks into the Agreement signed between ABI and Household Policy Department, for the disbursement of loans to families with children born or adopted in 2009, 2010 or 2011, Prestito Nuovi Nati (New Born Loan), was made available: a fixed-rate instalment credit with soft economic conditions. Transfer products In this context, it should be noted a new current-account agreement called Conto Più 2% reserved to newly acquired private customers. Conto Più is characterised by particularly convenient conditions such as the creditor rate - equal to 2% on up to EUR 25,000 deposited and remaining unchanged for all of 2010, zero fee and cost, with free international bancomat and reloadable payment card, Cart@perta Gold. From the viewpoint of the traditional social commitment and attention to differently abled persons, Creval Accanto a te was carried out: service project whose aim is to support differently abled persons through a greater attention to the relation together with a range of advantageous banking products designed to meet the specific requirements. Creval accanto a Te offers, in addition to a current account, an instalment credit, with a repayment plan characterised by particularly favourable economic conditions, for purchasing means of transport and aid. All this accompanied by a training program of the branch operators whose aim is to awaken them to the needs of this customer segment. Supporting the local economy In a very difficult context, the Credito Valtellinese Group started responsible initiatives putting forward instruments for guaranteeing traditional support to the SMEs - which constitute the most active and dynamic entrepreneurial fabric of the territories in which the banks of the Group operate and to private customers in state of difficulty. These measures - for accompanying families and entrepreneurs during the current economic trend - are not only meant for managing emergency phases, but where implemented for a medium to long term support and development, in line with the provisions of the articles of association and with the principles on which the Creval operations are based. Specifically, during the half year reported, the following agreements were operative - Moratorium arrangements for the suspension of mortgage instalments to private customers. In adopting what was provided by the Protocol signed with the Ministry of Economy and Finance, within the issue of the so-called Tremonti Bonds, the Group undertook to favour families that run the risk of undergoing the uncertainties of the economic trend and the effects of the financial crisis, 25

26 including the option of suspending for 12 months the payment of the instalments, without finance costs, if the subscriber to the loan for the purchase of the main home or a cohabitant member of the family unit has benefited, until 31 December 2011, from supporting actions to the income due to suspension from work or has lost his/her job. - With reference to the Common announcement signed by Abi, Government and Employers' associations for the suspension of SMEs debts and that envisaged the suspension for 12 months of the principal of the medium to long-term loan instalments, the suspension for 12 months for what concerns leasing, the extension to 270 days of the maturities of the short-term loan and the preparation of a loan for equity enhancement of the applying SMEs, the Group accepted the extension of the deadline for filing the suspension as at 31 January 2011 decided on 15 June by the Ministry of Economy and Finance, ABI and all the main enterprise representations - ABI Cassa Depositi e Prestiti Agreement. On the basis of the agreement signed in August 2009 with Cassa Depositi e Prestiti S.p.A - valid for all the territorial banks and for Mediocreval with a view to supporting small and medium-sized enterprises (SMEs), Creval was assigned a second plafond of EUR 80 million with a view to fostering a greater flow of medium to long-term resources towards small and medium-sized production units. The first injection of EUR 33 million was completely used by the Creval Group - Confiducia agreement with Federfidi Lombardia. The Group (by means of Credito Valtellinese, Credito Artigiano and Banca dell Artigianato e dell Industria) adopted in March 2010, the Warranty provision, Confiducia, prepared by the Lombardia Region within the anti-crisis package of measures with a view to facilitating the access to credit of small and medium businesses of all sectors, by strengthening the guarantees of Lombard credit guarantee consortia. - Adopting the Provision for tourist companies. In May, Credito Valtellinese, Credito Artigiano and Banca dell Artigianato e dell Industria, adopted the turnover Fund activated by the Lombardy Regional Government by means of Finlombarda S.p.A. for the disbursement of soft loans; this adoption is part of the traditional support of the Creval Group to the tourist sector, important economic sector for the Lombardia Regional Government and mainly for the Province of Sondrio, in the provinces of origin of the Parent Company. Money products In the first half year, a new reloadable payment card called ContoInTasca was launched, provided with an IBAN code, which allows to associate the main functions of a payment card to the advantages of a current account. The product is mainly directed to a young customer, attentive to innovation and sensitive to operating costs, and due to its characteristics it is a valid alternative to the traditional current account. 26

27 IN DETAIL CONTO INTASCA In June 2010, the Creval Group launched ContoinTasca, the innovative reloadable payment card that can be used for payments and withdrawals, with a microchip to guarantee a higher degree of security. The card, in addition to the traditional functions of an international bancomat card allows to: - credit the salary, domicile utilities to pay bills or direct debits, issue or receive transfers; - order payments over the Internet thanks to the combination with the Visa network; - manage bank transactions directly online, through the free service of home banking banc@perta; - freely and immediately receive the information on the transactions carried out through SMS; - personalise the maximum capacity of the card in line with its own expense requirements. Activation and annual fee are free. Investment and Insurance products The Creval Group accepted in March the Guidelines issued by the Italian Banking Association (ABI) and Italian National Association of Insurance Companies (ANIA) concerning insurance policies related to mortgages and loans to bank customers. The Guidelines aim at introducing, on the one hand, increased flexibility in the management of policies in compliance with the law provisions on portability and early redemption of the loans and, on the other hand, a higher level of transparency on the disclosure provided to the customer. The acceptance of the Guidelines is in accordance with the trade policies and with the operating policies of the Group characterised by transparency in the way that services are granted and priced, with a view to customer satisfaction and long-term trust relations. In this sense, the policies offered by the Credito Valtellinese Group - through the subsidiary Global Assicurazioni - combined with loans are fully in compliance with the current regulations in force and with the principles established by the Guidelines. In particular, the policies placed by the Group related to loans do not contemplate the single payment of advanced premiums. The period under review was characterised by the further widening of the multimanager offer of funds and Sicav carried out by signing a trade agreement with Lemanik Asset Management and with regard to the placement of two compartments of Sicav Lemanik and of one compartment of Sicav Arcipelagos, as well as by the introduction of some new products offered by Aperta Sicav, J.P. Morgan Asset Management, Arca SGR and Aletti Gestielle SGR. As for the life insurance area, the new life policy Global Valore Protetto is available as from February, addressed to more risk averse investors, interested in the possibility of divesting the capital with less time and economic constraints compared to other insurance forms by benefiting however in the same time of the same yield opportunities offered by separate management. Moreover, an additional insurance coverage exists. In the sector of non-life products, a test phase was started for the distribution, by some branches of the Creval Group, of the car policy of Genertel S.p.A. 27

28 Equity policies exercise of the 2010 Credito Valtellinese Ordinary Share Warrants On 30 June 2010, the exercise period of the 2010 Credito Valtellinese Ordinary Share Warrants - which started last 31 May - came to an end. At the close of the aforesaid period, 27,454, warrants were exercised and 27,454,752 conversion shares (valid as of 1 January 2010) were subscribed to, equal to 82.4% of the maximum amount, out of 33,310, Credito Valtellinese ordinary warrant shares. The 2010 warrants granted the right to subscribe to newly issued ordinary shares of Credito Valtellinese on the basis of one conversion share for each 2010 warrant exercised at a subscription price of EUR 3.75 (calculated - according to what is provided by Article 2 of the 2010 Warrant Regulations - applying a discount of 10% with respect to the official average market price of Credito Valtellinese shares weighted by the relative quantities traded calculated with reference to the period 3 May 21 May 2010). The total value of the transaction for Credito Valtellinese is EUR 103 million. As a result of the subscription of 27,454,752 conversion shares issued on 7 July, the share capital of the bank amounts to EUR 824,759, and is divided in ordinary shares with a par value of Euro 3.5 each. 28

29 Important events concerning investments Acquisition of control of Banca della Ciociaria S.p.A. In May, Banca della Ciociaria S.p.A., which operates in the provinces of Frosinone, Latina and Roma through a network of 15 branches joined the Creval Group. Credito Valtellinese holds 37.96% of its share capital. At the end of the 2009 financial year, the Board of Directors of Credito Valtellinese decided to exercise the purchase option, required by the shareholders' agreement previously in force, for acquiring the controlling share of the Lazio bank. Having obtained the necessary authorisation from the competent Supervisory Authorities and following the transfer of the shares subject-matter of the call option to Credito Valtellinese, as from 19 May 2010, Banca della Ciociaria is included in the Creval Group, with a 53% investment of the Parent Company. Within the operation, Finanziaria San Giacomo S.p.A. acquired 20% of the share capital of Finanziaria Laziale S.p.A., company working in the management of impaired loans and in the granting of personal loans. Setting up of Global Broker In July 2010, Global Broker S.p.A. was established in partnership with the Ri-Fin Group. 51% of the share capital of the company is owned by Bancaperta and therefore will be included in the Group consolidation area, even of not included in the baking group, in that it carries on insurance activities. Global Broker operates in the insurance brokerage segment, mainly in the insurance sector targeting the SME segment. The Company which works according to a specific mandate from its customers - provides high value added consulting services, guaranteeing a precise insurance risk analysis of the customer concern and, consequently, an excellent and economic coverage of internal risks, through the employment of insurance contracts with leading insurance companies. Disposal of 29% of Aperta Gestioni Patrimoniali S.A. On 23 April 2010, the disposal of 29% of the investment held by Bancaperta S.p.A. in the share capital of Aperta Gestioni Patrimoniali S.A., a Swiss asset management company based in Lugano, was completed for a payment of CHF 1.8 million, with overall gross capital gains at individual level of about CHF 450,000 for Bancaperta. The investment was sold to the Hoderas Holding S.A. company. Due to the said transaction, currently the investment of the Credito Valtellinese Group, through Bancaperta, in the share capital of Aperta Gestioni Patrimoniali S.A. is equal to 19%. Capital increase of Creset S.T. As is well known, Creset Servizi territoriali S.p.A. carries out a collection activity for municipal authorities up to 200,000 inhabitants, an activity for which the regulations that came recently into force require a minimum share capital of at least EUR 5 million. The extraordinary shareholders meeting of last 8 June decided the increase in share capital from EUR 2,600,000 to EUR 5,720,000, through the issue of 2,400 new shares with a par value of EUR 1,300 each. Shares were fully paid by shareholders Credito Valtellinese for a total amount of EUR 3,120,000. Transformation of Deltas and Bankadati in consortium companies As part of the specific project defined at the Group level, the transformation of the Deltas and Bankadati Servizi Informatici companies in limited consortium companies was completed during the half year, subject to the expansion of the shareholding structure of the aforesaid companies to all the companies of the Credito Valtellinese Group. To this end, the Board of Directors of the Parent Company resolved the partial disposal of the investment in Bankadati, equal to 130,000 shares that correspond to 26% of the related share capital, in favour of companies of the Credito Valtellinese Group for EUR 1,588,600, determined on the basis of the shareholders' equity of the aforesaid company on 31 December Afterwards, an operation that lead, through the acquisition of shares held by the Parent Company, to the entry in the capital of Bankadati of some companies associated to the Creval Group was completed. Unit 29

30 price per share of Bankadati, calculated on the basis of the shareholders' equity per share as at 31 March 2010, was fixed in EUR In particular, Credito Valtellinese transferred: - no. 5,000 shares, equal to 1% of the capital, for a countervalue of EUR 35,050.00, in favour of Istituto Centrale delle Banche Popolari Italiane S.p.A. and Banca di Cividale S.p.A., respectively; - no. 2,500 shares, equal to 0.5% of the capital for a countervalue of EUR 17, in favour of Banca Popolare di Cividale S.c.p.A., Civileasing S.p.A., NordEst Banca Spa and Finanziaria Laziale SpA, respectively. Therefore, the Board of Directors of Credito Artigiano resolved the partial disposal of the investment in Deltas, equal to 6,240 shares that correspond to 26% of the related share capital, in favour of other companies of the Credito Valtellinese Group for EUR 436,238, determined on the basis of the shareholders' equity of the aforesaid company on 30 September With reference to both operations transfer of investments in the capital of Bankadati and Deltas - the unit transfer values were certified by special fairness opinions issued by an independent advisor. Share capital increase in Banca dell Artigianato e dell Industria and purchase of shares from private individuals On 26 February 2010, the period of subscription to the second tranche of the share capital increase of Banca dell Artigianato e dell Industria (BAI) totalling EUR 40,431,522 was concluded, approved by the extraordinary shareholders meeting on 30 March The subscription to the aforesaid transaction implied, on behalf of the Parent Company, an outlay of EUR 25.9 million for the subscription of 3,705,087 shares at the price of EUR 7 per share, EUR 5.16 of which as par value and EUR 1.84 as premium. The outlay of Credito Artigiano, for subscribing 1,202,115 shares totalled EUR 8.4 million. Later, Credito Valtellinese acquired from some private shareholders 2,632,146 ordinary shares of Banca dell Artigianato e dell Industria for a countervalue of EUR 32.3 million. On conclusion of the operation, the share capital of BAI is 63.1% owned by Credito Valtellinese and 20.8% owned by Credito Artigiano. Transfer of the investment in Centrosim A transfer to Istituto Centrale delle Banche Popolari Italiane (ICBPI) of the investment that the Group held in Centrosim S.p.A. (6,666 shares held by Credito Valtellinese and 100 shares owned by Banca Cattolica) was completed during the half year. The final unit price of the shares of Centrosim, equal to EUR 38.89, implied a total amount of approximately EUR 263 thousand. 30

31 Other important events Renewal of the Euro Medium Term Notes program (EMTN) In London, on 1 June 2010, Credito Valtellinese signed the Euro Medium Term Note renewal, which allows the Credito Valtellinese Group to issue financial instruments with a view to raising capital through international institutional investors by up to a maximum EUR 3 billion. The Credito Valtellinese Group EMTN program was assessed by Moody's and Fitch, leading international rating agencies, which gave ratings of A3 and A-, respectively, on the senior issues. Assignment of impaired loans to Finanziaria San Giacomo The Board of Directors of the Parent Company of 11 May 2010 favourably examined the general terms of an intragroup transaction for the assignment without recourse of impaired loans of Credito Valtellinese, Credito Artigiano and Credito Siciliano to Finanziaria San Giacomo S.p.A. The assignment contracts - after approving the resolutions of the competent board of directors of the companies involved in the transaction - were completed on 29 June 2010, according to the book value of the assets to be assigned as at 31 December 2009, considering the financial movements and objective facts occurred from 31 December 2009 to the actual date of assignment, as well as any adjustment made in such time interval according to the IAS/IFRS standards. The overall net current value of the transaction after final price determination amounted to EUR 43.4 million (EUR 24.2 million for Credito Valtellinese; EUR 9.2 million for Credito Artigiano and EUR 10 million for Credito Siciliano), for 2,979 positions (Credito Valtellinese 696, Credito Artigiano 802, Credito Siciliano 1,481). The Deloitte & Touche S.p.A. company was appointed with the task to assess the reasonableness of the assignment prices. Considering the size of the aggregates, the transaction does not affect significantly the consolidated and separate equity and financial situation and the income statement. Assignment of the leasing branch to Mediocreval On 8 June 2010, the Boards of Directors of the parent company Credito Valtellinese S.c., Credito Artigiano S.p.A. and Credito Siciliano S.p.A., each for what is of direct concern, approved an industrial reorganisation project that envisages the centralisation of the leasing activities currently carried out by the said banks in Mediocreval S.p.A. - Creval Group company specialised in disbursing medium to long-term loans and in the administrative services of the leasing segment (all-in-all, the Leasing Project ) with the granting of the respective company branches due to the disbursement of leasing in Mediocreval. The business unit area to be granted includes in particular existing leasing contracts, the movable and immovable property subject-matter of these contracts, the personnel dedicated to this area of activity and the funding elements of the specific activity. Therefore, the Boards of Directors of the three granting banks approved their financial positions as at 31 March 2010 of the business units to be granted, which are characterised as follows: Credito Valtellinese: total assets EUR 717 million, total liabilities EUR 674 million; Credito Artigiano: total assets EUR 390 million, total liabilities EUR 366 million; Credito Siciliano: total assets EUR 169 million, total liabilities EUR 159 million. The granting will be effective as from the end of September The transaction pursues the completion of the network business model, model chosen by the Creval Group for a long time, with the widening of the Group specialisation monitoring. In fact, in the network business model, the gradual specialisation of the competences of service companies belonging to the Group allows the territorial banks to offer services with a greater value added: on the one hand, these may focus on the customer with a greater attention to the increasing expectations of the latter, whereas, on the other hand, specialised companies will have the possibility of increasing the service quality by accelerating the response time. The centralisation of the leasing activities in a single reality will also allow an improved company organisation, with a simplification of intragroup processes and with a subsequent improvement of the support rendered to the sales network. 31

32 Rating On 6 July, rating agency Fitch confirmed the Rating ('A-) to Credito Valtellinese by modifying at the same time the Outlook of the Parent Company and of the subsidiaries Credito Artigiano and Bancaperta from Stable to Negative. The review of the outlook reflects the challenges that the bank has to face in the current operating context characterised by uncertainty, which could lead to a further deterioration of asset quality by damaging therefore the capitalisation of the bank. Performance of Credito Valtellinese stock In the first half of 2010, the average listed price of Credito Valtellinese stock was EUR 4.67, with a minimum of EUR 3.74 recorded on 29 June 2010 and a peak price of EUR 5.72 recorded on 5 January The Credito Valtellinese share performance - calculated on the basis of the average price for the half year compared to the end of recorded an approximate -16%, essentially in line with the Comit Bancari Index (-12%). Share performance in the first six months of ,500, ,000, ,500, ,000, ,500, ,000, ,500, ,000, , Jan 18-Jan 1-Feb 15-Feb 1-Mar 15-Mar 29-Mar 14-Apr 28-Apr 12-May 26-May 9-Jun 23-Jun 3.5 Volumes Prices 32

33 Performance of the Credito Valtellinese stock compared with the COMIT Bancari benchmark index over the first six months of 2010 (base 30 December 2008 = 100) Assignment to Centrosim SpA of the task for supporting liquidity of Credito Valtellinese ordinary shares In pursuance of Article 12 of the Articles of Association and in compliance with the prevailing laws and regulations, the Ordinary shareholders' meeting of Credito Valtellinese of 17 April 2010 approved the authorisation to the Board of Directors to carry out the purchase of treasury shares, as well as their reinvestment. This operation aims at promoting circulation of securities within standard brokerage activities in compliance with the objectives identified by Permitted Practices no. 1 adopted by Consob no on 19 March 2009, as well as the purchase of treasury shares, in compliance with the purposes of Permitted Practices no. 2 set forth in Consob resolution no of 19 March 2009, for a possible utilisation by way of consideration of extraordinary transactions, also by exchanging investments. According to the Consob Permitted Practice no. 1, on 13 July 2010 the Credito Valtellinese signed with Centrosim S.p.A. a contract aimed at assigning the task for supporting liquidity of treasury shares. In particular, Credito Valtellinese made available to Centrosim as Intermediary in Charge a provision - consisting of 595,608 Creval shares and an Amount of EUR 3,000,000 - required for carrying out the task of Liquidity Provider. In line with what was approved by the meeting, by signing the contract with Centrosim S.p.A., Credito Valtellinese is among the first Banks to accept what is provided by the aforesaid Consob Permitted Practices, by guaranteeing to the shareholders and to the market an increasing transparency on their operations on treasury shares. 33

34 Transactions between Group Companies and other related parties Transactions and relations among the other Credito Valtellinese Group companies are established within the sphere of a consolidated company network organisational model, on the basis of which each member is focused exclusively on the creation of its core business, within a business context that enables the Group's overall resources to be efficiently and effectively managed. On the basis of this approach, all transactions with Group companies mainly concern correspondent transactions for services rendered, deposit and financing services within the sphere of ordinary inter-bank operations. Other contractual transactions with specialised finance companies and special purpose companies regard support and consulting services and specialised services in support of banking activities. The economic effects of inter bank transactions are regulated at arm's length, while other transactions are regulated on the basis of the specific contractual terms that - maintaining the principal objective of optimising the synergies and economies of scale and purpose at the Group level - refer to parameters that are objective and constant over time, marked by essential transparency and equity. The quantification of fees for services is defined and formalised according to tested parameters that take into account actual utilisation by each user company. Said dealings are managed according to principles of conduct and procedural regulations contained within specific regulations approved by the Board of Directors, entitled the "Code of self-discipline for related party, intragroup, unusual and/or atypical transactions". This document provides a clear and approved reference framework that systematically summarises the various provisions governing management of these transactions, formally defining criteria for identifying the transaction and the related procedures for executing the decision-making process. In accordance with Article 2391-bis of the Italian Civil Code, the document defines and occasionally integrates the operating approach and company regulations already prevailing with the aim of ensuring transparency and substantive and procedural correctness in related party transactions. In accordance with these regulations, transactions of greater importance in economic, equity and financial terms performed with related parties are reserved to the exclusive authority of the Board of Directors, and reporting methods are also established for transactions implemented by the Bank s delegated bodies. The Board of Directors is exclusively responsible for the definition of intragroup contractual agreements and approval and possible amendment of the related economic conditions. Furthermore, the overall approach to intragroup transactions is subject to annual review by the Board of Directors, with the aim of verifying the consistency of the criteria which oversee related management contractual aspects, methods for calculating and reviewing considerations in relation to the evolution of the operating context. Transactions with related parties other than companies in the Credito Valtellinese Group, as defined by IAS 24, are part of normal banking activities and are generally regulated at arm's length for specific transactions, or aligned to the most favourable measure that may have been agreed for employees. The operations carried out by the Parent Company and the other Group banks and companies, falling under the field of application of Article 136 of the Consolidated Banking Law ( Obligations of banking representatives ), are decided in accordance with the provisions of the aforesaid law and governed by normal market conditions established for the specific operations. Detailed information on inter-group transactions and transactions with related parties, including information on the percentage weight of such and of arrangements existing with the same that affect the statement of financial position or income statement, accompanied by summary tables of said effects, are contained in the specific part of the Notes to the Financial Statements. No atypical or unusual transaction has taken place with Group companies or related parties in the half year period. 34

35 Business Outlook Consistent margins of uncertainty remain on the recovery of world economy, whose solidity seems inconsistent and uncertain. In the Eurozone in particular, recovery, driven by the increase in international trade, is exposed to several risks first of all the ongoing weakness of internal demand, especially when the incentive measures introduced by the governments at the beginning of the crisis come to an end. In the development scenario of the Italian economy, even if in a climate of general uncertainty, some signs of recovery are reported. On the basis of the above premises, the Board of Directors expects a business outlook of the second half year essentially in line with the first one, with statement of financial position aggregates in further development and a profit trend affected by the prolonged phase of levelling of the market interest rates and by the fragility of the economic context. Significant events occurring after the end of the first half of 2010 With the successful conclusion of the 2010 Warrant exercise, during July, the regulatory capital amounted to approximately EUR 2 billion. Including the effects of this transaction, the core capital ratio amounts to 6.8% and the total capital ratio to 10%. As a result of the subscription of 27,454,752 conversion shares issued on 7 July, the share capital of the bank amounts to EUR 824,759, and is divided in 235,645,565 ordinary shares with a par value of Euro 3.5 each. 35

36 Condensed consolidated interim report as at 30 June 2010: financial statements 36

37 Consolidated Statement of Financial Position (in thousands of EUR) ASSETS 30/06/ /12/ Cash and cash equivalents 171, , Financial assets held for trading 274, , Financial assets available for sale 438, , Financial assets held to maturity 88, Due from banks 1,301,455 1,437, Loans to customers 21,239,185 20,373, Hedging derivatives Investments in associates and companies subject to joint control 216, , Property, plant and equipment 471, , Intangible assets 771, ,320 of which: - goodwill 709, , Tax assets: 132, ,712 a) current 34, ,756 b) pre-paid 97,991 91, Other assets 367, ,825 Total assets 25,473,408 24,895,771 LIABILITIES AND SHAREHOLDERS EQUITY 30/06/ /12/ Due to banks 942,567 1,470, Due to customers 14,607,594 14,105, Securities issued 6,538,806 6,110, Financial liabilities held for trading 21,323 39, Tax liabilities: 74, ,791 a) current 51,506 96,917 b) deferred 23,308 21, Other liabilities 994, , Employee termination indemnities 62,773 61, Provisions for risks and charges: 61,781 63,605 a) post employment benefits 32,111 32,025 b) other provisions 29,670 31, Valuation reserves 43,368 46, Equity instruments 197, , Reserves 50,666 39, Share premium reserve 839, , Share capital 728, , Treasury shares (-) -3, Minority interests (+/-) 283, , Net income (loss) for the period (+/-) 29,314 76,127 Total liabilities and shareholders equity 25,473,408 24,895,771 37

38 Consolidated Income Statement (in thousands of EUR) ITEMS 1 st half of st half of Interest income and similar income 360, , Interest expense and similar expense (123,430) (218,463) 30. Interest margin 237, , Fee and commission income 149, , Fee and commission expense (10,489) (10,088) 60. Net fee and commission income 139, , Dividends and similar income 2,108 1, Profits (losses) on trading activities 16,304 11, Fair value adjustments in hedge accounting (11) Profit/loss from disposal or repurchase of: 1,626 7,249 a) loans b) financial assets available for sale 830 6,575 d) financial liabilities Net interest and other banking income 396, , Net losses/recoveries on impairment of: (67,106) (57,609) a) loans (63,755) (57,501) b) financial assets available for sale (3,084) (5) d) other financial activities (267) (103) 140. Net income from banking activities 329, , Administrative expenses: (282,234) (268,620) a) personnel expenses (166,088) (156,399) b) other administrative expenses (116,146) (112,221) 190. Net provisions for risks and charges (1,477) (1,105) 200. Net adjustments to/recoveries on property, plant and equipment (11,914) (11,285) 210. Net adjustments to/recoveries on intangible assets (4,647) (3,335) 220. Other operating income/expenses 30,753 30, Operating expenses (269,519) (254,105) 240. Profit (losses) on investments in associates and companies subject to joint control 6,806 7, Profit (losses) on disposal of investments Income (loss) before tax from continuing operations 66,386 74, Taxes on income from continuing operations (31,688) (26,748) 300. Income (loss) after tax from continuing operations 34,698 47, Net income (loss) 34,698 47, Minority interests (5,384) (5,962) 340. Parent Company s net income 29,314 41,493 Basic EPS Diluted EPS

39 Consolidated Statement of Comprehensive Income (in thousands of EUR) Items 1st half of st half of Net income (loss) 34,698 47,455 Other comprehensive income after tax 20. Available-for-sale financial assets (3,972) (2,974) 100. Valuation reserves from investments accounted for using the equity method Total of other comprehensive income after tax (3,653) (2,557) 120. Comprehensive income (Item ) 31,045 44, Consolidated comprehensive income attributable to minorities 4,946 5, Consolidated comprehensive income attributable to Parent Company 26,099 38,923 39

40 Statement of changes in consolidated shareholders equity (in thousands of EUR) 40

41 41

42 Consolidated statement of cash flows Direct method (in thousands of EUR) 1st half of st half of 2009 A. OPERATING ACTIVITIES 1. Management 129, ,202 - interest income received (+) 363, ,183 - interest expense paid (-) -122, ,850 - dividends and similar income (+) 2,108 1,688 - net commissions (+/-) 138,396 95,773 - personnel expenses (-) -163, ,376 - other costs (-) -84,539-67,035 - other revenues (+) 36,985 36,145 - taxes (-) -41,640-42, Cash flow generated/utilised by financial assets -301,734 1,846 - financial assets held for trading 37, ,170 - financial assets available for sale 77, ,618 - loans to customers -868,254-1,088,619 - due from banks: repayable on demand 76, ,235 - due from banks: other 199, ,407 - other assets 174, , Cash flow generated/utilised by financial liabilities 303, ,397 - due to banks: repayable on demand -141,807-22,695 - due to banks: other -388, ,361 - due to customers 157, ,648 - securities issued 405, ,373 - financial liabilities held for trading 1,701-2,583 - other liabilities 269,112-7,779 Cash flow generated/utilised by operating activities 131,494 11,651 B. INVESTMENT ACTIVITIES 1.Cash flow generated by 6,240 16,489 - sale of investments in associates and companies subject to joint control 1, dividends from investments in associates and companies subject to joint control 4,747 5,323 - sale of property, plant and equipment - 10,353 - sale of intangible assets sale of subsidiaries and company branches Cash flow utilised by -88, ,923 - purchase of investments in associates and companies subject to joint control -1,777-89,918 - purchase of financial assets held to maturity -65, purchase of property, plant and equipment -9,270-13,788 - purchase of intangible assets -6,257-2,216 - purchase of subsidiaries and company branches -6,095 - Cash flow generated/utilised by investment activities -82,229-89,434 C. FUNDING ACTIVITIES - issue/purchase of treasury shares -18, ,373 - dividend distribution and other -45,666-69,115 Cash flow generated/utilised by funding activities -63,713 38,258 NET CASH FLOW GENERATED/UTILISED DURING THE PERIOD -14,448-39,525 42

43 RECONCILIATION Financial statement items 1st half of st half of 2009 Cash and cash equivalents at the beginning of the period 186, ,311 Total net cash flow generated/utilised during the period -14,448-39,525 Cash and cash equivalents at the end of the period 171, ,786 Key: (+) generated (-) utilised 43

44 Notes to the financial statements 44

45 Accounting Policies BASIS OF PREPARATION The condensed interim report of the Credito Valtellinese Group is prepared in consolidated format as prescribed by art. 154-ter, Italian Legislative Decree no. 58 of 24 February 1998 (the Consolidated Law on Finance) and in compliance with IFRS standards issued by IASB (the International Accounting Standards Board) approved by the European Union, whose application was compulsory at the date of preparation of the condensed interim report. In preparing this condensed consolidated interim report, the accounting standards applied in accordance with IAS 34 - Interim Financial Reporting comply with those adopted in the consolidated annual report as at 31 December 2009, 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 2010 resulted from the review of IFRS 3 Business combinations approved with Regulation no. 495/2009. The basis of accounting for business combinations completed as from 1 January 2010 are provided below. Business combinations IFRS 3 (Revised) defines a business combination as a transaction or another event in which a purchaser acquires control of a business consisting of factors of production and processes applied to such factors able to create production. Therefore, the acquisition of equity investments in subsidiaries, mergers, the acquisition of going concerns etc. are all considered business combinations. IFRS 3 envisages that all business combinations that fall within the relative scope must be recognised using the acquisition method. For each business combination, one of the combining entities must be identified as the acquirer that obtains control of another entity or group of businesses. Control is the power to determine the financial or management policies of an entity or business in order to obtain a return from the latter s activities. Control is obtained when the latter acquires more than half of voting rights. Even if not in possession of more than half of the voting rights, control can be acquired if power is obtained: - over more than half of voting rights by virtue of an agreement with other investors; - to determine the financial policies and the management decisions of the other entity by virtue of a statute or agreement; - to appoint or replace the majority of members of the management body of the other entity; - to have availability of the majority of votes at meetings of the body assigned the management of the company. Even though in some cases it is difficult to identify an acquirer, there are usually situations that demonstrate its existence. In a business combination mainly carried out by transferring cash or other assets or through assumption of liabilities, generally the acquirer is the entity that transfers cash or other assets or assumes the liabilities. In a business combination mainly carried out by exchanging interests, in general the acquirer is the entity that issues the interests. Other relevant facts and circumstances must be taken into consideration, including: a) the relevant voting rights in the entity resulting from the combination after the business combination; b) the existence of a wide minority interest with voting right in the entity resulting from the combination if no other shareholder or organised group of shareholders holds an important interest with voting right; c) the composition of the management body of the entity resulting from the combination; d) the composition of the top management of the entity resulting from the combination; e) the interest exchange conditions. In general, the acquirer is the combining entity whose size (e.g. designated according to assets, revenues or profits) is considerably bigger compared to the size of the other combining entity. Moreover, in a business combination comprising more than two entities, for the purposes of determining the acquirer, we must consider, among other things, which of the combining entities started the combination as well as the relative size of the combining entities. The acquisition date is the date on which the acquirer obtains control of the acquiree and consists of the date from when the acquiree is consolidated in the financial statements of the acquiring company. In the event in which a business combination is achieved in a single exchange transaction, the date of the exchange is the acquisition date. 45

46 The consideration transferred in a business combination must be valued at fair value calculated as the amount of the fair values, on the acquisition date, of the assets transferred by the acquirer to the previous shareholders of the acquiree, of the liabilities borne by the acquirer for these subjects and of the interests issued by the acquirer. The consideration that the purchaser transfers in exchange for the acquiree includes any asset or liability resulting from a contingent consideration arrangement. The costs related to the acquisition are the charges that the acquirer bears for carrying out the business combination. The acquirer must record the costs related to the acquisition as expenses in the periods in which these costs are borne and the services are received, except for issue costs of shares or debt securities that must be recognised according to what is provided by IAS 32 and IAS 39. Business combinations are recorded according to the acquisition method, according to which the acquired identifiable assets, including any intangible asset not reported previously by the acquired company, and the assumed identifiable liabilities must be recognised at their respective fair value on the acquisition date. The fair value of the assets, liabilities and potential liabilities of the acquiree may be determined provisionally by the end of the year in which the business combination is achieved and must be finalised within twelve months of the acquisition date. If the control is carried out through subsequent purchases, the acquirer must recalculate the interest that it held before in the acquired company at its respective fair value on the acquisition date and record in the income statement any difference compared to the previous book value. The acquirer must record the goodwill on the acquisition date measuring it as the surplus of the amount of the transferred consideration, of the amount of any minority interest in the acquiree and, in a business combination carried out in several phases, of the fair value on the acquisition date of the interest in the acquiree previously held by the acquirer, on the net value of the amounts, determined on the acquisition date, of the acquired identifiable assets and of the identifiable assumed liabilities measured on the basis of what was stated above. In case a negative difference is reported, it is recorded in the income statement. For each business combination, any minority shares in the acquired company can be recognised at fair value, with the resulting increase in the transferred consideration, or in proportion to the minority share in net identifiable assets of the acquired company. Following the purchase of control of a company, further equity investments are accounted for by recognising the difference between the purchase price and the book value of the minority shares purchased in Group shareholders equity. Similarly, the sale of the minority share without loss of control will not generate profits/losses in the income statement, but variations in Group shareholders' equity. IFRS 3 does not apply to business combination transactions between parties subject to joint control. These types of business combination are not usually achieved as part of company reorganisations and are accounted for by preserving the continuity of the values of the acquiree in the financial statements of the acquirer. Other changes to the international accounting standards (IFRS 2 Share-based payments, IAS 39 Financial instruments: recognition and measurement Eligible Hedged items, IFRIC 17 Distribution of non-cash assets to owners and others) have had no significant impact on the condensed consolidated interim report. The Group accounting policies used for preparing the condensed consolidated interim report, with reference to the recognition, classification, measurement and derecognition criteria for each asset and liability item, as with the recognition methods of revenues and costs, remained the same as those used for the Financial Statements as at 31 December 2009, document that should be referred to. In drawing up the interim report, estimates and assumptions were used which may affect the values recorded in the statement of financial position, income statement and the notes to the financial statements. Reference should be made to the 2009 annual report also in this case. The most important valuation processes, such as the assessment of any impairment of assets, are completely carried out only upon preparation of the annual report when all necessary information is available. Important impairment indicators requiring an immediate assessment are an exception. This condensed consolidated interim report is subject to limited review by the independent auditing firm Reconta Ernst & Young S.p.A. The condensed consolidated interim report comprises the Statement of Financial Position, Income Statement, Statement of Comprehensive Income, Statement of changes in shareholders equity, Cash flow statement and Notes to the financial statements. The amounts reported in the Financial Statements and in the Notes to the financial statements are in thousands of euro, unless indicated otherwise. Together with the amounts for the reporting period, the Financial statements and the Notes to the financial statements also show the corresponding comparative amounts as at 31 December 2009 for statement of financial position data, and for the first half of 2009 for income statement data. In the Statement of financial position, Income Statement and Statement of Comprehensive Income, any items equal to zero in the reporting period of reference or in the previous period are not shown. In the Income Statement and Statement of Comprehensive Income, negative amounts are shown in brackets. 46

47 The Statement of Changes in Shareholders Equity presents the breakdown and changes occurred in the shareholders equity during the year under review and the previous one. The Statement of Cash Flows has been prepared according to the direct method, in which the main gross cash collection and disbursement items are displayed. The cash flows for the year are divided into operating, investment and funding activities. With regard to the Income Statement for the first half year of 2009 (comparison period), it should be specified that the interim report included a provisional cost allocation for acquisition of Cassa di Risparmio di Fano (Carifano) concluded when preparing the consolidated financial statements as at 31 December In this report, in accordance with IFRS 3, the economic figures for the first half year of 2009 were reclassified assuming that the cost allocation process for that transaction had been completed on the date of acquisition (3 December 2008). A lower figure was therefore recorded as interest income amounting to EUR 1,727 thousand, higher interest expense of EUR 190 thousand, higher amortisation/depreciation of tangible and intangible assets of EUR 102 thousand, higher administrative expenses of EUR 168 thousand and lower taxes of EUR 707 thousand. Considering a change in minority interests of EUR 416 thousand, a reduction is recorded for the first half of 2009 for EUR 1,064 thousand. All related income figures were adjusted accordingly. Business performance and outlook (Bank of Italy-Consob-ISVAP document no. 2 of 6 February 2009 and no. 4 of 3 March 2010) With reference to the Bank of Italy, Consob and Isvap Document no. 2 of 6 February 2009, as well as to the following Document no. 4 of 3 March 2010, relevant to the information to be provided in the financial statements on business outlook, with particular reference to going concern assumptions, financial risk, impairment testing and uncertainties in the use of estimates, the Credito Valtellinese Directors confirm their reasonable expectations that the company will remain a going concern in the foreseeable future and, consequently, the interim report as at 30 June 2010 was prepared on a going concern basis. The Directors also confirm that the equity and financial structure and business performance have brought to light no symptoms that could imply the uncertainty of going concern assumptions. As regards the requirements relating to the disclosure on financial risks, impairment testing and uncertainties in the use of estimates, please refer to the information provided in this report as well as the information provided in the Directors' report and in the Notes to the Financial Statements, within the discussion of the related items. More specifically, risks related to the economy and financial market trends were described in the chapter on the macroeconomic scenario. Specific analyses are dedicated to the trend and to the prospects of economy and finance in our Country. Finally, further information is contained in the chapter on the management trend and in the following chapters prepared as notes to the economic results and statement of financial position aggregates. Information on financial risks and operational risks are described in the chapter of the Notes dedicated to risk management. Moreover, the notes to the financial statements provide information with reference to the methods of calculation of the fair value of the financial instruments and to their segmentation among the different measurement levels of the fair value. In particular, specific tests were carried out to ascertain any impairment of equity investments, securities available for sale, intangible values and goodwill, subject to the analysis of the presence of impairment indicators. The same methods and criteria shown in the 2009 Report, to which reference is made, were used in order to determine any write-down. For what concerns securities available for sale, the analyses carried out and the relevant tests determined the need to carry out value adjustments totalling approx. 3 million especially one security, as indicated more in detail in the following paragraphs. For what concerns equity investments, the analyses carried out and the relevant tests did not report any impairment. With reference to intangible assets considered to have definite lives and goodwill, please refer to what is indicated in the section concerning the composition of the main financial items. Consolidation area and methods The condensed consolidated interim report includes Credito Valtellinese and the companies directly or indirectly controlled. Special purpose companies are included as required in compliance with SIC 12. The accounting situations used for preparing the consolidated financial statements are drawn up on the same date. Investments in companies subject to exclusive control are those in respect of which the Bank has the power of governing the financial and operating policies of the entities with a view of gaining economic 47

48 benefits from their activities. Investments in companies subject to joint control are those in respect of which the Bank, together with other parties subject to the terms of an agreement, has the power of governing the financial and operating policies of the entities with a view to gaining economic benefits from their activities. Such control exists only when the decisions require unanimous consent of the parties that hold the joint control. The financial statements of subsidiaries are consolidated on a line-by-line basis. The book value of the investments in these companies is offset against the corresponding share in the shareholders equity. The differences arising from this transaction, after recording the subsidiary s assets and liabilities, are recorded, if positive under Intangible assets Goodwill; if negative, they are directly recognised in the income statement. Minority interests are assigned the corresponding shares of equity and net profit. Assets, liabilities, income and expenses among consolidated companies are eliminated completely. The financial statements of subsidiaries are prepared by adopting standard accounting methods. In case of discrepancy between the evaluation criteria adopted by a subsidiary and those used in the consolidated financial statements, the accounting situations are adjusted for consolidation purposes. Investments in companies subject to joint control have been measured at equity. The investment is initially recognised at cost, the value later being increased or decreased due to the effect of investee profits or losses, recorded according to the equity ratios under "Profit from investments in associates and companies subject to joint control", of dividends received and other changes in the shareholders equity of the investees. Other changes are booked to reserves. The difference between the value of the investment and shareholders' equity in the related associated company is included in the book value of the investee. Dividends booked to the parent company s financial statements and concerning investments in companies included in the consolidation area or measured at equity have been cancelled. Taxes associated with consolidation adjustments have been accounted for, where applicable. Business combinations completed in the period are accounted for according to IFRS 3 - Business Combinations, as specified above. Commitments for the repurchase of own equity instruments, including commitments to purchase equity instruments of companies consolidated in full, give rise to a financial liability for the current amount payable. If the option exercise price is the fair value at the time the option is exercised, the balancing entry of the recognition at fair value of the liability will be in the group shareholders equity. In the first half of 2010, the main change in the scope of consolidation concerns the acquisition of control of Banca della Ciociaria carried out on 19 May A list is provided below of investments in fully consolidated subsidiaries. For each company indicated, the voting rights at the ordinary shareholders' meeting is equal to that of the holding. 48

49 1. Investments in companies subject to exclusive and joint control (consolidated on a proportional basis) Company name A. Companies A.1 Consolidated on a line-by-line basis Registered office Type of relationship (1) Share capital (amounts in thousands of EUR) 1. Credito Valtellinese Soc. Coop. Sondrio 1 728,668 Type of investment Investor % held company 2. Credito Artigiano S.p.A. Milano 1 284,791 A Credito Siciliano S.p.A. Palermo 1 95,826 A A Bancaperta S.p.A. Sondrio 1 84,240 A A A Mediocreval S.p.A. Sondrio 1 55,080 A Banca dell'artigianato e dell'industria S.p.A. A A Brescia 1 99,346 A A Bankadati Servizi Informatici S.p.A. Sondrio 1 2,500 A A A A A A A A A A A A A A A A Stelline Servizi Immobiliari S.p.A. Sondrio 1 12,500 A A Deltas S.p.A. Sondrio A A A A A A A A A Voting rights % (2) 49

50 A A A A A A A Creset S.p.A. Lecco 1 5,720 A Aperta Fiduciaria S.r.l. Milano 1 50 A Aperta SGR S.p.A. Milano 1 4,966 A Credito Piemontese S.p.A. Torino 1 326,204 A Finanziaria San Giacomo S.p.A. Sondrio 1 15,000 A Cassa di Risparmio di Fano S.p.A. Fano 1 77,290 A Global Assicurazioni S.p.A. Milano A Omega Costruzioni S.r.l. Trento 1 10 A Banca Cattolica S.p.A. Montefiascone 1 1,644 A Lussemburgo Gestioni Lussemburgo A A A A A A Banca della Ciociaria S.p.A. Frosinone A Programma Ciociaria S.r.l. Frosinone 1 20 A Quadrivio Finance S.r.l. Conegliano 8 10 Key (1) Type of relationship: 1 = majority of voting rights in the ordinary shareholders' meeting; 2 = dominant influence in the ordinary shareholders' meeting; 3 = agreements with other shareholders; 4 = other forms of control; 5 = sole direction pursuant to art. 26, paragraph 1, of "legislative decree 87/92"; 6 = sole direction pursuant to art. 26, paragraph 2, of "legislative decree 87/92"; 7 = joint control; 8 = Sic 12. (2) Voting rights available at ordinary shareholders' meetings, only if different from the % investment, distinguishing between actual and potential votes: 1 = actual, 2 = potential. 2. Other information Associated companies are those under significant influence, i.e. the Parent Company has the power of participating in the determination of financial and operating policies, but has no control or joint control over those policies. These investments are measured using the equity method. In applying the equity method to the investment in Istituto Centrale delle Banche Popolari Italiane, its consolidated results were taken into account. 50

51 FAIR VALUE INFORMATION Accounting portfolios: breakdown of fair value by levels 30/06/ /12/2009 Financial assets/liabilities designated at fair value L1 L2 L3 L1 L2 L3 1. Financial assets held for trading 73, ,858 3,583 86, ,900 3, Financial assets designated at fair value Financial assets available for sale 357,245 19,023 62, ,711 10,201 62, Hedging derivatives Total 431, ,539 65, , ,850 65, Financial liabilities held for trading 13,222 8,101-32,895 6, Financial liabilities designated at fair value Hedging derivatives Total 13,222 8,101-32,895 6,489 - Key: L1= Level 1 L2= Level 2 L3= Level 3 Fair value measurements are classified according to a series of levels reflecting the significance of the valuation input. The levels have the meaning below: - prices (without adjustments) recorded on an active market according to IAS 39 (level 1); - input other than listed prices above, directly observable (prices) or indirectly observable (deriving from prices) on the market (level 2); - input not based on observable market data (level 3). Level 3 financial assets also include equity instruments whose fair value was not determined reliably and therefore they are carried at cost. Level 3 financial assets available for sale includes the shareholding in Tercas Spa of EUR 47,455 thousand. Fair value shifts of the financial assets indicated above among different levels mainly concerned level one or two for non-significant amounts. For what concerns the method of determination of the fair value of financial instruments, they were not changed compared to the 2009 Financial Statements, document which should be referred to. 51

52 Breakdown of the main statement of financial position items SECTION 1 DUE FROM/TO BANKS AND LOANS TO/DUE TO CUSTOMERS Breakdown by type of item 60 of assets "Due from banks" Type of transaction/amounts 30/06/ /12/2009 A. Deposits with Central Banks 141, , Restricted deposits - 250, Compulsory reserve 141, , Repurchase agreements Other - - B. Due from banks 1,160, , Current accounts and unrestricted deposits 169, , Restricted deposits 11, , Other loans: 220,654 2, Repurchase agreements Finance leases Other 220,654 2, Debt securities 758, , Structured securities Other debt securities 758, ,930 Total (book value) 1,301,455 1,437,907 Total (fair value) 1,304,479 1,445,389 Subitem 3.3. Other loans: other includes the deferred amount and the receivables related to the securitisation totalling EUR 215,124 thousand. Breakdown by type of item 70 of assets Loans to customers" 30/06/ /12/2009 Type of transaction/amounts Performing Deteriorated Performing Deteriorated 1. Current accounts 7,112, ,536 7,215, , Repurchase agreements Mortgages 8,563, ,735 7,870, , Credit cards, personal and salary-backed loans 410,788 13, ,898 11, Finance leasing 1,242,682 34,353 1,184,095 38, Factoring Other transactions 2,569,236 84,431 2,628,176 59, Debt securities 22,941-10, structured securities other debt securities 22,941-10,901 - Total (book value) 19,921,875 1,317,310 19,289,334 1,084,310 Total (fair value) 19,981,859 1,340,061 19,579,540 1,115,543 52

53 Breakdown by type of item 10 of liabilities "Due to banks" Type of transaction/amounts 30/06/ /12/ Due to central banks 150, , Due to banks 792, , Current accounts and unrestricted deposits 94, , Restricted deposits 239, , Loans 457, , funding repurchase agreements 279, , Other 177, , Payables for commitments to repurchase own equity instruments Other payables 714 9,165 Total 942,567 1,470,661 Fair value 941,749 1,470,803 Breakdown of item 20 of liabilities "Due to customers" Type of transaction/amounts 30/06/ /12/ Current accounts and unrestricted deposits 13,213,080 12,650, Restricted deposits 320, , Loans 873, , funding repurchase agreements 830, , other 43,000 10, Payables for commitments to repurchase own equity instruments 74,741 44, Other payables 125, ,916 Total 14,607,594 14,105,980 Fair value 14,606,617 14,106,057 SECTION 2 OTHER FINANCIAL INSTRUMENTS Breakdown by type of item 20 of assets "Financial assets held for trading" Item/Amounts 30/06/ /12/2009 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. Cash assets 1. Debt securities 69, , , , Equity securities 4, , UCI quotas - 6,712 3, , Loans Total A 73, ,189 3,583 86, ,346 3,353 B. Derivatives 1. Financial derivatives 35 5, , Credit derivatives Total B 35 5, ,554 - Total (A+B) 73, ,858 3,583 86, ,900 3,353 53

54 Breakdown by type of item 40 of assets "Financial assets available for sale" Item/Amounts 30/06/ /12/2009 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt securities 346,285 19, ,907 10, Equity securities 10,862-60,591 13,804-61, UCI quotas 98-1, Loans Total 357,245 19,023 62, ,711 10,201 62,378 Level 3 also contains equity securities measured at cost. Breakdown by type of item 50 of assets "Financial assets held for maturity" Type of security/amounts 30/06/ /12/2009 BV FV BV FV Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt securities 88,487 23,413 65, structured other 88,487 23,413 65, Loans Key FV= fair value BV = book value The securities included in the portfolio of financial assets held to maturity include government bonds and corporate securities belonging to Banca della Ciociaria and Bancaperta, Group bank specialised in financial asset management services, private banking and real estate financial services. 54

55 Information on shareholding relationships of investments in companies subject to joint control (valued at equity) and in companies subject to significant influence Name Registered office Type of relationship (1) Type of investment Investor company % held B. Companies 1. Rajna Immobiliare S.r.l. Sondrio 1 Credito Valtellinese Global Assistance S.p.A. Milano 2 Credito Valtellinese Istituto Centrale delle Banche Popolari Italiane S.p.A. Milano 2 Credito Valtellinese Aperta Gestioni Patrimoniali S.A. Lugano (Svizzera) 2 Bancaperta Banca di Cividale S.p.A. Cividale del Friuli (UD) 2 Credito Valtellinese Sondrio Città Futura S.r.l. Sondrio 2 Stelline S.I Sondrio Città Centro S.r.l. Sondrio 2 Stelline S.I Progetti Industriali Valtellina S.r.l. Sondrio 2 Stelline S.I Soc. Coop. del Polo dell'innovazione della Valtellina p.a. Sondrio 2 Credito Valtellinese Istifid S.p.A. Milano 2 Credito Valtellinese Finanziaria Laziale S.p.A. Frosinone 2 Finanziaria San Giacomo S.p.A. 12. Adamello S.p.A. Milano 2 Stelline S.I Miri & Giò S.p.A. Sondrio 2 Stelline S.I Key: (1) Type of relationship: 1 = joint control 2 = significant influence 55

56 Investments in companies subject to joint control and in companies subject to significant influence: accounting information Name Total Assets Net profit (loss) Shareholders equity Consolidated book value 30/06/2010 A. Companies valued at equity A.1 subject to joint control 1. Rajna Immobiliare S.r.l A.2 subject to significant influence 1. Global Assistance S.p.A. 14, ,345 2, Istituto Centrale delle Banche Popolari Italiane S.p.A. 7,019,372 58, , , Aperta Gestioni Patrimoniali S.A. 11,226 1,602 7, Banca di Cividale S.p.A. 3,657,373 3, ,299 94, Sondrio Città Futura S.r.l. 7, Sondrio Città Centro S.r.l. 20, Progetti Industriali Valtellina S.r.l. 6, Soc. Coop. del Polo dell'innovazione della Valtellina p.a Istifid S.p.A. 5, ,448 1, Finanziaria Laziale S.p.A. 3, Adamello S.p.A. 10, , Miri & Giò S.p.A The shareholders equity and net income (loss) are taken from the 2009 financial statements approved by the respective Shareholders Meetings. The consolidated book value refers to the current period. The financial statement data referring to Aperta Gestioni S.A. are expressed in Swiss francs. As for Istituto Centrale delle Banche Popolari Italiane, the data refer to the consolidated financial statements. There are no approved financial statements yet available for Miri & Giò S.p.A. since it was set up on 17 February

57 Breakdown by type of item 30 of liabilities "Securities issued" Type of security/amounts 30/06/ /12/2009 Book Fair value Book Fair value value Level 1 Level 2 Level 3 value Level 1 Level 2 Level 3 A. Securities 1. bonds 6,207,961 1,270,546 4,869,145-5,770,986-5,765, structured other 6,207,961 1,270,546 4,869,145-5,770,986-5,765, other securities 330, ,788 35, , ,580 23, structured other 330, ,788 35, , ,580 23,028 Total 6,538,806 1,270,546 5,154,933 35,018 6,110,554-6,081,957 23,028 Breakdown by type of item 40 of liabilities "Financial liabilities held for trading" Transaction type/group elements A. Cash liabilities NV 30/06/ /12/2009 Fair value L1 L2 L3 NV Fair value L1 L2 L3 1. Due to banks Due to customers Debt securities Total A B. Derivatives 1. Financial derivatives X 13,222 8,101 - X 32,895 6, Credit derivatives X X Total B X 13,222 8,101 - X 32,895 6,489 - Total (A+B) - 13,222 8, ,895 6,489 - Key: NV = nominal or notional value L1: Level 1 L2: Level 2 L3: Level 3 57

58 SECTION 3 OTHER ASSET AND LIABILITY ITEMS Breakdown of item 120 of assets Property, plant and equipment" Asset/Amounts 30/06/ /12/2009 Property, plant and equipment 1.1 owned 471, ,454 a) land and buildings 424, ,937 b) furniture 29,271 28,784 c) electronic systems 5,206 4,499 d) other 11,804 12, acquired through a finance lease - - a) land and buildings - - b) furniture - - c) electronic systems - - d) other - - Total 471, ,454 Breakdown of item 130 of assets "Intangible assets" Asset/Amounts Limited life 30/06/ /12/2009 Unlimited life Limited life Unlimited life A.1 Goodwill X 709,648 X 687,508 A.1.1 pertaining to the group X 709,648 X 687,508 A.1.2 pertaining to third parties X - X - A.2 Other intangible assets 61,957-57,812 - A.2.1 Assets measured at cost: 61,957-57,812 - a) internally generated intangible assets 797-1,000 - b) other assets 61,160-56,812 - A.2.2 Assets designated at fair value: a) internally generated intangible assets b) other assets Total 61, ,648 57, ,508 The change indicated under goodwill mainly depends on the acquisition of control of Banca della Ciociara S.p.a, company consolidated starting from 19 May The process identifying the fair value of assets, liabilities and potential liabilities of the acquiree has not been completed yet. Provisionally, the difference between the transferred consideration, the amount of the minority shares in the acquiree and the fair value, determined on the date of acquisition, of the interests previously owned (business combination carried out in several stages as described in the part of the Notes to the financial statements with regard to business combinations carried out during the period) and the net value of the amounts of identifiable assets acquired or liabilities assumed was recorded in Goodwill (totalling EUR 23,456 thousand). Minority shares were determined in proportion to the minority shareholding in identifiable net assets of the acquiree. For the purpose of the impairment procedure of the new goodwill related to Banca della Ciociaria, subject to approval by the directors, the Group used the fair value for the recoverability check of the recorded goodwill as shown above. Fair value is equal to the amount that can be obtained, net of the disposal costs, from the sale of an asset in a free transaction between knowledgeable, willing parties. Disposal costs mean the marginal costs directly attributable to the disposal of an asset, excluding the financing costs and taxation. When calculating this value, the group considered the transaction prices concerning comparable businesses to 58

59 the one in question. The basis of this method lies in the information concerning transactions made and observed in the market deemed similar to the one being analysed. In particular the multiples deemed most significant were considered recorded in transactions concerning the purchase of banks of small/medium size taking place in Italy recently. The conditions that qualify the transactions in the case of the sample used are the deal price that refers to a purchase value exceeding 55 million, the object of the transaction that refers to a majority package concerning the entire business being purchased, the transaction premium since the price incorporates the majority premium for the strategic control of the company and the nature of the price that is reported at the transaction date and expresses an agreed price. The outcome of the impairment test did not reveal any impairment of the goodwill recorded, also in case of variation of the value assigned to the basic assumptions following the sensitivity analysis (minimum value of the multiples identified in the reference sample equal to 2.6 times the book value ex dividend). With reference to the goodwill recorded, analyses were carried out in order to check the possible presence of impairment indicators and the subsequent need to calculate again the recoverable value of the different CGUs (for which no change was made, either of definition or of scope, compared to 31 December 2009). Specifically: with reference to the estimate of the detailed provisional cash flows for the period, the analyses of the macroeconomic context referring to Italy were updated by means of major external specialised sources. According to this update, there was no need for substantial changes of the forecasts used for the purposes of the impairment test of the 2009 Financial Statements to report; the only change of the macroeconomic forecasts to report concerns the interest rate trend, whose growth recovery is now postponed of approx. 12 months. Moreover, final data as at 30 June was compared with the forecasts from which it results a substantial solidity of all the significant financial and economic measures except for the interest margin for what was said previously; therefore, small flow contractions are considered possible in the short term without significant impacts on the medium to long term; with reference to the growth rates of the financial flows, for the purposes of the estimate of the socalled terminal value, the indicators already used for the impairment tests of the prior financial statements were updated. In particular, the g rate was recalculated: it is in line with the same levels of the one used in the 2009 impairment test; with reference to the discount rates of the financial flows, they were updated on the basis of the new information available. According to the aforesaid analyses, no critical factors were to report in such a way as to significantly affect the recoverable amount of the different CGUs determined for the purposes of the impairment test of the 2009 Financial Statements. Therefore, sensitivity analysis were carried out during that time. These analyses, to which reference is made, had revealed solidity margins of the book values even in the case of less prudent taxes compared to those used. For some CGUs as at 31 December 2009, the impairment test was carried out by comparing the book values with the fair value. For these CGUs, the estimate of the Fair Value, as at 31 December 2009, was carried out by applying the method of comparable transactions. In particular, the multiples were considered recorded in transactions concerning the purchase of banks of small/medium size taking place in Italy recently. The analysis carried out on 30 June 2010 on the multiples used for the Fair Value estimate at the end of 2009 showed how no significant changes occurred in these multiples in the first half of the current financial period. Therefore, the goodwill recorded did not suffer any impairment in the half year. Therefore, the results of the aforesaid analyses confirm the values recorded in the financial statements. Moreover, the values expressed by the market, represented by the listing price and therefore by the market capitalisation, continue to be lower than the net accounting equity. As already observed in the 2009 Financial Statements, such market evaluation has characteristics that make it different from an essential evaluation represented by a value in use. The listed price of the Creval stock, security deriving from its nature as a cooperative bank, is still affected by the conditions of the financial markets still generally depressed and highly volatile and in particular, as all the banking sector, it is penalised by the total debt crisis and by the fears related to solidity and liquidity of the financial system in general, in addition to the uncertainties on the impacts of the pointed out new capital requirements. With reference to intangible assets with definite lives, mainly represented by the customer lists, whose values (all in all equal to EUR 49.8 million as at 30 June 2010) are the subject-matter of progressive depreciation, analyses on the important variables for the purposes of their enhancement were carried out. Specifically: the trend of deposits for the different types of products was analysed, reporting an increase compared to 31 December 2009 for core deposits and funds and a basically stable trend for managed assets; moreover, it was checked that the decline rates of deposits were in line with the forecasts incorporated in the estimates of the recoverable value carried out for the impairment purposes of the 2009 financial statements; the performance trend of the different products was analysed; the analysis reported a confirmation or, in some cases, a slight improvement from December 2009 with a special attention to commission 59

60 return. With reference to the mark down of core deposits, which had worsened last year, a gradual recovery is reported considering however that the contribution of this element is expected in a longterm time horizon; the discount rates of the financial flows were analysed, without reporting significant changes compared to those used for the impairment test of the 2009 Financial Statements. Therefore, from the analysis of the aforesaid indicators no critical factors were to report compared to the situation and to the estimate of the recoverable value calculated for the 2009 Financial Statements and therefore, no write-down of intangible values was required. Therefore, the recoverable value calculated at the end of 2009 was greater than the book value and in the meantime the latter decreased all-in-all due to the amortisation pertaining to the half year. Breakdown of item 120 of liabilities "Provisions for risks and charges" Item/Amounts 30/06/ /12/ Company pension funds 32,111 32, Other provisions for risks and charges 29,670 31, legal disputes 18,506 19, personnel expenses 7,402 9, other 3,762 2,551 Total 61,781 63,605 60

61 SECTION 4 OTHER INFORMATION Breakdown of guarantees given and commitments Transaction 30/06/ /12/2009 1) Financial guarantees a) Banks 22,496 22,496 b) Customers 94, ,017 2) Commercial guarantees a) Banks 34,747 31,640 b) Customers 1,280,478 1,282,877 3) Irrevocable commitments to grant finance a) Banks i) certain to be called on 52,105 20,311 ii) not certain to be called on 11,342 10,514 b) Customers i) certain to be called on 132, ,164 ii) not certain to be called on 1,367,596 1,137,785 4) Commitments underlying credit derivatives: sales of protection - - 5) Assets lodged to guarantee third-party obligations - - 6) Other commitments 238, ,399 Total 3,233,994 3,043,203 Assets lodged to guarantee the Bank s liabilities and commitments Portfolios 30/06/ /12/ Financial assets held for trading 11,980 23, Financial assets designated at fair value Financial assets available for sale 73,703 23, Financial assets held to maturity Due from banks 377, , Loans to customers 845, , Property, plant and equipment

62 Breakdown of management and trading services Type of service 30/06/ /12/ Execution of orders on behalf of customers a) Purchases 1. regulated unregulated - - b) Sales 1. regulated unregulated Portfolio management a) individual 3,129,846 3,174,819 b) collective Custody and administration of securities a) third-party securities held on deposit: when acting as custodian bank (excluding portfolio management) 1. securities issued by companies included in the consolidation area other securities - - b) other third-party securities held on deposit (excluding portfolio management): other 1. securities issued by companies included in the consolidation area 4,284,738 4,152, other securities 3,511,716 3,745,920 c) third-party securities deposited with third parties 7,764,776 7,603,730 d) portfolio securities deposited with third parties 1,577,468 2,497, Other transactions 1,761,253 1,562,347 62

63 Breakdown of the main income statement items Breakdown of item 10 of the income statement "Interest income and similar income" Items 1st half of st half of 2009 % change 1. Financial assets held for trading 2,264 7, Financial assets designated at fair value Financial assets available for sale 1,177 1, Financial assets held to maturity Due from banks 11,890 27, Loans to customers 343, , Hedging derivatives Other assets Total 360, , Breakdown of item 20 of the income statement "Interest expense and similar expense" Items 1st half of st half of 2009 % change 1. Due to central banks (247) (387) Due to banks (3,954) (12,842) Due to customers (51,887) (101,830) Securities issued (66,999) (102,478) Financial liabilities held for trading (343) (534) Financial liabilities designated at fair value Other liabilities Hedging derivatives - (392) Total (123,430) (218,463) Interest income on financial assets in foreign currency 1st half of st half of 2009 % change Interest income on foreign currency assets 1,048 1, Interest expense on foreign currency liabilities 1st half of st half of 2009 % change Interest expense on foreign currency liabilities (206) (879)

64 Breakdown of item 40 of the income statement "Fee and commission income" Type of service/sector 1st half of st half of 2009 % change a) guarantees given 4,848 4, b) credit derivatives c) management, trading and consulting services: 42,172 33, trading of financial instruments 14 5 n/a 2. currency trading 3,119 2, portfolio management 14,957 11, individual 12,165 11, collective 2, n/a 4. custody and administration of securities custodian bank placement of securities 3,897 2, order acceptance and transmission 6,504 6, consulting services 1, on investments on financial structuring distribution of services to third parties 11,856 8, portfolio management individual collective insurance products 11,734 7, other products d) collection and payment services 30,198 27, e) servicing services for securitisation transactions f) factoring transaction services g) tax collection services 1,462 1, h) management of multilateral trading facilities i) current account management 30,162 28, j) other services 40,638 17,284 n/a Total 149, , The increase reported related to the fee and commission income in item 3 portfolio management is mainly due to fees and commissions collected by Lussemburgo Gestioni whose activity started in the first months of In compliance with the Group development plans in the asset management sector, the company was established with the purpose of widening the range of financial products offered to the customers and of contributing to the development of new business areas, by enhancing at the same time the experience gained by the Group in the asset management sector. The increase reported in item 9.2 Insurance products is due to the particularly positive trend of the placement of bancassurance products of the traditional Life sector compared to corresponding first half of the year. The overall managed insurance portfolio increased by more than 3% compared to 2009 and stood at EUR 1,771 million. Fee and commission income included under "J) other services" mainly refers to commissions on loan transactions of EUR 36,745 thousand and commissions for rights and pledges of EUR 2,094 thousand. The increase in commissions on loan transactions refers to the introduction, starting from the second half year of 2009, of the commission on the arranged overdraft. 64

65 Breakdown of item 50 "Fee and commission expense" Services/Sectors 1st half of st half of 2009 % change a) guarantees received (34) (28) b) credit derivatives c) management and trading services (707) (615) trading of financial instruments - (15) n/a 2. currency trading (3) (1) n/a 3. portfolio management: (1) n/a 3.1 own account - (1) n/a 3.2 for third parties custody and administration of securities (541) (598) placement of financial instruments (163) off-premises provision of financial instruments, products and services d) collection and payment services (8,256) (8,344) e) other services (1,492) (1,101) Total (10,489) (10,088) 3.98 Breakdown of item 80 Profits (losses) on trading activities" Transactions/Income components Capital gains (A) Profit on trading (B) Capital losses (C) Losses on trading (D) Net profit (loss) [(A+B)-(C+D)] 1. Financial assets held for trading (5,571) (280) (4,458) 1.1 Debt securities (4,031) (233) (3,106) 1.2 Equity securities (1,463) (46) (1,303) 1.3 UCI quotas 24 1 (77) (1) (53) 1.4 Loans Other Financial liabilities held for trading Debt securities Payables Other Financial assets and liabilities: exchange rate differences X X X X (453) 4. Derivatives 18,449 60,218 (12,770) (47,438) 21, Financial derivatives: - On debt securities and interest rates 11,683 47,601 (12,770) (47,438) (924) - On equity securities and stock market indices 6,766 12, ,383 - On currencies and gold X X X X 2,756 - Other Credit derivatives Total 18,863 61,197 (18,341) (47,718) 16,304 The result of financial derivatives on equity securities and share indices refers to the enhancement of the Warrants issued by Credito Valtellinese falling due in 2010 and

66 Breakdown of item 90 Fair value adjustments in hedge accounting" Income component/amounts 1st half of st half of 2009 % change A. Income from: A.1 Fair value hedges A.2 Financial liabilities with fair value hedges n/a Total income from hedging activities (A) n/a B. Expenses from: B.1 Fair value hedges (529) (9) n/a B.2 Financial liabilities with fair value hedges Total expenses from hedging activities (B) (529) (9) n/a C. Fair value adjustments in hedge accounting (A-B) (11) Net losses/recoveries on impairment of loans: breakdown Transactions/ /Income components Value adjustments Specific Portfolio Recoveries Specific Portfolio Cancellation Other A B A B 1st half of st half of 2009 A. Due from banks (54) - Loans (54) - Debt securities B. Loans to customers (3,313) (96,844) (5,802) 21,556 12, ,694 (63,755) (57,447) - Loans (3,313) (96,844) (5,802) 21,556 12, ,694 (63,755) (57,447) - Debt securities C. Total (3,313) (96,844) (5,802) 21,556 12, ,694 (63,755) (57,501) Key: A = from interest B = other recoveries Net losses/recoveries on impairment of loans: percentage change Transactions/Income components 1st half of st half of 2009 % change A. Due from banks - (54) Loans - (54) Debt securities B. Loans to customers (63,755) (57,447) Loans (63,755) (57,447) Debt securities C. Total (63,755) (57,501)

67 Net losses/recoveries on impairment of financial assets available for sale: breakdown Transactions/Income components Value adjustments Specific Recoveries Specific Cancellation Other A B 1st half of st half of 2009 % change A. Debt securities B. Equity securities (3,084) X X (3,084) (5) n/a C. UCI quotas - - X D Loans to banks E. Loans to customers F. Total - (3,084) - - (3,084) (5) n/a Key: A = from interest B = other recoveries As provided under Group accounting policies, the impairment process of financial assets available for sale starts if there are indicators that would lead to the presumption that the original book value of the investment cannot be recovered. These indicators include income of the company in question and its future income prospects, a significant deviation from the budget objectives or provided by multi-year plans communicated to the market, downward reviews by outside rating companies and the announcement of company restructuring plans. Regarding the equity securities included as Financial assets available for sale, there are certain indicators that represent estimates of significant and long-lasting fair value decreases to below the book value of the financial assets. The quantitative and duration thresholds beyond which the decrease in fair value of the equity instruments immediately results in the posting of a write-down in the income statement refer to market quotations or valuations that are 30% or lower than the initial book value or the recognition of quotations or valuations that are lower than book value for a period of more than 18 months. Exceeding one of these thresholds leads to the recognition of impairment. As at 30 June 2010, exceeding one of these thresholds for some equity securities resulted in the recognition of impairment of EUR 3 million. 67

68 Breakdown of item 180 Personnel expenses Type of expense/amounts 1st half of st half of 2009 % change 1) Employees (159,939) (150,688) 6.14 a) wages and salaries (102,178) (97,033) 5.30 b) social security charges (31,808) (30,341) 4.84 c) employee termination indemnities (6,636) (5,877) d) pension expenses e) provision to employee termination indemnities (1,949) (1,590) f) provision to pension fund and similar commitments: - - defined contribution defined benefit (1,696) (691) n/a g) payments to external supplementary pension schemes: - - defined contribution (5,159) (4,965) defined benefit h) costs from equity payments i) other employee benefits (10,513) (10,191) ) Other personnel (1,057) (1,343) ) Directors and statutory auditors (4,853) (4,217) ) Retired personnel (239) (151) Total (166,088) (156,399)

69 Breakdown of item 180 Other administrative expenses" 1st half of st half of 2009 % change Fees for professional and consulting services (11,407) (9,365) Insurance premiums (2,207) (2,460) Advertising (3,832) (3,563) 7.55 Postage, telegraph and telephone (6,512) (6,391) 1.89 Printed materials and stationery (1,648) (1,391) Maintenance and repairs (2,561) (2,361) 8.47 Data processing services (9,400) (9,372) 0.30 Electricity, heating and shared property service charges (4,849) (4,554) 6.48 Charges for miscellaneous services provided by third parties (11,912) (11,400) 4.49 Cleaning (2,450) (2,211) Transport and travel (1,214) (1,085) Security and transport of valuables (5,061) (4,730) 7.00 Membership fees (1,421) (1,296) 9.65 Independent auditors fees (897) (717) Commercial information and searches (3,555) (3,577) Subscriptions to newspapers, magazines and publications (360) (328) 9.76 Rent payable (12,267) (11,686) 4.97 Entertainment expenses (1,198) (909) Taxes and dues (27,648) (28,795) Contractual charges for treasury management services (1,201) (1,016) Training costs (1,584) (1,448) 9.39 Miscellaneous items (2,962) (3,566) Total (116,146) (112,221) 3.50 "Miscellaneous items" includes the positive effect related to the VAT regulation that provides the exemption of services rendered by consortia in favour of its associates. Average number of employees by category 1st half of st half of 2009 Employees: 4,276 4,173 a) executives b) total middle managers 1,435 1,378-3rd and 4th level c) other employees 2,771 2,727 Other staff Total 4,307 4,294 69

70 Breakdown of item "Other operating expenses" 1st half of st half of 2009 % change Depreciation of leasehold improvements (3,297) (3,257) 1.23 Other charges (6,061) (3,623) Total (9,358) (6,880) Other operating expenses mainly include costs for the construction of real estate of EUR 944 thousand and leasing charges of EUR 4,095 thousand. Breakdown of item "Other operating income" 1st half of st half of 2009 % change Rent receivable Income from data processing services 4,656 4, Income from other services Recovery of direct taxes 19,791 18, Recovery of insurance policy payments Recovery of legal and notarial costs 5,157 4, Other income 8,895 8, Total 40,111 37, The other operating income includes income and recoveries for leasing services for EUR 4,980 thousand, more profits for CILME services for EUR 1,001 thousand and changes in property works in progress for EUR 981 thousand. 70

71 Earnings per share The basic earnings per share and diluted earnings per share are calculated according to the methods described in IAS 33 Earnings per share. The basic earnings per share are defined as the profit or loss attributable to ordinary equity holders divided by the weighted average number of ordinary shares outstanding during the period. The following table displays the basic earnings per share with the calculation details. 1st half of st half of 2009 Attributable profit 19,384 35,848 Weighted average number of ordinary shares 208,231, ,000,027 Basic earnings per share The diluted earnings per share are calculated taking into account also the dilutive effects of the conversion of the potential ordinary shares, defined as financial instruments that attribute to the holder the right to obtain ordinary shares. As a result, for the purposes of the calculation, the numerator and denominator of the ratio are adjusted to take into account the effects of additional shares which would be outstanding in case of conversion of all the potential ordinary shares with dilutive effects. The diluted earnings per share take into account also the potential ordinary shares resulting from converting the convertible bond loan and the related warrants (Warrant 2010 and Warrant 2014) issued on 29 December The effects of the instruments issued according to art. 12 of Leg. Decree 185/08 were also considered. The following table displays the diluted earnings per share with the calculation details. 1st half of st half of 2009 Adjusted attributable profit 36,403 35,848 Weighted average number of ordinary shares 449,595, ,000,027 Diluted earnings per share

72 Information on risks and hedging policies The identification of risks to which the Group is potentially exposed constitutes the essential prerequisite for a knowledgeable assumption of said risks and their effective management, making use of the appropriate mitigation and transfer tools and techniques. In line with its focus on retail banking, the Group is mainly exposed to credit risk and other types of operating risks. The set of internal rules, operating procedures and control structures to oversee company risks is structured according to a model that integrates control methods at various levels, all converging with the objectives of ensuring efficiency and effectiveness of operating processes, safeguarding integrity of corporate assets, protecting from losses, ensuring reliability and integrity of information and verifying proper execution of activities with respect to the internal and external regulations. With regard to the regulatory provisions regarding the prudential control process, enforced within the group is a specific corporate regulation approved by the Board of Directors of the Parent Company and periodically updated that governs the capital adequacy company evaluation process (ICAAP). Supervisory provisions envisage that ICAAP is centred on appropriate corporate risk management systems and requires adequate corporate governance mechanisms, an organisational structure with a well-defined hierarchy of responsibility and effective internal control systems. Responsibility for this process will be in the hands of company bodies who will independently establish the set-up and organisation in accordance with their respective powers and remits. They will ensure implementation and promote the updating of the ICAAP in order to ensure continued compliance with the operating characteristics and the strategic context in which the bank operates. The process is formalised, recorded, subject to internal review and approved by the company bodies. Specifically, the process defined at Group level proposes to: - identify capital requirements in relation to actual risk levels and to the strategic plan defined by the Group; - guarantee constant capital adequacy with respect to current and future requirements; - constantly monitor all the main risks; - guarantee regular attention to risk measurement and management processes, developing a growing risk culture ; - define the means and tools, methodologies, organisational and control systems of risks and capital measured against the strategies, characteristics, size and complexity of the Group, with a view to continuous and gradual improvement. Once the above described process was completed, in April the Board of Directors of the Parent Company approved the ICAAP report of 31 December It comprises the point of convergence and synthesis of the equity, economic and financial plans, the risk management and capital management on the one hand, and an essential instrument to support strategic planning and the implementation of the corporate decisions on the other. Due to the persisting economic and financial crisis, the quantification of the risk that the Group is exposed to was carried out in a highly prudential manner, both with respect to calculation of the internal capital for measurable risks, and for identification of a buffer of additional capital for nonmeasurable risks. The ICAAP process led to the expression of an evaluation of the current and future adequacy of the total capital to meet the relevant risks that the Group is exposed to and support the corporate growth plans in addition to maintaining adequate standing on the markets. 1. CREDIT RISK The focus on development in the area in which the Group operates continues to distinguish its lending practices in support of local production activities. The reference aggregate is represented by households and small and medium enterprises, the recipients of most of the loans. The organisational structure of the credit area is distributed over the sales network with hierarchically ascending powers and competences towards central structures in order to take advantage of the local knowledge while maintaining more and more specialist competences within the central structures. Every loan proposal is formulated by bodies within the territorial network, which shall complete the related decision-making procedure. Applications for larger credit lines, differentiated also on the basis of the risk, are automatically forwarded to central structures, which decide on the relative cases. 72

73 In this perspective, all the cases of credit lines which are dealt with by the Board of Directors, in addition to any particularly important topic relating to lending issues, are systematically and obligatorily monitored by the Group Loans Department, and submitted to the Group Credit Committee for a non-binding opinion. With regard to the control function assigned to the parent banks of the banking groups by current legal regulations, the implementation of the resolutions passed by the Boards of Directors of the banks of the Group with regard to new credit lines granted or changes to existing credit lines exceeding the limits set for each Bank, is expected to be subordinated to a congruence opinion by the Executive Committee of Credito Valtellinese. The decision-making process related to the credit is supported by an internal data processing procedure (electronic credit line) that manages all the credit process phases, from the contact with customers and set up to the disbursement and management, up until the credit closure, automatically identifying the set authorisation levels, on the basis of the limits to the amount defined in the Structure of the delegated powers. Any performance anomaly can be detected with specific procedures. The factors that enable to evaluate and manage credit risk include all the traditional quantitative (income component, analysis of financial statements and internal performance data) and qualitative elements, such as the in-depth knowledge of the customer, the competitive context in which it operates and, above all for the corporate segment, assessing the effectiveness of the management. The set of assessment tools is complemented by a number of modern databases available to credit operators such as central credit registers, sector studies and the scoring of performance analyses. The Group has developed a model to assign ratings to companies. These ratings represent an evaluation on an ordinal scale of the ability of a company given a loan to honour its contractual commitments, with a twelve-month time-frame. The ratings are updated on a monthly basis. The ratings model provides for 9 loan merit classes for performing loans and one class for loans in default. The loans in default comprise doubtful, substandard or restructured loans, and loans that have expired, according to the definition of current supervisory reports. The range of application of the model is that of business customers, defined as the group of counterparties of any legal form which carry out a production activity and/or sale of goods and services. The model was developed with a view towards IRB-Foundation, therefore the only risk parameter estimated is the probability of default (PD). The assignment of the rating is linked to the credit disbursement process and is activated when a loan has been requested or is to be reviewed. Ratings are automatically reviewed on a monthly basis. Considering that the backtesting activities carried out on the model have demonstrated a good match between the creditworthiness rating classes and historical default data, the model is considered reliable to be used in managing the various loan processing stages. 73

74 Chart 1 - Distribution of loans to enterprises by rating class Compared to the situation as at 31 December 2009, the change in loan distribution indicates that the portfolio quality has felt the effects of the unfavourable economic situation. In addition to the internal rating model, performance scoring systems (A.R.I.E.T.E.) have also been in use for some time in order to allow use of simplified credit line review procedures only for those positions that have passed the strict selection procedures. Regarding individual companies, as well as private customers, an acceptance score is assigned. As regards the concentration risk, in 2009 the Board of Directors of the Parent Company approved an updated version of the document The management of concentration risk of the customer loan portfolio, adjusting the methods to calculate the internal capital in line with the concentration risks according to the methodological clarifications provided by the Bank of Italy. Furthermore, the document formalises the performance of the risk management activities regarding the above mentioned risk, defines the tasks and responsibilities assigned to the various organisational units in charge, and sets out, among other things, the strategic directions, management policy, measurement methods, exposure limits, information flows and any corrective actions that may be necessary. In accordance with the mission of the retail banking Group which targets a broad, diversified market, comprising economic entities families, trades, professionals, and companies operating in geographically different sectors and contexts, assumption of the concentration risk deriving from lending activities will be kept within established limits. Concentration risk management will aim to limit the financial impact of nonperformance by single parties or groups of related customers caused by both specific factors and by unfavourable economic conditions in specific sectors of the economy or geographical areas. Concentration risk will be limited by splitting up and diversifying the portfolio. The objectives with respect to concentration risk exposure are considered by the Group when carrying out strategic and operational planning, and when making the loans. Concentration risk measurement is the responsibility of the Risk Management department and it will make these measurements on a centralised basis on behalf of all Group banks. Risk measurement is carried out at both an individual and consolidated level in order to more fully identify and allocate the main sources of exposure to risk at the legal entity level. The approach followed in order to measure the concentration risk of the customer loan portfolio differs in accordance with whether it is generated by: - concentration by single party or group of related customers; - concentration by common factors (geo-sectorial concentration). The granularity adjustment approach noted in the New prudential supervisory provisions for banks is used to measure the concentration risk per single party or group of related customers. In order to monitor the 74

75 concentration risk per single party or per group of related customers, the first 20 positions are also analysed (individual customers or financial groups of performing customers), identified in accordance with the loan receivable amounts. Information on the positions classified as high risk is also important as part of the risk concentration per single party or group of related customers. In order to monitor the concentration risk by common factors, calculations of the Herfindahl concentration indices are carried out on the customer loan portfolios in accordance with the branch of economic activity and province of residence of the parties. A series of exposure limits applicable at both consolidated and individual level were defined for the above-mentioned risk profiles. The differentiation of the limit structure takes account of the current and future operating specifics, size and composition of the loan portfolio and the equity available in each individual Group Bank. Considering the market in which the Bank operates and type of customer served, the Board of directors of the Parent Company decided a temporary derogation to the exposure limit of Credito Piemontese risk concentration, increased for the current financial year from 5% to 10% of the regulatory capital, with the obligation to return within the ordinary limit during The loans granted are normally backed by real property security, and to a lesser extent, by personal guarantees. However, credit derivatives are not used. For pledges, the procedure envisages the valuation of only predetermined elements which can be easily liquidated. For mortgages, the assessment of assets involves the intervention of external experts or experts who may be employed by the Group Company specialised in this field, but have no involvement whatsoever with the credit rating process. This procedure is not required in special cases of mortgages of a small amount. The collection of personal guarantees is often preceded by checks carried out at the competent Land Registry, with the purpose of ascertaining the guarantor's actual ownership of the property, always duly taking into account the possibility of a swift and unexpected decrease in value of the asset concerned. In any event, guarantees are always considered an additional element to the credit line and do not represent its sole basis. As part of the ICAAP process, the Group has provided for the evaluation of residual risk, i.e. the risk that the recognised techniques used to mitigate credit risk are less effective than expected. The use of these techniques may in fact expose the Group to a series of further risks (for example of an operational or legal nature) which, if they occur, may lead to a greater lending risk than had been expected due to lower effectiveness or actual unavailability of the protection. Some typical examples of residual risk include the inability to promptly enforce the guarantees received (in the event of breach by the party), the legal invalidity of the documentation, or the incorrect evaluation of the exact value of the guarantee. The residual guarantee is mainly managed by acting on the procedural and organisational plan. An internal rule book with guidelines on the correct acquisition, utilisation and management of guarantees has been prepared to ensure across-the-board standard application. The guarantees are managed on a centralised basis by the Group Bank Loans Departments, which deal with all aspects regarding the accounting, administration, control and safe-keeping of guarantees received. Part of the duties of the Inspection Services involve verification that all obligations regarding guarantee management are met. The guarantees acquired comply with the suitability criteria established by supervisory regulations on the mitigation of credit risk for the purpose of determining asset requirements. The Group has a property value supervision system in place that allows it to keep mortgage guarantees under suitable control. Specifically, the value of mortgaged properties backing loans of more than EUR 3 million are regularly updated by external experts, while an automatic evaluation mechanism keeps properties with mortgages of less than EUR 3 million under strict control. The anomalously performing loans consist of impaired doubtful loans (expired for more than 180 days or beyond 90 days for the non derogated portfolios), watch-list, restructured loans and doubtful loans. Instruments that, based on the regulations of the Bank of Italy, have been designated as doubtful, substandard, restructured have been assessed on an analytical basis. These are identified by the Credit Performance Management Departments of the Bank on the basis of a set of analyses on internal performance indicators (particular attention being paid to positions that are overdue by more than 90/180 days), responses received from the risk centres, sector data and the figures of the financial statements of the borrowers as well as the presence of prejudicial encumbrances. The risk change is resolved by the Credit Committee, normally upon proposal by the Credit Performance Management Department. On carrying the resolution, the Committee also determines the impairment of the loans with respect to the seriousness of the anomaly found and the guarantees obtained to support the case. Regarding these positions, all decision-making rights granted to individual bodies are suspended, and any subsequent granting of credit is at the sole discretion of corporate bodies or the Credit Management Department. The positions are systematically monitored also using a series of controls available on the procedure, by the 75

76 Credit Performance Management Department, which provide support to the single branches in terms of the methods for managing relationships and the measures to be taken to attempt to return the positions to performing status. In order to support the branches and guarantee the correct application of the Supervisory Regulations, a procedure is active for objective substandard loans, meaning those regarding positions that reach a specific degree of non-payment. The procedure highlights the anomalies. If the irregularity is not suitably resolved during the quarter, the notification gradually progresses from the branches to the area manager, until it reaches the Credit Performance Management Department for the correct assignment of substandard status. Due to the non discretional nature of the report, a mechanism was recently introduced according to which those positions that have reached the levels set by the Supervisory Authority are automatically signalled. With regard to classification as doubtful, the Supervisory Regulations are strictly observed, with separate classification of all insolvent parties (even if not legally declared so) or in similar situations, regardless of any real or personal guarantee obtained in support of the exposure. Accounting as substandard requires the approval of a credit line, providing for the check by the Credit Performance Management Service in the Loans Department and the resolution by the Bank s credit committee or a higher body. Regarding the management of doubtful loans, within the Group, Finanziaria San Giacomo has been assigned to monitor such activity. Almost all impaired loans pertaining to Group Banks have been transferred to this company, along with the management of non-transferred impaired loans. The centralising of this specialist activity within a single company favoured the transfer of the best operating methods among the various operating units throughout the country, and resulted in a significant improvement in the overall management of problem loans. A Disputes Committee operates within Finanziaria San Giacomo, with the task of managing its own cases, to the extent of its delegated powers, and expressing a compulsory, but non-binding, opinion on cases under the responsibility of the Board of Directors and those assigned under management. With regard to the amount of provisions allocated on individual doubtful positions, a formal Group policy is in place, approved by the Board of Directors, for the various types of doubtful loans classified based on the status of single procedures indicating the criteria to be followed in determining doubtful status. Decisions regarding individual allocations and any changes are made by the Loans Committee on recommendation from the competent bodies of Finanziaria San Giacomo. The following tables show cash and off-balance sheet exposure to banks and customers and the distribution of exposures by portfolio and credit quality as at 30 June In accordance with the financial statements as at 31 December 2009, the tables related to the cash and offbalance sheet exposure to banks and customers report the data referring to the Banking Group only. The figures are indicated including the relations with other consolidated companies. The effect of these exclusions is not in the higher range. 76

77 Banking Group - Cash and off-balance sheet exposures to banks: gross and net values Type of exposure/amounts A. CASH EXPOSURES Gross exposure Specific value adjustments 30/06/2010 Portfolio value adjustments Net exposure a) Doubtful loans - - X - b) Substandard loans - - X - c) Restructured exposures - - X - d) Past due exposures - - X - e) Other assets 1,599,005 X - 1,599,005 TOTAL A 1,599, ,599,005 B. OFF-BALANCE SHEET EXPOSURES a) Impaired - - X - b) Other 393,392 X - 393,392 TOTAL B 393, ,392 TOTAL (A+B) 1,992, ,992,397 77

78 Banking Group - Cash and off-balance sheet exposures to customers: gross and net values Type of exposure/amount A. CASH EXPOSURES Gross exposure Specific value adjustments 30/06/2010 Portfolio value adjustments Net exposure a) Doubtful loans 1,087, ,710 X 433,042 b) Substandard loans 531,796-31,966 X 499,830 c) Restructured exposures 65,079-1,833 X 63,246 d) Past due exposures 328,190-6,624 X 321,566 e) Other assets 20,448,173 X -115,629 20,332,544 TOTAL A 22,460, , ,629 21,650,228 B. OFF-BALANCE SHEET EXPOSURES a) Impaired 7, X 6,921 b) Other 2,840,138 X -94 2,840,044 TOTAL B 2,847, ,846,965 TOTAL (A+B) 25,308, , ,723 24,497,193 Type of exposure/amount A. CASH EXPOSURES Gross exposure Specific value adjustments 31/12/2009 Portfolio value adjustments Net exposure a) Doubtful loans 925, ,650 X 347,442 b) Substandard loans 412,177-33,380 X 378,797 c) Restructured exposures 42,049-1,121 X 40,928 d) Past due exposures 329,160-6,719 X 322,441 e) Other assets 19,815,286 X -118,705 19,696,581 TOTAL A 21,523, , ,705 20,786,189 B. OFF-BALANCE SHEET EXPOSURES a) Impaired 6, X 5,951 b) Other 2,710,378 X ,710,228 TOTAL B 2,717, ,716,179 TOTAL (A+B) 24,240, , ,855 23,502,368 78

79 Distribution of exposures by portfolio and credit quality (book values) Portfolio/Quality Doubtful loans Substan dard loans Restructured exposures Past-due exposures Other assets 1. Financial assets held for trading , , Financial assets available for sale , , Financial assets held to maturity ,487 88, Due from banks ,301,455 1,301, loans to customers 433, ,830 62, ,566 19,921,875 21,239, Financial assets designated at fair value Financial assets held for disposal Hedging derivatives Total as at 30/06/ , ,830 63, ,566 21,938,102 23,255,786 Total as at 31/12/ , ,797 40, ,441 21,457,874 22,547,482 Total 79

80 Distribution of exposures by portfolio and credit quality (gross and net values) Portfolio/Quality Gross exposure Impaired assets Value adjustments Net exposure Gross exposure Performing Portfolio adjustments Net exposure Total (Net exposure) 1. Financial assets held for trading X X 260, , Financial assets available for sale , , , Financial assets held to maturity ,487-88,487 88, Due from banks ,301,455-1,301,455 1,301, Loans to customers 2,012, ,133 1,317,310 20,037, ,629 19,921,875 21,239, Financial assets designated at fair value X X Financial assets held for disposal Hedging derivatives X X Total as at 30/06/2010 2,012, ,133 1,317,684 21,792, ,629 21,938,102 23,255,786 Total as at 31/12/2009 1,708, ,871 1,089,608 21,264, ,739 21,457,874 22,547,482 Major risks (according to supervisory regulations) 30/06/ /12/2009 % change a) Amount 254, , b) Number

81 2. MARKET RISK Interest rate risk - Supervisory trading portfolio Regulatory trading portfolio means the portfolio of financial instruments subject to the capital requirements for the market risks, as stated by the measures regarding supervisory reports. In line with the Group's retail mission, which mostly entails the assumption of credit risk with regard to specific customer segments, the trading portfolio is a secondary portfolio and has a low risk profile. The trading portfolio comprises bonds, shares, harmonised UCI quotas and hedge funds, trading derivatives. The bond component of the portfolio consists mainly of floating rate securities and the fixed-rate portion has a low duration. The bonds held are mainly issued by Italian banks with ratings higher than investment grade and by the Italian Republic. Direct equity investments, residual in size, mainly involve shares listed on the Italian Stock Exchange and with a high degree of liquidity. The financial instruments in the portfolio are almost exclusively in Euro. Investment and trading is carried out in compliance with the guidelines established by the Group governance bodies and is implemented as part of an extensive system of assigned management powers and according to detailed regulations envisaging defined management limits in terms of instruments, amounts, investment markets, issue and issuer types, sectors and ratings. Risk is measured using both analytical techniques (establishing the duration of the bond portfolio with regard to interest rate risk exposure) and statistical techniques (estimate of the overall value at risk, net of mitigation generated by portfolio diversification). The portfolio approach is based on the daily estimate of parametric VaR over a 10-day period and a 99% confidence interval. The VaR measures the maximum loss the trading portfolio may incur based on volatility and historic correlation of the individual risk factors (interest rates, share prices and exchange rates). This model is not used to determine the minimum capital requirement with respect to market risk. The Group uses a single model to monitor the risk to which the trading portfolio is exposed. Therefore, the tables below illustrate information on VaR, inclusive of all risk factors. During the half year, the VaR recorded limited values both in absolute terms and with relation to the entity of the portfolio. The main factors to which it is exposed are interest rate risk and price risk. Credit risk ascribable to bond investments is limited given the type and the credit status of the issuers. Table 1 - Supervisory trading portfolio - VaR performance First half of 2010 Average Minimum Maximum 30/06/2010 1,133, ,233 1,792,079 1,473,813 81

82 Chart 2 - Supervisory trading portfolio - VaR performance GCV GROUP VaR I Half of ,900,000 1,700,000 1,500,000 1,300,000 1,100, , ,000 4-Jan 19-Jan 2-Feb 16-Feb 2-Mar 16-Mar 30-Mar 14-Apr 28-Apr 12-May 26-May 10-Jun 24-Jun VaR 2.2 Interest rate risk and price risk Banking portfolio The banking portfolio consists of all financial instruments payable and receivable not included in the trading portfolio. It mainly comprises amounts due from and to banks and customers. In compliance with the business model adopted, the customer segments served and the types of deposits and use that the Group generally makes, within the scope of defining the strategic guidelines for the assumption and exposure to risk, the Parent Company Board of Directors expressed a low inclination to interest rate risk. The extent of risk exposure is evaluated both in absolute terms (variation in economic value) and relative terms (variation of the capital value with respect to the capital required for regulatory purposes). Interest rate risk management aims to minimise the impact of unfavourable variations in the rates curve on the value of the Bank, and on the cash flows generated by statement of financial position items. Limiting exposure to interest rate risk is achieved primarily by index-linking asset and liability items to money market benchmarks (usually the Euribor rate) and by balancing the duration of the asset or liability at low levels. The objectives with respect to interest rate risk exposure are considered by the Group when carrying out strategic and operational planning, both when identifying and developing new products. The banking portfolio consists also of the shares which are held as part of more in-depth relations with specific companies or represent the instrument supporting significant initiatives undertaken in the Bank's reference territory. The price risk management methods for such financial instruments, therefore, tend more towards the management approach for investments in associates and companies subject to joint control, rather than the risk measurement techniques and instruments used for the trading portfolio. At the end of the period, the changed duration calculated for all statement of financial position assets and liabilities was contained; as a result the change in the value of the Group s economic capital due to instantaneous shocks to the rate curve was limited. The exposure measured in consideration of the persistence of volumes and the stickiness of the rates for on demand items (behavioural profile) is lower than 1.0% of the regulatory capital. The exposure to exchange rate risk of the statement of financial position as a whole, which is negligible, is largely due to transactions carried out with customers, interbank transactions and, to a lesser extent, positions in financial instruments. 82

83 2.3 Derivative instruments The following tables show the positive and negative fair value of the financial derivatives. Purchase and sale operations unregulated with standardised regulations (purchase or sale of a financial asset according to a contract whose terms require the delivery of the asset in a space of time generally established by the regulations or conventions of the interested market). Financial derivatives: positive gross fair value breakdown by product Portfolios/Types of derivatives Over the counter Positive fair value 30/06/ /12/2009 Central counterparties Over the counter Central counterparties A. Supervisory trading portfolios 5, , a) Options b) Interest rate swap 381-2,172 - c) Cross currency swap d) Equity swap e) Forward 5, , f) Futures g) Others B. Banking portfolio - hedging a) Options b) Interest rate swap c) Cross currency swap d) Equity swaps e) Forward f) Futures g) Others C. Banking portfolio other derivatives a) Options b) Interest rate swap c) Cross currency swap d) Equity swaps e) Forward f) Futures g) Others Total 6, ,

84 Financial derivatives: negative gross fair value breakdown by product Portfolios/Types of derivatives Over the counter Negative fair value 30/06/ /12/2009 Central counterparties Over the counter Central counterparties A. Supervisory trading portfolios 8,087 13,221 6,489 32,895 a) Options 71 13, ,877 b) Interest rate swap 2,999-1,683 - c) Cross currency swap d) Equity swaps e) Forward 5, , f) Futures g) Others B. Banking portfolio - hedging a) Options b) Interest rate swap c) Cross currency swap d) Equity swaps e) Forward f) Futures g) Others C. Banking portfolio other derivatives a) Options b) Interest rate swap c) Cross currency swap d) Equity swaps e) Forward f) Futures g) Others Total 8,087 13,221 6,489 32,895 84

85 3. LIQUIDITY RISK Liquidity risk is the risk that the bank will not be able to meet its obligations when they fall due. The failure to meet its payment commitments may be due to the following: - inability to procure the funds (funding liquidity risk); - the presence of limits in liquidity of the assets (market liquidity risk). Liquidity risk also includes the risk of meeting payment commitments at costs that are outside market costs, i.e. incurring high funding costs or (and sometimes concurrently) incurring capital losses in capital in the event of disinvesting assets. Even though they are closely connected, liquidity has two different aspects: - structural liquidity that forms part of planning and assumes an overall business strategy; - short-term liquidity that deals with the daily management of treasury balances and the optimisation of short-term cash flows. Structural liquidity management involves maintaining a suitable ratio between overall liabilities and medium and long-term assets to avoid straining the financing sources. Short-term liquidity management aims to ensure that the expected and unexpected payment commitments are met by maintaining the balance between the incoming and outgoing cash flows. The assumption of liquidity risk deriving from typical banking activities (funding and lending) and operations in the property finance sector must be kept within certain limits. Liquidity risk management aims at ensuring Bank solvency, including in highly critical situations. Limiting liquidity risk exposure is mainly pursued through a distinct set of organisational management decisions and safeguarding measures, the more significant being: - constant attentiveness with respect to the technical situations of the Bank in terms of balanced structuring of asset and liability expiry dates, with special regard to the short term expiries; - the diversification of funding sources, with respect to the technical form, counterparties and markets. The Group can count on wide-ranging and highly stable retail funding both in the form of deposits and in the form of debts represented by securities placed directly through the branch network. Reliance on market funds (interbank funding and issues targeting institutional investors) is therefore reduced and in line with a limited exposure to liquidity risk; - the holding of assets that can be readily converted into cash and used as security for financing transactions, or directly transferable in situations of strain; - the preparation of a contingency funding plan. The Risk Management department is in charge of measuring liquidity risk on a centralised basis for all Group Banks. The approach adopted for risk management envisages integration of the cash flow matching approach (which tends to make expected cash inflows coincide with expected cash outflows for each time horizon) with the liquid assets approach (which requires the financial statements to include a set number of financial instruments that can be readily converted into cash). Specifically, exposure to risk is analysed by construction of a maturity ladder that allows evaluation of the balance of the expected cash flow balance by comparison of assets and liabilities that mature within the same time slot. The maturity ladder means that the balances and therefore the deficits between inflows and outflows expected for each time slot can be highlighted, and the net balance of the financial requirements (or surplus) in the time slot considered can be calculated by accumulating the deficits. In addition to the maturity ladder, through which the structural liquidity profile is investigated, the liquidity risk is also evaluated in the short and very short term by preparing a report. The Group Contingency Funding Plan approved by the Board of Directors of Credito Valtellinese in 2008 and updated in 2009, plays a very important role in managing liquidity risk in ongoing or once-off crisis situations. The Group contingency plan consists of the following phases: - identification of the signals that can predict potential crises; - definition of the events that will trigger implementation of the contemplated actions; - identification of the bodies, the company departments and the duties assigned to them; - identification of possible funding sources and therefore of the management leverage that can be implemented in emergency situations; - indication of how the powers necessary to implement the management leverage identified can be exercised; - definition of the procedures ruling internal and external communications of the crisis situations. The continuation of conditions of uncertainty on world financial markets contributed towards maintaining the attention to liquidity risk at a high level, at all Group levels. The simulation of a liquidity crisis situation is 85

86 inserted in such a context during the first half of 2010, with the aim of testing the efficiency of the mechanisms provided by the Group's Contingency Funding Plan. The simulation provided useful information for improving the process. At the end of the half year, the securities available for refinancing amounted to EUR 1,385 million, EUR 599 million of which allocated to the Mercato Interbancario Collateralizzato MIC (collateralised interbank market) and broken down as follows: EUR 200 million used and EUR 399 million available. The remaining part was not tied up. During 2009, together with Banca Popolare di Cividale and Banca di Cividale, the Credito Valtellinese Group completed a multi-originator securitisation on a portfolio of performing residential and commercial mortgages for a total of EUR 1,366 million - of which EUR 1,124 million originating from Creval Group banks - through the special purpose company Quadrivio Finance s.r.l. The securitisation, the first performed by the Group, forms part of the prudential extension of eligible assets for refinancing through the European Central Bank, and was divided into: - one tranche of senior securities (class A) of EUR 1,093 million, listed on the Luxembourg stock exchange, with a Fitch rating of AAA; - 6 tranches of junior securities (classes B1, B2, B3, B4 and B5) for a total of EUR 224 million, unlisted and unrated. Both security classes are fully subscribed by the individual originator banks participating in the securitisation. The class A securities held by Group banks totalling EUR 906 million can be used as collateral for European Central Bank funding transactions. The junior class securities were also subscribed by the Group banks for a total of EUR 177 million. Purchase of the senior and junior securities by the originator Banks involves the retaining of risks/benefits associated with the transferred portfolio. 4. OPERATIONAL RISK Operational risk management is part of an integrated management strategy that aims to contain overall risk also by preventing propagation and transformation of the risks. The wide variety of operational risks is not normally associated with banking or business activities. These risks may originate either internally or externally and their scope may extend beyond the corporate structure. Operational risk management is based on the following guidelines: - to increase overall operating efficiency; - to avoid the occurrence or reduce the likelihood of events that may potentially generate operating losses through appropriate regulatory, organisational, procedural and training measures; - to mitigate the expected impact of said events; - through insurance arrangements, to transfer risk that the Bank does not intend to maintain; - to protect the reputation and brand of the Bank and of the Group. Operational risk measurement/evaluation is the responsibility of the Risk Management department, which performs this task on a centralised basis on behalf of all Group Companies. The approach followed is influenced by the advanced method approaches (AMA) provided by supervisory regulations. An advanced operational risk management system is made up of a structured set of processes, functions and resources to identify, assess and control operational risk, concentrating particularly on its effective prevention and reduction. Risk containment is achieved through the use of regulatory, organisational and procedural measures and training. Any critical areas, identified through joint analysis of various sources of data, are examined in further depth by department managers, who together with the Risk Management Department, establish the appropriate corrective action. Certain types of operational risk are mitigated through the employment of insurance contracts. In addition, the Group has a business continuity plan in place, which sets out the principles, establishes the objectives, and describes the procedures to manage all initiatives to reduce any damage resulting from incidents or catastrophes to a level considered acceptable. 86

87 Information on consolidated equity Regulatory capital Regulatory capital is determined on the basis of new provisions issued by the Bank of Italy following the implementation of new prudential regulations for banks and banking groups by the New Basel Accord on Capital (Basel 2), introduced in circular no. 263 of December 2006 and through the 12th update to Circular 155 of February /06/ /12/2009 A. Tier 1 capital before the application of prudential filters 1,349,386 1,366,402 B. Tier 1 capital prudential filters: B.1 Positive IAS/IFRS prudential filters (+) - - B.2 Negative IAS/IFRS prudential filters (-) 30, C. Tier 1 capital before any deductions allowed (A+B) 1,318,857 1,365,536 D. Elements to be deducted from Tier 1 capital 88,333 87,860 E. Total Tier 1 capital (C-D) 1,230,524 1,277,676 F. Tier 2 capital before the application of prudential filters 721, ,322 G. Tier 2 capital - prudential filters: G.1 Positive IAS/IFRS prudential filters (+) - - G.2 Negative IAS/IFRS prudential filters (-) H. Tier 2 capital before any deductions allowed (F+G) 721, ,709 I. Elements to be deducted from Tier 2 capital 88,333 87,860 L. Total Tier 2 capital (H-I) 632, ,849 M. Items to deduct from total Tier 1 and Tier 2 capital 3,952 5,624 N. Regulatory capital (E+L-M) 1,859,546 1,787,901 O. Tier 3 capital - - P. Regulatory capital including TIER 3 (N+O) 1,859,546 1,787,901 Tier I capital totals EUR 1,230.5 million, a decrease of approximately EUR 47.1 million on the figure of 31 December This change is mainly attributable to: - the increase in the investment in the share capital of Banca dell Artigianato e dell Industria (B.A.I.); - the acquisition of control, on 19 May 2010, of Banca della Ciociaria. Tier 2 capital records an increase of around EUR million due mainly to the issue, on 22 March 2010, of the 2010/2017 Credito Valtellinese subordinated loan. The regulatory capital as at 30 June 2010 amounts to EUR 1,859.5 million against EUR 1,787.9 million at the end of 2009 (+4%). 87

88 Capital adequacy Capital requirements and prudential coefficients as at 30 June 2010 were determined on the basis of the provisions issued by the Bank of Italy following the implementation of prudential regulations for banks and banking groups introduced by the New Basel Accord on Capital (Basel 2) and regulated by circular no. 263 of December 2006 and through the 12th update to Circular 155 of February Following the measure of the Supervisory Authority issued last 18 May, the Group opted the full neutralisation of capital losses and capital gains accrued during the current year on the securities issued by Central governments of Countries belonging to the EU included in the financial assets available for sale AFS portfolio. Categories/Amounts A. RISK ASSETS 30/06/ /12/ /06/ /12/2009 Non-weighted amounts Weighted amounts/ requirements A.1 Credit risk and counterparty risk 28,783,506 27,040,413 17,761,342 17,593, Standardised method 28,783,506 27,040,413 17,761,342 17,593, Internal rating method Base Advanced Securitisations B. CAPITAL REQUIREMENTS FOR SUPERVISORY PURPOSES B.1 Credit risk and counterparty risk 1,420,908 1,407,491 B.2 Market risk X X 16,680 15, Standard method X X 16,680 15, Internal models X X Concentration risk X X - - B.3 Operational risk X X 120, , Base method X X 120, , Standardised method X X Advanced method X X - - B.4 Other prudential requirements X X - - B.5 Other calculation elements X X - - B.6 Total prudential requirements X X 1,558,308 1,542,862 C. RISK ASSETS AND CAPITAL RATIOS C.1 Weighted risk assets X X 19,478,850 19,285,775 C.2 Tier 1 capital/risk-weighted assets (Tier 1 capital ratio) C.3 Capital for supervisory purposes including TIER 3 / Risk-weighted assets (Total capital ratio) X X 6.32% 6.62% X X 9.55% 9.27% 88

89 Business combinations Acquisition of control of Banca della Ciociaria S.p.A. On 19 May 2010, after exercising the existing call option by Credito Valtellinese, there was the completion of the purchase of 902,573 shares of Banca della Ciociaria S.p.A., corresponding to approx. 15% of the share capital, for a payment of approx. EUR 16,986 thousand. Due to the said transaction, the investment of Credito Valtellinese in Banca della Ciociaria increased from 37.96% to 53%, a share that allows its insertion in the Creval group at the end of a wide strategic collaboration project between the two banks and the groups to which they refer, started in 2005 and mainly aimed at strengthening the territorial monitoring of the Lazio bank by developing business and operational synergies. Banca della Ciociaria is based in Frosinone and currently has a branch network of fifteen branches in the provinces of Frosinone, Latina and Roma. It has 90 collaborators. The reference principle for the accounting procedure of the acquisition of control of Banca della Ciociaria in the consolidated financial statements of Credito Valtellinese is IFRS 3 Business combinations ratified with Regulation no. 495/2009. This principle defines a business combination as an operation or another event in which an acquirer acquires the control of one or more businesses. The accounting procedure must occur by applying the acquisition method and by applying the specific provisions established for step business combinations. In particular, according to paragraph 42, the purchase must recalculate the investment previously held in the acquiree at its respective fair value on the acquisition date and report any resulting profit or loss in the income statement. Therefore, the fair value of the previously owned 2,277,427 shares was recalculated for a book value in the consolidated financial statements that was equal to EUR 26,564 on 19 May The determined fair value (equal to EUR 28,946 thousand) implied the recognition of a positive difference posted to the item 240. Profit (losses) on investments in associates and companies subject to joint control amounting to EUR 2,382 thousand. As at the date of acquisition, the company had customer loans of EUR 62,126 thousand, bank loans of EUR 138,947 thousand, customer deposits of EUR 322,120 thousand and bank deposits of EUR 4,814 thousand. The fair value of the assets, liabilities and potential liabilities of the acquiree may be determined provisionally by the end of the year in which the business combination is achieved and must be finalised within twelve months of the acquisition date. Given the complexity linked with the process defining the fair value of the assets and liabilities acquired, as at 30 June 2010 the measurement process has not been completed. Provisionally, the difference between the transferred consideration, the amount of the minority shares in the acquiree and the fair value of the investments previously owned and the net value of the amounts of the identifiable assets acquired or liabilities assumed was recognised in the item Goodwill (amounting to EUR 23,456 thousand). Minority shares were determined in proportion to the minority shareholding in identifiable net assets of the acquiree. In accordance with the provisions of paragraph B64 of IFRS 3, it is specified that, from the consolidation date, the consolidated interim report includes a loss, referring to Banca della Ciociaria, which amounts to EUR 79 thousand, net of the minority portion. Before the acquisition of control, the company was measured at equity. This implied the entry of negative values amounting to EUR 825 thousand. If the exclusive acquisition of control had been carried out at the beginning of the financial year, Parent Company s net income would have been less amounting to EUR 327 thousand. The signed agreements contemplate the assignment to the minority shareholders of a put option to Credito Valtellinese on approx. 2 million shares. In accounts, commitments for the repurchase of own equity instruments, including commitments to purchase equity instruments of companies consolidated in full, give rise to a financial liability for the current amount payable. Therefore, the amount payable concerning the commitment underlying the granted option amounting to EUR 30.4 million was entered as a balancing entry to the shareholders equity and minority interests. 89

90 Acquisition of control of Banca Cattolica S.p.A. A Framework Agreement was signed on 14 July 2009 between Credito Valtellinese and Banca Cooperativa Cattolica (subsequently transformed into Banca Cattolica S.p.A) with offices in Montefiascone (Viterbo) with the goal of including the latter in the Credito Valtellinese banking group. The Agreement signed envisaged the launch of an equity swap by Credito Valtellinese - through a swap of Creval shares for 30% of the total bid price - targeting Banca Cooperativa Cattolica shareholders and subject to reaching a subscription rate of at least 50.01% on a maximum 80% of the share capital of the Bank, corresponding to a maximum amount set of EUR 46 million. The equity swap was completed through the acquisition of the maximum number of shares set for the payment, occurred on 23 November 2009, with the simultaneous exchange of shares, for an amount consisting of: - EUR 33,557 thousand in cash; and - 2,031,604 Creval ordinary shares from stockpiling purposely created by the Bidder according to the Permitted Practice no. 2 introduced by Consob with Resolution no of 19 March The investment was recognised at EUR 45,696 thousand, calculated as the sum of the consideration in cash and the fair value of the Credito Valtellinese shares on the exchange date (market price of the share). The above described transaction was accounted for in accordance with the provisions of IFRS 3 Business combinations in force for the transactions carried out in The date of acquisition of control is 23 November 2009, while the cost of the acquisition, including the transaction costs, for an amount of EUR 460 thousand, amounts to EUR 46,156 thousand. The price differential to allocate in accordance with IFRS 3 equals EUR 23,018 thousand, calculated in consideration of the portion of shareholders equity acquired. IFRS 3 permits final allocation of the cost of the business combination within twelve months of the acquisition date. Due to the complexity of allocating the acquisition cost of the operation carried out at the end of November 2009, the Group avails itself of this option. As at the date of acquisition, the company had customer loans of EUR 221,282 thousand, bank loans of EUR 37,965 thousand, customer deposits of EUR 252,412 thousand, bank deposits of EUR 3,036 thousand and indirect deposits of EUR 58,172 thousand. In the consolidated interim report, the temporary allocation of costs of the business combination was performed by including certain estimates resulting in the recognition of new intangible assets not recognised to the company financial statements associated with customer relations management, for a total of EUR 2,419 thousand. Based on the provisions of IAS 12 - Income taxes, deferred tax assets and liabilities were recognised for a total of EUR 782 thousand. Considering the share attributable to third-party shareholders, the total recognised to Goodwill was therefore temporarily calculated as EUR 21,703 thousand. The intangible assets temporarily identified as acquired are deemed to have definite lives since only the positions as at the date of acquisition are considered and not their capacity to generate new business. The intangible assets are therefore amortised at a constant rate over the period that most of the expected economic benefits will accrue estimated as 14 years. The consolidated interim income statement therefore includes higher amortisation intangible assets amounting to EUR 86 thousand. 90

91 Transactions with related parties 1. Information on remuneration of managers with key responsibilities The table below summarises the compensation paid to directors and executives with strategic responsibility: FEES 1st half of 2010 a) short-term benefits in favour of employees (*) 3,460 b) post-employment benefits 127 c) other long-term benefits - d) employee termination indemnities - e) share-based payments - Total 3,587 (*) The amount indicated includes payments to directors of EUR 1,705 thousand. 2. Information on transactions with related parties For the purpose of providing this information, transactions with related parties identified as such within each company included in the consolidation area have been aggregated. In accordance with IAS 24, related parties are: - subsidiaries, companies in which the Parent company directly or indirectly exercises control, as defined by IAS 27; - associated companies, companies in which the Parent company directly or indirectly exercises significant influence, as defined by IAS 28; - companies subject to joint control, companies in which the Parent company directly or indirectly exercises joint control, as defined by IAS 31; - directors with strategic responsibilities and supervisory authorities, namely Directors, Statutory Auditors, the General Manager and the Vice General Managers of the entity and of its parent company; - other related parties, which include: a) immediate family members partners, children, the partner s children and dependents of the individual or partner - of Directors, Auditors, the General Manager and the Vice General Managers of the entity and its parent company; b) subsidiaries, subject to joint control or subject to significant influence by Directors, Auditors, the General Manager and the Vice General Managers of the entity and its parent company, as well as their immediate family members, as defined above; c) pension funds established by companies of the Group. Transactions and relations with the other Credito Valtellinese Group companies are established within the sphere of a consolidated company network organisational model, on the basis of which each member is focused exclusively on the creation of its core business, within a business context which enables the Groups overall resources to be efficiently and effectively managed. All transactions with Group companies mainly concern correspondent transactions for services rendered, deposit and financing services within the sphere of ordinary inter-bank operations. Other contractual transactions with specialised finance companies and special purpose companies regard support and consulting services and specialised services in support of banking activities. The economic effects of inter bank transactions are regulated at arm's length, while other transactions are regulated on the basis of the specific contractual terms which - maintaining the principal objective of optimising the synergies and economies of scale and purpose at the Group level - refer to parameters that are objective and constant over time, marked by essential transparency and equity. The quantification of fees for services is defined and formalised according to tested parameters that take into account actual utilisation by each user company. 91

92 Transactions with related parties other than companies in the Credito Valtellinese Group are part of normal banking activities and are generally regulated at arm's length for specific transactions, or aligned to the most favourable measure that may have been agreed for employees. Bank transactions with groups headed by Directors of the company or by the parent company Credito Valtellinese and other companies of the Credito Valtellinese Group are resolved in compliance with the provisions of art. 136 of the Consolidated Banking Law and settled at arm's length as established for each transaction. The impact of transactions with related parties as defined above on the equity and financial situation and on the income statement for the period, together with the percentage weight of these transactions on the corresponding statement of financial position items, is illustrated in the tables below. The impact of transactions completed with Group companies has not been included as their line-by-line consolidation requires the netting of intragroup balances and transactions. 92