2015 Annual Report

2015 ANNUAL REPORT

Credito Valtellinese Società Cooperativa Registered Offices in Piazza Quadrivio 8 - Sondrio, Italy Tax code and Sondrio Company Registration No. 00043260140 - Register of Banks No. 489 Parent of the Credito Valtellinese Banking Group - Register of Banking Groups No. 5216.7 Website: http://www.creval.it E-mail: [email protected] Data at 31 December 2015: Share Capital EUR 1,846,816,830.42 Member of the Interbank Guarantee Fund Reports and financial statements at 31 December 2015

GROUP FINANCIAL STATEMENT HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS 4 COMPANY OFFICERS OF CREDITO VALTELLINESE 7 NOTICE OF CALL OF SHAREHOLDERS ’ MEETING 8 CHAIRMAN ’S LETTER 9

Report on Operations 10

FOREWORD 10 MACROECONOMIC REFERENCE CONTEXT 11 ORGANISATIONAL MODEL OF THE CREDITO VALTELLINESE GROUP 22 ANNUAL REPORT ON MUTUAL COOPERATIVE BANKING 24 GROUP MANAGEMENT PERFORMANCE IN THE YEAR 28 OPERATIONAL STRUCTURE , COMMERCIAL PERFORMANCE INDICATORS AND COMPETITIVE POSITIONING 34 HUMAN RESOURCE MANAGEMENT 39 MAIN ASPECTS OF COMMERCIAL OPERATIONS 44 ANALYSIS OF THE MAIN CONSOLIDATED STATEMENT OF FINANCIAL POSITION AGGREGATES AND INCOME STATEMENT FIGURES 51 ANALYSIS OF THE MAIN STATEMENT OF FINANCIAL POSITION AND INCOME STATEMENT AGGREGATES OF THE PARENT 65 SUMMARY NOTES ON THE PERFORMANCE OF THE OTHER TERRITORIAL BANKS 79 OTHER MAIN EQUITY INVESTMENTS 81 THE PERFORMANCE OF STOCK MARKET QUOTATIONS 83 THE MONITORING OF BANK RISKS AND THE INTERNAL CONTROL SYSTEM OF THE GROUP 86 RELATED PARTY AND INTRAGROUP TRANSACTIONS 90 OTHER INFORMATION 92 EVENTS AFTER THE REPORTING PERIOD 94 BUSINESS OUTLOOK 95 PROPOSAL TO ALLOCATE THE PROFIT FOR THE YEAR 96 CONCLUSIONS AND ACKNOWLEDGEMENTS 97

Consolidated financial statements of the Credito Valtellinese Group 98

CONSOLIDATED FINANCIAL STATEMENTS 99

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 100 CONSOLIDATED INCOME STATEMENT 101 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 102 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY 103 CONSOLIDATED STATEMENT OF CASH FLOWS - DIRECT METHOD 105

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 107

PART A - ACCOUNTING POLICIES 108 PART B - INFORMATION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 147 PART C - INFORMATION ON THE CONSOLIDATED INCOME STATEMENT 195 PART D - CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 216 PART E - INFORMATION ON RISKS AND HEDGING POLICIES 217 PART F - INFORMATION ON CONSOLIDATED EQUITY 288 PART G - BUSINESS COMBINATIONS 299 PART H - RELATED PARTY TRANSACTIONS 300 PART I – SHARE -BASED PAYMENTS 304 PART L – SEGMENT REPORTING 305

OTHER DOCUMENTS 517

REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS ’ MEETING 518 CERTIFICATION OF THE SEPARATE FINANCIAL STATEMENTS PURSUANT TO ARTICLE 81–TER OF CONSOB REGULATION NO . 11971 OF 14 MAY 1999, AS AMENDED 543 REPORT OF THE AUDITORS 544

ATTACHMENTS 546

STATEMENT OF REVALUATIONS (A RTICLE 10 ITALIAN LAW 72/1983) 547 STATEMENT OF FEES PAID FOR THE SERVICES SUPPLIED BY THE AUDIT COMPANY PURSUANT TO ARTICLE 149-DUODECIES OF CONSOB REGULATION NO . 11971/1999 549 STATEMENT OF INTERNAL PENSION FUNDS OF CREDITO VALTELLINESE 550 COUNTRY BY COUNTRY REPORTING 551 LIST OF IAS/IFRS INTERNATIONAL FINANCIAL REPORTING STANDARDS 553

GROUP FINANCIAL STATEMENT HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS

% STATEMENT OF FINANCIAL POSITION DATA 31/12/2015 31/12/2014 change (in thousands of EUR) Loans and receivables with customers 19,049,750 19,004,863 0.24% Financial assets and liabilities 5,101,809 6,539,442 -21.98% Equity investments 9,464 200,797 -95.29% Total assets 26,901,681 28,813,556 -6.64% Direct funding from customers 21,694,956 20,745,569 4.58% Indirect funding from customers 12,092,772 11,963,332 1.08% of which: - Managed funds 6,792,593 5,848,254 16.15% Total funding 33,787,728 32,708,901 3.30% Equity 2,183,348 2,020,106 8.08%

SOLVENCY RATIOS 31/12/2015 31/12/2014 Common Equity Tier 1 capital / Risk-weighted assets (CET1 capital ratio) 13.1% 11% Tier 1 capital/Risk-weighted assets (Tier 1 capital ratio) 13.1% 11% Total own funds/Risk-weighted assets (Total capital ratio) 15.1% 14%

FINANCIAL STATEMENT RATIOS 31/12/2015 31/12/2014 Indirect funding from customers / Total funding 35.8% 36.6% Managed funds / Indirect funding from customers 56.2% 48.9% Direct funding from customers / Total liabilities 80.6% 72.0% Customer loans / Direct funding from customers 87.8% 91.6% Customer loans / Total assets 70.8% 66.0%

% CREDIT RISK 31/12/2015 31/12/2014 change Net bad loans (in thousands of EUR) 1,207,157 1,101,939 9.55% Other net doubtful loans (in thousands of EUR) 2,150,475 2,090,157 2.89% Net non-performing loans (in thousands of EUR) 3,357,632 3,192,096 5.19% Net bad loans / Loans and receivables with customers 6.3% 5.8% Other net doubtful loans / Loans and receivables with customers 11.3% 11.0% Net non-performing loans / Loans and receivables with customers 17.6% 16.8% Coverage ratio of bad loans 57.1% 56.0% Coverage ratio of other doubtful loans 23.4% 18.9% Coverage ratio of net non-performing loans 40.3% 37.2% Cost of credit (*) 2.31% 3.41% (*) Calculated as the ratio between the net impairment losses due to deterioration of loans and year-end loans.

% INCOME STATEMENT DATA 2015 2014 change (in thousands of EUR) Net interest income 464,508 479,162 -3.06% Operating income 855,124 904,185 -5.43% Operating costs (550,810) (558,946) -1.46% Operating profit 304,314 345,239 -11.85% Pre-tax profit (loss) from continuing operations 24,188 (432,923) -105.59% Post-tax profit (loss) from continuing operations 102,188 (321,192) -131.82% Profit (loss) for the year 118,277 (325,086) -136.38%

% ORGANISATIONAL DATA 31/12/2015 31/12/2014 change Number of employees 4,123 4,275 -3.56% Number of branches 526 539 -2.41%

OTHER FINANCIAL INFORMATION 2015 2014 Cost/Income ratio (*) 59.0% 55.8% Personnel expenses (**)/Number of employees 70 69 Basic earnings (loss) per share 0.105 (0.407) Diluted earnings (loss) per share 0.105 (0.407)

(*) 2014 figure calculated net of non-recurring expenses related to the implementation of the “Solidarity Fund” and of the impairment of customer lists; 2015 figure calculated net of ordinary and extraordinary contributions paid to SRF and DGS and of the impairment of the customer list. (**) Costs non chargeable to employees removed; 2014 figure calculated net of non-recurring expenses related to the implementation of the “Solidarity Fund”.

5 INFORMATION ON SHARES 31/12/2015 31/12/2014 Number of ordinary shares 1,108,872,369 1,108,872,369 Listed price at end of the year 1.091 0.793 Average listed price for the year 1.167 0.9276 Average stock-market capitalisation (millions of EUR) 1,294 790 Group equity per share (*) 1.814 1.822

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

ASSIGNED RATINGS Fitch Ratings Long-term IDR BB Short-term IDR B Outlook Stable Last “rating action” on 2 July 2015

Moody ’s Investor Service Long-term Rating Ba1 Short-term Rating Not -Prime Outlook Stable Last “rating action” on 25 January 2016

DBRS Senior Long-Term Debt & Deposit Ratings BBB (low) Short-term Debt & Deposit Rating R-2 (low) Trend Negative Last “rating action” on 18 June 2015

6 COMPANY OFFICERS OF CREDITO VALTELLINESE in office at 8 February 2016

Board of Directors Chairman Giovanni De Censi

Deputy Chairman Alberto Ribolla

Managing Director Miro Fiordi

Directors Mariarosa Borroni Isabella Bruno Tolomei Frigerio Gabriele Cogliati Michele Colombo Paolo De Santis Paolo Stefano Giudici Gionni Gritti Antonio Leonardi Livia Martinelli Francesco Naccarato Valter Pasqua Paolo Scarallo

Board of Statutory Auditors Chairman Angelo Garavaglia Standing Auditors Giuliana Pedranzini Luca Valdameri Substitute Auditors Edoardo Della Cagnoletta Anna Valli

General Management General Manager Miro Fiordi Co -General Manager Luciano Camagni Deputy General Managers Umberto Colli Enzo Rocca Mauro Selvetti

Manager in charge of financial reporting Simona Orietti

Audit Company KPMG S.p.A.

7 NOTICE OF CALL OF SHAREHOLDERS’ MEETING

Call of the ordinary Shareholders’ Meeting

The Shareholders of Credito Valtellinese are called to an ordinary Shareholders’ Meeting on 22

April 2016 at 9.00 a.m., on first call in Sondrio at the registered office of Piazza Quadrivio no.

8 in Sondrio and, if necessary, on

Saturday 23 April 2016 at 9.00 a.m. on second call, at the Polo Fieristico Provinciale (Provincial Fair-ground) in Morbegno (SO) via

Passerini 7/8, to resolve upon the following agenda:

Ordinary session

1. Appointment of the Board of Directors; proposal to appoint 15 Directors for the 2016-

2018 three-year period.

2. Appointment of the Board of Statutory Auditors for the 2016-2018 three-year period.

3. Appointment of the panel of arbitrators for the 2016-2018 three-year period.

4. Reports of the Board of Directors and the Board of Statutory Auditors on the 2015

financial year; approval of the financial statements at 31 December 2015; presentation

of the consolidated financial statements at 31 December 2015. Related resolutions.

5. Report on remuneration pursuant to Article 123-ter of Italian Legislative Decree no.

58/1998. Related resolutions.

6. Determining the Directors’ fee.

7. Determining the Statutory Auditors’ fee.

The order of discussion of the above agenda items is by way of example and not by way of limitation, also in the light of what is provided explicitly by Article 11 of the Shareholders’

Meeting Regulation.

The full text of the notice of call, published in accordance with the law, is available on the website of the bank in the section Governance - Ordinary shareholders’ Meeting of 23 April 2016.

8 CHAIRMAN’S LETTER

Dear Shareholders, The good economic and financial results achieved in 2015 confirm the effectiveness and incisiveness of the actions put in place in pursuance of the guidelines of the Business plan. We faced the difficult economic situation with structural interventions aimed at a further simplification of the Group structure as well as organisational interventions, in particular, in the year in question, those aimed at revising and innovating the service model and at optimising the management of impaired loans. All this with the usual attention to technological and product innovation.

The results of these actions, together with the results coming from the satisfactory performance of the ordinary activity - all the more significant considering the very competitive scenario - as well as the significant equity effects deriving from the sale of an equity investment held in the capital of Istituto Centrale delle Banche Popolari Italiane, allow the Board to submit for your approval the proposal to distribute a dividend.

With respect to future strategies, they cannot leave out of consideration the fact that the Italian banking system is undergoing a deep change, also as a result of the law that provides for the transformation of most of the Italian cooperative banks into joint-stock companies. Therefore, the opening of a consolidation phase - which could redraw the entire sector - can be expected. The Board of Directors, as made known, approved the timing for the completion of the process of transformation into joint-stock companies, envisaging that the extraordinary shareholders’ meeting for the examination of the proposal for transformation can occur in October 2016. The objective is to reach this goal by further improving the management profiles and the financial statements indicators. You will be given a full account of the above as part of this Report, but what I want to emphasize here is the value, within a continuously complex economic and social situation, of the unanimous commitment of all employees of the Group structures to achieve both the ordinary and strategic objectives. This community of agreements and motivation is the best evidence of the way in which the principles in our Charter of Values are internalised and applied by the Collaborators at all levels in daily operations.

Precisely thanks to this evidence, I can reasonably hope that Credito Valtellinese will be able to deal with this crucial step with the force of its own values abiding, whatever its legal form, by the bank model of the territory deriving from its vocation as a cooperative Bank.

The Chairman

Giovanni De Censi

9 REPORT ON OPERATIONS

FOREWORD

The contents of the report on operations are mainly regulated by Article 2428 of the Italian Civil Code, Article 41 of Italian Legislative Decree no. 136 of 18 August 2015 on the annual and consolidated reports of banks as well as by Bank of Italy Circular no. 262 of 22 December 2005 - Separate and consolidated banking financial statements: formats and guidelines as amended. In particular, according to paragraph 5 of Article 41 of Italian Legislative Decree 136/2015, the report on the separate and consolidated operations may be presented in a single document, where appropriate giving greater weight to matters significant to the companies included in the consolidation.

Therefore, this report, prepared in accordance with the above-mentioned paragraph 5 of Article 41 of the Italian Legislative Decree 136/2015, incorporates the Report on operations of the Group and separate Parent Credito Valtellinese operations into a single document.

10 MACROECONOMIC REFERENCE CONTEXT

International scenario 1

In 2015, global growth decreased compared to the level recorded in 2014, from 3.4% to 3.1%. International trade decreased slightly compared to 2014, reaching in 2015 a value of 3.2% compared to 3.3% in 2014. These were caused by economic and structural conditions, by the volatility in the financial markets and by geopolitical tensions. Several factors among which stand out the “gradual” slowdown of the Chinese economy struggling with a deep structural change, difficulty of the other BRICS, prices of oil and raw materials at long-term lows, expectation of increases in rates in the United States occurred later at the end of the year weigh on the international economic trend.

We consider them briefly, starting from the two major geo-economic but also geo-strategic world poles - China and the US - that are following two opposing trends that do not compensate each other. We will also deal with oil that has a structural sectoral trend able to configure long-term effects on the whole world economy.

China is in the transition phase towards a consolidation of its internal market both in terms of demand and in terms of services for persons, moving away from the traditional paradigm according to which the Country was very oriented to manufacturing (also in the production chains of Western companies), to exports and to investments in infrastructures. This slowdown has had major repercussions also on other economies (especially Asian), on the market of raw materials and therefore on the whole world economy. The analysts were surprised, not by the Chinese change, but by the speed of its effects. In fact, if the GDP of China confirmed in 2015 the tendential growth rate of 6.8%, international trade slowed down. First of all, the demand for raw materials and oil dropped contributing both to the decrease in prices on international markets and to discouraging investments in these sectors in the exporting countries. Then, the Chinese financial markets suffered heavy losses and eventually, the price of the renminbi against the dollar weakened. The Chinese authorities intervened on several occasions with massive liquidity injections to limit the falls in financial markets and encourage the markets. However, significant losses were recorded not only in Asia but also on other markets. This was 2015: however, it must be placed in a wider prospective of China’s slowdown consistent with expectations-indications. Ultimately, this slowdown in China must be assessed also in relation to the instructions of the International Monetary Fund according to which Beijing must normalise its growth to a level of 6-7% per year by making at the same time reforms leading to a distinction in the complementary functions both between institutions and markets and between public and private companies in a scenario in which renminbi reaches full convertibility. In the US, the rise in the interest rates is due to the substantial recovery of the American economy both in terms of growth (2.6%) and in terms of employment down, by 5.3% compared to the same period of the previous year. Therefore, in December 2015, the US Central Bank (FED) decided to raise interest rates by 25 basis points, after years of very easygoing monetary policies, to prevent overheating of the economy and pressure on prices. This decision does not seem to have had in itself a particular effect on the financial markets that had already anticipated the restriction. On the other hand, albeit the unemployment rate has fallen to 5.2%, the job offer area does not appear to be used up since the growth rate of the hourly pay is still 2% and an upward trend has not started yet as would suggest a full employment condition. Therefore, the growth in the US may actually be still fragile and it will be necessary to monitor it carefully in order to understand whether the upward policy of

1 The figures and analysis elements mainly used for the report derive from International Monetary Fund, World Economic Outlook, Update January 2016, Prometeia, Forecast Report, December 2015. 11 interest rates does not risk to compromise recovery, and so if it will actually continue. Even the weakness of global demand - and of emerging countries, in particular - contributes to keep down growth expectations for the US economy and suggests a very cautious growth profile of interest rates. The oil price, like the price of raw materials, is at minimum levels with significant effects on Countries exporting commodities. The effects of this trend are impacting on the whole world economy with a transition – the final outcome of which is not clear - that involves for now a gradual reallocation of benefits in favour of consumers such as India and Western economies. It is necessary to carry out a structural analysis on this observation.

Oil prices in December 2015 already amounted to 40 dollars a barrel before lowering to 30 dollars. The causes are due to both the demand and supply side. The increased US production and trends within oil producers were added to the weak global demand; oil producers, in order to control the world markets, continue to produce at very high levels. In fact, the downward run of the oil price was started by Saudi Arabia, which tried to remove from the market the producers of shale oil – obtained through an expensive production technique that needs high oil prices to be sustainable - in North America. However, the latter proved to be more flexible than expected by attesting again the presence of its oil on the market. The other oil-producing countries did not reduce production as well: in fact, since high investments were required to exploit oilfields, producers – in these market conditions - on the one hand, have no convenience in opening new oilfields, but on the other hand, continue to exploit those already open in that reducing production would have an even higher opportunity cost. This has started a downward spiral in which the producing countries are effectively forced to produce as much oil as possible, although they are aware that in order to curb the fall in crude oil they should do just the opposite. The OPEC efforts to find a solution were useless for now and no reduction of production can be foreseen on the horizon. This framework must also include the climate agreement reached in Paris in December 2015, which should result in a gradual reduction of the dependence of world economies from fossil fuels in the medium to long term. As a result, in the short term, according to some analysts, there is the incentive to produce as much as possible before the demand undergoes an anticipated structural decline. The implications for the economies of oil-exporting countries are evident. With crude oil at a minimum, GDP of these countries is declining (Russia and Venezuela, in particular) and also countries such as Saudi Arabia - traditionally sheltered from public finance problems were obliged to deal with significant spending deficits. If the situation were to continue, it will be necessary to deal with structural reforms in producing countries whereas oil-importing countries would have the opportunity to relaunch their economies - and reduce their energy bills - thanks to particularly low prices. We dwell only briefly upon specific aspects of countries and important areas in the world scenario.

The growth of emerging economies continued to slow down, from 4.6% of 2014 to 4% of 2015, although it should be borne in mind that these economies are those that have contributed most to global growth. Two opposite cases must be mentioned.

India’s economy - notoriously dependent on oil and raw materials - seems to have particularly benefited from this scenario, recording a growth rate consistently above the 7% trend (7.3%).

In fact, the low level of prices of raw materials helps to limit inflationary pressures (down to 5.3% compared to 5.9% of 2014) to the benefit of the domestic consumption trend. Also, thanks to inflation control, the Central Bank was able to implement an easygoing monetary policy by lowering interest rates and creating a context in favour of investment recovery.

12 On the contrary, Russia’s economy decreased by -3.8%, heavily influenced by the effects of the drastic fall in oil prices. The country must also contend with the economic and financial consequences resulting from the crisis in Ukraine. Therefore, the prospects for 2016 remain difficult, since, due to lower revenues generated from oil, the State does not seem to be able to finance a relaunch in domestic demand able to support the economy through an investment policy. Latin America recorded in 2015 a further decline in the growth of GDP which stood at 0.3%. Brazil, as the country exporting raw materials and also subject to political problems, recorded a -3% decrease after a 2014 of almost zero growth (only +0.1%).

Japan deserves a separate analysis: it continues to live in a very low growth paradox despite expansionary policies that have no equal in the recent history of this country and, perhaps, of other developed countries. Table 1 summarises the figures recorded in 2014 and 2015, and 2016 expectations, highlighting the heterogeneity of the international framework. Table 1

Gross Domestic Product Inflation (Percentage variation) (Percent variation of consumer prices)

2014 2015 2016 2014 2015 2016

United 2.4 2.5 2.6 1.6 1 1.2 States

Japan 0 0.6 1 2.7 0.7 0.4

Eurozone 0.9 1.5 1.7 0.9 1.2 1

China 7.3 6.9 6.3 2.2 1.5 1.8

India 7.3 7.3 7.5 5.9 5.4 5.5

Latin 1.3 -0.3 -0.3 7.9 11.2 10.7 America

Data source: IMF, World Economic Outlook Update, January 2016.

Ultimately, 2015 was not a year of recovery, but on the contrary, it showed strong changes in performance among different countries, in a context where the US growth was strengthened and China and emerging countries slowed down considerably in a transition that is changing the global scenario.

THE SITUATION IN THE EUROZONE

In 2015, the Eurozone recorded a growth rate of GDP of 1.5% by consolidating the (weak) recovery started four quarters before, accompanied by a significant improvement in the economic indicators especially in the last months of the year. This is a positive scenario as it was achieved despite the deterioration of some economic data during summer and despite the “dieselgate” affair involving Volkswagen, running the risk of undermining consumer confidence in the German car industry on which the German economy is based.

13 Household consumption increased in all countries of the Eurozone contributing to support domestic demand. Low inflation, the moderate increase in employment, as well as increases in the income from employment are events recorded (heterogeneously) across Europe: they contributed to increase the disposable income of households to the benefit of the domestic market in order to enable the countries of the EMU to end 2015 with a growth rate not recorded since 2011. Quantitative easing started by the European Central Bank contributed effectively to this result as an extraordinary measure for relaunching the economy of the area avoiding deflation and favouring indirectly more growth and employment. In particular, the Asset Purchase Programme (APP) - announced at the end of 2014 - had very significant effects on the economy of the EMU countries. In fact, it was then expressed by a decline in interest rates of government bonds, a depreciation of the Euro and an improvement of the financing conditions of the banks. The programme had positive effects also on the credit supply in that as a whole the cost of new bank loans to households and businesses decreased and this allowed to strengthen domestic demand. However, the prospects do not seem to be decisive in that the monetary policy, albeit expansive, is not able to fix a strong growth, which instead could be determined by stronger public policies, more and more necessary because of the weakness of the international context (and of the emerging economies, in particular) which does not allow much room for improvement due to exports. On the positive side, there is the weakness in oil prices and raw materials that should still allow the EMU countries to maintain over time a growth level of 1.5%, in line with that recorded in 2015. With regard to inflation, the European Central Bank has repeatedly reaffirmed to do whatever it takes to bring it back on the target value of 2%. Therefore, rates are still expected to be at minimum levels until 2018. Therefore, the interest-rate curve is expected to be flatter in Europe than in the US resulting in the strengthening of the dollar, for the benefit of EU exports. Moreover, the Board of Directors of the ECB was ready to strengthen the monetary stimulus also in support of growth and with the aim of easing the new tensions on the stock markets, while explicitly denying that these can be its objectives. After the summer financial turmoil (mainly due to the Chinese situation), which had resulted in significant losses - recovered by the markets in autumn - in December, there was a new phase of instability involving mainly the prices of riskier activities, in particular of emerging countries that are recording a substantial outflow of capital.

Also at the beginning of 2016, after the storm on the markets, Mario Draghi said that the European Central Bank has “the power, the will and the determination” to do more in an unfavourable context, claiming not to want to give up the fixed inflation target and deferring to specific actions in March when updated figures and scenario until 2018 will be available. Many observers noted that European growth must be boosted with investments. In this regard, and with potential positive outcomes, the “Juncker Plan” was launched: this plan envisages the creation of a European Fund for Strategic Investments (EFSI), with EUR 21 billion at its disposal, which is expected by the Commission to generate EUR 240 billion for long-term investments and EUR 75 billion for SMEs, for a total of EUR 315 billion in the 2015-2017 period, thanks to complex financial leverage mechanisms. Remember that the EFSI became operational in autumn. Qualitatively, the implementation of the Juncker Plan is an important innovation, with a focus on growth and social and economic development, also because the resources of the Plan will indeed have to be additional, i.e. aimed at financing excellent projects that otherwise would not be financed due to excessive risks or market failures. Finally, the European institutions must continue to insist so that countries implement pro- growth reforms in order to strengthen investments - which cannot be weak - because there can be no Europe without investments and growth.

14 Other dangers that threatened the EU in 2015 have not disappeared in the current year. Greece has run severe risks due to tensions with the EU, ECB and International Monetary Fund. After many political events within Greece and various clashes in Europe, the risk of a Greek exit from the Euro (with risks for the stability of the Eurozone) was avoided thanks to agreements between European and supranational institutions, creditors and the Greek government. At the beginning of 2016, there seem to be are other concerns such as a possible Brexit to the survival of the Schengen Treaty - signed in 1995 - strained following the refugee and migrant crisis in Europe. A glance at the most important countries can be briefly summarised as follows with reference to the figures estimated by the European Commission in November, but then adjusted downward by most commentators.

Germany, whose GDP is almost 29% that of the Eurozone, continued to grow in 2015, although, with stabilised figures, the trend will be less than the estimated 1.6%. Actually, the German economy “held” despite the weak outlook of the global economy, the slowdown of growth in China and in emerging markets rich in raw materials. To this was added the uncertainty of the Volkswagen case whose effects may not yet be fully manifested. To anticipate a possible slowdown, public spending could be increased to boost domestic demand and investments.

France recorded a 1.1% growth, up compared to 2014. However, even after the terrorist attacks of November 13, at the end of the year, growth estimates decreased.

In 2015, Spain marked a growth rate estimated at 3.1%, albeit the labour market has also marked a positive figure, even if the unemployment rate remains very high (although down to 22% compared to the maximum value ever achieved of 27%).

15 Table 2

GDP growth rate Public sector balance Public sector debt

% of GDP % of GDP

2014 2015 2016 2014 2015 2016 2014 2015 2016

Germany 1.6 1.5 1.6 0.3 0.5 0.3 74.6 70.7 68.2

France 0.20 1.2 1.5 -4 -3.8 -3.4 95.6 97.1 98

Italy -0.4 0.8 1.3 -3 -2.7 -2 132.1 133.1 132.3

Spain 1.4 3.1 2.5 -5.8 -4.4 -3.1 92 97.6 98.6

EMU 0.9 1.5 1.6 -2.4 -2 -1.7 94.2 93.7 92.2

Data source: IMF, World Economic Outlook Update, January 2016. As a whole, the Eurozone exceeded in 2015 its most serious crisis accumulated since 2009 and it is also expected to grow in the coming years at rates close to 1.6% and with an unemployment rate of around 9%. The scenario would change substantially if more investments were made and if Germany used its wide levels of freedom for assets in public accounts to boost its investments, especially in infrastructure. It is noted that these positive circumstances are not expected in the short term period.

THE ITALIAN SITUATION

The assessment of the Italian situation in 2015 must start from August 2014 when the Chairman of the Premier Renzi outlined a reform plan on the thousand days in completion at the end of the XVII legislature in March 2018. Shortly, there are two political and economic guidelines. The first one is the simplification of the operation of the Institutions, also through a constitutional reform giving stability to the government and downsizing the regulatory and bureaucratic proliferation. The latter represents a guideline already advanced and appreciated by European Institutions. The second guideline, which is also on the good way, consists of economic and tax reforms. In 2015, all major macros areas recovered passing from “minus” signs to “plus” signs, reporting a different intensity but, at the same time, a unifying figure: the confidence of households and businesses close to highs. In 2015, Italy experienced a gradual recovery in which GDP grew by 0.7% on an annual basis. Growth was obtained mainly thanks to the domestic consumption trend, which increased in the second part of the year, thanks to the improvement of the confidence of households, of the power to purchase and of employment. The traditional boost in exports - which had contributed significantly to support GDP during the crisis - weakened as from the third quarter. This decline is attributable to the aforementioned weakness of emerging economies and of China but it could be mitigated in the future by the weakness of the Euro. Whereas in terms of investments, the news appear conflicting, also for the fact that the crisis of the building industry was not yet resolved with effects that go well beyond the sector, given its known multiplicative power. A recovery seems to be better outlined over the last few months also thanks to the introduction of some new tax mechanisms, i.e. the super- depreciation by 40% introduced by the 2016 Stability Law.

16 The weakness in commodity prices and, in particular, the decline in oil prices stopped the slow increase in inflation recorded in the spring months, reaching 0.1% in November. There was a reduction in the unemployment rate on the labour market, down to 11.7%, and the number of employed persons increased by 165,000 compared to the end of 2014. In this framework, in connection with a relative stability in the industry and a decline in the number of employed persons in the construction sector, the higher increase is due to services (+196 thousand) and agriculture (+25 thousand) 2. However, despite the tax relief, there is an increase in forward contracts compared to a decline (-0.4%) in permanent contracts – probably because of the uncertainty that still characterises the overall economic picture. The analyses still indicate a successful conclusion to employment trends. According to INPS, in the first months of 2015, more than one million people were recruited thanks to tax relief allowed under the Stability Law; these include about 75% of new jobs, the remaining are transformations from temporary to permanent contracts.

The easing of tensions on sovereign debt had positive effects on public finance. In fact, the cumulative requirement of the State fell by EUR 20 billion compared to the previous year reaching EUR 62.5 billion, largely due to savings on interest expense with a downward trend by 10% in the first ten months of the year. The spread stood at 100 basis points over the German bund and the rates on government bonds reached record lows with even negative returns for treasury bills and CTT. This improvement in the financing conditions of the State on the markets, together with the keeping of the tax revenue and with the voluntary disclosure instruments should allow a slight reduction in the State debt for 2016, even taking into account the expansionary measures approved at year end with the Stability Law. The resulting effect on the growth of GDP is estimated to be 0.3%3. Therefore, for 2016, expectations envisage a greater employment through expansionary measures, a still limited inflation and oil prices still decreasing with consequent savings in energy bills. The low cost of oil products should help the companies, amplifying the pulses of incentives present in the Stability Law although it is not yet known whether they will be sufficient to offset the weak framework of international demand. However, there are encouraging signs that could lead to a final recovery of domestic demand and, in particular, of the construction sector that, after 9 years of deep crisis, could finally return to play a role in the economy of the country. On the institutional side, in 2015 the activities of the Renzi Government continued with the stated objective of focusing more on growth with less austerity, through a greater degree of flexibility, trying to combine attention to the compliance with spending commitments, simplification but also the strengthening of tax measures to stimulate the economy. In October, the Government requested the European Commission an increase in budget flexibility given the opportunity from January 2015 for a Member State to obtain the authorisation of deviating temporarily or decelerating the structural budget balance, if this action must be interpreted in relation to public investments co-financed at European level or if there are structural reforms or adverse economic stages. As a whole, the public debt/GDP ratio in 2015 is 133.1% (up by 1 percentage point compared to 2014) and it is expected to drop to 132.3% in 2016. Similarly, the deficit/GDP ratio in 2015 decreased by 2.8% (from 3%) and it is expected to drop to 2.7% in 2016, thus remaining broadly within the constraint of 3%. The deficit to GDP was envisaged in various official documents both European and Italian for 2016 at 1.8%, whereas, later on, it was increased by the Government to 2.2% with the agreement of the

2 Promoteia figures (December 2015). 3 Promoteia figures (December 2015). 17 European Commission. Finally, Italy decided to reach the 2016 Stability Law at 2.4% for the migrants’ clause. The structural balance was shifted to 2018. These two decisions could lead to some conflicts with the European Commission always worried (rightly) of the very high debt to GDP ratio. However, the choice of the Government of giving a thrust is correct because it was clear, as in past years, that the austerity policy increased the debt to GDP ratio. If Italy does not grasp this moment of very low rates in order to grow its economy, the decrease of the debt-GDP ratio will not accelerate as well.

In conclusion, it seems to us that, in a maintained atmosphere of economic, financial and international policy interdependence, the recovery of the Italian economy is mainly related to the internal market’s ability to increase its strength, since it cannot in fact rely on the usual driving force of the international demand. However, geopolitical tensions, migration and the concerns related to international security could damage confidence, thus compromising the medium and long-term prospects for growth. Moreover, internal political turmoil linked to very important deadlines such as the referendum on constitutional reform must not be underestimated.

Table 3

Italy Summary figures

2014 2015 2016

GDP (% change) -0.4 0.8 1.3

Domestic demand -0.5 1 1.4

Inflation 0.2 0.2 0.6

Current account balance 2.2 2.0 2.1 and capital

Unemployment rate 12.6 12.1 11.8

Nominal debt 3 2.8 2.7

Structural debt

Public debt 132.1 133.1 132.3

Data source: Prometeia, Forecast Report, December 2015 update. Forecast different from that of table 2 that allowed homogenous comparisons between the different countries and with the EMU

18 The Italian banking system 4

The growth in loans to the private non-financial sector strengthened. The easing of the supply criteria continued; the cost of loans to households and businesses stands at historically very low levels, benefiting from the expansionary measures taken by the ECB. The gradual improvement in the economic activity is affecting favourably the credit quality, profitability and capitalisation of banks. During the three months ending in November, the growth in loans to the private non-financial sector increased (at 1.5 per cent, net of seasonal effects and year on year). For the first time from the end of 2011, the economic change of loans to businesses was at significantly positive levels (1.5 per cent). Loans to households also accelerated; the trend of mortgages for the purchase of homes turned positive during summer, driven by the low level of interest rates.

Loans to businesses are recovering, but show different trends between sectors of activity and by company size. The growth in loans to manufacturing companies increased in strength, while credit continued to decrease in the construction sector and in the non-manufacturing industry. In December 2015, total existing loans to households and businesses increased by +0.5 percent compared to December 2014 and far better than -4.5 percent of November 2013, when they reached the negative peak. This figure at the end of 2015 for bank loans to households and businesses is the best result since April 2012. Positive signals also emerge for new bank loans: new loans to businesses increased in the first eleven months of 2015 by approximately 13 per cent compared to the same period last year (January-November 2014). For new loans for the purchase of properties, always in the same period, there was an annual increase of 97.4 percent compared to the same period last year. The incidence of subrogation of total new loans amounted, in the first 11 months of 2015, to about 32.4 percent. In December 2015, interest rates on loans stood at historically very low levels. The average rate on total loans was 3.26% record low (3.30% of the previous month; 6.18%, before the crisis, at the end of 2007). The average rate on new transactions for purchasing homes was 2.51%, the lowest level since June 2010 (from 2.57% of the previous month; 5.72% at the end of 2007). Two-thirds of the total of new mortgages are fixed-rate mortgages. The average rate on new loans to businesses was 1.99%, from 1.87% of the previous month. The riskiness of loans in Italy remains high; gross bad loans were EUR 201 billion in November 2015. The ratio of gross bad loans to loans was 10.4% in November 2015 (9.5% the previous year, 2.8% at the end of 2007).

In the third quarter, the flow of new non-performing loans in relation to existing loans, net of seasonal effects and year on year, decreased to 3.6 percent, from 3.8 of the previous third quarter (for businesses, at 5.4 percent, from 6.1). The flow of new bad loans in relation to existing loans decreased more significantly (to 2.4 percent, from 2.9), in particular for businesses (-0.8 percentage points, to 3.7), especially in the construction sector (-2.0 percentage points, to 7.5). The improvement is expected to continue in 2016, both for businesses and for households, due to the expected strengthening of the cyclical recovery.

Total deposits of Italian banks are decreasing following the decline in bonds and other forms of wholesale deposits, which partly reflected the satisfactory liquidity position of intermediaries. Resident deposits slightly increased.

4 Bank of Italy Economic Bulletin no. 1 – January 2016 (Updated with the figures available on 8 January 2016), Monthly Outlook ABI – January 2016 and Financial Outlook - 2015-2017 Forecast Report - December 2015

19 In December 2015, the average rate on total bank deposits of customers (deposits + bonds + repurchase agreements in Euro to households and non-financial companies) in Italy came to 1.19%. Interest rates on deposits (current accounts, savings deposits and certificates of deposit) stood at 0.53%. Bond yields were 2.94%. The spread between the average rate on loans and the average rate on the deposits of households and non-financial companies remained in Italy at very low levels; in December 2015, it was 207 basis points. Before the beginning of the financial crisis, this spread exceeded 300 points (329 percent points at the end of 2007). Equity enhancement continued. At the end of September, better quality capital (common equity tier 1, CET1) and total own funds (total capital) of the banking system were equal on average to 12.3 and 15.1 percent, respectively, of the risk-weighted assets, up slightly from the end of June. In a general positive economic framework compared to that experienced in recent years, the banking sector seems to move forward on the path of normalisation. Starting from the current year, the growth in loans should strengthen, in line with expected nominal GDP growth rates, and the first signs of inversion of the risk cycle of the bank will emerge. The forecasts on the trend of bad loans and the amount of provisions on loans and receivables are characterised by a cautious optimism. The reversal of the bad loans/lending ratio should be achieved as from 2017; on the other hand, we note that the reduction of the ratio between total non-performing loans (bad loans and other non-performing loans) and loans may occur already as from 2016.

The improvement of the real picture should finally start to affect the income statements of the banks, albeit in the next three years the banking profitability will continue to be unsatisfactory. Profits are expected to generate in 2017 a return on equity equal to an unsatisfactory 2.7%, value still less than the 2008 figure. If the scenario assumes positive trends, especially with regards the cost of risk, profitability remains penalised by the minimum starting levels, legacies of the long years of crisis. In summary: revenues recovered slightly, but with a total income to GDP ratio that will be at the end of the period still well below pre-crisis values and adjustments to loans decreasing sharply but in proportion of loans to customers at levels of more than 2 times higher than that recorded in the 2006-2007 two-year period. Therefore, the control action and reduction of costs will remain central.

The financial market in Italy Yields on Government bonds slightly decreased across all maturities. The further decrease in the differential between the yield of the Italian 10-year bond and that of the corresponding German bond contributed to the consolidation of strengthening expectations of the purchase plan of government bonds by the Eurosystem. The differential decreased by 20 basis points, standing at the beginning of January around one percentage point.

The spread on credit default swaps of major Italian banks decreased by approximately 15 basis points; they were not considerably affected by the measures adopted at the end of November to resolve the crisis of four small and medium size banks. The reduction in premiums for the credit risk of the Italian non-financial companies was almost of the same amount (17 basis points). Share prices decreased at the end of 2015 and in January, affected by tensions on global financial markets. From the beginning of October, the general Borsa Italiana index decreased by 2 per cent (compared to an increase of 3 percent of that relating to the Eurozone). As a whole in 2015, the Italian stock market has nevertheless recorded more significant growth compared to those of the main countries in the area.

20 According to the Assogestioni data source, in the third quarter, net inflows of savings to Italian and foreign open-ended mutual funds, which were considerable in spring, decreased amounting EUR 16 billion. The decrease was mainly due to the bond sector.

21 ORGANISATIONAL MODEL OF THE CREDITO VALTELLINESE GROUP

The Credito Valtellinese Banking Group currently consists of territorial banks, specialised companies and special purpose companies for the provision of services - with a view to achieving synergies and economies of scale - to all the companies of the Group. The current group structure is graphically represented below.

The Organisational Model of the Group, defined as a “network company” model, assigns the reference market share to the territorial banks and the required operating support to the specialised finance and special purpose companies. Therefore, it is based on the full enhancement of the distinctive skills of each member, with the purpose of achieving the maximum efficiency and competitiveness, on their functional and operational correlation, on the adoption in the corporate process management of the same rules and methods. This allows to overcome size restrictions and to fully benefit from the advantage of proximity with regard to the areas of choice, combining effectively specialisation and flexibility, production and distribution functions.

At 31 December 2015, the Credito Valtellinese Group is present in Italy with a network of 526 Branches, in eleven regions, through the territorial banks characterising the “Market Segment”:

- Credito Valtellinese S.c. , the Parent, present with its own network of 350 branches, most of which - 228 - are in Lombardia, as well as in Valle d’Aosta, Piemonte, Veneto, Trentino Alto Adige, Emilia Romagna, Toscana and Lazio.

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

- Credito Siciliano S.p.A. is present in all the provinces of Sicilia with 136 branches and in Roma, Torino and Milano with three branches dedicated to loans against pledges.

The following companies characterise the “Specialised Companies Segment”:

- Global Assicurazioni S.p.A. 5, a multifirm insurance agency specialised in the brokerage and management of standard insurance policies in favour of individuals and household customers.

5 Companies subject to management and coordination by Credito Valtellinese and therefore included in the consolidation scope, even if not included in the Group, pursuant to the supervisory provisions, in that they carry out insurance activities. 22 - Global broker S.p.A. 6, insurance broker specialised in the brokerage and management of insurance policies in favour of companies. The companies providing services complementary to banking business characterising the “Corporate Centre Segment” complete the Group:

- Creval Sistemi e Servizi S.c.p.A., is the Group’s centre for ICT management and development, organisation, back office, real estate services and support processes.

- Stelline Real Estate S.p.A., R.E.o.Co. (Real Estate Owned Company) , Group company exclusively dedicated to asset repossessing.

6 See previous note. 23 ANNUAL REPORT ON MUTUAL COOPERATIVE BANKING

In compliance with the law provisions, which require abandoning the cooperative form, and of the plan of the consequent initiatives approved by this Board, it is likely to state that this report will be the last made in compliance with Article 2445 of the Italian Civil Code.

We are going to present the criteria that was followed in the corporate management to achieve its cooperative purpose established by the current Article 2 of the Parent’s Articles of Association, which always informs, by osmosis, the action of all the territorial banks belonging to the conglomerate.

Integrity and expertise, responsibility and service culture, cooperative spirit and sense of belonging, orientation towards change and innovation are the benchmark values - established in our Charter of Values - which characterise the presence of the Credito Valtellinese Group in the market and in the company.

A presence that for over 107 years is guided by a precise mission: create sustainable value in the medium and long term, stressing the Shareholders’ preeminent role in providing customer satisfaction, in the socio-economic development of the communities where the Group is active, in the enhancement of relations and in the employees’ professional growth. At 31 December 2015, there were 163,216 shareholders, of which 130,942 recorded in the Shareholder Register. During the year, the Board of Directors approved 2,546 new requests for admission as Shareholder. Approximately 71% of the shareholders reside in Lombardia, region in which the group operates traditionally. More than 90% of the Shareholders of Credito Valtellinese are also Customers of the bank or of other banks of the Group.

Shareholders are entitled to property and administrative rights, and the latter includes the right of participating in the business life of the cooperative by attending Shareholders’ meetings in person or via proxy, but they also have a number of additional opportunities. In fact, favourable conditions are guaranteed to the Shareholders of the bank on products/services, conditions that the SocioInCreval programme applies to the line of current accounts Armonia 2.0 (Leggero, Argento) and to SocioInCreval Premium.

The Linea Armonia 2.0 current accounts meet the gradual requirements, from simple requirements, provided by Armonia 2.0 Leggero, to more complex requirements, such as Armonia 2.0 Argento. SocioInCreval Premium is the “all inclusive” account that offers - in addition to the best products and services - favourable terms on Investments and Loans. The ownership of 150 shares guarantees a discount on the annual fee of Armonia 2.0 Leggero, characterised by services that include Cart@perta Gold, V PAY international ATM card and Bancaperta home banking and unlimited account fees.

The fee of Armonia 2.0 Argento is also completely discounted with an ownership of at least 2,500 shares. This current account is the ideal solution for those who have a small fortune to invest: it includes securities deposit fees, V PAY international ATM card, Cart@perta Gold international rechargeable card, CartaSi Classic credit card and Bancaperta home banking, as well as discounts for services and loans. SocioInCreval Premium is the “all inclusive” current account reserved for shareholders of Credito Valtellinese and the annual fee is discounted with an ownership of at least 10,000 shares. SocioInCreval Premium offers, in the package, the Cart@perta Gold international rechargeable card, the V PAY international ATM card, the securities deposit and the Bancaperta home banking. Guarantees exclusive conditions on asset management divisions, on Mortgage Loans and on Fido Famiglia.

24 Non-Shareholders who are planning to purchase shares of Credito Valtellinese with the aim of joining the shareholding structure of the bank, are entitled to a discount on trading fees for the purchase of Credito Valtellinese shares, carried out at the branch at the same time when the application for admission as Shareholder is sent. For Credito Valtellinese – cooperative bank - the Shareholder plays a leading role as the hub of the cooperative identity of the Group. The decision to qualify as such does not simply involve the ownership of shares, but implies joining a community of people whose mission consists in sharing a business plan that is designed according to the fundamental lines of responsibility (first of all with regard to the local territory), confidence and value of the relations over the long term as guidelines of daily operations, as stated in the Charter of Values of the Group. In addition to the right of profit sharing (in common with the Shareholder, who does not enjoy the so-called administrative rights), the Shareholder has a number of additional benefits. These include the possibility of accessing business and interpersonal opportunities by joining the Shareholders Club of Credito Valtellinese - the initiative started in 2013 in order to strengthen the sense of belonging and enhance sharing according to an innovative network model - offering a substantial package of benefits and discounts both on offered products and services, and on proposals and opportunities that the operators of the Group put at his/her exclusive disposal.

To this date, more than 97,000 Shareholders adopted the programme, and the activities and number of operators – restaurants, hotels, shops, theatres, spas, amusement parks, healthcare facilities, travel agencies – that offer favourable conditions to the Creval Shareholders are constantly increasing.

The dedicated website www.socioincreval.it totalled more than 140,000 visits, the related Facebook page more than 4,500 fans and, thanks to the App SocioInCreval, the Shareholders can trace directly from their smartphone or tablet the address of the points of sales that joined the programme.

Similarly, Credito Valtellinese has always promoted the Shareholders’ broadest and most informed participation in Shareholders’ Meetings, introducing on several occasions provisions in the Articles of Association to pursue this goal, among them the provision that each Shareholder may represent ten Shareholders by proxy, and the possibility of holding the meeting by video-conference at several locations simultaneously. In the Credito Valtellinese Group, social Responsibility is an integral part of the governance system and of the business strategy enough to be considered more and more as an investment, source of opportunity and competitive advantage. In terms of corporate communications and operating rules, to Shareholders are particularly - albeit not exclusively - addressed information tools such as: - the Corporate Report (now in its 20th edition), reporting on “corporate value added” or “corporate dividend” produced by the Group to the benefit of the community; - the Integrated Report, in its second edition, which intends to highlight among other things the current business model, the value creation process and the use of different forms of capital; - the company’s website, with a special section dedicated to information for Shareholders; - the “Pleiadi” magazine, Group house organ that aims, also with an online version, to ‘talk’ about the Group and of the territories of reference. The “outside” cooperation, which is expressed in relation to the social and economic context of the territories of reference, is materialised through several initiatives aimed at creating sustainable value in the medium to long term period in favour of all the stakeholders.

25 It is worth recalling two specific offers conceived by the Group to provide close support to “social” issues: - Creval Accanto a Te - advantageous product line reserved for differently abled persons, which offers a current account at zero expenses, Cart@perta Gold international rechargeable card, the V PAY international ATM card and free securities deposit together with a preferential loan for the purchase of means of transport and assistance; - Conto NonProfit - a current account reserved for NPOs, Social promotion Associations and Foundations that are active in the fields of healthcare, cultural promotion, amateur sports and the protection of civil rights. It is at zero cost and it provides special discounts for bank transfers. As for the “social” aspect, the following elements are of fundamental importance: the activity of the Group Foundation in the traditional sectors of Charity, Culture and Art, Guidance and Training of young people, whose details are provided in the Mission Report, to which reference is made for the accurate examination of the operations carried out during the year.

The activity of Fondazione Gruppo Credito Valtellinese The constant commitment of Fondazione Gruppo Credito Valtellinese in the three traditional sectors of operations continued in 2015: social, cultural and beneficial, guidance and training; exhibition and publishing.

The Mission Report, now in its fifth edition, offers an extensive reporting of the business carried out and a detailed overview on the many initiatives undertaken, supplemented the Corporate Report and Integrated Report of the Group. In 2015, the banks belonging to the Credito Valtellinese banking group allocated a total amount of EUR 2.233 million to the Foundation. Of the amounts allocated, equal to approximately EUR 1.2 million, 57% were reserved to associations and local initiatives, 20% to welfare and social education associations, 11% to religious institutions and, lastly, to support international solidarity initiatives and missionary activities in developing countries (7%) and for institutional relations (5%). The social welfare interventions received 67% of the sums allocated, demonstrating the prevailing importance still attached to projects in support of fragile groups and families in difficulty, to which the 4% intended specifically to children is added; for cultural and artistic activities, disbursements account for 24%. During 2015, the Guidance and Training Sector was characterised by a consolidation of the activity making sure to guarantee the correct balance between quality of the service offered and the need to reduce costs. In the current context still critical for youth employment, priority was given to guidance aimed at supporting young people, starting from middle school, to undertake study – and then work – as consistent as possible with personal characteristics, but also attentive to expectations and development of the labour market. In confirmation of the value of the service offered by “il Quadrivio”, it should be noted that several requests were received since last year for the implementation of institutional projects also from territories outside the consolidated operations of the Acireale and Sondrio centres. The guidance is often completed by training activity that ensures the sharing of a common model and the update of all educational actors working in the school, family and production. The important training initiative that consolidated with the establishment in 2013 of Association Merlino, “Giovani & Impresa” course, related to the Job Match project, dealt with by Fondazione Gruppo Credito Valtellinese and “LA SCUOLA 2.0” training aimed at offering to all those who have an 26 educational and training function, especially teachers and parents, useful indications for dealing with the impact of digital divide in teaching were significant in this context. The year 2015 was characterised by the world event of Expo 2015 of Milan, whose subject “Nutrire il pianeta. Energia per la vita” (Feeding the planet. Energy for life) inspired the exhibition events organised at Gallerie lombarde of the Group and during which the exceptional projective exhibition “The Alps Parade” was carried out; from May to October, it allowed anyone passing by Piazza Cordusio to admire the great landscapes of Valtellina and Valchiavenna during a trip from Lago di Como to Switzerland through the spectacular photographs of Jacopo Merizzi. A special logo “Creval per la cultura” (Creval for culture) was conceived during Expo 2015, used on all the communication material of the initiatives related to the event. Upon closing of Expo, on the two premises of Milano and Sondrio, the Creval Contemporary event, on the contemporary art collection of the Group and on the thirty-year exhibition. The exhibitions dedicated to Michele Canzoneri, “artista della luce” (artist of light) and to the forerunner of the “public utility graphic” Massimo Dolcini were significant in Sicily and Fano, respectively. Lastly, the solo exhibition of the young artist Abel Zeltman at the Spazio XX Settembre in Fano, the exhibition proposed as an event connected to the Salone Internazionale del Mobile in Milan and the one dedicated to the alpinist Ettore Castiglioni are worth mentioning. The catalogues and the gift volume “Creval Contemporary” are related to the exhibition events.

27 GROUP MANAGEMENT PERFORMANCE IN THE YEAR

The year just ended was characterised by a general improvement in economic data and confidence of households and businesses. The GDP is finally growing, for the first time after a long period of recession, foreign demand is increasing, the recovery of private consumption is consolidated, employment prospects improve and the propensity to invest increases. The recovery, which seems well underway, however requires further consolidation signs, in a macro-economic framework difficult to interpret. Market volatility caused by the economic and financial crisis of China, the economic slowdown in emerging countries, the fall in oil prices, currency disturbances, the excessive strengthening of the Euro, are just some of the elements that strain the recovery still fragile in advanced economies.

For the Creval Group, 2015 was a positive year, considerably up compared to 2014. There are significant signs of improvement in the economy. The loan trend is positive. The new disbursements that exceed 2 billion of loans report significant growth percentages. The new mortgages more than doubled compared to 2014, with a percentage of subrogations limited to 15%, against a system average at 32%. The new loans to businesses, mainly manufacturing, increased by 70%. After a few years of reduction of loan assets - due to, on the one hand, the economic environment and strict rules on capital and liquidity, on the other, the objectives of improvement of capital ratios and re-balancing of the budget – the Group increased very clearly the loans granted to the real economy, in particular to households and privates, manufacturing SMEs. In addition to the more favourable economic environment, the many operational initiatives started in recent years also contributed to this acceleration, in line with what was defined within the current Strategic Plan with reference to the management and credit policies, which have completely redesigned the entire process chain. The Group’s restructuring actions, implemented in recent years, which allowed to strengthen the equity and the Bank’s liquidity, are now among the most solid in the system. The new structure of the Sales Area, launched at the beginning of 2015, resulting in greater focus on “core” customer targets. The capital increase carried out in June 2014, before the conclusion of the examinations on the asset performed by the ECB, secured the necessary financial flexibility. The consolidation of prospects for growth, in the Eurozone and in our Country in particular, meets another obstacle, consisting in the huge amount of bad loans - approximately 900 billion, for the Eurozone, approximately 200 billion in our country - one of the major unresolved legacies of the long economic crisis. The solution of this problem would allow the banking system to increase the credit supply to businesses and households, further accentuating the effects of the ECB’s accommodative monetary policy and thus strengthening market confidence.

Apart from the initiatives recently adopted at government level, the improvement of the management processes of non-performing loans, with the aim of limiting the input flows into this category, and accelerating the disposal of stocks accumulated, is now a strategic priority for bank management. Armed with this conviction, the Board of Directors identified a number of structural interventions for the management of non-performing loans (NPL or non performing exposures – NPE, as a whole) with the aim of reducing substantially their stock in the medium term, also through the sale on the market of specific NPL portfolios. This area includes collaboration agreements – better detailed later in this report - signed with specialised partners of high standing: Cerved Group, for managing bad loans in synergy with the internal functions dedicated to credit recovery, and Yard Credit & Asset Management, for managing real estate loans classified as unlikely to pay, enhancing at the same time the work of thorough review of the credit monitoring chain carried out as from 2011. The year ended with a further positive event represented by the completion of the sale process of the majority of the capital of the Istituto Centrale delle Banche Popolari Italiane (I.C.B.P.I)

28 to Mercury Italy (vehicle indirectly owned by the Bain Capital, Advent International and Clessidra Sgr funds) by the main cooperative banks, as discussed in more detail later in this report. The company, historical equity, that Creval was able to guide in the progressive development of the last twenty years, is today the main Italian operator as part of the payment system and of credit cards. For Credito Valtellinese, the sale determined the registration at the consolidated level of a positive economic effect (gross of tax effects) of approximately EUR 250 million and, as a result, a further significant strengthening of the Group’s equity. The capital strength is a key factor in the current operating environment for banks, characterised by increasingly stringent regulatory constraints, and places the bank in a completely safe condition also with reference to the results of the Supervisory review and evaluation process (“SREP”) carried out by the Supervisory Authorities. Therefore, the consolidated capital ratios at 31 December 2015 are well above the specific minimum requirements of the Bank of Italy. In any case, 2015 was an “annus horribilis” for the banking system as a whole, which had to deal with the crisis of four banks in Italy and a consequent negative media campaign that resulted in a loss of confidence by the investors with almost no precedent in the history of our country. The resolution, decided as last resort by the competent Authorities, allowed to avoid worse consequences for all the country, but resulted in a major sacrifice by all the other Italian banks. For the Creval Group, the extraordinary intervention amounted to 18 million, fully charged to the income statement. There is a scenario of profound transformation of the model of traditional commercial service for the banks in the near future, which takes into account the digital revolution underway, the development of the European regulatory framework, prospects of low interest rates for a still long period of time. In such a complex operating environment, banks must necessarily achieve a greater efficiency today in order to enable investors obtain sufficient returns in order to attract capital to fully support economic recovery in our country. This – which we might call the challenge of profitability – is therefore the priority that characterised the Group’s managerial action for 2016, the year in which the Parent will also become a joint-stock company, expected no later than October, in compliance with what is requested by the reform law of cooperative banks.

Events of bank operations

The most important events that characterised the management of the Group during 2015 are mentioned below in logical and chronological order.

Cu.R.Va project and new digital bank During 2015, the interventions related to the Cu.R.Va. - an acronym for Customer Relationship Value project were completed: it introduces a new model of commercial service of the Group, with the aim of further strengthening the quality of the service provided and the value of the transaction with customers, resulting in the review of the organisational structure of the territorial network.

Centrally, two new Managements - Corporate and Retail – were established: together with the Private Management, they support the specific figures of network operators present in the Regional Managements of Credito Valtellinese, Credito Siciliano and Carifano. The branches were differentiated according to the type of customers served. Base Branches, most of them oversee the Retail segment (individuals, small business and microretail),

29 whereas 55 Structured Branches (Head offices or Branches) oversee both the Corporate and SME segments and the Retail segment. Therefore, the sales roles assigned to the Personnel, dedicated to the development of specific customer portfolios, were consistently redefined with the aim of enhancing the relation and identifying appropriate and customised solutions with reference to each segment.

Specific training courses were dedicated to network employees, involved in the “change management” process, aimed at facilitating the transition to the new service model and transaction with customers. Centrally, the sale programming and monitoring controls as well as the pricing control, entrusted to an appropriate structure, were strengthened. The Digital Bank Management was also established, for the digital supply development through a strong service and technology innovation, with the aim of developing a multi-channel approach with customers able to effectively combine the “physical” relation with the maximum flexibility of access to web services, mobile and social. The new digital offer of the Group is active as from the end of October 2015, with a new structured interface to make the use of the Bancaperta service by the users more simple and immediate, through a user friendly approach perfectly integrated between the different fixed and mobile media.

With the launch of the new Internet Banking, the website www.creval.it, alongside the new corporate website www.gruppocreval.com, both online as from 30 October 2015 was also completely revised. The new App Bancaperta, available to all customers as from last 30 October, is freely downloadable from the app store for iOS, Android and Windows Phone. There are two user profiles - one for private operations and the other one for the management of professional relations - to manage the different relations with a user-friendly approach and separately. The new app, taking full advantage of the features of mobile media on which it is installed (smartphone or tablet), provides access to a much wider range of functions than the existing one.

To complete the digital offering, a new Customer Service was also established via the Contact Centre, dedicated to current customers and potential customers, with the task of managing any requests for technical, practical and operational assistance on digital services.

Agreement with Cerved Credit Management. Sale of the subsidiary Finanziaria San Giacomo and “REOCO” project The agreement between Credito Valtellinese and Cerved Information Solutions S.p.A. - by means of the subsidiary Cerved Credit Management Group S.r.l. (CCMG) - for the development of a long-term industrial partnership for the management of bad loans was finalised on 1 April 2015. In this context, the sale of 100% of Finanziaria San Giacomo S.p.A. (FSG), company wholly owned by Creval and specialised in the management of bad loans of the Group, to CCMG was completed on the same date for a consideration of EUR 21.7 million.

At the same time, a multi-year contract was signed for the service management by CCMG of the bad loans book of the Creval Group (85% in terms of Gross Book Value, GBV).

The servicing contract envisaged the exclusive outsourcing management of the more “standardised” and “time consuming” part of the bad loans of the Creval Group in addition to the new flows that will be generated in the future (85% of total current and future bad loans),

30 on the basis of variable market fees mainly related to annual actual collections on the managed portfolio. Creval will retain the management of the Large Tickets, as well as the operational coordination and control of the credit recovery process and of the servicing activities. The transaction, consistent with the objectives defined in the Business Plan with reference to the management of bad loans, will allow the Creval Group to extract greater value from the optimisation of the recovery, reducing the level of operating costs, and to improve the recovery rates. As part of the same agreement, a specific project was started aimed at the dynamic management and valuation of bad loans with securities on property in sales by the court (Real Estate Owned Company, REOCO). Asset repossessing of properties used as collateral for bad loans granted by the banks of the Group, initially developed by Stelline, may be further enhanced thanks to the distinctive skills of the Cerved Group combined with the experience gained in the field of real estate by Stelline.

Agreement with Yard Credit Asset Management On 16 March 2015, a collaboration agreement was signed with Yard Credit & Asset Management - company of the Yard Group among the main operators of credit management present in Italy, with a high expertise for consultancy, management, credit recovery and surfacing of real assets’ value services - for the management of “distressed” real estate loans of the Creval Group. Initially, the collaboration will concern a portfolio of approximately EUR 500 million of non- performing loans, but not yet classified as bad loans. The management of these loans and receivables focused on the protection of claims requires today a new approach, based more on Asset management logics, with a view to enhance the real estate property as collateral, avoiding the gradual worsening and the related increase in the Group’s cost of risk. This dynamic management is particularly important in Italy, considering the time required by real estate implementations, which have a significant impact on settlement costs of guarantees.

Therefore, the collaboration agreement paves the way for a better management of all distressed real estate assets of the Creval group, by enhancing again the expertise gained by Stelline, combined with the distinctive skills of a highly specialised operator. A special Non Core Unit was established within the Loans Area, in support of the new operating process, with deleveraging and derisking objectives on the assigned portfolio. This agreement, in line with the objectives defined by the Strategic Plan, will allow to extract value from “non-core” activities, releasing financial resources for development and growth, and will contribute to reduce the stock of the assets not functional to the core business of the bank.

Operating reconfiguration of Stelline and Bankadati. Further simplification of the Group structure.

Effective as from 1 October 2015, the demerger deed of the business unit consisting of the property and facility management and property valuation of Stelline Servizi Immobiliari in favour of Bankadati, was signed.

Starting from the same date, the demerged company, with the new name “Stelline Real Estate S.p.A.”, assumed the role of REOCO of the Group exclusively dedicated to asset repossessing, with the support of the industrial partner Cerved Credit Management.

31 As a result of the transfer of the activities of the business unit of Stelline, Bankadati changed its name to “Creval Sistemi e Servizi – società consortile per azioni” and further expanded the operating size by providing the companies of the Creval Group, the other consortium members and the open market with all the support services to the banking business (IT, organisation and back office, real estate services).

“Bernina Social housing” fund promoted by the Creval Group and Cdpi Sgr (Cassa Depositi e Prestiti Group) On 29 December 2015, CDP Investimenti SGR S.p.A. (“CDPI SGR”), through the Fondo Investimenti per l’Abitare (“FIA”), and the Credito Valtellinese Group subscribed Bernina Social Housing, a new fund for the conversion and requalification in terms of “social housing” of real estate initiatives related to non-performing loans disbursed by the Creval Group. Bernina Social Housing, established by Prelios SGR, specialised operator selected by the Creval Group for the structuring and management of the initiative, will be dedicated exclusively to investing in real estate - of customers of the Creval Group, to which loans were disbursed for the development of real estate projects, currently unfinished and/or unsold - to be allocated to residential housing initiatives in favour of the brackets of the weakest citizens in operating areas of Creval.

The Fund, which has a term of 25 years, was fully cash subscribed by FIA - which may reach 80% of the outstanding quotas - and by the Creval Group.

The objective of the Fund is to collect EUR 100 million. The first closing was carried out on 29 December 2015 for an amount of EUR 25 million, of which 15 subscribed by FIA and 10 by Creval. Most of the properties (at least 50%) will be allocated to controlled rents, while a residual part of the portfolio that will be acquired by the Fund will be allocated to the lease with 8/10 year redemption option and only minimally to the immediate sale agreement.

Agreement for the sale of a bad loan book of approximately EUR 314 million On 30 December 2015, Credito Valtellinese and Credito Fondiario signed a preliminary agreement for the sale of a portfolio consisting of secured and unsecured bad loans for a value approximately of EUR 314 million (40% secured and 60% unsecured).

This first major operation is one of the strategic objectives of the disposal of the Creval Group of non-performing loans - in the context of the agreement in place with Cerved Credit Management, foreordained to reduce the stock of bad loans of the Creval Group.

The transaction will be completed during the first quarter of 2016 and will not have significant effects with reference to the income statement of the 2016 financial year.

Sale of the majority of the share capital of Istituto Centrale delle Banche Popolari

On 18 December 2015, the sale to Mercury Italy S.r.l. was finalised (vehicle indirectly owned by the Bain Capital, Advent International and Clessidra Sgr funds) of 85.29%, of the share capital held in I.C.B.P.I by Credito Valtellinese (18.39%), Banco Popolare (13.88%), Banca Popolare di Vicenza (9.99%), Veneto Banca (9.99%), Banca popolare dell’Emilia Romagna (9.14%), Iccrea Holding (7.42%), Banca Popolare di Cividale (4.44%), UBI Banca (4.04%), Banca Popolare di Milano (4.00%), Banca Carige (2.20%) and Banca Sella Holding S.p.A.

32 (1.80%), at a price determined on the basis of a valuation of 100% of the capital of I.C.B.P.I of EUR 2,150 million. Credito Valtellinese – which held 20.4% of the share capital of I.C.B.P.I – sold 18.4% of the share capital of I.C.B.P.I, maintaining a residual investment of 2%. For Creval, the transaction determined a positive economic effect at the consolidated level of approximately EUR 250 million, with a positive impact on the bank’s capital ratios in terms of Common Equity Tier 1 ratio of around 190 basis points.

The sale agreement also includes an additional price component in the form of earn-out linked to future income recognised to CartaSi S.p.A. by Visa Inc. for the sale of the equity investment held by Visa Europe. In operational and commercial terms, the agreements currently existing among selling shareholders and I.C.B.P.I. were extended to December 2020, with a right of withdrawal granted at the third anniversary of the closing.

33 OPERATIONAL STRUCTURE, COMMERCIAL PERFORMANCE INDICATORS AND COMPETITIVE POSITIONING

The branch network At 31 December 2015, the territorial network of the Credito Valtellinese Group consisted of 526 branches, minus thirteen compared to the end of December 2014. As part of the reorganisation of the branch network, the Branch 1 and Branch 7 of Turin, the Branch of Dueville (VI), the Branch of Castel San Giovanni (PC), the Branch of Assago and Branch 1 of Verona were closed during the first half of the financial year.

During the second half of the year, the Branch of Castellanza (VA), the Branch of Camisano Vicentino (VI), the Branch no. 2 of Florence, the Branch no. 6 of Monza, the Branch of Gambolò (PV), the Branch of Veroli (FR) and the Branch no. 1 of Frosinone were closed.

34 The other sales channels The operating network consisting of “traditional” branches is complemented by the progressive and constant expansion of Internet banking applications, which are an alternative, multi- channel model for the distribution of products and services. The Group’s commitment to the development of simple and efficient online banking services was confirmed in the growing number of users and orders arranged online, with an increasingly numerous and loyal customer base.

At the end of 2015, “active” Internet users in the Creval Group - customers who have performed at least one transaction in the last six months - amounted to 266,234, compared to 243,557 at the end of the previous year, with an increase of 9.31%. Regarding the POS service, the number of installations increased by 5.84%, with 25,975 terminals active at the end of 2015.

At the end of 2015, the ATMs, use of which is increasing constantly, as is the use of available services, were 640, decreased by nine units compared to the end of 2014.

At the end of the year, there were 17,250 contracts for interbank corporate banking applications (“CrevalCBI”), set up in collaboration with the I.C.B.P.I Group, up by 2.65% from the previous year.

Alternative products and distribution channels

% DISTRIBUTION CHANNELS 31/12/2015 31/12/2014 change Number of ATMs 640 649 -1.39% Number of POS 25,975 24,542 5.84% Banc@perta line users 266,234 243,557 9.31% Interbank Corporate Banking contracts 17,250 16,804 2.65%

Customer base and commercial performance indicators Customer relations, which form part of the broader concept of “relational capital” - a relationship of trust with shareholders, customers, suppliers, local communities, institutions and, more in general, all the stakeholders - contribute significantly to the consolidation and increase in the value of the Bank. The intrinsic value of the retail business lies in the trust- based relationship with customers, on which the corporate approach to generating long-term wealth is founded.

At 31 December 2015, the Group’s customers numbered 978,697 (935,051 at the end of 2014), confirming the Group’s ability to maintain its customer base in its territories of origin.

Customer distribution among the Group’s territorial banks is as follows: Credito Valtellinese (62%), Credito Siciliano (31%), Carifano (7%).

Breakdown of the Group’s customers at 31 December 2015 by bank

CARIFANO 7%

CREDITO SICILIANO 31%

CREDITO VALTELLINESE 62%

As confirmation of the territorial origins that distinguish Creval Group operations, the retention rate - i.e. the percentage of active customers at the start of the year still holding accounts with the bank at year-end - is close to 95%, which shows a clear sign of the trusting and a long- term relationship with customers. The cross selling figures, calculated by the “ABI method”, stood at 4.28 products on average per customer at the end of 2015.

Competitive positioning

Based on the most recent available figures (Bank of Italy BASTRA1 database at 30 June 2015), at the nationwide level the Group reached a market share of 1.7% in terms of number of branches, 1.1% in deposits and approximately 1.1% in loans and receivables with customers 7. Regional market shares are higher in the areas where the Group operates traditionally. The most representative ones are in Lombardia, where they reach 3.8% in terms of number of branches, 2.7% and 2.5% respectively for deposits and loans and receivables with customers, but they are still more significant in the areas of operation of Credito Siciliano, with overall market share in Sicily at 8.1% by number of branches and respectively at 4.3% and 4.7% for deposits and loans and receivables with customers, and of Carifano which in the Marche region has reached an overall market share of 3.3% by number of branches, 3.0% and 3.3% respectively in terms of deposits and loans and receivables with customers.

7 The market shares used in the description refer to the recognition by “residence of customers”. 36 The analysis by individual province identified highly significant market shares in Lombardia in the province of Sondrio, where the share of the number of branches is more than 37.7%, the share of deposits is more than 32% and the share of loans is 30.5%, but also in the provinces of Lecco, where, with 7.5% of branches, the share of loans is 9.5% and the share of deposits is 7.5%, and of Como, where the share of branches is 6.4% and the share of loans and deposits, respectively, is 6.1% and 5%. In Sicily, equally significant percentages are in the province of Catania, where the market share in terms of branches is greater than 15%, the share of deposits is 9.2% and the share of loans is 8.3%. In the Marche region, the province of Pesaro & Urbino reached shares of almost 10% of branches, over 9.5% of deposits and over 7.9% of loans. A key factor for the success of the Creval Group is represented by its consolidated ability to establish and maintain a relationship of trust with its customers over time; this aptitude plays a central role in defining the business organisation.

In line with the Group’s vocation as a “local bank”, the company management and the everyday operations of all the Employees are constantly focused on maintaining solid relationships based on the following principles: - transparency in information on conditions, costs and contract clauses regulating the Group’s services, in line with legal provisions and voluntary initiatives launched by the banking system (PattiChiari) in which the Creval Group has participated since its inception; - operational agility, flexibility and rapid responses to customers, especially in relation to applications for credit; - customisation and attention to the proper management of the “risk profile” of customers, within investment services; - constant disclosure also through Internet banking channels, which allow a complete, 24-hour view of all the customer’s relations with the Bank. In the framework of the above profiles, the management activities for handling any complaint help to preserve relations with the customers. Careful evaluation of each complaint and the attention paid to examining the reasons underlying customer complaints have allowed the timely identification of the appropriate corrective measures, with the close cooperation of all Group structures, and the decision of how to best direct the departments responsible for operations in the retail market. The total number of complaints received during the year - i.e. 570 at the Group level - shows a low number of legal cases with customers, slightly above the figure of the previous year.

Quality, environment, security policy - certifications

In December 2015, the twentieth anniversary in which Credito Valtellinese was the first financial intermediary in Italy to obtain the quality certification in credit management was remembered. From that date to today, the Group’s banks and companies have progressively obtained their quality certifications issued by RINA, which in 2015, as a result of the accurate audits carried out, were confirmed in accordance with the international ISO 9001:2008 standard.

The new company Creval Sistemi e Servizi obtained the confirmation also of the certifications in the field of information security - ISO/IEC 27001:2014 standard - and the confirmation for environmental protection compliance, ISO 14001:2004 standard for the Organisation and ICT Area and the Real Estate Area, respectively.

37 The audits at the territorial banks were renewed with a special attention to issues of the organisational structure, rating, risk in the area of credit, transparency, control, customer satisfaction and process improvement.

The analyses carried out ascertained again the full compliance with the provision of the reference standards for all the involved banks and companies of the Group, emphasising some strong points and improvements compared to the defined focus points.

Former PattiChiari The Consortium, established at the beginning of the nineties as “sector vehicle” for the production, management and external dissemination of instruments based on simplicity, clarity, comparability and mobility of customers, as well as of collective financial education programmes, consolidated during the year the restructuring process promoted by the Executive Committee of ABI:

Fondazione per l’Educazione Finanziaria e al Risparmio (Foundation for Financial and Savings Education): promoted the dissemination throughout Italy of the financial education, in the broader concept of active economic citizen and legality education, through the creation of original contents, innovative instruments and by organising events on the territory, including two held in Sondrio in spring and autumn, dedicated to primary and secondary school students. The banks of the Group confirmed the firm acceptance of the project, which proved strategic in the light of the recent events of the crisis registered in certain national banks.

Commitments of self-regulation : from 1 October 2014, the «Commitments of self- regulation» and the underlying obligations were already taken on by ABI. In particular, the migration concerned:

- the online information and comparison engines, i.e. «Comparison of current accounts», «Average closing time of c/a» and «Average response time on the credit»;

- some practices related to the «Portability of services»: the offer of the service by the banks concerned both passively and actively with a specific reference to the «Portability of payment services», to the «Portability of securities deposit» and to the «Portability of collection orders». During the transition, all activities related to the aforementioned initiatives continued without any interruption. As from 5 August 2015, all the online information and comparison engines were included in the website www.ComparaConti.it.

PattiChiari Consortium: remains operational only for the settlement of the legal relationships deriving from the practice carried out.

38 HUMAN RESOURCE MANAGEMENT

Human resources have a fundamental role for the Group, which continued, also during 2015, to ensure the enhancement, development and recognition of professionalism, a factor of fundamental and strategic importance in a continuously developing operating environment and that requires a growing flexibility and adaptability compared to new operating and market approaches. The gradual increase in competence is a key factor for governing the increasing complexity of the market and represents a strategic priority in human resource management, carried out according to the following guidelines: - more efficient definition of professional development paths, - upgrading and developing new competencies according to new trends in the banking business, - innovating and increasing managerial and training instruments, with customised responses to individual needs, with the aim of encouraging personal initiative and the culture of merit. The new sales structure launched in 2015 as part of the CU.R.Va. project involved an important process of “change management”, aimed at facilitating the transition to the new service model and transaction with customers.

Recruitment policy The activities of recruitment and selection of personnel, centralised in the Parent Credito Valtellinese, derive from the identification of the workforce requirements for each company. During the year, the Group continued to offer job opportunities both to young graduates and figures with consolidated working experience.

Number of CVs, interviews and recruitments in the 2010-2015 period

2010 2011 2012 2013 2014 2015

No. OF CVs RECEIVED 14,652 10,369 8,931 3,771 3,834 4,522

No. OF INTERVIEWS HELD 1,150 874 67 187 382 261

NO. RECRUITED (*) 161 116 65 71 73 124

(*) Number of new hires net of intragroup transfers and re-hires

39 Employment policies

In 2015, the employment and welfare policies area was involved, to the extent of its remit, in the activities related to the pursue of the objectiveness defined by the update of the 2014- 2016 Strategic Plan and the subsequent verification of the objectives achieved each time.

In April 2015, an audit meeting report was signed with the Trade Unions on the application of the Trade union agreement of 3 December 2014, related to incentives for redundancies.

The agreement relating to the operating reconfiguration of Stelline and Bankadati was signed. After the sale of Finanziaria San Giacomo to Cerved Credit Management Group, Credito Valtellinese and Credito Siciliano signed with their company Trade Unions two meeting reports on the management of related personnel secondment in Cerved Credit Management Group.

Moreover, the works of the Joint Committee for the progress of the “Cu.R.Va.” project, established with the minutes of the Group trade union meeting of 2 December 2014, continued.

In the second part of the year, two statements of agreement were signed on the conditions reserved for personnel.

A company bonus was also envisaged; it allowed the Personnel of the Group to allocate the amount to important welfare institutions designed to handle family needs and enhance aspects of supplementary pension of workers. Also in 2015, in line with previous years, the Social Partners, at the end of the usual company commissions held during the year, shared the signing of trade-union agreements that allowed the financeability of individual and collective training courses by the joint FBA segment fund.

Group workforce At the end of December, the registered workforce of the companies included in the consolidation scope of the Group consisted of 4,152 workers. These include 29 Collaborators seconded to companies or entities not falling within the scope of consolidation of the Group, such as Fondazione Gruppo Credito Valtellinese, Global Assistance and the Pension Fund for the Employees of the Credito Valtellinese Group. The operating figure of 4,123 is compared to 4,275 at the end of 2014.

During the year, 124 persons were hired and 252 workers ended their employment 8.

8 Net of intragroup transfers and re-hires. 40 Group operating workforce trend

In terms of professional categories, the total workforce of 4,152 can be broken down as follows: - 56 executives; - 1,566 middle managers; - 2,530 workers in other professional categories.

Workforce by contract category at 31 December 2015

41 Of 4,152 workers, 4,120 were employed on permanent contracts (i.e. 99.2% of the total) whereas 32 were employed on temporary contracts (0.8%). Out of 4,120 workers on permanent contracts, 154 (3.7%) were hired with the new contractual form called L.R.I. (Livello Retributivo Ingresso, Entry Level Compensation). Part-time contracts, regarding 408 employees, involve 9.8% of the total registered workforce of the Group.

Full and part-time workforce at 31 December 2015

PART TIME 9.8%

PART TIME FULL TIME 90.2% FULL TIME

Group training

Training activities, transmitted by means of Creval Academy, are defined on the basis of annual training plans, which establish the needs and the corresponding design of the course catalogue, on the basis of the schema as represented below:

42 The process is supported by appropriate IT tools for managing satisfaction and effectiveness questionnaires and learning tests that allow to evaluate the outcome of each training programme.

During 2015, 148,667.98 training hours were provided compared to 135,348.26 in the previous year – of which 104,545.10 traditional classroom training and 44,122.88 through distance training. The hours per head increased from 31.6 in 2014 to 35.9 in 2015.

The activity increased considerably as a result of the Cu.R.Va project (46,552 training hours), to a further enrichment of the catalogue in the credit area and the consistent insurance training (37,706.53 hours). Personnel training in anti-money laundering law that took place during 2015 envisaged the monitoring of knowledge directly at the branches, in addition to classroom courses involving rolling all network staff and specialised functions concerned, to distance learning courses and to questionnaires for checking knowledge. 91.3% of staff participated in training programs compared to 91% in 2014. With regard to the network personnel, participants in training courses are 98.6%. Great part of the training activities was financed through the approval of training projects announced by FBA (Fondo Banche e Assicurazioni) and Fondir (Fondo Dirigenti).

43 MAIN ASPECTS OF COMMERCIAL OPERATIONS

The Credito Valtellinese Group, focusing constantly on the requirements of its customers, reserves a wide offer of products and services, structured by different customer segments. During the financial year, the product range designed to meet the many needs of financing, investment, transfer as well as insurance, was further expanded, both thanks to specialised structures falling within the consolidation scope of the Group as well as through partnerships with specialised companies. The offer of the Group is also enriched by a wide range of online services, through banc@perta, channel whose functions are constantly updated, which allow customers to carry out transactions autonomously and reducing costs in managing their banking operations. The main product and service innovations that characterised the Group’s commercial offer during the year are described below.

Transfer products In order to adapt the offer of the Group to the market context, in 2015 the main current account packages dedicated to consumer and non-consumer customers were revised, expanded and rationalised.

In particular, during the year, Armonia 2.0 the simple and transparent current account, which is the privileged product that our Group reserves to consumer customers, was subject to renewal with respect to the offered profiles and the discounts reserved to Shareholders, young people and customers with investments managed at our Group.

The revision allowed to update the offer of the Line, which currently offers three profiles: “Leggero” “Argento” and “Oro”:

- Leggero , is the basic package of the Line, with a particularly limited fee, dedicated to customers using the base banking services such as ATM card and the rechargeable card. The profile also offers young people up to 26 years of age a specific discount on the monthly fee.

- Argento , is the ideal offer in terms of completeness of included services, dedicated to customers carrying out a good number of transactions per year.

- Oro is the full optional account that meets more complex financial requirements offering interesting discounts on the services included in the package.

All the profiles, Leggero, Argento and Oro give the Shareholders a discount on the monthly fee, whereas for the Argento and Oro profiles there is a discount on the fee for those who have deposits at the Banks of the Group of at least EUR 100,000 in Funds, Sicav, Life Policies or Asset management.

Also with regard to “consumer” customers, SocioInCrevalPremium ”, the “all inclusive” offer of products and services additional to the current account included in the fee dedicated to the Shareholder customers of Credito Valtellinese, was also adapted to the new market context in terms of economic conditions.

The Creval Condominio offer, aimed at managing financial and administrative needs of the property by the managers, initially characterised by a single offer especially fit for small Properties, was expanded with the introduction of two new formulas by package different in terms of combined expenses that befit more Properties with average and extended transactions. With the extension of the offer, the Property manager can choose among three possible solutions, Mini, Medio and Maxi , the type of Creval Condominio it considers most

44 appropriate to its “business volumes” on the basis of the size and number of properties managed.

With respect to the range of “deposit accounts ” offered by our Group, the following offers continued:

- Creval Deposito Protetto , deposit account for investors, consumers and non- consumers, with a certain amount of money for a defined time span. The duration can range from a minimum of 18 to a maximum of 48 months.

- Creval Crescendo, deposit instruments for consumer customers and retail customers with whom the Customer undertakes to set aside on a monthly basis an agreed amount for a period of 60 months. The amounts for the programme bear interests, calculated according to a previously fixed rate, which are paid annually and capitalised automatically .

- Creval Time Deposit , term deposit account for an agreed period, up to one year, and bearing a previously fixed interest rate for the duration of the term.

Finally, the offer of ContoInCreval - Conto Corrente - package of products subscribed and manageable only via the Internet, consisting of an online current account, pre-paid card and V PAY international ATM card – is reserved for “non customers” of the Group who prefer the “virtual” channel or reside in regions where the network of the Group is not yet present.

Lending products

In February, Mutuo Corporate TLTRO was released, a medium/long-term unsecured loan for companies belonging to the corporate segment, with disbursed amounts ranging from EUR 250,000 to maximum EUR 5,000,000 and characterised by an extremely favourable pricing considering the benefit deriving from the TLTRO financing from the ECB.

During July 2015, Condominio No Problem was launched, carried out by Creset S.p.A. in collaboration with Fire S.p.A., a new service aimed at a complete management of financial and administrative needs of the property that includes, in addition to the recovery of unpaid and past due loans in and out of court, also the billing of property payments through MAV and the activation of the web portal for the management of all condominium documents.

In August, Anticipo TFR in busta paga (Advance on post-employment benefits in payroll) was released, new lending product at preferential conditions for employers with less than 50 employees to advance post-employment benefits in payroll requested by their employees.

In November 2015, in view of the tax and management deadlines related to the end of the reporting period - an instalment loan called Multifido Cash was made available to customers: it provides the disbursement of amounts up to 100% of the payment programme to be carried out, with a maximum of EUR 500,000, duration from 3 to 12 months and preferential rates.

45 Anti-crisis measures and agreements supporting the local economy

In the ongoing challenging economic environment, the Group continues to honour its commitment in favour of the real economy of the areas where it operates, by participating in numerous initiatives promoted, also at the system level. The main interventions carried out during the year are indicated below.

- Agreement for 2015 Loans – Recovering Companies . Following the expiry of the previous “Agreement for 2013 loans”, the Group complied with the “Recovering Companies” initiative within the new Agreement for 2015 Loans signed by ABI and Associations representing businesses, which allows the SMEs, performing and in temporary financial stress, but with prospects for development or business continuity, to request until 31 December 2017 the suspension for 12 or 6 months of the payment of the principal portion of the instalments of the medium/long term loans or the extension of the redemption plans or of maturities.

- Solidarity fund for mortgages for the purchase of the first home . During 2015, the collection of the applications for accessing the Solidarity fund for mortgages for the purchase of the first home continued, which allows households in state of difficulty to suspend the payment of the mortgage instalments on the first home, for not more than twice during the redemption plan and for maximum 18 months.

- Agreement for the suspension of credit to households. In 2015, the Group joined the new agreement signed between ABI and Consumer association in order to expand the measures supporting households in state of difficulty already envisaged by the above- mentioned Solidarity Fund. The new Agreement extends the possibility of suspension of payment of instalments to personal loans to consumers with a duration of more than 24 months and provides for the inclusion, among the events that entitle to the request for suspension, of the suspension or reduction of working hours.

- Guarantee Fund for the first home. In 2015, the Group activated for the customers the possibility of joining the “Guarantee Fund for the first home” designed to support the granting to consumer customers who do not own other residential properties, of mortgage loans of an amount not exceeding EUR 250,000 for the purchase of their first home, issuing a free guarantee to the extent of 50% of the principal portion of the mortgage.

- Agreement of ABI Lombardia and Fondazione Welfare Ambrosiano . Pursuant to the Agreement signed by ABI Lombardia and Fondazione Welfare Ambrosiano, aimed at facilitating the employees of companies in crisis, located in the Province of Milano, Credito Valtellinese continued in 2015 to advance allowances of State Subsidised Temporary Lay-Off Measures, also by way of derogation, and of Solidarity Contracts. The advances benefit from the guarantee of the FWA Guarantee Fund, managed by Fondazione Welfare Ambrosiano.

- “Anticipazione Sociale ” initiative. Also for 2015, Credito Valtellinese re-joined the “Anticipazione Sociale” initiative of the Lombardia Region, supported by ABI Lombardia, aimed at supporting the workers in State Subsidised Temporary Lay-Off Measures and by way of derogation zero-hour workers, employed at production units located in Lombardia. The initiative is emphasised due to the presence of a guarantee fund of Finlombarda for guaranteeing the advances made by the Bank in the event of default of the worker.

- Extension of the agreements for Cash advances on CIG payments , signed with public bodies and representatives of companies and workers.

- In view of the many natural calamities that occurred in 2015, the Group offered the possibility of requesting the suspension of the mortgage instalments for residents of the municipalities in the Italian provinces hit by floods or earthquakes. Instalment loans at

46 preferential conditions were also envisaged for those who suffered damage due to bad weather and aimed at financing the works for settling the suffered damages.

- “Plafond Casa” Cassa Depositi e Prestiti . Also for 2015, the banks of the Group drew from “Plafond Casa” made available by Cassa Depositi e Prestiti in order to provide mortgage loans to consumers for the purchase of residential properties in favourable economic conditions in terms of applied rate and of exemption from substitute tax.

- Initiative in support of the wine sector in the province of Sondrio . As in previous years, Credito Valtellinese signed an agreement with the Chamber of Commerce and the Province of Sondrio also in 2015 for the disbursement of loans on favourable terms for the payment of lots of grapes with designation of origin “Valtellina”, related to the 2015 harvest.

- Finanziamenti agevolati Finpiemonte - in July 2015, Credito Valtellinese joined the initiative of Finpiemonte pursuant to Regional Law 18/99 for Piedmont SMEs working in the field of tourism which provides for the disbursement of loans at subsidised rates (in the technical form of co-financing: 50% bank financing and 50% body financing). Moreover, in December 2015, it joined the Fondo per lo sviluppo e la qualificazione delle piccole imprese Sezione Artigianato (Fund for the development and qualification of small businesses Crafts Sector), which provides for the granting of loans with the same technical forms.

- “Protocollo d’intesa per lo sviluppo e la crescita delle imprese a prevalente partecipazione femminile” (Protocol of Understanding for the development and growth of companies with a majority female participation) promoted by Abi, by the Equal Opportunities Department of the Prime Minister’s Office . In July 2015, the Credito Valtellinese Group joined the Protocol according to which the joining banks must allocate a limit for the disbursement of loans to women-owned businesses, with the aim to facilitate their access to credit. To this end, there are two new loans called Creval Impresa Donna, for SMEs with a majority female participation.

- Commercial Agreement with Banca Sistema . In October 2015, the commercial agreement signed between the Creval Group and Banca Sistema S.p.A. for promoting factoring services of the latter with a special reference to the transfer without recourse of receivables to the Public Administration.

Bancassurance products The Bancassurance product catalogue, during 2015, was enriched by a new product that can be combined with the Compass loans called Global Protezione Prestito which consists of two policies – Life and non-Life - carried out by Compagnie Assicurative Zurich Investments Life S.p.A. and Global Assistance S.p.A., in collaboration with Global Assicurazioni S.p.A..

Moreover, during the year, the updating and completing of the range of products continued. In particular, with reference to the life segment, new versions of single-premium life policy were made available - Global Valore Protetto of Genertellife and Global Futuro Più of Allianz - and of the policy with recurring premiums of Genertellife Progetto Risparmio.

Finally, with reference to the non-life segment, the type of insured vehicles was expanded with the motor insurance policy Simple Drive of Zuritel S.p.A., with the extension to lorries up to 35 quintals .

47 Investment products

As part of the strategic partnership agreement with the Anima Group, in a constant improvement and development perspective of collective asset management products, during 2015, the placement of the Irish Sicav ANIMA FUNDS started. In order to ensure a constant adjustment of the commercial proposal to customer needs, the offer of the “Creval Multimanager – Fondi&Sicav” line was updated by introducing new collective managed savings products, proposed by the product Companies with which the Group collaborates (Anima SGR, Aletti Gestielle SGR, Arca SGR, Eurizon Capital SGR, Eurizon Capital s.a., J.P. Morgan Asset Management, Julius Bär Funds) and the expansion of operations by means of internet banking.

Money products and payment systems The financial year was characterised by the release of new services aimed at expanding and improving the range of products offered as well as by important actions required to comply with the relevant regulatory changes.

At the beginning of the year, the Creval Group joined the “MyBank” European service, conceived by EBA Clearing (supplier of pan-European infrastructures for payments) making available to the customers holders of Bancaperta “MyBank” purchaser side .

MyBank allows to carry out e ‐commerce transactions through the home banking of one’s own bank in a simple and safe manner. The service is complementary to the use of credit cards and allows to conclude a purchase with direct debit of one’s own account via SEPA transfer carried out in favour of the operator of the e-commerce site. The payment is executed by selecting MyBank among the methods of payment proposed by the e-commerce site and after choosing your Bank, you will be directed to a login page of Bancaperta dedicated to MyBank, within which, after entering your credentials, you can choose the account on which the amount must be charged and confirm the purchase.

In order to increase the level of security of payments made via the Internet with prepaid cards, the Creval Group, in the first half year enabled all prepaid cards (Cart@perta Gold, Contointasca and Cart@perta Teen) to the Verified by VISA service. The new service, offered in collaboration with CartaSi, allows the holders, who signed up, to carry out transactions on websites of authorised shopkeepers using an additional identification procedure that guarantees one’s card against any fraudulent use. Customers can register their cards to the Verified by VISA service directly from Bancaperta. The rise in the level of security of the transactions carried out with the Verified by VISA service is guaranteed by the use of the password previously set that is another key for identifying the holder each time he/she makes online purchases from an authorised storekeeper. The presence of the correct identification sentence also ensures the Bank that the request comes from the holder.

In 2015, the offer of services on POS terminals was enriched by the new service proposed by CartaSi of acceptance of electronic meal vouchers of the Pellegrini company . This service allows the storekeeper to accept electronic meal vouchers by means of its own POS terminal rather than using a separate and dedicated one, saving on the supply and management costs of the terminal normally dedicated to meal vouchers and increasing the efficiency of the selling point. Moreover, the merchant can view the list of the Pellegrini meal voucher transactions and related invoices, registering at the pellegrinicard.it site or from the app for smartphones.

In the second half year, the payment service of postal slips directly online was released. The function allows to pay pre-printed postal (896 and 674 type) and white (123 type) slips

48 online by Bancaperta. Moreover, the payment is made even easier and faster through App in that, thanks to the QR code present on the slips, the payment data is retrieved automatically.

At the end of the year, the Creval Group made available to the customers the new service for sending money P2P (Person to Person) of I.C.B.P.I called ZAC. ZAC consists of a transfer of money based on IBAN, through which the Customers of the Banks joining the same circuit can send/receive payments in real time (24*7*365) easily and securely through Bancaperta app, by indicating only a mobile number in the address book.

With reference to regulatory changes, in 2015 the Regulation (EU) 2015/751 of the European Parliament and of the Council of 29 April 2015 was issued concerning interchange fees on payment transactions based on debit and credit card that regulates the application of Interchange Fees when both the bank of the storekeeper and the bank of the payer are located in the European Union. The objectives of the EU Regulation are set below:

- a greater harmonisation of interchange fees in a context in which the circuits of debit and credit cards and the interchange fees differ;

- an increased integration of the payment market within the EU, by reducing direct and indirect obstacles to the proper functioning of electronic payments, with no distinction between national and cross-border payments.

In particular, in the application of interchange fees for any transaction through debit and credit cards, the EU Regulation requires:

- a 0.2% limit for the debit cards; - a 0.3% limit for the credit cards.

The implementation of the regulation provided for the Creval Group interventions and contractual adjustments both in Issuing (credit and debit cards) and Acquiring (P.O.S.).

International products

During 2015, “Finanziamento all’Internazionalizzazione con Garanzia Sace” (Internationalisation Loan with Sace Guarantee) product was implemented, so far only available for medium to long-term transactions (36-48-60 months), with new “Short Term” durations (6-12-18 months), with the main purpose of financing the working capital of the applicant companies and therefore of maximum widening of the potential customers beneficiaries of the product.

This initiative is part of the activities undertaken by the Group in support mainly of the SMEs, both directly and shared with the best Institutional Entities in charge (firstly Sace) and in view of a maximum diffusion and internal use of sovereign and supranational guarantees, which allow to reduce both the capital requirements and the credit risk of loans and granted credit lines.

In the renewed interest for the positioning of the Group in international trade, in particular in the development of relations with foreign Banks and on the completion of the offer of International products, the “Post Financing” product was also released. Post financing is an instrument for the benefit of foreign banks issuing letters of credit in favour of exporting customer companies, through which the possibility of obtaining a loan in connection with their payment commitments related to compliant presentations of documents in the use of the documentary credits issued is offered to these Banks.

49 This new opportunity offers our customer companies the possibility of entering into supply contracts with international counterparties that need to have loans for their purchase contracts, providing in this way a commercial offer package that also includes a competitive financial structure functional to the project in progress, already prepared and agreed by the Group with Correspondent Banks.

50 ANALYSIS OF THE MAIN CONSOLIDATED STATEMENT OF FINANCIAL POSITION AGGREGATES AND INCOME STATEMENT FIGURES

Analysis of the main statement of financial position aggregates The analysis of the financial position of the year, represented below, uses summary and reclassified statements. The aggregates and reclassifications regarding items of the Statement of Financial Position prescribed by Bank of Italy Circular no. 262/05 are detailed in the Notes to the Financial Statements.

RECLASSIFIED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in thousands of EUR)

% ASSETS 31/12/2015 31/12/2014 change Cash and cash equivalents 175,462 194,289 -9.69% Financial assets held for trading 51,751 61,787 -16.24% Available-for-sale financial assets 5,321,413 6,789,606 -21.62% Loans and receivables with banks 713,089 839,489 -15.06% Loans and receivables with customers 19,049,750 19,004,863 0.24% Equity investments 9,464 200,797 -95.29% Property, equipment and investment property and intangible assets (1) 572,882 663,968 -13.72% Non-current assets held for sale and disposal groups 2,478 3,191 -22.34% Other assets (2) 1,005,392 1,055,566 -4.75% Total assets 26,901,681 28,813,556 -6.64%

(1) Include the items “120. Property, equipment and investment property” and “130. Intangible assets”. (2) Include the items “140. Tax assets” and “160. Other assets”.

% LIABILITIES AND EQUITY 31/12/2015 31/12/2014 change Due to banks 2,040,112 4,837,374 -57.83% Direct funding from customers (1) 21,694,956 20,745,569 4.58% Financial liabilities held for trading 1,859 3,233 -42.50% Hedging derivatives 269,496 308,718 -12.70% Liabilities associated with disposal groups - 573 -100.00% Other liabilities 508,132 635,058 -19.99% Provisions for specific purpose (2) 199,396 258,471 -22.86% Equity attributable to non-controlling interests 4,382 4,454 -1.62% Equity (3) 2,183,348 2,020,106 8.08% Total liabilities and equity 26,901,681 28,813,556 -6.64%

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

Loans and receivables with customers

Figures in millions of EUR

At 31 December 2015, loans and receivables with customers stood at EUR 19 billion, slightly up (+0.2%) compared to 31 December 2014. The loan trend finally improved during the year, with new lending that, as a whole, came close to EUR 2.3 billion. The new mortgages to private individuals in the year reached EUR 821 million and more than doubled (+103%) compared to the same period last year. New loans to businesses increased by 70%, better than the system average (+13%). 50% of new lending was intended for manufacturing businesses and trade and more than 56% of the lending ranked in the top rating classes.

In detail, as represented in the following table, loans amounted to EUR 8,732 million, almost unchanged compared to the end of the previous financial year, whereas current accounts decreased by 13.3%, and stood at EUR 3,364 million. The increase in other loans compared to 31 December 2014 mainly refers to exposures to Cassa Compensazione e Garanzia and to loans as forward cash.

52 % (in thousands of EUR) 31/12/2015 31/12/2014 change Current accounts 3,363,506 3,878,825 -13.29% Reverse repurchase agreements 786,220 818,262 -3.92% Mortgages 8,732,228 8,778,572 -0.53% Credit cards, personal loans and salary-backed loans 239,572 213,145 12.40% Finance leases 520,976 582,255 -10.52% Other loans 2,021,206 1,532,325 31.90% Debt instruments 28,410 9,383 n.s. Total net performing loans and receivables 15,692,118 15,812,767 -0.76%

Bad loans 1,207,157 1,101,939 9.55% Unlikely to pay 1,835,414 1,578,552 16.27% Past due non-performing loans 315,061 511,605 -38.42% Total net non -performing loans and receivables 3,357,632 3,192,096 5.19%

Total net loans and receivables 19,049,750 19,004,863 0.24% Data at 31 December 2014 restated for a consistent comparison.

Credit quality Positive signs are shown also in credit quality. The new flows of non-performing loans slowed down (the increase in 2015 amounted to gross EUR 538 million compared to EUR 950 million the previous year), mostly coming from the real estate - building sector. At the end of the period, Non-Performing Exposure (NPE), net of impairment losses, totalled EUR 3.4 billion, up by 5.2% compared to the end of December 2014, with a coverage ratio of 40.3% compared to 37.2% last year.

In detail, net bad loans amounted to EUR 1.2 billion, compared to EUR 1.1 billion at the end of December 2014, with a coverage ratio of 57.1%. The unlikely to pay amounted to EUR 1.8 billion, with a coverage ratio of 25.5%, whereas EUR 315 million were represented by past due and/or overdue non-performing loans.

(in thousands of EUR) 31/12/2015 31/12/2014

Gross Impairment Carrying % Gross Impairment Carrying %

amount losses amount coverage amount losses amount coverage

Non-performing loans

Bad loans 2,811,298 -1,604,141 1,207,157 57.1% 2,503,424 -1,401,485 1,101,939 56.0%

Unlikely to pay 2,462,609 -627,195 1,835,414 25.5% 2,012,676 -434,124 1,578,552 21.6% (*)

Past due 346,130 -31,069 315,061 9.0% 566,036 -54,431 511,605 9.6% non-performing loans

Total 5,620,037 -2,262,405 3,357,632 40.3% 5,082,136 -1,890,040 3,192,096 37.2% non-performing loans

Performing loans 15,806,728 -114,610 15,692,118 0.73% 15,942,016 -129,249 15,812,767 0.81%

Total loans and receivables 21,426,765 -2,377,015 19,049,750 21,024,152 -2,019,289 19,004,863 with customers

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

Past due non-performing loans are determined on the basis of the regulations in force at the end of the reporting period.

53 Funding policies

The primary objective of the funding policies of the bank remains the pursuit of the structural balance between loans and receivables with customers and stable forms of deposits (funding gap) through diversification, with respect to technical form, counterparties and markets. During the last part of the year, wholesale markets were affected by increased risk aversion; the economic outlook continued to be dimmed by the slowdown in the Chinese economy and by tensions in other emerging economies. The tensions within our country deriving from the so-called “decreto salva-banche” (bank rescue decree) - which involved four Italian small-size banks - were added to these global factors.

Within this context, retail deposits did not suffer significant impacts: the branch network continues to represent a strategic driver for the achievement of the funding objectives, whereas medium/long-term deposits on institutional markets (consisting of a Tier2 issue and by senior issues of securitisations sold to the market) represent a low share of the total. Bond issues for retail customers, totalling EUR 3.3 billion, allowed to balance the maturities for an almost corresponding amount.

Solid liquidity position: at the end of December 2015, the net balance of overall liquidity at three months is equal to EUR 3.6 billion. During the financial year, the Creval group subscribed a further EUR 500 million for ECB’s refinancing operations (known as TLTRO - Targeted Longer-Term Refinancing Operations), increasing the medium to long-term total funding from ECB to EUR 1.5 billion.

The liquidity requirements – LCR and NSFR – were already well above the minimum levels required by Basel 3 for 2018.

54 Funding from customers

Direct funding amounted to EUR 21.7 billion, up by 4.6% compared to December 2014. The development of direct funding from customers is represented below.

Figures in millions of EUR The analysis of each technical type showed an increase in current accounts and deposit accounts (+2.9%) and a decrease in term deposits (-23.6%). Repurchase agreements increased mainly due to the transactions with Cassa Compensazione e Garanzia that increased from EUR 141 million at the end of 2014 to EUR 2,132 million at the end of the financial year.

The breakdown of direct funding is represented in the table below. % (in thousands of EUR) 31/12/2015 31/12/2014 change

Current accounts and deposit accounts 13,469,469 13,096,125 2.85% Reverse repurchase agreements 2,154,036 242,227 n.s. Term deposits 1,535,563 2,008,847 -23.56% Other 453,201 205,477 120.56% Due to customers 17,612,269 15,552,676 13.24% Securities issued 4,082,687 5,192,893 -21.38% Total direct funding from customers 21,694,956 20,745,569 4.58%

Indirect funding amounted to EUR 12.1 billion, with a significant growth - more than +16% - of assets under management, which totalled approximately EUR 6.8 billion. Net deposits in the area of managed funds amounted to EUR 490 million during the year and scored +73% compared to 2014.

Figures in millions of EUR

As part of the component referring to managed funds of EUR 6.8 billion, there is a 7% increase with reference to asset management, which amounted to EUR 2,267 million, a 21.8% of mutual funds, of EUR 2,408 million, and a 20.8% of insurance funds, which amounted to EUR 2,119 million. The administered component decreased by 13.3% and amounted to EUR 5.3 billion.

Therefore, total indirect funding recorded a 1% growth compared to the end of the previous financial year.

The breakdown of indirect funding is represented in the table below.

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

Asset management 2,266,511 2,117,430 7.04% Mutual funds 2,407,502 1,977,051 21.77% Insurance funds 2,118,580 1,753,773 20.80% Total Managed funds 6,792,593 5,848,254 16.15% Assets under administration 5,300,179 6,115,078 -13.33% Total indirect funding 12,092,772 11,963,332 1.08%

56 Financial assets and liabilities

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

Financial assets and liabilities held for trading Debt instruments 49,447 58,144 -14.96% Equity instruments and OEIC units 1,446 1,500 -3.60% Derivative financial instruments with positive fair value 858 2,143 -59.96% Total assets 51,751 61,787 -16.24% Derivative financial instruments with negative fair value -1,859 -3,233 -42.50% Total assets and liabilities 49,892 58,554 -14.79%

Available -for -sale financial assets Debt instruments 5,111,911 6,662,097 -23.27% Equity instruments and OEIC units 209,502 127,509 64.30% Total 5,321,413 6,789,606 -21.62%

At 31 December 2015, financial assets held-for-trading and available-for-sale amounted to EUR 5,373 million compared to EUR 6,851 million of the previous year and account for approximately 20% of total assets. Financial assets held for trading are mainly consisted of debt instruments, represented by securities issued by the State and by other public agencies and securities issued by banks and amounted to EUR 52 million, down 16.2% compared to EUR 62 million last year.

Available-for-sale financial assets amounted to EUR 5,321 million, down by 21.6% compared to EUR 6,790 million at the end of December 2014 and they are mainly represented by debt instruments (Italian Government bonds), in addition to OEIC units and equity instruments that do not constitute control, joint control or affiliation. The decrease is mainly attributable to the reduction in the amount of Government bonds sold during the financial year. Among equity instruments, the increase is attributable to the reclassification of interest retained in Istituto Centrale delle Banche Popolari (2%), which is no longer a company on which the Credito Valtellinese exercises a significant influence. Regarding the exposure of interest rate risk generated by the fixed-rate Italian Government bonds held, for a total nominal value of EUR 600 million, hedging derivatives (IRS) were stipulated with counterparties of high standing.

The Reserve tied to available-for-sale financial assets, represented among equity items, amounted to EUR 71 million, showing an improvement from the value of EUR 14.3 million at 31 December 2014.

Concerning impairment of available-for-sale financial assets represented by equity instruments and OEIC, the application of the accounting policies adopted by the Group led to the recognition of impairment losses totalling EUR 1.9 million in 2015.

The exposure to sovereign debt risk is represented in part E of the Notes to the consolidated financial statements (Section Other risks).

57 Equity investments The portfolio is represented by equity investments in companies subject to joint control and to significant influence. The equity investments held at 31 December 2015, measured using the equity method, are recognised in the relevant item for a total amount of EUR 9 million (after the reclassification of the equity investment held in Istifid under Non-current assets held for sale and disposal groups) compared to EUR 200.8 million at the end of December 2014. The reduction is mainly due to the sale of shares representing 18.4% of the share capital of I.C.B.P.I. and of the reclassification of the residual portion of 2% under Available-for-sale financial assets.

The other changes refer to the equity measurement. The main equity investments held in associates are shown below.

31/12/2015 31/12/2014 Carrying amount % equity investment (in thousands of EUR) Istituto Centrale delle Banche Popolari Italiane S.p.A. - 189,724 Global Assistance S.p.A. 40.0% 4,123 3,793 Creset - Crediti, Servizi e Tecnologie S.p.A. 40.0% 2,460 2,484 Istifid S.p.A. - 1,995

Other 2,881 2,801

Total 9,464 200,797

At 31 December 2015, the equity investment in Istifid S.p.A. was classified in the item “150. Non-current assets held for sale and disposal groups”, whereas the equity investment in Istituto Centrale delle Banche Popolari was reclassified to the AFS portfolio.

Property, equipment and investment property and intangible assets Property, equipment and investment property amounted to EUR 454 million unchanged compared to 31 December 2014. The details are as follows.

(in thousands of EUR) 31/12/2015 31/12/2014 Operational property and equipment Land 60,345 60,839 Buildings 296,046 309,461 Furniture 19,170 21,418 Electronic systems 4,474 4,024 Other 9,664 9,794 Total operational property and equipment 389,699 405,536 Investment property Land 9,026 6,287 Buildings 55,517 41,745 Total investment property 64,543 48,032 Overall total 454,242 453,568

58 Intangible assets recorded in the financial statements at 31 December 2015 amounted to EUR 119 million compared to EUR 210 million at 31 December 2014. The change is mainly due to goodwill, which decreased from EUR 172 million to EUR 102 million due to the posting of an impairment loss in the income statement.

The impairment test carried out on the goodwill recorded in the consolidated financial statements showed the need for a full goodwill impairment loss of EUR 70 million with regard to the Credito Valtellinese market CGU.

Equity The Group’s equity amounted to EUR 2,183 million, compared to EUR 2,020 million at 31 December 2014.

Figures in millions of EUR

The main changes refer to the increase in valuation reserves of AFS securities of EUR 57 million and to the recognition of the profit for the year of EUR 118 million.

59 The statement of reconciliation between the parent’s equity and profit and the corresponding amounts resulting from the consolidated financial statements at the same date, is illustrated below.

(in thousands of EUR) 31/12/2015 31/12/2014

of which: profit (loss) for of which: profit (loss) for Equity Equity the year the year

Parent financial statements 2,251,214 225,092 1,971,585 (342,529)

Investee results as per separate financial statements:

- consolidated on a line-by-line basis (10,769) (10,769) (101,767) (101,767)

- equity accounted 960 960 20,458 20,458

Amortisation of positive differences:

- past years (33,538) - (33,599) -

Differences compared to carrying amounts for:

- companies consolidated on a line-by-line basis (70,126) - (58,983) -

- equity investment impairment reversal 55,016 55,016 112,714 112,714

- equity accounted companies 1,814 (137,244) 128,079 -

Adjustment to dividends collected during the year:

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

Other consolidation adjustments

- elimination of (11,140) (27) (14,767) (3,086) intragroup profit and loss

- other adjustments (83) 3,468 (3,614) (115)

Balances as per Consolidated financial statements 2,183,348 118,277 2,020,106 (325,086)

Own funds and solvency ratios at 31 December 2015 were calculated according to the Bank of Italy provisions in accordance with the Basel III Accord. Among the options regarding methods used under the new regulations, the “standard method” was adopted for credit risk and market risk, while the “Traditional Standardised Approach” for operational risk. In pursuance of the transitional regime in force since 2014, Common Equity Tier 1 (CET1), which includes the share of the profit allocated to reserves, amounted to EUR 2,034 million against risk-weighted assets (RWAs) of EUR 15.5 billion. Total Own Funds amounted to EUR 2,345 million.

The capital ratios amounted to: - 13.1% for the phased in Common Equity Tier 1 ratio (11% at 31 December 2014); - 13.1% for the phased in Tier 1 ratio (11% at 31 December 2014); - 15.1% for the phased in Total capital ratio (14% at 31 December 2014); These ratios were well above the minimum levels set by the Supervisory Authorities for the Creval group as part of the SREP process and positioned the bank among the highest levels in the context of the Italian banking system.

Article 136 of Directive EU/2013/36 (Capital Requirements Directive, CRD4) established also the obligation for the supervisory authorities to define the countercyclical capital buffer as from 1 January 2016. This coefficient is subject to review every three months. The European

60 regulations were implemented in Italy with Circular no. 285/2013 of the Bank of Italy, which contains specific rules, and applies both individually and on a consolidated level. The Bank of Italy, as the authority designated to adopt the macro-prudential measures in the banking sector, decided to fix the countercyclical coefficient (relating to exposures to Italian counterparties) for the first three months of 2016 to zero percent.

(in thousands of EUR) 31/12/2015 31/12/2014 Common Equity Tier 1 capital (CET1) 2,034,337 1,824,881 Tier 1 capital 2,03 4,5 31 1,824,881 Total Own Funds 2,344,554 2,325,187

Credit risk and counterparty risk 1,121,714 1,210,859 Credit valuation adjustment risk 2,248 2,353 Settlement risks - - Market risks 1,126 1,406 Operational risk 113,193 116,200 Other calculation elements - - Total capital requirements 1,238,281 1,330,818 Risk -weighted assets 15,478,506 16,635,237

Common Equity Tier 1 capital / Risk -weighted assets (CET1 capital ratio) 13.14% 10.97% Tier 1 capital/Risk -weighted assets ( Tier 1 capital ratio) 13.14% 10.97% Total own funds/Risk -weighted assets (Total capital ratio) 15.15% 13.98%

61 Analysis of income statement figures The results for the year are illustrated in the table below, reclassified according to the presentation criteria considered most appropriate to present a fair view of the Group’s operating performance. The aggregates and reclassifications regarding items of the financial statements as prescribed in Bank of Italy Circular no. 262/05 are detailed in the Notes to the Financial Statements.

RECLASSIFIED CONSOLIDATED INCOME STATEMENT (in thousands of EUR)

% ITEMS 2015 2014 change Net interest income 464,508 479,162 -3.06% Net fee and commission income 280,543 268,732 4.40% Dividends and similar income 2,017 1,345 49.96% Profit of equity-accounted investments (1) 10,972 20,409 -46.24% Net trading and hedging income (expense) and profit (loss) on sales/repurchases 74,770 118,650 -36.98% Other operating net income (5) 22,314 15,887 40.45% Operating income 855,124 904,185 -5.43% Personnel expenses (295,036) (342,544) -13.87% Other administrative expenses (2) (201,631) (168,845) 19.42% Depreciation.s.mortisation and net impairment losses on property, equipment and (54,143) (47,557) 13.85% investment property and intangible assets (3) Operating costs (550,810) (558,946) -1.46% Operating profit 304,314 345,239 -11.85% Net impairment losses on loans and receivables and other financial assets (442,342) (656,713) -32.64% Net accruals to provisions for risks and charges (17,655) (4,565) 286.75% Goodwill impairment losses (70,194) (131,344) -46.56% Net gains on sales of investments (4) 250,065 14,460 n.s. Pre -tax profit (loss) from continuing operations 24,188 (432,923) -105.59% Income taxes 78,000 111,731 -30.19% Post -tax profit (loss) from continuing operations 102,188 (321,192) -131.82% Profit (loss) from discontinued operations 20,070 (1,125) n.s. Profit for the year attributable to non-controlling interests (3,981) (2,769) 43.77% Profit (loss) for the year 118,277 (325,086) -136.38%

(1) Net gains on equity-accounted investments include net gains (losses) on equity-accounted investments included in item 240 “Net gains on investments”; (2) Other administrative expenses include recoveries of taxes and other recoveries recognised in item 220 “Other operating net income” (EUR 57,515 thousand in 2015 and EUR 60,920 thousand in 2014); (3) Depreciation.s.mortisation and net impairment losses on property, equipment and investment property and intangible assets include items 200 “Depreciation and net impairment losses on property, equipment and investment property”, 210 “Amortisation and net impairment losses on intangible assets” and the accumulated depreciation of costs incurred for leasehold improvements, under item 220 “Other operating net income” (EUR 2,718 thousand in 2015 and EUR 3,739 thousand in 2014); (4) Net gains on sales of investments include the residual amount of item 240 “Net gains on investments” not included among net gains on equity-accounted investments, non-recurring income deriving from the conferment of the business unit in Alba Leasing recognised in item 220 “Other operating net income” (EUR 14,305 thousand in 2014), together with item 270 “Net gains on sales of investments”; (5) Other operating net income corresponds to item 220 “Other operating net income” net of the above reclassifications.

In 2015, the net interest income stood at EUR 465 million, decreasing by 3%, compared to EUR 479 million in 2014. Net interest income from customers showed a good performance due to the positive effects of persistent repricing actions of funding. The commercial spread was

62 improving, reaching 2.56%, despite the increasing competitive pressure on rates of return of assets, in the presence of a substantial stability in commercial loans. Therefore, the change was mainly due to the “carry trade” component related to the reorganisation of the securities portfolio. Net fee and commission income amounted to EUR 280.5 million, up by 4.4% year on year, due to the particularly strong trend of the fee and commissions of the finance area (placement of managed funds and bancassurance), which recorded an 18.8% increase. Commissions for loan transactions (+0.3%) and payment systems (+0.4%) were also recovering, whereas those for current account management were decreasing by 3.8%.

Net trading and hedging income and profit on sales/repurchases stood at EUR 75 million, compared to EUR 119 million of the comparison period, characterised by non-recurring results.

Profit of equity-accounted investments contributed by EUR 11 million, down compared to EUR 20 million in 2014 due to the sale of the equity investment (18.4%) in I.C.B.P.I. executed at the end of December.

Operating income totalled EUR 855 million, down by 5.4% compared to EUR 904 million last year, which included non-recurring income from financial activities.

Operating costs totalled EUR 551 million compared to EUR 559 of the corresponding period and include EUR 19 million as non-recurring expenses for the process of resolution of the four Italian banks (Popolare Etruria, Banca Marche, Carichieti and Cariferrara) started in November 2015. Net of non-recurring components, 9 costs remained substantially unchanged. Personnel expenses amounted to EUR 295 million, whereas other administrative expenses stood at EUR 202 million. Depreciation/amortisation and net impairment losses on property, equipment and investment property and intangible assets of EUR 54 million include impairments related to customer lists, at the outcome of the impairment test, of EUR 18 million.

Operating profit amounts to EUR 304 million, compared to EUR 345 million in 2014. Net impairment losses on loans and receivables and other financial assets totalled EUR 442 million, with a cost of credit risk of 231 basis points, with the clear objective of significantly strengthening the coverage levels of total non-performing loans, which amounted to 40%, also in view of possible further transfers of bad loans portfolio. Net accruals to provisions for risks and charges of EUR 18 million included EUR 12 million as a provision to cover the additional contribution that may be required from the Resolution Fund pursuant to Article 2 of Italian Decree 183 of 22 November 2015 (Urgent provisions for the credit sector). More conservative assumptions on the development of the macroeconomic context and of the sector, also considering the persistent risks on consolidation prospects of the ongoing recovery, implied the recognition of goodwill impairment losses of EUR 70 million, at the outcome of the impairment test carried out at the end of the period on goodwill recorded in the consolidated financial statements (of EUR 172 million in 2014). The sale of the investment in I.C.B.P.I. allowed the recognition of gains on sales of investments of EUR 250 million, which included the effect of revaluation of the investment held (2%).

The pre-tax loss from continuing operations thus amounted to EUR 24 million.

9 In 2014 they include one-off costs of EUR 44 million for the provisions to the Solidarity Fund and retirement incentives and impairment losses recognised at the end of the impairment test carried out on the customer lists of EUR 10 million. In 2015, they include the costs related to the ordinary and extraordinary contribution to the SRF/DGS Funds of EUR 28 million and EUR 18 million for impairment losses recognised at the end of the impairment test carried out on the customer lists. 63 Income taxes for the year were positive by EUR 78 million. They included, among other things, a) an extraordinary tax benefit related to ACE (“Aiuto alla Crescita Economica”, Aid to economic growth, as per Article 1 of Italian Legislative Decree 201/2011) of EUR 5 million that was added to the ordinary ACE contribution accrued at 31 December 2015 of EUR 10 million b) deferred tax assets and liabilities related to the impairment of the goodwill of EUR 12 million.

Considering the gains of EUR 20 million, net of taxes, related to the sale of 100% of Finanziaria San Giacomo finalised in the second quarter of 2015 and of profit attributable to non-controlling interests of EUR 4 million, the consolidated profit for the period was EUR 118 million.

ROA (return on assets), calculated as the ratio between profit and balance-sheet total, stood at 0.44% in 2015.

ANALYSIS OF THE MAIN STATEMENT OF FINANCIAL POSITION AND INCOME STATEMENT AGGREGATES OF THE PARENT

Statement of financial position aggregates

The analysis of the financial position of the year, represented in the table below, uses summary and reclassified statements. The aggregates and reclassifications regarding items of the Statement of Financial Position prescribed by Bank of Italy Circular no. 262/05 are detailed in the Notes to the Financial Statements.

RECLASSIFIED STATEMENT OF FINANCIAL POSITION (in thousands of EUR)

% ASSETS 31/12/2015 31/12/2014 change Cash and cash equivalents 114.710 133,552 -14.11% Financial assets held for trading 49,042 57,167 -14.21% Available-for-sale financial assets 5,318,341 6,789,572 -21.67% Loans and receivables with banks 992,878 1,224,995 -18.95% Loans and receivables with customers 15,080,244 14,986,134 0.63% Equity investments 457,128 507,457 -9.92% Property, equipment and investment property and intangible assets (1) 344,166 430,956 -20.14% Non-current assets held for sale and disposal groups 1,894 15,000 -87.37% Other assets (2) 791,792 817,000 -3.09% Total assets 23,150,195 24,961,833 -7.26% (1) Include the items “110. Property, equipment and investment property” and “120. Intangible assets”; (2) Include items “130. Tax assets” and “150. Other assets”.

% LIABILITIES AND EQUITY 31/12/2015 31/12/2014 change Due to banks 2,792,237 5,870,828 -52.44% Direct funding from customers (1) 17,291,234 16,163,823 6.97% Financial liabilities held for trading 3,196 6,260 -48.95% Hedging derivatives 269,496 308,718 -12.70% Other liabilities 407,437 467,692 -12.88% Provisions for specific purpose (2) 135,381 172,927 -21.71% Equity (3) 2,251,214 1,971,585 14.18% Total liabilities and equity 23,150,195 24,961,833 -7.26%

(1) Includes items “20. Due to customers” and “30. Securities issued”. (2) Include items “80. Tax liabilities”, “110. Post-employment benefits” and “120. Provisions for risks and charges”. (3) Includes items “130. Valuation reserves”, “160. Reserves”, “170. Share premium reserve”, “180. Share capital”, “190. Treasury shares” and “200. Profit (Loss) for the year”.

65 Loans and receivables with customers

At the end of the financial year, loans and receivables with customers reached EUR 15,080 million, up by 0.6% compared to the figure at the end of December 2014.

In particular, loans amounted to EUR 6,272 million, up by 5.4% year-on-year, whereas current accounts recorded a decrease by 13.7%, and stood at EUR 2,886 million.

(in thousands of EUR) 31/12/2015 31/12/2014 Change Current accounts 2,886,456 3,344,173 -13.69% Reverse repurchase agreements 786,220 818,262 -3.92% Mortgages 6,271,638 5,952,782 5.36% Credit cards, personal loans and salary-backed loans 143,828 128,767 11.70% Finance leases 484,992 545,993 -11.17% Other loans 1,875,013 1,764,280 6.28% Debt instruments 28,410 9,383 n.s. Total net performing loans and receivables 12,476,557 12,563,640 -0.69%

Bad loans 935,416 779,407 20.02% Unlikely to pay 1,436,523 1,223,259 17.43% Past due non-performing loans 231,748 419,828 -44.80% Total net non -performing loans and receivables 2,603,687 2,422,494 7.48%

Total net loans and receivables 15,080,244 14,986,134 0.63%

Credit quality Non-performing loans, net of impairment losses, amounted to EUR 2,604 million, up by EUR 2,422 million at December 2014. In detail, net bad loans amounted to EUR 935 million versus EUR 779 million, up by 20%, and they account for 6.2% of the loans portfolio. The other doubtful loans amounted to EUR 1,668 million, versus EUR 1,643 million the previous year and represent 11.1% of the loans portfolio. Of these, EUR 1,437 million refer to unlikely to pay whereas EUR 232 million are past due non- performing loans, compared to EUR 420 million the previous year. Past due non-performing loans are determined on the basis of the regulations in force at the end of the reporting period. Impairment losses on bad loans amounted to EUR 1,177 million compared to EUR 997 million of the previous year, while the other doubtful loans amounted to EUR 544 million versus EUR 411 million at December 2014.

The level of coverage ratio of bad loans thus amounted to 55.7% compared to 56.1% of the previous year, to 26.6% for loans classified as unlikely to pay compared to 23% of the previous financial year. As a whole, non-performing loans reached a percentage of coverage of 39.8% (36.8% at the end of 2014).

66 The table below summarises the information on non-performing exposures. (in tho usands of EUR) 31/12/2015 31/12/2014

Gross amount Impairment losses Carrying amount % coverage Gross amount Impairment losses Carrying amount % coverage

Non -performing loans

Bad loans 2,112,316 -1,176,900 935,416 55.72% 1,776,500 -997,093 779,407 56.13%

Unlikely 1,957,161 -520,638 1,436,523 26.60% 1,588,956 -365,697 1,223,259 23.01% to pay (*)

Past due 255,393 -23,645 231,748 9.26% 465,509 -45,681 419,828 9.81% non-performing loans Total 4,324,870 -1,721,183 2,603,687 39.80% 3,830,965 -1,408,471 2,422,494 36.77% non-performing loans

Performing loans 12,559,646 -83,089 12,476,557 0.66% 12,659,801 -96,161 12,563,640 0.76% Total 16,884,516 -1,804,272 15,080,244 16,490,766 -1,504,632 14,986,134 loans and receivables with customers (*) The figures at 31 December 2014 are calculated as the sum of substandard and restructured loans.

Funding from customers Direct funding from customers amounted to EUR 17,291 million, versus EUR 16,164 million at the end of December of the previous year, with an increase of 7%.

The analysis of each technical type showed an increase in current accounts and deposit accounts (+3.1%) and an increase of other components. This item is mainly represented by the placement on the market with institutional investors of some tranches of senior securities arising from securitisation transactions made in 2011 and 2014, and by loans received by Cassa Depositi e Prestiti following the agreement between ABI and the Cassa Depositi e Prestiti in support of SMEs. Repurchase agreements increased mainly due to the transactions with Cassa Compensazione e Garanzia that increased from EUR 141 million at the end of 2014 to EUR 2,132 million at the end of the financial year.

The breakdown of direct funding is represented in the table below.

(in thousands of EUR) 31/12/2015 31/12/2014 Change

Current accounts and deposit accounts 10,193,929 9,883,476 3.14% Reverse repurchase agreements 2,144,345 183,491 n.s. Term deposits 1,213,341 1,548,333 -21.64% Other 739,597 662,809 11.59% Due to customers 14,291,212 12,278,109 16.40% Securities issued 3,000,023 3,885,714 -22.79% Total direct funding from customers 17,291,235 16,163,823 6.97%

Indirect funding totalled EUR 10,127 million, substantially unchanged compared to EUR 10,178 million at the end of 2014. The component referred to “Managed funds”, i.e. EUR 5,641 million compared to EUR 4,881 million, increased by 15.6%, while the administered component decreased by 15.3%. The breakdown of indirect funding is represented in the table below.

67 (in thousands of EUR) 31/12/2015 31/12/2014 Change

Asset management 2,102,586 1,980,480 6.17% Mutual funds 1,893,821 1,557,118 21.62% Insurance funds 1,644,855 1,343,768 22.41% Total Managed funds 5,641,262 4,881,366 15.57% Assets under administration 4,485,693 5,296,777 -15.31% Total indirect funding 10,126,955 10,178,143 -0.50%

Financial assets and liabilities Concerning financial assets / liabilities held for trading, available-for-sale and for exposures to bonds issued by central and local governments and by government agencies, please refer to the analysis of the consolidated statement of financial position aggregates. The Bank’s exposure to bonds issued by Central and local governments and government agencies as well as loans granted to them substantially refers to exposures to the Italian Government.

Equity investments

The item consists of the equity investments of Credito Valtellinese S.c. in subsidiaries, in companies subject to joint control and in companies subject to significant influence.

The total value of the equity investments held at 31 December 2015 was EUR 457 million compared to the previous year’s EUR 507 million.

The main changes are due to the sale of shares representing 18.4% of the share capital of I.C.B.P.I. and of the reclassification of the residual portion of 2% to Available-for-sale financial assets and to the results of the impairment test carried out on the carrying amount of the equity investments that revealed the need to impair the equity investments held in Carifano and in Credito Siciliano for an amount totalling EUR 5 million and EUR 50 million, respectively. The reasons that determined the need to impair the equity investments in Carifano and Credito Siciliano are attributable to the combined effects of the prolonged economic downturn and of the uncertainty on the recovery prospects that particularly impacted on the activity of the mentioned companies.

On 1 April 2015, the sale of 100% of Finanziaria San Giacomo, company wholly owned by Creval and specialised in the management of bad loans of the Group, to Cerved Credit Management Group S.r.l., was completed for a consideration of EUR 21.9 million, subject to the acquisition by the parent of bad loans and equity investments held by the company. At 31 December 2014, the Equity investment was classified as Non-current assets held for sale and disposal groups .

Property, equipment and investment property and intangible assets Property, equipment and investment property amounted to EUR 344 million compared to EUR 341 million in the previous financial year. The details are as follows.

68 (in thousands of EUR) 31/12/2015 31/12/2014 Operational property and equipment Land 42,140 42,378 Buildings 201,335 209,403 Furniture 15,669 17,527 Electronic systems 1 1 Other 6,259 6,534 Total operational property and equipment 265,404 275,843 Investment property Land 13,798 11,261 Buildings 64,964 53,427 Total investment property 78,762 64,688 Overall total 344,166 340,531

With regard to bank-owned properties, an annexe to the financial statements provides the statement of revaluations pursuant to Article 10 of Italian Law no. 72/1983. At 31 December 2015, there were no intangible assets. The impairment test carried out on the goodwill recorded in the separate financial statements showed the need to fully impair the goodwill of approximately EUR 70 million. The reasons that led to this impairment loss are attributable to the combined effects of the prolonged economic downturn and of the uncertainty on the recovery prospects that particularly impacted on the operating area of the company. Moreover, the results of the analysis carried out for determining the recoverable amount referring to the customer lists show a markedly smaller contribution to the cash flow generation of these items - for a significant time horizon - compared to the one taken as reference for the enhancement of the original flows. Consequently, the residual amount of assets with a definite useful life referring to Credito Valtellinese was fully written down, amounting to approximately EUR 18 million.

Equity At 31 December 2015, share capital - consisting solely of ordinary shares - amounted to EUR 1,846,816,830, divided into 1,108,872,369 ordinary shares without par value.

At the end of the financial year, equity amounted to EUR 2,251 million. Changes in equity are detailed in the specific statement.

Own funds at 31 December 2015 amounted to EUR 2,446 million. Risk-weighted assets at 31 December 2015 amounted to EUR 12,575 million. At 31 December 2015, CET1 capital ratio stood at 17.19%, while the total capital ratio was 19.45%.

(in thousands of EUR) 31/12/2015 31/12/2014 Common Equity Tier 1 capital (CET1) 2,162,026 1,862,056 Tier 1 Capital 2,162,026 1,862,056 Total Own Funds 2,445,607 2,312,939 Credit risk and counterparty risk 918,793 976,699 Credit valuation adjustment risk 2,247 2,353 Settlement risks - - Market risks 965 1,161 Operational risk 83,972 88,665 Other calculation elements - - Total capital requirements 1,005,977 1,068,878 Risk -weighted assets 12,574,713 13,360,969

Common Equity Tier 1 capital / Risk -weighted assets (CET1 capital ratio) 17.19% 13.94% Tier 1 capital/Risk -weighted assets ( Tier 1 capital ratio) 17.19% 13.94% Total own funds/Risk -weighted assets (Total capital ratio) 19.45% 17.31%

70 Analysis of income statement figures

The results for the year are illustrated in the table below, reclassified according to the presentation criteria considered most appropriate to present a fair view of the Bank’s operating performance. The aggregates and reclassifications regarding items of the financial statements as prescribed in Bank of Italy Circular no. 262/05 are detailed in the Notes to the Financial Statements. The analysis that follows, therefore, refers to these restated figures.

RECLASSIFIED INCOME STATEMENT (in thousands of EUR)

2015 2014 Change Net interest income 341,667 357,588 -4.45% Net fee and commission income 185,532 176,428 5.16% Dividends and similar income 10,793 12,067 -10.56% Net trading and hedging income (expense) and profit (loss) on sales/repurchases 74,348 118,185 -37.09% Other operating net income (4) 18,752 15,010 -24.93% Operating income 631,092 679,278 -7.09% Personnel expenses (188,795) (220,696) -14.45% Other administrative expenses (1) (174,553) (149,893) 16.45% Depreciation/amortisation and net impairment losses on property, (37,534) (20,498) 83.11% equipment and investment property and intangible assets (2) Operating costs (400,882) (391,087) 2.50% Operating profit 230,210 288,191 -20.12% Net impairment losses on loans and receivables and other financial assets (365,362) (548,040) -33.33% Net accruals to provisions for risks and charges (13,916) (3,455) 302.78% Goodwill impairment losses (70,194) (75,000) -6.41% Net gains on sales of investments (3) 342,248 (98,145) -448.72% Pre -tax profit from continuing operations 122,986 (436,449) -128.18% Income taxes 72,093 93,920 -23.24% Post -tax profit from continuing operations 195,079 (342,529) -156.95% Profit from discontinued operations 30,013 - - Profit (loss) for the year 225,092 (342,529) -165.71%

(1 Other administrative expenses include recoveries of taxes and other recoveries recognised in item 190 “Other operating net income” (EUR 42,328 thousand in 2015 and EUR 42,768 thousand in 2014). (2) Depreciation/amortisation and net impairment losses on property, equipment and investment property and intangible assets include items 170 “Depreciation and net impairment losses on property, equipment and investment property”, 180 “Amortisation and net impairment losses on intangible assets” and the accumulated depreciation of costs incurred for leasehold improvements, under item 190 “Other operating net income” (EUR 2,023 thousand in 2015 and EUR 2,835 thousand in 2014). (3) In 2014, “Net gains on sales of investments” also include non-recurring income deriving from the conferment of the business unit in Alba Leasing recognised in item 190 “Other operating net income” of EUR 14,305 thousand. (4) Other income and costs correspond to item 190 “Other operating net income” net of the above reclassifications.

The Parent’s performance was substantially not unlike consolidated performance.

Net interest income stood at EUR 342 million, decreasing by 4.5%, compared to EUR 358 million at the end of 2014.

Net fee and commission income amounted to EUR 186 million, up by 5.2% year on year, mainly due to the particularly strong trend of the fee and commissions of the finance area (placement, managed funds and bancassurance).

71 Net trading and hedging income and profit on sales/repurchases stood at EUR 74 million, compared to EUR 118 million of the corresponding prior period, characterised by non-recurring results.

Operating income thus totalled EUR 631 million, down by 7% compared to EUR 679 million of the previous year.

Operating costs totalled EUR 401 million compared to 391 of the same corresponding period. Net of non-recurring components, 10 costs remained substantially unchanged (-0.3%). Personnel expenses amounted to EUR 189 million (-1% on a like-for-like basis), whereas other administrative expenses stood at EUR 175 million (+1% on a like-for-like basis).

Depreciation/amortisation and net impairment losses on property, equipment and investment property and intangible assets of EUR 38 million compared to EUR 20 million last year, include adjustments related to customer lists, at the outcome of the impairment test, of EUR 18 million.

The operating profit reached EUR 230 million, compared to EUR 288 million in 2014. Net impairment losses on loans and receivables and other financial assets totalled EUR 365 million, with a cost of credit risk of 240 basis points, with the clear objective of significantly strengthening the coverage levels of total non-performing loans. Net accruals to provisions for risks and charges of EUR 14 million included EUR 10 million as a provision to cover two additional contributions to the Resolution Fund that may be required pursuant to Article 2 of Italian Decree 183 of 22 November 2015 (Urgent provisions for the credit sector). More conservative assumptions on the development of the macroeconomic context and of the sector, also considering the persistent risks on consolidation prospects of the ongoing recovery, implied the recognition of goodwill impairment losses of EUR 70 million.

The sale of the investment in I.C.B.P.I. allowed the recognition of gains on sales of investments of EUR 342 million, which included the effect of revaluation of the investment held (2%). The pre-tax loss from continuing operations thus amounted to EUR 123 million.

Income taxes for the year were positive by EUR 72 million. They include, among other things: - an extraordinary tax benefit related to ACE (“Aiuto alla Crescita Economica”, Aid to economic growth, as per Article 1 of Italian Legislative Decree 201/2011) of EUR 5 million that was added to the ordinary ACE contribution accrued at 31 December 2015 of EUR 10 million;

- deferred tax assets and liabilities related to the impairment of goodwill of EUR 12 million; Considering the gains of EUR 30 million, net of taxes, related to the sale of 100% of Finanziaria San Giacomo finalised in the second quarter of 2015, the profit for the year is EUR 225 million. ROA (return on assets), calculated as the ratio between profit and balance-sheet total, stood at 0.97% in 2015.

10 In 2014 they include one-off costs of EUR 30 million for the provisions to the Solidarity Fund and retirement incentives. In 2015, they include the costs related to the ordinary and extraordinary contribution to the SRF/DGS Funds of EUR 23 million and EUR 18 million for impairment losses recognised at the end of the impairment test carried out on the customer lists. 72 The territorial network

At 31 December 2015, the branch network of the Credito Valtellinese Group consists of 350 branches, minus thirteen compared to the end of the previous financial year. The Parent is present in Lombardia, Piemonte, Valle d’Aosta, Trentino Alto Adige, Veneto, Emilia Romagna, Toscana and Lazio.

In January 2016, a reconfiguration of the territorial network was carried out as follows:

- the branches of the province of Milano were centralised in a single Milano Regional Area, whereas those of the neighbouring provinces (Cremona, Lodi, Piacenza, Pavia, Rimini, Parma, Forlì-Cesena) were brought together in a new dedicated Regional Area (DT Padana); - the branches of the province of Sondrio, Lecco and Como were grouped in the Retica Regional Area; - the branches of the province of Brescia were brought together in the North-eastern Regional Area; - the branches of the provinces of Monza and Brianza, Bergamo and Varese form the new Pedemontana Regional Area.

75 Bank workforce

Changes in the number of employees At the end of December, the Bank’s workforce amounted to 2,707 collaborators. This number includes 183 employees seconded to the other Group companies and external companies, while 46 employees were seconded to Credito Valtellinese by other group companies. Hence, there were 2,570 employees working at the bank’s offices.

During the year under examination, 83 persons were recruited, whilst 153 employees terminated the employer-employee relationship 11 .

In terms of contract position by professional category, the Bank’s workforce of 2,570 employees can be broken down as follows:

- 36 executives;

- 1,017 middle managers;

- 1,517 resources in other professional categories.

Workforce by contract category at 31 December 2015

EXECUTIVES 1.4%

MIDDLE MANAGERS 39.6%

EXECUTIVES PROFESSIONAL CATEGORIES 59% MIDDLE MANAGERS

PROFESSIONAL CATEGORIES

With regard to the forms of contract of the operating personnel, 2,552 staff - amounting to 99.3% - was employed on permanent contracts, while 18 staff was employed on temporary contracts.

Part-time contracts, regarding 272 employees, involve 10.6% of the total workforce all employed on permanent contracts.

The breakdown by gender shows a percentage of female workers equal to 40.5% of the total.

11 Net of re-hires during the year and intragroup transfers 76 Full and part-time workforce at 31 December 2015

PART TIME 10.6%

FULL TIME PART TIME 89.4% FULL TIME

The average age of the total workforce is 43.6 years old, while the length of service is on average 15.7 years.

Approximately 48.2% of the personnel has a degree, while approximately 49.6% has a high school leaving diploma or certificates of qualification.

Workforce by educational background at 31 December 2015

ITALIAN MIDDLE SCHOOL CERTIFICATE 2.2%

DEGREE 48.2% HIGH SCHOOL CERTIFICATE DEGREE 49.6% HIGH SCHOOL CERTIFICATE

ITALIAN MIDDLE SCHOOL CERTIFICATE

During 2015, the professional growth rate - corresponding to the number of salary advancements related to professional advancements out of the average number of employees - is 10.2%.

77 Training

The training offer is aimed at both the development of managerial, business and relation management skills, and the acquisition and knowledge widening in the credit and finance areas.

In 2015, the Collaborators of Credito Valtellinese benefited from 72,157.30 hours in traditional classroom and 28,247.12 hours in self-teaching courses.

92% of staff participated in training programs in 2015.

78 SUMMARY NOTES ON THE PERFORMANCE OF THE OTHER TERRITORIAL BANKS The operating performance of the other territorial banks of the Credito Valtellinese Group - Credito Siciliano and Carifano - substantially reflects that of the group as a whole, with results that reflect the first signs of recovery of the real economy. Loans confirmed a positive trend, with a significant improvement of new lending and the process of reorganisation of net deposits towards managed funds continued at a fast pace. Operating margins from customers were supported by the resilience of the net interest income and by the increase in commission revenues. Costs declined further, determining a considerable improvement of the operating profit. Albeit the cost of credit risk is still considerable, it is however improving.

Some financial highlights of the operating performance and results of the other territorial banks belonging to the Group are provided below.

Credito Siciliano

STATEMENT OF FINANCIAL POSITION DATA 31/12/2015 31/12/2014 Change (in thousands of EUR) Loans and receivables with customers 2,794,314 2,809,801 -0.55% Financial assets and liabilities 7,038 6,142 14.59% Equity investments 136 139 -2.16% Total assets 3,730,830 3,968,745 -5.99% Direct funding from customers 3,211,373 3,366,537 -4.61% Indirect funding from customers 1,175,209 1,100,982 6.74% - of which Managed funds 780,214 652,631 19.55% Total funding 4,386,583 4,467,519 -1.81% Equity 209,500 168,203 24.55%

INCOME STATEMENT DATA 2015 2014 Change (in thousands of EUR)

Net interest income 90,082 88,318 2.00% Net fee and commission income 60,280 60,276 0.01% Operating income 152,489 150,453 1.35% Operating costs (104,295) (111,556) -6.51% Operating profit 48,194 38,898 23.90% Net impairment losses on loans and receivables and other financial assets (60,503) (74,546) -18.84% Pre-tax loss from continuing operations (15,347) (33,835) -54.64% Loss for the year (9,994) (23,943) -58.26%

ORGANISATIONAL DATA 31/12/2015 31/12/2014 Change Number of employees 761 770 -1.17% Number of branches 136 136 -

79 Carifano

STATEMENT OF FINANCIAL POSITION DATA 31/12/2015 31/12/2014 Change (in thousands of EUR) Loans and receivables with customers 1,486,413 1,490,596 -0.28% Financial assets and liabilities 1,674 2,497 -32.96% Equity investments 245 260 -5.77% Total assets 1,972,716 2,081,298 -5.22% Direct funding from customers 1,600,066 1,650,132 -3.03% Indirect funding from customers 919,104 818,468 12.30% - of which Managed funds 371,117 314,257 18.09% Total funding 2,519,170 2,468,600 2.05% Equity 107,974 114,628 -5.80%

INCOME STATEMENT DATA 2015 2014 Change (in thousands of EUR)

Net interest income 31,987 31,153 2.68% Net fee and commission income 17,540 17,107 2.53% Operating income 50,248 49,147 2.24% Operating costs (39,401) (50,172) -21.47% Operating profit 10,847 (1,025) n.s. Net impairment losses on loans and receivables and other financial assets (19,623) (35,215) -44.28% Goodwill impairment losses - (56,344) -100.00% Pre-tax loss from continuing operations (9,663) (92,794) -89.59% Loss for the year (6,750) (81,770) -91.75%

ORGANISATIONAL DATA 31/12/2015 31/12/2014 Change Number of employees 288 293 -1.71% Number of branches 40 40 -

80 OTHER MAIN EQUITY INVESTMENTS

The equity investment acquisition and management policy is aimed first of all at expanding the operating size of the “Creval Network”, sharing platforms for the provision of banking and financial services with “third parties”. This enables the Group to expand the range of products offered to customers, progressively reducing costs thanks to the achievement of significant synergies and economies of scale, as well as to obtain positive effects on profitability thanks to generated profits and collected dividends.

During 2015, the main equity investment was represented by Istituto Centrale delle Banca Popolari Italiane (I.C.B.P.I.), in which the Parent held a 20.4% equity investment. It is specified in this regard that on 18 December 2015 Mercury Italy S.r.l. (vehicle indirectly owned by the Bain Capital, Advent International and Clessidra Sgr funds) acquired the control of Istituto Centrale delle Banche Popolari Italiane S.p.A., with 88.9% of the share capital. The transaction was concluded at the end of the agreement signed in June 2015 by Mercury Italy with the main shareholders of I.C.B.P.I (Credito Valtellinese S.c., Banco Popolare S.c., Banca Popolare di Vicenza S.c.p.a., Veneto Banca S.c.p.a., Banca popolare dell’Emilia Romagna S.c., Iccrea Holding S.p.A., Banca Popolare di Cividale S.c.p.a., UBI Banca S.c.p.a., Banca Popolare di Milano S.C.a.r.l., Banca Sella Holding S.p.A. and Banca Carige S.p.A., all in all holding on the date of the agreement 93.7% of the share capital of I.C.B.P.I) for the sale of 85.3% of the share capital of I.C.B.P.I.. The remaining 3.6% was purchased by Mercury Italy on the basis of agreements for the purchase of shares subscribed with other no. 23 minor shareholders of I.C.B.P.I from October to November 2015.

Currently the Creval Group therefore holds a residual equity investment in the share capital of I.C.B.P.I of approximately 2%. This equity investment is currently classified as Available-for- sale financial assets (AFS).

Summary notes on the performance of I.C.B.P.I. The aforementioned agreement was signed to complete a complex selection process started in early 2015, carried out by the selling shareholders, which involved a number of primary standing subjects operating in the private equity sector. The process led to a strong involvement of the company structures of I.C.B.P.I and of all the companies of the Group, called on, in a short timing, to support the due diligence activities (by preparing the data room and attending meetings with potential purchasers) and the preparation of legal documents.

After signing the agreement, the structures of the I.C.B.P.I Group also collaborated with the purchaser to the structuring of the high yield loan of the purchase.

The sale was finalised following the authorisations of the competent authorities (European Commission, European Central Bank, Bank of Italy and De Nederlandsche Bank).

In performance of the agreement, in addition to the sale of the aforementioned share package, the following operations were carried out at the closing:

• the amendment of the Articles of Association of I.C.B.P.I in order to make the structure of the Articles of Association functional to the change in the shareholding structure of the Bank; • the signing of a shareholders’ agreement between Mercury Italy S.r.l. and Credito Valtellinese S.c., Banco Popolare S.c., Banca popolare dell’Emilia Romagna S.c.,

81 Banca Popolare di Cividale S.c.p.a., UBI Banca S.c.p.a., Banca Popolare di Milano S.C.a.r.l., Iccrea Holding S.p.A. and Banca Sella Holding S.p.A. (which maintain all- in-all an equity investment of 8.4% in the share capital of I.C.B.P.I) containing the governance rules and the regulation of the circulation system of I.C.B.P.I. shares; • the exit from the shareholding structure of I.C.B.P.I of Banca Popolare di Vicenza S.c.p.a., Veneto Banca S.c.p.a., Banca Carige S.p.A and ICCREA Holding; • the renewal of the company officers (Board of Directors and Board of Statutory Auditors) of I.C.B.P.I and of the companies of the I.C.B.P.I. Group Moreover, following the acquisition of total control of Unicard S.p.A., carried out at the end of the 2014 financial year by means of the subsidiary CartaSi, the corporate and industrial integration process of the company was activated within the I.C.B.P.I. Group, in line with the related organisational model, which led to the merger of Unicard into CartaSi. The transaction was completed and effective as from 1 August 2015 (and with accounting effect as from 1 January 2015).

82 THE PERFORMANCE OF STOCK MARKET QUOTATIONS

During 2015, the Italian financial market recorded the most significant growth compared to those of the main countries in the Eurozone, albeit with ups and downs. Initially, the index of the Italian stock market showed a significant improvement; share prices recorded sharp rises and volatility decreased. The increase in listed prices was determined by the drop in interest rates and by the decrease of the premium for the risk requested by the investors, which more than offset the negative contribution due to the downsizing of expectations concerning company profits. Subsequently, the markets recorded a partial correction, with a marked increase in volatility and risk premiums. After recovering most of the losses recorded during the summer, share prices decreased at the end of 2015, affected by tensions on global financial markets. From the beginning of October, the general Borsa Italiana index decreased by 2 per cent (compared to an increase of 3 percent of that relating to the Eurozone). FTSEMIB, major Italian index, closed the year with an increase of more than 12%.

On the world economic scenario, the trend gap between Developed countries and Emerging countries increased. In Europe and America, the economic recovery gradually consolidated while China and Emerging countries experienced a deceleration in growth. In the global scenario, characterised by open economies and by the interconnection of trading, China’s slowdown triggered fears on the trends and impacts on European and US growth, but even more on that of countries exporting raw materials, which experienced lower revenues due to the combined effect of the decline in prices and volumes. Phases of propensity to risk by the investors quickly alternated with phases of risk aversion. Consequently, the financial flows of investments, between financial areas and asset classes, intensified, supporting the volatility and determining a fluctuating trend for the whole year. The Italian stock market benefited from a substantial recovery of the listed prices of the banking sector, especially of securities of cooperative banks supported by the reform launched by the Government at the beginning of 2015. The compulsory transformation of cooperative banks set up as cooperatives into joint-stock companies determines the possibility, after completing the procedure of change, of a greater opposability and, above all, increases the possibility of accessing financial markets to raise new funds designed to support growth, beyond the traditional territories through the shareholding structure.

In 2015, the performance of the Credito Valtellinese share was positive (+37.6%), more than that of the Italian market as a whole (+15.4%) and that of the panel of Italian (+25.7%) and foreign (-46.9%) comparable companies.

During the year, the average listed price for the Credito Valtellinese share was EUR 1.1670, with a minimum of EUR 0.72 recorded on 12 January and a maximum of EUR 1.34 on 11 March (at daily closing values). The average listed price in the twelve months increased by 47.2% compared to the closing price of 2014, while the FTSE Italia All Share index recorded an 18.1% increase for the same period. At year end, Credito Valtellinese, in line with the trend in prices, recorded a market capitalisation of EUR 1.2 billion compared to EUR 879 million at the end of 2014. The traded equivalent value of the Credito Valtellinese shares on the Italian Stock Exchange increased considerably in the first half year. The daily average volume in the first six months of the year stood at approximately 6.94 million shares. In the second half year - helped by an increased volatility of the markets and after sorting out the effects of the announcement of the reform of cooperative banks – the average traded volumes decreased by approximately 40%.

The presence of institutional investors in the share capital is constantly growing; the coverage of the security by financial analysts expanded similarly. Currently, nine brokers express recommendations - the majority of which positive - on the Creval share. 83 The charts below show the trend of Credito Valtellinese share prices in 2015.

Credito Valtellinese share performance

84 Credito Valtellinese share performance compared with FTSE-ALL SHARE and FTSE-IT Financial indices.

(Base 30 December 2014 = 100)

Source: Bloomberg, adjusted values

85 THE MONITORING OF BANK RISKS AND THE INTERNAL CONTROL SYSTEM OF THE GROUP

The Credito Valtellinese Banking Group attaches strategic importance to risk management, measurement and control, essential activities for the creation of sustainable value in time and the consolidation of its reputation on the markets of reference and with regard to stakeholders.

The clear identification of risks to which the Group is actually or potentially exposed constitutes the inalienable prerequisite for a knowledgeable assumption of said risks and their effective management, which uses appropriate mitigation and transfer tools and techniques. The identification and assessment of importance of the risks is carried out primarily within the internal capital adequacy assessment processes (ICAAP) and internal liquidity adequacy assessment process (ILAAP) which refer to the so-called “first and second pillar requirements”. The importance of the risks to be assessed is determined considering both the supervisory provisions and company characteristics such as products and services offered to customers, the size and characteristics of operations with related parties in relation to company operations, the amount of statement of financial position aggregates and corresponding capital requirements, the markets of reference and the economic situation.

The propensity to risk, which is a fundamental reference for the definition of the strategic plan and the logical premise for planning is determined for relevant risks when defining the Risk Appetite Framework by considering the existing prudential rules, the adopted business model, the deposit and loan methods typical of the Group and the ability of the control structures to monitor and measure the risks. Risk management, based on criteria of prudence, is implemented within a precise organisational context, which includes the set of internal rules, operating procedures and control structures and is broken down 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. For a full description of the organisational structure and operational procedures in order to oversee the different risk areas and the methods used for the measurement and prevention of such risks, please refer to Part E of the Notes to the financial statements - Information on risks and related hedging policies.

For a description of the overall approach of the Internal Audit System, reference should be made to the Report on Corporate Governance and Ownership Structures pursuant to Article 123-bis of the Consolidated Finance Act, document available at the Bank’s website: http://www.gruppocreval.com/governanceCreval – Corporate Governance section – Reports on Corporate Governance.

86 Information on main risks to which the Group is exposed

The risk profile at the end of the reporting period is consistent with the risk appetite defined by the Board of Directors, which, in line with the identity, values, business model and strategic input of the Group, resolved, also for the current financial year, to:

- allocate the main part of the capital to the credit risk, which represents the core business of a retail Banking Group;

- confirm a low propensity to other risks with business purpose;

- confirm the aim of limiting/minimising exposure for pure risks to which no return is associated. The actual risk exposure complies, on the date of preparation of this report, with the tolerance thresholds set taking into account the maximum technically assumable risk. Credit risk

The Group is mainly exposed to credit risk that still stands at historically high levels albeit below the maximum.

Concentration risk The exposure to concentration risk, by single counterparty or group of related customers, by business segments and by geographical areas, is modest and consistent with the objectives. Market risk

At the reporting date, the trading book has a limited risk profile in terms of both market risk factors and insolvency risk of the issuer. The trading book consists almost completely of bonds (mainly Italian Government bonds and securities issued by banks) in Euro. The Value at Risk (VaR) of the trading book temporarily increased in the first part of the year in relation to the increase of the book and of its average duration and then gradually decreased and stood at minimum levels due to the gradual downsizing of the trading book.

Interest rate risk Considering the persistence of volumes and the stickiness of the rates of on sight items (behavioural profile), the exposure of the Group to instantaneous shocks of the rate curve increased in the first part of the year mainly in relation to the increase in fixed-rate average maturity Government bonds and then decreased returning at the end of the year on very limited levels. Liquidity risk

During the year, the Group’s liquidity situation did not show critical issues for any of the examined profiles (intraday, short-term, medium-term, structural liquidity).

The expansive overtone of the monetary policy and the measures adopted by the ECB (Quantitative Easing, in particular) should maintain the conditions in line with the current ones.

87 Operational risk

Exposure remained essentially constant in the year with regard to both the number and type of events and the amount of estimated or actually recognised losses.

IT risk This exposure is considered limited and consistent with strategic guidelines and the assumption and management policies of IT risks and with the thresholds established by the Risk Appetite Framework. In particular, the assessments of exposure, expressed in terms of residual risk to take into account the mitigation measures, stood at a “minimum” or “irrelevant” level for all the considered profiles (Operational / Reputation / Strategic).

Reputational risk During the year, there is no element that may have changed or may change significantly in the short term the positive perception of the image of the Bank with the various categories of stakeholders (customers, counterparties, shareholders, investors, supervisory authorities, employees, companies and territory). Risks towards associated parties

Exposure remained essentially constant in the year and is in full compliance with the limits set by the prudential regulations and by internal policies. Sovereign risk

The investment in Italian Government bonds, placed mostly in the AFS portfolio, involves the exposure to the credit risk of the Italian Republic that, as with any other issuer, may occur in the form of a decrease in creditworthiness or, in extreme cases, of insolvency. The exposure to the Italian Republic changed during the year according to the size of the portfolio, temporarily increased in the second quarter and progressively reduced in the second half of the year.

Risks deriving from securitisations With reference to the risk deriving from securitisations, the Group did not carry out any transfer of the credit risk and, therefore, it does not run the risk that “the economic substance of the securitisation transaction may not be fully reflected in the decisions of risk assessment and management”. Risk of excessive leverage

The leverage ratio fell within the values considered normal at company level and is considerably higher than the minimum threshold proposed by the international standards.

Compliance risk The exposure to compliance risk, even in view of the ever increasing complexity of the regulatory framework and obligations resulting from it, is altogether limited and consistent with the guidelines set by the corporate bodies. Money-laundering risk

Given the objective importance of the money-laundering risk as well as the increasing complexity of the regulatory framework and of the obligations arising therefrom, the Group has progressively strengthened its regulatory, organisational, procedural, application and training control.

The risk management process is considered adequate with respect to the operational complexity and structure of the Group.

88 More extensive and detailed information, also in compliance with the provisions of Article 2428 of the Italian Civil Code, on the objectives and policies on financial risk management, as well as on the exposure of the Group to the risks, are contained in Part E of the Notes to the financial statements - Information on risks and related hedging policies. More in general, risks related to the economy and financial market trends are shown in the foreword of this Report, in the chapter on the macroeconomic scenario of reference, and in the following chapter on business outlook.

Information on disputes For detailed information on disputes, tax or otherwise, and on the main pending legal actions, please refer to Part E of the Notes to the financial statements - Information on risks and related hedging policies (Section 4 - Operational Risks).

Information on business outlook, with a particular reference to going concern assumptions With regard to the going concern assumption, the Board of Directors confirms its reasonable expectations that the Bank and the Group will remain a going concern in the foreseeable future and, consequently, confirms that the 2015 financial statements and the consolidated financial statements were prepared on a going concern basis.

The Board of Directors also confirms that the financial position and result of operations have brought to light no symptoms that could imply the uncertainty of going concern assumptions.

Regarding the requirements related to the impairment tests and uncertainties in the use of estimates, please refer to the information provided in the specific sections of the Notes to the financial statements (Part A - Accounting policies and Part B - Information on the statement of financial position - Assets).

89 RELATED PARTY AND INTRAGROUP TRANSACTIONS

The matter is mainly regulated:

- by Article 2391-bis of the Italian Civil Code, whereby the governing bodies of companies resorting to the equity market adopt, according to general principles indicated by Consob, rules that assure “the transparency and substantial and procedural correctness of related party transactions” carried out directly or through subsidiaries;

- by the “Related Party Transaction Regulation” issued by Consob with resolution no. 17221 of 12 March 2010, as amended, (hereinafter also the “Consob Regulation”), implementing the delegation contained in Article 2391-bis of the Italian Civil Code, as well as, in relation to the specific business;

- by the provisions of Article 136 of the Consolidated Banking Act - as amended by Italian Law 221/2012 - on obligations of banking representatives;

- by the supervisory provisions issued by the Bank of Italy on December 2011 on risk assets and conflicts of interest of banks and banking groups with respect to “Associated Parties” (9th update to Circular 263 of 27 December 2006 - hereinafter also referred to as the “Bank of Italy Regulation”), provisions that complement what is provided by the Consob regulation. In compliance with the combined provision of the above-mentioned regulations, the Board of Directors approved the new “Procedures concerning Related Party Transactions and Associated parties” (hereinafter also the “RPT Creval Procedures”), in the last updated version, effective as from 31 December 2015. The RPT Creval Procedures establish the procedures and rules for ensuring transparency and substantive and procedural correctness in related party transactions carried out directly by Credito Valtellinese or by means of its subsidiaries. They also comply with the applicable regulations of the Bank of Italy on risk assets and conflicts of interest towards associated parties. In accordance with current regulations, the document is published on the Website, http://www.gruppocreval.com/governanceCreval – Corporate Governance section. Still on the basis of the provisions of the Bank of Italy Regulation, the Board of Directors of the Parent approved the “Policies regarding controls on risk activities and on conflicts of interest towards associated parties” (hereinafter also the “Policy”), document that defines the internal policies regarding controls on risk activities and on conflicts of interest towards associated parties, and was made known to the Ordinary Shareholders’ Meeting held on 27 April 2013, subsequently amended with Board resolution of 9 December 2015 and made known to the Ordinary Shareholders’ Meeting of 23 April 2016. The Policy describes, in relation to the operational features and the strategies of the Bank and of the Group, the business segments and the types of business relations, also other than those implying the assumption of risk assets, in relation to which conflicts of interest may arise, as well as the safeguards inserted in the organisational structures and in the internal control system to ensure constant compliance with prudential limits and the above decision-making procedures. The document also summarises the principles and rules applicable to transactions with associated parties that were used for the preparation of the relevant Procedures.

With reference to intra-group transactions, relations with companies in the Credito Valtellinese Banking Group were established within an organisational model - as widely illustrated in this report – based on which each legal entity focuses only on its own core business, in an industrial framework that offers effective and efficient management of overall Group resources.

90 The purpose of this approach is to achieve any form of synergy among the companies of the Group, it assures to all members the access to specialised high-quality services and allows to achieve significant economies of scale to reduce operating costs relating to activities and common services. The common focus of activities and specialist services is regulated on the basis of appropriate intragroup contractual agreements, which concern in particular the provision of services by the parent to the subsidiary companies in the sector of finance, insurance, legal and corporate affairs, administrative, accounting and management, internal auditing, risk management and compliance, management and administration of the Personnel. The contracts between specialised and complementary companies and the other companies of the Group concern the management of the information system, the organisational and back office services, the payment systems in Italy and abroad, the management of real estate assets, the design and construction of real estate works, and the technical support to the disbursement of credit and leasing. The financial effects are regulated on the basis of specific contractual agreements that, with the main objective of optimising synergies and economies of scale and purpose at the Group level, refer to long-term objective and constant parameters, distinguished by material transparency and fairness. The quantification of the expected fees for services was defined and formalised according to tested parameters that take into account actual utilisation by each user company.

The Board of Directors is exclusively responsible for the definition of intragroup contractual agreements and approval and possible amendment of the related economic conditions.

For the transactions of greatest importance, as defined in the aforesaid Regulation, carried out during the financial year, the procedural regulations and the reporting obligations specified by the RPT Procedures were applied. For these transactions, listed below, see the information document outlined in other parts of this Report, as well as the Information documents drawn up pursuant to Article 5 of the RPT Regulations and published on the website of the company at http://www.gruppocreval.com/governanceCreval - Corporate Governance section - Corporate documents:

- 29/12/2015 - Information Document pursuant to Article 5 of Consob Regulation no. 17221 of 12 March 2010, as amended. Liquidation of the multi-originator securitisation of performing loans, pursuant to Italian Law no. 130 of 30 April 1999 carried out by the subsidiary Credito Siciliano S.p.A.; - 29/12/2015 - Information Document pursuant to Article 5 of Consob Regulation no. 17221 of 12 March 2010, as amended. Liquidation of the multi-originator securitisation of performing loans, pursuant to Italian Law no. 130 of 30 April 1999 carried out by the subsidiary Carifano S.p.A.. No atypical or unusual transactions, with Group companies or related parties - as defined by Article 2427, second paragraph, of the Italian Civil Code, or according to the IFRS endorsed by the European Union - that impacted significantly on the financial position or results of operations of the company has taken place during the financial year. Detailed information on intragroup and related party transactions, including information on the effects of transactions or existing positions with such counterparties on the statement of financial position and on the income statement, accompanied by summary tables of such effects, are contained in Part H of the Notes to the Financial Statements – Related party transactions.

91 OTHER INFORMATION

Research and Development Work For information about the research and development work, please refer to other parts of this Report and to the Notes to the Financial Statements, in particular to the chapter called “Main aspects of the commercial activity” with regard to developing new products and services for customers and upgrading the internal procedures in view of changes in reference regulations, and to Part E of the Notes to the Financial Statements with regard to research work aimed at the establishment of risk measurement systems, in particular for rating models for the analysis of credit positions.

Treasury shares At the end of 2015, Credito Valtellinese held in its portfolio 60,000 ordinary shares issued by the Bank, i.e. 0.005% of the total number of shares at that date. No purchase or sale was put in place during the financial year.

Information on ownership structures

For information on the ownership structures of Credito Valtellinese, prescribed by Article 123- bis of Italian Legislative Decree no. 58 of 24 February 1998 (Consolidated Finance Act), reference should be made to the Report on Corporate Governance and the ownership structures, also through the bank’s Internet site at the address http://www.gruppocreval.com/governanceCreval – Corporate Governance section – Reports on Corporate Governance.

Plan of initiatives for the completion of the process of transformation into joint-stock companies

During 2015 they were approved by the Parliament law regulations that provide for the transformation into joint-stock banks of cooperative banks with assets greater than 8 billion euro (Italian Law Decree no. 3 of 24 January 2015, converted by Italian law no. 33 of 24 March 2015). Subsequently, on 11 June 2015, the Bank of Italy issued the minor provisions for implementing the reform. The period of 18 months, provided by law, within which the cooperative banks with assets more than EUR 8 billion must become joint-stock companies, is effective as from the coming into force of the minor provisions. The Board of Directors - having regard to the fact that the threshold envisaged by the reform law had been exceeded – started the process of transformation into joint-stock companies. The plan of the required initiatives to adapt the provisions contained in the law reform – approved by the Board of Directors on 6 October 2015 – requires, in particular, the call of the extraordinary shareholders’ meeting for the transformation into joint-stock companies and the adoption of the articles of association adapted to the new company status approximately in October 2016 and, in any case, in compliance with the terms established by the law reform.

92 Information on remuneration and on equity investments of Directors, Auditors and Executives with strategic responsibilities For information on remuneration to Members of the boards of directors and statutory auditors, General managers, and Key management personnel and on equity investments of the Parent, as per Article 123-ter of the Consolidated Finance Act, please refer to the 2015 Remuneration report, available on the company’s website at http://www.gruppocreval.com/governanceCreval – Corporate Governance section - Pay Policies.

Adoption of opt-outs per Articles 70 and 71 of the Issuers’ Regulations

On 29 January 2013, the Bank chose the opt-outs per Article 70, Paragraph 8 and Article 71, Paragraph 1-bis, of the Regulation approved with Consob resolution no. 11971 of 14 May 1999 as subsequently amended (Issuers’ Regulation), exercising its right to waive the obligations to publish the information documents prescribed on the occasion of significant mergers, demergers, capital increases by contributions in kind, acquisitions and sales.

93 EVENTS AFTER THE REPORTING PERIOD

After the end of the reporting period and until the date of approval of this Report, no significant events occurred that could have a material effect on the state of affairs of the company, or on its representation. The management of the Bank continued on the basis of guidelines defined by the Board of Directors. Moreover, it should be pointed out that, on 1 February 2016, the deed of transfer of a portfolio consisting of secured and unsecured bad loans was signed with Credito Fondiario S.p.A. for a gross book value of approximately EUR 314 million. The portfolio (44% secured and 56% unsecured) forms approximately 11% of gross bad loans and 6% of total gross non-performing loans of the Creval Group. The transaction represents the first major sale transaction of non-performing loans (“NPL”), in line with the strategic objectives of the Creval Group for the overall management of NPLs, in the context of the agreements in place with Cerved Group foreordained to reduce the stock of bad loans of the Creval Group in the medium term. The transaction will not have significant effects with reference to the income statement of the current financial year.

94 BUSINESS OUTLOOK

The global outlook remains exposed to renewed tensions on the financial market in China and uncertainties on the country’s economic trend. Growth continued in the Eurozone but remains fragile. The asset purchase programme of the Eurosystem – Quantitative Easing - is proving effective in supporting the activity, but inflation remains very low.

The prospects of an excessively low growth support increasingly widespread expectations of QE strengthening, also beyond what has recently been announced, and therefore, an extended scenario of low interest rates. To date, the market incorporates expectations of negative short- term rates compared to the Euro at least until the end of 2017.

In our country, the recovery continues gradually. Curbed this year by the heavy legacy of the past, it should manifest itself fully in 2016 and become further consolidated in 2017. The recovery is strongly driven by domestic demand and by household consumption in particular, which is replacing the thrust to exports, while the prospects of investments are affected by the uncertainty concerning foreign demand. Inflation remains low because of the sharp drop in the prices of energy products and the persistence of a wide margin of unused capacity. There are significant risks, especially associated to the international context.

In this substantially positive context compared to the last few years, the prospects of the banking sector seem to move towards a phase of gradual normalisation. Starting from the current year, the growth in loans should fall into line with expected nominal GDP growth rates, and the first signs of inversion of the risk cycle of the bank should be confirmed.

The improvement of the economic framework should finally affect the income statements of the banks, albeit profitability will continue to be limited, with a return on equity still lower than the cost of capital and far from pre-crisis levels. The scenario of rates outlined above and the heavy legacy of the long years of crisis on the cost of credit risk will affect margins and profitability for a certain period of time. Cost control and reduction and the gradual normalisation of provisions for credit risk coverage will remain crucially important.

Therefore, the management of the bank will continue along these lines with the aim of achieving a sustainable profitability in the medium term.

95 PROPOSAL TO ALLOCATE THE PROFIT FOR THE YEAR

Dear Shareholders, We hereby submit for your approval of the financial statements at 31 December 2015, including the statement of financial position, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows and Notes to the Financial Statements, together with related attachments, and the Report on Operations. It is specified that, according to the provisions of Article 6 of Italian Legislative Decree no. 38 of 28 February 2005, the portion of the profit for the year corresponding to capital gains recognised in the income statement, net of the related tax effect and other than those related to financial trading instruments and currency and hedging operations, which derive from the application of the fair value or equity principle. Therefore, an unavailable equity reserve was recorded for an amount equal to gains, net of the related tax effect, deriving from fair value measurement of residual investments at the time of transfer from item 100. Equity investments to item 40. Available-for-sale financial assets, following the failure of the significant influence on the company Istituto centrale delle banche popolari S.p.A..

We therefore submit for your approval the following proposal for the allocation of the profit for the 2015 financial year of EUR 225,092,347.67.

Profit for the period 225,092,347.67 - to Unavailable reserve as per Article 6, paragraph 2, Italian Legislative Decree 38/2005 36,262,287.61 Profit net of the unavailable portion 188,830,060.06 - to Legal reserve 18,883,006.01 - as Distribution of dividend to the shareholders on the basis EUR 0.03 for each outstanding share (1,108,872,369) 33,266,171.07 - to the charity fund 1,700,000.00 - to Extraordinary reserve for the residual portion 134,980,882.98

We also submit to your approval, pursuant to Article 2357-ter, paragraph 2, of the Italian Civil Code, the allocation to Extraordinary reserve of the dividends assigned to portfolio treasury shares at the validity date for registration with regard to the 2015 profit for the year.

96 CONCLUSIONS AND ACKNOWLEDGEMENTS

Dear Shareholders,

At the end of the three-year mandate of this Board of Directors, we wish to express our gratitude to all those who, for various reasons, supported the Credito Valtellinese Group, with renewed confidence and participation.

Our thanks go first to the Shareholders and Customers, who accompanied us in these difficult years, encouraging us in the pursuit of the provisions of the Articles of Association, in a business concept with a strong local vocation in support of the economic and social fabric of the areas where the Bank operates.

A token of gratitude to all those who, in their roles - of directors, auditors, managers - led the Companies of the Group contributing to the achievement of the overall business plan.

We would like to thank the General Management, Executives and all the Staff of the Bank and of the companies of the Group for the constant professionalism, commitment and dedication shown, in their respective roles and responsibilities.

We are grateful to the members of the Board of Statutory Auditors for their professionalism expended in the performance of their duties, the Audit Company, for its constant and useful collaboration.

Certificates of esteem and to Institutions and local operators, for their vital cooperation provided to our companies and also for the wealth of ideas and relationships, support and participation that they guaranteed to the Bank during the year.

Lastly, a thanks goes to the Supervisory Authorities, with which the relation was always profitable and signifying valid guidelines for management.

We hand over to history a year of profound transformation of the Italian banking system, the year of approval of the law that provides for the transformation of most of the Italian cooperative banks into joint-stock companies, with the aim of strengthening the corporate governance structure and make the access to the capital market faster and more effective.

The Board of Directors approved the provisionary timing for the transformation into joint stock companies, which will be realised no later than October 2016.

The year that separates us from this date will be particularly intense. The change of the legal form is a very important challenge. In more than one hundred years of history, Creval, as cooperative bank, has always worked alongside and to serve customers and territories. The different legal status will not change the underlying spirit in the way of banking. Creval will continue to be loyal to its business model, it will remain a territorial bank in the new context of the European Banking Union, focusing the lending activity towards households, private and small enterprises.

The Board of Directors

Sondrio, 8 February 2016

97 Consolidated financial statements of the Credito Valtellinese Group

CONSOLIDATED FINANCIAL STATEMENTS

99 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in thousands of EUR)

ASSETS 31/12/2015 31/12/2014

10. Cash and cash equivalents 175,462 194,289

20. Financial assets held for trading 51,751 61,787

40. Available-for-sale financial assets 5,321,413 6,789,606

60. Loans and receivables with banks 713,089 839,489

70. Loans and receivables with customers 19,049,750 19,004,863

100. Equity investments 9,464 200,797

120. Property, equipment and investment property 454,242 453,568

130. Intangible assets 118,640 210,400

of which:

- goodwill 101,960 172,154

140. Tax assets 702,444 780,831

a) current 74,823 126,410

b) deferred 627,621 654,421

as per Italian Law 214/2011 545,076 605,788

150. Non-current assets held for sale and disposal groups 2,478 3,191

160. Other assets 302,948 274,735

Total assets 26,901,681 28,813,556

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

10. Due to banks 2,040,112 4,837,374 20. Due to customers 17,612,269 15,552,676 30. Securities issued 4,082,687 5,192,893 40. Financial liabilities held for trading 1,859 3,233 60. Hedging derivatives 269,496 308,718 80. Tax liabilities: 33,110 84,522 a) current 9,132 75,736 b) deferred 23,978 8,786 90. Liabilities associated with disposal groups - 573 100. Other liabilities 508,132 635,058 110. Post employment benefits 56,551 65,812 120. Provisions for risks and charges: 109,735 108,137 a) pension and similar obligations 36,618 34,936 b) other provisions 73,117 73,201 140. Valuation reserves 55,608 16,079 170. Reserves 123,742 131,548 180. Share premium reserve 39,004 350,848 190. Share capital 1,846,817 1,846,817 200. Treasury shares (-) -100 -100 210. Equity attributable to non -controlling interests (+/ -) 4,382 4,454 220. Profit (Loss) for the year (+/ -) 118,277 -325,086 Total liabilities and equity 26,901,681 28,813,556

100 CONSOLIDATED INCOME STATEMENT (in thousands of EUR)

ITEMS 2015 2014 10. Interest and similar income 698,547 820,035 20. Interest and similar expense (234,039) (340,873) 30. Net interest income 464,508 479,162 40. Fee and commission income 308,815 307,427 50. Fee and commission expense (28,272) (38,695) 60. Net fee and commission income 280,543 268,732 70. Dividends and similar income 2,017 1,345 80. Profits (Losses) on trading (13,661) 1,137 90. Fair value adjustments in hedge accounting (527) (1,098) 100. Profit (Loss) on sale or repurchase of: 88,958 118,611 a) loans and receivables 709 (614) b) available -for -sale financial assets 88,986 119,364 d) financial liabilities (737) (139) 120. Total income 821,838 867,889 130. Net impairment losses on: (442,342) (656,713) a) loans and receivables (440,009) (648,566) b) available -for -sale financial assets (1,914) (1,622) d) other financial transactions (419) (6,525) 140. Net financial income 379,496 211,176 180. Administrative expenses: (554,182) (572,309) a) personnel expenses (295,036) (342,544) b) other administrative expenses (259,146) (229,765) 190. Net accruals to provisions for risks and charges (17,655) (4,565) 200. Depreciation and net impairment losses on property, equipment (21,962) (21,552) and investment property 210. Amortisation and net impairment losses on intangible assets (29,463) (22,266) 220. Other operating net income 77,111 87,373 230. Operating costs (546,151) (533,319) 240. Net gains on investments 260,963 20,720 260. Goodwill impairment losses (70,194) (131,344) 270. Net gains (losses) on sales of investments 74 (156) 280. Pre -tax profit (loss) from continuing 24,188 (432,923) operations 290. Income taxes 78,000 111,731 300. Post -tax profit (loss) from continuing 102,188 (321,192) operations 310. Post -tax profit (loss) from discontinued operations 20,070 (1,125) 320. Profit (Loss) for the year 122,258 (322,317) 330. Profit for the year attributable to non -controlling interests (3,981) (2,769) 340. Profit (loss) for the year attributable to the owners of the 118,277 (325,086) parent

Basic earnings (loss) per share - in EUR 0.105 (0.407) Diluted earnings (loss) per share - in EUR 0.105 (0.407)

Basic earnings (loss) per share from continuing operations - in EUR 0.087 (0.406) Diluted earnings (loss) per share from continuing operations - in EUR 0.087 (0.406)

101 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in thousands of EUR)

Items 2015 2014 10. Profit (Loss) for the year 122,258 (322,317) Other comprehensive income net of income taxes without reclassification to profit or loss 40. Defined -benefit plans (528) (9,430) 50. Non -current assets held for sale - (1) 60. Portion of valuation reserves of equity -accounted investments 947 (716) Other comprehensive income net of income taxes with reclassification to profit or loss 100. Available -for -sale financial assets 56,744 50,052 120. Portion of valuation reserves of equity -accounted investments (6,912) 250 130. Total other comprehensive income net of income taxes 50,251 40,155 140. Comprehensive income (Item 10+130) 172,509 (282,162) 150. Consolidated comprehensive income attributable to non -controlling interests (4,013) (2,780) 140. Consolidated comprehensive income attributable to the owners of the parent 168,496 (284,942)

102 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY (in thousands of EUR)

Changes during the year

Allocation of prior year Equity transactions profit Equity Equity Change Purchase Change in Derivatives attributable to attributable to in Dividends Changes Issue of of Extraordinary equity on Changes in Comprehen owners of the non-controlling Balance at opening Balance at and other in new treasury dividend instrument treasury Stock equity sive income parent at interests at Equity 31/12/2014 balances 1/1/2015 Reserves allocations reserves shares shares distribution s shares options investments 31/12/2015 31/12/2015 31/12/2015 Share capital: a) ordinary shares 1,849,683 1,849,683 17 1,846,817 2,883 b) other shares Share premium reserve 351,827 351,827 -301,244 -10,982 -110 39,004 487 Reserves: a) income related 130,318 130,318 -13,275 10,888 -7,102 123,742 -2,913 b) other -868 -868 -9,786 10,654 Valuation reserves 16,017 16,017 -1,291 -9,425 50,251 55,608 -56 Equity instruments Treasury shares -100 -100 -100 Profit (loss) for the year -322,317 -322,317 325,596 -3,279 122,258 118,277 3,981 Equity attributable to the owners of the parent 2,020,106 2,020,106 1,222 -6,476 168,496 2,183,348

Equity attributable to non-controlling interests 4,454 4,454 -3,279 -87 -626 -93 4,013 4,382

103

Changes during the year

Allocation of prior Equity transactions year profit Equity Equity Change Purchase Change in Derivatives attributable to attributable to in Dividends Changes Issue of of Extraordinary equity on Changes in Comprehen owners of the non-controlling Balance at opening Balance at and other in new treasury dividend instrumen treasury Stock equity sive income parent at interests at Equity 31/12/2013 balances 1/1/2014 Reserves allocations reserves shares shares distribution ts shares options investments 31/12/2014 31/12/2014 31/12/2014 Share capital: a) ordinary shares 1,530,531 1,530,531 319,161 -9 1,846,817 2,866 b) other shares Share premium reserve 259,076 259,076 -2,235 95,069 -83 350,848 979 Reserves: a) income related 124,613 124,613 11,770 10,040 -16,144 39 132,416 -2,098 b) other 2,398 2,398 5,592 -8,858 -868 Valuation reserves -16,877 -16,877 -7,280 19 40,155 16,079 -62 Equity instruments -- Treasury shares -787 -787 1,962 -1,275 -100 Profit (loss) for the year 14,305 14,305 -11,770 -2,535 -322,317 -325,086 2,769 Equity attributable to the owners of the parent 1,908,071 1,908,071 7,005407,334 -1,275 -16,144 57 -284,942 2,020,106

Equity attributable to non-controlling interests 5,188 5,188 -2,535 -888 -91 2,780 4,454

104 CONSOLIDATED STATEMENT OF CASH FLOWS - Direct method (figures in thousands of EUR)

2015 2014 A. OPERATING ACTIVITIES 1. Cash flow from operating activities 317,023 323,223 - interest income received (+) 725,687 778,883 - interest expense paid (-) -288,402 -319,959 - dividends and similar income (+) 2,017 1,345 - net fee and commission income (+/-) 280,660 268,504 - personnel expenses (-) -294,225 -270,767 - other costs (-) -221,636 -189,004 - other revenue (+) 176,751 214,846 - taxes (-) -63,513 -159,500

- costs/revenues related to disposal groups net of tax (+/-) -316 -1,125 2. Cash flow generated/used by financial assets 1,123,727 -1,980,370 - financial assets held for trading 9,739 21,447 - available-for-sale financial assets 1,499,809 -2,621,011 - loans and receivables with customers -487,020 565,457 - loans and receivables with banks: on sight 18,541 26,729 - loans and receivables with banks: other 108,099 -19,366 - other assets -25,441 46,374 3. Cash flow generated/used by financial liabilities -1,840,612 1,263,009 - due to banks: on sight 36,654 3,480 - due to banks: other -2,800,986 1,317,138 - due to customers 2,068,719 252,311 - securities issued -1,097,936 -185,067 - financial liabilities held for trading -3,074 -5,258 - other liabilities -43,989 -119,595 Cash flow from (used in) operating activities -399,862 -394,138 B. INVESTING ACTIVITIES 1. Cash flow generated by 405,786 8,155 - sales of equity investments 378,586 254 - dividends from equity investments 3,982 3,830 - sales of property, equipment and investment property 1,282 285 - sales of subsidiaries and business units 21,936 3,786 2. Cash flow used for -21,472 -28,199 - purchase of equity investments - -587 - purchase of property, equipment and investment property -12,334 -17,680 - purchase of intangible assets -9,138 -9,908 - purchase of subsidiaries and business units - -24 Cash flow from (used in) investing activities 384,314 -20,044 C. FINANCING ACTIVITIES - issue/repurchase of treasury shares - 406,059 - dividend distribution and other -3,279 -2,535 Cash flow from (used in) financing activities -3,279 403,524 CASH FLOW GENERATED/USED DURING THE YEAR -18,827 -10,658 Key: (+) generated (-) used

105

RECONCILIATION

Financial statement items 2015 2014

Cash and cash equivalents at the beginning of the year 194,289 204,947 Net liquidity generated/used during the year -18,827 -10,658 Cash and cash equivalents at the end of the year 175,462 194,289

Key: (+) generated (-) used

106

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

107 PART A - ACCOUNTING POLICIES

A.1 - GENERAL INFORMATION

SECTION 1 - STATEMENT OF COMPLIANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

Pursuant to Article 4 of Italian Legislative Decree no. 38 of 28 February 2005, the consolidated financial statements of the Credito Valtellinese Group have been drawn up according to the IAS/lFRS issued by the International Accounting Standards Board (IASB) and endorsed by the European Union, including the related interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as per EC Regulation no. 1606 of 19 July 2002.

The standards applied in preparing these financial statements are those in effect at 31 December 2015.

With regard to the standards included in the financial statements at 31 December 2014, it should be noted that the following came into force: - Commission Regulation (EU) 1361/2014 amending IFRS 3 “Business combination” with regard to the scope of application of the standard, IFRS 13 “Fair Value Measurement” related to the fair value measurement on a net basis of a portfolio of assets and liabilities and IAS 40 “ Investment property ” concerning its interrelation with IFRS 3; - Commission Regulation (EU) 634/2014 that approves IFRIC 21 Levies.

These amendments to IAS/IFRS apply as from the 2015 Financial Statements. There were no significant impacts due to their application.

Moreover, the approved new international accounting standards issued by IASB that apply as from January 2016 are provided below: • Regulation 2015/28 of 17 December 2014 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Financial Reporting Standards IFRS 2, 3 and 8 and International Accounting Standards IAS 16, 24 and 38; • Regulation 2015/29 of 17 December 2014 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Accounting Standard IAS 19; • Regulation 2015/2113 of 23 November 2015 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Accounting Standards IAS 16 and 41; • Regulation 2015/2173 of 24 November 2015 amending regulation no. 1126/2008 of the Commission that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Financial Reporting Standard 11; • Regulation 2015/2231 of 2 December 2015 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Accounting Standards IAS 16 and 38; • Regulation 2015/2343 of 15 December 2015 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no.

108 1606/2002 of the European Parliament and Council with respect to International Financial Reporting Standards IFRS 5 and 7 and International Accounting Standards IAS 19 and 34; • Regulation 2015/2406 of 18 December 2015 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Accounting Standard IAS 1; • Regulation 2015/2441 of 18 December 2015 amending regulation no. 1126/2008 of the Commission that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Accounting Standard IAS 27. The Group started an activity related to the assessment of impacts.

The new international accounting standards issued by IASB that will have a potential impact on the Group - but that have not yet been approved by the European Union at the date of preparation of this Report - are IFRS 9 “Financial instruments”, IFRS 15 “Revenue from contracts with customers” and IFRS 16 “Leases”.

IFRS 9 “Financial instruments” In July 2014, IASB issued IFRS 9 “Financial instruments”, accounting standard that will replace IAS 39 “Financial Instruments: Recognition and Measurement”. The review process of IAS 39 was divided in three phases: “classification and measurement”, “impairment” and “hedge accounting”. The “classification and measurement” of the financial assets will depend on the business model and on the cash flow characteristics of the financial instrument. These elements will determine the measurement method of the financial instrument, which can be at amortised cost, at fair value through profit or loss or at fair value through other comprehensive income. In most cases, the classification and measurement results can be considered in line with those resulting from the application of IAS 39 but, at present, we cannot exclude potential misalignments. The combined effect of the application of the business model and of the test on the cash flow characteristics of the instrument could result in a different allocation between instruments measured at fair value and at amortised cost compared to IAS 39. It should also be noted that, for all financial assets, the separation of implicit derivatives is no longer required. The classification of financial liabilities does not change substantially compared to IAS 39. The change in own creditworthiness is expected to be recognised in an equity reserve instead of through profit or loss for financial liabilities at fair value, as required by IAS 39. With reference to the impairment, the Standard provides a single model to be applied to all financial assets not measured at fair value through profit or loss, paying particular attention to the definition of calculation rules for a forward-looking ‘expected loss’ impairment model. Specifically, at the time of initial recognition, impairment losses will be calculated based on the expected loss in 12 months; whereas, if there is a significant increase in credit risk compared to the initial recognition date, impairment losses must be calculated based on the expected loss calculated over the entire life of the financial instrument. Based on these elements, the financial instruments are classified into three separate “stages”: • stage 1 includes performing financial instruments for which a significant deterioration of the credit risk compared to the initial recognition date was not observed. The impairment is determined collectively on the basis of an expected loss in one year (expected credit loss); • stage 2 includes performing financial instruments for which a significant increase in the credit risk compared to the initial recognition date was not observed. The impairment is

109 determined collectively on the basis of an expected loss on the residual maturity of the instrument (lifetime expected credit loss); • stage 3 includes non-performing financial instruments, measured analytically on the basis of the loss calculated on the residual maturity of the instrument (lifetime expected credit loss).

The expected loss used must consider all available information, including information about past events, current conditions and forecasts of economic conditions. In terms of impact on profit or loss, the recognition of impairment will be more focused on forward-looking components and, at least on first-time application, will result in an increase in impairment losses compared to what is currently required by IAS 39 (model based on incurred loss). Currently, it is not possible to reliably estimate the financial impacts resulting from the first application of the new principle. With reference to the issue of hedge accounting, the review of the standard aims to simplify the methods, creating a stronger link with risk management strategies. The standard does not regulate the macro hedge accounting that will be dealt with in a separate project. Moreover, on this matter, IFRS 9 provides for the possibility of using some accounting entries regulated in IAS 39. IFRS 9 requires the mandatory application as from 1 January 2018, with earlier application of all the principle or only the changes related to the accounting treatment of own credit for financial liabilities designated at fair value. During 2015, the Group started a project with the purpose of adapting the procedures and internal processes to the provisions introduced by the new accounting standard, defining the internal models for estimating the expected loss with multiperiod prospect and including the new variables required.

IFRS 15 “Revenue from contracts with customers” In May 2014, IASB published IFRS 15 “Revenue from contracts with customers”. The standard, which replaces the previously issued standards and interpretations in the field (IAS 18 Revenue, IAS 11 Construction contracts, and the IFRIC 13 Customer loyalty programs, IFRIC 15 Agreements for the construction of real estate, IFRIC 18 Transfers of assets from customers and SIC 31 Revenue — Barter transactions involving advertising services interpretations), must be applied as from 1 January 2018 and early application is permitted. The Standard introduces a single model for the recognition of revenues, applicable to all the commercial agreements, with the exception of lease contracts, insurance contracts and financial instruments that require the recognition of revenues according to the consideration expected to receive against the goods and services provided. The new standard introduces a method divided into five “steps” to analyse the transactions and define the recognition of revenues with reference both to the timing and to their amount: identify the contract with a customer; identify the performance obligations in the contract; identify (if necessary, estimate) the consideration of the transaction; allocate the consideration of the transaction to contract performance obligations; revenue recognition based on the fulfilment of contract performance obligations. The Group has not started yet an activity related to the assessment of impacts.

IFRS 16 Leases In January 2016, IASB issued IFRS 16 “Leases”, to be applied as from 1 January 2019, which introduces new rules for representing lease contracts both for lessors and for lessees and that replaces the previously issued standards and interpretations in the field (IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC 15 Operating leases - Incentives and SIC 27 Evaluating the substance of transactions in the legal form of a lease).

110 Leases are defined as a contract that grants the lessee the right to use an asset for a period of time in exchange for a consideration. IFRS 16 eliminates for the lessee the distinction between operating and financial leases and defines a new method of representation. The lessee must recognise a liability based on the present value of future rents recognised as an offsetting item under assets of the right to use the asset leased. The currently expected accounting rules are in force for the lessor. The Group has not started yet an activity related to the assessment of impacts.

However, as from 1 January 2015, the new definition of non-performing loans came into force as a result of the approval, on 9 January 2015, of the European Commission of a specific “technical standard”, issued by the EBA (European Banking Authority) on 21 October 2013, related to the definition of Non-performing loans and Forbearance exposures (Exposures subject to granting). As a result of the approval, on 20 January 2015, the Bank of Italy published the update to Circular 272 that defines the reporting practices to be followed for the classification of credit quality as of 1 January 2015. In detail, the categories of performing loans, past due impaired, substandard loans, restructured loans and bad loans were replaced by the new categories of performing, past due non-performing, unlikely to pay and bad loans, by showing the “forborne” positions of each class. The comparative figures referring to 31 December 2014 were restated to include in the category of unlikely to pay exposures previously defined as substandard loans and restructured loans.

SECTION 2 - BASIS OF PREPARATION

The consolidated financial statements comprise the Statement of financial position, Income Statement, Statement of Comprehensive Income, Statement of changes in equity, Statement of cash flows and Notes to the financial statements and are accompanied by the Report on operations.

The amounts reported in the Consolidated Financial Statements, the Notes to the financial statements and the Report on operations, are in thousands of euro, unless indicated otherwise. The financial statements and the notes to the financial statements show, in addition to the amounts for the reporting period, also the comparatives at 2014.

The consolidated financial statements at 31 December 2015 have been prepared in compliance with the instructions issued by the Bank of Italy within the scope of its regulatory function over the technical structure of financial statements of banks and financial institutions as provided by Legislative Decree 38/05 “Instructions for the preparation of the separate and consolidated financial statements of banks and financial companies that are parent companies of banking groups” (Provision of 22 December 2005 - Circular no. 262 - 4th update of 15 December 2015). With the 4th update to the circular, the disclosure of the notes to the financial statements on “credit quality” was adapted to the new definitions of impaired financial assets, definitions that are in line with non-performing exposures and forborne exposures established by the European Commission with regulation 2015/227 on recommendation from the European Banking Authority. The tables related to tied up assets envisaged in Section 3 “Liquidity risk” were also eliminated in Part E Information on risks and related hedging policies , whereas rationalisation interventions were carried out on Part B Information on statement of financial position and on Part E Information on risks and related hedging policies of the notes to the financial statements. It is specified that, according to the circular, the disclosure of the notes

111 to the financial statements on changes in gross exposures and impairment of forbearance exposures will be provided as from the 2016 financial statements. The consolidated financial statements were drawn up by applying the general drafting standards provided under IAS 1, the accounting policies illustrated in Part A.2 of the notes to the financial statements and in compliance with the general provisions included in the framework for the preparation and presentation of financial statements issued by the International Accounting Standards Board (IASB).

In these financial statements, there were no deviations from the application of the IAS/IFRS. The Report on operations and the Notes to the Financial Statements report the information requested by the IFRS, laws, the Bank of Italy and Consob, in addition to other non-obligatory information deemed necessary to provide a true and fair view of the Group’s situation.

Content of the financial statements and of the notes to the financial statements

The Statement of Comprehensive Income presents the profit (loss) for the period as well as the other income components that are not recognised in the income statement but are recorded as a change in the equity valuation reserves.

The Statement of Changes in Equity presents the breakdown and changes in equity during the current and the previous year. The statement reports the breakdown of the share capital, the issue premiums, the reserves and the profit (loss) among the portions attributable to the owners of the parent and the portions attributable to non-controlling interests.

The Statement of Cash Flows has been prepared according to the direct method, in which the main gross cash collection and disbursement items, i.e. without offsetting, are displayed. The cash flows for the year are divided into operating, investing and financing activities. In particular, the economic components as well as all financial assets and liabilities other than equity investments and held-to-maturity investments that generated or absorbed liquidity are represented within the operating activities. The incoming and outgoing cash flows arising from the sale/purchase of property, equipment and investment property and intangible assets, equity investments, business combinations or subsidiaries and held-to-maturity investments are included in investing activities. Financing activities include the flows that concern the issues or purchases of capital instruments and dividend distribution or for other purposes achieved during the financial year. In the statement, the flows related to the liquidity generated during the period are reported with no sign, while those utilised are preceded by the minus sign.

The notes to the financial statements do not include sections pertaining to items not valued nor in 2015 nor in the previous year. In the notes to the financial statements, the negative amounts related to part C and part D are shown in brackets.

112 Uncertainties in the use of estimates in preparing the financial statements (pursuant to the provisions of IAS 1 and to the recommendations contained in the 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 Bank and the Group will remain a going concern in the foreseeable future and, consequently, the financial statements at 31 December 2015 were prepared on a going concern basis. The Directors also confirm that the financial position and the result of operations have brought to light no symptoms that could imply the uncertainty of going concern assumptions. As regards the requirements related to the disclosure on financial risks, impairment testing and uncertainties in the use of estimates, please refer to the information provided in this report as well as to the information provided in the Report on operations 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 reference context. 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. Information on financial risks and operational risks are described in the chapter of the Notes to the financial statements dedicated to risk management. Moreover, the notes to the financial statements provide information with reference to the segmentation among the different measurement levels of the fair value of the financial instruments. At the end of the year, impairment tests were carried out as required by IAS 36 and specific tests were carried out to ascertain any impairment of goodwill, equity investments and available-for-sale securities, subject to the analysis of the presence of impairment indicators. For further detailed information, please refer to the Notes to the financial statements - Part B.

113 SECTION 3 - CONSOLIDATION SCOPE AND METHODS

The consolidated financial statements include Credito Valtellinese and the controlled companies. Investments in companies subject to exclusive control are those in respect of which Credito Valtellinese has the power over the investee, is subject to exposure or rights to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect the amount of the investor’s returns. The financial statements of subsidiaries are consolidated on a line-by-line basis from when the Parent starts to exercise control until the date on which this control ends. The carrying amount of the equity investments in these companies is offset against the corresponding share in the equity. The differences arising from this transaction, after recording the subsidiary’s assets and liabilities, are recorded, if positive under “Intangible assets - Goodwill”; if negative, they are directly recognised in the income statement. Non-controlling interests are assigned the corresponding shares of equity and profit (loss). Assets, liabilities, income and expenses among consolidated companies are eliminated. The financial statements of subsidiaries are prepared at the same reference date and adopting financial reporting standards consistent with the Parent. In case of discrepancy between the evaluation criteria adopted by a subsidiary and those used in the consolidated financial statements, the subsidiary’s financial statements are adjusted for consolidation purposes. Investments in companies subject to joint control are those over which the Bank holds the power to take decisions regarding important activities of a third entity together with other parties based on an agreement.

Investments in associates are those under significant influence, i.e. the Parent has the power of participating in the determination of financial and management policies, but has no control or joint control over those policies. Investments in companies subject to joint control have been accounted at equity. The investment is initially recognised at cost, the amount later being increased or decreased due to the effect of investee profits or losses, recorded according to the equity ratios under “Net gains (losses) on equity investments”, of dividends received and other changes in the equity of the investees. Other changes are booked to reserves. The differences between the carrying amount of the equity investment and the equity of the related investee are included in the carrying amount of the investee. When these equity investments are reclassified among assets held for sale, the application of the equity method is interrupted and the measurement is made at the carrying amount when reclassified or at the fair value less costs to sell, whichever lower. Dividends booked to the Parent’s financial statements and concerning equity investments in companies included in the consolidation scope or equity-accounted have been cancelled. Taxes associated with consolidation adjustments have been accounted for, where applicable.

Commitments for the repurchase of own equity instruments, including commitments to purchase equity instruments of companies consolidated in full, give rise to a financial liability for the current amount payable. The initial recognition of the liability occurs by using the equity as an offsetting item.

During 2015, Finanziaria San Giacomo S.p.A. was sold to Cerved Credit Management Group S.r.l. and the securitisation transaction carried out through the Quadrivio Finance S.r.l. special purpose company was closed. Therefore, these companies were not included in the scope of consolidation. A list of equity investments in fully consolidated subsidiaries is provided in the table below.

114 1. Investments in companies subject to exclusive control

Share Type of Operating Registered capital Type of equity % Voting Company name relationship office office (in investment rights (2) (1) thousands Investor % held of EUR) company

1. Credito Valtellinese Soc. Coop. Sondrio Sondrio 1,846,817 2. Credito Siciliano S.p.A. Acireale Acireale 1 170,711 1 98.54 3. Creval Sistemi e Servizi Soc. Cons.p.A. Sondrio Sondrio 1 2,730 1 86.26 2 3.66 4 0.92 5 0.92 6 0.92 7 3.66 4. Stelline Real Estate S.p.A. Sondrio Sondrio 1 24,475 1 100.00 5. Global Assicurazioni S.p.A. Milano Milano 1 120 1 60.00

6. Global Broker S.p.A. Milano Milano 1 500 1 51.00

7. Cassa di Risparmio di Fano S.p.A. Fano Fano 1 156,300 1 100.00

8. Quadrivio Rmbs 2011 S.r.l. Conegliano Conegliano 4 10

9. Quadrivio Sme 2012 S.r.l. Conegliano Conegliano 4 10

10. Quadrivio Rmbs 2013 S.r.l. Conegliano Conegliano 4 10

11. Quadrivio Sme 2014 S.r.l. Conegliano Conegliano 4 10

Key: (1) Type of relationship: 1 = majority of voting rights at ordinary shareholders’/quotaholders’ meeting; 2 = considerable influence in ordinary shareholders’/quotaholders’ meeting; 3 = agreements with other shareholders; 4 = other forms of control; 5 = sole management pursuant to article 26, paragraph 1 of Legislative Decree no. 87/92; 6 = sole management pursuant to article 26, paragraph 2 of Legislative Decree no. 87/92”;

(2) Voting rights available at ordinary shareholders’/quotaholders’ meetings, only if different from the % investment, distinguishing between actual and potential votes: 1 = actual, 2 = potential.

2. Significant valuations and assumptions for determining the scope of consolidation

The scope of consolidation was defined in accordance with IFRS 10 “Consolidated Financial Statements”. The control requirement is at the basis of the consolidation of the different entities.

On the basis of what is provided, an investor controls an investee if and only if it has simultaneously:

• the power over the investee; • exposure, or rights, to variable returns from its involvement with the investee; • the ability to use its power over the investee to affect the amount of the investor’s returns. Credito Valtellinese consolidates the investees for which all three elements of control are present.

115 Normally, control is defined by having the majority of voting rights in the shareholders’/quotaholders’ meeting. However, IFRS 10 includes within the standard the whole set of situations that can potentially determine the control of an entity over another entity, therefore regardless of whether the voting rights exist or not. There could be the “de facto” control, i.e. the presence of control without holding the majority of voting rights.

At 31 December 2015, all the companies for which the majority of voting rights in the ordinary shareholders’/quotaholders’ meeting is held were considered subject to exclusive control and therefore fully consolidated. In this case, all the above-mentioned conditions for the existence of control are met.

For the companies in which a lower share of voting rights is owned, it was not identified any situation able to assign the Group the practical capacity to unilaterally govern the relevant activities. The structured entities are defined by the standard as entities configured in such a way that the voting rights, or similar rights, are not the major factor for establishing who controls the entity, as in the case in which the voting rights refer only to administrative activities and the related operational activities are managed by means of contractual agreements.

An example of structured entity is represented by vehicles of securitisation transactions of own loans and receivables. The evaluation of the possibility that the Bank has to consolidate the vehicle depends on the evaluation of the power on relevant activities as a result of its role as originator and servicer of the transaction, the exposure to variable returns of the transaction deriving from the subscription of all the securities of the transaction or from the junior tranche and from the ability to use its power over the investee to affect the amount of variable returns.

For all the existing vehicles of securitisation transactions, all the conditions for defining the control were met and so they were consolidated.

3. Investments in companies subject to exclusive control with significant non- controlling interests

3.1 Non-controlling interests, third-party voting rights and dividends distributed to third parties

Dividends distributed Non-controlling Third-party voting Company name to third parties interest % rights % (1) (in thousands of EUR)

1. Global Assicurazioni S.p.A. 40% 40% 2,951 2. Global Broker S.p.A. 49% 49% 328

Key: (1) Voting rights available at ordinary shareholders’/quotaholders’ meetings

116 3.2 Equity investments with significant non-controlling interests: accounting information

Property, Financial Equity equipment and liabilities Cash Company name Total Financial investment and cash assets assets property and equivalents intangible assets

1. Global Assicurazioni S.p.A. 26,794 - 22,541 4 5,105 8,978 2. Global Broker S.p.A. 7,233 - 6,757 34 3,833 2,353

Pre-tax profit Post-tax profit Post-tax profit Net Company name Operating (loss) from (loss) from (loss) from interest Total income costs continuing continuing discontinued income operations operations operations

1. Global Assicurazioni S.p.A. 61 15,666 (2,525) 13,140 8,986 - 2. Global Broker S.p.A. 8 2,670 (1,088) 1,581 1,084 -

Company name Profit (loss) for the Other comprehensive income net of Comprehensive income (3) = year (1) income taxes (2) (1) + (2)

1. Global Assicurazioni S.p.A. 8,986 3 8,989 2. Global Broker S.p.A. 1,084 3 1,087

4. Significant restrictions

There are no restrictions on its capacity to access the activities or to use them and extinguish the liabilities of the group.

5. Other information The figures relating to equity investments refer to the 2015 financial statements approved by the respective Shareholders’ Meetings, or, if these are not available, from the draft financial statements approved by the respective Boards of Directors. For equity investments not considered significant, if this information was not available, reference was made to the last statement of financial position and income statement available.

SECTION 4 - EVENTS AFTER THE REPORTING PERIOD

On 1 February 2016, the deed of transfer of a portfolio consisting in secured and unsecured bad exposures was signed with Credito Fondiario S.p.A. for a gross carrying amount of approximately EUR 314 million. The portfolio (44% secured and 56% unsecured) forms approximately 11% of gross bad loans and 6% of total gross non-performing loans of the Creval Group. The transaction will not have significant effects with reference to the income statement of the 2016 financial year.

117

SECTION 5 - OTHER ASPECTS

The annual consolidated financial statements are audited by KPMG S.p.A.. In accordance with article 2359 of the Italian Civil Code, the subsidiaries that form part of the Credito Valtellinese Group have exercised the option, along with the Parent, to be subject to group IRES tax for a three-year period pursuant to Article 117, paragraph 1 of the Income Tax Consolidation Act, and comply with the regulations that govern its implementation between the parties. All the parties that are subject to group taxation must present their tax returns in accordance with standard terms while the consolidating party has to make the consolidated tax return and pay the group tax. The consolidated companies will undertake to collaborate with the consolidating company, providing it with all relevant information in order to meet the obligations that the consolidating company must meet with respect to the financial authorities.

In the event of tax losses, the grant of amounts used for offsetting, the tax assets for taxes paid abroad by the consolidated companies and for the consolidation adjustments, amounts equal to the actual tax benefit to the Group will be recognised. If, for any reason, the control requirement should no longer be met before expiry of the three- year period for one or more of the consolidated companies, the consolidating company will make the variations pursuant to article 124, paragraph 1 of the Income Tax Consolidation Act on its own income. If the option is not renewed, the companies involved must pay the advance amount with reference to their own income resulting from the communication pursuant to article 121 of the Income Tax Consolidation Act. In this event, the amounts requested for reimbursement, the surplus carried forward and the tax losses resulting from the group statements will remain with the consolidating party.

The consolidating company will be solely responsible for answering to the financial authorities for any greater amounts of tax ascertained with respect to the overall income for the declaration of tax consolidation and for the other amounts and obligations established by Article 127, paragraph 1 of the Income Tax Consolidation Act.

The individual consolidated companies will be jointly responsible with the consolidating company for any greater amount of tax plus related interest for the overall income, and for the other amounts and obligations established by Article 127, paragraph 2 of the Income Tax Consolidation Act.

SUMMARY OF THE OPTIONS OF TAX CONSOLIDATION AT 31 DECEMBER 2015

Year in which the Three-year period Company option was exercised of the option Credito Siciliano S.p.A. 2013 2013-2015 Stelline Real Estate S.p.A. 2013 2013-2015 Carifano S.p.A. 2015 2015-2017 Creval Sistemi e Servizi Soc.cons.p.A. 2015 2015-2017 Global Assicurazioni S.p.A. 2015 2015-2017 Global Broker S.p.A. 2015 2015-2017

In 2015, Finanziaria San Giacomo did not renew the option for group taxation as a result of the transfer of the 100% interest held in it by Credito Valtellinese S.c..

118 A.2 - MAIN ITEMS IN THE FINANCIAL STATEMENTS

This section provides information on the accounting policies adopted for drawing up the annual financial statements at 31 December 2015, with the recognition, classification, measurement and derecognition criteria illustrated for each individual item, including, if relevant, the recognition criteria for the income components

1 - Financial assets held for trading Item “20 Financial assets held for trading” includes: - debt, equity instruments and OEIC units acquired primarily to obtain short-term profit; - derivative contracts other than those designated as effective hedging instruments, when their fair value is positive. No reclassifications are allowed in other categories of financial assets except in special cases. In these cases, debt and equity instruments (that are no longer held for trading) may be reclassified to other categories within IAS 39. The transfer value is the fair value at the time of reclassification. Debt and equity instruments and OEIC units are recognised in the financial statements at their settlement date, while derivative financial instruments at the subscription date. Upon initial recognition, they are recorded at fair value, usually represented by the transaction price, without considering the transaction costs attributable to the instrument charged directly to the income statement. After initial recognition, financial assets held for trading are measured at fair value.

In the case of financial instruments quoted in active markets, the fair value is determined on the basis of the official prices of the most favourable market to which the Group has access. If, for a given financial instrument, the conditions for identifying an active market do not exist, it is necessary to use a technical valuation, that is to say a process that allows to identify a price at which the instrument could be exchanged between knowledgeable willing parties in an arm’s length transaction.

The methods of calculation of the fair value of the financial instruments are reported in section A.4 - Fair value information.

Gains and losses associated with the above, including trading income and expense, interests and dividends received and changes in fair value due to market rate fluctuations, changes in share prices and other market variables, are recognised in the income statement. Financial assets or parts thereof are derecognised when the contractual rights to the cash flows expire or are transferred without retaining substantially the associated risks and benefits. On the other hand, if a significant portion of the risks and benefits attached to the financial assets remains upon transfer of their legal ownership, they will continue to be recognised in the financial statements.

2 - Available-for-sale financial assets This item comprises non-derivative financial assets designated as available-for-sale and not classified as loans and receivables, held-to-maturity investments, financial assets held for trading or at fair value. In particular, this category includes, in addition to debt instruments and OEIC units that are not subject to trading activities and are not classified in the other above-mentioned portfolios, equity investments that are not held for trading purposes or do not qualify as related or joint control investments. These assets are recognised under item “40 Available-for-sale financial assets”.

119 They are initially recognised at the settlement date, and measured at fair value inclusive of transaction costs directly attributable to the acquisition. When permitted by financial reporting standards, reclassifications are allowed towards the category “Held-to-maturity investments”, or, towards the category “Loans and Receivables” in the presence of the intention to hold for the foreseeable future and if the conditions for recognition apply. If the recognition occurs following reclassification of other portfolios as required by IAS 39 or by the item Equity investments following the loss of significant influence, the recognition value would be the fair value at the time of transfer through profit and loss of the differences in value compared to the previous carrying amount.

The methods of calculation of the fair value of the financial instruments are reported in section A.4 - Fair value information.

Interest is measured using the effective interest method. The effective interest rate is the rate that aligns the present value of cash flows expected throughout the life of the instrument to the carrying amount of the asset. Use of this rate to calculate interest involves the uniform distribution of interest throughout the life of the instrument. The expected flows have been calculated considering all contractual terms of the instrument and including all fees and base points paid or received by and between the contracting parties, transaction costs and any other premium or discount that is measurable and considered an integral part of the effective interest rate of the transaction. Dividends on equity instruments are recognised in the income statement when payment becomes due.

At every reporting date, these financial assets are tested for evidence of impairment. Evidence of impairment originates from one or more events occurring after the initial recognition of the asset, which have an impact on the estimated future cash flows of the financial asset (or group of financial assets) that can be reliably estimated. The impairment process starts if there are indicators that would lead to the presumption that the original carrying amount of the investment cannot be recovered.

These indicators include profitability of the company in question and its future income prospects, a significant deviation from the budget objectives or provided by long-terms plans communicated to the market, downward reviews by outside rating companies and the announcement of company restructuring plans.

With respect to the equity instruments and the OEIC units included as “Available-for-sale financial assets”, there are certain indicators that represent estimates of significant and prolonged fair value decreases to below the carrying amount of the financial assets. Specifically they refer to market quotations or valuations lower than the initial carrying amount for an amount higher than 30%, or the recognition of quotations or valuations that are lower than the carrying amount for a period of more than 18 months. Exceeding one of these thresholds leads to the recognition of impairment.

120 Should the stated thresholds not be exceeded and in case of impairment qualitative elements, the recognition of an impairment loss must be supported by specific performance analyses. The amount of the impairment is calculated with reference to the fair value of the financial asset. In the event that an available-for-sale financial asset is impaired, the whole loss, including the portion previously accounted at equity, is booked to the income statement. Any reversal of impairment loss, allowed only if the circumstances giving rise to the impairment no longer exist, is recognised in the income statement if referring to debt instruments, and in equity if referring to equity instruments and OEIC units. For debt instruments, the reversal of impairment loss cannot in any case exceed the amortised cost that the financial instrument would have had if no impairment losses had been made in the past.

Financial assets or parts thereof are derecognised when the contractual rights to the cash flows expire or are transferred without retaining substantially the associated risks and benefits.

3 - Held-to-maturity investments Item “50 Held-to-maturity investments” comprises non-derivative financial assets with fixed payments or payments that can be determined and with a fixed expiry, for which there is an actual intention and capacity to hold them until expiry. They are initially recognised at the settlement date, and measured at fair value including transaction costs and income directly attributable. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method. When permitted by financial reporting standards, reclassifications are allowed only towards the category of “Available-for-sale financial assets”. If, during the financial year, a considerable amount of investments classified under this category is sold or reclassified, the remaining held- to-maturity investments would be reclassified as Available-for-sale financial assets and the use of the portfolio in question would be denied for the next two financial years, unless the sales or reclassifications: - are so close to maturity of the financial asset that the fluctuations in the market interest rate would have no material effect on the fair value; - occur after having received substantially the original principal through scheduled ordinary payments or prepayments; - are attributable to an isolated event that is not controllable, non-recurring and may not be reasonably expected.

The effective interest rate is the rate that aligns the present value of cash flows expected throughout the life of the instrument to the carrying amount of the asset. Use of this rate to calculate interest involves the uniform distribution of interest throughout the life of the instrument. The expected flows have been calculated considering all contractual terms of the instrument and including all fees and base points paid or received by and between the contracting parties, transaction costs and any other premium or discount that is measurable and considered an integral part of the effective interest rate of the transaction. At the end of each reporting date, these financial assets are assessed for objective evidence of an impairment loss. Evidence of impairment originates from one or more events occurring after the initial recognition of the asset, which have an impact on the estimated future cash flows of the financial assets (or group of financial assets) that can be reliably estimated.

The impairment loss is measured as the difference between the carrying amount and the present value of the future estimated cash flows discounted at the effective original interest rate of the asset.

121 Any reversal of impairment loss is allowed only if the circumstances that caused the impairment no longer exist. The reversal of impairment loss is recognised in the income statement and, in any case cannot exceed the amortised cost that the instrument would have had if no previous impairment losses had been recognised. Financial assets or parts thereof are derecognised when the contractual rights to the cash flows expire or are transferred without retaining substantially the associated risks and benefits.

4 - Loans and receivables These are non-derivative financial assets with fixed or calculable payments that are not listed on an active market. Loans and receivables are recognised under “60. Loans and receivables with banks” and “70. Loans and receivables with customers”. This item includes loans and receivables with customers and banks as well as the bonds mainly issued by banks. Loans and receivables are initially recognised at the disbursement date, and debt instruments are recognised at their settlement date. Initial recognition is at fair value, which normally corresponds to the consideration paid, including costs and income directly attributable to the transaction and determinable at the start. Subsequently, they are measured at amortised cost using the effective interest method. The effective interest rate is the rate that aligns the present value of cash flows expected throughout the life of the instrument (up to maturity or “expected” maturity, or a shorter period if appropriate) to the net carrying amount of the asset. Use of this rate to calculate interest involves the uniform distribution of interest throughout the life of the instrument. The expected flows have been calculated considering all contractual terms of the instrument and including all fees and base points paid or received by and between the contracting parties, transaction costs and any other premium or discount that is measurable and considered an integral part of the effective interest rate of the transaction. If it is not possible to obtain a reliable estimate of the expected cash flows or of the expected life of the instrument, the contractual cash flows determined according to the terms set for the instrument are used instead. The amortised cost is not calculated for short-term transactions if the effect is considered immaterial and for loans without a defined maturity or revocable loans. These loans are measured at historical cost and costs/revenue related to them are recognised in the income statement on a straight-line basis over the contractual term of the loan. At the end of each reporting period, these financial assets are tested for impairment. Evidence of impairment originates from one or more events occurring after the initial recognition of the asset, which have an impact on the estimated future cash flows of the financial asset (or group of financial assets) that can be reliably estimated.

Instruments which, based on the regulations of the Bank of Italy, have been designated as bad, unlikely to pay or past due non-performing have been assessed on an analytical basis.

Non-performing loans are classified, in accordance with the criteria set by the Bank of Italy, as follows: - Bad loans: on and off-statement of financial position exposures to insolvent customers (even if they have not yet been legally acknowledged as such) or customers in similar positions, regardless of any anticipated loss formulated by the Bank; The exposures whose anomalous situation is attributable to profiles pertaining to country risk are excluded; - Unlikely to pay: on and off-statement of financial position exposures whereby the debtor is assessed by the Bank as unlikely to pay its credit obligations in full (for the

122 principal and interest) without realisation of collateral, regardless of the presence of any due and not paid amounts (or instalments); - Past due non-performing: cash exposures, other than those classified as bad or unlikely to pay, which, at the date of reference of the report, are past due or overrun for over 90 days. Regarding the methods to calculate past due loans, only the debtor approach on all the portfolio positions was used as from 1 January 2014. In the analytical testing of non-performing loans, the loss is measured as the difference between the carrying amount and the present value of the future estimated cash flows discounted at the original effective interest rate of the loan. The estimated cash flows take account of the guarantees associated with the loans. In the event that the guarantees are not likely to be enforced, account will be taken of either their present value or their realisable value net of expenses to be incurred to recover the amount due. The analytical impairment loss relates to expected losses on individual non-performing loans. For non-performing loans classified as unlikely to pay, which have a limited unitary amount, or as past due non-performing, the expected loss is calculated by homogenous categories according to internal statistical models and analytically applied to each position. Where the causes giving rise to previous impairment losses no longer exist, the reversals of impairment losses on previously impaired loans are recognised in the income statement.

Loans and receivables with customers for which no individual objective evidence of impairment was assessed, are measured on a collective basis. For the purposes of calculation, these assets are grouped based on similar credit risk characteristics representing the debtor’s capacity to pay all amounts due according to the contractual terms. The valuations on a collective basis recognise the losses already incurred but not yet expressed on the valuation date, on the basis of historical experiences of losses for assets with credit risk characteristics similar to those considered. The impairment loss made on a collective basis is calculated by associating a probability of default (the PDs used for estimating the rate of depreciation are equal to the PDs estimated for the rating models, which represent a long-term floor, and the average of the default rates recognised over the last three years (2012-2013-2014), whichever higher) and a loss rate in case of default (LGD - Loss Given Default) homogeneous by rating class. The average delay between the deterioration of the financial conditions of a debtor and its classification among non-performing exposures is the period of confirmation of the loss (LCP - Loss Confirmation Period). Therefore, the valuation on a collective basis is determined as an expected loss obtained as the product between the risk factors PD and LGD (which have a time horizon of one year) and LCP, expressed as a fraction of a year. Financial assets or parts thereof are derecognised when the contractual rights to the cash flows expire or are transferred without retaining substantially the associated risks and benefits. If a significant portion of the risks and benefits attached to the financial assets remains upon transfer of their legal ownership, they will continue to be recognised in the financial statements.

Loan repurchase agreements These are spot purchases of securities negotiated together with the obligation of forward sale.

As all the risks connected with the title to the securities are borne by the seller, only a loan to the seller is recognised. The spreads between spot and forward prices, including the accrued interest and the share of any issue premium, are recognised on an accrual basis in the income statement items dealing with interest and similar income.

123 Finance leases Loans and receivables with customers for leased assets are initially recognised at the effective date of the corresponding agreements, i.e. upon formal delivery of the asset.

Loans and receivables with customers for leased assets are stated in the financial statements at amortised cost, that is the initial value of the investment including direct costs initially incurred and any directly attributable commissions, less any capital repayment and adjusted by the amortisation calculated using the effective interest method, i.e. by discounting the future estimated payments at the effective interest rate for the estimated term of the loan. Similar criteria to the above ones are followed for impairment losses and reversals of impairment losses.

Exposures subject to granting (forbearance) The renegotiations of exposures due to the financial difficulties of the customer are those in which the bank grants the customer:

- a change in previous contractual terms and conditions in that the debtor will not be able to pay because of its financial difficulties; this change would not have been granted if the debtor had not been in financial difficulties or - a partial or total refinancing of the debtor, which would not have been granted if the debtor had not been in financial difficulties, meaning by refinancing a new contract that allows to repay all or part of the original contract.

The records that the bank has recognised a grant are a difference in favour of the debtor between the amended and the previous terms of the contract or an amendment to the contract that includes better conditions compared to other debtors with similar risk characteristics. The financial difficulties arise if the amended contract was classified as non-performing, or, in the absence of amendments, it would have been classified as non-performing; the amendment to the contract involves a total or partial writing-off of the debt; the bank approves the use of clauses in the contracts for which the debtor would be considered non-performing without the use of such clause; at the same time or shortly before the granting of a further loan, the debtor pays principal or interests on another contract that was non-performing or that would have been classified as non-performing without the loan refinancing.

5 - Financial assets at fair value through profit or loss This item comprises financial assets at fair value through profit and loss on the basis of an option as per IAS 39 (“fair value option”) for specific cases. The Group has not exercised this option.

6 - Hedging transactions Hedging transactions are carried out in order to neutralise the impact of potential losses on individual or a group of financial instruments attributable to a specific risk that may have an impact on the income statement.

124 all or some payments of future interest on a debt with a variable interest rate) or to future transactions that are very likely to have an impact on the income statement; - Hedge of a net investment in a foreign operation: this covers the exposure to currency risk on a net investment in a foreign operation as defined by IAS 21. The Bank adopts the Fair value hedge to hedge the interest rate risk referring to specific assets. Fair value hedge accounting contemplates the income statement recognition of the effects deriving from the fair value change of the hedged element and of the hedging instrument. The hedging is considered as effective when the changes in fair value of the hedging financial instrument neutralise (within the limits ranging from 80% to 125%) the changes in the hedged instrument with reference to the hedged risk.

In particular, the fair value change of the hedged element due to the change in the hedged risk increases/decreases the carrying amount of the asset offset in the income statement in the “Net hedging income (expense)” item as well as the fair value change of the derivative. Both changes in fair value indicated are calculated net of accruals/deferrals accrued that are recognised among interest. The net effect in income statement is represented by any unbalanced difference, or by the partial ineffectiveness of the hedging. When the transaction is carried out, the hedge is formally documented through the definition of the objectives and risk management strategies on the basis of which the hedge was implemented, the hedging instrument, the hedged item, the nature of the risk hedged and how hedge effectiveness is to be measured. The hedge effectiveness is established by comparing the changes in fair value of the cash flows of the hedged instrument, with reference to the risk to be hedged, with the changes in fair value of the cash flows of the hedging instrument. The performance of the prospective and retrospective effectiveness tests are carried out on a regular basis for all the hedging period. Hedging transactions are no longer recorded in the Financial Statements when they prove ineffective, the derivative expires or is sold, extinguished or exercised, the hedged instrument expires, is sold or repaid or the hedge is cancelled. In this case, the derivative contract is reclassified as an instrument held for trading and the hedged instrument reacquires the measurement basis that corresponds to its classification in the financial statements.

7 - Equity investments

Item “100. Equity investments” comprises the carrying amount of equity investments in companies subject to joint control and companies subject to significant influence. Investments in companies subject to joint control are those for which the power of taking decisions relating to the relevant activities is shared between two or more parties. Investments in associates are those for which the Bank exercises significant influence, i.e. has the power to take part in decisions regarding the financial and operating policies but has no further control.

If 20% or more of the voting rights in the shareholders’ meeting of the investee is directly or indirectly held, a significant influence is presumed to exist unless it can be demonstrated to the contrary. In particular, there is no significant influence if, even in the presence of shares exceeding 20% of the investee, only property rights on the investments made are held without having access to management policies and without governance rights.

125 On the contrary, if less than 20% of the voting rights in the shareholders’ meeting of the investee is directly or indirectly held, a significant influence is not presumed to exist unless such influence can be clearly demonstrated.

These equity investments are recorded at cost at the time of initial recording, and subsequently in accordance with the equity method.

The equity investments are subject to impairment in accordance with IAS 36 when their carrying amount exceeds their recoverable amount, defined as the higher of their fair value less costs to sell and their value in use. Fair value is determined based on the best information available to reflect the amount that the entity could obtain, at the end of the reporting period, from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, following the deduction of disposal costs. This value is determined considering the outcomes of recent transactions for similar assets carried out within the same industry sector. Value in use is calculated by using models based on the present value of the future cash flows expected. The party who holds the asset is only required to calculate the recoverable amount if there is evidence of potential impairment. The following elements were considered in evaluating whether there was impairment: - significant negative changes for the associates occurred during the year or will occur in the near future in the area in which the party operates; - the market interest rates or other capital payment rates on investments have increased during the year and it is likely that these increases will influence the discount rate used in the calculation of the value in use of the equity investment and significantly reduce its recoverable amount; - significant changes with an adverse effect on the investee company have taken place during the period, or are expected to take place in the near future; - internal information that the financial performance of the associate or company under joint control is or will be worse than expected; - significant financial difficulties expected in the associate or company under joint control; - the associate or company under joint control is subject to insolvency proceedings; - quantitative indicators referred to the significant and long-lasting fair value decreases to below the carrying amount of the financial assets. Specifically, they refer to market quotations or valuations that are 30% or lower than the initial carrying amount or the recognition of quotations or valuations that are lower than the carrying amount for a period of more than 18 months; - recognition of a dividend for investments in companies subject to joint control and associates if: - the carrying amount of the equity investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the net assets of the investee, including the related goodwill; - the dividend exceeds the total comprehensive income of the jointly controlled entity or associate during the financial period in which it is declared.

In the presence of impairment indicators, the impairment is recognised to the extent that the recoverable amount is lower than the recognition value, allocating the relative adjustment to the income statement. Should the reasons for the impairment cease to exist following a subsequent event, a reversal of impairment loss is recorded in the income statement.

Equity investments are derecognised when the contractual rights to the corresponding cash flows expire or when they are sold substantially transferring all related risks and benefits.

126 8 - Property, equipment and investment property Property, equipment and investment property purchased on the market are recognised as assets under “110. Property, equipment and investment property” when the main risks and benefits associated with the assets are acquired. The “Operational property and equipment” are assets used to carry out the business, assuming that they will be used for a time period more than one year, while “Investment property” is the asset that provides rental income or held for appreciation of invested capital or both.

Initial recognition is at cost, including all directly related charges, both for the operational property, equipment and investment property. Land is recognised separately, even when purchased together with the building, using a component approach. Land and buildings are separately assessed on the basis of specific appraisals and only in the case of self-contained buildings.

Assets are subsequently valued at cost, adjusted for related depreciation and losses/recoveries of value.

The depreciable value of property and equipment, identified as the difference between the purchase cost and the residual value, is systematically charged on a straight-line basis over the estimated useful use of the assets according to an allocation criterion that reflects the technical-economic duration and the residual use of each asset item.

Land and artistic assets are not subject to depreciation, as the former has an indefinite useful life and the latter normally increase in value over time.

At each reporting date, if there are indications that the property, equipment and investment property may have suffered an impairment loss, the carrying amount and recoverable amount of the asset (defined as the greater of fair value and value in use) are compared and, if the latter is lower than the carrying amount, the asset is impaired.

The resulting carrying amount, after reversal of impairment, losses on a previously impaired asset may not exceed the carrying amount that would have been determined had there been no impairment in previous periods.

The gain or loss generated from the disposal of a property, plant and equipment is recognised in the profit/loss for the year.

Property, equipment and investment property are derecognised when they are sold or no future economic benefits are expected from their use or disposal.

127 All intangible assets recorded in the financial statements other than goodwill have a finite useful life and are consequently amortised in consideration of said life. According to IAS 36, the recoverable amount of the intangible assets with a definite useful life must however be calculated every time there is evidence of impairment. The impairment test must be made by comparing the carrying amount of the asset with its recoverable amount. An impairment loss must be recognised where the recoverable amount is lower than the carrying amount. The recoverable amount of the asset is the higher between its fair value net of costs to sell and its value in use. In order to calculate the value in use of the intangible asset, reference must be made to its cash flows in current conditions on the impairment test date.

Intangible assets are derecognised when they are sold or when no future economic benefits are expected from their use or disposal.

Goodwill Goodwill generated from business combinations represents the difference between the purchase cost and the fair value at the acquisition date of the assets and liabilities of the acquired company. If positive, it is booked at cost as an asset (goodwill) as it represents the amount paid by the acquirer for the future benefits arising from assets that cannot be either identified as single components or booked separately. If negative, it is recorded directly in the income statement (excess over cost).

Goodwill recorded as an asset must be allocated to the cash-generating units to which it refers (CGU). These units were identified considering the lowest level at which company management estimates the return on investment and considering that this level may not be higher than the reportable segment in the primary or secondary segment presentation established in accordance with IFRS 8 - Operating Segments. For the Group in particular, CGUs were identified as individual entities less the investments in associates and companies subject to joint control classified in the portfolios of Equity investments and of Available-for-sale financial assets, if any, as already tested independently.

The cash-generating unit to which goodwill has been allocated is tested annually for impairment or every time there is an indication that the unit may have undergone impairment.

In accordance with IAS 36, an asset is subject to impairment when its carrying amount exceeds its recoverable amount, or the higher of its fair value less costs to sell and its value in use. Fair value is determined based on the best information available to reflect the amount that the entity could obtain, at the end of the reporting period, from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, following the deduction of disposal costs. This value is determined considering the outcomes of recent transactions for similar assets carried out within the same industry sector. Value in use is calculated by using models based on the present value of the future cash flows expected. The model for the banks assumes that the value of the asset results from the present value of the future distributable cash flows including the excess or lack of Tier 1 ratio at the end of the reference period compared to a pre-established minimum objective and from the final value calculated as perpetual income calculated in accordance with an economically sustainable normalised cash flow and consistent with the long-term growth rate. The income model for companies other than the banks assumed that the value of an asset derives from the discounting of the income flows produced by the company, increased by the terminal value calculated as perpetual income calculated in accordance with an economically sustainable normalised cash flow and consistent with the long-term growth rate.

128 Any negative difference between the carrying amount and the recoverable amount will be recognised in the income statement.

Software Software is recognised at cost, net of the relative amortisation and of any impairment loss. The costs connected to the purchase and development of the software are capitalised when control over the same is acquired and when future benefits that exceed costs are likely to arise over a period of several years.

This intangible asset is amortised on the basis of its relative useful life estimated as a maximum of 3 years, while its residual value is assumed to be zero.

10 - Non-current assets and liabilities held for sale Non-current assets must be classified as held for sale if their carrying amount will be recovered principally through a sale rather than through continuous use. In order for this to occur, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable. Once classified as held for sale, the asset is valued at the lower of its carrying amount and its fair value less costs to sell.

The associated income and expenses, net of related tax effects, are recognised in the income statement in a separate item in case of Discontinued operations.

11 - Current and deferred taxation

Current taxes are recognised in the statement of financial position under tax liabilities. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess must be recognised as a tax asset. Deferred taxation is recognised according to the statement of financial position method, whereby deferred taxes are recognised by comparing the different carrying amounts and tax bases of the items included under assets and liabilities in the statement of financial position.

If these differences in value cause increases or decreases in the taxable income of a subsequent period, they are defined as timing differences: - deductible timing differences will generate a future reduction in the total taxable amount, as they are non-deductible this year. To the extent that a future taxable amount is likely to be available, which can be used to offset the deductible timing differences, deferred tax assets must be recorded. Article 2, paragraphs 55 to 58, of Italian Law Decree no. 225/2010, converted, with amendments, by Italian Law no. 10/2011 as amended, including in particular, those made by Italian Law Decree no. 201/2011, converted, with amendments, by Italian Law no. 214/2011, allows however, upon the occurrence of certain conditions, the conversion into tax assets of the deferred tax assets recorded in the financial statements relating to i) impairment losses on loans and receivables and ii) goodwill and other intangible assets (for this second category, conversion is no longer allowed with reference to deferred tax assets recognised for the first time in the financial statements related to the 2015 financial year); - taxable timing differences create deferred tax liabilities, as they generate taxable amounts in future years, as they are deductible or non taxable in the current year. The relevant deferred tax liabilities are recorded for any other taxable timing difference.

129 Further deferred tax assets can be recognised in connection with the carrying forward of tax losses not used and tax assets not used, the recognition of which is subject to checking the probability of their recovery with future taxable income.

Recognitions of deferred tax liabilities and deferred tax assets is reviewed periodically to take into account any change in rates or tax regulations or a new estimate of the probability of recovering the deductive timing differences. Deferred tax liabilities and deferred tax assets are not discounted as envisaged by IAS 12.

12 - Provisions for risks and charges Provisions for risks and charges are recorded when the bank has a present obligation (legal or constructive) resulting from a past event, when it is probable that an outflow of resources representing economic benefits will be required to settle the obligation, whose amount can be reliably estimated. The amount recorded represents the present value of the amount that a company would reasonably pay in order to extinguish the obligation at the end of the reporting period. If the impact of the temporary deferral of the obligation is considered insignificant, the amount is not discounted. Such provisions are measured at every reporting date and adjusted in order to reflect the best current estimate. If it is no longer likely that the resources producing economic benefits will be used to meet the obligation, the provision is reversed and any excess is recorded in the income statement. In particular, the item includes provisions relating to the dispute that are determined by considering, if available, the amount requested by the counterparty, the technical estimate carried out internally based on the accounting records and/or presented during the trial and, in particular, the amount assessed by the court-appointed expert (CTU) - if provided - as well as legal interests, calculated from the notification of the application initiating proceedings and any expense due for adverse outcome.

They also include the provisions relating to long-term benefits for employees whose amount is calculated by applying the estimate of future payments based on historical and statistical analyses, the demographic curve and the discounting of these flows using a market interest rate; actuarial gains and losses from changes in the actuarial assumptions previously applied entail a restatement of the liability and are recognised in the income statement.

The determination of the obligation and the defined benefit plan costs must be calculated in a reliable manner, the amount of employee benefits matured in accordance with the work carried out in the current year and prior years. Present values are calculated using the “Projected unit credit method”, which involves the estimate of future payments based on historical and statistical analyses, the demographic curve and the discounting of these flows using a market interest rate.

130 Actuarial gains and losses from changes in the actuarial assumptions previously applied, entail a restatement of the liability and are recognised as an offsetting item to equity reserve shown in the statement of comprehensive income.

13 - Liabilities and securities issued Financial instruments issued are classified as liabilities when, according to the substance of the agreement, the Bank has a contractual obligation to deliver cash or another financial asset to another entity. Outstanding amounts due to banks and customers and securities issued mainly represent the funding collected on the inter-bank market and from customers also through the placement of bonds and certificates of deposit.

The items also include payables for commitments to repurchase own equity instruments if the conditions for their recognition are applicable. Financial liabilities or parts thereof are derecognised when extinguished, i.e. when the obligation has been met, cancelled or has expired. They are derecognised also following their repurchase on the market. The derecognition is made on the basis of the fair value of the issued item and of the repurchased item at the purchase date. The profit or loss resulting from the transaction, depending on whether the carrying amount of the repurchased item is higher or lower than the purchase price, is recorded in the income statement. The subsequent replacement of the securities is considered as a new issue, recognised at the new placement price.

Deposit repurchase agreements These are spot sales of securities negotiated together with the obligation of forward repurchase.

As the risks associated with the securities underlying the transactions are not transferred, these securities are recorded in the financial statements along with the related liability. The spreads between spot and forward prices, including the accrued interest and the share of any issue premium, are recognised in the income statement on an accruals basis items as interest and similar income.

14 - Financial liabilities held for trading

Trading liabilities are represented by trading derivative financial instruments with a negative fair value. They are recognised at the subscription or issue date at a value equal to the fair value of the instrument, without considering any directly attributable transaction cost or income. Trading liabilities are recognised at fair value and changes are recognised in the income statement. They are derecognised from the financial statements when the contractual rights to the corresponding cash flows expire or when they are sold substantially transferring all related risks and benefits.

131 15 - Financial liabilities at fair value This item comprises financial liabilities at fair value through profit or loss on the basis of an option as per IAS 39 (“fair value option”).

The Group has not exercised this option.

16 - Foreign currency transactions Transactions denominated in foreign currency are translated, at initial recognition, into the reporting currency by applying the exchange rate ruling on the transaction date.

At the end of each subsequent reporting period: - the monetary elements are retranslated at the spot closing rate; - the non-monetary elements measured at historical cost are retranslated using transaction’s date exchange rate; - the non-monetary elements measured at fair value are retranslated at the exchange rate ruling on the date when the fair value was determined. A monetary element represents the right to receive, or the obligation to pay, a fixed or determinable amount of money. Conversely, the key characteristic of non-monetary items is the absence of the right to receive, or the obligation to pay, a set amount of money or an amount that can be determined. The exchange rate differences relating to monetary items are recorded in the income statement as and when they arise; those related to non-monetary items are recorded in equity or in the income statement in line with the method used to record the profits or losses that include that component. Revenue and expenses in foreign currency are shown at the exchange rate prevailing at the time they are recorded or, if accruing, at the closing rate.

17 - Insurance assets and liabilities The consolidated financial statements do not include insurance assets or liabilities.

18 - Other information

Real estate inventory Real estate inventory is recorded in the item “Other assets” and are measured at cost or net realisable value, whichever lower. The cost of the inventories includes all purchase and conversion costs incurred by the entity in order for the inventories to reach their current location and conditions. The net realisable value can be identified in the market value net of finalisation costs and costs to sell.

Business combinations IFRS 3 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 acquisitions of equity investments in subsidiaries, mergers, the acquisition of business units 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.

132 A subject controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and is also able to use its power over the investee to affect these returns.

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: - the relative voting rights in the combined entity after the business combination; - the existence of a large minority voting interest in the combined entity if no other owner or organised group of owners has a significant voting interest; - the composition of the management of the combined entity; - the composition of the senior management of the combined entity; - terms of the exchange of equity interests. 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 acquirer 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. The consideration transferred in a business combination must be measured 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 acquirer transfers in exchange for the acquiree includes any asset or liability resulting from a contingent consideration arrangement.

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 carrying amount.

133 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 non-controlling interest in the acquiree can be recognised at fair value, with the resulting increase in the transferred consideration, or in proportion to the non-controlling interest in net identifiable assets of the acquiree. For the transactions carried out, the Group recognised the non-controlling interests in proportion to the share of the minority interest in the identifiable net assets of the acquiree without increasing the consideration transferred, hence by recognising only its own share of goodwill.

Following the purchase of control of a company, further equity investments are accounted for by recognising the difference between the purchase price and the carrying amount of the non- controlling interests purchased in equity attributable to owners of the parent. Similarly, the sale of the non-controlling interest without loss of control will not generate profits/losses in the income statement, but variations in equity attributable to the owners of the parent.

IFRS 3 does not apply to business combination transactions between parties subject to common control.

These types of business combinations, usually achieved as part of company reorganisations, are therefore accounted for by preserving the continuity of the values of the acquiree in the financial statements of the acquirer. In particular, the acquired assets and liabilities were recorded at the carrying amounts resulting from the consolidated financial statements of the Group. The business combinations carried out at a date before January 2011 were recorded in accordance with the provisions of the previous version of IFRS 3 (not revised). In particular, the events following the acquisition of control were treated differently. For the transactions carried out before 31 December 2010, the restatement of the additional consideration, calculated during the acquisition of control of the company, involves the adjustment of the originally calculated cost of the business combination.

Criteria for the preparation of segment reporting Segment reporting is prepared on the basis of IFRS 8 - Operating Segments. This standard requires that companies base their segment reporting on elements used by management to make their operating decisions, and therefore calls for the identification of operating segments according to the internal reporting system regularly reviewed by management (the management approach) in order to allocate resources to the various segments and analyse performance.

An operating segment is a component of an entity: - whose business activities generate revenue and costs; - whose operating results are periodically reviewed by the entity’s chief operating decision maker; - for which discrete financial information is available. 134 The Group has an organisational-corporate structure including companies focusing on banking business, on the provision of specialist financial services and support activities. The specialisation and the unique nature of each Group entity’s mission allow the assignment of each company or its divisions to a specific segment. Therefore, an analysis of the specific divisions of the Credito Valtellinese Group and compliance with the requirements of IFRS 8 resulted in the identification of the following three operating segments: - the Market segment: generates its revenue from the production and sale of lending products and services, investment and transfer services for the Group’s customers (traditionally households, trades, professionals and SMEs). The statement of financial position and income statement items for this segment refer to the Group’s territorial banks (Credito Valtellinese, Credito Siciliano and Carifano); - the Specialised Company sector: generates its revenue from the distribution of bancassurance products. The statement of financial position and income statement items for this segment refer to Global Assicurazioni and Global Broker; - the Corporate Centre segment: monitors ICT management and development and manages the Group’s real estate assets. The statement of financial position and income statement items for this segment refer to Stelline Real Estate and Creval Sistemi e Servizi.

For segment reporting and comments in the notes to the financial statements, information is allocated to the three operating segments with reference to the following criteria: - the assets and liabilities of Group companies, net of consolidated and intragroup entities, are recognised in full to the reference segment, except for available-for-sale assets represented by shares held for investment purposes and equity investments in companies that, as they cannot be allocated to any of the operating segments, are indicated separately as assets not linked to any other segment; - all income components of Group companies, net of consolidated and intragroup accounts, except for dividends, profit of equity-accounted investees and gains on sales of assets available-for-sale and represented by shares held for investment purposes, are recognised to the related operating segment; - the net interest income has been determined using applicable internal rates of transfer.

Post-employment benefits Post-employment benefits fall within the benefits following the end of the employer-employee relationship defined by the IAS 19 according to two different types:

- defined benefit plans;

- defined contribution plans. A defined benefit plan is a post-employment benefit plan according to which the company has the obligation to pay its employees the benefit agreed. The reform of supplementary pension plans has adjusted the accounting treatment of post-employment benefits. In particular, only vested post-employment benefit accrued up to 31 December 2006 continues to be considered as a “defined benefit plan” to be assessed by actuaries according to the “Projected Unit Credit Method”, as provided by IAS 19. The liability associated with the vested post-employment benefit is assessed by actuaries without applying the pro-rata of the service rendered, as the service to be assessed has already fully accrued. Actuarial gains and losses from changes in the actuarial assumptions previously applied, entail a restatement of the liability and are recognised as an offsetting item to equity reserve shown in the statement of comprehensive income. Defined contribution plans envisage the payment by the company of fixed contributions into a fund. The company has no legal or constructive obligation to make further payments if the 135 fund does not have sufficient assets to pay all of the employees’ entitlements for the service rendered in the current year and in previous years. The company records the employee’s payments into the fund as a liability after deducting any contribution already paid. If, at the end of the reporting period, the contributions paid are higher than those actually due, the excess must be accounted for as an asset to the extent that the advance payment will reduce future payments or give rise to a reimbursement. Following the coming into force of the 2007 Finance Act and of D.P.C.M. no. 29 of 2015, the portion of the post-employment benefits that have accrued since 1 January 2007 were allocated, at the employee’s option according to explicit or tacit acceptance:

- to supplementary retirement plans, - to the Treasury Fund managed by INPS,

- paid as an integral part of the salary for the pay period as from March 2015. A defined contribution plan is configured in this area. The amount of the benefits is determined based on the contributions due by the employee without using actuarial calculations.

Treasury shares Shares issued and repurchased are recorded as a direct reduction of equity. No profit or loss resulting from the purchase, sale, issue or cancellation of said instruments is recorded in the income statement. Any amount paid or received for said instruments is recorded directly under equity. A specific reserve is recorded, pursuant to Article 2357-ter of the Italian Civil Code.

Guarantees and commitments Guarantees given are initially recognised at their fair value, represented by the commission received, and subsequently at the higher of the estimated obligation and the initially booked amount gradually reduced by the portion related to the year. The overall nominal value of guarantees given, net of amounts used, is highlighted in the notes to the financial statements.

Commitments are entered in the financial statements on the basis of the best estimate of the obligation determined according to IAS 37. The overall amount of the commitment assumed is shown in the notes to the financial statements. On a regular basis, these exposures are assessed for objective evidence of an impairment loss: the methods envisaged for determining impairment losses are shown in point 4 - Loans and receivables. Moreover, with reference to the model for determining collective impairment losses, the prescribed credit conversion factor (CCF) is used. The provisions related to impairment losses on guarantees and commitments are recognised in the statement of financial position in item “100. Other liabilities” whereas the regular provision is recognised in the income statement in item “130. d) Net impairment losses on other financial transactions”.

Accounting of revenue and costs Revenue resulting from the third-party use of company assets generating interest, commissions and dividends must be recorded when it is probable that the economic benefits associated with the transaction will flow to the company and the amount of the revenue can be measured reliably.

136 Interests are recognised on a pro rata basis according to the contractual rate of interest or the actual rate (in the case of the application of amortised cost). Default interests are recorded at the time of their actual collection. Dividends are recognised in the income statement during the financial year in which their distribution is resolved. Commissions on revenues from services are recognised, on the basis of contractual agreements, in the period in which the actual services are provided, with the exception of the commissions included in the amortised cost for determining the effective interest rate.

The costs are recognised in the period when they are incurred, following the criterion of correlation between costs and revenues that derive directly and jointly from the same transactions or events. If the correlation between costs and revenues is possible only in a generic and indirect way, the costs are recognised in more periods according to a systematic allocation method. If the costs can be associated to the revenues, these are recognised immediately in the income statement.

Use of estimates and assumptions in drawing up the financial statements

In drawing up the financial statements, estimates and assumptions were used that may affect the carrying amounts recorded in the statement of financial position, income statement and the notes.

More specifically, subjective evaluations by company management were made in the following cases: - to quantify the impairment of financial assets, especially loans and receivables, equity investments and property, equipment and investment property; - to determine the fair value of financial instruments to be used for financial reporting and the use of valuation models to determine fair value of financial instruments that are not quoted on active markets; - to assess the reasonableness of the amount of goodwill and of the other intangible assets; - to quantify employees’ provisions and provisions for risks and charges; - the actuarial and financial assumptions used to determine liabilities associated with defined benefit plans for employees; - estimates and assumptions made with regard to the recoverability of deferred tax assets. In order to formulate reasonable estimates and assumptions for the recording of business transactions, subjective assessments are made based on all information and historical experience available.

A.3 - INFORMATION ON TRANSFERS BETWEEN PORTFOLIOS OF FINANCIAL ASSETS

In 2015, the Group did not make any transfers between portfolios of financial assets as required by IAS 39.

137 A.4 - FAIR VALUE INFORMATION

QUALITATIVE INFORMATION

The fair value is the price at which an asset can be sold or a liability can be transferred in a regular transaction between market participants at a certain valuation date. The fair value represents a market measurement basis, not related to the individual company and must be measured by adopting assumptions that the market operators would use to determine the price of the asset or of the liability, assuming that they act to meet their economic interest in the best way possible.

The fair value of a financial liability that is due (for example, a sight deposit) cannot be less than the amount payable on demand, discounted from the first date on which payment may be required. IFRS 13 establishes a classification of financial instruments measured at fair value according to the degree of observability of the inputs analysed for the measurement. Specifically, there are three levels of classification: - level 1: the fair value of the classified instruments in this level is measured on the basis of quoted prices observable in active markets; - level 2: the fair value of the classified instruments in this level is measured on the basis of valuation models that use inputs observable in active markets; - level 3: the fair value of the classified instruments in this level is measured on the basis of valuation models that use mainly inputs unobservable in active markets. For financial instruments valued at fair value on a recurring basis, the Group adopted a Policy that assigns higher priority to the use of parameters observable on the market and a lower priority to valuation techniques that do not consider market parameters. In particular, this Policy specifies the order of priority, the methods and the general conditions that determine the choice of one of the following valuation techniques: - Mark to Market: valuation method that coincides with the Level 1 classification of the fair value hierarchy; - Comparable Approach: valuation method based on the use of inputs observable on the market the use of which implies a Level 2 classification of the fair value hierarchy; - Mark to Model: valuation method related to the application of pricing models whose inputs determine the Level 3 classification (use of at least one significant input that cannot be observed) of the fair value hierarchy. In the case of financial instruments quoted in active markets, the fair value is determined on the basis of the official prices of the market to which the Group has access (Mark to Market). A financial instrument is considered to be quoted in an active market if the quotations are immediately and duly available from sources such as stock exchanges, dealers, brokers, pricing agencies or regulatory authorities, and these prices represent actual market transactions that occur regularly in normal trading. If the official price in an active market does not exist for a financial instrument as a whole, but there are active markets for the parts forming it, the fair value is measured on the basis of the relevant market prices for the parts forming it.

If, for a given financial instrument, the conditions for identifying an active market do not exist and therefore it is not possible to carry out the Level 1 classification of the fair value hierarchy and the consequent application of a Mark to Market approach, it will be necessary to use a technical valuation, that is to say a process that allows to identify a price at which the

138 instrument could be exchanged between knowledgeable willing parties in an arm’s length transaction. If this technical evaluation is based on inputs observable on the market, the instrument is classified as Level 2 and a Comparable Approach is applied. If the adopted valuation techniques also use unobservable inputs and their contribution to the formulation of the fair value is considered to be significant, the valuation of a financial asset or liability is to be considered Level 3 (Mark to model).

The measurement criteria of portfolios measured at fair value or for which the fair value is indicated in the notes to the financial statements in accordance with IFRS 7, are provided below .

Bonds Bonds are measured depending on the liquidity of their reference market. Liquid instruments quoted in active markets are assessed at mark to market and the positions are classified as level 1 of the fair value hierarchy. If there are no prices that meet the criteria for determining the market as an active market, the method of comparison with similar bonds listed on info- provider (comparable approach) or the price in a market that is not active or the mark to model valuation apply and it is classified as level 2 of the fair value hierarchy. If it is not possible to determine a fair price by applying the above criteria, the instrument is placed at level 3 and the price is determined through a specific request to a market broker or by implementing an ad hoc pricing model.

ABS and structured securities In case of securities with implied optionals that cannot be separated or securities representing bank assets (e.g. ABS, MBS) or similar (e.g. CDO, MBO), given the absence of prices on the market or of observable inputs to refer to, the security is classified as level 3. An approximate valuation provided by third parties is used, including the issuer of the security.

Equity instruments With respect to equity instruments, if a price is present in an active market, they are classified as Level 1 in the fair value hierarchy. If there is no active market, if possible, a theoretical valuation of the security is carried out (the security is classified as Level 3 if the parameters used are unobservable in the market). If the high uncertainty of the inputs produces a wide range of results, the valuation is measured at cost and the security is classified as Level 3. The equity instruments are classified as level 2 only if a price is present but the reference market is significantly reduced.

Mutual investment funds and OEIC units

They are classified within Level 1 when a bid/ask price representative of an active market and of a possible transaction price is available. Alternatively, they are designated on the basis of the official Net Asset Value (NAV) at the reporting date. As regards the fair value levels, they are presented as Level 2 or 3 depending on the availability of the NAV, the transparency of the portfolio and the possibility of liquidating the positions. For real estate funds unlisted on the market, the fair value is determined by adjusting the NAV for the probability of default of the fund and the expected recovery rate, determined on the basis of an internal model. Given the significance of the parameters non-observable on the market included in the model, the Real Estate Funds are classified as Level 3 in the fair value hierarchy.

139 For the units held in unlisted real estate funds acquired by means of contributions of properties owned by the bank, considering the way in which the NAV is calculated, the fair value is calculated without the adjustment mentioned above.

Certificates and Covered Warrants With regard to the valuation of certificates and covered warrants, in the presence of an active market, the instruments are placed within level 1 in the fair value hierarchy. The criteria for determining a fair price are, in descending order of priority, the last operating price on regulated markets or multilateral trading systems or the last trading price on regulated markets or multilateral trading systems (known as Last Trade Price). If there is no active market, since it is not possible to carry out an accurate theoretical pricing, the positions in certificates are measured by means of an approximate valuation/pricing of a market broker and/or issuer or with the last market valuation available and are assigned within level 2 or level 3 in the fair value hierarchy on the basis of the observability of the used inputs.

Derivatives Positions in futures on government bonds and interest rates are valued using the closing price of the last business day. Therefore, these instruments must be considered as Level 1 in the fair value hierarchy. The market value of OTC derivatives is calculated using pricing models that use market parameters as input. In markets that are not active and for particular types of instruments, for which prices and input parameters are unobservable, the fair value is calculated using an ad hoc valuation method for each instrument considered (mark to model ).

The measurement criteria of portfolios not measured at fair value, but for which disclosures are required in accordance with IFRS 7, are provided below.

Loans and receivables with banks and customers and due to banks and customers and Securities issued For financial instruments recognised at amortised cost and classified under loans and receivables with banks or customers and under securities issued, the fair value is determined for disclosure purposes as follows:

140 - for assets and liabilities on demand or with a short-term, the carrying amount at which they are recognised is considered a good approximation of fair value. The fair value thus determined is traditionally classified as level 3 in the fair value hierarchy; - for issues of bond loans recognised at amortised cost, the fair value is measured referring to existing listing on an active market or on the basis of a valuation technique based on the discounting of the bond’s cash flows carried out by using the specific interest rate curve, suitably adjusted to account for changes in own creditworthiness based on the methodology described above for the valuation of the Bonds. The same applies to the considerations on the fair value hierarchy; - for debt instruments classified in the portfolio of “Loans and receivables with banks and customers”, the fair value was determined by using valuation models, as described above for financial assets and liabilities designated at fair value.

Non-financial assets - Investment property held for investment purposes The fair value is determined in all cases by means of external surveys, whose point of reference is represented by the current prices for similar assets (value per square metre referred to by the most popular Observatories, prices of similar transactions). This value is usually adjusted to reflect the special characteristics of the item being assessed such as, by way of example, the commercial and geographical location, accessibility and existing infrastructures, the urban context, the state of preservation, size, any easement, the state of outdoor/indoor plants. As a result of these corrective actions, which depend significantly on the estimates made by the external expert, the amounts determined are characterised by elements of judgment and subjectivity; the fair value thus obtained is classified as level 3 in the fair value hierarchy.

A.4.1 Levels of fair value 2 and 3: valuation techniques and inputs used

If this technical evaluation is based on inputs observable on the market, the instrument is classified as Level 2 and a Comparable Approach is applied.

The technical evaluation schemes applied in this case include: a) the use of recent market transactions between two informed and independent parties; b) the reference to the fair value of a financial instrument that has the same characteristics; c) cash flow discount techniques; d) the enhancement techniques of the options; e) the use of pricing techniques widely spread among operators, making sure that these produce prices in line with those used in the actual trade.

Only points c) and d) identify methods for the construction of quantitative models. The most commonly used model for the measurement of fair value is the Discounted Cash Flow Model that contemplates the discounting back of expected cash flows at a rate adjusted for the risks related to the instrument. The market inputs used within the Comparable Approach are:

141 - prices listed on active markets for similar assets or liabilities; - prices listed for the analysed instrument or for similar instruments on markets that are not active, i.e. markets where there are few transactions. The prices are not current or vary substantially in time and among different market makers or little information is made public; - observable market inputs (e.g. interest rates, observable yield curves, credit spreads, listed volatilities); - inputs deriving from observable market data whose report is corroborated by parameters including correlation.

If the adopted valuation techniques also use unobservable inputs and their contribution to the formulation of the fair value is considered to be significant, the valuation of a financial asset or liability is to be considered Level 3. The Mark to model Approach applies to all financial instruments for which an active market is not available when: - significant adjustments are required based on non-observable data on the observable data used; - the estimated fair value is based on the Bank’s internal assumptions on future cash flows and on the discount curve used; - the complexity of the valuation methods is such as to lead to a significant risk model. The main models used in reference to this approach are: - for real estate funds, a NAV adjustment model designed to take into account the risk of default of the issuer; - for structured bonds, the Discounted Cash Flow Model applied on the basis of estimates of future cash flows and/or of the discount factor; - for equity instruments, the Market Approach (model based on market multiples and price matrixes).

A.4.2 Processes and sensitivity of measurements The Group has carried out an assessment of potential impacts of sensitivity to unobservable market parameters in the valuation of instruments classified in Level 3 of the fair value hierarchy and measured at fair value on a recurring basis. This assessment showed that these impacts are not significant compared to the represented situation. In particular, the portfolio of instruments measured at fair value on a recurring basis and classified within Level 3 of the fair value hierarchy mainly consists of investments, subject to impairment test should the conditions occur, and of investments in fund units.

A.4.3 Fair value level

As shown above, IFRS 13 establishes that the classification of financial instruments measured at fair value is made according to the degree of observability of the inputs analysed for the measurement of instruments. There are three levels of classification: - Level 1: the fair value of the classified instruments in this level is measured on the basis of quoted prices observable in active markets; - Level 2: the fair value of the classified instruments in this level is measured on the basis of valuation models that use inputs observable in active markets; - Level 3: the fair value of the classified instruments in this level is measured on the basis of valuation models that use mainly inputs unobservable in active markets. The levels indicated must be applied in hierarchical order, giving a higher priority to the use of parameters observable in the market that allow the valuation of assets/liabilities, based on

142 assumptions of market participants and a lower priority to valuation techniques that do not consider market parameters and therefore reflect a higher degree of discretion in the valuation by the group.

The points above show the methods with which the fair value levels are assigned.

A.4.4 Other information

The calculation model used for estimating the effect of the default risk of the counterparty and of the issuer in calculating the fair value is the Bilateral Credit Value Adjustment (bCVA).

The Bilateral Credit Value Adjustment (bCVA) can be broken down in two terms, Credit Value Adjustment (CVA) and Debit Value Adjustment (DVA). These components take into account the probability of default of both counterparties: - the CVA is a negative value that is generated if the counterparty defaults before the expiry of the transaction and the Bank has a positive exposure (future positive mark-to- market) with regard to the counterparty. In this case, the Bank incurs a loss of an amount equal to the replacement cost of the derivative itself. The CVA is the discounted value of expected future losses; - the DVA is a positive value that is generated if the counterparty defaults before the expiry of the transaction and has a negative exposure (future negative mark-to- market) with regard to the counterparty. In this case, the counterparty incurs a loss of an amount equal to the replacement cost of the derivative itself. The DVA of the Investor is the discounted value of expected future losses of the counterparty.

143 QUANTITATIVE INFORMATION

A.4.5 Fair value level

The following tables show the distribution of portfolios of financial assets and liabilities measured at fair value on the basis of the mentioned levels and the annual changes occurred in the assets and liabilities of the types classified as level 3, respectively.

A.4.5.1 Assets and liabilities measured at fair value on a recurring basis: division by level of fair value

31/12/2015 31/12/2014 Financial assets/liabilities at fair value L1 L2 L3 L1 L2 L3 1. Financial assets held for trading 50,116 1,634 1 56,666 5,121 -

2. Financial assets at fair value through profit or loss ------

3. Available-for-sale financial assets 5,148,568 10,159 162,686 6,696,680 28 92,898

4. Hedging derivatives ------

5. Property, equipment and investment property ------

6. Intangible assets ------

Total 5,198,684 11,793 162,687 6,753,346 5,149 92,898

1. Financial liabilities held for trading - 1,859 - - 3,233 -

2. Financial liabilities at fair value through profit or loss ------

3. Hedging derivatives - 269,496 - - 308,718 -

Total - 271,355 - - 311,951 -

Key: L1 = Level 1 L2 = Level 2 L3 = Level 3

The transfers occurred involve a limited number of positions referring to debt instruments for which the listing expressed by the markets, normally considered as active, with reference to the observation referred at 31 December 2015 were not considered to be representative of the fair value of an active market. In particular, in 2015, transfers of securities were recognised in the fair value hierarchy from level 2 to level 3 for financial assets held for trading of EUR 2 million and from level 2 to level 1 for non-significant amounts.

The overall data of the DVA for derivative transactions at 31 December 2015 amounts to EUR 17 thousand, whereas the overall data of the CVA for derivative transactions at 31 December 2015 amounts to EUR 32 thousand.

144 A.4.5.2 Annual changes of assets at fair value on a recurring basis (level 3)

Property, Financial Available-for- equipment Financial assets assets at fair Hedging Intangible sale financial and held for trading value through derivatives assets assets investment profit or loss property 1. Opening balance - - 92,898 - - - 2. Increases 2,111 - 81,402 - - - 2.1 Purchases - - 35,775 - - - 2.2 Gains recognised in: - - 2,419 - - - 2.2.1 Profit or loss - - 2,419 - - - - of which gains on sales ------2.2.2 Equity X X - - - - 2.3 Transfers to other levels 2,083 - - - - - 2.4 Other increases 28 - 43,208 - - - 3. Decreases -2,110 - -11,614 - - - 3.1 Sales - - -6,321 - - - 3.2 Redemptions - - -457 - - - 3.3 Losses recognised in: -2,080 - -4,836 - - - 3.3.1 Profit or loss -2,080 - -1,912 - - - - of which losses on sales -2,080 - -1,911 - - - 3.3.2 Equity X X -2,924 - - - 3.4 Transfers to other levels ------3.5 Other decreases -30 - - - - - 4. Closing balance 1 - 162,686 - - -

A.4.5.3 Annual changes of liabilities at fair value on a recurring basis (level 3)

There are no financial liabilities at fair value (level 3).

145 A.4.5.4 Assets and liabilities not measured at fair value or at fair value on a non-recurring basis: division by level of fair value

31/12/2015 31/12/2014 Financial assets/liabilities not measured at fair value or at fair value on a non-recurring basis CA L1 L2 L3 CA L1 L2 L3

1. Held-to-maturity investments ------

2. Loans and receivables with banks 713,089 - 22,866 690,257 839,489 - 29,200 810,474

3. Loans and receivables with 19,049,750 - 787,606 18,962,216 19,004,863 - 1,507 19,431,854 customers

4. Investment property 64,543 - - 84,601 48,032 - - 56,162

5. Non-current assets held for sale and disposal groups 2,478 - - 2,478 3,191 - - 3,191

Total 19,829,860 - 810,472 19,739,552 19,895,575 - 30,707 20,301,681

1. Due to banks 2,040,112 - 1,766,343 216,015 4,837,374 - 155,386 4,675,568

2. Due to customers 17,612,269 - 3,692,979 13,925,738 15,552,676 - 2,353,768 13,200,361

3. Securities issued 4,082,687 - 3,685,023 476,511 5,192,893 417,534 4,161,177 696,029

4. Liabilities associated with discontinued operations - - - - 573 - - 573

Total 23,735,068 - 9,144,345 14,618,264 25,583,516 417,534 6,670,331 18,572,531

Key: CA = Carrying amount L1 = Level 1 L2 = Level 2 L3 = Level 3

A.5 - INFORMATION ON THE “DAY ONE PROFIT/LOSS”

Turning to the “Day One Profit” (difference at the time of the first recognition, not recognised immediately in the income statement, according to the provisions of par. AG76 and AG76A of IAS 39, between the transaction price and the value obtained by using valuation techniques that apply parameters that cannot be observed on the market), taking into account the composition of the financial instrument portfolio and the results of the analyses carried out, no significant amounts of this nature were identified.

146 PART B - INFORMATION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS

SECTION 1 - CASH AND CASH EQUIVALENTS - ITEM 10

1.1 - Cash and cash equivalents: breakdown

31/12/2015 31/12/2014 a) Cash 175,462 194,289 b) Deposit accounts with central banks - - Total 175,462 194,289

SECTION 2 - FINANCIAL ASSETS HELD FOR TRADING - ITEM 20

2.1 - Financial assets held for trading: breakdown by type

Item/Amounts 31/12/2015 31/12/2014 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. On-statement of financial position assets 1. Debt instruments 48,671 776 - 55,165 2,979 - 1.1 Structured instruments ------1.2 Other debt instruments 48,671 776 - 55,165 2,979 - 2. Equity instruments 1,445 - 1 1,500 - - 3. OEIC units ------4. Loans ------4.1 Reverse repurchase agreements ------4.2 Other ------Total A 50,116 776 1 56,665 2,979 - B. Derivatives 1. Financial derivatives - 858 - 1 2,142 - 1.1 trading - 858 - 1 2,142 - 1.2 associated with fair value option ------1.3 other ------2. Credit derivatives ------2.1 trading ------2.2 associated with fair value option ------2.3 other ------Total B - 858 - 1 2,142 - Total (A+B) 50,116 1,634 1 56,666 5,121 -

147 2.2 - Financial assets held for trading: breakdown by debtor/issuer

Item/Amounts 31/12/2015 31/12/2014 A. On-statement of financial position assets 1. Debt instruments 49,447 58,144 a) Governments and Central Banks 13,318 16,863 b) Other government agencies 673 764 c) Banks 35,456 40,517 d) Other issuers - - 2. Equity instruments 1,446 1,500 a) Banks 3 3 b) Other issuers: 1,443 1,497 - insurance companies - - - financial companies - - - non-financial companies 1,443 1,497 - other - - 3. OEIC units - - 4. Loans - - a) Governments and Central Banks - - b) Other government agencies - - c) Banks - - d) Other parties - - Total A 50,893 59,644 B. Derivatives a) Banks - fair value 711 1,307 b) Customers - fair value 147 836 Total B 858 2,143 Total (A+B) 51,751 61,787

Bonds issued by Central governments and Banks are mainly represented by exposures towards the Italian Government.

148 SECTION 4 - AVAILABLE-FOR-SALE FINANCIAL ASSETS - ITEM 40

4.1 - Available-for-sale financial assets: breakdown by type

31/12/2015 31/12/2014 Item/Amounts Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt instruments 5,081,781 10,150 19,980 6,661,708 15 374 1.1 Structured instruments ------1.2 Other debt instruments 5,081,781 10,150 19,980 6,661,708 15 374 2. Equity instruments 66,787 9 89,451 34,972 13 51,019 2.1 At fair value 66,787 9 - 34,972 13 20 2.2 At cost - - 89,451 - - 50,999 3. OEIC units - - 53,255 - - 41,505 4. Loans ------Total 5,148,568 10,159 162,686 6,696,680 28 92,898

Level 3 also contains equity instruments measured at cost.

With reference to Level 3, the difference compared to 31 December 2014 mainly refers to the equity investment in Istituto Centrale delle Banche Popolari of EUR 43,206 thousand and to an AT1 instrument signed by the Bank of EUR 19,605 thousand.

4.2 - Available-for-sale financial assets: breakdown by debtor/issuer

Item/Amounts 31/12/2015 31/12/2014 1. Debt instruments 5,111,911 6,662,097 a) Governments and Central Banks 5,024,316 6,634,218 b) Other government agencies - - c) Banks 58,658 27,505 d) Other issuers 28,937 374 2. Equity instruments 156,247 86,004 a) Banks 51,995 8,803 b) Other issuers: 104,252 77,201 - insurance companies - 418 - financial companies 99,989 35,137 - non-financial companies 4,248 41,631 - other 15 15 3. OEIC units 53,255 41,505 4. Loans - - a) Governments and Central Banks - - b) Other government agencies - - c) Banks - - d) Other parties - - Total 5,321,413 6,789,606

Data at 31 December 2014 restated for a consistent comparison. Bonds issued by Central governments and Banks are mainly represented by exposures towards the Italian Government.

149 4.3 Available-for-sale financial assets subject to specific hedging

Item/Amounts 31/12/2015 31/12/2014 1. Financial assets subject to specific fair value hedging 898,880 862,013 a) interest rate risk 898,880 862,013 b) price risk - - c) currency risk - - d) credit risk - - e) more than one risk - - 2. Financial assets subject to specific cash flow hedging - - a) interest rate risk - - b) currency risk - - c) other - - Total 898,880 862,013

SECTION 6 - LOANS AND RECEIVABLES WITH BANKS - ITEM 60

6.1 - Loans and receivables with banks: breakdown by type

31/12/2015

Type of transaction/Amounts FV CA Level 1 Level 2 Level 3 A. Loans and Receivables with Central 161,815 - - 161,815 Banks 1. Term deposits - X X X

2. Obligatory reserve 161,815 X X X

3. Reverse repurchase agreements - X X X

4 Other - X X X

B. Loans and receivables with banks 551,274 - 22,866 528,442

1. Loans 534,359 - 5,950 528,442

1.1. Current accounts and deposit accounts 19,734 X X X

1.2. Term deposits 5,914 X X X

1.3. Other loans 508,711 X X X

- Reverse repurchase agreements - X X X

- Finance leases - X X X

- Other 508,711 X X X

2. Debt instruments 16,915 - 16,916 -

2.1. Structured instruments - X X X

2.2. Other debt instruments 16,915 X X X

Total 713,089 - 22,866 690,257

Key: FV = fair value CA = Carrying amount

150

31/12/2014

Type of transaction/Amounts FV CA Level 1 Level 2 Level 3 A. Loans and Receivables with Central 135,486 - - 135,486 Banks 1. Term deposits - X X X

2. Obligatory reserve 135,486 X X X

3. Reverse repurchase agreements - X X X

4 Other - X X X

B. Loans and receivables with banks 704,003 - 29,200 674,988

1. Loans 674,989 - - 674,988

1.1. Current accounts and deposit accounts 38,275 X X X

1.2. Term deposits 1,308 X X X

1.3. Other loans 635,406 X X X

- Reverse repurchase agreements - X X X

- Finance leases - X X X

- Other 635,406 X X X

2. Debt instruments 29,014 - 29,200 -

2.1. Structured instruments - X X X

2.2. Other debt instruments 29,014 X X X

Total 839,489 - 29,200 810,474

Key: FV = fair value CA = Carrying amount

Other loans mainly include the items related to the carried out securitisation transactions and margin tradings paid on existing hedging derivatives.

6.2 - Loans and receivables with banks: subject to specific hedging

There are no loans and receivables with banks subject to specific hedging.

6.3 – Finance leases

There are no loans and receivables with banks for finance leases.

151 SECTION 7 - LOANS AND RECEIVABLES WITH CUSTOMERS - ITEM 70

7.1 - Loans and receivables with customers: breakdown by type

31/12/2015

Carrying amount Fair Value Type of transaction/Amounts Performing Non-performing L1 L2 L3 Purchased Other Loans 15,663,708 - 3,356,581 - 786,186 18,932,461 1. Current accounts 3,363,506 - 1,370,375 X X X 2. Reverse repurchase agreements 786,220 - - X X X 3. Mortgages 8,732,228 - 1,702,745 X X X 4. Credit cards, personal loans and 239,572 - 19,558 X X X salary-backed loans 5. Finance leases 520,976 - 99,438 X X X 6. Factoring - - - X X X 7. Other loans 2,021,206 - 164,465 X X X Debt instruments 28,410 - 1,051 - 1,420 29,755 8. Structured instruments - - - X X X 9. Other debt instruments 28,410 - 1,051 X X X Total 15,692,118 - 3,357,632 - 787,606 18,962,216

31/12/2014

Type of transaction/Amounts Carrying amount Fair Value

Performing Non-performing L1 L2 L3 Purchased Other Loans 15,803,384 - 3,192,096 - - 19,423,951 1. Current accounts 3,878,825 - 1,335,576 X X X 2. Reverse repurchase agreements 818,262 - - X X X 3. Mortgages 8,778,572 - 1,557,352 X X X 4. Credit cards, personal loans and 213,145 - 19,723 X X X salary-backed loans 5. Finance leases 582,255 - 114,921 X X X 6. Factoring - - - X X X 7. Other loans 1,532,325 - 164,524 X X X Debt instruments 9,383 - - - 1,507 7,903 8. Structured instruments - - - X X X 9. Other debt instruments 9,383 - - X X X Total 15,812,767 - 3,192,096 - 1,507 19,431,854

Data at 31 December 2014 restated for a consistent comparison.

Item 7. “Other loans” includes instalment and non-instalment sundry facilities of EUR 750,132 thousand, loans for advances on bills of EUR 445,513 thousand, loans and receivables to Cassa Compensazione other than repurchase agreements of EUR 377,239 thousand, import and export loans of EUR 298,162 thousand and loans against security of EUR 60,068 thousand.

152 7.2 - Loans and receivables with customers: breakdown by debtor/issuer

31/12/2015 31/12/2014

Non-performing Non-performing Type of transaction/Amounts Performing Performing Purchased Other Purchased Other

1. Debt instruments 28,410 - 1,051 9,383 - - a) Governments ------b) Other government agencies ------c) Other issuers 28,410 - 1,051 9,383 - - - non-financial companies 5,332 - 1,051 4,310 - - - financial companies 23,078 - - 5,073 - - - insurance companies ------other ------2. Loans to: 15,663,708 - 3,356,581 15,803,384 - 3,192,096 a) Governments 31,490 - 2 4,123 - - b) Other government agencies 52,246 - 5,229 55,412 - 5,014 c) Other parties 15,579,972 - 3,351,350 15,743,849 - 3,187,082 - non-financial companies 9,575,859 - 2,882,961 10,504,837 - 2,785,222 - financial companies 1,915,700 - 92,866 1,323,627 - 57,197 - insurance companies 2,359 - 26 10,562 - 26 - other 4,086,054 - 375,497 3,904,823 - 344,637 Total 15,692,118 - 3,357,632 15,812,767 - 3,192,096

7.3 - Loans and receivables with customers subject to specific hedging

There are no loans and receivables with customers subject to specific hedging.

153 7.4 – Finance leases

Time bands 31/12/2015 Non-performing loans Minimum payments Gross investment Principal Interests of which non- of which guaranteed guaranteed value value Up to 1 year 19,261 60,043 9,087 10,087 69,633 - From 1 year to 5 57,585 168,879 10,756 30,065 200,519 - years Beyond 5 years 22,592 292,054 71,012 26,528 321,264 - Total 99,438 520,976 90,855 66,680 591,416 -

The lease contracts agreed by the Group Banks, mainly consisting of property leasing agreements, have the following characteristics: - all the risks and benefits related to ownership of the goods are transferred to the lessee;

- upon agreement of the contract, the lessee pays an advance deposit, which will be purchased by the lessor once the contract produces income and will reduce the amount financed;

- during the useful life of the contract, the lessee will make regular payments (generally on a monthly basis), which may vary in accordance with the indexing clauses; - upon termination of the contract, the lessee will have the option to purchase ownership of the goods governed by the contract at a price less than the fair value at the date that the option could be exercised, so it is reasonably certain that the option will be exercised.

Since legal ownership of the goods is held by the lessor for the entire duration of the contract, the goods themselves represent the implicit guarantee against lessee exposure, therefore non- guaranteed residuals remain. In the event the goods cannot be currently sold or are subject to rapid obsolescence, the lessee, or the supplier of the goods will be requested to provide additional guarantees.

154 SECTION 10 - EQUITY INVESTMENTS - ITEM 100

10.1 - Equity investments: information on the investment shares

Type of equity investment Type % voting of % rights relations Registered Operating Investor held available office office hip (1) company Name

A. Companies subject to joint control

1. Rajna Immobiliare S.r.l. Sondrio Sondrio 1 Credito Valtellinese 50.00

B. Companies subject to significant influence

1. Global Assistance S.p.A. Milano Milano 2 Credito Valtellinese 40.00

2. Sondrio Città Futura S.r.l. Milano Milano 2 Stelline Real Estate 49.00

3. Sondrio Città Centro S.r.l. in liquidation Sondrio Sondrio 2 Stelline Real Estate 30.00

4. Adamello S.p.A. Milano Milano 2 Stelline Real Estate 10.00

5. Valtellina Golf Club S.p.A Caiolo Caiolo 2 Credito Valtellinese 43.18

Cassa di Risparmio di 6. Fidipersona Società Cooperativa Ancona Ancona 2 18.90 Fano 7. Creset - Crediti, Servizi e Tecnologie S.p.A. Milano Lecco 2 Credito Valtellinese 40.00

8. Finanziaria Laziale S.p.A. in liquidation Frosinone Frosinone 2 Credito Valtellinese 20.00

(1) Type of relationship 1 = joint control 2 = significant influence

The percentage of available votes is not indicated when it corresponds to the percentage of the equity investment. Although the investments are less than 20% of the share capital, equity investments in Fidipersona Società Cooperativa and in Adamello S.p.A. are included among equity investments in companies subject to significant influence by virtue of the significant presence in their Board of Directors and Board of Statutory Auditors of parties related to the Creval Group.

10.2 Significant equity investments: carrying amount, fair value and dividends received

There are no investments considered significant.

10.3 Significant equity investments: accounting information

There are no investments considered significant.

155 10.4 Non-significant equity investments: accounting information

Carrying Post-tax profit (loss) amount of Total Total Total Name from continuing equity assets liabilities revenues operations investments

Companies subject to joint control

1. Rajna Immobiliare S.r.l. 486 946 10 123 40 Companies subject to significant influence 1. Global Assistance S.p.A. 4,123 24,729 16,618 8,221 1,794 2. Sondrio Città Futura S.r.l. 47 9,798 9,702 120 -36 3. Sondrio Città Centro S.r.l. in - 3,109 4,003 57 -124 liquidation 4. Adamello S.p.A. 1,029 13,577 3,284 328 -121 5. Valtellina Golf Club S.p.A. 1,305 7,705 4,561 735 -280 6. Fidipersona Società Cooperativa 105 613 59 13 -57 7. Creset - Crediti, Servizi e Tecnologie 2,460 14,031 7,881 4,814 65 S.p.A. 8. Finanziaria Laziale S.p.A. in -91 2,017 2,473 137 -314 liquidation

Other Post-tax profit Profit (loss) comprehensive Comprehensive (loss) from Name for the year income net of income discontinued (1) income taxes (3)=(1) + (2) operations (2)

Companies subject to joint control

1. Rajna Immobiliare S.r.l. - 40 - 40

Companies subject to significant influence

1. Global Assistance S.p.A. - 1,794 - 1,794 2. Sondrio Città Futura S.r.l. - -36 - -36 3. Sondrio Città Centro S.r.l. in liquidation - -124 - -124 4. Adamello S.p.A. - -121 - -121 5. Valtellina Golf Club S.p.A. - -280 - -280 6. Fidipersona Società Cooperativa - -57 - -57 7. Creset - Crediti, Servizi e Tecnologie S.p.A. - 65 - 65 8. Finanziaria Laziale S.p.A. in liquidation - -314 - -314

The figures relating to equity investments refer to the 2014 financial statements approved by the respective Shareholders’ Meetings.

156 10.5 - Equity investments: annual changes

2015 2014 A. Opening balance 200,797 181,338 B. Increases 255,791 23,872 B.1 Purchases 566 587 B.2 Reversals of impairment losses - 114 B.3 Revaluations 11,227 20,553 B.4 Other increases 243,998 2,618 C. Decreases -447,124 -4,413 C.1 Sales -397,478 -254 C.2 Impairment losses -256 -99 C.3 Other decreases -49,390 -4,060 D. Closing balance 9,464 200,797 E. Total revaluations 1,858 84,332 F. Total impairment losses 347 1,028

Changes in item “B4. Other increases”, item “C.1 Sales” and item “C.3 Other decreases” derive from the sale of Istituto Centrale delle Banche Popolari occurred in December 2015 by 18.4% and from the reclassification of the equity investment in the portfolio of the available-for-sale financial assets for a residual equivalent value of EUR 43,206 thousand and a residual portion of 2%. Item “C.3 Other decreases” also includes the reclassification of the equity investment in Istifid among assets held for sale amounting to EUR 2,203 thousand.

10.6 - Significant valuations and assumptions for establishing the existence of the joint control or significant influence

The existence of significant influence is verified when the company has the power to take part in management and financial decisions of the entity without having the control or joint control by virtue of the voting rights or in the presence of specific contractual agreements. At the end of the financial year, companies subject to significant influence are those whose voting rights are held by 20% or more, except those for which only property rights on the investments made are held without having access to management policies and governance. Moreover, companies subject to significant influence are those whose voting rights are held by less than 20% and there is a significant presence in their Board of Directors and Board of Statutory Auditors of parties related to the Credito Valtellinese Group.

The joint control is the sharing, on a contractual basis and between two or more parties, of the power of taking decisions relating to the relevant activities of a third-party entity or transaction. A joint agreement has the following characteristics: the parties are bound by a contractual agreement and the contractual agreement gives to two or more parties the joint control of the agreement. The type of joint agreement in which one is involved must be determined. The classification of a joint agreement as a joint control asset or as a joint venture depends on the rights and obligations of the parties as part of the agreement. At the end of the year, there is a joint control situation for Rajna Immobiliare S.r.l. The company, with registered office in Sondrio, is held by two shareholders by 50% and it is recorded using the equity method.

157

10.7 - Commitments referred to equity investments in companies subject to joint control

There are no commitments referred to equity investments in companies subject to joint control.

10.8 - Commitments referred to equity investments in companies subject to significant influence

There are no commitments referred to equity investments in companies subject to significant influence.

10.9 - Significant restrictions

There are no restrictions on its capacity to transfer cash or other assets.

158 SECTION 12 - PROPERTY, EQUIPMENT AND INVESTMENT PROPERTY - ITEM 120

12.1 - Property, plant and equipment for functional use: breakdown of assets measured at cost

Asset/Amounts 31/12/2015 31/12/2014 1. Owned 389,699 405,536 a) land 60,345 60,839 b) buildings 296,046 309,461 c) furniture 19,170 21,418 d) electronic systems 4,474 4,024 e) other 9,664 9,794 2. Assets acquired under finance lease - - a) land - - b) buildings - -

c) furniture - -

d) electronic systems - - e) other - - Total 389,699 405,536

12.2 - Investment property: breakdown of assets measured at cost

31/12/2015 31/12/2014

Asset/Amounts Carrying Fair Value Carrying Fair Value amount amount L1 L2 L3 L1 L2 L3

1. Owned 64,543 - - 84,601 48,032 - - 56,162 a) land 9,026 - - 11,876 6,287 - - 7,918 b) buildings 55,517 - - 72,725 41,745 - - 48,244 2. Assets acquired under finance lease ------a) land ------b) buildings ------Total 64,543 - - 84,601 48,032 - - 56,162

12.3 - Property, equipment and investment property used in the business: breakdown of revalued assets

There are no property, equipment and investment property at fair value.

12.4 - Investment property: breakdown of assets measured at fair value

There are no property, equipment and investment property at fair value.

159 12.5 - Property, equipment and investment property used in the business: annual changes

2015 Electronic Land Buildings Furniture Other Total systems A. Opening balance, gross 60,839 456,142 106,325 54,813 131,024 809,143 A.1 Total net depreciations - 146,681 84,907 50,789 121,230 403,607 A.2 Opening balance, net 60,839 309,461 21,418 4,024 9,794 405,536 B. Increases - 5,269 1,598 1,995 3,561 12,423 B.1 Purchases - - 1,598 1,946 3,519 7,063 B.2 Capitalised improvement costs - 5,080 - - - 5,080 B.3 Reversals of impairment losses ------B.4 Fair value gains recognised in: ------a) equity ------b) profit or loss ------B.5 Exchange rate gains ------B.6 Transfers from investment property ------B.7 Other increases - 189 - 49 42 280 C. Decreases -494 -18,684 -3,846 -1,545 -3,691 -28,260 C.1 Sales -52 -333 -73 -49 -52 -559 C.2 Depreciations - -11,262 -3,546 -1,487 -3,639 -19,934 C.3 Impairment losses recognised in: ------a) equity ------b) profit or loss ------C.4 Fair value losses recognised in: ------a) equity ------b) profit or loss ------C.5 Exchange rate losses ------C.6 Transfers to: -369 -7,089 - - - -7,458 a) investment property -369 -7,089 - - - -7,458 b) discontinued operations ------C.7 Other decreases -73 - -227 -9 - -309 D. Closing balance, net 60,345 296,046 19,170 4,474 9,664 389,699 D.1 Total net depreciations - 157,943 88,453 52,276 124,869 423,541 D.2 Closing balance, gross 60,345 453,989 107,623 56,750 134,533 813,240 E. Measured at cost ------

160

12.6 - Investment property: annual changes

2015

Land Buildings A. Opening balance, gross 6,287 49,026 A.1 Total net depreciations - 7,281 A.2 Opening balance, net 6,287 41,745 B. Increases 2,885 16,766 B.1 Purchases 2,468 9,470 B.2 Capitalised improvement costs - 206 B.3 Fair value gains - - B.4 Reversals of impairment losses - - B.5 Exchange rate gains - - B.6 Transfers from operating assets 369 7,089 B.7 Other increases 48 1 C. Decreases -146 -2,994 C.1 Sales -27 -696 C.2 Depreciations - -1,817 C.3 Fair value losses - - C.4 Impairment losses -24 -187 C.5 Exchange rate losses - - C.6 Transfers to other asset portfolios a) operating assets - - b) non-current assets held for sale -31 -244 C.7 Other decreases -64 -50 D. Closing balance, net 9,026 55,517 D.1 Total net depreciations - 9,098 D.2 Closing balance, gross 9,026 64,615 E. Measurement at fair value 11,876 72,725

All property, equipment and investment property are valued at cost, adjusted by the relative depreciation and any impairment losses/reversal of impairment losses. The amount of rents received from the lease of investment property are recognised in other operating income and broken down in table 15.2 of the Section of the notes to financial statements of the income statement to which reference is made.

12.7 - Commitments to purchase property, equipment and investment property

There are no commitments to purchase property, equipment and investment property.

161 SECTION 13 - INTANGIBLE ASSETS - ITEM 130

13.1 Intangible assets: breakdown by type

31/12/2015 31/12/2014

Asset/Amounts Definite Indefinite Definite Indefinite life life life life

A.1 Goodwill X 101,960 X 172,154 A.1.1 attributable to the owners of the parent X 101,960 X 172,154 A.1.2 attributable to non-controlling interests X - X - A.2 Other intangible assets 16,680 - 38,246 - A.2.1 Assets measured at cost: 16,680 - 38,246 - a) internally generated intangible assets 1,493 - 795 - b) other assets 15,187 - 37,451 - A.2.2 Assets measured at fair value: - - - - a) internally generated intangible assets - - - - b) other assets - - - - Total 16,680 101,960 38,246 172,154

The above goodwill is a result of: - consolidation of controlling interests acquired by the companies of the Group; - transactions for the purchase of bank branches with parties outside the Group, which imply the recognition of intangible assets directly in the separate financial statements of the parent company or one of its subsidiaries.

162 13.2 - Intangible assets: annual changes

2015

Other intang. Goodwill assets: Other intang. Total internally assets: other generated DEF INDEF DEF INDEF A. Opening balance 708,258 3,232 - 114,351 - 825,841 A.1 Total impairment losses 536,104 2,440 - 76,897 - 615,441 A.2 Opening balance, net 172,154 792 - 37,454 - 210,400 B. Increases - 1,042 - 8,095 - 9,137 B.1 Purchases - 1,042 - 8,095 - 9,137 B.2 Increases in internally X - - - - - generated intangible assets B.3 Reversals of impairment losses X - - - - - B.4 Fair value gains recognised in - equity X ------profit or loss X - - - - - B.5 Exchange rate gains ------B.6 Other increases ------C. Decreases -70,194 -344 - -30,359 - -100,897 C.1 Sales ------C.2 Impairment losses - Amortisation X -344 - -11,210 - -11,554 - Impairment losses + equity X - - - - - + profit or loss -70,194 - - -17,909 - -88,103 C.3 Fair value losses recognised in - equity X ------profit or loss ------C.4 Transfers to non-current ------assets held for sale C.5 Exchange rate losses ------C.6 Other decreases - - - -1,240 - -1,240 D. Closing balance, net 101,960 1,490 - 15,190 - 118,640 D.1 Total depreciations and impairment losses 606,298 2,784 - 106,016 - 715,098 E. Closing balance, gross 708,258 4,274 - 121,206 - 833,738 F. Measured at cost ------

Key DEF: with definite life INDEF: with indefinite life

163 13.3 - Other information

Goodwill In accordance with IAS 36, goodwill must be subject to impairment tests on an annual basis to ensure its recoverability or whenever there is evidence that it has been impaired. To this end, goodwill must be allocated to individual cash generating units of the acquirer or groups of such cash generating units (hereinafter “CGU”) so that these units may benefit from the synergy of the combination, independently of whether the other assets or liabilities related to the acquisition were assigned to that unit or group of units. At a consolidated level, the CGUs were identified as the individual legal entities, (Credito Valtellinese Market CGU, Credito Siciliano Market CGU and Global Assicurazioni Finance CGU), less the investments in associates classified in the portfolios of Equity investments and of Available-for-sale financial assets. They represent the lowest level at which group management estimates the return on investment and this level is not greater than the operating segments identified for the segment reporting of the group prepared according to IFRS 8 Operating segments. Specifically, all the corporate centre costs were allocated in the mentioned CGUs.

Description CGU definition Market CGU - Credito Valtellinese Credito Valtellinese excluding equity investments Market CGU - Credito Siciliano Credito Siciliano excluding equity investments Finance CGU - Global Assicurazioni Global Assicurazioni Legal entity

The following table shows the carrying amount of the goodwill referred to the CGUs above at 31 December 2015 before carrying out the test.

Carrying amount of the Description allocated goodwill (thousands of EUR) Market CGU - Credito Valtellinese 70,194 Market CGU - Credito Siciliano 68,797 Finance CGU - Global Assicurazioni 33,163 Total 172,154

The IFRS require the impairment test to be made by comparing the carrying amount of the CGU with its recoverable amount. An impairment loss must be recognised where the recoverable amount is lower than the carrying amount. The recoverable amount of the CGU is the higher between its fair value net of sales costs and its value in use.

For the purpose of the impairment procedure, approved by the Board of Directors, the Group - with the help of an influential external expert - used the value in use for the recoverability check of the recognised goodwill.

Value in use The value in use is determined by estimating the present value of the future cash flows expected to be generated by the CGU. The value of an asset is calculated by discounting the cash flows increased by the terminal value calculated as perpetual income estimated in accordance with an economically sustainable normalised cash flow and consistent with the long-term growth rate.

164

Cash flows

The value in use was determined by discounting future cash flows defined on the basis of forecasts that cover a 5-year period of the CGUs approved by the Board of Directors. The projections beyond the period covered by the plan are based on a constant growth rate (g) of 2%: it represents the long-term average growth rate and is estimated on the basis of the forecasts on the inflation rate.

The cash flows generated over the selected time period of planning and that can be distributed to shareholders allow in any case to maintain a satisfactory degree of capitalisation in terms of Tier 1 and Total Capital (9.8% Tier 1 ratio target and 12.7% Total Capital ratio) compatible with the nature and the expected development of assets. It is specified in this regard that the capital ratios used for impairment test purposes are consistent with the indications on the additional capital requirements defined by the Bank of Italy at the end of the regular supervisory review process (SREP) carried out on the Creval Group. With reference to the banking CGUs, compared to the estimates formulated in the carrying out of the impairment tests of the previous financial statements, the flows recorded during 2015 are particularly affected by significant loan provisions due to the development of the market conditions of the areas in which the banks of the Creval Group operate and, albeit with minor impacts, by the contribution to the resolution fund for the banking sector. The projections are developed within a context of reference characterised by the protraction of uncertainty, albeit in the presence of first hesitant signs of economic recovery and by the gradual normalisation of the financial markets.

The main assumptions related to the development of the macroeconomic scenario and dynamics of the banking system were formulated by incorporating the effects of the update of the forecasts made by leading economic research centres (Prometeia), properly adjusted to the context and to the dynamics in which the Group operates on the basis of the knowledge and measurements gained as part of its operations in the sector of reference. With special reference to repercussions of this context on the banking activity, the following is expected: - a development of direct funding that, affected by a limited economic growth, reflects a recovery - albeit modest - of household savings; - an increase in indirect funding, especially with reference to managed and insurance funds; - a trend of loans supported by a recovery of the economic cycle that will affect all demand components. Thanks to the high level of capitalisation reached during 2015, also considering the expected contribution - subject to the conclusion of the authorisation procedure of the competent Supervisory Authorities - from the validation of the Advance Internal Rating Based (AIRB) models for the calculation of the RWAs on credit risk for the corporate and retail segment, an acceleration in the recovery of loans to households is expected already as from 2016. In particular, we expect a significant increase in loans for home purchase, favoured in turn by the expected tax reliefs confirmed by the Government related to restructuring, maintenance of low market interest rates and improvement of the conditions of the real estate market. With respect to the credit for businesses, the consolidation of the economic cycle will determine the need to restock and start investments in machinery and equipment (postponed in previous years). In this perspective, it is pointed out that, in line with the Strategic Plan, during 2014 the Group started a specific project – called CuRVa, an

165 acronym for Customer Relationship Value – aimed at revising and innovating the business service model of the Group and resulting organisation of a new territorial network structure. The lines of implementation of the project activated several interventions during 2015 including a new structure of the territorial network, the overall review of the Group’s customer segmentation and portfolio composition model, the innovation of the pricing management process and of the related derogation authorisation processes as well as the introduction of a “value” business plan leading to the review of the reporting system (known as Action and Report Room); - a gradual recovery in the medium term of the rates of reference that, together with a cost of funding expected to be substantially low, will favour a gradual increase in spread from customers; - a development of net fee and commission income deriving from traditional business channels such as current accounts and payment systems favoured by the increase in productivity of the network and by the development of strategic partnerships, specifically signed with Anima Management Holding in managed funds, with leading insurance companies in bancassurance, with Compass (personal loans), IBL Banca (CQS) and Banca Sistema (factoring), Alba Leasing (leasing), Fire Group (credit recovery) and the Cerved and Yard Credit Management Group (NPL management); - a substantial normalisation of operating costs; - a cost of credit risk in gradual reduction as from 2016 as a result of an expected improvement in the economic environment. All the forecast figures used are sensitive to the change in the macroeconomic scenario that is significantly affected by the uncertainty of the timing and strength of the recovery of the Italian economy, in particular.

Discount rate In calculating the value in use, the cash flows must be discounted at a rate that includes both the time value of money and the risks of the business. In line with the current evaluation method, the post-tax discount rate ( ke) amounts to 8.1%. The discount rate applied corresponds to the cost of the risk capital, equal to the equity yield rate requested by investors/shareholders for investments with similar risk characteristics. This rate is estimated by using the Capital Asset Pricing Model (“CAPM”) on the basis of the formula below: ke = R f + Beta * (R m-Rf), where

Rf = rate of return for risk free investments, considered as equal to the annual average return of ten-year long-term treasury bonds issued by the Italian government, equal to 1.70%;

Rm - Rf = premium for the risk requested by the market, considered equal to 5.4%, in line with the valuation method. Compared to what is provided in the 2014 financial statements (5%), the premium for the risk was updated in order to take account of the increase recorded as from 2014 in estimated premiums for the risk for advanced economies, as shown by the most authoritative academic studies; Beta = factor correlating the actual return of a share and the overall return of the reference market (measuring the volatility of a security with respect to the market), equal to 1.19, which represents the average beta related to a sample of the main Italian listed banks.

Summarised below is the post-tax discount rate used for the CGU:

166

Ke parameters 2015 2014

Risk free (R f) 1.70% 2.87% Beta 1.19 1.18

Market risk Premium (R m-Rf) 5.4% 5%

Discount rate (ke) 8.1% 8.8%

The mentioned post-tax discount rate was used for determining the value in use both of the banks and of Finance CGU – Global Assicurazioni.

Outcome of the impairment tests

The results of the impairment test carried out on the goodwill recorded in the consolidated financial statements showed the need for a full goodwill impairment loss of EUR 70 million with regard to the Credito Valtellinese Market CGU.

The reasons that led to this impairment loss are attributable to the combined effects of the prolonged economic downturn and of the uncertainty on the recovery prospects that particularly impacted on the operating areas of Credito Valtellinese. With respect to Credito Siciliano Market CGU and the Global Assicurazioni Finance CGU, the results of the impairment test did not reveal any impairment of the goodwill recorded. Finally, it is highlighted that the persisting volatility of the share prices, also following the uncertainty in the macroeconomic situation, does not allow the stock market quotations, or the multipliers they derive from, to fully express the bank’s listed value based on the future growth opportunities and the ability to create sustainable value in the medium term. Sensitivity analysis In order to appraise the sensitivity of the impairment test results more fully compared to the changes in the basic assumptions for determining the value in use, a sensitivity analysis was made with respect to the discount rate, the long-term growth rate and, for banking CGUs, the capitalisation coefficient (T1 ratio and Total Capital ratio).

In particular, each CGU is provided with a representation of the level of parameters (K e, T1 ratio, TC ratio and g) that would result, for the same flows, in an alignment between the value in use and the carrying amount (“threshold” parameters). It is specified in this regard that the sensitivity analysis was carried out on the CGUs for which a goodwill impairment loss was not required.

“Threshold” Difference Difference Difference Difference “Threshold” Ke “Threshold” compared “Threshold” compared compared compared g SENSITIVITY discount T1 capital to the T1 TC capital to the TC to the to the Ke growth rate ratio capital ratio capital g growth used rate ratio used ratio used rate used

Market CGU - Credito 8.4% +30 bps 11.0% +120 bps 13.6% +90 bps 1.5% -50 bps Siciliano Finance CGU - Global 16.2% +810 bps N.A. N.A. N.A. N.A. < 0% < -200 bps Assicurazioni

167 The following table shows the deviations of the value in use of the CGUs as a result of the basic change - fixed at 10 basis points - of the parameters used for impairment test.

Discount rate Tier 1 ratio TC ratio Growth rate (- SENSITIVITY - ∆ Value in use (+10 bps) (+10 bps) (+10 bps) 10 bps)

Market CGU - Credito Siciliano -6 mln -1 mln -1 mln -2 mln Finance CGU - Global Assicurazioni -2 mln N.A. N.A. -2 mln

Intangible assets with a definite useful life

Assets with a definite useful life linked with relationships with customers are represented by core deposits. The value of intangible assets linked to the core deposits is related to the future benefits that the purchaser of the deposits in current account and savings deposits can benefit from in the long term that expresses the residual duration of the relation. These intangible assets with a definite useful life are amortised on a straight line basis over the period in which most of the expected economic benefits will fall, i.e. 16 years for the intangible asset linked to the core deposits deriving from the purchase of the branches of Intesa Sanpaolo and 14 years for the one deriving from the purchase of Carifano and Banca Cattolica. The amortisation period was established by considering the years of decline of half the deposits subject to valuation and by assuming the same number of years of decline for the residual portion. According to IAS 36, the recoverable amount of intangible assets with a definite useful life must be calculated every time there is evidence of impairment. The impairment test must be made by comparing the carrying amount of the asset net of the relevant amortisation with its recoverable amount. An impairment loss must be recognised where the recoverable amount is lower than the carrying amount. The recoverable amount of the asset is the higher between its fair value net of costs to sell and its value in use. In order to calculate the value in use of the intangible asset, reference must be made to its cash flows in current conditions on the impairment test date, regardless of the fact that these flows were generated by the assets originally recognised when applying IFRS 3. Therefore, the cash flows concerning the core deposits determined for the verifications for the purpose of the impairment test refer to the technical form considered in the initial valuation of the intangible asset with the amounts existing at 31 December 2015 since it is no longer possible to differentiate the flows referring to the intangibles purchased compared to those generated by the other deposits produced subsequently. The value in use is calculated as the current value of the future income margins (the discount rate is consistent with that used for carrying out the impairment test of the goodwill) generated from the existing transactions at the valuation date along a time horizon that expresses their residual duration.

The results of the analysis carried out for determining the recoverable amount referring to the customer lists of Credito Valtellinese show a markedly smaller contribution to the cash flow generation of these items - for a significant time horizon - compared to the one taken as reference for the enhancement of the original flows. Consequently, the residual amount of assets with a definite useful life referring to Credito Valtellinese was fully written down, amounting to approximately EUR 18 million.

168 Consequently, the carrying amount of intangible assets with a finite useful life (customer list) at 31 December 2015 is zero.

SECTION 14 - TAX ASSETS AND LIABILITIES - ITEM 140 UNDER ASSETS AND ITEM 80 UNDER LIABILITIES AND EQUITY

14.1 - Deferred tax assets: breakdown

Banking Insurance 31/12/2015 31/12/2014 Group companies IRES IRAP IRES IRAP Valuation of financial assets available 1,053 459 - - 1,512 1,631 for sale

Valuation of loans and receivables with customers 322,029 38,497 - - 360,526 381,437 Non-deductible depreciations of property, 4,222 740 - - 4,962 4,541 equipment and investment property Impairment, exemption or 160,355 34,659 - - 195,014 224,851 amortisation of intangible assets

Accruals to Post-employment benefits 285 X - X 285 -

Accruals to provisions for risks and charges 28,151 1,545 - - 29,696 28,370

Tax losses that may be carried forward in the future 12,126 - - - 12,126 - Other 22,376 936 188 - 23,500 13,591 Total 550,597 76,836 188 - 627,621 654,421

The item “Other” contains deferred tax assets on Ace deductions referring to 2015 of EUR 10,328 thousand.

14.2 – Deferred tax liabilities: breakdown

Banking Insurance 31/12/2015 31/12/2014 Group companies IRES IRAP IRES IRAP Valuation of loans and receivables with customers 1,484 296 - - 1,780 2,099 Valuation of available -for -sale financial assets 11,597 5,025 - - 16,622 1,382 Impairment, exemption or 299 61 - - 360 385 amortisation of intangible assets Accruals to Post -employment benefits - - 9 - 9 9 Gains on sale 735 2,967 - - 3,702 996 Other 1,343 162 - - 1,505 3,915 Total 15,458 8,511 9 - 23,978 8,786

169

14.3 - Changes in deferred tax assets (recognised in profit or loss)

2015 2014 1. Opening balance 644,442 475,279 2. Increases 81,049 205,395 2.1 Deferred tax assets recognised in the year 80,948 204,519 a) relating to previous years 1,350 18 b) due to changes in accounting policies - - c) reversals of impairment losses - - d) other 79,598 204,501 2.2 New taxes or increases in tax rates - - 2.3 Other increases 101 876 3. Decreases -107,992 -36,232 3.1 Deferred tax assets cancelled during the year -12,903 -31,538 a) reversals -9,574 -31,202 b) impairment losses due to non-recoverability - - c) due to changes in accounting policies - - d) other -3,329 -336 3.2 Reduction in tax rates -241 - 3.3 Other decreases -94,848 -4,694 a) conversion into tax assets as per Italian Law 214/2011 -94,848 -197 b) other - -4,497 4. Closing balance 617,499 644,442

14.3.1 - Changes in deferred tax assets as per Italian Law 214/2011 (recognised in profit or loss)

2015 2014 1. Opening balance 604,046 446,259 2. Increases 38,038 188,859 3. Decreases -98,180 -31,072 3.1 Reversals -9 -24,285 3.2 Conversions into tax assets -94,848 -197 a) deriving from losses for the year -94,848 -197 b) deriving from tax losses - - 3.3 Other decreases -3,323 -6,590 4. Closing balance 543,904 604,046

170 14.4 - Changes in deferred tax liabilities (recognised in profit or loss)

2015 2014 1. Opening balance 6,466 5,632 2. Increases 3,590 1,598 2.1 Deferred tax liabilities recognised in the year 3,588 1,598 a) relating to previous years - - b) due to changes in accounting policies - - c) other 3,588 1,598 2.2 New taxes or increases in tax rates - - 2.3 Other increases 2 - 3. Decreases -3,430 -764 3.1 Deferred tax liabilities cancelled during the year -3,430 -764 a) reversals -3,430 -764 b) due to changes in accounting policies - - c) other - - 3.2 Reduction in tax rates - - 3.3 Other decreases - - 4. Closing balance 6,626 6,466

171 14.5 - Changes in deferred tax assets (recognised in equity)

2015 2014 1. Opening balance 9,979 19,810 2. Increases 2,550 6,988 2.1 Deferred tax assets recognised in the year 2,550 6,853 a) relating to previous years - - b) due to changes in accounting policies - - c) other 2,550 6,853 2.2 New taxes or increases in tax rates - - 2.3 Other increases - 135 3. Decreases -2,407 -16,819 3.1 Deferred tax assets cancelled during the year -1,818 -16,810 a) reversals -1,818 -16,810 b) impairment losses due to non-recoverability - - c) due to changes in accounting policies - - d) other - - 3.2 Reduction in tax rates - - 3.3 Other decreases -589 -9 4. Closing balance 10,122 9,979

Deferred tax assets recognised in equity shown above include deferred tax assets as per Italian Law no. 214/2011 of EUR 1,172 thousand at 31 December 2015 (EUR 1,742 thousand at 31 December 2014).

14.6 - Changes in deferred tax liabilities (recognised in equity)

2015 2014 1. Opening balance 2,320 861 2. Increases 15,125 1,476 2.1 Deferred tax liabilities recognised in the year 15,121 1,476 a) relating to previous years - - b) due to changes in accounting policies - - c) other 15,121 1,476 2.2 New taxes or increases in tax rates - - 2.3 Other increases 4 - 3. Decreases -93 -17 3.1 Deferred tax liabilities cancelled during the year -93 -17 a) reversals -93 -17 b) due to changes in accounting policies - - c) other - - 3.2 Reduction in tax rates - - 3.3 Other decreases - - 4. Closing balance 17,352 2,320

172 14.7 - Other information

Transformation of deferred tax assets in tax asset Article 2 of Italian Law Decree no. 225 of 29 December 2010, (“mille proroghe” decree) converted, with amendments, by Italian Law no. 10 of 26 February 2011, allows the conversion into tax assets of the deferred tax assets recorded in the financial statements relating to impairment losses on loans and receivables of banks and financial companies and to goodwill and other intangible assets. The provision was amended by Italian Law no. 147 of 27 December 2013, (2014 Stability Law), which extended the regulation also to deferred tax assets (DTA), always related to the same items, recognised with reference to the local business tax (IRAP), as well as to losses on loans and receivables of banks and financial companies, assuming that with the same stability law the related tax treatment was amended, aligning it with that of impairment losses on loans and receivables, as shown above. Finally, Article 17 of Italian Law Decree no. 83 of 27 June 2015 ordered that the regulation for the transformation into tax asset is not applicable to the DTA, relating to the value of goodwill and of other intangible assets, recognised for the first time in the financial statements related to the current financial year on 27 June 2015, date of entry into force of this Article. Briefly, the regulation that allows the conversion of deferred tax assets provides that: - upon the occurrence of losses for the year recognised in the separate financial statements, the DTA are transformed into tax assets. The transformation works in an amount corresponding to the portion of the loss for the year that corresponds to the ratio between the DTA and the amount of share capital and reserves; - any portion of the mentioned DTA that contributes to the formation of a tax loss for IRES purposes or of a negative value of production with reference to IRAP, is converted into tax assets by disabling the limits of recoverability contemplated for tax losses; - the tax asset is non-interest bearing. It can be used, without amount restrictions, offsetting against other tax (including those deriving from the withholding agent activity) and contributory liabilities within each bank and tax consolidation. Moreover, the asset can be transferred at nominal value in accordance with the procedure as per Article 43-ter of Italian Presidential Decree 602/1973 and can be claimed as a reimbursement of the residual portion after offsetting.

Deferred tax assets recognised in the consolidated financial statements are mainly due to impairment losses of loans and receivables exceeding the immediate deductibility limit expected by the tax regulation and to goodwill and therefore fall within the scope of application of the above regulations.

As a result of accounting losses arising from the financial statements of the consolidated companies, the amount of deferred tax assets that were converted in 2015 in tax asset amounted to approximately EUR 95 million.

Finally, deferred tax assets related to impairment losses made by the banks and by the other financial subjects on loans and receivables with customers and related to goodwill and other intangible assets were recognised in the financial statements as their recovery is not affected by large future taxable income, because in any case they can be recovered also as tax asset. Other deferred tax assets, other than those convertible in tax asset, were recognised since it was estimated that the related timing differences will be offset by the expected future income results.

173 Aiuto alla Crescita Economica (Aid to economic growth)

Article 1 of Italian Law Decree no. 201 of 6 December 2011, converted by law no. 214 of 22 December 2011, introduced in our legal system, effective as from the current tax period at 31 December 2011, a tax benefit that consists in a deduction from the taxable income of the notional return of capital contributions. The measure, called “ACE” (“Aiuto alla Crescita Economica”, Aid to economic growth), provides an incentive to capitalisation, as cash contributions and as earnings reinvested in the company.

The facility consists in an annual deduction from the IRES of an amount equal to a certain percentage (4.5% for the 2015 tax period) of the increase in equity for the year, within the limits of the equity deriving from the financial statements for the period, with the exception of reserves for the purchase of own shares.

For the operations carried out within the same group, the ACE base must be reduced by an amount equal to cash contributions, to the acquisition of investments and companies and to the increase in financial loans compared to those resulting from the financial statements for the current financial year at 31 December 2010. The reduction of the amount of the ACE tax base for these operations automatically applies because of a specific presumption with an anti- tax-evasion ratio, aimed at avoiding the duplication of the benefit within groups of companies, except for the possibility of submitting a ruling of non-application aimed at derecognising the reduction of the ACE base at issue.

The upholding of the ruling of non-application submitted in 2014 determined an extraordinary tax benefit of EUR 5 million that is added to the ordinary ACE contribution accrued at 31 December 2015 of EUR 10 million.

2016 Stability Law

Reduction of the IRES tax rate The 2016 Stability Law (Italian Law no. 208 of 28 December 2015), in particular, paragraphs from 61 to 64 of Article 1, lay down provisions aimed at reducing the Italian corporate income tax – IRES. In particular, the IRES rate is decreased from 27.5% to 24%, effective as from 1 January 2017.

Additional IRES for banking and financial institutions The subsequent paragraphs from 65 to 69 of the stability law also introduce the additional IRES of 3.5% for banking and financial institutions and make the interest expense fully deductible from IRES in favour of the beneficiaries of the IRES increase.

Those who have opted for the group taxation or for the transparency system (in that controlled) apply the additional tax autonomously and make the payment without taking account of the income attributed by the investee company.

174 The interest expense in favour of the beneficiaries of the IRES increase, i.e. the banking and financial institutions, become fully deductible from IRES. The full deductibility is also due for IRAP purposes (this provision may result in the loss of the deduction for IRES purposes of the portion calculated on a flat rate basis of 10% of IRAP, related to the contribution of non- deductible interest expense to the formation of the value of the regional tax production).

The application of the rules introduced both with reference to the additional IRES and with reference to the repeal of the partial deductibility of interest expense is effective as from the tax period following the current one at 31 December 2016. The recognition of deferred tax assets and liabilities – including the probability tests, where required - was carried out considering these new regulations, with reference to the taxable and deductible timing differences that will be reversed as from the 2017 financial year.

In order to discuss the risks related to disputes pending with regard to the financial authorities, reference is made to the contents of Part E of the notes to the financial statements.

175 SECTION 15 - NON-CURRENT ASSETS HELD FOR SALE AND DISPOSAL GROUPS AND ASSOCIATED LIABILITIES - ITEM 150 UNDER ASSETS AND ITEM 90 UNDER LIABILITIES AND EQUITY

15.1 - Non-current assets held for sale and disposal groups: breakdown by type of asset

31/12/2015 31/12/2014 A. Individual assets: - - A.1 Financial assets - - A.2 Equity investments 2,203 - A.3 Property, equipment and investment property 275 - A.4 Intangible assets - - A.5 Other non -current assets - - Total A 2,478 - of which measured at cost 2,203 - of which measured at fair value level 1 - - of which measured at fair value level 2 - - of which measured at fair value level 3 275 - B. Groups of discontinued operations - - B.1. Financial assets held for trading - - B.2 Financial assets at fair value through profit or loss - - B.3 Available -for -sale financial assets - - B.4 Held -to -maturity investments - - B.5 Loans and receivables with banks - - B.6 Loans and receivables with customers - 53 B.7 Equity investments - - B.8 Property, equipment and investment property - - B.9 Intangible assets - - B.10 Other assets - 3,138 Total B - 3,191 of which measured at cost - 3,191 of which measured at fair value level 1 - - of which measured at fair value level 2 - - of which measured at fair value level 3 - - C. Liabilities associated with discontinued operations - - C.1 Payables - - C.2 Securities - - C.3 Other liabilities - - Total C - - of which measured at cost - - of which measured at fair value level 1 - - of which measured at fair value level 2 - - of which measured at fair value level 3 - - D. Liabilities associated with disposal groups - - D.1 Due to banks - 261 D.2 Due to customers - - D.3 Securities issued - - D.4 Financial liabilities held for trading - - D.5 Financial liabilities at fair value - - D.6 Provisions - 132

176 D.7 Other liabilities - 180 Total D - 573 of which measured at cost - 573 of which measured at fair value level 1 - - of which measured at fair value level 2 - - of which measured at fair value level 3 - -

15.2 – Other information

Non-current assets held for sale include the equity investment held in Istifid, classified in the segment reporting under “Other assets” and an investment property for which a preliminary sale agreement was signed classified in the “Market” segment reporting.

15.3 – Information on equity investments in companies subject to significant influence, not carried at equity

There are no companies subject to significant influence, not carried at equity.

SECTION 16 – OTHER ASSETS - ITEM 160

16.1 – Other assets: breakdown

31/12/2015 31/12/2014

Amounts due from the tax authorities 86,516 78,744 Cheques drawn on the bank to be settled 38,994 49,304 Counterparts for securities and coupon payments to be received 3,999 228 Sundry items to be charged to customers and banks 49,273 42,539 Real estate inventory 46,142 44,906 Costs and other advance payments 5,972 5,953 Receivables related to the supply of goods and services 7,198 10,070 Leasehold improvements 4,919 6,396 Accruals not recorded separately 329 110 Other items 59,606 36,485 Total 302,948 274,735

177 LIABILITIES AND EQUITY

SECTION 1 - DUE TO BANKS - ITEM 10

1.1 – Due to banks: breakdown by type

Type of transaction/Amounts 31/12/2015 31/12/2014 1. Due to central banks 1,802,629 4,536,247 2. Due to banks 237,483 301,127 2.1 Current accounts and deposit accounts 86,083 49,429 2.2 Term deposits 22,515 65,119 2.3 Loans 122,145 161,806 2.3.1 repurchase agreements - - 2.3.2 other 122,145 161,806 2.4 Payables for commitments to repurchase own equity instruments - - 2.5 Other payables 6,740 24,773 Total 2,040,112 4,837,374 Fair value - level 1 - - Fair value - level 2 1,766,343 155,386 Fair value - level 3 216,015 4,675,568 Total fair value 1,982,358 4,830,954

The item “2.3.2 Loans – other” mainly includes loans received from the European Investment Bank.

1.2 – Breakdown of item 10 “Due to banks”: subordinated debts

There are no subordinated debts in “Due to banks”.

1.3 - Breakdown of item 10 “Due to banks”: structured debts

There are no structured debts in “Due to banks”.

1.4 Due to banks subject to specific hedging

There are no due to banks subject to specific hedging.

1.5 Payables for finance leases

There are no payables for finance leases.

178 SECTION 2 - DUE TO CUSTOMERS - ITEM 20

2.1 - Due to customers: breakdown by type

Type of transaction/Amounts 31/12/2015 31/12/2014 1. Current accounts and deposit accounts 13,469,469 13,096,125 2. Term deposits 1,535,563 2,008,847 3. Loans 2,502,611 343,457 3.1 repurchase agreements 2,154,036 242,227 3.2 other 348,575 101,230 4. Payables for commitments to repurchase own equity instruments 59,660 52,568 5. Other payables 44,966 51,679 Total 17,612,269 15,552,676 Fair value - level 1 - - Fair value - level 2 3,692,979 2,353,768 Fair value - level 3 13,925,738 13,200,361 Total fair value 17,618,717 15,554,129

Item 3.1 “Repurchase agreements” mainly contains transactions with “Cassa Compensazione e Garanzia”, item 3.2 “Loans - other” mainly refers to medium to long-term loans received by Cassa Depositi e Prestiti following the agreement between ABI and the Cassa Depositi e Prestiti in support of SMEs, whereas item “4. Payables for commitments to repurchase own equity instruments” refers to purchase options for non-controlling interests in Global Assicurazioni S.p.A..

2.2 - Breakdown of item 20 “Due to customers”: subordinated debts

There are no subordinated debts in “Due to customers”.

2.3 Breakdown of item 20 “Due to customers”: structured debts

There are no structured debts in “Due to customers”.

2.4 Due to customers subject to specific hedging

There are no amounts due to customers subject to specific hedging.

2.5 Payables for finance leases

There are no payables for finance leases.

179 SECTION 3 - SECURITIES ISSUED - ITEM 30

3.1 Securities issued: breakdown by type

31/12/2015 31/12/2014

Carrying Fair Value Carrying Fair Value amount Level 1 Level 2 Level 3 amount Level 1 Level 2 Level 3

A. Securities 1. bonds 3,915,335 - 3,517,773 476,511 5,018,008 417,534 3,986,292 696,029 1.1 structured ------1.2 other 3,915,335 - 3,517,773 476,511 5,018,008 417,534 3,986,292 696,029 2. other securities 167,352 - 167,250 - 174,885 - 174,885 - 2.1 structured ------2.2 other 167,352 - 167,250 - 174,885 - 174,885 - Total 4,082,687 - 3,685,023 476,511 5,192,893 417,534 4,161,177 696,029

Financial instruments indicated in level 3 refer to the securities sold regarding the securitisation Quadrivio SME 2014 and Quadrivio RMBS 2011.

3.2 - Analysis of item 30 “Securities issued”: subordinated securities

The above bonds include the subordinated bond issues detailed in part F - Information on consolidated equity.

3.3 - Analysis of item 30 “Securities issued”: securities with specific hedging

There are no securities with specific hedging.

180 SECTION 4 - FINANCIAL LIABILITIES HELD FOR TRADING - ITEM 40

4.1 - Financial liabilities held for trading: breakdown by type

31/12/2015 NV FV FV* Type of transaction/Amounts L1 L2 L3

A. On-statement of financial position liabilities

1. Due to banks - - - - - 2. Due to customers - - - - - 3. Debt instruments - - - - X 3.1 Bonds - - - - X 3.1.1 structured - - - - X 3.1.2 other bonds - - - - X 3.2. Other securities - - - - X 3.2.1 structured - - - - X 3.2.2 other - - - - X Total A - - - - - B. Derivatives 1. Financial derivatives X - 1,859 - X 1.1 trading X - 1,859 - X 1.2 associated with fair value option X - - - X 1.3 other X - - - X 2. Credit derivatives X - - - X 2.1 trading X - - - X 2.2 associated with fair value option X - - - X 2.3 other X - - - X Total B X - 1,859 - X Total (A+B) X - 1,859 - X

Key FV = fair value FV* = fair value calculated by excluding gains and losses in value due to changes in creditworthiness with respect to the issue date NV = nominal or notional value L1= Level 1 L2= Level 2 L3 = Level 3

181 31/12/2014 NV FV FV* Type of transaction/Amounts L1 L2 L3 A. On-statement of financial position liabilities 1. Due to banks - - - - - 2. Due to customers - - - - - 3. Debt instruments - - - - X 3.1 Bonds - - - - X 3.1.1 structured - - - - X 3.1.2 other bonds - - - - X 3.2 Other securities - - - - X 3.2.1 structured - - - - X 3.2.2 other - - - - X Total A - - - - - B. Derivatives 1. Financial derivatives X - 3,233 - X 1.1 trading X - 3,233 - X 1.2 associated with fair value option X - - - X 1.3 other X - - - X 2. Credit derivatives X - - - X 2.1 trading X - - - X 2.2 associated with fair value option X - - - X 2.3 other X - - - X Total B X - 3,233 - X Total (A+B) X - 3,233 - X

4.2 - Breakdown of item 40 “Financial liabilities held for trading”: subordinated liabilities

The financial liabilities held for trading do not include subordinated liabilities.

4.3 - Breakdown of item 40 “Financial liabilities held for trading”: structured debts

The financial liabilities held for trading do not include structured debts.

182 SECTION 6 - HEDGING DERIVATIVES - ITEM 60

6.1 Hedging derivatives: breakdown by type of hedge and level

31/12/2015 31/12/2014

Fair Value Fair Value NV NV L1 L2 L3 L1 L2 L3 A. Financial derivatives - 269,496 - 600,000 - 308,718 - 600,000 1) Fair value - 269,496 - 600,000 - 308,718 - 600,000 2) Cash flows ------3) Investments in ------foreign operations B. Credit derivatives ------1) Fair value ------2) Cash flows ------Total - 269,496 - 600,000 - 308,718 - 600,000

Key NV = nominal value L1= Level 1 L2= Level 2 L3 = Level 3

The hedging derivative is represented by IRS purchased to hedge the interest rate risk on Italian government securities (BTP) included in the portfolio of available-for-sale financial assets.

183 6.2 - Hedging derivatives: breakdown by hedging portfolios and by type of hedge

31/12/2015

Fair Value Investments in Financial foreign flows operations

Transactions/Type of hedge Specific

more interest Generic currency credit price than rate Specific Generic risk risk risk one risk risk 1. Available-for-sale X 269,496 - - - - X - X financial assets 2. Loans and receivables - - - X - X - X X 3. Held- X - - X - X - X X to-maturity investments 4. Portfolio X X X X X - X - X 5. Other transactions - - - - - X - X - Total assets 269,496 ------1. Financial liabilities - - - X - X - X X 2. Portfolio X X X X X - X - X Total liabilities ------1. Expected transactions X X X X X X - X X 2. Other financial assets and X X X X X - X - - liabilities

SECTION 8 - TAX LIABILITIES - ITEM 80

See section 14 under assets.

SECTION 10 - OTHER LIABILITIES - ITEM 100

10.1 - Other liabilities: breakdown

31/12/2015 31/12/2014 Amounts due to tax authorities for indirect taxes 2,882 5,940 Amounts due to social security and welfare institutions 12,181 12,467 Amounts due to government agencies on behalf of third parties 50,228 42,000 Sundry items to be credited to customers and banks 39,797 32,705 Amounts available to customers 82,514 83,413 Amounts payable to employees 22,192 10,926 Value date differences on portfolio transactions 130,975 120,763 Items in transit between branches 1,252 4,051 Guarantees given and commitments 10,196 9,880 Accruals other than those capitalised 5,698 6,798 Payables related to the supply of goods and services 29,592 34,713 Sundry and residual items 120,625 271,402 Total 508,132 635,058

184 SECTION 11 - POST-EMPLOYMENT BENEFITS - ITEM 110

11.1 - Post-employment benefits: annual changes

2015 2014 A. Opening balance 65,812 59,195 B. Increases 12,345 19,197 B.1 Accruals 11,933 18,920 B.2 Other increases 412 277 C. Decreases -21,606 -12,580 C.1 Benefits paid -9,746 -1,068 C.2 Other decreases -11,860 -11,512 D. Closing balance 56,551 65,812

C.2 “Other decreases” includes the amounts transferred to the Group Pension Fund and the Treasury Fund of INPS.

11.2 – Other information

The post-employment benefits may be included among the defined benefit plans not directly financed. This amount has been actuarially calculated, for all group companies, in accordance with the “Projected Unit Credit Method” and using the following actuarial assumptions:

Actuarial assumptions 2015 2014 Mortality rate SIM2012 tables IPS55 tables Disability rate INPS-1998 tables INPS-2000 tables Personnel turnover rate 3.0% 3.0% Discount rate 1.85% 1.58% Salary increase rate 3.0% 3.0% Advance rate 2.0% 2.0% Inflation rate 1.5% 1.5%

At 31 December 2015, the corporate AA 10+ rate of 1.85% was used. In the event of shifts in the interest rate curve by +0.5%, the decrease in the provision would be EUR 2,192 thousand, whereas a decrease in the rate of -0.5% would imply an increase in the provision of EUR 2,335 thousand.

Reconciliation of the opening and closing balances of the defined benefit liability:

2015

Opening balance 65,812 Use of post-employment benefits -8,779 Interest expense 958 Social security cost -864 Actuarial gains/losses -576 Closing balance 56,551

185 SECTION 12 - PROVISIONS FOR RISKS AND CHARGES - ITEM 120

12.1 - Provisions for risks and charges: breakdown

Item/Amounts 31/12/2015 31/12/2014 1. Company pension funds 36,618 34,936 2. Other provisions for risks and charges 73,117 73,201 2.1 legal disputes 18,305 17,166 2.2 personnel expenses 36,108 52,385 2.3 other 18,704 3,650 Total 109,735 108,137

12.2 - Provisions for risks and charges: annual changes

2015

Item/Amounts Pension Personnel Legal Other funds expenses disputes funds A. Opening balance 34,936 52,385 17,166 3,650 B. Increases 5,364 8,833 4,018 15,432 B.1 Accruals 8 5,540 3,198 14,863 B.2 Discounting 559 667 284 197 B.3 Variations due to changes in the discount rate - 492 496 271 B.4 Other increases 4,797 2,134 40 101 C. Decreases -3,682 -25,110 -2,879 -378 C.1 Utilisation in the year -2,051 -13,635 -2,879 -123 C.2 Variations due to changes in the discount rate -84 -39 - - C.3 Other decreases -1,547 -11,436 - -255 D. Closing balance 36,618 36,108 18,305 18,704

12.3 Defined benefit company pension funds

1. Illustration of the characteristics of funds and related risks

The defined benefit company pension fund of Credito Valtellinese consists of provisions for the commitment undertaken: - by Credito Valtellinese and by Creval Sistemi e Servizi towards its retired employees. There have been no new entries since 31 December 2003. The amount allocated represents the estimated actuarial debt, equal to EUR 36,619 thousand at 31 December 2015. - by the former Credito Artigiano, company merged in the Parent, towards: - active employees who, when setting up the capitalisation fund, opted for a defined life annuity, as provided by the previous regulation; - the retired employees and the survivors of ex employees owners of deferred life annuities to be granted in accordance with the previous regulation. New entries are no longer provided also for this fund. This fund of EUR 12,464 thousand, in accordance with the IAS 19 accounting standard, is not highlighted under the liability items of the statement of financial position, nor is it included in the related tables of the Notes to the financial statements as it is set off against the corresponding plan assets (fair value of EUR 186 12,766 thousand). The positive difference of EUR 302 thousand is therefore included in item “Other assets”. The actuarial amount of all the funds is calculated at “every” year-end, with the assistance of an actuary.

2. Changes for the year in net liabilities (assets) with defined benefits and in rights to reimbursement

At 31 December 2014, the present value of defined benefit liability of Credito Valtellinese and Creval Sistemi e Servizi totalled EUR 34,349 thousand. During the period under review a total of EUR 2,051 thousand benefits were disbursed, interest expense accrued amounted to EUR 559 thousand and actuarial losses of EUR 3,761 thousand were recognised. Actuarial losses are recognised into equity. At 31 December 2014, with respect to the former Credito Artigiano fund, the present value of defined benefit liability was equal to EUR 12,592 thousand. During the financial year, a total of EUR 753 thousand benefits were disbursed, interest expense accrued amounted to EUR 205 thousand and actuarial losses of EUR 420 thousand were recognised. Actuarial losses are recognised into equity. The obligation outstanding at 31 December 2014 was EUR 12,464 thousand directly financed by the dedicated plan.

3. Information on fair value of plan assets

With regard to the fund of the former Credito Artigiano, the assets used directly to fund defined benefit plans amounted to EUR 12,005 thousand at 31 December 2014. Considering pensions paid of EUR 753 thousand and contributions paid of EUR 587 thousand and a positive return on plan management of EUR 927 thousand, assets amounted to EUR 12,766 thousand at 31 December 2015.

4. Description of the main actuarial assumptions

The present value of both mathematical reserves of the retired employees is equal to the current actuarial value of the pension that they will be paid in the future, considering the reversibility. The value of the assets mathematical reserve is equal to the present actuarial value of the future services, net of the sum of the present actuarial value of the future benefits and the set percent contribution.

Actuarial assumptions 2015 2014 Mortality rate IPS55 tables IPS55 tables Disability rate INPS-1998 tables INPS-2000 tables Discount rate 1.85% 1.58% Rate of increase in services 1.53% 1.5%

187 5. Information on amount, timing and uncertainty on financial flows

In the event of shifts in the interest rate curve by +0.5%, the decrease in the internal fund of Credito Valtellinese and Creval Sistemi e Servizi would be EUR 2,028 thousand, whereas a change in the rate of -0.5% would imply an increase in the fund of EUR 2,237 thousand.

In the event of shifts in the interest rate curve by +0.5%, the decrease in the former Credito Artigiano internal fund would be EUR 615 thousand, whereas a change in the rate of -0.5% would imply an increase in the fund of EUR 670 thousand.

The estimated actuarial debt of the internal fund of the Group amounted to EUR 49,083 thousand at 31 December 2015 compared to EUR 46,941 thousand in 2014. The assets allocated to the directly funded defined-benefit plan amounted to EUR 12,766 thousand at 31 December 2015, compared to EUR 12,005 thousand in 2014.

6. Multi-employer plans

There are no multi-employer plans.

7. Defined-benefit plans that share the risks among entities under joint control

The individual entities of the group attribute in their separate financial statements the net cost of the defined benefit plan.

12.4 - Provisions for risks and charges - other provisions

The other provisions for legal disputes mainly concern: - bankruptcy liquidations (EUR 4,722 thousand); - financial instruments (EUR 2,098 thousand); - other lawsuits linked to banking activities (EUR 9,121 thousand). - out-of-court claims (EUR 2,363 thousand);

Other provisions for personnel expenses also include: - charges for long-service bonuses to be disbursed to employees calculated in accordance with actuarial valuations (EUR 2,351 thousand); - solidarity fund and related incentives calculated in accordance with actuarial valuations (EUR 33,757 thousand).

As part of a sensitivity analysis of the provision for leaving indemnity, for which the same pension fund rate was used, the event of change in the discount rate by +0.5% would imply a decrease in the fund of EUR 50 thousand. Whereas a change of -0.5% would imply an increase of EUR 95 thousand. In the event of the solidarity fund for which a discount rate of 0.25% was used, a hypothetical change in the rate of +0.5% would imply a decrease in the fund of EUR 404 thousand.

Other provisions for risks and charges include provisions for risks and charges allocated considering the regulatory provision (Italian Law Decree 183/2015 and 2016 Stability Law) which provides for the increase of the maximum draw-down limit of the resolution fund to face up to any further requests to rescue the four Italian banks in resolution (Popolare Etruria, Banca Marche, Carichieti and Cariferrara). The outflow of resources was considered likely in connection with an event already occurred and an amount equal to 2 additional portions of EUR 12 million was set aside.

188

SECTION 15 - GROUP EQUITY - ITEMS 140, 160, 170, 180, 190, 200 AND 220

15.1 “Share capital” and “Treasury shares”: breakdown

The share capital of the Bank amounted to EUR 1,846.8 million.

At 31 December 2015, the portfolio contained 60,000 treasury shares of EUR 100 thousand, i.e. 0.005% of total shares outstanding at the end of the period.

No purchase or sale was put in place during the financial year.

15.2 - Share capital - Number of shares of the Parent: annual changes

2015 Items/Types Ordinary Other A. Shares at the beginning of the year - fully paid-up 1,108,872,369 - - not fully paid-up - - A.1 Treasury shares (-) -60,000 - A.2 Outstanding shares: opening balance 1,108,812,369 - B. Increases - - B.1 New issues - - - against payment: - - - business combinations - - - conversion of bonds - - - exercising of warrants - - - other - - - free: - - - on behalf of employees - - - on behalf of directors - - - other - - B.2 Sale of treasury shares - - B.3 Other increases - - C. Decreases - - C.1 Cancellation - - C.2 Repurchase of treasury shares - - C.3 Disposals of companies - - C.4 Other decreases - - D. Outstanding shares: final balance 1,108,812,369 - D.1 Treasury shares (+) 60,000 - D.2 Shares outstanding at the end of the year 1,108,872,369 - - fully paid-up 1,108,872,369 - - not fully paid-up - -

15.4 – Income-related reserves: other information

The item Income-related reserves includes the Legal Reserve, the Extraordinary Reserve, other reserves and the Reserves deriving from consolidation effects. 189

SECTION 16 - EQUITY ATTRIBUTABLE TO NON-CONTROLLING INTERESTS - ITEM 210

16.1 - Breakdown of item 210 “Equity attributable to non-controlling interests”

Company name 31/12/2015 31/12/2014 Investments in consolidated companies with significant non-controlling interests Global Broker S.p.A. 1,153 949 Other investments 3,229 3,505 Total 4,382 4,454

190 OTHER INFORMATION

1 - Guarantees given and commitments

Transactions 31/12/2015 31/12/2014 1) Financial guarantees a) Banks - 25,817 b) Customers 54,189 19,922 2) Commercial guarantees a) Banks 13,304 15,091 b) Customers 746,999 908,027 3) Irrevocable commitments to grant finance a) Banks i) certain to be called on 2,996 2,510 ii) not certain to be called on 7 7 b) Customers i) certain to be called on - 10,508 ii) not certain to be called on 721,016 862,734 4) Commitments underlying credit derivatives: protection sales - - 5) Assets pledged as guarantee for third-party commitments - - 6) Other commitments - - Total 1,538,511 1,844,616

2 - Assets pledged as guarantee for the Bank’s liabilities and commitments

Portfolios 31/12/2015 31/12/2014 1. Financial assets held for trading 44,692 50,906 2. Financial assets at fair value through profit or loss - - 3. Available-for-sale financial assets 2,657,501 3,213,841 4. Held-to-maturity investments - - 5. Loans and receivables with banks 281,202 317,491 6. Loans and receivables with customers 4,127,649 3,404,244 7. Property, equipment and investment property - -

The assets indicated above were used as a guarantee for funding repurchase agreements, issue of bank drafts, derivatives as well as loan received from the European Central Bank, recognised among due to central banks in table 1.1 “Due to banks breakdown by type”, of loans received from the European Investment Bank recognised among due to banks – Loans in table 1.1. “Due to banks breakdown by type” and by Cassa Depositi e Prestiti for investments recognised among due to customers – Loans in table 2.1 “Due to customers breakdown by type”.

191 3. - Information on operating leases

The Group, with respect to the operating lease, acts solely as a lessee. The main operating lease contracts signed by Group Companies and that cannot be cancelled comprise the types described below: • contracts for the leasing of vehicles with the following minimum future payments:

- EUR 865 thousand within one year; - EUR 1,577 thousand between one and five years; - no payment due after more than five years. For all these contracts, in 2015 minimum payments totalling EUR 1,333 thousand were recorded as costs.

• contracts for the leasing of stamping and envelope sealing machines, with the following minimum future payments:

- EUR 3 thousand within one year; - no payment due after more than one year.

• contracts for the leasing of banknote and coin counting machines, with the following minimum future payments:

- EUR 445 thousand within one year; - EUR 2,224 thousand between one and five years; - no payment due after more than five years.

• contracts for the leasing of photocopying machines, with the following minimum future payments:

- EUR 4 thousand within one year; - no payment due after more than one year. For all these contracts, in 2015 minimum payments totalling EUR 453 thousand were recorded as costs.

192 5 - Management and trading on behalf of third parties

Type of service 31/12/2015 31/12/2014 1. Execution of orders on behalf of customers a) Purchases 1. settled - - 2. unsettled - - b) Sales 1. settled - - 2. unsettled - - 2. Portfolio management a) individual - - b) collective - - 3. Custody and administration of securities a) third-party securities held on deposit: when acting as custodian bank

(excluding portfolio management) 1. securities issued by companies included in the consolidation scope - - 2. other securities - - b) other third-party securities held on deposit (excluding portfolio management): other 1. securities issued by companies included in the consolidation scope 3,286,455 3,670,467 2. other securities 6,063,309 6,290,140 c) third-party securities deposited with third parties 9,143,416 10,312,681 d) treasury securities deposited with third parties 4,626,375 6,106,564 4. Other transactions 2,118,580 1,753,773

The amount under item 4. “Other transactions” refers to the market value of the insurance premiums collected at 31 December 2015. “Treasury securities deposited with third parties” also includes portfolio securities not recognised under assets coming from self-securitisations.

6-7 - Financial assets and liabilities offset in the financial statements, or subject to master netting or similar agreements

IFRS 7 requires disclosure of information about the significance of financial instruments that are offset in the statement of financial position pursuant to IAS 32 or can be potentially offset, when certain conditions occur, in that regulated by master netting agreements or similar agreements that do not comply with IAS 32 to carry out the offsetting of the financial statements.

For the Credito Valtellinese Group, there are no netting agreements for which to offset the balances in the statement of financial position pursuant to IAS 32.

With respect to instruments that can be potentially offset, the tables below show the financial instruments regulated by the following agreements: - for derivative instruments: “ISDA Master Agreement” and clearing house netting agreements; - for repurchase agreements: “Global Master Repurchase Agreements (GMRA)”; - for securities lending: “Global Master Securities Lending Agreements (GMSLA)”.

193

Amount of Net amount of financial financial Gross amount of assets liabilities shown financial liabilities offset in the Related amounts not offset in 31/12/2015 31/12/2014 Technical forms in the financial (a) financial the financial statements statements statements (c=a-b) (b)

Financial Cash deposits Net amount Net instruments as collateral (f=c-d-e) amount (d) (e) 1. Derivatives 353 - 353 - 353 - 1,180 2. Reverse repurchase 786,220 - 786,220 782,247 - 3,973 6,838 agreements 3. Securities lending ------4. Other ------Total at 31/12/2015 786,573 - 786,573 782,247 353 3,973 X Total at 31/12/2014 819,533 - 819,533 811,424 91 X 8,018

Amount of Net amount of financial financial Gross amount of assets liabilities shown Technical forms financial liabilities offset in the Related amounts not offset in 31/12/2015 31/12/2014 in the financial (a) financial the financial statements statements statements (c=a-b) (b)

Financial Cash deposits Net amount Net instruments as collateral (f=c-d-e) amount (d) (e) 1. Derivatives 270,224 - 270,224 - 270,224 - 2,441 2. Reverse repurchase 2,132,196 - 2,132,196 2,123,686 8,510 - - agreements 3. Securities lending ------4. Other ------Total at 31/12/2015 2,402,420 - 2,402,420 2,123,686 278,734 - X Total at 31/12/2014 450,921 - 450,921 140,898 307,582 X 2,441

The derivatives indicated in the table are at fair value, whereas the other items are measured at amortised cost. Reverse repurchase agreements are indicated in the tables breaking down loans and receivables with banks and with customers, whereas derivatives are indicated in the financial assets and liabilities contained in Part B - Information on the statement of financial position.

8. Securities lending

At 31 December 2015, there were no securities lending.

194 PART C - INFORMATION ON THE CONSOLIDATED INCOME STATEMENT

SECTION 1 - INTEREST - ITEMS 10 AND 20

1.1 - Interest and similar income: breakdown

Debt Other Items/Technical forms Loans 2015 2014 instruments transactions 1. Financial assets held for trading 4,723 - - 4,723 2,363 2. Financial assets at fair value through profit or loss - - - - - 3. Available-for-sale financial assets 78,366 - - 78,366 80,772 4. Held-to-maturity investments - - - - - 5. Loans and receivables with banks 1,077 284 - 1,361 5,257 6. Loans and receivables with customers 508 611,202 - 611,710 731,569 7. Hedging derivatives X X - - - 8. Other assets X X 2,387 2,387 74 Total 84,674 611,486 2,387 698,547 820,035

Other assets conventionally include interest on liabilities with a negative rate. The interest accrued on loans of item “6. Loans and receivables with customers” includes interest on non- performing loans of EUR 112,649 thousand.

1.2 – Interest income and similar income: differentials relating to hedging transactions

There are no differentials relating to hedging transactions.

1.3 - Interest and similar income: other information

1.3.1 - Interest income on foreign currency financial assets

2015 2014 Interest income on foreign currency assets 950 1,778

1.3.2 Interest income on finance lease transactions

2015 2014 Interest on finance lease transactions 13,177 23,069

195 1.4 - Interest and similar expense: breakdown

Other Items/Technical forms Payables Securities 2015 2014 transactions 1. Due to central banks (1,976) X - (1,976) (4,580) 2. Due to banks (1,751) X - (1,751) (3,439) 3. Due to customers (92,595) X (737) (93,332) (169,463) 4. Securities issued X (111,787) - (111,787) (139,857) 5. Financial liabilities held for trading - - (939) (939) (1,013) 6. Financial liabilities at fair value - - - - - through profit or loss 7. Other liabilities and provisions X X (83) (83) - 8. Hedging derivatives X X (24,171) (24,171) (22,521) Total (96,322) (111,787) (25,930) (234,039) (340,873)

Other liabilities conventionally include interest on assets with a negative rate.

1.5 - Interest and similar expense: differences relating to hedging transactions

Items 2015 2014 A. Gains on hedging transactions 11,047 12,729 B. Losses on hedging transactions (35,218) (35,250) C. Balance (A-B) (24,171) (22,521)

1.6 - Interest and similar expense: other information

1.6.1 - Interest expense on foreign currency liabilities

2015 2014 Interest expense on foreign currency liabilities (546) (574)

1.6.2 - Interest expense on finance lease transactions

There is no interest expense on finance lease transactions.

196 SECTION 2 - FEES AND COMMISSIONS - ITEMS 40 AND 50

2.1 - Fee and commission income: breakdown

Type of services/Amounts 2015 2014 a) guarantees given 8,794 9,662 b) credit derivatives - - c) management, trading and consulting services: 87,769 73,948 1. trading of financial instruments 4 6 2. currency trading 4,792 4,872 3. portfolio management - - 3.1 individual - - 3.2 collective - - 4. custody and administration of securities 665 786 5. custodian bank - - 6. placement of securities 22,654 14,763 7. order acceptance and transmission 7,774 7,780 8. consulting services 466 1,037 8.1 on investments - 14 8.2 on financial structuring 466 1,023 9. distribution of third party services 51,414 44,704 9.1. portfolio management 16,206 14,376 9.1.1 individual 16,206 14,376 9.1.2 collective - - 9.2. insurance products 32,411 26,822 9.3. other products 2,797 3,506 d) collection and payment services 84,186 83,255 e) servicing for securitisation transactions - - f) factoring transaction services - - g) tax collection services - 1,181 h) management of multilateral trading facilities - - i) current account management 59,298 61,625 j) other services 68,768 77,756 Total 308,815 307,427

Fee and commission income included in item “j) other services” mainly refers to commissions on arranged overdraft of EUR 57,585 thousand, commissions for loans origination - deriving from financial assets or liabilities not designated at fair value through profit or loss - of EUR 4,294 thousand and commissions for rights and pledges of EUR 3,595 thousand.

197 2.2 - Fee and commission expense: breakdown

Services/Amounts 2015 2014 a) guarantees received (2,158) (11,686) b) credit derivatives - - c) management and trading services (1,502) (1,705) 1. trading of financial instruments (3) (171) 2. currency trading (9) (3) 3. portfolio management: - - 3.1 own account - - 3.2 for third parties - - 4. custody and administration of securities (1,490) (1,531) 5. placement of financial instruments - - 6. off-premises provision of financial instruments, products and services - - d) collection and payment services (23,172) (22,509) e) other services (1,440) (2,795) Total (28,272) (38,695)

The item “a) guarantees received” for 2014 mainly refers to fees and commissions paid to the Italian Government on bonds issued by the Bank and fully repurchased aimed at obtaining the loans obtained from the ECB.

SECTION 3 - DIVIDENDS AND SIMILAR INCOME - ITEM 70

3.1 - Dividends and similar income: breakdown

2015 2014 Income from Income from Items/Income Dividends OEIC Dividends OEIC units units A. Financial assets held for trading 8 - 28 - B. Available-for-sale financial assets 2,009 - 1,317 - C. Financial assets at fair value through profit or loss - - - - D. Equity investments - X - X Total 2,017 - 1,345 -

Dividends on available-for-sale financial assets refer in particular to the interest in Anima Holding S.p.A..

198 SECTION 4 - PROFITS (LOSSES) ON TRADING- ITEM 80

4.1 - Profits (losses) on trading: breakdown

Profits (Losses) Trading Gains Trading on Transactions/Income components income Losses (C) (A) losses (D) trading (B) [(A+B)- (C+D)] 1. Financial assets held for trading 220 3,503 (3,215) (20,144) (19,636) 1.1 Debt instruments 199 3,500 (3,137) (20,144) (19,582) 1.2 Equity instruments 21 3 (78) - (54) 1.3 OEIC units - - - - - 1.4 Loans - - - - - 1.5 Other - - - - - 2. Financial liabilities held for trading - - - - - 2.1 Debt instruments - - - - - 2.2 Payables - - - - - 2.3 Other - - - - - 3. Financial assets and liabilities: X X X X 1,645 exchange rate differences 4. Derivatives 906 5,083 (4) (5,083) 4,330 4.1. Financial derivatives: - On debt instruments and interest rates 906 5,083 (4) (5,083) 902 - On equity instruments and stock market share indices ------On currencies and gold X X X X 3,428 - Other - - - - - 4.2 Credit derivatives - - - - - Total 1,126 8,586 (3,219) (25,227) (13,661)

Trading income and expense mainly refer to transactions involving Government bonds.

199 SECTION 5 - FAIR VALUE ADJUSTMENTS IN HEDGE ACCOUNTING- ITEM 90

5.1 - Fair value adjustments in hedge accounting: breakdown

Income components/Amounts 2015 2014 A. Gains on: A.1 Fair value hedges 37,180 - A.2 Financial assets with fair value hedges - 142,775 A.3 Financial liabilities with fair value hedges - - A.4 Financial derivatives for cash flow hedges - - A.5 Foreign currency assets and liabilities - - Total hedging income (A) 37,180 142,775 B. Losses on: B.1 Fair value hedges - (143,873) B.2 Financial assets with fair value hedges (37,707) - B.3 Financial liabilities with fair value hedges - - B.4 Financial derivatives for cash flow hedges - - B.5 Foreign currency assets and liabilities - - Total hedging expense (B) (37,707) (143,873) C. Net hedging expense (A-B) (527) (1,098)

Italian Government bonds (BTP) in the banking book of Available-for-sale financial assets were hedged, with the objective of hedging the variability of the relevant fair value component linked to changes in interest rates, excluding the residual component of the credit risk, whose effects remain in the relevant Equity reserve. To this end, IRS starting forward of about one year were used. They were entered into together with the purchase of underlying securities.

200 SECTION 6 - PROFIT (LOSS) ON SALE/REPURCHASE - ITEM 100

6.1 – Profit (loss) on sale/repurchase: breakdown

2015 2014 Items/Income components Profit Losses Net profit (losses) Profit Losses Net profit (losses) Financial assets 1. Loans and receivables with banks 1,168 - 1,168 58 - 58 2. Loans and receivables with customers 202 (661) (459) 761 (1,433) (672) 3. Available -for -sale financial assets 3.1 Debt instruments 87,772 (1,548) 86,224 119,485 (438) 119,047 3.2 Equity instruments 2,763 (1) 2,762 321 (4) 317 3.3 OEIC units ------3.4 Loans ------4. Held -to -maturity investments ------Total assets 91,905 (2,210) 89,695 120,625 (1,875) 118,750 Financial liabilities 1. Due to banks ------2. Due to customers ------3. Securities issued 627 (1,364) (737) 929 (1,068) (139) Total liabilities 627 (1,364) (737) 929 (1,068) (139)

Profits on debt instruments mainly concern transactions of Italian Government bonds whereas losses on equity instruments mainly refer to the sale of shares in SIA S.p.A. and A2A S.p.A.. Profits and losses on loans and receivables from customers refer in particular to the sale of bad loans carried out during the year to Fenice whereas profits related to loans and receivables with banks derive from the sale of bank debt instruments.

201 SECTION 8 - NET IMPAIRMENT LOSSES - ITEM 130

8.1 - Net impairment losses on loans and receivables: breakdown

Impairme 2015 2014 nt losses Reversals of impairment losses Transactions/Income Individual Collective Collective components Individual

Derecognition Other A B A B

A. Loans and receivables with ------banks

- Loans ------

- Debt instruments ------B. Loans and receivables with (22,236) (587,184) (729) 78,344 78,064 - 13,732 (440,009) (648,566) customers Purchased non -performing - - X - - X X - - loans and receivables

- Loans - - X - - X X - -

- Debt instruments - - X - - X X - -

Other loans and receivables (22,236) (587,184) (729) 78,344 78,064 - 13,732 (440,009) (648,566)

- Loans (22,236) (586,133) (729) 78,344 78,064 - 13,732 (438,958) (648,566)

- Debt instruments - (1,051) - - - - - (1,051) -

C. Total (22,236) (587,184) (729) 78,344 78,064 - 13,732 (440,009) (648,566)

Key: A = from interest B = other reversals

202 8.2 - Net impairment losses on available-for-sale financial assets: breakdown

Reversals of Impairment losses impairment losses Transactions/Income components 2015 2014 Individual Individual Derecognition Other A B A. Debt instruments ------B. Equity instruments - (1,892) X X (1,892) (1,366) C. OEIC units - (22) X - (22) (256) D. Loans and receivables with banks ------E. Loans and receivables with customers ------F. Total - (1,914) - - (1,914) (1,622)

Key: A = from interest B = other reversals

With respect to impairment losses that the table shows, it is specified that as required by the accounting policies of the Group, the quantitative and duration thresholds beyond which the decrease in fair value of the equity instruments immediately results in the posting of an impairment loss in the income statement refer to market quotations or valuations lower than the initial carrying amount for an amount higher than 30%; or the recognition of quotations or valuations that are lower than the carrying amount for a period of more than 18 months. Exceeding one of these thresholds during the year resulted in the recognition of impairment losses in the income statement of:

- EUR 1,348 thousand on the equity investment held by Credito Valtellinese in Fenice Holding; - EUR 345 thousand on the stake held by Credito Valtellinese in Sviluppo Como; - EUR 221 thousand on other equity investments held in the AFS portfolio.

8.3 - Net impairment losses on held-to-maturity investments: breakdown

There are no held-to-maturity investments.

203 8.4 - Net impairment losses on other financial transactions: breakdown

Reversals of impairment Impairment losses losses Transactions/Income components 2015 2014 Individual Collective Individual Collective

Derecognition Other A B A B A. Guarantees given - (3,215) (313) 23 3,192 - 783 470 (4,642) B. Credit derivatives ------C. Commitments to grant finance - - (889) - - - - (889) (1,883) D. Other transactions ------E. Total - (3,215) (1,202) 23 3,192 - 783 (419) (6,525)

Key A = from interest B = other reversals

204 SECTION 11 - ADMINISTRATIVE EXPENSES - ITEM 180

11.1 - Personnel expenses: breakdown

Type of expense/Amounts 2015 2014 1) Employees (287,498) (336,180) a) wages and salaries (186,629) (195,443) b) social security charges (57,790) (58,378) c) post-employment benefits (11,699) (13,024) d) pension expenses - - e) accrual for post-employment benefits (267) (2,082) f) accrual for pension and similar provisions: - defined contribution - - - defined benefit (574) (964) g) payments to external supplementary pension funds: - defined contribution (9,270) (9,159) - defined benefit (47) (327) h) costs of share-based payment plans - - i) other employee benefits (21,222) (56,803) 2) Other personnel in service (1,799) (518) 3) Directors and statutory auditors (4,602) (4,861) 4) Retired personnel (1,137) (985) Total (295,036) (342,544)

11.2 - Average number of employees by category

2015 2014 Employees: 3,970 4,145 a) executives 55 61 b) middle managers 1,526 1,545 c) other employees 2,389 2,539 Other personnel 6 12 Total 3,976 4,157

11.3 - Defined benefit company pension funds: costs and revenues

During the year, interest expense accrued amounted to EUR 764 thousand and the actuarial gains calculated totalled EUR 4,182 thousand. Assets to serve pension funds accrued returns of EUR 927 thousand.

205 11.4 - Other employee benefits

Other employee benefits include expenses with regard to employees for:

- production bonuses (EUR 13,067 thousand); - meal voucher expenses (EUR 4,703 thousand);

- scholarships for the children of the employees (EUR 1,321 thousand); - costs for personnel training (EUR 1,031 thousand).

Other employee benefits referring to 2014 include the provision to the “Solidarity Fund” for the credit sector - of EUR 44 million - to assist the voluntary retirement of employees.

11.5 - Other administrative expenses: breakdown

2015 2014 Fees for professional and consulting services (41,457) (31,818) Insurance premiums (3,447) (3,668) Advertising (4,394) (4,202) Postage, telephone and data transfer (7,197) (8,434) Printed materials and stationery (1,498) (1,581) Data processing services (28,184) (29,763) Electricity, heating and shared property service charges (10,001) (10,967) Administrative and logistics costs (4,548) (5,282) Property management (12,425) (12,526) Transport and travel (3,669) (4,007) Security and transport of valuables (7,264) (7,679) Membership fees (2,999) (2,568) Audit fees (1,452) (1,497) Commercial and financial information (5,411) (6,353) Rent payable (23,187) (24,018) Indirect personnel expenses (4,246) (3,753) Entertainment expenses (667) (648) Taxes (61,601) (62,407) Contractual charges for treasury management services (1,022) (1,307) Meeting costs (1,466) (1,449) SRF and DGS contributions (28,067) - Miscellaneous items (4,944) (5,838) Total (259,146) (229,765)

The previous period was restated with respect to the maintenance of the systems and lease of hardware and software that were reclassified in the item property management and in the item miscellaneous items.

Miscellaneous items include contributions to the Fondazione Credito Valtellinese of EUR 2,536 thousand. The amounts paid to KPMG S.p.A. and its network companies pursuant to Article 2427, first paragraph, sub-paragraph 16-bis of the Italian Civil Code can be found in the annexes to the financial statements.

206

Contributions to SRF and DGS

The BRRD (Bank Recovery and Resolution Directive – 2014/59/EU) sets out the new rules for resolution that will be applied as from 1 January 2015 to all the banks of the European Union. The measures of the BRRD will be financed by the National Fund for the resolution that each of the 28 Member States will have to set up. It is expected for the funds to be paid in advance to reach by 31 December 2024 a minimum target level of 1% of guaranteed deposits. An ex-post extraordinary contribution is also envisaged if the available financial means are not sufficient to finance the resolution, to the maximum extent equal to three times the annual amount of ordinary contributions. The Single Resolution Mechanism Regulation 2014/806/EU, which became effective as from 1 January 2016, establishes also the creation of the Single Resolution Fund (SRF), which will be managed by the new European resolution authority (Single Resolution Board – SRB). Italian Legislative Decree no. 180 of 16 November 2015, containing the implementation in Italian regulations of the BRRD, provides for the obligation to establish one or more single resolution funds as from 2015. Therefore, the Bank of Italy, as Single Resolution Board established the Single Resolution Fund for 2015 with Measure no. 1226609/15 of 18 November 2015. The annual contributions of each intermediary were calculated as the ratio of the amount of its liabilities net of own funds, protected deposits and, for entities belonging to groups, intercompany liabilities. The contribution base was adjusted on the basis of the risk profile of the intermediaries. The correction for the risk can determine a discount (at the most 20%) or a penalisation (up to 50%) to be applied to the base contribution. Based on this logic, the banks of the Group were requested to pay the annual amounts for a total of EUR 6.2 million. Italian Law Decree no. 183 of 23 November 2015 applied, as from 23 November 2015, the resolution instrument of the so-called “bridge bank” envisaged by the BRRD to Banca delle Marche S.p.A., Banca Popolare dell’Etruria e del Lazio S.c.p.A., Cassa di Risparmio della provincia di Chieti S.p.A. and Cassa di Risparmio di Ferrara S.p.A.. Considering the requirement to resort immediately to the resources of the Fund in the framework of the crisis resolution programme of the mentioned Banks, it was necessary to collect the extraordinary contribution, in accordance with Article 83 of the mentioned Italian Legislative Decree 180/2015 and of Article 4 of Measure no. 1226609/15 establishing the Fund. Considering the above-mentioned intervention requirements, the extraordinary contributions were drawn down equal to three years of ordinary contributions amounting to EUR 18.7 million. The Deposit Guarantee Schemes Directive 2014/49/EU strengthens the protection of the depositors and harmonises the regulatory framework at EU level. The new directive requires all Member States to adopt an ex-ante financing system, whose target level is set at 0.8% of guaranteed deposits to be reached in 10 years. The Extraordinary meeting of the Interbank deposit protection fund, during the meeting of 26 November 2015, approved the amendments to the Articles of Association of the Fund aimed at anticipating the introduction of the new financing mechanism envisaged by directive 2014/49/EU (DGSD), broken down in ordinary contributions (ex ‐ante) and extraordinary contributions (ex ‐post). In particular, Article 21, paragraph 1, lays down that the Fund established available financial resources up to the target level equal to 0.8% of total protected deposits no later than 3 July 2024, through ordinary contributions of participating banks. The Board of the Fund established the measure of the ex-ante contribution for 2015, fixed at 50% of the annual amount and adapted to the amount of the protected deposits at 30 September 2015. The amount paid for 2015 by the banks of the Group is equal to EUR 3.1 million.

207

SECTION 12 - NET ACCRUALS TO PROVISIONS FOR RISKS AND CHARGES - ITEM 190

12.1 - Net accruals to provisions for risks and charges: breakdown

Items 2015 2014 Provision for legal disputes and claims from liquidators (2,804) (3,056) - reallocation 1,174 2,491 - provisions (3,978) (5,547) Provision for sundry risks and charges (14,851) (1,509) - reallocation 141 68 - provisions (14,992) (1,577) Total (17,655) (4,565)

Other provisions for risks and charges mainly refer to a provision carried out considering the regulatory provision (Italian Law Decree 183/2015 and 2016 Stability Law) which provides for the increase of the maximum draw-down limit of the resolution fund to face up to any further requests to rescue the four Italian banks in resolution (Popolare Etruria, Banca Marche, Carichieti and Cariferrara). The outflow of resources was considered likely in connection with an event already occurred and an amount equal to 2 additional portions of EUR 12 million was set aside.

SECTION 13 - DEPRECIATION AND NET IMPAIRMENT LOSSES ON PROPERTY, EQUIPMENT AND INVESTMENT PROPERTY - ITEM 200

13.1 - Depreciation and net impairment losses on property, equipment and investment property: breakdown

2015 Impairment Reversals of Net profit Amortisation Assets/Income components losses (b) impairment (losses) (a) losses (c) (a+b-c) A. Property, equipment and investment property A.1 Owned - Operational property, equipment and (19,934) - - (19,934) investment property - Investment property (1,817) - - (1,817) A.2 Acquired through a finance lease - Operational property, equipment and - - - - investment property - Investment property - - - - B. Discontinued operations - (211) - (211) Total (21,751) (211) - (21,962)

208 SECTION 14 - AMORTISATION AND NET IMPAIRMENT LOSSES ON INTANGIBLE ASSETS - ITEM 210

14.1 - Amortisation and net impairment losses on intangible assets: breakdown

2015 Reversals of Net profit Amortisation Impairment losses Assets/Income components impairment (losses) (a) (b) losses (c) (a+b-c) A. Intangible assets A.1 Owned - Generated internally - - - - - Other (11,554) (17,909) - (29,463) A.2 Acquired through a finance lease - - - - Total (11,554) (17,909) - (29,463)

Amortisation refers to intangible assets with a definite useful life linked to relationships with customers and to software. Impairment losses refer to the impairment of customer lists, in that the analysis carried out for determining the recoverable amount referring to this item showed a markedly smaller contribution to the cash flow generation of these items - for a significant time horizon - compared to the one taken as reference for the enhancement of the original flows. Consequently, the residual amount was fully amortised by EUR 17,909 thousand.

209 SECTION 15 - OTHER OPERATING NET INCOME - ITEM 220

15.1 - Other operating expenses: breakdown

2015 2014 Amortisation of leasehold improvements (2,718) (3,739) Real estate costs (10,174) (13,081) Other expenses (2,303) (2,306) Total (15,195) (19,126)

15.2 - Other operating income: breakdown

2015 2014 Rent receivable 1,765 1,042 Recovery of loan setup fees 4,293 5,322 Income from real estate services (including income from review of prices on real estate agreements underway) 930 695 Income from data processing services 12,017 11,095 Income from other services 920 872 Recovery of indirect taxes 44,485 46,824 Recovery of insurance policy payments 1,079 1,074 Recovery of legal and notarial costs 11,951 13,022 Profit on conferment of the business unit - 14,305 Changes in property works in progress 1,049 316 Revenues from property sales 4,922 5,160 Other income 8,895 6,772 Total 92,306 106,499

The other operating income includes recovery of expenses on services to group companies of EUR 3,894 thousand, mainly related to recoveries of costs connected to the management of properties of the I.C.B.P.I. group, income and recoveries for leasing services of EUR 1,837 thousand and insurance repayments of EUR 245 thousand.

210 SECTION 16 - NET GAINS (LOSSES) ON EQUITY INVESTMENTS - ITEM 240

16.1 - Net gains (losses) on equity investments: breakdown

Income components/Amounts 2015 2014 1) Companies subject to joint control A. Income 18 20 1. Revaluations 18 20 2. Profits on sale - - 3. Reversals of impairment losses - - 4. Other income - - B. Expense - - 1. Impairment - - 2. Impairment losses - - 3. Losses on sale - - 4. Other expenses - - Net gains (losses) 18 20 2) Companies subject to significant influence A. Income 261,201 20,844 1. Revaluations 11,209 20,533 2. Profits on sale 226,525 311 3. Reversals of impairment losses - - 4. Other income 23,467 - B. Expense (256) (144) 1. Impairment - (144) 2. Impairment losses (256) - 3. Losses on sale - - 4. Other expenses - - Net gains (losses) 260,945 20,700 Total 260,963 20,720

As already represented in the Report on operations, on 18 December 2015 the sale to Mercury Italy S.r.l. was finalised (vehicle indirectly owned by the Bain Capital, Advent International and Clessidra Sgr funds) of 85.29% of the share capital held in I.C.B.P.I at a price determined based on a valuation of 100% of the capital of EUR 2,150 million. Credito Valtellinese – which held 20.4% of the share capital of I.C.B.P.I – sold 18.4% of the share capital of I.C.B.P.I, maintaining a residual investment of 2%. The sale of the equity investment led to the recognition of a profit totalling EUR 226.5 million. Based on the requirements of IAS 28, the residual investment was measured at fair value (reclassified among Available-for-sale financial assets following the loss of significant influence) recognising in the income statement the positive difference compared to the carrying amount (amount of EUR 23.5 million).

The results shown in the table were determined on the basis of 2014 financial statements approved by their Shareholders’ Meetings, or, if available, of the draft financial statements approved by their Boards of Directors.

211

SECTION 18 - GOODWILL IMPAIRMENT LOSSES - ITEM 260

18.1 - Goodwill impairment losses: breakdown

2015 2014

Other impairment losses (70,194) (131,344)

Total (70,194) (131,344)

As shown in part B, the impairment test carried out on the goodwill recorded in the 2015 consolidated financial statements showed the need for a full goodwill impairment loss of EUR 70 million with regard to the Credito Valtellinese Market CGU.

SECTION 19 - NET GAINS (LOSSES) ON SALES OF INVESTMENTS - ITEM 270

19.1 - Net gains (losses) on sales of investments: breakdown

Income components/Amounts 2015 2014 A. Property - Profits on sale 280 8 - Losses on sale (248) (162) B. Other assets - Profits on sale 49 7 - Losses on sale (7) (9) Net gains (losses) 74 (156)

212 SECTION 20 - INCOME TAXES - ITEM 290

20.1 - Income taxes: breakdown

Income components/Amounts 2015 2014 1. Current taxes (-) (5,480) (66,990) 2. Changes in current taxes of prior years (+/-) 15,448 5,319 3. Reduction in current taxes for the year (+) - - 3. bis Reduction in current taxes for the year for credit taxes as per Italian Law no. - 197 214/2011 (+) 4. Change in deferred tax assets (+/-) 68,269 174,116 5. Change in deferred tax liabilities (+/-) (237) (911) 6. Income taxes for the year (-) (-1 +/-2 +3 +3 bis +/-4 +/-5) 78,000 111,731

20.2 - Reconciliation between theoretical tax expense and actual tax expense - IRES

2015 Pre-tax profit from continuing operations 24,188 Profit from discontinued operations 20,394 Taxable income 44,582

Theoretical tax expense - IRES (12,272) Effect of non-deductible negative components of income (31,993) Effect of non-taxable positive components of income 115,308 Effective tax expense - IRES 71,043 - on continuing operations 71,372 - on discontinued operations (329)

20.2 - Reconciliation between theoretical tax expense and actual tax expense - IRAP

2015 Pre-tax profit from continuing operations 24,188 Profit from discontinued operations 20,394 Taxable income 44,582

Theoretical tax expense - IRAP (2,485) Effect of non-deductible negative components of income (15,216) Effect of non-taxable positive components of income 24,334 Effective tax expense - IRAP 6,633 - on continuing operations 6,628 - on discontinued operations 5

213 SECTION 21 - POST-TAX PROFIT (LOSS) FROM DISCONTINUED OPERATIONS - ITEM 310

21.1 - Post-tax profit (loss) from discontinued operations: breakdown

Income components/Amounts 2015 2014 1. Income 2 3 2. Expense (305) (1,128) 3. Gain (loss) on disposal groups and associated liabilities - - 4. Gains (losses) on sales 20,697 - 5. Taxes (324) - Profit (loss) 20,070 (1,125)

21.2 Breakdown of income taxes on discontinued operations

2015 2014

1. Current taxation (-) 62 246

2. Change in deferred tax assets (+/-) (465) (188)

3. Change in deferred tax liabilities (-/+) 79 (58)

4. Income taxes for the year (-1+/-2 +/-3) (324) -

SECTION 22 - PROFIT (LOSS) FOR THE YEAR ATTRIBUTABLE TO NON-CONTROLLING INTERESTS - ITEM 330

22.1 –Breakdown of item 330 “Profit for the year attributable to non-controlling interests”

Company name 2015 2014 Investments in consolidated companies with significant non-controlling interests 1. Global Assicurazioni S.p.A (3,594) (2,968) 2. Global Broker S.p.A (531) (328) Other investments 144 527 Total (3,981) (2,769)

214 SECTION 24 - EARNINGS PER SHARE

The basic earnings per share and diluted earnings per share are calculated in accordance with the methods described in IAS 33 - Earnings per share. The basic earnings per share are defined as the profit or loss or the result from continuing operations attributable to the owners of the parent (therefore, excluding the post-tax result from discontinued operations) attributable to ordinary equity holders and the weighted average number of ordinary shares outstanding during the year. The following table displays the basic earnings per share with the calculation details.

2015 2014 Profit (loss) attributable to holders of ordinary shares 116,577 (325,086) Profit (loss) from continuing operations attributable to holders of ordinary shares 96,507 (323,961) Weighted average number of ordinary shares 1,108,812,369 798,708,098 Basic earnings (loss) per share 0.105 (0.407) Basic earnings (loss) per share from continuing operations 0.087 (0.406)

There are no outstanding instruments with potential dilutive effect; therefore, diluted earnings per share are equal to basic earnings per share.

215 PART D - CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

ANALYTICAL STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

Gross Items Income tax Net amount amount 10. Profit (Loss) for the year X X 122,258 Other comprehensive income without reclassification to profit or loss (6) 425 419 40. Defined-benefit plans (1,312) 784 (528) 60. Portion of valuation reserves of equity-accounted investments 1,306 (359) 947 Other comprehensive income with reclassification to profit or loss 62,004 (12,172) 49,832 100. Available-for-sale financial assets 72,329 (15,585) 56,744 a) fair value gains (losses) 159,401 (43,226) 116,175 b) reclassification to profit or loss (87,072) 27,641 (59,431) - impairment losses 1,914 (113) 1,801 - gains (losses) on sales (88,986) 27,754 (61,232) c) other gains (losses) - - - 120. Portion of valuation reserves of equity-accounted investments: (10,325) 3,413 (6,912) a) fair value gains (losses) (1,372) 453 (919) b) reclassification to profit or loss (8,953) 2,960 (5,993) - impairment losses - - - - gains (losses) on sales (8,953) 2,960 (5,993) c) other gains (losses) - - - 130. Total other comprehensive income 61,998 (11,747) 50,251 140. Comprehensive income (Item 10+130) 172,509 150. Consolidated comprehensive income attributable to non-controlling interests (4,013) 160. Consolidated comprehensive income attributable to the owners of the parent 168,496

216 PART E – INFORMATION ON RISKS AND HEDGING POLICIES

The Credito Valtellinese Group makes available to the public informative report on the “Third pillar” - regarding capital adequacy, risk exposure and general characteristics of the related management and control systems - on its Website, at the following address: www.gruppocreval. com.

SECTION 1 - RISKS OF THE BANKING GROUP The clear identification of risks to which the Credito Valtellinese Banking Group is actually and potentially exposed constitutes the essential prerequisite for a knowledgeable assumption of said risks and their effective management, making use of the appropriate mitigation and transfer tools and techniques. In line with the regulatory provisions, with the operational and organisational characteristics that derive from its identity as a subject belonging to the cooperative credit system, from the features that characterised it in over a hundred years of its history and from its mission of service to the economic and social development of the territories where it is established, the different types of risk that the Group assumes and manages in the carrying on of its activities are:

- credit and counterparty risk (including country and transfer risk); - credit valuation adjustment risk;

- market risk for the trading book (including the basis risk); - operational risk;

- IT risk; - interest rate risk for the banking book;

- concentration risk of the loans and receivables from customers portfolio; - liquidity risk;

- real estate risk; - compliance risk;

- risk of money laundering and terrorist financing; - risk towards associated parties; - reputational risk;

- risk deriving from securitisations; - residual risk;

- strategic risk (including risk from investments); - risk of excessive leverage;

- sovereign risk; - model risk;

217 to its risk appetite defined in the Risk Appetite Framework.

In organisational terms, the task of the Risk and Control Area, under the Managing Director, among other things, is to monitor the activities and the development of the Group’s internal control and risk management system, favouring the coordination and integration between the company’s development and control functions in order to create a full protection of the risk management processes of the Group. The company’s control functions are based, from an organisational viewpoint, in three separate Departments of Credito Valtellinese:

- the Auditing Department, responsible for the activities related to the internal audit function;

- the Risk Management Department, responsible for the activities related to the risk control and validation functions;

- the Compliance Department, responsible for the activities related to compliance and anti- money laundering functions.

As part of the organisation on the control system, the Risk Management department of Credito Valtellinese has a prominent role, broken down in specialised Divisions and Services and also supported by the collaboration of contacts at the other companies of the Group. In line with the supervisory provisions for banks, it:

- is involved in defining the Group Risk Appetite Framework (RAF), the risk controlling policies and the different phases that form their management process as well as fixing the operational limits to the assumption of various types of risk. In this area, it also has the task of proposing the quantity and quality parameters required for defining the RAF, which also refer to stress scenarios and, in case of amendments to the internal and external operating contexts of the bank, the adjustment of such parameters. It verifies the adequacy of the RAF;

- oversees the internal capital adequacy assessment process (ICAAP) provided by the prudential supervisory regulations;

- oversees the internal liquidity assessment process (ILAAP); - expresses opinions in advance on the compliance with RAF of most significant transactions, by acquiring if possible, depending on the type of operation, the opinion of other departments involved in the risk management process;

- identifies, measures and monitors the relevant risks, verifies compliance with the exposure limits that may be established and assesses capital adequacy;

- analyses the risks of new products and services and those deriving from the entry in new operating and market segments;

- provides the Banks and the Group with reliable models and instruments, updated and adjusted for the management of risks implied in the business activity and in compliance with the regulatory provisions;

- is in charge of the monitoring the development, validation and maintenance of risk measurement and control systems ensuring that they are subject to regular review, also on the basis of backtesting, where applicable;

218 - verifies the proper execution of performance scoring on individual credit exposures, in particular those non-performing, and assesses the consistency of the classifications, the appropriateness of the provisions and the adequacy of the recovery process;

- verifies continuously the adequacy of the management process of risks and operating limits.

In line with the supervisory regulations, the Group has developed and standardised specific risk management processes broken down into several logical steps: definition of the propensity to risk, assumption of risk, definition of management and control policies, definition of the limits, risk measurement, monitoring and reporting, stress tests and management of critical issues. The risk appetite, which is an essential reference for defining the strategic plan and the logical premise for planning, is defined for relevant risks. In particular, the definition of the risk appetite of the Group, based on a sound and prudent management, pertains to the Board of Directors of the Parent, which sees to it when defining the Risk Appetite Framework by considering the existing prudential rules, the adopted business model, the deposit and loan methods typical of the Group and the ability of the control structures to monitor and measure the risks. Annually, the Board of Directors of the Parent also reviews the risk appetite framework and, if the conditions are met, updates them.

The risk management and control policies are the guidelines designed to ensure that the actual risk exposure is consistent with the propensity expressed by the governing bodies and with the statutory principles that express the corporate identity of a Group with a vocation as a cooperative Bank oriented to financing the real economy of the areas in which the Group operates, SMEs and households, in particular. In view of the peculiar nature of each risk, its management and control policies are appropriately differentiated. The operating structures that, in the exercise of their powers and assignments, act in order to achieve the management objectives assigned to them, also refer to these policies. The risk management processes also envisage the definition, by the Board of Directors of the Parent, of operational limits to the assumption of various types of risk, consistent with the risk appetite defined within the Risk Appetite Statement and of the development of the economic scenario. The system of limits on risk assumption is divided into reporting thresholds and intervention thresholds that, once exceeded, activate specific controls designed to restore normal levels.

219 types of risk (known as “First Pillar” risks) and require the banks to assess other types of risk (known as “Second Pillar” risks), included in a list that is not complete, and to have an adequate capital to face up to them. The assumption of importance based on objective and regulatory elements is accompanied additionally by the consideration of company characteristics, which can lead both to the integration and to the increase/decrease of the assessment of importance. In order to ensure corporate bodies and company’s control functions both full knowledge and governance of the risk factors and the verification of RAF compliance, in addition to the ICAAP and ILAAP Reports, the Risk Management department produces with the frequency established by the internal regulations accurate, complete and timely information flows, structured according to the statements approved by the General Management.

In line with its focus on retail banking, the Group is mainly exposed to credit risk. In terms of capital requirement, the exposure to operational risks is also significant: these risks are assumed in that they serve as a means for carrying out the banking business. The exposure to financial and market risks is limited, given that the objective of limiting the volatility of the forecast results would not be compatible with an intensive speculative financial activity, with a pronounced transformation of maturities and with treasury management as a profit centre rather than a service. The risks related to the outsourcing of corporate functions, systems, processes or activities are not dealt with as a separate case but refer to the different types of risks identified. The risk profile at the end of the reporting period is consistent with the risk appetite defined by the Board of Directors, which, in line with the identity, values, business model and strategic input of the Group, resolved to allocate the main part of the capital to the credit risk, which represents the core business of a retail Banking Group; confirm a low propensity to other risks with business purpose; confirm the aim of limiting/minimising exposure for pure risks to which no return is associated. The actual risk exposure complies, on the date of reference of this report, with the tolerance thresholds set taking into account the maximum technically assumable risk.

220 1.1 CREDIT RISK QUALITATIVE INFORMATION

General aspects The credit risk is primarily defined as the insolvency risk or default of the counterparty, i.e. as “the possibility for the creditor that a financial obligation will not be paid at maturity or later”. The credit risk occurs also as:

- deterioration of the creditworthiness of counterparties with a credit line (migration risk);

- increase in exposure before the insolvency of a counterparty with a credit line (exposure risk);

- decrease in the rate of collection of delinquent loans (collection risk). Therefore, as part of the lending activity, the Bank, acting as lender, is exposed to the risk that some loans may not be paid, due to the deterioration of the financial conditions of the debtor, either at maturity or later and should therefore be derecognised in all or in part. The possible causes of non-fulfilment are mainly due to the inability of the borrower to repay the debt (liquidity shortage, insolvency, etc.). This risk is taken on when carrying out the traditional lending activity, regardless of the specific technical form in which the loan is granted. The purpose of the credit policies defined by the Group is:

- to make concrete and operational the statutory principles that express the corporate identity - a Group with a vocation as a cooperative Bank oriented to financing the real economy of the areas in which the Group operates, SMEs and households in particular - and inspire its guidelines for carrying out its lending activity;

- direct the loans portfolio composition towards the optimisation of the ratio between the expected return and credit risk, with a view to realigning the risk-adjusted profitability to the cost of capital and limiting the concentration of exposures on single counterparties/groups, on single business segments or geographical areas;

- support the monitoring of the credit risk management by applying policies, processes, methods and standard IT procedures.

Credit risk management policies

Organisational aspects Two Parent Areas are mainly involved in the credit risk monitoring: the Loans Area, focused on the monitoring of credit quality by controlling all the variables of risk management, guidance and monitoring (including the segment of medium to long term loans and corporate finance) and the Risk and Control Area that, as already reported, monitors the activities and the development of the Group’s internal control and risk management system. The Loans Area reports directly to:

- the Loans Department of the Parent, whose task is to manage and check the risk-taking process related to the disbursement of loans and receivables with customers and banks, monitoring constantly their trend and related uses;

- the Dispute Department of the Parent, whose main task is to supervise and coordinate the issues related to the management and disposal of bad loans according to management policies and the strategic objectives defined at the Group level, monitoring their

221 consistency and effectiveness over time. Moreover, the Dispute Department handles the relations with the Cerved Credit Management Servicer with which on 1 April 2015, the Parent finalised an agreement for the development of a long-term industrial partnership for the management of bad loans;

- the Business Finance Department of the Parent, which is responsible for monitoring the valuation and structuring of the medium to long-term loans such as Specialized Lending, Acquisition Finance, Corporate Lending and syndicated loans. Moreover, it must ensure, also by coordinating the work of external lawyers, the monitoring of all aspects (contractual, pricing and guarantees) related to pertaining operations, and coordinate the Advisory activities (Mini Bond and Restructuring) in addition to monitoring the restructuring process of the relevant positions of the Bank and coordinating the activities related to the operations included in the scope of structured finance and restructuring ;

- the Loan Policies and Monitoring Service that has the task of monitoring the credit process, defining the policies and methods required for assessing and managing credit risks, by supporting the member of the General Management responsible for the “Loans Area” and by coordinating the activity carried out by the Loans Department of the Parent and of the Banks of the Group, as well as by the structures of the other Companies of the Group with reference to the credit system, in order to implement a shared guideline for a coordinated management of the credit risk within the Group. With reference to the Risk and Control Area, already described in the previous paragraph, note the role of the Risk Management Department of the Parent in loans whose task is to:

- develop, validate and maintain the risk measurement and control systems ensuring that they are subject to regular review, also on the basis of backtesting, where applicable;

- verify the proper execution of performance scoring on individual credit exposures, in particular those non-performing, and assessing the consistency of the classifications, the appropriateness of the provisions and the adequacy of the recovery process.

With regard to the credit rating process, approval and management of positions, each Bank carries out the lending activity on the basis of guidelines and standard processes defined by the Parent and on the basis of delegated powers to authorise loans. With regard to all the macro-segment credit risks (Corporate, Retail and Private), the credit rating process is based on the internal rating system, which is essential for assessing the creditworthiness of borrowers. In particular, during the first half of the financial year, the breakdown of the powers was updated considerably by inserting the Expected Loss as a basic parameter for determining the decision-making body and for allocating the risk assumption powers. The decision-making process related to the credit is supported by internal procedures (Electronic Credit Line and Rating) that manage the credit process (contact with customers, set up, credit disbursement and management) and the rating assignment process, respectively.

The entire credit process is constantly reviewed and subject to careful inspections. The Territorial Banks of the Group also in this last year renewed the quality certification of the “Loan application, granting and management” process that Credito Valtellinese has been awarded since 1995. The certification activities entail a constant and stringent verification of the entire lending process, the drafting of documents (Quality Manual and Operating Instructions) adequately examined by top management and distributed to the various departments of the company, as well as the timely updating of internal controls carried out by the appropriate Loans Department and by the Auditing Department. The purpose of this process is to ensure the most precision in assessing risk, maintaining a lean, efficient assessment and management process.

222 Credit management, measurement and control systems The Credito Valtellinese Group makes use of a set of parameters and instruments for managing the credit risk, which includes an important element such as the internal ratings calculated through differentiated and estimated models specifically by customer segment (Corporate, SME Corporate, Small Retail, Micro Retail and Private).

The rating has an important role in the process of granting, renewal and review of the credit, in that it represents an essential and indispensable element for assessing the counterparty’s creditworthiness. The rating assignment activities summarise the analyses of all the quantitative and qualitative information available in support of the credit set up process, enhancing at the same time the direct relation with the customers and the knowledge gained over time of their specific characteristics. The master scale adopted by the Group consists of 9 rating classes to which the related PDs (Probability of Default) correspond, i.e., the probability that a counterparty belonging to a particular rating class passes to the default state within a time horizon of one year. The rating models are estimated on the basis of statistical analysis of historical data of the Credito Valtellinese Group and their purpose is to assess the counterparty risk both during the process of granting a new credit line and during the process of monitoring the development of the risk profile of each counterparty and of the overall loans portfolio.

Consistently with the provisions for the rating models for the Corporate and Retail Enterprises, at the beginning of the calculation of the “statistical integrated rating”, the application of the pejorative notching rule is envisaged on the basis of expert assessments based on the possible presence of detrimental deeds that concern the counterparty, with a different level of significance (“minor” events and “severe” events).

Another parameter used by the Group for measuring the credit risk is the Loss Given Default (LGD) that represents a loss rate in case of default, i.e. the expected value (possibly affected by adverse scenarios) of the ratio, expressed in percentage terms, between the loss due to

223 default and the amount of exposure at the moment of default (Exposure At Default, EAD). In order to calculate the value of LGD, bad loans LGD and the Danger Rate are estimated and then two additional components are applied: the downturn effect and indirect costs.

The risk parameters have a key role in loan granting, monitoring and management. In particular, they play a role in deciding the bodies competent to approve loans and contribute to guide the decisions of loan managers when classifying positions based on their performance. Moreover, the risk parameters indicated are used in the assessment of performing loans and receivables from customers portfolio. In fact, with reference to this area, the Group developed the method of “ incurred but not reported losses ”, which uses the values of expected loss duly adjusted through the Loss Confirmation Period (LCP) parameter to take account of the average delay between the deterioration of the financial conditions of the debtor and the actual classification under default status of each exposure. In order to take into account the current economic situation, the PDs used for estimating the rate of depreciation are calculated according to a mostly point in time (PIT) method compared to a more through the cycle (TTC) approach used for the calibration of the rating models. In particular, the PDs used for estimating the rate of depreciation are equal to the PDs estimated for the rating models, which represent a long-term floor, or the average of the default rates recognised over the last three years (2012-2013-2014), whichever higher.

The rating system as a whole is constantly verified by the internal validation function and by the internal audit function in order to guarantee the compliance with what is provided by the Supervisory Regulations in order to use the internal models for determining prudential capital requirements.

Within the credit control systems, there are also initiatives, completed by the Group during the year, of alignment to the implementing technical standards on forbearance defined by the EBA.

The identification of a forborne position does not represent an additional administrative status but it is a further defining element of the customer’s credit quality, which comes alongside and does not overlap the classifications used. For the purposes of the correct identification of forborne exposures, the Group adopted special procedures characterised by a forbearance presumption algorithm and by a presumption algorithm of financial difficulty, which use information such as the administrative status, the rating and the management status of the counterparty.

The final classification as forborne is in any case assessed on an analytical basis by the decision-making body during the credit disbursement or review processes. In line with supervisory regulations, forborne exposures are classified (according to an approach by transaction) into two categories:

- non-performing forborne, i.e. forbearance exposures due to financial difficulties of the debtor classified as non-performing assets (bad loans, unlikely to pay, past due and/or overdue non-performing loans);

- performing forborne, i.e. forbearance exposures due to financial difficulties of the debtor classified as non-performing assets; to which different credit monitoring procedures are assigned.

Also for concentration risk management, the Group uses a specific process governed by a specific regulation within which the risk management activities are formalised and the tasks and responsibilities assigned to the different organisational units involved, the strategic guidelines, the management policies, the measurement methods, the exposure limits, the information flows and any mitigation procedure are defined.

224 Concentration risk measurement is the responsibility of the Risk Management Department and it makes these measurements on a centralised basis on behalf of all Group Banks. Risk measurement is carried out at both an individual and consolidated level in order to fully identify and allocate the main sources of exposure to risk at the legal entity level. The approach followed in order to measure the concentration risk of the loans and receivables from customers portfolio differs in accordance with whether it is generated by concentration per single party or group of related customers or geo-sectorial concentration. The granularity adjustment approach noted in the “Prudential supervisory provisions for banks” is used to measure the concentration risk per single party or group of related customers. This approach allows the Bank to determine the internal capital in connection with the concentration risk per single party or per group of related customers of a portfolio characterised by imperfect diversification. Information on the positions classified as “large exposure” is also important as part of the risk concentration per single party or group of related customers. In order to measure the geo-sectorial concentration risk, the method proposed by ABI is followed. This method allows the bank to estimate the internal capital in connection with the geo-sectorial concentration risk as “add-on” of the capital requirement for credit risk hedging, according to the distance of the level of concentration by economic sector/ATECO business code of the Group’s loans portfolio compared to the concentration level of the national banking system. The distance is measured by comparing the Herfindahl concentration index by economic sector/ATECO business code of the Group’s loans portfolio and the same index calculated using the figures of the national banking system. By comparing the two indices, using a simulation algorithm, the internal capital for hedging the geo-sectorial concentration risk is calculated.

Concentration risk is limited by splitting up and diversifying the portfolio and through the resolution, by the Board of Directors, of maximum credit line amounts divided by Bank and maximum exposure limits vis-à-vis Banks and Financial companies. With regard to counterparty risk, that is to say the risk that the counterparty of a transaction concerning certain financial instruments is in default before the settlement of the transaction itself, the operations carried out - limited in terms of volumes and focused on non-complex instruments traded on regulated markets or with counterparties of high credit standing - involve a very modest exposure. In line with the adopted business model, these types of transactions are limited in number and size.

Credit risk mitigation techniques In the granting of loans, guarantees are an accessory element; the granting of loans is, in fact, based on the borrower’s actual capacity to repay the loan. Where necessary, for the purposes of credit risk reduction, the Group acquires from its customers the typical banking guarantees, i.e. mainly, mortgages on real estate, collaterals on securities and marginally personal guarantees.

As part of the ICAAP process, the Group has also provided for the assessment of residual risk, i.e. the risk that the recognised techniques used to mitigate credit risk are less effective than expected. The use of these techniques may in fact expose the Group to a series of further risks (for example of an operational or legal nature) which, if they occur, may lead to a greater 225 lending risk than had been expected due to the lower effectiveness or actual unavailability of the protection. The residual risk is mainly managed by acting on the procedural and organisational plan. In order to reduce the residual risk, organisational changes were introduced aimed at strengthening the second level controls. The Auditing Department is assigned the third-level controls designed to ensure timely compliance with the obligations relating to the management of guarantees. With reference to the eligibility of guarantees for determining asset requirements, the Group reviewed and regulated in a more stringent manner the process that guides and applies their eligibility and admissibility requirements.

Non-performing financial assets The irregularly performing loans are classified in compliance with what is provided by supervisory regulations as: past due non-performing loans, unlikely to pay and bad loans. This new classification was introduced as from 1 January 2015 and replaces the one previously in force that envisaged the categories of past due, substandard, restructured and non-performing loans. The management of non-performing loans is entrusted to dedicated structures within the Group that operate through previously set recovery procedures, differentiated according to the risk classification. During the financial year, the loan trend management process was strengthened. In particular, the review of regular positions showing signs of potential impairment had become mandatory.

Still in terms of management of non-performing financial assets, during the financial year, the Group signed some important agreements in order to improve the management of non- performing portfolio. In particular, Yard Credit & Asset Management agreement was signed for the management of “distressed” real estate loans of the Group. The collaboration focused on a portfolio of positions classified as unlikely to pay paves the way for a better management of all distressed real estate assets of the Creval group, thanks to the distinctive skills of Yard, by enhancing also the expertise gained by Stelline Real Estate S.p.A.

In April, an agreement was signed with Cerved Information Solutions S.p.A, by means of the subsidiary Cerved Credit Management Group S.r.l., for the development of a long-term industrial partnership for the management of non-performing loans, in order to increase the efficiency of the management and recovery of non-performing loans.

Within the management of bad loans, the Group retained the strategic monitoring in the management of major exposures, (known as large ticket) in addition to the operational coordination and control of the recovery process and activities carried out by the servicer. The valuation of impairment losses of non-performing financial assets occurs analytically, i.e. for each position, on the basis of uniform rules for all Banks in the Group. Non-performing financial assets classified as “unlikely to pay” with a limited unitary amount or as “past due non-performing loans” are measured according to internal statistical models analytically applied to each position. The other non-performing financial assets are individually assessed by the Group Bank Loans Departments and by the Dispute Department of the Parent (for bad loans portfolio) on the basis of methods and rules defined by the internal policy on the matter. During the financial year, the Group further fine-tuned the valuation model of impairment losses by raising the threshold of minimum provision for some categories of risk and by introducing the rules of allocation of liquidation costs both for bad and unlikely to pay loans.

226 QUANTITATIVE INFORMATION

A. QUALITY OF CREDIT

A.1 NON-PERFORMING AND PERFORMING CREDIT EXPOSURES: CARRYING AMOUNTS, IMPAIRMENT LOSSES, TREND, BUSINESS AND GEOGRAPHICAL DISTRIBUTION

A.1.1 - Distribution of credit exposures by portfolio and credit quality (carrying amounts)

Past due Past due Other Unlikely non- Portfolio/Quality Bad loans performing performing Total to pay performing loans loans loans

1. Available-for-sale financial assets - 374 - - 5,111,537 5,111,911

2. Held-to-maturity investments ------

3. Loans and receivables with banks - - - - 713,089 713,089

4. Loans and receivables with customers 1,207,157 1,835,414 315,061 669,682 15,022,436 19,049,750

5. Financial assets at fair value through profit or loss ------

6. Financial assets held for sale ------

Total at 31/12/2015 1,207,157 1,835,788 315,061 669,682 20,847,062 24,874,750

Total at 31/12/2014 1,101,939 1,578,925 511,606 964,599 22,349,433 26,506,502

The comparative figures referring to 31 December 2014 were restated to include in the category of unlikely to pay exposures previously defined as substandard loans and restructured loans. Other performing loans include EUR 1,241,283 thousand (EUR 1,610,971 thousand at 31 December 2014) of loans past due from 1 day.

At 31 December 2015, exposures subject to granting amount to EUR 600,012 thousand for what concerns non-performing loans and EUR 351,923 thousand with respect to performing loans and they are almost entirely attributable to the loans and receivables with customers portfolio. For further details, reference is made to Table A.1.6.

Past due performing loans The IFRS 7 accounting standard provides that each financial asset that has not been impaired should be given a length of expiry that occurs when the counterpart fails to pay the asset within the contractually due date.

It is specified that: - in case of exposures with repayment by instalments with at least one expired instalment, the total amount of exposures recorded in the financial statements is reported as “past due”; - in case of openings of an “uncommitted” current account credit line in which the arranged overdraft has been exceeded (even if due to the interest capitalisation), the total amount of exposures is reported. The analysis of performing loans divided by portfolio and length of expiry is shown in the following table.

227 31/12/2015 From 6 From 3 Total Up to 3 months Beyond 1 months to carrying Not past months to year 6 months amount due 1 year Loans and receivables with customers 15,022,436 298,373 138,854 172,138 60,317 15,692,118

A.1.2 - Distribution of credit exposures by portfolio and credit quality (gross amount and carrying amount)

Non-performing assets Performing assets Total

Gross Individual Carrying Gross Collective Carrying (carrying Portfolio/Quality amount impairment amount amount impairment amount amount)

1. Available-for-sale financial assets 374 - 374 5,111,537 - 5,111,537 5,111,911

2. Held-to-maturity investments ------

3. Loans and receivables with banks - - - 713,089 - 713,089 713,089

4. Loans and receivables with customers 5,620,037 -2,262,405 3,357,632 15,806,728 -114,610 15,692,118 19,049,750

5. Financial assets at fair value through profit or loss - - - X X - -

6. Financial assets held for sale ------

Total at 31/12/2015 5,620,411 -2,262,405 3,358,006 21,631,354 -114,610 21,516,744 24,874,750

Total at 31/12/2014 5,082,510 -1,890,040 3,192,470 23,443,281 -129,249 23,314,032 26,506,502

Other Assets with a clear assets poor credit quality Accumulated Carrying Carrying Portfolio/Quality losses amount amount 1. Financial assets held for trading 3,998 - 50,305 2. Hedging derivatives - - - Total at 31/12/2015 3,998 - 50,305 Total at 31/12/2014 1,918 2,083 58,204

With reference to the Loans and receivables with customers portfolio, the amount at the end of the reporting period of total partial derecognitions made by the group on bad loans at 31 December 2015 amounted to EUR 151 million.

228 A.1.3 - Banking Group - On and off-statement of financial position credit exposures with banks: gross amount, carrying amount and past due brackets

Individual Collective Carrying Type of exposure/Amounts Gross amount impairment impairment amount

Performing Non-performing assets assets

Up to From 3 months From 6 months Beyond

3 months to 6 months to 1 year 1 year

A. ON-STATEMENT OF FINANCIAL

POSITION EXPOSURES a) Bad loans - - - - X - X -

- of which: forbearance exposures - - - - X - X - b) Unlikely to pay - - - - X - X -

- of which: forbearance exposures - - - - X - X - c) Past due non-performing loans - - - - X - X -

- of which: forbearance exposures - - - - X - X - d) Past due performing loans X X X X - X - -

- of which: forbearance exposures X X X X - X - - e) Other performing loans X X X X 615,512 X - 615,512

- of which: forbearance exposures X X X X - X - -

TOTAL A - - - - 615,512 - - 615,512

B. OFF-STATEMENT OF FINANCIAL

POSITION EXPOSURES a) Non-performing - - - - X - X - b) Performing X X X X 17,612 X - 17,612

TOTAL B - - - - 17,612 - - 17,612

TOTAL A+B - - - - 633,124 - - 633,124

A.1.4 - Banking group - On-statement of financial position credit exposures with banks: gross non-performing loans

There are no non-performing loans to banks.

A.1.5 – Banking Group - On-statement of financial position non-performing credit exposures with banks: total impairment losses

There are no impairment losses on non-performing loans to banks.

229 A.1.6 - Banking Group - On and off-statement of financial position credit exposures with customers: gross amount, carrying amount and past due brackets

Individual Collective Carrying Type of exposure/Amounts Gross impairment impairment amount amount

Non-performing Performing

assets assets

Up to From 3 months From 6 months Beyond 1 year 3 months to 6 months to 1 year

A. ON-STATEMENT OF FINANCIAL

POSITION EXPOSURES a) Bad loans - - - 2,811,298 X -1,604,141 X 1,207,157

- of which: forbearance exposures - - - 30,352 X -13,602 X 16,750 b) Unlikely to pay 533,711 72,423 200,117 1,656,732 X -627,195 X 1,835,788

- of which: forbearance exposures 393,902 17,365 46,553 254,206 X -165,811 X 546,215 c) Past due non-performing loans 14,569 43,823 116,356 171,382 X -31,069 X 315,061

- of which: forbearance exposures 979 4,002 15,583 20,028 X -3,545 X 37,047 d) Past due performing loans X X X X 689,136 X -19,454 669,682

- of which: forbearance exposures X X X X 103,284 X -2,991 100,293 e) Other performing loans X X X X 20,462,905 X -95,156 20,367,749

- of which: forbearance exposures X X X X 256,910 X -5,280 251,630

TOTAL A 548,280 116,246 316,473 4,639,412 21,152,041 -2,262,405 -114,610 24,395,437

B. OFF-STATEMENT OF FINANCIAL

POSITION EXPOSURES a) Non-performing 23,439 - - - X -5,552 X 17,887 b) Performing X X X X 1,642,434 X -5,292 1,637,142

TOTAL B 23,439 - - - 1,642,434 -5,552 -5,292 1,655,029

TOTAL A+B 571,719 116,246 316,473 4,639,412 22,794,475 -2,267,957 -119,902 26,050,466

e) Other performing loans include EUR 1,241,283 thousand of loans past due from 1 day.

230 A.1.7 - Banking Group - On-statement of financial position credit exposures with customers: gross non-performing loans

Past due non - Causes/Categories Bad loans Unlikely to pay performing loans A. Opening gross exposure 2,503,424 2,013,049 566,037 - of which: exposures transferred and not cancelled 105,152 199,680 92,373 B. Increases 480,345 1,038,278 326,495 B.1 transfers from performing loans 46,518 467,126 299,136 B.2 transfers from other categories of non -performing loans 415,137 397,848 1,919 B.3 other increases 18,690 173,304 25,440 C. Decreases -172,471 -588,344 -546,402 C.1 transfers to performing loans -153 -37,637 -71,149 C.2 derecognitions -77,944 -3,637 -56 C.3 collections -91,102 -172,450 -34,913 C.4 gains on sales -1,395 - - C.5 losses on sale -1,877 - - C.6 transfers to other categories of non -performing loans - -374,620 -440,284 C.7 other decreases - - - D. Closing gross exposure 2,811,298 2,462,983 346,130 - of which: exposures transferred and not cancelled 117,553 243,904 71,984

A.1.8 - Banking Group - On-statement of financial position non-performing credit exposures with customers: total impairment losses

Unlikely Past due non - Causes/Categories Bad loans to pay performing loans A. Opening total impairment losses 1,401,485 434,124 54,431 - of which: exposures transferred and not cancelled 37,526 35,815 8,721 B. Increases 398,093 350,530 25,925 B.1 impairment losses 272,749 311,045 25,626 B.2 losses on sale 791 - - B.3 transfers from other categories of non -performing loans 119,928 37,657 277 B.4 other increases 4,625 1,828 22 C. Decreases -195,437 -157,459 -49,287 C.1 fair value gains -93,954 -23,184 -6,880 C.2 reversals of impairment losses due to collections -17,331 -14,479 -580 C.3 profits on sale -322 - - C.4 derecognitions -78,114 -3,637 -56 C.5 transfers to other categories of non -performing loans - -116,122 -41,740 C.6 other decreases -5,716 -37 -31 D. Closing total impairment losses 1,604,141 627,195 31,069 - of which: exposures transferred and not cancelled 42,253 46,615 6,306

231 A.2 - CLASSIFICATION OF EXPOSURES BASED ON INTERNAL AND EXTERNAL RATINGS

A.2.1 - Banking Group - Distribution of on and off-statement of financial position credit exposures by external rating class

The information on exposures for external ratings is not provided in that the Group mainly uses internal ratings in credit risk management.

With respect to the use of external ratings for calculating the prudential ratios, reference is made to what was indicated in Part F – Information on consolidated equity.

232 A.2.2 - Banking Group - Distribution of on and off-statement of financial position credit exposures by internal rating class

The Credito Valtellinese Group, as described in the dedicated paragraphs, makes use of a set of parameters and instruments for managing the credit risk, which includes an essential element such as the internal ratings calculated through differentiated and estimated models specifically by customer segment.

The following table shows the distribution of on and off-statement of financial position credit exposures by internal rating class with reference to exposures to customers. The column without rating also includes exposures of not-rated subjects in default. A significant portion of on-statement of financial position exposures without rating includes exposures towards the Italian Government. The rating classes are shown in decreasing order with respect to creditworthiness.

Exposures Internal rating classes class 1 class 2 class 3 class 4 class 5 A. On -statement of financial position credit exposures 372,215 1,635,561 1,581,891 2,154,862 1,625,007 B. Derivatives 52 27 18 20 2 B.1 Financial derivatives 52 27 18 20 2 B.2 Credit derivatives - - - - - C. Guarantees given 88,822 110,128 136,303 112,299 61,615 D. Commitments to grant finance 20,729 4,104 7,199 6,888 5,500 E. Other - - 1,817 106 328 Total 481,818 1,749,820 1,727,228 2,274,175 1,692,452

Exposures Internal rating classes class 6 class 7 class 8 class 9 No rating Total A. On -statement of financial position 1,390,666 1,358,267 1,347,527 1,592,815 11,336,626 24,395,437 credit exposures B. Derivatives 1 27 - - - 147 B.1 Financial derivatives 1 27 - - - 147 B.2 Credit derivatives ------C. Guarantees given 46,674 36,190 103,217 47,457 58,980 801,685 D. Commitments to grant finance 2,293 2,107 792 480 729,935 780,027 E. Other 14 - - - 70,905 73,170 Total 1,439,648 1,396,591 1,451,536 1,640,752 12,196,446 26,050,466

The distribution of on and off-statement of financial position credit exposures by internal rating class with reference to exposures with customers at 31 December 2015 reflects the changes that occurred during the year. Among the structured events that affected the distribution, the main event is the review of the rating model for the Private segment, which contributed to reduce the exposure portion in class 3 for the benefit of adjacent classes.

233 A.3 - DISTRIBUTION OF SECURED EXPOSURES BY TYPE OF GUARANTEE

A.3.1 - Banking group - Secured credit exposures to banks

31/12/2015 Collaterals Value of Properties Properties net Other Total - - finance Securities exposure collaterals mortgages leases 1. On-statement of financial position secured credit exposures: 1.1 fully secured 322 ------of which non-performing ------1.2 partially secured ------of which non-performing ------2. Off-statement of financial position secured credit exposures: 2.1 fully secured ------of which non-performing ------2.2 partially secured ------of which non-performing ------

secured credit exposures: 1.1 fully secured 322 ------of which non-performing ------1.2 partially secured ------of which non-performing ------2. Off-statement of financial position secured credit exposures:

2.1 fully secured ------of which non-performing ------2.2 partially secured ------of which non-performing ------

234 31/12/2015 Personal guarantees: Endorsement credits Value Governments of net Other Total and Other exposure government Banks central parties agencies banks 1. On-statement of financial position secured credit exposures: 1.1 fully secured 322 150 - 172 - 322 - of which non-performing ------1.2 partially secured ------of which non-performing ------2. Off-statement of financial position secured credit exposures: 2.1 fully secured ------of which non-performing ------2.2 partially secured ------of which non-performing ------

31/12/2015 Personal Personal Value of net guarantees: Collaterals guarantees: Endorsement Total exposure Credit credits derivatives

1. On-statement of financial

position secured credit exposures: 1.1 fully secured 322 - - 322 322

- of which non-performing - - - - -

1.2 partially secured - - - - -

- of which non-performing - - - - -

2. Off-statement of financial

position secured credit exposures:

2.1 fully secured - - - - -

- of which non-performing - - - - -

2.2 partially secured - - - - -

-of which non-performing - - - - -

The classification of exposures among those “fully secured” and those “partially secured” occurs by comparing the gross amount at the end of the reporting period with the amount of the guarantee established by contract, considering also guarantee integrations. As indicated by circular 262, columns “collaterals” and “personal guarantees” show the fair value of the guarantee at the end of the reporting period and this value cannot exceed the value of the secured net exposure.

235 A.3.2 - Banking group - Secured credit exposures to customers

31/12/2015 Collaterals Value of Properties Properties net Other Total - - finance Securities exposure collaterals mortgages leases 1. On-statement of financial position

secured credit exposures: 1.1 fully secured 14,445,571 10,599,805 539,552 1,051,400 226,035 12,416,792 - of which non-performing 2,899,168 2,373,979 79,135 27,420 29,074 2,509,608 1.2 partially secured 785,755 11,979 - 51,031 13,693 76,703 - of which non-performing 103,484 8,687 - 2,638 1,842 13,167 2. Off-statement of financial position

secured credit exposures: 2.1 fully secured 265,888 777 - 35,370 17,804 53,951 - of which non-performing 8,804 434 - 749 1,140 2,323 2.2 partially secured 106,608 53,855 - 13,211 7,875 74,941 - of which non-performing 2,182 1,078 - 453 375 1,906

31/12/2015 Personal Personal guarantees: guarantees: Credit derivatives – Credit Value Other derivatives of net derivatives Total exposure Governments Other and Other CLN government Banks central parties agencies banks 1. On-statement of financial position secured credit exposures: 1.1 fully secured 14,445,571 ------of which non-performing 2,899,168 ------1.2 partially secured 785,755 ------of which non-performing 103,484 ------2. Off-statement of financial position secured credit exposures:

2.1 fully secured 265,888 ------of which non-performing 8,804 ------2.2 partially secured 106,608 ------of which non-performing 2,182 ------

236 31/12/2015 Personal guarantees: Endorsement credits Value Governments of net Other Total and Other exposure government Banks central parties agencies banks 1. On-statement of financial position

secured credit exposures: 1.1 fully secured 14,445,571 3,164 261,395 4,148 1,711,343 1,980,050 - of which non-performing 2,899,168 123 17,691 247 365,524 383,585 1.2 partially secured 785,755 8,867 270,360 663 163,930 443,820 - of which non-performing 103,484 2,505 8,052 - 57,541 68,098 2. Off-statement of financial position secured credit exposures: 2.1 fully secured 265,888 - 4,563 96 207,277 211,936 - of which non-performing 8,804 - - - 6,480 6,480 2.2 partially secured 106,608 1,015 633 500 11,050 13,198 - of which non-performing 2,182 - - - - -

31/12/2015 Personal Personal Value Collaterals guarantees: guarantees: of net Total Credit Endorsement exposure derivatives credits 1. On-statement of financial position secured credit exposures: 1.1 fully secured 14,445,571 12,416,792 - 1,980,050 14,396,842 - of which non-performing 2,899,168 2,509,608 - 383,585 2,893,193 1.2 partially secured 785,755 76,703 - 443,820 520,523 - of which non-performing 103,484 13,167 - 68,098 81,265 2. Off-statement of financial position secured credit exposures: 2.1 fully secured 265,888 53,951 - 211,936 265,887 - of which non-performing 8,804 2,323 - 6,480 8,803 2.2 partially secured 106,608 74,941 - 13,198 88,139 - of which non-performing 2,182 1,906 - - 1,906

237 B. DISTRIBUTION AND CONCENTRATION OF CREDIT EXPOSURES

B.1 - Banking Group - Distribution of on and off-statement of financial positions credit exposures with customers by business segment (carrying amount)

Governments Other government agencies Exposures/Counterparts Carrying Individual Collective Carrying Individual Collective amount impairment impairment amount impairment impairment A. On -statement of financial position exposures A.1 Bad loans - - X - - X - of which: forbearance exposures - - X - - X A.2 Unlikely to pay 1 - X 5,152 -1,833 X - of which: forbearance exposures - - X - - X A.3 Past due non -performing loans - - X 77 -8 X - of which: forbearance exposures - - X - - X A.4 Performing loans 5,069,125 X - 52,919 X -3,458 - of which: forbearance exposures - X - - X - TOTAL A 5,069,126 - - 58,148 -1,841 -3,458 B. Off -statement of financial position

exposures B.1 Bad loans - - X - - X B.2 Unlikely to pay - - X 4 -1 X B.3 Other non -performing assets - - X - - X B.4 Other performing loans 42 X - 563,878 X -3 TOTAL B 42 - - 563,882 -1 -3 TOTAL (A+B) 31/12/2015 5,069,168 - - 622,030 -1,842 -3,461 TOTAL (A+B) 31/12/2014 6,667,016 - - 470,326 -1,982 -269

Financial companies Insurance companies Exposures/Counterparts Carrying Individual Collective Carrying Individual Collective amount impairment impairment amount impairment impairment A. On -statement of financial position exposures A.1 Bad loans 42,433 -41,862 X - - X - of which: forbearance exposures - - X - - X A.2 Unlikely to pay 50,271 -20,067 X 26 -13 X - of which: forbearance exposures 9,757 -2,950 X - - X A.3 Past due non -performing loans 163 -16 X - - X - of which: forbearance exposures - - X - - X A.4 Performing loans 2,249,387 X -5,714 2,359 X - - of which: forbearance exposures 450 X -2 - X - TOTAL A 2,342,254 -61,945 -5,714 2,385 -13 - B. Off -statement of financial position exposures B.1 Bad loans 91 -57 X - - X B.2 Unlikely to pay 99 -16 X - - X B.3 Other non -performing assets - - X - - X B.4 Other performing loans 106,167 X -837 1,035 X -5 TOTAL B 106,357 -73 -837 1,035 - -5 TOTAL (A+B) 31/12/2015 2,448,611 -62,018 -6,551 3,420 -13 -5 TOTAL (A+B) 31/12/2014 1,420,058 -46,204 -2,194 11,752 -7 -1

238 Non financial companies Other parties Exposures/Counterparts Collective Carrying Individual Collective Carrying Individual

amount impairment impairment amount impairment impairment A. On -statement of financial position exposures A.1 Bad loans 1,031,821 -1,372,931 X 132,903 -189,348 X - of which: forbearance exposures 15,946 -12,862 X 804 -740 X A.2 Unlikely to pay 1,609,288 -558,631 X 171,050 -46,651 X - of which: forbearance exposures 510,662 -156,802 X 25,796 -6,059 X A.3 Past due non -performing loans 243,277 -23,987 X 71,544 -7,058 X - of which: forbearance exposures 27,458 -2,594 X 9,589 -951 X A.4 Performing loans 9,581,216 X -98,143 4,082,425 X -7,295 - of which: forbearance exposures 305,711 X -8,021 45,762 X -248 TOTAL A 12,465,602 -1,955,549 -98,143 4,457,922 -243,057 -7,295 B. Off -statement of financial position exposures B.1 Bad loans 2,599 -1,889 X 207 -78 X B.2 Unlikely to pay 12,841 -3,284 X 603 -88 X B.3 Other non -performing assets 1,299 -124 X 144 -15 X B.4 Other performing loans 786,393 X -3,543 106,458 X -904 TOTAL B 803,132 -5,297 -3,543 107,412 -181 -904 TOTAL (A+B) 31/12/2015 13,268,734 -1,960,846 -101,686 4,565,334 -243,238 -8,199 TOTAL (A+B) 31/12/2014 14,469,665 -1,630,842 -123,934 4,418,508 -216,557 -6,327

239 B.2. - Banking Group - Distribution of on and off-statement of financial position credit exposures with customers by geographical segment (carrying amount)

NORTH-WEST NORTH-EAST CENTRE SOUTH AND ISLANDS Exposure/region Carrying Total Carrying Total Carrying Total Carrying Total amount impairment amount impairment amount impairment amount impairment

A. On-statement of financial position exposures

A.1 Bad loans 635,961 -886,795 50,197 -67,904 229,268 -284,198 291,051 -363,172

A.2 Unlikely to pay 1,209,728 -422,934 81,226 -35,685 288,258 -91,080 253,680 -75,056

A.3 Past due non-performing loans 179,949 -18,358 14,472 -1,426 48,300 -4,797 72,271 -6,481

A.4 Performing loans 8,533,869 -64,205 1,213,094 -6,349 8,839,941 -22,026 2,320,076 -21,879

TOTAL 10,559,507 -1,392,292 1,358,989 -111,364 9,405,767 -402,101 2,937,078 -466,588

B. Off-statement of financial

position exposures”

B.1 Bad loans 1,799 -1,179 9 -5 158 -372 930 -467

B.2 Unlikely to pay 10,620 -2,737 118 -8 2,231 -530 522 -98

B.3 Other non-performing assets 687 -70 463 -42 158 -15 136 -12

B.4 Performing loans 1,089,780 -3,549 54,270 -47 208,678 -1,239 210,159 -456

TOTAL 1,102,886 -7,535 54,860 -102 211,225 -2,156 211,747 -1,033

TOTAL AT 31/12/2015 11,662,393 -1,399,827 1,413,849 -111,466 9,616,992 -404,257 3,148,825 -467,621

TOTAL AT 31/12/2014 11,977,431 -1,172,612 1,159,704 -89,450 11,060,742 -351,901 3,205,444 -411,669

B.3. - Banking Group - Distribution of on and off-statement of financial position credit exposures with banks by geographical segment (carrying amount)

NORTH-WEST NORTH-EAST CENTRE SOUTH AND ISLANDS Exposure/region Carrying Total Carrying Total Carrying Total Carrying Total amount impairment amount impairment amount impairment amount impairment

A. On-statement of financial position exposures

A.1 Bad loans ------

A.2 Unlikely to pay ------

A.3 Past due non-performing loans ------

A.4 Performing loans 77,924 - 22,032 - 222,937 - 6,185 -

TOTAL 77,924 - 22,032 - 222,937 - 6,185 -

B. Off-statement of financial position exposures

B.1 Bad loans ------

B.2 Unlikely to pay ------

B.3 Other non-performing assets ------

B.4 Performing loans 10,690 - 1,680 - 199 - 1,226 -

TOTAL 10,690 - 1,680 - 199 - 1,226 -

TOTAL AT 31/12/2015 88,614 - 23,712 - 223,136 - 7,411 -

TOTAL AT 31/12/2014 99,653 -750 29,646 - 197,585 - 12,513 -

240 B.4 - Large exposures

31/12/2015 a) Amount - carrying amount 9,977,004 b) Amount - weighted amount 1,263,413 c) Number 4

The report prepared on the basis of the new provisions envisaged by the Basel 3 regulations, effective as from 1 January 2014, shows positions that exceed the 10% threshold of the eligible capital, attributable to exposures towards the Italian Government of EUR 5,791,111 thousand, exposures towards Cassa di Compensazione e Garanzia of EUR 3,287,145 thousand and, for the remaining part, to exposures towards banking and financial counterparties.

241 C. SECURITISATION TRANSACTIONS

C.1 - Securitisation transactions

QUALITATIVE INFORMATION

Objectives, strategies and processes underlying securitisations Securitisations are carried out in order to increase the degree of liquidity of the assets and the availability of financial instruments eligible for refinancing with the European Central Bank or usable as collateral for funding transactions with institutional and market counterparties. Always responding to funding needs in the medium to long term, such transactions can be structured with subscription of the securities by third parties, thereby obtaining an immediate supply of liquidity. At the reporting date, the following securitisation transactions detailed below are in place:

- Quadrivio RMBS 2011; - Quadrivio SME 2012; - Quadrivio RMBS 2013;

- Quadrivio SME 2014. All the multioriginator transactions were carried out pursuant to Italian Law 130/1999.

During the financial year, the multi-originator securitisation carried out in May 2009 was paid in advance by means of the Special purpose entity Quadrivio Finance S.r.l., through (i) the repurchase of residual securitised loans by Credito Valtellinese S.C., Credito Siciliano S.p.A. and Banca Popolare di Cividale S.c.p.A., (ii) the early repayment of securities and (iii) the termination of the securitisation contracts. The Board of Directors of the Parent, during the meeting of 9 December 2015, also approved the early repayment of the multi-originator securitisation carried out in August 2012, by means of the Special purpose entity Quadrivio SME 2012 S.r.l., which was finalised during January 2016 through (i) the repurchase of residual securitised loans by Credito Valtellinese S.C., Credito Siciliano S.p.A. and Cassa di Risparmio di Fano S.p.A., (ii) the early repayment of securities and (iii) the termination of the securitisation contracts. The quantitative information in this section includes only the Quadrivio RMBS 2011 and Quadrivio SME 2014 transactions in that in the other transactions (known as Self- securitisations) the banks of the Group signed, at the time of the issue, the total liabilities issued by the special purpose entity.

242 Quadrivio RMBS 2011

Main information

Date of transfer of the loans and receivables 19/10/2011

Date of transaction 01/12/2011

Special purpose entities Quadrivio RMBS 2011 S.r.l.

Subject matter of the transaction Performing residential mortgage loans

Territorial area of transferred loans and receivables Italy

- Credito Valtellinese Originator banks - Credito Siciliano

Number of loans and receivables transferred 7,651 of which: Credito Valtellinese 5,891 of which: Credito Sicilano 1,760

Price of transferred loans and receivables: 883,097 of which: Credito Valtellinese 729,013 of which: Credito Sicilano 154,085

Securities issued 883,100

of which senior a1 550,000

of which senior a2 180,000

of which junior b 153,100

Rating of senior securities upon issue AAA Fitch and Moody’s

Subordinated loan (Cash reserve) 22,500

Rating of senior securities at 31/12/15 AA+ Fitch and Aa2 Moody’s

At the same time as the issue of the ABS securities, “back to back swap” transactions were subscribed, consisting of Interest Rate Swap (IRS) contracts and CAP contracts, currently through the mediation of J.P. Morgan Securities, with the aim of protecting the special purpose entity (SPE) from the interest-rate risk that originates from the mismatch between the interest paid by mortgages and those due from bonds issued.

Quadrivio SME 2014 The transaction is divided into two senior tranches (class A2A, A2B) listed on the Luxembourg stock exchange, with an AA/AAA rating, on the date of reference of this report, by the Standard & Poor’s and DBRS rating agencies – and a junior tranche (class B). During the financial year, the A1 senior tranche was repaid, originally placed with institutional investors. Senior note A2B was placed with institutional investors, whereas note A2A was entirely subscribed by EIB. Class B securities were fully subscribed by each originator bank taking part in the transaction and specifically Credito Valtellinese, Credito Siciliano and Carifano.

243

Main information

Date of transfer of the loans and receivables 24/01/2014

Date of transaction 14/02/2014

Special purpose entities Quadrivio SME 2014 S.r.l. Performing mortgage and unsecured Subject matter of the transaction loans granted to companies, trade and personal businesses Territorial area of transferred loans and receivables Italy

- Credito Valtellinese

Originator banks - Credito Siciliano - Carifano

Number of loans and receivables transferred 2,536 of which: Credito Valtellinese 1,584 of which: Credito Sicilano 664 of which: Carifano 288

Price of transferred loans and receivables: 712,955 of which: Credito Valtellinese 477,295 of which: Credito Sicilano 145,265 of which: Carifano 90,395

Securities issued 726,700

of which senior a1 80,000

of which senior a2a 200,000

of which senior a2b 110,000

of which junior b 336,700

Rating of senior securities upon issue AA S&P AAA DBRS

Rating of senior securities at 31/12/15 AA- S&P and AAA DBRS

For each securitisation transaction put in place, the Originator banks, each for the part of direct concern, signed, with the special purpose entities, servicing contracts for the coordination and supervision of the management, administration and collection of the

244 securitised loans, as well as for the recovery in case of default by the debtors. These contracts require the payment of an annual commission for the servicing rendered and a reimbursement of expenses for each case recovered. The servicer function is carried out by special structures of the Banks, whose operations were duly regulated and is subject to the control of the Auditing Department that checks the correctness of the operations and the compliance with the regulatory provisions.

Internal measurement systems, risk control and hedging policies The specific risk deriving from securitisations is defined as the “risk that the economic substance of the securitisation transaction may not be fully reflected in the decisions of risk assessment and management”. The carrying out of securitisations also involves an exposure to other types of risks, different by type and entity in relation to the structure of the transactions. The following risks - considered as significant within the Risk Appetite Framework as well - are identified:

- operational risk (with relevance of the legal component as well); - counterparty risk;

- credit risk; - reputational risk; - liquidity risk;

- interest rate risk for the banking book; - compliance risk.

In operational terms, the exposure to risks coming from securitisations is generated by the Finance Department, which deals with the structuring and finalisation of the transactions based on the resolutions of the Board of Directors of the Parent and of the Bank that participate in the transaction and on the indications of the Managing Director and of the General Management of each Bank, where appropriate. Limiting exposure to risks originating from the securitisations is achieved through organisational, procedural and methodological choices. The overall management is carried out on a centralised basis for all Group Banks.

In view of the complexity of securitisations, the Group has a dedicated organisational supervision within the Finance Department of the Parent, with both structuring and transaction management tasks. We also make use of consultants and partners of high standing. In general, the internal audit system of the Group makes sure that the risks deriving from such transactions - including the reputational risks originating, for example, from the use of structures or complex products - are managed and evaluated by means of policies and procedures to ensure that the economic substance of these transactions is fully in line with their risk assessment and with the decisions of the Company bodies. Upon the occurrence of the management need to structure a new securitisation, since this qualifies as the most important transaction, the Risk Management Department receives before the Finance Department all the details required for assessing the specific risk profiles in relation to the Group’s RAF. Appropriate new instruments for monitoring, managing and mitigating risk exposure are activated, if necessary.

From the management viewpoint, the Finance Department monitors on a regular basis the

245 performance of flows and payments related to securitised loans and relevant securities; collaborates to the production of reports for different structures of the Group competent in this field; produces the informative reports contractually agreed upon and the information requested by and intended for administrative and financial counterparties, rating agencies, investors.

With regard to assessment of exposure to risk, the different profiles are taken in consideration as part of the ordinary course of business related to the different types of risk. In particular, the Risk Management Department prepares on a quarterly basis the Risk Management Report for the General Management and the Board of Directors of the Group banks, which also monitors the exposure to credit risk, interest rate risk of the banking book, liquidity risk, operational risk and reputational risk. The analyses carried out by the Management on the profiles of operational liquidity, structural liquidity and interest rate risk exposure take also into account the impact of the securitisations.

The relevant risk profiles with respect to existing securitisations are also assessed as part of the annual ICAAP Report.

Securitisation activities of third parties Furthermore, Credito Valtellinese holds securities deriving from a securitisation transaction performed by the company Mecaer Aviation Group S.p.A. through the Urania Finance SA special purpose entity, which issued asset-backed securities in compliance with Luxemburg laws on securitisations; the underlying consists of loans and receivables from the Ministry of Economic Development. During the financial year, Credito Valtellinese has also subscribed the following senior tranches of ABS securities issued as part of the securitisations carried out pursuant to Italian Law 130/1999:

- securities originated by the company Agos Ducato S.p.A. by means of the Special purpose entity Sunrise S.r.l., with underlying consumer credits for a total equivalent value of EUR 10,000,000;

- securities originated by the company Alba Leasing S.p.A. by means of the Special purpose entity Alba 7 SPV S.r.l., with underlying leases for a total equivalent value of EUR 10,000,000;

- securities originated by the company Futuro S.p.A. by means of the Special purpose entity Quarzo CQS S.r.l., with underlying consumer credits repayable by means of the transfer of one fifth of the salary or pension and by means of extensions of payments for a total equivalent value of EUR 4,000,000. As a result of the paid redemptions, the current equivalent carrying amount for all the securitisation transactions indicated above is EUR 21,713 thousand.

246 QUANTITATIVE INFORMATION

C.1 - Banking Group - Exposures deriving from the main “own” securitisation transactions analysed by type of securitised assets and type of exposure

On-statement of financial position exposures

Senior Mezzanine Junior

Type of securitised assets/Exposures Impairment Impairment Impairment losses losses losses

Carrying /reversals /reversals Carrying /reversals Carrying amount of of amount of amount impairment impairment impairment losses losses losses

C. Not derecognised ------

- Asset type: mortgage and unsecured loans - - - - 511,871 21,153

Guarantees given

Senior Mezzanine Junior

Impairment Impairment Impairment Type of securitised assets/Exposures losses losses losses

Carrying /reversals /reversals Carrying /reversals Carrying amount of of amount of amount impairment impairment impairment losses losses losses

C. Not derecognised ------

- Asset type: mortgage and unsecured loans ------

Credit lines

Senior Mezzanine Junior

Impairment Impairment Impairment Type of securitised assets/Exposures losses losses losses

Carrying /reversals /reversals Carrying /reversals Carrying amount of of amount of amount impairment impairment impairment losses losses losses

C. Not derecognised ------

- Asset type: mortgage and unsecured loans ------

C.2 - Banking Group - Exposures deriving from the main third party’s securitisation transactions analysed by type of securitised assets and type of exposures

On-statement of financial position exposures

Senior Mezzanine Junior

Type of securitised assets/Exposures Impairment Impairment Impairment losses losses losses

Carrying /reversals /reversals Carrying /reversals Carrying amount of of amount of amount impairment impairment impairment losses losses losses A.1 Asset type: loans and receivables 21,713 - - - - -

Guarantees given

Senior Mezzanine Junior

Type of securitised assets/Exposures Impairment Impairment Impairment losses losses losses

Carrying /reversals /reversals Carrying /reversals Carrying amount of of amount of amount impairment impairment impairment losses losses losses A.1 Asset type: loans and receivables ------

247

Credit lines

Senior Mezzanine Junior

Type of securitised assets/Exposures Impairment Impairment Impairment losses losses losses

Carrying /reversals /reversals Carrying /reversals Carrying amount of of amount of amount impairment impairment impairment losses losses losses A.1 Asset type: loans and receivables ------

C.3 - Banking Group - Interests in special purpose entity for securitisation

The Credito Valtellinese Group has no share capital of the special purpose entity, which are 100% owned by the company SVM Securitisation Vehicles Management S.r.l. with registered office in Conegliano Veneto (Treviso). Data relating to special purpose entities are indicated in section C.6.

C.4 - Banking Group - Non-consolidated special purpose entities for securitisation

There are no non-consolidated special purpose entities for securitisation.

C.5 - Banking Group - Servicer activities - own securitisations: collections of securitised loans and redemptions of securities issued by special purpose entities for securitisation

Securitised assets Loan collections Percentage share of repaid securities (end-of-period during the year (end-of-period data) data)

Special purpose Non- Non- Senior Mezzanine Junior Servicer Performing Performing entities performing performing

Non- Performing Non- Performing Non- Performing

performing assets performing assets performing assets assets assets assets

Credito Valtellinese Quadrivio RMBS 2011 29,243 505,383 2,688 94,190 48.88% Quadrivio Sme 3,565 145,857 66.71% Credito Valtellinese 28,837 421,479 2014 Total 58,080 926,862 6,253 240,047

C.6 - Banking Group - Consolidated special purpose entities for securitisation

The following table provides evidence of all the assets and liabilities, as they appear in the separate assets of the special purpose entity.

Securitisation/special purpose entity name Assets Liabilities

Consolidation Loans and Debt Registered office Other Senior Mezzanine Junior (*) receivables instruments

Quadrivio RMBS 2011 S.r.l. Conegliano Veneto (TV) Yes 539,690 - 42,410 373,567 - 153,341

Quadrivio SME 2014 S.r.l. Conegliano Veneto (TV) Yes 452,192 - 25,400 130,294 - 337,926

(*) The above-mentioned special purpose entities are consolidated for accounting purposes.

248 E - TRANSFERS OF ASSETS

A. Financial assets transferred and not fully derecognised

QUALITATIVE INFORMATION

Transfers not involving the derecognition of the underlying financial assets mainly consist of securitisations of credit exposures and repurchase agreements on portfolio securities.

None of the securitisation transactions meet the criteria for the derecognition of the transferred loans and receivables that are fully represented in the asset items. For the securitisation transactions called Quadrivio SME 2012 and Quadrivio RMBS 2013, the originator Banks subscribed all the ABS securities issued in connection with the factored portfolio without transferring any credit risk, whereas in the Quadrivio RMBS 2011 and Quadrivio SME 2014 transactions, the originator Banks fully hold the junior tranches, without transferring any credit risk.

With reference to the funding repurchase agreements, the Group retains all the risks and benefits related to the security, in that it is obliged to repurchase it forward at a price established by contract. The securities continue to be recognised in the portfolios, whereas the fee for the transfer is recognised among due to banks or due to customers.

QUANTITATIVE INFORMATION

E.1. Banking Group - Financial assets transferred and not derecognised: carrying amount and entire amount

Technical form/Portfolio

Financial assets held Financial assets at fair value

for trading through profit or loss

A B C A B C

A. On-statement of financial position assets ------

1. Debt instruments ------

2. Equity instruments ------

3. OEIC ------

4. Loans ------

B. Derivatives - - - X X X

TOTAL AT 31/12/2015 ------of which non-performing ------

TOTAL AT 31/12/2014 ------of which non-performing ------

Key A = financial assets transferred recognised in full (carrying amount) B = financial assets transferred recognised in part (carrying amount) C = financial assets transferred recognised in part (entire amount)

249 Technical form/Portfolio

Available-for-sale Held-to-maturity

financial assets investments

A B C A B C

A. On-statement of financial position assets 1,998,470 - - - - -

1. Debt instruments 1,998,470 - - - - -

2. Equity instruments - - - X X X

3. OEIC - - - X X X

4. Loans ------

B. Derivatives X X X X X X

TOTAL AT 31/12/2015 1,998,470 - - - - - of which non-performing ------

TOTAL AT 31/12/2014 158,921 - - - - - of which non-performing ------

Technical form/Portfolio 31/12/2015 31/12/2014

Loans and Loans and receivables with receivables with Total Total customers banks

A B C A B C - -

A. On-statement of financial position assets - - - 3,132,560 - - 5,131,030 4,422,246

1. Debt instruments ------1,998,470 158,921

2. Equity instruments X X X X X X - -

3. OEIC X X X X X X - -

4. Loans - - - 3,132,560 - - 3,132,560 4,263,325

B. Derivatives X X X X X X - -

TOTAL AT 31/12/2015 - - - 3,132,560 - - 5,131,030 X of which non-performing - - - 338,268 - - 338,268 X

TOTAL AT 31/12/2014 - - - 4,263,325 - - X 4,422,246 of which non-performing - - - 315,143 - - X 315,143

250 E.2 Banking Group - Financial liabilities for assets transferred and not derecognised: carrying amount

Financial Financial Available- Held-to- Loans and assets Loans and assets for-sale maturity receivables Liabilities/Asset portfolio at fair value receivables Total held for financial investment with through from banks trading assets s customers profit or loss

1. Due to customers - - 1,997,632 - - 473,071 2,470,703

a) for assets recognised in full - - 1,997,632 - - 473,071 2,470,703

b) for assets recognised in part ------

2. Due to banks - - - - - 571,688 571,688

a) for assets recognised in full - - - - - 571,688 571,688

b) for assets recognised in part ------

3. Securities issued ------

a) for assets recognised in full ------

b) for assets recognised in part ------

TOTAL AT 31/12/2015 - - 1,997,632 - - 1,044,759 3,042,391

TOTAL AT 31/12/2014 - - 150,440 - - 1,804,632 1,955,072

E.3 Banking group - Transfers with liabilities with recourse only to transferred assets: fair value

Technical form/Portfolio Financial assets Financial assets Available-for-sale at fair value through held for trading financial assets profit or loss

A B A B A B

A. On-statement of financial position assets ------

1. Debt instruments ------

2. Equity instruments ------

3. OEIC ------

4. Loans ------

B. Derivatives - - X X X X

Total assets ------

C. Associated liabilities ------

1. Due to customers ------

2. Due to banks ------

3. Securities issued ------

Total liabilities ------

NET VALUE AT 31/12/2015 ------

NET VALUE AT 31/12/2014 ------

Key: A = financial assets transferred recognised in full B = financial assets transferred recognised in part

251 Technical form/Portfolio 31/12/2015 31/12/2014

Loans and Loans and Held to receivables with receivables with Total Total maturity investments banks customers (fair value) (fair value) (fair value)

A B A B A B

A. On-statement of financial position assets - - - - 3,208,820 - 3,208,820 4,222,398

1. Debt instruments ------

2. Equity instruments X X X X X X - -

3. OEIC X X X X X X - -

4. Loans - - - - 3,208,820 - 3,208,820 4,222,398

B. Derivatives X X X X X X - -

Total assets - - - - 3,208,820 - 3,208,820 4,222,398

C. Associated liabilities - - - - 1,029,551 - X X

1. Due to customers - - - - 476,511 - X X

2. Due to banks - - - - 553,040 - X X

3. Securities issued ------X X

Total liabilities - - - - 1,029,551 - 1,029,551 1,813,934

NET VALUE AT 31/12/2015 - - - - 2,179,269 - 2,179,269 X

NET VALUE AT 31/12/2014 - - - - 2,408,464 - X 2,408,464

Key: A = financial assets transferred recognised in full B = financial assets transferred recognised in part

B. Financial assets sold and fully derecognised with recognition of constant involvement

There are no financial assets sold and fully derecognised with recognition of constant involvement.

E.4 Banking group – covered bond transactions

There are no covered bond transactions.

252 F. BANKING GROUP - CREDIT RISK MEASUREMENT MODELS Refer to the description under the qualitative information on credit risk.

1.2 - BANKING GROUP - MARKET RISK

1.2.1 - INTEREST RATE RISK AND PRICE RISK - REGULATORY TRADING BOOK

“Regulatory trading book” means the portfolio of financial instruments subject to the capital requirements for the market risks, as stated by the measures regarding supervisory reports.

QUALITATIVE INFORMATION

A. General aspects The trading book comprises bonds, shares and trading derivatives.

The bond component of the book consists mainly of fixed-rate securities with a quite limited duration and hedged against interest rate risk. The bonds held are almost exclusively issued by banks and by the Italian Republic. The direct equity investments, residual in size, mainly involve shares listed on the Italian Stock Exchange and with high degree of liquidity. The financial instruments in the book are mostly in Euro.

The risk is allocated almost entirely to the Parent and the exposure remains well within established limits; the size and riskiness of the book of the territorial banks comply with the established limits. The main portion of the portfolio risk consists of the issuer risk and price risk.

B. Management process and measurement methods for the interest rate risk and the price risk Investment policies are based on criteria that aim to limit market risk in terms of the components that the Group intends to consciously assume:

- interest rate risk;

- price risk; - currency risk.

As a general rule, the Bank does not enter into transactions that entail exposure to commodity risks). At year end, there are no positions of this type.

Risk hedging tools and techniques are used in the management of the portfolio. In line with the Banking Group’s retail mission that mostly entails the assumption of lending risk with regard to specific customer segments, the financial assets are mainly used to ensure protection of the overall technical equilibrium of the Banks and the Group. Management of the trading book is specifically aimed at optimising income from the financial resources available, with the obligation of restraining variability of the forecast results from the Finance Area and individual and consolidated profits.

The risk management process regarding the market risk for the trading book is governed by a specific corporate regulation approved by the Board of Directors of the Parent Company and periodically reviewed. This regulation formalises the performance of the risk management activities regarding such types of risks, defines the tasks and responsibilities assigned to the

253 various organisational units in charge, and sets out, among other things, the strategic directions, management policy, measurement methods, exposure limits, information flows and any mitigation interventions that may be necessary. Therefore, investment and trading is carried out in compliance with the mentioned policies and is implemented as part of an extensive system of assigned management powers and according to detailed regulations envisaging defined management limits in terms of instruments, amounts, investment markets, issue and issuer types, sectors and ratings.

The Risk Management Department of the Parent monitors on a daily basis the exposure of the banks of the Group to the market risk and verifies the consistency with the risk appetite defined by corporate bodies as part of the Risk Appetite Framework and the compliance with the system of limits. Adequate information flows are provided on a regular basis and timely to corporate bodies and functions of management and control. Risk is measured using both analytical techniques (establishing the duration of the bond portfolio with regard to interest rate risk exposure) and statistical estimate techniques of the Value at Risk (VaR). The VaR measures the maximum loss the trading book may incur based on volatility and historic correlation of the individual market risk factors (interest rates, share prices and exchange rates) and credit risk of the issuer. The estimate is carried out by using the parametric approach, based on the volatility and the correlations of risk factors observed in a certain period, over a 10-day period and a 99% confidence interval. The data used is provided by Prometeia (RiskSize). This model is not used to determine the minimum capital requirement with respect to market risk.

254 QUANTITATIVE INFORMATION

1. Regulatory trading book: distribution by residual maturity (by re-pricing date) of on- statement of financial position financial assets and liabilities and financial derivatives

From 3 From 6 From 1 From 5 Unspeci Up to 3 months Beyond Type/Residual duration On sight months year to 5 years to fied months to 6 10 years to 1 year years 10 years maturity months 1. On -statement of financial position - 7,955 9,181 22,634 4,810 4,180 68 - assets

1.1 Debt instruments - 7,955 9,181 22,634 4,810 4,180 68 -

- with early repayment option ------

- other - 7,955 9,181 22,634 4,810 4,180 68 -

1.2 Other assets ------2. On -statement of financial position ------liabilities

2.1 Funding repurchase agreements ------

2.2 Other liabilities ------

3. Financial derivatives - 15,636 9,905 -22,079 -3,182 - - -

3.1 With underlying security - -2,675 1,923 -61 813 - - -

- Options ------

+ long positions ------

+ short positions ------

- Other derivatives - -2,675 1,923 -61 813 - - -

+ long positions - 91 1,923 - 843 - - -

+ short positions - 2,766 - 61 30 - - -

3.2 Without underlying security - 18,311 7,982 -22,018 -3,995 - - -

- Options ------

+ long positions - 12 36 76 207 424 112 -

+ short positions - 12 36 76 207 424 112 -

- Other derivatives - 18,311 7,982 -22,018 -3,995 - - -

+ long positions - 469,918 9,886 3,955 4,462 5,220 3,927 -

+ short positions - 451,607 1,904 25,973 8,457 5,220 3,927 -

Forward purchase and sale operations of securities or currencies are included in item 3. Financial derivatives.

The sensitivity of the portfolio to interest rate variations is very limited (the amended duration of the bond component equals 0.7).

In the event of parallel shifts in the interest rate curve by +100 basis points, the consequent change in the interest income, over a time horizon of 12 months, would equal EUR +344 thousand, whereas it would be zero in the case of shifts of -100 basis points (under the non- negativity restriction in nominal interest rates).

The indicated changes, which are directly reflected on the net interest income, would be partially offset by changes of opposite sign of the value of the book (EUR -179 thousand and +12 thousand, respectively, in the two assumed scenarios). The overall asset and income impact, taking also account of tax effects, would be limited.

255 2. Regulatory trading book: distribution of exposures in equity securities and share indices for the main countries in the listing market

Listed Listed Type of transaction/Listing market Unlisted Italy U.S.A. A. Equity instruments 500 6 - - long positions 500 6 - - short positions - - - B. Unsettled transactions involving equity instruments - - - - long positions - - - - short positions - - - C. Other derivatives on equity instruments - - - - long positions - - - - short positions - - - D. Derivatives on share indices - - - - long positions - - - - short positions - - -

3. Regulatory trading book - internal models and other sensitivity analysis methods The Group uses a single model to monitor the risk to which the trading book is exposed. Therefore, the tables below illustrate information on VaR, inclusive of all risk factors that determine it.

During the financial year, the VaR recorded quite limited values with relation to the book’s size and to the allocated VaR. However, due to the sudden increase in the volatility of risk factors during the first half, on two occasions VaR rose above the reporting limit identified by the internal regulations. The mitigating actions undertaken allowed to return immediately under the reporting limit.

The main factors to which it is exposed are price and issuer risk. The importance of the issuer risk is mainly ascribable to the still modest creditworthiness of the banks and of the Italian Republic. The backtesting activities carried out with reference to the trading book confirm the reliability of the estimates carried out.

256 Regulatory trading book – VaR performance (values expressed in EUR)

2015 2014

Average Minimum Maximum 31/12/2015 Average Minimum Maximum 2,958,092 215,297 12,075,781 235,208 465,955 257,855 766,860

Regulatory trading book – VaR performance

Regulatory trading book – Contribution of risk factors to calculation of VaR

Situation at 31/12/2015

Price and specific Interest rate risk Currency risk Issuer risk Benefit of diversification risk 74.4% 4.9% 50.0% 71.1% -100.4%

Regulatory trading book – Breakdown of bond exposures by issuer type Situation at 31/12/2015 Insurance companies Sovereign Public Banks and other financial Corporate issuers issuers companies 27.0% 1.3% 71.6% 0.0% 0.0%

257 1.2.2 - INTEREST RATE RISK AND PRICE RISK - BANKING BOOK

The banking book consists of all financial instruments payable and receivable not included in the trading book. It mainly comprises loans and receivables with banks and customers and amounts due to banks and customers and Government bonds.

QUALITATIVE INFORMATION

A. General aspects, management procedures and methods of measuring interest rate risk and price risk The interest-rate risk is a typical risk of the banking activity, which mainly consists in funding and in lending). The existence in the financial statements of the bank of interest-bearing assets and onerous liabilities forms the source of exposure to the interest rate risk for the banking Group Credito Valtellinese. Interest rate risk management aims to minimise the impact of unfavourable variations in the rates curve on the value of the Group and on cash flows generated by statement of financial position items. Limiting exposure to interest rate risk is achieved primarily by index-linking asset and liability items to money market benchmarks (usually the Euribor rate) and by balancing the duration of the asset or liability at low levels. The objectives with respect to interest rate risk exposure are considered when carrying out strategic and operational planning, both when identifying and developing new products.

The Risk Management Department monitors on a daily basis the exposure of the Banks and of the Group to the market risk, and verifies the consistency with the risk appetite defined by corporate bodies within the Risk Appetite Framework and the compliance with the system of limits. Adequate information flows are provided on a regular basis and timely to corporate bodies and functions of management and control. Measurement of interest rate risk on the bank portfolio is based on the economic value approach, defined as the current value of expected net financial flows generated by assets, liabilities and off-statement of financial positions. Given that the present value of the expected cash flows depends on the interest rates, their variation affects the fair value of each bank and of the Group as a whole. This measurement is based on pre-set variations of the structure of the rates applied to on and off-statement of financial position items at the end of the reporting period. The reactivity to interest rate variations is measured by both sensitivity indicators (approximate amended duration in the simplified regulatory model) and revaluation of the assets, liabilities and unrecognised items (internal management model). The changes in the economic value that result are then normalised in proportion to own funds.

In order to better assess the exposure to the interest rate risk, a model was updated to treat on demand items with a theoretical maturity and frequency of rate review of one day (contractual profile) but deemed to be more stable on the basis of the statistical analysis of the persistence of volumes and the stickiness of the rates (behavioural profile). The statistical analysis identified a “core” component of the on demand items whose behaviour is replicated by a portfolio that, given a suitable combination of fixed rate and floating rate instruments, allows both the expected decrease in volume and the stickiness of the interest rates to be considered. The time decay profile of the core component was made endogenous by using the “mean life”, which represents a development of the volume analysis model and allows to represent the profile of behavioural maturity of on demand items on a holding period not determined in advance. In order to seize any significant behavioural difference between the different categories of customers, the analysis was performed separately for each customer segment (Retail, SME and Other).

258 Regarding exposure to interest rate risk, reporting limits and actions at consolidated level were approved, defined in terms of fair value change at the end of the reporting period (static ALM) resulting from instantaneous movements of the rate curve. To this end, both parallel shifts of fixed size (typically 200 basis points) and specific variations for each node of the interest-rate structure are considered, determined on the basis of major decreases and increases actually recorded in an observation period of 6 years (considering the 1st and 99th percentile of the distribution, respectively). Moreover, non-parallel shifts of the yield curve that are able to change its inclination (flattening, steepening and reversal of the interest rate structure) are also taken into consideration.

The banking book consists also of the shares that are held as part of more in-depth relations with specific companies or represent the instrument supporting significant initiatives undertaken in the Group’s reference territory. The price risk management methods for such financial instruments, therefore, tend more towards the management approach for investments in associates and companies subject to joint control, rather than the risk measurement techniques and instruments used for the trading book.

B. Fair value hedges The hedging of interest rate risk aims to protect the banking book from fair value changes of loans caused by the movements of the interest rate curve (fair value hedge); types of derivatives used are represented by interest rate swaps (IRS) carried out with third parties. The hedge accounting of the Credito Valtellinese Group is carried out through the specific fair value hedge of assets specifically identified (specific hedging). The Risk Management is responsible for verifying the effectiveness of the hedging of interest rate risk for the purpose of hedge accounting, in compliance with the IFRS. At the end of the financial year, Italian Government bonds (BTP) are recognised in the banking book of Available-for-sale financial assets with the objective of hedging the variability of the relevant fair value component linked to changes in interest rates, excluding the residual component of the credit risk, whose effects remain in the relevant Equity reserve.

To this end, hedging derivatives (IRS) were used. They were entered into together with the purchase of underlying securities. The effectiveness tests carried out on a monthly basis confirmed a very high effectiveness and, anyway, within the range required by the IFRS. The hedge effectiveness is measured, specifically for each hedged tranche, as follows:

- at the initial date, the hedged component is defined by identifying the fixed coupon of a theoretical security (inclusive of the base component between the target hedging rate, i.e. 6-month Euribor, and the risk free rate, represented by the Eonia rate) in such a way that it has, on the basis of the current rate curve, a fair value equal to the amortised cost of the hedged BTP on the effective date of the relevant hedging derivative;

- the following fair value changes of this theoretical security are calculated (after adjusting the new base component) by comparing the new value, on the basis of the rate curve existing on the date of analysis, with the amortised cost of the BTP existing on that date (or with the amortised cost on the effective date, if the reference date is before) and are recorded in the Income Statement when the adjustment in the price (fair value) of the BTP is recorded in the financial statements (whereas the residual fair value change is recorded in equity);

- these fair value changes are compared to the fair value changes recorded by the relevant hedging IRS, less (only for the purposes of the effectiveness test) the previous described

259 component of reverse entry in the Income Statement (net interest income) of the upfront implicitly received at source.

C. Cash flow hedges No cash flow hedges are pending or were carried out.

QUANTITATIVE INFORMATION

1. Banking book: distribution by residual maturity (by re-pricing date) of financial assets and liabilities

Please refer to the next paragraph “Internal models and other sensitivity analysis methods”.

2. Banking book: internal models and other sensitivity analysis methods The measurement of the exposure to interest rate risk is performed through an internal model that provides a full-valuation approach to all positions that are interest-bearing assets and liabilities, as well as off-statement of financial position items. In detail, the model includes the following phases:

- calculation of net present value of assets, liabilities and off-statement of financial position items and calculation of the previously translated as fair value;

- definition of scenarios with regard to changes in the interest-rate curve (i.e., parallel translation or steepening, flattening or reversal of the curve with respect to deadlines deemed most relevant);

- recalculation of the net present value of on and off-statement financial positions with the new interest-rate curve and calculation of the new economic value;

- calculation of the variation in the economic value as the difference of the ante and post- shock value of the rates. As mentioned in the section dedicated to “Qualitative information”, the proper representation in terms of risk and profitability of demand negotiations required their modelling to estimate both the persistence of aggregates and the actual index-linking level of interest rates. Customer loyalty gives on-sight items a much higher actual duration than contractual duration. Moreover, for these items, the extent and ways of redefining the interest rate depends, in addition to the market rate trend, also on the specific characteristics of each relation between the bank and the customer. At year end, the changed duration calculated for all financial statements assets and liabilities as well as the duration gap are moderate. Assuming that the rate structure makes a parallel shift upwards of 100 basis points, the fair value would decrease by EUR 46.8 million. In case of an equal downward shift, under the non-negativity restriction in nominal interest rates, the value would increase by EUR 22.3 million.

As regards income profiles, in the hypothesis of instantaneous and parallel shifts of the interest rate curve by -100 basis points (under the non-negativity restriction in nominal interest rates), the variation of the net interest income generated by the banking book, over a time horizon of 12 months, would equal EUR -0.1 million, whereas it would equal EUR 56.1 million in the case of shifts of +100 basis points. These amounts express the effect of changes in the interest

260 rates on the banking book, excluding modifications to the composition and size of the financial statements items. As a result, these cannot be considered as an indicator in forecasting the expected level of the net interest income. However, under the assumptions indicated, changes in the net interest income would result in equal changes in total income and minor changes in profit, if we consider the related tax effects.

1.2.3 - CURRENCY RISK

QUALITATIVE INFORMATION

A. General aspects, management processes and measurement methods for currency risk The Group, as a rule, does not operate on the foreign exchange market on its own account for speculative purposes. Foreign currency transactions are mainly related to the operations of spot and forward customers. The amounts of assets and liabilities in foreign currency are modest. Currency derivatives consist of forward trading. As regards management processes and measurement methods for currency risk in the trading book, refer to that set forth in the paragraph “Interest rate risk and price risk - Regulatory trading book - Qualitative information”.

All foreign currency positions generated by transactions with customers are managed together with the Finance Department of the Parent through analysis of open gaps (non-offset positions). The monitoring of currency risk is based on defined limits in terms of maximum acceptable loss, forward gap position and overall open gap position.

B. Currency risk hedging There is no currency risk hedging.

261 QUANTITATIVE INFORMATION

1. Distribution of assets, liabilities and derivatives by currency

31/12/2015 Items Currencies Australian Swiss Other US dollars Sterling Yen dollars francs currencies A. Financial assets

A.1 Debt instruments ------

A.2 Equity instruments 6 - - - - - A.3 Loans and receivables with 4,014 642 34 459 1,348 1,341 banks A.4 Loans and receivables with 13,412 719 1,335 - 11,083 9 customers

A.5 Other financial assets ------

B. Other assets 2,659 973 223 564 1,612 803

C. Financial liabilities

C.1 Due to banks 1,365 52 - 61 172 44

C.2 Due to customers 173,562 3,766 1,207 2,515 12,091 3,391

C.3 Debt instruments ------

C.4 Other financial liabilities ------

D. Other liabilities ------

E. Financial derivatives

- Options

+ long positions ------

+ short positions ------

- Other derivatives

+ long positions 200,493 1,991 6,350 3,229 260 1,854

+ short positions 45,605 427 6,733 1,671 2,025 368

Total assets 220,584 4,325 7,942 4,252 14,303 4,007

Total liabilities 220,532 4,245 7,940 4,247 14,288 3,803

Difference (+/ -) 52 80 2 5 15 204

Forward purchase and sale operations of securities or currencies are included in item E. Financial derivatives.

2. Internal models and other sensitivity analysis methods As regards internal models for currency risk in the trading book, refer to that set forth in the paragraph “Interest rate risk and price risk - Regulatory trading book - Quantitative information”.

262 1.2.4 - DERIVATIVE INSTRUMENTS

A. FINANCIAL DERIVATIVES

A.1 - Regulatory trading book: period-end notional values

Underlying assets/Types of derivatives 31/12/2015 31/12/2014 Central Over the counter Central counterparties Over the counter counterparties 1. Debt instruments and interest rates 37,174 - 32,000 - a) Options 7,174 - - - b) Swaps 30,000 - 32,000 - c) Forwards - - - - d) Futures - - - - e) Others - - - - 2. Equity instruments and share indices - - - - a) Options - - - - b) Swaps - - - - c) Forwards - - - - d) Futures - - - - e) Others - - - - 3. Currencies and gold 193,258 - 138,320 - a) Options - - - - b) Swaps - - 110,263 - c) Forwards 193,258 - 28,057 - d) Futures - - - - e) Others - - - - 4. Commodities - - - - 5. Other underlying assets - - - - Total 230,432 - 170,320 -

263 A.2 - Banking book: period-end notional values

A.2.1 - Hedging

Underlying assets/Types of derivatives 31/12/2015 31/12/2014 Over the counter Central counterparties Over the counter Central counterparties 1. Debt instruments and interest rates 600,000 - 600,000 - a) Options - - - - b) Swaps 600,000 - 600,000 - c) Forwards - - - - d) Futures - - - - e) Others - - - - 2. Equity instruments and share indices - - - - a) Options - - - - b) Swaps - - - - c) Forwards - - - - d) Futures - - - - e) Others - - - - 3. Currencies and gold - - - - a) Options - - - - b) Swaps - - - - c) Forwards - - - - d) Futures - - - - e) Others - - - - 4. Commodities - - - - 5. Other underlying assets - - - - Total 600,000 - 600,000 -

264 A.3 Financial derivatives: positive gross fair value – breakdown by product

Portfolios/Types of derivatives Positive fair value

31/12/2015 31/12/2014 Over the counter Central counterparties Over the counter Central counterparties A. Regulatory trading book 858 - 2,140 - a) Options 52 - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards 806 - 2,140 - f) Futures - - - - g) Others - - - - B. Banking book - hedging - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Others - - - - C. Banking book - other derivatives - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Others - - - - Total 858 - 2,140 -

265 A.4 Financial derivatives: negative gross fair value – breakdown by product

Portfolios/Types of derivatives Negative fair value

31/12/2015 31/12/2014 Over the counter Central counterparties Over the counter Central counterparties A. Regulatory trading book 1,859 - 3,232 - a) Options 74 - - - b) Interest rate swaps 1,163 - 1,991 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards 622 - 1,241 - f) Futures - - - - g) Others - - - - B. Banking book - hedging 269,496 - 308,718 - a) Options - - - - b) Interest rate swaps 269,496 - 308,718 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Others - - - - C. Banking book - other derivatives - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Others - - - - Total 271,355 - 311,950 -

266 A.5 OTC financial derivatives - regulatory trading book: notional values, positive and negative gross fair value by counterparty – contracts that are not offset agreements

Other Non Contracts that are not Governments Financial Insurance Other government Banks financial offset agreements and central companies companies parties agencies companies banks 1) Debt instruments and interest rates - notional amount - - 33,587 - - 3,587 - - positive fair value - - 52 - - - - - negative fair value - - 1,163 - - 74 - - future exposure - - 20 - - - - 2) Equity instruments and share indices - notional amount ------positive fair value ------negative fair value ------future exposure ------3) Currencies and gold - notional amount - - 168,184 - - 23,696 1,378 - positive fair value - - 659 - - 147 - - negative fair value - - 234 - - 322 66 - future exposure - - 1,682 - - 241 14 4) Other values - notional amount ------positive fair value ------negative fair value ------future exposure ------

267 A.7 OTC financial derivatives: banking book - notional values, positive and negative gross fair value by counterparty – contracts that are not offset agreements

Other Non Contracts that are not Governments Financial Insurance Other government Banks financial offset agreements and central companies companies parties agencies companies banks 1) Debt instruments and interest rates - notional amount - - 600,000 - - - - - positive fair value ------negative fair value - - 269,496 - - - - - future exposure - - 9,000 - - - - 2) Equity instruments and share indices - notional amount ------positive fair value ------negative fair value ------future exposure ------3) Currencies and gold - notional amount ------positive fair value ------negative fair value ------future exposure ------4) Other values - notional amount ------positive fair value ------negative fair value ------future exposure ------

A.9 Residual maturity of OTC financial derivatives: notional amounts

From 1 Up to 1 Beyond 5 Underlying/Residual life year to 5 Total year years years A. Regulatory trading book A.1 Financial derivatives on debt instruments and interest rates 26,000 4,935 6,239 37,174 A.2 Financial derivatives on equity instruments and share indices - - - - A.3 Financial derivatives on currencies and gold 193,164 94 - 193,258 A.4 Financial derivatives on other assets - - - - B. Banking book B.1 Financial derivatives on debt instruments and interest rates - - 600,000 600,000 B.2 Financial derivatives on equity instruments and share indices - - - - B.3 Financial derivatives on currencies and gold - - - - B.4 Financial derivatives on other assets - 59,660 - 59,660 Total at 31/12/2015 219,164 64,689 606,239 890,092 Total at 31/12/2014 140,320 30,000 600,000 770,320

B. CREDIT DERIVATIVES There are no credit derivatives.

268 1.3 BANKING GROUP - LIQUIDITY RISK

QUALITATIVE INFORMATION

A. General aspects, management processes and measurement methods for liquidity risk The liquidity risk to which the banks are normally exposed due to the phenomenon of transformation of maturities is the risk that the banks will not be able to meet its payment commitments. The failure to meet its payment commitments may be due to the following inability to:

- procure the funds (funding liquidity risk); - divest their assets (market liquidity risk). Liquidity management is aimed primarily at ensuring the solvency of each individual Group Bank also in stressful or crisis conditions, not at achieving profits (an objective that may involve a trade-off with the ability of the banks to meet their commitments when they fall due and reduce the effectiveness of the risk management system). Therefore, the actual assumption of risk is subordinate to maintaining the bank’s technical equilibrium. The opportunity cost associated with the holding of liquid assets is taken into account within the Bank’s profitability valuations. The pursuit of a limited exposure to liquidity risk, as defined within Risk Appetite Framework, is reflected in the composition of statement of financial position aggregates of the Banks, characterised by a moderate transformation of maturities.

The Finance Department is in charge of the treasury management and of the supply on the inter-bank market; it manages the intraday and short-term liquidity risk by using financial instruments on reference markets and can propose funding and mitigation operations of the structural liquidity risk. The definition of the structure and responsibilities of the unit responsible for managing the treasury as a supplier or recipient of funds for different business units considers the fact that it operates primarily as a service function. The Planning, Control and General Affairs Department, within the annual and multi-annual planning process of the different Group components, participates in defining the structural liquidity balance of the Banks and of the Group as a whole.

The Risk Management Department - independently from the “operational management” of the liquidity risk - contributes to the definition of the policies and processes of risk management, develops the evaluation process of liquidity risk, supports the governing bodies in defining and carrying out activities related to the observance of the prudential regulations, and ensures accurate, complete and timely information.

The different organisational structures involved in the management of liquidity risk produce, in relation to their operational and monitoring activities, special reports for corporate bodies. In order to manage the liquidity risk, the Group adopted a Contingency Funding and Recovery Plan that - prepared in accordance with the prudential supervisory provisions - defines and formalises the organisational escalation, the objectives and the management leverage required for protecting - through the preparation of strategies for managing the crisis and procedures for finding financing sources in the case of emergency - company assets in situations of extreme and unexpected cash drain. The elements characterising the emergency plan are set 269 below:

- definition and formalisation of an action strategy – approved by the corporate bodies – defining specific policies on certain aspects in the management of liquidity risk;

- cataloguing of the various types of liquidity stress to identify the nature (specific or systemic);

- legitimation of the emergency actions by the management. The management strategy to be adopted in case of liquidity tensions clearly outlines responsibilities and related tasks during a crisis situation;

- estimates of the liquidity that can be obtained from the different financing sources.

Moreover, as part of the activities still in progress aimed at defining the restructuring plan of the Group, the recovery transactions aimed at restoring the normal liquidity situation were also identified and assessed. The exposure to risk occurs and is managed according to four different profiles compared to the considered time horizon:

- intraday liquidity that deals with the daily management of treasury balances and the settlement of transactions in the payment method;

- short-term liquidity that aims at optimising cash flows and balancing the liquidity requirements in a quarterly horizon;

- medium-term liquidity in perspective, concerning the implementation of the funding plan of the financial year or of 3-12 months following the end of the reporting period;

- structural liquidity that forms part of planning and assumes an overall business strategy. Each of them has different exposure profiles, methodology approaches, techniques, mitigation instruments, corrective actions. As the considered time horizon increases, the levels of freedom of management increase: they cover structural and strategic interventions (e.g. securitisations, operations on the capital, amendments to the Group structure, acquisitions and transfers, supervision/abandonment of market segments). On the other hand, in the very short term, the reaction to unexpected and sudden tensions is based on the use of existing cash reserves (liquidity buffer).

The approach adopted for risk management envisages integration of the cash flow matching approach (which tends to make expected cash inflows coincide with expected cash outflows for each time horizon) with the liquid assets approach (which requires the financial statements to include a set number of financial instruments that can be readily converted into cash). In order to face up to the possible occurrence of unexpected liquidity requirements and thus to mitigate the relevant risk exposure, the Group provides itself with adequate short-term cash reserves (liquidity buffer).

The threshold of tolerance to liquidity risk is understood as a maximum risk exposure considered sustainable within the “ordinary course of business” (going concern) supplemented by “stress scenarios” and is measured by using the techniques outlined below. In order to identify in advance the onset of potential adverse situations that - due to specific factors concerning the Group or to system factors - could change the expected trend of the net balance of cumulated liquidity and cause the exceeding of the limits, several variables are monitored. The large set of examined quantitative and qualitative elements is summarised in two anticipating indicators that aim to represent the potential deterioration of the specific situation of the Group or of the more general market conditions. The two summary indicators

270 are used either separately or together in the assessment of the exposure to liquidity risk.

Exposure to risk is monitored in relation to all the time horizons of the structural maturity ladder in terms of unbalance between liabilities and assets of the same time horizon; the reference indicator is represented by the “Gap ratio” beyond one year. The model for dealing with on sight items, which is mentioned in the paragraph relating to the interest rate risk, is also used in the assessment of the exposure to risk. In addition to the maturity ladder, through which the structural liquidity profile is investigated, the liquidity risk is also assessed in the short and very short term as part of the treasury activity “Overall liquidity net balance” (sum between the “Cumulative net balance of positions due” and liquidity reserves), recognised over a period of three months and with reference to specific and different time ranges.

With regard to the medium-term perspective, the planning prepared annually for Banks and for the Group as a whole also shows the potential liquidity requirements and the effects of the expected trend of the aggregates on the profile of operational and structural liquidity; the Funding Plan defines for the planned year the funding objectives and activities consistent with the short-term requirements and with the preservation of the structural balance.

The assessment of exposure to liquidity risk makes use of stress testing. Stress tests consider both idiosyncratic adverse events (bank specific) and systemic adverse events (market wide) based on their importance for company operations in terms of liquidity and assess the possible impacts of their occurrence both individually (uni-factorial analysis) or jointly (multi-factorial analysis; combined scenarios). With the aim to capture and highlight different aspects of potential vulnerability, some basic tests are performed concerning:

- the profile of concentration of financing sources (tests with different levels of severity) and the outflow of wholesale deposits;

- the reduction in retail deposits; - the increased use of irrevocable credit lines to large corporates;

- the reduction of liquidity reserves due to the decrease in market values, the loss of eligibility requirements or the application of further haircuts.

The combined impact of the said tests on the Group’s overall liquidity net balance is analysed. Limiting liquidity risk exposure, aimed at ensuring Group solvency, including in highly critical situations, is mainly pursued through a distinct set of organisational management decisions and safeguarding measures, the more significant being:

- constant attention to the technical situations of the Bank and Group in terms of balanced structuring of asset and liability expiry dates, with special regard to short term maturities;

- the diversification of funding sources, with respect to the technical form, counterparties and markets. The Group intends to maintain a highly stable retail funding both in the form of deposits and in the form of debt represented by securities placed directly through the branch network. Reliance on market funds (interbank funding and issues targeting institutional investors) is therefore reduced and in line with a limited exposure to liquidity risk;

- the holding of assets readily convertible into cash to be used as guarantees for financing transactions or that can be sold directly in the event of stressful situations;

- the Contingency Funding and Recovery Plan.

During the year, the Group liquidity situation did not require the implementation of the

271 Contingency Funding and Recovery Plan procedures .

At 31 December 2015, the Group had a negative net interbank position of EUR 1.3 billion, in respect of which it held liquidity reserves mostly consisting of Italian Government bonds and deemed appropriate to the contingent and perspective requirements of the Group as a whole. In particular, EUR 7.6 billion (amount already reduced by the haircuts) of assets eligible for refinancing with the European Central Bank, including those coming from securitisations and loans that meet the eligibility requirements. At the end of the period, almost one fourth of these assets secured the transactions with the ECB, whereas a slightly higher portion was used with market counterparties; assets amounting to EUR 3.5 billion are free. With reference to a three-month time horizon, not tied up liquidity reserves amounted to EUR 5.2 billion. As part of the centralised treasury model that concentrates with the Parent the management of cash flows and the holding of liquid assets, the assets readily convertible into cash are mainly allocated in the portfolios of the Parent Credito Valtellinese. A portion of the securities resulting from securitisation and appropriate loans pertain, however, to the other banks of the Group. At 31 December 2015, the main source of funding consisted of retail customers (EUR 18.5 billion, accounting for 78.1% of total funding defined considering both the bank and customer components), stable and diversified. Funding from ECB amounts to 7.6% of the total (EUR 1.8 billion, of which EUR 1.5 for long-term refinancing transactions).

In consideration of the current composition of deposits carried out by the Group, in order to assess the concentration, the degree of dependence on a limited number of counterparties is analysed, in particular, whereas transactions in currencies other than the euro and the concentration on special technical forms such as securitisations are not important. The Group monitors the stock of liabilities on sight or with a short-term to the major wholesale counterparts (institutional investors, large companies or groups, non-economic institutions) considered more sensitive to the market situation and to the real or perceived situation of the Group Banks. The degree of concentration at the end of December 2015 slightly increased compared to that at the end of the previous year and still remains at low levels. From the structural perspective, the Group carries out a modest transformation of maturities. The loan and deposit ratio was 87.8%, down from 91.6% at the end of the previous year.

272 QUANTITATIVE INFORMATION 1. Distribution of financial assets and liabilities by residual contractual maturity

Unspeci From 1 From 7 From 15 From 1 From 3 From 6 From 1 year Beyond 5 fied Items/Time periods On sight day to 7 days to 15 days to 1 month to months to months to to 5 years years maturit days days month 3 months 6 months 1 year y

On -statement of financial position 4,807,084 866,570 197,934 425,590 1,290,293 973,806 1,902,982 6,954,930 7,604,917 182,189 assets

A.1 Government bonds 35 - - 1,145 15,900 44,824 115,087 2,216,546 2,104,569 -

A.2 Other debt instruments 3,821 - 109 12,003 8,745 10,145 33,003 41,214 61,961 20,374

A.3 OEIC units 53,255 ------

A.4 Loans 4,749,973 866,570 197,825 412,442 1,265,648 918,837 1,754,892 4,697,170 5,438,387 161,815

- Banks 300,996 - - 11 15,237 112 443 20,000 - 161,815

- Customers 4,448,977 866,570 197,825 412,431 1,250,411 918,725 1,754,449 4,677,170 5,438,387 -

On -statement of financial position 13,745,822 968,705 660,780 852,319 761,414 665,083 978,832 4,791,735 476,292 - liabilities

B.1 Deposits and current accounts 13,604,178 964,854 651,037 711,988 586,913 223,362 245,516 2,143,546 - -

- Banks 108,258 300,000 - - 22,530 - - 1,500,000 - -

- Customers 13,495,920 664,854 651,037 711,988 564,383 223,362 245,516 643,546 - -

B.2 Debt instruments 60,213 2,424 8,130 91,623 163,740 372,732 628,478 2,241,802 108,356 -

B.3 Other liabilities 81,431 1,427 1,613 48,708 10,761 68,989 104,838 406,387 367,936 -

Off -statement of financial position -105,718 -145,675 1,938 132 131,910 -7,181 72,604 10,256 14,581 - transactions

C.1 Financial derivatives with exchange of 76 -2,756 243 67 7 1,915 -77 805 - - principal

- long positions 76 108,175 85,848 51,628 19,069 3,818 3,955 924 - -

- short positions - 110,931 85,605 51,561 19,062 1,903 4,032 119 - -

C.2 Financial derivatives w/o exchange of -1,186 - - - - -13,472 -13,154 - - - principal

- long positions 52 ------

- short positions 1,238 - - - - 13,472 13,154 - - -

C.3 Deposits and loans to be received ------

- long positions ------

- short positions ------

C.4 Irrevocable commitments to grant -104,621 -142,919 1,695 65 131,899 4,370 85,785 9,260 14,468 - finance

- long positions 346,411 - 1,695 65 141,159 11,103 93,519 9,260 14,468 -

- short positions 451,032 142,919 - - 9,260 6,733 7,734 - - -

C.5 Financial guarantees given 13 - - - 4 6 50 191 113 -

C.6 Financial guarantees received ------

C.7 Credit derivatives with exchange of ------principal

- long positions ------

- short positions ------

C.8 Credit derivatives without exchange ------of principal

- long positions ------

- short positions ------

The above table shows both Euro and foreign currency transactions considering that the foreign currency component is not relevant and forward purchase and sale operations of securities or currencies are included in “Off-statement of financial position transactions”.

Self-securitisation transactions

Credito Valtellinese also holds the securities deriving from the self-securitisation of Quadrivio SME 2012, concluded in 2012 and Quadrivio RMBS 2013 concluded in 2013.

A summary table of the different self-securitisations carried out is provided below.

273

Quadrivio SME 2012

Main information

Date of transaction 06/08/12

Special purpose entities Quadrivio SME 2012 S.r.l. Performing mortgage and Subject matter of the transaction unsecured loans granted to companies

- Credito Valtellinese Originator banks - Credito Siciliano - Carifano

Original aggregate amount of transferred loans and 2,783,874 receivables Securities issued 2,783,900

of which senior a1 1,740,000

of which junior b 1,043,900

Rating of senior securities upon issue AAA Fitch and DBRS

Subordinated loan (Cash reserve) 60,900 Overall residual notional amount of the securities at 1,368,733 31/12/15 Residual values of loans and receivables at 31/12/15 1,493,829

Rating of senior securities at 31/12/15 AA+ Fitch and AAA DBRS

Quadrivio RMBS 2013

Main information

Date of transaction 09/08/13

Special purpose entities Quadrivio RMBS 2013 S.r.l. Performing residential mortgage Subject matter of the transaction loans - Credito Valtellinese Originator banks - Credito Siciliano - Carifano Original aggregate amount of transferred loans and 1,001,345 receivables Securities issued 1,027,500

of which senior A1 550,000

of which senior A2 200,000

of which junior 277,500

Rating of senior securities upon issue AA+ Fitch; AAA DBRS Overall residual notional amount of the securities at 747,749 31/12/15 Residual values of loans and receivables at 31/12/15 734,201

Rating of senior securities at 31/12/15 AA+ Fitch AAA DBRS

274

1.4 – BANKING GROUP - OPERATIONAL RISKS

QUALITATIVE INFORMATION

A. General aspects, management processes and measurement methods for operational risk The operational risk is defined as the risk of incurring losses due to the inadequacy or inefficiency of procedures, human resources and internal systems or due to external events, including the legal risk. It includes, inter alia, losses deriving from fraud, human error, interruption of operations, system break-down, contractual non-performance and natural disasters. The wide variety of operational risks is not normally associated with banking or business activities. These risks may originate either internally or externally and their scope may extend beyond the corporate structure.

As a result of the process defining the risk appetite, the Board of Directors of the Parent, in line with the adopted business model and considering that the operational risk is not associated with any return, set as its management objective the minimisation of exposure to operational risk. Consistently, the Board established the strategic guidelines and risk management policies, which were made known to the internal departments and are reviewed on a regular basis.

Operational risk management is part of an integrated management strategy that aims to contain overall risk also by preventing propagation and transformation of the risks. Operational risk management is based on the following guidelines:

- to increase overall operating efficiency; - to avoid the occurrence or reduce the likelihood of events that may potentially generate operating losses through appropriate regulatory, organisational, procedural and training measures;

- to mitigate the expected impact of said events; - through insurance arrangements, to transfer risk that the Bank does not intend to maintain;

- to protect the reputation and brand of the Banks and of the Group.

The identification, assessment and monitoring of operational risks tend to carry out mitigation interventions.

Finally, specific types of risks are transferred through a series of insurance policies offering a wide-ranging coverage on different types of potentially damaging events.

With respect to the organisational structures and management processes, the Risk Management Department contributes to the definition of the risk management policy at Group level, develops the operational risk assessment process, supports the Governing Bodies in defining and carrying out the activities related to the observance of the prudential regulations and ensures accurate, complete and timely information.

275 assesses the operational risks on an adequate basis and can propose appropriate management measures and mitigation instruments. The timely and accurate recognition of the events that may actually or potentially generate operating losses is carried out by a network of company contacts using a special application that allows to register and keep identifying information, damage estimates, accounting and extra-accounting final data and the effects of mitigation through insurance instruments. The Risk Management Department is responsible for the identification of algorithms, rules and parameters required for the development of methods and models for assessing and measuring the operational risk and performs this task on a centralised basis on behalf of all Group Banks.

Risk exposure is assessed and measured, at a separate and consolidated level, with reference to a wide range of phenomena that can lead to operating losses.

The model for the assessment and measurement of operational risk is based on the combined use of:

- internal operating loss data, collected by the network of company contacts; - assessments in perspective, prepared with an appropriate statistical technique and based on subjective estimates concerning the probability of occurrence, extent of the impact and the effectiveness of the controls related to certain events (risk self-assessment);

- operational context factors and of the internal control system, called Key Risk Indicators, aimed at a forward-looking representation, which reflect the improvement or the worsening of the bank risk profile in a timely manner, following any changes in the operational segments, human resources, technology and organisation, or the internal control system;

- external data of operational loss, surveyed in the Italian Database of Operational Losses (DIPO), to which the Group belongs with the status of “total group member”. The analyses, assessments and comparisons carried out allow to formulate an overall assessment by relevant operating segments of the level of exposure to operational risks, and to understand any change in the reporting period.

In order to ensure corporate bodies full knowledge and governance of the risk factors and make available to the persons in charge of the company departments the information pertaining to them, the Risk Management Department produces and distributes at regular intervals (quarterly, half-yearly and yearly) information flows on operational risks that offer a full representation of the different operational risk profiles and of the mitigation measures implemented during the reporting period or that are expected to be implemented in the future.

Moreover, specific reports are prepared at the end of the risk self-assessment and the relevant follow-up.

276 The manifestation of any critical situation gives rise to corrective and mitigating actions, the effects of which are monitored and made known to the corporate bodies according to the ordinary reporting methods.

The disaster recovery plan laying down the technical and organisational measures to deal with events that result in the unavailability of data processing centres is part of problem management. The plan, designed to allow the operation of relevant computerised procedures in sites other than those of production, is an integral part of the business continuity plan, controlled by the Business Continuity and Compliance Service of Creval Sistemi e Servizi. The Group adopted the standardised method (TSA) for calculating the capital requirement to meet operational risks. A number of requirements are necessary for the supervisory regulations to adopt the standardised method; in particular, the body must have a properly documented management and assessing system of the operational risk and the various responsibilities must be clearly assigned; and this system must be subject to independent regular reviews carried out by an internal or external subject with the skills required. In this regard, a self-assessment is carried out as well as a specific series of checks by the internal audit function. The self-assessment process, carried out annually by the Risk Management Department, consists of a formalised set of procedures and activities aimed at assessing the quality of the operational risk management system, as well as its compliance over time with regulatory requirements, company operational requirements and the development of the market of reference.

The process develops along the applicable guidelines outlined in the Group Policy concerning “The assessment of the risk management processes” and is based on the following profiles: governance; credit risk management policies; organisation of the risk management department; methods and instruments for identifying, measuring and managing risks; monitoring and reporting; prevention and mitigation of risks; management of critical issues. These profiles also include the information and assessment elements concerning the components characterising the operational risk management system according to the supervisory regulations. The assessment of each profile is complemented by the indication of areas and lines of improvement. An overall rating is then formulated on the basis of the profile assessments. The assessment of the risk management system is complemented by the assessments related to the process of production of the supervisory reports, with a special reference to the calculation of the capital requirement to meet the operational risk and to the reporting of the operational losses recorded for the different business lines. The results, verified by the internal audit function, are submitted on an annual basis to the Board of Directors, which resolves on the existence of the eligibility requirements for the adoption of the standardised approach.

Legal risks A provision was made in the financial statements, appropriate and consistent with the international financial reporting standards compliant with the policy for calculating the provisions adopted by the Group, in order to mitigate the potential economic losses resulting from the pending legal proceedings with regard to the Bank and the other banks belonging to the Group. The amount of the provision is estimated on the basis of a number of elements mainly concerning the estimate on the outcome of the case and, in particular, the likelihood of 277 losing the case with the conviction of the Bank, and the elements of quantification of the amount that the Bank could be obliged to pay to the counterparty if it loses the case. The estimate on the outcome of the case (risk of losing in a lawsuit) considers, for each position, the legal aspects inferred in court, assessed in the light of the case law, actual evidences presented during the proceedings and the development of the proceedings, as well as, for subsequent encumbrances, the outcome of the first level judgement, as well as past experience and any other useful element, including the opinions of experts, making it possible to take into proper account the expected unfolding of the dispute. The amount due in case of an adverse outcome is expressed in absolute value and shows the estimated value based on the court findings, considering the amount requested by the counterparty, the technical estimate carried out internally based on the accounting records and/or presented during the trial and, in particular, the amount assessed by the court- appointed expert (ctu) - if provided - as well as legal interests, calculated from the notification of the application initiating proceedings and any expense due for adverse outcome. If it is not possible to obtain a reliable estimate (failure to quantify the claims for compensation by the claimant, presence of uncertainties of law and of facts that make any estimate unreliable), no provisions are made as long as it is impossible to foresee the outcome of the proceedings and reliably estimate the amount of any loss.

At 31 December 2015, there are 525 actions brought against the companies belonging to the Group for an overall amount of EUR 193.2 million against which a total loss of EUR 15.3 million is expected. The cases mainly refer to requests for restitution for compound interests and bankruptcy clawbacks, claims for compensation for losses accrued in investments in financial instruments and other cases of damages broken down as follows.

Relief sought Provision made No. of Type of cases (in millions of (in millions of cases EUR) EUR) Compound interests 269 43.9 5.8

Bankruptcy clawbacks 41 24.7 4.7

Investment services 58 7.6 1.6

Other 157 117 3.2

Total 525 193.2 15.3

The Group pursues careful settlement procedures, based on an in-depth analysis of the concrete grounds on which the actions are based, meaning the existence of both the subjective and objective elements.

Some information concerning important actions against the Bank is summarised below.

Formenti Seleco in A.S.

In 2010, the Procedure started before the Court of Milan two separate legal proceedings against Credito Artigiano, now Credito Valtellinese. The first proceeding concerns the bankruptcy clawback pursuant to Article 67 of the Bankruptcy Law of the settlement remittances quantified by the counterparty in EUR 7.8 million. The second proceeding consists of an action for damages related to the case of abusive lending that the receiver started against the 19 banks severally liable totalling EUR 45 million. These disputes had a completely independent and separate process. In fact, with regard to the bankruptcy clawback, a 278 settlement agreement of the dispute was completed and achieved. With respect to the action for damages, the Court first, and the Court of Appeal then, rejected in toto the opposing claims as groundless. Currently, the judgement is pending with the Court of Cassation.

Gianfranco Ferrè in A.S .

In 2012, the Procedure started a bankruptcy clawback proceedings against Credito Artigiano, now Credito Valtellinese, pursuant to Article 67 of the Bankruptcy Law with reference to the settlement remittances paid into the a/c of the bankrupt company quantified by the counterparty in EUR 10.4 million. The case, which is pending before the Court of Isernia, is in the preliminary stage. The risks related to the cause are monitored by adequate provisions.

Ministry of Economy and Finance On 3 February 2014, a claim form was notified to Credito Valtellinese by the MEF, in relation to the alleged non-payment by the Bank of interest due as a result of the exercise of the right of redemption of the financial instruments issued pursuant to Article 12 of Italian Law Decree no. 185 of 29 November 2008, amended and converted by Italian Law no. 2 of 28 January 2009 (Tremonti-bond). The MEF asked the Court of Rome to order the Bank to pay a total amount of EUR 16.86 million. In this regard, on 18 June 2013 the Bank had informed the Ministry of its intention not to pay the amount of EUR 16.86 million (corresponding to the interests accrued on a pro rata basis up to the date of redemption and calculated in proportion to the interest paid on the date of payment of the immediately previous interests) in that such interest is considered not due on the basis of an interpretation of the applicable regulations and of the issue prospectus formalised, together with the related interpretative uncertainties, in an opinion issued by a leading law firm. The Bank appeared before the court maintaining that, at the time of redemption of the Financial Instruments, there was no payment obligation of interests to Creval, in that the last consolidated financial statements available on the redemption date, or the 2012 financial statements, approved by the Board of Directors of Credito Valtellinese on 19 March 2013, showed a loss for the year. These financial instruments were included among the equity instruments and the related interests were paid through equity. Any further payments of interests must be made in the same way, i.e. with the use of a free reserve of equity.

Italval Group srl

Italval Group Srl started a legal action against Credito Valtellinese concerning a claim for the return of undue payment due to compound interest on current account. The plaintiff’s claim is quantified in the summons in EUR 10 million against. The Bank appeared before the court challenging the other party’s claim and raising objections to the prescription of the claim started in court. The accounting court-appointed expert ascertained a compound interest risk limited to approximately EUR 0.4 million applying the methods of the plenary session. The risks related to the cause are monitored by adequate provisions.

Saba Srl

The plaintiff company started the case with regard to Credito Siciliano charging it with alleged irregularities in the management by the bank of the loans disbursed to the company itself (with a special reference to a building loan). Counterparty claims that, as a result of these irregularities, it would have undergone economic damages quantified in the summons in EUR 279 11.8 million. The judgement is in the preliminary stage and, based on acquired elements of pre-trial investigation, the claim appears unfounded.

Tax dispute During the 2015 financial year, there are no tax audits or notices of assessment of significant amount. With reference to previous disputes, the Parent Credito Valtellinese and the company Mediocreval S.p.A., today merged by the same Parent, received in 2013 notices of payment and imposition of penalties with reference to the substitute tax on syndicate loans signed abroad for a total amount of about EUR 200 thousand among taxes, interests and sanctions, divided almost equally between the two banks. Appeals were immediately filed with the competent Tax Commissions against the notices of settlement to defend the correct operations of the banks. In this regard, the following is provided:

With reference to the Parent, a tax dispute for the purchase of bank branches was also positively settled, within a procedure requested by the Competition Authority, whose claim amounts to EUR 1.3 million by way of stamp duty, in relation to the higher goodwill assigned compared to the one recognised and paid to the counterparty and declared in the deeds. The Provincial Tax Commission of Milan upheld the appeal of the Bank, with judgement confirmed later on by the Regional Tax Commission of Milan. The judgement is definitive. During the second half of 2014, a request for refund of the portion of tax paid pending judgement was made. Payment is still pending. Always with reference to Credito Valtellinese, the notice of contention concerning the non- disclosure of a money transfer operation abroad was settled, with partial request for nullification by internal review by the competent Tax Authorities, as part of the so-called currency tax monitoring with payment of a fine of approximately EUR 5 thousand. With reference to other Group companies, a notice of settlement was notified to the company Stelline Real Estate SpA related to the contribution of properties to a real estate fund, in which the Tax Authorities challenged the VAT liability of some properties resulting in the application of proportional stamp duties, mortgage and cadastral taxes, totalling approximately EUR 51 thousand. An appeal was immediately filed against the notice to the Tax Commission.

The rights of the Group companies are protected by external professionals with special skills and experience, with the intention to enforce the rights of the companies in the competent administrative and legal venues.

Labour related lawsuits In terms of numbers, in the year ended 31 December 2015, the number of labour-related lawsuits is substantially stable compared to those at group level at 31 December 2014, with the closing of no. 4 risk events – of which no. 2 disputes that had already previously become

280 final in 2015 for what concerns the profiles related to legal costs - and the opening of no. 3 new events concerning labour. In terms of risk quality, labour disputes in which the companies of the Group are involved at 31 December 2015 are divided equally between actions undertaken for alleged de-skilling or for disputes concerning the application of contractual regulations and/or laws governing salary aspects of the employment relationship and actions concerning the contestation of dismissals with regard to the employee.

In terms of risk quantification, against the overall relief sought resulting from the set of judgements registered at 31 December 2015, the capital requirement of the globally considered labour dispute - adequately covered by the provisions made by the Group Companies concerned - can be prudentially estimated at just over EUR 1 million; this risk, substantially unchanged compared to the value recognised at 31 December 2014, is concentrated, in particular, on Credito Valtellinese and on Credito Siciliano.

The IT risk analysis is a tool guaranteeing the efficiency and effectiveness of the protection measures of the ICT resources.

In the light of the supervisory provisions on this matter, the Group defined the overall framework for managing the IT risk as well as the methods of risk analysis and assessment.

The process of IT risk analysis consists of several departments, in particular of the ICT Management and Safety Department of Creval Sistemi e Servizi and Risk Management Department and consists of the following phases:

- determining the potential risk to which a business product/service or a process/service within the Group is exposed as a result of a potential occurrence of an IT risk scenario. The potential risk is determined by combining the impact assessments expressed by the Users in charge on the business products/services or on the processes/services within the Group of direct concern, with the probability of occurrence of the threats applicable to IT services used for the supply of business products/services or process/services within the Group, in the absence of any kind of technical, procedural or organisational counter-measures;

- determining the residual risk to which a business product/service or a process/service within the Group is exposed as a result of a potential occurrence of an IT risk scenario, considering the state of implementation of existing controls on IT services used for the supply of business products/services or process/services within the Group;

- processing the residual risk aimed at identifying technical or organisational mitigation measures suitable for limiting any residual risk exceeding the company acceptance threshold, by adopting alternative or further measures of risk limitation, submitted to the approval of the Body with management responsibilities. When assessing the risks on the components of the IT system and already existing applications, the Group takes into account the data available concerning IT security incidents occurred in the past.

The process of risk analysis is repeated annually and, in any case, in the presence of situations that can affect the overall IT risk level.

281 The assessments of IT risk exposure, resulting from the analysis carried out during the financial year on business products and services, expressed in terms of residual risk, stood at a “minimum” or “irrelevant” level. This exposure is considered limited and consistent with strategic guidelines, the assumption and management policies of IT risks and with the thresholds established by the Risk Appetite Framework.

QUANTITATIVE INFORMATION The percentage distribution of operational losses recognised in the internal database during the year is shown in terms of frequency and impact.

Operational losses - Distribution by type of event

The events reported during the financial year are mainly attributable in terms of frequency to the following event types: “Execution, delivery and management of processes” (58.3%), “External fraud” (25.1%) and “Customers, products and business practices” (8.1%).

In terms of impact, losses are attributable to “External fraud” by 31.3%, to “Customers, products and business practices” by 42.5% and to “Execution, delivery and management of processes” by 21.7%; losses attributable to other event types are of lesser importance.

1.5 – OTHER RISKS In addition to the risks described above, the Credito Valtellinese Group identified and monitors the following other risks.

282 The strategic and management objective is the control of the risk by reducing the asset trend within the limits compatible with a long-term equilibrium, so as not to risk the stability of the Group.

The risk of excessive leverage concerns the entire financial statements, the exposures deriving from the holding of derivatives and the unrecognised assets of the Banks and of the Group and is taken when carrying on the core business. It is closely related to the activities of planning and capital management; the degree of exposure to risk is an expression of the strategic lines and development prepared by the Board of Directors of the Parent, by the Managing Director and by the General Management to the extent of its authority.

The measurement of the risk of excessive leverage is based on the regulatory parameter “leverage ratio”; since this amount does not include corrections/weightings for risk, it acts as a completion of the Pillar I capital requirements. Moreover, this contributes to limit the accumulation of the leverage at the system level. The risk exposure assessment is also carried out through other indicators that can recognise any imbalance between assets and liabilities.

For the purposes of managing and reducing the risk, a range of values considered normal, a reporting limit and an intervention limit are expected at a consolidated level for the leverage ratio. The Risk Management Department monitors on a quarterly basis the trend of the leverage ratio and the structural balance indicators; corporate bodies are provided with regular disclosure.

In order to assess more accurately the exposure to risks and their trend in adverse conditions, their mitigation and control systems and the adequacy of capital and organisational methods, stress tests that consider, either separately or jointly, the decrease in own funds and the increase in exposures of different size are also carried out.

At 31 December 2015, the leverage ratio was considerably higher than the minimum threshold proposed by the international standards.

Sovereign risk The investment in Italian Government bonds, placed almost entirely in the AFS portfolio, involves the exposure to the credit risk of the Italian Republic that, as with any other issuer, may occur in the form of a decrease in creditworthiness or, in extreme cases, of insolvency. The investment in Spanish Government bonds, residual in size and placed in the AFS portfolio, generates a marginal exposure to the credit risk of Spain. The exposure is monitored on a regular basis and referred to corporate bodies.

The outlook of the exposure to the sovereign risk profile is weighed considering adverse scenarios of varying intensity, also based on historical simulations, and their impact on the value of the portfolio and on the own funds.

The exposure stood at values below those recorded at the end of the previous year, due to the decrease in total volumes.

The table below shows the carrying amount of the exposures to sovereign debt risk, broken down by portfolio (AFS - Available-for-sale financial assets, HFT - Financial assets held for

283 trading, HTM - Held-to-maturity investments, L&R - Loans and receivables with banks and Loans and receivables with customers).

Countries AFS HFT HTM L&R Total AFS reserve (*)

Italy 4,957,430 13,968 - - 4,971,398 26,865

Other 66,886 23 - - 66,909 376

Total 5,024,316 13,991 - - 5,038,307 27,241

(*) After the tax effect

Additionally, loans and receivables with customers referred to loans granted to central and local public administrations totalling EUR 88,967 thousand are recognised.

The following table provides information on the expiry of exposures in securities to total debt in Italy.

Portfolio 2016 2017 2018-2019 2020-2024 Beyond 2024 Total

AFS 55,874 673,728 1,111,187 2,217,761 898,880 4,957,430

HFT 607 1,526 - 11,757 78 13,968

Total 56,481 675,254 1,111,187 2,229,518 898,958 4,971,398

At 31 December 2015, securities issued by the government were measured mainly referring to prices inferred from markets (Level 1 fair value).

The strategic risk, when configured as a mere strategic risk, business strategic risk and equity investment strategic risk, is primarily assumed by the Parent, which is responsible for defining the overall business plan and the coordination and control of the Group Companies for the purposes of its implementation. The Parent, by defining, approving and monitoring the annual planning and the progress of the Strategic Plan, exercises a strategic control on the development of the different business areas in which the Group operates and of the risks related to the activities carried on.

Compliance risk

Compliance risk is the risk of incurring legal or administrative sanctions, significant financial losses or damage to reputation as a consequence of violation of mandatory provisions (laws or 284 regulations) or self-regulation (e.g. articles of association, codes of conduct, and codes of self- discipline). The Group considers the adoption of the highest standards of compliance with the regulations a distinctive feature of its corporate identity, an expression of the exercise of its own social responsibility, a control for maintaining the reputation acquired over time and an effective contribution to the process of creation of value. The management of the compliance risk is based on the Compliance Policy and on the Compliance Plan. The aim of the compliance policy is to configure a structural system of principles and organisational and control procedures, designed to prevent, manage or mitigate the risk of non-compliance with heteroregulations and self-regulations.

The Compliance Plan refers to the identification and assessment of the main risks of non- compliance to which the Group is exposed and proposes the planning of the relevant interventions. The assessment of the risk uses the following instruments:

- assessments based on the standardised method of assessing the potential risk and the residual risk;

- direct investigations on processes, procedures and operating units (analyses and interviews);

- any other IT tool designed to produce compliance checks in a structured form.

Considering the extent of the compliance risk and the large number of factors from which it can originate, all the Group’s companies are exposed to such risk albeit of different intensity.

Money-laundering risk Money-laundering risk is the risk of incurring legal and reputational risks deriving from the possible involvement in unlawful transactions related to money laundering and financing of terrorism. In order to measure/assess this risk, the recycling risks implied in the operational procedures of the Group related to the following processes were mapped:

- proper verification of customers;

- cash transactions and bearer securities; - AUI entries;

- reporting suspicious transactions. Given the objective importance of the money-laundering risk as well as the increasing complexity of the regulatory framework and of the obligations arising therefrom, the Group has progressively strengthened its regulatory, organisational, procedural, application and training control.

Reputational risk

The current or future risk of drop in profits or capital arising from the negative perception of the image of the bank by the customers, counterparts, bank shareholders, investors or supervisory authorities; the business analyses also include employees, the company and the territory.

285 Reputation is an essential intangible resource and is considered by the Group as a distinctive element that underpins a lasting competitive advantage. The risk refers primarily to the area of relations with stakeholders and with the community; it can also arise from factors placed outside the corporate structure and outside the work of the Group (e.g. from the dissemination of inaccurate or unsubstantiated information or from phenomena concerning the system and can involve each institution without distinction). The risk is limited mainly by defining organisational controls for limiting the occurrence of adverse events in the company. An additional control consists of the sharing by all Group employees of the system of values, principles and rules of conduct on which their behaviour is based formalised in the Code of Conduct, which is an integral part of the “Model of organisation, management and control” provided by Article 6 of Italian Legislative Decree 231/2001 on “Regulations dealing with the administrative liability of legal persons”.

This Code expresses a business management philosophy whose primary objective is to meet at best the expectations of all the Group’s stakeholders, aiming to recommend and promote a high standard of professionalism and to prevent any behaviour in contrast with the principles that the Group intends to promote. The Group adopted also the Charter of Values, in order to identify recognisable and uniform principles for all the employees, on which the Group bases its distinctive identity, marked by tension to work for sustainable growth.

Communication is equally important: it is controlled by the Corporate Identity, Quality and Sustainability Service, by the Investor and Media Relation Service and by the Communication and Sponsoring Service. The currently good and solid reputation is constantly monitored, protected and enhanced, and does not appear at the time to be exposed to particular risks, albeit the current crisis and the resolution of 4 Banks has to some extent affected the entire financial system.

Risk towards associated parties This is the risk that the proximity of certain persons to decision-making centres of the Bank might compromise the objectivity and impartiality of decisions relating to the granting of loans and other transactions with regard to these subjects, with possible distortions in the allocation of resources, the Bank’s exposure to risks not adequately measured or monitored, potential damage to depositors and shareholders. In order to preserve decision-making objectivity and impartiality and avoid allocative distortions, the Group adopted strict procedures and limits more stringent than regulatory, regularly monitored.

During the year, the limits of intervention were not exceeded.

Real estate risk

This is the current or prospective risk of potential losses arising from fluctuations of the value of the real estate portfolio owned by the Group, or by the reduction of the income generated by it. The Group assumes, to a limited extent, a real estate risk for investment purposes and for protecting its own claims. The real estate portfolio owned by the Group represents a residual component compared to 286 total assets at consolidated level and consists mostly in operating assets.

The risk is mitigated through management and maintenance interventions aimed at preserving the functionality and value of the assets and partially transferred through insurance policies covering the real estate properties. The management of real estate assets is entrusted to a dedicated structure of the Group.

Risks related to outsourcing The outsourcing of business functions, processes, services or activities involves careful assessment of risks and the implementation of appropriate monitoring and limitation measures. The potential risks arising from outsourcing are mostly operational, compliance, strategic and reputational risks; therefore, they refer to specific types already identified and described above.

287

PART F - INFORMATION ON CONSOLIDATED EQUITY

SECTION 1 - CONSOLIDATED EQUITY

A. QUALITATIVE INFORMATION

Equity is defined by the international financial reporting standards as “the residual interest in the assets of the entity after deducting all its liabilities”. In a financial logic, equity represents monetary value of the injections by the owners or generated by the company.

Asset management concerns all the policies and choices required for defining its size, as well as the optimal combination among different alternative instruments of capitalisation aimed at ensuring that the consolidated assets and ratios of the Creval Group are on a consistent basis with the risk profile assumed in full compliance with the supervisory requirements.

B. QUANTITATIVE INFORMATION

B.1 - Consolidated equity: breakdown by type of business

Netting and Banking Insurance Other Equity items consolidation Total Group companies companies adjustments Share capital 1,849,415 620 40 -375 1,849,700 Share premium reserve 39,491 - - - 39,491 Reserves 180,112 779 - -60,062 120,829 Interim dividends - - - - - Equity instruments - - - - - (Treasury shares) -100 - - - -100 Valuation reserves: 55,554 -140 - 138 55,552 - Available -for -sale financial assets 71,047 - - - 71,047 - Property, equipment and investment property ------Intangible assets ------Hedging of investments in foreign operations ------Cash flow hedges ------Exchange rate differences ------Non -current assets held for sale ------Actuarial gains (losses) on -15,208 -140 - - -15,348 defined benefit plans - Portion of valuation reserves of equity -accounted -285 - - 138 -147 investments - Special revaluation laws - - - - - Profit (loss) for the year (+/ -) attributable to 118,133 10,070 - -5,945 122,258 owners of the parent and non-controlling interests Equity 2,242,605 11,329 40 -66,244 2,187,730

288 B.2 - Valuation reserves for available-for-sale financial assets: breakdown

Netting and Insurance Banking Group Other companies consolidation Asset/Amounts companies adjustments Positive Negative Positive Negative Positive Negative Positive Negative reserve reserve reserve reserve reserve reserve reserve reserve 1. Debt instruments 26,532 ------2. Equity instruments 47,078 ------3. OEIC units - -2,563 ------4. Loans ------Total at 31/12/2015 73,610 -2,563 ------Total at 31/12/2014 17,447 -3,144 ------

Total Asset/Amounts Positive Negative reserve reserve 1. Debt instruments 26,532 - 2. Equity instruments 47,078 - 3. OEIC units - -2,563 4. Loans - - Total at 31/12/2015 73,610 -2,563 Total at 31/12/2014 17,447 -3,144

B.3 - Valuation reserves for available-for-sale financial assets: annual changes

Debt Equity OEIC Loans instruments instruments units. 1. Opening balance -2,290 17,447 -854 - 2. Increases 87,684 34,825 14 - 2.1 Fair value gains 86,648 33,037 - - 2.2 Reclassification of fair value losses to profit or loss 1,036 1,788 14 - - from impairment - 1,787 14 - - on sales 1,036 1 - - 2.3 Other increases - - - - 3. Decreases -58,862 -5,194 -1,723 - 3.1 Fair value losses - -1,787 -1,723 - 3.2 Impairment losses - - - - 3.3 Reclassification of fair value gains to profit or loss: on sales -58,862 -3,407 - - 3.4 Other decreases - - - - 4. Closing balance 26,532 47,078 -2,563 -

B.4 Valuation reserves related to defined benefit plans: annual changes

Valuation reserves related to actuarial gains (losses) on defined benefit plans amounted to EUR -15,348 thousand, compared to EUR -14,820 thousand at the end of 2014.

289 SECTION 2 – REGULATORY CAPITAL AND RATIOS

2.1 - Scope of application of the regulations

On 1 January 2014, the new regulations for banks and investment companies contained in EU Regulation no. 575/2013 (Capital Requirements Regulation, known as CRR) and in the 2013/36/EU Directive (Capital Requirements Directive, known as CRD IV) approved on 26 June 2013, which transpose in the European Union the standards defined by the Basel Committee on Banking Supervision (known as Basel III framework), came into force. The Bank of Italy, as part of an overall review and simplification process of the supervisory regulations of the banks published Circular 285 “Prudential supervisory provisions for banks” that, by replacing almost entirely the previous circular 263 of 27 December 2006, implemented the new Community guidelines and introduced supervisory rules on aspects not harmonised at EU level, Circular 286 “Instructions for the completion of prudential disclosures for banks and financial brokerage companies” in place of the previous circular 155 and the update of circular 154.

As from 1 January 2014, the banking groups must meet a minimum ratio:

- of CET1 equal to 4.5%, - of Tier 1 equal to 5.5% (6% as from 2015),

- of a Total Capital Ratio equal to 8%. The following reserves (buffer) of CET1 are added to these binding minimum values envisaged by the Regulation:

- as from 1 January 2014, the capital conservation buffer of 2.5%; - from 2016, the counter-cyclical buffer in periods of excessive growth in loans and the systemic buffer for banks important at global or local level (G-SII, O-SII). The sum of regulatory requirements and of additional buffers determine the level of minimum capital conservation requested from the banking groups at the consolidated level; for 2015, this level is as follows:

- CET1 equal to 7%;

- Tier 1 equal to 8.5%; - Total Capital Ratio equal to 10.5%.

If the sum of these buffers does not comply with the minimum requirement (Combined Requirement), profit distribution is limited and it is necessary to adopt a capital conservation plan.

The Bank of Italy at the end of the regular supervisory review process (“SREP” – Supervisory review and evaluation process), communicated with measure no. 1252663/15 of 24 November 2015 the specific capital requirements that the Credito Valtellinese Banking Group must comply with as from the report on own funds at 31 December 2015, pursuant to Article 67-ter, paragraph 1, letter d) of Italian Legislative Decree no. 385/93 (Consolidated Banking Act).

The requirements, set at the consolidated level, are fully binding and include the minimum regulatory requirements, of 2.5% as reserve for maintaining the capital and 3.8% against the additional requirements calculated at the end of SREP.

These requirements are then set to the following extent:

290 - CET1 equal to 8.3%;

- Tier 1 equal to 9.8%; - Total Capital Ratio equal to 12.7%.

At 31 December 2015, own funds were calculated by applying the new regulations mentioned above. However, this regulation envisages transitional regulatory provisions that envisage, in general until 2017, the gradual introduction of the new regulatory framework, through a transitional period during which some elements are deductible or can be calculated in Common equity tier 1 capital only for a percentage share, whereas the residual percentage compared to the applicable percentage is calculated/deducted from the Additional Tier 1 Capital and from Tier 2 Capital or considered in the risk-weighted assets. This transitional regime is also envisaged for some subordinated instruments that do not comply with the requirements of the new regulatory provisions, aimed at excluding gradually from own funds (over a period of 8 years) the instruments that can no longer be calculated.

In accordance with the provisions of the supervisory instructions, the composition and size of own funds differ from those of reporting equity. The main reasons for said differences are briefly summarised as follows:

- own funds include only the portion of profit net of all expenses and foreseeable dividends; the banks can include in the Common equity tier 1 capital the year-end profits before taking a formal decision confirming final profit or loss of the body for the year of reference only with the prior authorisation of the competent authority, authorisation that requires profits to be audited by independent persons who are in charge of auditing the accounts;

- the companies other than banking, financial and operating companies, subject to exclusive control and consolidated on a line-by-line basis in the consolidated financial statements, are consolidated with the equity method for prudential purposes;

- own funds also include equity attributable to non-controlling interests, properly allocated between common equity tier 1 capital, additional Tier 1 and Tier 2 capital;

- goodwill - which includes the “positive differences on equity” incorporated in the carrying amount of the equity-accounted equity investments in companies subject to significant influence, other intangible assets and assets of defined-benefit pension funds present in the statement of financial position of the body net of relevant associated deferred tax liabilities must be deducted from Common equity tier 1 capital;

- unrealised gains or losses related to exposures towards the governments classified in the category “Available-for-sale financial assets” are not included in any element of own funds. This neutralisation option provided by Article 467 of the CRR was confirmed also with reference to the new circular 285 in chapter 14 related to transitional provisions concerning own funds and this treatment will apply until the adoption by the Commission of a regulation that approves the International Financial Reporting Standard 9 in place of IAS 39. At 31 December 2015, the fully neutralised AFS reserve related to securities issued by central government of countries belonging to the European Union was positive by the amount for EUR 27.2 million (compared to EUR - 2.5 million at 31 December 2014). In the absence of such an approach, the effect on own funds would have resulted in an increase in Common equity tier 1 capital of this amount and therefore in total own funds of EUR 2,061.6 million; the capital ratios would have amounted to 13.32% and 15.32%, respectively;

291 - significant investments in a subject of the financial sector, net tax assets that derive from timing differences and are based on future profitability and insignificant investments in a subject of the financial sector are deducted from the elements of CET1 should they exceed certain levels of CET1 envisaged by Regulation 575/2013;

- Tier 2 capital can include subordinated loans that must have an original duration of at least 5 years and can be paid, also in advance, only if the body requests the prior authorisation to the competent authority, and not before five years from the date of issue, except in the case where the bank replaces the mentioned instruments with other instruments of Own Funds of equal or higher quality, in sustainable conditions for its income capacity, and where the bank shows to the great satisfaction of the competent authority that the minimum capital requirements imposed by the regulations are complied with.

2.2 – Bank own funds

A. QUALITATIVE INFORMATION

The elements forming Own Funds are set below:

- Common Equity Tier 1 – CET1; - Additional Tier 1 – AT1; - Tier 2 – T2.

CET1 and AT1 form the Total Tier 1 capital that together with Tier 2 capital allows to determine Total Own Funds. 1. Common equity Tier 1 – CET1

Total Common Equity Tier 1 (CET1), calculated taking into account the profit allocated to reserves at 31 December 2015, amounted to EUR 2,034.3 million. The main changes occurred during the year concern the minor deductions of intangible assets of EUR 97.8 million and the failure to exceed the exemption limits for significant investments in Common Equity Tier 1 capital instruments held in subjects of the financial sector (EUR 16.3 million of deductions at 31 December 2014). This item includes:

- equity instruments of EUR 1,846.8 million; - own CET1 instruments held by the bank of EUR 0.1 million;

- share premium reserves of EUR 39 million; - profit for the year allocated to reserves of EUR 83.3 million;

- other accumulated comprehensive income of EUR 55.8 million. This item includes negative actuarial reserves of EUR 15.3 million and positive AFS reserves of EUR 71 million;

- other reserves of EUR 179.7 million;

- minority interests allowed of EUR 2.4 million. As for the items to be deducted, goodwill of EUR 102 million and other property, equipment and investment property of EUR 16.7 million are recorded. At 31 December 2015, both significant investments in Common equity tier 1 capital instruments held in subjects of the financial sector and deferred tax assets that derive from

292 timing differences and are based on future profitability are below the exemption limits contemplated by the regulations. In relation to the transitional regime, the item in question includes the following adjustments:

- positive filter for the inclusion of minority interests subject to transitional provisions of EUR 0.5 million;

- filter for the exclusion of unrealised gains on AFS securities of the Group of EUR 26.7 million;

- negative filter of EUR 27.2 million for the neutralisation of the AFS reserve related to securities issued by central governments of Countries belonging to the European Union.

2. Additional Tier 1 – AT1

On 31 December 2015, the Credito Valtellinese Group did not issue any AT1 instrument.

3. Tier 2 – T2

On 31 December 2015, the operative Tier 2 Capital included in T2 instruments the subordinated loans issued by Credito Valtellinese of EUR 243.8 million and instruments issued by filiations of EUR 26.8 million. The Tier 2 Capital, considering the effects of the transitional regime, amounts to EUR 310 million at 31 December 2015. In particular, note that:

- the theoretical amortisation of the loans was calculated on a daily basis in compliance with the provisions of regulation 575/2013; - an amortising subordinate instrument issued by Credito Valtellinese is subject to grandfathering for the equity instruments that do not constitute Government aid, according to which for 2015 this instrument can be included in own funds for 26.1 million, amount equal to 70% of the amount of the subordinate net of the amortisation.

In relation to the transitional regime, the item in question includes the positive filter related to the inclusion of unrealised gains on AFS securities of EUR 13.4 million. More specifically, below is the list of subordinated liabilities issued by Credito Valtellinese and by its subsidiaries included in Tier 2 capital. By deducting from the total shown below the limit related to the repurchases - for which authorisation was requested to Bank of Italy - we obtain the amount of subordinated liabilities included in Tier 2 capital of consolidated own funds.

293

Coupon rate Early and any Coupon rate and any Maturity Original amount Contribution to the Issuer Identification code Issue date repayment Currency Grandfathering correlated correlated index date in currency unit regulatory capital as from index

Credito Valtellinese IT0004593296 Floating rate Euribor 6m + 1.6% 30/03/2010 30/03/2017 30/03/2013 EUR Yes 150,000,000 26,142,271

Credito Valtellinese IT0004734486 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 6,000,000 594,417

Credito Valtellinese IT0004734502 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 5,000,000 495,348

Credito Valtellinese IT0004735053 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 10,000,000 990,695

Credito Valtellinese IT0004735913 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 10,000,000 990,695

Credito Valtellinese IT0004736432 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 15,000,000 1,486,043

Credito Valtellinese IT0004762859 Fixed rate 4.25% 02/11/2011 02/11/2016 EUR No 44,000,000 7,393,541

Credito Valtellinese IT0004763089 Floating rate Euribor 3m + 2.5% 15/09/2011 15/09/2016 EUR No 30,000,000 4,252,874

Credito Valtellinese IT0004763097 Fixed rate 4.25% 15/09/2011 15/09/2016 EUR No 55,000,000 7,796,935

Credito Valtellinese IT0004763105 Fixed rate 4.25% 15/09/2011 15/09/2016 EUR No 15,000,000 2,126,437

Credito Valtellinese IT0004847957 Fixed rate 5.25% 28/09/2012 28/09/2017 EUR No 125,000,000 43,606,243

Credito Valtellinese IT0004975899 Fixed rate 3.75% 30/12/2013 30/12/2018 EUR No 170,000,000 101,944,140

Credito Valtellinese XS1095536899 Fixed rate 4.70% 04/08/2014 04/08/2021 EUR No 100,000,000 100,000,000

294 Coupon rate Early and any Coupon rate and any Maturity Original amount Contribution to the Issuer Identification code Issue date repayment Currency Grandfathering correlated correlated index date in currency unit regulatory capital as from index

Credito Siciliano IT0004734494 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 15,000,000 1,486,043

Credito Siciliano IT0004762867 Fixed rate 4.25% 15/09/2011 15/09/2016 EUR No 30,000,000 4,252,874

Credito Siciliano IT0004870181 Fixed rate 4.50% 21/12/2012 21/06/2018 EUR No 30,000,000 14,835,706

Credito Siciliano IT0004981186 Fixed rate 3.75% 30/12/2013 30/12/2018 EUR No 10,000,000 5,996,714

Cassa di Risparmio di Fano IT0004871940 Fixed rate 4.50% 28/11/2012 28/11/2017 EUR No 10,000,000 3,822,563

Total 830,000,000 328,213,539

The IT0004593296 subordinated issue at 31 December 2015 has a nominal value of EUR 60 million, whereas for the other subordinated bonds the original amount of issue coincides with the nominal value at 31 December 2015.

295

B. QUANTITATIVE INFORMATION

31/12/2015 31/12/2014

A. Common Equity Tier 1 capital (CET1) before the application of prudential filters 2,206,878 2,077,979 of which instruments of CET1 subject to transitional provisions - - B. CET 1 prudential filters (+/-) -172 -65 C. CET1 gross of elements to be deducted and of the effects of the transitional 2,206,706 2,077,914 regime (A+/-B) D. Elements to be deducted from CET1 119,077 238,463 E. Transitional regime - Impact on CET1 (+/-), including minority interests subject -53,292 -14,570 to transitional provisions

F. Total Common Equity Tier 1 capital (CET1) (C-D+/-E) 2,034,337 1,824,881

G. Additional Tier 1 capital (AT1) gross of elements to be deducted and of the 486 - effects of the transitional regime of which instruments of AT1 subject to transitional provisions - - H. Elements to be deducted from AT1 - - I. Transitional regime - Impact on AT1 (+/-), including the instruments issued by filiations and included in AT1 due to transitional provisions -292 - L. Total Additional Tier 1 capital (AT1) (G-H+/-I) 194 -

M. Tier 2 capital (T2) gross of elements to be deducted and of the effects of 296,755 497,339 transitional regime of which instruments of T2 subject to transitional provisions 26,142 53,845 N. Elements to be deducted from T2 - - O. Transitional regime - Impact on T2 (+/-), including the instruments issued by 13,268 2,967 filiations and included in T2 due to transitional provisions P. Total Tier 2 capital (T2) (M-N+/-O) 310,023 500,306 Q. Total own funds (F+L+P) 2,344,554 2,325,187

Items “E” and “I” of 31 December 2014 included the amounts relating to the surplus of the loss for the year from AT1 to CET1 due to the application of the transitional regime envisaged by CRR. The latter allows to consider only 20% of the loss for the year in the calculation of the Common equity tier 1 capital and to include the remaining part in Tier 1 capital if the loss is considered significant. As established by regulation 680/2013, in the presence of transitional provisions that provide for the deduction from Tier 1 capital and if this is not enough to offset this amount, the excess amount is deducted from the Common equity tier 1 capital.

It should be noted that starting from 2013, as communicated by the Bank of Italy on 9 May 2013, the recognition in the regulatory capital of the benefits associated with the exemptions following the initial exemption of the same goodwill - carried out within the same group at the consolidated level or the same intermediary on an individual basis - occur only when the related DTA are transformed into current taxation. The transformation occurred in full in 2015 following the conversion of the DTA in tax asset resulting from losses recorded by Group banks in 2014.

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2.3 - Capital adequacy

A. QUALITATIVE INFORMATION

At 31 December 2015, the ratio between Common equity tier 1 capital and risk-weighted assets stood at 13.14%, the ratio between Tier 1 capital and risk-weighted assets stood at 13.14%, whereas the ratio between total own funds and risk-weighted assets stood at 15.15%. Both values meet the limits defined by the supervisory regulations mentioned in the previous paragraph.

In order to calculate the equity requirements with respect to the credit risk, the Bank uses the standardised method. This method subdivides exposures into different classes (portfolios) in accordance with the type of counterparty, i.e. the technical characteristics of the relationship or the manner in which this is carried out, and the application of different weighting coefficients to each portfolio. To this effect, the regulation has identified 16 exposure classes:

- exposures to or guaranteed by central governments and central banks;

- exposures to or guaranteed by regional governments and local authorities; - exposures to or guaranteed by public entities;

- exposures to or guaranteed by multilateral development banks; - exposures to or guaranteed by international organisations;

- exposures to or guaranteed by supervised intermediaries; - exposures to or guaranteed by companies; - retail exposures;

- exposures guaranteed by property; - exposures in default;

- high-risk exposures; - exposures in the form of guaranteed bank bonds;

- short-term exposures to companies or supervised intermediaries; - OEIC;

- exposures in equity instruments; - other exposures.

The most important segments for the Group are the following: exposures to or guaranteed by central governments and central banks, exposures to or guaranteed by companies, exposures guaranteed by property, retail exposures. In this regard, it should be mentioned that, in accordance with the European Regulation no. 575/2013, different weighting coefficients are applied to each exposure class in relation to different levels of risk defined by the supervisory regulations.

The new prudential supervisory regulations for banks provide that credit institutes may determine the weighting coefficients to calculate the capital requirements to meet credit risk as part of the standardised method on the basis of the creditworthiness valuations issued by external agencies that value creditworthiness (the “ECAI - External Credit Assessment Institutions”), recognised by the Bank of Italy. As from April 2013, the DBRS agency was used for the banks of the Group with reference to the following portfolios:

297

- exposures to or guaranteed by central governments and central banks;

- exposures to or guaranteed by international organisations; - exposures to or guaranteed by multilateral development banks.

For “companies and other parties portfolio”, the ratings of Cerved Group S.p.A. were used. The Group opted to use the standard method to calculate the capital requirements to meet market risks, while the Traditional Standardised Approach (TSA) was adopted for the operational risk for all the companies of the Group.

B. QUANTITATIVE INFORMATION

Categories/Amounts 31/12/2015 31/12/2014 31/12/2015 31/12/2014

Weighted Non-weighted amounts amounts/requirements A. RISK ASSETS A.1 Credit and counterparty risk 26,097,718 28,908,760 14,021,425 15,135,741 1. Standardised approach 26,078,872 28,908,760 14,016,649 15,135,741 2. Internal rating based approach - - - - 2.1 Base - - - - 2.2 Advanced - - - - 3. Securitisations 18,846 - 4,776 - B. REGULATORY CAPITAL REQUIREMENTS B.1 Credit and counterparty risk X X 1,121,714 1,210,859 B.2 Credit valuation adjustment risk X X 2,248 2,353 B.3 Settlement risk X X - - B.4 Market risks X X 1,126 1,406 1. Standardised approach X X 1,126 1,406 2. Internal models X X - - 3. Concentration risk X X - - B.5 Operational risk X X 113,193 116,200 1. Base method X X - - 2. Standardised method X X 113,193 116,200 3. Advanced method X X - - B.6 Other calculation elements X X - - B.7 Total capital requirements X X 1,238,281 1,330,818 C. RISK ASSETS AND CAPITAL RATIOS C.1 Risk-weighted assets X X 15,478,506 16,635,237 C.2 Common equity tier 1 capital / Risk -weighted assets X X 13.14% 10.97% (CET1 capital ratio) C.3 Tier 1 Capital/Risk -weighted assets X X 13.14% 10.97% (TIER 1 capital ratio) C.4 Total own funds / Risk -weighted assets X X 15.15% 13.98% (Total capital ratio)

At 31 December 2015, risk-weighted assets amounted to EUR 15,479 million, compared to EUR 16,635 million at 31 December 2014.

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PART G – BUSINESS COMBINATIONS

SECTION 1 – OPERATIONS CARRIED OUT DURING THE YEAR

1.1 Business combinations During the financial year, no business combinations were carried out.

SECTION 2 – TRANSACTIONS CARRIED OUT AFTER THE REPORTING DATE

2.1 Business combinations No business combination was carried out after the end of the year.

SECTION 3 – RETROSPECTIVE ADJUSTMENTS No retrospective adjustments were carried out.

299 PART H - RELATED PARTY TRANSACTIONS

Related party transactions are mainly regulated:

- by the “Related Party Transaction Regulation” adopted by Consob with resolution no. 17221 of 12 March 2010, as amended, (hereinafter also the “Consob Regulation”);

- by the provisions of Article 136 of the Consolidated Banking Act - as amended by Italian Law 221/2012 - on obligations of banking representatives;

- by the supervisory provisions issued by the Bank of Italy on risk assets and conflicts of interest of banks and banking groups with respect to “Associated Parties”, provisions that complement what is provided by the Consob regulation.

The Policy describes, in relation to the operational features and the strategies of the Bank and of the Group, the business segments and the types of business relations, also other than those implying the assumption of risk assets, in relation to which conflicts of interest may arise, as well as the safeguards inserted in the organisational structures and in the internal control system to ensure constant compliance with prudential limits and the above decision-making procedures. The document also summarises the principles and rules applicable to transactions with associated parties that were used for the preparation of the relevant Procedures.

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1. Information on remuneration of key management personnel

Information on remuneration of key management personnel is indicated below.

2015 a) short-term benefits (*) 6,464 b) post-employment benefits 342 c) other long-term benefits - d) termination benefits 3,703 e) share-based payments - Total 10,509

(*) The amount indicated includes payments to Directors and to the Board of Statutory Auditors of EUR 2,735 thousand.

2. Information on related party transactions

On the basis of the instructions of IAS 24 applied to the organisational and governance structure of the Bank and of the Credito Valtellinese Banking Group, the following natural persons and corporate bodies are considered related parties: - subsidiaries, companies over which the Parent directly or indirectly exercises control, as defined by IFRS 10; - associates, companies over which the Parent directly or indirectly exercises significant influence, as defined by IAS 28 and their subsidiaries; - companies subject to joint control, companies in which the Parent directly or indirectly exercises joint control, as defined by IFRS 11; - key management personnel and directors and statutory auditors, namely Directors, Statutory Auditors, the General Manager, the Co-General Manager and Deputy General Managers of the parent and of the companies belonging to the Group; - other related parties, which include: • immediate family members - relatives until the second degree of kinship and the spouse or common law spouses as well as their children - of key management personnel and Directors and statutory auditors as defined above; • subsidiaries subject to joint control by key management personnel and supervisory authorities, as well as their immediate family members, as defined above; • pension funds established by companies of the Group.

Related party transactions, both intragroup and with parties not belonging to the Creval Group, are regulated at market or standard conditions.

In particular, the economic effects of the transaction between the companies of the Group are regulated on the basis of specific contractual agreements that, with the main objective of optimising synergies and economies of scale and purpose at Group level, refer to long-term objective and constant parameters, distinguished by material transparency and fairness. The quantification of the expected fees for services was defined and formalised according to standard parameters that take into account actual utilisation by each user company.

301

The Board of Directors is exclusively responsible for the definition of intragroup contractual agreements and approval and possible amendment of the related economic conditions. Related party transactions with parties other than companies in the Credito Valtellinese Group are part of normal banking activities and are generally regulated at arm’s length for specific transactions, or aligned to the most favourable measure that may have been agreed for employees. In relation to the specific business, the provisions of Article 136 of the Consolidated Banking Act on obligations of banking representatives also apply to the companies. No atypical or unusual transactions that impacted significantly on the financial position or results of operations of the company have taken place during year. Statement of financial position data at 31 December 2015 and income statement data of 2015 with regard to related parties as defined above in accordance with IAS 24 as well as their percentage impact on the corresponding financial statements data are provided below. The impact of transactions completed with Group companies has not been included, as their line- by-line consolidation requires the netting of intragroup balances and transactions. In particular, note that, as a result of the already mentioned transaction whose subject matter was the sale of 18.4% of Istituto Centrale delle Banche Popolari in December, only the income statement data concerning transactions carried out in 2015 with the I.C.B.P.I. Group was entered in the following tables.

31/12/2015 COMPANIES EXECUTIVES OTHER SUBJECT AND % RELATED RELATED PARTY TRANSACTIONS ASSOCIATES TO JOINT CONTROL INCIDENCE PARTIES CONTROL BODIES STATEMENT OF FINANCIAL POSITION ITEMS 70. Loans and receivables with customers 11,732 - 1,816 117,997 0.7 160. Other assets 173 - - 84 0.1 TOTAL ASSETS 11,905 - 1,816 118,081 20. Due to customers 9,473 118 2,811 24,962 0.2 30. Securities issued - - 1,250 4,125 0.1 100. Other liabilities - - 41 36 0.0 120. Provisions for risks and charges - - 3,703 - 3.4 TOTAL LIABILITIES AND EQUITY 9,473 118 7,805 29,123

Guarantees given 668 - - 22,203 2.8 TOTAL GUARANTEES AND COMMITMENTS 668 - - 22,203

302

2015 COMPANIES EXECUTIVES OTHER SUBJECT AND % RELATED RELATED PARTY TRANSACTIONS ASSOCIATES TO JOINT CONTROL INCIDENCE PARTIES CONTROL BODIES INCOME STATEMENT ITEMS Net interest income 469 - (19) 2,804 0.7 Net fee and commission income 11,161 - 44 326 4.1 Administrative expenses (8,976) - (10,509) (89) 3.5 Other operating net income 9,801 - - 1 12.7 TOTAL INCOME STATEMENT 12,455 - (10,484) 3,042

Related party transactions carried out in the year include the following transactions:

- the multi-originator securitisation carried out in May 2009, paid in advance by means of the Special purpose entity Quadrivio Finance S.r.l., through (i) the repurchase of residual securitised loans by Credito Valtellinese S.C., Credito Siciliano S.p.A. and Banca Popolare di Cividale S.c.p.A., (ii) the early repayment of securities and (iii) the termination of the securitisation contracts;

- the acquisition by Credito Valtellinese of bad positions and of equity investments by Finanziaria San Giacomo before selling the company to the Cerved Group;

- the capital increase carried out by the subsidiary Credito Siciliano. On 10 July 2015, the exercise period of the option rights related to the subscription of maximum 3,549,090 Credito Siciliano ordinary shares came to an end. Credito Valtellinese S.c. subscribed all the shares pertaining to it by option and exercised the pre-emption right on the entire unsubscribed portion. As part of the capital increase, Credito Valtellinese subscribed all in all 3,548,110 shares at the price of EUR 14 each;

- the subscription by Credito Valtellinese of a convertible bond loan issued by Cassa di Risparmio di Fano totalling EUR 10 million.

Most significant transactions

For the transactions of greatest importance, as defined in the Consob Regulation, the procedural regulations and the reporting obligations specified by the RPT Procedures were applied. No most significant transactions were carried out in 2015. Note that during December, the RPT Committees of Carifano and Credito Siciliano expressed their favourable opinion on the most significant RPTs relating to the liquidation of the securitisation transaction “multi – originator” of performing loans carried out with the special purpose entity Quadrivio SME 2012 Srl, the conclusion of which, to be carried out through the repurchase of residual loans, is expected in the first quarter of 2016.

303

PART I – SHARE-BASED PAYMENTS

A. QUALITATIVE INFORMATION

No share-based payment agreements were put in place.

304

PART L - SEGMENT REPORTING

In compliance with IFRS 8, segment reporting is prepared on the basis of elements used by management to make operational and strategic decisions. The following operating segments were identified for the Credito Valtellinese Group:

- The Market sector: generates its revenue from the production and sale of lending products and services, investment and transfer services for the Group’s customers (traditionally households, trades, professionals and SMEs;

- The Specialised Company sector: generates its revenue from the distribution of bancassurance products;

- The Corporate Centre sector: monitors the management and development of Information and Communication Technology and manages the Group’s real estate assets.

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The summary statements are provided below:

(in thousands of EUR) Market Specialised Companies 31/12/2015 31/12/2014 Change 31/12/2015 31/12/2014 Change STATEMENT OF FINANCIAL POSITION DATA Loans and receivables with customers 19,038,452 18,994,692 0.2% 8,023 6,210 29.2% Loans and receivables with banks 713,089 839,489 -15.1% - - - Treasury securities and equity investments 5,216,059 6,763,246 -22.9% - - - Non -current assets held for sale and disposal groups 275 3,191 -91 .4% Due to banks 2,040,112 4,837,374 -57.8% - - -

Direct funding 21,631,463 20,687,949 4.6% 63,493 57,620 10.2% - Due to customers 17,548,776 15,495,056 13.3% 63,493 57,620 10.2% - Securities issued 4,082,687 5,192,893 -21.4% - - - Indirect funding 12,092,772 11,963,332 1.1% - - - ORGANISATIONAL DATA Personnel 3,617 3,775 -4.2% 37 35 5.7% (in thousands of EUR) Corporate Centre Other Activities 31/12/2015 31/12/2014 Change 31/12/2015 31/12/2014 Change

STATEMENT OF FINANCIAL POSITION DATA

Loans and receivables with customers 3,275 3,961 -17.3% - - - Loans and receivables with banks ------Treasury securities and equity investments - - - 165,711 286,801 -42.2% Non -current assets held for sale and disposal groups - - - 2,203 - n.s. Due to banks ------

Direct funding ------Due to customers ------Securities issued ------Indirect funding ------ORGANISATIONAL DATA Personnel 467 462 1.1% 2 3 -33.3%

306

(in thousands of EUR) Market Specialised Companies 2015 2014 Change 2015 2014 Change INCOME STATEMENT DATA

Net interest income 464,995 480,061 -3.1% 69 193 -64.2%

Net fee and commission income (*) 248,522 241,112 3.1% 32,021 27,620 15.9%

Dividends and similar income ------

Net gains on equity-accounted investments ------

Net trading and hedging income (expense) and profit 72,007 118,721 -39.3% - - - (loss) on sales/repurchases

Other operating net income 9,234 6,913 33.6% 250 116 115.5%

Operating income 794,758 846,807 -6.1% 32,340 27,929 15.8%

Personnel expenses (274,186) (318,703) -14.0% (2,807) (3,295) -14.8%

Other administrative expenses (152,880) (119,327) 28.1% (652) (957) -31.9%

Depreciation/amortisation and net impairment losses on property, equipment and investment property and (43,226) (37,707) 14.6% (11) (13) -15.4% intangible assets

Operating costs (470,292) (475,737) -1.1% (3,470) (4,265) -18.6%

Operating profit 324,466 371,070 -12.6% 28,870 23,664 22.0%

Net impairment losses on loans and receivables and (440,348) (658,068) -33.1% - 2,977 n.s. other financial assets

Net accruals to provisions for risks and charges (17,910) (4,468) n.s. - (97) n.s.

Goodwill impairment losses (70,194) (131,344) -46.6% - - -

Net gains on sales of investments - 10,662 n.s. - 786 n.s.

Pre-tax profit (loss) from continuing (203,986) (412,148) -50.5% 28,870 27,330 5.6% operations

Post-tax profit (loss) from discontinued operations 20,070 (1,125) n.s. - - -

(*) Data relating to the previous financial year were restated for a consistent comparison for what concerns the method of representation of the commissions of the specialised companies segment and market segment.

307

Corporate Centre Other Activities (in thousands of EUR) 2015 2014 Change 2015 2014 Change

INCOME STATEMENT DATA

Net interest income (511) (562) -9.1% (45) (530) -91.5%

Net fee and commission income - - - - -

Dividends and similar income - - - 2,017 1,345 50.0%

Net gains on equity-accounted investments - - - 10,972 20,409 -46.2%

Net trading and hedging income (expense) and profit - - - 2,763 (71) n.s. (loss) on sales/repurchases

Other operating net income 12,830 8,858 44.8% - - -

Operating income 12,319 8,296 48.5% 15,707 21,153 -25.7%

Personnel expenses (17,900) (20,303) -11.8% (143) (243) -41.2%

Other administrative expenses (47,973) (48,265) -0.6% (126) (296) -57.4%

Depreciation/amortisation and net impairment losses on property, equipment and investment property and (10,906) (9,837) 10.9% - - - intangible assets

Operating costs (76,779) (78,405) -2.1% (269) (539) -50.1%

Operating profit (64,460) (70,109) -8.1% 15,438 20,614 -25.1%

Net impairment losses on loans and receivables and (102) - n.s. (1,892) (1,622) 16.6% other financial assets

Net accruals to provisions for risks and charges 255 - n.s. - - -

Goodwill impairment losses ------

Net gains on sales of investments 38 3,037 -98.7% 250,027 (25) n.s.

Pre-tax profit (loss) from continuing operations (64,269) (67,072) -4.2% 263,573 18,967 n.s.

Post-tax profit (loss) from discontinued operations ------

Market sector

The market sector is the core business of the Group, as it includes all the (lending, investment and transfer) products and services offered to Group customers, traditionally represented by households, trades, professionals and small and medium-sized enterprises.

During 2015, the market sector generated operating income of EUR 794.8 million. The segment accounts for 92.9% of the operating income of the Group. Operating costs stood at EUR 470.3 million whereas pre-tax loss from continuing operations amounted to EUR -204.0 million .

The direct funding of the market segment amounted to EUR 21,631 million. Indirect funding reached EUR 12,093 million. Loans and receivables with customers slightly increased (+0.2%) to EUR 19,038 million. At the end of the year, the market sector had 526 branches. There were 3,617 human resources employed in the segment, equal to 87.7% of the total employees of the Group.

308

Specialised Companies sector

The sector includes the distribution of bancassurance products.

During 2015, it generated operating income of EUR 32.3 million, accounting for 3.8% of Group operating income, and recorded pre-tax profit from continuing operations of EUR 28.9 million.

At the end of December, the resources for this sector totalled 37, i.e. about 0.9% of the Group’s total workforce.

Corporate Centre sector

The sector only includes operations of the Group’s special purpose entities (Creval Sistemi e Servizi and Stelline Real Estate).

Operating costs of the Corporate Centre sector amounted to EUR 76.8 million. The loss of the segment was EUR -64.3 million.

The employees of the sector amounted to 467, equal to about 11.3% of the Group’s workforce.

309

Other documents

310

Certification of the consolidated financial statements pursuant to Article 81 – ter of Consob Regulation no. 11971 of 14 May 1999, as amended

1. The undersigned, Miro Fiordi, as Managing Director, and Simona Orietti, as the Manager in charge of financial reporting of Credito Valtellinese S.c., also considering the provisions of article 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of 24 February 1998, hereby certify: • the adequacy, in relation to the business characteristics and • the effective application of administrative and accounting procedures for the formation of the consolidated financial statements, in the period 1 January - 31 December 2015.

2. The assessment of the adequacy and the actual application of the administrative and accounting procedures for the formation of the consolidated financial statements at 31 December 2015 is based on a model conceived by Credito Valtellinese S.c., in line with the “Internal Control - Integrated Framework (CoSO)” and with the “Control Objective for IT and Related Technologies (Cobit)”, which represent reference standards for the internal control system and for financial reporting in particular, generally accepted at international level.

3. We also certify that: 3.1 the consolidated financial statements: a) were prepared in compliance with applicable IFRS endorsed in the European Community pursuant to (EC) Regulation no. 1606/2002 of the European Parliament and Council, dated 19 July 2002; b) are consistent with accounting books and records; c) provide a true and fair view of the financial position and performance of the issuer and the group of companies included in the scope of consolidation;

3.2 the Report on operations include a reliable analysis of the performance and the result of operations, and the position of the issuer and companies included in the scope of consolidation, together with a description of the main risks and uncertainties to which they are exposed.

Sondrio, 5 February 2016

Manager in charge of financial The Managing Director reporting

Miro Fiordi Simona Orietti

311

Financial statements of Credito Valtellinese

314 FINANCIAL STATEMENT HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS

STATEMENT OF FINANCIAL POSITION DATA 31/12/2015 31/12/2014 Change

(in thousands of EUR) Loans and receivables with customers 15,080,244 14,986,134 0.63% Other financial assets and liabilities 5,094,691 6,531,761 -22.00% Equity investments 457,129 507,457 -9.92% Total assets 23,150,195 24,961,833 -7.26% Direct funding from customers 17,291,235 16,163,823 6.97% Indirect funding from customers 10,126,955 10,178,143 -0.50% of which: - Managed funds 5,641,262 4,881,366 15.57% Total funding 27,418,190 26,341,966 4.09% Equity 2,251,214 1,971,585 14.18%

SOLVENCY RATIOS 31/12/2015 31/12/2014 Common Equity Tier 1 capital / Risk-weighted assets (CET1 capital ratio) 17.19% 13.94% Tier 1 capital/Risk-weighted assets (Tier 1 capital ratio) 17.19% 13.94% Total own funds/Risk-weighted assets (Total capital ratio) 19.45% 17.31%

FINANCIAL STATEMENT RATIOS 31/12/2015 31/12/2014 Indirect funding from customers / Total funding 36.9% 38.6% Managed funds / Indirect funding from customers 55.7% 48% Direct funding from customers/ Total liabilities 74.7% 64.8% Customer loans / Direct funding from customers 87.2% 92.7% Customer loans / Total assets 65.1% 60%

CREDIT RISK 31/12/2015 31/12/2014 Change Net bad loans (in thousands of EUR) 935,416 779,407 20.02% Other net doubtful loans (in thousands of EUR) 1,668,271 1,643,087 1.53% Net non-performing loans (in thousands of EUR) 2,603,687 2,422,494 7.48% Net bad loans/Loans and receivables with customers 6.20% 5.20% Other net doubtful loans/Loans and receivables with customers 11.06% 10.96% Net non-performing loans/Loans and receivables with customers 17.27% 16.16% Coverage ratio of bad loans 55.72% 56.13% Coverage ratio of other doubtful loans 24.60% 20.02% Coverage ratio of net non-performing loans 39.80% 36.77% Cost of credit (*) 2.40% 3.61%

(*) Calculated as the ratio between the net impairment losses due to deterioration of loans and year-end loans.

315

ORGANISATIONAL DATA 31/12/2015 31/12/2014 Change

Number of employees 2,570 2,649 -2.98% Number of branches 350 363 -3.58%

INCOME STATEMENT DATA 2015 2014 Change (in thousands of EUR)

Net interest income 341,667 357,588 -4.45% Operating income 631,093 679,278 -7.09% Operating costs (400,882) (391,087) 2.50% Net operating profit 230,211 288,191 -20.12% Pre-tax profit (loss) from continuing operations 122,986 (436,449) -128.18 Post-tax profit (loss) from continuing operations 195,079 (342,529) -156.95 Loss (Profit) for the year 225,092 (342,529) -165.71

OTHER FINANCIAL INFORMATION 2015 2014 Cost/Income ratio (*) 57.1% 53.4% Personnel expenses/Number of employees (in thousands of EUR) (**) 71 70

316

FINANCIAL STATEMENTS

317

STATEMENT OF FINANCIAL POSITION (in EUR)

ASSETS 31/12/2015 31/12/2014 10. Cash and cash equivalents 114,710,041 133,552,425 20. Financial assets held for trading 49,042,137 57,167,027 40. Available -for -sale financial assets 5,318,340,882 6,789,571,881 60. Loans and receivables with banks 992,878,596 1,224,995,136 70. Loans and receivables with customers 15,080,243,992 14,986,134,405 100. Equity investments 457,128,536 507,457,191 110. Property, equipment and investment property 344,165,605 340,531,015 120. Intangible assets - 90,424,929 of which: - goodwill - 70,193,714 130. Tax assets 602,139,793 658,978,173 a) current 58,721,125 101,665,244 b) deferred 543,418,668 557,312,929 b 1) as per Italian Law 214/2011 473,290,109 520,366,076 140. Non-current assets held for sale and disposal groups 1,893,606 15,000,000 150. Other assets 189,652,025 158,021,040 Total assets 23,150,195,213 24,961,833,222

LIABILITIES AND EQUITY 31/12/2015 31/12/2014 10. Due to banks 2,792,237,301 5,870,827,656 20. Due to customers 14,291,211,731 12,278,108,857 30. Securities issued 3,000,022,650 3,885,713,778 40. Financial liabilities held for trading 3,196,050 6,259,789 60. Hedging derivatives 269,495,644 308,717,718 80. Tax liabilities: 22,605,517 58,069,920 a) current 1,448,839 55,221,300 b) deferred 21,156,678 2,848,620 100. Other liabilities 407,437,139 467,693,439 110. Post employment benefits 25,106,476 29,976,371 120. Provisions for risks and charges: 87,669,112 84,880,871 a) pension and similar obligations 34,142,110 32,611,883 b) other provisions 53,527,002 52,268,988 130. Valuation reserves 59,298,871 4,766,629 160. Reserves 81,101,496 112,109,629 170. Share premium reserve 39,003,860 350,520,266 180. Share capital 1,846,816,830 1,846,816,830 190. Treasury shares (-) -99,812 -99,812 200. Profit (Loss) for the year (-/+) 225,092,348 -342,528,719 Total liabilities and equity 23,150,195,213 24,961,833,222

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INCOME STATEMENT (in EUR)

ITEMS 2015 2014

10. Interest and similar income 539,318,597 643,899,717

20. Interest and similar expense (197,651,286) (286,311,421)

30. Net interest income 341,667,311 357,588,296

40. Fee and commission income 207,644,046 208,797,868

50. Fee and commission expense (22,111,675) (32,369,899)

60. Net fee and commission income 185,532,371 176,427,969

70. Dividends and similar income 10,793,022 12,066,669

80. Profits (Losses) on trading (13,923,891) 811,402

90. Fair value adjustments in hedge accounting (526,972) (1,098,119)

100. Profit (loss) on sale or repurchase of: 88,799,019 118,471,950 a) loans and receivables 774,698 (647,868) b) available-for-sale financial assets 88,859,581 119,364,234 d) financial liabilities (835,260) (244,416)

120. Total income 612,340,860 664,268,167

130. Net impairment losses on: (365,362,215) (548,039,997) a) loans and receivables (362,551,651) (540,955,814) b) available-for-sale financial assets (1,914,317) (1,620,379) d) other financial transactions (896,247) (5,463,804)

140. Net financial income 246,978,645 116,228,170

150. Administrative expenses: (405,675,631) (413,357,034) a) personnel expenses (188,794,752) (220,695,753) b) other administrative expenses (216,880,879) (192,661,281)

160. Net accruals to provisions for risks and charges (13,916,104) (3,454,989)

170. Depreciation and net impairment losses on property, (15,279,850) (14,734,833) equipment and investment property

180. Amortisation and net impairment losses on intangible assets (20,231,215) (2,929,010)

190. Other operating net income 59,056,398 69,248,094

200. Operating costs (396,046,402) (365,227,772)

210. Net gains (losses) on equity investments 342,242,605 (112,289,707)

230. Goodwill impairment losses (70,193,714) (75,000,000)

240. Net gains (losses) on sales of investments 5,333 (159,318)

250. Pre-tax profit (loss) from continuing operations 122,986,467 (436,448,627)

260. Income taxes 72,092,616 93,919,908

270. Post-tax profit (loss) from continuing operations 195,079,083 (342,528,719)

280. Post-tax profit (loss) from discontinued operations 30,013,265 -

290. Profit (Loss) for the year 225,092,348 (342,528,719)

319

STATEMENT OF COMPREHENSIVE INCOME (in EUR)

Items 2015 2014 10. Profit (Loss) for the year 225,092,348 (342,528,719) Other comprehensive income net of income taxes without reclassification to profit or loss 40. Defined-benefit plans (2,190,582) (5,587,543) Other comprehensive income net of income taxes with reclassification to profit or loss 100. Available-for-sale financial assets 56,722,824 50,052,138 130. Total other comprehensive income net of income taxes 54,532,242 44,464,595 140. Comprehensive income (Item 10+130) 279,624,590 (298,064,124)

320

STATEMENT OF CHANGES IN EQUITY (in EUR)

Allocation of profits Changes during the year Equity transactions

Comprehensive Dividends and Extraordinary Change in Derivatives income Balance Change in opening Balance other Changes in Issue Purchase of dividend equity on Equity at at 31/12/2014 balances at 1/1/2015 Reserves allocations reserves of new shares treasury shares distribution instrumentstreasury shares Stock options 31/12/2015 31/12/2015 Share capital: a) ordinary shares 1,846,816,830 1,846,816,830 1,846,816,830 b) other shares Share premium reserve 350,520,266 350,520,266 - 300,861,480 - 10,654,926 39,003,860 Reserves: a) income related 112,978,117 112,978,117 - 31,880,802 4,181 81,101,496 b) other - 868,488 - 868,488 - 9,786,437 10,654,925 - Valuation reserves: 4,766,629 4,766,629 54,532,242 59,298,871 Equity instruments Treasury shares - 99,812 - 99,812 - - 99,812 Profit (loss) for the year - 342,528,719 - 342,528,719 342,528,719 225,092,348 225,092,348 Equity 1,971,584,823 1,971,584,823 4,180 279,624,590 2,251,213,593

Allocation of profits Changes during the year Equity transactions

Dividends and Extraordinary Change in Derivatives Equity at Change in opening Balance other Changes in Issue Purchase of dividend equity on Comprehensive income Equity at Equity 31/12/2013 balances at 1/1/2014 Reserves allocations reserves of new shares treasury shares distribution instrumentstreasury shares Stock options 31/12/2014 31/12/2014 Share capital: a) ordinary shares 1,527,656,081 1,527,656,081 319,160,749 1,846,816,830

b) other shares Share premium reserve 257,687,165 257,687,165 -2,235,460 95,068,561 350,520,266

Reserves: a) income related 111,944,482 111,944,482 1,009,752 23,883 112,978,117

b) other 2,397,579 2,397,579 5,591,633 -8,857,700 -868,488 Valuation reserves - 39,697,966 - 39,697,966 44,464,595 4,766,629 Equity instruments Treasury shares -787,281 -787,281 1,962,502 -1,275,033 -99,812 Profit (loss) for the year 1,009,752 1,009,752 -1,009,752 -342,528,719 -342,528,719 Equity 1,860,209,812 1,860,209,812 3,380,056 407,334,112 -1,275,033 -298,064,124 1,971,584,823

321

STATEMENT OF CASH FLOWS - DIRECT METHOD (in EUR)

2015 2014 A. OPERATING ACTIVITIES 1. Cash flow from operating activities 253,035,141 222,139,724 - interest income received (+) 580,866,141 605,073,605 - interest expense paid (-) -248,995,832 -260,228,398 - dividends and similar income (+) 2,000,576 1,305,522 - net fee and commission income (+/-) 185,111,200 177,121,788 - personnel expenses (-) -196,167,088 -201,342,026 - other costs (-) -183,681,358 -159,373,058 - other revenue (+) 140,779,496 171,273,802 - taxes (-) -36,373,695 -111,691,511 - costs/revenues related to disposal groups

net of tax (+/-) 9,495,701

2. Cash flow generated/used by financial assets 1,275,897,418 -1,909,714,618 - financial assets held for trading 5,211,128 26,144,454 - available-for-sale financial assets 1,503,007,360 -2,629,056,516 - loans and receivables with customers -448,595,356 506,550,850 - loans and receivables with banks: on sight 15,194,200 17,629,364 - loans and receivables with banks: other 217,187,853 126,539,035 - other assets -16,107,767 42,478,195 3. Cash flow generated/used by financial liabilities -1,900,382,277 1,270,435,349 - due to banks: on sight -209,512,956 -379,154,905 - due to banks: other -2,835,054,782 1,563,626,705 - due to customers 2,019,203,293 114,962,801 - securities issued -873,249,158 952,513 - financial liabilities held for trading -3,017,300 -7,573,545 - other liabilities 1,248,626 -22,378,220 Cash flow from operating activities -371,449,718 -417,139,545 B. INVESTING ACTIVITIES

1. Cash flow generated by 409,117,853 14,756,993 - sales of equity investments 401,064,639 3,785,611 - dividends from equity investments 8,792,446 10,761,147 - sales of property, equipment and investment property -739,232 210,235 2. Cash flow used for -56,510,519 -14,088,549 - purchase of equity investments -49,938,311 -614,112 - purchase of property, equipment and investment property -6,572,208 -13,474,437 Cash flow from investing activities 352,607,334 668,444 C. FINANCING ACTIVITIES

- issue/repurchase of treasury shares - 406,059,078 Cash flow from (used in) financing activities - 406,059,078 CASH FLOW GENERATED/USED DURING THE YEAR -18,842,384 -10,412,023 Key: (+) generated (-) used

322

RECONCILIATION

Financial statement items 2015 2014 Cash and cash equivalents at the beginning of the year 133,552,425 143,964,448 Net liquidity used during the year -18,842,384 -10,412,023 Cash and cash equivalents at the end of the year 114,710,041 133,552,425

Key: (+) generated (-) used

323

NOTES TO THE FINANCIAL STATEMENTS

324 PART A - ACCOUNTING POLICIES

A.1 - GENERAL INFORMATION

SECTION 1 - STATEMENT OF COMPLIANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS Pursuant to Article 4 of Italian Legislative Decree no. 38 of 28 February 2005, the financial statements of the Credito Valtellinese Group have been drawn up according to the IAS/lFRS issued by the International Accounting Standards Board (IASB) and endorsed by the European Union, including the related interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as per EC Regulation no. 1606 of 19 July 2002. The accounting standards applied in preparing these financial statements are those approved and in force at 31 December 2015, including the SIC and IFRIC interpretation documents. With regard to the standards included in the financial statements at 31 December 2014, it should be noted that the following came into force: - Commission Regulation (EU) 1361/2014 amending IFRS 3 “Business combination” with regard to the scope of application of the standard, IFRS 13 “Fair Value Measurement” related to the fair value measurement on a net basis of a portfolio of assets and liabilities and IAS 40 “ Investment property ” concerning its interrelation with IFRS 3; - Commission Regulation (EU) 634/2014 that approves IFRIC 21 Levies.

These amendments to IAS/IFRS apply as from the 2015 Financial Statements. There were no significant impacts due to their application.

However, as from 1 January 2015, the new definition of Non-performing loans came into force as a result of the approval, on 9 January 2015, of the European Commission of a specific “technical standard”, issued by the EBA (European Banking Authority) on 21 October 2013, related to the definition of Non-performing loans and Forbearance exposures (Exposures subject to granting). As a result of the approval, on 20 January 2015, the Bank of Italy published the update to Circular 272 that defines the reporting practices to be followed for the classification of credit quality as of 1 January 2015. In detail, the categories of performing loans, past due impaired, substandard loans, restructured loans and bad loans were replaced by the new categories of performing, past due non-performing, unlikely to pay and bad loans, by showing the “forborne” positions of each class. The comparative figures referring to 31 December 2014 were restated to include in the category of unlikely to pay exposures previously defined as substandard loans and restructured loans.

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1606/2002 of the European Parliament and Council with respect to International Accounting Standard IAS 19; • Regulation 2015/2113 of 23 November 2015 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Accounting Standards IAS 16 and 41; • Regulation 2015/2173 of 24 November 2015 amending regulation no. 1126/2008 of the Commission that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Financial Reporting Standard 11; • Regulation 2015/2231 of 2 December 2015 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Accounting Standards IAS 16 and 38; • Regulation 2015/2343 of 15 December 2015 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Financial Reporting Standards IFRS 5 and 7 and International Accounting Standards IAS 19 and 34; • Regulation 2015/2406 of 18 December 2015 amending regulation no. 1126/2008 that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Accounting Standard IAS 1; • Regulation 2015/2441 of 18 December 2015 amending regulation no. 1126/2008 of the Commission that adopts some international accounting standards in compliance with regulation no. 1606/2002 of the European Parliament and Council with respect to International Accounting Standard IAS 27. The Bank started an activity related to the assessment of impacts.

The new international accounting standards issued by IASB that will have a potential impact on the Bank - but that have not yet been approved by the European Union at the date of preparation of this Report - are IFRS 9 “Financial instruments”, IFRS 15 “Revenue from contracts with customers” and IFRS 16 “Leases”.

IFRS 9 “Financial instruments”

In July 2014, IASB issued IFRS 9 “Financial instruments”, accounting standard that will replace IAS 39 “Financial Instruments: Recognition and Measurement”. The review process of IAS 39 was divided in three phases: “classification and measurement”, “impairment” and “hedge accounting”. The “classification and measurement” of the financial assets will depend on the entity’s business model and on the cash flow characteristics of the financial instrument. These elements determine the measurement method of the financial instrument at amortised cost, at fair value through profit or loss or at fair value through other comprehensive income. In some cases, the classification and measurement results are similar to those resulting from the application of IAS 39 but differences may arise. The combined effect of the application of the business model and of the test on the cash flow characteristics of the instrument could result in different allocations between instruments measured at fair value and at amortised cost compared to IAS 39.

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It should also be noted that, for all financial assets, the separation of implicit derivatives is no longer required. The classification of financial liabilities does not change substantially compared to IAS 39. Gains and losses arising from the change in own creditworthiness are expected to be recognised in an equity reserve instead of through profit or loss for financial liabilities at fair value, as required by IAS 39. With reference to the impairment, the Standard provides a single model to be applied to all financial assets not measured at fair value through profit or loss. At the time of initial recognition, impairment losses are calculated based on the expected loss in 12 months. If there is a significant impairment compared to the initial recognition date, impairment losses are calculated based on the expected loss calculated over the entire life of the financial instrument. Based on these elements, the financial instruments are classified into three separate “stages”: • stage 1 includes performing financial instruments for which a significant impairment of the credit risk compared to the initial recognition date was not observed. The impairment is determined on the basis of an expected loss in one year (expected credit loss); • stage 2 includes performing financial instruments for which a significant impairment of the credit risk compared to the initial recognition date was observed. The impairment is determined on the basis of an expected loss on the residual maturity of the instrument (lifetime expected credit loss); • stage 3 includes the financial instruments with an objective evidence of impairment; they are classified as non-performing loans and measured analytically on the basis of the loss calculated on the residual maturity of the instrument.

The expected loss used must consider all available information, including information about past events, current conditions and forecasts of economic conditions. As a result, the impairment recognition will be more forward-looking and will result in an increase in impairment losses compared to what is currently required by IAS 39 (model based on incurred loss). Currently, it is not possible to reliably estimate the financial impacts resulting from the first application of the new principle. With reference to the issue of hedge accounting, the review of the standard aims to simplify the methods, creating a stronger link with risk management strategies. The standard does not regulate the macro hedge accounting that will be dealt with in a separate project. Moreover, on this matter, IFRS 9 provides for the possibility of using some accounting entries regulated in IAS 39. IFRS 9 requires the mandatory application as from 1 January 2018, with earlier application of all the principle or only the changes related to the accounting treatment of own credit for financial liabilities designated at fair value. During 2015, a project was started with the purpose of adapting the procedures and internal processes to the provisions introduced by the new accounting standard and defining the internal models for estimating the expected loss with a longer time horizon of 12 months and including the new variables required.

IFRS 15 “Revenue from contracts with customers”

In May 2014, IASB published IFRS 15 “Revenue from contracts with customers”. The standard, which replaces the previously issued standards and interpretations in the field (IAS 18 Revenue, IAS 11 Construction contracts, and the IFRIC 13 Customer loyalty programs, IFRIC 15 Agreements for the construction of real estate, IFRIC 18 Transfers of assets from customers

327 and SIC 31 Revenue — Barter transactions involving advertising services interpretations), must be applied as from 1 January 2018 and early application is permitted. The Standard introduces a single model for the recognition of revenues, applicable to all the commercial agreements, with the exception of lease contracts, insurance contracts and financial instruments that require the recognition of revenues according to the fee expected to receive against the assets and services provided. The new standard introduces a method divided into five “steps” to analyse the transactions and define the recognition of revenues with reference both to the timing and to their amount: identify the contract with a customer; identify the performance obligations in the contract; identify (if necessary, estimate) the consideration of the transaction; allocate the consideration of the transaction to contract performance obligations; revenue recognition based on the fulfilment of contract performance obligations. The Bank has not started yet an activity related to the assessment of impacts.

IFRS 16 Leases

In January 2016, IASB issued IFRS 16 “Leases”, to be applied as from 1 January 2019, which introduces new rules for representing lease contracts both for lessors and for lessees and that replaces the previously issued standards and interpretations in the field (IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC 15 Operating leases - Incentives and SIC 27 Evaluating the substance of transactions in the legal form of a lease). Leases are defined as a contract that grants the lessee the right to use an asset for a period of time in exchange for a consideration. IFRS 16 eliminates for the lessee the distinction between operating and financial leases and defines a new method of representation. The lessee must recognise a liability based on the present value of future rents recognised as an offsetting item under assets of the right to use the asset leased. The currently expected accounting rules are in force for the lessor. The Bank has not started yet an activity related to the assessment of impacts. However, as from 1 January 2015, the new definition of Non-performing loans came into force as a result of the approval, on 9 January 2015, of the European Commission of a specific “technical standard”, issued by the EBA (European Banking Authority) on 21 October 2013, related to the definition of Non-performing loans and Forbearance exposures (Exposures subject to granting). As a result of the approval, on 20 January 2015, the Bank of Italy published the update to Circular 272 that defines the reporting practices to be followed for the classification of credit quality as of 1 January 2015. In detail, the categories of performing loans, past due impaired, substandard loans, restructured loans and bad loans were replaced by the new categories of performing, past due non-performing, unlikely to pay and bad loans, by showing the “forborne” positions of each class. The comparative figures referring to 31 December 2014 were restated to include in the category of unlikely to pay exposures previously defined as substandard loans and restructured loans.

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SECTION 2 - BASIS OF PREPARATION

The report comprises the Statement of financial position, Income Statement, Statement of Comprehensive Income, Statement of changes in shareholders’ equity, Statement of cash flows and Notes to the financial statements and is accompanied by the Report on operations. The amounts reported in the Financial Statements are expressed in euros, while those in the Notes to the financial statements are in thousands of euros, unless otherwise indicated. The financial statements and the notes to the financial statements show, in addition to the amounts for the reporting period, also the comparatives at 31 December 2014. The separate financial statements at 31 December 2015 have been prepared in compliance with the instructions issued by the Bank of Italy within the scope of its regulatory function over the technical structure of financial statements of banks and financial institutions as provided by Legislative Decree 38/05 “Instructions for the preparation of the separate and consolidated financial statements of banks and financial companies that are parent companies of banking groups” (Provision of 22 December 2005 - circular no. 262 - 4th update of 15 December 2015). With the 4th update to the circular, the disclosure of the notes to the financial statements on “credit quality” was adapted to the new definitions of impaired financial assets, definitions that are in line with non-performing exposures and forborne exposures established by the European Commission with regulation 2015/227 on recommendation from the European Banking Authority. The tables related to tied up assets envisaged in Section 3 “Liquidity risk” were also eliminated in Part E Information on risks and related hedging policies, whereas rationalisation interventions were carried out on Part B Information on statement of financial position and on Part E Information on risks and related hedging policies of the notes to the financial statements. It is specified that, according to the circular, the disclosure of the notes to the financial statements on changes in gross exposures and impairment of forbearance exposures will be provided as from the 2016 financial statements.

The financial statements were drawn up by applying the general drafting standards provided under IAS 1, the financial reporting standards illustrated in part A.2 of the notes to the financial statements and in compliance with the general provisions included in the framework for the preparation and presentation of financial statements issued by the International Accounting Standards Board (IASB).

Content of the separate financial statements and of the notes to the financial statements

In the Statement of financial position, Income Statement and Statement of Comprehensive Income, drafted according to Bank of Italy’s regulation, the items equal to zero for the current year and for the previous year they have not been included. Expenses are presented in brackets in the Income Statement while there is no sign in front of revenues. In the Statement of Comprehensive Income, the negative amounts are reported in brackets. The Statement of Comprehensive Income presents the profit (loss) for the period as well as the other income components that are not recognised in the income statement but are recorded as a change in the equity valuation reserves. 329

The Statement of Changes in Equity presents the breakdown and changes that occurred in equity during the current and the previous year. The Statement of Cash Flows has been prepared according to the direct method, in which the main gross cash collection and disbursement items, i.e. without offsetting, are displayed. The cash flows for the year are divided into operating, investing and financing activities. In particular, the economic components as well as all financial assets and liabilities other than equity investments and held-to-maturity investments that generated or absorbed liquidity are represented within the operating activities. The incoming and outgoing cash flows arising from the sale/purchase of property, equipment and investment property and intangible assets, equity investments, business combinations or subsidiaries and held-to-maturity investments are included in investing activities. Financing activities include the flows that concern the issues or purchases of capital instruments and dividend of distributions or for other purposes achieved during the financial year. In the statement, the flows related to the liquidity generated during the period are reported with no sign, while those utilised are preceded by the minus sign.

The notes to the financial statements do not include sections pertaining to items not valued nor in 2015 nor in the previous year.

In the notes to the financial statements, the negative amounts related to part C and part D are shown in brackets.

Uncertainties in the use of estimates in preparing the financial statements (pursuant to the provisions of IAS 1 and to the recommendations contained in the Bank of Italy-Consob-Isvap document no. 2 of 6 February 2009 and no. 4 of 3 March 2010)

More specifically, risks related to the economy and financial market trends were described in the chapter on the macroeconomic reference context. 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.

Information on financial risks and operational risks are described in the chapter of the Notes to the financial statements dedicated to risk management. Moreover, the notes to the financial statements provide information with reference to the segmentation among the different measurement levels of the fair value of the financial instruments.

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At the end of the year, impairment tests were carried out as required by IAS 36 and specific tests were carried out to ascertain any impairment of goodwill, equity investments and available-for-sale securities, subject to the analysis of the presence of impairment indicators. For further detailed information, please refer to the Notes to the financial statements - Part B.

SECTION 3 - EVENTS AFTER THE REPORTING PERIOD On 1 February 2016, the deed of transfer of a portfolio consisting in secured and unsecured bad exposures was signed with Credito Fondiario S.p.A. for a gross carrying amount of approximately EUR 271 million. The portfolio forms approximately 12.8% of gross bad loans and 6.3 % of total gross non- performing loans. The transaction will not have significant effects with reference to the income statement of the 2016 financial year.

SECTION 4 - OTHER ASPECTS The separate financial statements are audited by KPMG S.p.A..

The company has exercised the option of national tax consolidation, as regulated by Articles 117 et sequitur of the Income Tax Consolidation Act.

SUMMARY OF THE OPTIONS OF TAX CONSOLIDATION AT 31 DECEMBER 2015

Three-year Company Year in which the option was exercised period of the option Credito Siciliano S.p.A. 2013 2013-2015 Stelline Real Estate S.p.A. 2013 2013-2015 Carifano S.p.A. 2015 2015-2017 Creval Sistemi e Servizi Soc.cons.p.a. 2015 2015-2017 Global Assicurazioni S.p.A. 2015 2015-2017 Global Broker S.p.A. 2015 2015-2017

In 2015, Finanziaria San Giacomo S.p.a. did not renew the option for group taxation as a result of the transfer of the 100% interest held in it by Credito Valtellinese S.c..

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A.2 - MAIN ITEMS IN THE FINANCIAL STATEMENTS

In the case of financial instruments quoted in active markets, the fair value is determined on the basis of the official prices of the most favourable market to which the Bank has access. If, for a given financial instrument, the conditions for identifying an active market do not exist, it is necessary to use a technical valuation, that is to say a process that allows to identify a price at which the instrument could be exchanged between knowledgeable willing parties in an arm’s length transaction.

The methods of calculation of the fair value of the financial instruments are reported in section A.4 - Fair value information.

332 not qualify as controlling, related or joint control investments. These assets are recognised under item “40 Financial assets available-for-sale”. They are initially recognised at the settlement date, and recognised at fair value inclusive of transaction costs and income directly attributable to the instrument. When permitted by financial reporting standards, reclassifications are allowed towards the category “Held-to- maturity investments”, or, towards the category “Loans and Receivables” in the presence of the intention to hold for the foreseeable future and if the conditions for recognition apply. If the recognition occurs following reclassification of other portfolios as required by IAS 39 or by the item Equity investments following the loss of significant influence, the recognition value would be the fair value at the time of transfer through profit and loss of the differences in value compared to the previous carrying amount.

After initial recognition, the available-for-sale assets are measured at fair value with recognition of the changes in fair value in a specific equity reserve until such assets are derecognised, when they are then recognised in the income statement. Interests and dividends are recognised in the income statement. In the case of financial instruments quoted in active markets, the fair value is determined on the basis of the official prices of the most favourable market to which the Bank has access. If, for a given financial instrument, the conditions for identifying an active market do not exist, it is necessary to use a technical valuation, that is to say a process that allows to identify a price at which the instrument could be exchanged between knowledgeable willing parties in an arm’s length transaction. If the fair value of equity instruments and OEIC units cannot be determined reliably, they are carried out at cost.

The methods of calculation of the fair value of the financial instruments are reported in section A.4 - Fair value information.

With respect to the equity instruments and the OEIC units included as “Available-for-sale financial assets”, there are certain indicators that represent estimates of significant and prolonged fair value decreases to below the carrying amount of the financial assets. Specifically they refer to market quotations or valuations lower than the initial carrying amount 333 for an amount higher than 30%, or the recognition of quotations or valuations that are lower than the carrying amount for a period of more than 18 months. Exceeding one of these thresholds leads to the recognition of impairment.

Should the stated thresholds not be exceeded and in case of qualitative impairment elements, the recognition of an impairment loss must be supported by specific performance analyses. The amount of the impairment is calculated with reference to the fair value of the financial asset.

In the event that an available-for-sale financial asset is impaired, the whole loss, including the portion previously accounted at equity, is booked to the income statement.

Any reversal of impairment loss, allowed only if the circumstances giving rise to the impairment no longer exist, is recognised in the income statement if referring to debt instruments, and in equity if referring to equity instruments and OEIC units. For debt instruments, the reversal of impairment loss cannot in any case exceed the amortised cost that the financial instrument would have had if no impairment losses had been made in the past. Financial assets or parts thereof are derecognised when the contractual rights to the cash flows expire or are transferred without retaining substantially the associated risks and benefits.

3 - Held-to-maturity investments

Item “50 Held-to-maturity investments” comprises non-derivative financial assets with fixed payments or payments that can be determined and with a fixed expiry, for which there is an actual intention and capacity to hold them until expiry. They are initially recognised at the settlement date, and measured at fair value including transaction costs and income directly attributable. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.

When permitted by financial reporting standards, reclassifications are allowed only towards the category of Available-for-sale financial assets. If, during the financial year, a considerable amount of investments classified under this category is sold or reclassified, the remaining held- to-maturity investments would be reclassified as Available-for-sale financial assets and the use of the portfolio in question would be denied for the next two financial years, unless the sales or reclassifications: - are so close to maturity of the financial asset that the fluctuations in the market interest rate would have no material effect on the fair value; - occur after having received substantially the original principal through scheduled ordinary payments or prepayments; - are attributable to an isolated event that is not controllable, non-recurring and may not be reasonably expected.

At the end of each reporting date, these financial assets are assessed for objective evidence of an impairment loss. Evidence of impairment originates from one or more events occurring 334 after the initial recognition of the asset, which have an impact on the estimated future cash flows of the financial assets (or group of financial assets) that can be reliably estimated. The impairment loss is measured as the difference between the carrying amount and the present value of the future estimated cash flows discounted at the effective original interest rate of the asset.

Any reversal of impairment loss is allowed only if the circumstances that caused the impairment no longer exist. The reversal of impairment loss is recognised in the income statement and, in any case cannot exceed the amortised cost that the instrument would have had if no previous impairment losses had been recognised.

Financial assets or parts thereof are derecognised when the contractual rights to the cash flows expire or are transferred without retaining substantially the associated risks and benefits.

This item includes loans and receivables with customers and banks as well as the bonds mainly issued by banks. Loans and receivables are initially recognised at the disbursement date, and debt instruments are recognised at their settlement date. Initial recognition is at fair value, which normally corresponds to the consideration paid, including costs and income directly attributable to the transaction and determinable at the start. Subsequently, they are measured at amortised cost using the effective interest method.

The effective interest rate is the rate that aligns the present value of cash flows expected throughout the life of the instrument (up to maturity or “expected” maturity, or a shorter period if appropriate) to the net carrying amount of the asset. Use of this rate to calculate interest involves the uniform distribution of interest throughout the life of the instrument.

The expected flows have been calculated considering all contractual terms of the instrument and including all fees and base points paid or received by and between the contracting parties, transaction costs and any other premium or discount that is measurable and considered an integral part of the effective interest rate of the transaction. If it is not possible to obtain a reliable estimate of the expected cash flows or of the expected life of the instrument, the contractual cash flows determined according to the terms set for the instrument are used instead. The amortised cost is not calculated for short-term transactions if the effect is considered immaterial and for loans without a defined maturity or revocable loans. These loans are measured at historical cost and costs/revenue related to them are recognised in the income statement on a straight-line basis over the contractual term of the loan. At the end of each reporting period, these financial assets are tested for impairment. Evidence of impairment originates from one or more events occurring after the initial recognition of the asset, which have an impact on the estimated future cash flows of the financial asset (or group of financial assets) that can be reliably estimated. Instruments which, based on the regulations of the Bank of Italy, have been designated as bad, unlikely to pay or past due non-performing have been assessed on an analytical basis. Non-performing loans are classified, in accordance with the criteria set by the Bank of Italy, as follows:

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- Bad loans: on and off-statement of financial position exposures to insolvent customers (even if they have not yet been legally acknowledged as such) or customers in similar positions, regardless of any anticipated loss formulated by the Bank; The exposures whose anomalous situation is attributable to profiles pertaining to country risk are excluded; - Unlikely to pay: on and off-statement of financial position exposures whereby the debtor is assessed by the Bank as unlikely to pay its credit obligations in full (for the principal and interest) without realisation of collateral, regardless of the presence of any due and not paid amounts (or instalments); - Past due non-performing: cash exposures, other than those classified as bad or unlikely to pay, which, at the date of reference of the report, are past due or overrun for over 90 days. Regarding the methods to calculate past due loans, only the debtor approach on all the portfolio positions was used as from 1 January 2014.

In the analytical testing of non-performing loans, the loss is measured as the difference between the carrying amount and the present value of the future estimated cash flows discounted at the original effective interest rate of the loan. The estimated cash flows take account of the guarantees associated with the loans. In the event that the guarantees are not likely to be enforced, account will be taken of either their present value or their realisable value net of expenses to be incurred to recover the amount due. The analytical impairment loss relates to expected losses on individual non-performing loans. For non-performing loans classified as unlikely to pay, which have a limited unitary amount, or as past due non-performing, the expected loss is calculated by homogenous categories according to internal statistical models and analytically applied to each position. Where the causes giving rise to previous impairment losses no longer exist, the reversals of impairment losses on previously impaired loans are recognised in the income statement. Loans and receivables with customers for which no individual objective evidence of impairment was assessed, are measured on a collective basis. For the purposes of calculation, these assets are grouped based on similar credit risk characteristics representing the debtor’s capacity to pay all amounts due according to the contractual terms. The valuations on a collective basis recognise the losses already incurred but not yet expressed on the valuation date, on the basis of historical experiences of losses for assets with credit risk characteristics similar to those considered. The impairment loss made on a collective basis is calculated by associating a probability of default (the PDs used for estimating the rate of depreciation are equal to the PDs estimated for the rating models, which represent a long-term floor, and the average of the default rates recognised over the last three years (2012-2013-2014), whichever higher) and a loss rate in case of default (LGD - Loss Given Default) homogeneous by rating class. The average delay between the deterioration of the financial conditions of a debtor and its classification among non-performing exposures is the period of confirmation of the loss (LCP - Loss Confirmation Period). Therefore, the valuation on a collective basis is determined as an expected loss obtained as the product between the risk factors PD and LGD (which have a time horizon of one year) and LCP, expressed as a fraction of a year.

Financial assets or parts thereof are derecognised when the contractual rights to the cash flows expire or are transferred without retaining substantially the associated risks and benefits. If a significant portion of the risks and benefits attached to the financial assets remains upon transfer of their legal ownership, they will continue to be recognised in the financial statements.

Loan repurchase agreements

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These are spot purchases of securities negotiated together with the obligation of forward sale.

Finance leases Loans and receivables with customers for leased assets are initially recognised at the effective date of the corresponding agreements, i.e. upon formal delivery of the asset. Loans and receivables with customers for leased assets are stated in the financial statements at amortised cost, that is the initial value of the investment including direct costs initially incurred and any directly attributable commissions, less any capital repayment and adjusted by the amortisation calculated using the effective interest method, i.e. by discounting the future estimated payments at the effective interest rate for the estimated term of the loan. Similar criteria to the above ones are followed for impairment losses and reversals of impairment losses.

Exposures subject to granting (forbearance) The renegotiations of exposures due to the financial difficulties of the customer are those in which the bank grants the customer:

The financial difficulties arise if the amended contract was classified as non-performing, or, in the absence of amendments, it would have been classified as non-performing; the amendment to the contract involves a total or partial writing-off of the debt; the bank approves the use of clauses in the contracts for which the debtor would be considered non-performing without the use of such clause; at the same time or shortly before the granting of a further loan, the debtor pays principal or interests on another contract that was non-performing or that would have been classified as non-performing without the loan refinancing.

5 - Financial assets at fair value through profit or loss

This item comprises financial assets at fair value through profit and loss on the basis of an option as per IAS 39 (“fair value option”) for specific cases. The Bank did not avail itself of this option.

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There are three types of hedge employed: - Fair value hedge: this covers the exposure to risk of changes in the fair value of assets or liabilities recognised in the statement of financial position (or part of the same) or unrecognised irrevocable commitments (or part of the same) that can be attributed to a specific risk and that may have an impact on the income statement; - Cash flow hedge: this covers the exposure to fluctuations in cash flow attributable to a specific risk associated with a statement of financial position asset or liability (such as all or some payments of future interest on a debt with a variable interest rate) or to future transactions that are very likely to have an impact on the income statement; - Hedge of a net investment in a foreign operation: this covers the exposure to currency risk on a net investment in a foreign operation as defined by IAS 21.

The Bank adopts the Fair value hedge to hedge the interest rate risk referring to specific assets.

Fair value hedge accounting contemplates the income statement recognition of the effects deriving from the fair value change of the hedged element and of the hedging instrument. The hedging is considered as effective when the changes in fair value of the hedging financial instrument neutralise (within the limits ranging from 80% to 125%) the changes in the hedged instrument with reference to the hedged risk.

The fair value change of the hedged element due to the change in the hedged risk increases/decreases the carrying amount of the asset offset in the income statement in the “Net hedging income (expense)” item as well as the fair value change of the derivative. Both changes in fair value indicated are calculated net of accruals/deferrals accrued that are recognised among interest. The net effect in income statement is represented by any unbalanced difference, or by the partial ineffectiveness of the hedging.

When the transaction is carried out, the hedge is formally documented through the definition of the objectives and risk management strategies on the basis of which the hedge was implemented, the hedging instrument, the hedged item, the nature of the risk hedged and how hedge effectiveness is to be measured. The hedge effectiveness is established by comparing the changes in fair value of the cash flows of the hedged instrument, with reference to the risk to be hedged, with the changes in fair value of the cash flows of the hedging instrument. The performance of the prospective and retrospective effectiveness tests are carried out on a regular basis for all the hedging period. Hedging transactions are no longer recorded in the Financial Statements when they prove ineffective or cease to be so, the derivative expires or is sold, extinguished or exercised, the hedged instrument expires, is sold or repaid or the hedge is cancelled. In this case, the derivative contract is reclassified as an instrument held for trading and the hedged instrument reacquires the measurement basis that corresponds to its classification in the financial statements.

7 - Equity investments

Item “100. Equity investments” comprises the carrying amounts of equity investments in subsidiaries, associates and companies subject to joint control. Investments in companies subject to exclusive control are those in respect of which a subject controls an entity if and only if it has at the same time the power over the investee, the exposure or rights to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of its returns.

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Investments in companies subject to joint control are those for which the power of taking decisions relating to the relevant activities is shared between two or more parties. If 20% or more of the voting rights in the shareholders’ meeting of the investee is directly or indirectly held, a significant influence is presumed to exist unless it can be demonstrated to the contrary. In particular, there is no significant influence if, even in the presence of shares exceeding 20% of the investee, only property rights on the investments made are held without having access to management policies and without governance rights.

On the contrary, if less than 20% of the voting rights in the shareholders’ meeting of the investee are directly or indirectly held, a significant influence is not presumed to exist unless such influence can be clearly demonstrated. Investments in subsidiaries (including parties held under joint control) and associates are measured at cost at the moment of initial recognition and subsequently. The equity investments are subject to impairment in accordance with IAS 36 when their carrying amount exceeds their recoverable amount, defined as the higher of their fair value less costs to sell and their value in use. Fair value is determined based on the best information available to reflect the amount that the entity could obtain, at the end of the reporting period, from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, following the deduction of disposal costs. This value is determined considering the outcomes of recent transactions for similar assets carried out within the same industry sector. Value in use is calculated by using models based on the present value of the future cash flows expected. The party who holds the asset is only required to calculate the recoverable amount if there is evidence of potential impairment. The following elements were considered in evaluating whether there was impairment:

- significant negative changes for the associates occurred during the year or will occur in the near future in the area in which the party operates; - the market interest rates or other capital payment rates on investments have increased during the year and it is likely that these increases will influence the discount rate used in the calculation of the value in use of the equity investment and significantly reduce its recoverable amount; - significant changes with an adverse effect on the investee company have taken place during the period, or are expected to take place in the near future; - internal information that the financial performance of the associate or company under joint control is or will be worse than expected; - significant financial difficulties expected in the associate or company under joint control; - the associate or company under joint control is subject to insolvency proceedings; - quantitative indicators referred to the significant and prolonged reduction in fair value to below the carrying amount of the financial assets. Specifically, they refer to market quotations or valuations that are 30% or lower than the initial carrying amount or the recognition of quotations or valuations that are lower than the carrying amount for a period of more than 18 months; - recognition of a dividend for investments in companies subject to joint control and associates if: - the carrying amount of the equity investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the net assets of the investee, including the related goodwill; - the dividend exceeds the total comprehensive income of the jointly controlled entity or associate during the financial period in which it is declared. 339 In the presence of impairment indicators, the impairment is recognised to the extent that the recoverable amount is lower than the carrying amount, allocating the relative impairment loss to the income statement. Should the reasons for the impairment cease to exist following a subsequent event, the reversal of impairment losses is recorded in the income statement. Equity investments are derecognised when the contractual rights to the corresponding cash flows expire or when they are sold substantially transferring all related risks and benefits.

8 - Property, equipment and investment property Property, equipment and investment property purchased on the market are recognised as assets under “110. Property, equipment and investment property” when the main risks and benefits associated with the assets are transferred. The “Operational property and equipment” are assets used to carry out the business, assuming that they will be used for a time period more than one year, while “Investment property” is the asset that provide rental income or held for appreciation of invested capital or both.

Initial recognition is at cost, including all directly related charges, both for the operational property, equipment and investment property.

Land is recognised separately, even when purchased together with the building, using a component approach. Land and buildings are separately assessed on the basis of specific appraisals and only in the case of self-contained buildings.

Assets are subsequently valued at cost, adjusted for related depreciation and impairment of financial assets.

The depreciable value of property and equipment, identified as the difference between the purchase cost and the residual value, is systematically charged to the income statement on a straight-line basis over the estimated useful use of the assets according to an allocation criterion that reflects the technical-economic duration and the residual use of each asset item.

According to that criterion, the life of the different categories of property, equipment and investment property is as follows: - for buildings, from 30 to 70 years; - for furniture, furnishings and sundry equipment, from 5 to 8 years; - for office machines and electronic, technological and communication systems, from 3 to 7 years; - for motor vehicles, from 4 to 5 years. Land and artistic assets are not subject to depreciation, as the former has an indefinite useful life and the latter normally increase in value over time. At each reporting date, if there are indications that the property, equipment and investment property may have suffered an impairment loss, the carrying amount and recoverable amount of the asset (defined as the greater of fair value and value in use) are compared and, if the latter is lower than the carrying amount, the asset is impaired.

The gain or loss generated from the disposal of a property, plant and equipment is recognised in the profit/loss for the year.

Property, equipment and investment property are derecognised when they are sold or no future economic benefits are expected from their use or disposal. 340

9 - Intangible assets Assets recognised under intangible assets are non-monetary assets, without physical substance, identifiable and able to generate future economic benefits that can be controlled by the group. Intangible assets purchased externally are recognised as assets at purchase price when the main risks and benefits connected with the asset are transferred. Intangible assets generated internally are recognised on the basis of the directly attributable costs sustained. All intangible assets recorded in the financial statements other than goodwill have a finite useful life and are consequently amortised in consideration of said life. According to IAS 36, the recoverable amount of the intangible assets with a definite useful life must however be calculated every time there is evidence of impairment. The impairment test must be made by comparing the carrying amount of the asset with its recoverable amount. An impairment loss must be recognised where the recoverable amount is lower than the carrying amount. The recoverable amount of the asset is the higher between its fair value net of costs to sell and its value in use. In order to calculate the value in use of the intangible asset, reference must be made to its cash flows in current conditions on the impairment test date.

Intangible assets are derecognised when they are sold or when no future economic benefits are expected from their use or disposal.

Goodwill recorded as an asset must be allocated to the cash-generating units to which it refers (CGU). These units were identified considering the lowest level at which company management estimates the return on investment and considering that this level may not be higher than the reportable segment in the primary or secondary segment presentation in the consolidated financial statements established in accordance with IFRS 8 - Operating Segments. In particular, CGUs were identified as individual entities less the investments in associates and companies subject to joint control classified in the portfolios of Equity investments and of Available-for-sale financial assets, if any, as already tested independently.

The cash-generating unit to which goodwill has been allocated is tested annually for impairment or every time there is an indication that the unit may have undergone impairment.

In accordance with IAS 36, an asset is subject to impairment when its carrying amount exceeds its recoverable amount, or the higher of its fair value less costs to sell and its value in use.

Fair value is determined based on the best information available to reflect the amount that the entity could obtain, at the end of the reporting period, from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, following the deduction of disposal costs. This value is determined considering the outcomes of recent transactions for similar assets carried out within the same industry sector. Value in use is calculated by using models based on the present value of the future cash flows expected. The model assumes that the value of the asset results from the present value of the future distributable cash flows including the excess or lack of Tier 1 ratio at the end of the 341 reference period compared to a pre-established minimum objective and from the final value calculated as perpetual income calculated in accordance with an economically sustainable normalised cash flow and consistent with the long-term growth rate.

Any negative difference between the carrying amount and the recoverable amount will be recognised in the income statement.

11 - Current and deferred taxation

Deferred taxation is recognised according to the statement of financial position method, whereby deferred taxes are recognised by comparing the carrying amounts book and tax bases of the items included under assets and liabilities in the statement of financial position. If these differences in value cause future increases or decreases in the taxable income of a subsequent period, they are defined as timing differences: - deductible timing differences will generate a future reduction in the total taxable amount, as they are non-deductible this year. To the extent that a future taxable amount is likely to be available, which can be used to offset the deductible timing differences, deferred tax assets must be recorded. Article 2, paragraphs 55 to 58, of Italian Law Decree no. 225/2010, converted, with amendments, by Italian Law no. 10/2011 as amended, including in particular, those made by Italian Law Decree no. 201/2011, converted, with amendments, by Italian Law no. 214/2011, allows however, upon the occurrence of certain conditions, the conversion into tax assets of the deferred tax assets recorded in the financial statements relating to i) impairment losses on loans and receivables and ii) goodwill and other intangible assets (for this second category, conversion is no longer allowed with reference to deferred tax assets recognised for the first time in the financial statements related to the 2015 financial year); - taxable timing differences create deferred tax liabilities, as they generate taxable amounts in future years, as they are deductible or non taxable in the current year. The relevant deferred tax liabilities are recorded for any other taxable timing difference. Further deferred tax assets can be recognised in connection with the carrying forward of tax losses not used and tax assets not used, the recognition of which is subject to checking the probability of their recovery with future taxable income.

Recognitions of deferred tax liabilities and deferred tax assets is reviewed periodically to take into account any change in rates or tax regulation or a new estimate of the probability of recovering the deductive timing differences. Deferred tax liabilities and deferred tax assets are not discounted as envisaged by IAS 12. 342

12 - Provisions for risks and charges

Provisions for risks and charges are recorded when the bank has a present obligation (legal or constructive) resulting from a past event, when it is probable that an outflow of resources representing economic benefits will be required to settle the obligation, whose amount can be reliably estimated. The amount recorded represents the present value of the amount that a company would reasonably pay in order to extinguish the obligation at the end of the reporting period. If the impact of the temporary deferral of the obligation is considered insignificant, the amount is not discounted. Such provisions are measured at every reporting date and adjusted in order to reflect the best current estimate. If it is no longer likely that the resources producing economic benefits will be used to meet the obligation, the provision is reversed and any excess is recorded in the income statement. In particular, the item includes provisions relating to the dispute that are determined by considering, if available, the amount requested by the counterparty, the technical estimate carried out internally based on the accounting records and/or presented during the trial and, in particular, the amount assessed by the court-appointed expert (CTU) - if provided - as well as legal interests, calculated from the notification of the application initiating proceedings and any expense due for adverse outcome.

Company pension funds Pensions, set up on the basis of internal agreements, are defined as provisions for employee benefits to be paid once they stop working for the company. The provisions present at the end of the reporting period are classified as defined benefit plans. A defined benefit plan is a post- employment benefit plan according to which the bank has the obligation to pay its employees the benefit agreed. The determination of the obligation and the defined benefit plan costs must be calculated in a reliable manner, the amount of employee benefits matured in accordance with the work carried out in the current year and prior years. Present values are calculated using the “Projected unit credit method”, which involves the estimate of future payments based on historical and statistical analyses, the demographic curve and the discounting of these flows using a market interest rate. Actuarial gains and losses from changes in the actuarial assumptions previously applied, entail a restatement of the liability and are recognised as an offsetting item to equity reserve shown in the statement of comprehensive income.

13 - Liabilities and securities issued

Financial instruments issued are classified as liabilities when, according to the substance of the agreement, the Bank has a contractual obligation to deliver cash or another financial asset to another entity. Outstanding amounts due to banks and customers and securities issued mainly represent the funding collected on the inter-bank market and from customers also through the placement of bonds and certificates of deposit. 343

Transactions with banks are recognised at the time they are executed, except those relative to remittance of bills and to the placement of securities, which are recognised at settlement. Initially, financial liabilities are recognised at fair value plus any directly attributable transaction cost. Subsequently, they are measured at amortised cost using the effective interest method. The amortised cost has not been calculated for short-term transactions, for which the effect of the calculations is considered immaterial. The items also include payables for commitments to repurchase own equity instruments if the conditions for their recognition are applicable. Financial liabilities or parts thereof are derecognised when extinguished, i.e. when the obligation has been met, cancelled or has expired. They are derecognised also following their repurchase on the market. The derecognition is made on the basis of the fair value of the issued item and of the repurchased item at the purchase date. The profit or loss resulting from the transaction, depending on whether the carrying amount of the repurchased item is higher or lower than the purchase price, is recorded in the income statement. The subsequent replacement of the securities is considered as a new issue, recognised at the new placement price.

Deposit repurchase agreements These are spot sales of securities negotiated together with the obligation of forward repurchase. As the risks associated with the securities underlying the transactions are not transferred, these securities are recorded in the financial statements along with the related liability. The spreads between spot and forward prices, including the accrued interest and the share of any issue premium, are recognised in the income statement on an accruals basis items as interest and similar income.

14 - Financial liabilities held for trading Trading liabilities are represented by trading derivative financial instruments with a negative fair value. They are recognised at the subscription or issue date at a value equal to the fair value of the instrument, without considering any directly attributable transaction cost or income. Trading liabilities are recognised at fair value and changes are recognised in the income statement. They are derecognised from the financial statements when the contractual rights to the corresponding cash flows expire or when they are sold substantially transferring all related risks and benefits.

15 - Financial liabilities at fair value This item comprises financial liabilities at fair value through profit or loss on the basis of an option as per IAS 39 (“fair value option”).

The Bank did not avail itself of this option.

At the end of each subsequent reporting period: 344 - the monetary elements are retranslated at the spot closing rate; - the non-monetary elements measured at historical cost are retranslated using transaction date exchange rate; - the non-monetary elements measured at fair value are converted at the exchange rate in force on the date when the fair value was determined.

A monetary element represents the right to receive, or the obligation to pay, a fixed or determinable amount of money. Conversely, the key characteristic of non-monetary items is the absence of the right to receive, or the obligation to pay, a set amount of money or an amount that can be determined. The exchange rate differences relating to monetary items are recorded in the income statement as and when they arise; those related to non-monetary items are recorded in equity or in the income statement in line with the method used to record the profits or losses that include that component. Revenue and expenses in foreign currency are shown at the exchange rate prevailing at the time they are recorded or, if accruing, at the closing rate.

17 - Other information

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. A subject controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and is also able to use its power over the investee to affect these returns.

The acquisition date is the date on which the acquirer obtains control of the purchase. In the event in which a business combination is achieved in a single exchange transaction, the date of the exchange is the acquisition date.

The consideration transferred in a business combination must be measured 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 acquirer 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 in the income statement the costs related to the acquisition in the periods in which these costs are borne and the services are received, except for issue costs of shares or debt instruments that must be recognised according to 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 previously recognised 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 carrying amount. 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. The business combinations carried out at a date before January 2011 were recorded in accordance with the provisions of the previous version of IFRS 3 (not revised). In particular, the events following the acquisition of control were treated differently. For the transactions carried out before 31 December 2010, the restatement of the additional consideration, calculated during the acquisition of control of the company, involves the adjustment of the originally calculated cost of the business combination. IFRS 3 does not apply to business combination transactions between parties subject to common control.

In the absence of specific indications envisaged by other IAS/IFRS international accounting standards, IAS 8 requires that the company must make use of its own judgement when applying an accounting standard to be adopted for the purpose of providing relevant, reliable, prudent disclosure that reflects the economic essence of the transactions. These types of business combinations, usually achieved as part of company reorganisations, are therefore accounted for by preserving the continuity of the values of the acquiree in the

346 financial statements of the acquirer. In particular, the acquired assets and liabilities were recorded at the carrying amounts resulting from the consolidated financial statements of the Group.

Post-employment benefits

Post-employment benefits fall within the benefits following the end of the employer-employee relationship defined by the IAS 19 according to two different types:

- defined benefit plans; - defined contribution plans.

A defined benefit plan is a post-employment benefit plan according to which the company has the obligation to pay its employees the benefit agreed. The previously mentioned reform of supplementary pension plans has adjusted the accounting treatment of post-employment benefits. In particular, only vested post-employment benefit accrued up to 31 December 2006 continues to be considered as a “defined benefit plan” to be assessed by actuaries according to the “Projected Unit Credit Method”, as provided by IAS 19. The liability associated with the vested post-employment benefit is assessed by actuaries without applying the pro-rata of the service rendered, as the service to be assessed has already fully accrued. Actuarial gains and losses from changes in the actuarial assumptions previously applied, entail a restatement of the liability and are recognised as an offsetting item to equity reserve shown in the statement of comprehensive income.

Defined contribution plans envisage the payment by the company of fixed contributions into a fund. The company has no legal or constructive obligation to make further payments if the fund does not have sufficient assets to pay all of the employees’ entitlements for the service rendered in the current year and in previous years. The company records the employee’s payments into the fund as a liability after deducting any contribution already paid. If, at the end of the reporting period, the contributions paid are higher than those actually due, the excess must be accounted for as an asset to the extent that the advance payment will reduce future payments or give rise to a reimbursement.

Following the coming into force of the 2007 Finance Act and of D.P.C.M. no. 29 of 2015, the portion of the post-employment benefits that have accrued since 1 January 2007 were allocated, at the employee’s option according to explicit or tacit acceptance:

- to supplementary retirement plans, - to the Treasury Fund managed by INPS, - paid as an integral part of the salary for the pay period as from March 2015.

A defined contribution plan is configured in this area. The amount of the benefits is determined based on the contributions due by the employee without using actuarial calculations.

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Guarantees and commitments

Guarantees given are initially recognised at their fair value, represented by the commission received, and subsequently at the higher of the estimated obligation and the initially booked amount gradually reduced by the portion related to the year. The overall nominal value of guarantees given, net of amounts used, is highlighted in the notes to the financial statements. Commitments are entered in the financial statements on the basis of the best estimate of the obligation determined according to IAS 37. The overall amount of the commitment assumed is shown in the notes to the financial statements.

On a regular basis, these exposures are assessed for objective evidence of an impairment loss: The methods envisaged for determining impairment losses are shown in point 4 - Loans and receivables. Moreover, with reference to the model for determining collective impairment losses, the prescribed credit conversion factor (CCF) is used. The provisions related to impairment losses on guarantees and commitments are recognised in the statement of financial position in item “100. Other liabilities” whereas the regular provision is recognised in the income statement in item “130. d) Net impairment losses on other financial transactions”.

Accounting of revenue and costs Revenue resulting from the third-party use of company assets generating interest, commissions and dividends must be recorded when they are achieved or when it is probable that the economic benefits associated with the transaction will flow to the company and the amount of the revenue can be measured reliably. Interests are recognised on a pro rata basis according to the contractual rate of interest or the actual rate (in the case of the application of amortised cost). Default interests, provided for in the contract, are recorded at the time of their actual collection. Dividends are recognised in the income statement during the financial year in which their distribution is resolved. Commissions on revenues from services are recognised, on the basis of contractual agreements, in the period in which the actual services are provided, with the exception of the commissions included in the amortised cost for determining the effective interest rate. The costs are recognised in the period when they are incurred, following the criterion of correlation between costs and revenues that derive directly and jointly from the same transactions or events. If the correlation between costs and revenues is possible only in a generic and indirect way, the costs are recognised in more periods according to a systematic allocation method.

If the costs can be associated to the revenues, these are recognised immediately in the income statement.

Use of estimates and assumptions in drawing up the financial statements In drawing up the financial statements, estimates and assumptions were used that may affect the carrying amounts recorded in the statement of financial position, income statement and the notes. More specifically, subjective evaluations by company management were made in the following cases: - to quantify the impairment of financial assets, especially loans and receivables, equity investments and property, equipment and investment property; 348

- to determine the fair value of financial instruments to be used for financial reporting and the use of valuation models to determine fair value of financial instruments that are not quoted on active markets; - to assess the reasonableness of the amount of goodwill and of the other intangible assets; - to quantify employees’ provisions and provisions for risks and charges; - the actuarial and financial assumptions used for determining liabilities associated with defined benefit plans for employees; - estimates and assumptions made with regard to the recoverability of deferred tax assets. In order to formulate reasonable estimates and assumptions for the recording of business transactions, subjective assessments are made based on all information and historical experience available.

A.3 - INFORMATION ON TRANSFERS BETWEEN PORTFOLIOS OF FINANCIAL ASSETS

In 2015, the Bank did not make any transfers between portfolios of financial assets as required by IAS 39.

A.4 - FAIR VALUE INFORMATION

QUALITATIVE INFORMATION

IFRS 13 establishes a classification of financial instruments measured at fair value according to the degree of observability of the inputs analysed for the measurement. Specifically, there are three levels of classification: - level 1: the fair value of the classified instruments in this level is measured on the basis of quoted prices observable in active markets; - level 2: the fair value of the classified instruments in this level is measured on the basis of valuation models that use inputs observable in active markets; - level 3: the fair value of the classified instruments in this level is measured on the basis of valuation models that use mainly inputs unobservable in active markets.

For financial instruments valued at fair value on a recurring basis, the Bank adopted a “Policy” that assigns higher priority to the use of parameters observable on the market and a lower priority to valuation techniques that do not consider market parameters. In particular, this 349

Policy specifies the order of priority, the methods and the general conditions that determine the choice of one of the following valuation techniques: - Mark to Market: valuation method that coincides with the Level 1 classification of the fair value hierarchy; - Comparable Approach: valuation method based on the use of inputs observable on the market, the use of which implies a Level 2 classification of the fair value hierarchy; - Mark to Model: valuation method related to the application of pricing models whose inputs determine the Level 3 classification (use of at least one significant input that cannot be observed) of the fair value hierarchy.

In the case of financial instruments quoted in active markets, the fair value is determined on the basis of the official prices of the market to which the bank has access (Mark to Market).

A financial instrument is considered to be quoted in an active market if the quotations are immediately and duly available from sources such as stock exchanges, dealers, brokers, pricing agencies or regulatory authorities, and these prices represent actual market transactions that occur regularly in normal trading. If the official price in an active market does not exist for a financial instrument as a whole, but there are active markets for the parts forming it, the fair value is measured on the basis of the relevant market prices for the parts forming it.

If this technical evaluation is based on inputs observable on the market, the instrument is classified as Level 2 and a Comparable Approach is applied.

If the adopted valuation techniques also use unobservable inputs and their contribution to the formulation of the fair value is considered to be significant, the valuation of a financial asset or liability is to be considered Level 3 (Mark to model). The measurement criteria of portfolios measured at fair value or for which the fair value is indicated in the notes to the financial statements in accordance with IFRS 7, are provided below.

Bonds Bonds are measured depending on the liquidity of their reference market. Liquid instruments quoted in active markets are assessed at Mark to Market and the positions are classified as level 1 of the fair value hierarchy. If there are no prices that meet the criteria for determining the market as an active market, the method of comparison with similar bonds listed on info- provider (comparable approach) or the price in a market that is not active or the mark to model valuation apply and it is classified as level 2 of the fair value hierarchy. If it is not possible to determine a fair price by applying the above criteria, the instrument is placed at level 3 and the price is determined through a specific request to a market broker or by implementing an ad hoc pricing model.

ABS and structured securities In case of securities with implied optionals that cannot be separated or securities representing bank assets (e.g. ABS, MBS) or similar (e.g. CDO, MBO), given the absence of prices on the 350 market or of observable inputs to refer to, the security is classified as level 3. An approximate valuation provided by third parties is used, including the issuer of the security.

Mutual investment funds and OEIC units They are classified within Level 1 when a bid/ask price representative of an active market and of a possible transaction price is available. Alternatively, they are designated on the basis of the official Net Asset Value (NAV) at the reporting date. As regards the fair value levels, they are presented as Level 2 or 3 depending on the availability of the NAV, the transparency of the portfolio and the possibility of liquidating the positions. For real estate funds unlisted on the market, the fair value is determined by adjusting the NAV for the probability of default of the fund and the expected recovery rate, determined on the basis of an internal model. Given the significance of the parameters non-observable on the market included in the model, the Real Estate Funds are classified as Level 3 in the fair value hierarchy. For the units held in unlisted real estate funds acquired by means of contributions of properties owned by the bank, considering the way in which the NAV is calculated, the fair value is calculated without the adjustment mentioned above.

The measurement criteria of portfolios not measured at fair value, but for which disclosures are required in accordance with IFRS 7, are provided below. 351

- for performing medium to long term loans and receivables with customers, the fair value is determined through the discounting of expected cash flows on the basis of a risk-free curve to which we apply a spread expressing the credit risk and determined on the basis of expected losses (PD and LGD). The fair value thus determined is classified as level 3 in the hierarchy; - for longer term loans and receivables with banks and towards institutional investors and due to banks and towards institutional investors, the fair value is determined through the discounting of expected cash flows on the basis of a risk-free curve to which we apply a spread expressing the credit risk; - for “non-performing” loans and receivables with customers (bad, unlikely to pay, past due non-performing), the fair value is determined by discounting the positions, net of adjustment provisions expressing the associated credit risk, at a risk-free market rate. For these exposures, the exit price would be influenced significantly by the expected impairment losses, which are the result of a subjective assessment, expressed by the manager of the position, with reference to the recovery rate and related timing; pursuant to this, the positions are considered as level 3 in the fair value hierarchy; - for assets and liabilities on demand or with a short-term, the carrying amount at which they are recognised is considered a good approximation of fair value. The fair value thus determined is traditionally classified as level 3 in the fair value hierarchy; - for issues of bond loans recognised at amortised cost, the fair value is measured referring to existing listing on an active market or on the basis of a valuation technique based on the discounting of the bond’s cash flows carried out by using the specific interest rate curve, suitably adjusted to account for changes in own creditworthiness based on the methodology described above for the valuation of the Bonds. The same applies to the considerations on the fair value hierarchy; - for due to customers and securities issued held to maturity, the fair value is measured on the basis of a valuation technique carried out by discounting the bond’s cash flows based on the specific interest rate curve, suitably adjusted to account for changes in own creditworthiness based on the methodology described above for the valuation of fixed-income Bonds. The fair value thus determined is classified as level 2 in the hierarchy; - for debt instruments classified in the portfolio of “Loans and receivables with banks and customers”, the fair value was determined by using valuation models, as described above for financial assets and liabilities designated at fair value.

Non-financial assets - Investment property held for investment purposes The fair value is determined in all cases by means of external surveys, whose point of reference is represented by the current prices for similar assets (value per square metre referred to by the most popular Observatories, prices of similar transactions). This value is usually adjusted to reflect the special characteristics of the item being assessed such as, by way of example, the commercial and geographical location, accessibility and existing infrastructures, the urban context, the state of preservation, size, any easement, the state of outdoor/indoor plants. As a result of these corrective actions, which depend significantly on the 352 estimates made by the external expert, the amounts determined are characterised by elements of judgment and subjectivity; the fair value thus obtained is classified as level 3 in the fair value hierarchy.

A.4.1 Levels of fair value 2 and 3: valuation techniques and inputs used

As shown above, if, for a given financial instrument, the conditions for identifying an active market do not exist and therefore it is not possible to carry out the level 1 classification of the fair value hierarchy with the consequent application of a Mark to Market approach, it will be necessary to use a technical valuation, that is to say a process that allows to identify a price at which the instrument could be exchanged between knowledgeable willing parties in an arm’s length transaction. If this technical evaluation is based on inputs observable on the market, the instrument is classified as Level 2 and a Comparable Approach is applied. The technical evaluation schemes applied in this case include: a) the use of recent market transactions between two informed and independent parties; b) the reference to the fair value of a financial instrument that has the same characteristics; c) cash flow discount techniques; d) the enhancement techniques of the options; e) the use of pricing techniques widely spread among operators, making sure that these produce prices in line with those used in the actual trade. Only points c) and d) identify methods for the construction of quantitative models.

The most commonly used model for the measurement of fair value is the Discounted Cash Flow Model that contemplates the discounting back of expected cash flows at a rate adjusted for the risks related to the instrument. The market inputs used within the Comparable Approach are: - prices listed on active markets for similar assets or liabilities; - prices listed for the analysed instrument or for similar instruments on markets that are not active, i.e. markets where there are few transactions. The prices are not current or vary substantially in time and among different market makers or little information is made public; - observable market inputs (e.g. interest rates, observable yield curves, credit spreads, listed volatilities); - inputs deriving from observable market data whose report is corroborated by parameters including correlation.

The Mark to model Approach applies to all financial instruments for which an active market is not available when: - significant adjustments are required based on non-observable data on the observable data used; - the estimated fair value is based on the Bank’s internal assumptions on future cash flows and on the discount curve used; - the complexity of the valuation methods is such as to lead to a significant risk model.

353

The main models used in reference to this approach are: - for real estate funds, a NAV adjustment model designed to take into account the risk of default of the issuer; - for structured bonds, the Discounted Cash Flow Model applied on the basis of estimates of future cash flows and/or of the discount factor; - for equity instruments, the Market Approach (model based on market multiples and price matrixes).

A.4.2 Processes and sensitivity of measurements The Bank has carried out an assessment of potential impacts of sensitivity to unobservable market parameters in the valuation of instruments classified in Level 3 of the fair value hierarchy and measured at fair value on a recurring basis. This assessment showed that these impacts are not significant compared to the represented situation. In particular, the portfolio of instruments measured at fair value on a recurring basis and classified within Level 3 of the fair value hierarchy mainly consists of investments, subject to impairment test should the conditions occur, and of investments in fund units.

A.4.3 Fair value level

The levels indicated must be applied in hierarchical order, giving a higher priority to the use of parameters observable in the market that allow the valuation of assets/liabilities, based on assumptions of market participants and a lower priority to valuation techniques that do not consider market parameters and therefore reflect a higher degree of discretion in the valuation by the group.

The points above show the methods with which the fair value levels are assigned.

A.4.4 Other information

Credit and debit valuation adjustment (CVA/DVA) The calculation of fair value for OTC derivatives involves the measurement of various risk components underlying the financial instrument, in particular: - market risk; - funding risk; - counterparty/issuer risk. The calculation model used for estimating the effect of the default risk of the counterparty and of the issuer in calculating the fair value is the Bilateral Credit Value Adjustment (bCVA).

354

- the CVA is a negative value that is generated if the counterparty defaults before the expiry of the transaction and the Bank has a positive exposure (future positive mark-to- market) with regard to the counterparty. In this case, the Bank incurs a loss of an amount equal to the replacement cost of the derivative itself. The CVA is the discounted value of expected future losses. - the DVA is a positive value that is generated if the counterparty defaults before the expiry of the transaction and has a negative exposure (future negative mark-to- market) with regard to the counterparty. In this case, the counterparty incurs a loss of an amount equal to the replacement cost of the derivative itself. The DVA of the Investor is the discounted value of expected future losses of the counterparty.

355

QUANTITATIVE INFORMATION

A.4.5 Fair value level

A.4.5.1 Assets and liabilities measured at fair value on a recurring basis: division by level of fair value.

31/12/2015 31/12/2014 Financial assets/liabilities at fair value L1 L2 L3 L1 L2 L3 1. Financial assets held for trading 44,485 3,217 1,340 49,006 5,132 3,029 2. Financial assets at fair value through profit or loss ------3. Available-for-sale financial assets 5,145,517 10,159 162,665 6,696,679 28 92,865 4. Hedging derivatives ------5. Property, equipment and investment property ------6. Intangible assets ------Total 5,190,002 13,376 164,005 6,745,685 5,160 95,894 1. Financial liabilities held for trading - 1,857 1,339 - 3,231 3,029 2. Financial liabilities at fair value through profit or loss ------3. Hedging derivatives - 269,496 - - 308,718 - Total - 271,353 1,339 - 311,949 3,029

Key: L1 = Level 1 L2 = Level 2 L3 = Level 3

The following level transfers were reported:

- from level 2 to level 3 of financial assets held for trading of approximately EUR 2.1 million fully impaired at the same time;

- from level 2 to level 1 of financial assets held for trading of two bonds with valuations not considered significant.

The Debit Value Adjustment (DVA) that forms the fair value of derivatives amounts to EUR 17 thousand whereas the overall figure of the Credit Value Adjustment (CVA) amounts to EUR 32 thousand.

356

A.4.5.2 Annual changes of assets at fair value on a recurring basis (level 3)

Property, Financial Financial Available- equipment assets assets at fair for-sale Hedging Intangible and held for value through financial derivatives assets investment trading profit or loss assets property 1. Opening balance 3,029 - 92,865 - - - - 2. Increases 2,111 - 81,252 - - - - 2.1 Purchases - - 35,776 - - - - 2.2 Gains recognised in: - - 2,270 - - - - 2.2.1 Profit or loss - - 2,270 - - - - - of which gains on sales ------2.2.2 Equity X X - - - - - 2.3 Transfers to other levels 2,083 ------2.4 Other increases 28 - 43,206 - - - - 3. Decreases -3,800 - -11,452 - - - - 3.1 Sales - - -6,158 - - - - 3.2 Redemptions - - -457 - - - - 3.3 Losses recognised in: -3,770 - -4,837 - - - - 3.3.1 Profit or loss -3,770 - -1,912 - - - - - of which losses on sales -3,770 - -1,911 - - - - 3.3.2 Equity X X -2,925 - - - - 3.4 Transfers to other levels ------3.5 Other decreases -30 ------4. Closing balance 1,340 - 162,665 - - - -

The table also shows derivatives referring to contracts signed with companies of the Group related to securitisation transactions carried out.

357

A.4.5.3 Annual changes of liabilities at fair value on a recurring basis (level 3)

Financial Financial liabilities liabilities Hedging

held for at fair derivatives trading value 1. Opening balance 3,029 - - 2. Increases - - - 2.1. Issues - - - 2.2. Losses recognised in: - - - 2.2.1. Profit or loss - - - - of which losses on sales - - - 2.2.2. Equity X X - 2.3. Transfers from other levels - - - 2.4. Other increases - - - 3. Decreases -1,690 - - 3.1. Redemptions - - - 3.2. Repurchases - - - 3.3. Gains recognised in: -1,690 - - 3.3.1 Profit or loss -1,690 - - - of which gains on sales -1,690 - - 3.3.2. Equity X X - 3.4. Transfers to other levels - - - 3.5. Other decreases - - - 4. Closing balance 1,339 - -

The above derivatives refer to contracts signed with companies of the Group in connection with securitisation transactions carried out.

358

A.4.5.4 Assets and liabilities not measured at fair value or at fair value on a non-recurring basis: division by level of fair value

Financial assets/liabilities not measured

at fair value or measured 31/12/2015 31/12/2014 at fair value on a non-recurring basis CA L1 L2 L3 CA L1 L2 L3

1. Held-to-maturity investments ------

2. Loans and receivables with banks 992,879 - 494,762 498,872 1,224,995 - 645,310 575,978

3. Loans and receivables with customers 15,080,244 - 787,606 14,767,767 14,986,134 - 1,507 15,177,691

4. Investment property 78,762 - - 105,421 64,688 - - 81,361 5. Non-current assets held for sale and 1,894 - - 1,894 15,000 - - 15,000 disposal groups

Total 16,153,779 - 1,282,368 15,373,954 16,290,817 - 646,817 15,850,030

1. Due to banks 2,792,237 - 2,261,530 471,638 5,870,828 - 168,900 5,695,499

2. Due to customers 14,291,212 - 3,358,655 10,936,305 12,278,109 - 1,828,742 10,453,685

3. Securities issued 3,000,023 - 3,063,706 - 3,885,714 417,534 3,527,593 -

4. Liabilities associated with discontinued operations ------

Total 20,083,472 - 8,683,891 11,407,943 22,034,651 417,534 5,525,235 16,149,184

Key: CA = Carrying amount L1 = Level 1 L2 = Level 2 L3 = Level 3

A.5 - INFORMATION ON THE “DAY ONE PROFIT/LOSS”

The day one profit/loss is calculated when , at the time of first recognition of a financial instrument , there are differences, not recognised immediately in the income statement according to the provisions of par. AG76 of IAS 39, between the transaction price and the value obtained by using valuation techniques. The Bank did not put in place any transaction for which day one profit/losses were recognised.

359

B - INFORMATION ON THE STATEMENT OF FINANCIAL POSITION

ASSETS

SECTION 1 - CASH AND CASH EQUIVALENTS - ITEM 10

1.1 - Cash and cash equivalents: breakdown

31/12/2015 31/12/2014 a) Cash 114,710 133,552 b) Deposit accounts with central banks - - Total 114,710 133,552

SECTION 2 - FINANCIAL ASSETS HELD FOR TRADING - ITEM 20

2.1 - Financial assets held for trading: breakdown by type

Item/Amounts 31/12/2015 31/12/2014 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. On-statement of financial position assets - - - 1. Debt instruments 43,980 2,362 - 48,444 2,995 - 1.1 Structured instruments ------1.2 Other debt instruments 43,980 2,362 - 48,444 2,995 - 2. Equity instruments 505 - 1 562 - - 3. OEIC units ------4. Loans ------4.1 Reverse repurchase agreements ------4.2 Other ------Total A 44,485 2,362 1 49,006 2,995 - B. Derivatives - - - 1. Financial derivatives - 855 1,339 - 2,137 3,029 1.1 trading - 855 1,339 - 2,137 3,029 1.2 associated with fair value option ------1.3 other ------2. Credit derivatives ------2.1 trading ------2.2 associated with fair value option ------2.3 other ------Total B - 855 1,339 - 2,137 3,029 Total (A+B) 44,485 3,217 1,340 49,006 5,132 3,029

360 2.2 - Financial assets held for trading: breakdown by debtor/issuer

Item/Amounts 31/12/2015 31/12/2014 A. On-statement of financial position assets 1. Debt instruments 46,342 51,439 a) Governments and Central Banks 8,634 10,152 b) Other government agencies 651 764 c) Banks 37,057 40,523 d) Other issuers - - 2. Equity instruments 506 562 a) Banks 3 2 b) Other issuers: 503 560 - insurance companies - - - financial companies - - - non -financial companies 503 560 - other - - 3. OEIC units - - 4. Loans - - a) Governments and Central Banks - - b) Other government agencies - - c) Banks - - d) Other parties - - Total A 46,848 52,001 B. Derivatives a) Banks 2,051 4,344 b) Customers 143 822 Total B 2,194 5,166 Total (A+B) 49,042 57,167

Bonds issued by Central and local governments are mainly represented by exposures towards the Italian Government.

361

SECTION 4 - AVAILABLE-FOR-SALE FINANCIAL ASSETS - ITEM 40

4.1 - Available-for-sale financial assets: breakdown by type

31/12/2015 31/12/2014 Item/Amounts Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt instruments 5,078,730 10,150 19,980 6,661,707 15 375 1.1 Structured instruments ------1.2 Other debt instruments 5,078,730 10,150 19,980 6,661,707 15 375 2. Equity instruments 66,787 9 89,430 34,972 13 50,985 2.1 At fair value 66,787 9 - 34,972 13 - 2.2 At cost - - 89,430 - - 50,985 3. OEIC units - - 53,255 - - 41,505 4. Loans ------Total 5,145,517 10,159 162,665 6,696,679 28 92,865

Level 3 also contains equity instruments measured at cost.

With reference to level 3, the difference compared to 31 December 2014 mainly refers to the equity investment in Istituto Centrale delle Banche Popolari of EUR 43,206 thousand and to an AT1 instrument signed by the Bank of EUR 19,605 thousand.

4.2 - Available-for-sale financial assets: breakdown by debtor/issuer

Item/Amounts 31/12/2015 31/12/2014 1. Debt instruments 5,108,860 6,662,097 a) Governments and Central Banks 5,021,264 6,634,218 b) Other government agencies - - c) Banks 58,658 27,504 d) Other issuers 28,938 375 2. Equity instruments 156,226 85,970 a) Banks 51,995 8,803 b) Other issuers: 104,231 77,167 - insurance companies - 418 - financial companies 99,989 68,090 - non-financial companies 4,242 8,659 - other - - 3. OEIC units 53,255 41,505 4. Loans - - a) Governments and Central Banks - - b) Other government agencies - - c) Banks - - d) Other parties - - Total 5,318,341 6,789,572

Bonds issued by Central and local governments are mainly represented by exposures towards the Italian Government. Figures at 31 December 2014 were restated for a consistent comparison.

362

4.3 Available-for-sale financial assets subject to specific hedging

Item/Amounts 31/12/2015 31/12/2014

1. Financial assets subject to specific fair value hedging 898,880 862,013 a) interest rate risk 898,880 862,013 b) price risk - - c) currency risk - - d) credit risk - - e) more than one risk - -

2. Financial assets subject to specific cash flow hedging - - a) interest rate risk - - b) currency risk - - c) other - - Total 898,880 862,013

363

SECTION 6 - LOANS AND RECEIVABLES WITH BANKS - ITEM 60

6.1 - Loans and receivables with banks: breakdown by type

31/12/2015

CA FV

Type of transaction/Amounts Level 1 Level 2 Level 3

A. Loans and Receivables with Central Banks 161,815 - - 161,815

1. Term deposits - X X X

2. Obligatory reserve 161,815 X X X

3. Reverse repurchase agreements - X X X

4. Other - X X X

B. Loans and receivables with banks 831,064 - 494,762 337,057

1. Loans 606,296 - 269,523 337,057

1.1. Current accounts and deposit accounts 20,733 X X X 1.2. Term deposits 32,675 X X X

1.3. Other loans 552,888 X X X

- Reverse repurchase agreements 236,563 X X X

- Finance leases - X X X

- Other 316,325 X X X

2. Debt instruments 224,768 - 225,239 -

2.1. Structured instruments - X X X

2.2. Other debt instruments 224,768 X X X

Total 992,879 - 494,762 498,872

Key: FV = fair value CA=Carrying amount

Item 1.3 “Other loans: Other” includes loans for margin tradings paid on existing hedging derivatives.

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31/12/2014

CA FV

Type of transaction/Amounts Level 1 Level 2 Level 3

A. Loans and Receivables with Central Banks 135,486 - - 135,486

1. Term deposits - X X X

2. Obligatory reserve 135,486 X X X

3. Reverse repurchase agreements - X X X

4. Other - X X X

B. Loans and receivables with banks 1,089,509 - 645,310 440,492

1. Loans 868,445 - 427,551 440,492

1.1. Current accounts and deposit accounts 35,928 X X X 1.2. Term deposits 46,602 X X X

1.3. Other loans 785,915 X X X

- Reverse repurchase agreements 427,953 X X X

- Finance leases - X X X

- Other 357,962 X X X

2. Debt instruments 221,064 - 217,759 -

2.1. Structured instruments - X X X

2.2. Other debt instruments 221,064 X X X

Total 1,224,995 - 645,310 575,978

Key: FV = fair value CA=Carrying amount

365

SECTION 7 - LOANS AND RECEIVABLES WITH CUSTOMERS - ITEM 70

7.1 - Loans and receivables with customers: breakdown by type

31/12/2015 Carrying amount Fair Value Performing Non-performing Type of transaction/Amounts Purchased Other L1 L2 L3 Loans 12,448,147 85,286 2,517,350 - 786,186 14,738,012 1. Current accounts 2,886,456 48,599 1,082,896 X X X 2. Reverse repurchase agreements 786,220 - - X X X 3. Mortgages 6,271,638 23,776 1,215,952 X X X 4. Credit cards, personal loans and 143,828 1,477 10,772 X X X salary-backed loans 5. Finance leases 484,992 - 96,130 X X X 6. Factoring - - - X X X 7. Other loans 1,875,013 11,434 111,600 X X X Debt instruments 28,410 - 1,051 - 1,420 29,755 8. Structured instruments - - - X X X 9. Other debt instruments 28,410 - 1,051 X X X Total 12,476,557 85,286 2,518,401 - 787,606 14,767,767

Item 7. “Other loans” includes forward cash of EUR 394,482 thousand, loans for advances on bills of EUR 559,217 thousand, foreign currency loans and advances of EUR 18,907 thousand, exposures to SPEs of EUR 229,538 thousand, sundry facilities of EUR 36,491 thousand, building leases of EUR 28,166 thousand, bad loans due to loans with customers of EUR 48,341 thousand and loans and receivables with Cassa Compensazione e Garanzia of EUR 377,239 thousand.

31/12/2014 Carrying amount Fair Value Performing Non-performing Type of transaction/Amounts Purchased Other L1 L2 L3 Loans 12,554,257 - 2,422,494 - - 15,169,788 1. Current accounts 3,344,173 - 1,047,147 X X X 2. Reverse repurchase agreements 818,262 - - X X X 3. Mortgages 5,952,782 - 1,042,742 X X X 4. Credit cards, personal and salary-backed loans 128,767 - 10,720 X X X 5. Finance leases 545,993 - 111,508 X X X 6. Factoring - - - X X X 7. Other loans 1,764,280 - 210,377 X X X Debt instruments 9,383 - - - 1,507 7,903 8. Structured instruments - - - X X X 9. Other debt instruments 9,383 - - X X X Total 12,563,640 - 2,422,494 - 1,507 15,177,691

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7.2 - Loans and receivables with customers: breakdown by debtor/issuer

31/12/2015 31/12/2014

Non-performing Non-performing Type of transaction/Amounts Performing Purchased Other Performing Purchased Other 1. Debt instruments 28,410 - 1,051 9,383 - - a) Governments ------b) Other government agencies ------c) Other issuers 28,410 - 1,051 9,383 - - - non-financial companies 5,332 - 1,051 4,309 - - - financial companies 23,078 - - 5,074 - - - insurance companies ------other ------2. Loans to: 12,448,147 85,286 2,517,350 12,554,257 - 2,422,494 a) Governments 20,819 - 1 1,467 - - b) Other government agencies 30,152 - 77 26,100 - 8 c) Other parties 12,397,176 85,286 2,517,272 12,526,690 - 2,422,486 - non-financial companies 7,411,814 57,810 2,177,908 8,205,591 - 2,143,728 - financial companies 2,132,925 59 87,659 1,583,437 - 49,579 - insurance companies 2,359 - 26 10,559 - 26 - other 2,850,078 27,417 251,679 2,727,103 - 229,153 Total 12,476,557 85,286 2,518,401 12,563,640 - 2,422,494

7.3 - Loans and receivables with customers subject to specific hedging

There are no loans and receivables with customers subject to specific hedging

7.4 – Finance leases

Time bands 31/12/2015 Non-performing loans Minimum payments Gross investment Principal Interests of which of which guaranteed non- value guaranteed value up to 1 year 17,091 56,696 9,075 8,986 66,182 - between 1 and 5 years 57,019 158,970 10,683 26,446 186,853 - beyond 5 years 22,020 269,326 68,650 22,671 294,429 - Total 96,130 484,992 88,408 58,103 547,464 -

At 31 December 2015, net exposures for finance leases totalled EUR 581,122 thousand, net of impairment provisions totalling EUR 62,411 thousand. Net non-performing loans totalled EUR 96,130 thousand.

Minimum payments refer exclusively to payments expiring after the reporting period of performing loans. 367 The lease contracts agreed have the following characteristics: - all the risks and benefits related to ownership of the goods are transferred to the lessee; - upon agreement of the contract, the lessee pays an advance deposit, which will be purchased by the lessor once the contract produces income and will reduce the amount financed; - during the useful life of the contract, the lessee will make regular payments (generally on a monthly basis), which may vary in accordance with the indexing clauses; - upon termination of the contract, the lessee will have the option to purchase ownership of the goods governed by the contract at a price less than the fair value at the date that the option could be exercised, so it is reasonably certain that the option will be exercised. Since legal ownership of the goods is held by the lessor for the entire duration of the contract, the goods themselves represent the implicit guarantee against lessee exposure, therefore non- guaranteed residuals remain. In the event the goods cannot be currently sold or are subject to rapid obsolescence, the lessee, or the supplier of the goods will be requested to provide additional guarantees. The existing lease contracts mainly consist of property leasing.

368

SECTION 10 - EQUITY INVESTMENTS - ITEM 100

10.1 - Equity investments: information on the investment shares

% voting % equity Name Registered Operating rights investment office office available A. Subsidiaries Credito Siciliano S.p.A. Palermo Palermo 98.54 Creval Sistemi e Servizi Soc. Cons. P.A. Sondrio Sondrio 86.26 Stelline Real Estate S.p.A. Sondrio Sondrio 100.00 Global Assicurazioni S.p.A. Milano Milano 60.00 Cassa di Risparmio di Fano S.p.A. Fano (PU) Fano (PU) 100.00 Global Broker S.p.A. Milano Milano 51.00 B. Companies subject to joint control Rajna Immobiliare S.p.A. Sondrio Sondrio 50.00 C. Companies subject to significant influence Global Assistance S.p.A. Milano Milano 40.00 Creset - Crediti, Servizi e Tecnologie S.p.A. Milano Lecco 40.00 Valtellina Golf Club S.p.A. Caiolo (So) Caiolo (So) 43.18 Finanziaria Laziale S.p.A. in liquidation Frosinone Frosinone 20.00

The percentage of available votes is not indicated, as it corresponds to the percentage of the equity investment.

According to IAS 36, equity investments must be subject to an impairment test to ensure their recoverability in case of signs of impairment. The IFRS require the impairment test to be made by comparing the carrying amount of the equity investment with its recoverable amount. An impairment loss must be recognised where the recoverable amount is lower than the carrying amount. The recoverable amount of the equity investment is the higher between its fair value net of costs to sell and its value in use. For the purpose of the impairment procedure, subject to approval by the directors, the value in use was used for the recoverability check of the equity investments held by Credito Valtellinese in Credito Siciliano and in Carifano.

Value in use The method used for determining the value in use can be found in SECTION 12 - INTANGIBLE ASSETS - ITEM 120.

Outcome of the impairment tests The results of the impairment test revealed the need to impair the equity investment held in Carifano and in Credito Siciliano for an amount totalling EUR 5 million and EUR 50 million. The reasons that determined the need to impair the equity investments in Carifano and Credito Siciliano are attributable to the combined effects of the prolonged economic downturn and of the uncertainty on the recovery prospects that particularly impacted on the activity of the mentioned companies.

369 10.5 - Equity investments: annual changes

2015 2014 A. Opening balance 507,457 764,225 B. Increases 447,678 61,231 B.1 Purchases 49,938 45,154 B.2 Reversals of impairment losses - - B.3 Revaluations - - B.4 Other increases 397,740 16,077 C. Decreases -498,006 -317,999 C.1 Sales -397,455 -3,786 C.2 Impairment losses -55,203 -112,816 C.3 Other decreases -45,348 -201,397 D. Closing balance 457,129 507,457 E. Total revaluations - - F. Total impairment losses 247,736 192,534

The purchases of equity investments refer in particular to the purchase by Finanziaria San Giacomo S.p.A., of no. 5,000 shares equal to all the shares of Bankadati S.I. (now Creval Servizi e Sistemi S.c.p.A.) held by it for an equivalent value of EUR 35 thousand, as well as to the subscription of the capital increase in Credito Siciliano S.p.A. occurred in July 2015 for a total equivalent value of EUR 49,673 thousand (subscription of a number of shares equal to 3,478,350 and subsequent subscription of non-exercised shares of no. 69,760).

Other increases include gains on sales of 18% of the stake held in I.C.B.P.I. S.p.A. of EUR 358,476 thousand - sale occurred on 18 December 2015 at a price of EUR 397,455 thousand. Moreover, the revaluation at fair value of the deducted amount (equal to 2%), recorded in the income statement and reclassified among Available-for-sale financial assets (amount of EUR 38,968 thousand).

The impairment losses are those in Credito Siciliano S.p.A. and Carifano S.p.A. of EUR 55,000 thousand and in Valtellina Golf Club of EUR 203 thousand.

Other decreases mainly represent the reclassification among discontinued operations of 100% of the equity investment in Istifid S.p.A. of EUR 1,618 thousand and 2% of the stake held in I.C.B.P.I. S.p.A. as represented above (total equivalent value of EUR 43,206 thousand).

370 SECTION 11 - PROPERTY, EQUIPMENT AND INVESTMENT PROPERTY - ITEM 110

11.1 Property, plant and equipment for functional use: breakdown of assets measured at cost

Asset/Amounts 31/12/2015 31/12/2014 1. Owned 265,404 275,843 a) land 42,140 42,378 b) buildings 201,335 209,403 c) furniture 15,669 17,527 d) electronic systems 1 1 e) other 6,259 6,534 2. Assets acquired under finance lease - - a) land - - b) buildings - - c) furniture - - d) electronic systems - - e) other - - Total 265,404 275,843

11.2 - Investment property: breakdown of assets measured at cost

Asset/Amounts 31/12/2015 Carrying amount Fair value L1 L2 L3 1. Owned 78,762 - - 105,421 a) land 13,798 - - 18,664 a) buildings 64,964 - - 86,757 2. Assets acquired under finance lease - - - - a) land - - - - a) buildings - - - - Total 78,762 - - 105,421

Asset/Amounts 31/12/2014 Carrying amount Fair value L1 L2 L3 1. Owned 64,688 - - 81,360 a) land 11,261 - - 15,608 a) buildings 53,427 - - 65,752 2. Assets acquired under finance lease - - - - a) land - - - - a) buildings - - - - Total 64,688 - - 81,360

11.3 - Property, equipment and investment property used in the business: breakdown of revalued assets

There are no property, equipment and investment property used in the business.

11.4 - Investment property: breakdown of assets measured at fair value 371

There is no investment property designated at fair value.

11.5 - Property, equipment and investment property used in the business: annual changes

2015 Land Buildings Furniture Electronic systems Other Total A. Opening balance, gross 42,378 295,972 55,828 13 38,568 432,759 A.1 Total net depreciations - 86,569 38,301 12 32,034 156,916 A.2 Opening balance, net 42,378 209,403 17,527 1 6,534 275,843 B. Increases 528 4,859 1,137 - 2,183 8,707 B.1 Purchases - - 1,137 - 2,167 3,304 - business combinations ------B.2 Capitalised improvement costs - 4,244 - - - 4,244 B.3 Reversals of impairment losses ------B.4 Fair value gains recognised in: ------a) equity ------b) profit or loss ------B.5 Exchange rate gains ------B.6 Transfers from investment property 528 615 - - - 1,143 B.7 Other increases - - - - 16 16 C. Decreases -766 -12,927 -2,995 - -2,458 -19,146 C.1 Sales - - - - -15 -15 - business combinations ------C.2 Depreciations - -7,539 -2,811 - -2,443 -12,793 C.3 Impairment losses recognised in: ------a) equity ------b) profit or loss ------C.4 Fair value losses recognised in: ------a) equity ------b) profit or loss ------C.5 Exchange rate losses ------C.6 Transfers to: -742 -5,388 - - - -6,130 a) investment property -742 -5,388 - - - -6,130 b) discontinued operations ------C.7 Other decreases -24 - -184 - - -208 D. Closing balance, net 42,140 201,335 15,669 1 6,259 265,404 D.1 Total net depreciations - 94,108 41,112 12 34,477 169,709 D.2 Closing balance, gross 42,140 295,443 56,781 13 40,736 435,113 E. Measured at cost ------

372

11.6 - Investment property: annual changes

2015 Land Buildings A. Opening balance, gross 11,261 60,434 A.1 Total net depreciations - 7,007 A.2 Opening balance, net 11,261 53,427 B. Increases 3,210 15,556 B.1 Purchases 2,468 10,105 - of which: business combinations - - B.2 Capitalised improvement costs - 63 B.3 Fair value gains - - B.4 Reversals of impairment losses - - B.5 Exchange rate gains - - B.6 Transfers from operating assets 742 5,388 B.7 Other increases - - C. Decreases -673 -4,019 C.1 Sales -27 -696 - of which: business combinations - - C.2 Depreciations - -2,277 C.3 Fair value losses - - C.4 Impairment losses -24 -187 C.5 Exchange rate losses - - C.6 Transfers to other asset portfolios a) operating assets -528 -615 b) non-current assets held for sale -31 -244 C.7 Other decreases -63 - D. Closing balance, net 13,798 64,964 D.1 Total net depreciations - 9,285 D.2 Closing balance, gross 13,798 74,249 E. Measurement at fair value 18,664 86,757

All property, equipment and investment property are valued at cost, adjusted by the relative depreciation and any impairment losses/reversal of impairment losses. The amount of rents received from the lease of investment property are recognised in other operating income and broken down in table 13.2 of the Section of the notes to financial statements of the income statement to which reference is made.

11.7 - Commitments to purchase property, equipment and investment property

There are no commitments to purchase property, equipment and investment property.

373

SECTION 12 - INTANGIBLE ASSETS - ITEM 120

12.1 Intangible assets: breakdown by type

31/12/2015 31/12/2014

Asset/Amounts Definite Indefinite Definite Indefinite life life life life

A.1 Goodwill X X 70,194 A.2 Other intangible assets - 20,231 - A.2.1 Assets measured at cost: - 20,231 - a) internally generated intangible assets - - - b) other assets - 20,231 - A.2.2 Assets measured at fair value: - - - a) internally generated intangible assets - - - b) other assets - - - Total - 20,231 70,194

374

12.2 - Intangible assets: annual changes

2015 Other intang. assets.: Other intang. Goodwill internally assets.: other Total generated

Def Indef Def Indef

A. Opening balance 464,584 - - 31,041 - 495,625 A.1 Total impairment losses 394,390 - - 10,810 - 405,200 A.2 Opening balance, net 70,194 - - 20,231 - 90,425 B. Increases ------B.1 Purchases ------of which: business combinations ------B.2 Increases in internally generated intangible assets X - - - - - B.3 Reversals of impairment losses X - - - - - B.4 Fair value gains recognised in - equity X ------profit or loss X - - - - - B.5 Exchange rate gains ------B.6 Other increases ------C. Decreases -70,194 - - -20,231 - -90,425 C.1 Sales ------of which: business combinations ------C.2 Impairment losses - Amortisation X - - -2,322 - -2,322 - Impairment losses + equity X - - - - - + profit or loss -70,194 - - -17,909 - -88,103 C.3 Fair value losses recognised in - equity X ------profit or loss ------C.4 Transfers to non -current assets held for sale ------C.5 Exchange rate losses ------C.6 Other decreases ------D. Closing balance, net ------D.1 Total depreciations and impairment losses 464,584 - - 31,041 - 495,625 E. Closing balance, gross 464,584 - - 31,041 - 495,625 F. Measured at cost ------

Key DEF: with definite life INDEF: with indefinite life

375

12.3 - Other information

The intangible assets existing at 1 January 2015 result from the recognition of the acquisitions of the branches from Deutsche Bank in 1999 and the recognition of the merger of Bancaperta (2011), Credito Piemontese (2011), Banca dell’Artigianato e dell’Industria (2011), Credito Artigiano (2012) and Mediocreval (2014) in Credito Valtellinese. Goodwill amounted to EUR 70.2 million. Intangible assets with a definite useful life are linked to the enhancement of the acquired customer relation, recognised as a result of the allocation process of the price paid within the acquisitions carried out. Before carrying out the impairment tests, they amounted to EUR 18 million.

Goodwill

In accordance with IAS 36, goodwill must be subject to impairment tests on an annual basis to ensure its recoverability. To this end, goodwill must be allocated to individual cash generating units of the acquirer or groups of such cash generating units (hereinafter “CGU”) so that these units may benefit from the synergy of the combination, independently of whether the other assets or liabilities related to the acquisition were assigned to that unit or group of units. For Credito Valtellinese in particular, the cash-generating unit to which the entire goodwill was allocated was identified in the bank itself less the investments in associates and companies subject to joint control classified in the portfolios of Equity investments and the available-for- sale financial assets. The CGU was identified in the lowest level at which the company management estimates the return on investment and is consistent with the group reporting model prepared by the Group based on IFRS 8 Operating segments. The IFRS require the impairment test to be made by comparing the carrying amount of the CGU with its recoverable amount. An impairment loss must be recognised where the recoverable amount is lower than the carrying amount. The recoverable amount of the CGU is the higher between its fair value net of sales costs and its value in use. For the purpose of the impairment procedure, approved by the Board of Directors, the Bank - with the help of an external expert - used the value in use for the recoverability check of the recognised goodwill.

Cash flows

The value in use was determined by discounting future cash flows defined on the basis of projections approved by the directors that cover a 5-year period. The projections beyond the period covered by the plan are based on a constant growth rate (g) of 2%: it represents the long-term average growth rate and is estimated on the basis of the forecasts on the inflation rate.

The cash flows generated over the selected time period of planning and that can be distributed to shareholders allow in any case to maintain a satisfactory degree of capitalisation in terms of 376

Tier 1 and Total Capital (9.8% Tier 1 ratio target and 12.7% Total Capital ratio) compatible with the nature and the expected development of assets. It is specified in this regard that the capital ratios used for impairment test purposes are consistent with the indications on the additional capital requirements defined by the Bank of Italy at the end of the regular supervisory review process (SREP) carried out on the Creval Group.

Compared to the estimates formulated in the carrying out of the impairment tests of the previous financial statements, the flows recorded during 2015 are particularly affected by significant loan provisions due to the development of the market conditions and, albeit with minor impacts, by the contribution to the resolution fund for the banking sector.

The projections are developed within a context of reference characterised by the protraction of uncertainty, albeit in the presence of first hesitant signs of economic recovery and by the gradual normalisation of the financial markets. The main assumptions related to the development of the macroeconomic scenario and dynamics of the banking system were formulated by incorporating the effects of the update of the forecasts made by leading economic research centres (Prometeia), properly adjusted to the context and to the dynamics in which the Group operates on the basis of the knowledge and measurements gained as part of its operations in the sector of reference. With special reference to repercussions of this context on the banking activity, the following is expected: - a development of direct funding that, affected by a limited economic growth, reflects a recovery - albeit modest - of household savings; - a considerable increase in indirect funding, especially with reference to managed and insurance funds; - a trend of loans supported by a recovery of the economic cycle that will affect all demand components. Thanks to the high level of capitalisation reached during 2015, also considering the expected contribution – subject to the conclusion of the authorisation procedure of the competent Supervisory Authorities - from the validation of the Advance Internal Rating Based (AIRB) models for the calculation of the RWAs on credit risk for the corporate and retail segment, an acceleration in the recovery of loans to households is expected already as from 2016. In particular, we expect a significant increase in loans for home purchase, favoured in turn by the expected tax reliefs confirmed by the Government related to restructuring, maintenance of low market interest rates and improvement of the conditions of the real estate market. With respect to the credit for businesses, the consolidation of the economic cycle will determine the need to restock and start investments in machinery and equipment (postponed in previous years). In this perspective, it is pointed out that, in line with the Strategic Plan, during 2014 the Group started a specific project – called CuRVa, an acronym for Customer Relationship Value – aimed at revising and innovating the business service model of the Group and resulting organisation of a new territorial network structure. The lines of implementation of the project activated several interventions during 2015 including a new structure of the territorial network, the overall review of the Group’s customer segmentation and portfolio composition model, the innovation of the pricing management process and of the related derogation authorisation processes as well as the introduction of a “value” business plan leading to the review of the reporting system (known as Action and Report Room); - a gradual recovery in the medium term of the rates of reference that, together with a cost of funding expected to be substantially low, will favour a gradual increase in spread from customers; - a development of net fee and commission income deriving from traditional business channels such as current accounts and payment systems favoured by the increase in 377

productivity of the network and by the development of strategic partnerships, specifically signed with Anima Management Holding in managed funds, with leading insurance companies in bancassurance, with Compass (personal loans), IBL Banca (CQS) and Banca Sistema (factoring), Alba Leasing (leasing), Fire Group (credit recovery) and the Cerved and Yard Credit Management Group (NPL management); - a substantial normalisation of operating costs; - a cost of credit risk in gradual reduction as from 2016 as a result of an expected improvement in the economic environment. All the forecast figures used are sensitive to the change in the macroeconomic scenario that is significantly affected by the uncertainty of the timing and strength of the recovery of the Italian economy, in particular.

Discount rate

In calculating the value in use, the cash flows must be discounted at a rate that includes both the time value of money and the risks of the business. In line with the current evaluation method, the post-tax discount rate (ke) amounts to 8.1%.

The discount rate applied corresponds to the cost of the risk capital, equal to the equity yield rate requested by investors/shareholders for investments with similar risk characteristics. This rate is estimated by using the Capital Asset Pricing Model (“CAPM”) on the basis of the formula below: ke = Rf + Beta * (Rm-Rf), where Rf = rate of return for risk free investments, considered as equal to the annual average return of ten-year long-term treasury bonds issued by the Italian government, equal to 1.70%; Rm - Rf = premium for the risk requested by the market, considered equal to 5.4%, in line with the evaluation method. Compared to what is provided in the 2014 financial statements (5%), the premium for the risk was updated in order to take account of the increase recorded as from 2014 in estimated premiums for the risk for advanced economies, as shown by the most authoritative academic studies;

Beta = factor correlating the actual return of a share and the overall return of the reference market (measuring the volatility of a security with respect to the market), equal to 1.19, which represents the average beta related to a sample of the main Italian listed banks.

Summarised below is the post-tax discount rate used for the CGU:

Ke parameters 2015 2014 Risk free (Rf) 1.70% 2.87% Beta 1.19 1.18 Market risk Premium 5.4% 5% (Rm-Rf) Discount rate (ke) 8.1% 8.8%

Outcome of the impairment tests

The impairment test carried out on the goodwill recorded in the separate financial statements showed the need to fully impair the goodwill of approximately EUR 70 million. The reasons that led to this impairment loss are attributable to the combined effects of the prolonged economic

378 downturn and of the uncertainty on the recovery prospects that particularly impacted on the operating area of the company.

Intangible assets with a definite useful life

Assets with a definite useful life linked with relationships with customers are represented by core deposits. The value of intangible assets linked to the core deposits is related to the future benefits that the purchaser of the deposits in current account and savings deposits can benefit from in the long term that expresses the residual duration of the relation. These intangible assets with a definite useful life are amortised on a straight-line basis over the period in which most of the expected economic benefits will fall, i.e. 16 years for the intangible asset linked to the core deposits deriving from the purchase of the branches of Intesa Sanpaolo and 14 years for those deriving from the purchase of Carifano - for the part referring to the branches not included in the business branch demerged from Credito Artigiano as a result of the merger with Carifano - and Banca Cattolica. The amortisation period was established by considering the years of decline of half the deposits subject to valuation and by hypothesising the same number of years of decline for the residual portion. According to IAS 36, the recoverable amount of intangible assets with a definite useful life must be calculated every time there is evidence of impairment. If this evidence exists, the impairment test must be made by comparing the carrying amount of the asset net of its amortisation with its recoverable amount. An impairment loss will have to be made where the recoverable amount is lower than the carrying amount. The recoverable amount of the asset is the higher between its fair value net of costs to sell and its value in use. In order to calculate the value in use of the intangible asset, reference must be made to the cash flows of the intangible asset in current conditions on the impairment test date, regardless of the fact that these flows were generated by the intangible asset originally recognised when applying IFRS 3. Therefore the cash flows concerning the core deposits and the asset management relations determined for the verifications for the purpose of the impairment test refer to the technical form considered in the initial valuation of the intangible asset with the amounts existing at 31 December 2015 of Credito Valtellinese since it is no longer possible to differentiate the flows referring to the intangibles acquired compared to those generated by the other assets acquired subsequently. Therefore, the value in use is calculated as the current value of the future income margins generated from the existing transactions at the valuation date along a time horizon that expresses their residual duration. The results of the analysis carried out for determining the recoverable amount referring to the customer lists of Credito Valtellinese show a markedly smaller contribution to the cash flow generation of these items - for a significant time horizon - compared to the one taken as reference for the enhancement of the original flows. Consequently, the residual amount of assets with a definite useful life referring to Credito Valtellinese was fully written down, amounting to approximately EUR 18 million.

Therefore, the carrying amount of intangible assets with a finite useful life (customer list) at 31 December 2015 is zero.

379

SECTION 13 - TAX ASSETS AND LIABILITIES - ITEM 130 UNDER ASSETS AND ITEM 80 UNDER LIABILITIES AND EQUITY

13.1 - Deferred tax assets: breakdown

IRES IRAP 31/12/2015 31/12/2014 Valuation of available-for-sale financial assets 1,053 459 1,512 1,631 Valuation of loans and receivables with customers 264,466 31,759 296,225 308,860 Non-deductible depreciations of property, equipment and investment property 3,464 654 4,118 3,632 Impairment, exemption or amortisation of intangible assets 154,105 33,412 187,517 211,305 Accruals to provisions for risks and charges 23,687 1,281 24,968 24,565 Tax losses that may be carried forward in the future 11,160 - 11,160 - Other 17,416 503 17,919 7,320 Total 475,351 68,068 543,419 557,313

The item “Other” contains deferred tax assets on Ace deductions referring to 2015 of EUR 9,898 thousand.

13.2 – Deferred tax liabilities: breakdown

IRES IRAP 31/12/2015 31/12/2014 Valuation of available-for-sale financial assets 11,588 5,025 16,613 1,381 Gains on sale 735 2,967 3,702 - Conferment of the business unit - - - 996 Other 834 8 842 472 Total 13,157 8,000 21,157 2,849

13.3 - Changes in deferred tax assets (recognised in profit or loss)

2015 2014 1. Opening balance 547,509 394,910 2. Increases 68,809 174,666 2.1 Deferred tax assets recognised in the year 68,809 165,523 a) relating to previous years 171 - d) other 68,638 165,523 2.3 Increases due to business combinations - 9,143 3. Decreases -82,803 -22,067 3.1 Deferred tax assets cancelled during the year -6,350 -22,067 a) reversals -6,350 -22,067 3.4 Other decreases -76,453 - a) conversion into tax assets as per Italian Law 214/2011 -76,453 - 4. Closing balance 533,515 547,509

380 13.3.1 - Changes in deferred tax assets as per Italian Law 214/2011 (recognised in profit or loss)

2015 2014 1. Opening balance 518,624 375,096 2. Increases 29,947 164,550 3. Decreases -76,453 -21,022 3.1 Reversals - -18,768 3.2 Conversions into tax assets -76,453 - 1. deriving from losses for the year -76,453 - 3.3 Other decreases - -2,254 4. Closing balance 472,118 518,624

13.4 - Changes in deferred tax liabilities (recognised in profit or loss)

2015 2014 1. Opening balance 1,218 131 2. Increases 2,944 1,126 2.1 Deferred tax liabilities recognised in the year 2,944 1,126 c) other 2,944 1,126 3. Decreases -71 -39 3.1 Deferred tax liabilities cancelled during the year -71 -39 a) reversals -71 -39 4. Closing balance 4,091 1,218

13.5 - Changes in deferred tax assets (recognised in equity)

2015 2014 1. Opening balance 9,804 19,726 2. Increases 2,487 6,888 2.1 Deferred tax assets recognised in the year 2,487 6,853 c) other 2,487 6,853 2.3 Increases due to business combinations - 35 3. Decreases -2,388 -16,810 3.1 Deferred tax assets cancelled during the year -1,818 -16,810 a) reversals -1,818 -16,810 3.4 Other decreases -570 - 4. Closing balance 9,903 9,804

Deferred tax assets recognised in equity shown above include deferred tax assets as per Italian Law no. 214/2011 of EUR 1,172 thousand at 31 December 2015 (EUR 1,742 thousand at 31 December 2014).

381

13.6 - Changes in deferred tax liabilities (recognised in equity)

2015 2014 1. Opening balance 1,631 172 2. Increases 15,527 1,476 2.1 Deferred tax liabilities recognised in the year 15,527 1,476 c) other 15,527 1,476 3. Decreases -93 -17 3.1 Deferred tax liabilities cancelled during the year -93 -17 a) reversals -93 -17 4. Closing balance 17,065 1,631

13.7 - Other information

Briefly, the regulation that allows the conversion of deferred tax assets provides that: - upon the occurrence of losses for the year recognised in the separate financial statements, the DTA are transformed into tax assets. The transformation works in an amount corresponding to the portion of the loss for the year that corresponds to the ratio between the DTA and the amount of share capital and reserves; - any portion of the mentioned DTA that contributes to the formation of a tax loss for IRES purposes or of a negative value of production with reference to IRAP, is converted into tax assets by disabling the limits of recoverability contemplated for tax losses; - the tax asset is non-interest bearing. It can be used, without amount restrictions, offsetting against other tax (including those deriving from the withholding agent activity) and contributory liabilities within each bank and tax consolidation. Moreover, the asset can be transferred at nominal value in accordance with the procedure as per Article 43-ter of Italian Presidential Decree 602/1973 and can be claimed as a reimbursement of the residual portion after offsetting.

The deferred tax assets recognised in the financial statements are mainly due to impairment losses of loans and receivables exceeding the immediate deductibility limit expected by the tax

382 regulation and to goodwill and therefore fall within the scope of application of the above regulations.

As a result of accounting losses arising from the financial statements, the amount of deferred tax assets converted in 2015 in tax asset amounted to EUR 77 million.

Aiuto alla Crescita Economica (Aid to economic growth) Article 1 of Italian Law Decree no. 201 of 6 December 2011, converted by law no. 214 of 22 December 2011, introduced in our legal system, effective as from the current tax period at 31 December 2011, a tax benefit that consists in a deduction from the taxable income of the notional return of capital contributions. The measure, called “ACE” (“Aiuto alla Crescita Economica”, Aid to economic growth), provides an incentive to capitalisation, as cash contributions and as earnings reinvested in the company. The facility consists in an annual deduction from the IRES of an amount equal to a certain percentage (4.5% for the 2015 tax period) of the increase in equity for the year, within the limits of the equity deriving from the financial statements for the period, with the exception of reserves for the purchase of own shares.

Briefly, the ACE base – to which the notional return must be applied – is defined and calculated pursuant to paragraph 5 of Article 1 of Italian Law Decree no. 201/2011, as well as on the basis of more specific rules provided for in Article 5 of the implementation decree. In particular, cash contributions and retained earnings - except those to non-available reserves - contribute to the formation of the new capital as increases, whereas reductions in equity with attribution to shareholders for any reason, purchases of investments in subsidiaries, purchases of companies or business units, contribute to the formation of the new capital as decreases. For the operations carried out within the same group, the ACE base must be reduced by an amount equal to cash contributions, to the acquisition of investments and companies and to the increase in financial loans compared to those resulting from the financial statements for the current financial year at 31 December 2010. The reduction of the amount of the ACE tax base for these operations automatically applies because of a specific presumption with an anti- tax-evasion ratio, aimed at avoiding the duplication of the benefit within groups of companies, except for the possibility of submitting a ruling of non-application aimed at derecognising the reduction of the ACE base at issue. The upholding of the ruling of non-application submitted in 2014 determined an extraordinary tax benefit of EUR 5 million that is added to the ordinary ACE contribution accrued at 31 December 2015 of EUR 9.8 million.

2016 Stability Law

Reduction of the IRES tax rate The 2016 Stability Law (Italian Law no. 208 of 28 December 2015), in particular, paragraphs from 61 to 64 of Article 1, lay down provisions aimed at reducing the Italian corporate income 383 tax – IRES. In particular, the IRES rate is decreased from 27.5% to 24%, effective as from 1 January 2017. Additional IRES for banking and financial institutions

The subsequent paragraphs from 65 to 69 of the stability law also introduce the additional IRES of 3.5% for banking and financial institutions and make the interest expense fully deductible from IRES in favour of the beneficiaries of the IRES increase. Those who have opted for the group taxation or for the transparency system (in that controlled) apply the additional tax autonomously and make the payment without taking account of the income attributed by the investee company.

The interest expense in favour of the beneficiaries of the IRES increase, i.e. the banking and financial institutions, are fully deductible from IRES. The full deductibility is also due for IRAP purposes (this provision may result in the loss of the deduction for IRES purposes of the portion calculated on a flat rate basis of 10% of IRAP, related to the contribution of non- deductible interest expense to the formation of the value of the regional tax production). The application of the rules introduced both with reference to the additional IRES and with reference to the repeal of the partial deductibility of interest expense is effective as from the tax period following the current one at 31 December 2016. The recognition of deferred tax assets and liabilities – including the probability tests, where required - was carried out considering these new regulations, with reference to the taxable and deducible timing differences that will be reversed as from the 2017 financial year.

In order to discuss the risks related to disputes pending with regard to the financial authorities, reference is made to the contents of Part E of the notes to the financial statements.

384

SECTION 14 - NON-CURRENT ASSETS HELD FOR SALE AND DISPOSAL GROUPS AND ASSOCIATED LIABILITIES - ITEM 140 UNDER ASSETS AND ITEM 90 UNDER LIABILITIES AND EQUITY

14.1 - Non-current assets held for sale and disposal groups: breakdown by type of asset

31/12/2015 31/12/2014 A. Individual assets: A.1 Financial assets - - - - A.2 Equity investments - 1,619 - - A.3 Property, equipment and investment property - 275 - - A.4 Intangible assets - - - - A.5 Other non-current assets - - - - Total A - 1,894 - - of which measured at cost - 1,619 - - of which measured at fair value level 1 - - - - of which measured at fair value level 2 - - - - of which measured at fair value level 3 - 275 - - B. Groups of discontinued operations - - - - B.1. Financial assets held for trading - - - - B.2 Financial assets at fair value through profit or loss - - - - B.3 Available-for-sale financial assets - - - - B.4 Held-to-maturity investments - - - - B.5 Loans and receivables with banks - - - - B.6 Loans and receivables with customers - - - - B.7 Equity investments - - - 15,000 B.8 Property, equipment and investment property - - - - B.9 Intangible assets - - - - B.10 Other assets - - - - Total B - - - 15,000 of which measured at cost - - - 15,000 of which measured at fair value level 1 - - - - of which measured at fair value level 2 - - - - of which measured at fair value level 3 - - - - C. Liabilities associated with discontinued - - - - operations - - - - C.1 Payables - - - - C.2 Securities - - - - C.3 Other liabilities - - - - Total C - - - - of which measured at cost - - - - of which measured at fair value level 1 - - - - of which measured at fair value level 2 - - - - of which measured at fair value level 3 - - - - D. Liabilities associated with - - - - disposal groups - - - - D.1 Due to banks - - - - D.2 Due to customers - - - - D.3 Securities issued - - - - 385

D.4 Financial liabilities held for trading - - - - D.5 Financial liabilities at fair value - - - - D.6 Provisions - - - - D.7 Other liabilities - - - - Total D - - - - of which measured at cost - - - - of which measured at fair value level 1 - - - - of which measured at fair value level 2 - - - - of which measured at fair value level 3 - - - -

14.2 - Other information

Non-current assets held for sale include the equity investment held in Istifid and an investment property for which a preliminary sale agreement was signed.

SECTION 15 - OTHER ASSETS - ITEM 150

15.1 - Other assets: breakdown

31/12/2015 31/12/2014 Amounts due from the tax authorities 63,087 53,041 Cheques drawn on the bank to be settled 21,090 32,519 Counterparts for securities and coupon payments to be received 3,999 228 Sundry items to be charged to customers and banks 44,788 38,780 Costs and advances pending financial allocation 4,077 5,592 Receivables related to the supply of goods and services 6,647 4,311 Leasehold improvements 3,743 4,792 Accruals not recorded separately 237 103 Other items 41,984 18,655 Total 189,652 158,021

“Sundry items to be charged to customers and banks” include protested bills of EUR 38,645 thousand. “Other items” refers to different outstanding items and to amounts at branches and central entities pending financial allocation.

386

LIABILITIES AND EQUITY

SECTION 1 - DUE TO BANKS - ITEM 10

1.1 - Due to banks: breakdown by type

Type of transaction/Amounts 31/12/2015 31/12/2014 1. Due to central banks 1,802,629 4,536,247 2. Due to banks 989,608 1,334,581 2.1 Current accounts and deposit accounts 342,877 552,390 2.2 Term deposits 509,088 603,535 2.3 Loans 131,028 175,328 2.3.1 repurchase agreements 8,883 13,555 2.3.2 other 122,145 161,773 2.4 Payables for commitments to repurchase own equity instruments - - 2.5 Other payables 6,615 3,328 Total 2,792,237 5,870,828 Fair value - level 1 - - Fair value - level 2 2,261,530 168,900 Fair value - level 3 471,638 5,695,499 Total fair value 2,733,168 5,864,399

The item “2.3.2 Loans other” mainly refers to loans received from the European Investment Bank.

1.2 - Breakdown of item 10 “Due to banks”: subordinated debts

There are no subordinated debts in “Due to banks.

1.3 - Breakdown of item 10 “Due to banks”: structured debts

There are no structured debts in “Due to banks.

1.4 - Due to banks subject to specific hedging

There are no due to banks subject to specific hedging.

1.5 - Payables for finance leases

There are no payables for finance leases.

387

SECTION 2 - DUE TO CUSTOMERS - ITEM 20

2.1 - Due to customers: breakdown by type

Type of transaction/Amounts 31/12/2015 31/12/2014 1. Current accounts and deposit accounts 10,193,929 9,883,477 2. Term deposits 1,213,341 1,548,333 3. Loans 2,492,920 284,721 3.1 repurchase agreements 2,144,345 183,491 3.2 other 348,575 101,230 4. Payables for commitments to repurchase own equity instruments - - 5. Other payables 391,022 561,579 Total 14,291,212 12,278,109 Fair value - level 1 - - Fair value - level 2 3,358,655 1,828,742 Fair value - level 3 10,936,305 10,453,685 Total fair value 14,294,960 12,282,427

Item 3.1 “Repurchase agreements” mainly contains transactions with Cassa Compensazione e Garanzia, item 3.2 “Loans - other” mainly refers to medium to long-term loans received by Cassa Depositi e Prestiti following the agreement between ABI and the Cassa Depositi e Prestiti in support of SMEs, whereas item 5 “Other payables” refers to the amount due to the Sme and Rmbs 2014 vehicles of EUR 357,485 thousand (EUR 522,723 thousand at 31 December 2014).

2.2 - Breakdown of item 20 “Due to customers”: subordinated debts

There are no subordinated debts in due to customers.

2.3 - Breakdown of item 20 “Due to customers”: structured debts

There are no structured debts in due to customers.

2.4 - Due to customers subject to specific hedging

There are no amounts due to customers subject to specific hedging

2.5 - Payables for finance leases

There are no payables for finance leases.

388

SECTION 3 - SECURITIES ISSUED - ITEM 30

3.1 - Securities issued: breakdown by type

31/12/2015 31/12/2014 Carrying Fair value Carrying Fair value Type of instrument/ Amounts amount Level 1 Level 2 Level 3 amount Level 1 Level 2 Level 3 A. Securities

1. bonds 2,884,590 - 2,948,273 - 3,802,175 417,534 3,444,054 - 1.1 structured ------1.2 other 2,884,590 - 2,948,273 - 3,802,175 417,534 3,444,054 - 2. other securities 115,433 - 115,433 - 83,539 - 83,539 - 2.1 structured ------2.2 other 115,433 - 115,433 - 83,539 - 83,539 - Total 3,000,023 - 3,063,706 - 3,885,714 417,534 3,527,593 -

3.2 - Analysis of item 30 “Securities issued”: subordinated securities

The above bonds include the subordinated bond issues indicated in part F - Information on equity.

3.3 - Analysis of item 30 “Securities issued”: securities with specific hedging

There are no securities with specific hedging.

389

SECTION 4 - FINANCIAL LIABILITIES HELD FOR TRADING - ITEM 40

4.1 - Financial liabilities held for trading: breakdown by type

Type of transaction/Amounts 31/12/2015 NV FV FV* L1 L2 L3 A. On -statement of financial position liabilities 1. Due to banks - - - - - 2. Due to customers - - - - - 3. Debt instruments - - - - X 3.1 Bonds - - - - X 3.1.1 structured - - - - X 3.1.2 other bonds - - - - X 3.2. Other securities - - - - X 3.2.1 structured - - - - X 3.2.2 other - - - - X Total A - - - - - B. Derivatives - - - - - 1. Financial derivatives X - 1,857 1,339 X 1.1 trading X - 1,857 1,339 X 1.2 associated with fair value option X - - - X 1.3 other X - - - X 2. Credit derivatives X - - - X 2.1 trading X - - - X 2.2 associated with fair value option X - - - X 2.3 other X - - - X Total B X - 1,857 1,339 X Total (A+B) X - 1,857 1,339 X

390

31/12/2014

NV FV Type of transaction/Amounts FV* L1 L2 L3 A. On-statement of financial position liabilities - - - - - 1. Due to banks - - - - - 2. Due to customers - - - - - 3. Debt instruments - - - - X 3.1. bonds - - - - X 3.1.1 structured - - - - X 3.1.2 other bonds - - - - X 3.2. Other securities - - - - X 3.2.1 structured - - - - X 3.2.2 other - - - - X Total A - - - - - B. Derivatives - - - - - 1. Financial derivatives X 3,231 3,029 X 1.1 trading X 3,231 3,029 X 1.2 associated with fair value option X - - - X 1.3 other X - - - X 2. Credit derivatives X - - - X 2.1 trading X - - - X 2.2 associated with fair value option X - - - X 2.3 other X - - - X Total B X 3,231 3,029 X Total (A+B) - 3,231 3,029 -

4.2 - Breakdown of item 40 “Financial liabilities held for trading”: subordinated liabilities

The financial liabilities held for trading do not include subordinated liabilities.

4.3 - Breakdown of item 40 “Financial liabilities held for trading”: structured debts

The financial liabilities held for trading do not include structured debts.

391 SECTION 6 - HEDGING DERIVATIVES - ITEM 60

6.1 Hedging derivatives: breakdown by type of hedge and level

31/12/2015 31/12/2014 Fair Value Fair value NV NV L1 L2 L3 L1 L2 L3

A. Financial derivatives - 269,496 - 600,000 - 308,718 600,000

1) Fair value - 269,496 - 600,000 - 308,718 600,000

2) Cash flows - - - - -

3) Investments in foreign operations - - - - -

B. Credit derivatives - - - - -

1) Fair value - - - - -

2) Cash flows - - - - -

Total - 269,496 - 600,000 - 308,718 600,000

Key NV = nominal value L1= Level 1 L2= Level 2 L3 = Level 3

The hedging derivatives are represented by IRS purchased to hedge the interest rate risk on Italian government securities (BTP) included in the portfolio of available-for-sale financial assets.

6.2 - Hedging derivatives: breakdown by hedging portfolios and by type of hedge

31/12/2015

Fair Value Financial flows Investments

in foreign Transactions/Type of hedge operations Specific

more interest currency credit price than Generic rate Specific Generic risk risk risk one risk risk

1. Available-for-sale 269,496 - - - - X - X X financial assets

2. Loans and receivables - - - X - X - X X

3. Held- X - - X - X - X X to-maturity investments

4. Portfolio X X X X X - X - X

5. Other transactions - - - - - X - X -

Total assets 269,496 ------

1. Financial liabilities - - - X - X - X X

2. Portfolio X X X X X - X - X

Total liabilities - - - X - - - - -

1. Expected transactions X X X X X X - X X

2. Other financial assets and X X X X X - X - - liabilities

392

SECTION 8 - TAX LIABILITIES - ITEM 80

See section 13 - Tax assets and liabilities.

SECTION 10 - OTHER LIABILITIES - ITEM 100

10.1 - Other liabilities: breakdown

31/12/2015 31/12/2014 Amounts due to tax authorities for indirect taxes 2,323 5,330 Amounts due to social security and welfare institutions 8,111 8,315 Amounts due to government agencies on behalf of third parties 33,812 23,772 Sundry items to be credited to customers and banks 24,704 19,180 Amounts available to customers 48,962 50,403 Amounts payable to employees 15,474 7,978 Value date differences on portfolio transactions 107,570 96,520 Items in transit between branches 479 737 Guarantees given and commitments 9,737 8,842 Accruals other than those capitalised 2,954 4,427 Negative value of management contracts - - Payables related to the supply of goods and services 18,825 17,046 Sundry and residual items 134,486 225,143 Total 407,437 467,693

In particular, “Sundry items to be credited to customers and banks” include amounts for loans still to be granted to customers of EUR 13,699 thousand. “Other sundry items” of EUR 39,175 thousand refers to transit items relating to securitisation, in addition to amounts at branches and head offices pending financial allocation and transit items.

SECTION 11 - POST-EMPLOYMENT BENEFITS - ITEM 110

11.1 - Post-employment benefits: annual changes

2015 2014 A. Opening balance 29,976 26,959 B. Increases 7,613 10,907 B.1 Accruals 7,613 10,705 B.2 Other increases - 202 C. Decreases -12,483 -7,890 C.1 Benefits paid -5,070 -437 C.2 Other decreases -7,413 -7,453 D. Closing balance 25,106 29,976

393

C.2 “Other decreases” includes the amounts transferred to the Group Pension Fund and the Treasury Fund of INPS. B.1 “Accruals” also includes interest expense of EUR 432 thousand and actuarial gains, recognised in equity, of EUR 193 thousand (in 2014 the item included interest expense of EUR 855 thousand and actuarial losses recognised in equity of EUR 2,358 thousand).

11.2 - Other information The post-employment benefits may be included among the defined benefit plans not directly financed.

The present value of the post-employment benefits (Defined Benefit obligation) amounts at year end to EUR 25,106 thousand, compared to EUR 29,976 thousand at the end of 2014, as shown in table 11.1. This amount has been calculated through an actuarial method called the Projected Unit Credit Method and using the actuarial assumptions described below.

In the event of shifts in the interest rate curve by +0.5%, the decrease in the provision would be EUR 951 thousand, whereas a decrease in the rate of -0.5% would imply an increase in the provision of EUR 1,007 thousand.

The amount of the post-employment benefits determined pursuant to Article 2120 of the Italian Civil Code totals EUR 24,224 thousand .

Reconciliation of the opening and closing balances of the defined benefit liability:

2015 Opening balance 29,976 Use of post-employment benefits -4,672 Interest expense 432 Social security cost -437 Actuarial gains/losses -193 Closing balance 25,106

394

SECTION 12 - PROVISIONS FOR RISKS AND CHARGES - ITEM 120

12.1 - Provisions for risks and charges: breakdown

Item/Amounts 31/12/2015 31/12/2014 1. Company pension funds 34,142 32,612 2. Other provisions for risks and charges 53,527 52,269 2.1 legal disputes 12,753 12,551 2.2 personnel expenses 24,382 36,323 2.3 other 16,392 3,395 Total 87,669 84,881

12.2 - Provisions for risks and charges: annual changes

2015

Item/Amounts Pension Personnel Legal Other funds expenses disputes funds A. Opening balance 32,612 36,323 12,551 3,395 B. Increases 4,131 4,718 1,387 13,120 B.1 Accruals - 3,792 607 12,652 B.2 Discounting 521 480 284 197 B.3 Variations due to changes in the discount rate - 361 496 271 B.4 Other increases 3,610 85 - - C. Decreases -2,601 -16,659 -1,185 -123 C.1 Utilisation in the year -1,936 -9,411 -1,185 -123 C.2 Variations due to changes in the discount rate -78 -39 - - C.3 Other decreases -587 -7,209 - - D. Closing balance 34,142 24,382 12,753 16,392

12.3 - Defined benefit company pension funds

1. Illustration of the characteristics of funds and related risks

The defined benefit company pension fund of Credito Valtellinese, which does not feature autonomous and separate management, consists of provisions for the commitment undertaken directly by Credito Valtellinese towards its retired employees. There have been no new entries since 31 December 2003. The amount allocated represents the estimated actuarial debt, equal to EUR 34,142 thousand at 31 December 2015. The actuarial amount is calculated at “every” year-end, with the assistance of an actuary. The former Credito Artigiano S.p.A internal pension fund, with dedicated equity, represents the amount due to employees for supplementary retirement plan. In particular, it represents the estimated actuarial debt, at the end of the reporting period, to: 1. active employees who, when setting up the capitalisation fund, opted for a defined life annuity, as provided by the previous regulation; 2. the retired employees and the survivors of ex employees owners of deferred life annuities to be granted in accordance with the previous regulation.

395

New entries are no longer provided also for this fund. The present value of defined benefit liability of EUR 12,464 thousand, in accordance with the IAS 19 accounting standard, is set off against the corresponding plan assets (fair value of EUR 12,766 thousand). The actuarial amount is calculated at “every” year-end, with the assistance of an actuary.

2. Changes for the year in net liabilities (assets) with defined benefits and in rights to reimbursement

At 31 December 2014, the present value of defined benefit liability of Credito Valtellinese was equal to EUR 32,025 thousand. During the period under review a total of EUR 1,936 thousand benefits were disbursed, interest expense accrued amounted to EUR 521 thousand and the actuarial losses calculated amounted to EUR 3,532 thousand. Actuarial losses are recognised into equity. At 31 December 2014, with respect to the former Credito Artigiano S.p.A. fund, the present value of defined benefit liability was equal to EUR 12,592 thousand. During the year, a total of EUR 753 thousand benefits were disbursed, interest expense accrued amounted to EUR 205 thousand and the actuarial losses calculated totalled EUR 420 thousand. Actuarial losses are recognised into equity. The obligation outstanding at 31 December 2015 was EUR 12,464 thousand directly financed by the dedicated plan totalling EUR 12,766 thousand.

3. Information on fair value of plan assets

The obligation outstanding of Credito Valtellinese at 31 December 2015 derives from pension plans not directly financed. With regard to the fund of the former Credito Artigiano S.p.A., the assets used directly to fund defined benefit plans amounted to EUR 12,005 thousand at 31 December 2014. Considering the contributions paid of EUR 753 thousand, contributions of EUR 587 thousand and a positive return on plan management of EUR 927 thousand, assets amounted to EUR 12,766 thousand at 31 December 2015 These assets are broken down as follows: shares, OEIC units and bonds of EUR 12,329 thousand and liquidity of EUR 437 thousand.

396

4. Description of the main actuarial assumptions

The present value of both mathematical reserves of the retired employees is equal to the current actuarial value of the pension that they will be paid in the future, considering the reversibility. The value of the assets mathematical reserve (only for the former Credito Artigiano fund) is equal to the present actuarial value of the future services, net of the sum of the present actuarial value of the future benefits and the set percent contribution.

Actuarial assumptions 2015 2014 Mortality rate IPS55 tables IPS55 tables Disability rate INPS-1998 tables INPS-2000 tables Discount rate 1.85% 1.58% Rate of increase in services 1.53% 1.50%

5. Information on amount, timing and uncertainty on financial flows

In the event of shifts in the interest rate curve by +0.5%, the decrease in the internal fund of Credito Valtellinese would be EUR 1,883 thousand, whereas a change in the rate of -0.5% would imply an increase in the fund of EUR 2,078 thousand.

The estimated actuarial debt of Credito Valtellinese amounted to EUR 34,142 thousand at 31 December 2015 compared to EUR 32,025 thousand in 2014 and EUR 29,404 thousand in 2013. The estimated actuarial debt of Credito Artigiano amounted to EUR 12,464 thousand at 31 December 2015 compared to EUR 12,592 thousand in 2014 and EUR 10,939 thousand in 2013. The assets allocated to the directly funded defined-benefit plan amounted to EUR 12,766 thousand at 31 December 2015, compared to EUR 12,005 thousand in 2014 and EUR 11,954 thousand in 2013.

6. Multi-employer plans

There are no multi-employer plans.

7. Defined-benefit plans that share the risks among entities under joint control

There are no defined-benefit plans that share the risks among entities under joint control.

12.4 - Provisions for risks and charges - other provisions

Provisions for risks and charges for the personnel concern:

- charges for long-service bonuses disbursed to employees calculated in accordance with actuarial valuations (EUR 1,182 thousand); - 2012 solidarity fund (EUR 1,078 thousand); - 2014 solidarity fund (EUR 21,906 thousand); - voluntary redundancy incentives (EUR 216 thousand). 397

Charges for long-service bonuses disbursed to employees are discounted at the rate of 1.85%. In case of an increase in the rate by 0.50%, the provision would decrease by EUR 50 thousand, in case of a decrease in the rate by 0.50%, the provision would increase by EUR 53 thousand.

The 2012 Solidarity Fund is discounted at the rate of 0.25%, in case of an increase in the rate by 0.50%, the provision would decrease by EUR 5 thousand.

The 2014 Solidarity Fund is discounted at the rate of 0.25%, in case of an increase in the rate by 0.50%, the provision would decrease by EUR 254 thousand.

Provisions for risks and charges for legal disputes concern:

- bankruptcy liquidations (EUR 3,562 thousand); - financial instruments (EUR 1,693 thousand); - other lawsuits linked to banking activities (EUR 5,000 thousand). - out-of-court claims (EUR 2,361 thousand) and active cases (EUR 137 thousand).

Provisions for risks and charges related to existing legal disputes against the banks are discounted at the rate of 0.18%. A presumed increase in the rate of 0.50% would decrease the provision by EUR 110 thousand.

Other provisions for risks and charges mainly refer to a provision carried out considering the regulatory provision (Italian Law Decree 183/2015 and 2016 Stability Law) which provides for the increase of the maximum draw-down limit of the resolution fund to face up to any further requests to rescue the four Italian banks in resolution (Popolare Etruria, Banca Marche, Carichieti and Cariferrara) The outflow of resources was considered likely in connection with an event already occurred and an amount equal to 2 additional portions of EUR 10 million was set aside.

For further details on the nature of legal risks, please refer to the specific chapter of part E of the notes to the financial statements.

398

SECTION 14 - COMPANY EQUITY - ITEMS 130, 150, 160, 170, 180, 190 AND 200

14.1 “Share capital” and “Treasury shares”: breakdown

The share capital of Credito Valtellinese - fully subscribed and paid-in - amounted to EUR 1,846,817 thousand at 31 December 2015, comprising 1,108,872,369 ordinary shares. The portfolio contained 60,000 treasury shares of EUR 100 thousand, i.e. 0.005% of total shares outstanding at the end of the period. No shares were sold or purchased during the period.

14.2 Share capital - number of shares: annual changes.

Items/Types 2015 Ordinary Other A. Shares at the beginning of the year 1,108,872,369 - - fully paid-up 1,108,872,369 - - not fully paid-up - - A.1 Treasury shares (-) -60,000 - A.2 Outstanding shares: opening balance 1,108,812,369 - B. Increases - - B.1 New issues - - - against payment: - - - business combinations - - - conversion of bonds - - - exercising of warrants - - - other - - - free: - - - on behalf of employees - - - on behalf of directors - - - other - - B.2 Sale of treasury shares - - B.3 Other increases - - C. Decreases - - C.1 Cancellation - - C.2 Repurchase of treasury shares - - C.3 Disposals of companies - - C.4 Other decreases - - D. Outstanding shares: final balance 1,108,812,369 - D.1 Treasury shares (+) 60,000 - D.2 Shares outstanding at the end of the year 1,108,872,369 - - fully paid-up 1,108,872,369 - - not fully paid-up - -

14.4 Income-related reserves: other information

The item Income-related reserves includes the Legal Reserve (allocated pursuant to the laws in force), the Extraordinary reserve (allocated pursuant to an option provided by the Articles of Association, which derives its funds from the profits exceeding the legal reserve and dividend

399 distribution), and Other Reserves. The other changes in reserves for the period refer to the covering of the loss of the previous financial year.

14.6 - Other information

Reported below is the Statement of distribution and availability of equity (Article 2427, paragraph 7-bis of the Italian Civil Code).

Uses in the last four period Portion of profits Amount Utilisation Amount In thousands of EUR eligible for 31/12/2015 option (*) available Loss Other reasons tax relief (**) coverage (5) Share capital 1,846,817 114,641

Share premium reserve 39,004 A, B, (1) 39,004 -555,147 -66,135

Treasury shares -100 Equity instruments Valuation reserves: 59,299 Valuation reserves for available-for-sale financial assets 71,026 (2)

Valuation reserve for property, equipment and investment property A , B, C (3) -20,629 Reserve for actuarial gains/losses of post-employment benefit fund -11,580 Valuation reserves of equity-accounted investments -147

Other reserves: 81,102 Legal reserve 80,993 B (4) 80,993

Extraordinary reserve A,B,C -31,690

Reserve ex art. 13 par. 6 - Italian Lgs. D. 124/93 A,B,C -104

Available reserve for under common control A,B,C -1,132

Reserve art.1, par. 469-476 Italian L.266/2005 and art. 7 par. 4 Italian Lgs.D. 38/2008 A,B,C (3) -2,699

Reserve Art. 1, par.469-476 Italian L.266/2005 re-established as a result of the mergers A,B,C (3) -19,721

Reserve Italian L. no. 72/1983 re-established as a result of the mergers A,B,C (3) -112

Reserve Italian L. no. 342/2000 re-established as a result of the mergers A,B,C (3) -354

Available reserve - IAS first time adoption A,B,C -190

Available reserve for warrant conversion established in 2013 and 2014 A,B,C -27,355 Other available reserves -37,090 Unavailable reserve for treasury shares 100 Unavailable reserve Art. 7, par.7 Italian Lgs. D. 38/2005 re-established as a result of the mergers 9

Net income for the period (***) 225,092 Total 2,251,214 119,997 -659,133 -103,225 114,641

400

(*) A: for share capital increase, B: as loss coverage, C: for distribution to Shareholders. (**) Amounts eligible for tax relief that, if distributed, contribute to the taxable income (Article 109 p.4 Income Tax Consolidation Act). (***) The net income for the period contains a non distributable portion of EUR 36,262 thousand pursuant to the provisions of Article 6 of Italian Legislative Decree no. 38 of 28 February 2005, corresponding to the gain, net of the related tax expense, deriving from fair value measurement of the residual investment in I.C.B.P.I. (2%) at the time of transfer from item 100. Equity investments to item 40. Available-for-sale financial assets, following the failure of the significant influence on the company.

(1) Pursuant to Article 2431 of the Italian Civil Code, the reserve can be distributed only for the part that exceeds the amount required for the legal reserve to reach the one-fifth of the share capital. At 31 December 2015, the legal reserve did not reach one fifth of the share capital. (2) This reserve, if positive, is unavailable pursuant to Article 6 of Italian Legislative Decree 38/2005. (3) This reserve may be decreased only in observance of the provisions of Article 2445, paragraphs 2 and 3 of the Italian Civil Code. If the reserve is used to cover losses, no profit distribution can occur until the reserve is replenished or reduced by the same amount. (4) It can be used for a bonus share capital increase only for the portion in excess of one fifth of the share capital. At 31 December 2015, the legal reserve did not reach one fifth of the share capital. (5) Uses other reasons: - coverage of the negative equity items deriving from the mergers in Credito Valtellinese of Bancaperta, Credito Piemontese, Banca dell’Artigianato e dell’Industria through the use of available reserves occurred in 2012 amounting to EUR 37,090 thousand; - the share premium reserve was used for the coverage of the negative equity items deriving from the merger into Credito Valtellinese of Credito Artigiano occurred in 2013 amounting to EUR 49,880 thousand; - the share premium reserve was used for the coverage of the negative difference from public exchange offer on Credito Siciliano occurred in 2013 amounting to EUR 3,365 thousand; - finally, coverage of the T Bond costs through the use of share premium reserve of EUR 2,175 thousand, as well as the coverage of the merger deficit of Deltas of EUR 60 thousand by using the share premium reserve; - the share premium reserve was used for the coverage of the negative difference from the merger of Mediocreval occurred in 2015 amounting to EUR 1,797 thousand; - the use in 2015 of the share premium reserve for the coverage of the negative item resulting from the recognition in equity of the costs related to the share capital increase (net of the related tax effect) in 2014 of EUR 8,858 thousand.

401 OTHER INFORMATION

1 - Guarantees given and commitments

Transactions 31/12/2015 31/12/2014 1) Financial guarantees a) Banks - 18,209 b) Customers 40,657 16,007 2) Commercial guarantees a) Banks 15,297 16,408 b) Customers 620,890 781,089 3) Irrevocable commitments to grant finance a) Banks i) certain to be called on 2,766 2,287 ii) not certain to be called on 7 7 b) Customers i) certain to be called on - 10,410 ii) not certain to be called on 520,053 701,756 4) Commitments underlying credit derivatives: protection sales - - 5) Assets pledged as guarantee for third-party commitments - - 6) Other commitments 59,012 49,600 Total 1,258,682 1,595,773

The item “Commitments uncertain to be called on” includes - margins available in favour of the customers of EUR 451.3 million; - the commitment undertaken by the Bank for subscribing residual shares of the SME Fund of EUR 9.6 million; - the commitment undertaken by the Bank for subscribing residual shares of the Anthilia Fund of EUR 9.7 million; - the commitment undertaken by the Bank for subscribing residual shares of the Bernina Social Housing of EUR 10 million; - commitments for loans to be granted of EUR 34 million.

2 - Assets pledged as guarantee for the Bank’s liabilities and commitments

Portfolios 31/12/2015 31/12/2014 1. Financial assets held for trading 40,057 44,233 2. Financial assets at fair value through profit or loss - - 3. Available-for-sale financial assets 2,654,450 3,213,841 4. Held-to-maturity investments - - 5. Loans and receivables with banks 537,375 784,014 6. Loans and receivables with customers 3,127,855 2,691,642 7. Property, equipment and investment property - -

The assets indicated above were used as a guarantee for funding repurchase agreements, issue of bank drafts, derivatives as well as loan received from the European Central Bank, recognised among due to central banks in table 1.1 “Due to banks breakdown by type” and of 402 loans received from the European Investment Bank recognised among due to banks – Loans in table 1.1. “Due to banks breakdown by type” and by Cassa Depositi e Prestiti for investments recognised among due to customers – Loans in table 2.1 “Due to customers breakdown by type”.

3 - Information on operating leases

In terms of operating leases, the Bank acts solely as lessee. The main operating lease contracts that cannot be cancelled are car hire lease contracts that provide for future minimum payments: - EUR 587 thousand within one year - EUR 864 thousand between one and five years - no payment due after more than five years. For all these contracts, in 2015 minimum payments totalling EUR 945 thousand were recorded as costs.

4 - Management and trading on behalf of third parties

Type of service 31/12/2015 31/12/2014

1. Execution of orders on behalf of customers a) Purchases 1. settled - - 2. unsettled - - b) Sales 1. settled - - 2. unsettled - - 2. Portfolio management a) individual - - b) collective - - 3. Custody and administration of securities a) third-party securities held on deposit: when acting as custodian bank

(excluding portfolio management) 1. securities issued by the reporting bank - - 2. other securities - - b) other third-party securities held on deposit (excluding portfolio management): others 1. securities issued by the reporting bank 2,442,192 3,104,234 2. other securities 6,680,653 9,985,296 c) third-party securities deposited with third parties 8,930,188 13,391,749 d) treasury securities deposited with third parties 8,492,979 11,257,974 4. Other transactions (*) 1,644,856 1,343,768

(*) The amount under item 4. “Other transactions” refers to the market value of the insurance premiums collected at 31 December 2015.

“Treasury securities deposited with third parties” also includes portfolio securities not recognised under assets; these are ABS securities coming from self-securitisations.

403

5-6 - Financial assets and liabilities offset in the financial statements, or subject to master netting or similar agreements.

Related Amount amounts not of Net amount of Gross offset in the 31/12/2015 31/12/2014 financial financial amount financial liabilities assets shown Financial of statements Technical forms offset in in the instruments financial the financial (d) assets Cash financial statements deposits Net amount (a) Net amount statement (c=a-b) received as (f=c-d-e) s (b) collateral (e)

1. Derivatives 353 - 353 - 353 - 1,180 2. Reverse repurchase 786,220 - 786,220 782,247 - 3,973 6,838 agreements 3. Securities lending ------

4. Other ------

Total at 31/12/2015 786,573 - 786,573 782,247 353 3,973 X

Total at 31/12/2014 820,264 - 820,264 811,424 822 X 8,018

404

Amount Related of Net amount of amounts not Gross financial financial offset in the 31/12/2015 31/12/2014 amount assets liabilities Financial financial of Technical forms offset in shown in the instruments statements financial the financial (d) liabilities Cash financial statements Net amount (a) deposits as Net amount statement (c=a-b) (f=c-d-e) s (b) collateral (e)

1. Derivatives 271,563 - 271,563 - 271,563 - - 2. Reverse repurchase 2,132,196 - 2,132,196 2,123,686 8,510 - - agreements 3. Securities lending ------4. Other ------Total at 31/12/2015 2,403,759 - 2,403,759 2,123,686 280,073 - X

Total at 31/12/2014 453,219 - 435,219 140,898 312,321 X -

The derivatives indicated in the table are at fair value, whereas the other items are measured at amortised cost.

Reverse repurchase agreements are indicated in the tables breaking down loans and receivables with banks and with customers, whereas derivatives are indicated in the financial assets and liabilities contained in Part B - Information on the statement of financial position.

7 - Securities lending

At 31 December 2015, there were no securities lending.

405 PART C – INFORMATION ON THE INCOME STATEMENT

SECTION 1 - INTEREST - ITEMS 10 AND 20

1.1 - Interest and similar income: breakdown

Debt Other Items/Technical forms Loans 2015 2014 instruments transactions 1. Financial assets held for trading 4,678 - - 4,678 2,230 2. Available-for-sale financial assets 78,360 - - 78,360 80,772 3. Held-to-maturity investments - - - - - 4. Loans and receivables with banks 3,189 1,956 - 5,145 10,238 5. Loans and receivables with customers 509 448,301 - 448,810 550,655 6. Financial assets at fair value through profit or loss - - - - - 7. Hedging derivatives X X - - - 8. Other assets X X 2,326 2,326 5 Total 86,736 450,257 2,326 539,319 643,900

The interest accrued on loans of item “5. Loans and receivables with customers” includes interest on non-performing loans of EUR 92,136 thousand. Item “8. Other assets” conventionally includes interest income on financial liabilities that are remunerated with a negative rate.

1.2 – Interest income and similar income: differentials relating to hedging transactions

There are no differentials relating to hedging transactions.

1.3 - Interest and similar income: other information

1.3.1 - Interest income on foreign currency financial assets

2015 2014 Interest income on foreign currency assets 730 1,490

1.3.2 Interest income on finance lease transactions

2015 2014 Interest on finance lease transactions 11,865 21,618

406

1.4 - Interest and similar expense: breakdown

Other Items/Technical forms Payables Securities 2015 2014 transactions 1. Due to central banks (1,976) X - (1,976) (4,580) 2. Due to banks (3,663) X - (3,663) (9,601) 3. Due to customers (70,893) X (737) (71,630) (131,058) 4. Securities issued X (95,109) - (95,109) (117,538) 5. Financial liabilities held for trading - - (939) (939) (1,013) 6. Financial liabilities at fair value through profit or loss - - - - - 7. Other liabilities and provisions X X (163) (163) - 8. Hedging derivatives X X (24,171) (24,171) (22,521) Total (76,532) (95,109) (26,010) (197,651) (286,311)

Item 7. “Other liabilities and provisions” conventionally include interest on assets with a negative rate.

1.5 - Interest and similar expense: differences relative to hedging transactions

Items/Sectors 2015 2014 A. Gains on hedging transactions 11,047 12,729 B. Losses on hedging transactions (35,218) (35,250) C. Balance (A-B) (24,171) (22,521)

1.6 - Interest and similar expense: other information

1.6.1 - Interest expense on foreign currency liabilities

2015 2014 Interest expense on foreign currency liabilities (523) (536)

1.6.2 - Interest expense on finance lease transactions

There is no interest expense on finance lease transactions.

407

SECTION 2 - FEES AND COMMISSIONS - ITEMS 40 AND 50

2.1 - Fee and commission income: breakdown

Type of services/Amounts 2015 2014 a) guarantees given 6,941 7,768 b) credit derivatives - - c) management, trading and consulting services: 56,609 48,124 1. trading of financial instruments 2 3 2. currency trading 4,056 4,169 3. portfolio management - - 3.1 individual - - 3.2 collective - - 4. custody and administration of securities 482 585 5. custodian bank - - 6. placement of securities 18,039 11,867 7. order acceptance and transmission 6,392 6,555 8. consulting services 466 1,037 8.1 on investments - 14 8.2 on financial structuring 466 1,023 9. distribution of third party services 27,172 23,908 9.1. portfolio management 15,011 13,402 9.1.1. individual 15,011 13,402 9.1.2. collective - - 9.2. insurance products 10,486 8,506 9.3. other products 1,675 2,000 d) collection and payment services 59,067 59,085 e) servicing for securitisation transactions 779 739 f) factoring transaction services - - g) tax collection services - - h) management of multilateral trading facilities - - i) current account management 37,770 39,664 j) other services 46,478 53,418 Total 207,644 208,798

Fee and commission income included under “j) other services” refers to commissions on arranged overdraft of EUR 42,033 thousand and commissions for loans origination - deriving from financial assets or liabilities not at fair value - recognised in the income statement of EUR 2,836 thousand.

408 2.2 - Fee and commission income: distribution channels of products and services

Channels/Amounts 2015 2014 a) at Bank branches: 45,211 35,775 1. portfolio management - - 2. placement of securities 18,039 11,867 3. third party products and services 27,172 23,908 b) outside bank branches: - - 1. portfolio management - - 2. placement of securities - - 3. third party products and services - - c) other distribution channels: - - 1. portfolio management - - 2. placement of securities - - 3. third party products and services - -

2.3 - Fee and commission expense: breakdown

Services/Amounts 2015 2014 a) guarantees received (1,992) (11,552) b) credit derivatives - - c) management and trading services: (1,486) (1,689) 1. trading of financial instruments (3) (171) 2. currency trading (7) (2) 3. portfolio management: - - 3.1 own account - - 3.2 for third parties - - 4. custody and administration of securities (1,476) (1,516) 5. placement of financial instruments - - 6. off-premises provision of financial instruments, products and services - - d) collection and payment services (17,531) (16,920) e) other services (1,103) (2,209) Total (22,112) (32,370)

409

SECTION 3 - DIVIDENDS AND SIMILAR INCOME - ITEM 70

3.1 - Dividends and similar income: breakdown

2015 2014

Items/Income Dividends Income from OEIC units Dividends Income from OEIC units

A. Financial assets held for trading 2 - 17 -

B. Available-for-sale financial assets 1,999 - 1,289 -

C. Financial assets at fair value through profit or loss - - - -

D. Equity investments 8,792 X 10,761 X

Total 10,793 - 12,067 -

Dividends from equity investments refer to dividends paid during the year mainly by Global Assicurazioni and Istituto Centrale delle Banche Popolari. Dividends on available-for-sale financial assets refer in particular to the interest in Anima Holding S.p.A..

SECTION 4 - PROFITS (LOSSES) ON TRADING - ITEM 80

4.1 - Profits (losses) on trading: breakdown

Profits (Losses) Trading Gains Trading on Transactions/Income components income Losses (C) (A) losses (D) trading (B) [(A+B)- (C+D)] 1. Financial assets held for trading 205 3,374 (3,205) (20,103) (19,729) 1.1 Debt instruments 187 3,371 (3,127) (20,103) (19,672) 1.2 Equity instruments 18 3 (78) - (57) 1.3 OEIC units - - - - - 1.4 Loans - - - - - 1.5 Other - - - - - 2. Financial liabilities held for trading - - - - - 2.1 Debt instruments - - - - - 2.2 Payables - - - - - 2.3 Other - - - - - 3. Financial assets and liabilities: X X X X 1,576 exchange rate differences 4. Derivatives 904 5,083 - (5,083) 4,229 4.1 Financial derivatives: - On debt instruments and interest rates 904 5,083 - (5,083) 904 - On equity instruments and stock market share indices ------On currencies and gold X X X X 3,325 - Other - - - - - 4.2 Credit derivatives - - - - - Total 1,109 8,457 (3,205) (25,186) (13,924)

Trading income and expense mainly refer to transactions involving Government bonds.

410 SECTION 5 - FAIR VALUE ADJUSTMENTS IN HEDGE ACCOUNTING- ITEM 90

5.1 - Fair value adjustments in hedge accounting: breakdown

Italian Government bonds (BTP) in the banking book of Available-for-sale financial assets were hedged, with the objective of hedging the variability of the relevant fair value component linked to changes in interest rates, excluding the residual component of the credit risk, whose effects remain in the relevant Equity reserve. To this end, IRS starting forward of about months were used. They were entered into together with the purchase of underlying securities.

411 SECTION 6 - PROFIT (LOSS) ON SALE/REPURCHASE - ITEM 100

6.1 – Profit (loss) on sale/repurchase: breakdown

2015 2014 Net profit Net profit Items/Income components Profit Losses Profit Losses (loss) (loss) Financial assets 1. Loans and receivables with banks 1,107 - 1,107 58 - 58 2. Loans and receivables with customers 202 (535) (333) 466 (1,172) (706) 3. Available-for-sale financial assets 3.1 Debt instruments 87,772 (1,548) 86,224 119,485 (438) 119,047 3.2 Equity instruments 2,637 (1) 2,636 321 (4) 317 3.3 OEIC units ------3.4 Loans ------4. Held-to-maturity investments ------Total assets 91,718 (2,084) 89,634 120,330 (1,614) 118,716 Financial liabilities 1. Due to banks ------2. Due to customers ------3. Securities issued 441 (1,276) (835) 735 (980) (245) Total liabilities 441 (1,276) (835) 735 (980) (245)

Profits on debt instruments mainly concern transactions of Italian Government bonds whereas losses on equity instruments mainly refer to the total sale of shares in Sia S.p.A. and A2A S.p.A.. Profits and losses on loans and receivables from customers refer in particular to the sale of bad loans carried out during the year to Fenice Holding S.p.A. and finally profits related to loans and receivables with banks derive from the sale of bank debt instruments.

412 SECTION 8 - NET IMPAIRMENT LOSSES - ITEM 130

8.1 - Net impairment losses on loans and receivables: breakdown

Impairment losses Reversals of impairment Transactions/Income components losses 2015 2014

Individual Collective Individual Collective

Derecognition Other A B A B

A. Loans and receivables with banks ------

- Loans ------

- Debt instruments ------

B. Loans and receivables with customers (21,440) (483,034) - 62,976 66,830 - 12,116 (362,552) (540,956)

Purchased non-performing loans (888) (9,215) X 6,479 118 X X (3,506) - and receivables

- Loans (888) (9,215) X 6,479 118 X X (3,506) -

- Debt instruments - - X - - X X - -

Other loans and receivables (20,552) (473,819) - 56,497 66,712 - 12,116 (359,046) (540,956)

- Loans (20,552) (472,768) - 56,497 66,712 - 12,116 (357,995) (540,956)

- Debt instruments - (1,051) - - - - - (1,051) -

C. Total (21,440) (483,034) - 62,976 66,830 - 12,116 (362,552) (540,956)

Key: A = from interest B = other reversals

8.2 - Net impairment losses on available-for-sale financial assets: breakdown

Reversals of Impairment losses 2015 2014 impairment losses Transactions/Income components Individual Individual Derecognition Other A B A. Debt instruments ------B. Equity instruments - (1,893) X X (1,893) (1,365) C. OEIC units - (22) X - (22) (255) D. Loans and receivables with banks ------E. Loans and receivables with customers ------F. Total - (1,915) - - (1,915) (1,620)

Key: A = from interest B = other reversals

As provided under Group accounting policies, the impairment process of available-for-sale financial assets starts if there are indicators that lead to the presumption that the original carrying amount 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 instruments and the OEIC units included as “Available-for-sale financial assets”, there are certain quantity indicators that represent estimates of significant and 413 prolonged fair value decreases to below the carrying amount 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 an impairment loss in the income statement refer to market quotations or valuations lower than the initial carrying amount for an amount higher than 30%; or the recognition of quotations or valuations that are lower than the carrying amount for a period of more than 18 months. Exceeding one of these thresholds leads to the recognition of impairment. The application of this policy resulted in the recognition of impairment losses totalling EUR 1,915 thousand mainly relating to Fenice Holding S.p.A. (EUR 1,348 thousand) and Sviluppo Como (EUR 345 thousand).

8.3 - Net impairment losses on held-to-maturity investments: breakdown

There are no held-to-maturity investments.

8.4 - Net impairment losses on other financial transactions: breakdown

Reversals of impairment Impairment losses losses 2015 2014 Transactions/Income components Individual Collective Individual Collective Derecognition Other A B A B A. Guarantees given - (2,935) (907) - 3,085 - 750 (7) (3,677) B. Credit derivatives ------C. Commitments to grant finance - - (889) - - - - (889) (1,787) D. Other transactions ------E. Total - (2,935) (1,796) - 3,085 - 750 (896) (5,464)

Key A = from interest B = other reversals

414 SECTION 9 - ADMINISTRATIVE EXPENSES - ITEM 150

9.1 - Personnel expenses: breakdown

Type of expense/Amounts 2015 2014 1) Employees (192,771) (225,704) a) wages and salaries (126,049) (130,322) b) social security charges (38,932) (39,300) c) post-employment benefits (7,770) (9,276) d) pension expenses - - e) accrual for post-employment benefits (89) (901) f) accrual for pension and similar provisions: - defined contribution - - - defined benefit (537) (900) g) payments to external supplementary pension funds: - defined contribution (6,367) (6,282) - defined benefit (47) (327) h) costs of share-based payment plans - - i) other employee benefits (12,980) (38,396) 2) Other personnel in service (1,770) (490) 3) Directors and statutory auditors (2,424) (2,541) 4) Retired personnel (1,074) (931) 5) Cost recoveries for employees seconded to other companies 12,933 13,102 6) Cost reimbursement for third party employees seconded to the bank (3,689) (4,132) Total (188,795) (220,696)

415 9.2 - Average number of employees by category

2015 2014 Employees: 2,502 2,568 a) executives 37 39 b) middle managers 1,013 1,010 c) other employees 1,452 1,519 Other personnel 5 9 Total 2,507 2,577

9.3 - Defined benefit company pension funds: costs and revenues

The total costs for 2015 amount to EUR 726 thousand equal to the interest expense relating to the two pension funds Credito Valtellinese and former Credito Artigiano. Actuarial losses of EUR 3,953 thousand are recognised in equity and management returns and contributions totalling EUR 1,514 thousand.

9.4 - Other employee benefits

Other employee benefits include expenses with regard to employees for: - production bonuses (EUR 8,674 thousand);

- meal voucher expenses (EUR 3,172 thousand); Other employee benefits referring to 2014 include the provision to the “Solidarity Fund” for the credit sector and early retirement incentives of EUR 30 million to assist the voluntary retirement of employees.

416 9.5 - Other administrative expenses: breakdown

2015 2014 Fees for professional and consulting services (30,365) (23,032) Insurance premiums (2,380) (2,524) Advertising (3,734) (3,372) Postage, telephone and data transfer (2,594) (3,340) Printed materials and stationery (788) (878) Data processing services (56,786) (56,398) Electricity, heating and shared property service charges (7,311) (7,652) Administrative and logistics costs (1,624) (2,098) Property management (13,482) (15,110) Transport and travel (1,657) (1,881) Security and transport of valuables (3,062) (3,498) Membership fees (2,310) (1,982) Audit fees (1,089) (1,035) Commercial and financial information (3,411) (4,087) Rent payable (18,246) (18,807) Indirect personnel expenses (2,242) (2,101) Entertainment expenses (390) (395) Taxes (37,656) (39,036) Contractual charges for treasury management services (923) (1,197) Meeting costs (1,458) (1,441) SRF and DGS contributions (22,772) - Miscellaneous items (2,601) (2,799) Total (216,881) (192,661)

The previous period was restated with respect to the maintenance of the systems that were reclassified from the item “Miscellaneous items” to the item “Property management”. The item “Miscellaneous items” includes donations to Fondazione Credito Valtellinese of EUR 2,416 thousand. With reference to the fees paid to the Audit Company KPMG S.p.A., please refer to what is indicated as an annexe to the financial statements (Article 2427 Italian Civil Code, first paragraph point 16-bis).

Contributions to SRF and DGS The BRRD (Bank Recovery and Resolution Directive – 2014/59/EU) sets out the new rules for resolution that will be applied as from 1 January 2015 to all the banks of the European Union. The measures of the BRRD will be financed by the National Fund for the resolution that each of the 28 Member States will have to set up. It is expected for the funds to be paid in advance to reach by 31 December 2024 a minimum target level of 1% of guaranteed deposits. An ex-post extraordinary contribution is also envisaged if the available financial means are not sufficient to finance the resolution, to the maximum extent equal to three times the annual amount of ordinary contributions. The Single Resolution Mechanism Regulation 2014/806/EU, which became effective as from 1 January 2016, establishes also the creation of the Single Resolution Fund (SRF), which will be managed by the new European resolution authority (Single Resolution Board – SRB).

417 Italian Legislative Decree no. 180 of 16 November 2015, containing the implementation in Italian regulations of the BRRD, provides for the obligation to establish one or more single resolution funds as from 2015. Therefore, the Bank of Italy, as Single Resolution Board established the Single Resolution Fund for 2015 with Measure no. 1226609/15 of 18 November 2015. The annual contributions of each intermediary were calculated as the ratio of the amount of its liabilities net of own funds, protected deposits and, for entities belonging to groups, intercompany liabilities. The contribution base was adjusted on the basis of the risk profile of the intermediaries. The correction for the risk can determine a discount (at the most 20%) or a penalisation (up to 50%) to be applied to the base contribution. Based on this logic, it was requested to pay the annual amounts for a total of EUR 5.2 million. Italian Law Decree no. 183 of 23 November 2015 applied, as from 23 November 2015, the resolution instrument of the so-called “bridge bank” envisaged by the BRRD to Banca delle Marche Spa, Banca Popolare dell’Etruria e del Lazio ScpA, Cassa di Risparmio della provincia di Chieti Spa and Cassa di Risparmio di Ferrara Spa. Considering the requirement to resort immediately to the resources of the Fund in the framework of the crisis resolution programme of the mentioned Banks, it was necessary to collect the extraordinary contribution, in accordance with Article 83 of the mentioned Italian Legislative Decree 180/2015 and of Article 4 of Measure no. 1226609715 establishing the Fund. Considering the above-mentioned intervention requirements, the extraordinary contributions were drawn down equal to three years of ordinary contributions amounting to EUR 15.4 million. The Deposit Guarantee Schemes Directive 2014/49/EU strengthens the protection of the depositors and harmonises the regulatory framework at EU level. The new directive requires all Member States to adopt an ex-ante financing system, whose target level is set at 0.8% of guaranteed deposits to be reached in 10 years. The Extraordinary meeting of the Interbank deposit protection fund, during the meeting of 26 November 2015, approved the amendments to the Articles of Association of the Fund aimed at anticipating the introduction of the new financing mechanism envisaged by directive 2014/49/EU (DGSD), broken down in ordinary contributions (ex‐ante) and extraordinary contributions (ex‐post). In particular, Article 21, paragraph 1, lays down that the Fund established available financial resources up to the target‐ level equal to 0.8% of total protected deposits no later than 3 July 2024, through ordinary contributions of participating banks. The Board of the Fund established the measure of the ex-ante contribution for 2015, fixed at 50% of the annual amount and adapted to the amount of the protected deposits at 30 September 2015. The amount paid for 2015 by the banks of the Group is equal to EUR 2.2 million.

418

SECTION 10 - NET ACCRUALS TO PROVISIONS FOR RISKS AND CHARGES - ITEM 160

10.1 - Net accruals to provisions for risks and charges: breakdown

Items 2015 2014 Provision for legal disputes and claims from liquidators (1,020) (2,022)

- reallocation 367 1,864

- provisions (1,387) (3,886) Provision for sundry risks and charges (12,896) (1,433)

- reallocation 141 -

-provisions (13,037) (1,433) Total (13,916) (3,455) Other provisions for risks and charges mainly refer to a provision carried out considering the regulatory provision (Italian Law Decree 183/2015 and 2016 Stability Law) which provides for the increase of the maximum draw-down limit of the resolution fund to face up to any further requests to rescue the four Italian banks in resolution (Popolare Etruria, Banca Marche, Carichieti and Cariferrara). The outflow of resources was considered likely in connection with an event already occurred and an amount equal to 2 additional portions of EUR 10 million was set aside.

SECTION 11 - DEPRECIATION AND NET IMPAIRMENT LOSSES ON PROPERTY, EQUIPMENT AND INVESTMENT PROPERTY - ITEM 170

11.1 - Depreciation and net impairment losses on property, equipment and investment property: breakdown

Assets/Income components 2015

Depreciatio Impairment Reversals of impairment Carrying amount

n (a) losses (b) losses (c) (a+b-c) A. Property, equipment and investment property A.1 Owned - Operational property, equipment and (12,792) - - (12,792) investment property - Investment property (2,277) - - (2,277)

A.2 Acquired through a finance lease

- Operational property, equipment and - - - - investment property - Investment property - - - - B. Discontinued operations - (211) - (211) Total (15,069) (211) - (15,280)

419

SECTION 12 - AMORTISATION AND NET IMPAIRMENT LOSSES ON INTANGIBLE ASSETS - ITEM 180

12.1 - Amortisation and net impairment losses on intangible assets: breakdown

2015 Reversals of Carrying Amortisation Impairment losses Assets/Income components impairment amount (a) (b) losses (c) (a+b-c) A. Intangible assets A.1 Owned - Generated internally - - - - - Other (2,322) (17,909) - (20,231) A.2 Acquired through a finance lease - - - - Total (2,322) (17,909) - (20,231)

Amortisation refers to intangible assets with a definite useful life linked with relationships with customers. Impairment losses refer to the impairment of customer lists, in that the analysis carried out for determining the recoverable amount referring to this item showed a markedly smaller contribution to the cash flow generation of these items - for a significant time horizon - compared to the one taken as reference for the enhancement of the original flows. Consequently, the residual amount was fully amortised by EUR 17,909 thousand.

420 SECTION 13 - OTHER OPERATING NET INCOME - ITEM 190

13.1 - Other operating expenses: breakdown

2015 2014 Ordinary maintenance costs for investment property - - Amortisation of leasehold improvements (2,023) (2,835) Other expenses (1,626) (1,629) Total (3,649) (4,464)

13.2 - Other operating income: breakdown

2015 2014 Rent receivable 1,318 820 Rent receivable from group companies 1,229 1,313 Recovery of loan setup fees 2,873 3,730 Income from real estate services (including income from review of prices on real estate agreements underway) - - Income from other services 778 739 Recovery of indirect taxes 33,377 35,003 Recovery of expenses on services to group companies 7,274 7,601 Reversals to the income statement of valuation reserves - - Recovery of insurance policy payments 880 910 Contingent rents recognised as income - - Recovery of legal and notarial costs 8,070 6,855 Profit on conferment of the business unit - 14,305 Changes in property works in progress - - Revenues from property sales - - Other income 6,906 2,436 Total 62,705 73,712

For 2015 the item “Other income” mainly includes income from collections on purchased bad loans of EUR 2,912 thousand and income from lease contract termination of EUR 1,825 thousand.

421 SECTION 14 - NET GAINS (LOSSES) ON EQUITY INVESTMENTS - ITEM 210

14.1 - Net gains (losses) on equity investments: breakdown

Income components/Amounts 2015 2014 A. Income 397,446 526 1. Revaluations - - 2. Profits on sale 358,476 526 3. Reversals of impairment losses - - 4. Other income 38,970 - B. Expense (55,203) (112,816) 1. Impairment - - 2. Impairment losses (55,203) (112,816) 3. Losses on sale - - 4. Other expenses - - Net gains (losses) 342,243 (112,290)

As already represented in the Report on operations, on 18 December 2015 the sale to Mercury Italy S.r.l. (vehicle indirectly owned by the Bain Capital, Advent International and Clessidra Sgr funds) of 85.29% of the share capital held in I.C.B.P.I at a price determined based on a valuation of 100% of the capital of EUR 2,150 million was finalised.

Credito Valtellinese – which held 20.4% of the share capital of I.C.B.P.I – sold 18.4%, maintaining a residual investment of 2%. The sale of the equity investment led to the recognition of a profit totalling EUR 358,476 thousand. The residual investment was measured at fair value (reclassified among Available- for-sale financial assets following the loss of significant influence) recognising in the income statement the positive difference compared to the carrying amount (amount of EUR 38,970 thousand recognised in other income of the table above). Impairment losses refer to the impairment determined following the results of the impairment tests on the equity investments held in Carifano S.p.A. and Credito Siciliano S.p.A., respectively for the amounts of EUR 5,000 thousand and EUR 55,000 thousand in addition to Valtellina Golf Club of EUR 203 thousand. For further details, reference should be made to what was indicated in part B of the notes to the financial statements section 10 – Equity investments and section 12 – Intangible assets.

SECTION 16 - GOODWILL IMPAIRMENT LOSSES - ITEM 230

16.1 - Goodwill impairment losses: breakdown

The goodwill was fully impaired by EUR 70,194 thousand following the results of the impairment tests carried out on it (EUR -75,000 thousand of impairment losses compared to the 2014 corresponding figures). For further details, reference should be made to what was indicated in part B of the notes to the financial statements section 12 – Intangible assets.

422 SECTION 17 - NET GAINS (LOSSES) ON SALES OF INVESTMENTS - ITEM 240

17.1 - Net gains (losses) on sales of investments: breakdown

Income components/Amounts 2015 2014 A. Property - Profits on sale 64 - - Losses on sale (81) (158) B. Other assets - Profits on sale 22 2 - Losses on sale - (3) Net gains (losses) 5 (159)

SECTION 18 - INCOME TAXES - ITEM 260

18.1 - Income taxes: breakdown

Income components/Amounts 2015 2014

1. Current taxes (-) - (51,309)

2. Changes in current taxes of prior years (+/-) 12,088 2,859

3. Reduction in current taxes for the year (+) - -

3. bis Reduction in current taxes for the year for credit taxes as per Italian Law no. 214/2011 (+) - -

4. Change in deferred tax assets (+/-) 62,879 143,456

5. Change in deferred tax liabilities (+/-) (2,874) (1,086)

6. Income taxes for the year (-) (-1 +/-2 +3 + 3 bis +/-4 +/-5) 72,093 93,920

18.2 - Reconciliation between theoretical tax expense and actual tax expense - IRES

2015 Pre -tax profit from continuing operations 122,986 Pre -tax profit from discontinued operations 30,432 Taxable income 153,418

Theoretical tax expense - IRES (42,190) Effect of non-deductible negative components of income (29,272) Effect of non-taxable positive components of income 136,857 Effective tax expense - IRES 65,395 - on continuing operations 65,813 - on discontinued operations (418)

The participation exemption system was applied to the gains on sales of I.C.B.P.I. and Finanziaria San Giacomo (Article 87 Income Tax Consolidation Act).

423

18.2 - Reconciliation between theoretical tax expense and actual tax expense - IRAP

2015 Pre-tax profit from continuing operations 122,986 Pre-tax profit from discontinued operations 30,432 Taxable income 153,418

Theoretical tax expense - IRAP (8,545) Effect of non-deductible negative components of income (8,874) Effect of non-taxable positive components of income 23,699 Effect of lower tax rates - Effective tax expense - IRAP 6,279 - on continuing operations 6,279 - on discontinued operations -

424 SECTION 19 - POST-TAX PROFIT (LOSS) FROM DISCONTINUED OPERATIONS - ITEM 280

19.1 - Post-tax profit (loss) from discontinued operations: breakdown

Income components/Amounts 2015 2014

1. Income 9,496 - 2. Expense - - 3. Gain (loss) on disposal groups and associated liabilities - - 4. Gains (losses) on sales 20,935 - 5. Taxes (418) - Profit (loss) 30,013 -

19.2 - Breakdown of income taxes on discontinued operations

2015 1. Current taxation (-) - 2. Change in deferred tax assets (+/-) (418) 3. Change in deferred tax liabilities (-/+) - 4. Income taxes for the year (-1+/-2 +/-3) (418)

SECTION 21 - EARNINGS PER SHARE

21.1 - Average number of ordinary shares with diluted share capital

Please refer to the corresponding section in the notes to the consolidated financial statements.

21.2 - Other information

Please refer to the corresponding section in the notes to the consolidated financial statements.

425 PART D - STATEMENT OF COMPREHENSIVE INCOME

ANALYTICAL STATEMENT OF COMPREHENSIVE INCOME

Gross Income Net Items amount tax amount 10. Profit (Loss) for the year X X 225,092 Other comprehensive income without reclassification to profit or loss 40. Defined-benefit plans (3,021) 831 (2,190) Other comprehensive income with reclassification to profit or loss 72,297 (15,574) 56,723 100. Available-for-sale financial assets 72,297 (15,574) 56,723 a) fair value gains (losses) 159,243 (43,207) 116,036 b) reclassification to profit or loss (86,946) 27,633 (59,313) - impairment losses 1,914 (112) 1,802 - gains (losses) on sales (88,860) 27,745 (61,115) 130. Total other comprehensive income 69,276 (14,743) 54,533 140. Comprehensive income (Item 10+130) 279,625

426 PART E - INFORMATION ON RISKS AND HEDGING POLICIES

The clear identification of risks to which the Credito Valtellinese Banking Group is actually and potentially exposed constitutes the essential prerequisite for a knowledgeable assumption of said risks and their effective management, making use of the appropriate mitigation and transfer tools and techniques. In line with the regulatory provisions, with the operational and organisational characteristics that derive from its identity as a subject belonging to the cooperative credit system, from the features that characterised it in over a hundred years of its history and from its mission of service to the economic and social development of the territories where it is established, the different types of risk that are assumed and managed in the carrying on of its activities are:

- credit and counterparty risk (including country and transfer risk); - credit valuation adjustment risk;

- market risk for the trading book (including the basis risk); - operational risk;

- IT risk; - interest rate risk for the banking book;

- concentration risk of the loans and receivables from customers portfolio; - liquidity risk; - real estate risk;

- compliance risk; - risk of money laundering and terrorist financing;

- risk towards associated parties; - reputational risk;

- risk deriving from securitisations; - residual risk;

- strategic risk (including risk from investments); - risk of excessive leverage;

- sovereign risk; - model risk;

- risk related to the portion of encumbered assets ( asset encumbrance ). The Group adopted a system of governance and control of risks broken down in the different organisational functions involved, in order to ensure the best monitoring of relevant risks to which it is or could be exposed and guarantee at the same time the consistency of operations to its risk appetite defined in the Risk Appetite Framework. In organisational terms, the task of the Risk and Control Area, under the Managing Director, among other things, is to monitor the activities and the development of the internal control and risk management system, favouring the coordination and integration between the company’s development and control functions in order to create a full protection of the risk management processes. The company’s control functions are based, from an organisational 427 viewpoint, in three separate Departments:

- the Auditing Department, responsible for the activities related to the internal audit function;

- the Risk Management Department, responsible for the activities related to the risk control and validation functions;

- the Compliance Department, responsible for the activities related to compliance and anti- money laundering functions.

The three control functions, together with a plurality of other corporate functions, form the internal control system, regulated by the prudential supervisory regulations and by the company policy defined in the “Control coordination document”. As part of the organisation on the control system, the Risk Management Department has a prominent role, broken down in specialised Divisions and Services and also supported by the collaboration of contacts at the other companies of the Group. In line with the supervisory provisions for banks, it:

- oversees the internal capital adequacy assessment process (ICAAP) provided by the prudential supervisory regulations;

- oversees the internal liquidity assessment process (ILAAP);

- expresses opinions in advance on the compliance with RAF of most significant transactions, by acquiring if possible, depending on the type of operation, the opinion of other departments involved in the risk management process;

- identifies, measures and monitors the relevant risks, verifies compliance with the exposure limits that may be established and assesses capital adequacy;

- analyses the risks of new products and services and those deriving from the entry in new operating and market segments;

- provides the Group with reliable models and instruments, updated and adjusted for the management of risks implied in the business activity and in compliance with the regulatory provisions;

- verifies the proper execution of performance scoring on individual credit exposures, in particular those non-performing, and assesses the consistency of the classifications, the appropriateness of the provisions and the adequacy of the recovery process;

- verifies continuously the adequacy of the management process of risks and operating limits. In line with the supervisory regulations, the Group has developed and standardised specific

428 risk management processes broken down into several logical steps: definition of the propensity to risk, assumption of risk, definition of management and control policies, definition of the limits, risk measurement, monitoring and reporting, stress tests and management of critical issues. The risk appetite, which is an essential reference for defining the strategic plan and the logical premise for planning, is defined for relevant risks. In particular, the definition of the risk appetite, based on a sound and prudent management, pertains to the Board of Directors, which sees to it when defining the Risk Appetite Framework by considering the existing prudential rules, the adopted business model, the deposit and loan and the ability of the control structures to monitor and measure the risks. Moreover, the Board of Directors reviews the risk appetite framework annually and, if the conditions are met, updates them.

The assumption of risks implied in the carrying out of the banking activity is allocated to certain local entities, organisational structures or specific subjects through the breakdown of delegated powers by the Board of Directors and the powers established by the organisational structure. The risk management and control policies are the guidelines designed to ensure that the actual risk exposure is consistent with the propensity expressed by the governing bodies ad with the statutory principles that express the corporate identity with a vocation as a cooperative Bank oriented to financing the real economy of the areas in which the Group operates, SMEs and households, in particular. In view of the peculiar nature of each risk, its management and control policies are appropriately differentiated. The operating structures that, in the exercise of their powers and assignments, act in order to achieve the management objectives assigned to them, also refer to these policies. The risk management processes also envisage the definition, by the Board of Directors, of operational limits to the assumption of various types of risk, consistent with the risk appetite defined within the Risk Appetite Statement and of the development of the economic scenario. The system of limits on risk assumption is divided into reporting thresholds and intervention thresholds that, once exceeded, activate specific controls designed to restore normal levels.

In risk measurement, the Risk Management Department is responsible for the identification of algorithms, rules and parameters required for the development of methods and models for measuring the risks, as well as for their implementation and maintenance in computing applications. The risk exposure is assessed primarily within the internal capital adequacy assessment processes (ICAAP) and internal liquidity adequacy assessment process (ILAAP)) which refer to the so-called “first and second pillar requirements”. The results of the ICAAP and ILAAP processes are summarised in the relevant Reports that represent the point of convergence and synthesis of the equity, economic and financial plans, of the risk management, capital management and liquidity management and that, on the other hand, are an essential instrument supporting strategic planning and the implementation of the corporate decisions. The subjective importance of the risks to be measured is confirmed in regulatory terms by the supervisory provisions, which require a capital control in connection with certain types of risk (known as “First Pillar” risks) and require the banks to assess other types of risk (known as “Second Pillar” risks), included in a list that is not complete, and to have an adequate capital to face up to them. The assumption of importance based on objective and regulatory elements is accompanied additionally by the consideration of company characteristics, which can lead both to the integration and to the increase/decrease of the assessment of importance.

In order to ensure corporate bodies and company’s control functions both full knowledge and governance of the risk factors and the verification of RAF compliance, in addition to the ICAAP 429 and ILAAP Reports, the Risk Management department produces with the frequency established by the internal regulations accurate, complete and timely information flows, structured according to the statements approved by the General Management.

The stress tests allow to evaluate more accurately the exposure to risks and their trend in adverse conditions, their mitigation and control systems and the adequacy of capital and organisational methods. The actual completeness, adequacy, functionality and reliability of the main risk management processes is assessed at regular intervals by the Risk Management Department; the results are submitted to internal audit by the Auditing Department and reported to the Board of Directors, showing any anomaly and shortfall of the improvement actions. In line with its focus on retail banking, the Bank is mainly exposed to credit risk. In terms of capital requirement, the exposure to operational risks is also significant: these risks are assumed in that they serve as a means for carrying out the banking business. The exposure to financial and market risks is limited, given that the objective of limiting the volatility of the forecast results would not be compatible with an intensive speculative financial activity, with a pronounced transformation of maturities and with treasury management as a profit centre rather than a service. The risks related to the outsourcing of corporate functions, systems, processes or activities are not dealt with as a separate case but refer to the different types of risks identified. The risk profile at the end of the reporting period is consistent with the risk appetite defined by the Board of Directors, which, in line with the identity, values, business model and strategic input of the Bank, resolved to:

- allocate the main part of the capital to the credit risk, which represents the core business of a retail bank;

-confirm a low propensity to other risks with business purpose; - confirm the aim of limiting/minimising exposure for pure risks to which no return is associated. The actual risk exposure complies, on the date of reference of this report, with the tolerance thresholds set taking into account the maximum technically assumable risk.

SECTION 1 - CREDIT RISK

QUALITATIVE INFORMATION

1. General aspects The credit risk is primarily defined as the insolvency risk or default of the counterparty, i.e. as “the possibility for the creditor that a financial obligation will not be paid at maturity or later”. The credit risk occurs also as:

- deterioration of the creditworthiness of counterparties with a credit line (migration risk); - increase in exposure before the insolvency of a counterparty with a credit line (exposure risk);

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

Therefore, as part of the lending activity, the Bank, acting as lender, is exposed to the risk that some loans may not be paid, due to the deterioration of the financial conditions of the debtor, 430 either at maturity or later and should therefore be derecognised in all or in part. The possible causes of non-fulfilment are mainly due to the inability of the borrower to repay the debt (liquidity shortage, insolvency, etc.). This risk is taken on when carrying out the traditional lending activity, regardless of the specific technical form in which the loan is granted. The purpose of the credit policies defined is:

- support the monitoring of the credit risk management by applying policies, processes, methods and standard IT procedures.

2. Credit risk management policies

2.1 Organisational aspects Two Parent Areas are mainly involved in the credit risk monitoring: the Loans Area, focused on the monitoring of credit quality by controlling all the variables of risk management, guidance and monitoring (including the segment of medium to long term loans and corporate finance) and the Risk and Control Area that monitors the activities and the development of the Group’s internal control and risk management system. The Loans Area reports directly to:

- the Loans Department of Credito Valtellinese, whose task is to manage and check the risk- taking process related to the disbursement of loans and receivables with customers and banks;

- the Dispute Department of Credito Valtellinese, whose main task is to supervise and coordinate the issues related to the management and disposal of bad loans according to management policies and the strategic objectives defined at the Group level, monitoring their consistency and effectiveness over time. Moreover, the Dispute Department handles the relations with the Cerved Credit Management Servicer with which on 1 April 2015, the Parent finalised an agreement for the development of a long-term industrial partnership for the management of bad loans;

- the Business Finance Department of Credito Valtellinese, which is responsible for monitoring the valuation and structuring of the medium to long-term loans such as Specialized Lending, Acquisition Finance, Corporate Lending and syndicated loans. Moreover, it must ensure, also by coordinating the work of external lawyers, the monitoring of all aspects (contractual, pricing and guarantees) related to pertaining operations, and coordinate the Advisory activities (Mini Bond and Restructuring ) in addition to monitoring the restructuring process of the relevant positions of the Bank and coordinating the activities related to the operations included in the scope of structured finance and restructuring;

- the Loan Policies and Monitoring Service that has the task of monitoring the credit process, 431

defining the policies and methods required for assessing and managing credit risks, by supporting the member of the General Management responsible for the “Loans Area” and by coordinating the activity carried out by the Loans Department of the Parent and of the Banks of the Group, as well as by the structures of the other Companies of the Group with reference to the credit system, in order to implement a shared guideline for a coordinated management of the credit risk within the Group. With reference to the Risk and Control Area, note the role of the Risk Management Department of Credito Valtellinese that carries out centrally its activities for all the Banks of the Group and whose task is to:

- develop, validate and maintain the risk measurement and control systems ensuring that they are subject to regular review, also on the basis of backtesting, where applicable;

- verify the proper execution of performance scoring on individual credit exposures, in particular those impaired, and assessing the consistency of the classifications, the appropriateness of the provisions and the adequacy of the recovery process. With regard to the credit rating process, approval and management of positions, Credito Valtellinese carries out the lending activity on the basis of guidelines and defined standard processes and on the basis of delegated powers to authorise loans. With regard to all the macro-segment credit risks (Corporate, Retail and Private), the credit rating process is based on the internal rating system, which is essential for assessing the creditworthiness of borrowers. In particular, during the first half of the financial year, the breakdown of the powers was updated considerably by inserting the Expected Loss as a basic parameter for determining the decision-making body and for allocating the risk assumption powers.

The decision-making process related to the credit is supported by internal procedures (Electronic Credit Line and Rating) that manage the credit process (contact with customers, set up, credit disbursement and management) and the rating assignment process, respectively. The entire credit process is constantly reviewed and subject to careful inspections. Credito Valtellinese also in this last year renewed the quality certification of the “Loan application, granting and management” process obtained in 1995. The certification activities entail a constant and stringent verification of the entire lending process, the drafting of documents (Quality Manual and Operating Instructions) adequately examined by top management and distributed to the various departments of the company, as well as the timely updating of internal controls carried out by the appropriate Loans Department and by the Auditing Department. The purpose of this process is to ensure the most precision in assessing risk, maintaining a lean, efficient assessment and management process.

2.2 Management, measurement and control systems Credito Valtellinese makes use of a set of parameters and instruments for managing the credit risk, which includes an important element such as the internal ratings calculated through differentiated and estimated models specifically by customer segment (Corporate, SME Corporate, Small Retail, Micro Retail and Private).

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The master scale adopted by all the Banks of the Group consists of 9 rating classes to which the related PDs (Probability of Default) correspond, i.e., the probability that a counterparty belonging to a particular rating class passes to the default state within a time horizon of one year. The rating models are estimated on the basis of statistical analysis of historical data of the Credito Valtellinese Group and their purpose is to assess the counterparty risk both during the process of granting a new credit line and during the process of monitoring the development of the risk profile of each counterparty and of the overall loans portfolio.

In particular, the final rating assigned to a counterparty belonging to the Corporate and Retail macro-segments is the result of a statistical calculation process, supplemented by a quality component. The statistical rating summarises the information concerning the financial statements (financial statements module), the performance of the counterparty with regard to the bank (internal performance module) and to the banking system and financial companies (external performance module – CR or CRIF module) and, finally, the economic and environmental context in which the enterprise operates (geo-sectorial module). The result expressed by the statistical rating is supplemented by the information coming from a quality questionnaire and can be changed in relation to adverse events and to the possible belonging to an economic group. During the year, some refinements were made to the PD Privati Retail model, unique both during the acceptance of a new credit line and during the monitoring of the risk profile. The PD Privati Retail Model is broken down in two components, one for individual counterparties (not co-holdings) and one for co-holdings. The statistical rating summarises the information concerning the social and demographic component (social and demographic module), the performance of the counterparty with regard to the bank (internal performance module), the management of debt relations with the banks of the Credito Valtellinese Group (external performance module) and more in general, the management of relations with supervised intermediaries (CRIF module). The result expressed the statistical rating is integrated by the information deriving from a social and demographic questionnaire, filled in the rating assignment phase in the case of first application for a credit line/increase in the existing credit lines (regardless of the amount). Consistently with the provisions for the rating models for the Corporate and Retail Enterprises, at the beginning of the calculation of the “statistical integrated rating”, the application of the pejorative notching rule on the basis of expert assessments based on the possible presence of detrimental deeds that concern the counterparty, with a different level of significance (“minor” events and “severe” events”). Another parameter used for measuring the credit risk is the Loss Given Default (LGD) that represents a loss rate in case of default, i.e. the expected value (possibly affected by adverse scenarios) of the ratio, expressed in percentage terms, between the loss due to default and the amount of exposure at the moment of default (Exposure At Default, EAD). In order to calculate the value of LGD, bad loans LGD and the Danger Rate are estimated and then two additional components are applied: the downturn effect and indirect costs. The risk parameters have a key role in loan granting, monitoring and management. In particular, they play a role in deciding the bodies competent to approve loans and contribute to guide the decisions of loan managers when classifying positions based on their performance. Moreover, the risk parameters indicated are used in the assessment of performing loans and receivables from customers portfolio. In fact, with reference to this area, the method of “incurred but not reported losses ” was developed, which uses the values of expected loss duly adjusted through the Loss Confirmation Period (LCP) parameter to take account of the average delay between the deterioration of the financial conditions of the debtor and the actual 433 classification under default status of each exposure. In order to take into account the current economic situation, the PDs used for estimating the rate of depreciation are calculated according to a mostly point in time (PIT) method compared to a more through the cycle (TTC) approach used for the calibration of the rating models. In particular, the PDs used for estimating the rate of depreciation are equal to the PDs estimated for the rating models, which represent a long-term floor, or the average of the default rates recognised over the last three years (12-13-14), whichever higher.

Within the credit control systems, there are also initiatives, completed during the year, of alignment to the implementing technical standards on forbearance defined by the EBA.

For the purposes of the correct identification of forborne exposures, the Bank adopted special procedures characterised by a forbearance presumption algorithm and by a presumption algorithm of financial difficulty, which use information such as the administrative status, the rating and the management status of the counterparty.

- performing forborne, i.e. forbearance exposures due to financial difficulties of the debtor classified as non-performing assets; to which different credit monitoring procedures are assigned. Also for concentration risk management, a specific process is used governed by a specific regulation within which the risk management activities are formalised and the tasks and responsibilities assigned to the different organisational units involved, the strategic guidelines, the management policies, the measurement methods, the exposure limits, the information flows and any mitigation procedure are defined.

Concentration risk measurement is the responsibility of the Risk Management Department and it makes these measurements on a centralised basis. Risk measurement is carried out at both an individual and consolidated level in order to fully identify and allocate the main sources of exposure to risk at the legal entity level. The approach followed in order to measure the concentration risk of the loans and receivables from customers portfolio differs in accordance with whether it is generated by concentration per single party or group of related customers or geo-sectorial concentration. The granularity adjustment approach noted in the “Prudential supervisory provisions for banks” is used to measure the concentration risk per single party or group of related customers. This approach allows the Bank to determine the internal capital in connection with the concentration risk per single party or per group of related customers of a portfolio characterised by imperfect diversification. Information on the positions classified as 434

“large exposure” is also important as part of the risk concentration per single party or group of related customers. In order to measure the geo-sectorial concentration risk, the method proposed by ABI is followed. This method allows the bank to estimate the internal capital in connection with the geo-sectorial concentration risk as “add-on” of the capital requirement for credit risk hedging, according to the distance of the level of concentration by economic sector/ATECO business code of the Group’s loans portfolio compared to the concentration level of the national banking system. The distance is measured by comparing the Herfindahl concentration index by economic sector/ATECO business code of the Group’s loans portfolio and the same index calculated using the figures of the national banking system. By comparing the two indices, using a simulation algorithm, the internal capital for hedging the geo-sectorial concentration risk is calculated.

2.3 Credit risk mitigation techniques In the granting of loans, guarantees are an accessory element; the granting of loans is, in fact, based on the borrower’s actual capacity to repay the loan. Where necessary, for the purposes of credit risk reduction, the Bank acquires from its customers the typical banking guarantees, i.e., mainly, mortgages on real estate, collaterals on securities and marginally personal guarantees.

During the year, in addition to some refinements to the management process of collaterals, the demerger of the business unit consisting of the property and facility management and property valuation of Stelline in favour of Creval Sistemi e Servizi - consortium company that manages the activities concerning the Information and Communication Technology (ICT), the organisation, the back office and the support processes of the Group - was completed. The demerged company, with the new name Stelline Real Estate S.p.A., is exclusively dedicated to asset repossessing. As part of the ICAAP process, the residual risk was also assessed, 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 Bank to a series of further risks (for example of an operational or legal nature) which, if they occur, may lead to a greater lending risk than had been expected due to the lower effectiveness or actual unavailability of the protection. The residual risk is mainly managed by acting on the procedural and organisational plan. In order to reduce the residual risk, organisational changes were introduced aimed at strengthening the second level controls.

The Auditing Department is assigned the third-level controls designed to ensure timely compliance with the obligations relating to the management of guarantees.

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With reference to the eligibility of guarantees for determining asset requirements, the process that guides and applies their eligibility and admissibility requirements was reviewed and regulated in a more stringent manner.

2.4 Non-performing financial assets The irregularly performing loans are classified in compliance with what is provided by supervisory regulations in: past due non-performing loans, unlikely to pay and bad loans. This new classification was introduced as from 1 January 2015 and replaces the one previously in force that envisaged the categories of past due, substandard, restructured and non-performing loans. The management of non-performing loans is entrusted to dedicated structures within the Parent that operate through previously set recovery procedures, differentiated according to the risk classification. During the financial year, the loan trend management process was strengthened. In particular, the review of regular positions showing signs of potential impairment had become mandatory.

Still in terms of management of non-performing financial assets, during the financial year, Credito Valtellinese signed some important agreements in order to improve the management of non-performing portfolio. In particular, Yard Credit & Asset Management agreement was signed for the management of “distressed” real estate loans of the Group. The collaboration focused on a portfolio of positions classified as unlikely to pay paves the way for a better management of all distressed real estate assets of the Creval group, thanks to the distinctive skills of Yard, by enhancing also the expertise gained by Stelline Real Estate S.p.A. In April, an agreement was signed with Cerved Information Solutions S.p.A, by means of the subsidiary Cerved Credit Management Group S.r.l., for the development of a long-term industrial partnership for the management of non-performing loans, in order to increase the efficiency of the management and recovery of non-performing loans.

Within the management of bad loans, Credito Valtellinese retained the strategic monitoring in the management of major exposures, (known as large ticket) in addition to the operational coordination and control of the recovery process and activities carried out by the servicer. The valuation of impairment losses of non-performing financial assets occurs analytically, i.e. for each position, on the basis of uniform rules for all Banks in the Group. Non-performing financial assets classified as “unlikely to pay” with a limited unitary amount or as “past due non-performing loans” are measured according to internal statistical models analytically applied to each position. The other non-performing financial assets are individually assessed by the Loans Departments and by the Dispute Department of Credito Valtellinese (for bad loans portfolio) on the basis of methods and rules defined by the internal policy on the matter.

During the financial year, Credito Valtellinese further fine-tuned the valuation model of impairment losses by raising the threshold of minimum provision for some categories of risk and by introducing the rules of allocation of liquidation costs both for bad and unlikely to pay loans.

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QUANTITATIVE INFORMATION

A. QUALITY OF CREDIT

A.1 NON-PERFORMING AND PERFORMING CREDIT EXPOSURES: CARRYING AMOUNTS, IMPAIRMENT LOSSES, TREND, BUSINESS AND GEOGRAPHICAL DISTRIBUTION

A.1.1 - Distribution of credit exposures by portfolio and credit quality (carrying amounts)

Past due Past due Other Bad Unlikely to non- Portfolio/Quality performing performing Total loans pay performing loans loans loans 1. Available-for-sale financial assets - 374 - - 5,108,486 5,108,860 2. Held-to-maturity investments ------3. Loans and receivables with banks - - - - 992,879 992,879

4. Loans and receivables with customers 935,416 1,436,523 231,748 503,656 11,972,901 15,080,244

5. Financial assets at fair value through profit or loss ------6. Financial assets held for sale ------

Total at 31/12/2015 935,416 1,436,897 231,748 503,656 18,074,266 21,181,983

Total at 31/12/2014 779,406 1,223,635 419,828 691,496 19,758,861 22,873,226

The comparative figures referring to 31 December 2014 were restated to include in the category of unlikely to pay exposures previously defined as substandard loans and restructured loans. The item Other assets includes exposures past due from 1 day amounting to EUR 993,927 thousand (EUR 1,300,711 thousand in 2014).

At 31 December 2015, exposures subject to granting (forbearance) amount to EUR 476 million for what concerns non-performing loans and EUR 231 million with respect to performing loans and they are substantially attributable to the Loans and receivables with customers portfolio. For further details, reference is made to Table A.1.6..

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Not From 6 Total Up to 3 From 3 months Beyond 1 2015 past due months to carrying months to 6 months year 1 year amount Loans and receivables with 11,972,901 202,644 100,876 159,634 40,502 12,476,557 customers

A.1.2 - Distribution of credit exposures by portfolio and credit quality (gross amount and carrying amount)

Total Portfolio/Quality Non-performing assets Performing assets Gross Individual Carrying Gross Collective Carrying (carrying amount impairment amount amount impairment amount amount)

1. Available-for-sale financial assets 374 - 374 5,108,486 - 5,108,486 5,108,860

2. Held-to-maturity investments ------

3. Loans and receivables with banks - - - 992,879 - 992,879 992,879

4. Loans and receivables with customers 4,324,870 -1,721,184 2,603,686 12,559,647 -83,089 12,476,558 15,080,244

5. Financial assets at fair value through profit or loss - - - X X - -

6. Financial assets held for sale ------

Total at 31/12/2015 4,325,244 -1,721,184 2,604,060 18,661,012 -83,089 18,577,923 21,181,983

Total at 31/12/2014 3,831,340 -1,408,471 2,422,869 20,546,519 -96,161 20,450,358 22,873,227

Portfolio/Quality Assets with a clear poor credit Other assets quality Accumulated losses Carrying amount Carrying amount 1. Financial assets held for trading 3,998 - 48,536 2. Hedging derivatives - - - Total at 31/12/2015 3,998 - 48,536 Total at 31/12/2014 1,918 2,083 54,522

With reference to the Loans and receivables with customers portfolio, the amount, at the end of the reporting period, of total partial derecognitions made by Credito Valtellinese on bad loans at 31 December 2015 amounted to EUR 147.5 million. During the 2015 financial year, bad loans were acquired from Finanziaria San Giacomo S.p.A. totalling EUR 84 million. The nominal value amounts to EUR 278 million.

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A.1.3. - On and off-statement of financial position credit exposures with banks: gross amount, carrying amount and past due brackets

Individual Collective Carrying Type of exposure/Amounts Gross amount impairment impairment amount

Non-performing Performing

assets assets

Up to From 3 months From 6 months Beyond

3 months to 6 months to 1 year 1 year

A. ON-STATEMENT OF FINANCIAL POSITION

EXPOSURES a) Bad loans - - - - X - X -

- of which: forbearance exposures - - - - X - X - b) Unlikely to pay - - - - X - X -

- of which: forbearance exposures - - - - X - X - c) Past due non-performing loans - - - - X - X -

- of which: forbearance exposures - - - - X - X - d) Past due performing loans X X X X - X - -

- of which: forbearance exposures X X X X - X - - e) Other performing loans X X X X 1,088,594 X - 1,088,594

- of which: forbearance exposures X X X X - X - -

TOTAL A - - - - 1,088,594 - - 1,088,594

B. OFF-STATEMENT OF FINANCIAL POSITION

EXPOSURES a) Non-performing - - - - X - X - b) Performing X X X X 20,715 X - 20,715

TOTAL B - - - - 20,715 - - 20,715

TOTAL A+B - - - - 1,109,309 - - 1,109,309

There are no non-performing loans to banks.

A.1.4 - On-statement of financial position credit exposures with banks: gross non-performing loans

There are no gross non-performing loans on exposures to banks.

A.1.5 - On-statement of financial position non-performing credit exposures with banks: total impairment losses

There are no impairment losses on non-performing loans to banks.

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A.1.6 - On an off-statement of financial position credit exposures with customers: gross amount, carrying amount and past due brackets

Individual Collective Carrying Type of exposure/Amounts Gross impairment impairment amount amount

Non-performing Performing

assets assets

Up to From 3 months From 6 months Beyond 1 year 3 months to 6 months to 1 year

A. ON-STATEMENT OF FINANCIAL POSITION

EXPOSURES a) Bad loans - - - 2,112,316 X -1,176,900 X 935,416

- of which: forbearance exposures - - - 19,769 X -9,001 X 10,768 b) Unlikely to pay 435,263 60,775 168,254 1,293,242 X -520,638 X 1,436,896

- of which: forbearance exposures 325,303 13,472 40,726 201,766 X -134,854 X 446,413 c) Past due non-performing loans 10,312 26,007 84,872 134,203 X -23,645 X 231,749

- of which: forbearance exposures 797 2,604 8,738 8,135 X -1,876 X 18,398 d) Past due performing loans X X X X 519,260 X -15,604 503,656

- of which: forbearance exposures X X X X 71,655 X -2,248 69,407 e) Other performing loans X X X X 17,099,499 X -67,486 17,032,013

- of which: forbearance exposures X X X X 164,948 X -3,551 161,397

TOTAL A 445,575 86,782 253,126 3,539,761 17,618,759 -1,721,183 -83,090 20,139,730

B. OFF-STATEMENT OF FINANCIAL POSITION

EXPOSURES a) Non-performing 20,491 - - - X -5,041 X 15,450 b) Performing X X X X 1,301,438 X -4,696 1,296,742

TOTAL B 20,491 - - - 1,301,438 -5,041 -4,696 1,312,192

TOTAL A+B 466,066 86,782 253,126 3,539,761 18,920,197 -1,726,224 -87,786 21,451,922

Other performing loans include EUR 993,927 thousand of loans past due from 1 day.

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A.1.7 - On-statement of financial position credit exposures with customers: gross non- performing loans

Past due Unlikely to non- Causes/Categories Bad loans pay performing loans A. Opening gross exposure 1,776,499 1,589,332 465,509 - of which: exposures transferred and not cancelled 78,579 139,839 73,965 B. Increases 485,416 827,065 231,217 B.1 transfers from performing loans 39,089 343,617 209,349 B.2 transfers from other categories of non-performing loans 339,466 339,504 52 B.3 other increases 106,861 143,944 21,816 C. Decreases -149,599 -458,863 -441,332 C.1 transfers to performing loans -153 -17,080 -45,930 C.2 derecognitions -69,640 -3,638 -56 C.3 collections -77,052 -130,306 -24,163 C.4 gains on sales -1,158 - - C.5 losses on sale -1,596 - - C.6 transfers to other categories of non-performing loans - -307,839 -371,183 C.7 other decreases - - - D. Closing gross exposure 2,112,316 1,957,534 255,394 - of which: exposures transferred and not cancelled 90,095 173,968 39,141

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A.1.8 - On-statement of financial position non-performing credit exposures with customers: total impairment losses

Past due Unlikely non-performing Causes/Categories Bad loans to pay loans

A. Opening total impairment losses 997,093 365,697 45,681 - of which: exposures transferred and not cancelled 29,626 27,963 7,118 B. Increases 346,670 294,694 19,650 B.1 impairment losses 224,290 260,591 19,592 B.2 losses on sale 672 - - B.3 transfers from other categories of non-performing loans 107,055 32,368 42 B.4 other increases 14,653 1,735 16 C. Decreases -166,863 -139,753 -41,686 C.1 fair value gains -77,786 -19,060 -5,546 C.2 reversals of impairment losses due to collections -13,798 -13,071 -545 C.3 profits on sale -273 - - C.4 derecognitions -69,640 -3,637 -57 C.5 transfers to other categories of non-performing loans - -103,951 -35,513 C.6 other decreases -5,366 -34 -25 D. Closing total impairment losses 1,176,900 520,638 23,645 - of which: exposures transferred and not cancelled 33,955 34,886 3,610

442

A.2 - CLASSIFICATION OF EXPOSURES BASED ON INTERNAL AND EXTERNAL RATINGS A.2.1 - Distribution of on and off-statement of financial position credit exposures by external rating classes

The information on exposures for external ratings is not provided in that the bank mainly uses internal ratings in credit risk management. With respect to the use of external ratings for calculating the prudential ratios, reference is made to what was indicated in Part F – Information on equity.

A.2.2 - Distribution of on and off-statement of financial position credit exposures by internal rating classes

Credito Valtellinese, as described in the dedicated paragraphs, makes use of a set of parameters and instruments for managing the credit risk, which includes an essential element such as the internal ratings calculated through differentiated and estimated models specifically by customer segment.

No Total rating Internal rating classes

Exposures Class 1 Class 2 Class 3 Class 4 Class 5 Class 6 Class 7 Class 8 Class 9

A. On-statement of financial position exposures 318,670 1,291,829 1,228,586 1,560,452 1,209,045 1,028,609 978,429 1,038,672 1,196,229 10,289,209 20,139,730

B. Derivatives 52 27 17 18 2 1 27 - - - 144

B.1 Financial derivatives 52 27 17 18 2 1 27 - - - 144

B.2 Credit derivatives ------

C. Guarantees given 81,261 87,638 111,453 83,365 44,921 35,246 29,508 94,071 43,235 50,849 661,547

D. Commitments to grant finance 20,729 2,828 4,485 6,083 5,358 1,611 1,202 790 426 535,554 579,066

E. Other - - 1,499 - - 14 - - - 69,924 71,437

Total 420,712 1,382,322 1,346,040 1,649,918 1,259,326 1,065,481 1,009,166 1,133,533 1,239,890 10,945,536 21,451,924

443

A.3 - DISTRIBUTION OF SECURED EXPOSURES BY TYPE OF GUARANTEE

A.3.1 - Secured credit exposures to banks

31/12/2015

Value Collaterals of net exposure Property Total Property - Other leases Securities mortgages collaterals

1. On -statement of financial position secured credit exposures:

1.1 fully secured 236,563 - - 236,312 - 236,312

- of which non-performing ------

1.2 partially secured ------

- of which non-performing ------

2. Off-statement of financial position secured credit exposures:

2.1 fully secured ------

- of which non-performing ------

2.2 partially secured ------

- of which non-performing ------

31/12/2015

Personal Personal guarantees: guarantees: Credit derivatives – Credit Other derivatives Value derivatives of net Total exposure Governments Other Other CLN and government Banks parties central agencies banks 1. On-statement of financial position secured credit exposures: 1.1 fully secured 236,563 ------

- of which non-performing ------

1.2 partially secured ------

- of which non-performing ------2. Off-statement of financial position secured credit exposures: 2.1 fully secured

- of which non-performing ------

2.2 partially secured ------of which non-performing ------

444

31/12/2015 Personal guarantees: Endorsement credits Value of net Governments Other Total Other exposure and government Banks parties central agencies banks 1. On-statement of financial position secured credit exposures: 1.1 fully secured 236,563 - - - - - of which non-performing ------1.2 partially secured ------of which non-performing ------2. Off-statement of financial position secured credit exposures: 2.1 fully secured ------of which non-performing ------2.2 partially secured ------of which non-performing ------

31/12/2015 Personal Personal Value Collaterals guarantees: guarantees: of net Total Credit Endorsement exposure derivatives credits 1. On -statement of financial position secured credit exposures:

1.1 fully secured 236,563 236,312 - - 236,312

- of which non-performing - - - - -

1.2 partially secured - - - - -

- of which non-performing - - - - -

2. Off-statement of financial position secured credit exposures:

2.1 fully secured - - - - -

- of which non-performing - - - - -

2.2 partially secured - - - - -

- of which non-performing - - - - -

The classification of exposures among those “fully secured” and those “partially secured” occurs by comparing the gross amount at the end of the reporting period with the amount of the guarantee established by contract, considering also guarantee integrations. As established by Circular 262 of Bank of Italy, columns “collaterals” and “personal guarantees” show the fair value of the guarantee at the end of the reporting period and this value cannot exceed the value of the secured net exposure.

445

A.3.2 - Secured credit exposures to customers

31/12/2015

Value of net Collaterals exposure Total Property - Property Other Securities mortgages leases collaterals 1. On -statement of financial position secured credit exposures:

1.1 fully secured 10,917,903 7,896,363 508,283 997,175 143,381 9,545,202

- of which non-performing 2,232,753 1,836,894 77,381 25,824 25,776 1,965,875

1.2 partially secured 636,604 11,967 - 41,539 9,925 63,431

- of which non-performing 88,951 8,675 - 2,086 1,477 12,238

2. Off-statement of financial position secured credit exposures:

2.1 fully secured 205,812 585 - 25,637 13,597 39,819

- of which non-performing 7,299 297 - 589 1,015 1,901

2.2 partially secured 89,636 46,736 - 9,686 7,334 63,756

- of which non-performing 1,807 811 - 370 361 1,542

31/12/2015 Personal guarante es: Personal guarantees: Credit derivatives – Credit Other derivatives Value derivativ of net es Total exposure

Governme Other Other CLN nts and government Banks parties central agencies banks 1. On -statement of financial position secured credit exposures: 1.1 fully secured 10,917,903 ------

- of which non-performing 2,232,753 ------

1.2 partially secured 636,604 ------

- of which non-performing 88,951 ------2. Off -statement of financial position secured credit exposures: 2.1 fully secured 205,812 ------

- of which non-performing 7,299 ------

2.2 partially secured 89,636 ------

- of which non-performing 1,807 ------

446

31/12/2015 Personal guarantees: Endorsement credits Value Governments of net Other Total and Other exposure government Banks central parties agencies banks 1. On -statement of financial position secured credit exposures:

1.1 fully secured 10,917,903 2,627 161,597 3,888 1,158,124 1,326,236

- of which non-performing 2,232,753 101 12,533 247 248,153 261,034

1.2 partially secured 636,604 6,593 219,536 400 136,576 363,105

- of which non-performing 88,951 2,497 7,296 - 49,968 59,761

2. Off-statement of financial position secured credit exposures:

2.1 fully secured 205,812 - 2,665 - 163,328 165,993

- of which non-performing 7,299 - - - 5,399 5,399

2.2 partially secured 89,636 239 633 500 9,971 11,343

- of which non-performing 1,807 - - - - -

31/12/2015 Personal Personal Value Collaterals guarantees: guarantees: of net Total Credit Endorsement exposure derivatives credits 1. On -statement of financial position secured credit exposures:

1.1 fully secured 10,917,903 9,545,202 - 1,326,236 10,871,438

- of which non-performing 2,232,753 1,965,875 - 261,034 2,226,909

1.2 partially secured 636,604 63,431 - 363,105 426,536

- of which non-performing 88,951 12,238 - 59,761 71,999

2. Off-statement of financial position secured credit exposures:

2.1 fully secured 205,812 39,819 - 165,993 205,812

- of which non-performing 7,299 1,901 - 5,399 7,300

2.2 partially secured 89,636 63,756 - 11,343 75,099

- of which non-performing 1,807 1,542 - - 1,542

The classification of exposures among those “fully secured” and those “partially secured” occurs by comparing the gross amount at the end of the reporting period with the amount of the guarantee established by contract, considering also guarantee integrations. As established by Circular 262 of Bank of Italy, columns “collaterals” and “personal guarantees” show the fair value of the guarantee at the end of the reporting period and this value cannot exceed the value of the secured net exposure.

447

B. DISTRIBUTION AND CONCENTRATION OF CREDIT EXPOSURES

B.1 - Distribution of on and off-statement of financial position credit exposures with customers by business segment (carrying amount)

- of which: forbearance exposures - - X - - X

A.2 Unlikely to pay 1 - X - - X

- of which: forbearance exposures - - X - - X

A.3 Past due non-performing loans - - X 77 -8 X

- of which: forbearance exposures - - X - - X

A.4 Performing loans 5,050,717 X - 30,803 X -140

- of which: forbearance exposures - X - - X -

TOTAL A 5,050,718 - - 30,880 -8 -140

B. Off-statement of financial position exposures

B.1 Bad loans - - X - - X

B.2 Unlikely to pay - - X 4 -1 X

B.3 Other non-performing assets - - X - - X

B.4 Other performing loans 40 X - 404,788 X -2

TOTAL B 40 - - 404,792 -1 -2

TOTAL (A+B) 31/12/2015 5,050,758 - - 435,672 -9 -142

TOTAL (A+B) 31/12/2014 6,657,647 - - 417,283 -2 -129

448

- of which: forbearance exposures - - X - - X

A.2 Unlikely to pay 45,668 -18,257 X 26 -13 X

- of which: forbearance exposures 5,263 -1,187 X - - X

A.3 Past due non-performing loans 102 -10 X - - X

- of which: forbearance exposures - - X - - X

A.4 Performing loans 2,184,566 X -3,568 2,359 X -

- of which: forbearance exposures 422 X -2 - X -

TOTAL A 2,272,284 -59,201 -3,568 2,385 -13 -

B. Off-statement of financial position exposures

B.1 Bad loans 91 -57 X - - X

B.2 Unlikely to pay - - X - - X

B.3 Other non-performing assets - - X - - X

B.4 Other performing loans 103,544 X -836 1,035 X -5

TOTAL B 103,635 -57 -836 1,035 - -5

TOTAL (A+B) 31/12/2015 2,375,919 -59,258 -4,404 3,420 -13 -5

TOTAL (A+B) 31/12/2014 1,722,069 -45,214 -2,127 11,749 -7 -1

449

Non -financial companies Other parties Exposures/Counterparts Carrying Individual Collective Carrying Individual Collective amount impairment impairment amount impairment impairment A. On -statement of financial position exposures A.1 Bad loans 792,981 -1,051,225 X 100,487 -84,742 X

- of which: forbearance exposures 10,148 -8,316 X 620 -685 X

A.2 Unlikely to pay 1,265,670 -468,523 X 125,533 -33,845 X

- of which: forbearance exposures 425,599 -129,411 X 15,552 -4,256 X

A.3 Past due non-performing loans 178,492 -18,209 X 53,077 -5,418 X

- of which: forbearance exposures 10,801 -1,103 X 7,597 -773 X

A.4 Performing loans 7,417,146 X -74,569 2,850,079 X -4,813

- of which: forbearance exposures 202,278 X -5,652 28,105 X -145

TOTAL A 9,654,289 -1,537,957 -74,569 3,129,176 -124,005 -4,813

B. Off-statement of financial position exposures

B.1 Bad loans 2,316 -1,631 X 6 -31 X

B.2 Unlikely to pay 11,683 -3,158 X 597 -87 X

B.3 Other non-performing assets 620 -63 X 132 -13 X

B.4 Other performing loans 646,716 X -3,021 69,182 X -832

TOTAL B 661,335 -4,852 -3,021 69,917 -131 -832

TOTAL (A+B) 31/12/2015 10,315,624 -1,542,809 -77,590 3,199,093 -124,136 -5,645

TOTAL (A+B) 31/12/2014 11,313,171 -1,266,471 -92,395 3,069,411 -101,968 -4,410

450

B.2 - Distribution of on and off-statement of financial position credit exposures with customers by geographical segment (carrying amount)

NORTH-WEST NORTH-EAST CENTRE SOUTH AND ISLANDS Exposure/region Carrying Total Carrying Total Carrying Total Carrying Total amount impairment amount impairment amount impairment amount impairment A. On -statement of financial position exposures

A.1 Bad loans 633,085 -849,321 49,593 -66,786 153,063 -207,649 99,271 -51,217

A.2 Unlikely to pay 1,172,005 -416,265 73,125 -32,505 154,272 -59,039 34,604 -10,392

A.3 Past due non-performing loans 179,619 -18,328 10,583 -1,077 38,220 -3,897 3,258 -336

A.4 Performing loans 8,497,729 -63,254 1,124,962 -5,830 7,612,646 -12,637 174,276 -1,238

TOTAL A 10,482,438 -1,347,168 1,258,263 -106,198 7,958,201 -283,222 311,409 -63,183

B. Off-statement of financial position exposures

B.1 Bad loans 1,799 -1,179 9 -5 157 -235 446 -299

B.2 Unlikely to pay 10,617 -2,737 19 -8 1,593 -484 - -

B.3 Other non-performing assets 687 -70 - - 66 -7 - -

B.4 Performing loans 1,052,031 -3,473 54,144 -46 116,437 -1,163 1,607 -13

TOTAL B 1,065,134 -7,459 54,172 -59 118,253 -1,889 2,053 -312

TOTAL (A+B) 31/12/2015 11,547,572 -1,354,627 1,312,435 -106,257 8,076,454 -285,111 313,462 -63,495

TOTAL (A+B) 31/12/2014 11,959,365 -1,120,729 1,315,490 -84,734 9,538,980 -251,813 327,680 -52,941

B.3 - Distribution of on and off-statement of financial position credit exposures with banks by geographical segment (carrying amount)

NORTH-WEST NORTH-EAST CENTRE SOUTH AND ISLANDS Exposure/region Carrying Total Carrying Total Carrying Total Carrying Total amount impairment amount impairment amount impairment amount impairment

A. On-statement of financial position exposures

A.1 Bad loans ------

A.2 Unlikely to pay ------

A.3 Past due non-performing loans ------

A.4 Performing loans 77,082 - 20,528 - 565,673 - 139,199 -

TOTAL A 77,082 - 20,528 - 565,673 - 139,199 -

B. Off-statement of financial position exposures

B.1 Bad loans ------

B.2 Unlikely to pay ------

B.3 Other non-performing assets ------

B.4 Performing loans 10,401 - 1,680 - 1,797 - 3,041 -

TOTAL B 10,401 - 1,680 - 1,797 - 3,041 -

TOTAL (A+B) 31/12/2015 87,483 - 22,208 - 567,470 - 142,240 -

TOTAL (A+B) 31/12/2014 97,725 -750 29,646 - 581,451 - 287,603 -

451

B.4 - Large exposures

31/12/2015 a) Amount - carrying amount 10,758,757 b) Amount - weighted amount 1,202,670 c) Number 5

As per the provisions of the Bank of Italy distributed by letter dated 28 February 2011, the amount of “risk positions” that constitutes “large exposure” is provided referring both to the carrying amount and to the weighted amount. In particular, in accordance with EU Regulation 575/2013 and incorporated by the Bank of Italy in Circulars 154 and 286, the value of the exposure is set at the carrying amount, whereas the value of the exposure after applying the Credit Risk Mitigation and the exemptions pursuant to Article 400 of the CRR is considered for the weighted amount. The report prepared on the basis of the new provisions envisaged by the Basel 3 regulations, effective as from 1 January 2014, shows positions that exceed the 10% threshold of the eligible capital, attributable to exposures towards the Italian Government of EUR 5,649,056 thousand, exposures towards Cassa Compensazione e Garanzia of EUR 3,287,145 thousand and, for the remaining part, to exposures towards banking and financial counterparties.

C. Securitisation transactions

QUALITATIVE INFORMATION

- Quadrivio RMBS 2011;

- Quadrivio SME 2012;

- Quadrivio RMBS 2013; - Quadrivio SME 2014.

All the multioriginator transactions were carried out pursuant to Italian Law 130/1999. During the financial year, the multi-originator securitisation carried out in May 2009 was paid in advance by means of the Special purpose entity Quadrivio Finance S.r.l., through (i) the repurchase of residual securitised loans by Credito Valtellinese S.C., Credito Siciliano S.p.A. and Banca Popolare di Cividale S.c.p.A., (ii) the early repayment of securities and (iii) the termination of the securitisation contracts.

The Board of Directors of the Parent, during the meeting of 9 December 2015, also approved the early repayment of the multi-originator securitisation carried out in August 2012, by means 452 of the Special purpose entity Quadrivio SME 2012 S.r.l., which was finalised during January 2016 through (i) the repurchase of residual securitised loans by Credito Valtellinese S.C., Credito Siciliano S.p.A. and Cassa di Risparmio di Fano S.p.A., (ii) the early repayment of securities and (iii) the termination of the securitisation contracts. The quantitative information in this section includes only the Quadrivio RMBS 2011 and Quadrivio SME 2014 transactions in that in the other transactions (known as Self- securitisations) Credito Valtellinese and the other originator banks of the Group signed, at the time of the issue, the total liabilities issued by the special purpose entity.

Quadrivio RMBS 2011 Main information

Date of transaction 01/12/2011

Special purpose entities Quadrivio RMBS 2011 S.r.l.

Subject matter of the transaction Performing residential mortgage loans

- Credito Valtellinese

Originator banks - Credito Siciliano

Original aggregate amount of transferred loans and receivables 729,013

Securities issued 729,000

of which senior a1 455,600

of which senior a2 149,100

of which junior b 124,300

Rating of senior securities upon issue AAA Fitch and Moody’s

Subordinated loan (Cash reserve) 18,267

Overall residual notional amount of the securities at 31/12/15 433,431

Residual values of loans and receivables at 31/12/15 443,060

Rating of senior securities at 31/12/15 AA+ Fitch and Aa2 Moody’s

Quadrivio SME 2014

The transaction is divided into two senior tranches (class A2A, A2B) listed on the Luxembourg stock exchange, with an AA/AAA rating, on the date of reference of this report, by the Standard & Poor’s and DBRS rating agencies – and a junior tranche (class B). During the financial year, the A1 senior tranche was repaid, originally placed with institutional investors.

Senior note A2B was placed with institutional investors, whereas note A2A was entirely

453 subscribed by EIB. Class B securities were fully subscribed by each originator bank taking part in the transaction and specifically Credito Valtellinese, Credito Siciliano and Carifano.

Main information

Date of transaction 14/02/2014

Special purpose entities Quadrivio SME 2014 S.r.l. Performing mortgage and unsecured Subject matter of the transaction loans granted to companies, trade and personal businesses - Credito Valtellinese

Originator banks - Credito Siciliano - Carifano

Original aggregate amount of transferred loans and receivables 477,295

Securities issued 486,500

of which senior a1 53,600

of which senior a2a 133,900

of which senior a2b 73,600

of which junior b 225,400

Rating of senior securities upon issue AA S&P AAA DBRS

Overall residual notional amount of the securities at 31/12/15 312,313

Residual values of loans and receivables at 31/12/15 298,507

Rating of senior securities at 31/12/15 AA- S&P and AAA DBRS

None of the above-mentioned securitisation transactions meets the criteria for the derecognition of the transferred loans and receivables that are fully represented in the asset items. In the Quadrivio RMBS 2011 and Quadrivio SME 2014 transactions, the Originator banks fully hold the junior tranches, therefore, basically, the Bank did not transfer any credit risk. As a result, given that most of the risks/benefits associated with the transferred portfolio are retained, derecognising the mortgages from assets in the financial statements is therefore not envisaged. The financial statements include securities issued against assets sold and not cancelled, for the part of securities placed with third parties. In all cases, the SPE’s of the securitisation were fully consolidated, despite the absence of an investment in the SPE’s share capital On the basis of this approach, the income statement includes all costs and revenues related to securitised receivables, recurring costs related to the administration of the special purpose entities, the costs of supporting financial transactions and interest expense on bond issues placed on the market. In consideration of the structure of the transactions, it is however possible to identify the cross collateralisation as specific risk, due to the presence of multioriginator transactions. There is therefore potential additional exposure linked to the possible impairment losses, higher than expected, on the loans portfolio securitised by the other Banks of the Group that participated in the transactions. For each securitisation transaction put in place, the Bank, in that originator Bank, for the part of direct concern, signed, with the special purpose entities, servicing contracts for the coordination and supervision of the management, administration and collection of the securitised loans, as well as for the recovery in case of default by the debtors. These contracts require the payment of an annual commission for the servicing rendered and a reimbursement of expenses for each case recovered. The servicer function is carried out by special structures of the Banks, whose operations were duly regulated and is subject to the control of the Auditing Department of the 454

Bank that checks the correctness of the operations and the compliance with the regulatory provisions.

- operational risk (with relevance of the legal component as well);

- counterparty risk; - credit risk;

- reputational risk; - liquidity risk;

- interest rate risk for the banking book; - compliance risk.

In operational terms, the exposure to risks coming from securitisations is generated by the Finance Department, which deals with the structuring and finalisation of the transactions based on the resolutions of the Board of Directors and on the indications of the Managing Director and General Management. Limiting exposure to risks originating from the securitisations is achieved through organisational, procedural and methodological choices. The overall management is carried out on a centralised basis for all Group Banks.

In view of the complexity of securitisations, there is a dedicated organisational supervision within the Finance Department of Credito Valtellinese, with both structuring and transaction management tasks. We also make use of consultants and partners of high standing.

In general, the internal audit system makes sure that the risks deriving from such transactions - including the reputational risks originating, for example, from the use of structures or complex products - are managed and evaluated by means of policies and procedures to ensure that the economic substance of these transactions is fully in line with their risk assessment and with the decisions of the Company bodies. Upon the occurrence of the management need to structure a new securitisation, since this qualifies as the most important transaction, the Risk Management Department receives before the Finance Department all the details required for assessing the specific risk profiles in relation to the Group’s RAF. Appropriate new instruments for monitoring, managing and mitigating risk exposure are activated, if necessary.

From the management viewpoint, the Finance Department monitors on a regular basis the performance of flows and payments related to securitised loans and relevant securities; collaborates to the production of reports for different structures competent in this field; produces the informative reports contractually agreed upon and the information requested by and intended for administrative and financial counterparties, rating agencies, investors. With regard to assessment of exposure to risk, the different profiles are taken in consideration as part of the ordinary course of business related to the different types of risk. In particular, the Risk Management Department prepares on a quarterly basis the Risk Management Report 455 for the General Management and the Board of Directors, which also monitors the exposure to credit risk, interest rate risk of the banking book, liquidity risk, operational risk and reputational risk. The analyses carried out by the Management on the profiles of operational liquidity, structural liquidity and interest rate risk exposure take also into account the impact of the securitisations. The relevant risk profiles with respect to existing securitisations are also assessed as part of the annual ICAAP Report.

- securities originated by the company Agos Ducato S.p.A. by means of the Special purpose entity Sunrise S.r.l., with underlying consumer credits for a total equivalent value of EUR 10,000,000;

- securities originated by the company Alba Leasing S.p.a. by means of the Special purpose entity Alba 7 SPV S.r.l., with underlying leases for a total equivalent value of EUR 10,000,000;

Table C.2 represents the corresponding carrying amounts at 31 December 2015.

456

QUANTITATIVE INFORMATION

C.1 - Exposures deriving from the main “own” securitisation transactions analysed by type of securitised asset and type of exposure

On-statement of financial position exposures

Senior Mezzanine Junior

Type of securitised assets/Exposures Impairment Impairment Impairment Carrying losses/reversals Carrying losses/reversals Carrying losses/reversals amount of impairment amount of impairment amount of impairment losses losses losses

A. Fully derecognised A.1 securitisation name ------Type of assets ------B. Partially derecognised B.1 securitisation name ------Type of assets ------

C. Not derecognised - - - - 266,310 10,491 C.1 Quadrivio Rmbs 2011 - residential mortgage loans 125,398 6,383 C.2 Quadrivio SME 2014 - unsecured and mortgage loans in favour of 140,912 4,108 SMEs

Guarantees given

Senior Mezzanine Junior

A. Fully derecognised A.1 securitisation name ------Type of assets ------B. Partially derecognised B.1 securitisation name ------Type of assets ------

C. Not derecognised ------

C.1 Quadrivio Rmbs 2011 ------residential mortgage loans ------C.2 Quadrivio SME 2014 ------unsecured and mortgage loans in favour of ------SMEs

457

Credit lines

Senior Mezzanine Junior

A. Fully derecognised A.1 securitisation name ------Type of assets ------B. Partially derecognised B.1 securitisation name ------Type of assets ------

C. Not derecognised ------

C.1 Quadrivio Rmbs 2011 ------residential mortgage loans ------C.2 Quadrivio SME 2014 ------unsecured and mortgage loans in favour of ------SMEs

C.2 - Exposures deriving from the main third party’s securitisation transactions analysed by type of securitised asset and type of exposure

On-statement of financial position exposures Senior Mezzanine Junior

Impairment Impairment Impairment Type of underlying losses/ losses/ losses/ Carrying Carrying Carrying assets/Exposures reversals of reversals of reversals of amount amount amount impairment impairment impairment losses losses losses Total 21,714 104,563 3,670 A.1 Urania - loans and receivables 2,867 A.2 Sunrise S.r.l. – consumer credits 10,001 A.3 Alba 7 spv S.r.l. – lease credits 5,491 A.4 Quarzo cqs S.r.l. – consumer credits 3,355 A.5 Quadrivio Rmbs 2011- - - - 28,565 1,454 residential mortgages A.6 Quadrivio SME 2014 - - - 75,998 2,216 SME mortgages

458

Guarantees given Senior Mezzanine Junior

Impairment Impairment Impairment Type of underlying losses/ Carrying losses/ Carrying losses/ Carrying assets/Exposures reversals of reversals of reversals of amount impairment amount impairment amount impairment losses losses losses Total A.1 Urania - loans and receivables A.2 Sunrise S.r.l. – consumer credits A.3 Alba 7 spv S.r.l. – lease credits A.4 Quarzo cqs S.r.l. – consumer credits A.5 Quadrivio Rmbs 2011------residential mortgages A.6 Quadrivio SME 2014 - - - - - SME mortgages

Credit lines Senior Mezzanine Junior

Impairment Impairment Impairment Type of underlying Carrying losses/ Carrying losses/ Carrying losses/ assets/Exposures reversals of reversals of reversals of amount impairment amount impairment amount impairment losses losses losses Total A.1 Urania - loans and receivables A.2 Sunrise S.r.l. – consumer credits A.3 Alba 7 spv S.r.l. – lease credits A.4 Quarzo cqs S.r.l. – consumer credits A.5 Quadrivio Rmbs 2011------residential mortgages A.6 Quadrivio SME 2014 - - - - - SME mortgages

C.3 - Special purpose entity for securitisation

Securitisation/special purpose entity name Assets Liabilities

Consolidation Loans and Debt Registered office Other Senior Mezzanine Junior (*) receivables instruments

Quadrivio RMBS 2011 S.r.l. Conegliano Veneto (TV) Yes 539,690 42,410 373,567 153,341

Quadrivio SME 2014 S.r.l. Conegliano Veneto (TV) Yes 452,192 25,400 130,294 337,926 (*) The above-mentioned special purpose entities are consolidated for accounting purposes.

Credito Valtellinese has no share capital of the special purpose entity, which are 100% owned by the company SVM Securitisation Vehicles Management S.r.l. with registered office in Conegliano Veneto (Treviso).

459

C.5 - Servicer activities - own securitisations: collections of securitised loans and redemptions of securities issued by special purpose entities for securitisation

Securitised assets Loan collections during Percentage share of repaid securities (end-of-period data) the year (end-of-period data) Special Non- Non- purpose Senior Mezzanine Junior entity performing Performing performing Performing Non- Non- Non- Performing Performing Performing performing performing performing assets assets assets assets assets assets Quadrivio Rmbs 23,983 411,477 2,505 79,150 48.88% 2011 Quadrivio Sme 14,332 278,567 1,920 104,918 66.71% 2014

E. TRANSFERS OF ASSETS

A. Financial assets transferred and not fully derecognised

QUALITATIVE INFORMATION

Transfers not involving the derecognition of the underlying financial assets mainly consist of securitisations of credit exposures and repurchase agreements on portfolio securities. None of the securitisation transactions meet the criteria for the derecognition of the transferred loans and receivables that are fully represented in the asset items. For the securitisation transactions called Quadrivio SME 2012 and Quadrivio RMBS 2013, the originator Banks subscribed all the ABS securities issued in connection with the factored portfolio without transferring any credit risk, whereas in the Quadrivio RMBS 2011 and Quadrivio SME 2014 transactions, the originator Banks fully hold the junior tranches, without transferring any credit risk.

With reference to the funding repurchase agreements, the Bank retains all the risks and benefits related to the security, in that it is obliged to repurchase it forward at a price established by contract. The securities continue to be recognised in the portfolios, whereas the fee for the transfer is recognised among due to banks or due to customers.

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QUANTITATIVE INFORMATION

E.1 Financial assets transferred and not derecognised: carrying amount and entire amount

Financial assets Financial assets held at fair value through profit for trading Technical form/Portfolio or loss

A B C A B C A. On -statement of financial position assets ------1. Debt instruments ------2. Equity instruments ------3. OEIC ------4. Loans ------B. Derivatives - - - X X X TOTAL AT 31/12/2015 ------of which non -performing ------TOTAL AT 31/12/2014 ------of which non -performing ------

A = financial assets transferred recognised in full (carrying amount). B = financial assets transferred recognised in part (carrying amount). C = financial assets transferred recognised in part (entire amount).

Available-for-sale Held-to-maturity Technical form/Portfolio financial assets investments

A B C A B C A. On -statement of financial position assets 1,998,470 - - - - - 1. Debt instruments 1,998,470 - - - - - 2. Equity instruments - - - X X X 3. OEIC - - - X X X 4. Loans ------B. Derivatives X X X X X X TOTAL AT 31/12/2015 1,998,470 - - - - - of which non -performing ------TOTAL AT 31/12/2014 167,607 - - - - - of which non -performing ------

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Loans and Loans and Technical form/Portfolio receivables receivables Total Total with banks with customers 31/12/2015 31/12/2014 A B C A B C A. On-statement of financial position assets 19,610 - - 2,221,788 - - 4,239,869 3,303,949

1. Debt instruments 19,610 - - - - - 2,018,081 206,177

2. Equity instruments X X X X X X - -

3. OEIC X X X X X X - -

4. Loans - - - 2,221,788 - - 2,221,788 3,097,772

B. Derivatives X X X X X X - -

TOTAL AT 31/12/2015 19,610 - - 2,221,788 - - 4,239,869 X

of which non-performing - - - 230,753 - - 230,753 X

TOTAL AT 31/12/2014 38,570 - - 3,097,772 - - X 3,303,949

of which non-performing - - - 227,675 - - X 227,675

E.2 Financial liabilities for assets transferred and not derecognised: carrying amount

Financial Financial Available- Loans and Loans and Held to Assets Assets for-sale receivables receivables maturity Total Liabilities/Asset portfolio held for at fair financial with with investments trading value through Assets banks customers profit or loss 1. Due to customers - - 1,997,631 - 10,743 357,486 2,365,860 a) for assets recognised in full - - 1,997,631 - 10,743 357,486 2,365,860

b) for assets recognised in part ------

2. Due to banks - - 211 - 8,672 401,814 410,697 a) for assets recognised in full - - 211 - 8,672 401,814 410,697

b) for assets recognised in part ------

TOTAL AT 31/12/2015 - - 1,997,842 - 19,415 759,300 2,776,557 TOTAL AT 31/12/2014 - - 159,248 - 37,798 1,640,628 1,837,674

Financial liabilities for assets transferred and not derecognised are related to funding repurchase agreements in connection with securities classified under assets as well as transferred through securitisations; whereas reverse repurchase agreements carried out with securities received in reverse repurchase agreements are not included.

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E.3 Transfers with liabilities with recourse only to transferred assets: fair value

Financial assets Available-for-sale Financial assets held at fair financial assets for trading value through profit or loss Technical form/Portfolio A B A B A B A. On -statement of financial position assets ------1. Debt instruments ------2. Equity instruments ------3. OEIC ------4. Loans ------B. Derivatives - - X X X X Total assets ------C. Associated liabilities ------1. Due to customers ------2. Due to banks ------Total liabilities ------NET VALUE AT 31/12/2015 ------NET VALUE AT 31/12/2014 ------

Key: A = financial assets transferred recognised in full (carrying amount). B = financial assets transferred recognised in part (carrying amount).

Held-to- Loans and Loans and maturity receivables receivables with Technical form/Portfolio investments with banks customers (fair Total at Total at (fair value) (fair value) value) 31/12/2015 31/12/2014

A B A B A B A. On -statement of financial position assets - - - - 2,291,674 - 2,291,674 3,051,306 1. Debt instruments ------2. Equity instruments X X X X X X - - 3. OEIC X X X X X X - - 4. Loans - - - - 2,291,674 - 2,291,674 3,051,306 B. Derivatives X X X X X X - - Total assets - - - - 2,291,674 - 2,291,674 3,051,306 C. Associated liabilities - - - - 748,972 - X X 1. Due to customers - - - - 360,265 - X X 2. Due to banks - - - - 388,707 - X X 3. Securities issued ------X X Total liabilities - - - - 748,972 - 748,972 1,649,258

NET VALUE AT 31/12/2015 - - - - 1,542,702 - 1,542,702 X

NET VALUE AT 31/12/2014 - - - - 1,402,048 - X 1,402,048

Key: A = financial assets transferred recognised in full (carrying amount). B = financial assets transferred recognised in part (carrying amount).

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B. Financial assets sold and fully derecognised with recognition of constant involvement

QUALITATIVE INFORMATION

There are no financial assets sold and fully derecognised with recognition of constant involvement

QUANTITATIVE INFORMATION

E.4 - Covered bond transactions

There are no covered bond transactions.

F. Credit risk measurement models Refer to the description under the qualitative information on credit risk.

SECTION 2 - MARKET RISK

2.1 - INTEREST RATE RISK AND PRICE RISK - REGULATORY TRADING BOOK

“Regulatory trading book” means the portfolio of financial instruments subject to the capital requirements for the market risks, as stated by the measures regarding supervisory reports.

QUALITATIVE INFORMATION

A. General aspects The trading book comprises bonds, shares and trading derivatives. The bond component of the book consists mainly of fixed-rate securities with a quite limited duration and hedged against interest rate risk. The bonds held are almost exclusively issued by banks and by the Italian Republic. The direct equity investments, residual in size, mainly involve shares listed on the Italian Stock Exchange and with high degree of liquidity. The financial instruments in the book are mostly in Euro. The risk is allocated almost entirely to Credito Valtellinese and the exposure remains well within established limits; the size and riskiness of the book of the Bank comply with the established limits.

The main portion of the portfolio risk consists of the issuer risk and currency risk arising from forward purchase and sale transactions as part of the ordinary course of business with customers.

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B. Management process and measurement methods for the interest rate risk and the price risk Investment policies are based on criteria that aim to limit market risk for the components that the Bank intends to consciously assume:

- interest rate risk; - price risk;

- currency risk. As a general rule, the Bank does not enter into transactions that entail exposure to commodity risks). At year end, there are no positions of this type. Risk hedging tools and techniques are used in the management of the portfolio.

In line with the Banking Group’s retail mission that mostly entails the assumption of lending risk with regard to specific customer segments, the financial assets are mainly used to ensure protection of the overall technical equilibrium of the bank. Management of the trading book is specifically aimed at optimising income from the financial resources available, with the obligation of restraining variability of the forecast results from the Finance Area and individual and consolidated profits.

The risk management process regarding the market risk for the trading book is governed by a specific corporate regulation approved by the Board of Directors of the Bank and periodically reviewed. This regulation formalises the performance of the risk management activities regarding such types of risks, defines the tasks and responsibilities assigned to the various organisational units in charge, and sets out, among other things, the strategic directions, management policy, measurement methods, exposure limits, information flows and any mitigation interventions that may be necessary. Therefore, investment and trading is carried out in compliance with the mentioned policies and is implemented as part of an extensive system of assigned management powers and according to detailed regulations envisaging defined management limits in terms of instruments, amounts, investment markets, issue and issuer types, sectors and ratings.

The Risk Management Department monitors on a daily basis the exposure to the market risk and verifies the consistency with the risk appetite defined by corporate bodies as part of the Risk Appetite Framework and the compliance with the system of limits. Adequate information flows are provided on a regular basis and timely to corporate bodies and functions of management and control. Risk is measured using both analytical techniques (establishing the duration of the bond portfolio with regard to interest rate risk exposure) and statistical estimate techniques of the Value at Risk (VaR).

The VaR measures the maximum loss the trading book may incur based on volatility and historic correlation of the individual market risk factors (interest rates, share prices and exchange rates) and credit risk of the issuer. The estimate is carried out by using the parametric approach, based on the volatility and the correlations of risk factors observed in a certain period, over a 10-day period and a 99% confidence interval. The data used is provided by Prometeia (RiskSize).

This model is not used to determine the minimum capital requirement with respect to market risk.

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QUANTITATIVE INFORMATION 1. Regulatory trading book: distribution by residual maturity (by re-pricing date) of on- statement of financial position financial assets and liabilities and financial derivatives

From From From 3 From 6 1 5 Beyond On Up to 3 months months Unspecified year years 10 Type/Residual duration sight months to 6 to 1 maturity to 5 to 10 years months year years years 1. On -statement of financial position assets - 8,005 8,786 23,072 5,707 124 45 - 1.1 Debt instruments - 8,005 8,786 23,072 5,707 124 45 - - with early repayment option ------other - 8,005 8,786 23,072 5,707 124 45 - 1.2 Other assets ------2. On -statement of financial position liabilities ------2.1 Repurchase agreements ------2.2 Other liabilities ------3. Financial derivatives - 16,238 9,303 -22,079 -3,182 - - - 3.1 With underlying security - -2,075 1,323 -61 813 - - - - Options ------+ long positions ------+ short positions ------Other - -2,075 1,323 -61 813 - - - + long positions - 691 1,923 - 843 - - - + short positions - 2,766 600 61 30 - - - 3.2 Without underlying security - 18,313 7,980 -22,018 -3,995 - - - - Options ------+ long positions - 12 36 76 207 424 112 - + short positions - 12 36 76 207 424 112 - - Other - 18,313 7,980 -22,018 -3,995 - - - + long positions - 469,816 9,793 3,952 4,462 5,220 3,927 - + short positions - 451,503 1,813 25,970 8,457 5,220 3,927 -

The above table shows both Euro and foreign currency transactions. The foreign currency component is not relevant. Forward purchase and sale operations of securities or currencies are included in item 3. Financial derivatives. The sensitivity of the portfolio to interest rate variations is very limited (the amended duration of the bond component equals 0.8). In the event of parallel shifts in the interest rate curve by +100 basis points, the consequent change in the interest income, over a time horizon of 12 months, would equal EUR +321 thousand, whereas it would be zero in the case of shifts of - 100 basis points (under the non-negativity restriction in nominal interest rates). The indicated changes, which are directly reflected on the net interest income, would be partially offset by changes of opposite sign of the value of the book (EUR -179 thousand and +10 thousand, respectively, in the two assumed scenarios).

The overall asset and income impact, taking also account of tax effects, would be limited.

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2. Regulatory trading book: distribution of exposures in equity securities and share indices for the main countries in the listing market

Type of transaction/Listing market Listed Listed Unlisted Italy U.S.A.

A. Equity instruments 500 6 - - long positions 500 6 - - short positions - - - B. Unsettled transactions involving equity instruments - - - - long positions - - - - short positions - - - C. Other derivatives on equity instruments - - - - long positions - - - - short positions - - - D. Derivatives on share indices - - - - long positions - - - - short positions - - -

Since the amount of exposure in equity instruments and derivatives on such instruments is modest, any small or big change in prices would not have significant economic or financial effects.

3. Regulatory trading book: internal models and other sensitivity analysis methods

The Bank uses a single model for monitoring trading book risk. Therefore, the tables below illustrate information on VaR, inclusive of all risk factors that determine it.

The main factors to which it is exposed are currency and issuer risk. The importance of the issuer risk is mainly ascribable to the still modest creditworthiness of the banks and of the Italian Republic, whereas the exposure to currency risk derives from the forward purchase and sale transactions as part of the ordinary course of business with customers.

The backtesting activities carried out with reference to the trading book confirm the reliability of the estimates carried out.

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Regulatory trading book – VaR performance (values expressed in EUR)

2015 2014

Average Minimum Maximum 31/12/2015 Average Minimum Maximum 2,879,768 158,303 11,986,219 172,322 451,677 249,897 750,699

Regulatory trading book – VaR performance

Regulatory trading book – Contribution of risk factors to calculation of VaR

Situation at 31/12/2015

Price and specific risk Interest rate risk Currency risk Issuer risk Benefit of diversification

46.6% 6.6% 67.0% 70.8% 91.0%

Regulatory trading book – Breakdown of bond exposures by issuer type Situation at 31/12/2015 Insurance companies Creval Group Sovereign Public Banks and Corporate issuers issuers other financial companies 18.6% 1.4% 76.3% 0.0% 0.0% 3.7%

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2.2 - INTEREST RATE RISK AND PRICE RISK - BANKING BOOK

The banking book consists of all financial instruments payable and receivable not included in the trading book.

It mainly comprises loans and receivables with banks and customers and amounts due to banks and customers and Government bonds.

QUALITATIVE INFORMATION

A. General aspects, management procedures and methods of measuring interest rate risk and price risk

The interest-rate risk is a typical risk of the banking activity, which mainly consists in funding and in lending). The existence in the financial statements of interest-bearing assets and onerous liabilities forms the source of exposure to the interest rate risk for the Bank. Interest rate risk management aims to minimise the impact of unfavourable variations in the rates curve on the value and on cash flows generated by statement of financial position items. Limiting exposure to interest rate risk is achieved primarily by index-linking asset and liability items to money market benchmarks (usually the Euribor rate) and by balancing the duration of the asset or liability at low levels. The objectives with respect to interest rate risk exposure are considered when carrying out strategic and operational planning, both when identifying and developing new products. The Risk Management Department monitors on a monthly basis the exposure to the interest rate and verifies its consistency with the risk appetite defined by corporate bodies as part of the Risk Appetite Framework and the compliance with the system of limits. Adequate information flows are provided on a regular basis and timely to corporate bodies and functions of management and control.

Measurement of interest rate risk on the bank portfolio is based on the economic value approach, defined as the current value of expected net financial flows generated by assets, liabilities and off-statement of financial positions. Given that the present value of the expected cash flows depends on the interest rates, their variation affects the fair value of the Bank as a whole. This measurement is based on pre-set variations of the structure of the rates applied to on and off-statement of financial position items at the end of the reporting period. The reactivity to interest rate variations is measured by both sensitivity indicators (approximate amended duration in the simplified regulatory model) and revaluation of the assets, liabilities and unrecognised items (internal management model). The changes in the economic value that result are then normalised in proportion to own funds. In order to better assess the exposure to the interest rate risk, a model was updated to treat on demand items with a theoretical maturity and frequency of rate review of one day (contractual profile) but deemed to be more stable on the basis of the statistical analysis of the persistence of volumes and the stickiness of the rates (behavioural profile). The statistical analysis identified a “core” component of the on demand items whose behaviour is replicated by a portfolio that, given a suitable combination of fixed rate and floating rate instruments, allows both the expected decrease in volume and the stickiness of the interest rates to be considered. The time decay profile of the core component was made endogenous by using the “mean life”, which represents a development of the volume analysis model and allows to represent the profile of behavioural maturity of on demand items on a holding period not determined in advance. In order to seize any significant behavioural difference between the different categories of customers, the analysis was performed separately for each customer 469 segment (Retail, SME and Other).

Regarding exposure to interest rate risk, reporting limits and actions at consolidated level were approved, defined in terms of fair value change at the end of the reporting period (static ALM) resulting from instantaneous movements of the rate curve. To this end, both parallel shifts of fixed size (typically 200 basis points) and specific variations for each node of the interest-rate structure are considered, determined on the basis of major decreases and increases actually recorded in an observation period of 6 years (considering the 1st and 99th percentile of the distribution, respectively). Moreover, non-parallel shifts of the yield curve that are able to change its inclination (flattening, steepening and reversal of the interest rate structure) are also taken into consideration. The banking book consists also of the shares that are held as part of more in-depth relations with specific companies or represent the instrument supporting significant initiatives undertaken in the Group’s reference territory. The price risk management methods for such financial instruments, therefore, tend more towards the management approach for investments in associates and companies subject to joint control, rather than the risk measurement techniques and instruments used for the trading book.

B. Fair value hedges

The hedging of interest rate risk aims to protect the banking book from fair value changes of loans caused by the movements of the interest rate curve (fair value hedge); types of derivatives used are represented by interest rate swaps (IRS) carried out with third parties. The hedge accounting of Credito Valtellinese is carried out through the specific fair value hedge of assets specifically identified (specific hedging). The Risk Management is responsible for verifying the effectiveness of the hedging of interest rate risk for the purpose of hedge accounting, in compliance with the IFRS. At the end of the financial year, Italian Government bonds (BTP) are recognised in the banking book of Available-for-sale financial assets with the objective of hedging the variability of the relevant fair value component linked to changes in interest rates, excluding the residual component of the credit risk, whose effects remain in the relevant Equity reserve. To this end, hedging derivatives (IRS) were used. They were entered into together with the purchase of underlying securities. The effectiveness tests carried out on a monthly basis confirmed a very high effectiveness and, anyway, within the range required by the IFRS. The hedge effectiveness is measured, specifically for each hedged tranche, as follows:

- these fair value changes are compared to the fair value changes recorded by the relevant hedging IRS, less (only for the purposes of the effectiveness test) the previous described component of reverse entry in the Income Statement (net interest income) of the upfront implicitly received at source.

C. Cash flow hedges No cash flow hedges are pending or were carried out.

QUANTITATIVE INFORMATION

1. Banking book: distribution by residual maturity (by re-pricing date) of financial assets and liabilities

Please refer to the next paragraph “Internal models and other sensitivity analysis methods”.

2. Banking book: internal models and other sensitivity analysis methods

The measurement of the exposure to interest rate risk is performed through an internal model that provides a full-valuation approach to all positions that are interest-bearing assets and liabilities, as well as off-statement of financial position items. In detail, the model includes the following phases:

- calculation of net present value of assets, liabilities and off-statement of financial position items and calculation of the previously translated as fair value;

- recalculation of the net present value of on and off-statement financial positions with the new interest-rate curve and calculation of the new economic value;

- calculation of the variation in the economic value as the difference of the ante and post- shock value of the rates.

As mentioned in the section dedicated to “Qualitative information”, the proper representation in terms of risk and profitability of demand negotiations required their modelling to estimate both the persistence of aggregates and the actual index-linking level of interest rates. Customer loyalty gives on-sight items a much higher actual duration than contractual duration. Moreover, for these items, the extent and ways of redefining the interest rate depends, in addition to the market rate trend, also on the specific characteristics of each relation between the bank and the customer.

At year end, the changed duration calculated for all financial statements assets and liabilities as well as the duration gap are moderate. Assuming that the rate structure makes a parallel shift upwards of 100 basis points, the fair value would decrease by EUR 58.7 million. In case of an equal downward shift, under the non-negativity restriction in nominal interest rates, the value would increase by EUR 34.6 million.

As regards income profiles, in the hypothesis of instantaneous and parallel shifts of the interest rate curve by -100 basis points (under the non-negativity restriction in nominal interest rates), the variation of the net interest income generated by the banking book, over a time horizon of 12 months, would equal EUR -0.1 million, whereas it would equal EUR 37.6 million in the case of shifts of +100 basis points. These amounts express the effect of changes in the interest

471 rates on the banking book, excluding modifications to the composition and size of the financial statement items. As a result, these cannot be considered as an indicator in forecasting the expected level of the net interest income. However, under the assumptions indicated, changes in the net interest income would result in equal changes in total income and minor changes in profit, if we consider the related tax effects.

2.3 - CURRENCY RISK

QUALITATIVE INFORMATION A. General aspects, management processes and measurement methods for currency risk The Bank, as a rule, does not operate on the foreign exchange market on its own account for speculative purposes. Foreign currency transactions are mainly related to the operations of spot and forward customers. The amounts of assets and liabilities in foreign currency are modest. Currency derivatives consist of forward trading. As regards management processes and measurement methods for currency risk in the trading book, refer to that set forth in the paragraph “Interest rate risk and price risk - Regulatory trading book - Qualitative information”. All foreign currency positions generated by transactions with customers are managed together with the Finance Department through analysis of open gaps (non-offset positions). The monitoring of currency risk is based on defined limits in terms of maximum acceptable loss, forward gap position and overall open gap position.

B. Currency risk hedging

There is no currency risk hedging.

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QUANTITATIVE INFORMATION

1. Distribution of assets, liabilities and derivatives by currency

31/12/2015 Currencies Items Swiss Sterling United Australian Other US dollars Yen francs Kingdom dollars currencies A. Financial assets A.1 Debt instruments ------A.2 Equity instruments 6 - - - - - A.3 Loans and receivables with banks 6,342 1,741 93 653 764 1,409 A.4 Loans and receivables with customers 9,893 10,472 1,335 616 - 9 A.5 Other financial assets ------B. Other assets 1,400 1,393 162 757 192 530 C. Financial liabilities C.1 Due to banks 3,913 173 - 111 61 613 C.2 Due to customers 168,627 11,656 1,207 3,306 2,449 2,639 C.3 Debt instruments ------C.4 Other financial liabilities ------D. Other liabilities ------E. Financial derivatives - Options + long positions ------+ short positions ------Other derivatives + long positions 200,357 260 6,350 1,991 3,229 1,853 + short positions 45,527 2,025 6,733 440 1,671 368 Total assets 217,998 13,866 7,940 4,017 4,185 3,801 Total liabilities 218,067 13,854 7,940 3,857 4,181 3,620 Difference (+/-) (69) 12 - 160 4 181 Forward purchase and sale operations of securities or currencies are included in item E. Financial derivatives

2. Internal models and other sensitivity analysis methods

As regards internal models for currency risk in the trading book, refer to that set forth in the paragraph “Interest rate risk and price risk - Regulatory trading book - Quantitative information”.

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2.4 DERIVATIVE INSTRUMENTS

A. FINANCIAL DERIVATIVES

A.1 - Regulatory trading book: period-end notional values

31/12/2015 31/12/2014

Underlying assets/Types of derivatives Over the Central Over the Central counter counterparties counter counterparties

1. Debt instruments and interest rates 279,348 - 501,753 -

a) Options 52,620 - 51,569 -

b) Swaps 226,728 - 450,184 -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -

2. Equity instruments and share indices - - - -

a) Options - - - -

b) Swaps - - - -

c) Forwards - - - -

d) Futures - - - -

e) Others - - - -

3. Currencies and gold 193,097 - 138,282 -

a) Options - - - -

b) Swaps - - 110,263 -

c) Forwards 193,097 - 28,019 -

d) Futures - - - -

e) Others - - - -

4. Commodities - - - -

5. Other underlying assets - - - -

Total 472,445 - 640,035 -

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A.2 - Banking book: period-end notional values

A.2.1 - Hedging

31/12/2015 31/12/2014

Over Over Underlying assets/Types of derivatives Central Central the the counterparties counterparties counter counter 1. Debt instruments and interest rates 600,000 - 600,000 - a) Options - - - - b) Swaps 600,000 - 600,000 - c) Forwards - - - - d) Futures - - - - e) Others - - - - 2. Equity instruments and share indices - - - - a) Options - - - - b) Swaps - - - - c) Forwards - - - - d) Futures - - - - e) Others - - - - 3. Currencies and gold - - - - a) Options - - - - b) Swaps - - - - c) Forwards - - - - d) Futures - - - - e) Others - - - - 4. Commodities - - - - 5. Other underlying assets - - - - Total 600,000 - 600,000 -

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A.2.2 - Other derivatives

31/12/2015 31/12/2014

Over Over Underlying assets/Types of derivatives Central Central the the counterparties counterparties counter counter 1. Debt instruments and interest rates - - - - a) Options - - - - b) Swaps - - - - c) Forwards - - - - d) Futures - - - - e) Others - - - - 2. Equity instruments and share indices - - - - a) Options - - - - b) Swaps - - - - c) Forwards - - - - d) Futures - - - - e) Others - - - - 3. Currencies and gold - - - - a) Options - - - - b) Swaps - - - - c) Forwards - - - - d) Futures - - - - e) Others - - - - 4. Commodities - - - - 5. Other underlying assets 59,660 - 49,600 - Total 59,660 - 49,600 -

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A.3 Financial derivatives: positive gross fair value – breakdown by product

Positive fair value 31/12/2015 31/12/2014

Over Over Portfolios/Types of derivatives Central Central the the counterparties counterparties counter counter A. Regulatory trading book 2,194 - 5,166 - a) Options 371 - 1,222 - b) Interest rate swaps 1,021 - 1,807 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards 802 - 2,137 - f) Futures - - - - g) Others - - - - B. Banking book - hedging - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Others - - - - C. Banking book- other derivatives - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Others - - - - Total 2,194 - 5,166 -

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A.4 Financial derivatives: negative gross fair value – breakdown by product

Negative fair value 31/12/2015 31/12/2014

Over Over Portfolios/Types of derivatives Central Central the the counterparties counterparties counter counter A. Regulatory trading book 3,196 - 6,260 - a) Options 393 - 1,222 - b) Interest rate swaps 2,184 - 3,798 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards 619 - 1,240 - f) Futures - - - - g) Others - - - - B. Banking book - hedging 269,496 - 308,718 - a) Options - - - - b) Interest rate swaps 269,496 - 308,718 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Others - - - - C. Banking book- other derivatives - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Others - - - - Total 272,692 - 314,978 -

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A.5 OTC financial derivatives - regulatory trading book: notional values, positive and negative gross fair value by counterparty – contracts that are not offset agreements

Governments Other Non Contracts that are not Financial Insurance Other and government financial offset agreements Banks companies companies parties Central agencies companies banks 1) Debt instruments and interest rates - notional amount - - 275,761 - - 3,587 - - positive fair value - - 1,392 - - - - - negative fair value - - 2,503 - - 74 - - future exposure - - 2,971 - - - - 2) Equity instruments and share indices - notional amount ------positive fair value ------negative fair value ------future exposure ------3) Currencies and gold - notional amount - - 168,805 - - 22,915 1,378 - positive fair value - - 659 - - 143 - - negative fair value - - 254 - - 299 66 - future exposure - - 1,688 - - 233 14 4) Other values - notional amount ------positive fair value ------negative fair value ------future exposure ------

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A.7 OTC financial derivatives - banking book: notional values, positive and negative gross fair value by counterparty – contracts that are not offset agreements

Contracts that are not Governments Other Non- Financial Insurance Other offset and government financial Banks companies companies parties agreements Central agencies companies banks 1) Debt instruments and interest rates - notional amount - - 600,000 - - - - - positive fair value ------negative fair value - - 269,496 - - - - - future exposure - - 9,000 - - - - 2) Equity instruments and share indices - notional amount ------positive fair value ------negative fair value ------future exposure ------3) Currencies and gold - notional amount ------positive fair value ------negative fair value ------future exposure ------4) Other values - notional amount - - - 59,660 - - - - positive fair value ------negative fair value ------future exposure - - - 5,966 - - -

A.9 Residual maturity of OTC financial derivatives: notional values

From 1 Up to 1 Beyond 5 Underlying/Residual life year to 5 Total year years years A. Regulatory trading book A.1 Financial derivatives on debt instruments and interest rates 26,000 4,935 248,413 279,348 A.2 Financial derivatives on equity instruments and share indices - - - - A.3 Financial derivatives on currencies and gold 193,003 94 - 193,097 A.4 Financial derivatives on other assets - - - - B. Banking book B.1 Financial derivatives on debt instruments and interest rates - - 600,000 600,000 B.2 Financial derivatives on equity instruments and share indices - - - - B.3 Financial derivatives on currencies and gold - - - - B.4 Financial derivatives on other assets - 59,660 - 59,660 Total at 31/12/2015 219,003 64,689 848,413 1,132,105 Total at 31/12/2014 140,282 79,600 1,069,753 1,289,635

480

SECTION 3 - LIQUIDITY RISK

QUALITATIVE INFORMATION

A. General aspects, management processes and measurement methods for liquidity risk

The liquidity risk to which the banks are normally exposed due to the phenomenon of transformation of maturities is the risk that the banks will not be able to meet its payment commitments. The failure to meet its payment commitments may be due to the following inability to:

- procure the funds (funding liquidity risk); - divest their assets (market liquidity risk).

Liquidity management is aimed primarily at ensuring the solvency of the Bank also in stressful or crisis conditions, not at achieving profits (an objective that may involve a trade-off with the ability of the banks to meet their commitments when they fall due and reduce the effectiveness of the risk management system). Therefore, the actual assumption of risk is subordinate to maintaining the bank’s technical equilibrium. The opportunity cost associated with the holding of liquid assets is taken into account within the Bank’s profitability valuations. The pursuit of a limited exposure to liquidity risk, as defined within Risk Appetite Framework, is reflected in the composition of statement of financial position aggregates, characterised by a moderate transformation of maturities.

The liquidity risk management process mainly involves some specific structures. The A.L.Co. Committee provides advice to the top management for deciding the proposals of risk assumption and mitigation and defining any corrective action aimed at re-balancing risk positions. The Finance Department is in charge of the treasury management and of the supply on the inter-bank market; it manages the intraday and short-term liquidity risk by using financial instruments on reference markets and can propose funding and mitigation operations of the structural liquidity risk. The definition of the structure and responsibilities of the unit responsible for managing the treasury as a supplier or recipient of funds for different business units considers the fact that it operates primarily as a service function. The Planning, Control and General Affairs Department, within the annual and multi-annual planning process of the different Group components, participates in defining the structural liquidity balance of the Banks and of the Group as a whole. The Risk Management Department - independently from the “operational management” of the liquidity risk - contributes to the definition of the policies and processes of risk management, develops the evaluation process of liquidity risk, supports the governing bodies in defining and carrying out activities related to the observance of the prudential regulations, and ensures accurate, complete and timely information.

The different organisational structures involved in the management of liquidity risk produce, in relation to their operational and monitoring activities, special reports for corporate bodies.

In order to manage the liquidity risk, a Contingency Funding and Recovery Plan that - prepared in accordance with the prudential supervisory provisions - defines and formalises the organisational escalation, the objectives and the management leverage required for protecting - through the preparation of strategies for managing the crisis and procedures for finding financing sources in the case of emergency - company assets in situations of extreme and unexpected cash drain was adopted. The elements characterising the emergency plan are set 481 below:

- definition and formalisation of an action strategy – approved by the corporate bodies – defining specific policies on certain aspects in the management of liquidity risk;

- cataloguing of the various types of liquidity stress to identify the nature (specific or systemic);

- estimates of the liquidity that can be obtained from the different financing sources.

- The exposure to risk occurs and is managed according to four different profiles compared to the considered time horizon: intraday liquidity that deals with the daily management of treasury balances and the settlement of transactions in the payment method;

- short-term liquidity that aims at optimising cash flows and balancing the liquidity requirements in a quarterly horizon;

- medium-term liquidity in perspective, concerning the implementation of the funding plan of the financial year or of 3-12 months following the end of the reporting period;

- structural liquidity that forms part of planning and assumes an overall business strategy.

Each of them has different exposure profiles, methodology approaches, techniques, mitigation instruments, corrective actions.

As the considered time horizon increases, the levels of freedom of management increase: they cover structural and strategic interventions (e.g. securitisations, operations on the capital, amendments to the Group structure, acquisitions and transfers, supervision/abandonment of market segments). On the other hand, in the very short term, the reaction to unexpected and sudden tensions is based on the use of existing cash reserves (liquidity buffer). The approach adopted for risk management envisages integration of the cash flow matching approach (which tends to make expected cash inflows coincide with expected cash outflows for each time horizon) with the liquid assets approach (which requires the financial statements to include a set number of financial instruments that can be readily converted into cash). In order to face up to the possible occurrence of unexpected liquidity requirements and thus to mitigate the relevant risk exposure, adequate short-term cash reserves were adopted (liquidity buffer).

Exposure to risk is monitored in relation to all the time horizons of the structural maturity 482 ladder in terms of unbalance between liabilities and assets of the same time horizon; the reference indicator is represented by the “Gap ratio” beyond one year. The model for dealing with on sight items, which is mentioned in the paragraph relating to the interest rate risk, is also used in the assessment of the exposure to risk. In addition to the maturity ladder, through which the structural liquidity profile is investigated, the liquidity risk is also assessed in the short and very short term as part of the treasury activity “Overall liquidity net balance” (sum between the “Cumulative net balance of positions due” and liquidity reserves), recognised over a period of three months and with reference to specific and different time ranges.

With regard to the medium-term perspective, the planning prepared annually also shows the potential liquidity requirements and the effects of the expected trend of the aggregates on the profile of operational and structural liquidity; the Funding Plan defines for the planned year the funding objectives and activities consistent with the short-term requirements and with the preservation of the structural balance. The assessment of exposure to liquidity risk makes use of stress testing. Stress tests consider both idiosyncratic adverse events (bank specific) and systemic adverse events (market wide) based on their importance for company operations in terms of liquidity and assess the possible impacts of their occurrence both individually (uni-factorial analysis) or jointly (multi-factorial analysis; combined scenarios). With the aim to capture and highlight different aspects of potential vulnerability, some basic tests are performed concerning:

- the profile of concentration of financing sources (tests with different levels of severity) and the outflow of wholesale deposits;

- the reduction in retail deposits; - the increased use of irrevocable credit lines to large corporates;

- the reduction of liquidity reserves due to the decrease in market values, the loss of eligibility requirements or the application of further haircuts.

- constant attention to the technical situations of the Bank and Group in terms of balanced structuring of asset and liability expiry dates, with special regard to short term maturities;

- the holding of assets readily convertible into cash to be used as guarantees for financing transactions or that can be sold directly in the event of stressful situations;

- the Contingency Funding and Recovery Plan.

During the year, the Group liquidity situation did not require the implementation of the Contingency Funding and Recovery Plan procedures .

At 31 December 2015, the Bank had a negative net interbank position of EUR 1.8 billion, in 483 respect of which it held liquidity reserves mostly consisting of Italian Government bonds and deemed appropriate to the contingent and perspective requirements of the Group as a whole. At 31 December 2015, the main source of funding consisted of retail customers (EUR 14.1 billion, accounting for 70.3% of total funding), stable and diversified. Funding from ECB amounts to 9.0% of the total (EUR 1.8 billion, of which EUR 1.5 for long-term refinancing transactions). From the structural perspective, the Bank carries out a modest transformation of maturities. The loan and deposit ratio was 87.2%, down from 92.7% at the end of the previous year.

484

QUANTITATIVE INFORMATION

1. Distribution of financial assets and liabilities by residual contractual maturity

From 7 From 15 From 1 From 3 From 1 From 6 From 1 Items/Time periods days days month months Beyond 5 Unspecifi On sight day months year to 15 to 1 to 3 to 6 years ed to 7 days to 1 year to 5 years days month months months maturity

On-statement of financial position 4,120,428 882,388 175,694 598,116 1,025,787 742,992 1,446,167 5,954,904 6,115,281 182,189 assets A.1 Government bonds 35 - - 1,145 15,900 44,195 115,065 2,215,546 2,098,538 - A.2 Other debt instruments 3,821 - 109 12,003 8,700 10,419 30,260 251,838 62,739 20,374 A.3 OEIC units 53,255 ------A.4 Loans 4,063,317 882,388 175,585 584,968 1,001,187 688,378 1,300,842 3,487,520 3,954,004 161,815 - Banks 301,520 26,773 - 236,935 15,065 112 293 20,000 - 161,815 - Customers 3,761,797 855,615 175,585 348,033 986,122 688,266 1,300,549 3,467,520 3,954,004 -

On-statement of financial position 10,615,360 962,635 646,341 1,293,074 660,658 545,579 780,792 4,250,686 457,737 - liabilities

B.1 Deposits and current accounts 10,539,421 961,427 645,470 1,186,416 553,659 187,354 188,249 1,973,101 - - - Banks 343,779 300,829 1,564 487,516 25,724 2,078 309 1,500,000 - - - Customers 10,195,642 660,598 643,906 698,900 527,935 185,276 187,940 473,101 - - B.2 Debt instruments 36,968 611 824 72,461 99,469 303,351 509,333 1,925,632 106,906 - B.3 Other liabilities 38,971 597 47 34,197 7,530 54,874 83,210 351,953 350,831 -

Off-statement of financial position -27,653 -144,997 1,938 131 136,818 -15,147 2,677 5,348 13,727 - transactions

C.1 Financial derivatives with exchange of principal - -2,081 243 68 8 1,312 -78 805 - -

- long positions - 108,810 85,848 51,597 19,038 3,725 3,952 924 - - - short positions - 110,891 85,605 51,529 19,030 2,413 4,030 119 - -

C.2 Financial derivatives w/o exchange -1,185 - - - - -13,472 -13,154 - - - of principal - long positions 1,392 ------short positions 2,577 - - - - 13,472 13,154 - - - C.3 Deposits and loans to be received ------long positions ------short positions ------

C.4 Irrevocable commitments to grant -26,481 -142,916 1,695 63 136,806 -2,993 15,859 4,352 13,614 - finance

- long positions 263,958 - 1,695 63 141,158 2,887 23,593 4,352 13,614 - - short positions 290,439 142,916 - - 4,352 5,880 7,734 - - -

C.5 Financial guarantees given 13 - - - 4 6 50 191 113 -

C.6 Financial guarantees received ------

C.7 Credit derivatives with exchange of principal ------

- long positions ------short positions ------

C.8 Credit derivatives without exchange of principal ------

- long positions ------short positions ------

The above table shows both Euro and foreign currency transactions. The foreign currency component is not relevant.

Forward purchase and sale operations of securities or currencies are included in item 3. Financial derivatives.

485

Self-securitisation transactions

Credito Valtellinese holds the securities deriving from the self-securitisation of Quadrivio SME 2012, concluded in 2012 and Quadrivio RMBS 2013 concluded in 2013.

A summary table of the different self-securitisations carried out is provided below. Quadrivio SME 2012

Main information

Date of transaction 06/08/12

Special purpose entities Quadrivio SME 2012 S.r.l.

Performing mortgage and unsecured Subject matter of the transaction loans granted to companies

- Credito Valtellinese Originator banks - Credito Siciliano - Carifano

Original aggregate amount of transferred loans and receivables 2,133,227

Securities issued 2,133,300

of which senior a1 1,330,300

of which junior b 803,000

Rating of senior securities upon issue AAA Fitch and DBRS

Subordinated loan (Cash reserve) 46,846

Overall residual notional amount of the securities at 31/12/15 1,051,348

Residual values of loans and receivables at 31/12/15 1,093,873

Rating of senior securities at 31/12/15 AA+ Fitch and AAA DBRS

486

Quadrivio RMBS 2013

Main information

Date of transaction 09/08/13

Securities issued 660,000

of which senior A1 363,000

of which senior A2 132,000

of which junior 165,000

Rating of senior securities upon issue AA+ Fitch; AAA DBRS

Overall residual notional amount of the securities at 31/12/15 475,365

Residual values of loans and receivables at 31/12/15 463,346

Rating of senior securities at 31/12/15 AA+ Fitch AAA DBRS

SECTION 4 - OPERATIONAL RISKS

QUALITATIVE INFORMATION A. General aspects, management processes and measurement methods for operational risk The operational risk is defined as the risk of incurring losses due to the inadequacy or inefficiency of procedures, human resources and internal systems or due to external events, including the legal risk. It includes, inter alia, losses deriving from fraud, human error, interruption of operations, system break-down, contractual non-performance and natural disasters.

The wide variety of operational risks is not normally associated with banking or business activities. These risks may originate either internally or externally and their scope may extend beyond the corporate structure.

As a result of the process defining the risk appetite, the Board of Directors, in line with the adopted business model and considering that the operational risk is not associated with any return, set as its management objective the minimisation of exposure to operational risk. Consistently, the Board established the strategic guidelines and risk management policies, which were made known to the internal departments and are reviewed on a regular basis.

Operational risk management is part of an integrated management strategy that aims to contain overall risk also by preventing propagation and transformation of the risks. 487

Operational risk management is based on the following guidelines:

- 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.

The identification, assessment and monitoring of operational risks tend to carry out mitigation interventions.

Finally, specific types of risks are transferred through a series of insurance policies offering a wide-ranging coverage on different types of potentially damaging events.

In particular, the Operational Risk Service deals with the development and management of the models concerning operational risks, supervises the systematic and structured loss data collection from various departments of the company, carries out the analyses required, assesses the operational risks on an adequate basis and can propose appropriate management measures and mitigation instruments. The timely and accurate recognition of the events that may actually or potentially generate operating losses is carried out by a network of company contacts using a special application that allows to register and keep identifying information, damage estimates, accounting and extra-accounting final data and the effects of mitigation through insurance instruments. The Risk Management Department is responsible for the identification of algorithms, rules and parameters required for the development of methods and models for assessing and measuring the operational risk and performs this task on a centralised basis. Risk exposure is assessed and measured, at a separate and consolidated level, with reference to a wide range of phenomena that can lead to operating losses. The model for the assessment and measurement of operational risk is based on the combined use of:

- internal operating loss data, collected by the network of company contacts;

- assessments in perspective, prepared with an appropriate statistical technique and based on subjective estimates concerning the probability of occurrence, extent of the impact and the effectiveness of the controls related to certain events (risk self-assessment);

488

Moreover, the carrying out of stress tests allows to check the effects of the general increase of operational risk associated with the manifestation of widespread and significant operating losses. The results of the assessment are used for management purposes to prevent and mitigate operational risks. In order to ensure corporate bodies full knowledge and governance of the risk factors and make available to the persons in charge of the company departments the information pertaining to them, the Risk Management Department produces and distributes at regular intervals (quarterly, half-yearly and yearly) information flows on operational risks that offer a full representation of the different operational risk profiles and of the mitigation measures implemented during the reporting period or that are expected to be implemented in the future.

Moreover, specific reports are prepared at the end of the risk self-assessment and the relevant follow-up.

The Risk Management Department receives in turn information flows, both by other control departments (Auditing and Compliance) and by other management departments (e.g. Operations, ICT, Human Resources, Legal, physical and logical safety), which complete the knowledge of operational risk profiles and allow to monitor activities and projects for mitigating operational risks. The manifestation of any critical situation gives rise to corrective and mitigating actions, the effects of which are monitored and made known to the corporate bodies according to the ordinary reporting methods.

The Bank adopted the standardised method (TSA) for calculating the capital requirement to meet operational risks.

A number of requirements are necessary for the supervisory regulations to adopt the standardised method; in particular, the body must have a properly documented management and assessing system of the operational risk and the various responsibilities must be clearly assigned; and this system must be subject to independent regular reviews carried out by an internal or external subject with the skills required. In this regard, a self-assessment is carried out as well as a specific series of checks by the internal audit function.

The self-assessment process, carried out annually by the Risk Management Department, consists of a formalised set of procedures and activities aimed at assessing the quality of the operational risk management system, as well as its compliance over time with regulatory requirements, company operational requirements and the development of the market of reference. 489

These profiles also include the information and assessment elements concerning the components characterising the operational risk management system according to the supervisory regulations. The assessment of each profile is complemented by the indication of areas and lines of improvement. An overall rating is then formulated on the basis of the profile assessments. The assessment of the risk management system is complemented by the assessments related to the process of production of the supervisory reports, with a special reference to the calculation of the capital requirement to meet the operational risk and to the reporting of the operational losses recorded for the different business lines. The results, verified by the internal audit function, are submitted on an annual basis to the Board of Directors, which resolves on the existence of the eligibility requirements for the adoption of the standardised approach.

Legal risks

A provision was made in the financial statements, appropriate and consistent with the international financial reporting standards compliant with the policy for calculating the provisions adopted by the Group, in order to mitigate the potential economic losses resulting from the pending legal proceedings with regard to the Bank. The amount of the provision is estimated on the basis of a number of elements mainly concerning the estimate on the outcome of the case and, in particular, the likelihood of losing the case with the conviction of the Bank, and the elements of quantification of the amount that the Bank could be obliged to pay to the counterparty if it loses the case. The estimate on the outcome of the case (risk of losing in a lawsuit) considers, for each position, the legal aspects inferred in court, assessed in the light of the case law, actual evidences presented during the proceedings and the development of the proceedings, as well as, for subsequent encumbrances, the outcome of the first level judgement, as well as past experience and any other useful element, including the opinions of experts, making it possible to take into proper account the expected unfolding of the dispute.

The amount due in case of an adverse outcome is expressed in absolute value and shows the estimated value based on the court findings, considering the amount requested by the counterparty, the technical estimate carried out internally based on the accounting records and/or presented during the trial and, in particular, the amount assessed by the court- appointed expert (ctu) - if provided - as well as legal interests, calculated from the notification of the application initiating proceedings and any expense due for adverse outcome.

If it is not possible to obtain a reliable estimate (failure to quantify the claims for compensation by the claimant, presence of uncertainties of law and of facts that make any estimate unreliable), no provisions are made as long as it is impossible to foresee the outcome of the proceedings and reliably estimate the amount of any loss.

At 31 December 2015, there are 269 actions brought against the Bank for an overall value/relief sought of EUR 146.3 million against which a loss of EUR 10.3 million is expected.

490

The cases mainly refer to requests for restitution for compound interests and bankruptcy clawbacks, claims for compensation for losses accrued in investments in financial instruments and other cases of damages broken down as follows.

Relief sought Provision made Type of cases No. of cases (in millions of (in millions of EUR) EUR)

Compound interests 118 24.7 2.7

Bankruptcy clawbacks 22 21.1 3.6

Investment services 40 6.9 1.2

Other 89 93.6 2.8

Total 269 146.3 10.3

The Bank pursues careful and considered transactional logic, based on an in-depth analysis of the concrete grounds on which the actions are based, meaning the existence of both the subjective and objective elements. The main lawsuits are reported in Part E of the Notes to the consolidated financial statements to which we refer.

Tax dispute During the 2015 financial year, there are no tax audits or notices of assessment of significant amount. With reference to previous disputes, Credito Valtellinese and the company Mediocreval S.p.A., today merged by the same Parent, received in 2013 notices of payment and imposition of penalties with reference to the substitute tax on syndicate loans signed abroad for a total amount of about EUR 200 thousand among taxes, interests and sanctions, divided almost equally between the two banks. Appeals were immediately filed with the competent Tax Commissions against the notices of settlement to defend the correct operations of the banks. In this regard, the following is provided:

- with reference to the notice of settlement related to Credito Valtellinese, on 15 May 2015, the competent Tax Authorities ordered the request for nullification by internal review; - with reference to the notice of settlement related to Mediocreval, noting that the enacting clause of the sentence of inadmissibility of the appeal of first instance before the Provincial Tax Commission of Sondrio was notified on 15 April 2014, against which an appeal was immediately filed to the Regional Tax Commission, the appeal hearing was held on 25 June 2015. The judgement is still pending. It should also be noted that a tax dispute was positively settled for the purchase of bank branches, within a procedure requested by the Competition Authority, whose claim amounts to EUR 1.3 million by way of stamp duty, in relation to the higher goodwill assigned compared to the one recognised and paid to the counterparty and declared in the deeds. The Provincial Tax Commission of Milan upheld the appeal of the Bank, with judgement confirmed later on by the Regional Tax Commission of Milan. The judgement is definitive. During the second half of 2014, a request for refund of the portion of tax paid pending judgement was made. Payment is still pending.

491

The notice of contention concerning the non-disclosure of a money transfer operation abroad was settled, with partial request for nullification by internal review by the competent Tax Authorities, as part of the so-called currency tax monitoring with payment of a fine of approximately EUR 5 thousand. The rights of the companies are protected by external professionals with special skills and experience, with the intention to enforce the rights of the companies in the competent administrative and legal venues.

IT (or ICT) risk IT risk is the risk of incurring economic, reputation and market share losses in relation to the use of the Information and Communication Technology - ICT. In the integrated representation of business risks for prudential purposes (ICAAP), this type of risk is considered, in accordance with the specific aspects, among operational, reputational and strategic risks. The IT risk analysis is a tool guaranteeing the efficiency and effectiveness of the protection measures of the ICT resources. In the light of the supervisory provisions on this matter, the overall framework for managing the IT risk as well as the methods of risk analysis and assessment was defined. The process of IT risk analysis consists of several departments, in particular of the ICT Management and Safety Department of Creval Sistemi e Servizi and Risk Management Department and consists of the following phases:

When assessing the risks on the components of the IT system and already existing applications, the data available concerning IT security incidents occurred in the past is taken into account. The process of risk analysis is repeated annually and, in any case, in the presence of situations that can affect the overall IT risk level.

The assessments of IT risk exposure, resulting from the analysis carried out during the financial year on business products and services, expressed in terms of residual risk, stood at a “minimum” or “irrelevant” level. This exposure is considered limited and consistent with strategic guidelines, the assumption and management policies of IT risks and with the thresholds established by the Risk Appetite Framework.

QUANTITATIVE INFORMATION 492

The percentage distribution of operational losses recognised in the internal database during the year is shown in terms of frequency and impact.

Operational losses - Distribution by type of event

The events reported during the year are mainly attributable in terms of frequency to the following event types: “External fraud” (38.2%), “Execution, delivery and management of processes” (50.2%) and “Customers, products and business practices” (9%). In terms of impact, losses are attributable to “External fraud” by 33.1%, to “Customers, products and business practices” by 33.3% and to “Execution, delivery and management of processes” by 26.6%; losses attributable to other event types are of lesser importance.

SECTION 5 - OTHER RISKS In addition to the risks described above, the Bank as Parent, identified and monitors the following other risks.

Risk of excessive leverage The risk of excessive leverage is defined by the prudential regulations as “the risk that a particularly high level of debt compared to equity makes the bank vulnerable, making it necessary to take corrective measures for its business plan, including the sale of assets with recognition of losses that could result in impairment losses also on the remaining assets”. The risk of excessive leverage concerns the entire financial statements, the exposures deriving from the holding of derivatives and the unrecognised assets of the Bank and is taken when carrying on the core business. It is closely related to the activities of planning and capital management; the degree of exposure to risk is an expression of the strategic lines and development prepared by the Board of Directors of the Bank, by the Managing Director and by the General Management to the extent of its authority.

The exposure to risk is mitigated by means of capital management and asset management, within the lines defined by the Group’s strategic plan in force each time. Moreover, the possible 493 increase in the risk related to the recognition of expected or realised losses that reduce the equity available is also considered. The measurement of the risk of excessive leverage is based on the regulatory parameter “leverage ratio”; since this amount does not include corrections/weightings for risk, it acts as a completion of the Pillar I capital requirements. Moreover, this contributes to limit the accumulation of the leverage at the system level. The risk exposure assessment is also carried out through other indicators that can recognise any imbalance between assets and liabilities.

For the purposes of managing and reducing the risk, a range of values considered normal, a reporting limit and an intervention limit, are expected at a consolidated level for the leverage ratio. The Risk Management Department monitors on a quarterly basis the trend of the leverage ratio and the structural balance indicators; corporate bodies are provided with regular disclosure.

The exposure is monitored on a regular basis and referred to corporate bodies. The outlook of the exposure to the sovereign risk profile is weighed considering adverse scenarios of varying intensity, also based on historical simulations, and their impact on the value of the portfolio and on the own funds.

The exposure stood at values below those recorded at the end of the previous year, due to the decrease in total volumes.

The table below shows the carrying amount of the exposures to sovereign debt risk, broken down by portfolio (AFS - Available-for-sale financial assets, HFT - Financial assets held for trading, HTM - Held-to-maturity investments, L&R - Loans and receivables with banks and Loans and receivables with customers).

AFS Countries AFS HFT HTM L&R Total reserve(*) Italy 4,954,378 9,284 - - 4,963,662 26,845 Other 66,886 1 - - 66,887 376 Total 5,021,264 9,285 - - 5,030,549 27,221

(*) After the tax effect

494

Additionally, loans and receivables with customers referred to loans granted to central and local public administrations totalling EUR 64,549 thousand are recognised. The following table provides information on the expiry of exposures in securities to total debt in Italy.

Beyond Portfolio 2016 2017 2018-2019 2020-2024 TOTAL 2025 AFS 55,874 673,728 1,111,187 2,214,708 898,880 4,954,378 HFT - 1,526 - 7,717 41 9,284 HTM ------L&R ------Total 55,874 675,254 1,111,187 2,222,425 898,922 4,963,662

At 31 December 2015, securities issued by the government were measured mainly referring to prices inferred from markets (Level 1 fair value).

Strategic risk The strategic risk is the current or future risk of drop in profits or capital arising from changes in the operating context or from wrong company decisions, inadequate decision implementation, and poor responsiveness to changes in the competitive context. The exposure to strategic risk is not related to specific operations but to the adequacy of the choices and effectiveness of the implementation. In particular, the risk refers to the phases of definition of business strategies and to the related implementation phases consisting of the definition of the business plan, commercial planning, budgeting, management control and monitoring of the markets and of the competitive context, capital allocation and capital management. The strategic risk, when configured as a mere strategic risk, business strategic risk and equity investment strategic risk, is primarily assumed by Credito Valtellinese, which is responsible for defining the overall business plan and the coordination and control of the group Companies for the purposes of its implementation. The Parent, by defining, approving and monitoring the annual planning and the progress of the Strategic Plan, exercises a strategic control on the development of the different business areas in which the Group operates and of the risks related to the activities carried on.

Compliance risk Compliance risk is the risk of incurring legal or administrative sanctions, significant financial losses or damage to reputation as a consequence of violation of mandatory provisions (laws or regulations) or self-regulation (e.g. articles of association, codes of conduct and codes of self- discipline). The Bank considers the adoption of the highest standards of compliance with the regulations a distinctive feature of its corporate identity, an expression of the exercise of its own social responsibility, a control for maintaining the reputation acquired over time and an effective contribution to the process of creation of value.

The management of the compliance risk is based on the Compliance Policy and on the Compliance Plan. 495

The aim of the Compliance Policy is to configure a structural system of principles and organisational and control procedures, designed to prevent, manage or mitigate the risk of non-compliance with heteroregulations and self-regulations.

- assessments based on the standardised method of assessing the potential risk and the residual risk;

- direct investigations on processes, procedures and operating units (analyses and interviews);

- any other IT tool designed to produce compliance checks in a structured form. Considering the extent of the compliance risk and the large number of factors from which it can originate, all the Group’s companies are exposed to such risk albeit of different intensity.

In order to measure/assess this risk, the recycling risks implied in the operational procedures of the Group related to the following processes were mapped:

- proper verification of customers;

- cash transactions and bearer securities;

- AUI entries;

Reputational risk The current or future risk of drop in profits or capital arising from the negative perception of the image of the bank by the customers, counterparts, bank shareholders, investors or supervisory authorities; the business analyses also include employees, the company and the territory.

Reputation is an essential intangible resource and is considered by the Bank as a distinctive element that underpins a lasting competitive advantage. The risk refers primarily to the area of relations with stakeholders and with the community; it can also arise from factors placed outside the corporate structure and outside the work of the Bank (e.g. from the dissemination of inaccurate or unsubstantiated information or from phenomena concerning the system and can involve each institution without distinction). The risk is limited mainly by defining organisational controls for limiting the occurrence of adverse events in the company. 496

An additional control consists of the sharing by all Bank employees of the system of values, principles and rules of conduct on which their behaviour is based formalised in the Code of Conduct, which is an integral part of the “Model of organisation, management and control” provided by Article 6 of Italian Legislative Decree 231/2001 on “Regulations dealing with the administrative liability of legal persons”.

This Code expresses a business management philosophy whose primary objective is to meet at best the expectations of all the Bank’s stakeholders, aiming to recommend and promote a high standard of professionalism and to prevent any behaviour in contrast with the principles that the Group intends to promote.

The Bank adopted also the Charter of Values, in order to identify recognisable and uniform principles for all the employees, on which the Bank bases its distinctive identity, marked by tension to work for sustainable growth. Communication is equally important: it is controlled by the Corporate Identity, Quality and Sustainability Service, by the Investor and Media Relation Service and by the Communication and Sponsoring Service of the Parent. The currently good and solid reputation is constantly monitored, protected and enhanced, and does not appear at the time to be exposed to particular risks, albeit the current crisis and the resolution of 4 Banks has to some extent affected the entire financial system.

Risk towards associated parties This is the risk that the proximity of certain persons to decision-making centres of the Bank might compromise the objectivity and impartiality of decisions relating to the granting of loans and other transactions with regard to these subjects, with possible distortions in the allocation of resources, the Bank’s exposure to risks not adequately measured or monitored, potential damage to depositors and shareholders. In order to preserve decision-making objectivity and impartiality and avoid allocative distortions, the Bank adopted strict procedures and limits more stringent than regulatory, regularly monitored. During the year, the limits of intervention were not exceeded.

Real estate risk

This is the current or prospective risk of potential losses arising from fluctuations of the value of the real estate portfolio owned by the Bank, or by the reduction of the income generated by it. The Bank assumes, to a limited extent, a real estate risk for investment purposes and for protecting its own claims. The real estate portfolio owned by the Bank represents a residual component compared to total assets at consolidated level and consists mostly in operating assets. The risk is mitigated through management and maintenance interventions aimed at preserving the functionality and value of the assets and partially transferred through insurance policies covering the real estate properties. The management of real estate assets is entrusted to a dedicated structure of the Group.

The potential risks arising from outsourcing are mostly operational, compliance, strategic and reputational risks; therefore, they refer to specific types already identified and described above.

498

PART F - INFORMATION ON EQUITY SECTION 1 - CORPORATE EQUITY

A. QUALITATIVE INFORMATION

Asset management concerns all the policies and choices required for defining its size, as well as the optimal combination among different alternative instruments of capitalisation aimed at ensuring that the consolidated assets and ratios of Credito Valtellinese are on a consistent basis with the risk profile assumed in full compliance with the supervisory requirements.

B. QUANTITATIVE INFORMATION Equity is broken down as follows:

B.1 - Company equity: breakdown

Item/Amounts 31/12/2015 31/12/2014 1. Share capital 1,846,817 1,846,817 2. Share premium reserve 39,004 350,520 3. Reserves 81,102 112,110 - income-related 81,102 112,978 a) legal 80,993 80,989 b) extraordinary - 31,690 c) treasury shares - - d) other 109 299 - other - -868 4. Equity instruments - - 5. (Treasury shares) -100 -100 6. Valuation reserves: 59,299 4,767 - Available-for-sale financial assets 71,026 14,303 - Property, equipment and investment property - - - Intangible assets - - - Hedging of investments in foreign operations - - - Cash flow hedges - - - Exchange rate differences - - - Non-current assets held for sale - - - Actuarial gains (losses) on defined benefit plans -11,580 -9,389 - Portion of valuation reserves of equity-accounted investments -147 -147 - Special revaluation laws - - 7. Profit (loss) for the year 225,092 -342,529 Total 2,251,214 1,971,585

The most significant changes in equity items are attributable to:

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- the covering of the loss for 2014 of EUR 343 million through the use of share premium reserve of EUR 301 million and of EUR 42 million of available reserves;

- the covering of the negative difference from the merger of Mediocreval S.p.A. of EUR 1.8 million (amount already recognised among other Reserves in 2014);

- the covering of the negative item (already included among Other Reserves in 2014) resulting from the recognition in equity of the costs related to the share capital increase, net of the related tax effect, with the use of share premium reserve of EUR 8.9 million. The other changes in equity refer to valuation reserves of AFS securities (+56.7 million), to actuarial gains/losses (EUR -2.2 million) and to the recognition of the loss for the year.

B.2 - Valuation reserves for available-for-sale financial assets: breakdown

31/12/2015 31/12/2014 Asset/Amounts Positive Negative Positive Negative reserve reserve reserve reserve 1. Debt instruments 26,511 - - -2,290 2. Equity instruments 47,078 - 17,447 - 3. OEIC units - -2,563 - -854 4. Loans - - - - Total 73,589 -2,563 17,447 -3,144

B.3 - Valuation reserves for available-for-sale financial assets: annual changes

Debt Equity OEIC Loans instruments instruments units 1. Opening balance -2,290 17,447 -854 - 2. Increases 87,547 34,824 14 - 2.1 Fair value gains 86,511 33,037 - - 2.2 Reclassification of fair value losses to profit or loss 1,036 1,788 14 - - from impairment - 1,787 14 - - on sales 1,036 1 - - 2.3 Other increases - - - - 3. Decreases -58,746 -5,193 -1,723 - 3.1 Fair value losses - -1,787 -1,723 - 3.2 Impairment losses - - - - 3.3 Reclassification of fair value gains to profit or loss: on sales -58,746 -3,406 - - 3.4 Other decreases - - - - 4. Closing balance 26,511 47,078 -2,563 -

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B.4 - Valuation reserves related to defined benefit plans: annual changes

Valuation reserves related to actuarial gains (losses) on defined benefit plans amounted to EUR -11,580 thousand, decreasing compared to EUR -9,389 thousand at the end of 2014.

SECTION 2 - REGULATORY CAPITAL AND RATIOS

On 1 January 2014, the new regulations for banks and investment companies contained in EU Regulation no. 575/2013 (Capital Requirements Regulation, known as CRR) and in the 2013/36/EU Directive (Capital Requirements Directive, known as CRD IV) approved on 26 June 2013 that transpose in the European Union the standards defined by the Basel Committee on Banking Supervision (known as Basel III framework) came into force. The Bank of Italy, as part of an overall review and simplification process of the supervisory regulations of the banks published: - Circular 285 “Prudential supervisory provisions for banks” that, by replacing almost entirely the previous circular 263 of 27 December 2006, implemented the new Community guidelines and introduced supervisory rules on aspects not harmonised at EU level; - Circular 286 “Instructions for the completion of prudential disclosures for banks and financial brokerage companies” in place of the previous circular 155 and the update of circular 154. As from 1 January 2014, the banks must meet a minimum ratio:

- of CET 1 equal to 4.5%, - of Tier 1 equal to 6% as from 2015 (5.5 in 2014), - of a Total Capital Ratio equal to 8%.

The following reserves (buffer) of CET1 are added to these binding minimum values envisaged by the Regulation:

- from 1 January 2014 to 31 December 2016, the capital conservation buffer is equal to 0.625%, from 1 January 2017 to 31 December 2017 to 1.25%, from 1 January 2018 to 31 December 2018 to 1.875% and as from 1 January 2019 to 2.5%;

- the counter-cyclical buffer in periods of excessive growth in loans and the systemic buffer for banks important at global or local level (G-SII, O-SII) as from 2016.

The sum of regulatory requirements and of additional buffers determines the level of minimum capital conservation requested; for 2015, this level is as follows:

- CET1 equal to 5.125%;

- Tier 1 equal to 6.625%; - Total Capital Ratio equal to 8.625%.

If the sum of these buffers does not comply with the minimum requirement (Combined Requirement), profit distribution is limited and it is necessary to adopt a capital conservation plan.

At 31 December 2015, own funds were calculated by applying the new regulations mentioned above. However, this regulation envisages transitional regulatory provisions that envisage, in 501 general until 2017, the gradual introduction of the new regulatory framework, through a transitional period during which some elements are deductible or can be calculated in Common equity tier 1 capital only for a percentage share, whereas the residual percentage compared to the applicable percentage is calculated/deducted from the Additional Tier 1 Capital and from Tier 2 Capital or considered in the risk-weighted assets. This transitional regime is also envisaged for some subordinated instruments that do not comply with the requirements of the new regulatory provisions, aimed at excluding gradually from own funds (over a period of 8 years) the instruments that can no longer be calculated. In accordance with the provisions of the supervisory instructions, the composition and size of own funds differ from those of reporting equity. The main reasons for said differences are briefly summarised as follows:

- goodwill, other intangible assets of defined-benefit pension funds present in the statement of financial position net of relevant associated deferred tax liabilities are deducted from the Common equity tier 1 capital;

- unrealised gains or losses related to exposures towards the governments classified in the category “Available-for-sale financial assets” are not included in any element of own funds. This neutralisation option provided by Article 467 of the CRR was confirmed also with reference to the new circular 285 in chapter 14 related to transitional provisions concerning own funds and this treatment will apply until the adoption by the Commission of a regulation that approves the International Financial Reporting Standard 9 in place of IAS 39. At 31 December 2015, the fully neutralised AFS reserve related to securities issued by central government of countries belonging to the European Union was positive by the amount for EUR 27.2 million (compared to EUR - 2.4 million at 31 December 2014). In the absence of such an approach, the effect on own funds would have resulted in an increase in Common equity tier 1 capital of this amount and therefore in total own funds of EUR 2,189.2 million; the capital ratios would have amounted to 17.41% and 19.66%, respectively;

- significant and insignificant investments in a subject of the financial sector and the net tax assets that derive from timing differences and are based on future profitability are deducted from the elements of CET1 should they exceed certain levels of CET1 envisaged by Regulation 575/2013;

- Tier 2 capital can include subordinated loans that must have an original duration of at least 5 years and can be paid, also in advance, only if the bank requests the prior authorisation to the competent authority, and not before five years from the date of issue, except in the case where the bank replaces the mentioned instruments with other instruments of Own Funds of equal or higher quality, in sustainable conditions for its income capacity, and where the bank shows to the great satisfaction of the competent authority that the minimum capital requirements imposed by the regulations are complied with.

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2.1 – Own Funds

A. QUALITATIVE INFORMATION

The elements forming Own Funds are set below:

- Common Equity Tier 1 – CET1; - Additional Tier 1 – AT1; - Tier 2 – T2.

CET1 and AT1 form the Total Tier 1 capital that together with Tier 2 capital allows to determine Total Own Funds.

1. Common equity Tier 1 – CET1

Total Common Equity Tier 1 (CET1), calculated taking into account profits after charity and dividends at 31 December 2015, amounted to EUR 2,162.1 million. The main changes occurred during the year concern the minor deductions of intangible assets of EUR 90 million and the profit for the period.

This item includes:

- equity instruments of EUR 1,846.8 million; - share premium reserves of EUR 39 million;

- a share of the profit amounting to EUR 190.1 million; - other accumulated comprehensive income of EUR 59.4 million. This item includes negative actuarial reserves of EUR 11.6 million and positive AFS reserves of EUR 71 million;

- other reserves of EUR 81.1 million; At 31 December 2015, both significant investments in Common equity tier 1 capital instruments held in subjects of the financial sector and deferred tax assets that derive from timing differences and are based on future profitability are below the exemption limits contemplated by the regulations. In relation to the transitional regime, the item in question includes finally the following adjustments:

- filter for the exclusion of unrealised gains on AFS securities of EUR 26.7 million;

- filter of EUR 27.2 million for the neutralisation of the AFS reserve related to securities issued by central governments of Countries belonging to the European Union.

2. Additional Tier 1 – AT1

On 31 December 2015, Credito Valtellinese did not issue any AT1 instrument.

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3. Tier 2 – T2

On 31 December 2015, the operative Tier 2 Capital included in T2 instruments the subordinated loans issued by Credito Valtellinese of EUR 297.8 million, EUR 269.9 million net of repurchases and amortisation and considering grandfathering present on an amortising instrument.

In particular, note that:

- the theoretical amortisation of the loans was calculated on a daily basis in compliance with the provisions of regulation 575/2013; - an amortising subordinate instrument issued by Credito Valtellinese is subject to grandfathering for the equity instruments that do not constitute Government aid, according to which this instrument can be included in own funds for an amount equal to 70% for the year 2015.

In relation to the transitional regime, the item in question includes the positive filter related to the inclusion of unrealised gains on AFS securities of EUR 13.3 million.

The Tier 2 Capital, considering the effects of the transitional regime, amounts to EUR 283.2 million at 31 December 2015.

More specifically, below is the list of subordinated liabilities issued by Credito Valtellinese included in Tier 2 capital. By deducting from the total shown below the limit related to the repurchases - for which authorisation was requested to Bank of Italy - we obtain the total amount of subordinated liabilities included in Tier 2 capital of own funds.

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Early Type of Coupon rate and any Maturity Original amount Contribution to the Issuer Identification code Issue date repayment Currency Grandfathering coupon rate correlated index date in currency unit regulatory capital as from

Credito Valtellinese IT0004593296 Floating rate euribor 6m + 1.6% 30/03/2010 30/03/2017 30/03/2013 EUR Yes 150,000,000 26,142,271

Credito Valtellinese IT0004734486 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 6,000,000 594,417

Credito Valtellinese IT0004734502 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 5,000,000 495,348

Credito Valtellinese IT0004735053 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 10,000,000 990,695

Credito Valtellinese IT0004735913 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 10,000,000 990,695

Credito Valtellinese IT0004736432 Fixed rate 4.00% 29/06/2011 29/06/2016 EUR No 15,000,000 1,486,043

Credito Valtellinese IT0004762859 Fixed rate 4.25% 02/11/2011 02/11/2016 EUR No 44,000,000 7,393,541

Credito Valtellinese IT0004763089 Floating rate euribor 3m + 2.5% 15/09/2011 15/09/2016 EUR No 30,000,000 4,252,874

Credito Valtellinese IT0004763097 Fixed rate 4.25% 15/09/2011 15/09/2016 EUR No 55,000,000 7,796,935

Credito Valtellinese IT0004763105 Fixed rate 4.25% 15/09/2011 15/09/2016 EUR No 15,000,000 2,126,437

Credito Valtellinese IT0004847957 Fixed rate 5.25% 28/09/2012 28/09/2017 EUR No 125,000,000 43,606,243

Credito Valtellinese IT0004975899 Fixed rate 3.75% 30/12/2013 30/12/2018 EUR No 170,000,000 101,944,140

Credito Valtellinese XS1095536899 Fixed rate 4.70% 04/08/2014 04/08/2021 EUR No 100,000,000 100,000,000

Total 735,000,000 297,819,638

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B. QUANTITATIVE INFORMATION

31/12/2015 31/12/2014

A. Common Equity Tier 1 capital (CET1) before the application of prudential filters 2,216,247 1,971,585 of which instruments of CET1 subject to transitional provisions - - B. CET 1 prudential filters (+/-) -171 -63 C. CET1 gross of elements to be deducted and of the effects of the transitional regime (A+/-B) 2,216,076 1,971,522 D. Elements to be deducted from CET1 302 95,163 E. Transitional regime - Impact on CET1 (+/-) -53,748 -14,303 F. Total Common Equity Tier 1 capital (CET1) (C-D+/-E) 2,162,026 1,862,056

G. Additional Tier 1 capital (AT1) gross of elements to be deducted and of the effects of the transitional regime - -

of which instruments of AT1 subject to transitional provisions - - H. Elements to be deducted from AT1 - - I. Transitional regime - Impact on AT1 (+/-) - - L. Total Additional Tier 1 capital (AT1) (G-H+/-I) - - M. Tier 2 capital (T2) gross of elements to be deducted and of the effects of transitional regime 269,924 444,190 of which instruments of T2 subject to transitional provisions 26,142 53,845 N. Elements to be deducted from T2 - - O. Transitional regime - Impact on T2 (+/-) 13,354 6,693 P. Total Tier 2 capital (T2) (M-N+/-O) 283,278 450,883 Q. Total own funds (F+L+P) 2,445,304 2,312,939

The Bank opted not to include unrealised profits and losses towards central governments classified in the AFS category. Items “E” and “I” of 31 December 2014 included the amounts relating to the surplus of the loss for the year from AT1 to CET1 due to the application of the transitional regime envisaged by CRR. The latter allows to consider only 20% of the loss for the year in the calculation of the Common equity tier 1 capital and to include the remaining part in Tier 1 capital if the loss is considered significant. As established by regulation 680/2013, in the presence of transitional provisions that provide for the deduction from Tier 1 capital and if this is not enough to offset this amount, the excess amount is deducted from the Common equity tier 1 capital.

It should be noted that starting from 2013, as communicated by the Bank of Italy on 9 May 2013, the recognition in the regulatory capital of the benefits associated with the exemptions following the initial exemption of the same goodwill - carried out within the same intermediary on an individual basis - occur only when the related DTA are transformed into current taxation. The transformation occurred in full at the end of the half-year of 2015 following the conversion of the DTA in tax asset resulting from losses for the year recorded in 2014.

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2.2 - Capital adequacy

A. QUALITATIVE INFORMATION

- exposures to or guaranteed by central governments and central banks;

- exposures to or guaranteed by regional governments and local authorities; - exposures to or guaranteed by public entities;

- exposures to or guaranteed by multilateral development banks; - exposures to or guaranteed by international organisations;

- exposures to or guaranteed by supervised intermediaries; - exposures to or guaranteed by companies;

- retail exposures; - exposures guaranteed by property;

- exposures in default; - high-risk exposures;

- exposures in the form of guaranteed bank bonds; - short-term exposures to companies or supervised intermediaries;

- OEIC; - exposures in equity instruments; - other exposures.

The most important segments are the following: exposures to or guaranteed by central governments and central banks, exposures to or guaranteed by companies, exposures guaranteed by property, retail exposures. In this regard, it should be mentioned that, in accordance with the European Regulation no. 575/2013, different weighting coefficients are applied to each exposure class in relation to different levels of risk defined by the supervisory regulations.

- exposures to or guaranteed by central governments and central banks; - exposures to or guaranteed by international organisations;

- exposures to or guaranteed by multilateral development banks. For “companies and other parties portfolio”, the ratings of Cerved Group S.p.A. were used. 507

The Bank opted to use the standard method to calculate the capital requirement to meet, while the Traditional Standardised Approach (TSA) was adopted for the operational risk as from 31 December 2014.

B. QUANTITATIVE INFORMATION

Categories/Amounts 31/12/2015 31/12/2014 31/12/2015 31/12/2014

Weighted Non-weighted amounts amounts/requirements A. RISK ASSETS A.1 Credit and counterparty risk 22,271,270 25,147,392 11,484,915 12,208,732 1. Standardised approach 22,252,424 25,147,392 11,480,139 12,208,732 2. Internal rating based approach - - - - 2.1 Base - - - - 2.2 Advanced - - - - 3. Securitisations 18,846 - 4,776 - B. REGULATORY CAPITAL REQUIREMENTS B.1 Credit and counterparty risk X X 918,793 976,699 B.2 Credit valuation adjustment risk X X 2,247 2,353 B.3 Settlement risk X X - - B.4 Market risks X X 965 1,161 1. Standardised approach X X 965 1,161 2. Internal models X X - - 3. Concentration risk X X - - B.5 Operational risk X X 83,972 88,665 1. Base method X X - - 2. Standardised method X X 83,972 88,665 3. Advanced method X X - - B.6 Other calculation elements X X - - B.7 Total capital requirements X X 1,005,977 1,068,878 C. RISK ASSETS AND CAPITAL RATIOS C.1 Risk-weighted assets X X 12,574,713 13,360,969 C.2 Common equity tier 1 capital / Risk -weighted assets X 17.19% 13.94% (CET1 capital ratio) C.3 Tier 1 Capital/Risk -weighted assets X 17.19% 13.94% (TIER 1 capital ratio) C.4 Total own funds / Risk-weighted assets X 19.45% 17.31% (Total capital ratio)

At 31 December 2015, risk-weighted assets amounted to EUR 12,575 million, compared to EUR 13,361 million at 31 December 2014.

The total solvency ratio (Total capital ratio) stood at 19.45% compared to 17.31% related to 2014; the Tier 1 to total risk-weighted assets stood at 17.19% compared to 13.94% of the previous year. Therefore, the capital ratios at 31 December 2015 are well above the specific minimum requirements.

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PART G – BUSINESS COMBINATIONS

SECTION 1 – OPERATIONS CARRIED OUT DURING THE YEAR During the financial year, no business combinations were carried out.

SECTION 2 – TRANSACTIONS CARRIED OUT AFTER THE REPORTING DATE No business combination was carried out after the end of the year.

SECTION 3 – RETROSPECTIVE ADJUSTMENTS No retrospective adjustments were carried out.

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PART H - RELATED PARTY TRANSACTIONS

Related party transactions are mainly regulated by Article 2391-bis of the Italian Civil Code, according to which the administrative bodies of companies resorting to the equity market adopt, based on the general principles indicated by Consob, rules that ensure “transparency and substantive and procedural correctness in related party transactions” carried out directly or through subsidiaries. The supervisory authority is obliged to ensure compliance of the rules adopted and refers on this in the report to the shareholders’ meeting. Consob, with resolution no. 17221 of 12 March 2010 as amended approved the “Related Party Transaction Regulation” (hereinafter also referred to as “Consob Regulation”), as amended later by resolution no. 17389 of 23 June 2010, which defines the general principles with which the companies resorting to the equity market must comply when fixing the rules for ensuring transparency and substantive and procedural correctness in related party transactions. In relation to the specific business, the provisions of Article 136 of the Consolidated Banking Act on obligations of banking representatives also apply to the bank. Moreover, the Bank of Italy introduced new provisions in relation to the risk assets and conflicts of interest towards Associated parties integrating the provisions of the Consob Regulation.

In compliance with the combined provision of the above-mentioned regulations, the Board of Directors approved the “Procedures concerning Related Party Transactions and Associated Parties of Credito Valtellinese S.c.” (hereinafter also the “RPT Procedures”), effective as from 31 December 2012. In accordance with current regulations, the document was published on the Website, at http://www.gruppocreval.com - Governance section - Corporate documents. On the basis of the provisions of the Bank of Italy Regulation, the Board of Directors of the Parent approved the “Policies regarding controls on risk activities and on conflicts of interest towards associated parties”. The Policy describes, in relation to the operational features and the strategies of the Bank and of the Group, the business segments and the types of business relations, also other than those implying the assumption of risk assets, in relation to which conflicts of interest may arise, as well as the safeguards inserted in the organisational structures and in the internal control system to ensure constant compliance with prudential limits and the above decision-making procedures. The document also summarises the principles and rules applicable to transactions with associated parties that were used for the preparation of the relevant Procedures.

1. Information on remuneration of key management personnel

31/12/2015 a) short-term benefits (*) 6,093 b) post-employment benefits 342 c) other long-term benefits - d) termination benefits 3,702 e) share-based payments - Total 10,137

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(*) The payments to directors equalled EUR 1,944 thousand, compared to EUR 2,019 thousand in 2014, as well as fees to members of the Board of Statutory Auditors for a total of EUR 406 thousand compared to EUR 440 thousand in 2014. The amount highlighted represents the total cost borne by the company. The breakdown of the remuneration paid to members of the boards of directors and statutory auditors, general managers and key management personnel as well as the breakdown of the investments held by the Board of Directors, statutory auditors and key management personnel is represented in the “Group compensation policies - 2015 Report on remuneration” available on the Bank’s website.

2. Information on related party transactions On the basis of the instructions of IAS 24 applied to the organisational and governance structure of the Bank and of the Credito Valtellinese Banking Group, the following natural persons and corporate bodies are considered related parties: – subsidiaries, companies over which the Parent directly or indirectly exercises control, as defined by IFRS 10; – associates, companies over which the Credito Valtellinese directly or indirectly exercises significant influence, as defined by IAS 28 and their subsidiaries; – companies subject to joint control, companies in which the Parent directly or indirectly exercises joint control, as defined by IFRS 11; – key management personnel and supervisory authorities, namely Directors, Statutory Auditors, the General Manager, the Co-General Manager and the Deputy General Managers of Credito Valtellinese; – other related parties, which include: • immediate family members - relatives until the second degree of kinship and the spouse or common law spouses of a related party as well as their children - of key management personnel and boards of directors and statutory auditors as defined above; • subsidiaries subject to joint control by key management personnel and by boards of directors and statutory auditors, as well as their immediate family members, as defined above; • pension funds established by companies of the Group.

Related party transactions, both intragroup and with parties not belonging to the Creval Group, are regulated at market or standard conditions. In particular, the economic effects of the transaction between the companies of the Group are regulated on the basis of specific contractual agreements that, with the main objective of optimising synergies and economies of scale and purpose at Group level, refer to long-term objective and constant parameters, distinguished by material transparency and fairness. The quantification of the expected fees for services was defined and formalised according to standard parameters that take into account actual utilisation by each user company. The Board of Directors is exclusively responsible for the definition of intragroup contractual agreements and approval and possible amendment of the related economic conditions. Related party transactions with parties other than companies in the Credito Valtellinese Group are part of normal banking activities and are generally regulated at arm’s length for specific transactions, or aligned to the most favourable measure that may have been agreed for employees.

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In relation to the specific business, the provisions of Article 136 of the Consolidated Banking Act on obligations of banking representatives also apply.

No atypical or unusual transactions that impacted significantly on the financial position or results of operations of the company have taken place during year.

Related party transactions carried out in the year include the following transactions:

- the multi-originator securitisation carried out in May 2009, paid in advance by means of the Special purpose entity Quadrivio Finance S.r.l., through (i) the repurchase of residual securitised loans, (ii) the early repayment of securities and (iii) the termination of the securitisation contracts;

- the acquisition of the bad positions and of the equity investments by Finanziaria San Giacomo before selling the company to the Cerved Group, sale already described in the interim Report on operations;

- the capital increase carried out by the subsidiary Credito Siciliano. On 10 July 2015, the exercise period of the option rights related to the subscription of maximum 3,549,090 Credito Siciliano ordinary shares came to an end. Credito Valtellinese subscribed all the shares pertaining to it by option and exercised the pre-emption right on the entire unsubscribed portion. As part of the capital increase, Credito Valtellinese subscribed all in all 3,548,110 shares at the price of EUR 14 each;

- the subscription by Credito Valtellinese of a convertible bond loan issued by Cassa di Risparmio di Fano totalling EUR 10 million. The significant transactions are reported in Part H of the Consolidated Financial Statements to which reference must be made. The impact of transactions with related parties as defined above on the statement of financial position and on the income statement at 31 December 2015, together with the percentage weight of these transactions on the corresponding statement of financial position items, is illustrated in the tables below. The column “Associates” of the income statement also represents the transactions carried out with Istituto Centrale delle Banche Popolari in that the loss of significant influence occurred at the end of the year.

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TRANSACTIONS WITH RELATED PARTIES

(figures in thousands of EUR)

COMPANIES EXECUTIVES OTHER SUBSIDIARIES SUBJECT TO AND % STATEMENT OF FINANCIAL POSITION ITEMS ASSOCIATES RELATED (*) JOINT CONTROL INCIDENCE PARTIES CONTROL BODIES 20. Financial assets held for trading 1,711 - - - - 3.5 60. Loans and receivables with banks 477,364 - - - - 48.1 70. Loans and receivables with customers 269,364 8,464 - 822 95,674 2.5 140. Tax assets: a) current -7,166 - - - - -12.2 160. Other assets 3,526 61 - - 84 1.9 TOTAL ASSETS 744,799 8,525 - 822 95,758 3.7 10. Due to banks 824,874 - - - - 29.5 20. Due to customers 21,142 9,060 118 1,355 19,493 0.4 30. Securities issued 200,855 - - 1,240 3,830 6.9 40. Financial liabilities held for trading 21 - - - - 0.7 100. Other liabilities 673 - - 34 22 0.2 120. Provisions for risks and charges: b) other provisions - - - 3,703 - 6.9 TOTAL LIABILITIES AND EQUITY 1,047,565 9,060 118 6,332 23,345 4.7 Guarantees and commitments Guarantees given 7,760 668 - - 21,588 4.4 TOTAL GUARANTEES AND COMMITMENTS 7,760 668 - - 21,588 4.4

(figures in thousands of EUR)

COMPANIES EXECUTIVES OTHER SUBSIDIARIES SUBJECT TO AND % INCOME STATEMENT ITEMS ASSOCIATES RELATED (*) JOINT CONTROL INCIDENCE PARTIES CONTROL BODIES 10. Interest and similar income 5,149 434 - 15 2,458 1.5 20. Interest and similar expense -4,346 -53 - -28 -266 2.4 40. Fee and commission income 11,210 20,059 - 20 152 15.1 50. Fee and commission expense - -12,282 - - - 55.5 70. Dividends 4,812 3,981 - - - 81.5 150. Administrative expenses: a) personnel expenses 8,271 - - -10,137 55 1.0 150. Administrative expenses b) other administrative expenses -58,098 -3,150 - - - 28.2 190. Other operating net income 8,508 294 - - - 14.9 280. Post-tax profit (loss) from discontinued operations 9,496 - - - - 31.6 TOTAL ITEMS -14,998 9,283 - -10,130 2,399 -6.0 (*) Equity, financial and economic effects of intragroup transactions are broken down by entity in the table below.

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BREAKDOWN OF RELATIONS WITH GROUP COMPANIES (figures in thousands of EUR)

Quadrivio Creval Quadrivio Quadrivio Cassa di Rispa Global Stelline Global Finance Quadrivio Credito Sistemi e Finance Sme STATEMENT OF FINANCIAL POSITION ITEMS rmio di Fano Assicurazio Reale Estate Broker RMBS SME 2014 Siciliano S.p.A. Servizi Soc. RMBS 2011 2012 S.p.A. ni S.p.A. S.p.A. S.p.A. 2013 S.r.l. Cons. p.A. S.r.l. S.r.l. S.r.l.

20. Financial assets held for trading 1,570 141 ------60. Loans and receivables with banks 131,547 345,817 ------70. Loans and receivables with customers - - 3,775 2,163 33,888 - 22,154 139,203 47,634 20,547 140. Tax assets: a) current -3,305 - -2,786 -557 -236 -282 - - - - 160. Other assets 272 244 33 2,943 - 34 - - - - TOTAL ASSETS 130,084 346,202 1,022 4,549 33,652 -248 22,154 139,203 47,634 20,547 10. Due to banks 620,928 203,946 ------20. Due to customers - - 15,127 - - 6,015 - - - - 30. Securities issued - 200,855 ------40. Financial liabilities held for trading - 21 ------100. Other liabilities 474 187 12 ------TOTAL LIABILITIES AND EQUITY 621,402 405,009 15,139 - - 6,015 - - - - Guarantees given 476 1,598 - - 5,190 496 - - - -

TOTAL GUARANTEES AND COMMITMENTS 476 1,598 - - 5,190 496 - - - -

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(figures in thousands of EUR)

Quadrivi Quadrivio Creval Stelline o Quadrivi Finanziaria Sa Cassa di Ris Global Global Quadrivio Finance Quadrivio Credito Sistemi e Reale Finance o SME INCOME STATEMENT ITEMS n Giacomo S.p parmio di Fa Assicurazioni Broker Finance RMBS Sme 2012 Siciliano S.p.A. Servizi Soc. Estate RMBS 2014 .A. no S.p.A. S.p.A. S.p.A. S.r.l. 2011 S.r.l. Cons. p.A. S.p.A. 2013 S.r.l. S.r.l. S.r.l. 10. Interest and similar income 436 334 3,784 - 82 513 ------20. Interest and similar expense -1,853 -8 -2,415 -61 - - -9 - - - - - 40. Fee and commission income -97 - -76 10,558 32 98 9 20 64 478 58 66 70. Dividends - - - 4,470 - - 342 - - - - - 150. Administrative expenses: a) personnel expenses -956 598 209 5 8,340 75 ------150. Administrative expenses b) other administrative expenses -146 -1,050 - - -51,720 -5,182 ------190. Other operating net income 3,679 101 2,046 185 2,142 298 57 - - - - - 280. Post-tax profit (loss) from discontinued operations - 9,496 ------TOTAL INCOME STATEMENT 1,063 9,471 3,548 15,157 -41,124 -4,198 399 20 64 478 58 66

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PART I - SHARE-BASED PAYMENTS

A. QUALITATIVE INFORMATION

No share-based payment agreements were put in place.

PART L - SEGMENT REPORTING The segment reporting is provided in the consolidated financial statements. Please refer to Part L of the notes to the consolidated financial statements.

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