Credito Valtellinese Banking Group - Register of Banking Groups No

Condensed Interim Consolidated Report at 30 June 2019 Creval Società per Azioni 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.gruppocreval.com E-mail: [email protected] Data at 30 June 2019: Share Capital EUR 1,916,782,886.55 Member of the Interbank Guarantee Fund COMPANY OFFICERS OF CREDITO VALTELLINESE in office at 6 August 2019 BOARD OF DIRECTORS

Chairman Alessandro Trotter

Deputy Chairman Stefano Caselli

Managing Director and General Manager Luigi Lovaglio

Directors Livia Aliberti Amidani Elena Beccalli Paola Bruno Maria Giovanna Calloni Carlo Crosara Anna Doro Fausto Galmarini Serena Gatteschi Stefano Gatti Jacob F. Kalma Teresa Naddeo Massimiliano Scrocchi BOARD OF STATUTORY AUDITORS

Chairman Francesca Michela Maurelli Standing Auditors Paolo Cevolani Alessandro Stradi Substitute Auditors Simonetta Bissoli Francesco Fallacara

HEADS OF THE MAIN CORPORATE FUNCTIONS

Deputy General Manager Vicar Umberto Colli Chief Risk Officer (CRO) Fabio Salis Chief Lending Officer (CLO) Vittorio Pellegatta Head of Compliance and Anti-money Laundering Department Enzo Rocca

Manager in charge of financial reporting Simona Orietti

Audit Company KPMG S.p.A.

Contents COMPANY OFFICERS OF CREDITO VALTELLINESE ...... 2 CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS AT 30 JUNE 2019 ...... 4 ORGANISATIONAL MODEL AND BREAKDOWN OF THE CREDITO VALTELLINESE BANKING GROUP ...... 6 REPORT ON OPERATIONS ...... 7 Events and strategic operations ...... 11 Operational structure, commercial activity and competitive positioning ...... 17 Information on the main statement of financial position items and on consolidated income statement figures ...... 21 Related party and intra-group transactions ...... 32 Risk management ...... 34 Events after the close of the half-year ...... 37 Current-year outlook ...... 37 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS ...... 38 Condensed interim consolidated financial statements ...... 39 Notes to the condensed interim consolidated financial statements ...... 45 CERTIFICATION OF THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS PURSUANT TO ARTICLE 81-TER OF CONSOB REGULATION NO. 11971/99 ...... 123 REPORT OF THE AUDITORS ...... 124

3 CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS AT 30 JUNE 2019

STATEMENT OF FINANCIAL POSITION DATA 30/06/2019 31/12/2018 Change (in thousands of EUR) Loans and receivables with customers 19,757,148 21,413,093 -7.73% Financial assets and liabilities at fair value 1,918,737 2,038,300 -5.87% Non-current assets held for sale and disposal groups 86,099 75,548 13.97% Total assets 25,024,165 26,472,669 -5.47% Direct funding from customers 19,231,732 19,944,672 -3.57% Indirect funding from customers 10,317,436 10,060,828 2.55% of which: - Managed funds 7,315,191 7,059,571 3.62% Total funding 29,549,168 30,005,500 -1.52% Equity 1,613,669 1,566,242 3.03%

SOLVENCY RATIOS 30/06/2019 31/12/2018 Common Equity Tier 1 capital / Risk-weighted assets (CET1 capital ratio) 18.5% 18.3% Tier 1 capital / Risk-weighted assets (Tier 1 capital ratio) 18.5% 18.3% Total own funds / Risk-weighted assets (Total capital ratio) 20.3% 20.2%

FINANCIAL STATEMENT RATIOS 30/06/2019 31/12/2018 Indirect funding from customers / Total funding 34.9% 33.5% Managed funds / Indirect funding from customers 70.9% 70.2% Direct funding from customers / Total liabilities and equity 76.9% 75.3% Loans and receivables with customers / Direct funding from customers 102.7% 107.4% Loans and receivables with customers / Total assets 79.0% 80.9%

CREDIT RISK 30/06/2019 31/12/2018 Change Net bad loans (in thousands of EUR) 161,439 204,422 -21.03% Other net doubtful loans (in thousands of EUR) 632,963 666,761 -5.07% Net non-performing loans (in thousands of EUR) 794,402 871,183 -8.81% Net bad loans / Loans and receivables with customers 0.8% 1.0% Other net doubtful loans / Loans and receivables with customers 3.2% 3.1% Net non-performing loans / Loans and receivables with customers 4.0% 4.1% Coverage ratio of bad loans 81.4% 75.1% Coverage ratio of other doubtful loans 40.5% 42.3% Coverage ratio of non-performing loans 58.9% 55.9%

Loans and receivables with customers classified under Non-current assets held for sale and disposal groups are not included.

1st half 1st half INCOME STATEMENT DATA Change of 2019 of 2018 (in thousands of EUR) Net interest income 178,573 178,879 -0.17% Operating income 331,222 340,979 -2.86% Operating costs (234,012) (306,956) -23.76% Operating profit 97,210 34,023 185.72% Pre-tax loss from continuing operations (3,700) (28,232) -86.89% Post-tax profit (loss) from continuing operations 23,546 2,545 n.s. Profit for the period 23,546 824 n.s.

ORGANISATIONAL DATA 30/06/2019 31/12/2018 Change Number of employees 3,668 3,668 - Number of branches 362 365 -0.82%

With reference to the financial highlights and alternative performance indicators represented above, the amounts used for their calculation, if not specified in the notes to the tables, are indicated in “Information on the main statement of financial position items and on consolidated income statement figures”. These indicators, prepared by the management, provide additional information to investors since they facilitate the understanding of statement of financial position and income statement, they should not be considered as a replacement of those required by IAS/IFRS, they are not always comparable with those provided by other banks and they are provided in accordance with the indications contained in Consob Communication no. 6064293 of 28 July 2006 and in ESMA's Recommendation on alternative performance indicators.

ORGANISATIONAL MODEL AND BREAKDOWN OF THE CREDITO VALTELLINESE BANKING GROUP

The current group structure is graphically represented below.

Credito Valtellinese 100% 100%

Creval PiùFactor Stelline Real Estate

At 30 June 2019, Credito Valtellinese - Parent of the Credito Valtellinese banking group - was present in eleven regions throughout Italy with a network of 362 branches. The following companies are also part of the Group's scope of consolidation: - Creval PiùFactor S.p.A., company dedicated to activities granting loans to the public pursuant to Articles 106 et sequitur of Italian Legislative Decree no. 385 of 1 September 1993 (Consolidated Banking Act). - Stelline Real Estate S.p.A., R.E.o.Co. (Real Estate Owned company), company dedicated to asset repossessing.

Note that from 1 January 2019, the following mergers are effective:

- Creval Sistemi e Servizi Soc. Cons. P. A. (CSS) into Creval S.p.A, with merger deed signed on 29 December 2018;

- Creval PiùFactor S.p.A. into Claris Factor S.p.A., with merger deed signed on 27 December 2018. The combined entity changed its name into Creval PiùFactor S.p.A..

6 REPORT ON OPERATIONS

The general economic framework1 The economic situation shows a weakened growth, mainly undermined by two trends. The first cause of weakness is due to the trade negotiations between the United States and China, which, after dramatic setbacks and moderate recoveries, does not seem destined to have a positive or even rapid conclusion. This "trade war" has repercussions on relations between Countries with geopolitical impacts, on investment decisions of companies, on choices of asset allocation of investors, on production location, on the less solidity of the world production chains, on employment levels and therefore on the consumption of citizens. Tangles that affect the rest of the world and not only the Countries directly concerned. The second cause of uncertainty, which mainly concerns Europe, is Brexit, which has been continuing since 2016. Over the past year, there have been contacts and declarations of intent that seem to have led to an orderly exit of the United Kingdom from the European Union. The fall of the government chaired by PM Theresa May has cast doubt on the negotiations regarding the methods and timing of the exit. At the time when this report has been prepared, the risks of London leaving the EU without trade, financial and social agreements seem to have taken over. The economic environment in which these two potential triggers for further slowdown are set is, in itself, characterised by uncertain growth prospects for the world economy. In fact, the current economic expansion of close to 3% is below the average annual growth of the last 50 years. At the moment, there are no drivers that can ensure a rapid and substantial re-acceleration. Premonitions of a slowdown have appeared in America after a decade of uninterrupted expansion through the most recent qualitative surveys. The confidence of the manufacturing sector is declining but without currently spreading to the service sector. The weakening of the US economy is therefore still feared since the economy is expanding at a robust pace, close to full employment. In line with the preventive approach typical of the action of the central banks, the FED stated that it will return its monetary policy to a more accommodative approach to contain the risks of a new recession. Growth forecasts for 2019 are estimated at +2.3% to reach +0.9% in 2020. The growing risks induced by the intensification of the US-China trade dispute led the US monetary authorities to adopt a communication that suggests the activation of expansionary measures. The first of these measures took shape at the FED meeting on 31 July, which involved cutting policy rates by 25 bps and interrupting before the set deadline the easing of government bonds not held by the central bank. Further relaxation of interest rates is expected in the autumn should the signs of a crisis not fade. However, in the EMU (Economic and Monetary Union), the effects of the deterioration in international trade and the weak investment plans of companies allowed GDP to recover in the first quarter of the year after the weakness of the second half of 2018. But the second quarter marked a further slowdown in expansion, which on a cyclical basis went from +0.4% in the first quarter to +0.2% in the second. The year-on-year GDP of the Eurozone at 30 June 2019 was +1.1%, its lowest level in five years. EMU growth expectations for 2019 are +1.1% year-on-year and +1.0% for 2020. During the half-year just ended, the ECB provided extensive monetary adjustment guidance to counteract low inflation and the weakness of the economic cycle compressed both by

1 Sources: Forecast Report of Prometeia in July 2019; Bank of Italy Economic Bulletin no. 3/2019.

7 internal factors (slowdown in the automotive sector in Germany and related components involving industrial partners also in other European countries and especially in Italy) and by international factors. The message that the ECB sent with increasing force was to keep rates at current or lower levels for an extended period "until the second quarter of 2020 and beyond if necessary". The ECB accompanied these indications (forward guidance) by implementing other concrete measures such as the TLTRO3 auctions, which can be activated from September, aimed at expanding credit to businesses through the banking channel. The latter will have access to extensive liquidity on favourable terms. The deterioration in trade tensions in the weeks leading up to the publication of this report led many central banks - not just the Fed and the ECB - to adopt an expansive approach with consequent interest rate cuts, believing that "it is better to do more in a short time than too little too late". As a result, market rates accelerated sharply downwards, completely reversing the expectations that the markets had at the end of 2018. Italian GDP grew by +0.1% in the first quarter, putting an end to the technical recession of 2018. The preliminary figures for the second quarter show another slowdown in the recovery process. The economy has once again come to a halt with a zero growth since the last quarter of 2018, bringing the country back to a state of stagnation. All-in-all, household spending and investments in construction are holding steady albeit on weak levels, while the decline in capital expenditure remains high, which was affected by the end of the measures adopted by previous governments. A stagnation that is first explained by the weakness of the Italian industrial cycle strongly related to the German one, which has also been weak since mid-2018, and by the commercial tensions triggered by the USA. Growth expectations for 2019 are based on expectations of a modest recovery in the second half of the year, supported by resilient employment, low inflation and the slightly expansionary contribution of the budget policy. Prometeia forecasts indicate that the Italian economy should grow in the next two quarters to reach the trend level of +0.1% at the end of the year. Figure in line with the most recent forecasts provided by the Bank of Italy. For 2020, Prometeia's GDP growth forecast is +0.7%; one tenth less than that produced by the Bank of Italy. We would like to remind you that these forecasts are subject to the increase in the risks described in the first part of the report, in particular through the international trade channel, which weighs on the stability of Italian exports. The infringement procedure started by the European Commission against Italy for excessive deficits expired at the beginning of July thanks to a result of the 2019 budget that was better than expected in recent months and the renewed commitment to a 2020 budget in line with European standards. The presentation and subsequent discussion with the European Commission of the 2020 Budget will be another crucial issue for Italy. In late spring, Europe was affected by the round of voting that led to a re-composition of the European Parliament.

8 The Italian banking system

In recent years, the Italian banking system strengthened progressively thanks to the improvement in credit quality and to the attention paid to the disbursement of loans. Although the economic recovery was modest, it limited the rate of impairment, while prudential provisions continued to be made, recovery activities became more efficient and impaired loans were increasingly disposed of. Capital ratios, which until September last year had been affected by tensions on the government bond market, increased again. Profitability showed signs of recovery in relation to the reduction in adjustments and the gradual reduction in operating costs. Based on available data, in the first four months of 2019, bad loans in the banking sector were reduced by more than EUR 7 billion, pending further transactions during the remainder of the year. The market appears more susceptible than in the past to absorb an amount of loans and receivables classified as unlikely-to-pay. The pressure on Italian banks with regard to the sale of loans of doubtful quality remains high both as a result of the new rules of calendar provisioning and the careful monitoring of the Supervisory authorities on their management. The weakening of the economic situation estimated for the current year mainly in investments, with the exception of investments in constructions, will lead to a weakening of the demand for credit. There is also a greater use of self-financing by companies compared to previous trends. On the supply side of disbursements, tensions may persist due to the greater uncertainty in the development of the economic environment, which should be balanced favourably with the introduction of TLTRO III, which will bring new liquidity to the banking system. The results of the Bank Lending Survey for the first quarter of 2019 show that lending policies are stable. The Istat survey, carried out among manufacturing companies, shows a higher incidence of negative judgements among companies with less than fifty employees. Based on the April figures released in the latest Economic Bulletin published by the Bank of Italy, interest rates on new loans to SMEs increased by 7bps compared to the end of 2018, while the average cost of credit to other companies remained stable. The conditions for credit supply to households for the issue of mortgages were also marginally restricted, although there was no increase in pricing. Bank loans, adjusted for those securitised or otherwise sold, increased by 3.4% in EMU on an annual basis and only by 0.8% in Italy. Loans to households continued to grow by 2.6%, but 0.8% below the EMU average. Loans to Italian non-financial companies fell by 0.6%. This is the fourth consecutive decline. The growth in loans to households (+2.6%) was in line with what has been experienced since the end of 2018, with a monthly flow of EUR 1.1 billion. Consumer credit grew strongly by 9%, while mortgages continued to grow at an annual rate of 1.6%. The Bank of Italy's economic survey of the housing market in the first quarter shows an improvement in the outlook for the property market, which remains largely positive even in the medium term. Total deposits of Italian banks increased by 3.3% per year in April as a result of increased direct funding in the more liquid segments but also in term deposits.

9 The financial market in Italy

The trend in Italian bonds in May were affected by the international context to which were added tensions in the majority of government, doubts about the stability of public accounts and the approach of the European round of voting in a context in which economic indicators were not particularly lively. A further inherent weakness was generated by the feared start of the infringement procedure by the EU Commission "for insufficient progress in meeting the debt criteria". The budget adjustment and the reassurances of the Italian Government towards the EU allowed Piazza Affari to achieve a good recovery during which the banking sector also benefited from the reduction of the spread on government bonds. At the end of the first half of the year, the FTSEMIB increased by 15.9% since the start of the year, while the representative index for the Italian banking sector was more modest at 2.8%. The 10-year BTP benchmark marked a reduction in the yield from 2.74% at the end of 2018 to 2.10% at 30 June. Further improvements were achieved in July with FTSEMIB increasing by around 1% and the BTP falling to 1.6%. However, according to many economists, Italy remains at risk from domestic policy, which shows a growing division in the Government coalition.

10 Events and strategic operations

The most important events that characterised the management of Creval during the first half of 2019 and that, if necessary, were the subject-matter of specific disclosures to markets are mentioned below.

2019-2023 Business Plan

On 18 June 2019, Creval ("the Bank") presented to the market the new 2019-2023 Business Plan "Sustainable Growth" (hereinafter "the Plan").

The Plan is aimed at creating value for all the Bank's stakeholders and has as its main objectives the achievement of sustainable and attractive growth and profitability. With this Plan, Creval intends to strengthen its role as a solid commercial bank, with a low risk profile and focused on relations with households and small and medium enterprises, in support of the growth of the areas served.

The new strategy is based on two key pillars:

1. Relaunch of the commercial platform, aimed at strengthening Creval's role as a reference point in its territory, through a business model and a product offering focused on Retail and SME customers, an agile and efficient organisational structure and proactive (active and preventive) risk management.

2. Decisive actions on financial statement legacy through initiatives aimed at significantly reducing the stock of impaired loans and the weight of the portfolio of financial securities.

Relaunch of the commercial platform For Banca Commerciale, important initiatives are planned that will allow Creval to achieve sustainable profitability, thanks to a renewed focus on customer service, efficiency improvement of the operating platform and proactive risk management.

These initiatives envisage:

1. Strengthening of the customer-focused business model that envisages:

 Expansion of the customer base focused on the household and SME segments through targeted win-back initiatives, referral programmes, development of a value proposition dedicated to specific customer targets.  Strengthening of the supply of household financing products, in particular as regards consumer credit and mortgages.  Step-up of the role of "advisor" for the management of household savings. Taking advantage of the under-penetration in asset management and with dedicated actions including the expansion of the product range and the increase in cross-selling, the strengthening of skills with dedicated structures (in particular in the private banking segment) and training programmes.  New commercial proposition for small and medium enterprises focused on low-risk customers in the territories served by the Group and expansion of the financing offer dedicated to SMEs operating in the import/export sector.

2. Optimisation of the operational structure with a view to agility and efficiency and simplification of processes, through the following actions:

 Regulated and strict control of administrative costs through the optimisation of demand through the centralisation of the various cost centres in a single unit, renegotiation of existing contracts and review of processes and cost policies according to a "zero-based" logic.  Simplification of processes to improve efficiency and quality of service through the reallocation of talents and resources in order to maximise the time dedicated to business activities.  Optimisation of the real estate stock by envisaging a further rationalisation of the geographical distribution of the branches in order to reduce overlaps, together with development of the format to reflect the new commercial focus.  Strengthening of the digital strategy by further enhancing the products and the Internet and Mobile banking offer as well as the automatic tools to support transactionality (e.g. advanced ATMs). Moreover, the Banca Aperta format will be fully enhanced as a tool for monitoring the territory in a digital and innovative way.

3. Re-thinking of underwriting and risk monitoring policies with a redesigning of the credit process as well as of the monitoring and recovery system.

Decisive actions on budget legacy The Plan envisages decisive and effective initiatives to overcome budget legacy aimed at improving the Group's risk profile.

1. Action to reduce Non-Core assets, through the creation of a segregated management portfolio equal to a gross book value of EUR 1.9 billion composed of Bad loans and Unlikely to pay with the aim of reducing the amount by approximately 80% by 2023. The disposals and management initiatives that will be implemented will reduce the net NPE ratio to 3.5% in 2021 (<7% gross) and below 3% in 2023 (<6.5% gross).

2. Revision of the securities portfolio with a progressive reduction in stocks of more than 50% on the horizon Plan. At the end of 2018, the securities portfolio amounted to approximately EUR 8 billion and over the period covered by the plan, the Bank set itself the objective of carrying out a gradual run-off to reach approximately EUR 4 billion by 2023.

Moreover, a new funding plan was prepared as part of the Plan, which provides for greater diversification of financing sources to further strengthen the Group's funding position. In this regard, covered bond issues totalling EUR 2 billion and senior bonds totalling EUR 600 million were envisaged over the period covered by the plan.

12 Key financial targets  ROE: ~6% at 2021 and >8% at 2023  Net profit: EUR 93 million at 2021 and EUR 138 million at 2023  Cost/Income: 65% at 2021 and 59% at 2023  CET1 ratio FL: >14% both at 2021 and 2023  Payout ratio: >50% at 2021 and 75% at 2023  Net NPE ratio: 3.5% at 2021 and <3% at 2023  Cost of risk: ~60pb at 2021 and ~50pb at 2023

New organisational structure

In order to implement the guidelines of the new Plan and in line with the pillars identified, a Retail Department and a Small Business Department have been set up as part of the so- called "core" activities and reporting directly to the Managing Director, in preparation for the relaunch of the commercial platform.

In order to ensure an adequate focus on the reduction of financial assets and the disposal of non-core assets, the Chief Financial Officer area was reorganised with the separation into two Departments: 1) the Finance and Equity Investments and Capital Management areas are allocated to the Financial stakes & non-core assets Department, which reports directly to the Managing Director; and 2) the Accounting, Planning & Control Department, which will be responsible for the planning and control, administration and budgeting and cost management functions, which reports directly to the Managing Director as well.

In order to ensure an adequate supervision and management of human resources - a fundamental aspect for the implementation of the Plan - the Human Resources area will report directly to the CEO.

An ICT, Operations & Services Department has also been set up.

13 Development of Governance

On 24 February 2019, following the resignation of Mauro Selvetti, the BoD resolved to appoint, with the favourable opinion of the Appointment Committee, Luigi Lovaglio as Managing Director and General Manager. The BoD also appointed Alessandro Trotter as Chairman, former Substitute Deputy Chairman.

The Shareholders' Meeting held on 30 April 2019 appointed as members of the Board of Directors:

- Maria Giovanna Calloni already co-opted to the BoD on 24 February 2019 following the resignation of Director Mauro Selvetti;

- Jacob F. Kalma already co-opted to the Board of Directors on 21 January 2019 following the resignation of Director Massimo Massimilla.

For both, like the other members of the BoD, the office will expire on the date of the Shareholders' Meeting called to approve the financial statements of Credito Valtellinese S.p.A. at 31 December 2020. Also note that, following the expiry of the term of office of the members of the Board of Statutory Auditors, the composition of the Board was completely renewed at the Shareholders' Meeting held on 30 April 2019.

Rating The following are the ratings assigned to Creval on the date of approval of this Report:

Moody’s

Type of rating Rating Action Outlook

Baseline Credit Assessment b1 Upgrade

Adjusted Baseline Credit Assessment b1 Upgrade

LT Bank Deposits Ba3 Confirmed Negative

ST Bank Deposits NP Confirmed

Senior Unsecured MTN (P)B2 Confirmed

Subordinate MTN (P)B2 Upgrade

LT Counterparty Risk Rating Ba2 Confirmed

ST Counterparty Risk Rating NP Confirmed

LT Counterparty Risk Assessment Ba1(cr) Upgrade

ST Counterparty Risk Assessment NP(cr) Confirmed

On 11 April 2019, Moody's increased its Bank's Standalone Baseline Credit Assessment (BCA) and Adjusted BCA from "b2" to "b1". Moreover, the rating on subordinated debt was increased from "(P)B3" to "(P)B2" and the assessment of long-term counterparty risk also improved from "Ba2(cr)" to "Ba1(cr)". The Senior unsecured medium-term programme rating was confirmed at "(P)B2". The Agency also confirmed its rating on short-term ("NP") and long-term ("Ba3") deposits, updating the outlook on long-term deposits to "negative" in relation to the profile of the following bond maturities during 2019 and 2020.

14 On 24 June 2019, the rating agency published a commentary on the new Creval 2019-2023 Business Plan, rating it a "positive credit". The rating reflects the expected improvement in credit quality, in particular the planned reduction in the amount of impaired loans with an expected gross NPE ratio falling from 11.4% to 6.5% at the end of 2023, mainly through portfolio disposals to be implemented by 2020. The Rating Agency also underlined the Bank's objective of halving the amount of the securities portfolio over the period covered by the plan from EUR 7.9 billion to EUR 4 billion, with reference to government securities, in particular. This strategy - Moody's indicated - differs from that of many other Italian banks, which instead increased their exposure to government bonds.

The reduction in the securities portfolio - Moody's continued - goes hand in hand with a new funding strategy that is characterised by less dependence on the interbank market and the ECB through the issue of new institutional bond issues. The rating agency pointed out that in the horizon of the Plan, Creval aims to reduce impaired loans, maintain a good capital position and return to repaying dividends. With reference to the expected increase in profitability, Moody's pointed out that this is based on a greater focus of lending activity on the segments of customers with higher added value together with a reduction in costs and a decrease in adjustments to loans. The Rating Agency also indicated that the actions envisaged in the Plan may facilitate a future aggregation of Creval. On 1 August 2019, Moody's updated its credit opinion on Creval, reaffirming its positive comments on the Plan and also highlighting the ongoing improvement in liquidity and risk profile.

DBRS

Type of rating Rating Action Trend

Long-Term Issuer Rating BB (high) Upgrade Stable

Long-Term Senior Debt BB (high) Upgrade Stable

Long-Term Deposits BBB (low) Upgrade Stable

Short-Term Issuer Rating R-3 Upgrade Stable

Short-Term Debt R-3 Upgrade Stable

Short-Term Deposits R-2 (middle) Upgrade Stable

Senior Long-Term Notes - EUR 5 billion EMTN Programme BB (high) Upgrade Stable

Senior Short-Term Notes - EUR 5 billion EMTN Programme R-3 Upgrade Stable Mandatory Pay Subordinated Debt (Tier 2) - EUR 5 billion BB (low) Upgrade Stable EMTN Programme

On 13 March 2019, DBRS improved the ratings assigned to Creval. Deposit ratings were brought into the Investment Grade area, in particular Long-Term Deposits were upgraded by one notch from "BB (high)" to "BBB(low)" and Short-Term Deposits by two notches from "R-3" to "R-2(middle)". Moreover, Long-Term Issuer Rating was upgraded by one notch from "BB" to "BB(high)". The trend on all ratings was upgraded from positive to stable.

15 Supervisory Review and Evaluation Process (SREP) Based on the final measure received by the Bank of Italy following the conclusion of the Supervisory Review and Evaluation Process (SREP) for the year 2019, Creval will have to comply with the following minimum capital requirements at consolidated level as from the reporting of own funds of 30 June 2019:

• CET 1 ratio of 8.25%, consisting of the minimum regulatory requirement of 4.5%, the additional requirement determined as a result of the SREP of 1.25% and for the remaining part of the capital conservation buffer component; • Tier1 ratio of 9.75%, consisting of the minimum regulatory requirement of 6.0%, the additional requirement determined as a result of the SREP of 1.25% and for the remaining part of the capital conservation buffer component; • Total Capital ratio of 11.75%, consisting of the minimum regulatory requirement of 8.0%, the additional requirement determined as a result of the SREP of 1.25% and for the remaining part of the capital conservation buffer component.

16 Operational structure, commercial activity and competitive positioning

The territorial network At 30 June 2019, the branches forming the territorial network of Credito Valtellinese are 362 as represented below.

159 branches 8 branches of which 5 Bancaperta Credito Valtellinese 362 of which 11 Bancaperta of which Bancaperta 25 1 Bancaperta branch

12 branches 17 branches of which 1 Bancaperta 6 branches of which 1 Bancaperta

8 branches 26 branches of which 3 Bancaperta

2 branches 29 branches of which 2 Bancaperta

94 branches of which 1 Bancaperta

17 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 June 2019, "active" Internet users in the Creval Group - customers who have performed at least one transaction in the last six months - total 321,676, compared to 293,838 at the end of December of the prior year, with an increase of 9.5%. Active apps, those that have recorded at least one access in the previous 180 days, rose from 193,869 in June 2018 to 215,440 in June 2019, an increase of 11.13%. With regard to the POS service, the number of active terminals stood at 25,228 compared to 26,124 at the end of December 2018. At the end of 2019, the ATMs remained substantially unchanged compared to the end of 2018. The existing contracts for interbank corporate banking applications (“CrevalCBI”), set up in collaboration with the Group and Nexi, are also almost in line with those at the end of 2018, recording growth of 0.8%.

30/06/2019 31/12/2018 Change Number of ATMs 499 500 -0.2% Number of POS 25,228 26,124 -3.4% Bancaperta line users 321,676 293,838 9.5% Interbank Corporate Banking contracts 18,265 18,111 0.9%

Commercial activities During the first half of the year, the commercial network paid a special attention to activities aimed at increasing direct funding by proposing offers dedicated to the various customer segments.

The range of "Growing" deposits was structured to cover maturities of 3 to 48 months. A savings plan line was also created for the accumulation of small amounts of money over a 60-month period, offering some of the best remuneration available on the market. The offer of "ContoIncreval" deposit accounts for the acquisition of new customers through the digital channel and advertised on specialist platforms (Confrontaconti.it and Facile.it) was particularly important. Moreover, since the beginning of the year, the partnership with the Crédit Agricole Assurances Group in the life bancassurance sector has become operative, contributing to enrich the range of products offered to customers. During the first half of the year, policies with multi-branch investment solutions and insurance investments were placed exclusively on the Creval network.

Competitive positioning

Based on the most recent available figures (Bank of Italy BASTRA1 database at 31 March 2019), at the nationwide level the Group reached a market share of 1.4% in terms of

18 number of branches, 1% in deposits and approximately 0.9% in loans and receivables with customers1.

The rationalisation of the branch network carried out by Credito Valtellinese, as is happening among the main Italian competitors, led to an increase in the provinces (17 out of 46) where the market share of deposits or loans is higher than that of the market share of the branches. Regional market shares are higher in the areas where the Group operates traditionally. The most representative ones are in Lombardia, where they reach 3.2% in terms of number of branches, 2% and 1.9% for deposits and loans and receivables with customers, respectively. In Sicilia, where the Group operates with the Credito Siciliano brand, the market share is 7.3% by number of branches, 4.1% and 4.4% for deposits and loans and receivables with customers, respectively. In the Marche region, the Bank reached an overall market share of 3.1% by number of branches, 2.7% and 3.2% in terms of deposits and loans and receivables with customers, respectively.

Integrated Quality, Environment, Information Security Management System - certifications The Credito Valtellinese Group has chosen to adopt and maintain an Integrated Quality, Environment, Information Security Management System certified according to the UNI EN ISO 9001:2015, UNI EN ISO 14001:2015 and ISO/IEC 27001:2013 standards, considering it an important tool concretely related to the company business: a real added value for the organisation, able to generate economic returns and in terms of excellence and reputation towards the outside. Considering the achievement of the objectives set to be of paramount importance, the Integrated Quality Management System is constantly implemented and monitored by the various departments in charge and Top Management is personally involved in the compliance and implementation of these principles, ensuring and periodically checking that the Policy adopted is documented, made operative, kept active and disseminated to all personnel and stakeholders. In October 2018, RINA, a leading certification body operating in Italy and internationally, carried out successful maintenance audits.

For October 2019, Creval planned the renewal of the certifications also involving the Fondazione Gruppo Credito Valtellinese for the UNI EN ISO 9001:2015 certification and with a view to continuous improvement. Since April 2019, a special section dedicated to quality has been available on the group website.

The personnel At the end of June 2019, the registered workforce of the companies included in the consolidation scope of the Group consisted of 3,677 collaborators (compared to 3,678 resources at the end of 2018). These include 9 collaborators employed by entities outside the Group (Foundation and Pension Fund).

1 The market shares used in the description refer to the recognition by “residence of customers”. Loans are calculated on the performing component only.

19 In terms of professional categories, the total workforce of 3,677 can be broken down as follows: - 39 executives;

- 1,402 middle managers; - 2,236 workers in other professional categories.

Workforce by contract category at 30/06/2019

EXECUTIVES 1.1%

MIDDLE MANAGERS 38.1%

EXECUTIVES

MIDDLE MANAGERS

PROFESSIONAL CATEGORIES

PROFESSIONAL CATEGORIES 60.8%

Information on the main statement of financial position items and on consolidated income statement figures

The interim results are commented upon in summary format, drawn up on a consolidated basis, reclassified according to the presentation criteria considered most appropriate for presenting a fair view of the Group's operating performance. The aggregates and reclassifications regarding items of the financial statements as envisaged in Bank of Italy Circular no. 262/05 as amended are detailed in the Notes to the financial statements. The consolidated results include, as from 1 January 2019, the effects of the adoption of IFRS 16, which entails a different accounting of existing lease transactions from both an economic and a financial point of view. The comparison period, referring to 31 December 2018 and the first half of 2018, has not been restated. Therefore, some elements are not perfectly comparable as reported in the comments.

The reclassified consolidated statement of financial position is shown below. (in thousands of EUR) ASSETS 30/06/2019 31/12/2018 Change Cash and cash equivalents 168,203 200,153 -15.96% Financial assets at fair value through profit or loss 202,800 235,378 -13.84% Financial assets at fair value through other comprehensive income 1,874,934 1,937,531 -3.23% Loans and receivables with banks 1,251,681 1,205,925 3.79% Loans and receivables with customers 19,757,148 21,413,093 -7.73% Equity investments 17,702 20,269 -12.66% Property, equipment and investment property and 609,177 36.09% intangible assets (1) 447,642 Non-current assets held for sale and disposal groups 86,099 75,548 13.97% Other assets (2) 1,056,421 937,130 12.73% Total assets 25,024,165 26,472,669 -5.47%

(1) Include the items "90. Property, equipment and investment property" and "100. Intangible assets" (2) Include the items "110. Tax assets” and “130. Other assets"

(in thousands of EUR) LIABILITIES AND EQUITY 30/06/2019 31/12/2018 Change Due to banks 3,232,949 4,096,231 -21.08% Direct funding from customers (1) 19,231,732 19,944,672 -3.57% Financial liabilities held for trading 63 64 -1.56% Hedging derivatives 158,934 134,545 18.13% Liabilities included in disposal groups classified as held for sale 2,347 2,271 3.35% Other liabilities 539,498 491,739 9.71% Provisions for specific purpose (2) 244,953 236,885 3.41% Equity attributable to non-controlling interests 20 20 - Equity (3) 1,613,669 1,566,242 3.03% Total liabilities and equity 25,024,165 26,472,669 -5.47%

(1) Includes items "10. Financial liabilities at amortised cost: b) due to customers; c) securities issued" (2) Includes items "60. Tax liabilities, “90. Post-employment benefits" and "100. Provisions for risks and charges" (3) Includes items "120. Valuation reserves", "150. Reserves", "160. Share premium reserve", "170. Capital", "180. Treasury shares", and "200. Profit for the period".

Loans and receivables with customers

Net loans and receivables with customers, excluding loans represented by securities, amounted to EUR 14.6 billion, down by 6.7% compared to 31 December 2018, following the cancellation of reverse repurchase agreements (EUR 435.7 million at the end of 2018) and a commercial activity more focused on retail customers that led to an increase in loans to the latter of 0.9% and a decrease in exposures to corporate and institutional customers of 5.2%.

If loans represented by debt instruments (mainly government bonds) are included in the aggregate, total net loans amounted to EUR 19.8 billion, a decrease of 7.7% compared to the figure at the end of 2018, mainly as a result of the reduction of the securities portfolio.

(in thousands of EUR) 30/06/2019 31/12/2018 Change Current accounts 2,035,320 2,185,395 -6.87% Reverse repurchase agreements - 435,673 -100.00% Mortgages 9,928,733 9,808,860 1.22% Credit cards, personal loans and salary-backed loans 143,194 189,104 -24.28% Finance leases 302,926 323,328 -6.31% Factoring 155,521 165,565 -6.07% Other loans 1,247,076 1,681,911 -25.85% Total net performing trade receivables 13,812,770 14,789,836 -6.61% Debt instruments 5,149,976 5,752,074 -10.47% Total net performing loans and receivables 18,962,746 20,541,910 -7.69%

Bad loans 161,439 204,422 -21.03% Unlikely to pay 576,434 605,255 -4.76% Past due non-performing loans 56,529 61,506 -8.09% Total net non-performing loans and receivables 794,402 871,183 -8.81%

Total net loans and receivables 19,757,148 21,413,093 -7.73%

Within the aggregate, net non-performing loans totalled EUR 794.4 million, down 8.8% compared to 31 December 2018 (EUR 871 million).

In particular, bad loans amounted to EUR 161 million, down by 21% compared to 31 December 2018 (EUR 204 million); unlikely to pay reached EUR 576 million, down by 4.8% compared to 31 December 2018 (EUR 605 million); past due non-performing loans reached EUR 57 million, down by 8.1% compared to 31 December 2018 (EUR 62 million).

The coverage ratio of non-performing loans stood at 58.9%, a further strengthening compared to the figure of 55.9% at 31 December 2018. This increase is mainly related to the inclusion in the assessment of sales scenarios in line with the sale of NPL as envisaged in the 2019-2023 Business Plan.

In detail, the coverage of the individual categories of non-performing loans is as follows:

 bad loans at 81.4% (75.1% at 31 December 2018);  unlikely to pay at 42.3% (44.1% at 31 December 2018);  past-due non-performing loans at 11.5% (15.7% at 31 December 2018).

30/06/2019 31/12/2018

(in thousands of EUR) Gross Impairment Carrying Gross Impairment Carrying coverage % coverage % amount losses amount amount losses amount

Non-performing loans

Bad loans 869,941 -708,502 161,439 81.4% 820,875 -616,453 204,422 75.1%

Unlikely to pay 999,094 -422,660 576,434 42.3% 1,082,291 -477,036 605,255 44.1%

Past due non-performing loans 63,872 -7,343 56,529 11.5% 72,952 -11,446 61,506 15.7%

Total non-performing loans 1,932,907 -1,138,505 794,402 58.9% 1,976,118 -1,104,935 871,183 55.9%

Performing loans - stage 1 17,560,954 -27,530 17,533,424 0.16% 19,008,566 -34,170 18,974,396 0.18%

Performing loans - stage 2 1,494,468 -65,146 1,429,322 4.36% 1,629,593 -62,079 1,567,514 3.81%

Total loans and receivables with 20,988,329 -1,231,181 19,757,148 22,614,277 -1,201,184 21,413,093 customers

The coverage ratio is calculated as the ratio between impairment losses and the gross amount Loans and receivables with customers classified under Non-current assets held for sale and disposal groups are not included Non-performing exposures include government bonds for a gross amount of EUR 4,088,838 thousand at 30 June 2019. The coverage for performing loans and receivables with customers (excluding government bonds) was 0.6%, in line with the figure at 31 December 2018.

Funding from customers

Direct funding from customers, excluding repurchase agreements, amounted to EUR 17.3 billion, up 6.7% compared to 31 December 2018, driven by the increase in deposits (+10.2%) as a result of the positive performance of the commercial policy implemented during the half-year.

Total direct funding following the gradual reduction in repurchase agreements during the first half of this year (-48.9% from 31 December 2018), amounted to EUR 19.2 billion, down 3.6% compared to 31 December 2018.

(in thousands of EUR) 30/06/2019 31/12/2018 Change Current accounts and sight deposits 12,840,573 12,880,570 -0.31% Repurchase agreements 1,892,097 3,701,406 -48.88% Term deposits 2,675,479 1,309,565 104.30% Other 627,520 503,747 24.57% Due to customers 18,035,669 18,395,288 -1.95% Securities issued 1,196,063 1,549,384 -22.80% Total direct funding from customers 19,231,732 19,944,672 -3.57%

Indirect funding amounted to EUR 10.3 billion, up 2.6% compared to 31 December 2018, driven by the increase in managed funds, which amounted to EUR 7.3 billion (+3.6% since the beginning of the year). Assets under administration amounted to EUR 3.0 billion, in line with the figure at 31 December 2018.

(in thousands of EUR) 30/06/2019 31/12/2018 Change Asset management 1,085,268 1,149,522 -5.59% Mutual funds 3,344,872 3,174,308 5.37% Insurance funds 2,885,051 2,735,741 5.46% Total Managed funds 7,315,191 7,059,571 3.62% Assets under administration 3,002,245 3,001,257 0.03% Total indirect funding 10,317,436 10,060,828 2.55%

Financial assets and liabilities at fair value Financial assets at fair value amounted to EUR 2.1 billion. Of these, EUR 1.9 billion were represented by Italian government bonds, mainly recognised in the portfolio of Financial assets at fair value through other comprehensive income. The valuation reserve on securities recognised as financial assets at fair value through other comprehensive income, recorded among equity items net of tax effects, was negative for EUR 4 million and almost entirely related to government bonds.

(in thousands of EUR) 30/06/2019 31/12/2018 Change Financial assets and liabilities at fair value

through profit or loss Debt instruments 2,586 13,520 -80.87% Equity instruments and OEIC units 199,983 221,798 -9.84% Derivative financial instruments with positive fair value 231 60 n.s. Total assets 202,800 235,378 -13.84% Derivative financial instruments with negative fair value -63 -64 -1.56% Total assets and liabilities 202,737 235,314 -13.84%

Financial assets at fair value through

other comprehensive income Debt instruments 1,811,338 1,874,925 -3.39% Equity instruments 63,596 62,606 1.58% Total 1,874,934 1,937,531 -3.23%

Hedging derivatives -158,934 -134,545 18.13%

Financial assets and liabilities at fair value 1,918,737 2,038,300 -5.87%

Equity investments

The total carrying amount of equity investments at 30 June 2019, accounted at equity, was EUR 17.7 million.

The portfolio represents only equity investments in companies subject to joint control and to significant influence - companies in which Credito Valtellinese has a direct or indirect holding of at least 20% of voting rights, “potential” voting rights or, albeit with a lower percentage, has the power to influence financial and management policy through specific legal positions. The main equity investments are summarised below.

30/06/2019 31/12/2018 % equity investment Carrying amount (thousands of EUR)

Generalfinance S.p.A. 46.81% 16,859 16,688

Creset - Crediti, Servizi e Tecnologie S.p.A. 40.00% - 2,564

Global Broker S.p.A. 30.00% 436 612

Other 407 405

Total 17,702 20,269

The equity investment in Creset - Crediti, Servizi e Tecnologie S.p.A. at 30 June 2019 was reclassified to non-current assets and disposal groups following the exercise of the put option.

Equity attributable to the owners of the parent

The equity attributable to the owners of the parent at 30 June 2019 amounted to EUR 1,614 million compared to EUR 1,566 million at 31 December 2018. The statement of reconciliation between the Parent's equity and profit (loss) for the period and the corresponding amounts resulting from the consolidated financial statements at the same date, is illustrated below.

30/06/2019 31/12/2018

of which: (in thousands of EUR) of which: profit Equity Equity profit (loss) (loss) for for the year the period Balances as per parent financial statements 1,597,543 28,742 1,550,654 17,853

Investee results as per Separate financial statements: - consolidated on a line-by-line basis (5,708) (5,708) 4,649 4,649 - equity accounted 817 817 1,988 1,988

Differences compared to carrying amounts for: - companies consolidated on a line-by-line basis 20,922 - 10,652 15,507 - equity-accounted companies 1,522 - 259 -

Adjustment to dividends collected during the period: - on retained earnings - (853) - (6,961)

Other consolidation adjustments: - elimination of intra-group profit and loss (655) 340 (981) (444) - other adjustments (772) 208 (979) (870)

Balances as per Consolidated financial statements 1,613,669 23,546 1,566,242 31,722

Own funds and capital ratios

Phased-in CET1 capital at 30 June 2019 amounted to EUR 1,822 million against risk- weighted assets of EUR 9,872 million. Total own funds amounted to EUR 2,007 million. The bank’s capital ratios show the following values:

- 18.5% for CET1 ratio - 18.5% for Tier 1 ratio

- 20.3% for Total capital ratio The ratios are well above the minimum SREP requirements that Creval will have to meet on the basis of the final measure received from the Bank of Italy at the end of the supervisory review process for the year 2019. These requirements must be met as from the reporting of own funds on 30 June 2019 and are equal to: - 8.25% for CET1 ratio

- 9.75% for Tier 1 ratio - 11.75% for Total Capital ratio

The fully loaded CET1 ratio3 at 30 June 2019 was 14.0%, a further improvement on the figure as at 31 December 2018 (13.5%), and expressed a capital surplus compared to the minimum SREP 2019 requirement (equal to 8.25%), of ~575 basis points.

(in thousands of EUR) 30/06/2019 31/12/2018

Common Equity Tier 1 capital (CET1) 1,821,902 1,862,128 Tier 1 Capital 1,821,902 1,862,128 Total Own Funds 2,007,289 2,055,556

Credit risk and counterparty risk 692,887 711,887 Credit valuation adjustment risk 943 968 Settlement risks - - Market risks 4,401 7,924 Operational risk 91,493 91,493 Other calculation elements - - Total capital requirements 789,724 812,272 Risk-weighted assets 9,871,553 10,153,395

Common Equity Tier 1 capital / Risk-weighted assets (CET1 capital ratio) 18.46% 18.34% Tier 1 capital / Risk-weighted assets (Tier 1 capital ratio) 18.46% 18.34% Total own funds / Risk-weighted assets (Total capital ratio) 20.33% 20.25%

3 Excluding the transitional regime for the impact of the first-time adoption of IFRS 9.

Income statement The reclassified consolidated income statement is shown below.

(in thousands of EUR) 1st half of 1st half of ITEMS Change 2019 2018

Net interest income 178,573 178,879 -0.17%

Net fee and commission income 123,807 139,422 -11.20%

Dividends and similar income 924 1,867 -50.51%

Profit of equity-accounted investments (1) 817 1,299 -37.11%

Net trading and hedging income and profit on sales/repurchases (2) 22,775 16,473 38.26%

Other operating net income (3) 4,326 3,039 42.35%

Operating income 331,222 340,979 -2.86%

Personnel expenses (136,811) (193,432) -29.27%

Other administrative expenses (4) (75,346) (100,957) -25.37% Depreciations/amortisation and net impairment losses on property, equipment and (21,855) (12,567) 73.91% investment property and intangible assets (5)

Operating costs (234,012) (306,956) -23.76%

Operating profit 97,210 34,023 185.72%

Impairment or reversal of impairment and modification gains (losses) (6) (101,862) 22,202 n.s.

Profit (Losses) on sale/repurchase of financial assets at amortised cost (7) 6,292 (95,220) n.s.

Net accruals to provisions for risks and charges (10,551) (4,575) n.s.

Net gains (losses) on sales of investments and valuation differences on property and equipment at fair value (8) 5,211 (19) n.s.

Badwill (9) - 15,357 n.s.

Pre-tax loss from continuing operations (3,700) (28,232) -86.89%

Income taxes 27,246 30,777 -11.47%

Post-tax profit from continuing operations 23,546 2,545 n.s.

Profit for the period attributable to non-controlling interests - (1,721) n.s.

Profit for the period 23,546 824 n.s.

(1) Profit of equity-accounted investments include profit (losses) of equity-accounted investments included in item 250 “Net gains (losses) on equity investments”; the residual amount of that item is included in gains on sales of investments, together with item 280 “ Net gains (losses) on sales of investments" (2) Includes item “80. Profits (Losses) on trading”, “90. Net hedging income (expense)”, “100. Profits (losses) on sale or repurchase of: b) financial assets at fair value through other comprehensive income; c) financial liabilities” and “110. Profits (Losses) on other assets and liabilities at fair value through profit or loss: a) financial assets and liabilities designated at fair value; b) other financial assets mandatorily measured at fair value” (3) Other income and costs correspond to item “230. Other operating net income” net of the following reclassifications (4) Other administrative expenses include recoveries of taxes and other recoveries recognised in item "230. Other operating net income" (EUR 18,782 thousand in the first half of 2019 and EUR 21,686 thousand in the first half of 2018) (5) Depreciation/amortisation and net impairment losses on property, equipment and investment property and intangible assets include items "210. Depreciation and net impairment losses on property, equipment and investment property", "220. Amortisation and net impairment losses on intangible assets" and the accumulated depreciation of costs incurred for leasehold improvements included in item "230. Other operating net income" (EUR 441 thousand in the first half of 2019 and EUR 500 thousand in the first half of 2018) (6) Include items “130. Net impairment losses for credit risk relating to: a) financial assets at amortised cost; b) financial assets at fair value through other comprehensive income” and “140. Modification gains (losses) without derecognition” (7) Includes item "100. Profit (Loss) on sale or repurchase of: a) financial assets at amortised cost" (8) Includes the residual amount of item "250. Net gains (losses) on sales of investments" not included among profit (losses) of equity-accounted investments together with item "280. Net gains (losses) on sales of investments" and item "260. Net result of property, equipment and investment property and intangible assets at fair value", with the exception of the component relating to real estate inventories (9) Includes the badwill recognised in item "230. Other operating net income"

Net interest income came to EUR 178.6 million, substantially in line with the figure for the first half of 2018 (EUR 178.9 million), despite the negative impact of the recognition, as from 1 January 2019, of interest expense recorded on the present value representing the obligation to make lease payments following the first-time adoption of IFRS 16. Within the aggregate, the contribution of the securities portfolio amounted to EUR 31.4 million. 29

In the second quarter of 2019, this figure amounted to EUR 87.3 million, a decrease compared to the previous quarter (EUR 91.3 million) due both to the decrease in repurchase agreements and to the increase in funding volumes in line with the strategy of the Plan.

Net fee and commission income in the second quarter of 2019 amounted to EUR 62.1 million, an increase compared to EUR 61.7 million in the previous quarter as a result of an increase in both commissions from traditional banking activities (+0.7%) and from the managed funds sector (+1.1%). In the first half of the year, the figure amounted to EUR 123.8 million, a decrease of 11.2% year on year, mainly as a result of a reduction in up- front commissions, which were particularly high in the first quarter of 2018.

Net trading and hedging income (expense) and profit (loss) on sales/repurchases amounted to EUR 22.8 million (of which EUR 21.4 million in the second quarter of 2019), up from EUR 16.5 million in the first half of 2018, mainly due to the capital gain from the valuation of the equity investment held in Nexi S.p.A., whose share was largely sold as part of the transaction that led to the listing of the company. Operating income amounted to EUR 331.2 million, compared to EUR 341.0 million in the first half of 2018. Personnel expenses amounted to EUR 136.8 million, down 29.3% compared to EUR 193.4 million in the first half of 2018, which included the cost of the early retirement plan implemented last year. In the second quarter of 2019, the figure was EUR 66.2 million compared with EUR 70.6 million in the previous quarter.

Other administrative expenses amounted to EUR 75.3 million, a decrease of 25.4% year on year as a result of both the application of IFRS 16 and cost savings related to efficiency measures. The figure for the second quarter of 2019 was EUR 35.9 million, compared with EUR 39.5 million in the previous quarter.

Contributions to the Resolution Fund in the first half of 2019 amounted to EUR 11.2 million, of which EUR 8.2 million recorded in the first quarter as ordinary contributions and EUR 3 million in the second quarter as extraordinary contributions. Depreciation/amortisation and net impairment losses on property, equipment and investment property and intangible assets amounted to EUR 21.9 million, up from EUR 12.6 million in the first half of 2018, due to the recognition of depreciation charges relating to the right to use resulting from the application of IFRS 16. Total operating costs stood at EUR 234 million down sharply from EUR 307 million in the same period of 2018. The cost income ratio, calculated as the ratio of operating costs to 4 operating income excluding non-recurring items , was 70.0%.

The operating profit came to EUR 97.2 million, up from EUR 34 million in the first half of 2018.

Net impairment losses for credit risk amounted to EUR 101.9 million and include extraordinary adjustments aimed at strengthening hedges for the sale of NPL as envisaged in the 2019-2023 Business Plan. The item Profit (loss) on sale/repurchase of financial assets at amortised cost was a positive value of EUR 6.3 million and mainly referring to the sale of government bonds during the first half of the year. The figure is compared with a loss of EUR 95.2 million in

4 Costs related to the implementation of the "Solidarity Fund" of EUR 63.6 million and personnel costs of EUR 2.3 million related to key management personnel with whom the employment relationship was terminated.

30 the corresponding period of last year relating to the sale of non-performing loans in the first half of 2018. Accruals to provisions for risks and changes totalled EUR 10.6 million, compared with EUR 4.6 million in the first half of 2018. Net gains on sales of investments amounted to EUR 5.2 million compared with a loss of EUR 19 thousand in the same period of the previous year. The pre-tax loss from continuing operations amounted to EUR 3.7 million.

Income taxes for the period were positive for EUR 27.2 million, mainly due to the recognition of DTA in relation to the partial reassessment of deferred tax assets on previous tax losses not recognised. The net profit for the year reached EUR 23.5 million compared to EUR 0.8 million in the first half of 2018. ROA stood at 0.19%.

Related party and intra-group 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 Legislative Decree no. 72 of 12 May 2015 - 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 “Procedures concerning Related Party Transactions and Associated parties of Creval S.p.A.” (hereinafter also the “RPT Creval Procedures”), in the updated version, effective as from 4 December 2018. 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 and also define the cases, methods, conditions and circumstances in which, without prejudice to the obligations required, the partial or full exclusion of the application of the RPT Creval Procedures is allowed. 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, www.gruppocreval.com – Corporate Governance section – Corporate documents. Furthermore, based on the aforementioned Supervisory Provisions, the Parent Creval approved the "Internal Policies regarding controls on risk assets and on conflicts of interest in relation to Associated Parties of the Credito Valtellinese Banking Group" (hereinafter also referred to as the "Policy"). This Policy, which was communicated to the shareholders' meeting of 27 April 2013 in compliance with the aforementioned regulations, was subsequently revised in December 2015 and March 2019. In compliance with the aforementioned regulations, the document “Internal policies regarding controls on risk assets and conflicts of interest in relation to Associated Parties of the Banking Group Credito Valtellinese”, as last updated by the Board of Directors on 12 March 2019, was reported as Annexe to the "Report on Corporate Governance and Ownership Structures", which was made available to Shareholders prior to the Shareholders' Meeting within the timeframe envisaged by the regulations in force. The Policy identifies, 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 32 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. This approach aims to achieve any form of synergy among the companies of the Group, assures to all members the access to specialised high-quality services and makes it possible 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 intra-group contractual agreements, which concern in particular the provision of services by the parent to the subsidiary companies in the sector of IT, back-office, finance, insurance, legal and corporate affairs, administrative, accounting and management, internal auditing, risk management, compliance and management and administration of the Personnel. 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 intra-group contractual agreements and approval and possible amendment of the related economic conditions. No atypical or unusual transactions with Group companies or related parties that impacted significantly on the financial position or results of operations of the company have taken place during the half year. Detailed information on intra-group 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 the Notes to the condensed interim consolidated financial statements.

Risk management

In accordance with the Supervisory provisions, the Credito Valtellinese Group adopted a detailed and strong internal control system (consisting of rules, functions, structures, resources, processes and procedures) the aims of which are reducing the risk within the limits indicated in the framework of reference for determining the risk appetite of the bank (Risk Appetite Framework, RAF), prevention of the risk that the bank is involved, even unintentionally, in illegal activities (such as money laundering, usury and terrorist financing) and compliance of the transactions with the law and supervisory regulations, as well as with policies, regulations and internal procedures.

The internal control system is a fundamental element of the overall governance system of the Credito Valtellinese Group and ensures that operations comply with company strategies and policies. It takes on a substantial role in the prevention, identification, management and minimisation of risks, also contributing to the effective oversight of company risks, protection from losses and the safeguarding of asset value. A good internal control system contributes to preserving correct, effective company operations and ensures compliance with rules and regulations, as well as the faithfulness, accuracy and reliability of company disclosure. The internal control and risk management system is broken down in the following control functions set up with the Parent:

- risk control and validation;

- compliance and anti-money laundering; - internal revision.

As part of the internal control system, the Group developed and standardised specific controls, including in particular:

- the “RAF”, which consists of “the reference framework that establishes - consistent with the maximum risk that can be undertaken, the business model and the strategic plan - the risk appetite, the tolerance thresholds, the risk limits, the risk governance policies, the reference processes needed to define and implement them”. At the same time, it is a management tool that supports the achievement of the set objectives and is integrated with strategic and operational planning, and a tool for control that identifies any overruns of the set limits;

- the risk management process, defined in compliance with RAF and intended as “all the rules, procedures, resources (human, technological and organisational) and control activities for identifying, measuring or assessing, monitoring, preventing or mitigating as well as notifying the suitable superiors of all risks assumed or that may be assumed in the various segments, at company and group portfolio level, applying integrated logic, also mutual inter-relations and the development of the external scenario”. The operational limits to the assumption of various types of risk and the related reporting processes are consistent with the risk appetite defined within the Risk Appetite Statement and with the development of the economic scenario;

- the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP), the results of which are summarised in the ICAAP-ILAAP Report that represents, on the one hand, 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, is an essential instrument supporting strategic planning and the implementation of the corporate 34

decisions;

- the process of defining the Recovery Plan according to the indications of the supervisory bodies (Bank Recovery and Resolution Directive - BRRD, transposed into Italian law by Legislative Decree no. 180 of 16 November 2015), which establishes the methods and measures with which to intervene to restore the long-term economic sustainability of an institution in the event of a serious deterioration in its financial situation;

- the Contingency Funding and Recovery Plan (CFRP), which describes the procedures to be followed and the actions to be taken in the event of situations of severe stress or significant deterioration of the liquidity profile, or the possibility of such situations occurring. This framework envisages the activation of an intervention plan, according to two critical levels, following an evaluation and escalation process starting from a set of systemic and intolerant indicators; funding sources are also identified and the management levers that the Bodies designated to govern the crisis can activate in order to restore a normal liquidity position. The aim of CFRP is to manage a short-term liquidity crisis limited to this profile.

Detailed information on the general characteristics of the control systems, the risk management, measurement and control policies are contained in the Notes to the condensed interim consolidated financial statements (Information on risks and related hedging policies) and in the public disclosure on the third pillar made available on the website at www.gruppocreval.com.

Information on main risks and uncertainties to which the Group is exposed

Strategic decisions regarding risk management at Group level are taken by the Parent's corporate bodies, taking account of the specific operations and related risk profiles of each entity of the Group, in order to implement an integrated and consistent risk management policy. In this context, the Parent defines and approves the Group Risk Appetite Framework (RAF) and Risk Appetite Statement (RAS), in application of Bank of Italy Circular no. 285/2013, Part I, Title IV, Chapter 3.

At 30 June 2019, the Group's exposure to risks was consistent with the approved risk appetite.

For detailed information on the exposure of the Group to the risks, please refer to the section "Information on risks and related hedging policies" of this Report.

GDPR

During the first half of 2019, Creval continued to carry out activities aimed at consolidating the components of the Group's Model for the Protection of Personal Data (hereinafter also referred to as the "Model for the Protection of Personal Data" or the "Model"), in compliance with the regulatory requirements of European Regulation 2016/679 (GDPR), in force since 25 May 2018 and relating to the protection of individuals with regard to the processing and free movement of personal data, by involving different company functions by area of competence, which led to the preparation of ad hoc methodological documentation to support the management system for the protection of personal data. The above to allow the Model to ensure that the personal data are: • processed lawfully, fairly and in a transparent manner in relation to the data subject; • collected for specified, explicit and legitimate purposes and not further processed in a manner that is incompatible with those purposes (purpose limitation); • adequate, relevant and limited to what is necessary in relation to the purposes for which it is processed (data minimisation); • accurate and, where necessary, kept up to date; every reasonable step must be taken to ensure that personal data that is inaccurate, having regard to the purposes for which it is processed, is erased or rectified without delay (accuracy); • processed in a manner that ensures appropriate security of the personal data, including protection against unauthorised or unlawful processing and against accidental loss, destruction or damage, using appropriate technical or organisational measures (integrity and confidentiality). Moreover, execution activities were carried out in relation to the management of obligations related to the application of and compliance with the provisions of the law.

Information on disputes For detailed information on disputes, tax or otherwise, and on the main pending legal actions, please refer to the Notes to the financial statements.

Information on business outlook, with a special reference to going concern assumptions With regard to the going concern assumption, the Board of Directors, in the light of the main economic and financial indicators, believes it has a reasonable certainty that the Bank and the Group will remain a going concern in the foreseeable future. Therefore, the condensed interim consolidated financial statements were prepared with a view to the company as a going concern.

Events after the close of the half-year

On 6 August 2019, Creval signed a binding agreement for the sale of the loan against pledge to Custodia Valore - Credito su Pegno S.p.A., a company of the Viennese Dorotheum group. In line with the pillars of the 2019-2023 Business Plan, which provides for a focus on strengthening the business model of commercial banking established in the territory at the service of households and small and medium enterprises.

In line with the Bank's new development strategy, which also aims to relaunch through major investments to support growth, today's agreement fully replaces the one signed on 9 August 2018, which envisaged a contribution in kind of the above line of business and the acquisition of a minority interest of 22% in Custodia Valore. The agreement signed also provides for a commitment by Creval to (i) grant credit facilities to Custodia Valore to support ordinary activities and (ii) continue to provide information technology and support services to the company.

With the completion of the transaction, whose value amounts to EUR 38 million, the Bank will realise a gross capital gain of about EUR 33 million with an estimated positive impact 5 on the fully loaded CET1 capital ratio of about 20 basis points , further strengthening the already solid equity position. The transaction, subject to the authorisations of the competent Supervisory Authorities, is expected to be closed by the end of 2019.

Current-year outlook

The European economy is expected to grow in 2019 at a rate close to 1.1%. However, the risks of a downward revision due to external factors increased, including continued trade tensions between the US and China and significant political uncertainty, which could have negative repercussions on the entire manufacturing sector and thus have a negative impact on growth prospects for the rest of the year. Based on this macro-economic scenario, the ECB reshaped its communication strategy in the first few months of the year, showing a more accommodating attitude for the months ahead. After the 0.1% increase in Italian GDP in the first quarter, preliminary figures for the second quarter show a steady GDP, confirming the phase of substantial stagnation that the Italian economy is going through. In this context, the Bank's activities during the second half of the year will be focused on implementing the guidelines set out in the 2019-2023 Business Plan approved in June. A special attention will be paid to the growth of commercial activity towards families and small and medium enterprises and to the rationalisation of the cost base. Prudent management of the proprietary portfolio aimed at gradually reducing the stock of securities held is confirmed.

Sondrio, 6 August 2019

The Board of Directors

5 Calculated on the basis of capital ratios at 30 June 2019.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Condensed interim consolidated financial statements

Consolidated statement of financial position

(in thousands of EUR)

ASSETS 30/06/2019 31/12/2018 10. Cash and cash equivalents 168,203 200,153

20. Financial assets at fair value through

profit or loss 202,800 235,378

a) financial assets held for trading 15,167 40,010

c) other financial assets mandatorily measured at fair value 187,633 195,368

30. Financial assets at fair value through

other comprehensive income 1,874,934 1,937,531

40. Financial assets at amortised cost 21,008,829 22,619,018

a) loans and receivables with banks 1,251,681 1,205,925

b) loans and receivables with customers 19,757,148 21,413,093

70. Equity investments 17,702 20,269

90. Property, equipment and investment property 590,787 432,573

100. Intangible assets 18,390 15,069

110. Tax assets 765,771 746,744

a) current 67,208 66,629

b) deferred 698,563 680,115

120. Non-current assets held for sale and disposal groups 86,099 75,548

130. Other assets 290,650 190,386

Total assets 25,024,165 26,472,669

LIABILITIES AND EQUITY 30/06/2019 31/12/2018 10. Financial liabilities at amortised cost 22,464,681 24,040,903

a) due to banks 3,232,949 4,096,231

b) due to customers 18,035,669 18,395,288

c) securities issued 1,196,063 1,549,384

20. Financial liabilities held for trading 63 64

40. Hedging derivatives 158,934 134,545

60. Tax liabilities 6,204 5,665

a) current 2,702 1,955

b) deferred 3,502 3,710

70. Liabilities included in disposal groups classified as held for sale 2,347 2,271

80. Other liabilities 539,498 491,739

90. Post-employment benefits 36,814 35,571

100. Provisions for risks and charges: 201,935 195,649

a) commitments and guarantees given 16,528 15,815

b) pension and similar obligations 37,394 35,669

c) other provisions for risks and charges 148,013 144,165

120. Valuation reserves -15,045 -33,560

150. Reserves -950,182 -987,270

160. Share premium reserve 638,667 638,667

170. Share capital 1,916,783 1,916,783

180. Treasury shares (-) -100 -100

190. Equity attributable to non-controlling interests (+/-) 20 20

200. Profit for the period (+/-) 23,546 31,722

Total liabilities and equity 25,024,165 26,472,669

Consolidated Income Statement

(in thousands of EUR)

ITEMS 1st half of 2019 1st half of 2018

10. Interest and similar income 224,202 228,403

of which: interest income calculated with the effective interest method 217,900 222,436

20. Interest and similar expense (45,629) (49,524)

30. Net interest income 178,573 178,879

40. Fee and commission income 139,333 154,195

50. Fee and commission expense (15,526) (14,773)

60. Net fee and commission income 123,807 139,422

70. Dividends and similar income 924 1,867

80. Profits (Losses) on trading 2,871 1,033

90. Net hedging income 16 (50)

100. Profit (Loss) on sale or repurchase of: 6,783 (77,689)

a) financial assets at amortised cost 6,292 (95,220)

b) financial assets at fair value through other

comprehensive income 491 17,460

c) financial liabilities - 71

110. Profits (losses) on other assets and liabilities at fair

value through profit or loss 19,397 (2,041)

b) other financial assets mandatorily measured at fair value 19,397 (2,041)

120. Total income 332,371 241,421

130. Net impairment losses for credit risk on: (101,213) 22,860

a) financial assets at amortised cost (101,753) 24,318

b) financial assets at fair value through other

comprehensive income 540 (1,458)

140. Modification gains (losses) without derecognition (649) (658)

150. Net financial income 230,509 263,623

190. Administrative expenses: (230,939) (316,075)

a) personnel expenses (136,811) (193,432)

b) other administrative expenses (94,128) (122,643)

200. Net accruals to provisions for risks and charges (10,551) (4,575)

a) commitments and guarantees given (713) 3,312

b) other net accruals (9,838) (7,887)

210. Depreciation and net impairment losses on property, equipment and (18,029) (8,646) investment property

220. Amortisation and net impairment losses on intangible assets (3,385) (3,421)

230. Other operating net income 22,731 39,582

240. Operating costs (240,173) (293,135)

250. Net gains (losses) on equity investments 817 1,299

260. Net result of property, equipment and investment property

and intangible assets at fair value (137) -

280. Net gains (losses) on sales of investments 5,284 (19)

290. Pre-tax loss from continuing operations (3,700) (28,232)

300. Income taxes 27,246 30,777

330. Profit for the period 23,546 2,545

340. Profit for the period attributable to non-controlling interests - (1,721)

350. Profit for the period attributable to the owners of the parent 23,546 824

Basic earnings per share - in EUR 0.0034 0.0002

Diluted earnings per share - in EUR 0.0034 0.0002

Consolidated statement of comprehensive income

(in thousands of EUR)

1st half of Items 1st half of 2018 2019 10. Profit for the period 23,546 2,545 Other comprehensive income net of income taxes without reclassification to profit or loss (2,630) (6,905) 20. Equity instruments at fair value through other comprehensive income 199 (2,829) 30. Financial liabilities at fair value through profit or loss - (changes in creditworthiness) - 40. Coverage of equity instruments at fair value through other - comprehensive income - 50. Property, equipment and investment property - - 60. Intangible assets - - 70. Defined-benefit plans (2,834) (4,048) 80. Non-current assets held for sale and disposal groups - - 90. Portion of valuation reserves of equity-accounted investments 5 (28) Other comprehensive income net of income taxes with reclassification to profit or loss 21,145 (30,378) 100. Hedging of investments in foreign operations - - 110. Exchange rate differences - - 120. Cash flow hedges - - 130. Hedging instruments (elements not designated) - - 140. Financial assets (other than equity instruments) at fair value through other comprehensive income 21,243 (30,279) 150. Non-current assets held for sale and disposal groups - - 160. Portion of valuation reserves of equity-accounted investments (98) (99) 170. Total other comprehensive income net of income taxes 18,515 (37,283) 180. Comprehensive income (Item 10+170) 42,061 (34,738) 190. Consolidated comprehensive income attributable to non-controlling interests - (1,706) 200. Consolidated comprehensive income attributable to owners of the 42,061 (36,444) parent

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

Changes during the year

Equity transactions Allocation of prior year profit

Equity Extraordi Equity attributable to Purchase nary Derivative attributable to non- Change in Dividends Changes Issue of dividend Change in s on Changes in Comprehensi owners of the controlling Balance at opening Balance at and other in of new treasury distributio equity treasury Stock equity ve income parent at interests at Equity 31/12/2018 balances 1/1/2019 Reserves allocations reserves shares shares n instruments shares options investments 30/06/2019 30/06/2019 30/06/2019

Share capital:

a) ordinary shares 1,916,803 1,916,803 1,916,783 20 b) other shares

Share premium reserve 638,667 638,667 638,667

Reserves: a) income related -2,192 -2,192 17,987 502 16,297

b) other -988,303 -988,303 16,960 4,864 -966,479

Valuation reserves -33,560 -33,560 18,515 -15,045

Equity instruments Treasury shares -100 -100 -100

Profit (loss) for the period 34,947 34,947 -34,947 23,546 23,546

Equity attributable to owners of the parent 1,566,242 1,566,242 5,366 42,061 1,613,669 Equity attributable to non- controlling interests 20 20 20

(in thousands of EUR)

Changes during the year

Equity transactions Allocation of prior year profit

Equity Extraordi Equity attributable to Purchase nary Derivative attributable to non- Change in Dividends Issue of of dividend Change in s on Changes in Comprehensi owners of the controlling Balance at opening Balance at and other Changes in new treasury distributio equity treasury Stock equity ve income parent at interests at Equity 31/12/2017 balances 1/1/2018 Reserves allocations reserves shares shares n instruments shares options investments 30/06/2018 30/06/2018 30/06/2018

Share capital:

a) ordinary shares 1,849,588 1,849,588 69,966 -2,497 1,916,783 274 b) other shares

Share premium reserve 56 56 638,667 -51 638,667 5

Reserves: a) income related -1,087 -1,411 -2,498 -695 424 2,078 -337 435 -1,463

b) other -60,629 -587,806 -648.435 -331,849 -1,323 -36,854 -1,018,461

Valuation reserves -12,183 4,317 -7,866 34 -37,283 -45,089 -26

Equity instruments

Treasury shares -100 -100 -100

Profit (loss) for the period -328,199 -328,199 332,544 -4,345 2,545 824 1,721

Equity attributable to owners of the parent 1,442,094 -583,489 858,605 -888 671,779 7 -36,444 1,493,059 Equity attributable to non- controlling interests 5,352 -1,411 3,941 -4,345 -11 2,078 -2,858 1,706 511

Consolidated Statement of cash flows – Direct method (in thousands of EUR)

1st half of 1st half of 2019 2018 A. OPERATING ACTIVITIES 1. Cash flow from operating activities 160,334 184,679 - interest income received (+) 265,212 292,726 - interest expense paid (-) -50,853 -52,988 - dividends and similar income (+) 924 1,867 - net fee and commission income (+/-) 129,989 147,836 - personnel expenses (-) -139,173 -138,955 - other costs (-) -81,540 -111,062 - other revenue (+) 50,921 55,765 - taxes (-) -15,146 -10,510 2. Cash flow generated/used by financial assets 1,472,606 -1,712,767 - financial assets held for trading 25,751 -40,284 - financial assets mandatorily measured at fair value 12,073 -39 - financial assets at fair value through other comprehensive income 91,658 1,591,421 - financial assets at amortised cost 1,445,496 -3,383,507 - other assets -102,372 119,642 3. Cash flow generated/used by financial liabilities -1,659,335 844,016 - financial liabilities at amortised cost -1,699,948 635,936 - financial liabilities held for trading -1 -1,580 - other liabilities 40,614 209,660 Cash flow generated/used by operating activities -26,395 -684,072 B. INVESTING ACTIVITIES 1. Cash flow generated by 11,837 1,408 - dividends from equity investments 853 671 - sales of property, equipment and investment property 2,753 737 - sale of subsidiaries and business units 8,231 - 2. Cash flow used for -17,392 -18,383 - purchases of property, equipment and investment property -10,686 -9,877 - purchases of intangible assets -6,706 -3,506 - purchases of subsidiaries and business units - -5,000 Cash flow generated/used by investing activities -5,555 -16,975 C. FINANCING ACTIVITIES - issue/repurchase of treasury shares - 657,800 - dividend distribution and other - -4,345 Cash flow generated/used by financing activities - 653,455 NET CASH FLOW GENERATED/USED DURING THE PERIOD -31,950 -47,592

Reconciliation

1st half of 1st half of Financial statement items 2019 2018 Cash and cash equivalents at the beginning of the period 200,153 197,829 Net liquidity generated/used during the period -31,950 -47,592 Cash and cash equivalents at the end of the period 168,203 150,237

Key: (+) generated (-) used

Notes to the condensed interim consolidated financial statements

Accounting Policies Basis of preparation The condensed interim consolidated report of the Credito Valtellinese Group is prepared in consolidated format as prescribed by Article 154-ter, Italian Legislative Decree no. 58 of 24 February 1998 (the Consolidated Finance Act) and in compliance with IFRS issued by IASB (the International Accounting Standards Board) endorsed by the European Union, whose application was compulsory at the date of preparation of the condensed interim consolidated report according to IAS 34 – Interim Financial Reporting in condensed form. The Group accounting policies used for preparing the condensed interim consolidated report, with reference to classification, recognition, measurement and derecognition criteria for each asset and liability item, as with the recognition methods for revenue and costs, have not changed with respect to those used for the Consolidated Financial Statements at 31 December 2018, to which reference is made for a full description, with the exception of the amendments deriving from the mandatory application of IFRS 16 from 1 January 2019.

The condensed interim consolidated financial statements comprise the Statement of financial position, Income Statement, Statement of Comprehensive Income, Statement of changes in equity, Statement of cash flows (Financial Statements) and Notes to the condensed interim consolidated financial statements.

The financial statements were prepared in compliance with the “Instructions for the preparation of the separate financial statements and of the consolidated financial statements of banks and financial companies that are parents of banking groups” contained in Circular no. 262/2005 of Bank of Italy and following updates.

The amounts reported in the Financial Statements and in the Notes to the condensed interim consolidated financial statements are in thousands of EUR, unless indicated otherwise.

In the Statement of financial position, Income Statement and Statement of Comprehensive Income, any item equal to zero in the reporting period of reference or in the previous period is not shown. In the Income Statement and Statement of Comprehensive Income, negative amounts are shown in brackets.

With regard to the first-time adoption of IFRS 16, the group decided to adopt the Modified Retrospective Approach, which allows the cumulative effect of the first-time adoption of the Standard to be recognised at the FTA date and not to restate the corresponding figures of the financial statements. Consequently, the figures for the year 2019 are not comparable with reference to the valuation of the rights of use and the corresponding lease payable.

Moreover, the corresponding period was reclassified for a consistent comparison. In particular, the following table summarises the reclassifications made on the figures for the first half of 2018.

1st half of 2018 INCOME STATEMENT ITEMS 1st half of Reclassified Differences (in thousands of EUR) 2018 Official

10. Interest and similar income 228,403 235,370 -6,967

20. Interest and similar expense (49,524) (56,491) 6,967

The condensed interim consolidated financial statements at 30 June 2019 are accompanied by the certification of the Managing Director and of the Manager in charge of financial 45 reporting envisaged by Article 154-bis of the Consolidated Finance Act and is subject to a limited audit by KPMG S.p.A.

First-time adoption of IFRS 16 The new Accounting Standard IFRS 16, approved by the European Commission through Regulation no. 1986/2017 of 31 October 2017, replaced, as from 1 January 2019, 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", and introduced new rules for the recognition and presentation of lease agreements for both lessors and lessees. The new Accounting Standard requires the identification of whether an agreement is (or contains) a lease, based on the concept of controlling the use of an identified asset for a specific period of time in exchange for a consideration. Consequently, the scope of application of the standard also includes lease, rental or gratuitous lease agreements, which were not previously treated as leases. Significant changes were made to the requirements for recognising lease transactions in the lessee's financial statements, introducing a single accounting model, overcoming the distinction, as provided for by former IAS 17, between operating and financial leases and envisaging the recognition of an Asset that consists in the right to use the asset subject matter of the lease agreement (i.e. Right of Use Asset) and a Liability that consists in the present value of payments due under the lease agreement (i.e. Lease Liability). After initial recognition, the Asset (i.e. Right of Use Asset) is measured using the cost model (net of accumulated depreciations and accumulated impairment losses and adjusted to take account of any restatement of the lease liability) and the Liability (i.e. Lease Liability) is measured by increasing the carrying amount to take account of interests on the lease liability and decreased to take account of lease payments made and by restating the carrying amount to take account of any new lease measurement or changes. This also implies a change in the method for recognising Income Statement items. In particular, while previously the lease payments were represented under the item "190.b) Other administrative expenses", on the basis of the new standard, the charges accrued on the lease payable will be recognised in the item "20. Interest and similar expense" and the depreciation charges of the right of use will be recorded under the item "210. Depreciation and net impairment losses on property, equipment and investment property (i.e. Right of Use Asset). However, there are no substantial changes in the recognition of lease agreements for lessors for which the distinction between operating leases and financial leases is maintained.

With regard to financial year 2019, the effects on the financial statements of the application of IFRS 16 can be identified as: i) an increase in assets recorded in the financial statements (against the inclusion of leased assets), ii) an increase in liabilities (due to the recognition of payables for future payments due to leased assets), iii) a decrease in administrative expenses (i.e. lease rentals) and a simultaneous increase in borrowing costs (i.e. the remuneration of the recognised payable) and in depreciations. In 2018, the Group started a special project aimed at adopting the new Accounting Standard, the purpose of which is to investigate and define the qualitative and quantitative impacts deriving from the application of the Standard as well as to identify the areas of intervention and the implementations required in the business systems and processes for the adoption of the Standard at Group level. At the date of this report, the Creval Group defined the accounting rules and processes aimed at understanding the equity and economic rules of the new Standard. Moreover, the 46 company's systems and processes were analysed and the decisions regarding IT solutions for the management of lease agreements were made and the full integration of developments within the company's systems and processes is underway.

The methodological choices adopted by the Creval Group and impact assessment The Group decided to adopt the Modified Retrospective Approach Option upon first-time adoption (FTA), which allows the cumulative effect of the first-time adoption of the Standard to be recognised at the FTA date, and not to restate the corresponding figures of the IFRS 16 first-time adoption financial statements; consequently, the figures for the year 2019 are not comparable with reference to the valuation of the rights of use and the corresponding lease payable. In order to provide a consistent comparison with the figures at 31 December 2018, the statement of financial position data figures at 1 January 2019 have been restated. Upon first-time adoption, as well as during the targeted operations, the Creval Group adopted some of the practical expedients and exemptions envisaged by the Standard. Specifically:  lease agreements the duration of which ends within 12 months of the date of first- time adoption were excluded;  initial direct costs were excluded from the measurement of the right of use at the date of first-time adoption;  lease agreements with a term lease less than or equal to 12 months (i.e. short term) are excluded from the calculation of the economic and financial components envisaged by the Standard as well as agreements whose replacement value of the underlying asset is less than or equal to EUR 5,000 (i.e. low value assets). With reference to the non-lease components, the Creval Group decided, given the significance of these components, not to separate the service components from the lease components with consequent recognition of the entire lease agreement in the cases in which these components are not immediately distinguishable in the agreements.

Scope of the agreements The new Standard applies to all leases (or agreements containing a lease) that grant the lessee the right to control the use of an identified asset for a specified period of time in exchange for consideration. According to the Standard, the concept of control refers to all those assets that are identifiable (either explicitly or implicitly) within an agreement for which the lessee has the right to control the assets, or to obtain substantially all economic benefits from the use of the assets and to decide on their use. In the light of the above, the Creval Group analysed the agreements that fall into this category, grouping them into three distinct categories: a) properties, which represent the most significant case; b) cars and c) other types, which include rental contracts of IT equipment and, more generally, IT assets with a marginal impact. Note that, in the light of the IFRIC Standard and clarifications, the Creval Group excluded from the scope of application of IFRS 16 software rental contracts that continue to be accounted for in accordance with the provisions of IAS 38. In general terms, property lease agreements refer to buildings intended for use as bank offices or branches and normally have a duration of more than 12 months, presenting renewal and/or purchase options; for what concerns car leases, these refer to the car fleet and typically have a multi-year duration without the exercise of renewal and/or purchase options.

Lease term The Standard requires the lessee to determine the lease term by reference to the non- cancellable term of the lease, plus (a) the periods covered by an option to extend the lease, 47 if the lessee has reasonable certainty of exercising the option; and b) the periods covered by the termination option, if the lessee has reasonable certainty of not exercising the option. With reference to both agreements existing at the date of first-time adoption and new agreements entered into after 1 January 2019, the lease term has been defined as a non- cancellable period to which the periods covered by a renewal option or the periods covered by a termination option are added on the basis of the reasonable certainty of exercising these options. In particular: i) if the agreement is in the period that cannot be modified, and there is no evidence to assume the exercise of a termination option, the lease term is identified at the end of the first renewal option (if provided for by contract) on the basis of the reasonable certainty of exercising it; ii) where the agreement is already in a renewal period and there is no evidence to suggest that a termination option is being exercised, the lease term will be identified at the end of the existing renewal option or at the end of the subsequent renewal option on the basis of the reasonable certainty of exercising it; iii) in the event of formalised notice of termination of the agreement, or reasonable certainty that the agreement termination option will be exercised, the lease term will coincide with the effective date of the effective termination. The above rules, applied to all types of agreements in scope and for each individual agreement, remain valid to the extent that the lease term is prior to the useful life of the underlying asset or when the bank, in residual cases, does not carry out specific valuations, also with reference to strategic needs and/or market choices.

Discount rate IFRS 16 introduces the concept of a discount rate as the rate that the lessee must use at the starting date of the agreement to measure the lease liability or to determine the present value of any lease payments outstanding at that date; the lessee can use either the interest rate implicit in the lease if it can be easily determined or the lessee's Incremental Borrowing Rate). On the basis of the analyses carried out and the information available, the Group decided to use the lessee's incremental borrowing rate). In particular, a rate curve was defined with respect to the lease term, where each periodic flow envisaged for each agreement is associated with the corresponding discount rate of the curve. Note that this curve is defined taking into account, among other things, the specific risk of the Group, the economic environment of the transaction, the term and nature of the leases.

The effects of First-time Adoption of IFRS 16 Following the choice of the Modified Retrospective Approach for the first-time adoption of IFRS 16, at 1 January 2019, the Creval Group recognised assets consisting of the right of use of the asset subject matter of the lease agreement (i.e. Right of Use Asset) and corresponding liabilities consisting of the present value of payments due under the lease agreement (i.e. Lease Liabilities) for an amount of approximately EUR 169.4 million at consolidated level. At the same date, there were no impacts on shareholders' equity. For what concerns the scope of reference, at the date of first-time adoption, the Group chose not to make use of the practical expedient envisaged in paragraph C3 of the Standard (known as grandfathering), but redefined the scope of the agreements to be submitted to the new Standard, with the exclusion of agreements with intangible assets as underlying assets.

Reconciliation between commitments for operating leases IAS 17 and lease liabilities IFRS 16 The following is a reconciliation between the commitments arising from operating leases in accordance with IAS 17 at 31 December 2018 and the lease liabilities calculated in accordance with IFRS 16 at the date of first-time adoption:

(in thousands of EUR) Reconciliation statement of lease payables 01/01/2019 Commitments for Operating Leases IAS 17 not discounted at 31/12/2018 222,434 Exceptions to IFRS 16 recognition: - short term lease (578) - low value lease (3,875) Other changes (9,280) Operating lease payables recognised at 1/1/2019 not discounted 208,701 Discounting effect on Operating lease payables (39,312) Lease payables IFRS 16 at 1/1/2019 169,389

Reconciliation tables of the Statement of financial position at 1 January 2019 The reconciliation of the Statement of financial position and the effects of first-time adoption at 1 January 2019 compared to the tables at 31 December 2018 is presented below.

(in thousands of EUR)

31/12/2018 IFRS 16 FTA 01/01/2019 ASSETS impact 90. Property, equipment and investment property 432,573 169,389 601,962 Total assets 26,472,669 169,389 26,642,058

31/12/2018 IFRS 16 FTA 01/01/2019 LIABILITIES AND EQUITY impact 10. Financial liabilities at amortised cost b) due to customers 18,395,288 169,389 18,564,677 Total liabilities and equity 26,472,669 169,389 26,642,058

The increase in RWA resulting from the recognition of the total rights of use, which envisage a 100% weighting, leads to a reduction of about 25 bps of the CET1 ratio.

Further amendments to international accounting standards

The following additional amendments to the international accounting standards were also introduced effective as from 1 January 2019:

- Commission Regulation (EU) 2019/237 of 8 February 2019 amending International Accounting Standard (IAS) 28. The amendments are intended to clarify that the impairment requirements of IFRS 9 apply to long-term interests in associates and joint ventures; - Commission Regulation (EU) 2019/402 of 13 March 2019 amending accounting standard IAS 19. The objective of the amendments is to clarify that, after the amendment, curtailment or settlement of the defined benefit plan, the entity should apply the assumptions updated by the restatement of its net defined benefit liability (asset) for the remainder of the reporting period; - Commission Regulation (EU) 2019/412 of 14 March 2019 amending International Accounting Standards (IAS) 12 and 23 and IFRS 3 and 11 as part of the annual improvements to international financial reporting standards cycle.

There were no significant impacts due to their application.

The main changes to the accounting standards adopted in the preparation of the Condensed interim consolidated financial statements as a result of the application of IFRS 16 are summarised below.

Property, equipment and investment property Property, equipment and investment property purchased on the market are recognised as assets under “90. Property, equipment and investment property” when the main risks and benefits related to the assets are acquired.

The “Property and equipment used in the business” are assets used to carry out the business, assuming that they will be used for a period of more than one year, while “Investment property” is the asset that provides rental income or held for appreciation of invested capital or both.

The item also includes the rights of use acquired through the lease and relating to the use of a property, equipment and investment property for the lease companies and assets provided under operating lease for the lessor companies. 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. With regard to the lease, when the asset is made available to the lessee for use, the lessee recognises the asset consisting of the right of use and the related liability. Property, equipment and investment property (including rights of use recognised under IFRS 16), with the exception of the Group's artistic assets, are subsequently measured at cost adjusted by related depreciation and any impairment losses/reversal of impairment losses.

The depreciable value of property, plant 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

50 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.

The art works owned by the Bank after initial recognition are measured by applying the restatement model. The restatement model envisages that a class of property, equipment and investment property may be recognised at a restated value, equal to its fair value on the date of the restatement, net of any subsequent accumulated depreciation and any subsequent accumulated impairment loss. If the carrying amount of an asset increased as a result of a restatement, the increase must be recognised in a special equity reserve, whereas if the carrying amount of an asset decreased, the reduction must be recognised in the income statement. 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 the end of each reporting period, 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 carrying amount resulting from the reversal of impairment losses on a previously impaired asset cannot 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.

Inventories of property, equipment and investment property classified according to "IAS 2 – Inventories" are recorded in the item "90. Property, equipment and investment property" 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 less costs to complete and sell. Impairment losses are recognised in the income statement.

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

Financial liabilities at amortised cost

The item includes Due to banks, Due to customers and Securities issued and mainly includes the funding collected on the inter-bank market and from customers also through the placement of bonds and certificates of deposit. It also includes any payables recognised as a lessee under leases.

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.

Transactions are recognised at the time they are carried out, except those relating to remittance of bills and to the placement of securities, which are recognised at settlement. Initially, financial liabilities are measured at fair value plus any directly attributable transaction costs. Subsequently, they are measured at amortised cost using the effective interest rate method. The amortised cost has not been calculated for short-term transactions for which the effect of the calculations is considered immaterial. Lease payables are restated to take account of any changes in the lease agreement. 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 netting 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 recognised in the income statement. The subsequent re-placement of the securities is considered as a new issue, recognised at the new placement price.

Going concern and uncertainties in the use of estimates

The Bank of Italy, Consob and Isvap Document no. 2 of 6 February 2009 as well as the following Document no. 4 of 3 March 2010 require providing information on business outlook in the financial statements with a special reference to going concern assumptions, financial risk, impairment testing and uncertainties in the use of estimates. The Credito Valtellinese Directors, in the light of the main economic and financial indicators, believe they have a reasonable certainty that the Bank and the Group will remain a going concern in the foreseeable future. Therefore, the condensed interim consolidated financial statements were prepared with a view to the company as a going concern. In this area, note that the Group's activities are focused on implementing the guidelines set out in the 2019-2023 Business Plan presented to the market in June, the objective of which, as specified in the report on operations, is to achieve sustainable and attractive growth and profitability. As regards the requirements relating to the disclosure on financial risks, impairment testing of assets and uncertainties in the use of estimates, please refer to the information provided below within the discussion of the related items.

Information on risks is described in the chapter of the Notes to the condensed interim consolidated financial statements dedicated to risk management. Moreover, the Notes to the condensed interim consolidated financial statements provide the fair value of the financial instruments determined on the basis of the methods indicated in the financial statements at 31 December 2018, document to which reference is made for detailed information. Specific tests were carried out to ascertain any impairment of equity investments, intangible values and goodwill, subject to the analysis of the presence of impairment indicators. These checks were carried out using the same methods and criteria shown in the 2018 financial statements.

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

In order to formulate reasonable estimates and assumptions for the recording of business transactions, subjective evaluations are made also based on historical experience, which use all available information. By their nature, estimates and assumptions used can vary over the years and it cannot therefore be ruled out that in subsequent years the values recorded may vary following the change in the valuations used. 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 listed on active markets;

- to assess the reasonableness of the amount of goodwill and of the other intangible assets;

- to quantify the fair value of properties and artistic 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.

Consolidation scope and methods The condensed interim consolidated financial statements include Credito Valtellinese and the companies directly or indirectly controlled by it. The financial statements used for preparing the condensed interim consolidated financial statements have the same reporting date.

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 can use its power over the investee to affect the amount of the investor's returns. Investments in companies subject to joint control are those in respect of which the Parent, together with other parties subject to the terms of an agreement, has the power of governing the decisions relating to the relevant activities of the agreement, with the unanimous consent of the parties sharing control.

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 shares of equity. The differences arising from this transaction, after recording the subsidiary’s assets and liabilities, are recognised, 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 reporting date and adopting financial reporting standards consistent with the Parent. In case of discrepancy between the measurement criteria adopted by a subsidiary and those used in the consolidated financial statements, the subsidiary's financial statements are adjusted for consolidation purposes.

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 associates and subsidiaries 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. 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. Compared to the financial statements at 31 December 2018, the scope of consolidation at 30 June 2019 changed due to the merger of Creval Sistemi e Servizi Soc. Cons. P. A. into Creval S.p.A. (with legal effect as from 1 January 2019) and due to the merger of Creval PiùFactor S.p.A. into Claris Factor S.p.A., which subsequently changed its name to Creval PiùFactor S.p.A. (with legal effect as from 1 January 2019).

A list of equity investments in fully consolidated subsidiaries is provided in the table below.

Equity investments in companies subject to exclusive control Type of equity Registered Type of investment Company name Operating office office relationship Investor % held company 1. Credito Valtellinese S.p.A. Sondrio Sondrio 2. Stelline Real Estate S.p.A. Sondrio Sondrio 1 1 100.00 3. Creval PiùFactor S.p.A. Milano Milano 1 1 100.00 4. Quadrivio Rmbs 2011 S.r.l. Conegliano Conegliano 4 5. Quadrivio Sme 2018 S.r.l. Conegliano Conegliano 4

Key: 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 39, paragraph 1 of “Italian Legislative Decree no. 136/2015" 6 = sole management pursuant to article 39, paragraph 2 of “Italian Legislative Decree no. 136/2015"

Events after the reporting period

On 6 August 2019, Creval signed a binding agreement for the sale of the loan against pledge to Custodia Valore - Credito su Pegno S.p.A., a company of the Viennese Dorotheum group.

With the completion of the transaction, whose value amounts to EUR 38 million, the Bank will realise a gross capital gain of about EUR 33 million. The transaction, subject to the authorisations of the competent Supervisory Authorities, is expected to be closed by the end of 2019.

Fair value 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.

In particular, the criteria applied to determine the fair value are as follows: - 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.

With regard to the criteria for determining the fair value, please refer to what is contained in the financial statements at 31 December 2018.

Assets and liabilities measured at fair value on a recurring basis: breakdown by level of fair value

Financial assets/liabilities 30/06/2019 31/12/2018 at fair value L1 L2 L3 L1 L2 L3 1. Financial assets at fair value through profit or loss 20,173 17,253 165,374 17,439 25,171 192,768 a) financial assets held for trading 671 14,495 1 17,436 22,573 1 b) financial assets at fair value ------c) other financial assets mandatorily measured at fair value 19,502 2,758 165,373 3 2,598 192,767 2. Financial assets at fair value through other comprehensive income 1,808,755 25,961 40,218 1,851,855 45,334 40,342 3. Hedging derivatives ------4. Property, equipment and investment property - - 24,531 - - 24,531 5. Intangible assets ------Total 1,828,928 43,214 230,123 1,869,294 70,505 257,641 1. Financial liabilities held for trading - 63 - - 64 - 2. Financial liabilities at fair value ------3. Hedging derivatives - 158,934 - - 134,545 - Total - 158,997 - - 134,609 -

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

The transfers among different levels of fair value involve a limited number of positions. In particular, in the first half of 2019, transfers of financial assets from Level 1 to Level 2 were recorded for EUR 5.8 million.

The overall data of the DVA for derivative transactions at 30 June 2019 amounted to EUR 1 thousand, whereas the overall data of the CVA for derivative transactions at 30 June 2019 amounted to EUR 0.5 thousand. The Group has carried out a sensitivity analysis of 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.

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 OEIC units and equity instruments.

Level 3 OEIC units classified in the portfolio of “Financial assets at fair value through profit or loss” mainly include shares of real estate funds and private equity. The Group also holds a share in the Italian Recovery Fund (former Atlante II), managed by Quaestio Capital SGR, whose investment policy is aimed at non-performing loans of a number of Italian banks, by subscribing financial instruments (usually notes of different seniority originating from securitisation transactions, including junior tranches); based on simulations carried out applying various scenarios, only particularly adverse assumptions would lead to a zeroing of the value of the investment of EUR 12.1 million. The value of the real estate OEIC units totalling EUR 66.2 million is exposed to the trend of the domestic real estate market. The sensitivity is estimated on the basis of a historical simulation approach, assuming a reduction in the value of the units equal to the first percentile of the distribution of annual changes in prices of a residential real-estate market index (Italy ISI Property Price Residential) recorded over a 6-year period. The change in the parameter used in the valuation, together with the estimated sensitivity, is shown below.

Financial Non-observable Parameter Sensitivity assets parameter change (in thousands of EUR) Real estate OEIC Trend in prices of the real estate market -271 b.p. -1,794

Moreover, “Financial assets at fair value through profit or loss” also include OEIC units of private equity and private debt that hold financial instruments mainly issued by small and medium enterprises, for an amount of EUR 48.7 million, whose value is mainly affected by the economic situation of the domestic market and for which information is not sufficient to carry out a sensitivity analysis. The item also includes OEIC units of EUR 27.0 million that invest mainly (80%) in past due corporate loans and partly (20%) in senior financial restructuring operations; also in this case, on the basis of the information available, it was not possible to carry out a sensitivity analysis. “Financial assets at fair value through profit or loss” also include the mezzanine and junior tranches coming from the disposal through a securitisation of portfolios of bad loans (Elrond and Aragorn), amounting to EUR 1.4 million and corresponding to 5% of the total amount placed with institutional investors. In consideration of the peculiar characteristics of the operations described above, no fair value sensitivity analyses were carried out.

Annual changes of assets at fair value on a recurring basis (Level 3)

Financial assets at fair value through profit or loss Financial Of which: c) assets at fair Property, of which: other Of which: a) value through Hedging equipment and Intangible b) financial financial other derivatives investment assets Total financial assets assets held comprehensive property assets at mandatorily for trading income fair value measured at fair value

1. Opening balance 192,768 1 - 192,767 40,342 - 24,531 -

2. Increases 22,456 - - 22,456 1 - - -

2.1. Purchases 21,567 - - 21,567 1 - - -

2.2. Gains recognised in: 889 - - 889 - - - -

2.2.1. Profit or loss 889 - - 889 - - - -

- of which gains 889 - - 889 - - - -

2.2.2. Equity - X X X - - - -

2.3. Transfers from other levels ------

2.4. Other increases ------

3. Decreases -49,850 - - -49,850 -125 - - -

3.1. Sales -46,339 - - -46,339 -3 - - -

3.2. Redemptions -115 - - -115 - - - -

3.3. Losses recognised in: -3,363 - - -3,363 -99 - - -

3.3.1. Profit or loss -3,363 - - -3,363 - - - -

- of which losses -3,363 - - -3,363 - - - -

3.3.2. Equity - X X X -99 - - -

3.4. Transfers to other levels ------

3.5. Other decreases -33 - - -33 -23 - - -

4. Closing balance 165,374 1 - 165,373 40,218 - 24,531 -

Annual changes of liabilities at fair value on a recurring basis (Level 3) There are no financial liabilities at fair value on a recurring basis (Level 3).

Breakdown of the main statement of financial position items

ASSETS AND LIABILITIES AT AMORTISED COST

FINANCIAL ASSETS AT AMORTISED COST - ITEM 40

Breakdown by type of item “40 a) Loans and receivables with banks”

30/06/2019

Carrying amount Fair Value

Type of transaction/Amounts of which: acquired Stage 1 Stage 3 or L1 L2 L3 and 2 originated impaired

A. Loans and Receivables with Central Banks 393,791 - - - - 393,791

1. Term deposits - - - X X X

2. Obligatory reserve 393,791 - - X X X

3. Repurchase agreements - - - X X X

4. Other - - - X X X

B. Loans and receivables with banks 857,890 - - 96,534 297,859 466,046

1. Loans 757,120 - - - 293,639 466,046

1.1 Current accounts and sight deposits 41,967 - - X X X

1.2 Term deposits 976 - - X X X

1.3 Other loans: 714,177 - - X X X

- Reverse repurchase agreements 292,749 - - X X X

- Financial leases - - - X X X

- Other 421,428 - - X X X

2. Debt instruments 100,770 - - 96,534 4,220 -

2.1 Structured instruments - - - X X X

2.2 Other debt instruments 100,770 - - X X X

Total 1,251,681 - - 96,534 297,859 859,837

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

The item “1.3 Other loans” mainly includes the items related to the Quadrivio RMBS 2011 and Quadrivio SME 2018 securitisation transactions and margin trading on existing derivatives.

31/12/2018

Carrying amount Fair Value

Type of transaction/Amounts of which: acquired Stage 1 and Stage 3 or L1 L2 L3 2 originated impaired A. Loans and Receivables with Central Banks 307,347 - - - - 307,347

1. Term deposits - - - X X X

2. Obligatory reserve 307,347 - - X X X

3. Repurchase agreements - - - X X X

4. Other - - - X X X

B. Loans and receivables with banks 898,578 - - 100,689 290,339 502,438

1. Loans 793,774 - - - 286,152 502,438

1.1 Current accounts and sight deposits 46,310 - - X X X

1.2 Term deposits 251 - - X X X

1.3 Other loans: 747,213 - - X X X

- Reverse repurchase agreements 287,841 - - X X X

- Financial leases - - - X X X

- Other 459,372 - - X X X

2. Debt instruments 104,804 - - 100,689 4,187 -

2.1 Structured instruments - - - X X X

2.2 Other debt instruments 104,804 - - X X X

Total 1,205,925 - - 100,689 290,339 809,785

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

Breakdown by type of item “40 b) loans and receivables with customers”

30/06/2019

Carrying amount Fair Value

of which: Type of transaction/Amounts Stage 1 acquired or and 2 Stage 3 L1 L2 L3 originated

impaired 1. Loans 13,812,770 794,402 11,034 - - 15,424,328

1.1 Current accounts 2,035,320 214,852 - X X X

1.2 Reverse repurchase agreements - - - X X X

1.3 Mortgages 9,928,733 452,003 - X X X

1.4 Credit cards, personal loans and salary-backed loans 143,194 10,435 - X X X

1.5 Financial leases 302,926 50,218 - X X X

1.6 Factoring 155,521 14,285 10,438 X X X

1.7 Other loans 1,247,076 52,609 596 X X X

2. Debt instruments 5,149,976 - - 4,031,485 23,884 980,227

2.1 Structured instruments - - - X X X

2.2 Other debt instruments 5,149,976 - - X X X

Total 18,962,746 794,402 11,034 4,031,485 23,884 16,404,555

Key: L1 = Level 1 L2 = Level 2 L3 = Level 3 Item “1.7. Other loans” includes instalment and non-instalment sundry facilities of EUR 519,140 thousand, loans for advances on bills of EUR 272,082 thousand, loans and receivables to Cassa Compensazione other than repurchase agreements of EUR 105,773 thousand and import and export loans of EUR 255,705 thousand.

31/12/2018

Carrying amount Fair Value

Type of transaction/Amounts of which: Stage 1 acquired or Stage 3 L1 L2 L3 and 2 originated impaired 1. Loans 14,789,836 871,183 11,522 - 435,541 15,788,689

1.1 Current accounts 2,185,395 245,465 - X X X

1.2 Reverse repurchase agreements 435,673 - - X X X

1.3 Mortgages 9,808,860 484,887 - X X X

1.4 Credit cards, personal loans and salary-backed loans 189,104 13,733 - X X X

1.5 Financial leases 323,328 51,754 - X X X

1.6 Factoring 165,565 12,619 10,569 X X X

1.7 Other loans 1,681,911 62,725 953 X X X

2. Debt instruments 5,752,074 - - 4,524,221 16,436 1,011,803

2.1 Structured instruments - - - X X X

2.2 Other debt instruments 5,752,074 - - X X X

Total 20,541,910 871,183 11,522 4,524,221 451,977 16,800,492

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

Breakdown by debtor/issuer of item “40 b) Loans and receivables with customers”

30/06/2019 31/12/2018

of which: of which: Type of transaction/Amounts Stage 1 and Stage acquired or Stage 1 and Stage acquired or 2 3 originated 2 3 originated impaired assets impaired assets

1. Debt instruments 5,149,976 - - 5,752,074 - -

a) Public administrations 4,088,335 - - 4,621,547 - -

b) Other financial companies 990,301 - - 1,058,629 - -

of which: insurance companies 5,220 - - 5,130 - -

c) Non-financial companies 71,340 - - 71,898 - -

2. Loans to: 13,812,770 794,402 11,034 14,789,836 871,183 11,522

a) Public administrations 181,397 919 602 260,061 872 595

b) Other financial companies 1,233,761 31,099 - 1,898,796 36,154 -

of which: insurance companies 2,480 - - 2,468 - -

c) Non-financial companies 7,223,000 572,209 10,348 7,526,405 607,127 10,724

d) Households 5,174,612 190,175 84 5,104,574 227,030 203

Total 18,962,746 794,402 11,034 20,541,910 871,183 11,522

Breakdown of gross value and total value adjustments of item “40 b) loans and receivables with customers”

30/06/2019

Gross value

Stage 2 Stage 3 Total Stage 1

of which: Instruments

with low credit risk

Debt instruments 5,252,732 43,525 - 2,101 5,254,833

Loans 13,560,168 521,439 1,494,972 1,930,806 16,985,946

Total at 30/06/2019 18,812,900 564,964 1,494,972 1,932,907 22,240,779

Total at 31/12/2018 20,199,616 229,203 1,653,049 1,976,118 23,828,783

of which: acquired or originated impaired financial X X 3 28,253 28,256 assets

30/06/2019

Total partial

write-offs* Total impairment losses

Stage Stage 1 Stage 2 Total Total 3

Debt instruments -1,986 - -2,101 -4,087 -

Loans -26,307 -65,152 -1,136,404 -1,227,863 149,641

Total at 30/06/2019 -28,293 -65,152 -1,138,505 -1,231,950 149,641

Total at 31/12/2018 -42,461 -62,369 -1,104,935 -1,209,765 130,247

of which: acquired or originated impaired financial X - -17,222 -17,222 1,217 assets *Value to be shown for information purposes

FINANCIAL LIABILITIES AT AMORTISED COST - ITEM 10 Financial liabilities at amortised cost: breakdown by type of due to banks

30/06/2019 31/12/2018

Type of transaction/Amounts Fair Value Fair Value CA CA

L1 L2 L3 L1 L2 L3

1. Due to central banks 2,500,213 X X X 2,501,222 X X X

2. Due to banks 732,736 X X X 1,595,009 X X X

2.1 Current accounts and sight deposits 61,020 X X X 216,399 X X X

2.2 Term deposits 2,000 X X X 1,001 X X X

2.3 Loans 643,522 X X X 1,365,605 X X X

2.3.1 Repurchase agreements 598,717 X X X 1,313,287 X X X

2.3.2 Other 44,805 X X X 52,318 X X X

2.4 Payables for commitments to repurchase own equity instruments - X X X - X X X

2.5 Lease payables 16 X X X - X X X

2.6 Other payables 26,178 X X X 12,004 X X X

Total 3,232,949 - 3,112,879 131,411 4,096,231 - 3,810,582 277,223

Key: CA = carrying amount L1 = Level 1 L2 = Level 2 L3 = Level 3 The item “2.3.2 Loans – other” mainly includes loans received from the European Investment Bank. 62

Financial liabilities at amortised cost: breakdown by type of due to customers

30/06/2019 31/12/2018

Type of transaction/Amounts Fair Value Fair Value CA CA

L1 L2 L3 L1 L2 L3

1. Current accounts and sight 12,840,573 X X X 12,880,570 X X X deposits

2. Term deposits 2,675,479 X X X 1,309,565 X X X

3. Loans 2,291,055 X X X 4,131,384 X X X

3.1. Repurchase agreements 1,892,097 X X X 3,701,406 X X X

3.2. Other 398,958 X X X 429,978 X X X

4. Payables for commitments to repurchase own equity instruments - X X X - X X X

5. Lease payables 164,800 X X X - X X X

6. Other payables 63,762 X X X 73,769 X X X

Total 18,035,669 - 4,592,839 13,469,730 18,395,288 - 4,991,935 13,382,045 Key: CA = carrying amount L1 = Level 1 L2 = Level 2 L3 = Level 3

Item “3.1 Repurchase agreements” mainly contains transactions with Cassa Compensazione e Garanzia. The item “3.2 Loans - other” refers mainly to medium to long-term loans received by Cassa Depositi e Prestiti following the agreement between ABI and Cassa Depositi e Prestiti in support of SMEs.

Financial liabilities at amortised cost: breakdown by type of securities issued

30/06/2019 31/12/2018

Type of Fair Value Fair Value instrument/Amounts CA CA

L1 L2 L3 L1 L2 L3

A. Securities

1. bonds 1,098,150 - 702,295 326,804 1,437,692 - 1,081,965 339,861

1.1 structured ------

1.2 other 1,098,150 - 702,295 326,804 1,437,692 - 1,081,965 339,861

2. other securities 97,913 - 97,913 - 111,692 - 111,692 -

2.1 structured ------

2.2 other 97,913 - 97,913 - 111,692 - 111,692 -

Total 1,196,063 - 800,208 326,804 1,549,384 - 1,193,657 339,861

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

Financial instruments indicated in Level 3 at 30 June 2019 refer to the securities sold in relation to the Quadrivio RMBS 2011 and Quadrivio SME 2018 securitisations.

THE FINANCIAL INSTRUMENTS

FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Breakdown by type of item “20 a) Financial assets held for trading”

30/06/2019 31/12/2018 Item/Amounts L1 L2 L3 L1 L2 L3 A. On-statement of financial position assets

1. Debt instruments 9 199 - 10,693 301 -

1.1 Structured instruments ------

1.2 Other debt instruments 9 199 - 10,693 301 -

2. Equity instruments 309 1,865 1 6,743 1,840 1

3. OEIC units 353 12,200 - - 20,372 -

4. Loans ------

4.1 Reverse repurchase agreements ------

4.2 Other ------

Total (A) 671 14,264 1 17,436 22,513 1

B. Derivatives

1. Financial derivatives - 231 - - 60 -

1.1 trading - 231 - - 60 -

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) - 231 - - 60 -

Total (A+B) 671 14,495 1 17,436 22,573 1 Key: L1 = Level 1 L2 = Level 2 L3 = Level 3

Breakdown by debtor/issuer/counterparties of item “20 a) Financial assets held for trading” Item/Amounts 30/06/2019 31/12/2018 A. On-statement of financial position assets 1. Debt instruments 208 10,994 a) Central Banks - - b) Public administrations 204 10,990 c) Banks 4 4 d) Other financial companies - - of which: insurance companies - - e) Non-financial companies - - 2. Equity instruments 2,175 8,584 a) Banks - 1,791 b) Other financial companies 955 2,565 of which: insurance companies - - c) Non-financial companies 1,220 4,228 d) Other issuers - - 3. OEIC units 12,553 20,372 4. Loans - - a) Central Banks - - b) Public administrations - - c) Banks - - d) Other financial companies - - of which: insurance companies - - e) Non-financial companies - - f) Households - - Total (A) 14,936 39,950 B. Derivatives a) Central counterparties - - b) Other 231 60 Total (B) 231 60 Total (A+B) 15,167 40,010

Bonds issued by Public administrations are mainly represented by exposures towards the Italian Government.

Breakdown by type of item “20 c) Other financial assets mandatorily measured at fair value"

30/06/2019 31/12/2018 Item/Amounts L1 L2 L3 L1 L2 L3 1. Debt instruments - - 2,378 - - 2,526 1.1 Structured instruments ------1.2 Other debt instruments - - 2,378 - - 2,526 2. Equity instruments 19,502 2,758 9,008 3 2,598 50,942 3. OEIC units - - 153,987 - - 139,299 4. Loans ------4.1 Reverse repurchase agreements ------4.2 Other ------Total 19,502 2,758 165,373 3 2,598 192,767 Key: L1 = Level 1 L2 = Level 2 L3 = Level 3

Breakdown by debtor/issuer of item “20 c) Other financial assets mandatorily measured at fair value" Item/Amounts 30/06/2019 31/12/2018 1. Equity instruments 31,268 53,543 of which: banks 9,008 9,008 of which: other financial companies 22,257 44,532 of which: non-financial companies 3 3 2. Debt instruments 2,378 2,526 a) Central Banks - - b) Public administrations - - c) Banks - - d) Other financial companies 1,655 1,687 of which: insurance companies - - e) Non-financial companies 723 839 3. OEIC units 153,987 139,299 4. Loans - - a) Central Banks - - b) Public administrations - - c) Banks - - d) Other financial companies - - of which: insurance companies - - e) Non-financial companies - - f) Households - - Total 187,633 195,368

Financial liabilities held for trading: breakdown by type

30/06/2019 Type of transaction/Amounts FV NV FV* L1 L2 L3 A. On-statement of financial position liabilities 1. Due to banks - - - - - 2. Due to customers - - - - - 3. Debt instruments 3.1 Bonds 3.1.1 Structured - - - - X 3.1.2 Other bonds - - - - X 3.2 Other securities 3.2.1 Structured - - - - X 3.2.2 Other - - - - X Total (A) - - - - - B. Derivatives 1. Financial derivatives - 1.1 Trading X - 63 - X 1.2 associated with fair value option X - - - X 1.3 Other X - - - X 2. Credit derivatives 2.1 Trading X - - - X 2.2 associated with fair value option X - - - X 2.3 Other X - - - X Total B X - 63 - X Total (A+B) - - 63 - -

Key: FV = fair value FV* = fair value calculated by excluding changes in value due to change in creditworthiness of the issuer with respect to the issue date NV = nominal value L1 = Level 1 L2 = Level 2 L3 = Level 3

31/12/2018

Type of transaction/Amounts FV NV FV* L1 L2 L3 A. On-statement of financial position liabilities 1. Due to banks - - - - - 2. Due to customers - - - - - 3.Debt instruments 3.1 Bonds 3.1.1 Structured - - - - X 3.1.2 Other bonds - - - - X 3.2 Other securities 3.2.1 Structured - - - - X 3.2.2 Other - - - - X Total (A) - - - - - B. Derivatives 1. Financial derivatives 1.1 Trading X - 64 - X 1.2 associated with fair value option X - - - X 1.3 Other X - - - X 2. Credit derivatives 2.1 Trading X - - - X 2.2 associated with fair value option X - - - X 2.3 Other X - - - X Total B X - 64 - X Total (A+B) X - 64 - X

Hedging derivatives: breakdown by type of hedge and level

30/06/2019 31/12/2018

Fair value Fair value NV NV L1 L2 L3 L1 L2 L3 A. Financial derivatives - 158,934 - 300,000 - 134,545 - 300,000 1) Fair value - 158,934 - 300,000 - 134,545 - 300,000 2) Cash flows ------3) Investments in foreign ------operations B. Credit derivatives ------1) Fair value ------2) Cash flows ------Total - 158,934 - 300,000 - 134,545 - 300,000

Key: NV = notional value L1 = Level 1 L2 = Level 2 L3 = Level 3

FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - ITEM 30

Breakdown by type of item “30 financial assets at fair value through other comprehensive income”

30/06/2019 31/12/2018 Item/Amounts L 1 L 2 L 3 L 1 L 2 L 3 1. Debt instruments 1,805,488 5,850 - 1,849,247 25,678 - 1.1 Structured instruments ------1.2 Other debt instruments 1,805,488 5,850 - 1,849,247 25,678 - 2. Equity instruments 3,267 20,111 40,218 2,608 19,656 40,342 3. Loans ------Total 1,808,755 25,961 40,218 1,851,855 45,334 40,342

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

Breakdown by debtor/issuer of item “30 financial assets at fair value through other comprehensive income”

Item/Amounts 30/06/2019 31/12/2018 1. Debt instruments 1,811,338 1,874,925 a) Central Banks - - b) Public administrations 1,611,964 1,635,816 c) Banks 155,380 167,961 d) Other financial companies 33,827 61,624 of which: insurance companies 3,386 2,909 e) Non-financial companies 10,167 9,524 2. Equity instruments 63,596 62,606 a) Banks 22,711 22,279 b) Other issuers: 40,885 40,327 - other financial companies 35,239 35,270 of which: insurance companies - - - non-financial companies 5,646 5,057 - other - - 3. Loans - - a) Central Banks - - b) Public administrations - - c) Banks - - d) Other financial companies - - of which: insurance companies - - e) Non-financial companies - - f) Households - - Total 1,874,934 1,937,531

EQUITY INVESTMENTS - ITEM 70

Information on the investment shares

Type of equity Type of Registere investment Name Operating office relationsh % Voting rights d office ip (1) Investor % company held

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

2. Valtellina Golf Club S.p.A Caiolo Caiolo 2 Credito Valtellinese 43.08 -

3. Generalfinance S.p.A. Milano Milano 2 Credito Valtellinese 46.81 -

4. Global Broker S.p.A. Milano Milano 2 Credito Valtellinese 30.00 -

(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.

No impairment adjustments were recorded on the equity investments indicated above.

OTHER ASSET AND LIABILITY ITEMS PROPERTY, EQUIPMENT AND INVESTMENT PROPERTY - ITEM 90

Breakdown of item “90. Property, equipment and investment property - operational property, equipment and investment property”

Asset/Amounts 30/06/2019 31/12/2018 1. Owned 276,436 309,326 a) land 42,959 49,746 b) buildings 197,020 222,203 c) furniture 28,577 28,971 d) electronic systems 4,144 3,831 e) other 3,736 4,575 2. Rights of use acquired through the lease 164,549 - a) land - - b) buildings 152,823 - c) furniture - - d) electronic systems 10,088 - e) other 1,638 -

Total 440,985 309,326

of which: obtained through the realisation of guarantees received - -

Breakdown of item “90. Property, equipment and investment property - property, equipment and investment property held for investment measured at cost”

30/06/2019 31/12/2018 Carryin Fair value Carryin Fair value Asset/Amounts g g L1 L2 L3 amount L1 L2 L3 amount 1. Owned 99,263 - - 125,504 74,511 - - 89,411

a) land 16,240 - - 20,878 9,367 - - 10,207

b) buildings 83,023 - - 104,626 65,144 - - 79,204

2. Rights of use acquired through the ------lease

a) land ------

b) buildings ------

Total 99,263 - - 125,504 74,511 - - 89,411 of which: obtained through the realisation 26,800 - - 31,289 26,686 - - 30,386 of guarantees received

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

Breakdown of inventories of property, equipment and investment property regulated by IAS 2

Asset/Amounts 30/06/2019 31/12/2018 1. Inventories of property, equipment and investment property obtained through the realisation of guarantees received 23,014 23,144 a) land 5,201 5,044 b) buildings 17,813 18,100 c) furniture - - d) electronic systems - - e) other - - 2. Other inventories of property, equipment and investment property 27,525 25,592 Total 50,539 48,736 of which: measured at fair value net of costs of sale - -

INTANGIBLE ASSETS - ITEM 100

Intangible assets: breakdown by type

30/06/2019 31/12/2018 Asset/Amounts Definite life Indefinite life Definite life Indefinite life A.1 Goodwill X - X - A.1.1 attributable to owners of the parent X - X - A.1.2 attributable to non-controlling interests X - X - A.2 Other intangible assets 18,390 - 15,069 - A.2.1 Assets measured at cost: 18,390 - 15,069 - a) Internally generated intangible assets 6,046 - 9,520 - b) Other assets 12,344 - 5,549 - A.2.2 Assets measured at fair value: - - - - a) Internally generated intangible assets - - - - b) Other assets - - - - Total 18,390 - 15,069 -

DEFERRED TAX ASSETS The recognition of deferred tax assets, other than those that can be transformed into tax asset, is strictly related to the Group's ability to generate large future taxable income. The probability test was carried out for recognition purposes.

The test consists in simulating the ability to recover the deductible temporary differences and tax losses accrued at the end of the reporting period with future taxable income. The estimate of future tax income was made on the basis of the new 2019-2023 business plan approved in June, by applying increasing corrective factors to the probabilities of future economic results manifesting themselves.

At 30 June 2019, deferred tax assets depending on tax losses amounted to approximately EUR 50 million (compared to EUR 15 million at 31 December 2018). At 30 June, deferred tax assets on unrecognised tax losses totalled approximately EUR 220 million. In any case, the tax benefit may be recorded in subsequent financial years when the requirement of the probability of its recovery with future taxable income is verified following the passing of a new probability test.

OTHER ASSETS - ITEM 130

Other assets: breakdown

30/06/2019 31/12/2018 Amounts due from the tax authorities 38,922 40,099 Cheques drawn on the bank to be settled 24,226 32,000 Counterparts for securities and coupon payments to be received 1,502 970 Sundry items to be charged to customers and banks 117,887 69,600 Value date differences on portfolio transactions 12,693 - Costs and advances pending financial allocation 1,285 7,858 Receivables related to the supply of goods and services 6,744 3,203 Leasehold improvements 5,022 3,260 Accruals not recorded separately 215 218 Other items 82,154 33,178 Total 290,650 190,386

OTHER LIABILITIES - ITEM 80

Other liabilities: breakdown

30/06/2019 31/12/2018 Amounts due to tax authorities for indirect taxes 3,049 2,369 Amounts due to social security and welfare institutions 8,184 10,793 Amounts due to government agencies on behalf of third parties 101,973 39,147 Sundry items to be credited to customers and banks 32,056 50,519 Amounts available to customers 40,541 43,842 Amounts payable to employees 12,599 8,199 Value date differences on portfolio transactions 128,573 150,553 Items in transit between branches 414 1,269 Accruals other than those capitalised 1,870 2,317 Payables related to the supply of goods and services 30,357 30,576

Share-based payment plans - IFRS 2 634 - Sundry and residual items 179,248 152,155 Total 539,498 491,739

PROVISIONS FOR RISKS AND CHARGES - ITEM 100

Provisions for risks and charges: breakdown

Item/Amounts 30/06/2019 31/12/2018 1. Provisions for credit risk relating to commitments and guarantees given 6,670 7,636 2. Provisions on other commitments and other guarantees given 9,858 8,179 3. Company pension funds 37,394 35,669 4. Other provisions for risks and charges 148,013 144,165 4.1 legal and tax disputes 39,823 38,070 4.2 personnel expenses 96,404 98,883 4.3 other 11,786 7,212 Total 201,935 195,649

NON-CURRENT ASSETS HELD FOR SALE AND DISPOSAL GROUPS AND ASSOCIATED LIABILITIES - ITEM 120 UNDER ASSETS AND ITEM 70 UNDER LIABILITIES

Non-current assets held for sale and disposal groups: breakdown by type

30/06/2019 31/12/2018 A. Assets held for sale A.1 Financial assets 78,102 70,369 A.2 Equity investments 3,316 775 A.3 Property, equipment and investment property 3,205 2,751 of which: obtained through the realisation of guarantees received 2,399 1,074 A.4 Intangible assets - - A.5 Other non-current assets 1,476 1,653 Total A 86,099 75,548 of which measured at cost 2,615 2,424 of which measured at Level 1 fair value - - of which measured at Level 2 fair value - - of which measured at Level 3 fair value 83,484 73,124 C. Liabilities included in disposal groups classified as held for sale - - C.1 Payables - - C.2 Securities - - C.3 Other liabilities 2,347 2,271 Total C 2,347 2,271 of which measured at cost 2,347 2,271 of which measured at Level 1 fair value - - of which measured at Level 2 fair value - - of which measured at Level 3 fair value - -

The item “A.1 Financial assets” includes shares and loans and receivables with customers whose value will be recovered mainly with a sale no later than 12 months rather than with their continuous use. In particular, it includes loans and receivables with customers relating to the sale of loans against pledges.

Item "A.2 Equity investments" includes the equity investments in Adamello S.p.A., held by Stelline Real Estate S.p.A. and Creset - Crediti, Servizi e Tecnologie S.p.A., held by Credito Valtellinese S.p.A. Item “A.3 Property, equipment and investment property” includes investment properties for which preliminary sale agreements were signed as well as other property, equipment and investment property relating to the sale of loans against pledges.

GROUP EQUITY - ITEMS 120, 150, 160, 170 AND 180

Information on Group share capital and reserves At 30 June 2019, equity attributable to the owners of the parent amounted to EUR 1,614 million, compared to EUR 1,566 million at the end of December 2018. The main changes during the year are mainly attributable, in addition to the recognition of the result for the period, to the positive change in valuation reserves of EUR 18.5 million. This change is mainly attributable to the positive change in the reserve for Financial assets

74 at fair value through other comprehensive income of EUR 21.4 million and the negative change in actuarial reserves of EUR 2.8 million. The share capital of Credito Valtellinese amounted to EUR 1,916.8 million. At 30 June 2019, the portfolio contained 600 treasury shares of EUR 100 thousand. No purchase or sale was put in place during the financial year.

Information on share capital - number of shares: annual changes

2019 Items/Types Ordinary Other A. Shares at the beginning of the year 7,014,969,446 - - fully paid-up 7,014,969,446 - - not fully paid-up - - A.1 Treasury shares (-) -600 - A.2 Outstanding shares: opening balance 7,014,968,846 - 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 7,014,968,846 - D.1 Treasury shares (+) 600 - D.2 Shares outstanding at the end of the year 7,014,969,446 - - fully paid-up 7,014,969,446 - - not fully paid-up - -

OTHER INFORMATION

Commitments and financial guarantees given

30/06/2019 31/12/2018

Notional value on commitments and financial guarantees given Total Total Stage 1 Stage 2 Stage 3 1. Commitments to disburse funds 4,875,356 81,365 51,177 5,007,898 5,182,782 a) Central Banks - - - - - b) Public administrations 320,730 - - 320,730 262,346 c) Banks 1,705 5,083 - 6,788 21,873 d) Other financial companies 241,364 479 1,382 243,225 376,989 e) Non-financial companies 3,704,918 49,008 48,842 3,802,768 3,862,059 f) Households 606,639 26,795 953 634,387 659,515 2. Financial guarantees given 202,725 3,578 3,177 209,480 214,261 a) Central Banks - - - - - b) Public administrations - - - - - c) Banks 44,820 - - 44,820 44,894 d) Other financial companies 799 17 - 816 831 e) Non-financial companies 150,131 2,736 2,800 155,667 159,843 f) Households 6,975 825 377 8,177 8,693

Other commitments and other guarantees given

30/06/2019 31/12/2018 1. Other guarantees given 499,948 533,825 of which: non-performing loans 26,196 29,050 a) Central Banks - - b) Public administrations 3,170 3,083 c) Banks 8,446 13,756 d) Other financial companies 12,850 16,039 e) Non-financial companies 436,560 456,280 f) Households 38,922 44,667 2. Other commitments 49,086 62,743 of which: non-performing loans - - a) Central Banks - - b) Public administrations 1,340 1,340 c) Banks - - d) Other financial companies 47,735 60,607 e) Non-financial companies 11 796 f) Households - -

Assets pledged as guarantee for the Bank's liabilities and commitments

Portfolios 30/06/2019 31/12/2018 1. Financial assets at fair value through profit or loss - 10,684 2. Financial assets at fair value through other comprehensive income 614,757 1,299,277 3. Financial assets at amortised cost 7,961,092 10,004,624 4. Property, equipment and investment property - - of which: property, equipment and investment property that constitute inventories - -

The assets indicated above were used as a guarantee for funding repurchase agreements, issue of bank drafts, derivatives as well as the loan received from the European Central Bank, of loans received from the European Investment Bank and from Cassa Depositi e Prestiti.

BREAKDOWN OF THE MAIN INCOME STATEMENT ITEMS

INTEREST - ITEMS 10 AND 20

Interest and similar income: breakdown

Other Debt 1st half of 1st half of Items/Technical forms Loans transaction Change instruments 2019 2018 s 1. Financial assets at fair value through profit or loss 184 - - 184 164 12.20% 1.1 Financial assets held for trading 8 - - 8 67 -88.06% 1.2 Financial assets at fair - value - - - - - 1.3 Other financial assets mandatorily measured at fair value 176 - - 176 97 81.44% 2. Financial assets at fair value through other comprehensive income 4,520 - X 4,520 5,421 -16.62% 3. Financial liabilities at amortised cost 33,534 186,860 220,394 224,106 -1.66% 3.1 Loans and receivables with banks 927 796 X 1,723 547 214.99% 3.2 Loans and receivables with 32,607 186,064 X 218,671 223,559 -2.19% customers 4. Hedging derivatives X X (6,754) (6,754) (6,967) -3.06% 5. Other assets X X - - 187 -100.00% 6. Financial liabilities X X X 5,858 5,492 6.66% Total 38,238 186,860 (6,754) 224,202 228,403 -1.84% of which: interest income on impaired financial assets - 23,387 - 23,387 37,108 -36.98%

Interest and similar expense: breakdown

1st Other 1st half Items/Technical forms Payables Securities half of Change transactions of 2019 2018

1. Financial liabilities at amortised cost:

1.1 Due to central banks - X X - - -

1.2 Due to banks (3,278) X X (3,278) (2,800) 17.07%

1.3 Due to customers (25,951) X X (25,951) (17,555) 47.83%

1.4 Securities issued X (14,355) X (14,355) (26,552) -45.94%

2. Financial liabilities held for trading - - - - (16) -100.00%

3. Financial liabilities at fair value ------

4. Other liabilities and provisions X X - - - -

5. Hedging derivatives X X - - - -

6. Financial assets X X X (2,045) (2,601) -21.38%

Total (29,229) (14,355) - (45,629) (49,524) -7.86%

FEES AND COMMISSIONS - ITEMS 40 AND 50

Fee and commission income: breakdown

1st half 1st half Type of services/Amounts Change of 2019 of 2018 a) guarantees given 3,081 2,972 3.67% b) credit derivatives - - - c) management, trading and consulting services: 41,684 54,756 -23.87% 1. trading of financial instruments - 1 -100.00% 2. currency trading 1,807 1,837 -1.63% 3. portfolio management - - - 3.1 individual - - - 3.2 collective - - - 4. custody and administration of securities 297 334 -11.08% 5. custodian bank - - - 6. placement of securities 16,357 25,729 -36.43% 7. order acceptance and transmission 2,015 2,667 -24.45% 8. consulting services 1,539 453 239.74% 8.1 on investments - - - 8.2 on financial structuring 1,539 453 239.74% 9. distribution of third party services 19,669 23,735 -17.13% 9.1. portfolio management 4,453 6,093 -26.92% 9.1.1. individual 4,453 6,093 -26.92% 9.1.2. collective - - - 9.2. insurance products 11,464 15,075 -23.95% 9.3. other products 3,752 2,567 46.16% d) collection and payment services 38,327 39,376 -2.66% e) servicing for securitisation transactions - - - f) factoring transaction services 1,770 24 n.s. g) tax collection services - - - h) management of multilateral trading facilities - - - i) current account management 26,428 27,981 -5.55% j) other services 28,043 29,086 -3.59% Total 139,333 154,195 -9.64%

Fee and commission income included under “j) other services” mainly refers to commissions on arranged overdraft of EUR 18,014 thousand, commissions for loans origination deriving from financial assets not designated at fair value through profit or loss of EUR 2,646 thousand and commissions for rights and pledges of EUR 1,810 thousand.

Fee and commission expense: breakdown

1st half 1st half Services/Amounts Change of 2019 of 2018 a) guarantees received (1,236) (1,461) -15.40% b) credit derivatives - - - c) management and trading services: (466) (549) -15.12% 1. trading of financial instruments (1) (13) -92.31% 2. currency trading - (1) -100.00% 3. portfolio management - - - 3.1 own account - - - 3.2 for third parties - - - 4. custody and administration of securities (465) (535) -13.08% 5. placement of financial instruments - - - 6. off-premises provision of financial instruments, products and services - - - d) collection and payment services (12,924) (12,124) 6.60% e) other services (900) (639) 40.85% Total (15,526) (14,773) 5.10%

DIVIDENDS AND SIMILAR INCOME - ITEM 70

Dividends and similar income: breakdown

1st half of 2019 1st half of 2018 Change Items/Income Dividend Similar Dividend Similar Dividend Similar s income s income s income A. Financial assets held for trading 17 152 713 - -97.62% - B. Other financial assets mandatorily - measured at fair value - 381 781 - -100.00% C. Financial assets at fair value through - other comprehensive income 374 - 373 - 0.27% D. Equity investments - - - - - Total 391 533 1,867 - -79.06% -

PROFITS (LOSSES) ON TRADING - ITEM 80

Profits (Losses) on trading: breakdown

Profits (Losses) on Trading Trading Transactions/Income components Gains (A) Losses (C) trading income (B) losses (D) [(A+B)- (C+D)]

1. Financial assets held for trading 877 1,310 (70) (468) 1,649

1.1 Debt instruments - 66 (4) (5) 57

1.2 Equity instruments 75 490 (35) (165) 365

1.3 OEIC units 802 754 (31) (298) 1,227

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: exchange rate X X X X 200 differences

4. Derivatives 110 24 (1) (5) 1,022

4.1 Financial derivatives:

- On debt instruments and interest rates - 24 (1) (5) 18

- On equity instruments and stock market share 110 - - - 110 indices

- On currencies and gold X X X X 894

- Other - - - - -

4.2 Credit derivatives - - - - -

of which: natural hedges associated with fair value option X X X X -

Total 987 1,334 (71) (473) 2,871

NET HEDGING INCOME (EXPENSE) – ITEM 90

Net hedging income (expense): breakdown

1st half of 1st half of Income components/Amounts Change 2019 2018 A. Gains on: A.1 Fair value hedges - 2,349 -100.00% A.2 Financial assets with fair value hedges 25,072 364 n.s. 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) 25,072 2,713 n.s. B. Losses on: B.1 Fair value hedges (25,056) (94) n.s. B.2 Financial assets with fair value hedges - (2,669) -100.00% 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) (25,056) (2,763) n.s. C. Net hedging expense (A-B) 16 (50) -132.00% of which: result of hedges on net positions - - -

PROFIT (LOSS) ON SALE/REPURCHASE - ITEM 100

Profit (loss) on sale/re-purchase: breakdown

1st half of 2019 1st half of 2018 Items/Income components Net profit Net profit Profit Losses Profit Losses (losses) (losses) A. Financial assets 1. Financial assets at amortised cost 1.1 Loans and receivables with banks ------1.2 Loans and receivables with customers 9,731 (3,439) 6,292 125,013 (220,233) (95,220) 2. Financial assets at fair value through

other comprehensive income 2.1 Debt instruments 2,583 (2,092) 491 26,809 (9,349) 17,460 2.2 Loans ------Total assets (A) 12,314 (5,531) 6,783 151,822 (229,582) (77,760) B. Financial liabilities at

amortised cost 1. Due to banks ------2. Due to customers ------3. Securities issued - - - 76 (5) 71 Total liabilities (B) - - - 76 (5) 71

PROFITS (LOSSES) ON OTHER ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS – ITEM 110

Net change in value of other financial assets and liabilities at fair value through profit or loss: breakdown of financial assets and liabilities mandatorily measured at fair value

Net profit Losses Profit (losses) Transactions/Income components Gains (A) Losses (C) on sales on sales (B) [(A+B)- (D) (C+D)] 1. Financial assets 7,968 14,940 (3,509) (2) 19,397 1.1 Debt instruments - - - - - 1.2 Equity instruments 7,079 14,940 (146) (2) 21,871 1.3 OEIC units 889 - (3,363) - (2,474) 1.4 Loans - - - - - 2. Financial assets: exchange rate X X X X - differences Total 7,968 14,940 (3,509) (2) 19,397

NET IMPAIRMENT LOSSES FOR CREDIT RISK - ITEM 130

Net impairment losses for credit risk relating to financial assets at amortised cost: breakdown

Reversals of 1st half 1st half of Impairment losses (1) impairment losses of 2019 2018 Transactions/ (2) Income components Stage 3 Stage 1 Stage 1 and Stage 3 Total Total and 2 Write-off Other 2

A. Loans and receivables with banks (26) - - 6,659 - 6,633 (228)

- Loans (2) - - 6,083 - 6,081 (228)

- Debt instruments (24) - - 576 - 552 -

of which: acquired or originated impaired loans ------

B. Loans and receivables with (180) (11,140) (173,952) 4,799 72,087 (108,386) 24,546 customers

- Loans (107) (11,140) (173,952) 4,101 72,087 (109,011) 27,126

- Debt instruments (73) - - 698 - 625 (2,580)

of which: acquired or originated impaired loans - (1) (1,991) - 166 (1,826) -

Total (206) (11,140) (173,952) 11,458 72,087 (101,753) 24,318

The increase in adjustments to Loans and receivables with customers includes the extraordinary effect of the inclusion in the valuation of non-performing loans of sales scenarios in line with the sale of NPL as envisaged in the 2019-2023 Business Plan.

Net impairment losses for credit risk relating to financial assets at fair value through other comprehensive income: breakdown

Reversals of 1st 1st Impairment losses (1) impairment half of half of losses (2) 2019 2018 Transactions/Income components Stage 3 Stage 1 Stage 1 Stage Write- and Total Total and 2 Other 3 off 2 A. Debt instruments (115) - - 655 - 540 (1,458) B. Loans ------with customers ------with banks ------

of which: acquired or originated impaired financial assets ------Total (115) - - 655 - 540 (1,458)

ADMINISTRATIVE EXPENSES - ITEM 190

Personnel expenses: breakdown

1st half of 1st half Type of expense/Amounts Change 2019 of 2018 1) Employees (135,235) (190,323) -28.94% a) wages and salaries (82,655) (84,784) -2.51% b) social security charges (25,639) (28,088) -8.72% c) post-employment benefits (5,808) (5,353) 8.50% d) pension expenses - - - e) accrual for post-employment benefits (282) (387) -27.13% f) accrual for pension and similar provisions: - defined contribution - - - - defined benefit (518) (659) -21.40% g) payments to external supplementary pension funds: - defined contribution (2,981) (3,937) -24.28% - defined benefit - (150) -100.00% h) costs of share-based payment plans (634) - - i) other employee benefits (16,718) (66,965) -75.03% 2) Other personnel in service (203) (88) 130.68% 3) Directors and statutory auditors (1,373) (2,039) -32.66% 4) Retired personnel - (982) -100.00% Total (136,811) (193,432) -29.27%

Item "i) other employee benefits" mainly includes costs relating to variable components of remuneration.

Average number of employees by category

1st half of 2019 1st half of 2018 Employees: 3,443 3,677 a) executives 39 47 b) middle managers 1,351 1,468 c) other employees 2,053 2,162 Other personnel 10 5 Total 3,453 3,682

“Other employees” includes atypical forms of contract other than subordinate employment contract, such as for example project and temporary work contracts.

Other administrative expenses: breakdown

1st half 1st half of Change of 2019 2018 Fees for professional and consulting services (13,632) (22,529) -39.49% Insurance premiums (1,723) (1,796) -4.06% Advertising (947) (1,376) -31.18% Postage, telephone and data transfer (2,985) (2,957) 0.95% Data processing services (15,369) (13,475) 14.06% Electricity, heating and shared property service charges (3,863) (3,973) -2.77% Administrative and logistics costs (2,503) (1,791) 39.75% Property management (4,028) (4,755) -15.29% Transport and travel (1,227) (1,607) -23.65% Security and transport of valuables (2,815) (3,031) -7.13% Membership fees (1,590) (2,136) -25.56% Audit fees (545) (613) -11.09% Maintenance and lease of hardware and software (3,329) (2,508) 32.74% Commercial and financial information (2,721) (3,062) -11.14% Rent payable (607) (11,882) -94.89% Indirect personnel expenses (1,187) (1,578) -24.78% Taxes (19,783) (25,976) -23.84% Meeting costs (252) (858) -70.63% SRF, DGS and additional contributions (11,263) (12,611) -10.69% Miscellaneous items (3,759) (4,129) -8.96% Total (94,128) (122,643) -23.25%

The corresponding period does not include the effects of the first-time adoption of IFRS 16 - Leases.

NET ACCRUALS TO PROVISIONS FOR RISKS AND CHARGES - ITEM 200

Net accruals to provisions for risks and charges: breakdown

1st half 1st half Items Change of 2019 of 2018 Provision for legal disputes and claims from liquidators (2,814) (3,643) -22.76% Provision for sundry risks and charges (7,024) (4,244) 65.50% Total (9,838) (7,887) 24.74%

OTHER OPERATING NET INCOME - ITEM 230

Other operating expenses: breakdown

1st half of 1st half of Change 2019 2018 Amortisation of leasehold improvements (441) (500) -11.80% Real estate costs (122) (48) n.s. Other expenses (1,369) (4,697) -70.85% Total (1,932) (5,245) -63.16%

Other operating income: breakdown

1st half 1st half Change of 2019 of 2018 Rent receivable 1,062 775 37.03% Recovery of loan setup fees 600 801 -25.09% Income from real estate services (including income from review of prices on real estate agreements underway) 5 6 -16.67% Income from data processing services 3,445 2,809 22.64% Income from other services 241 280 -13.93% Recovery of indirect taxes 17,268 18,610 -7.21% Recovery of insurance policy payments 396 430 -7.91% Recovery of legal and notarial costs 1,118 2,646 -57.75% Badwill - 15,357 -100.00% Other income 528 3,113 -83.04% Total 24,663 44,827 -44.98%

NET GAINS (LOSSES) ON EQUITY INVESTMENTS - ITEM 250

Net gains (losses) on equity investments: breakdown

1st half 1st half Income components/Amounts Change of 2019 of 2018 1. Companies subject to joint control A. Income 9 7 28.57% 1. Revaluations 9 7 28.57% 2. Gains 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) 9 7 28.57% 2. Companies subject to significant influence A. Income 864 1,580 -45.32% 1. Revaluations 864 1,580 -45.32% 2. Gains on sale - - - 3. Reversals of impairment losses - - - 4. Other income - - - B. Expense (56) (288) -80.56% 1. Impairment (56) (288) -80.56% 2. Impairment losses - - - 3. Losses on sale - - - 4. Other expenses - - - Net gains (losses) 808 1,292 -37.46% Total 817 1,299 -37.11%

NET GAINS (LOSSES) ON SALES OF INVESTMENTS - ITEM 280

Net gains (losses) on sales of investments: breakdown

1st half of 1st half of Income components/Amounts Change 2019 2018 A. Property - Gains on sale 724 18 n.s. - Losses on sale - - - B. Other assets - Gains on sale 4,561 5 n.s. - Losses on sale (1) (42) -97.62% Net gains (losses) 5,284 (19) n.s.

TAXES FOR THE PERIOD

Income taxes for the period were positive for EUR 27.2 million and were mainly due to the partial reassessment of deferred tax assets on tax losses accrued and not recognised in previous years.

EARNINGS PER SHARE

The basic earnings (loss) per share and diluted earnings (loss) per share are calculated in accordance with the methods described in IAS 33 – Earnings per share. The basic earnings (loss) 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 period. The following table displays the basic earnings per share with the calculation details.

1st half of 2019 1st half of 2018 Profit attributable to holders of ordinary shares 23,546 824

Weighted average number of ordinary shares 7,014,968,846 3,915,472,336

Basic earnings per share 0.0034 0.0002

There are no outstanding instruments with potential dilutive effect; therefore, diluted earnings per share are equal to basic earnings per share.

Information on risks and related hedging policies Strategic decisions regarding risk management at Group level are taken by the Parent's corporate bodies, taking account of the specific operations and related risk profiles of each entity in order to implement an integrated and consistent risk management policy. In this context, the Parent defines and approves the Group Risk Appetite Framework (RAF) and Risk Appetite Statement (RAS), which define the risk appetite, the roles and responsibilities of the corporate bodies and functions involved, the system of indicators and limits, the monitoring system of the indicators and the escalation procedures to be activated in case the thresholds are exceeded.

In line with the current Supervisory Regulations, the Group adopted the definition of an “internal control system” set out in Bank of Italy Circular 285 of 2013 “Supervisory Provisions for banks”, in the Part One of Title IV - Chapter 3 (Sec. I “Preliminary provisions and General Principles”, par. 6 “General Principles”). Specifically: “the internal control system comprises a set of rules, functions, structures, resources, processes and procedures that aim to ensure, in compliance with sound and prudent management, the achievement of the following goals:

- monitoring the implementation of strategies and corporate policies;

- reducing the risk within the limits indicated in the framework of reference for determining the risk appetite of the bank (Risk Appetite Framework - “RAF”);

- safeguarding of the asset value and protection from losses;

- effectiveness and efficiency of corporate processes; - reliability and security of business information and of IT procedures;

- prevention of the risk that the bank is involved, even unintentionally, in illegal activities (with a special reference to those related to money laundering, usury and terrorist financing);

- compliance of the transactions with the law and supervisory regulations as well as with policies, regulations and internal procedures.” The control system is divided into different phases (decision, implementation, control and information cycle) and shows the involvement of decision-making, operating and control bodies, supported by adequate IT systems.

Detailed information on the general characteristics of the control systems, the risk management, measurement and control policies are contained in the Notes to the 2018 Consolidated Financial Statements (Part E – Information on risks and hedging policies) and in the informative report on the third pillar at 31 December 2018 made available on the Group's website at www.gruppocreval.com.

Risk perimeter and importance

In line with the regulatory provisions, with the operational and organisational characteristics, 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; 88

- IT risk;

- interest rate risk for the banking book;

- concentration risk of the loans and receivables with 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 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 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, 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.

In line with its focus on retail banking, the Group is mainly exposed to credit risk. In terms of capital requirements, 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. 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.

At 30 June 2019, the Group's exposure to risks was consistent with the approved risk appetite.

1.1 CREDIT RISK

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 (for example, liquidity shortage or insolvency). This risk is taken on when carrying out the traditional lending activity, regardless of the specific technical form in which the loan is issued.

The Group's credit granting and management strategies, rights and rules are guided by credit policies, which represent a credit planning tool used by the Group to define the guidelines to be adopted when issuing and revising the credit. Credit policies are aimed at pursuing an optimum loans portfolio at Group level in compliance with the volume, risk and profitability objectives set by the Board of Directors in accordance with the Risk Strategy.

The overall credit process is structured in formalised sub-processes that establish the main lines of business and define the adopted organisational measures. The processes are supported by specific electronic procedures that allow uniform application of the defined rules. The entire credit process is submitted to the controls carried out internally by the Loans Department and by the company's control functions (Risk Management function, Internal Validation function and Internal Audit Function) in order to ensure the most precision in assessing risk, by maintaining a lean and efficient assessment and management process.

In addition to credit risk management policies and the Risk Appetite Framework, the Group has a system of techniques and tools including the Internal Rating System, a set of methods, processes, controls, data collection mechanisms and information systems that support the assessment of credit risk, the assignment of exposures to rating classes or pools and the quantitative estimate of defaults and losses for a given type of exposure. On 25 September 2018, the Bank of Italy authorised the Credito Valtellinese Group:

- to use the internal A-IRB credit risk measurement system, for the “Exposures to corporate” and “Retail exposures” regulatory classes, pursuant to Article 143 of Regulation (EU) no. 575/2013; - to gradually extend the model according to a defined plan pursuant to Article 148 of Regulation (EU) no. 575/2013; - to use the permanent partial standardised approach for the categories of eligible exposures pursuant to Article 150 of Regulation (EU) no. 575/2013 and in particular “Exposures to central governments and central banks”, “Exposures in equity instruments”, “Elements representing securitisation positions” and “Other assets other than receivables”.

In the first half of the year, there were no changes in the indicated authorisation measures. As part of the internal rating system, risk parameters, including internal ratings and the probability of default parameter, calculated through differentiated and estimated models specifically by customer segment, are relevant (Corporate, SME Corporate, Small Retail, Micro Retail and Private). The distributions of the performing loans and receivables with customers portfolio are shown below. The data refers to 30 June 2019 and 31 December 2018.

Chart 1 - Distribution of loans by rating class

Enterprises and Private

20% 19.1%

18.6% December 2018

16.4% June 2019 15.6% 14.9% 14.9% 15% 14.5% 13.7% 11.2% 11.1%

10% Portion of EAD of Portion 7.3% 7.2% 7.2% 6.5% 5.8% 5.0% 4.7% 5% 4.6% 1.4% 0.3% 0% AAA AA A BBB BB B CCC CC C NA/Unrated Rating Class

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 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 quantitative and qualitative information available in support of the credit set up process, enhancing the direct knowledge of the customer and its specific characteristics. The organisational model also envisages the existence of a dedicated function, independent of the sales and granting departments, which is assigned the responsibility of managing the override process (correction of the automatic judgement expressed by the model). A second risk parameter used by the Group for measuring and managing 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, the estimate of two components is relevant: a) estimate of the LGD - Bad loan, which consists of the loss rate historically recognised on bad loans (known as “workout LGD”); estimate of the Danger Rate, which consists of the probability that a position will migrate from its administrative status to the bad loan administrative status. Subsequently, two additional components are applied: the downturn effect and the indirect costs attributable to the overall management of non-performing positions. The third parameter is the Exposure At Default (EAD) defined as the value of the on and off-statement of financial position risk assets. For off-statement of financial position transactions (guarantees given and commitments), the EAD is determined by means of a

Credit Conversion Factor (CCF), which represents the ratio between the unused portion of a line of credit that could be used in the event of default and the part currently unused. The indicated risk parameters are essential to assess the solvency of the counterparty when approving and reviewing credit lines and are also used to determine the decision-making body.

The quality of the loan portfolio is also pursued through the adoption of specific of specific early warning processes, the objective of which is to promptly identify performing positions that present early or potential signs of difficulty and the immediate activation of the most suitable actions for the removal of anomalies and the regularisation of the relationship of trust. The process is based on the application of a management classification affected, among other things, by the risk parameters shown above. For positions that are assigned a high risk assessment, the Group adopts manual or automatic classification processes in the categories envisaged by the supervisory regulations. In detail:

- 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/or 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 end of the reporting period, are characterised as follows: - the customer shows amounts of loans that are past due by more than 90 days continuously; - the higher of the following two values is equal to or greater than the materiality threshold of 5%: average of past due and/or overdue portions of the entire exposure registered on a daily basis in the last previous quarter prior to the classification date. The non-performing exposures become performing, regulated by the Supervisory Authority as well as by specific internal regulations, on the initiative of the Structures responsible for management, subject to verification that the critical conditions and the state of insolvency are no longer present. With regard to exposures classified as "non-performing past due and/or overdue", they become automatically performing once the exposure has been repaid; the same mechanism is applied to small exposures, already automatically classified as unlikely to pay, if, again by automatic verification, the conditions leading to their classification are no longer present.

With reference to the calculation of the impairment of financial assets in line with the provisions of IFRS 9, the Group classifies financial instruments into three separate stages:

- stage 1 includes performing financial instruments for which a significant increase of the credit risk compared to the initial recognition date was not observed. The impairment is collectively determined based on 12 month 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 observed. The impairment is collectively determined based on lifetime expected credit loss; - stage 3 includes non-performing financial instruments. The impairment is analytically determined based on lifetime expected credit loss. 92

The Group identified the main elements for the transition from the first to the second stage. In particular, reference is made to the change in the default lifetime probabilities as compared to the initial recognition of the financial instrument determined by the credit quality of each individual relation on each measurement date; moreover, the possible presence of a past due of at least 30 days and/or of forbearance measures were considered, presumptively, to be indicative of a significant increase in credit risk and involve the transition to the second stage. Based on the classification of loans in the various Stages, specific models were developed to calculate "12 months - expected credit loss" and "lifetime expected credit loss", respectively. The parameters indicated allow the measurement of the expected loss related to the positions classified in Stage 1 and Stage 2, respectively. The calculation of expected losses includes forward looking information linked, among other things, to changes in the macroeconomic scenario. With reference to this last aspect, also in consideration of the proportionality criterion, the Group uses the “Most likely scenario+add on” approach. This approach envisages determining the expected loss in the baseline scenario considered the most probable and used for other purposes (for example, for budget and planning purposes) to which an add on was added to reflect the effects of the possible non-consistency of the expected credit loss compared to macro-economic scenarios.

In the analytical valuation of loans in Stage 3, the loss is measured as the difference between the date exposure and the present value of estimated future 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.

Moreover, forward-looking factors that adapt the weighed-up probabilities of occurrence of the different future scenarios were included in the valuations of exposures classified in Stage 3. Specifically, alternative recovery scenarios were considered - like the sale of portfolios of non-performing loans in relation to the corporate objectives to reduce the non-performing financial assets - to which a realisation probability must be attributed, to be considered in the overall measurement. Therefore, the expected losses of potentially transferable non- performing loans are defined on the basis not only of the forecast of the recoverable flows through internal management, but also of the forecast of the recoverable flows through their possible sale on the market.

Concentration risk

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

QUANTITATIVE INFORMATION

CREDIT QUALITY

NON-PERFORMING AND PERFORMING LOANS: AMOUNTS AND IMPAIRMENT LOSSES

Distribution of exposures by portfolio and credit quality (carrying amounts)

Past due Past due Unlikely Performing Portfolio/Quality Bad loans non-performing performing Total to pay loans loans loans 21,008,82 1. Financial assets at amortised cost 161,439 576,434 56,529 389,823 19,824,604 9

2. Financial assets at fair value through other comprehensive income - - - - 1,811,338 1,811,338

3. Financial assets at fair value ------

4. Other financial assets mandatorily measured at fair value - - - - 2,378 2,378 5. Financial assets held for sale 430 8,541 18,037 11,333 38,646 76,987

22,899,53 Total at 30/06/2019 161,869 584,975 74,566 401,156 21,676,966 2

24,565,55 Total at 31/12/2018 205,170 606,067 61,629 292,932 23,399,754 2

Distribution of credit exposures by portfolio and credit quality (gross amount and carrying amount)

Non-performing Performing

Total Total partial Total Total Portfolio/Quality Gross impairment Carrying write-offs* Gross impairment Carrying (carrying amount losses amount amount losses amount amount) losses losses 1. Financial assets at amortised cost 1,932,907 -1,138,505 794,402 149,641 20,307,872 -93,445 20,214,427 21,008,829

2. Financial assets at fair value through other comprehensive income - - - - 1,813,493 -2,155 1,811,338 1,811,338

3. Financial assets at fair value - - - - X X - -

4. Other financial assets mandatorily measured at fair value - - - - X X 2,378 2,378

5. Financial assets held for sale 33,865 -6,857 27,008 - 50,114 -135 49,979 76,987

Total at 30/06/2019 1,966,772 -1,145,362 821,410 149,641 22,171,479 -95,735 22,078,122 22,899,532

Total at 31/12/2018 1,977,815 -1,104,949 872,866 130,247 23,798,818 -108,658 23,692,686 24,565,552

* Value to be shown for information purposes

Assets with a clear Other assets Portfolio/Quality poor credit quality

Accumulated losses Carrying amount Carrying amount

1. Financial assets held for trading 3.998 - 439

2. Hedging derivatives - -

Total at 30/06/2019 3.998 - 439

Total at 31/12/2018 3,998 - 11,054

Prudential consolidation – On- and off-statement of financial position credit exposures with banks: gross amount and carrying amount

30/06/2019

Gross amount

Type of exposure/Amounts Total impairment losses Carrying Non- Performing and total provisions amount performing

A. On-statement of financial position credit

exposures

a) Bad loans - X - -

- of which: forbearance exposures - X - -

b) Unlikely to pay - X - -

- of which: forbearance exposures - X - -

c) Past due non-performing loans - X - -

- of which: forbearance exposures - X - -

d) Past due performing loans X 2,092 -12 2,080

- of which: forbearance exposures X - - -

e) Other performing loans X 1,278,083 -2,388 1,275,695

- of which: forbearance exposures X - - -

Total (A) - 1,280,175 -2,400 1,277,775

B. Off-statement of financial position credit

exposures

a) Non-performing - X - -

b) Performing X 59,703 -9 59,694

Total (B) - 59,703 -9 59,694

Total (A+B) - 1,339,878 -2,409 1,337,469

Prudential consolidation - On and off-statement of financial position credit exposures with customers: gross amount and carrying amount

30/06/2019

Gross amount

Type of exposure/Amounts Total impairment losses Carrying Non- Performing and total provisions amount performing

A. On-statement of financial position credit

exposures

a) Bad loans 870,373 X -708,504 161,869

- of which: forbearance exposures 88,622 X -64,897 23,725

b) Unlikely to pay 1,014,437 X -429,462 584,975

- of which: forbearance exposures 540,287 X -247,510 292,777

c) Past due non-performing loans 81,962 X -7,396 74,566

- of which: forbearance exposures 3,775 X -499 3,276

d) Past due performing loans X 411,711 -12,635 399,076

- of which: forbearance exposures X 39,830 -2,754 37,076

e) Other performing loans X 20,423,708 -80,596 20,343,112

- of which: forbearance exposures X 173,937 -9,179 164,758

Total (A) 1,966,772 20,835,419 -1,238,593 21,563,598

B. Off-statement of financial position credit

exposures

a) Non-performing 80,550 X -11,497 69,053

b) Performing X 5,626,389 -5,022 5,621,367

Total (B) 80,550 5,626,389 -16,519 5,690,420

Total (A+B) 2,047,322 26,461,808 -1,255,112 27,254,018

DISTRIBUTION AND CONCENTRATION OF CREDIT EXPOSURES

Prudential consolidation - Distribution of on and off-statement of financial position credit exposures with customers by business segment

Financial companies Public administrations Financial companies (of which: insurance companies) Exposures/Counterparties

Total Total Total Carrying Carrying Carrying impairment impairment impairment amount amount amount losses losses losses

A. On-statement of financial position credit

exposures

A.1 Bad loans 80 -127 16,292 -15,688 - -

- of which: forbearance exposures - - 13,849 -7,350 - -

A.2 Unlikely to pay 836 -165 14,781 -20,030 - -

- of which: forbearance exposures - - 9,034 -19,585 - -

A.3 Past due non-performing loans 3 -1 26 -7 - -

- of which: forbearance exposures ------

A.4 Performing loans 5,881,900 -1,016 2,330,467 -4,038 11,086 -63

- of which: forbearance exposures ------

Total (A) 5,882,819 -1,309 2,361,566 -39,763 11,086 -63

B. Off-statement of financial position credit

exposures

B.1 Non-performing loans 11 -1 1,492 -38 - -

B.2 Performing loans 325,082 -146 289,100 -263 50 -

Total (B) 325,093 -147 290,592 -301 50 -

Total (A+B) 30/06/2019 6,207,912 -1,456 2,652,158 -40,064 11,136 -63

Total (A+B) 31/12/2018 6,795,585 -4,108 3,567,452 -53,801 10,556 -9

Exposures/Counterparties Non-financial companies Households Total impairment Total impairment Carrying amount Carrying amount losses losses

A. On-statement of financial position credit

exposures

A.1 Bad loans 97,121 -495,569 48,376 -197,120

- of which: forbearance exposures 7,951 -53,102 1,925 -4,445

A.2 Unlikely to pay 452,871 -335,039 116,487 -74,228

- of which: forbearance exposures 254,598 -209,847 29,145 -18,078

A.3 Past due non-performing loans 29,968 -4,828 44,569 -2,560

- of which: forbearance exposures 2,725 -464 551 -35

A.4 Performing loans 7,305,126 -64,878 5,224,695 -23,299

- of which: forbearance exposures 160,335 -10,797 41,499 -1,136

Total (A) 7,885,086 -900,314 5,434,127 -297,207

B. Off-statement of financial position credit

exposures

B.1 Non-performing loans 65,953 -11,196 1,597 -262

B.2 Performing loans 4,314,210 -3,745 678,759 -868

Total (B) 4,380,163 -14,941 680,356 -1,130

Total (A+B) 30/06/2019 12,265,249 -915,255 6,114,483 -298,337

Total (A+B) 31/12/2018 12,681,956 -903,979 6,112,336 -256,119

Large exposures

30/06/2019

a) Amount - carrying amount 11,530,622

b) Amount - weighted amount 988,714

c) Number 8

In accordance with Regulation 575/2013, the number of large exposures is determined by reference to non-weighted exposures exceeding 10% of eligible capital, where exposure is defined as the sum of on-statement of financial position (excluding those deducted from eligible capital) and off-statement of financial position exposures with regard to a customer, or group of associated customers, without the application of weighting factors.

The table above shows the carrying amount of the exposure and the exposure weighted amount, i.e. the exposure value after applying the Credit Risk Mitigation and the exemptions pursuant to Article 400 of the CRR.

The report shows positions that exceed the 10% threshold of the eligible capital, attributable to exposures towards the Italian Government of EUR 5,672,660 thousand, exposures towards Cassa Compensazione e Garanzia of EUR 2,104,189 thousand and, for the remaining part, mainly exposures towards banking, financial and government counterparties.

1.2 MARKET RISKS

1.2.1 - INTEREST RATE RISK AND PRICE RISK - REGULATORY TRADING BOOK

QUALITATIVE INFORMATION

A. General aspects

“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. The trading book comprises bonds, shares, OEIC units and trading derivatives. The equity investments mainly involve ETFs and listed shares. The financial instruments in the book are mainly in Euro. The risk is allocated to the Parent and the exposure remains well within established limits; the size and risk of the book comply with the established limits. Risk hedging tools and techniques are used in the management of the portfolio.

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) that allows to evaluate the maximum potential loss in the trading book within a given time horizon with an established level of confidence.

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).

During the half-year, the VaR recorded limited values with relation to the book's size and to the allocated VaR. At the end of the reporting period, the main factor to which the portfolio is exposed is the price risk. Exposure to currency risk, exposure to issuer risk and exposure to interest rate risk are limited.

Regulatory trading book – VaR performance

First half of 2019 2018

Average Minimum Maximum 30/06/2019 Average Minimum Maximum

405 210 1,048 251 1,427 211 2,609

Regulatory trading book – VaR performance

Credito Valtellinese Group VaR First half of 2019 1.2001,200

900

600

300

- 2-Jan 30-Jan 27-Feb 27-Mar 26-Apr 27-May 24-Jun VaR

Regulatory trading book – Contribution of risk factors to calculation of VaR

Situation at 30/06/2019

Price and specific Benefit of Interest rate risk Currency risk Issuer risk risk diversification

92.8% 0.2% 6.8% 0.2% -48.7%

Regulatory trading book – Breakdown of bond exposures by issuer type

Situation at 30/06/2019

Insurance Sovereign Public companies and Banks Corporate issuers issuers other financial companies

3.9% 95.0% 1.1% 0.0% 0.0%

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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. The interest-rate risk mainly derives from the existence in the financial statements of the bank of interest-bearing assets and onerous liabilities. Interest rate risk management aims to minimise the impact of unfavourable changes in the rates curve on the economic value of equity 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.

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 Financial and Operational Risk Department monitors on a monthly basis the exposure to the interest rate risk and verifies 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 is firstly 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 position items. The behavioural profile of sight items, analysed on a statistical basis with a special model, is also considered in the assessment of the exposure to risk, based on the revaluation of positions in different scenarios.

In the measurement of the risk, the current profit approach is used additionally and leads to the estimate of the impact of change in interest rates on net interest income, which represents a significant portion of bank revenue. The exposure to interest rate risk was subject to limits, both at individual and consolidated level, 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 100 and 200 basis points) and specific changes 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 can change its inclination (flattening, steepening and reversal of the interest rate structure) are also taken into consideration. At half-year end, the changed duration calculated for all financial statement assets and liabilities as well as the duration gap were moderate. Assuming that the rate structure makes a parallel shift upwards of 100 basis points, the fair value would decrease by EUR 125.6 million. In case of an equal downward shift, under the non-negativity restriction in nominal interest rates, the value would decrease by EUR 33.4 million. These amounts express the effect of changes in the interest rates on the banking book, excluding changes in the composition and size of the financial statement items.

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. Therefore, the price risk management methods for such financial instruments 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. The held fund units, mainly securities funds, mostly pertain to the Italian market. 101

Fair value hedges The hedging of interest rate risk aims to protect the banking book from fair value changes of loans caused by changes in the interest rate curve (fair value hedge); types of derivatives used are represented by interest rate swaps (IRS) carried out with third parties. At the end of the half-year, the banking book of Financial assets at amortised cost included only one hedging operation for Italian government bonds (BTPs). 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.

102

1.3 DERIVATIVE INSTRUMENTS AND HEDGING POLICIES

1.3.1 TRADING DERIVATIVE INSTRUMENTS

A. FINANCIAL DERIVATIVES

Trading financial derivatives: positive and negative fair value – breakdown by product

30/06/2019 31/12/2018

Over the counter Over the counter

Types of derivatives Central Without central Without central counterparties Organised Central counterparties Organised counterparties markets markets With With Without Without netting netting counterparties netting netting agreements agreements agreements agreements

1. Positive fair value

a) Options - - 143 - - - 21 -

b) Interest rate swaps ------

c) Cross currency swaps ------

d) Equity swaps ------

e) Forwards - - 88 - - - 39 -

f) Futures ------

g) Others ------

Total - - 231 - - - 60 -

2. Negative fair value

a) Options ------22 -

b) Interest rate swaps ------

c) Cross currency swaps ------

d) Equity swaps ------

e) Forwards - - 63 - - - 42 -

f) Futures ------

g) Others ------

Total - - 63 - - - 64 -

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1.3.2 HEDGE ACCOUNTING

A. HEDGING DERIVATIVES

Hedging derivatives: positive and negative fair value – breakdown by product

30/06/2019 31/12/2018

Over the counter Over the counter

Types of derivatives Without central Without central Central counterparties Organised Central counterparties Organised markets markets With Without With Without counterparties netting netting counterparties netting netting agreements agreements agreements agreements

1. Positive fair value

a) Options ------

b) Interest rate swaps ------

c) Cross currency swaps ------

d) Equity swaps ------

e) Forwards ------

f) Futures ------

g) Others ------

Total ------

2. Negative fair value

a) Options ------

b) Interest rate swaps - - 158,934 - - - 134,545 -

c) Cross currency swaps ------

d) Equity swaps ------

e) Forwards ------

f) Futures ------

g) Others ------

Total - - 158,934 - - - 134,545 -

1.4. 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 their payment commitments due to inability to procure the funds (funding liquidity risk) and to divest their assets (market liquidity risk).

Liquidity management is aimed primarily at ensuring the solvency of the Bank and of the Group also in stressful or crisis conditions. Exposure to risk occurs according to different exposure profiles compared to the considered time horizon, to which specific methodological approaches, measurements, mitigation tools and corrective actions correspond. 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 liquidity risk management process mainly involves some specific structures. In particular, the Finance Department of Credito Valtellinese is in charge of treasury management and of the supply on the inter-bank market and manages the intraday and short-term liquidity risk; the Planning and Control Department participates in defining the structural liquidity balance of the Banks and of the Group as a whole; the risk control function - independently from the “operational management” of the liquidity risk - contributes to the definition of the policies and processes of risk management, develops the assessment 104 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.

At 30 June 2019, the Group had a negative net interbank position of EUR 2.0 billion and a negative net position towards central counterparties of EUR 2.2 billion. The Group held liquidity reserves mostly consisting of Italian Government bonds and other assets eligible for refinancing operations with the ECB (including loans that meet the eligibility requirements), deemed appropriate to the contingent and perspective requirements. The "Liquidity Coverage Ratio" indicator is well above the minimum required by the regulations. The main source of funding consisted of stable and diversified retail customers. Funding from ECB (EUR 2.5 billion for long-term refinancing transactions) accounts for 11% of the total. In consideration of the current composition of deposits carried out, 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. The degree of concentration at the end of June 2019 decreased compared to the one reported at the end of the prior year and remains at low levels. From the structural perspective, the Group carried out a modest transformation of maturities. The loan and deposit ratio was 102.7%, down from 107.4% at the end of the previous year. Securitisation transactions 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. 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.

At the reporting date, the securitisation transactions detailed below are in place. The Quadrivio RMBS 2011 transaction was carried out pursuant to Italian Law 130/1999. In the Quadrivio RMBS 2011 transaction, the originator bank Credito Valtellinese fully holds the junior tranches, without transferring any credit risk. In 2018, through the Quadrivio SME 2018 S.r.l., the Quadrivio SME 2018 securitisation was completed by the Group on a portfolio of mortgage and unsecured loans to companies, trades and personal businesses for a total of approximately EUR 1.5 billion. The purchase of these receivables by the SPE and the provision of an initial cash reserve were financed by the issue of seven classes of securities, three of which were senior classes in the amount of EUR 920 million, an upper mezzanine in the amount of EUR 102.2 million, two lower mezzanines in the amount of EUR 189.8 million and a junior class in the amount of EUR 260 million. Senior class A3 in the amount of EUR 200 million was fully subscribed by the European Investment Bank (EIB), while the other classes were fully subscribed by the originator bank Credito Valtellinese. Both of the transactions described above do not meet the criteria for the derecognition of

105 the transferred loans and receivables that are therefore fully represented in the asset items.

On 14 July 2017, the Group completed the securitisation of a bad loans portfolio for a gross amount of approximately EUR 1.4 billion at 30 November 2016 by transferring this portfolio to a securitisation vehicle – Elrond NPL 2017 - established pursuant to Italian Law 130/1999, and the latter issued three different classes of ABS securities: - a senior tranche of EUR 464 million, with investment grade rating in line with the requirements of the regulations relating to the State guarantee (GACS) (Baa3 assigned by Moody’s and BBB- by Scope Ratings),

- a mezzanine tranche with rating (B1 by Moody's and B+ by Scope Ratings) and a junior tranche of EUR 42.5 million and EUR 20 million, respectively.

The securities of the senior tranche – for which the Ministry of Economy and Finance granted the State guarantee (GACS) on 27 September 2017 – are fully retained by Credito Valtellinese, whereas the mezzanine and Junior tranches were placed with an institutional investor at the end of a competitive process (net of the significant interest of 5% that must be maintained by the originator). On 14 June 2018, in line with the company's de-risking objectives, the Group completed a further securitisation of a portfolio of bad loans for a Gross Book Value on the cut-off date (31 December 2017) of approximately EUR 1.7 billion, by transferring this portfolio to a securitisation vehicle – Aragorn NPL 2018 – established pursuant to Italian Law 130/1999, and the latter issued three different classes of ABS securities: - a senior tranche of EUR 509.5 million, with investment grade rating in line with the requirements of the regulations relating to the State guarantee (GACS) (BBBL assigned by DBRS and BBB- by Scope Ratings),

- a mezzanine tranche with rating (CCC by DBRS and B by Scope Ratings) and a junior tranche of EUR 66.8 million and EUR 10 million, respectively.

The securities of the senior tranche – for which the Ministry of Economy and Finance granted the State guarantee (GACS) on 27 September 2018 – are fully retained by Credito Valtellinese, whereas the mezzanine and junior tranches were placed with institutional investors (net of the significant interest of 5% that must be maintained by the originator). For the Elrond and Aragorn transactions, the conditions for the derecognition of transferred loans and receivables (transfer of risks) have been met. Credito Valtellinese also invests in structured credit products issued by special purpose entities that are not consolidated in accordance with current accounting standards in that these instruments do not bear most of the risks or returns related to the activity carried out by these entities. At 30 June 2019, the exposure to securitisations originated by third parties, consisting almost entirely of senior notes and referring to portfolios of Italian assets, totalled EUR 120,573 thousand, of which EUR 93,490 thousand referred to transactions with underlying non-performing loans.

106

1.5. 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.

Risk containment is achieved using regulatory, organisational and procedural measures and training. Any critical area, identified through joint analysis of various sources of data, is examined in further depth by department managers who, together with the Risks and Control Department, establish the appropriate corrective actions. Under the regulatory profile, the Group calculated the capital requirement to meet the operational risk in the separate and consolidated financial statements by using the Traditional Standardised Approach (TSA). From the management viewpoint, risk exposure is assessed both in quantitative terms, by analysing the operating losses incurred, and in qualitative terms, through risk self-assessment.

Legal risks A provision was made in the financial statements, appropriate and consistent 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 banks belonging to the Group. At 30 June 2019, there are 1,102 actions brought against the companies belonging to the Group for an overall amount of EUR 171 million against which a total loss of EUR 26 million is expected. Details of the existing actions brought against the Bank are shown below:

Relief sought Provision made Type of cases No. of cases (in millions of (in millions of EUR) EUR)

Compound interests 259 32 7

Bankruptcy clawbacks 39 48 8

Investment services 33 23 2

Other 771 68 9

Total 1,102 171 26

There are also 391 out-of-court claims for which a total loss of approximately EUR 2.1 million was estimated. 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 Group is summarised below. Gianfranco Ferrè in A.S.

In 2012, the Procedure started 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 current account of the bankrupt company quantified by the counterparty in EUR 10.4 million. The Court of Isernia rejected the requests made by the Receivership in their entirety, considering that the subjective profile of the revocation 107 action proposed by the opposing party was non-existent. The opposing party appealed against the judgement in first instance and Creval appeared before the court. 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 (known as 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 formalised issue prospectus. The Bank appeared before the court maintaining that, at the time of redemption of the Financial Instruments, there was no payment obligation of interests 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 recognised by using the equity as an offsetting item. The Court of Rome, in its decision of 7 June 2019, fully rejected the requests of the Ministry of the Economy and Finance. However, the judgement has not yet become final. 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). The counterparty claims that, as a result of these irregularities, it would have undergone economic damages quantified in the summons in EUR 11.8 million. The Judge rejected almost in full the requests for investigation made by the opposite party, admitting them only on some limited aspects of the request (failure to grant new finance). At the hearing of 12 March 2019, after the summing of the evidence, the case was decided. Note that, apart from the doubtful admissibility of the request, there is no possible quantification of damages. Le Betulle S.p.A. (Marina di Archimede) The lawsuit concerns a proceeding for damages of EUR 6.65 million related to the case of abusive lending. The claim is started jointly and severally against Credito Spa, as assignee of Mediocreval and Credito Siciliano, and the other Banks participating in the pool (with BNL as leading bank, with the parent BNP Paribas and Interbanca also summoned) which had financed the company Marina di Archimede S.p.A. for the construction of the marina of Siracusa, as well as against Rina Services, which had been appointed as the person responsible for verifying the progress of work, and Rina Check. The building project was never completed and the financed company, in default, was admitted to the composition proceeding. The plaintiff Company Le Betulle S.p.A., former creditor of the insolvent company Marina di Archimede S.p.A., contests the banks' right to the wrong and unlawful performance of the loan agreement inducing the creditors to reasonably rely on the solvency of the financed party. The Court rejected all the opposing requests for preliminary investigations and adjourned the case for the summing of the evidence to 15 January 2020 without accepting any of the evidence requested by the plaintiff. At this stage, the risk of losing the case is considered to be remote. 108

Tax dispute

During the first half of 2019, there are no notices of assessment of a particularly significant amount.

With regard to past disputes and assessments, note that they were closed with final judgements, or through institutions deflating the dispute, such as the settlement with tax relief pursuant to Law Decree no. 119/2018, with marginal charges borne by the Group companies.

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

At 30 June 2019, labour related lawsuits amounted to no. 13 disputes, a reduction of 1 compared to 31 June 2018.

As regards risk quantification, at 30 June 2019, against the relief sought of the labour dispute amounting to approximately EUR 2 million, provisions were made for risks and charges of EUR 1 million.

Details of the existing dispute is shown below:

Relief sought Provision made No. of Type of cases (in thousands of (in thousands of cases EUR) EUR)

Contestation of dismissal 6 540.9 297.7

De-skilling - higher qualification 4 455.6 145.0

Other 3 787.2 527.0

Overall total 13 1,783.7 969.7

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 Group defined the overall framework for managing the IT risk as well as the methods of risk analysis and assessment.

The percentage distribution of operational losses recognised in the internal database during the period is shown in terms of frequency and impact.

109

Operational losses - Distribution by type of event Event size Losses Others* 0.7% External fraud 0.2% 7.2% 11.0% Customers, products and 9.3% business practices

2.5% 26.3% Stoppage of operations and malfunctions of the systems

Execution, delivery and 65.8% 77.0% 0.0% management of processes

* Internal fraud, contractual relationship and safety in the workplace, damaged caused by external events.

The events reported during the half-year are mainly attributable in terms of frequency to the following event types: "Execution, delivery and management of processes" (77%), "External fraud" (11%) and "Customers, products and business practices" (9.3%).

In terms of impact, losses are attributable to “Execution, delivery and management of processes” by 65.8%, to “Customers, products and business practices” by 26.3% and to “External fraud” by 7.2%; losses attributable to other event types are of lesser importance.

110

1.6. OTHER RISKS

Sovereign risk The investment in Italian Government bonds, mostly recorded in “Financial assets at amortised cost”, 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, Portuguese and American Government bonds, of a smaller size, generates an exposure to the credit risk of Spain, Portugal and the United States. 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. The exposure stood at values lower than those recorded at the end of the previous year. The table below shows the carrying amount of the exposures to Government bonds, broken down by portfolio: Financial assets at Financial assets at fair value Financial assets at Countries fair value through through other comprehensive Total HTCS reserve (*) amortised cost profit or loss income Italy 200 1,611,964 3,415,967 5,028,131 -5,178

France - - - - -

Spain - - 596,907 596,907 -

Portugal - - 40,156 40,156 - Greece - - - - -

Other 4 - 35,305 35,309 -

Total 204 1,611,964 4,088,335 5,700,503 -5,178

(*) Reserve calculated after the tax effect The securities of the Elrond and Aragorn securitisations, assisted by Gacs for EUR 851 million, are also excluded.

The following table provides information on the expiry of exposures in securities to sovereign debt risk. Second Beyond Portfolio half of 2020 2021 2022-2024 2025-2029 Total 2029 2019

Financial assets at fair value through profit or loss - - 198 1 5 - 204

Financial assets at fair value through other comprehensive income - 292,303 1,098,169 221,492 - - 1,611,964

Financial assets at amortised cost - 45,245 56,489 1,245,187 2,283,129 458,285 4,088,335

Total - 337,548 1,154,856 1,466,680 2,283,134 458,285 5,700,503

At 30 June 2019, securities issued by the Governments were measured referring to prices inferred from markets (Level 1 fair value). As envisaged in the 2019-2023 Business Plan, the bank's objective is to reduce these exposures. These reductions could also take place through transfers that in any case do not alter the overall objectives of the portfolio management models. Additionally, loans and receivables with customers referring to central and local public administrations amounting to EUR 182.3 million are also recognised.

111

Risk of excessive leverage

The leverage ratio is considerably higher than the minimum threshold proposed by the international standards.

Risks towards associated parties Exposure remained essentially constant in the half-year and is in full compliance with the limits set by the prudential regulations and by internal policies. Reputational risk

During the half-year, on the occasion of the presentation of the new Business Plan, the rating agency Moody's published a commentary note on Creval's Business Plan, rating it a "positive credit". During the half-year, there is no element that may have changed or may change significantly in the short term the perception of the image of the Group with the various categories of stakeholders (customers, counterparties, shareholders, investors or supervisory authorities).

112

INFORMATION ON CONSOLIDATED EQUITY

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. Total Common Equity Tier 1 (CET1), which does not include the profit for the period, amounted under transitional regulations to EUR 1,821.9 million. The main changes occurred during the half-year concern:

- positive change in valuation reserves of approximately EUR 18.5 million; - greater deductions related to deferred tax assets (negative impact of EUR 20.7 million);

- positive change of EUR 9 million due to the failure to exceed the exemption limits for non-significant investments in equity instruments of financial sector entities;

- a lower benefit related to the transitional regime envisaged for the introduction of the IFRS 9 accounting standard of EUR 51.9 million. At 30 June 2019, both significant investments in Common equity tier 1 capital instruments held in financial sector entities and non-significant investments in equity instruments of entities in the financial sector are below the exemption limits envisaged by the regulations. Tax assets deriving from temporary differences and depending on future profitability are above the exemption limits envisaged by the regulations and are therefore deducted from Common equity tier 1 capital in the amount of EUR 92.3 million.

At 30 June 2019, Tier 2 Capital included in T2 instruments the subordinated loans issued by Credito Valtellinese of EUR 185.4 million. The main changes occurred compared to December 2018 concern the theoretical amortisation of the loans calculated on a daily basis in compliance with the provisions of regulation 575/2013.

At 30 June 2019, risk-weighted assets amounted to EUR 9,872 million, compared to EUR 10,153 million at 31 December 2018.

The capital ratios, determined on the basis of transitional methods in force, stood at: - 18.46% for Common Equity Tier 1 ratio and Tier 1 Capital ratio;

- 20.33% for Total Capital ratio.

113

(in thousands of EUR) 30/06/2019 31/12/2018

Common Equity Tier 1 capital (CET1) 1,821,902 1,862,128

Tier 1 Capital 1,821,902 1,862,128

Total Own Funds 2,007,289 2,055,556

Credit risk and counterparty risk 692,887 711,887

Credit valuation adjustment risk 943 968

Settlement risks - -

Market risks 4,401 7,924

Operational risk 91,493 91,493

Other calculation elements - -

Total capital requirements 789,724 812,272

Risk-weighted assets 9,871,553 10,153,395

Common Equity Tier 1 capital / Risk-weighted assets (CET1 capital ratio) 18.46% 18.34%

Tier 1 capital / Risk-weighted assets (Tier 1 capital ratio) 18.46% 18.34%

Total own funds / Risk-weighted assets (Total capital ratio) 20.33% 20.25%

At 30 June 2019, the transitional regime for the introduction of IFRS 9 was applied. In the absence of such an approach, the capital ratios would have amounted to 14.0% for Tier 1 Capital ratio and 16.2% for Total capital ratio, respectively.

114

BUSINESS COMBINATIONS

Business combinations between parties under common control completed On 1 January 2019, the following transactions carried out between parties under common control and therefore excluded from the scope of application of IFRS 3 - Business combinations had legal effects:

 merger of Creval Sistemi e Servizi Soc. Cons. P. A. into Creval S.p.A with deed signed on 29 December 2018;  merger of Creval PiùFactor S.p.A. into Claris Factor S.p.A. with deed signed on 27 December 2018. On the effective date of the merger, the company was called "Creval PiùFactor S.p.A.”. The accounting was carried out preserving the continuity of the values of the acquiree in the financial statements of the purchaser. In particular, the acquired carrying amount of assets and liabilities has been recorded at the carrying amounts resulting from the consolidated financial statements of the Group. Therefore, there are no effects in the consolidated financial statements.

115

RELATED PARTY TRANSACTIONS

Related party transactions are 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” adopted by Consob with resolution no. 17221 of 12 March 2010, as amended, (hereinafter also the “Consob Regulation”);

- by the supervisory provisions issued by the Bank of Italy (Circular 263/06) on risk assets and conflicts of interest with respect to “Associated Parties”, provisions that complement what is provided by the Consob regulation;

- by the provisions of Article 136 of the Consolidated Banking Act. 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” (hereinafter also the “RPT Creval Procedures”). In accordance with current regulations, the document is published on the website, “http://www.gruppocreval.com” – Corporate Governance section – Corporate documents. The RPT Creval Procedures establish the procedures and rules for ensuring transparency and substantive and procedural correctness in related-party transactions and associated parties carried out directly by Credito Valtellinese or by means of its subsidiaries. They also adopt the provisions on the assumption of risk assets towards associated parties pursuant to the Associated Party Regulations of Bank of Italy.

The Board of Directors of the Parent also approved the “Policies regarding controls on risk activities and on conflicts of interest towards associated parties” that 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. The international financial reporting standards regulate the related party disclosure with IAS 24, standard approved with Regulation (EU) no. 1126/2008 (amended by subsequent regulations).

116

INFORMATION ON REMUNERATION OF KEY MANAGEMENT PERSONNEL

Information on remuneration of key management personnel is indicated below.

FEES 1st half of 2019 a) short-term benefits (*) 2,447 b) post-employment benefits 192 c) other long-term benefits - d) termination benefits 1,772 e) share-based payments 625 Total 5,036

(*) The indicated amount includes payments to directors and to the board of statutory auditors for a total of EUR 1,065 thousand compared to EUR 1,571 thousand in the first half of 2018.

Note that during the first half of the year, personnel costs totalling EUR 3.2 million related to key management personnel with whom the employment relationship was terminated.

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 at 30 June 2019, 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;

- the Directors, the Statutory Auditors, the General Manager, the Deputy General Managers as well as the Chief Risk Officer;

- other related parties, which include:

 immediate family members - relatives until the second degree of kinship and the spouse or common law spouses of one related party as well as their children - of subjects as defined above;

 subsidiaries, companies subject to joint control or to significant influence by subjects as defined above, as well as by their immediate family members;

 pension funds established by companies of the Group.

Related party transactions, both intra-group 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 consider actual utilisation by each user company.

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

117

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 the half-year. Statement of financial position data at 30 June 2019 and income statement data of the first half of 2019 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 intra-group balances and transactions.

(in thousands of EUR)

30/06/2019

Parties Companie Executiv RELATED PARTY TRANSACTIONS who Associat Other % s subject es and exercise es related inciden to joint control significant parties ce control bodies influence

STATEMENT OF FINANCIAL POSITION ITEMS 20. Financial assets at fair value through profit or loss - - - - 344 0.2% 40. Financial assets at amortised cost - 46,255 - 1,114 32,651 0.4% 130. Other assets - 16 - - 149 0.1% TOTAL ASSETS - 46,271 - 1,114 33,144 10. Financial liabilities at amortised cost - 7,119 78 2,373 8,827 0.1% 80. Other liabilities - - - 17 - - TOTAL LIABILITIES - 7,119 78 2,390 8,827

Guarantees given - 2,532 - - 47 1.2% Commitments to disburse funds - 1,405 - 640 1,147 0.1% TOTAL GUARANTEES AND COMMITMENTS - 3,937 - 640 1,194

118

(in thousands of EUR)

1st half of 2019

Parties who Companies Executives Other RELATED PARTY TRANSACTIONS exercise significant subject and % Associates related influence to joint control incidence parties control bodies INCOME STATEMENT ITEMS Net interest income - 337 - 1 248 0.3% Net fee and commission income - 64 - 2 9 0.1% Administrative expenses - (29) - (2,287) (507) 1.2% Other operating net income - 62 - - 4 0.3% TOTAL INCOME STATEMENT - 434 - (2,284) (246)

Financial assets at amortised cost include loans to associates, which were written down by a total of about EUR 3.4 million.

Most significant transactions For the most significant transactions, 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 the half-year.

119

SHARE-BASED PAYMENT AGREEMENTS

The Shareholders' Meeting held on 27 April 2018 approved the 2018 MBO and 2018-2020 LTI incentive systems. The 2018-2020 LTI system was not activated while the 2018 MBO plan was activated for six beneficiaries belonging to the "control functions" for whom a variable bonus amount was recognised, related to the achievement of the individual objectives assigned. Therefore, 96,709 shares were assigned to these parties for a total value of approximately EUR 6 thousand, while shares for a total value of approximately EUR 3 thousand were assigned for the deferred component. Shares are recognised in accordance with IFRS 2, so the bank must measure its commitments at the fair value of the liability. Until the liability is cancelled, the bank must recalculate the fair value at the end of each reporting period and at the settlement date, with all fair value changes recognised in the income statement. Note that the Shareholders' Meeting of 30 April 2019 approved the new "Bonus Pool 2019" incentive system based on the assignment of phantom shares" and the incentive plan called "2019-2021 LTI medium to long-term variable incentive plan based on the allocation of Phantom shares" that replaced the previous "2018-2020 LTI" system. For further detailed information, please refer to the Report on remuneration of 2018.

120

SEGMENT REPORTING

Segment reporting, amended compared to the previous half year, is shown below, following the redefinition of customer segmentation thresholds.

Retail Corporate Finance and Treasury / ALM Equity investments and other Total (in thousands of EUR) 30/06/2019 31/12/2018 30/06/2019 31/12/2018 30/06/2019 31/12/2018 30/06/2019 31/12/2018 30/06/2019 31/12/2018

STATEMENT OF FINANCIAL POSITION DATA Direct funding from 9,874,207 9,214,685 6,253,327 5,976,662 2,939,398 4,753,325 164,800 - 19,231,732 19,944,672 customers Indirect funding 9,055,216 8,887,569 1,262,220 1,173,259 - - - - 10,317,436 10,060,828 Loans and receivables with 6,327,266 6,271,286 8,175,362 8,565,837 104,544 823,896 - - 14,607,172 15,661,019 customers Financial assets - - - - 7,064,900 7,796,630 281,282 253,426 7,346,182 8,050,056

ORGANISATIONA L DATA Personnel 2,041 2,033 980 980 16 16 631 639 3,668 3,668

Retail Corporate Finance and Treasury / ALM Equity investments and other Total

(in thousands of EUR) 1st half 1st half 1st half 1st half 1st half 1st half of 1st half of 1st half of 1st half of 1st half of of of of 2018 of 2018 2018 2019 2018 2019 of 2018 2019 2019 2019 INCOME STATEMENT DATA

Net interest income 81,960 102,182 56,407 69,992 43,143 6,705 (2,937) - 178,573 178,879 Net fee and commission 90,612 103,446 33,476 36,274 (281) (298) - - 123,807 139,422 income Other revenue 694 885 148 196 3,363 12,564 24,637 9,033 28,842 22,678

Operating income 173,266 206,513 90,031 106,463 46,225 18,970 21,700 9,033 331,222 340,979

Operating costs (147,434) (193,390) (82,834) (108,655) (3,744) (4,911) - - (234,012) (306,956)

Operating profit 25,832 13,123 7,197 (2,192) 42,481 14,059 21,700 9,033 97,210 34,023

Adjustments to loans (60,897) 2,564 (48,763) 23,904 7,798 (4,266) - - (101,862) 22,202

Transfers and other allocations (4,442) (11,177) (5,740) (88,618) 5,923 - - - (4,259) (99,795) Net gains (losses) on sales of ------5,211 15,338 5,211 15,338 investments and Badwill Pre-tax profit (loss) from continuing (39,507) 4,510 (47,306) (66,906) 56,202 9,793 26,911 24,371 (3,700) (28,232) operations

Commercial Bank Sector The Commercial Bank sector (in its Retail and Corporate components) is the core business since it includes all the lending, investment and transfer products and services.

In the first half of 2019, the Retail component generated operating income of EUR 173.3 million, while the Corporate component generated operating income of EUR 90 million. Adjustments to loans include the extraordinary effect of the inclusion in the valuation of non-performing loans of sales scenarios in line with the sale of NPL as envisaged in the 2019-2023 Business Plan. Direct funding from the commercial sector amounted to EUR 16,127.5 million (of which EUR 9,874.2 million relating to the retail component). Loans and receivables with commercial customers at the end of June 2019 amounted to EUR 14,502.6 million, down 2% compared to 31 December 2018. At the end of June 2019, there were 3,021 human resources employed in the segment and 362 bank branches.

Finance, Treasury and ALM segment The Finance, Treasury and ALM segment manages the Group's treasury and securities portfolio. This segment also includes the effects of liquidity risk management.

121 In the first half of 2019, this segment generated operating income of EUR 46.2 million. Financial assets, consisting of the Group's securities portfolio, amounted to EUR 7,064.9 million.

Equity investments and other segment This segment manages the group's equity investments. In the first half of 2019, this segment generated operating income of EUR 21.7 million.

122 CERTIFICATION OF THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS PURSUANT TO ARTICLE 81-TER OF CONSOB REGULATION NO. 11971/99

1. The undersigned, Luigi Lovaglio, as Managing Director, and Simona Orietti, as the Manager in charge of financial reporting of Credito Valtellinese S.p.A., 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 preparing the condensed interim consolidated report during the period 1 January 2019 - 30 June 2019.

2. The assessment of the adequacy and the actual application of the administrative and accounting procedures for preparing the condensed interim consolidated report during the period between 1 January 2019 – 30 June 2019, is based on a model conceived by Credito Valtellinese S.p.a., 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 condensed interim consolidated report: a) was 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) is consistent with accounting books and records; c) provides 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 interim report on operations includes a reliable analysis of the references to the important events that occurred in the first six months of the year and to the effect they had on the condensed interim consolidated report, together with a description of the main risks and uncertainties for the remaining six months of the year. The interim report on operations also includes a reliable analysis of the information on significant transactions with related parties.

Sondrio, 6 August 2019 Manager in charge of financial Managing Director reporting Luigi Lovaglio Simona Orietti

123 KPMG S.p.A. Revisione e organizzazione contabile Via Vittor Pisani, 25 20124 MILANO MI Telefono +39 02 6763.1 Email [email protected] PEC [email protected]

(Translation from the Italian original which remains the definitive version)

Report on review of condensed interim consolidated financial statements

To the shareholders of Credito Valtellinese S.p.A.

Introduction We have reviewed the accompanying condensed interim consolidated financial statements of the Credito Valtellinese Group, comprising the statement of financial position as at 30 June 2019, the income statement and the statements of comprehensive income, changes in equity and cash flows for the six months then ended and notes thereto. The directors are responsible for the preparation of these condensed interim consolidated financial statements in accordance with the International Financial Reporting Standard applicable to interim financial reporting (IAS 34), endorsed by the European Union. Our responsibility is to express a conclusion on these condensed interim consolidated financial statements based on our review.

Scope of review We conducted our review in accordance with Consob (the Italian Commission for Listed Companies and the Stock Exchange) guidelines set out in Consob resolution no. 10867 dated 31 July 1997. A review of condensed interim consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (ISA Italia) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the condensed interim consolidated financial statements.

Società per azioni Capitale sociale Euro 10.345.200,00 i.v. Ancona Aosta Bari Bergamo Registro Imprese Milano e Bologna Bolzano Brescia Codice Fiscale N. 00709600159 Catania Como Firenze Genova R.E.A. Milano N. 512867 Lecce Milano Napoli Novara Partita IVA 00709600159 KPMG S.p.A. è una società per azioni di diritto italiano e fa parte del Padova Palermo Parma Perugia VAT number IT00709600159 network KPMG di entità indipendenti affiliate a KPMG International Pescara Roma Torino Treviso Sede legale: Via Vittor Pisani, 25 Cooperative (“KPMG International”), entità di diritto svizzero. Trieste Varese Verona 20124 Milano MI ITALIA Credito Valtellinese Group Report on review of condensed interim consolidated financial statements 30 June 2019

Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed interim consolidated financial statements of the Credito Valtellinese Group as at and for the six months ended 30 June 2019 have not been prepared, in all material respects, in accordance with the International Financial Reporting Standard applicable to interim financial reporting (IAS 34), endorsed by the European Union.

Milan, 13 August 2019

KPMG S.p.A.

(signed on the original)

Luca Beltramme Director of Audit