2015 ANNUAL REPORT Credito Valtellinese Società Cooperativa Registered Offices in Piazza Quadrivio 8 - Sondrio, Italy Tax code and Sondrio Company Registration No. 00043260140 - Register of Banks No. 489 Parent of the Credito Valtellinese Banking Group - Register of Banking Groups No. 5216.7 Website: http://www.creval.it E-mail: [email protected] Data at 31 December 2015: Share Capital EUR 1,846,816,830.42 Member of the Interbank Guarantee Fund Reports and financial statements at 31 December 2015 GROUP FINANCIAL STATEMENT HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS 4 COMPANY OFFICERS OF CREDITO VALTELLINESE 7 NOTICE OF CALL OF SHAREHOLDERS ’ MEETING 8 CHAIRMAN ’S LETTER 9 Report on Operations 10 FOREWORD 10 MACROECONOMIC REFERENCE CONTEXT 11 ORGANISATIONAL MODEL OF THE CREDITO VALTELLINESE GROUP 22 ANNUAL REPORT ON MUTUAL COOPERATIVE BANKING 24 GROUP MANAGEMENT PERFORMANCE IN THE YEAR 28 OPERATIONAL STRUCTURE , COMMERCIAL PERFORMANCE INDICATORS AND COMPETITIVE POSITIONING 34 HUMAN RESOURCE MANAGEMENT 39 MAIN ASPECTS OF COMMERCIAL OPERATIONS 44 ANALYSIS OF THE MAIN CONSOLIDATED STATEMENT OF FINANCIAL POSITION AGGREGATES AND INCOME STATEMENT FIGURES 51 ANALYSIS OF THE MAIN STATEMENT OF FINANCIAL POSITION AND INCOME STATEMENT AGGREGATES OF THE PARENT 65 SUMMARY NOTES ON THE PERFORMANCE OF THE OTHER TERRITORIAL BANKS 79 OTHER MAIN EQUITY INVESTMENTS 81 THE PERFORMANCE OF STOCK MARKET QUOTATIONS 83 THE MONITORING OF BANK RISKS AND THE INTERNAL CONTROL SYSTEM OF THE GROUP 86 RELATED PARTY AND INTRAGROUP TRANSACTIONS 90 OTHER INFORMATION 92 EVENTS AFTER THE REPORTING PERIOD 94 BUSINESS OUTLOOK 95 PROPOSAL TO ALLOCATE THE PROFIT FOR THE YEAR 96 CONCLUSIONS AND ACKNOWLEDGEMENTS 97 Consolidated financial statements of the Credito Valtellinese Group 98 CONSOLIDATED FINANCIAL STATEMENTS 99 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 100 CONSOLIDATED INCOME STATEMENT 101 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 102 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY 103 CONSOLIDATED STATEMENT OF CASH FLOWS - DIRECT METHOD 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 107 PART A - ACCOUNTING POLICIES 108 PART B - INFORMATION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 147 PART C - INFORMATION ON THE CONSOLIDATED INCOME STATEMENT 195 PART D - CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 216 PART E - INFORMATION ON RISKS AND HEDGING POLICIES 217 PART F - INFORMATION ON CONSOLIDATED EQUITY 288 PART G - BUSINESS COMBINATIONS 299 PART H - RELATED PARTY TRANSACTIONS 300 PART I – SHARE -BASED PAYMENTS 304 PART L – SEGMENT REPORTING 305 2 OTHER DOCUMENTS 310 CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS PURSUANT TO ARTICLE 81-TER OF CONSOB 311 REGULATION NO . 11971 OF 14 MAY 1999, AS AMENDED REPORT OF THE AUDITORS 312 Financial statements of Credito Valtellinese 314 FINANCIAL STATEMENT HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS 315 FINANCIAL STATEMSTATEMENTSENTS 317 STATEMENT OF FINANCIAL POSITION 318 INCOME STATEMENT 319 STATEMENT OF COMPREHENSIVE INCOME 320 STATEMENT OF CHANGES IN EQUITY 321 STATEMENT OF CASH FLOWS - DIRECT METHOD 322 NOTES TO THE FINANCIAL STATEMENTS 324 PART A - ACCOUNTING POLICIES 325 PART B - INFORMATION ON THE STATEMENT OF FINANCIAL POSITION 360 PART C - INFORMATION ON THE INCOME STATEMENT 406 PART D – STATEMENT OF COMPREHENSIVE INCOME 426 PART E – INFORMATION ON RISKS AND HEDGING POLICIES 427 PART F – INFORMATION ON EQUITY 499 PART G - BUSINESS COMBINATIONS 509 PART H - RELATED PARTY TRANSACTIONS 510 PART I – SHARE -BASED PAYMENTS 516 PART L – SEGMENT REPORTING 516 OTHER DOCUMENTS 517 REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS ’ MEETING 518 CERTIFICATION OF THE SEPARATE FINANCIAL STATEMENTS PURSUANT TO ARTICLE 81–TER OF CONSOB REGULATION NO . 11971 OF 14 MAY 1999, AS AMENDED 543 REPORT OF THE AUDITORS 544 ATTACHMENTS 546 STATEMENT OF REVALUATIONS (A RTICLE 10 ITALIAN LAW 72/1983) 547 STATEMENT OF FEES PAID FOR THE SERVICES SUPPLIED BY THE AUDIT COMPANY PURSUANT TO ARTICLE 149-DUODECIES OF CONSOB REGULATION NO . 11971/1999 549 STATEMENT OF INTERNAL PENSION FUNDS OF CREDITO VALTELLINESE 550 COUNTRY BY COUNTRY REPORTING 551 LIST OF IAS/IFRS INTERNATIONAL FINANCIAL REPORTING STANDARDS 553 3 GROUP FINANCIAL STATEMENT HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS % STATEMENT OF FINANCIAL POSITION DATA 31/12/2015 31/12/2014 change (in thousands of EUR) Loans and receivables with customers 19,049,750 19,004,863 0.24% Financial assets and liabilities 5,101,809 6,539,442 -21.98% Equity investments 9,464 200,797 -95.29% Total assets 26,901,681 28,813,556 -6.64% Direct funding from customers 21,694,956 20,745,569 4.58% Indirect funding from customers 12,092,772 11,963,332 1.08% of which: - Managed funds 6,792,593 5,848,254 16.15% Total funding 33,787,728 32,708,901 3.30% Equity 2,183,348 2,020,106 8.08% SOLVENCY RATIOS 31/12/2015 31/12/2014 Common Equity Tier 1 capital / Risk-weighted assets (CET1 capital ratio) 13.1% 11% Tier 1 capital/Risk-weighted assets (Tier 1 capital ratio) 13.1% 11% Total own funds/Risk-weighted assets (Total capital ratio) 15.1% 14% FINANCIAL STATEMENT RATIOS 31/12/2015 31/12/2014 Indirect funding from customers / Total funding 35.8% 36.6% Managed funds / Indirect funding from customers 56.2% 48.9% Direct funding from customers / Total liabilities 80.6% 72.0% Customer loans / Direct funding from customers 87.8% 91.6% Customer loans / Total assets 70.8% 66.0% % CREDIT RISK 31/12/2015 31/12/2014 change Net bad loans (in thousands of EUR) 1,207,157 1,101,939 9.55% Other net doubtful loans (in thousands of EUR) 2,150,475 2,090,157 2.89% Net non-performing loans (in thousands of EUR) 3,357,632 3,192,096 5.19% Net bad loans / Loans and receivables with customers 6.3% 5.8% Other net doubtful loans / Loans and receivables with customers 11.3% 11.0% Net non-performing loans / Loans and receivables with customers 17.6% 16.8% Coverage ratio of bad loans 57.1% 56.0% Coverage ratio of other doubtful loans 23.4% 18.9% Coverage ratio of net non-performing loans 40.3% 37.2% Cost of credit (*) 2.31% 3.41% (*) Calculated as the ratio between the net impairment losses due to deterioration of loans and year-end loans. 4 % INCOME STATEMENT DATA 2015 2014 change (in thousands of EUR) Net interest income 464,508 479,162 -3.06% Operating income 855,124 904,185 -5.43% Operating costs (550,810) (558,946) -1.46% Operating profit 304,314 345,239 -11.85% Pre-tax profit (loss) from continuing operations 24,188 (432,923) -105.59% Post-tax profit (loss) from continuing operations 102,188 (321,192) -131.82% Profit (loss) for the year 118,277 (325,086) -136.38% % ORGANISATIONAL DATA 31/12/2015 31/12/2014 change Number of employees 4,123 4,275 -3.56% Number of branches 526 539 -2.41% OTHER FINANCIAL INFORMATION 2015 2014 Cost/Income ratio (*) 59.0% 55.8% Personnel expenses (**)/Number of employees 70 69 Basic earnings (loss) per share 0.105 (0.407) Diluted earnings (loss) per share 0.105 (0.407) (*) 2014 figure calculated net of non-recurring expenses related to the implementation of the “Solidarity Fund” and of the impairment of customer lists; 2015 figure calculated net of ordinary and extraordinary contributions paid to SRF and DGS and of the impairment of the customer list. (**) Costs non chargeable to employees removed; 2014 figure calculated net of non-recurring expenses related to the implementation of the “Solidarity Fund”. 5 INFORMATION ON SHARES 31/12/2015 31/12/2014 Number of ordinary shares 1,108,872,369 1,108,872,369 Listed price at end of the year 1.091 0.793 Average listed price for the year 1.167 0.9276 Average stock-market capitalisation (millions of EUR) 1,294 790 Group equity per share (*) 1.814 1.822 (*) The calculation does not consider treasury shares in portfolio. ASSIGNED RATINGS Fitch Ratings Long-term IDR BB Short-term IDR B Outlook Stable Last “rating action” on 2 July 2015 Moody ’s Investor Service Long-term Rating Ba1 Short-term Rating Not -Prime Outlook Stable Last “rating action” on 25 January 2016 DBRS Senior Long-Term Debt & Deposit Ratings BBB (low) Short-term Debt & Deposit Rating R-2 (low) Trend Negative Last “rating action” on 18 June 2015 6 COMPANY OFFICERS OF CREDITO VALTELLINESE in office at 8 February 2016 Board of Directors Chairman Giovanni De Censi Deputy Chairman Alberto Ribolla Managing Director Miro Fiordi Directors Mariarosa Borroni Isabella Bruno Tolomei Frigerio Gabriele Cogliati Michele Colombo Paolo De Santis Paolo Stefano Giudici Gionni Gritti Antonio Leonardi Livia Martinelli Francesco Naccarato Valter Pasqua Paolo Scarallo Board of Statutory Auditors Chairman Angelo Garavaglia Standing Auditors Giuliana Pedranzini Luca Valdameri Substitute Auditors Edoardo Della Cagnoletta Anna Valli General Management General Manager Miro Fiordi Co -General Manager Luciano Camagni Deputy General Managers Umberto Colli Enzo Rocca Mauro Selvetti Manager in charge of financial reporting Simona Orietti Audit Company KPMG S.p.A. 7 NOTICE OF CALL OF SHAREHOLDERS’ MEETING Call of the ordinary Shareholders’ Meeting The Shareholders of Credito Valtellinese are called to an ordinary Shareholders’ Meeting on 22 April 2016 at 9.00 a.m., on first call in Sondrio at the registered office of Piazza Quadrivio no. 8 in Sondrio and, if necessary, on Saturday 23 April 2016 at 9.00 a.m. on second call, at the Polo Fieristico Provinciale (Provincial Fair-ground) in Morbegno (SO) via Passerini 7/8, to resolve upon the following agenda: Ordinary session 1. Appointment of the Board of Directors; proposal to appoint 15 Directors for the 2016- 2018 three-year period. 2. Appointment of the Board of Statutory Auditors for the 2016-2018 three-year period. 3. Appointment of the panel of arbitrators for the 2016-2018 three-year period.