interim report on operations as at 31 march 2015the yield of 10-year btp decreased by 1.2 percentage...
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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]
Share capital fully subscribed and paid-up EUR 1,846,816,830.42
Member of the Interbank Guarantee Fund
INTERIM REPORT ON OPERATIONS AS AT 31 MARCH 2015
2
Company Officers of Credito Valtellinese
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.
3
Contents
CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE PERFORMANCE INDICATORS AS AT 31
MARCH 2015 .................................................................................................. 4
ORGANISATIONAL MODEL AND BREAKDOWN OF THE CREDITO VALTELLINESE BANKING
GROUP .......................................................................................................... 6
MACROECONOMIC REFERENCE CONTEXT ................................................................. 8
SIGNIFICANT EVENTS DURING THE FIRST QUARTER ................................................. 11
THE OPERATIONAL STRUCTURE, THE CUSTOMERS AND THE COMMERCIAL PERFORMANCE
INDICATORS .................................................................................................. 13
INFORMATION ON THE MAIN STATEMENT OF FINANCIAL POSITION ITEMS AND ON
CONSOLIDATED INCOME STATEMENT FIGURES ........................................................ 15
INFORMATION ON RISKS AND RELATED HEDGING POLICIES ....................................... 21
NOTES TO THE FINANCIAL STATEMENTS ............................................................... 24
EVENTS AFTER THE REPORTING PERIOD ............................................................... 26
CURRENT-YEAR OUTLOOK ................................................................................. 26
DECLARATION OF THE MANAGER IN CHARGE OF FINANCIAL REPORTING ....................... 27
4
CONSOLIDATED HIGHLIGHTS AND ALTERNATIVE PERFORMANCE
INDICATORS AS AT 31 MARCH 2015
STATEMENT OF FINANCIAL POSITION DATA (in thousands of EUR)
31/03/2015 31/12/2014 %
change 31/03/2014 % change
Loans and receivables with customers
18,614,292 19,004,863 -2.06 19,417,443 -4.14
Financial assets and liabilities 7,485,287 6,539,442 14.46 3,409,266 119.56
Equity Investments 206,654 200,797 2.92 187,957 9.95
Total assets 29,437,878 28,813,556 2.17 26,625,313 10.56
Direct funding from customers 23,297,163 20,745,569 12.30 20,328,876 14.60
Indirect funding from customers 12,911,913 11,963,332 7.93 11,634,891 10.98
of which:
- Managed funds 6,510,061 5,848,254 11.32 5,499,728 18.37
Total funding 36,209,076 32,708,901 10.70 31,963,767 13.28
Equity 2,131,261 2,020,106 5.50 1,959,722 8.75
SOLVENCY RATIOS 31/03/2015 31/12/2014
Common equity tier 1 capital / Risk-weighted assets (CET1 capital ratio) 11.1% 11%
Tier 1 Capital/Risk-weighted assets (TIER1 capital ratio) 11.1% 11%
Total own funds / Risk-weighted assets (Total capital ratio) 13.6% 14%
FINANCIAL STATEMENT RATIOS 31/03/2015 31/12/2014
Indirect funding from customers / Total funding 35.7% 36.6%
Managed funds / Indirect funding from customers 50.4% 48.9%
Direct funding from customers/ Total liabilities 79.1% 72.0%
Customer loans / Direct funding from customers 79.9% 91.6%
Customer loans / Total assets 63.2% 66.0%
5
CREDIT RISK 31/03/2015 31/12/2014 %
change
Net non-performing loans (in thousands of EUR) 1,160,433 1,101,939 5.31
Other net doubtful loans (in thousands of EUR) 2,151,757 2,090,157 2.95
Net non-performing loans / Loans and receivables with customers 6.2% 5.8%
Other net doubtful loans / Loans and receivables with customers 11.6% 11.0%
Coverage ratio of non-performing loans 55.3% 56.0%
Coverage ratio of other doubtful loans 18.7% 18.9%
Cost of credit (*) 1.45% 3.41%
(*) Calculated as the ratio between net impairment losses on loans and year-end loans
ORGANISATIONAL DATA 31/03/2015 31/12/2014 %
change
Number of employees 4,322 4,275 1.10
Number of branches 539 539 -
Banc@perta line users 247,883 243,557 1.78
OTHER FINANCIAL INFORMATION Q1 2015 2014 Q1 2014
Cost/Income ratio 53.7% 55.8% 54.0%
2014 figure calculated net of non-recurring expenses related to the implementation of the “Solidarity Fund” and of the impairment of the customer lists; figure of the first quarter of 2014 restated in accordance with the provisions of IFRS 5.
6
ORGANISATIONAL MODEL AND BREAKDOWN OF THE CREDITO
VALTELLINESE BANKING GROUP
The Credito Valtellinese Banking Group currently consists of territorial banks, specialised
companies and special purpose companies for the provision of services - with a view to achieving
synergies and economies of scale - to all the companies of the Group, as graphically represented
below (as at 31 March 2015).
STRUCTURE OF THE CREDITO VALTELLINESE GROUP
The Organisational Model of the Group, defined as a “network company” model, assigns the
reference market share to the territorial banks and the required operating support to the
specialised finance and special purpose companies. Therefore, it is based on the full enhancement
of the distinctive skills of each member, with the purpose of achieving the maximum efficiency
and competitiveness, on their functional and operational correlation, on the adoption in the
corporate process management of the same rules and methods. This allows to overcome size
restrictions and to fully benefit from the advantage of proximity with regard to the areas of choice,
combining effectively specialisation and flexibility, production and distribution functions.
As at 31 March 2015, the Credito Valtellinese Group is present in Italy with a network of 539
Branches, in eleven regions, through the territorial banks characterising the “Retail Banking
Sector”:
- Credito Valtellinese S.c., the Parent, present with its own network of 363 branches, most of
which - 231 - are in Lombardia, as well as in Valle d’Aosta, Piemonte, Veneto, Trentino Alto Adige,
Emilia Romagna, Toscana and Lazio.
- Carifano S.p.A., with a branch network of 40 branches, mainly in the Marche region, as well
as in Umbria, Perugia and Orvieto.
- Credito Siciliano S.p.A., is present in all the provinces of Sicilia with 136 branches and in
Roma, Torino and Milano with three branches dedicated to loans against pledges.
The following companies characterise the “Specialised Company Sector”:
7
- Finanziaria San Giacomo S.p.A.1, company specialised in the management of non-performing
loans mainly of the financial intermediaries of the Group.
- Global Assicurazioni S.p.A.2, a multifirm insurance agency specialised in the brokerage and
management of standard insurance policies in favour of individuals and household customers.
- Global Broker S.p.A.3, insurance broker specialised in the brokerage and management of
insurance policies in favour of companies.
The companies providing services complementary to banking business characterising the
“Corporate Center Sector” complete the Group:
- Bankadati Servizi Informatici società consortile per Azioni, is the Group’s centre for ICT
management and development, organisation, back office and support processes.
- Stelline Servizi Immobiliari S.p.A., manages the real estate holdings of the Group
companies, prepares real estate valuations to support the disbursement of credit by the Territorial
Banks and independently develops initiatives in favour of the local communities of reference.
1 Company sold to Cerved Credit Management S.r.l. on 1 April 2015.
2 The company carrying out the insurance activities is subject to management and coordination by Credito Valtellinese
and therefore included in the consolidation scope, even if not included in the Banking Group, pursuant to the supervisory
provisions.
3 See previous note.
8
MACROECONOMIC REFERENCE CONTEXT
The general economic framework
The economic activity is becoming consolidated in the United States, in the United Kingdom and
in Japan, but has weakened in some emerging economies. A slight acceleration of global trade is
expected for 2015. Oil prices, albeit they rose slightly from the lows reached in mid-January,
remain still low looking ahead. The uncertainty with regard to the situation in Greece and to the
conflicts in Ukraine, Libya and the Middle East remains high, although it has not impacted so far
on the conditions of international financial markets.
The purchase programme of the Eurosystem was expanded to government bonds. Total purchases
of EUR 60 billion per month are expected at least until the end of September of 2016, and in any
event until a lasting inflation adjustment occurs in the area consistent with the objective of price
stability (an inflation rate below but close to 2 per cent over the medium term). The programme
has already had significant effects on financial and currency markets: the yield of Government
bonds with 10-year maturity reached a new record low (0.6 per cent, in the average of the area)
and the Euro depreciated (by 15 per cent against the dollar since November 2014). The inflation
expectations, decreasing continuously since the beginning of January, stabilised and reported a
first sign of improvement.
In Italy, the favourable economic signs increased, albeit the restart of the economic cycle still
needs to be consolidated. In the last quarter of 2014, despite the sluggishness of the product,
the national accounts confirm the expansion of household consumption, the acceleration of
exports and report a slight recovery of capital accumulation, for machines and transport means,
in particular. In the first months of this year, the performance of the industrial business is still
uncertain, but there is a marked improvement in the confidence of households and businesses.
Although in the fourth quarter the number of employees slightly decreased, affected by the decline
in constructions, employment stabilised in January and February; the unemployment rate slightly
decreased reflecting however the lower participation in the labour market. In the most recent
surveys, households and businesses expect a slight improvement in employment prospects over
the next few months, to which the tax relief introduced in January and the regulations envisaged
by the Jobs Act, in force since March, could have contributed.
In the first few months of 2015, consumer inflation was almost nil mainly due to the decline in
energy prices and the weak increase of underlying components; however, the investigations
carried out at the enterprises showed some positive signs, related to a lower weakness in demand.
As part of the Eurosystem's purchase plan, the Italian Government bonds that will be purchased
by the Bank of Italy will amount to approximately EUR 130 billion; including the ECB's
transactions, total purchases of Government bonds of our country will be approximately EUR 150
billion. The conditions of the Italian financial markets improved considerably already as from the
announcement last 6 November of the start of the preparatory works for the programme. The
yields of Italian Government bonds, the risk premiums on sovereign and private debts and those
on credit default swaps of major banks decreased. The yield of 10-year BTP decreased by 1.2
percentage points, from 2.5 to 1.3 per cent, between the announcement of the preparatory works
for the plan and its start and, later on it remained just below 1.3 per cent. Share prices recorded
sharp rises; their volatility decreased.
The expansion of the purchase programme of bonds may boost the economic activity, quantifiable
- based on the impact on interest rates and on exchange rates - in more than one percentage
point of GDP in 2015-16. As a whole, in a scenario of full implementation of the plan, GDP growth
9
in Italy could be more than 0.5 per cent this year and around 1.5 per cent next year. Other effects
can be added - albeit not easy to quantify - if a general increase in asset prices, due to the re-
balancing of portfolios, provides further incentives to consumption and investments. The
reduction in oil prices as from the middle of last year also contributes to GDP by approximately
half a point in two years. However, the consolidation of the confidence of households and
businesses remains essential.
The Italian banking system
Signs of improvement in credit conditions continue: the Italian banks are completing the
implementation in the financial statements of the results of the Comprehensive Assessment.
According to the surveys, the lending conditions to business further improved, but remain
differentiated by company size and economic activity. The average lending rates decreased, albeit
they are greater than the corresponding values for the Eurozone; they are likely to further
decrease in the coming months due to lower market yields. However, the decline in loans to
businesses continues; the decline in loans to households basically stopped. Italian banks made
wide use of the third longer-term refinancing operation, which can favour the expansion of credit
to the economy.
The cost of loans recorded a new slight decline. The reduction in credit for businesses continued,
mainly reflecting the weakness in demand. Lending conditions recorded a moderate easing for
larger companies; restriction for smaller companies stopped. Access to credit is still difficult for
construction companies, characterised by a greater incidence of impaired items.
In the three months ending in February, the change in credit to the private non-financial sector
remained negative (-1.8 per cent year on year and net of seasonal effects). Loans to non-financial
companies decreased by 3.0 per cent (from -2.2 per cent in November), also reflecting the
uncertain start of the industrial activity, and the decline in loans to households almost stopped.
In February, the decrease over twelve months in loans to non-financial companies was more
pronounced in the construction sector (-4.7 per cent), characterised by a particularly unfavourable
performance of the activity and by a high incidence of impaired loans; the decline stabilised at
values slightly above 2 per cent in services and manufacturing. The gap between loans to
companies with at least 20 employees (equal, for all these companies, to -2.5 per cent in
February, from -2.4 per cent in November) and that of smaller businesses (-4.7 per cent, from -
3.3 per cent) increased in all the sectors.
From November to February, the deposits in Italian banks increased due to an increase in deposits
by businesses and resident households, as well as to deposits by non-residents and reverse
repurchase agreements towards central counterparties, which represent interbank transactions
with foreign operators. In the same period, the decline in bond issues and in liabilities with regard
to the Eurosystem continued.
According to the banks surveyed as part of the Bank Lending Survey, in the first quarter of 2015,
lending conditions were further eased both for businesses and for households. Loan applications
of households for the purchase of homes recorded a new strong increase, whereas that of non-
financial companies remained unchanged. The more favourable trend of intermediaries in granting
loans is confirmed by the recent surveys carried out with businesses; however, conditions are still
different by company size and economic activity.
The funds obtained by the counterparties of the Bank of Italy in the third longer-term refinancing
operation, settled last 25 March, amounted to EUR 36 billion; in this transaction, the maximum
amount of liquidity that can be obtained by each intermediary was related to the amount of loans
disbursed to the private sector from May 2014 to last January. The loans are added to EUR 57
billion already obtained in the first two transactions (carried out in September and in December)
10
that, according to some intermediaries, would be used for disbursing a new loan to businesses
and households.
In the fourth quarter of 2014, the flow of new non-performing-loans adjusted in relation to loans
(net of seasonal effects and year on year) was 2.7 per cent, two tenths of a point more than in
the second and third quarter. The indicator increased for loans to businesses in all sectors,
stronger for construction companies; the new non-performing loans in relation to loans to
households increased by one tenth. Preliminary information indicates that, in January and
February, total exposure to debtors identified for the first time as non-performing was 6 per cent
below the corresponding period of 2014; compared to the previous two months, a slight increase
was recorded, net of seasonal factors.
In 2014, the average profitability of the five major banking groups, albeit slightly increasing,
remained weak. The return on equity (ROE), measured net of non-recurring components such as
goodwill impairment, was negative (-1.8 per cent; -2.4 per cent in 2013). In connection with the
increase in net interest income (1.5 per cent) and in net fee and commission income (5.3 per
cent), there was a sharp decrease in income from trading; as a whole, total income remained
almost stable. The operating result slightly increased (0.6 per cent), reflecting the reduction in
operating costs (-0.8 per cent). As in 2013, impairment losses on loans and receivables absorbed
all the operating result; it was affected by the full implementation in the financial statements of
the banking groups of the results of the Asset Quality Review carried out as part of the
Comprehensive Assessment.
The financial market in Italy
The conditions of the Italian financial markets improved considerably, especially following the
start of the Eurosystem's asset purchase plan. The yields of Government bonds as well as the risk
premiums on sovereign and private debts decreased; share prices recorded sharp rises and their
volatility decreased.
In the fourth quarter of 2014, net redemptions of bonds by banks continued, both in Italy and in
the Eurozone (EUR 39 and EUR 139 billion, respectively). According to preliminary data from
Dealogic related only to gross issues, the placements carried out by Italian banks in the first
quarter of 2015 increased compared to the previous period to EUR 10.8 billion, from 4 in the last
three months of 2014, while remaining below the values recorded at average levels of 2012-14
(EUR 13 billion).
The equity markets benefited from the positive effect of the decisions of the ECB as well. From
the beginning of the year, the general Borsa Italiana index increased by 26 per cent (22 per cent
in the Eurozone as a whole). The increase in prices was determined by the drop in interest rates
and by the decrease of the premium for the risk requested by the investors, which more than
offset the negative contribution due to the downsizing of expectations concerning company
profits. The expected volatility of share prices, derived from the prices of the options on the stock
market indexes, decreased considerably.
11
SIGNIFICANT EVENTS DURING THE FIRST QUARTER
The most important events that characterised the management of the Creval Group during the
first quarter of 2015 and that, if necessary, were the subject-matter of specific disclosures to
markets are mentioned below.
On 16 March 2015, a collaboration agreement was signed with Yard Credit & Asset Management
- company of the Yard Group among the main operators of credit management present in Italy,
with a high expertise for consultancy, management, credit recovery and surfacing of real assets'
value services - for the management of “distressed” real estate loans of the Creval Group.
The agreement is consistent with the objectives defined by the Strategic Plan on the management
of impaired loans - in particular secured by real estate - in a real estate market context that is
significantly affected by the continuing effects of the economic crisis.
Initially, the collaboration will concern a portfolio of approximately EUR 500 million of impaired
loans, but not yet classified as non-performing. The management of these loans and receivables
focused on the protection of claims requires today a new approach, more based on asset
management logics, with a view to enhance the real estate property as collateral, avoiding the
gradual worsening and the related increase in the Group's cost of risk. This dynamic management
is particularly important in Italy, considering the time required by real estate implementations,
which have a significant impact on settlement costs of guarantees.
Therefore, the collaboration agreement paves the way for a better management of all distressed
real estate assets of the Creval group, by enhancing also the expertise gained by Stelline, the
company of the Creval group specialised in the management of real estate assets, combined with
the distinctive skills of a highly specialised operator.
A special Non Core Unit was established within the Loans Area, in support of the new operating
process, with deleveraging and derisking objectives.
The new management model – integrated organically within the actions defined by the Strategic
Plan on the efficiency of the management of the Non Performing Loans - will allow to extract value
from “non core” activities, releasing financial resources for development and growth, and will
contribute to reduce the stock of the assets not functional to the core business of the bank.
The agreement signed on last December between Credito Valtellinese and Cerved Information
Solutions S.p.A. - by means of the subsidiary Cerved Credit Management Group S.r.l. - for the
development of a long-term industrial partnership for the management of non-performing loans
(NPLs) and finalised on 1 April 2015 is also part of this context.
The agreement envisages the in service management by the Cerved Credit Management Group
of a portfolio of NPLs of the Creval Group, consisting of the more “standardised” and “time
consuming” part of the NPLs of the Creval Group in addition to the new flows that will be generated
in the future (85% of total current and future non-performing loans), on the basis of a multi-year
contract and variable market fees mainly related to annual actual collections on the managed
portfolio. The activity will be carried out by means of Finanziaria San Giacomo, transferred at the
same time to Cerved Credit Management.
Creval will retain the management of the Large Tickets, as well as the operational coordination
and control of the credit recovery process and of the servicing activities.
The agreement signed envisages also the carrying out of a significant activity by the servicer
intended to prepare a complete Loan Tape on the NPLs preparatory to the sale, in the medium
12
term, of part of the portfolio, in line with the objectives defined in the Business Plan of Credito
Valtellinese.
13
THE OPERATIONAL STRUCTURE, THE CUSTOMERS AND THE
COMMERCIAL PERFORMANCE INDICATORS
The territorial network
As at 31 March 2015, the branches forming the territorial network of the Credito Valtellinese
Group are 539 as represented below.
Other distribution channels
The following other distribution channels complete the operational structure:
31/03/2015 31/12/2014 % change
Number of ATMs 648 649 -0.15
Number of POS 24,770 24,542 0.93
As at the end of March 2015, “active” Internet users in the Creval Group - customers who have
performed at least one transaction in the last six months - total 247,883, compared to 243,557
at the end of the prior year, with an increase of 1.78%.
14
The customer base
As at 31 March 2015, the Group’s customers numbered 981,559, confirming the Group's capacity
to attract new customers and maintain its customer base in its territories of origin, with a retention
rate of 98.55%.
The personnel
At the end of March 2015, the registered workforce of the companies included in the scope of
consolidation of the Group consisted of 4,334 collaborators (compared to 4,280 resources at the
end of 2014). These include 12 collaborators employed by companies or entities outside the
Group, among them Fondazione Gruppo Credito Valtellinese, Global Assistance, the Pension Fund
for the Employees of the Credito Valtellinese Group and Alba Leasing.
In terms of contract position by professional category, the total workforce of 4,334 can be broken
down as follows:
- 61 executives;
- 1,621 middle managers;
- 2,652 workers in other professional categories.
Workforce by contract category as at 31 March 2015
15
INFORMATION ON THE MAIN STATEMENT OF FINANCIAL
POSITION ITEMS AND ON CONSOLIDATED INCOME STATEMENT
FIGURES
Reclassified consolidated financial statements
The analysis of the statement of financial position and income statement for the period,
represented below, uses summary and reclassified statements. The aggregates and
reclassifications regarding items of the Statement of Financial Position and of the Income
Statement prescribed by Bank of Italy Circular no. 262/05 are detailed in the Notes to the
Financial Statements.
ASSETS (in thousands of EUR) 31/03/2015 31/12/2014 %
change
Cash and cash equivalents 159,122 194,289 -18.10
Financial assets held for trading 412,383 61,787 n/a
Available-for-sale financial assets 7,436,450 6,789,606 9.53
Loans and receivables with banks 779,573 839,489 -7.14
Loans and receivables with customers 18,614,292 19,004,863 -2.06
Equity Investments 206,654 200,797 2.92
Property, equipment and investment property and intangible assets (1) 658,257 663,968 -0.86
Non-current assets held for sale and disposal groups 3,158 3,191 -1.03
Other assets (2) 1,167,989 1,055,566 10.65
Total assets 29,437,878 28,813,556 2.17
(1) Include the items "120. Property, equipment and investment property" and "130. Intangible assets". (2) Include the items "140. Tax assets" and "160. Other assets".
LIABILITIES AND EQUITY (in thousands of EUR) 31/03/2015 31/12/2014 %
change
Due to banks 2,401,288 4,837,374 -50.36
Direct funding from customers (1) 23,297,163 20,745,569 12.30
Financial liabilities held for trading 4,021 3,233 24.37
Hedging derivatives 359,525 308,718 16.46
Liabilities associated with disposal groups 736 573 28.45
Other liabilities 937,575 635,058 47.64
Provisions for specific purpose (2) 302,059 258,471 16.86
Equity attributable to non-controlling interests 4,250 4,454 -4.58
Equity (3) 2,131,261 2,020,106 5.50
Total liabilities and equity 29,437,878 28,813,556 2.17
(1) Include the items "20. Due to customers" and "30. Securities issued". (2) Include the items "80. Tax liabilities", "110. Post-employment benefits" and "120. Provisions for risks and charges". (3) Includes items "140. Valuation reserves", "170. Reserves", "180. Share premium reserve", "190. Share Capital", "200. Treasury shares" and "220. Profit (loss) for the period".
16
ITEMS (in thousands of EUR) Q1 2015 Q1 2014 %
change
Net interest income 117,051 127,247 -8.01
Net fee and commission income 68,521 66,012 3.80
Profit (loss) of equity-accounted investments (1) 4,244 4,443 -4.48
Net trading and hedging income (expense) and profit (loss) on sales/repurchases
34,949 30,565 14.34
Other operating net income (4) 4,441 5,230 -15.09
Operating income 229,206 233,497 -1.84
Personnel expenses (74,228) (74,609) -0.51
Other administrative expenses (2) (40,193) (42,288) -4.95
Depreciation/amortisation and net impairment losses on property, equipment and investment property and intangible assets (3)
(8,672) (9,144) -5.16
Operating costs (123,093) (126,041) -2.34
Operating profit 106,113 107,456 -1.25
Net impairment losses on loans and receivables and other financial assets (67,512) (102,237) -33.97
Net accruals to provisions for risks and charges - (347) -100.00
Net gains (losses) on sales of investments (37) (158) -76.58
Pre-tax profit from continuing operations 38,564 4,714 n/a
Income taxes (13,884) (2,860) n/a
Post-tax profit from continuing operations 24,680 1,854 n/a
Profit (loss) from discontinued operations (277) (210) 31.90
Profit for the period attributable to non-controlling interests (1,030) (808) 27.48
Profit for the period 23,373 836 n/a
(1) Profit (loss) of equity-accounted investments include net gains/losses on equity-accounted investments included in item 240 “Net gains on investments”. The residual amount of that item is included in gains on sales of investments, together with item 270 “Net gains on sales of investments"; (2) Other administrative expenses include taxes and other recoveries recognised to item "220. Other operating net income" (EUR 14,592 thousand in the first quarter of 2015 and EUR 14,094 thousand in the first quarter of 2014); (3) Depreciation/amortisation and net impairment losses on property, equipment and investment property and intangible assets include items 200 "Depreciation and net impairment losses on property, equipment and investment property", 210 “Amortisation and net impairment losses on intangible assets” and the accumulated depreciation of costs incurred for leasehold improvements, included in item 220 "Other operating net income" (EUR 744 thousand in the first quarter of 2015 and EUR 979 thousand in the first quarter of 2014); (4) Other income and costs correspond to item 220 “Other operating net income” net of the above reclassifications.
The corresponding prior year figures were restated, in accordance with the provisions of IFRS 5,
as a result of the agreement signed on 22 December 2014 with the Cerved Group whose subject
matter was the development of a long-term industrial partnership for the management of non-
performing loans. This agreement also included the sale of the subsidiary Finanziaria San Giacomo
S.p.A. that took place on 1 April 2015.
17
Statement of financial position aggregates
As at 31 March 2015, loans and receivables with customers stood at EUR 18.6 billion, down
2.1% compared to EUR 19 billion as at 31 December 2014. However, the reduction is slowing
down, the new granting of loans to businesses and, even more, of mortgages for purchasing
properties, seem to confirm the first signs of reversal of the negative cycle.
Positive signs also appear with regard to credit quality. During the period, there was a further
slowdown in the flow of new problem loans, especially for the less risky categories. At the end of
the period, Net impaired Loans totalled approximately EUR 3.3 billion, compared to EUR 3.2 billion
as at 31 December 2014.
Non-Performing loans totalled EUR 1,160 million, increasing by 5.3% compared to EUR 1,102
million as at 31 December 2014, with a coverage ratio of 55.3%. Based on the new definitions of
non-performing exposure (NPE) issued by the EBA and adopted by the Bank of Italy, other
doubtful loans amounted to EUR 2,152 million, of which EUR 1,603 million due to “unlikely to pay”
and EUR 548 million due to past-due exposures. At the end of 2014, other doubtful loans, based
on the definitions of impaired financial assets in force then, totalled EUR 2,090 million.
The following table shows detailed information on credit quality as at 31 March 2015 and as at 31
December 2014.
(in thousands of EUR) 31/03/2015 31/12/2014
Gross amount
Impairment losses
Carrying amount
% Coverage
Gross amount
Impairment losses
Carrying amount
% Coverage
Impaired loans
Non-performing loans 2,597,599 -1,437,166 1,160,433 55.3 2,503,424 -1,401,485 1,101,939 56.0
Unlikely to pay (*) 2,043,060 -439,655 1,603,405 21.5 2,012,676 -434,124 1,578,552 21.6
Past-due loans 603,735 -55,383 548,352 9.2 566,036 -54,431 511,605 9.6
Total Impaired loans 5,244,394 -1,932,204 3,312,190 36.8 5,082,136 -1,890,040 3,192,096 37.2
Performing loans 15,425,126 -123,024 15,302,102 0.80 15,942,016 -129,249 15,812,767 0.81
Total loans and receivables with customers
20,669,520 -2,055,228 18,614,292 21,024,152 -2,019,289 19,004,863
(*) The figures as at 31 December 2014 are calculated as the sum of substandard and restructured loans.
18
Direct funding amounted to EUR 23.3 billion, up by 12.3% compared to the end of December
2014. Net of the component referring to central counterparties, the funding stood at EUR 19.8
billion, decreasing by 3.4 %, essentially due to the reorganisation of total deposits of customers
with regard to indirect funding.
(in thousands of EUR) 31/03/2015 31/12/2014 %
change
Current accounts and deposit accounts 13,283,109 13,096,125 1.4
Repurchase agreements (*) 3,403,851 242,227 n/a
Term deposits 1,509,875 2,008,847 -24.8
Other 224,677 205,477 9.3
Due to customers 18,421,512 15,552,676 18.4
Securities issued 4,875,651 5,192,893 -6.1
Total direct funding from customers 23,297,163 20,745,569 12.3
(*) The change is mainly attributable to repurchase agreements with Cassa compensazione e garanzia.
Indirect funding amounted to EUR 12.9 billion, up by 7.9% compared to EUR 12 billion at the
end of December 2014, driven by the increase in the component referring to “managed funds”,
which totalled EUR 6.5 billion, up by 11% compared to EUR 5.8 billion at the end of last year.
(in thousands of EUR) 31/03/2015 31/12/2014 %
change
Asset management 2,313,715 2,117,430 9.3
Mutual funds 2,322,629 1,977,051 17.5
Insurance funds 1,873,717 1,753,773 6.8
Total Managed funds 6,510,061 5,848,254 11.3
Assets under administration 6,401,852 6,115,078 4.7
Total indirect funding 12,911,913 11,963,332 7.9
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Financial assets amounted to EUR 7.8 billion as at 31 March 2015. Of these, EUR 7.6 billion
were represented by Italian government securities, mainly classified in the AFS (Available for
sale) portfolio, with a duration of approximately 3.1 years, considering the transactions for
interest-rate risk hedging. The valuation reserve on AFS securities, recorded among equity items,
was positive by EUR 98 million compared to EUR 14 million at the end of 2014.
(in thousands of EUR) 31/03/2015 31/12/2014 %
change
Financial assets and liabilities held for trading
Debt instruments 409,600 58,144 n/a
Equity instruments and OEIC units 1,655 1,500 10.3
Derivative financial instruments with positive fair value 1,128 2,143 -47.4
Total assets 412,383 61,787 n/a
Derivative financial instruments with negative fair value -4,021 -3,233 24.4
Total assets and liabilities 408,362 58,554 n/a
Available-for-sale financial assets
Debt instruments 7,285,167 6,662,097 9.4
Equity instruments and OEIC units 151,283 127,509 18.6
Total 7,436,450 6,789,606 9.5
The liquidity position further improved. The net balance of overall liquidity at three months is
equal to EUR 7 billion on 12 May 2015. The exposure to the ECB for refinancing operations TLTRO
(Targeted Longer-Term Refinancing Operations) currently stands at EUR 1.5 billion.
The liquidity requirements – LCR and NSFR – were already well above the minimum levels
required by Basel 3.
Equity and capital ratios
The equity attributable to owners of the parent as at 31 March 2015 amounted to EUR 2,131
million.
In pursuance of the transitional regime in force since 2014, the common equity TIER1, which
does not include the profit for the period, amounted to 1,845 million in connection with risk-
weighted assets of EUR 16,678 million.
The capital ratios amounted to:
- 11.1% for the phased in Common Equity Tier1 ratio,
- 13.6% for the phased in Total Capital ratio.
Income statement
In the first quarter of 2015, net interest income amounted to EUR 117 million, down by 8%
compared to EUR 127 million of the first quarter of the previous financial year, however slightly
improving on a quarterly basis despite the performance of interest rates, the failure to recover
the volumes and lower contribution of interests on securities.
Net fee and commission income amounted to EUR 68.5 million, up by 3.8% year on year,
mainly due to the more than positive trend of the fee and commissions on managed funds, which
allowed to counterbalance the deceleration of the components relating to lending and current
account management.
20
Net trading and hedging income and profit on sales/repurchases grew significantly, reaching EUR
35 million, compared to EUR 30.6 million of the prior year, entirely due to profits realised on
portfolio Government securities, thanks to the favourable conditions of the financial markets.
Profit of equity-accounted investments contributed by EUR 4.2 million almost in line with the same
period of 2014.
Operating income totalled EUR 229 million decreasing by 1.8% compared to EUR 233 million of
the corresponding prior period.
Operating costs totalled EUR 123 million further decreasing by 2.3%, compared to EUR 126
million of the corresponding period of 2014.
The operating profit reached EUR 106 million, decreasing by 1.2% year on year.
Net impairment losses on loans and receivables and other financial assets, which reached EUR
67.5 million, decreased significantly compared to EUR 102 million of the same period of 2014.
After the substantial provisions made, also in implementation of the AQR results as a whole, the
cost of credit risk, equal to 145 basis points, shows a substantial stabilisation.
Pre-tax profit from continuing operations amounted to EUR 38.6 million, compared to EUR
4.7 million in the first quarter of 2014.
Income taxes for the year of EUR 13.9 million and profit attributable to non-controlling interests
amounting to EUR 1 million, fix the profit for the period of EUR 23.4 million, compared to a
break-even point in the first quarter of last year.
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INFORMATION ON RISKS AND RELATED HEDGING POLICIES
Risk management
The Creval Group attributes strategic importance to risk management, measurement and control,
essential activities for the creation of sustainable value in time and the consolidation of its
reputation on the markets of reference and with regard to stakeholders.
The clear identification of risks to which the Credito Valtellinese Banking Group is actually and
potentially exposed constitutes the essential prerequisite for a knowledgeable assumption of said
risks and their effective management, making use of the appropriate mitigation and transfer tools
and techniques.
The identification of the risks represents, on the one hand, the logical premise for defining the
risk appetite and its risk statement, which is expressed in the planning for the year, and on the
other hand, forms the initial phase of the Internal Capital Adequacy Assessment Process (ICAAP).
Therefore, the risk assumes the role of point of convergence of strategic planning, capital
management and risk management, and the process defining the Risk Appetite Framework (RAF),
ICAAP and the annual operational planning - based on the identification of risks - start.
The identification and assessment of the importance of the risks to which the Group is exposed
are carried out by considering the identity, the values, the business model and the strategic
objectives of the Group, the Risk Appetite Framework (RAF), the organisational structure and the
operating plans. A number of factors are considered such as products and services offered to
customers, the size and characteristics of operations with related parties in relation to company
operations, the amount of statement of financial position aggregates and corresponding capital
requirements, the markets of reference and the economic situation.
Risk management, based on criteria of prudence, is implemented within a precise organisational
context, which includes the set of internal rules, operating procedures and control structures and
is broken down according to a model that integrates control methods at various levels, all
converging with the objectives of ensuring efficiency and effectiveness of operating processes,
safeguarding integrity of corporate assets, protecting from losses, ensuring reliability and integrity
of information and verifying proper execution of activities with respect to the internal and external
regulations.
Information on main risks to which the Group is exposed
In line with its focus on retail banking, the Group is mainly exposed to credit risk. In terms of
internal capital, the exposure to operational risks is also significant and these risks are assumed
in that they serve as a means for carrying out the banking business.
The exposure to financial market risks is quite limited, given that the objective of limiting the
volatility of the forecast results would not be compatible with an intensive speculative financial
activity, with a pronounced transformation of maturities and with treasury management as a
profit centre rather than a service. The current composition of the assets also involves an
exposure to the sovereign risk, whereas the other risks are of lesser significance.
The risk profile at the end of the reporting period is consistent with the risk appetite defined by
the Board of Directors, which, in line with the identity, values, business model and strategic input
of the Group, approved, also for the current financial year, the allocation of the main part of the
capital to the credit risk, which represents the core business of a retail Banking Group; confirm a
low propensity to other risks with business purpose; confirm the aim of limiting/minimising
exposure for pure risks to which no return is associated.
The actual risk exposure complies with the tolerance thresholds set taking into account the
22
maximum technically assumable risk.
Credit risk
The Group is mainly exposed to credit risk that still stands at historically high levels albeit below
the maximum.
Concentration risk
The exposure to concentration risk, by single counterparty or group of related customers, by
business segments and by geographical areas, is modest and consistent with the objectives.
Market risk
At the end of the reporting period, the portfolio is mainly exposed to the insolvency risk of the
issuer, to the interest rate risk and to the exchange-rate risk (deriving from the forward purchase
and sale transactions of foreign currencies as part of the ordinary course of business with
customers) whereas the exposure to price risk and to the specific risk component of shares is
low.
The portfolio consists almost completely of bonds (mainly Italian Government bonds and
securities issued by banks) in Euro.
The Value at Risk (VaR) of the portfolio increased during the quarter, in relation to both the
expected increase of the portfolio and to the increase in the average duration of the portfolio
securities.
Interest rate risk
Considering the persistence of volumes and the stickiness of the rates of on sight items
(behavioural profile), the exposure of the Bank to instantaneous shocks of the rate curve
increased compared to the previous quarter, mainly due to the purchase of average maturity
Government bonds, remaining however well within the limits set by the internal regulations.
Liquidity risk
During the quarter, the liquidity situation was relaxed for all the examined profiles (intra-day,
short-term, medium term, structural), for which the exposure stands within the range of normal
values. The expansive overtone of the monetary policy and the measures proposed by the ECB
(Quantitative Easing, in particular) should maintain the conditions in line with the current ones.
Operational risk
Exposure remained essentially constant in the quarter with regard to both the number and type
of events and the amount of estimated or actually recognised losses.
Reputational risk
In the quarter, there is no element that may have changed or may change significantly in the
short term the positive perception of the image of the Bank with the various categories of
stakeholders (customers, counterparties, shareholders, investors, supervisory authorities,
employees, companies and territory).
Risks towards associated parties
Exposure remained essentially constant in the quarter and is in full compliance with the limits set
by the prudential regulations and by internal policies.
Sovereign risk
The investment in Italian Government bonds, placed mostly in the AFS portfolio, involves the
exposure to the credit risk of the Italian Republic that, as with any other issuer, may occur in the
form of a decrease in creditworthiness or, in extreme cases, of insolvency.
23
The exposure to the Italian Republic increased during the quarter due to the increase in the size
of the owned portfolio and of the average duration of the bonds.
Risks deriving from securitisations
With reference to the risk deriving from securitisations, the Group did not carry out any transfer
of the credit risk and, therefore, it does not run the risk that “the economic substance of the
securitisation transaction may not be fully reflected in the decisions of risk assessment and
management”. In consideration of the structure of the transactions, it is however possible to
identify the cross collateralisation as specific risk, due to the presence of multioriginator
transactions. There is therefore potential additional exposure for the Group Banks that
participated in the various transactions linked to the possible impairment losses, higher than
expected, on the loans portfolio securitised by the other banks that participated in the
transactions.
Risk of excessive leverage
As at 31 March 2015, the leverage ratio falls within is the values considered normal at company
level and is considerably higher than the minimum threshold proposed by the international
standards.
24
NOTES TO THE FINANCIAL STATEMENTS
Form and content of the interim report on operations
The Interim Report on Operations as at 31 March 2015 provides an overview of the situation of
Credito Valtellinese and of the companies that it directly or indirectly controls, or in which it
directly holds the majority of the share capital or an equity investment below the absolute
majority that still allows to govern the relevant activities of the investee.
With regard to the standards included in the annual financial statements as at 31 December 2014,
it should be noted that the following came into force:
- Commission Regulation (EU) 1361/2014 amending IFRS 3 “Business combination” with
regard to the scope of application of the standard, IFRS 13 “Fair Value Measurement”
related to the fair value measurement on a net basis of a portfolio of assets and liabilities
and IAS 40 “Investment property” concerning its interrelation with IFRS 3;
- Commission Regulation (EU) No. 2015/28 that implemented the «Annual Improvements
to International Financial Reporting Standards 2010-2012 Cycle», with reference to IFRS
2 (introduction of the definition of “service condition” and “performance condition”), IFRS
3 (amendments to the definition of contingent consideration regarding classification and
measurement), IFRS 8 (introduction of new disclosure requirements regarding general
disclosure and explanations regarding the reconciliation between assets of operating
segments and total assets of the entity), IAS 16 and 38 regarding the application of the
revaluation model and IAS 24, 37 and 39;
- Commission Regulation (EU) No. 2015/29 amending IAS 19 “Employee benefits” that
provides for the possibility, for defined benefit plans, of recognising the benefits of
employees or third parties as reductions of the service costs under certain conditions.
These amendments to IAS/IFRS apply as from the 2015 financial year.
On 22 December 2014, Credito Valtellinese S.c., Parent of the Banking Group with the same
name, and Cerved Information Solutions S.p.A. signed an agreement for the development of a
long-term industrial partnership for the management of non-performing loans (sofferenze). This
agreement envisages the sale of the subsidiary Finanziaria San Giacomo S.p.A to Cerved Credit
Management Group S.r.l., as from 1 April 2015, to be carried out after the sale of part of the
assets to the Parent Credito Valtellinese S.c. in February 2015.
The transaction, in compliance with what was required by IFRS 5, was classified as “assets held
for sale”. Costs and revenue of the same corresponding period related to assets held for sale, net
of intra-group items, were reported separately in the income statement under “Post-tax profit
(loss) from discontinued operations”, restating the corresponding period.
The following table shows the income statement items of the first quarter of 2014 subject to
reclassification.
INCOME STATEMENT ITEMS Q1 2014 IFRS 5 reclassifications Q1 2014 Restated
Personnel expenses (74,856) 247 (74,609)
Other administrative expenses (42,333) 45 (42,288)
Income taxes (2,778) (82) (2,860)
25
Accounting standard
The Group accounting policies used for preparing the consolidated interim report on operations,
with reference to the recognition, measurement and derecognition criteria for each asset and
liability item, as with the recognition methods for revenue and costs, remained the same as those
used for the Financial Statements as at 31 December 2014, to which reference should be made.
However, it is specified that, as from 1 January 2015, the new definition of Non-performing loans
came into force and was used in the first quarter of 2015. On 9 January 2015, the European
Commission approved a specific “technical standard”, issued by the EBA (European Banking
Authority) on 21 October 2013, related to the definition of Non performing loans and Forbearance
exposures. As a result of the approval, on 20 January 2015, the Bank of Italy published the update
to Circular 272 that defines the reporting practices to be followed for the classification of credit
quality as of 1 January 2015. In detail, the categories of performing loans, past due loans,
substandard loans, restructured loans and “non-performing loans” (sofferenze) were replaced by
the new categories of performing, past due exposures, unlikely to pay and “non-performing loans”
(sofferenze), by showing the “forborne” positions of each class.
The consolidated interim report as at 31 March 2015 was not subject to audit by the independent
auditor.
26
EVENTS AFTER THE REPORTING PERIOD
As already shown in another part of this report, the agreement for the development of a long-
term industrial partnership for the management of non-performing loans (sofferenze) signed on
last December between Credito Valtellinese and Cerved Information Solutions S.p.A., by means
of the subsidiary Cerved Credit Management Group S.r.l. was finalised on 1 April 2015.
The sale of 100% of Finanziaria San Giacomo S.p.A., company wholly owned by Creval, to Cerved
Credit Management Group was completed on the same date.
CURRENT-YEAR OUTLOOK
The macroeconomic scenario in the Eurozone seems to indicate a significant improvement and
the beginning of a growth phase, driven by the depreciation of the Euro, the marked reduction in
oil prices and the actions of the ECB - the Public Sector Purchase Program (QE), the Targeted
Long Term Refinancing Operations (TLTRO). At the end of the recession in the fourth quarter of
2014, the recovery should continue in the first quarter of 2015 also for the Italian economy,
supported by all the components of aggregate demand. Quality indicators report an improvement
of the confidence of businesses and households as well.
In this scenario, credit should increase at the end of 2015, with a gradual improvement also of
the credit quality and of the net interest income. Non-performing loans are still expected to grow,
albeit at progressively lower rates. Adjustments on loans, albeit in decline, will limit the
comprehensive income; in this context, Creval expects a decline in the cost of credit during the
year, in line with the targets of the Business Plan. Vice versa, the margins of commercial banking
will be supported by a further improvement of spread from customers, mainly due to lower
funding costs, and by the increase in net fee and commission income, offsetting the expected
lower contribution from interest on securities. The operating costs are expected to further
decrease in the second half of the year, also due to savings expected from the full implementation
of the labour agreement signed in December last year.
Sondrio, 12 May 2015
The Board of Directors
27
DECLARATION OF THE MANAGER IN CHARGE OF FINANCIAL
REPORTING
The undersigned manager in charge of financial reporting, Simona Orietti, pursuant to Article 154
bis of the Consolidated Law on Finance hereby declares that the accounting information provided
in this interim report on operations as at 31 March 2015 matches the information reported on the
company’s documents, books and accounting records.
Manager in charge of financial reporting
Simona Orietti