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CASSA CENTRALE BANCACREDITO COOPERATIVO DEL NORD EST

2015 Financial Statements

CASSA CENTRALE BANCACREDITO COOPERATIVO DEL NORD EST2015 Financial Statements

Translation from the Italian original which remains the definitive version

CASSA CENTRALE BANCA / FINANCIAL STATEMENTS / 2015

COMPOSITION OF THE CORPORATE BODIES AND OFFICERS

List of shareholders page 9

Corporate officers page 13

DIRECTORS’ REPORT ON OPERATIONS

General Introduction page 16

Main business of Cassa Centrale Banca page 30

Subsidiaries of Cassa Centrale Banca page 60

Main associates of Cassa Centrale Banca page 64

Management activity of Cassa Centrale Banca page 68

Management activity of the subsidiaries page 80

Other information on operations page 86

BOARD OF STATUTORY AUDITORS’ REPORT

Board of Statutory Auditors’ Report page 95

INDEPENDENT AUDITORS’ REPORT

Independent auditors’ report page 100

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015

Statement of financial position page 105

Income Statement page 106

Statement of Comprehensive Income page 107

Statement of changes in Equity page 108

Cash Flow Statement page 110

CONTENTS


Statement of financial position page 105

Income Statement page 106

Statement of Comprehensive Income page 107

Statement of changes in Equity page 108

Cash Flow Statement page 110

EXPLANATORY NOTES

Part A Accounting policies page 114

Part B Information on the Statement of financial position page 154

Part C Information on the Income statement page 202

Part D Comprehensive Income page 224

Part E Information on risks and related hedging policies page 226

Part F Information on Equity page 286

Part G Business combinations regarding companies or branches page 300

Part H Transactions with related parties page 302

Part I Payment agreements based on own equity instruments page 308

Part L Segment reporting page 308

FINANCIAL STATEMENTS OF SUBSIDIARIES AS AT 31 DECEMBER 2015

Centrale Credit & Real Estate Solutions page 313

Centrale Soluzioni Immobiliari page 315

FINANCIAL STATEMENTS AS AT 31 DECEMBER 2015

Balance sheet page 321

Profit and loss account page 322

CONTENTS


8

9


LIST OF SHAREHOLDERSCASSA CENTRALE BANCA

ORDINARY SHAREHOLDERS

CENTRALE FINANZIARIA DEL NORD EST Joint Stock Company

DZ BANK AG DEUTSCHE ZENTRALGENOSSENSCHAFTSBANK FRANKFURT AM MAIN

CASSE RURALI TRENTINE

CASSA RURALE ADAMELLO - BRENTA Banca di Credito Cooperativo - Cooperative CompanyCASSA RURALE ALTA VALDISOLE E PEJO B.C.C. Cooperative CompanyCASSA RURALE ALTA VALLAGARINA di Besenello, Calliano, Nomi, Volano B.C.C. Cooperative CompanyCASSA RURALE ALTO GARDA B.C.C. Cooperative CompanyCASSA RURALE BASSA ANAUNIA B.C.C. Cooperative CompanyCASSA RURALE BASSA VALLAGARINA B.C.C. Cooperative CompanyCASSA RURALE CENTROFIEMME-CAVALESE B.C.C. Cooperative CompanyCASSA RURALE D’ANAUNIA B.C.C. Taio Cooperative CompanyCASSA RURALE DEGLI ALTIPIANI B.C.C. Cooperative CompanyCASSA RURALE DELLA VALLE DEI LAGHI B.C.C. Cooperative CompanyCASSA RURALE DI ALDENO E CADINE B.C.C. Cooperative CompanyCASSA RURALE DI CALDONAZZO B.C.C. Cooperative CompanyCASSA RURALE DI FIEMME B.C.C. Cooperative CompanyCASSA RURALE DI GIOVO B.C.C. Cooperative CompanyCASSA RURALE DI ISERA B.C.C. Cooperative CompanyCASSA RURALE DI LEDRO B.C.C. Cooperative CompanyCASSA RURALE DI LEVICO TERME B.C.C. Cooperative CompanyCASSA RURALE DI LIZZANA B.C.C. Cooperative CompanyCASSA RURALE DI MEZZOCORONA B.C.C. Cooperative CompanyCASSA RURALE DI MEZZOLOMBARDO E S. MICHELE a/A. B.C.C. Cooperative CompanyCASSA RURALE DI OLLE - SAMONE - SCURELLE B.C.C. Cooperative CompanyCASSA RURALE DI PERGINE VALSUGANA B.C.C. Cooperative CompanyCASSA RURALE DI PINZOLO B.C.C. Cooperative CompanyCASSA RURALE DI RABBI E CALDES B.C.C. Cooperative CompanyCASSA RURALE DI RONCEGNO B.C.C. Cooperative CompanyCASSA RURALE DI ROVERÈ DELLA LUNA B.C.C. Cooperative CompanyCASSA RURALE DI ROVERETO B.C.C. Cooperative CompanyCASSA RURALE DI SAONE B.C.C. Cooperative CompanyCASSA RURALE DI TASSULLO E NANNO B.C.C. Cooperative CompanyCASSA RURALE DI TRENTO B.C.C. Cooperative CompanyCASSA RURALE DI TUENNO VAL DI NON B.C.C. Cooperative CompanyCASSA RURALE DON LORENZO GUETTI di QUADRA - FIAVÈ - LOMASO B.C.C. Cooperative Company


10

CASSA RURALE GIUDICARIE VALSABBIA PAGANELLA B.C.C. Cooperative CompanyCASSA RURALE LAVIS - VALLE DI CEMBRA B.C.C. Cooperative CompanyCASSA RURALE MORI-BRENTONICO-VAL DI GRESTA B.C.C. Cooperative CompanyCASSA RURALE NOVELLA E ALTA ANAUNIA B.C.C. Cooperative CompanyCASSA RURALE PINETANA FORNACE E SEREGNANO B.C.C. Cooperative CompanyCASSA RURALE VAL DI FASSA E AGORDINO B.C.C. Cooperative CompanyCASSA RURALE VAL RENDENA B.C.C. Cooperative CompanyCASSA RURALE VALLI DI PRIMIERO E VANOI B.C.C. Cooperative CompanyCASSA RURALE VALSUGANA E TESINO B.C.C. Cooperative Company

CREDITO COOPERATIVO VENETO

FEDERAZIONE VENETA DELLE BANCHE DI CREDITO COOPERATIVO Cooperative CompanyBANCA ADRIA - CREDITO COOPERATIVO DEL DELTA Cooperative CompanyBANCA ALTO VICENTINO CREDITO COOPERATIVO DI SCHIO E PEDEMONTE Cooperative CompanyBANCA ANNIA CREDITO COOPERATIVO DI CARTURA E DEL POLESINE Cooperative CompanyBANCA DEI COLLI EUGANEI - CREDITO COOPERATIVO LOZZO ATESTINO Cooperative CompanyBANCA DI ROMANO E SANTA CATERINA CREDITO COOPERATIVO (VI) - Cooperative CompanyBANCA DI VERONA CREDITO COOPERATIVO CADIDAVID S.c.p.A.BANCA S. BIAGIO DEL VENETO ORIENTALE di Cesarolo, Fossalta di Portogruaro e Pertegada B.C.C. Cooperative CompanyBANCA SAN GIORGIO QUINTO VALLE AGNO CREDITO COOPERATIVO Cooperative CompanyBCC DEL VENEZIANO Cooperative CompanyBCC DELLE PREALPI Cooperative CompanyBCC DI MARCON - VENEZIA Cooperative CompanyBCC DI PIOVE DI SACCO (PADOVA) Cooperative CompanyBCC S. STEFANO CREDITO COOPERATIVO MARTELLAGO VENEZIA - Cooperative CompanyCASSA RURALE E ARTIGIANA DI VESTENANOVA CREDITO COOPERATIVO Cooperative CompanyCASSA RURALE E ARTIGIANA DI CORTINA D’AMPEZZO E DELLE DOLOMITI CREDITO COOPERATIVO Cooperative CompanyCASSA RURALE E ARTIGIANA DI ROANA CREDITO COOPERATIVO Cooperative CompanyCASSA RURALE ED ARTIGIANA DI TREVISO C.C. Cooperative CompanyCENTROMARCA BANCA CREDITO COOPERATIVO Cooperative CompanyROVIGO BANCA CREDITO COOPERATIVO Cooperative CompanyVALPOLICELLA BENACO BANCA CREDITO COOPERATIVO (VERONA) Cooperative Company

BCC FRIULI VENEZIA GIULIA

FEDERAZIONE DELLE BCC DEL FRIULI VENEZIA GIULIA Cooperative CompanyBANCA DI CARNIA E GEMONESE CREDITO COOPERATIVO Cooperative CompanyBANCA DI CREDITO COOPERATIVO DEL CARSO Cooperative Company - ZADRUGA ZADRUZNA KRASKA BANKABANCA DI UDINE CREDITO COOPERATIVO Cooperative CompanyBCC DEL FRIULI CENTRALE Cooperative Company

11


BCC DI BASILIANO Cooperative CompanyBCC DI FIUMICELLO ED AIELLO DEL FRIULI (UD) Cooperative CompanyBCC DI STARANZANO E VILLESSE Cooperative CompanyBCC DI TURRIACO Cooperative CompanyBCC PORDENONESE Cooperative CompanyCREDITO COOPERATIVO FRIULI Cooperative CompanyCREDITO COOPERATIVO - CASSA RURALE E ARTIGIANA DI LUCINICO FARRA E CAPRIVA Cooperative CompanyFRIULOVEST BANCA CREDITO COOPERATIVO Cooperative Company

COOPERAZIONE TRENTINA

FEDERAZIONE TRENTINA DELLA COOPERAZIONE Cooperative CompanyCAVIT - Cantina Viticoltori Consorzio Cantine Sociali del Trentino - Cooperative CompanyCON.SOLIDA Social Cooperative CompanyCONSORZIO LAVORO AMBIENTE Cooperative CompanyCONSORZIO MELINDA Agricultural Cooperative CompanyFONDO COMUNE DELLE CASSE RURALI TRENTINE Cooperative CompanyPROMOCOOP TRENTINA S.p.A.SAIT CONSORZIO DELLE COOPERATIVE DI CONSUMO TRENTINE Cooperative CompanyTRENTINGRANA CONSORZIO DEI CASEIFICI SOCIALI E DEI PRODUTTORI LATTE TRENTINI Agricultural Cooperative Company

OTHER SHAREHOLDERS

BANCA PER LO SVILUPPO DELLA COOPERAZIONE DI CREDITO S.p.A.CASSA PADANA BCC Cooperative CompanyBANCA DI CREDITO COOPERATIVO DI ROMA Cooperative Company


12

PREFERENCE SHAREHOLDERS

AUTONOMOUS PROVINCE OF TRENTOBANCA DI SALERNO CREDITO COOPERATIVO Cooperative CompanyBANCA IFIS S.p.A.BANCA POPOLARE ETICA S.c.p.A.CHAMBER OF COMMERCE INDUSTRY AGRICULTURE AND CRAFTS - TRENTOCASSA RAIFFEISEN DELLA VAL PASSIRIA Cooperative CompanyCASSA RAIFFEISEN DI NATURNO Cooperative CompanyCASSA RAIFFEISEN DI SAN MARTINO IN PASSIRIA Cooperative CompanyCENTRALE FINANZIARIA DEL NORD EST Joint Stock CompanyCOOPERATIVA PROVINCIALE GARANZIA FIDI Cooperative CompanyCOOPERSVILUPPO S.p.A.DZ BANK AG DEUTSCHE ZENTRALGENOSSENSCHAFTSBANK FRANKFURT AM MAINMEDIOCREDITO TRENTINO ALTO ADIGE S.p.A.

13


CORPORATE OFFICERS CASSA CENTRALE BANCA

BOARD OF DIRECTORS

Giorgio Fracalossi Chairman*

Carlo Antiga Acting Deputy Chairman*

Luca Occhialini Deputy Chairman*

Enzo Zampiccoli Deputy Chairman*

Luigi Baldo Director

Maurizio Bonelli Director

Diego Eccher Director*

Lars Hille Director

Tiziano Manfrin Director

Paolo Marega Director*

Umberto Martini Director

Gilberto Noacco Director

Claudio Ramsperger Director*

Franco Senesi Director

Goffredo Zanon Director

BOARD OF STATUTORY AUDITORS

Antonio Maffei Chairman*

Marco Dell’Eva Standing auditor*

Vincenzo Miceli Standing auditor*

Stefano Bianchi Alternate Auditor

Manuela Conci Alternate Auditor

GENERAL MANAGEMENT

Mario Sartori General Manager

Enrico Salvetta Acting Deputy General Manager

Sandro Bolognesi Deputy General Manager

* Member of the Executive Committee


16

GENERAL INTRODUCTION


17

INTERNATIONAL SCENARIO

In 2015, the world economy paid for the signs that its main growth engine, China, may be stalling, and for a series of negative events that affected the international markets like the Greek crisis and the Petrobras and Volkswagen scandals. Thus, the rate of growth was generally below expectations.In detail, in the past year the Eurozone recorded a good growth trend in domestic consumption, which partially offset the downward trend of exports as a result of the slowdown of the Emerging Economies. Then, the major problem represented by the evolution of consumer prices materialised: they stagnated well below the ECB’s target of 2.00%, in spite of the initiatives taken in the course of the year and their subsequent extension into 2017. With the Greek crisis defused after the summer, the Old Continent then had to confront the scandal of the German automotive industry and the war in Syria on the heels of the terrorist attacks in Paris, but it succeeded in avoiding major drops in the economic indicators.On the other side of the Atlantic, the recovery in the United States proved to be more robust, thanks mostly to domestic consumption, which played a driving role, buoyed by low fuel prices. This benefited first and foremost the labour market, with employment recording significant results, while the unemployment rate returned to pre‑crisis levels, in the 5.00% range.The Japanese economy, instead, exhibited new signs of instability, with the GDP contracting again in the second and in the third quarter of the year, in the wake of the revision of the Abe Government’s objectives and with the announcement of upcoming new economic stimulus measures.

United States

Europe

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

SEP

09

SEP

10

SEP

11

SEP

12

SEP

13

SEP

14

SEP

15

-12.00%

-14.00%

GROSS DOMESTIC PRODUCT TRENDS IN EUROPE AND IN THE UNITED STATES


18

In 2015, the United States consolidated its role as the world’s economic leader thanks to the soundness exhibited by its economic fundamentals, already emerged also in the pivotal year of 2014. The first quarter recorded a marked slowdown because of an unfavourable mix of factors such as the inclement winter weather that affected the construction industry, the numerous union actions with strikes that blocked the Country’s main Western harbours and the appreciation of the Dollar, which negatively affected exports. The result was a rather modest change, with year‑on‑year quarterly growth of +0.60%. The US economy then stepped up its pace in the second quarter, offsetting stumbling in the first, with growth especially driven by domestic consumption incentivised by the increased purchasing power deriving from the collapse in oil prices, with final figure at +3.90%. The macroeconomic picture then stabilised in the third quarter and slowed to +0.70% in the fourth quarter, affected in particular by the sizeable use of stocks. The confidence for a replenishment of corporate inventories and the stability of consumption levels, however, induced to a cautious optimism for future growth trends in 2016. The soundness of the economy was also highlighted by the constant advances in the labour markets, with the different indicators contained in the monthly reports continuing along the road to improvement, on which it embarked five years ago. Of particular note is the continuous rise in employment which, thanks to an average creation of monthly pay slips of more than 200,000 units, has reached and exceeded the levels preceding the 2009 crisis. The underemployment rate continues to drop at an ever faster pace; since it takes into consideration discouraged or marginal workers in addition to the unemployed, it is often used by the Fed to assess the actual quality of the labour market. In this case, the indicator declined from 11.30% to 9.90% in the course of the various reports published by the Department of Labor.The confidence indicators followed the opposite trend during the year: on one hand, the constant rise of the Dollar continued to penalise exports, causing business confidence to decline in the surveys, with the ISM Manufacturing Index declining below the expansion threshold, set to 50 points, in the most recent surveys. Household confidence followed the reverse path: together with the acceleration of domestic consumption (which grew at rates above +3.00% quarter‑on‑quarter) it rose to approach its highest levels ever. With regard to price trends, inflation was affected, in its comprehensive indicator, by the collapse in oil prices, dragging the figure down even to negative levels during the first quarter. However, inflation excluding the energy components remained stable, leading up to the rate hike which was then applied near the end of the year, for which the Federal Reserve waited for the best conditions during the year, actually raising the rates only in the last meeting in mid‑December.

2015 was a complex year, with many destabilising events and characterised by an economic growth rate below expectations. Overall, however, it was fairly constant, without negative signs in any quarterly reading for the second consecutive year after three preceding years of constant fluctuations. Quarter‑on‑quarter, the aggregate GDP indicator slowed down during the year, declining from the excellent +0.50% of the first quarter to +0.30% in the second measurement of the third quarter, as a result of the turbulence and fears that unsettled the markets on several occasions, thus dampening the beneficial effects provided by the expansionary programme initiated by the ECB.The same expansionary programme was also extended in the last meeting in December, with the declared goal of addressing a consumer price trend that rose only with difficulty, staying far from the set target of 2.00%. The collapse of the oil price dragged down the inflation rate, which during the year was close to zero, while

UNITED STATES

EURO AREA


19

the core indicator ‑ net of the more volatile components ‑ gained a few decimal points compared to the 2014 values, settling slightly below one percent. In detail, the ghost of inflation made its appearance mainly in the first part of the year, with the January figure reaching ‑0.60%, the sharpest contraction of the series, equalling the July 2009 reading, subsequently returning to marginally positive levels from March onwards, with the exception of the September figure (‑0.10%). In Germany, consumers came to the aid of the economy’s difficulties: the low corporate investments and the widespread weakness across all export measurements were offset by growth in private consumption and public spending, so the GDP did not experience severe fluctuations, always maintaining a positive quarterly change (+0.30% in the first and third quarter, +0.40% in the second), albeit marginally below analysts’ expectations. The impact of the Volkswagen scandal remains to be assessed in upcoming GDP measurements, since the automotive industry, including its connected businesses, is very important for the German economy. At the same time, investors’ expectations measured by the Zew indicator declined throughout the year, reaching its lowest point in October, with a partial recovery in the final months of the year, while business confidence ‑ according to the analyses of the IFO Institute ‑ maintained the momentum in almost all readings, advancing from 105.7 points at the end of 2014 to 108.6 points at the end of 2015. Lastly, unemployment continued to decline, with a rate that lost two additional decimals of a percentage point in the autumn and reached the historical low of 6.30%. German stability to market flutters was not replicated by the second largest European economy: France had a more complicated 2015, with political attention mainly focused on the problem of terrorism, with the attacks against the satirical magazine Charlie Hebdo in January and those in Paris in November, while economic growth sparkled in the first quarter at +0.70%, stagnated in the second quarter and stood at +0.30% in the third quarter. In a context of very weak inflation, constant growth in consumption, of approximately +2.00%, impacted on the trade balance, increasing its deficit, which in the most recent measurements reached yet higher levels than at the end of 2014 and far above the pre‑crisis highs. During the year, then, the targets of the Hollande Administration in terms of the rebalancing of the national finance, were missed widely: public spending showed no signs of reduction and the deficit/GDP ratio, at +3.80%, will remain also in 2015 above the ceiling set by the Maastricht Treaty, i.e. 3.00%. The weakness of the French recovery is attested by the new highs reached by the unemployment rate in nearly two decades, at 10.60% in the measurement at the end of the third quarter.The Italian economy, unlike the two largest economies in Europe, had a positive year in 2015, if only because it came out of its recession, with the GDP that, after contracting for three years, returned to growth albeit with a modest rate, i.e. +0.80% per annum according to the latest estimates. The labour market reform and the contribution relief measures were applied a context that was already positive in itself for the recovery, with low oil prices, favourable rates and declining Euro/Dollar exchange rate. These factor catalysed business and consumer confidence ‑ the latter reached its historical high in November ‑ bringing results also in the unemployment rate, which declined by nearly one percentage point during the year and reached its lowest level since 2012.

In spite of the constant efforts of the Japanese Central Bank, recovery in 2015 was slow and inconsistent. The economy continue to be affected by the decline in domestic demand and the weak exports, and it succeeded in veering towards a modestly expansionary trajectory in the third quarter with GDP growth revised to +1.00% thanks to growth in business investments, avoiding the second technical recession (GDP had declined by ‑0.50% year‑on‑year in the second quarter) of the Abe government, after the one experienced last year. The consumer

ASIA AND PACIFIC AREAS


20

price index excluding fresh foods failed to take off throughout the year and in fact it has been positioned in the deflation area at ‑0.10% since August, and the 2.00% target still appears out of reach. A confirmation of new monetary stimuli is now expected from the Central Bank, in particular to support the weak segments of the population and the farming sector, penalised by the intensified competition for the upcoming implementation of the Trans‑Pacific Partnership, signed on 5 October after seven years of negotiations. An additional effort is still required in structural reforms to contain public spending, since the second increase of the consumption tax to 10.00%, planned for next April, will not be sufficient to attain the primary surplus objective by 2020, when FMI estimates point to a 5.50% deficit in 2015.The year was also challenging for China, where the Yuan’s sharp decline in December was only one of the many problems that had to be addressed, ranging from the collapse in production prices, at ‑5.90% per annum, to the weakness of the consumer price inflation, which according to the latest measurement at +1.50% remains far from the Beijing’s 3.00% target. This affected economic growth, which slowed to +6.90% in the third quarter, casting doubt also on the target set at 7.00% by the Government for 2015. The central issue of the year remained the reconversion from an export‑based economy to an economic model driven by consumption, but the path to a more balanced, sustainable development is made extremely complicated by a deficit that continues to rise beyond measure.

After the annus horribilis recorded in 2014, oil confirmed its downwards trend, bringing WTI prices to USD 37.04 per barrel, without showing significant resistance even in periods of sharper geopolitical tensions. Numerous factors contributed to the downward pressure during the year: first of all, the decline in demand, with the slowdown in industrial production in the main Emerging Economies. To this should be added the decisions made during the year by OPEC, which repeatedly confirmed its unwillingness to cut production with the thinly veiled objective of precipitating a crisis in American Shale Oil activities. The direct effect of this policy was the massive cut in investments by the oil industry majors and above all the creation of a buffer of oil stocks that, in the US alone, reached the highest level of the past 80 years, to nearly 490 million barrels. These massive stocks further crushed any attempt to raise prices, which was most recently accompanied by the interest rate hike, which strengthened the US Dollar to the detriment of commodity prices.The interest rate hike weighed even more significantly on yellow gold prices, which at the end of December closed at USD 1,061.42/ounce, down by 10.40% year‑on‑year. The well known negative correlation with the US Dollar was confirmed throughout the year, with the tentative signs of recovery coinciding with the periods when the interest rate hike was postponed or questioned. According to the same principle, the yearly low of USD 1,046.44/ounce was reached in December; it is the lowest level since the 2009 crisis, and although yellow gold is the safe haven asset par excellence, no resistance was observed even when geopolitical tensions intensified after the Paris attacks.

COMMODITIES


21

1000

1300

1400

1500

DEC

14

1200

Oil (right scale)

Gold (left scale)

1450

1350

1250

1150

20

50

70

30

60

40

JAN

15

FEB

15

MA

R 15

APR

15

MA

Y 15

JUN

15

JUL

15

AU

G 1

5

SEP

15

OC

T 15

NO

V 15

DEC

15

1100

1050

COMPARISON BETWEEN PRICE OF GOLD AND OF OIL


22

CountryOfficial rate Change

Name Value as at 31.12.2015 Last From start of 2015EUROPEEuro area Refi rate 0.05 10.09.2014 ‑0.10 0.05 ‑‑‑United Kingdom Repo rate 0.50 05.03.2009 ‑0.50 0.50 ‑‑‑Switzerland Range target ‑0.75 15.01.2015 ‑0.50 ‑0.25 ‑0.50USA AND JAPANUnited States Fed Funds rate 0.50 16.12.2015 +0.25 0.25 +0.25Japan O/N Call rate 0.10 19.12.2008 ‑0.20 0.10 ‑‑‑

In 2015, money market performance was still mostly tied to the ECB’s moves. During the year, the Central Bank decided to take new, important expansionary monetary policy initiatives to intensify the stimulus to the Eurozone’s economy and to pursue the primary objective of price stability, thereby pushing rate curves further downwards. In the first place, in March the ECB launched the quantitative easing programme, directed mostly to the purchase of government bonds issued by European Countries and, to a residual extent, to the purchase of ABS and Covered Bonds. The provision, substantially fulfilled so far, of acquisitions amounting to EUR 60 billion per month, has made possible an extraordinary increase of excess liquidity in the system, which exceeded EUR 600 billion at the end of 2015. The programme was extended to March 2017, and it is estimated that the excess funds at this date could rise to around EUR 1,500 billion. In addition to the excess funds, a contribution to sooth the system was also given by the decision further to extend, to November 2017, the full allotment of the funds for loans to the banking system. In 2015, the programme of loans to banks at the condition that they provide credit to the private sector (TLTRO ‑ Targeted Longer‑Term Refinancing Operations) continued; it will be concluded with the last two operations in the first half of 2016. On the rates front, the ECB left the reference rate unchanged at 0.05%, but it cut the rate on deposits with the Central Bank again in December, confirming its negative sign and bringing it to its historical low of ‑0.30%. Thanks to the excess liquidity, this rate has become, in this historical phase, the real reference rate for monetary market rates, which in 2015 declined progressively, bringing almost the entire short‑term curve to the negative area. At the end of 2015, all Euribor fixings up to six months were marginally below zero, with the downward trend also confirmed in the first part of 2016 and median forecasts by the analysts for a possible stabilisation phase if the ECB does not reduce the rates on deposits any further, as has partially been discounted by the markets. The medium‑long term part of the rates curve recorded an evident downwards phase in 2015 as well, and the swap rates on the shorter maturities up to two years also dropped into negative area.

MONEY MARKET


23

In 2015, the foreign exchange market saw the monetary policy decisions of major central banks as the main driver. The launch of the ECB’s quantitative easing programme in the first part of the year triggered a sudden recovery of the US Dollar versus the Euro, with the EURUSD cross rate dropping in March to around 1.05, the lowest level in twelve years. In the middle part of the year, the US currency continued to experience phases of high volatility, given that US growth had not consolidated yet and above all while the markets awaited the timeline of the expected start of a more restrictive monetary policy by the Fed. The first rise of the reference rate in the United States, initially already expected in the first part of the year, in fact took place only in December, leading to a new phase of appreciation of the US Dollar. The US currency was also supported by the opening of sizeable long positions by major investors. At the end of 2015, the cross rate thus returned to the 1.05‑1.10 range, i.e. the short‑term target forecast by the majority of analysts. The Japanese Yen experienced a ranging market in 2015, and the main USDJPY cross rate, albeit with marked volatility, ended the year at the levels where it started it, i.e. around 120. On one hand, the Japanese currency was buoyed by the high uncertainty at the global level and in particular by the slowdown in Chinese growth; on the other hand, the confirmation of the divergence between the monetary policies of Japan and the USA, with the BoJ still maintaining a highly expansionary bias thanks to the confirmed securities purchase plan, brought downwards pressure on the Yen. The British Pound trended downwards relative to the major currencies in the second part of the year, thanks to the confirmed evident deceleration of economic growth. The British currency was also burdened by the country’s possible exit from the EU, which will be put to a referendum and which, in the markets’ expectations, would be a significant brake for the British economy. The BoE, which was expected to raise rates in the second part of the year in view of a possibility that prices may overheat, postponed the monetary clampdown, now expected only in the second part of 2016. The EURGBP cross rate thus returned, at the end of the year, near the level of 0.74, after briefly bottoming below 0.70 in the middle of the year. In Switzerland, the decision of the BNS, in January, to remove the floor for the EURCHF cross rate at 1.20, triggered an immediate revaluation of the Franc, which brought the cross rate even below parity for some short times. The Swiss currency then confirmed a ranging phase, with a marginally declining trend resulting partly from profit taking on long positions, which brought the cross rate above 1.08 at year end.

EXCHANGE RATES


24

Exchange rate 31.12.2014 31.12.2015 % ChangeEUR/USD 1.2141 1.0807 ‑10.99%EUR/AUD 1.4829 1.4897 0.46%EUR/CAD 1.4063 1.5116 7.49%EUR/CHF 1.2024 1.0835 ‑9.89%EUR/GBP 0.7789 0.73395 ‑5.77%EUR/JPY 145.23 131.07 ‑9.75%EUR/CZK 27.735 27.023 ‑2.57%EUR/DKK 7.4453 7.4626 0.23%EUR/HUF 315.54 315.98 0.14%EUR/NOK 9.0420 9.6030 6.20%EUR/NZD 1.5525 1.5923 2.56%EUR/PLN 4.2732 4.2639 ‑0.22%EUR/SEK 9.3930 9.1895 ‑2.17%EUR/TRY 2.8320 3.1765 12.16%EUR/ZAR 14.0353 16.9530 20.79%GBP/USD 1.5587 1.4724 ‑5.54%USD/CHF 0.9904 1.0026 1.23%USD/JPY 119.62 121.28 1.39%USD/CNY 6.2069 6.5335 5.26%


25

The severe uncertainty deriving from factors inside and outside the Eurozone, such as the Greek crisis, the trend of crude oil prices and the slowdown of the Chinese economy, made 2015 a far more volatile year than the analysts could have expected.The early months saw European governments move in a positive trend, sustained mostly by the late‑January announcement of the Quantitative Easing by the ECB. The additional new stimulus measures launched by Draghi buoyed mainly the “Peripheral” bonds, with the yield offered by the ten‑year Italian benchmark progressively declining to its own historical low of 1.128% in mid March and with the spread relative to the Bund (which also narrowed, but less markedly) dropping to 88 basis points.In the months that immediately followed, attention shifted to the progressive intensification of the uncertainty concerning the negotiations between Greece and international creditors (the agreement was eventually reached only on 12 July), which led to several months of marked volatility on European markets. This long period of volatility was then accompanied by the progressive improvement of the macroeconomic indicators and the consequent expectations of rate rises by the Federal Reserve, which pushed US Treasury yields upwards. This movement of the American curve directly influenced also the performance of the bonds issued by European Countries with high credit ratings, leading to a steepening of the curves: in fact, while 2‑year yields remained extremely compressed because they are more closely bound to the expansionary policy of the ECB, the longer maturity saw yields rise, buoyed by the expectations of rising inflation and rates. This change in slope did not spare the curves of the peripheral Countries, which on the contrary exhibited a still more marked and volatile movement, bringing to 10‑year Btp to offer, in early July (concurrently with the ‘NO’ response of the Greek referendum to the deal with the Troika) a yield of 2.40%, with a spread exceeding 160 basis points relative to the German bond with equal maturity, double the value of just 3 months before. In the final part of the year, as uncertainty over Greece subsided, the attention shifted to other factors: foremost among them, the continuing and persistent decline in oil prices, which had a direct impact on the expectations for global growth, particularly growth in China and in emerging oil exporter Countries, and on European inflation. The publication of weaker than expected macroeconomic data reinforced expectations that the expansionary monetary policy in the Eurozone would be prolonged, causing a contraction of bond yields and a progressive narrowing of the spreads relative to the Bund (ever more closely influenced by the performance of US Treasuries). The diverging monetary policy between ECB and Fed, fears over worldwide growth and over the trend of commodity prices had a marked impact also on the performance of the corporate market, in particular of the High Yield segment: after a positive initial part of the year, strongly driven by the Central Bank’s securities purchase plan, the corporate sector was also negatively influenced first by the ‘Greece issue’ (from May to July) and then by the weakness of commodity prices and by China’s interventions on the exchange rate (from August to September). This led Investment Grade bonds to end the year with performance level slightly above zero, but to outperform ‘high yield’ bonds.

BOND MARKETS


26

90

140

150

170

01/0

1/15

160

15/0

1/15

29/0

1/15

12/0

2/15

26/0

2/15

12/0

3/15

26/0

3/15

09/0

4/15

23/0

4/15

07/0

5/15

21/0

5/15

04/0

6/15

18/0

6/15

02/0

7/15

16/0

7/15

30/0

7/15

13/0

8/15

27/0

8/15

10/0

9/15

24/0

9/15

08/1

0/15

22/1

0/15

05/1

1/15

19/1

1/15

03/1

2/15

17/1

2/15

110

100

80

120

130

31/1

2/15

ANNOUNCEMENT OF THE ECB’SQUANTITATIVE EASING

START OF THE BOND ACQUISITION PROVIDED BY THE Q.E.

FIRST TAX HIKEBY THE FED

AGREEMENT BETWEEN GREECEAND INTERNATIONAL CREDITORS

THE BCE CUTS THE RATE ON DEPOSITSAND EXTENDS THE QE

BTP‑BUND SPREAD TRENDS

Key: 10‑year BTP/Bund spread


27

2015 was a positive year for European stock markets, buoyed by comporting data on the macroeconomic front and by the continuous support of the accommodating monetary policies by the world’s major Central Banks. American stock markets were slightly negative, affected by the weight of the slowdown of the Chinese economy and by the start, at year end, of a cycle of upward revisions of the reference rates by the Fed. The S&P500 index declined by ‑2.23% year‑on‑year; the main technological stocks, instead, succeeded in outperforming the market, with the Nasdaq index ending the year up by +5.73%, in spite of the partial decline in corporate profits compared to the previous year.In Europe, the Eurostoxx600 index yielded a performance of 13.60%, thanks to sizeable purchases involving the stocks of companies in the travel and leisure, consumer goods and food industries, and financial stocks. Among European markets, Piazza Affari, the Italian stock market, stood out as one of the best financial centres with 13.00% growth, and ended the year at 23,235. The positive trend of the indexes during the year, however, was affected by several more or less accentuated interruptions. Following an extremely positive start of the year, thanks to which at the end of the first quarter the domestic index approached the threshold value of 24,000, from the second half of the year onwards the trend slightly reversed, with more or less abrupt drops. During the summer, volatility increased, both because of a physiological decline in traded volumes and of the re‑emergence of tensions over Greek stability and solvency. The negative response to further austerity measures espoused by the EU and rejected by the Greek people with a referendum, intensified operators’ uncertainty and risk aversion. This climate persisted during the summer as a result of the numerous meetings between the finance ministers of the European Union and the Greek representatives, directed at finding an agreement between the parties on the implementation of a serious and credible package of structural reforms by Greece, able to unlock the aid that has now become indispensable for the Country. In mid‑August, the memorandum between international creditors and the Greek government on the reforms‑for‑aid exchange greatly reduced this risk in the eyes of the operators.To add volatility on worldwide stock markets in the second part of the year, the spectre of the slowdown of Chinese growth appeared. The significant declines experienced by the Shanghai Stock Market led to extraordinary measures by the Chinese Authorities; this climate had a hard impact on stocks with businesses tied to the Asian Country, in particular luxury goods and automotive stocks. The latter, in addition, was affected by the Volkswagen scandal as a result of the discovery of irregularities in emission levels on several hundreds of thousands of vehicles manufactured by the German automotive giant. For this reason, the main stocks of the industry significantly curtailed the positive performance in the second half of the year, in the wake of fears that new scandals may involve other manufacturers.In terms of performance, the best stocks of the reference index were Yoox Net‑a‑Porter +88.00%, Finmeccanica +66.00% and Campari +55.00%, whilst the worst ones include two companies linked to oil: Tenaris ‑12.20% and Saipem ‑14.55%. Banca Monte dei Paschi brought up the rear with a ‑35.00% drop.Borsa Italia had a positive year, not only in terms of performance, but also of the number of companies that decided to be listed; 2015 saw a record number of newly listed companies since 2007 with as many as 27 companies listed on the Stock Exchange, of which 8 are on MTA, 1 on MIV and 18 on AIM Italia. The total amount collected with the new IPOs exceeded EUR 5.7 billion, most of them from Poste Italiane, the largest transaction in the past 10 years in terms of collected capital (over EUR 3 billion). The total capitalisation of the listed companies amounted to EUR 567 billion, up by 17.60% relative to the end of 2014 and amounting to 34.80% of the GDP.

SHARE MARKETS


28

SHARE INDICES

Stock exchange indices End of 2015 trading prices Annual change 2015 Aex Holland 441.82 4.09% Brazil 43,349.96 ‑13.31% Cac 40 Paris 4,637.06 8.53% China 3,731.01 5.58% Dax Xetra 10,743.01 9.56% DJ EuroStoxx50 3,267.52 3.85% DJ Stoxx50 3,100.26 3.21% US Dow Jones 17,425.03 ‑2.23% Ftse Italia All Share 23,235.76 15.38% Ftse London 6,242.32 ‑4.93% Ftse Mib Italy 21,418.37 12.66% Hong Kong 21,914.40 ‑7.16% Ibex Madrid 9,544.20 ‑7.15% India 26,117.54 ‑5.03% Mexico 42,977.50 ‑0.39% US Nasdaq 5,007.41 5.73% Nikkei 225 Japan 19,033.71 9.07% Russia 1,761.36 26.12% S&P/ASX 200 Australia 5,295.90 ‑2.13% S&P 500 USA 2,043.94 ‑0.73% South Africa 45,797.30 4.16% Venezuela 14,588.25 278.06%


29


30

MAIN BUSINESS OF CASSA CENTRALE BANCA


31

From a financial viewpoint, Cassa Centrale Banca provides intermediation services that protect the reliability, continuity and efficiency of banking operations, allowing bank clients to offer their customers a vast range of investment solutions.The performance of the bond market in 2015, confronted with many elements of uncertainty (first and foremost the ‘Greece question’) and with the expansionary monetary policy of the ECB, which sharply reduced the yields of European government securities in the second part of the year, severely throttled bond trading, favouring a more prudent, conservative management of their portfolios.The total value of the bonds brokered by Cassa Centrale Banca in 2015 consequently contracted by approximately 22.00% relative to the previous year. However, the over EUR 42 billion traded in all are a figure that remains extremely significant and above the average trend of recent years. The contraction involved both the Banks’ own operations and the bond trading carried out by retail customers, which progressively concentrated their investment decisions on equities. The volumes traded by the Asset Management services of Cassa Centrale Banca had the opposite trend, buoyed in part by the progressive growth in asset volumes.120 Banks operated through Cassa Centrale Banca to carry out the owners’ orders on Over The Counter (OTC) for a total amount above EUR 29 billion (‑16.00% compared to 2014). More than one third of these operations took place in the first quarter, thanks to a positive performance of the market supported by the start of the ECB’s Quantitative Easing, whilst operations subsequently tapered off in the middle part of the year with the uncertainty in Greece and the consequent trend reversal of the stock prices. Yet more marked was the contraction of trades on Regulated Markets by institutional customers.

FINANCE


32

TOTAL BOND VOLUMES

20152014

0

3,000

4,000

5,000

7,000

6,000

8,000

9,000

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Figures in millions of euro

1,000

2,000

In 2015, Cassa Centrale Banca placed certificates issued by DZ Bank and Banca IMI for a total amount of EUR 6 million, decreasing by ‑28.50% relative to the previous year. This decline was mostly due to the new Consob regulations for complex financial instruments, which induced most banks to slow down their placement prudentially.The orders received for the auctions of Italian government bonds declined significantly, by over 50.00%: in this case, too, the contraction is mostly due to the progressive compression of the yields on Italian government bonds, which made the subscription of Bot, Cct and Btp less attractive.In 2015, the Anagrafe Titoli Centralizzata (Centralised Securities Database) saw its completeness and efficiency increase in a particularly marked manner. There were 6,832 new securities registered during the year, up by over 30.00% relative to the already high levels of the previous year: an average of 800 applications for new registrations every month, with less than 5 hours required to complete a registration for 90.00% of the requests. To this is added the management of existing securities and the reply to over 2,400 requests received via electronic mail in addition to the continuous implementations carried out to perform an ever more efficient services, kept up to date with all regulatory compliance obligations (complex products, Mifid indicators, bail‑in, etc.).The decline recorded on bond volumes was partly offset by the good increase in operations in equities and Etf. Thanks to 38.00% growth in traded volumes, the value reached EUR 1.5 billion. The favourable environment for European stock markets and in particular for the domestic market led to an increase in operations by all operators, both third parties and the banks themselves. The Asset Management of Cassa Centrale Banca


33

also provided a good contribution, recording +20.00% of traded value compared to 2014. Substantially unchanged was the portion of shares and Etf traded through InBank: considering only third party customers (thus excluding the bank’s ownerships), the portion of the total traded value reached approximately 40.00%, i.e. approximately EUR 530 million. The traded volumes recorded constantly higher values every quarter relative to the same period of the previous year. 2015 saw a good recovery of the placement of new stocks, both in terms of placed value, but also in terms of number of companies presented. During the year, 10 IPOs were launched for listing on the MTA market; seven of them were able to complete the entire listing process and reach the market. The value collected in the OPV/OPVS activity amounted to EUR 4.78 million, up by over fifty percentage points relative to the previous year. Most of the contribution came from the placement of Poste Italiane, which by itself contributed over EUR 3.5 million.

TOTAL SHARE VOLUMES

2015

2014

20

40

60

80

100

120

200


140

160

180


With regard to the interbank segment, the prevalent activity represented by the settlement service on the refinancing operations with the ECB in 2015 recorded a significant reduction in managed volumes, in view of the strategic decision of the CR‑BCCs to reduce funding through this channel. The related interbank loans secured by ECB eligible securities progressively declined during the year from over EUR 3.5 billion to less than EUR 1.4 billion. In relation to this trend, there was also a progressive decline in funding through the term deposits made by the CR‑BCCs, which decreased by over EUR 500 million. On the contrary, funding on interbank accounts see average volumes increase by EUR 300 million, also in view of the opening of 10 new


34

relations with CR‑BCCs and customer banks. In 2015, the number of customer banks relying on the settlement service of Cassa Centrale Banca for direct access to ECB financing increased further to 47, with 4 additional banks obtaining authorisation at the end of the year. The total volumes settled in this mode were stable at EUR 6 billion. As a consequence of the reduction in the short‑term rates, in the final months of the year lending on the MTS repo market through Cassa di Compensazione e Garanzia contracted progressively, in favour of an increase in ECB eligible securities present in the portfolio of treasury securities. In view of expectations for the end of the cycle of reduction of the reference rate by the ECB, in 2015 the interest of CR‑BCCs for the hedging of the rate risk on their loans resumed. This entailed a recovery of the activities in OTC rate derivatives on rate, with the closure of 132 swap transactions for a total notional amount of EUR 36 million. In 2015, currency trading saw a significant increase in spot and forward trading volumes, whose total changed to EUR 1,946 million from EUR 1,301 million in 2014 (+50.00%). In line with the trend seen in 2014, the increase was due to the greater volumes recorded in the transactions concluded with the offices within the bank, while currency trades concluded with the CR‑BCCs contracted slightly. Most trading was done on the US dollar (82.80% of total volumes), followed by the British Pound (4.80%), Japanese Yen (2.80%), Australian Dollar (2.10%) and Swiss Franc (2.00%). The remaining 5.50% was traded in the remaining 12 currencies exchanged by Cassa Centrale Banca. In 2015, currency deposits with the customer banks saw volumes contract on the borrow side and increase on the lend side. Expressed in Euro, the former totalled EUR 96 million (‑29.00%), the latter EUR 212 million (+8.00%). The most heavily traded currency deposited with banks remains the US Dollar (66.10%), followed by currencies commonly used for financing, like the Swiss Franc (18.20%) and the Japanese Yen (13.50%).With regard to the Asset Management of Cassa Centrale Banca, it is necessary to take into account the financial markets that, in 2015, were distinguished by severe fluctuations. After a particularly sparkling start, which saw significant upward movement in stock markets as well as currency and bond markets, in the course of the summer and autumn months a sharp increase in volatility was instead observed. The slowdown of the Chinese economy, the collapse of the price of oil and the first rise of US interest rates in 10 years were the news items that caused most concern for investors in recent months. In this context, Emerging Countries marked time, in many cases recording negative performance values both in the stock and in the currency component, while Developed Countries gave more signs of robustness, also in some phases they experienced severe declines in the indexes. The US stock exchange ended 2015 at the levels of the start of the year, but it benefited from revaluation of the Euro/Dollar exchange rate, whilst the Stock Markets of the main Countries of the Euro area ended 2015 with higher values of the indexes compared to the start of the year: the German Dax grew by 9.50%, the Paris Cac by 9.10% and the Milan Ftse by 12.60%. Supporting elements for European markets were, on one hand, monetary policy interventions by the European Central Bank which implemented a programme of acquisitions of government bonds amounting to EUR 60 billion per year and reduced the reference rates to the lowest historical levels, and, on the other hand, the growing expectations of a recovery of European economies. In this context, our asset management lines achieved positive results if we consider the trend throughout 2015: e.g. the gross result on the Balanced lines ranges from 4.99% for item 20 to 12.94% for item 90, while on the Quantitative lines the change was from 4.41% for item 1 to 8.62% for item 3. In view of the high volatility of the markets, a different result was obtained by the customers who entered into the investment during the year in relation to the level of the prices at the time of the subscription. It should be noted that in any case the high


35

level of diversification in terms of asset allocation, coupled with the care in the selection of financial instruments (e.g., our portfolios contain no subordinated bonds) made it possible to reduce the impact of the market’s severe volatility and to be only relatively affected by the negative phases. During the summer, we reduced the equities component on all asset management lines in order to take a more prudential position and protect ourselves against market fluctuations. Managed volumes grew strongly and their total amount rose from EUR 1.97 billion at the end of 2014 to EUR 3.42 billion at the end of 2015. This increase in volumes was brought about by net funding of over EUR 1.379 billion. The number of asset management lines also grew strongly: at the end of 2015, there were 39,223 accounts. All geographical areas expanded the placed volumes; in absolute terms, the greatest contributions were confirmed from Trentino, Emilia Romagna, Veneto, Friuli Venezia Giulia and Lombardy.

VOLUMES MANAGED BY REGION

12,3% 0,9%

Emilia Romagna 15%

Trentino 27%

Cassa Centrale Banca 19%

Friuli Venezia Giulia 9%

19%

9%

7%

11%

Tuscany 2%

Lombardy 7%

Piedmont 7%

3%

15%

27%

Veneto 11%

Other 3%2%7%

The year 2015 witnessed a continued phase of growth in Institutional Asset Management Department activities, together with consolidation of the support provided to banks that are already members. At year end, 168 banks were recipients of the Market Risk Service, a higher number compared to the end of 2014 thanks to the addition of a greater number of new banks compared to the decline deriving from various merger processes occurred between CR‑BCCs. In terms of volumes, in spite of the start of a general deleveraging


36

process that impacted on the size of the owned portfolio, market risk was monitored on a daily basis for a total amount of over EUR 40 billion on approximately 9,500 distinct positions. The particularly volatile market movements recorded during the year, together with the persistent decline in the rates, which continued into negative territory, entailed an additional significant effort on the front of the activities in support of the CR‑BCCs in the analyses of the owned portfolios. During the year, there were nearly 500 structured communication events dedicated to individual entities, including, in addition to the prevalent video conferences, over 60 visits to customers’ premises for meetings with the Management Committees or attendance at Board of Directors meetings, and various dedicated training courses administrated both on site and remotely. A change appreciated by customer banks was the massive preparation of a specific portfolio analysis made available at the end of the year and at the end of the half year. In particular on this latter period, given the phase of significant hardship recorded on the financial markets, the material produced provided significant support.On the front of the institutional investment solutions, the existing offer was maintained, assuring excellent profitability results. At 31 December 2015 the bond management lines presented an extra yield compared to their respective benchmarks, which was guaranteed throughout the year. In an environment of minimal, often negative short‑term rates, the performance of the Growth line was 1.20% (+0.50% relative to the benchmark) and the performance of the Dynamic line was 1.77% (+0.73%). The longer bond lines had still more positive absolute and relative results, with the Attiva line and the Attiva 5+ line ending the year with a performance amounting respectively to 3.26% and to 4.05%, with +1.62% and +2.06% compared to the benchmarks. The Euro Equity line outperformed its own benchmark again, by 4.95%, providing an annual yield of +8.80% to its subscribers.The Department also renewed its engagement in the analysis of the NEF funds, used in the institutional version between the various asset classes for the purposes of improving portfolio diversification. A contribution to the consolidation of their use was given by the availability of specific information such as the implied currency exposure.Lastly, the analysis of financial markets continued and was embodied in the preparation of the daily Morning Briefing and of the Market Monitor at the start of the year, and participation in various dates of the Finance Clubs.In spite of households’ diminished spending and hence saving capacity, 2015 was characterised by a considerable expansion of asset management, generated by the low yield rates that contributed to intensify investors’ need for diversification. Confirming this trend, which mainly involved traditional forms of asset management, a growing number of Cooperative Credit entities also began to provide Advanced Advisory services to its retail customers.During the year, the presentation of the service to CR‑BCCs continued, making it possible to expand the original geographical scope of operations; this was also, and mostly, thanks to the activation of the service with new entities supported by consortium centres at the level of the IT system, which previously were not operational. The number of operating entities rose further during the year, with a clear acceleration in the phenomenon in the last four months of the year. The increase in the number of operating CR‑BCCs with the service entailed a constant increase in the monitoring and coordination activity of the various investment committees for which remote communication channels are adopted ever more systematically, holding videoconferences.As with previous years, one of the main factors of appreciation of the advisory service offered by Cassa Centrale Banca was the high degree of customisation of the solutions offered which, in synergy with the adopted


37

model, was confirmed to be capable of providing a coherent operational solution to meet the organisational and commercial needs of the banks participating in the service.With regard to the commercial activity, the proposal of financial investment instruments such as asset management, the NEF fund and the certificates, had a positive trend overall, although it was highly affected by the various phases of the market, which in 2015 was characterised by phases of high volatility.The training support given to the bank network by the commercial contacts of the financial area of Cassa Centrale Banca proved to be very useful, with updates on market trends and the positioning of the product with respect to customer requirements. There were a total of 600 visits made, allowing the placement banks to be monitored continuously and to establish new relations, which today involve approximately 200 banks. During the year, events targeted at the customers of the partner banks were organised, to promote the financial products of Cassa Centrale Banca and network training activities continued.Lastly, in 2015, the ninth edition of the course ‘Family and Private Banking’ was held, in collaboration with Formazione Lavoro (Banking Care) and SDA Bocconi. Today, approximately 200 new professionals were trained with this initiative.The bank assurance activities continued in 2015 in close collaboration with Assicura Group. In particular, the commercial contacts supported the company in developing the activity and the relations outside the Triveneto area, contributing to the start of relations with new banks.


38

LOANS

For the credit sector, 2015 was a challenging, complex year, like all recent ones since 2008, although the gross national product did experience modest growth nationwide (0.70%). The situation remained precarious, characterised by modest domestic demand, with the continuous emergence of problems that many companies had faced and quick‑fixed in previous years, by using various temporary instruments, e.g. stopping of production using the ‘Cassa Integrazione’ (wages guarantee fund), consolidation of short‑term debts with long prepayment periods, suspensions of the payment of instalments and interest and financial restructuring. This was done in the hope that the economy recovery, repeatedly announced for the medium term, could promote the emergence of more favourable situations to allow a productive and commercial recovery and consequently economic, financial and occupational. The fairly favourable figure, recorded in 2015, of the trend in the economic situation therefore does not provide an accurate and complete picture of the actual Italian business reality. In fact, although on the one hand, we can assert that the bulk of national companies have been experiencing severe and long‑lasting difficulties, on the other, various companies have been posting highly credible commercial, financial and income figures. The latter usually refer to companies with niche, high value‑added products and which achieve the majority of their revenues from exports. The scenario which involves the bulk of companies in 2015 too continues to confirm what was already witnessed in the previous year: the constant erosion in companies’ profit‑generating capacities, slowdowns in production, delays and problems in collecting receivables. In other words, the difficulty, for many companies, of carving out a sufficiently big slice of the market to ensure their own survival. All this led, for Italian banks, to a further rise in classifications into problem loan categories, even with respect to the record levels of 2014. Impaired loans have now become a national emergency, so that there have been many calls for a structural measure to address this issue, involving all of the Country’s Institutions. The measure is far from easy in light of the European Union’s intransigent attitude towards state aid and competition in the banking sector within the Union. In this complex situation, Cassa Centrale Banca has pressed on even more strongly on the operating lines already adopted in the past, which essentially consist of:‑ cautious and rigorous valuations in the classification of loans with a particular focus on guarantees;‑ severe write‑downs of loans classified as problem with subsequent prudential allocations;‑ proactive management chain, with commercial budget allocated with respect to recoveries and containment of legal expenses.

The first partial results are represented by a reduction in gross impaired loans, which changed from EUR 164.79 million at the end of 2014 to EUR 155.09 million in 2015, declining by 5.88%. Said reduction was achieved by recovering EUR 26 million of impaired loans (including EUR 9 million of positions transferred in the ‘multioriginator‘ transaction of September 2015) offset by EUR 16.3 million of new classifications to problem loans. The proportion of the reduction by EUR 26 million out of the total portfolio of impaired loans is 15.78%.The net impaired positions in the bank’s portfolio, i.e. the gross ones minus the allocated provisions (non‑performing, unlikely to pay, overdue/overrun >90 days) are shown in the following table.


39

NET IMPAIRED LOANS 2015 2014 % ChangeNet non‑performing loans 16,094 25,132 ‑35.96%Unlikely to pay loans 30,412 44,078 ‑31.00%Net overdue / overrun loans 85 2,851 ‑97.04%TOTAL 46,590 72,061 ‑35.35%

Figures in thousands of euro ‑ Internal management reprocessing

While gross problem positions (non‑performing, unlikely to pay, overdue/overrun) declined by 5.88%, the net positions (see table) recorded a significant reduction compared to 2014. The reason for this sizeable reduction is given, in addition to the decline in gross problem loans, highlighted above, also by the increase in the allocations made during the year. In line with the internal, supervisory and statutory legislative provisions, we proceeded as usual during the year with the performance of the formal and substantive procedures of recognition, monitoring, classification, and valuation of non‑performing loans.In particular:• the Risks Committee, after having examined manager relations in depth and discussed them constructively,

made provision for prudent classifications and write‑downs, also establishing a constant flow of information and proposals to the management body;

• the Tavolo del Credito (Credit Committee) which meets at Credit Area level with the active participation of the Risk Management, prepared analyses of problem cases, submitting them to the Risks Committee through reports containing descriptions and proposals;

• as evidenced in the minutes of the two committees, the positions that are problematic or irregular are examined frequently, with transparency and based on concise dialogue within the various levels of the bank (from the discussion between the manager with his director, to the discussion with the area management, the risk manager, the Credit Committee, the Risks Committee, in order to come up with a proposal to the decision‑making body and to the Board of Directors);

• the assessments regarding the presumed losses from irregular loans are made strictly and have led to significant write‑downs, as well as a flat level of write‑downs which are very prudential and definitely higher than the average for the domestic banking system.

The table below gives a clear idea of the above, making it possible to get a sense of the prudent valuation policy adopted by the bank, especially if commensurate to the average quality of the portfolio and the size and quality of the guarantees acquired.

INDICATORS (without CdT and CC&G) 2015 2014Net non‑performing loans/total net loans 3.13% 4.82%Net impaired loans/total net loans 9.05% 13.81%Level of cover for non‑performing loans 82.23% 68.60%Level of cover for impaired loans 69.96% 56.27%COVERAGE OF PERFORMING LOANS (FLAT‑RATE PROVISIONS / PERFORMING LOANS) 2.36% 2.04%

Amounts net of the uses of the Cassa Compensazione e Garanzia S.p.A. ‑ Internal management reprocessing


40

As can be deduced from the notes at the bottom of the table, the values have a different calculation basis with respect to the tables relating to the quality of the loans shown in the explanatory notes, which also consider the volumes deriving from uses of the Cassa di Compensazione e Garanzia (EUR 42.77 million). In order to provide a more targeted and accurate presentation of the incidence of the Bank’s impaired positions, these loans were excluded from the calculation basis. In this regard, it should be noted that the operations of Cassa di Compensazione e Garanzia more closely relate to Finance Area activities rather than Credit Area activities. Net non‑performing loans as a percentage of total loans fell to 3.13% in 2015, from 4.59% in 2014, due both to the recovery action and to the effect of the allocations; net impaired loans as a percentage of total loans also declined, from 13.16% in 2014 to 9.05% in 2015. When reading the data, account must also be taken of the fall in total net loans (‑1.34%). The significant allocations made are observed from the considerable increase in the level of coverage of non‑performing loans, which reached 82.23%, and the level of coverage of impaired loans (69.96%). In 2015 too, as regards impaired loans, the methodological approach of the previous year continued; in situations of clear default or difficulty, reference was made to the law concerning ‘corporate crisis management’, which is still recent and lacks consolidated substantiation in case law. This factor generates widespread legal and operational uncertainty in banks, which is tangibly reflected in prudent and particularly cautious attitudes on the part of banks.Difficulties also persist in establishing efficient and rapid channels of communication with other banks, including at national level: both with respect to sharing a common vision of risk at the granting stage, and in relation to the rigidity and the time needed to manage problematic situations.In this context, it is necessary to evaluate possible solutions to deal with complex situations: once again, the collaboration with the CR‑BCCs proved fundamental as was that with the employees of Mediocredito Trentino Alto Adige, an institution with which almost all the transactions involving large dimensions or complex structures are shared, therefore allowing us to pool mutual experiences and skills and know‑how, while respecting the autonomous strategic, credit and financial evaluations.Given the above, an in‑depth examination of the credit portfolio was conducted, new operating and credit requirements were outlined, and a careful review of the skills and aptitudes of our human resources was carried out. In 2015, process started in 2013 and 2014 was definitively consolidated with the strengthening of the Loan Management Department with a view to achieving operating and organisational efficiency and credit and legal professionalism; therefore the work of analytically and accurately verifying each individual problem loan was completed, with all work finalised with the segmentation of the impaired loan portfolio by ‘manner of intervention’ and not just by regulatory classification. The year 2015 also saw a ramp up in collaboration activities in relation to impaired loans with Centrale Credit & Real Estate Solutions S.r.l., a company in the Cassa Centrale Banca Group, particularly regarding two themes: the transfer of NPLs and the assistance with impaired property loans.The special attention paid to the management of impaired loans did not stop the Cassa Centrale Banca Group from maintaining an active presence in the area to support the corporate clients of the CR‑BCCs and the banks themselves, by continuing to rely on the consolidated network of managers. As indicated above, the core business of the bank (credit relations and commercial collaboration with the CR‑BCCs ‑known as the Credit Project) will remain with the two corporate offices of Trento and Padua, which will strengthen their commercial focus and close cooperation with the CR‑BCCs.


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The prudential credit granting policy also continued in 2015: this choice resulted in a moderate reduction of total gross loans, net of the Cassa Compensazione e Garanzia, i.e. 1.65% less than in the previous year. Moreover, in granting credit Cassa Centrale Banca always operates in a subsidiary manner, i.e. when requested by the CR‑BCCs and in periods when the demand for credit tends to stagnate and is adversely impacted to a greater extent than the rest of the banking system. The structure was especially focused on the management of existing loans, granting new loans for amounts slightly lower than the normal repayment flows.The graph below shows the main figures described above.

TOTAL ORDINARY LOANS

SML annual

SML December

200

0

400

600

800


2014201320122011 20152010

In addition to the quantitative aspects, we should also bear in mind the ‘qualitative’ approach traditionally taken by Cassa Centrale Banca when granting and managing loans: attention to credit quality, diversification in terms of the commodity category, area and in particular, size (to spread the risk).The proper understanding of the company’s requirements, the ability to offer appropriate responses are elements that go hand in hand with corporate credit activity: they generate value added that the customer appreciates and is willing to recognise, both in economic and loyalty terms.


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The table below shows the overall balance in the distribution of the loans between the various commodity categories, due to the constant development of the various sectors.

2015 LOANS: ECONOMIC SECTORS AND BRANCHES

SECTOR SHAREREAL ESTATE 30.75%INDUSTRY‑CRAFTS 16.39%HOTELS 13.49%SERVICES 9.50%FINANCIAL 9.26%TRADE 7.91%HOUSEHOLDS 5.50%AGRICULTURE 3.39%TRANSPORT 3.31%ENTITIES 0.50%

As regards the real estate sector, which was the hardest hit by the crisis, we manage the current transactions particularly carefully, while for new transactions we operate with consolidated counterparties, paying the utmost attention to the type of operation (residential, craft trade‑related, tourist, etc.), by verifying the appetite of the area, demanding the injection of suitable amounts of equity, acquiring adequate guarantees and by sharing with the entrepreneur, from the launch of the new site, a substantial portion of the pre‑sales. Particular attention must be paid (when granting the loan as well as for the management of a performing loan or an impaired loan) to the valuation of any properties pledged as guarantee, which must be extremely reasonable and prudential. In addition to collateral securities, loans are sometimes secured by sureties issued by banks that propose the operation. In keeping with the logic and spirit of the “Credit project”, the CR‑BCC which proposes the transaction is requested to actually share the risk, in one of two different ways:1. issuing of a partial guarantee;2. cash participation (in a pool).This can be freely chosen by the CR‑BCC, which may opt for the technical format that it considers to be more appropriate for its requirements.Sometimes the surety is agreed with the CR‑BCC in the event it is believed that the operation, in order to meet the appropriate requirements of reliability, must be supported by bank guarantees which the CR‑BCC is willing to issue, since due to its presence in the area, it is often aware of the business assets (tangible or intangible) of the client which are difficult to discern solely from the documentation produced by the client. On the one hand, this ensures adequate real cover for issuing banks (Cassa Centrale Banca and the other banks participating in the loan pool) and, on the other, ensures the necessary joint participation in the risk by the CR‑BCC which proposes the transaction; at the same time, it also guarantees, for the CR‑BCC, recognition of the primary commercial role with respect to the customer, and a substantial and consistent return in financial terms.In line with the evolution of transactions on the credit market, other typical guarantees of structured loans are being managed, such as the transfer of public funding (significant and long‑term investment financing), the transfer of


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revenue from the GSE (renewable energy production plants) and liens on production plants and structures (energy and plant sector) and so on.Diversification of financial investments, including regional, remains constant, especially significant in terms of the strategic content as well as the credit content. At the end of 2015, roughly half the loans of the bank were allocated outside the Province of Trento (51.08% to be precise), with a large portion reserved, in agreement with the CR‑BCCs, to the Veneto (27.13%). Also in 2015, a policy of segmenting risk was pursued, systematically avoiding concentrating too extensively in any one sector, either by the bank or the reference cooperative system (CR‑BCC). This objective was achieved by placing a prudential maximum amount on credit lines per individual name or group (which were however flexible in relation to the market particularities and the valence of the individual operation and/or counterparty) and through a constant action toward our associates, where we are called upon to participate in or coordinate pools involving various CR‑BCCs. This approach to system risk is carried out in full and total compliance with antitrust and transparency regulations, but the only reason it is in place is due to the limitation of the risk control.With respect to total growth in loans from 2005 to 2015 of approximately 35.12% (from EUR 467 million to the current EUR 631 million), we point out that, in absolute terms, the loans of less than EUR 2.5 million increased by 100%: in fact, in 2005 they accounted for 43.00% of loans to customers (EUR 467 million), while at the end of 2015 they represented 63.40% of loans to customers (EUR 631 million). In the same reporting period, we recorded a net reduction in all other brackets above EUR 2.5 million by counterparty, except the one that includes transactions involving amounts above EUR 7.5 million. In 2015, this segment included three different transactions: two of them, totalling EUR 48 million, involved the SPV created by the national cooperative system for the definition of the defaults of BCC Altopadovana and BCC Irpina; the third one, instead, amounting to EUR 23 million, involved Fondo Comune delle Casse Rurali Trentine, which was financed for the subscription of the subordinated loans subscribed for the Rural Banks of Rovereto, Primiero and Vanoi and Giudicarie Valsabbia Paganella. We expect that in 2016 the loans to the system SPV will be repaid for the most part, by effect of the pro‑rata take‑over by all Italian BCCs. These numbers show that the considerable increase in loans in the ten‑year period from 2002 to 2012 in which the ‘Credit Project’ was developed was not achieved through large transactions, but through the constant, systematic efforts to acquire new transactions and establish new relations with the CR‑BCCs, greatly reducing the impact of bigger loans.


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The following graph helps us to understand this development over recent years:

RISK SPLITTING

2010 2011 2012

Below 2.5 mln

Between 2.5 and 3.5 mln

Between 3.5 and 5 mln

Between 5 and 7.5 mln

Over 7.5 mln

200

400

600

800

20142013


2015

Control of credit, a prerequisite for proper management, is performed systematically based on 17 different types of check. The main ones are: examination of daily overdrafts, checks on the return flows of the Bank of Italy Central Credit Bureau, evidence of unpaid instalments, verification of the contractual covenants and commitments pertaining to building deposits, etc. This system enables a periodic analysis of the credit positions which makes it possible to isolate any performance and credit anomalies, which would otherwise be difficult to identify. As regards the activities in the subsidised loans sector, the collaboration with the main territorial entities continues (firstly the Autonomous Province of Trento) and with the trade associations and Consortia for Collective Credit Guarantees in Trentino, Veneto and Friuli Venezia Giulia. In particular, in 2015, certain conventions were stipulated; of these, the two most important ones are:• the one dedicated to the management of advances in favour of the creditors of the Autonomous Province of Trento,

for loans that are paid after the agreed expiry due to the impact, on provincial finances, of the ‘stability law’;• the second one signed with the Tourism Promotion Enterprises of Trentino for the advance of the contribution by

the Autonomous Province of Trento.The credit valuation of the bank counterparties which, due to the role performed by Cassa Centrale Banca, has always been of fundamental importance, took on an even more strategic role, evolving over time thanks to the establishment of frequent meetings for in‑depth examination with colleagues in the different areas of the bank, who work on a daily basis with the CR‑BCCs. At these meetings, General Management acquires accurate information on the health status of cooperative credit.


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PAYMENT SYSTEMS

The activity pertaining to the Payment Systems is recording ever greater reliance on innovative instruments and services that, gradually but with constant acceleration, will replace traditional payment means such as cheques and transfers in upcoming years.The performance of services that enable use of mobile payment instruments in a simple, secure manner, is engaging all the structures of Cassa Centrale Banca.Confirming customers’ interest for innovative payment methods, we point out the constant growth of the e‑money segment, both in issuing and in acquiring activities.The Area’s personnel worked on the activation of some new banks that adhered through us to the services pertaining to payment systems.The Public Entity Treasuries Department was particularly engaged in the activation of numerous new Entities and in the management of the mergers between municipalities that characterised the Province of Trento in 2015.Particularly onerous was the new management imposed by the ‘split payment’ in payments subject to VAT addressed to public Entities.Collaboration continued with the Legal Department for the contractual compliance relating to ‘outsourced services’.Of note is also the commitment deriving from the inspection by Bank of Italy, which ended with particular appreciation for the activity carried out by the Area.The Regulations Office is constantly engaged in the activation of new banks’ services: in 2015, the new activations involved 7 banks that adhered to approximately 60 services.Particularly exacting are also the compliance requirements relating to the merger processes, which often entail the adoption of personalised solutions to assure the least possible inconvenience to the involved banks and above all to customers.The merger or take‑over processes that took place in 2015 led to the loss of some important BCCs in Veneto, whose effects on the intermediated volumes will become apparent in 2016.During the year, the new contracts relating to cash management and centralised processing of cheques and bills were released.At the start of the year, the new ‘Knox’ procedure for cash management took full effect, and some new ‘counting‑rooms’ were opened to assure a better, more timely service to customer banks.While awaiting the detailed technical instructions of the new procedure relating to the ‘dematerialisation’ of cheques in the interbank segment, Banker’s Drafts were revised in accordance with the new standards prescribed. The new features will be delivered to the banks within the early months of next year.The transfer of the activity for the processing of cheques and bills to the new partner identified at the end of 2014 was successfully completed. The Department also followed the activities prescribed by the European Directive for the ‘transfer of the payment services connected with the payment account’.The data is summarised below:

Service Number of Transactions/Public entities CommissionsBill collections/Commercial collections +4.76% +5.52%Bank Transfers +0.37% ‑0.73%ATM/POS +10.67% +12.03%Public entity treasuries +5.42% ‑0.62%Cheques ‑13.79% ‑7.84%


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Of note is the increase of the transactions connected to payment cards and the constant reduction in the use of cheques.Foreign goods activities in 2015 confirmed the growing trend of the most recent years with a further increase in export documentary credits by nearly 11.00% and by over 50.00% in terms of volume. Equally, there was a nearly mirroring decrease in the number of transactions tied to importing activities, although the decline was smaller in terms of volume. Hence, there is a tendency, on operators’ part, to carry out fewer transactions, but involving higher amounts. The same trend was experienced in the field of import and export first demand international guarantees. On the other hand, after‑collection transactions are constantly increasing.In the course of last year, Cassa Centrale Banca supported the activities of customers operating on international markets, considerably increasing transactions involving direct confirmation of export documentary credits. Activities related to communications with the Revenue Agency and police bodies are growing rapidly. The requests for tax and criminal assessments are accompanied by the ever more numerous tasks due to the periodic reports to be sent to the Agency. The new law called ‘Fatca’ (Foreign Account Tax Compliance Act), the recent obligations prescribed by the ‘CRS’ (Common Reporting Standard) and the constant changes tied to the Register of Accounts require employing growing resources and a constant effort to gain a better understanding of the new regulations.With regard to the activities referred to the administration of securitisations, there were no changes in 2015. Reporting to the ECB (loan by loan) of securitised portfolios continues, for those transactions which make provision for the issuing of eligible securities which were therefore used as collateral in marginal refinancing auctions carried out by the European Central Bank. This activity requires ever greater care in the collection of data from the Servicers, because ever more numerous checks are carried out on the accuracy of these data by European Central Bank experts. Based on the repayments actual made, next year it may be necessary to close the first multi‑originator Cassa Centrale Finance securitisation.In 2015, the Public Entity Treasuries Department was engaged in numerous activities, including extraordinary ones. At the start of last year, many Entities were centralised, confirming the appreciation the service is receiving from customer banks, reaching a total number of 661 managed Entities at the end of the year.This year, too, the regulations that transferred the Entities’ liquidity to the Bank of Italy affected certain Banks’ participation in the tenders. At the end of 2015, as many as 39 Entities extended the service and will have to call the new tenders soon.A particular effort was made by the compliance obligations required to manage the mergers of numerous Municipalities as a result of the referendums held in the Spring. The new Entities will be operational from the first of January 2016 and this will entail a reduction of 23 Municipalities which had previously been managed autonomously.Another issue that will soon have important repercussions on the Entities’ operations is the ‘harmonisation of the accounting systems and financial statements’, which will lead, from next year onwards, to the reform of public accounting. The goal of this reform, started in 2009, is the establishment, for all Italian public administrations, of a homogeneous accounting system, necessary for the purposes of the coordination of public finance, of the consolidation of public accounts, in part to respond more efficiently to the inspections ordered in Europe, of the activities connected with public spending audits and to determine standard requirements and costs.In 2015 the Department, in cooperation with the supplier of the IT procedure, started revising the platform for compliance with the new regulations.


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DISTRIBUTION OF ENTITIES BY PROVINCE

Type of Entity 2013 2014 2015Municipalities 231 238 248Nursing homes 45 47 58Comunità di Valle (territorial divisions)

4 5 5

ASUC 46 49 51Consortia 147 150 142Schools 135 125 140Other Institutes 14 13 17TOTALS 622 627 661

Province 2013 2014 2015Trento 344 358 365Treviso 64 55 46Rovigo 38 38 33Brescia 22 23 26Udine 27 28 26Padua 33 27 23Trapani 19Belluno 11 14 15Gorizia 14 15 15Palermo 16Venice 14 13 17Verona 3 13 14Florence 8 8 11Vicenza 11 11 11Isernia 6 5 5Campobasso 8 5 4Monza‑Brianza 2 2 4Chieti 3 3 2Caltanissetta 4 2 1Enna 1 1 1Ferrara 4 2 1Frosinone 1 1Pisa 1 1Pordenone 1 1 1Ragusa 1Siena 1Varese 1 1 1Catania 3 TOTALS 622 627 661

The Entities that adopted the IT mandate rose to 335 (they were 295 at the end of 2014) confirming the Department’s constant effort in the introduction of more modern methods for the performance of the service. Support was also provided to the banks for participation in 156 tenders (111 won and 45 lost). Details of the entities by type and geographic distribution are shown below.


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The activity of the E‑money Department is mainly directed at supporting the banks that subscribed the ‘ABI Unico 3599’ service and that place our prepaid products.In 2015, the number of banks receiving the service increased further, with 5 new subscribers to the issue of credit cards and 15 to the issue of prepaid cards.Transactions have reached the threshold of EUR 84 million with a 10.00% increase compared to the previous year. At the end of 2015, there were approximately 770,000 debit cards, a 9.62% increase. Of these, 24.39% is available for customers on supports migrated to the c‑less technology.Prepaid cards also increased by 14.53%. Of great interest is also the increase in the number of prepaid cards reserved for legal entities which reached 6,100.With regard to the new services activated, we point out the launch of the new Prepaid APP in the IOS and Android versions. Customers with smartphones now have the main functions of prepaid cards available in mobile mode. At the end of the year, there were 15,600 active APPs (8,650 on Android devices and 6,950 on IOS).Prepaid products were also upgraded for the acquisition of the identifying information required by the introduction of the ‘FATCA’ regulations. Concerning the security of prepaid cards, the project that allowed the replacement of the static matrix personal security code (CPS) with a new OTP (one time password) instrument, generated dynamically by the system for each transaction and communicated to the customer via SMS.The website carteprepagate.cc and the Prepagate APP were also heavily modified in order to comply with the recommendations for security in Internet payments, introducing the request for transaction authorisation through an OTP password. The Department is engaged, on a daily basis, in monitoring card operations, supported by ever more refined systems, which allowed a significant reduction in frauds. In the second part of the year, the Department was particularly engaged in providing advice to user banks on the matter of Interchange Fees. The new EU Regulation 751 imposed new accounting methods for merchants, with heavy impacts in terms of transparency. In addition, a specific agreement was entered into with American Express for the distribution of their credit cards.Regarding the MyBank product, we point out the execution of approximately 9,000 payment transactions for a value of EUR 18 million; in addition, activities continued to gain the ability to perform the service at the merchant side as well, with completion expected in the upcoming months.The situation as at 31.12.2015 is shown below, compared with the situation in the previous two years:

2013 2014 2015Debit cards 654,577 702,596 770,224Prepaid cards 148,590 172,228 197,260POS 33,584 35,240 38,832ATM 1,235 1,287 1,340


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PLANNING AND ORGANISATION

Cassa Centrale Banca puts itself forward as a preferred partner for partner and client banks in dealing with financial risk management issues in a comprehensive, timely manner. The Management Consultancy Service of Cassa Centrale Banca has been subscribed by as many as 175 banks (at the end of 2015) and in terms of intermediated volumes, the customer banks constitute approximately one half of the overall national Cooperative Credit system.In 2015, the contents of the service were further enhanced, both for the Base and for the Plus level. The focus was also on a better understanding of some of the risks that are characterising the current market phase. In particular, credit risk saw the introduction of a series of indicators directed at understanding the impairment process, the coverage level and the structural sustainability of the situation of impaired loans with reference to the capital structure.Advisory activities with CR‑CCBs required constant effort in a still challenging market situation that is evolving constantly and rapidly. Consultants carried out approximately 400 meetings at client banks, which were opportunities for the discussion and analysis of the bank’s financial, economic and equity situation in light of the reference market context.The Department was also involved in support to the preparation of strategic plans in some of the draft mergers between CR‑CCBs initiated during the year.In 2015, the Marketing Department was engaged in the development of multiple projects, mainly directed at improving the channels and at emphasising the values of the system (care for people and communities) and its competitive advantages.In this context, an advertising campaign was planned that refers to the mini‑site partedinoi.it to point out the relational value of Casse Rurali Trentine and the mutual participation in the life of the community. The initiative stems from the need, now more current than ever, to reinforce the differentiating values of our territorial banks and it intends to bring to the fore the identity of “banks with a soul” that focus on the central importance of the individual and of the Member, the main driver of the decisions made by his/her reference Rural Bank. In relation to banks’ institutional websites, technical, training and publishing activities continued, in support of the management of the new multi CMS platform (Content Management System), to which 36 websites were connected. In the second part of the year, instead, in collaboration with the Management Advisory Department, the project for compliance with the new BRRD regulations was carried out with the goal of rapidly completing initiatives and IT supports directed at explaining, in a simple language, the main regulatory concepts (Bail‑IN and CET1 ratio) to all involved stakeholders (administrators, operators, customers and community in general) transforming a potential critical issue for the industry into an advantage with respect to the other bank players. Constant attention on the requirements of client banks and the need to optimise and improve the internal processes, also in terms of the commercial approach to customers, are the objectives that led to the launch of the new promotional material of the Asset Management offer. The project, established in collaboration with the Finance Area, is geared towards simplifying communication tools and making them usable, by inserting certain innovation elements which allow customers to benefit from product insights, through Cassa Centrale Banca’s digital communication channels. With regard to the payment systems, the Marketing Department completed the restyling of the revolving product CartaSì Libera through a revision of the contents and of its communication, which became necessary to bring the offer closer to those of the main competitors but at more advantageous interest rates. As regards credit cards, an


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important promotional initiative was also organised, supported economically by American Express, to promote awareness of the advantages of Amex credit cards among potential owners and merchants.To emphasise, instead, the offer of Casse Rurali Trentine with regard to the offered products and services pertaining to the ‘household world’, a new communication initiative was launched to leverage the potential competitive advantage of having a single interlocutor in the field of real estate transactions: showcasing properties, financing and insurance. Significant additional investments concerned support to Vetrina Immobiliare (Property Showcase), with on‑line and off‑line campaigns with the goal of creating brand awareness and use of the service, and bancassurance ‑ in collaboration with Assicura Group – by implementing promotional supports tied to the Sìcresce Flessibile life policy and the management of co‑marketing projects with the world of Cooperazione di Consumo (consumer cooperatives). With regard to the ‘children’ target, within Risparmiolandia a video commercial was produced and published on the main communication channels (website, YouTube channel and movie theatres). The focus on young people also continued on a number of fronts, with the involvement of major regional partners: the MUSE on the occasion of the initiative entitled ‘Le avventure di Samantha nello spazio’ (‘Samantha’s adventures in space’) and SAIT with the Carta in Cooperazione in the project ‘Cari Soci, fate i buoni a scuola’ (‘Dear Members, be good in school’) and ‘Esplorando il corpo umano: l’alimentazione’’ (‘Exploring the human body: nutrition’).The year 2015 also saw, within the oom+ offer system, the organisation of the second edition of the ‘Music Contest’, a very successful project with excellent participation by the young people of Trentino, and co‑operation with Formazione Lavoro continued within the scope of the initiative called ‘Nuovi occhi per i media’ (‘New eyes for the medias’).The Department continued to update the reserved area of the cassacentrale.it portal in collaboration with the IT Department, and in particular it created a new trademark and proprietary domain monitoring tool and it updated the ‘Market Overview’ competition observatory and the ‘Promotional Material’ section. Lastly, in order to sensitise customers to the new technologies and the innovative instruments proposed by the CR‑CCBs, in concurrence with the Organisational Development Department, the Prepagate APP was developed in the iOS and Android versions to allow customers to manage their rechargeable card in mobile mode. In addition, a dedicated mini‑site, app.carteprepagate.cc was launched, to illustrate the main functions and advantages of the application. In 2015, the Organisational Development Department was engaged in many projects and activities, both with a view to the continuous evolution and innovation of the office of the services intended for banks and customers, and to upgrade the various products for compliance with the reference regulations.With regard to ‘prepaid cards’, important activities were completed to upgrade the products according to the new ECB provisions for Internet payment security, laying the ground for the design of a new detection system for the prevention and monitoring of online fraud. Significant resources were also employed for the upgrades required by the new FATCA and CRS provisions and for a reorganisation of the methods for collecting the data of the actual owners of the prepaid cards issued to legal entities.New electronic payment services were successfully activated for many public Entities, in particular with regard to the dematerialisation of meal vouchers for school cafeterias, made possible in part by the multiple channels through which users can top up their credit by simple SMS, Internet Banking, ATM, credit card as well as at the branches of banks participating in the initiative. With regard to the ‘My Bank’ service ‑ active for customers since 2014 ‑ analysis work continued for the performance of the service at the merchant side in co‑operation with Phoenix Informatica Bancaria; this work substantially


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determined the revision and upgrade of the architecture of the ‘Pos Virtuale’ (‘Virtual Pos’) service to contemplate both the possibility of contracting merchants on the My Bank circuit through a new agreement, and the new technical management for the periodic reporting and management of income and commissions. From the technical viewpoint and for comprehensive all‑round vision, the work of the My Bank project was organised taking into consideration both the evolutions of the CBILL project for contracting merchants, and the obligations prescribed by Agenzia per l’Italia Digitale for the adoption of the Public Administration Payment Node by Public Bodies.While awaiting release of the detailed technical documentation by the competent Authorities with regard to the new CIT (check image truncation) standardised procedure relating to the dematerialisation of cheques in the interbank segment, the initiatives were defined to produce the new layouts of hardcopy bank and cashier’s cheques according to the new security requirements prescribed by ABI. Significant resources were employed to ensure compliance with the provisions of the new Regulation (EU) 2015/751 (Interchange Fee Regulation) which, in addition to the introduction of a ceiling on interbank commissions for transactions with consumer cards, prescribes new obligations to report operations on the part of merchants, with impacts on contract transparency and periodic reporting.In the second half of the year, work was started for compliance with the SEPA End Date in view of the deadline of 1 February 2016, as from that date onwards even niche products like financial RID and RID with pre‑set amount must be migrated to the new Sepa Direct Debit instrument in ISO20022 format. In this sense, several actions were taken to provide appropriate support to client banks and for direct corporate customers, for the conversion of collection orders into the new XML format, when possible from the native phase of packaging the orders on the IT systems of the presenting companies. Additional initiatives pertaining to the application of VAT to the periodic debits of the SEDA archive alignment messages, with the exception of the Entities that have adopted the ‘split payment’, in accordance with the new provisions of the Revenue Agency.On the Finance aspect, the Target2 Securities project was completed and put in production; it entailed, in addition to the processing of new messages, the revision of the Treasury dashboard for monitoring and managing account movements in Target2 (PM and DCA). In addition, the new GIF procedure for the management of money transfers in Swift format by client banks was entirely redesigned and taken into production. Other initiatives involved some implementations and evolutionary developments of the ECB Auction management programmes, of the financial calculation engine for securities training and of the centralised securities database.With a view to cost containment and to the concurrent streamlining of the operating processes, the analysis document was prepared for the redesign and integration in the SIB2000 information system of the procedure for Fund and Sicav custodian Banks, also taking into consideration the specific features of Cassa Centrale Banca as the entity appointed to perform the payments. The project will see the launch of the planning and development phases in the course of next year. With regard to mobile payments, the Organisational Development Department co‑ordinated a new working group, with competences spanning several fields, directed at monitoring new market trends and identifying the best solutions for client banks. Before the end of the year, an important agreement was executed with the company SIA for participation in the new P2P circuit (peer to peer) known as ‘Jiffy’: once fully operational, it will enable customers to exchange money in real time in a simple, secure, economical manner and with a new experience. To date, the 15 main Italian Banks have adhered to the project; their potential customer base accounts for over 80.00% of current accounts in Italy.


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Another important agreement was entered into with the company Movincom of Turin for participation in the Bemoov wallet, a payment circuit that counts approximately 1,200 mobility services distributed over more than 40 Italian cities, mainly in the sector of payments, using smartphones, of parking fees, of tickets for local and national transports and for ticketing in general. The development phases of the integration of the Jiffy service in InBank APP and in the Prepagate APP will be started next year in co/operation with Phoenix Informatica Bancaria, while the activities for the preparation and launch of the wallet on the Bemoov circuit in co‑operation with the Marketing Department are well along. Constant attention was paid to the assistance and support service, both for the business areas of the Bank and for partner and client banks, especially on the occasion of extraordinary events related to company shut‑down processes for mergers or take‑overs between CR‑BCCs and for the introduction of new procedures or for regulatory compliance. As usual, the Department continued to actively participate in the Working groups at Phoenix Informatica Bancaria, in the national Working Groups coordinated by ABI, EBA Clearing, Consorzio Bancomat/CBI and Federcasse and in the observatory on Mobile & Electronic Payments chaired by the Milan Polytechnic.The Planning and Organisation Area also includes the Systems and Information Technology Departments, which always keep a keen eye on the developments of IT and information systems, searching for the most advanced technologies with a particular focus on security standards and business continuity. The need for guarantees of the value generated by Information and Communications Technology (ICT), the management of ICT‑related risk and the increasing number of requirements to comply with regarding the control of information are key elements of the activities carried out by the two Departments.In 2015, the efficiency and effectiveness of the technological infrastructure was improved with a technological upgrading of the storage and networking infrastructures of the Bank and Group companies for the PCI (Payment Card Industry) DSS (Data Security Standard) certification, a PCI‑DSS standard developed to promote and improve the protection of cardholders’ data.The compilation of the cyber‑security questionnaire for Bank of Italy by Cassa Centrale Banca and the main outsourcer Phoenix Informatica Bancaria reinforces the centrality, at the governance level too, of security management as the connecting fabric of all business areas. The business continuity plan demonstrated, through the disaster test performed in May along with the Phoenix Informatica Bancaria test, the blackout test, the intrusion test and the escalation test, that the Bank and Group companies are able to resume operations in just a few hours.Collaboration with the areas of the bank continued for the improvement of the operational effectiveness and efficiency and the design of new functionalities for the portals of Cassa Centrale Banca, NEF and the company intranet: the consolidation of the data in a Dataware‑House, Business Intelligence, updating of the Gestioni Patrimoniali application, the Fondo di Garanzia delle PMI project (Guarantee Fund of SMEs), the CRM (Customer Relationship Management), the Mobile project and compliance with circular no. 285 issued by the Bank of Italy. To complete the activities of the Area, the Legal and Compliance Department is in operation, which supports the General Management, the organisational structures of the Bank and the Group companies in order to identify adequate solutions ‑ from the regulatory and contractual viewpoint ‑ for the commercial offers and projects promoted by said entities. The Office handled the preparation of the contracts relating to the direct participation of client banks in the open market transactions of the Eurosystem, also for the purpose of including time deposits among assets allowable as collateral for the transactions. In addition, it provided assistance to the Finance Area for the negotiation of framework agreements for transactions involving OTC derivatives and related margin


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annexes with major market counterparties. The Department also participated in the negotiation with the insurance company Itas Vita S.p.A. of the contracts that regulate the management, by the Bank, of the internal fund relating to the unit linked policy SiCresce Flessibile. Concerning the management of payment services, the agreement for the distribution of prepaid cards was revised along with the contractual documentation pertaining to prepaid cards intended for natural and legal persons and the contracts proposed by Agenzia per l’Italia Digitale for the purpose of participation in the MyBank platform for the acceptance of payments in favour of the Public Administration.The Department provided ongoing advice for the definition, from the legal viewpoint, of issues connected with the activity of the Banking Group and, in particular, for the management of the compliance requirements connected with the liquidation of the subsidiary Centrale Leasing Nord Est S.p.A.; it also collaborated in the drafting and revision of the agreements with the Product Companies for the intermediation of leasing and factoring services by the Bank. Lastly, the Department worked on the definition of the complaints filed by customers.


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MEASUREMENT AND CONTROL OF RISKS

The main objective of the internal control system of Cassa Centrale Banca is to identify, measure and monitor risks in order to promote sound and prudent company management. The control activities were constantly updated to ensure compliance even when operations change and innovations are introduced at regulatory level, including in collaboration with national cooperative bodies. In relation to the latter aspect, the company continued to adjust itself into line with the legislative amendments.With respect to risk monitoring, the various types of risk that the bank is subject to were constantly and carefully monitored, with a special focus on the loan, liquidity and interest rate risk profiles. The Risk Management Department was engaged, in the months from March to June, in working with the Bank of Italy for matters under its own competence in the course of an inspection, which was completed successfully. In regards to credit risk, the periodic meetings of the Risks Committee make it possible to effectively examine the performance of the individual positions which present anomalies in order to identify the appropriate actions to be taken. With respect to liquidity risk, in 2015, the Bank continued to send periodic reports to both the Trento branch of the Bank of Italy (on a monthly basis) and to the European Banking Authority (on a half‑yearly basis). Starting in October, work also started on the Interim Lcr Report, required by the Supervisory Body for the transitional period. The results of the various analyses put in place by the bank in collaboration with other bank offices were shared with the Risks Committee, the body in charge of governing risk. As usual, the Department coordinated the drafting of the ICAAP Report and Public Disclosures. Lastly, the opinions required from the Department were prepared both for the Transactions of Major Relevance and for the activation of new products/services.As part of Management Control, monthly reports continued to be made to Management and the Board of Directors on profitability trends, enriching the analyses with a specific focus on given themes. In 2015, the income statement by business area was also fully implemented. In November and December, the budget for the following year was prepared, in collaboration and with the support of the various Bank Areas. Adequate information was also produced for third parties (rating agencies, independent auditors, parent companies) in order to keep them updated on the company’s performance.The work of the Internal Audit Department mainly involved the Finance and Payment System business areas. Specific initiatives involved the Risk appetite framework process and Transactions of Major Relevance, the remuneration and incentive system, the transparency of banking services, the important outsourced operating Functions, while the subsidiaries were subject to a full audit. The results of the audits were communicated to the General Management, the Board of Statutory Auditors and the independent auditors. In accordance with the applicable provisions, the Board of Directors was informed of the results of the audits.The Compliance and Anti‑Money Laundering Department (hereinafter the ‘Department’) operates on the basis of a risk‑based approach, and evaluates the probability and intensity of exposure of the bank to risks of non‑compliance with the regulations and resulting reputational risks. In order to reduce these risks, the Department continuously analyses regulatory developments, identifying the applicable laws, evaluating their impact on company activity and identifying suitable measures to prevent significant risks where they are lacking. It periodically carries out controls to check the effectiveness of the preventive measures. The results of these analyses and checks are periodically brought to the attention of the Risks Committee, the Board of Statutory Auditors, the Internal Audit committee, and the Board of Directors on an annual basis.In 2015, the Department continued its coordination of the process of upgrading the contracts with suppliers and with the client banks according to the provisions of Circular no. 285 of 17 December 2013 (hereafter, the ‘Provisions’), into which were transferred the regulatory provisions on organisation and control, formerly contained


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in Circular no. 263 of 27 December 2006. The Department also assessed the adequacy of the specialist and aided them in assessing the non‑compliance risk relating to the monitored regulatory framework, defining the risk assessment methods and identifying the related procedures. With regard to the marketing of new products and services, the Department drafted dedicated compliance opinions in relation to the new Jiffy and Bemoov mobile payment services.In accordance with the Provisions, the internal system for reporting violations (‘whistleblowing’) was designed and formalised in dedicated regulations, with the purpose of preventing and correcting actions or events that may constitute a violation of the regulations on banking activities.The Department also defined the actions to be taken to comply with the new banking transparency regulations and it carried out inspections on the status of application of the main provisions for investment services, while also providing support for compliance with the provisions contained in Consob Communication no. 0097996/14 of 22 December 2014 on the distribution of complex financial products to retail customers. In accordance with Consob Communication no. 0090430 of 24 November 2015, it also collaborated in drafting the information note on the changes introduced by Italian Legislative Decrees no. 180 and 181 of 2015, implementing Directive 2014/59/EU (‘Banking Resolution and Recovery Directive’, BRRD) on the prevention and management of crises involving credit institutions and investment firms. With reference to insurance brokerage, the Department provided its support in the definition of the plan of action necessary to ensure that the process for marketing insurance policies tied to loans (PPI policies) complies with the provisions of the joint IVASS/Bank of Italy communication of 26 August 2015. The Department provided support in the process of ensuring compliance with the regulatory provisions pertaining to corporate governance, equity investments and conflicts of interest.The Department provided the necessary support to the organisational units involved in the process of ensuring compliance with the obligations imposed by provisions pertaining to the automatic exchange of tax information (CRS ‑ Common Reporting Standard) and in the transmission of the reports prescribed by the FATCA (Foreign Account Tax Compliance Act).In order to ensure the effective monitoring of money laundering and financing of terrorism risk, the Department constantly monitored implementation of the applicable rules and compliance with the organisational measures provided for by the Bank of Italy, formalising the controls made in the communications and reports and promoting implementation of the corrective measures, to address the anomalies encountered when the checks are made. The Department made the necessary updates to the Bank’s anti‑money laundering regulation, by acknowledging the legislative amendments made and defining the responsibilities, duties and operating methods for managing risks related to money laundering and financing of terrorism in accordance with the make‑up of the company organisational chart.During the year, the Department organised specific training activities aimed at consolidating and raising staff awareness of matters pertaining to anti‑money laundering, investments services and market abuse regulations.


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HUMAN RESOURCES

At the end of 2015, workforce number 209 workers, five more than in the previous year, taking into account that at the end of 2014 Cassa Centrale Banca had 197 workers, to which are added 7 colleagues of Centrale Leasing del Nord Est S.p.A.The hiring of new staff, which continued in keeping with the company objectives set in the budget, concerned all areas of the bank and saw 11 people employed on fixed‑term contracts and 7 on permanent contracts (of which 5 referred to the colleagues of the former subsidiary Centrale Leasing Nord Est S.p.A.).There were 6 terminations, of which 3 were voluntary resignations, 1 was a retirement and 2 were early retirements with access to the benefits of the Solidarity Fund.The employment contracts of 4 workers were stabilised, making them permanent. Careers guidance actively continued for young people in 2015 too, through constant collaboration with the University of Trento and the main universities in the north‑eastern area; during the year, 12 interns took part in a trainee programme of between two and six months; under the supervision of internal tutors, they were able to gain a first direct experience of work in a company, a fundamental change to verify and further consider their aptitudes and inclinations. For three of them, the experience led to hiring with fixed‑term contracts.The breakdown by Area within Cassa Centrale Banca was as follows at the end of the year: • 69 employees working in the Planning and Organisation Area,• 51 employees working in the Payment Systems Area,• 40 employees working in the Finance Area;• 38 employees working in the Loan Area; • 11 employees assigned to the General Management offices.

The table below shows the breakdown of the staff job roles.

Job qualification 2013 2014 2015Executives 6 6 6Managers 59 61 69Professional Areas 134 130 134TOTAL 199 197 209


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BREAKDOWN OF EMPLOYEES

3,0%

Female

Male

70.00%

30.00%

EMPLOYEES BY AGE GROUP

<=30 31-45 46-55 >55

20

10

0

30

40

50

60

70

80

90

100


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The point that qualifies our Group’s long‑term strategy is its attention to the quality of human resources. Therefore, it is a primary commitment of the Group to promote the constant development of individual and group capabilities and skills. In a constantly evolving market environment and in an industry where change is increasingly a decisive competitiveness factor, it is essential to strengthen the most important asset of every company: its people.The main guidelines followed by the Group involving valuing initiative and flexibility, providing growth opportunities not just through adequate development paths, but also through active participation in the implementation of projects and stimulating innovation.Numerous managerial, technical‑specialist and regulatory training initiatives were carried out in collaboration with several specialised entities (Formazione Lavoro, ABI Formazione, SDA Bocconi, Universities, etc.) and English language courses were administered by native instructors.In terms of monitoring the precepts set forth in Italian Legislative Decree 81/01, newly hired personnel received multimedia training and the specific mandatory training for work in Cassa Centrale Banca. EUR 165,000 was invested in training in 2015, for a total of roughly 8,200 hours of training, almost all of which during work hours. With reference to the total number of hours worked and in particular to overtime hours, the highlights are provided in the chart, whilst the table shows in detail the reasons for the missed work days.

OVERTIME HOURS

2015 2014

0

400

600

1000

1400


1200

800

200


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Total Per head2015 2014 % change 2015 2014 % change

Holidays taken 6,165 6,210 ‑0.70% 29.50 31.52 ‑6.40%Sick days 1,161 1,098 5.70% 5.56 5.57 ‑0.30%Leave (art. 118/banks hours/other) 856 956 ‑10.50% 4.10 7.47 ‑45.20%Maternity 313 214 46.30% 1.50 1.09 37.90%Doctor’s visits 118 132 ‑10.60% 0.56 0.67 ‑15.70%Marriage leave 30 56 ‑46.40% 0.14 0.28 ‑49.50%Blood donation 50 43 16.30% 0.24 0.22 9.60%Time off for union duties 9 10 ‑10.00% 0.04 0.05 ‑15.20%Strike 3 5 ‑40.00% 0.01 0.04 ‑63.30%TOTAL ABSENCES 8,705 8,724 ‑0.20% 43.74 45.20 ‑3.20%

Data in standard working days


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SUBSIDIARIES OF CASSA CENTRALE BANCA


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2015 was the sixth year of operations for Centrale Credit & Real Estate Solutions (CCRES in abbreviated form). The negative economic environment which, since 2011, characterised all recent years, persisted in 2015 as well, thereby making the operations of the company ever more challenging and complex. More specifically, 2015 started to represent a diversified economic situation in relation to the different regions examined. While some small, tentative signs of recovery are becoming visible in Veneto and in Friuli, in Trentino the situation remains very challenging, with a further decline in the entrepreneurial initiatives that provide the fabric on which CCRES normally operates and provides advice. Despite the persistence of the unfavourable economic scenario, particularly in the main region of operation, the company nonetheless managed to close 2015 with clear growth in turnover (+20.00%) and better net profit (+39.00%) compared to 2014. During the year, CCRES’ operations were essentially broken down into the following business areas:• due diligence and non‑financial consulting for companies involved in project financing operations and the

renewable energy sector;• marketing and the training activity relating to the IT portal that facilitates operations with Mediocredito Centrale

for the activities of the National Guarantee Fund for Small and Medium Enterprises;• structuring, as advisor of the CR‑BCCs, two sales of non performing loans (NPL’s);• due diligence and consulting in the real estate sector;• marketing the platform ‑ established in co‑operation with a primary company of the sector ‑ for the outsourced

management of the non‑performing loans of CR‑BCCs;• management, in synergy with CESVE, of the ‘Vetrina Immobiliare’ (‘Property Showcase’) site of Casse Rurali

Trentine.The due diligence and consultancy activities declined rather sharply; the reasons are essentially connected both with the above considerations concerning the challenging economic situation, and with the marked reduction of the incentives in the renewable energies sector. On the other hand, the activities connected with the National Guarantee Fund for Small and Medium Enterprises grew considerably, as did those relating to non performing loans. In particular, services to CR‑BCCs in the impaired loans sector had already been identified as priorities and as a strategic line of development of the business in past years; the volumes recorded during the year decisively confirm the path taken. Two sales of non performing loans were completed in 2015, with the participation of 37 banks and a total amount of sold impaired loans of EUR 436 million. The ‘multi originator’ sale platform is the leading one in Italy both in terms of volumes and number of transactions. During the year, the outsourced management of non‑performing loans started operations; at this time, eight banks are active with the service. Considering the volumes of impaired loans in the world of CR‑BCCs, in upcoming years we expect sizeable growth for this type of activity as well. The company has planned further to implement and consolidate the proposals pertaining to the management of impaired loans and of the connected activities in 2016. The intention is to add two sectors of operations to the ones currently offered: the first one, in close synergy with the website Vetrina Immobiliare, is the establishment of a physical network within the CR‑BCCs that facilitates the sale of the properties of members, customers and banks, which together with the virtual network completes the commercial offer; the second one is the establishment of a special purpose vehicle that will take over those non‑performing loans that cannot be sold to the market and that, at the same time, exceed the internal operational potential of CR‑BCCs; all supplementing the potential available today for the activities pertaining to the management of impaired loans.

CENTRALE CREDIT & REAL ESTATE SOLUTIONS S.r.l.


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The objective of the company, incorporated on 26 February 2014 and wholly‑owned by Cassa Centrale Banca, is the purchase, sale or exchange of property assets, both urban and rural, commercial or industrial, wherever they may be located, including upgrading them or finishing the areas or the property structures acquired. These are ancillary activities with respect to the activities of the parent company and are predominantly carried out in favour of said company, with the main objective of safeguarding the credit obligations deriving from credit facilities secured by collateral security.In 2015 the company concretely started its activity; for this reason, it was deemed appropriate to promote capital strengthening, bringing share capital to EUR 2 million, a level considered more appropriate for the operations to be carried out. In October, Centrale Soluzioni Immobiliari won an auction for a condominium complex with 10 apartments and 14 garages in the Municipality of Mozzecane in the province of Verona. The property is in excellent conditions and it requires only some restoration and improvement works entailing minor expenses. Although it won the auction and it immediately made a payment to the receiver, to date the company is still carrying out the procedures for registering the property with the competent Property Register. However, thanks to the commercial activity and the promotion carried out through the agreement with three local real estate agencies, Centrale Soluzioni Immobiliari has already received offers to purchase three apartments and the related garages. In 2015, an offer was formulated for the purchase, through an auction, of a property consisting of three complexes, one (the larger one) nearly completed, while of the two smaller ones, only the underground part has been built. The judge has set an auction, next April, on the basis of the offer submitted by the subsidiary. To date, we do not know whether the company will be awarded the asset. Two other offers were submitted in 2015. The first one was not accepted by the liquidator, while the second one is a part of a particular complex bankruptcy, so the proposal has not yet been considered by the receiver.

CENTRALE SOLUZIONI IMMOBILIARI S.r.l.


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CENTRALE LEASING NORD EST S.p.A.

On 12 May 2015, the new regulatory Provisions for financial intermediaries entered into force; inter alia, they led to the classification of the financial intermediaries existing on that date into two categories: those who exercise an activity that continues to be reserved by law (e.g., lending) and those who, not lending to the public, carry out only liberalised activities. Persons in the first category have the obligation to comply with the new Provisions, filing the request for authorisation to exercise the activity after revising the company organisation and making a series of changes of particular relevance and considerable economic impact. In accordance with the strategies dictated by the Parent Company, directed at avoiding the duplication of functions and costs within the Group, the Board of Directors of Centrale Leasing has decided not to start the activity of disbursing loans, thus taking the only path allowed by the new provisions, i.e. the liquidation of the company itself and the concurrent request for removal from the register of financial intermediaries. The voluntary liquidation formally started with specific shareholders’ meeting resolution passed on 25 June 2015.The liquidator promptly fulfilled all obligations directed at the active pursuit of the objective assigned by the shareholders. With shareholders’ meeting resolution of 24 December 2015, the liquidation financial statements were approved along with outline of the final allocation of residual assets, amounting to EUR 789,025. Consequently, the company was stricken from the register of companies on 30 December 2015, thus ceasing to exist.


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MAIN ASSOCIATES OF CASSA CENTRALE BANCA


65

NEAM S.A.

In 2015, two different scenarios evolved: a first half featuring a certain recovery of the economic cycle with declining rates assisted by the ECB’s interventions, by words and deeds, and a second part of the year characterised by uncertainty over global growth, and by the prices of oil and of all commodities in general.Hence, there were a few months with a certain euphoria both in stock markets and in bond markets, which was subsequently replaced by a more pessimistic view, affected by a growing expectation of rate rises in the United States, by discordant European growth rates and by estimates of an ever sharper slowdown of the Chinese economy. These factors had a negative impact on the performance, above all, of stock markets, which after the springtime highs, entered a period of high volatility, which partly abated in the autumn, but resumed towards the end of the year.The analysis of the 2015 funding highlights a significant correlation between market performance and high subscription levels. The flow of average monthly funding was high in the first four months of the year, characterised by growing stock markets and by a reduction of interest rates in the most industrialised countries; in the spring and throughout the summer, in line with declining financial markets, subscriptions contracted by more than half, subsequently resuming growth concurrently with the autumn flare‑up of international stock markets. Unfortunately, however, the end of the year, contrary to expectations, was rather disappointing, affected by a sharp resumption of volatility that had a negative influence on investors’ willingness to invest.A strong aid to asset growth came from PAC flows, which maintained a constant monthly cash flow of EUR 26 million.A very important contribution to the ending balance also came from the launch of three new sub‑funds: two with coupon, which collected a total amount slightly above EUR 160 million in assets, and the Bilanciato Etico (Ethical Balanced) sub‑fund, which immediately become the leader in terms of number of new PAC opened.

31.12.2013 31.12.2014 31.12.2015NEF assets 1,273,757,901 1,880,699,535 2,332,711,705NEF amounts 93,221,490 141,102,875 178,815,072Retail Class Assets 1,129,312,747 1,647,611,320 2,054,357,682Institutional Class Assets 144,445,154 233,088,215 278,354,024

NEF volumes rose by 24.00% in 2015 for an amount of EUR 452,012,170, bringing the NEF assets for the first time above EUR 2 billion.


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ASSETS BY SUB‑FUND

Sub‑funds 31.12.2013 31.12.2014 31.12.2015Global equity 39,435,703 61,277,001 72,446,667Euro share 155,025,108 183,295,909 259,584,387US equity 50,685,293 76,862,970 83,206,917Pacific equity 27,925,080 37,349,472 42,779,905EE.ME.A. equity 49,188,485 49,852,555 50,698,191Paem equity 198,383,344 220,365,121 202,630,195Real estate 38,766,445 52,514,405 50,011,004Ethical Balanced 0 0 69,037,136Coupon 86,141,419 53,224,116 72,055,360Short‑term 158,345,694 198,185,985 206,841,567Global bond 78,393,862 167,399,889 229,368,038Euro bond 96,489,005 124,320,558 145,591,131Corporate 71,991,362 89,268,442 108,324,285PAEM bond 133,643,757 159,286,771 133,038,354Convertible 35,331,298 39,917,809 57,904,086Flexible 31,762,596 38,308,419 71,279,813Raiffeisen Return 22,249,442 22,765,573 29,711,213Obiettivo 2018 0 306,504,542 285,225,258Obiettivo 2019 0 0 75,044,079Obiettivo 2020 0 0 87,934,120 1,273,757,901 1,880,699,535 2,332,711,705

The commercial effort was concentrated on the new coupon sub‑funds and especially on the new Ethical Balanced investment line, without neglecting the real engine that boosts assets, i.e. the PAC, which grew by over 35,000 new openings, reaching the total number of nearly 230,000 PAC.


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CENTRALE TRADING S.r.l.

The company provides support and assistance to the banks that use the on‑line trading service provided by Directa Sim. Contracted banks currently number 207; last year, considering the new agreements signed and the mergers that have taken place, 11 new banks signed the agreement, kick‑starting mutual collaboration.Contracted banks can benefit not only from the historic on‑line trading service but from the expansion in the range of services offered by Centrale Trading. In 2013, in collaboration with Italpreziosi S.p.A., the ‘Oro Fisico in Banca’ (physical gold in bank) project was launched, which allows banks to employ a platform for the trading of gold bars and coins on behalf of customers. Even more recent was the agreement signed by Centrale Trading with Six Financial Information, a leading global data provider, for the marketing of information products with banks.Centrale Trading provides technical assistance, collaborating in the development and maintenance of the interface programs between the Directa Sim IT system and the various security, current account, accounting and bank reporting procedures.More than 100 training days were provided by Centrale Trading in 2015 in collaboration with the contracted banks, 80 of which were for the customers and more than 25 for internal training of bank employees. These were augmented by around 100 commercial visits made to banks which are already partners for updating on the service and the planning of development activities, and to potential new members to present the unique features of the services offered.

PARTNER BANKS BY REGION

CR‑BCC OthersTrentino 33 Lombardy 23 4Emilia 19 3Alto Adige 20 1Veneto 22 Campania 11 1Tuscany 12 The Marches 10 1Piedmont 9 2Friuli Venezia Giulia 8 Lazio 9 Puglia 5 1Sicily 7 Abruzzo 1 Molise 1Valle d’Aosta 1 Umbria 1 Calabria 1

192 14


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MANAGEMENT ACTIVITY OF CASSA CENTRALE BANCA


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We provide some explanatory notes and considerations on the capital and financial performance of Cassa Centrale Banca below, comparing the figures as at 31.12.2015 with those as at 31.12.2014. Please refer to the Explanatory Notes for further details.

STATEMENT OF FINANCIAL POSITION

Assets 31.12.2015 31.12.2014 Change 2015/2014 % Change

Cash 32,573 32,577 (4) ‑0.01Financial assets: ‑ loans to banks 1,648,568 4,063,448 (2,414,880) ‑59.43 ‑ loans to customers 557,583 1,407,044 (849,461) ‑60.37 ‑ held for trading 25,305 39,112 (13,807) ‑35.30 ‑ at fair value 3,000 2,968 32 1.08 ‑ available for sale 2,644,649 2,334,655 309,995 13.28 ‑ held to maturity 459,989 454,298 5,691 1.25TOTAL FINANCIAL ASSETS 5,339,095 8,301,524 (2,962,429) ‑35.69Equity investments 22,718 22,017 701 3.19Tangible and intangible assets 14,311 12,669 1,641 12.95Tax assets 32,058 21,591 10,466 48.47Other assets 83,518 77,484 6,034 7.79TOTAL ASSETS 5,524,273 8,467,863 (2,943,590) ‑34.76

Figures in thousands of euro

CASSA CENTRALE BANCA


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Liabilities and Equity 31.12.2015 31.12.2014 Change 2015/2014 % Change

Financial liabilities: ‑ due to banks 3,598,769 7,273,498 (3,674,729) ‑50.52 ‑ due to customers 1,443,123 399,545 1,043,578 261.19 ‑ for trading 21,721 35,089 (13,368) ‑38.10 ‑ at fair value 10,048 10,083 (35) ‑0.35TOTAL FINANCIAL LIABILITIES 5,073,661 7,718,215 (2,644,554) ‑34.26Debt securities in issue 10,087 291,622 (281,535) ‑96.54TOTAL FUNDING 5,083,748 8,009,837 (2,926,089) ‑36.53Tax liabilities 5,304 13,294 (7,990) ‑60.10Other liabilities 186,866 193,914 (7,048) ‑3.63Provision for severance indemnity 2,357 2,786 (429) ‑15.41Other provisions for risks and charges 5,683 926 4,757 513.89TOTAL LIABILITIES 5,283,958 8,220,757 (2,936,799) ‑35.72Equity: Share capital 140,400 140,400 ‑ ‑ Legal reserve 23,368 22,422 945 4.22First time adoption reserves and adjustment 9,544 9,544 ‑ ‑Other reserves 36,314 27,864 8,450 30.33Share premium provision 4,350 4,350 ‑ ‑ Valuation reserves 11,532 23,619 (12,087) ‑51.17Profit for the year 14,807 18,906 (4,099) ‑21.68TOTAL EQUITY 240,315 247,105 (6,791) ‑2.75TOTAL LIABILITIES 5,524,273 8,467,863 (2,943,590) ‑34.76


SHARE CAPITAL

Share capital No. Shares Amount % interestOrdinary shareholders Centrale Finanziaria del Nord Est S.p.A. 1,852,382 96,323,864 68.607DZ Bank AG 675,001 35,100,052 25.000Rural banks and Central bodies of Trentino 501 26,052 0.019Cooperative Credit Banks and Federation of the Cooperative Credit Banks of Veneto 11,876 617,552 0.440

Cooperative Credit Banks and Federation of the Cooperative Credit Banks of Friuli‑Venezia Giulia 4,208 218,816 0.156

2nd degree Credit Cooperatives of Trentino 80 4,160 0.003Other cooperative credit banks 5,952 309,504 0.220Preference shareholders Autonomous Province of Trento 134,000 6,968,000 4.963Coopersviluppo S.p.A. 7,000 364,000 0.259Chamber of Commerce Industry Agriculture and Crafts of Trento 4,000 208,000 0.148Cooperativa Provinciale Garanzia Fidi Soc. Coop. 3,692 191,984 0.137Other preferred shareholders 1,308 68,016 0.048TOTAL 2,700,000 140,400,000 100.00


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The liquidity of Cassa Centrale Banca deposited/invested with banks (EUR 1,648 million) fell by EUR 2,415 million (‑59.43%) compared to the previous year. In particular, as regards the total, the term deposits decreased by EUR 2,235 million, the mandatory reserve with the Bank of Italy decreased by EUR 133 million, loans and receivables by EUR 64 million and demand deposits by EUR 1 million, while correspondent accounts increased by EUR 18 million. With reference to loans and receivables, the balance at year‑end was EUR 4.1 million. The service provided to the CR‑BCCs for acting as intermediary in the European Central Bank transactions had a balance of EUR 1,381 million, with a decrease of EUR 2,179 million compared to the previous year. The amounts due from ordinary customers decreased compared to the previous year, from EUR 1,407 million to EUR 557.6 million (‑60.37%). The decrease is due exclusively to repurchase agreement transactions (EUR 749 million) in place as at 31.12.2014, stipulated on the MTS Repo platform with the Cassa di Compensazione e Garanzia as counterparty, and expired in the course of the current year. The other components of loans to customers recorded a decrease in the grant balances of approximately EUR 62.1 million (‑32.25%), while current accounts decreased by approximately EUR 6.7 million (‑8.91%) and mortgage loans by approximately EUR 36.6 million (‑9.54%). With reference to loans and receivables, the balance at year‑end was EUR 10.3 million, up by EUR 4.9 million (+90.71%). With respect to the Rural Banks and the Cooperative Credit Banks, Cassa Centrale Banca continued to operate in its dual role as promoter and lead bank for pooling and assistance transactions, when requested, in the loans that the CR‑BCCs issued to their customers.Credit commitments totalled EUR 77.5 million, compared to EUR 56.6 million in the previous year.The situation with impaired loans is described in detail in the explanatory notes ‑ part E. We would like to point out that the aggregate value of the impaired loans was determined on the basis of the new definitions transposed with the 7th Revision of Bank of Italy Circular no. 272/2008, with which the latter made the definitions match the pertinent references of the European Banking Authority.This change entered into force on 1 January 2015, with the exception of the amendments pertaining to the introduction of the category of ‘forborne performing exposures’, in relation to which, for the intermediaries obligated to make reports on an individual basis only, the entry into force has been postponed to 1 July 2015.Applying the new references, the Bank revised the corporate classification criteria and proceeded with the consequent analysis and classification of the existing portfolio: (i) identifying the exposures ‑ among those impaired at 31 December 2014 ‑ that fulfilled the requirements

for the classification to forborne non performing; (ii) reclassifying, on the basis of a punctual analysis, the former restructured exposures and the former

watch‑list exposures (subjective and objective watch‑list); (iii) surveying the historical data relating to forborne performing exposures.Applying the new definitions, impaired financial assets are broke down in the categories of non‑performing loans; unlikely to pay; impaired overdue and/or overrun exposures.In addition, performing and non performing forborne exposures were identified.The forborne non performing attribute does not embody a distinct category of impaired exposures in addition to the ones referenced above (non performing, unlikely to pay and impaired overdue and/or overrun exposures), but rather a subset of each of them.

ASSETS


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As at 31 December 2015:• there are 94 non‑performing positions. The gross amount is EUR 90.569 million accounting for 13.37% of

total gross cash loans to customers while net non‑performing loans account for 2.89% of loans to customers. The positions were written down by EUR 74.474 million, equal to 82.23% of the gross amount;

• there are 68 unlikely to pay positions. The total gross amount is EUR 64.434 million, accounting for 9.51% of the total gross cash loans to customers. The position was written down by EUR 34.022 million, equal to 52.80% of the gross amount;

• there is 1 position past due by over 90 days. The total gross amount is EUR 0.095 million, accounting for 0.01% of the total gross cash loans to customers. The position was written down by EUR 0.011 million, equal to 11.10% of the gross amount;

• the percentage of provisions to cover the impairment losses on a flat rate basis to the performing loans (EUR 11.301 million) represent 2.16% of the gross performing loans;

• the provision for risks for guarantees and commitments increased from EUR 1.109 million to EUR 1.716 million.A detailed analysis of the security portfolio is provided below.

Own securitiesThe own securities, net of equity investments in subsidiaries and affiliates, derivatives and repurchase transactions increased in volume compared to the previous year (from EUR 2,826.7 million to EUR 3,083.5 million) with a different distribution among the various categories.


73

DISTRIBUTION BY IAS CATEGORIES

0.47%0.10%

14.92%

84.43%

0.09%

L&R

AFS

HTM

HFT

0.47%

84.43%

14.92%

0.09%

DAFV 0.10%

More specifically the percentage of AFS category securities increased (from 81.12% to 84.43%) while HTM decreased (from 16.07% to 14.92%), as did L&R (from 2.60% to 0.47%); the DAFV and HFT categories remained essentially stable. The securities in the portfolio held for trading are almost all shares resulting from the assets under management delegated to Symphonia Sgr (EUR 2.8 million).The balance of securities at fair value increased from EUR 2.9 to EUR 3.0 million, including bonds issued by CR‑BCCs only. They include securities exchanged with our bond loans with similar characteristics in terms of maturities and rates.


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STRUCTURE OF AFS PORTFOLIO

1.78% 2.36%

95.86%

Government securities

UCITS units

Equity investments

95.86%

2.36%

1.78%

The securities available for sale include approximately EUR 2,550.3 million of government bonds, EUR 53 million of UCITS units and EUR 41.3 million of equity securities representing the equity investments in companies with interests of less than 20.00%. With regard to government bonds, note that they represent exposure to the Italian state only. With respect to the country risk evaluation made by the Directors, the capital loss recognised in Equity, resulting from the market value of Italian government securities should not be considered as having durability.The EUR 460 million in Held to maturity securities are represented entirely by Italian government securities and are up by EUR 5.7 million compared to the previous year.


75

STRUCTURE OF L&R PORTFOLIO

28.32%

28.21%

43.46%

Bond loans issued by other issuers

Bond loans issuedby CR/BCCs

Securitisations

43.46%

28.32%

28.21%

The loans & receivable to customers and banks represented by securities amount to approximately EUR 4.1 million of bond loans issued by CR‑BCCs, of which EUR 0.3 million represent bond loans with a subordination restriction, EUR 4 million in subordinated loans resulting from securitisation transactions performed by CR‑BCCs, EUR 5 million in bonds issued by Cassa del Trentino S.p.A., and EUR 1.3 million from agreements relating to the closure of the arrangement with creditors referring to the extinguishment of the cash exposure to the company Funivie Folgarida Marilleva S.p.A. in 2013.Equity investments in companies are broken down, on the basis of the percentage interest, into the assets available for sale (AFS) and the Equity investments (item 100 of the Statement of financial position assets).The assets available for sale represent equity investments with less than 20.00% interest and amount to EUR 41.3 million, while the equity investments represent the interests of equal to or more than 20.00% and amounted to EUR 22.7 million as at 31 December 2015.The equity investments in the central bodies of the Cooperative Credit and the other more significant ones are shown here below; the complete list can be found in the Explanatory notes.


76

Investee company no. shares or units

Nominal value

Share capital

% in the capital

Centrale Credit & Real Estate Solutions S.r.l. 1 50,000 50,000 100.00Centrale Soluzioni Immobiliari S.r.l. 1 2,000,000 2,000,000 100.00NEAM S.A. 27,000 337,500 675,000 50.00Casse Rurali Raiffeisen Finanziaria S.p.A. 16,500,000 16,500,000 33,000,000 50.00Informatica Bancaria Finanziaria S.p.A. 16,036 1,603,300 3,700,000 43.33Assicura Cooperazione Trentina S.r.l. 468,000 468,000 1,200,000 39.00Centrale Trading S.r.l. 3,380 3,380 10,400 32.50Formazione Lavoro S.c.p.A. 543 271,500 1,222,500 22.21Assicura Group S.r.l. 1 750,000 7,500,000 10.00Finanziaria Trentina della Cooperazione S.p.A. 100 500,000 12,250,000 4.08Iccrea Holding S.p.A. 619,069 31,974,914 1,151,045,404 2.78

Amount

The total deposits of EUR 5,084 million decreased during the year by EUR 2,926 million (‑36.53%). The analysis of the fundamental components of the figure shows that the total deposits of the banking system (EUR 3,599 million), including the term deposits in the Obligatory Reserve (EUR 106.5 million), decreased by 50.52% compared to 2014. The customer deposits increased from EUR 399.5 million to EUR 1,443.1 million (+261.19%), while those deriving from financial liabilities at fair value declined slightly (‑0.35%). The significant increase in customer deposits is due to repurchase agreement transactions stipulated on the MTS Repo platform with the Cassa di Compensazione e Garanzia as counterparty.The depositors are mainly represented by:• leading companies and public institutions whose relationships operate in accordance with the services managed

by Cassa Centrale Banca;• customers for whom the Associates entrusted the asset management to Cassa Centrale Banca. There was an

amount of EUR 82.3 million in managed capital as at 31 December 2015 which was not invested in financial instruments;

• employees of Cassa Centrale Banca and other central entities.Financial liabilities held for trading decreased by EUR 13.4 million, down from EUR 35.1 million to EUR 21.7 million (‑38.10%).The bond loans issued and valuated at fair value, equal to EUR 10 million, remained stable relative to the previous year, while those classified as debt securities in issue decreased by EUR 281.5 million and amount to EUR 10.1 million.

LIABILITIES


77

INCOME STATEMENT

Income statement 31.12.2015 31.12.2014 Change 2015/2014 % Change

Interest Margin 21,643 22,445 (802) ‑3.57Net commissions 37,322 30,392 6,930 22.80Other revenue 41,508 43,091 (1,582) ‑3.67Net interest and other banking income 100,473 95,927 4,546 4.74Net value adjustments/write‑backs (28,248) (34,901) 6,653 ‑19.06Net income from financial activities 72,225 61,026 11,199 18.35Operating costs (49,699) (31,295) (18,403) 58.81

‑ of which personnel costs (15,544) (15,519) (25) 0.16Profit/loss on equity investments (393) ‑ (393) ‑Profit/loss from disposal of investments 26 20 6 32.20Gross profit from current assets 22,160 29,750 (7,591) ‑25.51Income tax (7,353) (10,844) 3,492 ‑32.20NET PROFIT FOR THE YEAR 14,807 18,906 (4,099) ‑21.68


The profit made by Cassa Centrale Banca meant that there was a significant return on capital this year also, and at the same time, a higher allocation to reserves than required by law. The Bank continues in its mission of providing high quality level services with the main objective of supporting the competitiveness of the CR‑BCCs. The main aggregates in the income statement are analysed below; they allowed a net result of EUR 14.8 million to be achieved.The interest margin declined from EUR 22.445 million to EUR 21.643 million (‑3.57%). The decrease is due mainly to the decline in the volumes invested in the securities portfolio and in the receivables portfolio. The reduction was only partly offset by the increase in the spread between the average rate for interest‑bearing assets and the average rates for interest‑generating liabilities. The persistently negative rates, coupled with the attenuating tensions on sovereign debt, have reduced the yield from loans. However, the decline in the yield of the volumes invested was more than offset by the decline in the cost of deposits, which was considerably affected by the non‑renewal of a 3.70% bond, which had been present throughout 2014. Lastly, it should be pointed out that 2015 was characterised by a growing trend in net interest margin, versus the negative trend recorded in the second half of 2014.The net commissions for the service increased from EUR 30.4 million to 37.3 million (+22.80%). More specifically, there was an increase in the net commissions from ‘management, intermediation and financial advisory services’ (+67.84%), almost entirely due to ‘asset management’, while a decrease was recorded, under commission expenses, in the cost of issuing the state guarantee related to the new bonds issued by the Bank. The other income components that generated commissions confirmed, improving them, the good levels already achieved in 2014.In other revenue, which decreased from EUR 43.1 to EUR 41.5 million (‑3.67%), of note is the positive result of the financial transactions relating to assets and liabilities measured at fair value (EUR +0.6 million), recognised under item 110, the increase in profits relating to assets held for trading (EUR +0.7 million), recognised under

PROFITABILITY


78

item 80, and profits relating to dividends, which changed from EUR 0.4 to 1.3 million. Profits on sales, booked under item 100, declined by EUR 3.7 million. In particular, the change refers to the lower profit recognised for sales of securities (EUR ‑6 million), whilst the sale of non performing loans resulted in a gain of EUR 1.5 million (EUR +2.3 million). The net interest and other banking income amounted to EUR 100.5 million, up by EUR 4.5 million compared to 2014.The net value adjustments/write‑backs (EUR ‑28.2 million) represent the prudential provisions of the adjustment of the cash loan portfolio measurements of EUR 25.4 million (EUR 34.2 million in 2014), the adjustment of the provisions for risks and guarantees for EUR 0.6 million, the adjustment of the provisions set forth by the Depositors’ Guarantee Fund of Credito Cooperativo, amounting to EUR 0.8 million, the value adjustments for impairment made on the equities and UCITS for EUR 1.5 million. With reference to the credit portfolio, write‑backs of EUR 41.9 million were recorded against adjustments of EUR 67.1 million.Net operating costs, which increased significantly, amounted to EUR 49.7 million (+58.81%). The aggregate figure for these costs indicates an increase in personnel costs of EUR 0.02 million and in the other administrative expenses of EUR 16.5 million. It should be pointed out that the ‘other administrative expenses’ includes the new cost, amounting to approximately EUR 13.7 million, due to the ordinary and extraordinary contributions paid into the National Resolution Fund, in addition to the increase, by EUR 2.2 million, in the costs relating to the application of the stamp duty on financial transactions. The increase in the other operating income from EUR 3.0 million to EUR 5.7 million is mainly due to lower extraordinary expenses compared to the previous year (EUR ‑0.5 million), and the greater recovery from customers of the cost of stamp duty on financial transactions (EUR +2.1 million). ‘Net provisions for risks and charges’ grew markedly as a result of the allocations made in view of pending legal disputes (EUR 1.2 million) and the expected additional requests by the National Resolution Fund for the interventions carried out during the year (EUR 3.4 million). Despite the increase in specific administrative costs, it must be noted that the Bank is strongly committed to progressively reducing staff costs and administrative expenses without compromising the quality of the services and the necessary investments.The gross profit from current operations declined from EUR 29.7 million to EUR 22.2 million (‑25.51%).The income tax was calculated by taking account of the deferred tax regulations. Taxes account for approximately 33.18% of gross income (EUR 7.353 million).Net profit decreased by EUR 4.1 million (‑21.68%) and amounted to EUR 14.807 million.

Some of the general income, physical productivity and economic, asset risk and capital adequacy management indicators are shown below, which must be read and interpreted in view of the considerations on the financial position provided in the specific sections of this Report.

MAIN FINANCIAL AND ECONOMIC INDICATORS


79

MAIN INDICATORS OF THE FINANCIAL STATEMENTS

INDICATORS OF THE FINANCIAL STATEMENTS 31.12.2015 31.12.2014change 2015 compared to

2014STRUCTURAL RATIOS Loans to customers (Item 70) / Total Assets 10.09% 16.62% ‑6.53 p.p.Direct deposits / Total Assets 91.63% 94.18% ‑2.55 p.p.Equity / Total Assets (1) 4.35% 2.92% 1.43 p.p.PROFITABILITY RATIOS Net profit / Equity (ROE) (1) 6.16% 7.65% ‑1.49 p.p.Net profit / Total Assets (ROA) 0.27% 0.22% 0.05 p.p.Cost to income ratio (Operating costs / net interest and other banking income) 49.46% 32.62% 16.84 p.p.

RISK RATIOS Net non‑performing loans / Net loans to customers (item 70 assets) 2.89% 1.79% 1.10 p.p.

Other impaired loans / Net loans to customers (item 70 assets) 5.47% 3.34% 2.13 p.p.

Adjustments to non‑performing loans / gross non‑performing loans 82.23% 68.60% 13.63 p.p.

Adjustments to other impaired loans / gross other impaired loans 52.74% 44.63% 8.11 p.p.

Adjustments to performing loans / Gross performing loans 2.16% 0.74% 1.42 p.p.

PRODUCTIVITY RATIOS (2) (3) Net interest and other banking income per employee 499 482 3.53%Personnel costs 75 76 ‑1.31%Net earnings per employee 73 95 ‑23.16%EQUITY RATIOS CET1 Capital ratio (Common equity Tier 1 capital / Total risk‑weighted assets) 19.82% 17.85% 1.97 p.p.

Tier 1 Capital ratio (Tier 1 capital / Total risk‑weighted assets) 19.82% 17.85% 1.97 p.p.

Total Capital ratio (Total regulatory capital / Total risk‑weighted assets) 20.00% 18.25% 1.75 p.p.

(1) The Equity includes the profits made during the year.(2) The productivity ratios are expressed in thousands of euros.(3) Indicators calculated using the average number of employees.


80

We provide some explanatory notes on the capital and financial performance of the subsidiaries of Cassa Centrale Banca below.

MANAGEMENT ACTIVITY OF THE SUBSIDIARIES


81


Assets 31.12.2015 31.12.201420. Loans and advances to banks 639 52770. Equity investments 2 2100. Tangible fixed assets 35 19130. Other assets 117 145TOTAL ASSETS 793 693

Liability items and Equity 31.12.2015 31.12.201450. Other liabilities 68 53120. Share capital 50 50140. Reserves 590 528170. Profit/loss for the year 85 62TOTAL LIABILITIES AND EQUITY 793 693


The item ‘loans and advances to banks’ includes the receivables, amounting to EUR 639 thousand, due from lending institutions, regardless of technical form. More specifically, it represents the balance of the ordinary current account held with the parent company Cassa Centrale Banca.Equity investments, of EUR 2 thousand include the cost of shares in the share capital of the Federazione Trentina della Cooperazione Soc. Coop..Intangible fixed assets are fully amortised.The tangible assets, net of the respective accumulated depreciation amount to EUR 35 thousand and mainly consist of the historical cost (EUR 55 thousand) for the purchase of 1 vehicle which was depreciated by EUR 37 thousand and mobile telephones, EUR 2 thousand, depreciated by EUR 1 thousand.The item ‘other assets’ comprises receivables due from customers for invoices issued or pending issue, i.e. EUR 104 thousand, tax receivables of EUR 8 thousand and residual receivables of EUR 5 thousand.

The item ‘Other Liabilities’, amounting to EUR 52 thousand, mainly represents tax and social security payables (EUR 29 thousand), payables to employees (EUR 16 thousand), payables to suppliers (EUR 16 thousand) as well as various residual payables (EUR 6 thousand).The fully paid‑up share capital comprises 1 share for EUR 50 thousand held by Cassa Centrale Banca S.p.A.

ASSETS

LIABILITIES



82

INCOME STATEMENT

Costs 31.12.2015 31.12.201440. Administrative expenses 398 348

‑ personnel costs 147 146‑ other administrative expenses 251 202

50. Adjustments on fixed assets 14 1560. Other operating charges 9 4130. Income taxes for the year 45 30170. Profit for the year 85 62TOTAL 551 459

Revenues 31.12.2015 31.12.201410. Interest income and similar revenues 9 630. Commission income 541 45070. Other operating income 1 3TOTAL 551 459


The most significant items in the Income Statement refer to:• income from consultancy and services (EUR 541 thousand);• personnel costs (EUR 147 thousand) and other administrative expenses (EUR 251 thousand);• depreciation of assets (EUR 14 thousand);• income taxes for the year (EUR 45 thousand).

PROFITABILITY


83


Assets 31.12.2015 31.12.2014 20. Loans and advances to banks 1,828 56 90. Intangible fixed assets 4 2100. Tangible fixed assets 750 ‑130. Other assets 267 ‑TOTAL ASSETS 2,849 58

Liability items and Equity 31.12.2015 31.12.2014 10. Due to banks 825 ‑ 50. Other liabilities 2 2120. Share capital 2,000 50140. Reserves 6 ‑170. Profit/loss for the year 16 6TOTAL LIABILITIES AND EQUITY 2,849 58


The item ‘loans and advances to banks’ includes the receivables, amounting to EUR 1,828 thousand, due from lending institutions, regardless of technical form. More specifically, it represents the balance of the ordinary current account held with the parent company Cassa Centrale Banca.The intangible assets, net of amortisation, amount to EUR 4 thousand and consist of the costs of establishing the company, in addition to start‑up and expansion costs.Tangible assets, EUR 750 thousand, refer to the purchase of 14 lots of properties transferred to the company by the transfer order of the Civil and Criminal Court of Verona. These assets are held for sale and no depreciation was applied to them.Other assets refer to tax receivables amounting to EUR 5 thousand and a security deposit of EUR 262 thousand established to secure the proposal to purchase a set of properties, not yet completed at the reporting date.

The item Due to banks, amounting to EUR 825 thousand, refers to the loan issued by Cassa Centrale Banca S.p.A. in order to complete the first purchase of property carried out by the company and intended for resale.The item ‘Other Liabilities’, amounting to EUR 2 thousand, represents payables to suppliers.The fully paid‑up share capital comprises 1 share for EUR 2,000 thousand held by Cassa Centrale Banca S.p.A.

ASSETS

LIABILITIES



84

INCOME STATEMENT

Costs 31.12.2015 31.12.201440. Administrative expenses 21 19

‑ other administrative expenses 21 1950. Adjustments on fixed assets 1 ‑60. Other operating charges 2 1130. Income taxes for the year ‑ 2170. Profit for the year 16 6TOTAL 40 28

Revenues 31.12.2015 31.12.201410. Interest income and similar revenues 12 ‑30. Commission income 28 28TOTAL 40 28


The most significant items in the Income Statement refer to:• financial income (EUR 12 thousand);• income from consultancy and services (EUR 28 thousand);• other administrative expenses (EUR 21 thousand);• by effect of the excess amount deriving from the ACE tax relief, the company has not accrued taxes for 2015.

PROFITABILITY


85


86

OTHER INFORMATION ON OPERATIONS


87

In application of joint document no. 2 issued in February 2009 by the Italian control bodies, starting from the 2008 financial statements, Directors must provide adequate disclosure so that the impacts of the crisis on the economic, asset and financial situation are presented clearly, along with the operating and strategic choices made and any corrective actions put in place to adapt company strategies to the changed reference situation. In other words, an appropriate level of reporting transparency can contribute to decreasing uncertainty and its negative consequences. The document requires special attention to be paid to the issues regarding the business continuing as a going concern, financial risks, estimates/evaluations and impairment.Since the effects of the crisis appeared to be still significant and widespread in March 2010, these Italian control bodies issued document no. 4 which repeated the requirement to supply the information provided in the previous document, extend the disclosure and transparency to other company events such as measurement/impairment of goodwill and equities classified as ‘available‑for‑sale’, restructuring of customer payables in exchange for shares, and fair value hierarchy.As regards the assumption of the company continuing as a going concern, the administration and control bodies evaluated the existence and maintenance of that assumption for this year also, and established that no further analyses would be required to support this assumption beyond the information that emerges from the contents of the financial statements and the report on operations. The Directors also note that they did not discern signs that could lead to uncertainties about the assumption of the Bank or its subsidiaries continuing as going concerns with respect to capital structure, financial structure or operating performance.The information regarding financial risks is provided under ‘Part E’ of the Explanatory Notes in terms of assumption, management and covering said risks.Preparation of the financial statements requires the use of estimates and evaluations that could have significant impacts on the recorded amounts and especially those relating to receivables, financial assets, employee funds and for risks and charges and the use of evaluation models for the recognition of the fair value for unlisted instruments in active markets with a view towards the company continuing as a going concern.The Bank defined the estimation processes to support the carrying amount of the most significant items recorded in the financial statements as at 31 December 2015. The estimation processes are based on past experience and other factors considered to be reasonable in the case at hand, and were adopted to estimate the carrying amount of assets and liabilities that cannot be easily calculated from other sources. In particular, estimation processes were adopted that support the book value of some of the most important valuation items posted in the accounts, according to reference regulations. These processes are mainly based on estimates of future recoverability of the values in the accounts and were carried out on a going concern basis. As regards the fair value hierarchy and its calculation methods, please refer to the Explanatory Notes for more information.The processes adopted compare the book values on the date of preparing the Financial Statements. The measurement process turned out to be particularly complex in consideration of the persisting uncertainty of the macroeconomic and market context, characterised by the considerable volatility of the financial parameters determined for the measurement as well as indicators of impairment of the credit quality that remain high. These parameters and the information used to check the mentioned values are significantly affected by these factors, which may undergo rapid and unforeseeable changes.The ongoing trend of uncertainty of the economy and continued volatility of financial markets meant that the credit risk had to be evaluated very carefully, as well as the measurement of the financial instruments and the impairment test management.

THE INFORMATION PURSUANT TO THE DOCUMENTS OF THE BANK OF ITALY / CONSOB / ISVAP NO. 2 OF 6.2.2009 AND NO. 4 OF 3.3.2010


88

OTHER INFORMATION ON OPERATIONS

Further information is provided as set out in the Supervisory Instructions for the financial statements of banks (chapter 2, paragraph 8, Circular of the Bank of Italy no. 262, revision of 15 December 2015).

Research and DevelopmentThe Bank does not carry out research and development in the strictest sense due to the business it carries out and the sector it belongs to.

Own sharesThe Bank does not hold and did not purchase or sell own shares or parent company shares.

Relations with related partiesPart H of the Explanatory Notes contains information on the dealings/transactions with related parties.

Disclosure on management and coordinationThe Bank is an investee of Centrale Finanziaria del Nord Est S.p.A. which holds 68.607% of the share capital.Due to this relationship of control, the Bank is subject to the management and coordination regulations, as set out under articles 2497 et seq. of the Italian Civil Code, by Centrale Finanziaria del Nord Est S.p.A., a financial holding company established on 20 October 2006 to ensure the maintenance of shareholding control of the cooperative credit system of the North East of Italy in Cassa Centrale Banca.Please refer to the Explanatory Notes ‑ Part H ‑ transactions with related parties for further information on the parent company.

Business continuityPart E of the explanatory notes contains information regarding the measures adopted by the Bank to ensure adequate levels of business continuity, pursuant to the provisions on business continuity contained within Part I, Title IV, chapter 5 of Bank of Italy Circular no. 285 of 17 December 2013.

Corporate governanceThe Bank continued the process of adjustment into line with the provisions on the corporate governance of banks issued by the Bank of Italy on 8 May 2014 with the first update of Circular no. 285 of 17 December 2013. In 2016, additional compliance measures will be carried out.

Internal control systemThe Bank conforms the activity and structure of its own internal control system to the provisions contained in Part I, Title IV, Chapter 3 of Bank of Italy Circular no. 285 of 17 December 2013.

Remuneration and incentivisation policiesIn 2015, the Bank started the process of adjustment into line with the new Provisions governing the policies and practices of remuneration and incentivisation in banks and banking groups, contained in Part I, Title IV, Chapter 2 of Bank of Italy Circular no. 285 of 17 December 2013.


89

Organisational, management and control model for crime prevention pursuant to Italian Legislative Decree no. 231/01The year 2015 saw updates to the ‘Risk Assessment’ and the ‘Organisational, management and control model’ of the Bank to acknowledge the updated list of predicate offences contained in Italian Legislative Decree 231/01.

Money laundering and funding terrorismThe Bank is exposed to legal and reputational risks resulting from possible involvement in money‑laundering or financing of terrorism because of the business it is involved in. The organisational protections introduced in order to reduce these risks and comply with the obligations imposed by applicable primary and secondary regulations, an anti‑money laundering department was established with the adoption of specific internal rules that define the organisational and operational system adopted by the Bank in order to protect against the legal and reputational risks resulting from any potential involvement in unlawful transactions. During 2015, the anti money laundering department activated constant monitoring on the status of the implementation of the applicable law and compliance with the organizational measures required by the Bank of Italy, making official the controls carried out within the communications and reports and promoting implementation of the corrective measures with regard to irregularities found upon completion of its own controls. In 2015, the Department also drafted the revision to the Anti‑money Laundering Regulation for the Bank for subsequent approval by the Board of Directors.


90

The Official Gazette of 15 February 2016 promulgated Law Decree no. 18 of 14 February 2016 ‘Urgent measures to reform cooperative credit banks and other urgent provisions for the credit sector’.Upon conversion of the decree into law, Cooperative Credit Banks will be obligated to adhere to a Cooperative Banking Group whose Parent Company is a Joint‑Stock Company, authorised to exercise banking activities. Adhesion to a Banking Group is the condition for the granting, by the Bank of Italy, of the authorisation to exercise banking activities in cooperative form. The Parent Company shall carry out management and coordination activities on the Cooperative Credit Banks according to an agreement that also provides the joint and several guarantee of the obligations assumed.The reforming measure promulgated by the Government took mainly into account the framework of the proposed self‑reform of the Cooperative Credit Banks System, to whose definition the Cassa Centrale Banca Group provided a significant contribution.The measure in question has epochal significance and it is destined to have a profound impact on the future aspect of Italy’s cooperative credit. For this reason, the Cassa Centrale Banca Group is tenaciously engaged to ensure that regulatory choices are carefully considered in light of the goal of enhancing the conditions of stability, competitiveness and efficiency of Cooperative Credit Banks. This primary goal, however, must be accompanied by the goal of optimising and leveraging the best business models expressed today by the Cooperative Credit.

No additional significant events occurred after 31 December 2015 other than those already discussed by the Parent Company in its report.In terms of the external context, 2016 exhibited an economic and financial picture characterised by elements and prospects of uncertainty, linked to the ongoing negative effects of the economic crisis, the evolution of monetary policy and the current geopolitical crises. In addition, the high levels of unemployment will still continue to have a strong influence on consumption, preventing a return to higher levels and re‑establishment of the necessary confidence that generally characterises economic recovery. As regards the prospects of the Bank and its subsidiaries, we believe that the right conditions are in place to allow them to develop successfully, despite the difficult economic situation.

SIGNIFICANT EVENTS AFTER 31 DECEMBER 2015 AND BUSINESS OUTLOOK


91

In accordance with the Law and articles of association, the Board of Directors propose that the Shareholders allocate net income amounting to EUR 14,807,187, as follows:

1. to legal reserve EUR 740,3592. to extraordinary reserve EUR 8,200,0003. to the Shareholders:

‑ EUR 2.08 per ordinary share fully paid‑in, equal to 4.00% EUR 5,304,000‑ EUR 2,496 per preference share fully paid‑in, equal to 4.80% EUR 374,400

4. available to the Board of Directors pursuant to article 28 of the Articles of Association EUR 188,428

The dividend shall be available for distribution from 1 June 2016.

Trento, 9 March 2016

The Board of Directors

PROPOSAL OF ALLOCATION OF NET INCOME

94



95

Dear Shareholders,

considering that Cassa Centrale Banca – Credito Cooperativo del Nord Est S.p.A., pursuant to the provisions of Chapter V of Italian Legislative Decree no. 39 of 27 January 2010, is a public entity, the Board of Statutory Auditors does not carry out the independent audit, which is entrusted to the independent auditors KPMG S.p.A. The independent auditors were appointed for the nine-year period 2010 - 2018 by resolution of the Shareholders’ Meeting of 22 May 2010.It should also be noted that, due to the above-mentioned Italian Legislative Decree 39/2010, the Board of Statutory Auditors also constitutes the Internal Control and Audit Committee.As a result of the specific resolution of the Board of Directors of 24/07/2013, effective from said date, the Board of Statutory Auditors was also assigned the tasks of the Supervisory Body pursuant to Italian Legislative Decree 231/2001.During 2015, the Board of Statutory Auditors carried out the supervision required by the law and the instructions of the Bank of Italy, in compliance with the legal provisions and the rules of conduct of the Board of Statutory Auditors issued by Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (National Board of Chartered Accountants).

SupervisionThe Board of Statutory Auditors monitored observance of the law and of the Articles of Association and compliance with the principles of proper administration.In particular, the Board of Statutory Auditors took part in the meetings of the Shareholders (1), of the Board of Directors (12) and of the Executive Committee (9) in relation to which, based on the information available, no violations of the law or of the Articles of Association were verified, no transactions that were manifestly imprudent, hazardous, involved a potential conflict of interests or were as such to compromise the integrity of company assets. During the aforementioned meetings, the Board of Statutory Auditors was able to acquire information from the delegated bodies on the general operating performance and its outlook, and on the most significant transactions, owing to their dimensions or characteristics, carried out by the company and, based on the information acquired, has no particular remarks to make.During the year, the Board of Statutory Auditors conducted 12 periodic audits, also availing itself of the organisational structures that carry out control functions. In particular, the Board of Statutory Auditors:established, with the Internal Audit Department, a systematic and ongoing relationship, through the examination of the reports it sent to the Board, with the presence of at least one Internal Audit representative in all meetings of the Board of Statutory Auditors; held meetings with the other second level control functions, such as the ‘Legal and Compliance’ department and the ‘Risk Management and Management Control’ department.Based on the information obtained in the aforementioned meetings, no significant data and information emerged which needs to be highlighted in this report.The Board of Statutory Auditors also held periodic meetings with the independent auditors geared towards the exchange of significant data and information for the performance of the respective tasks and the analysis of the

BOARD OF STATUTORY AUDITORS’ REPORT DRAFTED IN ACCORDANCE WITH ARTICLE 2429 OF THE ITALIAN CIVIL CODE


96

results of the work performed by said company. Based on the aforementioned meetings, no significant data and information emerged which needs to be highlighted in this report.The Board of Statutory Auditors monitored compliance with the law and, in particular, the regulations governing anti-money laundering and anti-usury, as well as those of the Bank of Italy linked to specific activities.The Board of Statutory Auditors carried out the supervision required under article 19, Chapter V of Italian Legislative Decree no. 39/2010.The Board of Statutory Auditors, for matters within its competence, acquired knowledge and monitored:• the adequacy and functioning of the organisational structure, through meetings and checks on the organisational

developments of Cassa Centrale Banca, with particular reference to the improvements of the Bank’s functioning;• the adequacy and the functioning of the internal control system, with particular regard to the control of credit,

market, interest rate and operating risks; of the administrative-accounting system, as well as on the reliability of the latter in correctly representing operating events;

• the observance of the rules that govern transactions with subsidiaries and associates;• and, in this regard, has no observations to make.The Board of Statutory Auditors acquired information and held meetings with the competent functions regarding:• the implementation of credit, market, liquidity and operating risk management policies, also in light of the Bank’s

membership of the Cassa Centrale Banca Group. The Board of Statutory Auditors acknowledges, in particular, that the explanatory notes contain information on the risk control and hedging policies adopted by the Bank, in compliance with the provisions of circular no. 262 of 22 December 2005 of the Bank of Italy;

• the process of adjustment into line with the Measures of the Bank of Italy regarding customer due diligence and the keeping of a single electronic database and other controls connected with anti-money laundering.

The Board of Statutory Auditors did not receive any claims pursuant to art. 2408 of the Italian Civil Code.During the year, the Board of Statutory Auditors did not issue any opinions.During its supervision, as described above, no significant facts emerged which needed to be mentioned in this report.In 2015, starting on 25 March and ending on 19 June, the Bank of Italy’s inspection took place; its final conclusions, delivered with the report dated 2 September 2015, had ‘mostly favourable findings’.

Financial statementsThe financial statements for the year ended as at 31 December 2015 were drafted in compliance with the international accounting standards issued by the International Accounting Standards Board (IASB) and approved on the drafting date as well as the associated interpretations of the International Financial Reporting Interpretation Committee (IFRIC).A summary of the equity and profit results from the financial statements for the year ended as at 31 December 2015 is shown below:Assets EUR 5,524,273,131Liabilities and provisions EUR 5,283,958,431Equity EUR 240,314,700- of which: Profit for the year EUR 14,807,187


97

The Income Statement confirms the above-mentioned results of the Statement of financial position and is summarised by the following data:Net income from financial activities EUR 72,224,974Profit from current operating activities, gross of tax EUR 22,159,749Income taxes for the year on current operating activities EUR 7,352,562Profit from current operating activities, after tax EUR 14,807,187- Profit for the year EUR 14,807,187

The Board of Statutory Auditors monitored the general approach to drafting the financial statements for the year ended as at 31 December 2015, their general compliance with the law in terms of their formation and structure and, in this regard, does not have any specific observations to make.The Board of Statutory Auditors verified the observance of the legal provisions regarding the preparation of the report on operations and has no particular remarks to make in this regard.As far as the Board of Statutory Auditors is aware, in drafting the financial statements, the Directors did not depart from the legal provisions in accordance with art. 2423, 4th paragraph of the Italian Civil Code.The Board of Statutory Auditors acknowledges that it has viewed the report of the independent auditors pursuant to articles 14 and 16 of Italian Legislative Decree no. 39 of 27 January 2010 and art. 165 of Italian Legislative Decree no. 58 of 24 February 1998 issued by the independent auditors KPMG S.p.A. on 12 April 2016, which contained no remarks. In the opinion of the independent auditors, the financial statements conform to the drafting regulations; therefore, they have been prepared with clarity and give a true and fair view of the Bank’s financial position, economic result and cash flows. The independent auditors also certify that the report on operations is consistent with the financial statements.The financial statements and the accompanying report on operations fully illustrate the company’s situation, as well as the characteristics of the operating performance during the year just ended and its outlook.Cassa Centrale Banca – Credito Cooperativo del Nord Est S.p.A. is subject to management and coordination by Centrale Finanziaria del Nord Est S.p.A. and the relevant disclosure required by the applicable legislation is contained in the explanatory notes and in the report on operations.We must remind you that, with the approval of the financial statements as at 31 December 2015, our term of office expires. We invite you to take the appropriate measures in accordance with the law and the Articles of Association.Dear Shareholders, in light of the above, there are no impediments to approval of the financial statements for the year ended as at 31 December 2015, accompanied by the report on operations, as well as the allocation of profit for the year of EUR 14,807,187 and the dividend proposal, as presented by your Board of Directors.

Trento, 12 April 2016

THE BOARD OF STATUTORY AUDITORSAntonio Maffei Marco Dell’Eva Vincenzo Miceli

INDEPENDENT AUDITORS’ REPORT


The amounts in the tables of the financial statements are expressed in Euros.


104 105


104 105


Assets 31.12.2015 31.12.201410. Cash and cash equivalents 32,573,545 32,577,49320. Financial assets held for trading 25,305,017 39,111,67830. Financial assets at fair value 3,000,481 2,968,36540. Financial assets available for sale 2,644,649,442 2,334,654,59850. Held to maturity investments 459,988,950 454,297,69960. Loans to banks 1,648,567,985 4,063,447,59270. Loans to customers 557,583,174 1,407,043,801

100. Equity investments 22,718,290 22,017,002110. Tangible assets 13,916,261 12,346,951120. Intangible assets 394,277 322,398130. Tax assets 32,057,723 21,591,375

a) current tax assets 7,615,322 560,124 b) deferred tax assets 24,442,401 21,031,251 - of which pursuant to Law 214/2011 21,851,701 20,029,062

150. Other assets 83,517,986 77,483,562 TOTAL ASSETS 5,524,273,131 8,467,862,514

Liabilities and Equity 31.12.2015 31.12.201410. Due to banks 3,598,768,517 7,273,497,98720. Due to customers 1,443,122,998 399,545,31830. Debt securities in issue 10,087,368 291,622,28040. Financial liabilities held for trading 21,720,811 35,088,57950. Financial liabilities at fair value 10,048,404 10,083,28480. Tax liabilities 5,304,037 13,293,524

a) current tax liabilities - 2,181,315 b) deferred tax liabilities 5,304,037 11,112,209

100. Other liabilities 186,866,469 193,914,081110. Provision for severance indemnity 2,356,995 2,786,317120. Provisions for risks and charges 5,682,832 925,702

b) other provisions 5,682,832 925,702130. Valuation reserves 11,532,090 23,619,069160. Reserves 69,225,423 59,830,110170. Share premium 4,350,000 4,350,000180. Share capital 140,400,000 140,400,000200. Net profit (loss) of the year (+/-) 14,807,187 18,906,263

TOTAL LIABILITIES AND EQUITY 5,524,273,131 8,467,862,514


106 107

INCOME STATEMENT

Items 31.12.2015 31.12.201410. Interest income and similar revenues 45,279,161 80,221,40720. Interest expenses and similar charges paid (23,636,432) (57,776,665)30. Net interest margin 21,642,729 22,444,74240. Commission income 77,903,216 62,300,85950. Commission expenses (40,581,138) (31,908,918)60. Net commissions 37,322,078 30,391,94170. Dividend and similar income 1,261,027 395,50980. Net result from trading 1,783,023 1,090,338

100. Gains (loss) on disposal/repurchase of: 38,333,238 42,047,644 a) loans 1,473,701 (838,861) b) financial assets available for sale 36,859,537 42,887,879 d) financial liabilities - (1,374)

110. Net result on financial assets and liabilities at fair value 130,956 (442,927)120. Net interest and other banking income 100,473,050 95,927,247130. Net value adjustments/write-backs for impairment of: (28,248,077) (34,901,361)

a) loans (25,359,710) (34,230,606) b) financial assets available for sale (1,489,715) (188,064) d) other financial transactions (1,398,652) (482,691)

140. Net income from financial activities 72,224,974 61,025,886150. Administrative expenses: (49,235,498) (32,699,306)

a) personnel expenses (15,543,735) (15,519,224) b) other administrative expenses (33,691,763) (17,180,082)

160. Net provisions for risks and charges (4,712,000) (150,000)170. Net value adjustments/write-backs to tangible assets (1,266,449) (1,270,129)180. Net value adjustments/write-backs to intangible assets (224,142) (171,982)190. Other operating charges/income 5,739,348 2,995,971200. Operating costs (49,698,741) (31,295,446)210. Profits (losses) on equity investments (392,834) -240. Gains and losses on disposal of investments 26,350 19,934250. Profit (loss) before tax from current operating activities 22,159,749 29,750,374260. Income taxes for the year on current operating activities (7,352,562) (10,844,111)270. Profit (loss) after tax from current operating activities 14,807,187 18,906,263290. Profit (loss) of the year 14,807,187 18,906,263


106 107

STATEMENT OF COMPREHENSIVE INCOME

Items 31.12.2015 31.12.201410. Profit (loss) of the year 14,807,187 18,906,263

Other post tax components of income without reversal to the income statement

40. Defined benefit plans 100,608 (228,020)Other post-tax components of income with reversal to the income statement

100. Financial assets available for sale (12,187,587) 9,964,589130. Total other post-tax components of income (12,086,979) 9,736,569140. Comprehensive income (Item 10+130) 2,720,208 28,642,832


108 109

STATEMENT OF CHANGES IN EQUITY

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Share capital: a) ordinary shares 132,600,000 - 132,600,000 - - - - - - - - - - 132,600,000

b) other shares 7,800,000 - 7,800,000 - - - - - - - - - - 7,800,000Share premium 4,350,000 - 4,350,000 - - - - - - - - - - 4,350,000Reserves: - a) earnings 59,830,110 - 59,830,110 9,395,313 - - - - - - - - - 69,225,423b) other - - - - - - - - - - - - - -Valuation reserves 23,619,069 - 23,619,069 - - - - - - - - - -12,086,979 11,532,090

Capital instruments - - - - - - - - - - - - - -

Advances on dividends (-) - - - - - - - - - - - - - -

Own shares - - - - - - - - - - - - - -Profit (loss) for the year 18,906,263 - 18,906,263 9,395,313 -9,510,950 - - - - - - - 14,807,187 14,807,187

Equity 247,105,442 - 247,105,442 - -9,510,950 - - - - - - - 2,720,208 240,314,700


108 109

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Share capital: a) ordinary shares 132,600,000 - 132,600,000 - - - - - - - - - - 132,600,000

b) other shares 7,800,000 - 7,800,000 - - - - - - - - - - 7,800,000Share premium 4,350,000 - 4,350,000 - - - - - - - - - - 4,350,000Reserves: a) earnings 55,012,966 - 55,012,966 4,817,144 - - - - - - - - - 59,830,110b) other - - - - - - - - - - - - - -Valuation reserves 13,882,500 - 13,882,500 - - - - - - - - - 9,736,569 23,619,069

Capital instruments - - - - - - - - - - - - - -

Own shares - - - - - - - - - - - - - -Profit (loss) for the year 14,342,870 - 14,342,870 -4,817,144 -9,525,726 - - - - - - - 18,906,263 18,906,263

Equity 227,988,336 - 227,988,336 - -9,525,726 - - - - - - - 28,642,832 247,105,442


110 111

CASH FLOW STATEMENT (INDIRECT METHOD)

A. OPERATING ACTIVITIESAmount

31.12.2015 31.12.2014A. OPERATING ACTIVITIES1. Operations 67,571,268 73,834,297- income for the period (+/-) 14,807,187 18,906,263- gains/losses on financial assets held for trading and financial assets/liabilities at fair value (-/+) 145,876 124,044

- net value adjustments/write-backs for impairment (+/-) 28,526,300 34,656,113- net value adjustments/write-backs to tangible and intangible assets (+/-) 1,490,592 1,442,111

- net provisions for risks and charges and other costs/revenues (+/-) 4,055,327 514,158

- taxes and duties not settled (+) 18,027,041 19,245,003- other adjustments (+/-) 518,945 -1,053,3952. Cash flows generated by/used for financial assets 2,899,000,883 588,042,919- financial assets held for trading 13,529,935 9,254,573- financial assets at fair value -99,809 -139,277- financial assets available for sale -329,456,944 346,043,267- loans to banks: on demand -18,911,959 69,593,006- loans to banks: other receivables 2,433,791,566 818,954,337- loans to customers 824,244,445 -682,806,037- other assets -24,096,351 27,143,0503. Cash flow generated/absorbed by the financial liabilities -2,947,147,995 -660,428,429- due to banks: on demand 42,123,955 289,607,998- due to banks: other payables -3,716,853,426 -994,389,488- due to customers 1,043,577,679 87,310,672- debt securities in issue -281,534,912 -41,353,828- financial liabilities held for trading -13,367,768 -9,794,720- financial liabilities at fair value 163,663 151,002- other liabilities -21,257,189 8,039,933Net cash flow generated/used by operations 19,424,156 1,448,787B. INVESTMENT ACTIVITIES 1. Cash flows generated by 883,444 10,000,764- sale of equity investments 855,878 -- sale of held to maturity investments - 10,000,000- sale of tangible assets 27,566 7642. Cash flows absorbed by -10,800,598 -33,684,149- equity investment acquisitions -1,950,000 -759,177- acquisitions of held to maturity investments -5,691,251 -31,886,735- tangible asset acquisitions -2,863,325 -846,855- intangible asset acquisitions -296,021 -191,382Net cash flow generated/used by investment activities -9,917,154 -23,683,385C. FUNDING ACTIVITIES - dividend distribution and other -9,510,950 -9,525,726Net cash flow generated/used by funding -9,510,950 -9,525,726NET CASH FLOW GENERATED/USED DURING THE YEAR -3,948 -31,760,324

Key (+) generated (-) used


110 111

RECONCILIATION

Statement of financial position itemsAmount

31.12.2015 31.12.2014Cash and cash equivalents at the beginning of the year 32,577,493 64,337,817Total net cash flow generated/used during the year -3,948 -31,760,324Cash and cash equivalents: impact of exchange differences - -Cash and cash equivalents at year-end 32,573,545 32,577,493

EXPLANATORY NOTES

STRUCTURE AND CONTENT OF THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2015

Part A Accounting policies

Part BInformation on the Statement of financial position

Part CInformation on the Income Statement

Part DComprehensive Income

Part EInformation on risks and related hedging policies

Part FInformation on Equity

Part GBusiness combinations regarding companies or branches

Part HTransactions with related parties

Part IPayment agreements based on own equity instruments

Part L Segment reporting

The amounts of these explanatory notes are expressed in thousands of Euros.


114

PART AACCOUNTING POLICIES

A.1 ‑ GENERAL PART

Section 1 ‑ Statement of compliance with international accounting standards Section 2 ‑ General preparation criteria Section 3 ‑ Subsequent events Section 4 ‑ Other matters

A.2 ‑ PART REGARDING THE MAIN ITEMS IN THE ACCOUNTS

1. Financial assets held for trading 2. Financial assets available for sale 3. Held to maturity investments 4. Receivables 5. Financial assets at fair value 6. Hedging transactions 7. Equity investments 8. Tangible assets 9. Intangible assets 10. Non‑current assets held for disposal 11. Current and deferred taxes 12. Provisions for risks and charges 13. Payables and debt securities in issue 14. Financial liabilities held for trading 15. Financial liabilities at fair value 16. Foreign exchange transactions 17. Other information

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

A.3.1 Reclassified financial assets: carrying amount, fair value and effects on comprehensive income A.3.2 Reclassified financial assets: effects on comprehensive income prior to transfer A.3.3 Transfer of financial assets held for trading A.3.4 Effective interest rate and cash flows expected from reclassified assets

A.4 ‑ INFORMATION ON FAIR VALUE

A.4.1 Fair value levels 2 and 3: valuation techniques and inputs used A.4.2 Processes and sensitivities of the valuations A.4.3 Fair value hierarchy A.4.4 Other information A.4.5 Fair value hierarchy

A.5 ‑ INFORMATION ON THE ‘DAY ONE PROFIT LOSS’

EXPLANATORY NOTES

115

A.1 – GENERAL PART

STATEMENT OF COMPLIANCE WITH INTERNATIONAL ACCOUNTING STANDARDS

Following the issue of Italian Legislative Decree 38/2005, the Bank must prepare the financial statements according to the international accounting standards IAS/IFRS issued by the International Accounting Standards Board (IASB), as transposed by the European Union.The Bank of Italy, for which the mentioned decree confirmed the powers already assigned by Italian Legislative Decree 87/92, established the new accounts and the explanatory notes in circular 262 of 22 December 2005, including the subsequent updates.These financial statements were prepared in compliance with the international accounting standards issued by IASB and endorsed by the European Union according to the procedure per Article 6 of Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002 and in force at the date of these financial statements, including IFRIC and SIC interpretation documents which are listed in annex A provided at the end of Part A.1 limited to those applied for the drafting of the financial statements as at 31 December 2015.In interpreting and applying the international accounting standards, reference was also made to the Framework for the Preparation and Presentation of Financial Statements issued by IASB.In terms of interpretation, also considered were the documents on the application of IAS/IFRS in Italy, prepared by the Italian Accounting Body (OIC) and the Italian Banking Association (ABI).

GENERAL PREPARATION CRITERIA

IAS 1 ‘Presentation of financial statements’, reviewed in its substance in 2007 and endorsed by the European Commission in December 2008, requires the representation of a ‘Comprehensive Income Statement’ illustrating, among the other income components, also the changes in the value of the assets recorded in the period as a contra‑entry to the Equity. In line with the information contained in the aforementioned Circular 262/2005, the Bank chose, as permitted by the accounting standard in question, to use two statements to provide the Comprehensive Income Statement: a first statement highlighting the traditional components of the Income Statement and the relevant result for the year, and a second statement that, starting from the first, shows the other components of the Comprehensive income statement (Statement of comprehensive income).The financial statements consist of the Statement of financial position, the Income Statement, the Statement of Comprehensive Income, the Statement of changes in Equity, the Cash‑flow Statement and these Explanatory notes, together with the Director’s report on operations and the situation of the bank.For comparative purposes, the accounts, and where requested, the tables in the Explanatory notes, also report the amounts of the previous year.The accounting figures match the corporate accounts.The joint cooperation between the Bank of Italy, Consob and Isvap concerning the application of IAS/IFRS, with document 2 of 6 February 2009 ‘Information to be provided in the financial reports about going concern, financial risks, the checks on the impairment of the assets and the uncertainties as to the use of estimates’, as well as subsequent document 4 of 4 March 2010, required Directors to perform especially accurate valuations as regards the going concern assumption.

SECTION 1

SECTION 2


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On this point, paragraphs 25‑26 of IAS 1 establish that: ‘When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, those uncertainties shall be disclosed. When financial statements are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern’.The situation of the financial markets and the real economy and the uncertain forecasts made with reference to the short/medium‑term require particularly precise valuations to be performed as regards the going concern assumption, since the profit history of the company and its easy access to financial resources may not be sufficient in the current context.On this point, having examined the risks and uncertainties connected with the current macroeconomic context, it is reasonable to expect that the Bank will continue its operations in the foreseeable future. The financial statements as at 31 December 2015 were consequently prepared in the assumption of going concern.Furthermore, estimation processes are based on past experience and other factors considered reasonable in this case, and were adopted to estimate the carrying amount of assets and liabilities that cannot be easily inferred from other sources. In particular, estimation processes were adopted that support the book value of some of the most important valuation items posted in the accounts, according to reference regulations. These processes are mainly based on estimates of future recoverability of the values in the accounts and were carried out on a going concern basis.The main cases for which subjective evaluations are required to be made by the Board of Directors include:• the quantification of losses due to the impairment of loan values and, in general, of other financial assets;• the determination of the fair value of financial instruments to be used for financial statements disclosure

purposes;• the use of measurement models for determining the fair value of financial instruments not listed on active

markets;• the assessment of the consistency of the value of goodwill and other intangible assets;• the measurement of personnel funds and provisions for risks and charges;• the estimates and assumptions regarding recoverability of deferred tax assets.The information provided on the accounting policies applied for the main aggregate values of the financial statements includes the necessary details for identifying the main assumptions and subjective evaluations made in preparing the financial statements. For further details on the breakdown and relative carrying values of the specific statement captions affected by estimates, see the relevant sections of the Explanatory Notes.The processes adopted compare the book values on the date of preparing the Financial Statements. The measurement process turned out to be particularly complex in consideration of the persisting uncertainty of the macroeconomic and market context, characterised by the considerable volatility of the financial parameters determined for the measurement as well as indicators of impairment of the credit quality that remain high. These parameters and the information used to check the mentioned values are significantly affected by these factors, which may undergo rapid and unforeseeable changes.

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Reference is also made to the general preparation criteria listed below:• ‘true and fair view’;• Accrual principle;• Principle of consistent presentation and classification from one year to another (comparability);• Principle of prohibited offsetting of entries, except where expressly permitted;• Principle of prevalence of substance over form;• Principle of prudence in exercising the necessary judgement to make the estimates required in conditions of uncertainty so that the assets or revenue are not overestimated and the liabilities or costs are not underestimated, without this implying the creation of hidden reserves or excessive allocations;

• Principle of neutral nature of information;• Principle of pertinence/significance of information.In preparing the financial statements, the accounts and rules of preparation set forth in Bank of Italy Circular no. 262 of December 2005 were observed, according to the latest update of 15 December 2015.The accounts of the Statement of financial position and the Income Statement comprise items, sub‑items and additional detailed information. In compliance with the provisions of circular no. 262 issued by the Bank of Italy, the items that do not show any amount for the year the financial statements refer to or the previous year were not reported. In the Income Statement and the related section of the Explanatory notes, revenues are recorded without sign, while the costs are indicated in brackets. In the statement of comprehensive income the negative amounts are stated in brackets.For the purpose of completeness with the accounts defined by the Bank of Italy, the Explanatory notes also report the headings of the sections regarding items that do not show any amount for the year the financial statements refer to or the previous year. The additional information deemed suitable to supplement the accounts was provided also when not specifically required.The Statement of financial position and the Income Statement as well as the Statement of comprehensive income, the Statement of changes in Equity and the Cash‑flow statement are expressed in euros, while these Explanatory notes are expressed in thousands of euro unless specified otherwise. Any difference found between the amounts in the Notes and the accounts are attributable to rounding up.

SUBSEQUENT EVENTS

In the period between the date of the financial statements and their approval by the Board of Directors on 9 March 2016, no events took place that involve a change in the data approved at the time, nor did significant events occur which required supplementary disclosure in the Explanatory notes.

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OTHER MATTERS

During 2015, the following new principles, changes to existing principles and interpretations entered into effect:• IFRIC21 – Levies (Regulation (EU) 634/2014)• Amendments to IFRS 3 Business Combinations• Amendments to IFRS 13 Fair Value Measurement• Amendments to IAS 40 Investment property

In 2015, the European Commission endorsed the following accounting standards or interpretations entering into force on 1 January 2016:• Amendments to IFRS 2 Share based payments• Amendments to IFRS 3 Business Combinations• Amendments to IFRS 8 Operating segments• Amendments to IAS 16 Property, plant and equipment• Amendments to IAS 24 Related party disclosures• Amendments to IAS 38 Intangible assets• Amendments to IAS 19 ‑ Defined Benefit Plans: Employee Contributions (Regulation (EU) 29/2015)• Amendments to IAS 41 Agriculture• Amendments to IFRS 11 Joint Arrangements• Amendments to IFRS 5 Non‑current assets held for sale and discontinued operations• Amendments to IFRS 7 Financial instruments: disclosures• Amendments to IAS 34 Interim financial reporting• Amendments to IAS 1 Presentation of financial statements• Amendments to IAS 27 Separate financial statements

The following amended accounting principles, instead, have not yet been endorsed by the European Commission:• IFRS 9 Financial Instruments• IFRS 14 Regulatory Deferral Accounts• IFRS 15 Revenue from Contracts with customers• IFRS 10 Sale or Contribution of Asset between Investor and its Associate or Joint Venture• IAS 28 Sale or Contribution of Asset between Investor and its Associate or Joint Venture• IFRS 10 Investment Entities Applying the Consolidation Exception• IFRS 12 Investment Entities Applying the Consolidation Exception• IAS 28 Investment Entities Applying the Consolidation Exception.

The new international accounting standards issued by the IASB that will have a significant potential impact for the Bank, which, however, have not yet been endorsed by the European Union at the date ofpreparation of these Explanatory Notes, are IFRS 9 ‘Financial instruments’ and IFRS 15 ‘Revenue from contracts with customers’.

SECTION 4

EXPLANATORY NOTES

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IFRS 9 ‘Financial instruments’In July 2014, the IASB issued IFRS 9 ‘Financial instruments’, the accounting standard that will supersede IAS 39 ‘Financial instruments: Recognition and Measurement’. The process for the revision of IAS 39 comprises three phases: ‘classification and measurement’, ‘impairment’ and ‘hedge accounting’.The ‘classification and measurement’ of financial asset will depend on the management method (business model) and on the characteristics of the cash flow of the financial instrument. These elements will determine the method for measuring the financial instrument, which may be at amortised cost, at fair value through profit or loss or at fair value through other comprehensive income.In general, the results of the classification and measurement can be deemed in line with those deriving from the application of IAS 39 but, at present, potential misalignments cannot be excluded.The combined effect of the application of the management and test model on the characteristics of the cash flow of the instrument could entail a different allocation between instruments valued at fair value and at the amortised cost with respect to the provisions of IAS 39.In addition, for all financial assets, the spin off of the implicit derivatives is no longer required.The classification of the financial liabilities does not substantially change with respect to the provisions of IAS 39.For financial liabilities at fair value, the change in credit rating shall be recognised in a shareholders’ equity reserve instead of in the Income Statement, as is instead prescribed in IAS 39.With reference to impairment, the Standard provides a single model to be applied to all financial assets not measured at fair value through Profit or Loss, paying particular attention to the definition of rules for calculating adjustments and according to the unambiguous concept of expected loss. Specifically, at the time of the initial recording, adjustments shall be determined on the basis of the expected loss at 12 months; if a significant increase in credit risk is expected with respect to the initial recognition date, instead, adjustments shall be determined on the basis of the expected loss determined throughout the life of the financial instrument. Based on these elements, financial instruments are classified in three distinct stages:• stage 1 includes performing financial instruments for which no specific deterioration in credit risk has been observed relative to the initial recognition date. The impairment is determined collectively on the basis of expected credit loss at one year;

• stage 2 includes performing financial instruments for which a significant increase in credit risk has been observed relative to the initial recognition date. The impairment is determined collectively on the basis of the lifetime expected credit loss);

• stage 3 includes non performing financial instruments, measured analytically on the basis of the lifetime expected credit loss.

The expected loss used shall consider all available information, including information about past event, current conditions and the forecast economic conditions.In terms of impact on the Income Statement, the recognition of the Impairment will be more closely focused on forward‑looking components and, at least upon first time adoption, it will entail an increase in value adjustments compared to what is currently provided by IAS 39 (model based on ‘incurred loss’).Currently, it is not possible to reliably estimate the impacts on the balance sheet resulting from the first time adoption of the new standard.With reference to hedge accounting, the revision of the principle intends to simplify the provisions creating a stronger tie with risk management strategies. The standard does not apply to macro hedge accounting which


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shall be treated in a separate project. On this matter, moreover, IFRS 9 provides for the possibility of using some accounting procedures regulated in IAS 39.IFRS 9 prescribes mandatory adoption for periods beginning on or after 1 January 2018, with early adoption permitted of the entire standards or only of the parts related to the accounting treatment of the entity’s own credit rating for financial liabilities at fair value.In 2016, the Bank shall start a project with the objective of revising the internal procedures and processes to the provisions introduced by the new accounting standards, defining the internal models for estimating the expected loss with multi‑period perspective and including the new variables required.

IFRS 15 ‘Revenue from contracts with customers’In May 2014, the IASB published IFRS 15 ‘Revenue from contracts with customers’. The standards, which supersedes the standards and interpretations issued previously on the matter (IAS 18 Revenue, IAS 11 Construction Contracts, and Interpretations IFRIC 13 Customer loyalty programmes, IFRIC 15 Agreements for the construction of real estate, IFRIC 18 Transfers of assets from customers and SIC 31 Revenue ‑ barter transactions involving advertising services), shall be adopted for periods beginning on or after 1 January 2018 and early adoption is permitted. The Standard introduces a single model for revenue recognition, applicable to all contracts with customers, with the exception of lease agreements, insurance contracts and financial instruments, requiring the recognition of revenue on the basis of the consideration expected to be received in exchange for the goods and transfers provided.The new standard introduces a method comprising five ‘steps’ to analyse transactions and define the recognition of the revenue with reference both to their timing and amount: identifying the contract with a customer; identifying the performance obligations in the contract; determining (if necessary, estimating) the transaction price; allocating the transaction price to the performance obligations in the contract; recognising revenue when (or as) the entity satisfies a performance obligation.The Bank has not yet started an activity tied to the assessment of the impacts.

Though it holds controlling interests, the Bank does not prepare consolidated financial statements, as it avails itself of the option provided by IFRS 10, paragraph 33 and Italian Legislative Decree 87/92. The consolidated financial statements are drafted for public use in compliance with the International Financial Reporting Standard by its direct parent Centrale Finanziaria del Nord Est S.p.A..

The financial statements are audited by the independent auditors KPMG S.p.A., in execution of the Resolution of the Shareholders’ Meeting of 22 May 2010, which assigned this company the task of auditing the accounts for the period 2010 ‑ 2018.

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ANNEX A

IAS/IFRSIAS 1 Presentation of financial statementsIAS 7 Cash flow statements IAS 8 Accounting policies, changes in accounting estimates and errorsIAS 10 Events after statement of financial position date IAS 12 Income taxes IAS 16 Property, plant and equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee benefits IAS 21 The effects of changes in foreign exchange rates IAS 24 Related party disclosures IAS 26 Accounting and reporting by retirement benefit plans IAS 27 Separate financial statements IAS 28 Investments in associates and joint venturesIAS 30 Disclosures in the financial statements of banks and similar financial institutionsIAS 32 Financial instruments: presentation IAS 33 Earnings per share IAS 36 Impairment of assets IAS 37 Allowances, contingent liabilities and contingent assets IAS 38 Intangible assets IAS 39 Financial instruments: recognition and measurement IAS 40 Investment property IFRS 1 First‑time adoption of International Financial Reporting StandardsIFRS 7 Financial instruments: disclosures IFRS 8 Operating segments IFRS 10 Consolidated financial statementsIFRS 11 Joint arrangementsIFRS 12 Disclosure of interests in other entitiesIFRS 13 Fair valueSIC 7 Introduction of the euro SIC 15 Operating leases ‑ incentives SIC 25 Income taxes ‑ changes in the tax status of an enterprise or its shareholders SIC 27 Evaluating the substance of transactions involving the legal form of a lease SIC 32 Intangible assets ‑ web site costs IFRIC 4 Determining whether an arrangement contains a lease IFRIC 9 Reassessment of embedded derivativesIFRIC 14 IAS 19 ‑ The limit on a defined benefit asset, minimum funding requirements and their interactionIFRIC 16 Hedge of net investment in a foreign operation IFRIC 17 Distributions of non‑cash assets to owners IFRIC 19 Extinguishing financial liabilities with equity instruments IFRIC 21 Levies


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EXPLANATORY NOTES

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A.2 – PART REGARDING THE MAIN ITEMS IN THE ACCOUNTS

Amendments to accounting legislationFor the preparation of the financial statements, the same principles and accounting methods were used as those applied for the annual financial statements as at 31 December 2014, as amended by the new accounting standards which came into force in 2015. The accounting standards adopted for the preparation of the financial statements as at 31 December 2015 are shown below. The presentation of the standards adopted was carried out with reference to the phases of classification, recognition, valuation, derecognition of the assets and liabilities, just as for the methods of recognition of revenues and costs.

Classification criteriaFinancial assets held for trading are financial instruments acquired mainly to generate a short‑term profit from changes in their market prices or in the operator’s profit margin. Derivatives connected to the fair value option are also included in this category (as defined in IAS 39 § 9, of the version used in the European Commission regulation 1864/2005 of 15 November 2005) which are operationally related to the assets and liabilities measured at fair value which on the date of the financial statements have a positive fair value, except for derivative contracts which are designated as effective hedging instruments and recognised under item 80 of Assets; if the fair value of a derivative contract subsequently becomes negative, it shall be recognised among financial liabilities held for trading.

Recognition criteriaThe initial recognition of financial assets takes place at the settlement date if settled with the time intervals set by market practices (regular way), otherwise at the trade date.In case of recognising the financial assets at the settlement date, the profits and losses recorded between the trade date and the settlement date are recognised in the Income Statement.Upon initial recognition the financial assets held for trading are recorded at the fair value; unless otherwise indicated, this is represented by the amount paid or by the amount disbursed for executing the transaction, without considering the costs or income referring to it and attributable to the same instrument, which are recorded directly in the Income Statement.

Measurement criteriaFollowing initial recognition, the financial assets held for trading are designated at fair value with recognition of the related changes in the Income Statement. If the fair value of a financial asset becomes negative, this entry is booked as a financial liability held for trading.In the change in fair value of the derivative contracts with a ‘customer’ counterparty, their credit risk is accounted for. For details concerning the method of calculating the fair value, please see the paragraph 17.7 ‘Criteria for determining the fair value of financial instruments’ of ‘Other information’ of this part A.2.

Derecognition criteriaThe financial assets held for trading are cancelled when the contractual rights on the financial flows deriving from the same expire or when the financial asset is sold by substantially transferring all the risks and benefits connected

1 ‑ FINANCIAL ASSETS HELD FOR TRADING


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to it. The securities delivered as part of a transaction which contractually envisages their repurchase are not derecognised from the financial statements.

Recognition of the income componentsThe positive income components represented by the interest income on securities and relating similar income, as well as the differentials and margins accrued until the date of the financial statements relating to the derivative contracts classified as financial assets held for trading, but managerially connected to the assets or liabilities carried at fair value (so‑called fair value option), are entered in the Income Statement items relating to interest on an accrual basis. The profits and losses generated by the sale or repayment and the unrealised profits and losses from the changes in the fair value of the trading portfolio are classified in the ‘Net result from trading’, except for the economic results relating to the derivative contracts managerially connected to assets or liabilities carried at fair value, recorded in the ‘Net income from financial assets and liabilities carried at fair value’.

Classification criteriaClassified in this item are the non‑derivative financial assets which are not classified under the assets held for trading or at fair value, among the Held to maturity investments or among loans. This is thus a residual category that will be kept for an undefined time or which may be sold for liquidity needs, changes in interest rates, exchange rates and in market prices. It includes:• the listed and unlisted debt securities;• the listed and unlisted shares;• the UCITS units (mutual funds and SICAVs);• the equity interests which are not controlling interests, interests carrying significant influence or joint venture.

Recognition criteriaThe initial recognition of financial assets takes place at the settlement date if settled with the time intervals set by market practices (regular way), otherwise at the trade date. In the event of the recognition of financial assets at the settlement date, the profits and losses recorded between the trade date and the settlement date are recognised in the Equity. Upon initial recognition, the financial assets held for sale are recognised at fair value; it is represented, unless otherwise indicated, by the amount paid for executing the transaction, including the transaction costs or income directly attributable to the same instrument. If the entry takes place following the reclassification of ‘Held to maturity investments’, the recognition value is represented by the fair value at the moment of transfer.

Measurement criteriaFollowing initial recognition, the assets available for sale continue to be carried at fair value. For these, the following is recorded:• in the Income Statement, the interest calculated with the effective interest rate method, which considers the depreciation of both the transaction costs and the differential between the cost and the repayment value;

• in the Equity, in a specific reserve, net of taxation, the changes in fair value.

2 ‑ FINANCIAL ASSETS AVAILABLE FOR SALE

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For details regarding the determination of the fair value please see paragraph 17.7 below “Criteria for determining the fair value of financial instruments” in this Part 2. At each statement of financial position date the assets are subject to an impairment test pursuant to paragraphs 58 et seq. of IAS 39. For debt securities, at each statement of financial position date, if there is actual evidence (such as the existence of indicators of financial difficulties that are such to jeopardise the collection of the capital and interest), an impairment test is carried out to check the presence of impairment in the asset, which require the entry of a loss in the Income Statement as the difference between the carrying amount of the financial asset and the current value of the estimated future flows discounted at the original effective interest rate.For listed equities, the existence of impairment losses is evaluated by considering the indicators of a significant or prolonged decline in the fair value. A significant and prolonged decline in fair value means respectively:• a reduction in the fair value below the cost exceeding 20.00% at the reporting date.• a persisting reduction in the fair value below the cost for more than 9 months at the reporting date.The amounts of UCITS funds are similar to equities. Thus, for this type of financial instruments, the same considerations shown above with regard to the identification of the impairment criteria apply.For the financial instruments maintained at cost, the amount of the loss is measured as the difference between the carrying amount of the financial asset and the current value of the financial flows discounted at the original effective interest rate.For the debt securities, in order to check for possible evidence of an impairment due to Country Risk, an analysis of the Issuer’s Country is performed. If an impairment is suspected, this is booked in the Income Statement for an amount equal to the difference between the book value and the current fair value at the measurement date.If, in a subsequent period, the reasons for the recognition of a decline in value no longer apply, the corresponding value write‑backs are carried out for the same item of the Income Statement for the bonds and the corresponding equity reserve for the equity shares. The amount of the write‑back does not exceed in any case the amortised cost the financial instrument would have had in the absence of previous adjustments.

Derecognition criteriaThe financial assets available for sale are derecognised when the contractual rights on the cash flows deriving from the same expire or when the financial asset is sold substantially transferring all the associated risks and rewards.

Recognition of the income componentsThe recognition in the Income Statement, under interest income, of the return of the instrument calculated according to the effective return rate methodology is carried out on an accrual basis, while the profits or losses deriving from a change in fair value are recorded in a specific ‘Equity reserve’ until that financial asset is cancelled or an impairment is recorded. At the time of disposal or recognition of an impairment, the profit or loss accumulated in the valuation allowance are reclassified to the Income Statement in the item ‘Gains (loss) on disposal/repurchase of: b) financial assets available for sale’ or ‘Net value adjustments/write‑backs’, adjusting the specific allowance mentioned above.


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The dividends on an instrument representing the capital available for sale are recorded in the Income Statement in cash under the item ‘Dividend and similar income’.

Classification criteriaIn this category, the debt securities with fixed payments or that can be determined with fixed expiry dates, are classified, which are intended and for which there is the ability to hold to maturity.If, following a change in will or if the ability ceases, it is no longer appropriate to hold the investments in this category, these are transferred to the assets available for sale.

Recognition criteriaThe initial recognition of financial assets takes place at the settlement date if settled with the time intervals set by market practices (regular way), otherwise at the trade date.Upon the initial recognition, the financial assets classified in this category are recorded at fair value, which generally corresponds to the amount paid, including any directly attributable costs and income.If the recognition in this category takes place due to the transfer from the Assets available for sale, the fair value of the asset at the transfer date is assumed as the new amortised cost of the same asset.

Measurement criteriaFollowing initial recognition, the Held to maturity investments are measured at the amortised cost, using the effective interest rate method.At the time of closing the financial statements and the interim accounts, the existence of objective evidence of an impairment is checked. The criteria adopted are the same described for the ‘Financial assets available for sale’. If these are met, the amount of the loss is measured as the difference between the carrying balance of the asset and the current value of the future financial flows estimated as recoverable, discounted at the original effective interest rate. The amount of the loss is recorded in the Income Statement. If the reasons which led to the adjustment are subsequently removed, the corresponding write‑backs are carried out.

Derecognition criteriaThe financial assets are derecognised when the contractual rights on the cash flows deriving from the same assets expire or when the financial asset is sold by substantially transferring all the associated risks and rewards.

Recognition of the income componentsThe positive income components represented by the interest income and similar revenues are entered on an accrual basis, based on the effective interest rate, in the Income Statement items relating to interest. The profits or losses referring to held to maturity investments are recorded in the Income Statement at the time when the assets are sold, under the item ‘Gains (loss) on disposal/repurchase of: c) held to maturity investments’.

3 ‑ HELD TO MATURITY INVESTMENTS

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Any reductions in value are recorded in the Income Statement under the item ‘Net value adjustments/write‑backs due to impairment: c) held to maturity investments’. If the reasons that led to the evidence of the decline in value are removed, the write‑back is entered with recognition in the Income Statement in the same item.

Classification criteriaReceivables are included in the broadest category of short and medium/long term financial assets, not derivatives and unlisted, which envisage fixed payments or payments that can in any case be determined. They include the loans to customers and banks, disbursed directly and that were not classified at origin among the Financial assets available for sale, Financial assets carried at fair value, financial assets held for trading or Held to maturity investments.Included in receivables are trade receivables, repos operations with a forward resale obligation and securities purchased in private subscription or placement, with fixed or determinable payments, unlisted in active markets.

Recognition criteriaThe initial recognition of a receivable takes place at the date of disbursement, based on the fair value of the financial instrument. It equals the amount disbursed, including the income and charges directly attributable to the individual receivable and determinable from the origin of the transaction, even when liquidated at a subsequent time. Excluded are the costs that, though having the abovementioned characteristics, are subject to repayment by the debtor counterparty or can be classified among the normal internal costs of an administrative nature.In the case of debt securities, the initial recognition of financial assets takes place at the settlement date if settled with time intervals set by market practices (regular way), otherwise at the trade date.In cases where the net amount disbursed does not correspond to the fair value of the asset, due to the application of an interest rate significantly lower than the market’s rate or the one normally applied to loans with similar characteristics, the initial recognition is made for an amount equal to the discounting of the future cash flows discounted at an appropriate market rate.The difference compared to the amount disbursed is directly recognised in the Income Statement at the time of initial recognition.The repos operations with a forward resale obligation are entered in the statement of financial position as loan operations. In particular, the spot purchase and forward resale operations are recorded as receivables for the amount paid on the spot.

Measurement criteriaSubsequently to the initial recognition, the receivables are valued at the amortised cost, equal to the value of first recognition, decreased/increased by capital repayments, the value adjustments/recoveries and the amortisation ‑ calculated with the effective interest rate method ‑ the difference between the amount disbursed and the amount repayable at maturity, typically attributable to the costs/income recognised directly to the individual receivable.

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The effective interest rate is the rate that equals the current value of the future flows of the receivable, for principal

and interest, to the disbursed amount including the costs/income attributable to the receivable. The economic

effect of the costs and income is thus distributed along the expected residual life of the receivable.

The amortised cost method is not used for receivables whose short duration makes the effect of the application of

the discounting approach negligible. These receivables are valued at the disbursed nominal value. The income

and charges referring to the same are directly attributed to the Income Statement.

The amortised cost method is not used for receivables without a defined maturity or revoked.

At each date of preparing the financial statements, the receivables are subject to a recognition aiming to identify

those which, following the occurrence of events taking place after their entry, show objective evidence of a

possible decline in value.

Included in this are the receivables classified as non‑performing, unlikely to pay or due for over 90 days

according to the current rules of the Bank of Italy.

These non performing receivables are subject to a process of analytical assessment and the amount of the

adjustment of each receivable is equal to the difference between the carrying amount of the same at the time of

the measurement (amortised cost) and the current value of the expected future cash flows, calculated by applying

the original effective interest rate.

The expected cash flows consider the expected recovery times, the presumable realisable value of any guarantees

as well as the costs which are deemed to be incurred for the recovery of the credit exposure. The adjustment is

entered in the Income Statement. The component of the adjustment due to the discounting of the cash flows is

issued on an accrual basis according to the mechanism of the effective interest rate and posted under the value

write‑backs.

The original value of the receivables is restored in the following years proportionally to the ceasing of the reasons

that determined the adjustment, provided that this measurement can be objectively connected to an event taking

place after the same adjustment. The write‑back is entered in the Income Statement and may not in any case

exceed the amortised cost that the receivable would have had in the absence of previous adjustments.

The receivables for which objective evidence of loss was not identified individually. i.e. usually performing

receivables, are subject to the measurement of a collective decline in value estimated also considering the

parameters used for the purpose of Basel II. Each homogeneous receivable category is attributed a probability

of default (PD) and an expected loss in case of non‑fulfilment (LGD), estimated considering historical series based

on elements observable at the measurement date.

The methodology adopted integrates the provisions of Basel II with those of the International Standards, which

exclude the future losses but just consider the losses incurred only, even if not yet occurred on the date of the

financial statements, taking into account the time elapsing between the moment when the default occurs and the

one when it is acknowledged by the company system.

The adjustments determined collectively and the write‑backs of part or whole values written down previously are

recognised in the Income Statement under the item ‘Net value adjustments/write‑backs to loans’.

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Derecognition criteriaThe receivables are derecognised from the assets in the statement of financial position when the right to receive the cash flows is extinct, when the sale has led to the substantial transfer of all the risks and rewards connected to the same receivables or in case the receivable is considered as definitively unrecoverable after all the necessary recovery procedures have been completed.Instead if the risk and benefits relating to the sold receivables were maintained, these continue to be entered among the assets in the statement of financial position, even when the ownership of the receivable was legally effectively transferred.In case it is not possible to ascertain the substantial transfer of the risks and rewards, the receivables are derecognised from the statement of financial position if no type of control over them was retained. On the contrary, the retention of control, including partial, means that the receivables are maintained in the statement of financial position in proportion to the continuing involvement, measured by the exposure to changes in value of the receivables transferred and the changes in their cash flows.

Recognition of the income componentsThe interest on receivables is classified in the ‘Interest income and similar revenues’ deriving from ‘Loans to banks and customers’ and is entered according to the accrual principle, based on the effective interest rate.Value adjustments/write‑backs including value write‑backs connected to the passing of time, referring to analytical or collective measurements, are recorded at each date of the financial statements under ‘Net value adjustments/write‑backs to loans’. The profits and losses from the sale of receivables are entered under item 100 a) of the Income Statement ‘Gains (loss) on disposal/repurchase of loans’.

Classification criteriaClassified in this item are the assets at fair value with the measured results entered in the Income Statement, based on the fair value option set by IAS standard 39 § 9, in the version envisaged by the regulation of the European Commission no. 1864/2005 of 15 November 2005.In particular, the fair value option is used when it allows the significant cancellation or reduction of the accounting imbalance deriving from the inconsistent posting of financial instruments relating to each other (natural hedge) or hedged by derivative contracts for which the application of the hedge accounting is complex.The fair value option is also used in the presence of an instrument containing an embedded derivative which meets certain conditions, in order to not spin off the same from the host instrument, by measuring at fair value the financial instrument overall.

Recognition criteriaThe initial recognition of financial assets represented by debt securities and capital takes place at the settlement date if settled with time intervals set by market practices (regular way), otherwise at the trade date. In case of recognising the financial assets at the settlement date, the profits and losses recorded between the trade date and the settlement date are recognised in the Income Statement.The initial recognition of the financial assets represented by loans takes place at the date of disbursement.

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Upon initial recognition the financial assets are recorded at the fair value represented, unless otherwise indicated, by the amount paid or by the amount disbursed for executing the transaction, without considering the costs or income referring to it and attributable to the same instrument, which are recorded directly in the Income Statement.

Measurement criteriaFollowing initial recognition, the financial assets are designated at fair value. For details regarding the determination of the fair value please see paragraph 17.7 below “Criteria for determining the fair value of financial instruments” in this Part 2.

Derecognition criteriaThe financial assets are derecognised when the contractual rights on the cash flows deriving from the same expire or when the financial asset is sold substantially transferring all the associated risks and rewards.

Recognition of the income componentsThe positive income components represented by the interest income are entered on an accrual basis in the items in the Income Statement relating to interest.The profits and losses from the disposal or repayment and the profits and losses not realised deriving from the changes in the fair value of the portfolio, are classified in the ‘Net income from financial assets at fair value’ of the Income Statement.

Classification criteriaThis item features the derivative contracts designated as effective hedging instruments, which at the date of the financial statements show a positive fair value.The hedging transactions aim to neutralise the losses recorded on a certain element (or group of elements) and attributable to a certain risk through the profits recorded on a different element (or group of elements) in case the particular risk actually occurs.The types of hedging provided for by IAS 39 are:• fair value hedge, aimed at hedging against the exposure to the change in the fair value of a statement of

financial position entry attributable to a particular risk;• cash flow hedge, aimed at hedging against the exposure to the change in future cash flows attributable

to a particular risk associated to a highly probable present or future statement of financial position entry;• hedging instruments of a net investment in a foreign company for which the assets were or are managed

in a non‑Euro country or currency.

Recognition criteriaThe hedging derivative financial instruments are initially entered at fair value and classified in the statement of financial position asset item 80 ‘Hedging derivatives’ and statement of financial position liabilities item 60 ‘Hedging derivatives’, depending on whether the date of the financial statements shows a positive or negative fair value. The hedge is attributable to a predefined strategy set by risk management and must be consistent

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with the risk management policies adopted; it is designated as a hedge if there is formal documentation of the relationship between the hedged instrument and the hedging instrument, including the high initial and prospective effectiveness during its entire life cycle.The effectiveness of the hedge depends on the extent to which the changes in fair value of the hedged instrument or the related expected cash flows are offset by those of the hedging instrument. Thus the effectiveness is measured by comparison between these changes.The hedging is assumed as highly effective when the expected and effective changes in fair value or the cash flows of the hedging financial instrument neutralise almost completely the changes in the hedged element, within the limits set by the interval 80%‑125%.The assessment of the effectiveness is performed at each year‑end or interim period using:• prospective tests, which justify the application of hedge accounting, since they show its expected

effectiveness;• retrospective tests, which show the level of effectiveness of the hedge reached in the period they refer to.If the checks do not confirm that the hedging is highly effective, the accounting of the hedging transactions, according to the above, is interrupted and the hedging derivative contract is reclassified among the trading instruments, while the financial instrument subject to hedging goes back to being measured according to the criterion of the original pertinence class and, in case of cash flow hedge, any reserve is reclassified in the Income Statement with the amortised cost method along the residual duration of the instrument.The hedging links also cease when the derivative expires or is sold or exercised and the hedged element is sold or expires or is repaid.

Measurement criteriaThe financial hedging derivatives are initially entered and then designated at fair value. The calculation of the fair value of the derivatives is based on the prices inferred from regulated markets or supplied by operators, on option measurement models or future cash flow discounting models.

Derecognition criteriaThe hedging derivatives are cancelled when the right to receive the cash flows from the asset/liability has expired, or where the derivative is sold, or when the conditions for continuing to book the financial instrument under the hedging derivatives no longer apply.

Recognition of the income components

Fair value hedgeThe change in the fair value of the hedged item of the hedged risk is recorded in the income statement, as is the change in the fair value of the derivative instrument; any difference, which represents the partial ineffectiveness of the hedge is the net income effect which is recognised in the item ‘Net income from hedging activities.’ If the hedging relationship no longer satisfies the conditions for the application of hedge accounting and the hedging relationship is revoked, the difference between the book value of the hedged element at the time when the hedge ceases and the one which would have been its book value if the hedge had never existed, is amortised in the Income Statement along the residual lifespan of the hedged element


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based on the effective rate of return in case of instruments entered at the amortised cost. If this difference refers to non‑interest bearing financial instruments, it is recorded immediately in the Income Statement. If the hedged element is sold or repaid, the portion of fair value not yet amortised is recognised immediately in the Income Statement.

Cash flow hedgeThe changes in fair value of the hedging derivative are booked to Equity among the valuation reserves of the cash flow hedging transactions, for the effective portion of the hedge, and in the Income Statement for the part not considered effective. When the cash flows subject to hedging take place and are recorded in the Income Statement, the related profit or loss on the hedging instrument is transferred from the Equity to the corresponding Income Statement item. When the hedging relationship no longer respects the conditions set for the application of the hedge accounting, the relation is interrupted and all the losses and profits recorded in the Equity until this date remain suspended within it and reversed to the Income Statement under the item ‘Net result from trading’ at the time when the flows relating to the risk originally hedged occur.

Classification criteriaEquity investments means stakes in the capital of other companies, generally represented by shares or loans and classified as controlling interests, interests carrying significant influence and joint ventures.The following definitions in particular apply:

• Subsidiary: equity investments in companies as well as investments in entities over which the parent company exercises control of the relevant activities in compliance with IFRS 10. More specifically, ‘an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.’ The power requires the investor to have existing rights that give the current ability to direct the activities that significantly affect the investee‘s returns. Power is based on an ability, whether or not that power is used in practice. Control is analysed on a continuous basis. The investor must redetermine whether it controls an investee when facts or circumstances indicate changes in one or more elements of control.

• Associate: equity investments in companies for which, despite the conditions of control not being satisfied, the Bank, directly or indirectly, is able to exercise a significant influence. This influence is presumed to exist for companies in which the Bank holds at least 20.00% of voting rights or in which said Bank, nonetheless, has the power to participate in the determination of the financial and management policies based on particular legal relationships.

• Joint venture: equity investment in companies through a joint arrangement in which the parties that hold joint control have rights over the net assets of the arrangement.

Recognition criteriaEquity investments are initially entered at cost, including the directly attributable ancillary charges.

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Measurement criteriaEquity investments in subsidiaries, associates and subjects under joint control are shown in the financial statements by using the cost method as measurement criterion, net of the losses of value due to impairment. In order to check the existence of objective evidence of the impairment of the investment entered in the accounts, the following indicators are considered, by way of example:• clear economic/financial difficulty of the investee;• a number of years with losses exceeding 2;• bankruptcy proceedings of the investee.If an examination of these indicators highlights objective evidence of impairment, an estimate is made of the recoverable value of the same investment, considering the current value of the future cash flows the same may generate, including the final disposal value of the investment. Any decline in value is entered in the Income Statement under the item ‘Profits (losses) on Equity investments’.

Derecognition criteriaEquity investments are cancelled when the right to receive the cash flow from the activity has expired, or where the equity investment is sold by substantially transferring all the risks and benefits connected to it.

Recognition of the income componentsThe dividends of the investees are booked as cash, in the item ‘Dividend and similar income’, in the year when the company resolved to distribute them.Any value adjustments/write‑backs connected to the valuation of the equity investments as well as profits or losses deriving from the disposal are recognised under the item ‘Profits (Losses) on Equity investments’.

Classification criteriaThe item mainly includes land, properties for functional use and properties held for investment purposes, the plants, vehicles, furniture, furnishings and equipment of any type for long‑lasting use.‘Properties for functional use’ are those owned to be used for providing services or for administrative purposes. By contrast, investment properties include properties owned in earn rentals and/or capital appreciation. For the free‑standing properties for which the value of the land is incorporated in the value of the building, a subdivision is made between the value of the land and the value of the building, in case this cannot be directly inferred from the purchase agreement, based on the appraisals drawn up by industry specialists.

Recognition criteriaThe tangible assets are initially entered at purchase or construction cost, including any ancillary charges directly attributable to the purchase and commissioning of the asset.The unscheduled maintenance expenses and the costs of an increasing nature that imply increased benefits being generated by the asset, if identifiable and separable, are attributed to the assets they refer to and amortised in relation to the residual possibility of using the same. If these improvements cannot be identified and separated, they are entered under ‘Other Assets’ and subsequently amortised based on the

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length of the contracts they refer to for the third party assets, or along the residual life of the asset, if owned. The expenses for repairs, maintenance or other actions to ensure the ordinary operation of the assets are instead recognised in the Income Statement of the year when they are incurred.

Measurement criteriaAfter initial recognition, the tangible assets, including non‑instrumental properties, notwithstanding the specifications below, are entered in the accounts at cost, net of accumulated amortisation and any write‑downs for the long‑lasting reductions in value, in compliance with the ‘cost model’ under paragraph 30 of IAS 16.Tangible assets are systematically depreciated each year based on their useful life by adopting the straight line method as the depreciation criterion.The following are not subject to amortisation:• land, whether purchased individually or incorporated in the value of the buildings, since they are considered

to have an undefined useful life. If their value is incorporated in the value of the building, assets which are separate from the building are only the ‘free‑standing’ property assets; the subdivision between the value of the land and a value of the building is based on the appraisal of independent appraisers;

• works of art, whose useful life cannot be estimated, also since their value normally increases over time;• the real estate investments carried at fair value in compliance with accounting standard IAS 40.The amortisation process starts when the asset is available for use. For the assets acquired during the year, the amortisation is calculated on a daily basis starting from the date of using the asset.

Derecognition criteriaTangible assets are eliminated from the Statement of financial position at the time of disposal or when they are permanently withdrawn from use and, as a consequence, no future economic benefits are expected which derive from their sale or use.Capital gains and losses deriving from the release or disposal of the tangible assets are determined as the difference between the net sale payment and the book value of the asset; they are recorded in the Income Statement at the same date when they are eliminated from the accounts.

Recognition of the income componentsThe systematic amortisation is booked in the Income Statement under the item ‘Net adjustments/write‑backs on tangible assets’.In the first year the amortisation is recorded proportionally to the effective period of using the asset.The assets subject to amortisation are adjusted for possible losses in value each time events or changes in situations indicate that the book value might not be recoverable.A write‑down for value impairment is recorded for an amount corresponding to the excess in the book value compared to the recoverable value. The recoverable value of an asset is equal to the higher of the fair value, net of any sales costs, and the related value of using the asset, meant as the current value of the future flows originating from the asset. Any adjustments are recognised in the Income Statement.If the reasons leading to recording the loss cease to apply, a write‑back is recorded, which may not exceed the value that the asset would have had, net of amortisation calculated in the absence of previous losses in value.

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In the item ‘Gains and losses on disposal of investments’, the positive or negative balance between the profits and losses on investments is recognised.

Classification criteriaAccounting standard IAS 38 defines intangible assets as non‑monetary assets which are without physical substance held for use in a multi‑year or indefinite period, which meet the following characteristics:• identifiable;• the company holds control of them;• it is probable that the expected future economic benefits attributable to the asset will flow into the company;• the cost of the asset can be reliably measured.In the absence of one of these characteristics, the expense to acquire or generate the same internally is recorded as a cost in the year when it was incurred.Intangible assets include, in particular, the application software with multi‑year use and the other identifiable intangible assets that originate from legal or contractual rights.

Recognition criteriaIntangible assets are entered at cost, adjusted for any ancillary costs incurred to arrange the use of the asset, only if it is probable that the future economic benefits attributable to the asset will be realised and if the cost of the same asset may be determined reliably. Otherwise the cost of the tangible asset is recorded in the Income Statement in the year when it was incurred.

Measurement criteriaAfter initial recognition, intangible assets with finite useful life are recognised at cost, net of the accumulated amortisation and impairment losses.The amortisation process starts when the asset is available for use, or when it is in the place and conditions suitable to be able to work in the set manner.Amortisation is carried out with the straight line method, in a way to reflect the multi‑year use of the assets based on the estimated useful life.In the first year the amortisation is recorded proportionally to the effective period of using the asset.Amortisation ends from the date when the asset is eliminated from the accounts.At each year‑end, given the presence of evidence of losses in value, an estimate is made of the recoverable value of the asset.The amount of the loss, recorded in the Income Statement, is equal to the difference between the carrying amount of the asset and its recoverable value.

Derecognition criteriaIntangible assets are eliminated from the Statement of financial position at the time of their disposal or when future economic benefits are not expected. Capital gains and losses from the release or disposal of an intangible asset are calculated as the difference between the net sale payment and the carrying amount of the asset and entered in the Income Statement.

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Recognition of the income componentsIn the first year the amortisation is recorded proportionally to the effective period of using the asset.In the item ‘Net value adjustments/write‑backs on intangible assets’, the positive or negative balance between the value adjustments, amortisation and value write‑backs relating to the intangible assets is indicated. In the item ‘Gains and losses on disposal of investments’, the positive or negative balance between the profits and losses on disposal of investments is recognised.

Classification criteriaThis item includes the non‑current assets held for sale and the associated groups of assets and liabilities held for disposal, according to the provisions of IFRS 5.Assets and groups of assets are classified in this item whose carrying amount will be mainly recovered with a highly probable sale rather than their continuous use.Since the sale is highly probable, Management at a suitable level must be committed to an asset disposal programme, and activities must be started to identify a buyer and complete the programme. In addition, the asset must be actively exchanged in the market and put up for sale, at a reasonable price compared to its current fair value (equal value). Furthermore, the completion of the sale should be set within one year from the classification date and the actions requested to complete the sale programme should show the improbability that the programme may be significantly amended or cancelled.

Recognition criteriaThe non‑current assets and asset groups held for disposal are measured, at the time of initial recognition, at the lower between the carrying amount and the fair value net of sales costs.

Measurement criteriaThese non‑current assets and asset groups held for disposal are measured at the lower between the book value and the fair value net of sales costs.

Derecognition criteriaThe non‑current assets and groups of assets held for disposal are eliminated from the Statement of financial position at the time of disposal.If an asset (or group held for disposal) held for sale do not meet the criteria for the entry in accordance with accounting standard IFRS 5, the asset (or group held for disposal) must no longer be classified as held for sale.It is necessary to assess a non‑current asset that ceases to be classified as held for sale (or ceases to be part of a group held for disposal and classified as held for sale) at the lower between:• the accounting value before the asset (or group held for disposal) was classified as held for sale, adjusted

for all the amortisation, write‑downs or write‑backs that would have otherwise been recorded if the asset (or group held for disposal) had not been classified as held for sale;

• its recoverable value at the date of the subsequent decision to not sell.

10 ‑ NON‑CURRENT ASSETS AND GROUPS OF ASSETS HELD FOR DISPOSAL

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The items include the current and deferred tax assets and current and deferred tax liabilities recorded in application of IAS 12.The income taxes, calculated in compliance with current taxation regulations, are recorded in the Income Statement on an accrual basis, in line with the recognition in the accounts of the costs and revenues that generated them, except for those relating to the entries charged or credited directly in the Equity, for which the recognition of the related taxation takes place in the Equity.

Current taxesCurrent tax assets and liabilities are recorded at the value due or recoverable against the tax profit (loss) by applying the rates and the current taxation regulations. Current taxes that are entirely or partially unpaid at the date of the financial statements are posted under ‘Current tax liabilities’ of the Statement of financial position. In case of overpayment, which gave rise to a recoverable receivable, this is accounted for among the ‘Current tax assets’ of the Statement of financial position.

Deferred taxesDeferred tax assets and liabilities are booked by using the so‑called balance sheet liability method, taking into account the temporary differences between the carrying amount of an asset or a liability and its value recognised for tax purposes. They are calculated using the applicable tax rates according to current laws, in the year when the deferred tax asset will be realised or the deferred tax liability will be settled. Tax assets are recorded only if it is deemed probable that in the future a taxable income will be realised, against which this asset may be used.In particular tax regulations may lead to differences between taxable income and statutory income that, if temporary, only cause a temporal mismatch that implies the advance or deferment of the time of taxation compared to the period of accrual, thus determining a difference between the carrying amount of an asset or a liability in the Statement of financial position and its value recognised for tax purposes. These differences are distinguished between ‘Deductible temporary differences’ and ‘Taxable temporary differences’.

Deferred tax assets‘Deductible temporary differences’ indicate a future reduction in taxation, against a prepayment of tax compared to the economic‑statutory accrual. They generate deferred tax assets since they will determine a lower tax burden in the future, on the condition that in the following years, taxable profits are realised in a sufficient measure to cover the realisation of the taxes paid in advance.‘Deferred tax assets’ are recorded for all the deductible temporary differences if it is probable that a taxable income will be realised against which the deductible temporary differences may be used. However the probability of recovering deferred taxes relative to goodwill, other intangible assets and adjustments to receivables is to be considered automatically fulfilled pursuant to the provisions of the law that provide for their transformation into a tax credit in the event of a statutory and/or tax loss. In particular, if there is a statutory loss for the year, the prepaid taxes relative to goodwill, other intangible assets and other adjustments to receivables will be transformed into a tax credit pursuant to the provisions of article 2, par. 55 of Legislative Decree 225 of 29 December 2010, converted with amendments into law no. 10 of 26 February 2011 as amended by chp. 167 et seq. of article 1, Law no. 147 of 27 December 2013.

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The transformation enters into effect from the date of the approval of the shareholders’ meeting of the separate financial statements in which the loss is recognized, as required by article 2, par. 56, of the aforementioned Legislative Decree 225/2010.The origin of the difference between the higher fiscal income and the statutory one is mainly due to negative income components fiscally deductable in years that are subsequent to those of recognition in the financial statements.

Deferred tax liabilities‘Taxable temporary differences’ indicate a future increase in taxation and consequently generate ‘Deferred tax liabilities’, since these differences give rise to taxable amounts in the following years to those when they are attributed to the statutory Income Statement, determining a deferment of the taxation compared to the economic‑statutory accrual.‘Deferred tax liabilities’ are recorded for all the taxable temporary differences with the exception of the deferred tax reserves since transactions that determine the taxation are not envisaged.The origin of the difference between the lower fiscal income and the statutory one is due to:• positive income components taxable in years after those when they were entered in the accounts;• deductible negative income components in years prior to the one when they will be entered in the accounts

according to statutory criteria.

Assets and liabilities entered for advance and deferred taxes are systematically measured to take into account any amendments taking place in the regulations or in the rates.Advance taxes and deferred taxes are accounted for at capital level with open balances and without offsetting and are booked in the item ‘Deferred tax assets b)’ and in the item ‘Deferred tax liabilities b)’.If the deferred tax assets and liabilities refer to components which concerned the Income Statement, the counter‑entry is represented by income tax. In case the advance and deferred taxes concern transactions which directly regard the Equity without influencing the Income Statement (such as the measurement of financial instruments available for sale), these are entered as a counter‑entry to the Equity, as the specific reserve is concerned.

Classification criteriaIn compliance with the provisions of IAS 37, the provisions for risks and charges include the provisions relating to current (legal or implicit) obligations originating from a past event, for which the use of economic resources is probable to fulfil the same obligation, as long as a reliable estimate of the related amount can be made.

Recognition criteriaThe sub‑item ‘Pension funds’ includes the provisions against benefits provided to the employee after terminating the employment relationship in the form of defined contribution or defined benefit plans. Sub‑item ‘Other provisions’ of liabilities of the Statement of financial position includes the allowances for risks and charges

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constituted in compliance with the contents of the international accounting standards, except for write‑downs due to deterioration of the guarantees issued, to be attributed to the ‘Other liabilities’.

Measurement criteriaThe amount recorded as allocation represents the best estimate possible of the charge requested to fulfil the existing obligation at the date of the financial statements.Where the time element is significant, the provisions are discounted by using current market rates.The allocated funds are periodically reviewed and possibly adjusted to reflect the best current estimate. If, following the review, the charge becomes unlikely to be incurred, the provision is cancelled. Concerning the funds relating to employee benefits, please see point 17 below.

Derecognition criteriaIf it is unlikely that the use of resources to produce economic benefits to fulfil the obligation will be necessary, the provision must be cancelled. A provision must be used only for those expenses for which it was originally entered.

Recognition of the economic componentsThe provision is recorded in the Income Statement under the item ‘Net provisions for risks and charges’. The item includes the positive or negative balance between the provisions and any re‑attributions to the Income Statement of funds deemed redundant.The net provisions also include the decreases in funds for the discounting effect as well as the corresponding increases due to the passing of time (accrual of the interest implicit in discounting).

Classification criteriaPayables are included in the broader category of the financial instruments and consist of those relations for which there is the obligation to pay certain amounts to third parties at set expiry dates.The liability items of the Statement of financial position ‘10. Due to banks’, ‘20. Due to customers’ and ‘30. Debt securities in issue’ include the various forms of interbank funding and with customers and the collection through outstanding certificates of deposit and bonds, net of any reacquired amount, not classified under ‘Financial liabilities at fair value’. Included are the securities that at the date of the financial statements are expired but still not repaid.

Recognition criteriaThe initial recognition of these financial liabilities takes place upon receiving the sums collected or issuing the debt securities. The value at which they are entered corresponds to the related fair value, normally equal to the amount collected or the issue price, increased by any additional costs/income directly attributable to the individual funding or issue transaction and not repaid by the creditor counterparty. Internal costs of an administrative nature are excluded.

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The fair value of the financial liabilities, possibly issued at different conditions from market conditions, is subject to a suitable estimate and the difference compared to the amount collected is directly recognised in the Income Statement. The re‑placement of own securities purchased, subject to previous cancellation from the accounts, is considered as a new issue with entry of the new placement price, without effects on the Income Statement.

Measurement criteriaFollowing initial recognition, the financial liabilities are measured at the amortised cost, using the effective interest rate method.Excluded are the short‑term liabilities, where the time factor is negligible, which remain recorded at their collected value, and whose costs and income directly attributable to the transaction are entered in the Income Statement in the relevant items.

Derecognition criteriaThe financial liabilities are cancelled from the financial statements when settled or expired, or when the Bank reacquired the securities it issued with a consequent redefinition of the debt entered for debt securities in issue.

Recognition of the income componentsThe negative income components represented by the interest expense are entered on an accrual basis in the items in the Income Statement relating to interest.Any difference between the value of repurchasing own securities and the corresponding carrying amount of the liability is entered in the Income Statement under ‘Gains (loss) on disposal/repurchase’.

Classification criteriaSubject to recognition in this item are the financial liabilities, whatever their technical form (debt securities, loans, etc…) classified in the trading portfolio.The item includes the negative value of the trading derivative contracts. Derivatives connected to the fair value option are also included in this category (as defined in IAS 39 § 9, of the version used in the European Commission Regulation 1864/2005 of 15 November 2005) which are operationally related to the assets and liabilities measured at fair value which on the date of the financial statements have a negative fair value, except for derivative contracts which are designated as effective hedging instruments and recognised under item 60 of Liabilities; if the fair value of a derivative subsequently becomes positive, it shall be recognised among financial assets held for trading.

Recognition criteriaThe derivative financial instruments are entered at the subscription date designated at fair value.

Measurement criteriaFollowing initial recognition, the financial liabilities are designated at fair value. For details regarding determination of the fair value please see paragraph 17.7 below ‘Criteria for determining the fair value of financial instruments'.

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Derecognition criteriaFinancial liabilities are cancelled from the accounts when they have expired or are settled.

Recognition of the income componentsThe profits and losses deriving from the change in fair value and/or the sale of the derivative instruments connected to the fair value option are booked under ‘Net income from financial assets and liabilities carried at fair value’ in the Income Statement.

Classification criteriaClassified in this item are the financial liabilities at fair value with the measured results entered in the Income Statement, based on the so‑called fair value option set by IAS standard 39 § 9, in the version envisaged by European Commission Regulation no. 1864/2005 of 15 November 2005, i.e. when:

• the designation at fair value allows the elimination or reduction of significant distortions in the accounting representation of the economic and financial position of the financial instruments;

• there is an instrument containing an embedded derivative that significantly amends the cash flows of the host instrument and which must be detached.

In particular classified in the category in question are some own debenture loans swapped with the related issues made by the CR‑BCCs and purchased by the Bank (designated at fair value under financial assets).

Recognition criteriaThe initial recognition of the financial liabilities takes place at the issue date of the debt securities. Upon recognition, the financial liabilities at fair value are recorded at their fair value, which normally corresponds to the amount collected without considering the transaction costs or income directly attributable to the same instrument, which are instead attributed to the Income Statement.

Measurement criteriaFollowing initial recognition, the financial liabilities are designated at fair value.For details regarding determination of the fair value please see paragraph 17.7 below ‘Criteria for determining the fair value of financial instruments.’

Derecognition criteriaThe financial liabilities carried at fair value are cancelled from the financial statements when they have expired or are extinct.Cancellation also takes place in case of repurchasing previously issued securities. The difference between the carrying amount of the liability and the amount paid to purchase is recorded in the Income Statement. The re‑placement on the market of own shares subsequently to their repurchase is considered as a new issue with entry of the new placement price, without effects on the Income Statement.

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Recognition of the income componentsThe cost for interest on debt instruments is classified among the interest expense and similar charges of the Income Statement.The measurement results are included in the ‘Net result on assets and liabilities at fair value’, like the profits and losses deriving from the extinction.The same treatment is reserved for the derivative instruments connected to the fair value option, whose economic effect is classified in the item ‘Net result on financial assets and liabilities carried at fair value’.

Classification criteriaAmong the assets and liabilities in foreign currencies, in addition to those explicitly expressed in a currency other than the Euro, are also those to which financial indexing clauses apply, connected to the Euro exchange rate with a certain currency or a given basket of currencies.For the purpose of the conversion method to be used, the assets and liabilities in foreign currencies are subdivided into monetary items (classified among the current items) and non‑monetary items (classified among the non‑current items).The monetary elements consist of cash at hand and in the assets and liabilities to be received or paid, in cash amounts that are fixed or to be determined. In non‑monetary elements, the right to receive or the obligation to deliver a cash amount that is fixed or to be determined is absent.

Recognition criteriaTransactions in foreign currencies are recorded, at the time of initial recognition, in a currency account, by applying the exchange rate in force at the transaction date to the amount in a foreign currency.

Measurement criteriaAt the time of closing the financial statements or the interim period, the elements originally denominated in foreign currencies are valued as follows:• the monetary items are converted at the exchange rate at year‑end;• the non‑monetary items valued at the historical cost are converted at the exchange rate in force at the transaction date;

• the non‑monetary items carried at fair value are converted at the spot exchange rate at year‑end.

Recognition of the income componentsThe exchange rate differences found between the transaction date and the related payment date, on the monetary elements, are booked in the Income Statement in the year when they arise, together with those which derive from the conversion of monetary elements at different rates from the initial conversion rates or the conversion at the previous year‑end.When a profit or loss relating to a non‑monetary element is recorded in the Equity, the exchange rate difference relating to this element is also recorded in the Equity.When a profit or loss is recorded in the Income Statement, also the related exchange rate difference is recorded in the Income Statement.

16 ‑ FOREIGN EXCHANGE TRANSACTIONS

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17.1 Sale and repurchase contracts (repos)The securities sold and subject to repurchase agreements are classified as committed financial instruments, when the purchaser has a right under a contract or agreement to resell or lend the underlying; the liability of the counterparty is included in the liabilities to other banks, other deposits or customer deposits.The securities purchased in relation to a resale contract are accounted for as loans or down payments to other banks or customers. The difference between the sales price and the purchase price is booked as interest and recorded on an accrual basis along the lifespan of the transaction.

17.2 Provision for severance indemnity and seniority bonusesProvision for severance indemnity (T.F.R.) is similar to a post employment benefit of the defined benefit plan type the value of which IAS 19 requires to be determined using actuarial methodologies.Consequently, the valuation at the end of the year is made on the basis of the benefits accrued using the projected unit credit method. This method provides for a projection of future outflows based on historical, statistical and probability analysis as well as by virtue of adopting the appropriate basic demographic techniques.It makes it possible to calculate the T.F.R. accrued on a certain day in actuarial terms, distributing the expense for all the years of expected residual permanence of the existing employees and no longer as an expense to be settled in the event that the company ceases its operations on the date of the financial statements.The valuation of the employee T.F.R. was carried out by an independent actuary pursuant to the method indicated above.Following the entry into effect of the supplementary pension reform, pursuant to Italian Legislative Decree 252/2005, the portions of the provision for severance indemnity (T.F.R.) accrued to 31.12.2006 will remain in the company, while the portions that accrue from 1 January 2007 have been, at the option of the employee, applied to complementary pension plans or the INPS fund.The latter were therefore recognized in the income statement based on the contributions due in each year; the Bank did not discount the obligation to the supplementary fund or the INPS as its maturity is less than 12 months.Based on IAS 19, the T.F.R. paid to the Pension Fund Treasury (INPS) is considered as a defined contribution plan, as is the amount paid into the supplementary fund.The portions accrued and paid into the supplementary funds are recognized in the income statement under item 150 a), as specified in Section 9 of the explanatory notes, Part C.These cases are configured as a defined contribution plan since the obligation of the company towards the employee ends with the payment of the accrued amounts. Therefore, for these cases, only the portion of the debt can be recorded under the bank’s liabilities (among ‘other liabilities’) for payments still to be made to the INPS or the supplementary funds, on the statement of financial position closing date. IAS 19 requires all actuarial profits and losses accrued on the date of the financial statements to be immediately recognised in the ‘Statement of comprehensive income’ ‑ OCI.The ‘other long‑term benefits’ described by IAS 19 also include, as part of the operations of Cassa Centrale Banca, the seniority bonuses to employees. These benefits must be valued, in compliance with IAS 19, with the same methodology used to determine the severance indemnity, as these are compatible. The liability for the seniority bonus is recorded under the provisions for risks and charges of the statement of financial position. The allocation, just like the reattribution to the Income Statement of any excesses in the specific

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provision (due, for example, to changes in actuarial assumptions), are charged to the Income Statement under ‘Personnel Costs’.

17.3 Recognition of revenuesThe revenues are recognised at the time they are obtained or in any case, in the case of sales of goods or products, when it is probable that the future benefits will be received and these benefits may be quantified in a reliable manner, in the case of the provision of services, at the time when the same are rendered.In particular:• the interest is recognised on a temporal basis, based on the contractual interest rate or the effective rate in the case of application of the amortised cost;

• the overdue interest, possibly set contractually, is booked in the Income Statement only at the time of its actual collection;

• the dividends are recorded in the Income Statement in the period in which their distribution is resolved, which coincides with the period when they are collected;

• the commissions for revenues from services are entered, based on the existence of contractual agreements, in the period when the same services were rendered;

• the revenues deriving from the brokerage of trading financial instruments, resulting from the difference between the price of the transaction and the fair value of the instrument, are recognised in the Income Statement during the recognition of the transaction if the fair value can be determined with reference to parameters or recent transactions observable in the same market where the instrument is traded. The income relating to financial instruments for which the above mentioned measurement is not possible will flow into the Income Statement along the duration of the transaction;

• the revenues from the sale of non‑financial assets are recorded at the time of finalising the sale, unless the bank has maintained most of the risks and benefits connected to the asset.

17.4 Improvements to third‑party assetsThe restoration costs on third party properties are capitalised in consideration of the fact that, throughout the duration of the lease, the using company has the control of the assets and may gain future economic benefits from them. These costs, classified among the ‘Other assets’ as instructed by the Bank of Italy, are amortised for a period not exceeding the duration of the lease.

17.5 Provisions for guarantees and commitmentsThe analytical and collective‑based provisions, relating to the estimate of possible outflows connected to the credit risk relating to guarantees and commitments, determined by applying the same criteria shown previously with reference to loans, are posted under ‘Other Liabilities’ as a counter‑entry of the Income Statement, item ‘Net value adjustments/write‑backs for impairment of d) Other financial transactions’, according to the Instructions of the Bank of Italy.

17.6 Share based paymentsThis case does not apply to Cassa Centrale Banca since the Bank does not have a so‑called ‘stock option plan’ in place on bank‑issued shares.

EXPLANATORY NOTES

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17.7 Criteria for determining the fair value of financial instrumentsIn December 2012, the European Commission approved, with its Regulation (EU) 1255/2012, the new IFRS 13 ‘Fair Value Measurement’ effective from 1 January 2013.IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This is a definition of fair value that, for financial instruments, replaces the previous version in IAS 39 Financial Instruments: recognition and measurement.For financial liabilities, the new fair value definition in IFRS 13 requires identification as fair value of that amount that would be paid for the transfer of the same liability (exit price), rather than the value required to extinguish that liability (as per the definition provided in IAS 39). There has been strengthening of the issue insofar as the recognition of the adjustments to the fair value of financial liabilities, compared to what had already been provided in IAS 39. In particular, as regards the determination of the fair value of OTC derivatives in statement of financial position assets, IFRS 13 confirmed the rule of applying the Credit Valuation Adjustment ‑ CVA. With regard to financial liabilities involving OTC derivatives, IFRS 13 introduces the Debit Valuation Adjustment (DVA), i.e. an adjustment to fair value which aims to reflect its own default risk on those instruments, an issue that was not specifically addressed in IAS 39. The Bank therefore considered it reasonable not to recognise a correction in the fair value of derivatives for CVA and DVA in the cases in which agreements had been made and remained operative for collateralisation of the positions and derivatives with the following characteristics:• a bilateral exchange of guarantees with a high frequency (daily or at the most weekly);• the type of guarantee provided in cash or highly liquid government securities with a high credit rating,

subject to an appropriate spread;• absence of a threshold of the fair value of the derivative under which an exchange of guarantees is not

required or setting the level to such a threshold which is adequate to allow for effective and significant mitigation of the counterparty risk;

• MTA‑ Minimum Transfer Amount (that is the difference between the fair value of the contract and the value of the guarantee) under which there is no adjustment of the collateralisation of the positions, identified contractually at a level that allows for essential mitigation of the counterparty risk.

Other than the derivatives with the aforementioned characteristics, the Bank decided not to recognise the effects of the CVA and DVA relative to other derivatives in existence as at the statement of financial position closing date since for those, in almost all cases, a bilateral agreement is in place between the parties for offsetting debit and credit positions and the value which is offset in the assumption of this offsetting carries an insignificant risk. For the verification of the value to be attributed to the CVA and DVA of these latter contracts, the PD (probability of default) and the LGD (loss given default) were applied to the offsetting of the positive and negative exposures of all the transactions in derivatives with the same counterparty. The fair value of the investments listed on active markets is determined based on the prices (the official price or another equivalent price on the last day that the stock exchange is open in the reporting period) of the most advantageous market which the Bank has access to. To this end, a financial instrument is regarded as quoted in an active market if listed prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.


146

If there is no active market, the fair value is determined using the valuation techniques which are generally accepted (method based on market valuation, the cost method and the income method), which estimate the price that would apply in an ordinary transaction involving the sale or transfer of a liability between market operators on the valuation date, at arm’s length. These valuation techniques provide the usage of, in the order of hierarchy indicated below: 1. the last NAV (Net Asset Value) published by the asset management company for harmonised funds (UCITS ‑

Undertakings for Collective Investment in Transferable Securities), Hedge Funds and Sicavs; 2. the listed prices for assets and liabilities in markets which are not active (for example those prices which can

be obtained from external information providers such as Bloomberg and/or Reuters) or the prices of similar assets and liabilities in active markets;

3. the fair value obtained from valuation models (for example, Discounting Cash Flow Analysis, Option Pricing Models) which estimate the possible factors that affect the fair value of a financial instrument (cost of money, credit risk, volatility, exchange rates, etc.) based on data which can be observed on the market, in relation also to similar instruments, on the valuation date. If market data is not available for one or more risk factors, internally determined parameters are used which are based on history and statistics. The valuation models are reviewed periodically to ensure their full and constant reliability;

4. the price indications provided by the issuing counterparty, as adjusted to take into account counterparty risk and/or liquidity risk (for example, the value of the unit communicated by the asset management company for closed end funds restricted to institutional investors or other types of UCITS, other than those mentioned under point 1 above, the redemption value determined pursuant to the issuing regulation for insurance contracts);

5. for equity‑linked instruments, if the valuation techniques above do not apply: i) the value ensuing from independent appraisals if available; ii) the value corresponding to the portion of the equity held, as this results from the last financial statements approved by the company; iii) the cost, adjusted as necessary to take into account significant amounts of impairment, where the fair value cannot be determined reliably;

6. for loans and receivables, for which fair value is calculated only in order to provide appropriate information for the financial statements, the contractual cash flows are discounted net of the expected losses calculated on the basis of the borrower’s credit rating, using the corresponding interest rate structure for the maturity.

The fair value used for valuation of the financial instruments, based on the criteria provided above, is broken down into the following levels pursuant to the requirements set forth in IFRS 13 and depending on the characteristics and significance of the inputs used in the valuation process:Level 1 ‑ Listings (without adjustments) based on active markets for assets and liabilities that are identical which the entity can access on the valuation date; Level 2 ‑ Inputs other than the listed prices which are included in Level 1 which can be observed directly or indirectly for the asset or the liability. The valuation methods based on market valuation that mainly use data that is observable on the market, the prices provided by external information providers and the valuations of the UCITS units made on the basis of the NAV (Net Asset Value) communicated by the asset management company, the value of which is updated and published periodically (at least once a month) and which is representative of the amount at which the position can be liquidated, whether partially or fully, on the initiative of the holder, all belong to this valuation methodology level; Level 3 ‑ Inputs that are not observable for assets and liabilities but which reflect the assumptions that market operators would use to determine the price of the asset or the liability. The prices provided by issuing counterparties

EXPLANATORY NOTES

147

or which are based on independent appraisals, as well as those obtained using valuation models that do not use market data to estimate significant factors that affect the fair value of the financial instrument belong to this level. Also under Level 3 are the valuations of financial instruments at cost or which correspond to the fraction of the equity held by the company. A listed price on an active market provides the most reliable fair value and, where this is available, must be used without any adjustment in order to measure the fair value. If there are no prices listed on active markets the financial instruments must be classified in levels 2 or 3.Classification in Level 2 rather than Level 3 is determined based on the ability to observe on the market significant inputs used to determine the fair value.The Level 2 inputs include:• prices listed for similar assets or liabilities on active markets;• prices listed for similar or identical assets or liabilities on non‑active markets;• figures other than the listed prices for assets or liabilities (for example the interest rates and yield curve which can be observed at intervals that are commonly listed; implicit volatility and credit spreads);

• inputs corroborated by the market.All other variables used in valuation techniques that cannot be corroborated based on data observable on the market are not considered to be observable.If the fair value of a financial instrument is not determined through the price recognised in an active market (Level 1), the overall fair value may present internal levels which are different in consideration of the impact generated by the inputs which are observable or not observable used in the valuations (an impact is the contribution, in terms of significance, that each input used has for the valuation compared to the overall fair value of the instrument). However, the level attributed must be unique and for this reason it must refer to the total fair value of the instrument overall; the unique level attributed thus reflects the lowest level of inputs with a significant effect in the determination of the overall fair value of the instrument.In order for data which cannot be observed on the market to have a significant effect in the overall determination of the fair value of the instrument, the overall impact is measured such a way as to render uncertain (that is, without corroboration using market data), the overall valuations; in the event in which the weight of the non‑observable data is prevalent with respect to the overall valuation, level attributed is ‘3.’Among the main rules applied for the determination of the fair value levels we note that the following are considered to be ‘Level 1’: government debt securities, corporate debt securities, equities, open ended funds, derivative financial instruments and financial liabilities issued the fair value of which corresponds, on the valuation date, to a price which is listed on an active market.The following are considered to be ‘Level 2’:• government debt securities, corporate debt securities, equities, open ended funds and financial liabilities issued by issuers of national and international stature, which are not listed on an active market and which are measured mainly through the data observable on the market;

• OTC (Over the counter) financial derivatives concluded with institutional counterparties measured mainly through observable data market;

• funds whose fair value corresponds to the relative NAV which is published on a weekly and/or monthly basis, as this is considered the most reliable estimate of the fair value of the instrument, it being the exit value in the event of disposal of the investment.


148

Finally, the following are classified under ‘Level 3’:• equities and financial liabilities issued, for which there are no listed prices on active markets on the valuation date and which are mainly valued on the basis of a technique using data which cannot be observed on the market;

• OTC (Over the counter) financial derivatives concluded with institutional counterparties, which are valuated on the basis of pricing models which are altogether similar to those used for the valuation in ‘Level 2’ and which are differentiated on the basis of the level of observe ability of the input data used in the pricing techniques (we refer mainly to implicit correlations and volatility);

• the derivative financial instruments concluded with customers for whom the fair value adjustment portion which takes into account the risk of default is significant compared to the total value of the financial instrument;

• closed‑end funds, whose fair value corresponds to the relative NAV published with a greater frequency than one month;

• equities classified in the AFS portfolio which are measured at cost.IFRS 13 furthermore requires that, for financial assets classified under ‘Level 3’, a disclosure must be made in regard to the sensitivity of the economic results following the change to one or more non‑observable parameters used and the measurement techniques for determination of the fair value.

Business CombinationsThe transactions to acquire control of other entities are dealt with according to the provisions of IFRS 3 (Business Combinations).In particular, any differentials emerging at the date of acquiring control between the price paid and the corresponding carrying amount of the acquired assets and liabilities, are allocated to the higher/lower fair value attributable to these items; any residual value is allocated to the item ‘Goodwill’. The latter is subject to an annual impairment test.

EXPLANATORY NOTES

149

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

The Bank has not performed any transfer between the portfolios of financial instruments.Thus the compilation of the relevant Tables is omitted.


150

A.4 – INFORMATION ON FAIR VALUE

INFORMATION OF A QUALITATIVE NATURE

For the methods used to determine the fair value and the relative classifications in the ‘fair value levels’ as provided by IFRS 13, please see paragraph 17.7 ‘Criteria for determining the fair value of financial instruments’ in these explanatory notes (‘accounting policies ‑ part regarding the main items in the accounts’).

For most of the financial instruments classified under Level 3 of the hierarchical scale required by IFRS 13, the ‘passive’ valuation techniques were used which do not use models based on market data but which are based, for example, on the values of equity, the NAV and/or the redemption value communicated by the asset management company or the cost. Any fair value sensitivity analysis would therefore be of very low significance.

The methods for determining the fair value for the various types of financial instruments are the same as those used in previous years and did not give rise to transfers between the different levels of the fair value hierarchy set out in IFRS 13.

There is no other information worthy of mention.

INFORMATION OF A QUANTITATIVE NATURE

A.4.5.1. Assets and liabilities measured at fair value on a recurring basis: breakdown by fair value levels

Financial assets/liabilities at fair value

Total 2015 Total 2014Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

1. Financial assets held for trading 2,801 22,504 ‑ 2,939 36,173 ‑

2. Financial assets at fair value ‑ 3,000 ‑ ‑ 2,907 613. Financial assets available

for sale 2,550,347 52,969 41,333 2,237,909 55,155 41,590

4. Hedging derivatives ‑ ‑ ‑ ‑ ‑ ‑5. Tangible assets ‑ ‑ ‑ ‑ ‑ ‑6. Intangible assets ‑ ‑ ‑ ‑ ‑ ‑TOTAL 2,553,148 78,473 41,333 2,240,848 94,236 41,6511. Financial liabilities held for

trading ‑ 21,721 ‑ ‑ 35,089 ‑

2. Financial liabilities at fair value ‑ 10,048 ‑ ‑ 10,083 ‑3. Hedging derivatives ‑ ‑ ‑ ‑ ‑ ‑TOTAL ‑ 31,769 ‑ ‑ 45,172 ‑

A.4.1 FAIR VALUE LEVELS 2 AND 3: VALUATION TECHNIQUES AND INPUTS USED

A.4.2 PROCESSES AND SENSITIVITIES OF THE VALUATIONS

A.4.3 FAIR VALUE HIERARCHY

A.4.4 OTHER INFORMATION

A.4.5 FAIR VALUE HIERARCHY

EXPLANATORY NOTES

151

Financial assets available for sale include:• Italian government securities at level 1;• UCITS units at level 2 measured at the daily NAV;• equities ‘valued at cost’ and classified in level 3, referring to shareholdings in companies promoted by the movement of the cooperative or instrumental credit, for which the fair value cannot be reliably determined or checked.

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

Financial assets held for trading

Financial assets at fair

value

Financial assets

available for sale

Hedging derivatives

Tangible assets

Intangible assets

1. Opening balances ‑ 61 41,590 ‑ ‑ ‑2. Increases ‑ ‑ 616 ‑ ‑ ‑

2.1 Purchases ‑ ‑ 607 ‑ ‑ ‑2.2 Profit attributed to: 2.2.1. Income Statement ‑ ‑ ‑ ‑ ‑ ‑

‑ of which gains ‑ ‑ ‑ ‑ ‑ ‑2.2.2. Equity ‑ ‑ ‑ ‑ ‑ ‑2.3 Transfers from other levels ‑ ‑ ‑ ‑ ‑ ‑

2.4 Other increases ‑ ‑ 9 ‑ ‑ ‑3. Decreases ‑ 61 873 ‑ ‑ ‑

3.1 Sales ‑ ‑ 21 ‑ ‑ ‑3.2 Reimbursements ‑ 61 ‑ ‑ ‑ ‑3.3 Losses attributed to: 3.3.1 Income Statement ‑ ‑ 837 ‑ ‑ ‑

‑ of which losses ‑ ‑ 837 ‑ ‑ ‑3.3.2. Equity ‑ ‑ ‑ ‑ ‑ ‑3.4 Transfers to other levels ‑ ‑ ‑ ‑ ‑ ‑

3.5 Other decreases ‑ ‑ 15 ‑ ‑ ‑4. Closing balances ‑ ‑ 41,333 ‑ ‑ ‑

A.4.5.3 Annual changes in financial liabilities at fair value on a recurring basis (level 3)In the current and previous years the bank did not hold financial liabilities at fair value on a recurring basis and classifiable in ‘level 3’.


152

A.4.5.4 Assets and liabilities which are not measured at fair value or which are measured at fair value on non‑recurring basis: breakdown by fair value levels.

Financial assets/liabilities at fair value

Total 2015 Total 2014Carrying

amountLevel 1 Level 2 Level 3 Carrying

amountLevel 1 Level 2 Level 3

1. Held to maturity investments 459,989 494,762 ‑ ‑ 454,298 492,087 ‑ ‑

2. Loans to banks 1,648,568 ‑ 4,086 1,644,503 4,063,448 ‑ 68,332 3,995,3443. Loans to customers 557,583 ‑ 10,138 553,513 1,407,044 ‑ 5,241 1,407,5384. Tangible assets held for investment purposes ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑

5. Non‑current assets and groups of assets held for disposal

‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑

TOTAL 2,666,140 494,762 14,224 2,198,016 5,924,790 492,087 73,573 5,402,8821. Due to banks 3,598,769 ‑ ‑ 3,598,769 7,273,498 ‑ ‑ 7,273,4982. Due to customers 1,443,123 ‑ ‑ 1,443,123 399,545 ‑ ‑ 399,5453. Debt securities in issue 10,087 ‑ 10,088 ‑ 291,622 ‑ 291,694 ‑

4. Liabilities associated to assets held for disposal

‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑

TOTAL 5,051,979 ‑ 10,088 5,041,892 7,964,665 ‑ 291,694 7,673,043

EXPLANATORY NOTES

153

A.5 – INFORMATION ON THE ‘DAY ONE PROFIT LOSS’

The Bank does not have any transactions for which, upon initial recognition of non listed financial instruments on active markets, this component relative to the ‘day one profit/loss’ was recognised. Consequently, no disclosure is provided as required by IFRS 7, par. 28.


154

ASSETS

Section 1 Cash and cash equivalents Item 10

Section 2 Financial assets held for trading Item 20

Section 3 Financial assets at fair value Item 30

Section 4 Financial assets available for sale Item 40

Section 5 Held to maturity investments Item 50

Section 6 Loans to banks Item 60

Section 7 Loans to customers Item 70

Section 8 Hedging derivatives Item 80

Section 9 Adjustment of the financial assets subject to macro-hedging Item 90

Section 10 Equity investments Item 100

Section 11 Tangible assets Item 110

Section 12 Intangible assets Item 120

Section 13 Tax assets and tax liabilities Item 130 of assets and Item 80 of liabilities

Section 14 Non-current assets and groups of assets held for disposal and associated liabilities Item 140 of assets and Item 90 of liabilities

Section 15 Other assets Item 150

PART BINFORMATION ON THE STATEMENT OF FINANCIAL POSITION

EXPLANATORY NOTES

155

CASH AND CASH EQUIVALENTS - ITEM 10

1.1 Cash and cash equivalents: breakdown

Total 2015 Total 2014a) Cash 32,574 32,577b) Demand deposits at central banks - -TOTAL 32,574 32,577

The currencies with legal tender are recorded under this item. The sub-item ‘Cash’ includes foreign currencies for a value equal to EUR 2,423 thousand. The aggregate does not include the obligatory reserve since it is included in item 60 of the asset ‘Loans to banks’. The sub-item ‘Demand Deposits at Central Banks’ refers to these relations held with the Bank of Italy and the European Central Bank.

FINANCIAL ASSETS HELD FOR TRADING - ITEM 20

2.1 Financial assets held for trading: breakdown by category

Items/ValuesTotal 2015 Total 2014

Level 1 Level 2 Level 3 Level 1 Level 2 Level 3A Cash assets

1. Debt securities 4 - - 2 - -1.1 Structured securities - - - - - -1.2 Other debt securities 4 - - 2 - -

2. Equities 2,797 - - 2,937 - -3. UCITS units - - - - - -4. Loans - - - - - -

4.1 Repos receivables - - - - - -4.2 Other - - - - - -

TOTAL A 2,801 - - 2,939 - -B Derivative instruments

1. Financial derivatives - 22,504 - - 36,173 -1.1 trading - 22,197 - - 35,860 -1.2 connected to the fair value option - - - - - -

1.3 other - 307 - - 313 -2. Credit derivatives - - - - - -

2.1 trading - - - - - -2.2 Connected to the fair value option - - - - - -

2.3 other - - - - - -TOTAL B - 22,504 - - 36,173 -TOTAL (A+B) 2,801 22,504 - 2,939 36,173 -

SECTION 1

SECTION 2


156

In this item are the financial assets (debt securities, equities, UCITS units and derivative instruments) classified in the trading portfolio. The cash assets under point 2. Equities mainly represent the financial instruments managed by third parties as part of securities asset management. The debt securities consist of Italian government bonds. The amount under the item ‘Derivative instruments’ represents the exposure, for which the offsetting set forth in IAS 32, paragraph 42, was not carried out, mainly towards known leading counterparties and CR-BCCs, for the ‘matched trading’ activity where Cassa Centrale stipulates a derivative contract or a forward transaction with an institutional counterparty in relation to a mirrored derivative contract/forward transaction entered into with a CR-BCC or leading customers. The debt position, equal to EUR 21,721 thousand and relating to the matched positions, is booked under item 40 ‘Financial liabilities held for trading’ under Liabilities in the Statement of financial position. The fair value of the derivative does not reflect the adjustment relative to the counterparty risk (Credit Valuation Adjustment - CVA) since the bank considered that, net of the positions for which there are collateralisation contracts, the value of the counterparty risk relative to the remaining positions for which, in almost all the cases, there exists a bilateral set-off agreement between the debt and credit positions, do not carry a significant risk. The overall value of the CVA calculated on the negative exposure offset is EUR 217 thousand, against a DVA (Debit Valuation Adjustment) calculated on the offset exposure whose balance is a positive EUR 60 thousand.The fair value of the derivative contracts with customers as counterparty amounts to EUR 2,292 thousand at year-end. Among these there are no exposures to customers who are in default.

EXPLANATORY NOTES

157

2.2 Financial assets held for trading: breakdown by debtors/issuers

Items/Values Total 2015 Total 2014A. Cash assets

1. Debt securities 4 2a) Governments and Central Banks 4 2b) Other public bodies - -c) Banks - -d) Other issuers - -

2. Equities 2,797 2,937a) Banks 403 372b) Other issuers: 2,394 2,564

- insurance companies 508 488- financial institutions - 113- non-financial companies 1,886 1,963- other - -

3. UCITS units - -4. Loans - -

a) Governments and Central Banks - -b) Other public bodies - -c) Banks - -d) Other entities - -

TOTAL A 2,801 2,939B. Derivative instruments

a) Banks - fair value 20,212 33,367b) Customers - fair value 2,292 2,805

TOTAL B 22,504 36,173TOTAL (A+B) 25,305 39,112

The notional value of the derivative instruments with banks is EUR 398,682 thousand (EUR 693,441 thousand in 2014), while the one with customers equals EUR 28,808 thousand (EUR 20,817 thousand in 2014).The distribution of financial assets by economic segment to which debtors or issuers belong was carried out according to the classification criteria set by the Bank of Italy.


158

FINANCIAL ASSETS AT FAIR VALUE - ITEM 30

3.1 Financial assets at fair value: breakdown by category

Items/ValuesTotal 2015 Total 2014

Level 1 Level 2 Level 3 Level 1 Level 2 Level 31. Debt securities - 3,000 - - 2,907 -

1.1 Structured securities - - - - - -1.2 Other debt securities - 3,000 - - 2,907 -

2. Equities - - - - - -3. UCITS units - - - - - -4. Loans - - - - - 61

4.1 Structured - - - - - -4.2 Other - - - - - 61

TOTAL - 3,000 - - 2,907 61COST - 2,477 - - 2,320 56

The amounts indicated as ‘cost’ correspond to the historical purchase cost of the financial assets in inventories at the date of the financial statements.The application of the fair value option on the financial instruments under Assets is deemed functional to reach the objective of a better accounting representation of company operations as well as the administrative simplification compared to other accounting options such as the fair value hedge accounting.In this item only the bonds purchased from the CR-BCCs are classified. For these securities, related to bonds of equal characteristics and value issued by us and recorded in item 30 of Liabilities, the fair value option is applied. This methodology represented for the Bank the most reliable and convenient possibility to account for the hedging transactions that naturally offset one another (so-called natural hedge).It should be noted that the discounting of the cash flows of bonds classified under this item makes provision for the use of a curve representative of the credit rating of the bond issues by Italian Banks with a BBB rating.

SECTION 3

EXPLANATORY NOTES

159

3.2 Financial assets at fair value: breakdown by debtors/issuers

Items Total 2015 Total 20141. Debt securities 3,000 2,907

a) Governments and Central Banks - -b) Other public bodies - -c) Banks 3,000 2,907d) Other issuers - -

2. Equities - -a) Banks - -b) Other issuers: - -

- insurance companies - -- financial institutions - -- non-financial companies - -- other - -

3. UCITS units - -4. Loans - 61

a) Governments and Central Banks - -b) Other public bodies - -c) Banks - -d) Other entities - 61

TOTAL 3,000 2,968

The distribution of financial assets by economic segment to which debtors or issuers belong was carried out according to the classification criteria set by the Bank of Italy.

FINANCIAL ASSETS AVAILABLE FOR SALE - ITEM 40

4.1 Financial assets available for sale: breakdown by category

ItemsTotal 2015 Total 2014

Level 1 Level 2 Level 3 Level 1 Level 2 Level 31. Debt securities 2,550,347 - - 2,237,909 - -

1.1 Structured securities - - - - - -1.2 Other debt securities 2,550,347 - - 2,237,909 - -

2. Equities - - 41,333 - - 41,5902.1 Valued at fair value - - 393 - - 3932.2 Designated at cost - - 40,940 - - 41,197

3. UCITS units - 52,969 - - 55,155 -4. Loans - - - - - -TOTAL 2,550,347 52,969 41,333 2,237,909 55,155 41,590

SECTION 4


160

The portfolio of the financial assets available for sale includes:• the portion of the banking book not used for trading purposes; • the equity investments for which the stakes held do not refer to controlling interests, interests carrying a significant influence or joint ventures pursuant to IAS 27 and IAS 28.

The significant balance of the item is due to the purchase of securities, debt securities in particular, through the use of part of the liquidity generated by the deposits by the associated CR-BCCs as a result of the service provided to the CR-BCCs for the intermediation of the transactions of the European Central Bank. Among the equities, point 2.2 ‘Designated at cost’, impairment was recorded on the shares owned by the companies Tempo Libero Folgaria S.r.l., Coopersviluppo S.p.A. and Essedì S.p.A. (EUR 837 thousand).The securities under point 3 ‘UCITS units’ include the assets on which impairment for EUR 653 thousand was effected. These are UCITS units that show a depreciation in the fair value for more than 9 months or for which objective evidence is deemed to exist that the asset has suffered an impairment to be recognised in the Income Statement, based on IAS 39 par. 59. The impairment fully derives from the negative change in the reserve taking place in 2015.

A breakdown of the equity interests recognised under item 2. Equities – Level 3 is shown below:

EXPLANATORY NOTES

161

Description no. of owned shares

nominal value/ 1000

carrying amount/

1000

portion of Equity

% of investee share capital

Essedì S.r.l. 1 13 - - 16.20 Coopersviluppo S.p.A. 750,000 750 - - 15.00 Partecipazioni cooperative S.r.l. 600,000 600 600 600 12.20 Partecipazioni Trentine S.r.l. 10 5 9 7 10.00 Centrale Gestione Immobiliare S.r.l. 1 5 8 7 10.00 Assicura Group S.r.l. 1 750 750 748 10.00 Etica S.g.r. 41,500 415 450 594 9.22 Scouting S.p.A. 550 55 154 165 8.26 Trevefin S.p.A. 209,734 210 146 203 7.55 Graffiti2000 S.r.l. 1 6 - 28 7.50 Promocoop S.p.A. 12 7 7 1,753 6.00 Sefea S.c.a.r.l. 500,000 250 250 238 5.69 Pensplan Invest S.g.r. S.p.A. 85,000 439 439 437 4.44 San Martino e Primiero Dolomiti Trasporti a fune S.p.A. 84,345 - - - 4.22

Finanziaria Trentina della Cooperazione S.p.A. 100 500 500 539 4.08

Funivie Folgarida Marilleva S.p.A. 459,913 1,159 920 2,852 3.37 Bio Energia Fiemme S.p.A. 30,000 180 180 258 2.80 I.C.C.R.E.A. Holding S.p.A. 619,069 31,975 34,131 35,680 2.78 Fondo Comune delle Casse Rurali Trentine S.c.r.l. 8,001 41 41 844 2.52

Funivie Alpe Cermis S.p.A. 60,000 300 305 359 2.00 Tempo Libero Folgaria S.r.l. - 100 - - 1.90 Funivie Madonna di Campiglio S.p.A. 12,988 91 1,267 1,288 1.65 Interbrennero S.p.A. 57,961 174 214 723 1.26 Federazione Trentina della Cooperazione S.c.r.l. 51 5 5 253 0.81

Alto Garda Servizi S.p.A. 3,616 188 191 310 0.81 Paganella 2001 S.p.A. 300,528 180 180 173 0.72 Emmeci Group S.p.A. 2,230 12 212 14 0.51 Banca Popolare Etica S.c.p.A. 2,886 150 155 251 0.32 Depositors’ Guarantee Fund - 1 1 1 0.18 Finest S.p.A. 3,121 161 155 182 0.12 Swift Bruxelles S.A. 16 39 32 - 0.03 SIA S.p.A. 49,500 6 26 41 0.03 Tassullo Energia S.p.A. 150 - 3 - 0.02 Phoenix Informatica Bancaria S.p.A. 1,099 1 1 7 0.01 Visa Europe S.A. 10 - - - 0.01 Mediocredito Trentino Alto Adige S.p.A. 850 - 1 1 0.00

TOTAL 41,333 48,556


162

The equities ‘designated at cost’ and conventionally classified in level 3 refer to shareholdings for which the fair value cannot be reliably determined or checked and thus they are entered in the financial statements at cost, adjusted if necessary in respect of the assessment of losses due to impairment.

4.2 Financial assets available for sale: breakdown by debtors/issuers

Items Total 2015 Total 20141. Debt securities 2,550,347 2,237,909

a) Governments and Central Banks 2,550,347 2,237,909b) Other public bodies - -c) Banks - -d) Other issuers - -

2. Equities 41,333 41,590a) Banks 156 156b) Other issuers: 41,177 41,434

- insurance companies - -- financial institutions 36,135 36,135- non-financial companies 5,042 5,299- other - -

3. UCITS units 52,969 55,1554. Loans - -

a) Governments and Central Banks - -b) Other public bodies - -c) Banks - -d) Other entities - -

TOTAL 2,644,649 2,334,655

The distribution of financial assets by economic segment to which debtors or issuers belong was carried out according to the classification criteria set by the Bank of Italy.The Bank only holds government securities issued by the Italian government in the portfolio ‘Financial assets available for sale’.The implicit capital losses on Italian government securities amount to EUR 355 thousand and were fully recorded in the reserve of the ‘Financial assets available for sale’. In consideration of the country risk assessment carried out by the Directors, as described in the report on operations, the Bank deemed not to consider these capital losses as having a long-lasting nature.

4.3 Financial assets available for sale subject to specific hedging At the date of the financial statements, the Bank did not hold financial assets available for sale subject to specific hedging.

EXPLANATORY NOTES

163

HELD TO MATURITY INVESTMENTS - ITEM 50

This item shows the listed debt securities allocated to the held to maturity portfolio.

5.1 Held to maturity investments: breakdown by category

Transaction type/ValuesTotal 2015 Total 2014

Carrying amount

Fair value Carrying amount

Fair valueLev. 1 Lev. 2 Lev. 3 Lev. 1 Lev. 2 Lev. 3

1. Debt securities 459,989 494,762 - - 454,298 492,087 - -1.1 Structured securities - - - - - - - -1.2 Other debt securities 459,989 494,762 - - 454,298 492,087 - -2. Loans - - - - - - - -TOTAL 459,989 494,762 - - 454,298 492,087 - -

The portfolio consists solely of Italian government securities and incorporates net implicit gains of EUR 34,772 thousand.

5.2 Held to maturity investments: debtors/issuers

Transaction type/Values Total 2015 Total 20141. Debt securities 459,989 454,298

a) Governments and Central Banks 459,989 454,298b) Other public bodies - -c) Banks - -d) Other issuers - -

2. Loans - -a) Governments and Central Banks - -b) Other public bodies - -c) Banks - -d) Other entities - -

TOTAL 459,989 454,298TOTAL FAIR VALUE 494,762 492,087


5.3 Held to maturity investments subject to micro-hedging Held to maturity investments were not subject to micro-hedging.

SECTION 5


164

LOANS TO BANKS - ITEM 60

This item comprises the unlisted financial assets to banks classified in the ‘Receivables’ portfolio.Also included are the amounts due from the Bank of Italy, other than demand deposits, inclusive of the amounts for the obligatory reserve.

6.1 Loans to banks: breakdown by category

Transaction typeTotal 2015 Total 2014

Carrying amount

Fair value Carrying amount

Fair valueLev. 1 Lev. 2 Lev. 3 Lev. 1 Lev. 2 Lev. 3

A. Loans to Central Banks 161,416 - - - 294,221 - - -1. Term deposits - - - - - - - -2. Compulsory reserve 161,416 - - - 294,221 - - -3. Repos - - - - - - - -4. Other - - - - - - - -B. Loans to banks 1,487,152 - - - 3,769,226 - - -1. Current accounts and unrestricted deposits 66,796 - - - 47,884 - - -

2. Term deposits 1,416,291 - - - 3,653,238 - - -3. Other loans: - - - - - - - -3.1 Repos receivables - - - - - - - -3.2 Financial leases - - - - - - - -3.3 Other - - - - - - - -4. Debt securities 4,065 - - - 68,104 - - -4.1 Structured securities - - - - - - - -4.2 Other debt securities 4,065 - - - 68,104 - - -TOTAL (CARRYING AMOUNT) 1,648,568 - 4,086 1,644,503 4,063,448 - 68,332 3,995,344

Concerning the criteria for determining the fair value, please refer to Part A - Accounting policies.In consideration of the main short-term duration of the loans to banks, the related fair value, with the exclusion of receivables represented by debt securities, is considered equal to the carrying amount.The loans to banks were not written down since deemed fully recoverable.Among the securities under point ‘4.2 Other debt securities’ there is a loan to banks with a subordination restriction for EUR 300 thousand. To this end, it is hereby noted a subordinated nature characterises the assets whose right to reimbursement, in the event of liquidation of the issuing entity or if it is subject to other bankruptcy proceedings, can be exercised by the creditor only after other creditors who are not equally subordinated.Loans to banks also include receivables in foreign currencies amounting to EUR 46,395 thousand.The sub-item A.2 ‘Compulsory reserve’ includes, in addition to the one due from the Bank, the reserve managed by proxy for the CR-BCCs. The repos receivables exclusively concern the transactions with a forward resale obligation by the assignee for the assets subject to the transaction, since the Bank does not have any transaction in place that gives the same assignee the right of forward resale.

SECTION 6

EXPLANATORY NOTES

165

The item ‘Term deposits’ consists almost entirely of deposits guaranteed by eligible ECB securities offered to the CR-BCCs as part of the intermediation of the refinancing transactions by the European Central Bank. As part of the offered service, based on the financial guarantee agreements pursuant to Italian Legislative Decree no. 170 of 21 May 2004, Cassa Centrale Banca obtained the transfer of legal ownership of eligible securities from the CR-BCCs. These securities can therefore be used by the bank to guarantee the participation in the refinancing operations of the European Central Bank.

6.2 Loans to banks subject to micro-hedgingAt the date of the financial statements there are no loans to banks subject to micro-hedging.

6.3 Leases At the date of the financial statements there are no loans to banks deriving from financial leases.

LOANS TO CUSTOMERS - ITEM 70

This item includes the unlisted financial assets to customers allocated in the ‘Receivables’ portfolio.

7.1 Loans to customers: breakdown by category

Transaction type/Values

Total 2015 Total 2014Carrying amount Fair value Carrying amount Fair value

Perform-ing

Impaired Lev. 1 Lev. 2 Lev. 3 Performing

Impaired Lev. 1 Lev. 2 Lev. 3

Purchased Other Purchased OtherLoans 500,705 - 46,590 - - 553,513 1,329,605 -- 72,061 - - 1,407,5381. Current accounts 54,408 - 13,857 - - - 48,947 - 25,972 - - -

2. Repos receivables - - - - - - 748,915 - - - - -

3. Mortgage loans 322,244 - 25,783 - - - 349,836 - 34,846 - - -4. Credit cards, personal loans and salary-backed loans

- - - - - - - - - - - -

5. Financial leases - - - - - - - - - - - -6. Factoring - - - - - - - - - - - -7. Other loans 124,053 - 6,950 - - - 181,908 - 11,243 - - -Debt securities 10,288 - - - 10,138 - 5,377 - - - - -8. Structured securities - - - - - - - - - - - -

9. Other debt securities 10,288 - - - - - 5,377 - - - - -

TOTAL 510,993 - 46,590 - 10,138 553,513 1,334,983 - 72,061 - 5,241 1,407,538

SECTION 7


166

Concerning the criteria for determining the fair value, please refer to Part A - Accounting policies.Loans to customers are shown net of adjustments from write-downs. Impaired assets include the non-performing loans, unlikely to pay and past due exposures according to the definitions of the Bank of Italy. Details of these exposures, the amounts and the breakdown of the adjustments, are shown in Part E of the Explanatory notes – ‘Credit quality’.The fair value of short-term or revocable receivables was conventionally assumed to be equal to the carrying amount. For the impaired positions it was deemed appropriate to assume the fair value equal to the net carrying amount.The receivables include loans in foreign currencies totalling EUR 332 thousand.Under sub-item 9 ‘Other debt securities’ the class B bond is entered, which was issued by the special purpose entity Bcc Mortgages as part of the securitisation transaction of third party issuers; the transaction is described in further detail in Part E - C.1 ‘Securitisation Transactions’ – as well as a bond issued by Cassa del Trentino S.p.A. and an additional bond issued by Funivie Folgarida Marilleva S.p.A..

Detail of sub-item 7.1 ‘Other loans’

Transaction typeTotal 2015 Total 2014

Not impaired

Impaired Not impaired

ImpairedPurchased Other Purchased Other

Loans for SBF advances 2,923 - 467 6,041 - 10,526Other grants not settled in the current accounts - other grants 78,801 - 6,483 138,736 - 717

Interest-bearing guarantee deposits 12,651 - - 7,023 - -Loans to Deposits and Loans Fund 29,615 - - 29,975 - -Contributions to be collected from local authorities for transactions with a subsidised rate

63 - - 133 - -

TOTAL 124,053 - 6,950 181,908 - 11,243

EXPLANATORY NOTES

167

7.2 Loans to customers: breakdown by debtors/issuers


Not impaired

Impaired Not impaired

ImpairedPurchased Other Purchased Other

1. Debt securities: 10,288 - - 5,377 - -a) Governments - - - - - -b) Other public bodies - - - - - -c) Other issuers 10,288 - - 5,377 - -

- non-financial companies 1,236 - - 1,325 - -- financial companies 9,052 - - 4,052 - -- insurance companies - - - - - -- other - - - - - -

2. Loans to: 500,705 - 46,590 1,329,605 - 72,061a) Governments - - - - - -b) Other public bodies 451 - - 7,782 - -c) Other issuers 500,254 - 46,590 1,321,823 - 72,061

- non-financial companies 373,840 - 43,419 413,909 - 65,119- financial companies 99,502 - 380 879,487 - 163- insurance companies - - - - - -- other 26,912 - 2,791 28,427 - 6,779

TOTAL 510,993 - 46,590 1,334,983 - 72,061


7.3 Loans to customers subject to micro-hedgingAt the date of the financial statements the Bank does not have loans to customers subject to micro-hedging.

7.4 Financial leasingAt the date of the financial statements there are no receivables deriving from financial leases.

HEDGING DERIVATIVES - ITEM 80

The Bank does not have hedging derivatives in place.As a consequence, this Section has not been filled in.

ADJUSTMENT OF THE FINANCIAL ASSETS SUBJECT TO MACRO-HEDGING - ITEM 90

At the date of the financial statements there are no assets subject to macro-hedging.As a consequence, this Section has not been filled in.

SECTION 8

SECTION 9


168

EQUITY INVESTMENTS - ITEM 100

This item includes the equity investments in subsidiaries (IFRS 10), companies under joint control or subject to significant influence (IAS 28).

10.1 Equity investments: information on investment ratios

Names Registered office

Operating headquarters % interest Votes

available %A. Wholly-owned subsidiaries1. Centrale Credit & Real Estate Solutions S.r.l. Trento Trento 100.00 100.002. Centrale Soluzioni Immobiliari S.r.l. Trento Trento 100.00 100.00B. Jointly controlled companies 1. Casse Rurali Raiffeisen Finanziaria S.p.A. Bolzano Bolzano 50.00 50.00C. Companies subject to a significant influence 1. NEAM S.A. Luxemburg Luxemburg 50.00 50.002. Informatica Bancaria Finanziaria S.p.A. Trento Trento 43.33 43.333. Assicura Cooperazione Trentina S.r.l. Trento Trento 39.00 39.004. Centrale Trading S.r.l. Trento Trento 32.50 32.505. Formazione Lavoro S.c.a.r.l. Trento Trento 22.21 22.21

The equity investments held refer to Instrumental companies/entities to achieve the corporate purpose and consist of unlisted securities.The equity investments stated are equal to the voting percentage available.Control is presumed to exist when the equity investment in the company as well as the investments in entities over which the parent company exercises control of the relevant activities are exercised in compliance with IFRS 10. More specifically, ‘an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.’ The power requires the investor to have existing rights that give the current ability to direct the activities that significantly affect the investee‘s returns. Power is based on an ability, whether or not that power is used in practice. Control is analysed on a continuous basis. The investor must redetermine whether it controls an investee when facts or circumstances indicate changes in one or more elements of control.An associate relationship is presumed to exist when, despite the conditions of control not being satisfied, the Bank, directly or indirectly, is able to exercise a significant influence. This influence is presumed to exist for companies in which the Company holds at least 20.00% of voting rights or in which said Bank, nonetheless, has the power to participate in the determination of the financial and management policies based on particular legal relationships. On the other hand, if the investing company, directly or indirectly (for example through subsidiaries), owns less than 20% of the votes that can be exercised at the meeting of the investee, it is assumed that the investing company does not have a significant influence, unless this influence can be clearly demonstrated. The fact that another investing company may have the absolute or relative majority does not exclude the possibility for an investing company to have a significant influence.A joint venture is presumed to exist when the participation is exercised through a joint arrangement, with other shareholders, in which the parties that hold joint control have rights over the net assets of the arrangement.

SECTION 10

EXPLANATORY NOTES

169

The scope of ‘significant interests’ was determined by considering the materiality of the carrying amount of the investment and the share of the investee’s assets with respect to the homogeneous balances relating to the current financial statements.

10.2 Significant interests, carrying amount, fair value and dividends received

Names Carrying amount Fair value Dividends

receivedA. Wholly-owned subsidiaries B. Jointly controlled companies

1.Casse Rurali Raiffeisen Finanziaria S.p.A. 16,549 - -C. Companies subject to a significant influence

The column fair value does not contain any information, given that listed investments (IFRS 12.20) are not present, in the same way there are no investees designated at fair value, considering the expression of the relative recoverable value, as a result of impairment (IAS 36.130).The equity investment in Casse Rurali Raiffeisen Finanziaria S.p.A. is recorded by the Bank at cost and not at equity, because this valuation is expressed by the Parent company when drafting the consolidated financial statements.


170

10.3 Equity investments: accounting information

Names

Cas

h an

d ca

sh e

quiv

alen

ts

Fina

ncia

l ass

ets

Non

-fina

ncia

l ass

ets

Fina

ncia

l lia

bilit

ies

Non

-fina

ncia

l lia

bilit

ies

Tota

l rev

enue

Net

inte

rest

mar

gin

Adj

ustm

ents

and

writ

e-ba

cks

on ta

ngib

le

and

inta

ngib

le a

sset

sPr

ofit (

loss

) bef

ore

tax

from

cur

rent

op

erat

ing

activ

ities

Profi

t (lo

ss) a

fter t

ax fr

om c

urre

nt

oper

atin

g ac

tiviti

esPr

ofit (

loss

) on

grou

ps o

f ass

ets

held

for

sale

, afte

r tax

Profi

t (lo

ss) o

f the

yea

r (1)

Oth

er p

ost-ta

x in

com

e co

mpo

nent

s (2

)

Com

preh

ensiv

e In

com

e (3

) = (1

)+(2

)

A. Wholly-owned subsidiaries

B. Jointly controlled companies

1. Casse Rurali Raiffeisen Finanziaria S.p.A.

- 67,040 1 32,000 132 440 -315 - 73 73 - 73 - 73

C. Companies subject to a significant influence

The table shows the data obtained from the last accounting position available relating to 31 December 2015.

Reconciliation between net assets and the carrying amount of the investee in the financial statements

Names Net assets (*) Interest % Net assets

held Goodwill Other adjustments

Carrying amount

B. Jointly controlled companies

Casse Rurali Raiffeisen Finanziaria S.p.A. 34,909 50.00 17,454 - -905 16,549

C. Companies subject to a significant influence

(*) Equal to the sum of ‘Financial assets’, ‘Non-financial assets net of financial liabilities’, ‘Non-financial liabilities’ indicated in previous table 10.3.

EXPLANATORY NOTES

171

10.4 Insignificant equity investments: accounting information

Name

Car

ryin

g am

ount

of e

quity

inve

stmen

ts

Tota

l ass

ets

Tota

l lia

bilit

ies

Tota

l rev

enue

Profi

t (lo

ss) a

fter t

ax fr

om c

urre

nt

oper

atin

g ac

tiviti

es

Profi

t (lo

ss) o

n gr

oups

of a

sset

s he

ld fo

r sa

le, a

fter t

ax

Profi

t (lo

ss) o

f the

yea

r (1)

Oth

er p

ost-ta

x in

com

e co

mpo

nent

s (2

)

Com

preh

ensiv

e In

com

e (3

) = (1

) + (2

)

A. Wholly-owned subsidiaries 2,050 3,282 534 591 102 - 102 - 102

B. Jointly controlled companies - - - - - - - - -

C. Companies subject to a significant influence 4,120 11,516 3,909 15,314 1,650 - 1,650 - 1,650

The table reports the accounting information on a cumulative basis by type of investment relationship, with reference to the companies subject to a significant influence but immaterial.‘Total liabilities’ does not include Equity.The financial statement data of the subsidiaries, of Nord Est Asset Management S.A. and Centrale Trading S.r.l. refers to 31 December 2015, while for the remaining companies, the data refers to 31 December 2014. In the column ‘Total revenues’ the total amount of the income components with a positive sign is shown, gross of their tax effect. The values are expressed with reference to the percentage held by the Bank, as required by IFRS 12.


172

10.5 Equity investments: annual changes

Total 2015 Total 2014A. Opening balances 22,017 21,258B. Increases 1,950 759

B.1 Purchases 1,950 50B.2 Write-backs - -B.3 Revaluations - -B.4 Other changes - 709

C. Decreases 1,248 -C.1 Sales - -C.2 Adjustments 393 -C.3 Other changes 855 -

D. Closing balances 22,719 22,017E. Total revaluations 199 199F. Total adjustments - 20

The increases includes the following changes:• payment for the share capital increase of Centrale Soluzioni Immobiliari S.r.l. for EUR 1,950 thousand;‘Adjustments’ and ‘Other changes’ comprise respectively the adjustment and the recovery of the remaining investment as a result of the liquidation of the subsidiary Centrale Leasing Nord Est S.p.A..

10.6 Commitments referring to equity investments in subsidiaries under joint controlAt the date of the financial statements there are no commitments referring to equity investments in companies under joint control.

10.7 Commitments referring to equity investments in companies subject to a significant influence At the date of the financial statements there are no commitments referring to equity investments in companies subject to a significant influence.

10.8 Significant restrictions As at 31 December 2015, there are no legal or substantive obligations or restrictions able to obstruct the rapid transfer of funds to the Bank, except for those attributable to regulatory provisions which may require a minimum amount of regulatory capital to be retained, or to the provisions of the Italian Civil Code on distributable profits and reserves.

10.9 Other information The criterion used to determine the recoverable value of equity investments for the purpose of drafting the financial statements as at 31 December 2015For the quantification of impairment, a comparison was made between the carrying amount of the equity investment and its recoverable value. Based on IAS 36, the recoverable value is represented by the higher of the

EXPLANATORY NOTES

173

fair value, net of costs to sell and the value in use. As regards the above, at the reporting date, the test did not provide any evidence that involved the recognition of value adjustments.

TANGIBLE ASSETS - ITEM 110

11.1 Tangible assets for business use: breakdown of the assets measured at cost

Assets/values Total 2015 Total 20141. Assets owned 13,916 12,347

a) land 3,665 2,381b) buildings 6,617 6,879c) furniture 1,372 1,256d) electronic systems 951 981e) others 1,311 850

2. Assets acquired through financial leases - -a) land - -b) buildings - -c) furniture - -d) electronic systems - -e) others - -

TOTAL 13,916 12,347

All the Bank’s tangible assets are valued at cost as specified in part A of the Explanatory notes.

11.2 Tangible assets held for investment purposes: breakdown of the assets measured at costThere are no tangible assets held for investment purposes; therefore, the relevant table was not filled in.

11.3 Tangible assets for business use: breakdown of revalued assetsThere are no revalued tangible assets; therefore, the relevant table was not filled in.

11.4 Tangible assets held for investment purposes: breakdown of the assets measured at fair valueThere are no tangible assets held for investment purposes at fair value; therefore, the relevant table was not filled in.

SECTION 11


174

11.5 Tangible assets for business use: annual changes

Land Buildings Furniture Electronic systems Other Total

A. Gross opening balances 2,381 13,545 5,126 4,332 4,882 30,265A.1 Total net impairment - 6,666 3,870 3,351 4,032 17,918A.2 Net opening balances 2,381 6,879 1,256 981 850 12,347

B. Increases: 1,284 20 346 420 793 2,863B.1 Purchases 1,284 20 346 420 793 2,863

of which: business combinations - - - - - -B.2 Expenditures for capitalised improvements - - - - - -

B.3 Write-backs - - - - - -B.4 Positive fair value changes

charged to - - - - - -

a) Equity - - - - - -b) Income statement - - - - - -

B.5 Positive exchange rate differences - - - - - -B.6 Transfers from properties held for

investment purposes - - - - - -

B.7 Other changes - - - - - -C. Decreases: - 282 230 451 332 1,294

C.1 Sales - - - - 27 28of which: business combinations - - - - - -

C.2 Amortisation and depreciation - 282 230 450 305 1,266C.3 Adjustments from impairment

charged to: - - - - - -


C.4 Negative fair value changes charged to - - - - - -


C.5 Negative exchange rate differences - - - - - -

C.6 Transfers to: - - - - - -a) tangible assets held for investment purposes - - - - - -

b) assets held for disposal - - - - - -C7. Other changes - - - - - -

D. Net closing balances 3,665 6,617 1,372 951 1,311 13,916D.1 Total net impairment - 6,948 4,099 3,553 4,080 18,680D.2 Gross closing balances 3,665 13,565 5,471 4,504 5,391 32,596

E. Valuation at cost - - - - - -

EXPLANATORY NOTES

175

Items A.1 and D.1 ‘Total net impairment’ reports the total accumulated depreciation and the adjustments due to impairment.Item E. ‘Valuation at cost’ is not measured since its compilation is only required for tangible assets at fair value in the financial statements. This case does not apply to the Bank.

11.6 Tangible assets held for investment purposes: annual changesThe Bank does not hold tangible assets for investment purposes.

11.7 Commitments for tangible asset purchases (IAS 16/74.c) The Bank did not assume any commitment to purchase tangible assets.

RevaluationsBelow is the Statement of the revaluations of assets pursuant to art. 10 of Italian Law no. 72 of 19-03-1983

Location UseAmount reval.

pursuant to Law 576/75

Amount reval. pursuant to Law 72/83

Amount reval. pursuant to

Law 408/90


Law 413/91


Law 342/00


Law 266/05Operating properties:

Property located in Trento, via Segantini no. 5

Registered Office - - - 1,067 - -

INTANGIBLE ASSETS - ITEM 120

12.1 Intangible assets: breakdown by type of asset

Assets/values Total 2015 Total 2014Definite duration Indefinite duration Definite duration Indefinite duration

A.1 Goodwill - - - -A.2 Other intangible assets 394 - 322 -A.2.1 Assets valued at cost: 394 - 322 -

a) Intangible assets generated internally - - - -b) Other assets 394 - 322 -

A.2.2 Assets at fair value: - - - -a) Intangible assets generated internally - - - -b) Other assets - - - -

TOTAL 394 - 322 -

All the Bank’s intangible assets are valued at cost.The other intangible assets under item A.2, of definite duration, mainly include the company software under user license and were amortised on a pro rata temporis basis with the straight-line rate method based on their useful life, estimated at three years.No internally generated intangible assets were posted.

SECTION 12


176

12.2 Intangible assets: annual changes

Goodwill

Other intangible assets:

generated internally

Other intangible assets: other

Total with

definite duration

with indefinite duration

with definite

duration

with indefinite duration

A. Opening balances - - - 5,168 - 5,168A.1 Total net impairment - - - 4,845 - 4,845A.2 Net opening balances - - - 322 - 322

B. Increases - - - 296 - 296B.1 Purchases - - - 296 - 296

of which: business combinations - - - - - -B.2 Increase in internal intangible

assets - - - - -

B.3 Write-backs - - - - -B.4 Positive fair value changes: - - - - -

- to Equity - - - - -- to Income Statement - - - - -

B.5 Positive exchange rate differences - - - - - -

B.6 Other changes - - - - - -C. Decreases - - - 224 - 224

C.1 Sales - - - 224 - 224of which: business combinations - - - - - -

C.2 Adjustments - - - - - -- Amortisation and depreciation - - - - -- Write-downs: - - - - - -+ Equity - - - - -+ Income statement - - - - - -

C.3 Negative fair value changes: - - - - -- to Equity - - - - -- to Income Statement - - - - -

C.4 Transfers to non-current assets held for disposal - - - - - -

C.5 Negative exchange rate differences - - - - - -

C.6 Other changes - - - - - -D. Net closing balances - - - 394 - 394D.1 Total net adjustments - - - 5,069 - 5,069E. Gross closing balances - - - 5,464 - 5,464F. Valuation at cost - - - - - -

EXPLANATORY NOTES

177

The intangible assets described were entirely acquired externally and valued at cost.Sub-item F. ‘Valuation at cost’ is not measured since its compilation is only set for intangible assets at fair value in the accounts. This case does not apply to the Bank.

12.3 Other informationAs required by paragraphs 122 and 124 of IAS 38, it is specified that the Bank did not:• provide intangible assets as guarantee for its debts;• commit to the purchase of intangible assets at the reporting date;• acquire intangible assets via operating or financial lease agreements;• acquire intangible assets via government concession;• revalue intangible assets at fair value.

TAX ASSETS AND TAX LIABILITIES - ITEM 130 OF ASSETS AND ITEM 80 OF LIABILITIES

13.1 Deferred tax assets: breakdown The types of temporary differences that have led to the posting of ‘Deferred tax assets’ concern:

Through the Income Statement IRES IRAP TOTALNet provisions for risks and charges not deducted 2,319 31 2,350Adjustments on loans and losses (pursuant to Law 214/2011) 19,606 2,246 21,852Adjustments on real estate assets 14 9 23Provision for severance indemnity 22 - 22Other items 16 7 23TOTAL 21,977 2,293 24,270

The item ‘Adjustments on loans and losses’ contains the tax credits for write-downs and loans losses which were not deducted in previous years, as they exceeded the limit set forth in art. 106 of the TUIR [Italian Income Tax Code]. Said components shall be deductible in upcoming years according to the percentages prescribed by Article 16 of Italian Law Decree no. 83 of 27 June 2015, which amended the previous phasing mechanism.

The tax credit from the transformation of the deferred tax assets recognised in the financial statements (Law 214/2011)Article 2 of Law Decree no. 225 of 29 December 2010 (the ‘one thousand extensions’) converted, with amendments, by Law no. 10 of 26 February 2011 and subsequently amended by art. 9 of Law Decree no. 201 of 6 December 2011 (the ‘Monti’ decree), converted, with amendments into Law no. 214/2011, provided for the introduction of the transformation of IRES tax credits referring to portions of certain deferred tax assets, when there has been a loss for the year in a company’s separate financial statements. By means of Law 147, article 1, the ‘stability law’ for 2014, this possibility of transformation was also extended to prepaid taxes on value adjustments which are not deducted for IRAP purposes, beginning from the 2013 financial statements. Pursuant to the aforementioned provision, deferred tax assets relative to the write-downs of receivables which have not yet

SECTION 13


178

been deducted from the taxable income pursuant to art. 106 par. 3 of the TUIR, as well as those which referred to negative components relative to the value of goodwill and other intangible assets, which are deductible over several tax periods insofar as income tax is concerned, can be transformed into tax credits, within certain limits.Regarding the quantification of the amount that can be transformed, the law provides that deferred tax assets can be transformed only insofar as the amount that is the result of the multiplication of the loss for the year by the ratio of the deferred tax assets which are significant and the amount of the share capital and the reserves.Furthermore, there is an additional case in which transformation can take place which refers to the deferred tax assets which are recognised against tax losses, as indicated under paragraph 56-bis of the aforementioned article 2.The tax credit which results from the transformation of the deferred tax assets is non-interest bearing, and can be used to offset, pursuant to article 17 of Legislative Decree 241/1997, or it can be transferred at the nominal value according to the procedure indicated under article 43-ter of Presidential Decree 602/1973 and, finally, it can be requested as a refund insofar as the residual portion after the offset have been made.In the previous table, the significant deferred tax assets pursuant to Law 214/2011 are shown separately from other traditional deferred tax assets, in order to take into account their differing nature. The specific amount indicated in the table represents the portion of the deferred tax assets which can potentially be transformed into tax credits as at the date of the financial statements.The dynamics of the year, with an indication of any portion of deferred tax assets transformed into tax credits during the year, is illustrated in table 13.3.1 below ‘Changes in advance taxes according to Law 214/2011’.The law governing the conversion into a tax credit of the deferred tax assets introduces a procedure for recovering these assets which augments the ordinary one and which is activated in the event of a loss for the year or a tax loss.This procedure provides certainty of recovery, under any circumstances, of the deferred tax assets pursuant to Law 214/2011, automatically fulfilling the test relative to the probability of recovery of the deferred tax assets as required by IAS 12.

Other deferred tax assetsThe previous table also details the other deferred tax assets other than those pursuant to Law 214/2011. These ‘assets’ are recognised in the financial statements to the extent that there is a probability of their recovery on the basis of the capacity to continually generate positive taxable income. The valuation of the probability of recovery of the other traditional deferred tax assets was carried out on the basis of the available information which is represented by estimates of taxable income expected. For the measurement of the deferred tax assets for IRES and IRAP, the rates of 27.50% and 4.65% were applied respectively.

Through Equity IRES IRAP TOTALLosses on financial assets available for sale 114 19 134Other items 39 - 39TOTAL 153 19 172

Deferred tax assets are considered as wholly recoverable in consideration of the expected taxable income obtainable in the subsequent periods.

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13.2 Deferred tax liabilities: breakdownThe types of temporary differences that have led to the posting of ‘Deferred tax liabilities’ concern:

Through the Income Statement IRES IRAP TOTAL - negative

Through Equity IRES IRAP TOTALGains on financial assets available for sale 4,536 768 5,304TOTAL 4,536 768 5,304

Deferred taxes not recordedNo deferred tax liabilities were recorded on tax deferred monetary revaluation reserves.

13.3 Changes in advance taxes (through the Income Statement)

Total 2015 Total 20141. Opening amount 20,836 14,2072. Increases 3,476 8,909

2.1 Advance taxes recorded in the year 3,476 8,909a) relating to previous years - -b) due to changed accounting criteria - -c) write-backs - -d) other 3,476 8,909

2.2 New taxes or increases in tax rates - -2.3 Other increases - -

- of which: business combinations - -3. Decreases 42 2,281

3.1 Advance taxes cancelled in the year 42 2,281a) reversals 42 2,281b) write-downs for uncollectible amounts - -c) change in accounting criteria - -d) other - -

3.2 Decrease in tax rates - -3.3 Other decreases: - -

a) transformation into tax credits under law 214/2011 - -b) other - -

4. Closing amount 24,270 20,836


180

13.3.1 Changes in advance taxes according to law 214/2011 (through the Income Statement)The table shows advance taxes and the related changes, calculated in consideration of the credit adjustments due to write-down, as deriving from the excess compared to the deductible portion of the various years according to art. 106 paragraph 3 of the Consolidated Income Tax Law. Sub-item 3.2 a) shows the amount of the DTA transformed into tax credit, with a counter-entry with positive sign recorded in Table 18.1 of the Income Statement under item 3bis.

Total 2015 Total 20141. Opening amount 20,029 13,3382. Increases 1,823 8,6973. Decreases - 2,007

3.1 Reversals - 2,0073.2 Transformation into tax credits - -

a) deriving from losses for the year - -b) deriving from tax losses - -

3.3 Other decreases - -4. Closing amount 21,852 20,029

13.4 Changes in deferred taxes (through the Income Statement) During the year, and in the previous year, no changes were recorded with respect to the zero balance at the start of the period. Therefore, the compilation of the table is omitted.

Deferred taxes are recorded against the temporary differences between the carrying amount of an asset or liability and its fiscal value, which will be recovered as economic benefits the Bank will obtain in the subsequent years. This recognition was based on tax regulations in force; the rates used to recognise deferred taxes for IRES and IRAP purposes are 27.50% and 4.65% respectively, in consideration of the known projections for future years.The imbalance of advance taxes (EUR 3,434 thousand) and deferred taxes (zero) was posted in the Income Statement under item 260 ‘Income taxes for the year on current operating activities’.

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13.5 Changes in advance taxes (through Equity)

Total 2015 Total 20141. Opening amount 196 2202. Increases 134 196

2.1 Advance taxes recorded in the year 134 196a) relating to previous years - -b) due to changed accounting criteria - -c) others 134 196


3. Decreases 158 2203.1 Advance taxes cancelled in the year 158 220

a) reversals 158 220b) write-downs for uncollectible amounts - -c) due to changed accounting criteria - -d) other - -

3.2 Decrease in tax rates - -3.3 Other decreases - -

4. Closing amount 172 196

13.6 Changes in deferred taxes (through Equity)

Total 2015 Total 20141. Opening amount 11,112 6,4542. Increases 5,304 11,112

2.1 Deferred taxes recorded in the year 5,304 11,112a) relating to previous years 5,304 11,112b) due to changed accounting criteria - -c) others - -


3. Decreases 11,112 6,4543.1 Deferred taxes cancelled in the year 11,112 6,454

a) reversals 11,112 6,454b) due to changed accounting criteria - -c) others - -

3.2 Decrease in tax rates - -3.3 Other decreases - -

4. Closing amount 5,304 11,112

Advance and deferred taxes refer to write-downs and revaluations of securities available for sale, respectively.These changes had the reserve on ‘Financial assets available for sale’ as counter-entry.


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13.7 Other information

Breakdown of current taxes IRES / IRPEG IRAP OTHERS TOTAL

Current tax liabilities (-) 9,350 1,695 - 11,045Advances paid (+) 14,008 3,094 - 17,102Other tax credits (+) - - - -Withholding taxes (+) 1,101 - - 1,101Tax credits under law 214/2011 (+) 34 - - 34Debt balance of item 80 a) of liabilities - - - -Credit balance of item 130 a) of assets 5,793 1,399 - 7,192Tax credits that cannot be offset: capital portion 423 - - 423Tax credits that cannot be offset: interest portion - - - -Balance of tax credits that cannot be offset 423 - - 423Credit balance of item 130 a) of assets 6,216 1,399 - 7,615

The item ‘Tax credits that cannot be offset’ includes an amount of EUR 423 thousand for tax credits for the periods from 2007 to 2011, resulting from the recognition of the entire deduction for IRES purposes of the IRAP tax on the cost of labour, as per the provisions of article 2, par. 1-quater of Law Decree 201/2011 converted into Law No. 214/2011 and subsequently integrated into article 4, paragraph 12 of Law Decree 16/2012.The item ‘Tax credits under Law no. 214/2011’ consists of an amount of EUR 34 thousand which refers to the factoring of tax credits pursuant to article 43-ter of Presidential Decree no. 602/73 from the liquidation procedure of BCC Sibaritide and Bcc San Vincenzo La Costa.

NON-CURRENT ASSETS AND GROUPS OF ASSETS HELD FOR DISPOSAL AND ASSOCIATED LIABILITIES - ITEM 140 OF ASSETS AND ITEM 90 OF LIABILITIES

No non-current assets or groups of assets held for disposal and related associated liabilities were present on the date of the financial statements. The Section has not been filled in.

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OTHER ASSETS - ITEM 150

15.1 Other assets: breakdown

Total 2015 Total 2014Tax receivables from tax authorities and other tax bodies for indirect taxes 8,498 7,147Cheques to be settled at the Clearing House or with Associates - 361Work in progress and other assets 41,204 38,974Adjustments for illiquid items in the portfolio 17,358 20,121Other debtors for security transactions 11,766 6,052Customers and revenue to be collected 3,850 3,197Prepayments and accrued income not capitalised 738 621Advances to suppliers 93 154Intrinsic value of securities transactions and exchanges to be settled 11 857TOTAL 83,518 77,484

‘Other assets’ includes the unbalance between the debt adjustments and the credit adjustments of the portfolio ‘subject to collection’ and ‘after collection’, for which details are stated in the specific Table ‘Other information’ of part B of these Explanatory notes.Sub-item ‘Work in progress and other assets’ refers mainly to the positive balance of electronic flows related to transactions not settled yet and that Cassa Centrale Banca sorts on the behalf of CR-BCCs towards the interbanking system and in the opposite direction.

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LIABILITIES

Section 1 Due to banks Item 10

Section 2 Due to customers Item 20

Section 3 Debt securities in issue Item 30

Section 4 Financial liabilities held for trading Item 40

Section 5 Financial liabilities at fair value Item 50

Section 6 Hedging derivatives Item 60

Section 7 Adjustment of the financial liabilities subject to macro-hedging Item 70

Section 8 Tax liabilities Item 80

Section 9 Liabilities associated to assets held for disposal Item 90

Section 10 Other liabilities Item 100

Section 11 Provision for severance indemnity Item 110

Section 12 Provisions for risks and charges Item 120

Section 13 Repayable shares Item 140

Section 14 Equity Items 130, 150, 160, 170, 180, 190 and 200

Other information1. Guarantees issued and commitments2. Asset-backed own liabilities and commitments3. Information on operating leasing4. Management and intermediation on behalf of third parties5. Financial assets which are offset or subject to framework set-off agreements or similar agreements6. Financial liabilities which are offset or subject to framework set-off agreements or similar agreements7. Securities lending transactions8. Information on joint operation activities

PART BINFORMATION ON THE STATEMENT OF FINANCIAL POSITION

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DUE TO BANKS - ITEM 10

1.1 Due to banks: breakdown by category

Transaction type Total 2015 Total 20141. Due to central banks 452,037 3,600,4752. Due to banks 3,146,732 3,673,023

2.1 Current accounts and unrestricted deposits 1,499,170 1,457,0462.2 Term deposits 1,606,519 2,165,0452.3 Loans 41,043 50,932

2.3.1 Repos payables - -2.3.2 Others 41,043 50,932

2.4 Liabilities for commitments to repurchase own equity investments - -2.5 Other payables - -

TOTAL 3,598,769 7,273,498Fair value - total 1 - -Fair value - total 2 - -Fair value - total 3 3,598,769 7,273,498TOTAL FAIR VALUE 3,598,769 7,273,498

Concerning the criteria for determining the fair value, please refer to Part A - Accounting policies.This item includes the due to banks in whatever form (deposits, current accounts, loans…).In consideration of the main short-term duration of the due to banks, the related fair value is considered by convention to be equal to the carrying amount.The trend of the item ‘Due to central banks’ is attributable to the brokerage service provided to the CR-BCCs for the intermediation of the refinancing transactions of the European Central Bank. As part of the offered service, based on the financial guarantee agreements pursuant to Italian Legislative Decree no. 170 of 21 May 2004, Cassa Centrale Banca obtains the transfer of legal ownership of securities eligible from CR-BCCs, for which it makes interbanking deposits with the same CR-BCCs, which are represented in the item ‘Loans to banks’.

1.2 Details of item 10 ‘Due to banks’: subordinated debtsAt the date of the financial statements, there are no subordinated amounts due to banks.

1.3 Details of item 10 ‘Due to banks’: structured debtsAt the date of the financial statements, there are no structured amounts due to banks.

1.4 Due to banks: subject to micro-hedgingAt the date of the financial statements there are no due to banks subject to micro-hedging.

1.5 Payables for financial leasingThe Bank has no transactions of this kind in place.

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DUE TO CUSTOMERS - ITEM 20

2.1 Due to customers: breakdown by category

Transaction type/Values Total 2015 Total 20141. Current accounts and unrestricted deposits 267,556 250,6852. Term deposits 80,982 81,0263. Loans 1,031,388 18,461

3.1 Repos payables 1,030,988 -3.2 Other 400 18,461

4. Liabilities for commitments to repurchase own equity investments - -5. Other payables 63,197 49,374TOTAL 1,443,123 399,545Fair value - level 1 - -Fair value - level 2 - -Fair value - level 3 1,443,123 399,545TOTAL FAIR VALUE 1,443,123 399,545

The sub-item ‘Other payables’ classifies the banker’s drafts issued and not yet produced for payment.Due to customers include payables in foreign currencies amounting to EUR 38 thousand.The repos payables under sub-item 3.1 exclusively concern the transactions with a forward resale obligation by the assignee for the assets subject to the transaction, since the Bank does not have any transaction in place that gives the assignee the right of forward resale. The existing transactions were stipulated on the MTS Repo platform and their counterparty is Cassa Compensazione e Garanzia.

2.2 Details of item 20 ‘Due to customers’: subordinated debtsAt the date of the financial statements, there are no subordinated amounts due to customers.

2.3 Details of item 20 ‘Due to customers’: structured debtsThere are no structured payables due to customers.

2.4 Due to customers: subject to micro-hedgingAt the date of the financial statements the Bank does not have due to customers subject to micro-hedging.

2.5 Payables for financial leasingThe Banks has no payables for financial leasing to customers in place.

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DEBT SECURITIES IN ISSUE - ITEM 30

3.1 Debt securities in issue: breakdown by category

Type of securities/Values

Total 2015 Total 2014Carrying

amountFair value Carrying

amountFair value

Lev. 1 Lev. 2 Lev. 3 Lev. 1 Lev. 2 Lev. 3A. Securities

1. Bonds 10,087 - 10,088 - 291,622 - 291,694 -1.1 structured - - - - - - - -1.2 others 10,087 - 10,088 - 291,622 - 291,694 -

2. Other securities - - - - - - - -2.1 structured - - - - - - - -2.2 other - - - - - - - -

TOTAL 10,087 - 10,088 - 291,622 - 291,694 -

Concerning the criteria for determining the fair value, please refer to Part A - Accounting policies.

3.2 Details of item 30 ‘Debt securities in issue’: subordinated securitiesA subordinated nature characterises the payables whose right to reimbursement, in the event of liquidation of the issuing entity or if it is subject to other bankruptcy proceedings, can be exercised by the creditor only after other creditors who are not equally subordinated. Equity instruments which, according to international accounting standards, have equity characteristics, are excluded.In relation to debt securities in issue, note that Table ‘3.1 Debt securities in issue: breakdown by category’ sub-item 1.2 ‘Bonds - Other’ includes subordinated securities of EUR 10,000 thousand.The issued security is eligible for inclusion in the Bank’s Regulatory Capital. For details of the characteristics please refer to the specific section in Part F ‘Information on equity’ - Section 2 ‘Regulatory capital and adequacy ratios’ - at the bottom on sub-section 2.1 ‘Regulatory capital - A. Information of a qualitative nature’.

3.3 Debt securities in issue subject to micro-hedgingAt the date of the financial statements the Bank does not have debt securities in issue subject to micro-hedging.

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FINANCIAL LIABILITIES HELD FOR TRADING - ITEM 40

4.1 Financial liabilities held for trading: breakdown by category


NVFV

FV * NVFV

FV *Lev. 1 Lev. 2 Lev. 3 Lev. 1 Lev. 2 Lev. 2

A. Cash liabilities 1. Due to banks - - - - - - - - - -2. Due to customers - - - - - - - - - -3. Debt securities - - - - - - - - - -3.1 Bonds - - - - - - - - - -

3.1.1 Structured - - - - - - - - - -3.1.2 Other bonds - - - - - - - - - -

3.2 Other securities - - - - - - - - - -3.2.1 Structured - - - - - - - - - -3.2.2 Others - - - - - - - - - -

TOTAL A - - - - - - - - - B. Derivative instruments

1. Financial derivatives - - 21,721 - - - - 35,089 - -1.1 Trading - - 21,715 - - - - 35,080 - -1.2 Connected to the fair value option - - 6 - - - - 8 - -

1.3 Other - - - - - - - - - -2. Credit derivatives - - - - - - - - - -

2.1 Trading - - - - - - - - - -2.2 Connected to the fair value option - - - - - - - - - -

2.3 Other - - - - - - - - - -TOTAL B - - 21,721 - - - - 35,089 - -TOTAL (A+B) - - 21,721 - - - - 35,089 - -

KeyFV = fair value / FV* = fair value calculated excluding the changes in value due to change in credit quality of the issuer with respect to the date of issueNV = nominal or notional value

The amount under letter B point 1.1 refers to derivative contracts with negative value stipulated with known leading counterparties and CR-BCCs, for the ‘matched trading’ activity where Cassa Centrale Banca stipulates a derivative contract or a forward transaction with an institutional counterparty in relation to a mirrored derivative contract /forward transaction entered into with a CR-BCC or leading customers.The fair value of the derivative is not affected by the adjustment for counterparty risk (Debit Valuation Adjustment - DVA) since the bank has considered that, net of the positions for which there are collateralisation agreements, the value of the counterparty risk relative to the remaining positions, for which, in almost all cases, a specific bilateral

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agreement is in place between the parties for offsetting debit and credit positions, did not carry a significant risk. The overall value of the DVA calculated on the exposure of the offset positive balance is equal to EUR 60 thousand, against CVA (Credit Valuation Adjustment) calculated on the exposure which is offset with a negative balance and equal to EUR 217 thousand. 4.2 Details of item 40 ‘Financial liabilities held for trading’: subordinated liabilities At the date of the financial statements there are no subordinated financial liabilities held for trading.

4.3 Details of item 40 ‘Financial liabilities held for trading’: structured debtsAt the date of the financial statements there are no financial liabilities held for trading related to structured debts.

4.4 Cash financial liabilities (excluding ‘overdrafts’) held for trading: annual changes At the date of the financial statements there are no cash financial liabilities held for trading.

FINANCIAL LIABILITIES AT FAIR VALUE - ITEM 50

5.1 Financial liabilities at fair value: breakdown by category

Transaction type/Values

Total 2015 Total 2014

NVFV

FV* NVFV

FV*Lev. 1 Lev. 2 Lev. 3 Lev. 1 Lev. 2 Lev. 3

1. Due to banks - - - - - - - - - -1.1 Structured - - - - - - - - - -1.2 Other - - - - - - - - - -

2. Due to customers - - - - - - - - - -2.1 Structured - - - - - - - - - -2.2 Other - - - - - - - - - -

3. Debt securities 9,292 - 10,048 - - 9,292 - 10,083 - -3.1 Structured 6,000 - 6,954 - - 6,000 - 7,085 - -3.2 Other 3,292 - 3,094 - - 3,292 - 2,998 - -

TOTAL 9,292 - 10,048 - 10,048 9,292 - 10,083 - 10,083

It should be noted that the discounting of the cash flows of bonds classified under this item makes provision for the use of a curve representative of the credit rating of the bond issues by Italian Banks with a BBB rating.

5.2 Details of item 50 ‘Financial liabilities at fair value’: subordinated liabilities

At the date of the financial statements there are no financial liabilities at fair value represented by subordinated securities.

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HEDGING DERIVATIVES - ITEM 60

The Bank does not have hedging derivatives in place.As a consequence, this Section has not been filled in.

ADJUSTMENT OF THE FINANCIAL LIABILITIES SUBJECT TO MACRO-HEDGING - ITEM 70

The Bank has no financial liabilities subject to general hedging (macrohedging) in place against the interest rate risk.As a consequence, this Section has not been filled in.

TAX LIABILITIES - ITEM 80

For information on tax liabilities reference is made to Section 13 of the Assets.

LIABILITIES ASSOCIATED TO ASSETS HELD FOR DISPOSAL - ITEM 90

For information on associated liabilities held for disposal reference is made to Section 14 of the Assets.

OTHER LIABILITIES - ITEM 100

10.1 Other liabilities: breakdown

Total 2015 Total 2014Tax payables to tax authorities and other tax bodies for indirect taxes 10,455 8,235Temporary items Centralised Treasury management 788 296Wire transfers to be settled - 2,110Housing contributions Public Authorities 3,835 4,293Due to suppliers and expenses to be settled 9,917 7,126Collection on behalf of third parties and amounts available to customers or third parties 69,964 53,294

Payables for guarantees issued and commitments 1,716 1,109Due to employees 2,477 2,593Payables to Depositors’ Guarantee Fund 666 509Due to social security institutions and external pension funds 553 528Other work in progress 86,056 112,668Accrued expenses and deferred income not attributable to own items 412 286Intrinsic value of securities transactions and exchanges to be settled 27 867TOTAL 186,866 193,914

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EXPLANATORY NOTES

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This item includes the liabilities that are not attributable to other items in the liabilities of the Statement of financial position. Sub-item ‘Other work in progress’ refers mainly to the negative balance of electronic flows related to transactions not settled yet and that Cassa Centrale Banca sorts on the behalf of CR-BCCs towards the interbanking system and in the opposite direction.

PROVISION FOR SEVERANCE INDEMNITY - ITEM 110

11.1 Provision for severance indemnity: annual changes

Total 2015 Total 2014A. Opening balances 2,786 2,498B. Increases 39 339

B.1 Allocation for the year 39 78B.2 Other changes - 261

C. Decreases 468 51C.1 Payments made 330 51C.2 Other changes 138 -

D. Closing balances 2,357 2,786TOTAL 2,357 2,786

At the date of the financial statements, the Bank opted to book to Equity the actuarial profits or losses that occurred in the year, as required by the new version of IAS 19 set forth in the Regulation (EC) 475/2012. For more details please see the section ‘other aspects’ within ‘Part A – Accounting Policies.’Item D. ‘Closing balances’ of the provision recorded coincides with its actuarial value (Defined Benefit Obligation – DBO).The sub item B.1 ‘Allocation for the year’ includes the figurative financial expense (Interest Cost - IC) of EUR 39 thousand; the sub item C.2 ‘Other changes’ includes the actuarial gains equal to EUR 138 thousand.The amount under sub item B.1 is included in the income statement table ‘9.1 Personnel costs:breakdown’, sub-item e) ‘allocation to provision for employees’ severance indemnity’;the amount under sub-item C.2 refers to the ‘Valuation reserve: Actuarial Profits (Losses) on defined benefit plans’ (see the Statement of Comprehensive Income).In terms of operations, the application of the Project Unit Credit Method also required demographic and economic-financial hypotheses applied analytically to each employee. Estimating the charge according to IAS 19 was assigned to an independent and expert external firm. The portion accrued in the year was posted in the Income Statement under personnel expenses.The actuarial company used the following technical assumptions to define the aggregates:• annual discount rate: Iboxx Eurozone Corporate AA 2.03%;• annual inflation rate: 1.50% for 2016, 1.80% for 2017, 1.70% for 2018 and 1.60% for 2019, 2% from

2020 onwards;

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• annual rate of increase in provision for severance indemnity: 2.625% for 2016, 2.850% for 2017, 2.775%

for 2018, 2.700% for 2019 and 3.00% from 2020 onwards;

• annual increase in employee salaries: 1.00%;

• annual increase in manager salaries: 1.00%;

• annual increase in executive salaries: 2.50%;

• turnover rate 1.00%;

• frequency of advances 3.00%.

In particular:

• the annual discount rate used to determine the current value of the bond was determined in accordance with

par. 78 of IAS 19 with reference to the Iboxx Eurozone Corporate AA index with duration comparable to the

duration of the workers’ collective agreement subject to valuation.

In conclusion, we provide the sensitivity analyses on the Actuarial Value (Defined Benefit Obligation – DBO) for

the end of the period using:

• a discount rate of +0.25% and of -0.25% compared to the one applied:

• in the event of an increase by 0.25%, the TFR provision would equal EUR 2,301 thousand;

• in the event of a decrease by 0.25%, the TFR provision would equal EUR 2,414 thousand;

• an inflation rate of +0.25% and of -0.25% compared to the one applied:

• in the event of an increase by 0.25%, the TFR provision would equal EUR 2,392 thousand;

• in the event of a decrease by 0.25%, the TFR provision would equal EUR 2,322 thousand;

• a turnover rate of +1% and -1% compared to the one applied:

• in the event of an increase by 1%, the TFR provision would equal EUR 2,351 thousand;

• in the event of a decrease by 1%, the TFR provision would equal EUR 2,364 thousand.

11.2 Other information

Notwithstanding the indications above, the Provision for severance indemnity, calculated pursuant to art. 2120

of the Italian Civil Code, not allocated to external pension funds or to the INPS treasury fund, amounts to EUR

2,269 thousand and in the year changed as shown below:

Total 2015 Total 2014Opening provision 2,567 2,587Increases 99 101Decreases 397 120Closing provision 2,269 2,567

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PROVISIONS FOR RISKS AND CHARGES - ITEM 120

12.1 Provisions for risks and charges: breakdown

Items/Values Total 2015 Total 20141 Company pension funds - -2. Other provisions for risks and charges 5,683 926

2.1 legal disputes 1,176 -2.2 personnel expenses 211 2112.3 other 4,296 715

TOTAL 5,683 926

The content of item 2 ‘Other provisions for risks and charges’ is shown in point 12.4 below.

12.2 Provisions for risks and charges: annual changes

Pension funds Other funds Total

A. Opening balances - 926 926B. Increases - 5,082 5,082

B.1 Allocation for the year - 4,798 4,798B.2 Changes due to the passing of time - - -B.3 Changes due to modifications in the discount rate - - -B.4 Other changes - 284 284

C. Decreases - 325 325C.1 Use for the year - 325 325C.2 Changes due to modifications in the discount rate - - -C.3 Other changes - - -

D. Closing balances - 5,683 5,683

Sub-item B.1 ‘Allocation for the year’ includes the increase in future estimated debt related to both existing funds and funds established in the year.Sub-item B.4 ‘Other changes’ includes the portion of the profit of the previous year to be allocated to the charity fund.Sub-item C.1 ‘Use for the year’ includes in particular the decreases in the charity fund after using the specific allocations.

12.3 Defined benefit company pension funds The Bank did not post any funds of this type in the accounts.

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12.4 Provisions for risks and charges - other provisionsThe item ‘Other provisions for risks and charges’ consists of:

Personnel charges:• seniority/loyalty bonuses regarding the financial charge that the Bank must incur in future years in favour of the employees in relation to the seniority of service for EUR 211 thousand.

For the actuarial calculation method used, reference is made to the indications at the bottom of table no. 11.1 of the previous Section.

Legal disputes:• allocation of the provisions for expenses (EUR 1,176 thousand) that presumably will have to be incurred in future years for pending disputes, if they are lost, and for legal expenses.

Others:• charity fund, which originates from the Articles of Association (art. 28) for EUR 673 thousand;• provision for initiatives in favour of the regional BCCs amounting to EUR 125 thousand;• provision for expenses relating to the Deposits Guarantee System, amounting to EUR 87 thousand;• provision for potential requests for intervention on the part of the National Resolution Fund, amounting to EUR 3,411 thousand.

The valuations carried out lead to the conclusion that the settlement of the liabilities indicated may take place over the next twelve/eighteen months; consequently, no discounting of the expense connected to said liabilities was carried out since it was not considered to be significant.

Contingent liabilitiesNo contingent liabilities exist at year-end for which a financial disbursement is likely.

REPAYABLE SHARES – ITEM 140

The Bank has issued no repayable shares.

EQUITY - ITEMS 130, 150, 160, 170, 180, 190 AND 200

14.1 ‘Capital’ and ‘Ordinary shares’: breakdown The share capital of the Bank, equal to EUR 140,400,000, comprises 2,550,000 ordinary shares and 150,000 preference shares, both with a nominal value of EUR 52.There are no shares subscribed and not yet paid-up. There are no repurchased own shares.

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SECTION 14

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14.2 Capital - Number of shares: annual changes

Items/Types Ordinary OthersA. Shares at start of year 2,550,000 150,000

- fully paid-up 2,550,000 150,000- not fully paid-up - -

A.1 Own shares (-) - -A.2 Outstanding shares: opening balances 2,550,000 150,000

B. Increases - -B.1 New issues - -

- paid: - -- business combinations - -- conversion of bonds - -- exercise of warrants - -- other - -

- free of charge: - -- in favour of employees - -- in favour of directors - -- other - -

B.2 Sale of own shares - -B.3 Other changes - -

C. Decreases - -C.1 Cancellation - -C.2 Purchase of own shares - -C.3 Company transfers - -C.4 Other changes - -

D. Outstanding shares: closing balances 2,550,000 150,000D.1 Own shares (+) - -D.2 Shares at year-end 2,550,000 150,000

- fully paid-up 2,550,000 150,000- not fully paid-up - -

Unit values

The information refers to the number of shares traded during the year. 14.3 Capital: other informationA total of 72.64% of ordinary shares are held by Centrale Finanziaria del Nord Est S.p.A., 26.47% by DZ Bank AG and the remainder of 0.89% by CR-BCCs and cooperative consortia in the North East.A total of 89.33% of preference shares are held by the Autonomous Province of Trento and the remainder of 10.67% by other entities. 14.4 Profit reserves: other information The reserves amount to EUR 69,225 thousand and include: the legal reserve (EUR 23,368 thousand), the extraordinary reserve (EUR 36,295 thousand), the reserve pursuant to art. 6 of Italian Legislative Decree


196

38/2005 (EUR 78 thousand), the reserve according to Italian Legislative Decree 124/93 (EUR 18 thousand) as well as the reserve that incorporates the effect generated by the transition to the international accounting standards or subsequent additions (EUR 9,466 thousand).As a result of the provisions of the Articles of Association, at least 5% of the net income is allocated to the legal reserve while the remainder is available for distribution to the Shareholders and for the allocation of a portion of it to the Board of Directors for charity. As per paragraph 76, lett. b) of IAS 1, a description is provided of the nature and purpose of each reserve included in the Equity.

Legal reserveThe legal reserve is formed with an allocation of at least 5% of the net profits.The legal reserve also includes the portion of the residual net profits after the allocations established by law and the Articles of Association and resolved by the Shareholders’ meeting. In compliance with article 2427, no. 7-bis of the Italian Civil Code, a detailed breakdown of the Bank’s Equity is provided below, excluding the net income, with the origin and level of availability and distributability of the various items highlighted.

EXPLANATORY NOTES

197

Description Total 2015 Possibility of use

Uses made in 2015 and the three previous periods

to cover losses

for other reasons

Share capital 140,400

to cover losses and repay the

value of the shares

- -

Capital reserves:

Share premium reserve 4,350

to cover losses and repay the

premium paid

- -

Reserves (item 160 of liabilities in the Statement of financial position):

Legal reserve 23,368 to cover losses - not admitted as

it is unavailable

Other profit reserves 45,839 to cover losses - not admitted as

it is unavailable

Other reserves 18 to cover losses - not admitted as

it is unavailableValuation reserves (item 130 of liabilities in the Statement of financial position):

Monetary revaluation reserves 896 to cover losses - not admitted as

it is unavailableFirst time adoption valuation reserves: deemed cost - to cover

losses - not admitted as it is unavailable

Valuation reserve for financial instr. available for sale (AFS) 10,933 according to

IAS 39 - -

Cash flow hedge reserve - according to IAS 39 - -

Reserve from fair value valuation of real estate (IAS 16) - according to

IAS 39 - -

Reserve from actuarial gains/losses IAS 19 -297 according to

IAS/IFRS - -

TOTAL 225,507 - -


198

The ‘valuation reserve: financial assets available for sale’ can only be changed according to the provisions of IAS 39. It originates from the valuation of financial instruments and cannot be used to increase the share capital, for distribution to shareholders or to cover losses. Any negative change in this reserve can only take place due to the reduction in fair value, reversals to the Income Statement or the application of current or deferred taxes.

14.5 Equity instruments: breakdown and annual changesThere are no equity instruments other than the capital and reserves.

14.6 Other informationThere is no other information on equity instruments other than the capital and reserves.

1. Guarantees issued and commitments

Transactions Total 2015 Total 20141) Financial guarantees issued 42,143 32,725

a) Banks 4,126 4,078b) Customers 38,017 28,647

2) Commercial guarantees issued 46,524 35,276a) Banks 18,656 16,596b) Customers 27,868 18,680

3) Irrevocable commitments to disburse funds 11,771 346,176a) Banks - 327,861

i) certain use - 327,861ii) uncertain use - -

b) Customers 11,771 18,315i) certain use 3,034 12,530ii) uncertain use 8,737 5,785

4) Commitments underlying credit derivatives: protection sales - -5) Asset-backed third-party obligations - -6) Other commitments 600 600TOTAL 101,038 414,777

The commercial guarantees released include the credit commitments for personal guarantees securing specific commercial transactions or the successful fulfilment of contracts.Financial guarantees include the personal guarantees securing the regular fulfilment of the debt service by the ordering entity.Point 1.a) ‘Financial guarantees issued – Banks’ also includes the commitment to the Cooperative Credit Depositors’ Guarantee Fund, for EUR 1,040 thousand;

OTHER INFORMATION

EXPLANATORY NOTES

199

Point 3 ‘Irrevocable commitments to disburse funds’ also includes:a) customers - with certain use - purchases (spot and forward) of securities not yet settled for EUR 1,554 thousand; - deposits and loans to be disbursed on a pre-determined future date for EUR 56 thousand;b) customers - with uncertain use - margins usable on irrevocable credit facilities for EUR 8,737 thousand.

2. Asset-backed own liabilities and commitments

Portfolio Total 2015 Total 20141. Financial assets held for trading - -2. Financial assets at fair value - -3. Financial assets available for sale 627,780 -4. Held to maturity investments 475,191 65,2835. Loans to banks - -6. Loans to customers 5,287 5,5557. Tangible assets - -

Item 3 includes, in particular, the values of the securities relating to:• repurchase agreements with Cassa Compensazione e Garanzia for the entire amount.Item 4 includes the values of the securities relating to:• repurchase agreements with Cassa Compensazione e Garanzia for EUR 402,833 thousand;• issue of banker’s drafts for EUR 18,285 thousand;• operations related to the treasury pool of the Autonomous Province of Trento for EUR 18,571 thousand;• other totalling EUR 35,502 thousand.Item 6 includes the loans granted as guarantee of the Deposits and Loans Fund (CDP) as part of the agreement concluded between the latter and the Italian Banking Association (ABI) to support small and medium sized enterprises (SMEs). This agreement requires the CDP to provide a liquidity ‘limit’ to the SMEs through the banking system against the latter’s commitment to grant these loans as guarantees to the CDP. At 31 December 2015, the Bank had already returned the liquidity received to CDP.

3. Information on operating leasingOn the date of the financial statements the Bank has no operating leasing transactions in place.


200

4. Management and intermediation on behalf of third parties

Service type Total 20151. Execution of orders on behalf of customers 22,492

a) Purchases 8,6351. settled 8,6352. not settled -

b) Sales 13,8571. settled 13,5902. not settled 267

2. Portfolio management 3,495,473a) individual 3,495,473b) collective -

3. Custody and administration of securities 20,173,312a) third-party securities under custody: connected to the role as depositary bank

(excluding portfolio management) -

1. securities issued by the bank that prepares the financial statements -2. other securities -

b) third-party securities under custody (excluding portfolio management): other 17,095,1081. securities issued by the bank that prepares the financial statements 152,5752. other securities 16,942,533

c) third-party securities deposited with third parties 16,954,462d) own securities deposited with third parties 3,078,204

4. Other transactions -

Credit collection on behalf of third parties: debit and credit adjustments

Total 2015 Total 2014a) Debit adjustments 1,814,304 1,794,164

1. current accounts 1,024,364 1,034,9942. central portfolio 789,231 758,3793. cash 709 7914. other accounts - -

b) Credit adjustments 1,796,946 1,774,0431. current accounts 857,305 842,1432. sellers’ bills and documents 939,641 931,9003. other accounts - -

The table shows the differences deriving from the spreads between the economic value dates applied to the different accounts, generated when eliminating from the accounts the entries regarding the amounts credited or debited to the portfolio subject to collection and after collection, for which the settlement date is after the year-end.The difference between ‘debit and credit adjustments’ of EUR 17,358 thousand is posted under ‘Other assets’ – item 150 of the Assets.

EXPLANATORY NOTES

201

5. Financial assets which are offset or subject to framework set-off agreements or similar agreements

Technical forms

Gro

ss a

mou

nt o

f fina

ncia

l as

sets

(a)

Am

ount

of fi

nanc

ial

liabi

litie

s of

fset i

n th

e fin

anci

al s

tate

men

ts (b

)

Net

am

ount

of fi

nanc

ial

asse

ts re

porte

d in

the

finan

cial

sta

tem

ents

(c=a

-b) Correlated amount

not offset in the financial statements

Net

am

ount

- De

cem

ber

2015

(f=c

-d-e

)

Net

am

ount

- De

cem

ber

2014

Fina

ncia

l in

strum

ents

(d)

Cas

h de

posit

s re

ceiv

ed a

s gu

aran

tee

(e)

1. Derivatives 7,804 - 7,804 - - 7,804 9,4362. Portfolio management - - - - - - -3. Custody and

administration of securities - - - - - - -

4. Other transactions - - - - - - -TOTAL 2015 7,804 - 7,804 - - 7,804 -TOTAL 2014 9,436 - 9,436 - - - 9,436

6. Financial liabilities which are offset or subject to framework set-off agreements or similar agreements

Technical forms

Gro

ss a

mou

nt o

f fina

ncia

l lia

bilit

ies

(a)

Am

ount

of fi

nanc

ial a

sset

s of

fset i

n th

e fin

anci

al

state

men

ts (b

)

Net

am

ount

of fi

nanc

ial

liabi

litie

s re

porte

d in

the

finan

cial

sta

tem

ents

(c=a

-b) Correlated amount

not offset in the financial statements

Net

am

ount

- De

cem

ber

2015

(f=c

-d-e

)

Net

am

ount

- De

cem

ber

2014

Fina

ncia

l in

strum

ents

(d)

Cas

h de

posit

s re

ceiv

ed a

s gu

aran

tee

(e)

1. Derivatives 11,314 - 11,314 - - 11,314 21,6242. Portfolio management - - - - - - -3. Custody and

administration of securities - - - - - - -

4. Other transactions - - - - - - -TOTAL 2015 11,314 - 11,314 - - 11,314 -TOTAL 2014 21,624 - 21,624 - - - 21,624

7. Securities lending transactionsThere are no securities lending transactions in place at the close of the year.

8. Information on joint operation activitiesThere are no ‘joint operations’ in place at year-end.


202

Section 1 Interest Items 10 and 20

Section 2 Commissions Items 40 and 50

Section 3 Dividend and similar income Item 70

Section 4 Net result from trading Item 80

Section 5 Net result from hedging activities Item 90

Section 6 Profit (loss) from disposal/repurchase Item 100

Section 7 Net result on financial assets and liabilities at fair value Item 110

Section 8 Net value adjustments/write‑backs due to impairment Item 130

Section 9 Administrative expenses Item 150

Section 10 Net allocations to provisions for risks and charges Item 160

Section 11 Net value adjustments/write‑backs to tangible assets Item 170

Section 12 Net value adjustments/write‑backs to intangible assets Item 180

Section 13 Other operating income/charges Item 190

Section 14 Profits (losses) on equity investments Item 210

Section 15 Net result of fair value measurement of tangible and intangible assets Item 220

Section 16 Adjustments to goodwill Item 230

Section 17 Profit (loss) from disposal of investments Item 240

Section 18 Income taxes for the year on current operating activities Item 260

Section 19 Profit (loss) on groups of assets held for sale, net of taxes Item 280

Section 20 Other information

Section 21 Earnings per share

PART C INFORMATION ON THE INCOME STATEMENT

EXPLANATORY NOTES

203

INTEREST ‑ ITEMS 10 AND 20

1.1 Interest income and similar revenues: breakdown

Items/Technical forms Debt securities Loans Other

assets Total 2015

Total 2014

1. Financial assets held for trading ‑ ‑ ‑ ‑ ‑2. Financial assets available for sale 14,971 ‑ ‑ 14,971 34,0713. Held to maturity investments 13,397 ‑ ‑ 13,397 14,7654. Loans to banks 894 2,416 ‑ 3,310 12,9115. Loans to customers 119 13,314 ‑ 13,433 18,3186. Financial assets at fair value 156 1 ‑ 157 1497. Hedging derivatives ‑ ‑ ‑ ‑ ‑8. Other assets ‑ ‑ 11 11 7TOTAL 29,537 15,731 11 45,279 80,221

Details of item 5, ‘Loans to customers’, column ‘Loans’:• current accounts totalling EUR 624 thousand;• loans totalling EUR 10,776 thousand;• advances subject to collection totalling EUR 62 thousand;• other financing totalling EUR 1,728 thousand;• non‑performing loans (interest collected) totalling EUR 380 thousand;• repos (coupon and price differential) totalling EUR ‑ 256 thousand.The interest outlined above includes interest income and similar revenues which accrued in the year and relative to impaired positions on the date of reference of the financial statements, totalling EUR 2,063 thousand.

1.2 Interest income and similar revenues: differentials relative to hedging transactions The Bank does not own hedging derivatives and, as a result, the relative table is not filled out.

SECTION 1


204

1.3 Interest income and similar revenues: other information

1.3.1 Interest income from financial assets in foreign currency

Items/Values Total 2015 Total 2014Interest income and similar revenues from financial assets in foreign currency 414 325

1.3.2 Interest income from finance lease operations The Bank is not a party to active finance lease operations.

1.4 Interest expenses and similar charges paid: breakdown

Items / Technical forms Payables Securities Other transactions

Total 2015

Total 2014

1. Due to central banks (1,552) ‑ ‑ (1,552) (8,083)2. Due to banks (17,785) ‑ ‑ (17,785) (34,391)3. Due to customers (3,456) ‑ ‑ (3,456) (3,502)4. Debt securities in issue ‑ (379) ‑ (379) (11,348)5. Financial liabilities held for trading ‑ ‑ (2) (2) (2)6. Financial liabilities at fair value ‑ (462) ‑ (462) (451)7. Other liabilities and provisions ‑ ‑ ‑ ‑ ‑8. Hedging derivatives ‑ ‑ ‑ ‑ ‑TOTAL (22,793) (841) (2) (23,636) (57,777)

The item ‘Securities’ of sub‑item 4 ‘Debt securities in issue’ and 6 ‘Financial liabilities at fair value’ include the interest on the bonds issued.

1.5 Interest expenses and similar charges paid: differentials relative to hedging transactions The Bank did not enter into ‘hedging derivatives’ during the course of the year and, as a result, the relative table is not filled out.

1.6 Interest expenses and similar charges paid: other information

1.6.1 Interest expenses from liabilities in foreign currency

Items/Values Total 2015 Total 2014Interest expenses and similar charges paid from liabilities in foreign currency (427) (396)

EXPLANATORY NOTES

205

1.6.2 Interest expenses on liabilities for finance lease operations The Bank did not implement these operations.

COMMISSIONS ‑ ITEMS 40 AND 50

2.1 Commission income: breakdown

Type of services/values Total 2015 Total 2014a) guarantees issued 233 289b) credit derivatives ‑ ‑c) management, trading and consulting services: 35,775 22,635

1. trading of financial instruments 19 112. foreign currency trading 16 603. portfolio management 27,136 14,300

3.1. individual 27,136 14,3003.2. collective ‑ ‑

4. custody and administration of securities 1,290 8755. custodian bank ‑ ‑6. placement of securities 1,487 2,2057. income from order receipt and transmission 5,170 4,6408. consulting 87 75

8.1. pertaining to investments 87 758.2. pertaining to financial structures ‑ ‑

9. distribution of third party services 570 4699.1. portfolio management ‑ ‑

9.1.1. individual ‑ ‑9.1.2. collective ‑ ‑

9.2. insurance products 22 219.3. other products 548 448

d) collection and payment services 32,132 30,676e) servicing activities for securitisation operations ‑ ‑f) services for factoring operations ‑ ‑g) collection and receiving operations ‑ ‑h) Activities for the management of multilateral trading systems ‑ ‑i) management of current accounts 138 172j) other services 9,625 8,529k) securities lending transactions ‑ ‑TOTAL 77,903 62,301

The amount relative to sub‑item j) ‘Other services’ is composed, in particular, of commissions from payment intermediation services connected to participation in UCITS, centralised securities database, the supply of financial information, Asset Liability Management, Value at Risk, valuation of prices of non‑listed securities, and other residual services.

SECTION 2


206

2.2 Commission income: distribution channels of products and services

Channels/values Total 2015 Total 2014a) within its own counters: 29,193 16,974

1. portfolio management 27,136 14,3002. placement of securities 1,487 2,2053. third party services and products 570 469

b) offers outside the branch: ‑ ‑1. portfolio management ‑ ‑2. placement of securities ‑ ‑3. third party services and products ‑ ‑

c) other distribution channels: ‑ ‑1. portfolio management ‑ ‑2. placement of securities ‑ ‑3. third party services and products ‑ ‑

2.3 Commission expense: breakdown

Services/values Total 2015 Total 2014a) guarantees received (12) (473)b) credit derivatives ‑ ‑c) management and trading services: (21,549) (12,839)

1. trading of financial instruments (1,239) (956)2. foreign currency trading ‑ ‑3. portfolio management: (19,024) (9,701)

3.1. own portfolios (18,880) (9,613)3.2. delegated from third parties (144) (88)

4. custody and administration of securities (624) (638)5. placement of financial instruments (662) (1,544)6. out‑of‑branch offer of financial instruments, products and services ‑ ‑

d) collection and payment services (18,072) (17,184)e) other services (948) (1,413)TOTAL (40,581) (31,909)

The amount relative to sub‑item e) ‘Other services’ is composed, to a large extent, of commissions for retrocessions to CR‑BCCs relative to lending operations.

EXPLANATORY NOTES

207

DIVIDEND AND SIMILAR INCOME ‑ ITEM 70

3.1 Dividend and similar income: breakdown

Items/Income Total 2015 Total 2014

Dividends Income from UCITS units Dividends Income from

UCITS unitsA. Financial assets held for trading 60 ‑ 54 ‑B. Financial assets available for sale 584 ‑ 125 ‑C. Financial assets at fair value ‑ ‑ ‑ ‑D. Equity investments 617 ‑ 217 ‑ TOTAL 1,261 ‑ 396 ‑

Item D. ‘Equity investments’ includes the dividends relative to controlling interests and shareholdings in associated companies valuated at cost.

SECTION 3


208

NET RESULT FROM TRADING ‑ ITEM 80

4.1 Net result from trading: breakdown

Transactions / Income components

Capital gains (A)

Trading profits (B)

Capital losses (C)

Trading losses (D)

Net result [(A+B) ‑ (C+D)]

1. Financial assets held for trading 223 500 (215) (49) 459

1.1 Debt securities ‑ 145 ‑ ‑ 1451.2 Equities 223 355 (215) (49) 3141.3 UCITS units ‑ ‑ ‑ ‑ ‑1.4 Loans ‑ ‑ ‑ ‑ ‑1.5 Other ‑ ‑ ‑ ‑ ‑

2. Financial liabilities held for trading ‑ ‑ ‑ ‑ ‑

2.1 Debt securities ‑ ‑ ‑ ‑ ‑2.2 Payables ‑ ‑ ‑ ‑ ‑2.3 Other ‑ ‑ ‑ ‑ ‑

3. Other financial assets and liabilities: exchange rate differences

‑ ‑ ‑ ‑ 1,472

4. Derivative instruments 14,017 11,361 (13,953) (11,224) (148)4.1 Financial derivatives: 14,017 11,361 (13,953) (11,224) (148)

‑ On debt securities and interest rates 14,017 11,361 (13,953) (11,224) 201

‑ On equities and stock market indices ‑ ‑ ‑ ‑ ‑

‑ On currencies and gold ‑ ‑ ‑ ‑ (349)

‑ Other ‑ ‑ ‑ ‑ ‑4.2 Credit derivatives ‑ ‑ ‑ ‑ ‑

TOTAL 14,240 11,861 (14,168) (11,273) 1,783

Trading profits (losses) and capital gains (losses) from valuations are reported with balances opened by type of financial instrument.The ‘net result’ from ‘other financial assets and liabilities: exchange rate differences’ reports the positive or negative balance from changes in value of financial assets and liabilities denominated in foreign currencies; they include profits and losses from currency trading. ‘Capital gains’, ‘Capital losses’ and ‘Trading gains and losses’ from derivative instruments also include potential exchange rate differences.

SECTION 4

EXPLANATORY NOTES

209

NET RESULT FROM HEDGING ACTIVITIES ‑ ITEM 90

The Bank did not have hedging derivatives during the course of the year.

PROFIT (LOSS) FROM DISPOSAL/REPURCHASE ‑ ITEM 100

6.1 Profit (loss) from disposal/repurchase: breakdown

Items / Income components Total 2015 Total 2014

Profit Loss Net result Profit Loss Net resultFinancial assets

1. Loans to banks 8 (1) 7 62 ‑ 622. Loans to customers 1,639 (172) 1,467 319 (1,220) (901)3. Financial assets available for sale 36,865 (6) 36,859 42,923 (36) 42,887

3.1 Debt securities 32,166 ‑ 32,166 41,503 ‑ 41,5033.2 Equities 9 ‑ 9 ‑ ‑ ‑3.3 UCITS units 4,690 (6) 4,684 1,420 (36) 1,3843.4 Loans ‑ ‑ ‑ ‑ ‑ ‑

4. Held to maturity investments ‑ ‑ ‑ ‑ ‑ ‑

TOTAL ASSETS 38,512 (179) 38,333 43,304 (1,255) 42,048Financial liabilities

1. Due to banks ‑ ‑ ‑ ‑ ‑ ‑2. Due to customers ‑ ‑ ‑ ‑ ‑ ‑3. Debt securities in issue ‑ ‑ ‑ ‑ (1) (1)

TOTAL LIABILITIES ‑ ‑ ‑ ‑ (1) (1)

The table reports the economic result deriving from the sale of financial assets other than those held for trading and those at fair value, as well as the result derived from the repurchase of the company’s own financial liabilities.In particular:• the amount of EUR 7 thousand specified in line 1 represents the net income relative to the transfer of L&R bond securities of banks;

• the amount of EUR 1,467 thousand specified in line 2 refers to the net gain resulting from the disposal of a portfolio of non‑performing loans;

• the amount of EUR 36,860 thousand specified in line 3.1 represents the net income relative to the transfer of bond securities (in particular, Italian government bonds C.T.Z., B.T.P., B.O.T.);

• the amount of EUR 4,684 thousand specified in line 3.3 represents the net income relative to the transfer of NEF fund shares.

With regard to financial liabilities, international accounting standards require that the buyback of a company’s financial liabilities must be reported within the financial statements in a manner which gives precedence to

SECTION 5

SECTION 6


210

substance over form and, as a result, in relation to an actual advance redemption with a value cancellation or impairment for the financial instrument and the consequent realisation of gains or losses.

NET RESULT ON FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE ‑ ITEM 110

7.1 Net change in the value of financial assets and liabilities at fair value: breakdown

Capital gains (A)

Profit on sale (B)

Capital losses (C)

Loss on sale (D)

Net result [(A+B) ‑ (C+D)]

1. Financial assets ‑ ‑ (68) ‑ (68)1.1 Debt securities ‑ ‑ (64) ‑ (64)1.2 Equities ‑ ‑ ‑ ‑ ‑1.3 UCITS units ‑ ‑ ‑ ‑ ‑1.4 Loans ‑ ‑ (4) ‑ (4)

2. Financial liabilities 197 ‑ ‑ ‑ 1972.1 Debt securities 197 ‑ ‑ ‑ 1972.2 Due to banks ‑ ‑ ‑ ‑ ‑2.3 Due to customers ‑ ‑ ‑ ‑ ‑

3. Financial assets and liabilities denominated in foreign currency: exchange rate differences

‑ ‑ ‑ ‑ ‑

4. Credit and financial derivatives 2 ‑ ‑ ‑ 2

TOTAL 199 ‑ (68) ‑ 131

Trading profits (losses) and capital gains (losses) from valuations are reported with balances opened by type of financial instrument.This item includes capital gains and losses that are derived from the fair value measurement of financial assets/liabilities that are classified in the portfolio under item 30 of Assets and Item 50 of Liabilities.In particular:the amount of EUR (64) thousand under line 1.1, under the column ‘capital losses’, represents the valuation of the CR‑BCC bonds which are related to bonds with similar characteristics and values issued by the Bank which, instead, show a capital gain of EUR 66 thousand. This capital loss is shown in line 2.1 together with another capital gain of EUR 130 thousand recorded on a bank‑issued bond security at variable rate and expiring in 2019.

SECTION 7

EXPLANATORY NOTES

211

NET VALUE ADJUSTMENTS/WRITE‑BACKS DUE TO IMPAIRMENT ‑ ITEM 130

8.1 Net adjustments for impairment of loans: breakdown

Transactions/Income components

Adjustments (1) Value write‑backs (2)Total

2015Total

2014Specific

Of p

ortfo

lio

Specific Of portfolio

Can

cella

tions

Oth

ers

Inte

rest

Oth

er

re‑in

state

men

ts

Inte

rest

Oth

er

re‑in

state

men

ts

(3) = (1)‑(2)

(3) = (1)‑(2)

A. Loans to banks ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ (170)‑ loans ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑‑ debt securities ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ (170)

B. Loans to customers (144) (65,671) (1,413) 10,191 31,679 ‑ ‑ (25,360) (34,061)

Impaired loans acquired ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑

‑ loans ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑‑ debt securities ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑Other loans (144) (65,671) (1,413) 10,191 31,679 ‑ ‑ (25,360) (34,061)‑ loans (144) (65,671) (1,413) 10,191 31,679 ‑ ‑ (25,360) (34,061)‑ debt securities ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑

C. TOTAL (144) (65,671) (1,413) 10,191 31,679 ‑ ‑ (25,360) (34,231)

Value write‑backs include write‑backs from collection equal to EUR 1,806 thousand.Adjustments within the column ‘Specific – Other’ refer to analytical debt write‑off while those reported in the column ‘Specific – Cancellations’ are derived from redemption events. In fact, due to the continuation of the economic crisis, even the Bank of Italy has requested that the banking system apply overall adjustments on financial assets that are consistent with the current and forecast developments of risk in assets. In addition, the presence of guarantees collected by the CR‑BCCs ‑ as a guarantee of exposure ‑ allows for additional guarantees for the recoverability of receivables. It can thereby be confirmed that the policy of write‑downs and loans provisions adopted by Cassa Centrale Banca was very prudent. The adjustments, in the column ‘Of portfolio’ correspond to the write‑downs of performing positions.Value write‑backs within the column ‘Specific – Interest’ refer to value write‑backs corresponding to interest which accrued during the year on the basis of the original effective interest rate that was previously utilised to calculate adjustments.For more detailed information pertaining to movements in net adjustments on receivables, refer to Part E of these Explanatory Notes.

SECTION 8


212

8.2 Net adjustments for impairment of financial assets available for sale: breakdown

Adjustments (1) Value write‑backs (2)

Total 2015 Total 2014Specific SpecificC

ance

llatio

ns

Oth

ers

Inte

rest

Oth

er

re‑in

state

men

ts

(3) =(1)‑(2)

(3) =(1)‑(2)

A. Debt securities ‑ ‑ ‑ ‑ ‑ ‑B. Investment securities ‑ (837) ‑ ‑ (837) (98)C. UCITS units ‑ (653) ‑ ‑ (653) (90)D. Financing to banks ‑ ‑ ‑ ‑ ‑ ‑E. Financing to customers ‑ ‑ ‑ ‑ ‑ ‑F. TOTAL ‑ (1,490) ‑ ‑ (1,490) (188)

Adjustments relating to the column “Other”, item B. “Investment securities” recognised on the basis of forecasts pursuant to IAS 39, paragraph 61, refer to the write‑down of the shareholding held in the company Copersviluppo S.p.A. (EUR 750 thousand), Tempo Libero Folgaria S.r.l. (EUR 73 thousand) and Essedì S.p.A. (EUR 14 thousand).Adjustments relating to the column “Other”, item C. “UCITS units” recognised on the basis of forecasts pursuant to IAS 39, paragraph 59, refer to value impairment of the units of the closed‑end real estate investment fund Clesio (EUR 149 thousand) and of the equity fund Nef EE.ME.A. (EUR 504 thousand).Net adjustments for impairment of financial assets available for sale are derived from the application of the criteria described in Part A of these Explanatory Notes.

8.3 Net adjustments for impairment of held to maturity investments: breakdown The Bank has not made any adjustments due to the impairment of held to maturity investments.

EXPLANATORY NOTES

213

8.4 Net adjustments due to impairment of other financial transactions: breakdown

Transactions/Income components

Adjustments (1) Value write‑backs (2)Total 2015

Total 2014

Specific

Of p

ortfo

lio

Specific Of portfolioC

ance

llatio

ns

Oth

ers

Inte

rest

Oth

er

re‑in

state

men

ts

Inte

rest

Oth

er

re‑in

state

men

ts

(3) = (1)‑(2)

(3) = (1)‑(2)

A. Guarantees issued (422) (370) (607) ‑ ‑ ‑ ‑ (1,399) (483)B. Credit derivatives ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑C. Commitments to disburse funds ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑

D. Other transactions ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑E. TOTAL (422) (370) (607) ‑ ‑ ‑ ‑ (1,399) (483)

ADMINISTRATIVE EXPENSES – ITEM 150

9.1 Personnel expenses: breakdown

Types of expenses/values Total 2015 Total 20141) Employees (15,180) (15,023)

a) salaries and wages (10,470) (10,301)b) social security charges (2,826) (2,656)c) severance indemnity (655) (650)d) social security expenses ‑ ‑e) provision for employees’ severance indemnity (96) (134)f) allocation to retirement and similar obligations: ‑ ‑

‑ with defined contribution ‑ ‑‑ with defined benefit ‑ ‑

g) payments to external supplementary pension funds: (482) (478)‑ with defined contribution (482) (478)‑ with defined benefit ‑ ‑

h) costs deriving from payment agreements based on own equity instruments ‑ ‑i) other benefits in favour of employees (651) (804)

2) Other operating personnel (5) (104)3) Directors and Auditors (476) (477)4) Personnel expenses for retirement ‑ ‑5) Recovery of expenses for employees seconded to other companies 191 1836) Reimbursement of expenses for third party employees seconded to the company (74) (98)

TOTAL (15,544) (15,519)

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214

The sub‑item ‘c) severance indemnity’ includes the sums allocated to the INPS treasury fund (EUR 13 thousand), in compliance with the provisions introduced by the social security reform pursuant to Italian Legislative Decree 252/2005 and Italian Law no. 296/2006, plus the accrued T.F.R. paid into the Supplementary Pension Plan of EUR 642 thousand.Sub‑item e) ‘Provision for severance indemnity ‑ Employees’ is composed as follows:• figurative financial charge (Interest Cost – IC) totalling EUR 8 thousand;• allocation to TFR net of liquidations of EUR 88 thousand.Sub item g) includes the portions contributed by the Bank into the supplementary pension fund of EUR 482 thousand.Item 2) ‘Other operating personnel’ includes participation indemnities paid to trainees during the year, i.e. EUR 5 thousand.Item 3) ‘Directors and auditors’ includes compensation for directors, including social security charges for the company and expense reimbursement totalling EUR 302 thousand as well as compensation for the Board of Statutory Auditors totalling EUR 174 thousand.

9.2 Average number of employees by sector

Total 2015 Total 2014Employees: 202 197

a) executives 6 6b) total mid‑level managers 65 59c) remaining employees 131 132

Other personnel 18 20Amount

The average number is calculated as the weighted average of employees where the weight is given by the number of months worked per year.The value of “Other personnel” includes the Directors (15) and the Auditors (3).

9.3 Company pension funds with defined benefits: total costs The bank did not book ‑ on the date of the financial statements ‑ funds of this type given that the contributions which were due on the basis of company agreements were paid to an external fund.

9.4 Other benefits in favour of employees

Total 2015 Total 2014Miscellaneous expenses for personnel: allocation of loyalty bonus ‑ (89)Miscellaneous expenses for personnel: injury insurance (203) (193)Miscellaneous expenses for personnel: training expenses (165) (204)Miscellaneous expenses for personnel: meal voucher expenses (224) (219)Miscellaneous expenses for personnel: other benefits (59) (99)Other benefits in favour of employees (651) (804)

EXPLANATORY NOTES

215

9.5 Other administrative expenses: breakdown

Total 2015

Total 2014

IT expenses (6,390) (6,287)Financial information (2,242) (2,034)Data processing (3,350) (3,405)Hardware and software maintenance (798) (849)Expenses for real estate properties and furnishings (1,054) (831)Maintenance (369) (181)Real estate property rentals (96) (97)Other rentals (99) (102)Cleaning (126) (128)Security (60) (26)Premiums for fire and theft insurance (273) (272)Other insurance premiums (31) (25)Expenses for professional services (2,035) (2,055)Professional services (1,804) (1,795)Certifications and ratings (231) (260)Expenses for the purchase of goods and services (1,336) (1,305)Stationery (338) (314)Telephone, postage and transport (744) (699)Utilities and heating (254) (292)Advertising, promotional and entertainment expenses (861) (704)Advertising & promotional expenses (418) (550)Entertainment expenses (443) (154)Association contributions (812) (928)Contributions to the National Resolution Fund and to the Deposit Guarantee System (13,732) ‑Other administrative expenses (1,726) (1,513)Indirect taxes and duties (5,746) (3,557)TOTAL OTHER ADMINISTRATIVE EXPENSES (33,692) (17,180)

The significant increase in ‘Other administrative expenses’ is also due to the ordinary and extraordinary contributions, paid to the National Resolution Fund per the subsequent notes, to the increase in indirect taxes as a result of the stamp duty accrued on the securities portfolio, as a result of the increased volumes, to which, however, corresponds a similar increase in the income per item 190. ‘Other operating charges/income’ for the recovery carried out with customers.

Contributions to the National Resolution Fund and to the Deposit Guarantee SystemThe BRRD (Bank Recovery and Resolution Directive ‑ 2014/59/EU) defines the new resolution rules to be applied from 1 January 2015 to all European Union banks. The measures of the BRRD shall be financed by the National Resolution Fund, which each of the 28 member States shall establish. The funds shall be paid in advance until reaching, no later than 31 December 2024, a minimum target level, amounting to 1% of the guaranteed


216

deposits. An ex‑post extraordinary contribution is also provided if the available financial means are not sufficient to finance the resolution, to the maximum measure of three times the annual amount of ordinary contributions. The Single Resolution Mechanism Regulation ‑ 2014/806/EU, which entered into force on 1 January 2016, also prescribes the establishment of the Single Resolution Fund ‑ SRF, which shall be managed by the new European Single Resolution Board‑SRB.Italian Legislative Decree no. 180 of 16 November 2015, transposing the BRRD into Italian law, prescribes the obligation to establish one or more national resolution funds starting in 2015. The Bank of Italy, in its capacity as the national resolution authority, therefore established, for 2015, the National Resolution Fund, with its Measure no. 1226609/15 of 18 November 2015.The annual contributions of each intermediary were determined according to the amount of the liabilities net of the Regulatory capital, of the protected deposits and, for banks belonging to groups, of intercompany liabilities. The contribution base was adjusted in view of the intermediaries’ risk profile.The correction for risk can determine a discount (up to 20%) or a penalty (up to 50%) to be applied to the basic contribution. Based on this logic, the Bank was required to pay the annual contributions for a total amount of EUR 3.4 million.Italian Law Decree no. 183 of 23 November 2015 applied, starting from 23 November 2015, the resolution instrument of the ‘bridge bank’ provided by the BRRD to Banca delle Marche S.p.A., Banca Popolare dell’Etruria e del Lazio S.c.p.A., Cassa di Risparmio della provincia di Chieti S.p.A. and Cassa di Risparmio di Ferrara S.p.A.. Taking into account the need to immediately call upon the resources of the Fund within the Programme for the resolution of the crises of the aforementioned Banks, it became necessary to collect the extraordinary contribution, as provided by Article 83 of the aforementioned Italian Legislative Decree no. 180/2015 and by Article 4 of Measure no. 1226609/15 establishing the Fund. Considering the aforesaid need to intervene, the extraordinary contribution were called up in an amount equal to three annuities of the ordinary contribution, for an amount of EUR 10.2 million for the Bank.The Deposit Guarantee Schemes, or DGS, Directive 2014/49/EU is directed at strengthening the protection of depositors and to harmonise the regulatory framework at the EU level. The new directive imposes on all member States the obligation to adopt an ex‑ante financing system, whose target level is set to 0.8% of the guaranteed deposits, to be reached in 10 years. The Bank expensed the as yet unpaid charge (EUR 87 thousand), incurred in 2015 on the basis of the provisions set by Directive 2014/49/EU.

In accordance with the provisions pursuant to Article 2427 of the Italian Civil Code, paragraph 16 bis, the compensation ‑ net of VAT and expenses ‑ which is due to the independent auditors as well as other companies of the KPMG Network ‑ for services performed during the course of 2015 ‑ are reported below:

Legal audit 54Certification services 67

EXPLANATORY NOTES

217

NET ALLOCATIONS TO PROVISIONS FOR RISKS AND CHARGES ‑ ITEM 160

10.1 Net allocations to provisions for risks and charges: breakdown

Legal disputes Revocation actions Others Total

2015Total

2014A. Increases 1,176 ‑ (3,536) (4,712) (150)

A.1 Allocations for the year 1,176 ‑ (3,536) (4,712) (150)A.2 Changes due to the passing of time ‑ ‑ ‑ ‑ ‑

A.3 Changes due to modifications in the discount rate ‑ ‑ ‑ ‑ ‑

A.4 Other increases ‑ ‑ ‑ ‑ ‑B. Decreases ‑ ‑ ‑ ‑ ‑

B.1 Changes due to modifications in the discount rate ‑ ‑ ‑ ‑ ‑

B.2 Other decreases ‑ ‑ ‑ ‑ ‑NET ALLOCATION (1,176) ‑ (3,536) (4,712) (150)

The amount reported in line A.1 ‘Allocations for the year’, column ‘Others’ refers to allocation made respectively in relation to certain operations in favour of regional BCCs (EUR 125 thousand) and in connection with potential additional requests by the National Resolution Fund for the operations carried out in the current year (EUR 3,411 thousand).

NET VALUE ADJUSTMENTS/WRITE‑BACKS FOR TANGIBLE ASSETS ‑ ITEM 170

11.1 Net adjustments for tangible assets: breakdown

Asset/income components Amortisation (a) Adjustments for impairment (b)

Value write‑backs

(c)

Net result (a + b ‑ c)

A. Tangible assets A.1 Owned (1,266) ‑ ‑ (1,266)

‑ For functional use (1,266) ‑ ‑ (1,266)‑ For investment ‑ ‑ ‑ ‑

A.2 Acquired under financial lease ‑ ‑ ‑ ‑‑ For functional use ‑ ‑ ‑ ‑‑ For investment ‑ ‑ ‑ ‑

TOTAL (1,266) ‑ ‑ (1,266)

As at the date of the financial statements, there were no assets being disposed of, in accordance with IFRS 5.

SECTION 10

SECTION 11


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NET VALUE ADJUSTMENTS/WRITE‑BACKS FOR INTANGIBLE ASSETS ‑ ITEM 180

12.1 Net adjustments for intangible assets: breakdown

Asset/income components Amortisation (a)

Adjustments for impairment (b)

Value write‑backs

(c)

Net result (a + b ‑ c)

A. Intangible assets A.1 Owned (224) ‑ ‑ (224)

‑ Generated internally by the company ‑ ‑ ‑ ‑‑ Other (224) ‑ ‑ (224)

A.2 Acquired under financial lease ‑ ‑ ‑ ‑TOTAL (224) ‑ ‑ (224)

Adjustments, which refer entirely to amortisation, concern intangible assets with a defined useful life that are acquired externally.Intangible assets are more effectively described in Section 12 of Assets of the Statement of financial position within the Explanatory Notes.

OTHER OPERATING INCOME/CHARGES ‑ ITEM 190

13.1 Other operating charges: breakdown

Income components/Values Total 2015 Total 2014Non‑existent items and contingencies not ascribable to own items (221) (740)TOTAL (221) (740)

13.2 Other operating income: breakdown

Total 2015 Total 2014Recovery of taxes and indirect duties 5,138 3,100Debits charged to third parties on deposits and bank accounts ‑ 3Other receivable rents 87 98Non‑existent items and contingencies not ascribable to own items 137 165Other operating income 598 370TOTAL 5,960 3,736

Tax recoveries are ascribable to stamp duties on current accounts, savings accounts and financial products totalling EUR 4,996 thousand as well as substitute taxes on medium‑long term financing totalling EUR 142 thousand.

SECTION 12

SECTION 13

EXPLANATORY NOTES

219

PROFITS (LOSSES) ON EQUITY INVESTMENTS ‑ ITEM 210

This section reports the balance between proceeds and shares relative to equity investments in subsidiaries, joint ventures and firms subject to significant influence.

14.1 Profits (losses) on equity investments: breakdown

Income components/Values Total 2015 Total 2014A. Income ‑ ‑

1. Revaluations ‑ ‑2. Net income from transfers ‑ ‑3. Value write‑backs ‑ ‑4. Other proceeds ‑ ‑

B. Charges (393) ‑1. Write‑downs ‑ ‑2. Adjustments for impairment (393) ‑3. Losses from transfers ‑ ‑4. Other charges ‑ ‑

NET RESULT (393) ‑

Sub‑item B.2 comprises the impairment applied on the subsidiary Centrale Leasing Nord Est S.p.A. in view of the negative liquidation result.

NET RESULT OF FAIR VALUE MEASUREMENT OF TANGIBLE AND INTANGIBLE ASSETS ‑ ITEM 220

During the course of the year, no fair value measurement was implemented with respect to tangible or intangible assets.

ADJUSTMENTS TO GOODWILL ‑ ITEM 230

The Bank has not registered any asset item as goodwill.

PROFIT (LOSS) FROM DISPOSAL OF INVESTMENTS ‑ ITEM 240

17.1 Profit (loss) from disposal of investments: breakdown

Income components/Values Total 2015 Total 2014A. Real estate properties ‑ ‑

‑ Profits from disposals ‑ ‑‑ Losses from disposals ‑ ‑

B. Other assets 26 20‑ Profits from disposals 40 21‑ Losses from disposals (14) (1)

NET RESULT 26 20

The net gain on sale refers mainly to the sale of 12 vehicles.

SECTION 14

SECTION 15

SECTION 16

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INCOME TAXES FOR THE YEAR ON CURRENT OPERATING ACTIVITIES ‑ ITEM 260

This item includes the fiscal charges ‑ equal to the balance between current and deferred taxes ‑ pertaining to net income of the year.

18.1 Income taxes for the year on current operating activities: breakdown

Item/values Total 2015 Total 20141. Current taxes (‑) (11,007) (17,639)2. Changes in current taxes of previous years (+/‑) 220 1663. Decrease in current taxes of the year (+) ‑ ‑

3. bis Decrease in current taxes of the year for tax credits pursuant to Law no. 214/2011 (+) ‑ ‑

4. Changes in prepaid taxes (+/‑) 3,434 6,6295. Changes in deferred taxes (+/‑) ‑ ‑6. Income taxes for the year (‑) (‑1+/‑2+3+/‑4+/‑5) (7,353) (10,844)

Current taxes were booked in accordance with currently effective legislation:• IRES: 27.5%• IRAP: 4.65% for the Value of Production realised in the Province of Trento.

The determination of current taxes benefited from the provision contained in the stability law for 2015 per Article 1, Paragraphs 20‑25, which introduced, starting from 1 January 2015, the full deduction, in the determination of the tax base for IRAP purposes, of costs for employees with permanent contracts.Italian Law Decree no. 83 of 27 June 2015, converted with amendments by Italian Law no. 132 of 6 August 2015, introduced, inter alia, some changes relating to the deductibility of the write‑offs and losses on receivables of credit and financial entities.In short:‑ write‑offs and losses on receivables from customers recorded in the financial statements for this reason and the losses realised by sale for consideration are fully deductible, for IRES and IRAP purposes, in the year when they are recognised. This deductibility had previously been prescribed as 5 years;

‑ for the first period of application the write‑downs and the losses other than losses realised by sale for consideration are deductible within the limits of 75% of their amount; for the residual 25% according to the international accounting standards and the Bank of Italy instructions, prepaid taxes for IRES and IRAP were recognised;

‑ the excess and the amount of the write‑downs not yet deducted at 31 December 2015 are deductible by 5% in 2016, 8% in 2017, 10% in 2018, 12% in the years 2019‑2024 and the residual amount of 5% in 2025, with the related reversal to the Income Statement of the stock of deferred tax assets recognised.

SECTION 18

EXPLANATORY NOTES

221

18.2 Reconciliation between the theoretical fiscal charge and the effective fiscal charge in the financial statements

Item Tax RateProfit from current operating activities, gross of tax (Item 250 of the Income Statement) 22,160 IRES income taxes ‑ theoretical fiscal charge (5,718) 27.50%Effects of decreases in taxable income on IRES 350 27.50%Effects of increases in taxable income on IRES (3,943) 27.50%A. Effective fiscal charge ‑ current IRES tax (9,311) Increases in deferred tax assets 3,350 27.50% Decreases in deferred tax assets (219) 27.50% Increases in deferred tax liabilities ‑ 27.50% Decreases in deferred tax liabilities ‑ 27.50% B. Total effects of deferred IRES taxation 3,131 C. Changes in current taxes of previous years 194 D. Total accrued IRES (A+B+C) (5,986) Theoretical fiscal charge for IRAP with application of nominal rate (difference between net interest and other banking income and allowable deductible costs): (2,005) 4.65%

Effect of decreases in value of production 606 4.65%Effect of increases in value of production (297) 4.65%Effect of higher rates for value of production in other Provinces / Regions ‑ 4.65%Changes in current taxes of previous years 25 4.65%E. Effective fiscal charge ‑ current IRAP tax (1,670) Increases in deferred tax assets 341 4.65%Decreases in deferred tax assets (38) 4.65%Increases in deferred tax liabilities ‑ 4.65%Decreases in deferred tax liabilities ‑ 4.65%F. Total effects of deferred IRAP taxation 303 G. Total accrued IRAP (E+F) (1,367) H. IRES/IRAP Substitute tax for exemption of mismatches ‑ TOTAL IRES TAXES ‑ CURRENT IRAP ‑ ITEM 260 OF INCOME STATEMENT (A+C+E+H) (10,787)

TOTAL IRES TAXES ‑ ACCRUED IRAP ‑ ITEM 260 OF INCOME STATEMENT (D+G+H) (7,353)

PROFIT (LOSS) ON GROUPS OF ASSETS HELD FOR SALE, AFTER TAX ‑ ITEM 280

During the course of the year, the bank did not proceed with disposals of groups of assets.

OTHER INFORMATION

We believe that the information reported in the preceding Sections are completed and sufficiently detailed in order to supply an exhaustive illustration of the economic result.

SECTION 19

SECTION 20


222

EARNINGS PER SHARE

The international standards (IAS 33) assign particular relevance to the earning per share, (commonly known as EPS) rendering mandatory its publication in two forms:• Basic Earnings per share, calculated by dividing net income by the weighted average of ordinary shares in

circulation;• ‘Diluted Earnings per share’, calculated by dividing net income by the weighted average of ordinary shares in

circulation and while also taking into account classes of instruments with diluting effects.

Net result for the year in Euro 14,807,187 Number of ordinary shares outstanding 2,550,000 Number of preference shares outstanding 150,000 Basic EPS 5.66 Diluted EPS 5.66

In particular:• given that the share capital is also represented by preference shares, the economic result which is attributable to parties owning ordinary capital instruments is given by the net income of the year minus the dividends paid to preference shares;

• given that no financial instruments or operations were issued/implemented during the year with potential diluting effects on net income, the calculation of basic EPS coincides with that of diluted EPS;

• there were no own shares.

SECTION 21

EXPLANATORY NOTES

223


224

Analytical statement of comprehensive income

PART DCOMPREHENSIVE INCOME

EXPLANATORY NOTES

225

ANALYTICAL STATEMENT OF COMPREHENSIVE INCOME

Items Gross amount

Income tax

Net amount

10. Profit (loss) of the year 14,807 Other income items without reversal to the Income Statement

20. Tangible assets ‑ ‑ ‑30. Intangible assets ‑ ‑ ‑40. Defined benefit plans 139 (38) 10150. Non‑current assets being disposed: ‑ ‑ ‑

60. Quota of reserves from the valuation of shareholdings valuated with the equity method: ‑ ‑ ‑

Other income components reversed to the Income Statement 70. Hedging of foreign investments ‑ ‑ ‑

a) fair value changes ‑ ‑ ‑ b) reversal to income statement ‑ ‑ ‑ c) other changes ‑ ‑ ‑

80. Exchange rate differences: ‑ ‑ ‑ a) value changes ‑ ‑ ‑ b) reversal to income statement ‑ ‑ ‑ c) other changes ‑ ‑ ‑

90. Cash flow hedging ‑ ‑ ‑ a) fair value changes ‑ ‑ ‑ b) reversal to income statement ‑ ‑ ‑ c) other changes ‑ ‑ ‑

100. Financial assets available for sale: (11,092) (1,096) (12,188) a) fair value changes 3,409 (1,096) 2,313 b) reversal to income statement (25,577) ‑ (25,577) ‑ impairment adjustments 1,473 ‑ 1,473 ‑ profits/losses on sale (27,050) ‑ (27,050) c) other changes 11,076 ‑ 11,076

110. Non‑current assets being disposed: ‑ ‑ ‑ a) fair value changes ‑ ‑ ‑ b) reversal to income statement ‑ ‑ ‑ c) other changes ‑ ‑ ‑

120. Quota of reserves from the valuation of shareholdings valuated with the equity method: ‑ ‑ ‑

a) fair value changes ‑ ‑ ‑ b) reversal to income statement ‑ ‑ ‑ ‑ impairment adjustments ‑ ‑ ‑ ‑ profits/losses on sale ‑ ‑ ‑ c) other changes ‑ ‑ ‑

130. TOTAL OTHER INCOME COMPONENTS (10,953) (1,134) (12,087)140. COMPREHENSIVE INCOME (ITEM 10 +130) 2,720


226

Section 1 – Credit risk

Information of a qualitative natureInformation of a quantitative nature

A. Credit qualityB. Distribution and concentration of credit exposuresC. Securitisation operationsD. Disclosure on structured entities not consolidated from an accounting viewpointE. Disposal transactionsF. Credit risk measurement models

Section 2 – Market risk


2.1 Interest rate risk and price risk - Regulatory trading portfolio

2.2 Interest rate risk and price risk - Banking book

2.3 Exchange rate risk

2.4 Derivative instruments A. Financial derivatives B. Credit derivativesC. Credit and financial derivatives

Section 3 – Liquidity risk


Section 4 – Operating risks


PART EINFORMATION ON RISKS AND RELATED HEDGING POLICIES

EXPLANATORY NOTES

227

The principle which serves as the inspiration and basis for the management of Cassa Centrale Banca can be expressed as the pursuit of satisfactory profitability which is based on operations that are compatible with the assumption of risks, both within regulatory limits as well as within those which are sustainable by the financial structure of the firm. The bank has created a structured system of internal controls which, on a daily basis and proportionally to the complexity of the activities carried out, involve the entire organisational structure and conforms to the new legislation governing the ‘Internal Control System’, reported in Part One, Title IV, Chapter 3 of Circular 285/2013.It is structured into the following three levels:• line controls, or first level controls, which are assigned to production facilities and which aim to ensure the correct implementation of operations; they are implemented by means of IT barriers or organisational controls;

• controls on Risk Management and Compliance or second level controls, whose objective is to ensure the correct implementation of the risk management process, verify compliance with the limits assigned to operational departments and, finally, guarantee the compliance of company operations with the rules, including those of self-regulation; they aim to identify, measure, monitor and manage risks and are assigned to independent structures that are excluded from the operational phase. The Risk Management department is required to monitor risks and verify compliance with the operational limits set by supervisory regulations and by internal regulations, including verification of the exercising of proxies and observance of the Risk Appetite Framework (RAF) at Group level. The department also provides preventive judgments on the consistency of the most significant transactions with the RAF and drafts the ICAAP report. The Compliance department is entrusted with the task of identifying, evaluating, managing and monitoring risks derived from legal and administrative sanctions as well from financial losses or damages to the company’s reputation and which are due to external or internal violations of norms;

• internal audits, or third level audits, which aim to identify the existence of anomalies or violations of procedures and of regulations and assess the functioning and effectiveness of the overall internal control system; these controls are assigned to departments that are different and independent from the productive ones. The Internal Audit department is responsible for monitoring the correct functioning of processes as well as the reliability of accounting information, even by means of direct inspections or remote audits. Auditing operations primarily involve the analysis of the primary working processes (credit, finance, payment systems). Valuations derived from completed assessments are periodically reported to the Board of Statutory Auditors, General Management, the Independent Auditors and the Board of Directors. Cassa Centrale Banca has outsourced the Information Technology Auditing process to the “Federazione Trentina della Cooperazione.”

The organisation of internal controls also ensures - in addition to a separation of operational functions from auditing ones - an adequate degree of risk management through the constant improvement of IT systems and reporting activities. The Risks Committee – composed of General Manager, Division Managers and a representative of the Risk Management department – is a integral part of the internal control system; Risk Committee meetings are also attended by a representative of the Compliance department to present the topics under its competence. This body is entrusted by the Board of Directors to identify all significant risks to which the Bank is exposed during its operations in addition to formulating policies in relation to risk prevention, measurement or evaluation, management and mitigation. The presence of this body and the interaction that takes place between its members contribute to disseminating within the Bank the risk culture regarding the individual issues. Along this line, the provision has been added which allows the Bank’s control functions to directly report their findings to the Board of

INTERNAL CONTROL SYSTEM


228

Directors. Particular attention is also paid to the continuous updating of the Bank’s personnel through participation in specialized courses held externally.

CREDIT RISK


1. General aspectsThe sales policy of Cassa Centrale Banca - when implementing credit activities - has constantly pursued objectives and strategies which aim to contain a concentration, within its portfolio, of individual counterparties, economic sectors or geographical areas. The Bank operates primarily in a subsidiary manner with respect to shareholder or customer CR-BCCs by implementing operations targeting their customers; it is not possible to independently operate in relation to the latter due to regulatory and size-specific limits, or for technical reasons. Cassa Centrale Banca applies high standards to the analytical methodologies used to assess the credit repayment capacity of customers and has constantly updated and improved the process for monitoring loan positions, both in relation to commercial and territorial expansion and with reference to the size of the loans. This process was continued from the perspective of involving the proposing banks in the risk by means of pool financing or by issuing at least partial guarantees to back up granted loans.Credit risk arising from loans disbursed under various forms to financial institutions, in particular to CR-BCCs which have liquidity needs, is managed by utilising an internal calculation model for scoring the financial statements of banks. This value acts as a discriminating factor for the powers delegated in relation to credit to banking counterparties. The Risks Committee periodically monitors the exposure of the bank to specific and generic risks, both credit and liquidity risks - which arise from operations with credit institutions.Cassa Centrale Banca manages the liquidity deposited by the various CR-BCCs through the use of the Interbank Deposit Market or within other credit institutions. The counterparties with which the Finance Division makes these deposits are entrusted with suitable credit limits following a favourable investigation that is conducted independently by the Credit Division in relation to creditworthiness. In order to avoid significant risks, specific attention is focused on the monitoring of ratings of the counterparty banking positions. We hereby note that over the last four years these practices have been set aside in order to be able to implement an investment policy which is in line with the changed operating conditions that have characterised the Interbank market. In particular, deposits with bank counterparties have ceased in order to follow a more prudent approach involving the significant investment of available liquidity at the European Central Bank and partially, to support the non-remuneration of this investment in Italian government securities. Investment transactions through the MTS-Repo channel continued during the year. During 2015, the brokerage activity involving auctions with the European Central Bank, carried out by Cassa Centrale Banca on behalf of the CR-BCCs subscribing to the service, saw a decrease in the volumes brokered. This is linked both to the implementation of the direct membership channel by some counterparties, leaving the Bank to settle the flows only, and to the reduction of the opportunities to invest the collected liquidity at low risk. It should be noted that the indirect membership of the CR-BCCs, which is charged to the financial statements, is secured by financial collateral securities which result in a significant decrease in risk.

SECTION 1

EXPLANATORY NOTES

229

Credit risk can also occur in the portfolio of own securities. The Finance Regulations provide for structured limits and proxies pertaining to the following: the overall amount of the securities portfolio; the ownership of non-listed securities; the stock portfolio; the concentration of risk within asset management companies; net open exchange rate positions; Value at Risk for HFT and AFS portfolios; maximum losses; amount of the HTM portfolio and potentially related capital losses; the L&R securities portfolio; and risks associated with individual issuers. In the presence of specific market situations, the Risks Committee may establish more stringent limits compared to those provided for in the Regulations. Each quarter, the Board of Directors and - on a weekly basis - General Management are updated on the movements in the portfolio of securities and on compliance with regulatory limits. Credit risk relative securities issued by parties other than government or banking entities are marginal. Strategies for the securities portfolio are shared within the Risks Committee, and in specific cases they are subject to the positive and independent analysis of creditworthiness by the Credit Division.Cassa Centrale Banca is exposed to counterparty risk in relation to OTC derivative activities and repurchase agreements. Operations pertaining to OTC derivatives are almost entirely balanced; there are therefore sporadic operations for the hedging of assets or liabilities which refer to properties while operations of speculative nature are not implemented. The provisions established by EU Regulation 648/2012 on OTC derivative instruments, central counterparties and trade repositories were applied during the year. The limits assigned to CR-BCCs - in relation to their rate hedging activities - and those assigned to institutional counterparties are deliberated by the body of competence following an independent investigation by the Credit Division. Institutional counterparties all have acceptable credit standings, taking into account the generalised decrease in the ratings of financial institutions by the primary rating agencies; an ISDA master agreement was signed with the majority of these counterparties in order to offset mutual receivables in the case of default. In addition, collateralisation agreements were signed with primary institutional partners; these agreements provide for the payment - in cash or securities - of margins as guarantees of credit represented by the market values of the operations being implemented. Even in relation to the dynamics concerning counterparty risk, the Risk Management department periodically updates General Management and the Board of Directors.

2. Policies for managing credit risk

2.1 Organisational factorsBanks are exposed to the risk of receivables not being paid by the debtors on their expiration dates and that, as a result, they must be booked as losses in the financial statements. A failed or delayed repayment can occur both in traditional credit disbursements to customers as well as in operations that are not booked within the financial statements (e.g., credit commitments). Customer defaults can originate from a lack of liquidity, incapacity to operate, economic events or other internal or external reasons, such as country risk or operating risks. Even activities that differ from traditional lending activities, such as the trading of securities or the underwriting of OTC derivatives, further expose the bank to credit risk.In compliance with the new provisions governing ‘Internal control system’ in Circular 285/13, Cassa Centrale Banca has implemented an organisational structure which is adequate for the activities carried out and which is constantly updated in relation to the market environment. The preliminary evaluation process for investment projects is structured across separate departments which ensure extensive meetings and dialogue on creditworthiness. The same principle of functional separation also regulates the process of completion of


230

loan assignments. The organisational process also includes audits on trends in individual relationships which are implemented by IT procedures and through the systematic and direct monitoring within the territory as well as through the development of relations with the CR-BCCs that are involved in the relationships. In addition to line controls, the second and third level control functions manage the monitoring of risks as well as the accuracy and adequacy of the managerial and operational processes, as outlined previously.The entire credit process is regulated by the Credit Process Regulations, internal regulations which are approved by the Board of Directors and which contain proxies for credit as well as for economic conditions which are subject to periodical annual audits, or in relation to new laws or regulations or commercial and organisational needs. In particular, it defines the following:• the exercising of proxies which is managed within the bank’s IT system and which is continually verified, or

audited by sampling, by the Risk Management and Internal Audit departments;• the criteria and methodologies for assessing creditworthiness as well as for the auditing of loans, trend

analysis and initiatives to implement in the event anomalies are identified. The Credit Division is the company body delegated with the governance of the credit process (credit granting and auditing, monitoring, management of disputes) as well as the coordination and development of credit transactions and loans. The allocation of tasks and responsibilities within this Division aims - to the extent that is feasible - to separate activities that are in conflict of interest, particularly through an opportune ranking of authorisation profiles within the IT system.As part of the regulation of related parties, the Bank is equipped with the appropriate decision-making procedures targeted at monitoring the risk of the closeness of said parties to decision-making centres compromising the impartiality and objectiveness of the decisions relating to the granting of loans among other things. From this perspective, the Bank is also equipped with recognition tools and an IT procedure aimed at supporting the correct and complete registration of related parties. These references were supplemented, through the adoption of specific policies, with organisational structures and internal controls aimed at defining the roles and responsibilities of the company bodies and functions regarding the prevention and management of conflicts of interest, at ensuring the accurate registration of related parties, at monitoring the trend in the associated exposures and constant compliance with the limits defined, and at guaranteeing prompt and proper implementation of the decision-making procedures regulated. The Bank has also defined the levels of risk appetite and tolerance thresholds consistent with its strategic profile and organisational characteristics. The systematic monitoring of the processes for managing and detecting problematic positions is also guaranteed through the operations of the Risks Committee. The Risk Management Department is required to carry out controls targeted at periodically verifying that the monitoring of credit exposures, the classification of exposures, allocations and the recovery process, are carried out in compliance with the internal procedures and that these procedures are effective and reliable, with reference to the capacity to promptly report any anomalies that should arise, and to ensure the adequacy of the value adjustments and associated classification as losses. More generally speaking, the Risk Management Department must periodically monitor and check compliance with the risk objectives, operating limits and risk indicators defined by the Board of Directors according to the methods and timescales defined in the RAF Regulation and in the risk management processes. It also verifies the adequacy of the RAF, also availing itself of the outcomes of monitoring of the risk objectives, limits, risk indicators and the recognition/measurement metrics used.

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The department also provides preventive judgments on the consistency of the most significant transactions with the RAF by acquiring, based on the nature of the transaction, the judgment of the other departments involved in the risk management process. For these purposes, it identifies the risks to which the Bank may be exposed in undertaking the transaction; it quantifies and assesses, based on the data acquired by the competent company departments involved, the impacts of the transaction on the risk objectives, on the tolerance thresholds and on operating limits; it evaluates, based on the aforementioned impacts, the sustainability and consistency of the transactions with the risk appetite defined beforehand by the Board of Directors; it identifies the measures to be adopted to adjust the overall risk governance and management system, including therein the need to update the risk appetite and the system of operating limits.

2.2 Management, measurement and control systemsThe credit risk is identified and valuated even through forecasting, at the level of the individual client; periodical analyses focus on the credit repayment capacity of the requesting party over time as well as the validity and sustainability of the entrepreneurial projects, on the historical and future stability of company financial equilibriums. A similar evaluation is applied in addition to offered guarantees, with particular attention to their level of liquidity. The management and control of individual positions is facilitated by a list of trends in anomalies as well as by access to external databases (e.g. a list of adverse acts) and by implementing targeted audits that are adequately spread out over time. The IT system of the Bank reports, in an orderly and synthetic manner, the primary quantitative information for each individual client (profitability, trends in risk levels, operations, central credit register, financial statements). The management and control phase is completed through the periodical auditing of the positions. The portfolio of receivables is subdivided into 5 risk categories (performing, under observation, expired/exceeded limit, unlikely to pay, non-performing) on the basis of evaluations provided by the Risks Committee and without prejudice to specific deliberative powers assigned to top corporate boards. Following the transposition by the European Commission of the Implementing Technical Standards (ITS) published by the EBA in October 2013, the definitions of non-performing exposures (NPE) and forbearance were introduced, with these profiles integrated within the Bank’s IT procedures.The phases of identification, measurement, management and control of credit risk within the portfolio also include periodical monthly observations on the distribution by sector and business branches as well as by type of use, geographical location and concentrations of amount, paying specific attention to the main sectors of intervention.The assets of the bank would allow for the granting of credit to individual clients or to groups of connected clients beyond the threshold of EUR 51 million; the greatest weighted use of cash attributable to a group of clients granted with credit (excluding groups related to the cooperative credit movement and the Autonomous Province of Trento) in 2015 was equal to EUR 14 million, far below the maximum credit limit prescribed by the regulations.The methodologies for assessing credit risk are qualitative and quantitative; the combination of evaluation elements and the risk aversion of Cassa Centrale Banca result in a marked selection of loan requests received. The policy for evaluating a portfolio of receivables is prudent and involves the application of particularly intense analytical write-downs with respect to impaired positions as well as lump-sum write-downs on the performing loan portfolio (calculated as a function of PD and LGD) which are higher on average than those


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of the system.Cassa Centrale Banca - in application of the policies resolved by the Board of Directors of the parent company Centrale Finanziaria del Nord Est - resolved to:• adopt the standardized methodology for the calculation of the minimum capital requirement for credit risk

(First Pillar);• utilise the creditworthiness evaluations issued by ECAI DBRS for the determination of weighting factors for

positions included within the following portfolios: - “Central Administrations and Central Banks” as well indirectly for those included in the portfolios

“Monitored Intermediaries”, “Entities of the public sector” and “Territorial entities”;• as well as the evaluations issued by the ECAI Moody’s Investors Service for the determination of weighting

factors for positions included within the following portfolios: - ‘Exposures with respect to Multilateral Development Banks’; - ‘Exposures with respect to Collective Investment Undertakings’; - ‘Positions relative to securitisations’.With regard to exposures that fall within all other portfolios, diversified weighting coefficients are applied, in accordance with the aforementioned prudential regulations and within the domain of the standardised methodology (Part two, Chapter 3, Section I, Circular 285/13).With reference to internal capital adequacy assessment process (ICAAP) that is required by the Second Pillar of currently effective prudential regulations, and in execution of the principles of proportionality and graduality, the bank has drafted the ICAAP report of 31/12/2014 by adopting the methodologies which the Supervisory Board requires for class 3 intermediaries.With regard to this point, Cassa Centrale Banca adopts the following methodologies:• in order to quantify internal capital in connection with the risk of concentration for individual counterparties

or groups of related clients, a simplified algorithm is utilised to determine the Granularity Adjustment through the Herfindahl index (Part One, Title III, Chapter 1, Annex B, Circ. 285/13); as of the reporting of December 2010, the model developed within ABI by the ‘Laboratory for Geo-Sectorial Concentration Risk’ and its subsequent amendments will also be utilised;

• in order to determine internal capital in connection with interest rate risk for the banking portfolio, a simplified algorithm is utilised to determine the change in the economic value of the banking portfolio in the case of rate shock of 200 basis points (Part One, Title III, Chapter 1, Annex C, Circular 285/13);

• in order to define procedures for measuring and controlling liquidity risk, the guidelines proposed by the Supervisory authorities are followed; these are based on the monitoring of the net financial position and on potential tools for mitigating risk (Parte Two, Chapter 11, Section I, Circular 285/13).

With reference to the determination of internal capital to cover credit and counterparty risk, the following main amendments introduced by the prudential framework applied from 1 January 2014 have an impact:• treatment of deferred tax assets which are not based on future profitability or prepaid tax assets pursuant to

Law no. 214/2011, to which 100% weighting is applied;• treatment of deferred tax assets which are based on future profitability and derive from temporary differences,

different from the ones above, not deducted from regulatory capital, to which 250% weighting is applied;

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• restructuring of the portfolios ‘exposures to companies’ and ‘retail exposures’, mainly due to the application of the different turnover threshold (EUR 50 million, instead of EUR 5 million);

• application of the SME Supporting Factor to exposures to SMEs, i.e. exposures to companies with a turnover of less than EUR 50 million which meet the requirements set out in art. 501 of EU Regulation no. 575/2013 (CRR), allocated to the portfolios ‘exposures to companies’, ‘retail exposures’, ‘exposures secured by properties’;

• migration to the portfolio of exposures in equities of exposures relating to significant and insignificant investments in entities in the financial sector;

• migration of exposures to non-profit organisations to the portfolio of ‘exposures to companies’;• estimate of the additional requirement on counterparty risk relating to the Credit Value Adjustment (CVA),

applicable to OTC derivative transactions, on the basis of the standardised method pursuant to art. 384 of the CRR.

With reference to the performance of stress tests, the following methodologies were applied: • with regard to concentration risk for individual counterparties or groups of related clients, an increase

in the rate of appearance of non-performing loans within the portfolio was assumed and based on the worst rate of decline recorded in the last 10 years for an individual branch of economic activity;

• in relation to the implementation of the stress test relative to interest rate risk for the banking book, an increase of 100 basis points - with respect to the threshold of 200 basis points for the ordinary scenario - was applied;

• with reference to credit risk, the execution of the stress test is implemented as follows: 1) within the historical data series of the last 10 years pertaining to the ratio of impaired positions and

company loans (net of write-downs), the percentage which represents the worst credit period that occurred is selected and then applied to the system of supervisory portfolios by implementing an adequate migration of performing positions to the portfolio of ‘past due’ until this rate is reached; this rule was however not applied at the time of the stress tests which were implemented in the most recent report given that the forecast report at the end of 2014 already expressed a higher number compared to the maximum figure which was presented in the historical data series of the last 10 years;

2) assumption of downgrading of the creditworthiness of the Italian government from DBRS’s current ‘A (low)’ to ‘BBB (high)’. The effect translates to a modification of the weighting factor to be applied to exposures to monitored intermediaries with original expiry after 3 months and exposures to non-profit organisations, secured by the Mediocredito Centrale guarantee, from 50% to 100%. This results in an increase in the internal capital requirement for exposures which are assigned a weighting factor on the basis of this parameter.

Stress tests are conducted on the basis of forecasted data, which includes the possibility of development of assets that are prepared at the time of definition of the company budget.With regard to investment activities for the portfolio of own securities, periodical evaluations are performed on the instruments that are present within the portfolio, both within the Finance Division as well as within the Risks Committee. Compliance with the limits and proxies that are assigned in this area are verified on a weekly basis.The entire credit risk process is periodically checked by the Internal Audit Department.


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2.3 Techniques for mitigating credit riskThe techniques for mitigating credit risk which are most frequently utilised by Cassa Centrale Banca include the acquisition of collateral securities and personal guarantees of both a financial and non-financial nature.These forms of guarantee are collected in relation to the results of the creditworthiness assessment of the applicant as well as of the type of loan requested by the customers and duration of the credit line granted. Most of the medium to long-term exposures of the bank are secured by mortgage guarantees on residential or commercial properties, normally first-ranked.Over the last 3 years, following the progressive increase of the brokerage activities in ECB auctions on behalf of CR-BCCs, significant amounts of securities were acquired as guarantees of financing in favour of the latter which secure the relative exposures. The securities are not reported under the assets in the financial statements given that their acquisition is subject to the regulations of Italian Legislative Decree no. 170/2004 as well as the provisions of the Bank of Italy which require - for the preparation of the financial statements - a maintenance of values within the relative financial statements of the CR-BCCs; the latter effectively gain the benefits produced from these values.As at 31 December 2015, cash exposures which were not impaired and secured by collateral securities, composed mainly of mortgages and pledges on securities, accounted for 67.53% of the total performing loans, while the portion which is secured solely by personal guarantees is 5.18%; by contrast, the portion which is not guaranteed is 27.30%; the percentages are influenced by the short-term loan issued in favour of Lucrezia Securitisation Srl. By contrast, as regards impaired positions, collateral securities and personal guarantees cover around 94.06% of the total. As of the same date, the portfolio of receivables was guaranteed by bank sureties for approximately 7.36% and by sureties from territorial entities and by the SME Guarantee Fund managed by Mediocredito Centrale for approximately 0.49%, sometimes in combination with other collateral securities or personal guarantees.Specific attention is given to the process of collection and stipulation of the guarantees so that risks of contractual or operational nature are not incurred during the phase of their potential enforcement; specialised human resources are involved in this process which is structured across several levels of operations and control.With reference to activities within securities markets, and given that the breakdown of the portfolio primarily targets sovereign issuers, it was not deemed necessary, at the moment, to implement specific forms of credit risk mitigation.OTC derivative contracts stipulated with institutional counterparties - balancing out the hedging implemented by Cassa Centrale Banca with the CR-BCCs - are regulated by ISDA framework agreements which allow for compensation in the case of default. In addition, collateralisation agreements have already been stipulated, as of 2010, with certain counterparties, providing for the creation of a guarantee in cash or securities for the creditor.With regard to regulatory provisions pertaining to risk mitigation techniques, Cassa Centrale Banca has stated that it will progressively utilise all required Credit Risk Mitigation (CRM) instruments, i.e.:• financial collateral securities involving cash and financial instruments, and lent through agreements for the pledging and transfer of ownership;

• residential and non-residential real estate mortgages;• other forms of real protection, represented, e.g., by deposits in cash with third parties, life insurance policies (with the requirements pursuant to Regulation (EU) no. 575/2013, financial instruments issued by monitored intermediaries which the issuer has committed to buy back upon request of the bearer party;

EXPLANATORY NOTES

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• sureties, warranty bonds, guarantees - within the domain of authorised guarantors - from monitored intermediaries; these also include personal type mutualistic guarantees provided by credit guarantee consortia which meet the subjective and objective criteria for admissibility.

For the purposes of the benefits provided by CRM, the following are also currently taken into consideration:a) personal guarantees issued by monitored intermediaries, b) personal guarantees issued by territorial entities and by the SME Guarantee Fund managed by Mediocredito

Centrale,c) financial collateral securities pursuant to the provisions of Italian Legislative Decree No. 170 of 21 May

2004,d) financial collateral securities involving cash and financial instruments, and lent through repurchase

agreements.The first three forms are governed by the Regulations which the Board of Directors of the parent company and of the Bank approved during the course of 2011 and which describes the process of acquisition of the guarantees, outlining tasks and responsibilities for company departments and operational units. With regard to the most recent contractual form, it should be noted that the regulations themselves provide for the application of the methods required by the CRM in order to determine the capital requirements for lending and borrowing repurchase agreements.Cassa Centrale Banca did not implement any operations on credit derivatives.

2.4 Impaired financial assetsThe classification, management and control of receivables are organized by the Bank through IT facilities and procedures. On each date of the financial statements, and in accordance with IAS/IFRS, the presence of objective elements of a decline in value (impairment) is verified for each financial instrument or for each group of financial instruments.The 7th revision of 20 January 2015 of Circular no. 272/2008 of the Bank of Italy transposed, for financial statement purposes as well, the new definitions of Non performing exposures and of Forbearance introduced by the technical implementation regulations pertaining to the supervisory statistical reports defined by the European Banking Authority, approved by the European Commission on 9 January 2015, with Regulation (EU) no. 227/2015: the purpose of this is to continue to have a single notion of impaired financial assets applicable to all monitored intermediaries, valid both within the field of reporting (supervisory, statistical and Central Credit Register), and within disclosure (financial statements and reporting to the public).The new scope of impaired financial assets, corresponding to the Non-Performing Exposures aggregate per the ITS, no longer contemplates watch-list exposures and restructured exposures, because they have been abolished; the ‘unlikely to pay’ category was introduced. It consists of credit exposures, other than non-performing loans, for which the bank deems it unlikely that, without initiating actions like the enforcement of guarantees, the debtor will fully comply with his credit obligations (principal and/or interest). Instead, positions in a state of insolvency or in substantially comparable situations, for which it is deemed that the normal capacity for repayment of credit no longer exists due to the worsening of the economic/financial situation or due to the effect of the enforcement actions of third parties, are classified as non-performing.The category of ‘forborne non-performing exposures’ was introduced; it is not a distinct and additional category of impaired exposures with respect to the ones reference above, but only a sub-set of each of them, which


236

includes cash exposures and commitments to disburse funds that are forborne (‘forborne exposures’), if they meet both of the following conditions:a) the debtor is in a situation of economic-financial hardship that does not allow him fully to comply with the

contractual commitments in his debt agreement and that puts him in a state of ‘credit deterioration’ (classification in one of the categories of impaired exposures: non-performing, unlikely to pay, exposures that have been overdue and/or overrun for over 90 days),

b) and the bank agrees to amend the terms and conditions of that agreement, or to refinance it in full or in part, to enable the debtor to comply with it (there would have been no such forbearance if the debtor had not been in a state of hardship).

Forborne exposures to debtors in a condition of economic-financial hardship that has not reached a state of ‘credit impairment’ are instead classified in the category of ‘forborne performing exposures’ and are included among the ‘Other non-impaired exposures’, or among the ‘Non-impaired past due exposures’ if they meet the requirements for this classification.The scope of the new categories of impaired financial assets includes cash assets (loans and debt securities) and ‘off-balance-sheet’ assets (guarantees issued, irrevocable and revocable commitments to disburse funds), other than the financial instruments allocated in the accounting portfolio of ‘Financial assets held for trading’ and than derivative contracts. For the purposes of the classification of the financial assets among impaired ones, the existence of any guarantees (collateral or personal guarantees) securing the asset is not considered.In addition, non-impaired past due exposures include both individual exposures that are overdue and/or overrun for over 90 days which are not considered impaired (e.g. because they do not exceed the threshold of significance set within the approach for each individual debtor), and those that have not been overdue and/or overrun for over 90 days.Potential reclassification as performing positions is only authorised by means of a resolution of the Board of Directors; this resolution is typically only approved following repayment of past credit due to the bank and following a significant resolution of disputes with respect to the system or creditors that are qualitatively or quantitatively significant. In addition, the current and future normality of the entity’s financial and economic situation must be demonstrated.The Credit Division is responsible for the overall management of impaired positions. With regard to positions classified as non-performing, and for which legal debt recovery actions have been initiated, management of the position can also be implemented in collaboration with external legal firms. The resolutions of the Board of Directors always serve as the basis for decisions which are assumed following a prior analysis of the Risks Committee - unless the case is particularly urgent - which discusses and proposes both a correct classification for the positions as well as the most appropriate solutions for improving their status.The activities of the Credit Division primarily involve:• monitoring impaired positions, in compliance with the Risk Management department;• applying the measures recommended by the Risks Committee or resolved by the Board of Directors in order to restore regularity in payments or a return of the credit;

• reporting forecasts for losses on positions to the Risk Management department and the Risks Committee, and presenting them for approval to the Board of Directors;

• proposing – to the Board of Directors – the re-classification as non-performing of those positions which – due to new difficulties – are not expected to normalise.

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The evaluation of impaired positions is implemented in an analytical manner and whose level of intensity is proportional to the results which emerge from the monitoring process.Company policy in relation to adjustments is particularly strict, and the continuation of the effects of a difficult economic period has seen the company take an especially prudent approach to the determination of write-down policies.During the analysis of individual positions, assumptions relative to the depreciation of the realisable value of collateral security were applied while, in the case of personal guarantees, the financial profile of the guarantor was taken into account. In addition, the time periods for recovery of credit were identified, adding additional discounting losses to the calculation.Lump-sum write-downs were applied with a similar level of prudence and strictness, assuming probabilities of default in sectors and branches of economic activity that utilised the impairment rates recorded by the Bank of Italy within the national territory. In accordance with this prudential approach and with the methodology adopted for analytical write-downs, only partial recoveries were assumed on the basis of the various qualitative levels of the guarantees collected.The document ‘Valuation criteria for loans and management of impaired positions’, approved by the Board of Directors, regulates most of the aspects indicated above.


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A. Credit quality

A.1 Impaired and performing credit exposures: amounts, adjustments, trend, economic and territorial distribution

A.1.1 Distribution of credit exposures by portfolio and credit quality (carrying amounts)

Portfolio/quality Non-performing

Unlikely to pay

Impaired past due

Non-impaired past due

Non-impaired

assetsTotal

1. Financial assets available for sale - - - - 2,550,347 2,550,347

2. Held to maturity investments - - - - 459,989 459,989

3. Loans to banks - - - - 1,648,568 1,648,5684. Loans to customers 16,094 30,412 85 6,467 504,525 557,583

5. Financial assets at fair value - - - - 3,000 3,000

6. Financial assets held for disposal - - - - - -

TOTAL 2015 16,094 30,412 85 6,467 5,166,429 5,219,487TOTAL 2014 25,132 44,083 2,851 10,916 8,118,860 8,201,842

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A.1.2 Distribution of credit exposures by portfolio and credit quality (gross and net values)

Portfolios/quality

Impaired assets Performing positions

Total (net

exposure)

Gro

ss

expo

sure

Spec

ific

adju

stmen

ts

Net

exp

osur

e

Gro

ss

expo

sure

Portf

olio

ad

justm

ents

Net

exp

osur

e

1. Financial assets available for sale

- - - 2,550,347 - 2,550,347 2,550,347

2. Held to maturity investments

- - - 459,989 - 459,989 459,989

3. Loans to banks - - - 1,648,568 - 1,648,568 1,648,568

4. Loans to customers 155,098 108,507 46,591 522,293 11,301 510,992 557,583

5. Financial assets at fair value

- - - - - 3,000 3,000

6. Financial assets held for disposal

- - - - - - -

TOTAL 2015 155,098 108,507 46,591 5,181,197 11,301 5,172,896 5,219,487TOTAL 2014 164,792 92,726 72,066 8,100,526 9,888 8,129,776 8,201,842

Assets with manifestly poor credit quality Other assets

Cumulated capital losses Exposure Net exposure

1. Financial assets held for trading - 8,647 22,499,5422. Hedging derivatives - - -TOTAL 2015 - 8,647 22,499,542

Derivative contracts were classified under “Other assets.”The table is new and the comparison figure at 31 December 2014 is not expressed because of the difficulty in extracting the related retroactive information.


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A.1.3 Cash credit exposures and off-balance-sheet exposures relating to banks: gross and net values

Type of positions/values

Gross exposure

Spec

ific

valu

e ad

justm

ents

Portf

olio

adj

ustm

ents

Net

exp

osur

e

Impaired assets

Non

-impa

ired

asse

ts

Up

to 3

mon

ths

From

ove

r 3 m

onth

s to

6

mon

ths

From

ove

r 6 m

onth

s to

1

year

Beyo

nd 1

yea

r

A. CASH EXPOSURES a) Non-performing - - - - - - - -

- of which: forborne exposures - - - - - - - -b) Unlikely to pay - - - - - - - -

- of which: forborne exposures - - - - - - - -c) Impaired past due - - - - - - - -

- of which: forborne exposures - - - - - - - -d) Non-impaired past due - - - - - - - -

- of which: forborne exposures - - - - - - - -e) Other non-impaired - - - - 1,651,568 - - 1,651,568

- of which: forborne exposures - - - - - - - -TOTAL A - - - - 1,651,568 - - 1,651,568B. OFF-BALANCE-SHEET EXPOSURES

a) Impaired - - - - - - - -b) Non-impaired - - - - 43,594 - - 43,594

TOTAL B - - - - 43,594 - - 43,594TOTAL A+B - - - - 1,695,162 - - 1,695,162

Cash credit exposures include all financial assets in cash, excluding equities and UCITS units, regardless of the accounting portfolio: trading, available for sale, held to maturity, receivables, assets at fair value, assets being disposed.“Off-statement of financial position” positions include all financial operations other than cash operations (issued guarantees, commitments, derivatives, etc.) which involve the assumption of credit risk, and regardless of the objective of these operations (trading, hedging, etc.).

A.1.4 Cash credit exposures due to banks: trend in gross impaired positionsThe table is not filled out because, on the date of the financial statements in question, there were no balances attributable to the item in question.

A.1.5 Cash credit exposures due to banks: trend in total value adjustmentsThe table is not filled out because, on the date of the financial statements in question, there were no balances attributable to the item in question.

EXPLANATORY NOTES

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A.1.6 Cash credit exposures and off-balance-sheet exposures to customers: gross and net values

Type of exposures/values

Gross exposure

Spec

ific

valu

e ad

justm

ents

Portf

olio

adj

ustm

ents

Net

exp

osur

e

Impaired assets

Non-impaired

assets

Up

to 3

mon

ths

From

ove

r 3 m

onth

s to

6 m

onth

s

From

ove

r 6 m

onth

s to

1 y

ear

Beyo

nd 1

yea

rA. CASH EXPOSURES

a) Non-performing - - 3,490 87,078 - 74,474 - 16,094- of which: forborne exposures

- - 3,490 5,324 - 6,163 - 2,652

b) Unlikely to pay 22,986 7,076 6,424 27,948 - 34,022 - 30,412- of which: forborne exposures

18,587 4,520 4,013 11,739 - 20,593 - 18,265

c) Impaired past due - - 96 - - 11 - 85- of which: forborne exposures

- - - - - - - -

d) Non-impaired past due - - - - 6,607 - 140 6,467

- of which: forborne exposures

- - - - 3,265 - 67 3,198

e) Other non-impaired - - - - 3,526,022 - 11,161 3,514,861

- of which: forborne exposures

- - - - 47,114 - 998 46,116

TOTAL A 22,986 7,076 10,010 115,026 3,532,629 108,507 11,301 3,567,919B. OFF-BALANCE-SHEET

EXPOSURES

a) Impaired 492 - - - - - - 492b) Non-impaired - - - - 79,456 - - 79,456

TOTAL B 492 - - - 79,456 - - 79,948TOTAL A+B 23,478 7,076 10,010 115,026 3,612,090 108,507 11,301 3,647,867

Cash credit exposures include all financial assets in cash, excluding equities and UCITS units, regardless of the accounting portfolio: trading, available for sale, held to maturity, receivables, assets at fair value, assets being disposed.


242

“Off-statement of financial position” positions include all financial operations other than cash operations (issued guarantees, commitments, derivatives, etc.) which involve the assumption of credit risk, and regardless of the objective of these operations (trading, hedging, etc.). In October, the Bank took part in a transaction involving the non-recourse assignment of a block of non-performing loans pursuant to Law 130/99 organised by the investee Centrale Credit & Real Estate Solutions S.r.l. in collaboration with Banca IMI S.p.A., and which saw the company Adige Spv S.r.l. unipersonale as the assignee counterparty, financed through bond loans subscribed by Christofferson, Robb & Company LLC - London (UK). A total of 27 banks took part in the transaction, for a nominal total value of non-performing loans transferred of EUR 314.937 million. Therefore, the transaction does not make provision for the Bank’s participation, neither as servicer (role that the purchaser Adige Spv S.r.l. assigned to Credito Fondiario S.p.A.) nor subscriber of the securities issued by the assignee (‘derecognition’). The Bank transferred non-performing loans to 10 customers for a gross carrying amount, at the time of the transfer, of EUR 7.903 million already written down for EUR 6.791 million at the date of the transfer. In respect of these values, the assignee must pay the Bank an amount of EUR 1.835 million which involved a gross loss of EUR 6.068 million for the Bank. Outside of the aforementioned transaction, through a specific non-recourse assignment contract signed on 3 July 2015, the Bank transferred an additional loan classified as non-performing to Cassa Padana. This position had a gross carrying amount, at the time of the transfer, of EUR 1.710 million already written down for EUR 0.679 million. In respect of these values, the assignee paid the Bank an amount of EUR 1.690 million which involved a gross loss of EUR 0.020 million for the Bank. Net of pre-existing bad debt provisions, the two transfers (the first a block one, as part of a multi-originator transfer and the second an individual one, concluded as part of ordinary debt recovery actions) led to a positive result for the Bank totalling EUR 1.467 million (net), the result of losses on disposal of EUR 0.172 million and gains on disposal of EUR 1.639 million.The effects described above are detailed in the tables below ‘A.1.7 Cash credit exposures and off-balance sheet exposures due to customers: trend in impaired positions’, item ‘C.5 Losses from disposals’, and ‘A.1.8 Cash credit exposures due to customers: trend in total value adjustments’, items ‘B.2 Losses from transfers’, ‘C.3 Gains from disposals’ and ‘C.6 Other decreases’.

EXPLANATORY NOTES

243

A.1.7 Cash credit exposures due to customers: trend in gross impaired positions

Descriptions/Categories Non-performing Unlikely to pay Past due

A. Initial gross exposure 80,038 81,491 3,257- of which: positions transferred but not derecognised - - -

B. Increases 28,234 16,205 96B.1 transfers from performing exposures 930 12,833 96B.2 transfers from other categories of impaired positions 26,887 2,503 -B.3 other increases 417 869 -

C. Decreases 17,704 33,263 3,257C.1 transfers to performing exposures - 1,671 754C.2 cancellations 134 - -C.3 collections 7,956 3,910 -C.4 profits from disposals 3,525 - -C.5 losses from disposals 6,089 - -C.6 transfers to other categories of impaired positions - 26,887 2,503C.7 other decreases - 795 -

D. Gross final exposure 90,568 64,434 96- of which: positions transferred but not derecognised - - -

Cash credit exposures include all financial assets in cash, excluding equities and UCITS units, regardless of the accounting portfolio: trading, available for sale, held to maturity, receivables, assets at fair value, assets being disposed.


244

A.1.8 Cash credit exposures due to customers: trend in total value adjustments

Descriptions/Categories

Non-performing Unlikely to pay Past due

TotalOf which: forborne

exposuresTotal

Of which: forborne

exposuresTotal

Of which: forborne

exposures

A. Initial total adjustments 54,906 761 37,413 12,133 407 -- of which: positions transferred but not derecognised

- - - - - -

B. Increases 32,640 5,642 33,177 23,790 26 -B.1 adjustments 15,547 1,782 32,886 23,594 26 -B.2 losses from disposals 172 - - - - -B.3 transfers from other

categories of impaired positions

16,921 3,860 291 196 - -

B.4 other increases - - - - - -C. Decreases 13,072 240 36,568 15,330 422 -

C.1 value write-backs from valuations 3,403 240 19,315 14,998 131 -

C.2 Value write-backs due to collection 1,806 - - - - -

C.3 gains from disposals 1,639 - - - - -C.4 cancellations 134 - 332 332 - -C.5 transfers to other

categories of impaired positions

- - 16,921 - 291 -

C.6 other decreases (1) 6,090 - - - - -D. Final overall adjustments 74,474 6,163 34,022 20,593 11 -

- of which: positions transferred but not derecognised

- - - - - -

Non-performing Unlikely to pay Past due Total

Total net receivable adjustments 27,258 (3,391) (396) 23,471Net gains from disposal 1,467 - - 1,467

(1) In the column ‘non-performing positions’ the item includes an amount of EUR 6.090 million (see item C.6) relating to losses on disposal, of which EUR 5,917 thousand covered by the bad debt provision and EUR 172 thousand not covered by the bad debt provision (see item B.2).

EXPLANATORY NOTES

245

Cash credit exposures include all financial assets in cash, excluding equities and UCITS units, regardless of the accounting portfolio: trading, available for sale, held to maturity, receivables, assets at fair value, assets being disposed.Unlike the data reported in table 8.1 ‘Net adjustments for impairment of receivables: breakdown’, this table does not include the losses on receivables amounting to EUR 144 thousand.By contrast, the write-offs of Part C (EUR 134 thousand) on bad debts are not significant in terms of table 8.1 ‘Net adjustments for impairment of receivables: breakdown’ in Part C as they represent a reversal of the fund relative to the adjustments made in prior years for which no future recoveries are expected.

A.2 Classification of positions on the basis of external and internal ratings

A.2.1 Distribution of cash and ‘off-balance-sheet’ credit exposures by class of external rating

PositionsExternal rating classes Without

rating TotalClass 1 Class 2 Class 3 Class 4 Class 5 Class 6

A. Cash credit exposures - 4,050 3,010,438 5,620 - - 2,199,379 5,219,487

B. Derivatives - 5,332 5,976 618 - - 10,578 22,504B.1 Financial

derivatives - 5,332 5,976 618 - - 10,578 22,504

B.2 Credit derivatives - - - - - - - -

C. Guarantees issued - - - - - - 88,667 88,667

D. Commitments to issue funds - - - - - - 12,371 12,371

E. Others - - - - - - 14,614 14,614TOTAL - 9,381 3,016,414 6,238 - - 2,325,609 5,357,649

In order to fill out the table, the ratings from the following companies were utilised: Standard & Poor’s, Fitch and Moody’s. The individual ratings were distributed to the risk categories required by the table, in accordance with the additional information required by Circular no. 263 of the Bank of Italy, outlined below:

risk category rating1 from AAA to AA-2 from A+ to A-3 from BBB+ to BBB-

4 and 5 from BB+ to B- 6 lower than B-

A.2.2 Distribution of cash and ‘off-balance’ positions by internal rating classThe table is not filled out because, on the date of the financial statements in question, no internal ratings were utilised.


246

A.3 Distribution of secured positions by type of guarantee

A.3.1 Guaranteed credit exposures relative to banks

Valu

e of

exp

osur

e

Collateral (1)Personal guarantees (2)

Total (1+2)

Credit derivativesCredit

commitmentsReal estate properties

Secu

ritie

s

Oth

er c

olla

tera

l

Cre

dit L

inke

d N

otes

Other derivatives

Mor

tgag

es

Fina

nce

leas

es

Gov

ernm

ents

and

cent

ral b

anks

Oth

er p

ublic

bod

ies

Bank

sO

ther

sub

ject

sG

over

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d ce

ntra

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ksO

ther

pub

lic b

odie

s

Bank

s

Oth

er s

ubje

cts

1. Guaranteed cash credit exposures: 1,430,886 - - 1,417,995 5,585 - - - - - - - - - 1,423,580

1.1 totally guaranteed 1,407,912 - - 1,406,245 1,667 - - - - - - - - - 1,407,912- of which impaired - - - - - - - - - - - - - - -

1.2 partially guaranteed 22,974 - - 11,750 3,918 - - - - - - - - - 15,668

- of which impaired - - - - - - - - - - - - - - -2. Secured off-balance-sheet

cash credit exposures: 624 - - 600 - - - - - - - - 24 - 624

2.1 totally guaranteed 624 - - 600 - - - - - - - - 24 - 624- of which impaired - - - - - - - - - - - - - - -

2.2 partially guaranteed - - - - - - - - - - - - - - -- of which impaired - - - - - - - - - - - - - - -

The economic sectors to which the guarantors (credit commitments) and protection sellers (credit derivatives) belong were identified by referring to the classification criteria outlined in the pamphlet “Classification of customers by sector and branch of economic activity” published by the Bank of Italy.

EXPLANATORY NOTES

247

A.3.2 Guaranteed credit exposures relative to customers

Valu

e of

exp

osur

e

Collateral (1)Personal guarantees (2)

Total (1+2)

Credit derivativesCredit commitmentsReal estate

properties

Secu

ritie

s

Oth

er c

olla

tera

l

Cre

dit L

inke

d N

otes

Other derivatives

Mor

tgag

es

Fina

nce

leas

es

Gov

ernm

ents

and

cent

ral b

anks

Oth

er p

ublic

bod

ies

Bank

sO

ther

sub

ject

sG

over

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d ce

ntra

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ks

Oth

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ublic

bod

ies

Bank

s

Oth

er s

ubje

cts

1. Guaranteed cash credit exposures: 399,958 357,128 - 12 13,244 - - - - - - 5,459 1,387 20,182 397,412

1.1 totally guaranteed 394,905 357,128 - 12 12,139 - - - - - - 4,628 1,387 19,610 394,904- of which impaired 45,110 43,862 - - 59 - - - - - - - - 1,189 45,111

1.2 partially guaranteed 5,053 - - - 1,105 - - - - - - 831 - 572 2,508- of which impaired - - - - - - - - - - - - - - -

2. Secured off-balance-sheet cash credit exposures: 2,561 - - - 535 - - - - - - - 968 1,013 2,516

2.1 totally guaranteed 2,338 - - - 535 - - - - - - - 968 835 2,338- of which impaired - - - - - - - - - - - - - - -

2.2 partially guaranteed 223 - - - - - - - - - - - - 178 178- of which impaired - - - - - - - - - - - - - - -



248

B. Distribution and concentration of credit exposures

B.1 Distribution by sector of cash and off-balance-sheet credit exposures relative to customers (Carrying amount)

Exposures/counterparties

Governments Other public bodies Financial companies Insurance

companiesNon-financial companies Other subjects

Net

exp

osur

e

Spec

ific

adju

stmen

tsPo

rtfol

io a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

adju

stmen

tsPo

rtfol

io a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

adju

stmen

ts

Portf

olio

adj

ustm

ents

Net

exp

osur

e

Spec

ific

adju

stmen

tsPo

rtfol

io a

djus

tmen

ts

Net

exp

osur

e

Spec

ific

adju

stmen

ts

Portf

olio

adj

ustm

ents

Net

exp

osur

e

Spec

ific

adju

stmen

ts

Portf

olio

adj

ustm

ents

A. Cash exposures - - - - - - - - - - - - - - - - - -A.1 Non-performing - - - - - - - 1,954 - - - - 14,161 66,296 - 1,933 6,224 -of which: forborne exposures - - - - - - - - - - - - 1,725 2,965 - - - -

A.2 Unlikely to pay - - - - - - 380 706 - - - - 29,174 32,626 - 858 690 -of which: forborne exposures - - - - - - 380 706 - - - - 16,359 15,428 - 346 415 -

A.3 Past due - - - - - - - - - - - - 85 11 - - - -of which: forborne exposures - - - - - - - - - - - - - - - - - -

A.4 Non-impaired 3,010,341 -- - 451 - 1 108,553 - 1,454 - - - 375,077 - 9,642 26,912 - 204of which: forborne exposures - -- - 387 - 1 741 - 9 - - - 42,643 - 1,017 5,543 - 39

TOTAL A 3,010,341 - - 451 - 1 108,933 2,660 1,454 - - - 418,496 98,933 9,642 29,703 6,914 204B. Off-balance-sheet exposures - - - - - - - - - - - - - - - - - -

B.1 Non-performing - - - - - - - - - - - - - - - - - -B.2 Unlikely to pay - - - - - - - - - - - - 468 - - 24 - -B.3 Other impaired assets - - - - - - - - - - - - - - - - - -

B.4 Non-impaired 1,554 - - 200 - - 36,288 - - 9,262 - - 28,149 - - 4,003 - -TOTAL B 1,554 - - 200 - - 36,288 - - 9,262 - - 28,617 - - 4,027 - -TOTAL (A+B) 2015 3,011,895 - - 651 - 1 145,221 2,660 1,454 9,262 - - 447,114 98,933 9,642 33,730 6,914 204TOTAL (A+B) 2014 2,706,495 - - 8,088 - 8 892,174 1,837 1,027 2,283 - - 522,652 84,638 8,644 36,069 6,250 210


EXPLANATORY NOTES

249

B.2 Territorial distribution of cash and off-balance-sheet credit exposures relative to customers (Carrying amount)

Exposures/geographic areas

Italy Other EU countries America Asia

Rest of the world

Net

exp

osur

e

Ove

rall

adju

stmen

ts

Net

exp

osur

e

Ove

rall

adju

stmen

ts

Net

exp

osur

e

Ove

rall

adju

stmen

ts

Net

exp

osur

e

Ove

rall

adju

stmen

ts

Net

exp

osur

e

Ove

rall

adju

stmen

ts

A. Cash exposures A.1 Non-performing 16,094 74,474 - - - - - - - -A.2 Unlikely to pay 30,412 34,022 - - - - - - - -A.3 Impaired past due 85 11 - - - - - - - -A.4 Non-impaired 3,516,760 11,293 4,050 - 518 8 - - - -

TOTAL A 3,563,351 119,801 4,050 - 518 8 - - - -B. Off-balance-sheet exposures

B.1 Non-performing - - - - - - - - - -B.2 Unlikely to pay 492 - - - - - - - - -B.3 Other impaired assets - - - - - - - - - -B.4 Non-impaired 79,430 - 19 - 7 - - - - -

TOTAL B 79,922 - 19 - 7 - - - - -TOTAL (A+B) 2015 3,643,273 119,801 4,068 - 525 8 - - - -TOTAL (A+B) 2014 4,163,052 102,605 4,076 - 634 9 - - - -


250

B.3 Territorial distribution of cash and off-balance-sheet credit exposures relative to banks (Carrying amount)

Exposures/geographic areas

Italy Other EU countries America Asia

Rest of the world

Net

exp

osur

e

Ove

rall

adju

stmen

ts

Net

exp

osur

e

Ove

rall

adju

stmen

ts

Net

exp

osur

e

Ove

rall

adju

stmen

ts

Net

exp

osur

e

Ove

rall

adju

stmen

ts

Net

exp

osur

e

Ove

rall

adju

stmen

ts

A. Cash exposures A.1 Non-performing - - - - - - - - - -A.2 Unlikely to pay - - - - - - - - - -A.3 Impaired past due - - - - - - - - - -A.4 Non-impaired 1,626,026 - 10,758 - 14,118 - 289 - 377 -

TOTAL A 1,626,026 - 10,758 - 14,118 - 289 - 377 -B. Off-balance-sheet exposures

B.1 Non-performing - - - - - - - - - -B.2 Unlikely to pay - - - - - - - - - -B.3 Other impaired assets - - - - - - - - - -B.4 Non-impaired 40,485 - 2,964 - 18 - - - 127 -

TOTAL B 40,485 - 2,964 - 18 - - - 127 -TOTAL (A+B) 2015 1,666,511 - 13,722 - 14,136 - 289 - 504 -TOTAL (A+B) 2014 4,428,812 - 11,623 - 7,287 - 173 - 962 -

B.4 Large exposuresThe provision in question is regulated by Circular 285/13, Chapter 10, Second Part, and aims to limit the risks of instability derived from the default of a single counterparty to which the bank is exposed in a significant manner; this objective is pursued not only through prudential limits but also organisational controls relating to the assessment of the creditworthiness of customers to which the bank is significantly exposed, as well as the monitoring of the associated positions and recording of interrelationships between customers. Weighting can no longer be applied to interbank exposures.

EXPLANATORY NOTES

251

Total 2015 Total 2014a) Amount of large exposures

a 1) carrying amount 5,996,378 8,050,610a 2) weighted value 280,412 362,230

b) Number of positions of large exposures (1) 46 84(1) value to the nearest unit

It is hereby specified that, of the 46 positions above:• 1 refers to exposures to the Italian government• 1 refers to exposures to the ECB/Bankitalia• 1 refers to transactions with respect to Cassa di Compensazione e Garanzia• 37 refer to banking counterparties of which 33 refer to CR-BCCs, proof of the commitment made to pursuing the development objectives and the support for the cooperative movement, which is part of the typical ‘mission’ of Cassa Centrale Banca.

• 6 refers to other exposures.

C. Securitisation transactions

C.1 Securitisation operations


Third party securitisation transactionsThe bank retains, within its portfolio, securities from third party securitisation transactions for a total of EUR 4 million. These are mezzanine class securities with Aa2 rating issued by the special purpose vehicle BCC Mortgages PLC as part of the issue of an overall total of EUR 1,038,450,000, including EUR 996,050,000 with AAA/Aa1 rating, and EUR 42,400,000 with A/A1 rating, and relating to the securitisation of bond securities issued by the special purpose vehicles Cassa Centrale Finance and Credico Finance 6. With regard to the aforementioned transaction, the bank did not assume any role as servicer. The Bank does not retain any interest in the special purpose company BCC Mortgages PLC. During the course of the year, no adjustments were applied to the security owned in the portfolio; this security was not deemed to be depreciated in light of the information received from the special purpose company which issued the security and from the companies issuing the securitised bonds.


252


C.1 Positions deriving from primary “own” securitisation operations subdivided by type of securitised asset and type of exposureThe table is not filled out because, on the date of the financial statements in question, there were no balances ascribable to the item in question.

C.2 Positions deriving from primary “third party” securitisation operations subdivided by type of securitised asset and type of exposure

Type of underlying assets/exposures

Cash exposures Guarantees issued Credit linesSenior Mezzanine Junior Senior Mezzanine Junior Senior Mezzanine Junior

Car

ryin

g am

ount

Valu

e ad

justm

ents/

writ

e-ba

cks

Car

ryin

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ount

Valu

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justm

ents/

writ

e-ba

cks

Car

ryin

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Valu

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ents/

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e-ba

cks

Car

ryin

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ount

Valu

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justm

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cks

Car

ryin

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ount

Valu

e ad

justm

ents/

writ

e-ba

cks

Car

ryin

g am

ount

Valu

e ad

justm

ents/

writ

e-ba

cks

Car

ryin

g am

ount

Valu

e ad

justm

ents/

writ

e-ba

cks

Car

ryin

g am

ount

Valu

e ad

justm

ents/

writ

e-ba

cks

Car

ryin

g am

ount

Valu

e ad

justm

ents/

writ

e-ba

cks

BCC Mortgages Plc - - 4,050 - - - - - - - - - - - - - - -

- securities

C.3 Securitisation special purpose vehicleThe table is not filled out because, on the date of the financial statements in question, there were no balances ascribable to the item in question.

C.4 Unconsolidated securitisation special purpose vehiclesThe table is not filled out because, on the date of the financial statements in question, there were no balances ascribable to the item in question.

C.5 Servicer activities - collections of securitised receivables and reimbursements of securities issued by the securitisation special purpose vehicleThe table is not filled out because, on the date of the financial statements in question, there were no balances ascribable to the item in question.

EXPLANATORY NOTES

253

D. Disclosure on structured entities not consolidated from an accounting viewpoint (different from securitisation special purpose vehicles)

The information and the tables are not provided because on the date of the financial statements in question, there were no balances ascribable to the item in question.

E. Disposal TransactionsA. Financial assets disposed but not fully derecognised


Financial assets disposed and not derecognised and financial liabilities related to assets disposed and not derecognised shown in the tables of this Section pertain mainly to repos carried out on own securities recognised as assets in the statement of financial position.


E.1. Financial assets disposed but not derecognised: carrying amount and intrinsic value

Technical forms/Portfolio

Financial assets

held for trading

Financial assets at fair value

Financial assets available for

sale

Financial assets held to maturity

Loans to banks

Loans to customers

Total 2015

Total 2014

A B C A B C A B C A B C A B C A B CA. Cash assets - - - - - - 739,731 - - 267,141 - - - - - - - - 1,006,872 -1. Debt securities - - - - - - 739,731 - - 267,141 - - - - - - - - 1,006,872 -

2. Equities - - - - - - - - - - - - - - - - - - - -3. UCITS - - - - - - - - - - - - - - - - - - - -4. Loans - - - - - - - - - - - - - - - - - - - -B. Derivative

instruments - - - - - - - - - - - - - - - - - - - -

TOTAL 2015 - - - - - - 739,731 - - 267,141 - - - - - - - - 1,006,872 -- of which impaired - - - - - - - - - - - - - - - - - - - -TOTAL 2014 - - - - - - - - - - - - - - - - - - - -- of which impaired - - - - - - - - - - - - - - - - - - - -

KeyA = financial assets disposed and fully booked (carrying amount)B = financial assets disposed and partially booked (carrying amount)C = financial assets disposed and partially booked (full value)


254

E.2 Financial liabilities relative to financial assets that were disposed but not derecognised: carrying amount

Liability/Portfolio of assets

Financial assets held for trading

Financial assets at

fair value

Financial assets

available for sale

Held to maturity

investments

Loans to banks

Loans to customers Total

1. Due to customers - - 739,305 291,683 - - 1,030,988a) relative to fully

booked assets - - 739,305 291,683 - - 1,030,988

b) relative to partially booked assets

- - - - - - -

2. Due to banks - - - - - - -a) relative to fully

booked assets - - - - - - -

b) relative to partially booked assets

- - - - - - -

TOTAL 2015 - - 739,305 291,683 - - 1,030,988TOTAL 2014 - - - - - - -

E.3 Transfers with liabilities with reimbursement exclusively on transferred assets: fair valueThe table is not filled out because, on the date of the financial statements in question, there were no balances ascribable to the item in question.

B. Financial assets disposed and fully derecognised with recognition of continuing involvementThe information is not provided because on the date of the financial statements in question, there were no balances ascribable to the item in question.

E.4 Covered bond transactions On the date of the financial statements in question, there were no balances ascribable to the item in question.

F. Credit risk measurement modelsThe Bank does not apply internal models for credit risk measurement.

EXPLANATORY NOTES

255

MARKET RISKS

2.1 Interest rate risk and price risk - Regulatory trading portfolio


A. General aspectsThe bank implements trading activities, on its own behalf, of financial instruments which are exposed to interest rate and price risk, both directly as well as through proxies to third parties which operate in compliance with the policies and risk assumption limits stated in the proxy management agreement.The ‘regulatory trading portfolio’ is defined in the regulations on the supervisory reporting of market risks in Circular no. 286 ‘Instructions for the compilation of prudential reports for banks and securities brokerage firms’ issued by the Bank of Italy.Trading on own account is primarily based on compliance with treasury requirements while not neglecting to maximise the risk/return profile of portfolio investments for the elements of interest rate risk and credit risk of the counterparty.The positions held thus far for trading purposes are those which are intentionally allocated for a subsequent short-term disposal or which are acquired for the purposes of benefiting, in the short-term, from differences in acquisition and sales price along with an opportune diversification of investments.Bond securities and OTC derivatives represent the sources of interest rate risk in the portfolio in question; with regard to operations with derivatives, the bank does not assume speculative positions but implements transactions with CR-BCCs or customers that are balanced out by complementary transactions initiated with primary counterparties and which aim to hedge against the interest rate risk assumed by these CR-BCCs or clients; these types of transactions allow for a substantial neutralisation of interest rate risk in the specific segment. During the course of 2015, analyses of a portfolio representing OTC derivatives were continued by using Value at Risk techniques. These tests have confirmed that the market risk is effectively residual given the methods and nature of the transactions that were carried out. The trading of financial instruments on its own behalf exposes the Bank to price risk when investing in debt securities or equities, in UCITS and in derivative contracts on UCITS, equities and stock market indices. Investments in capital instruments almost exclusively refer to listed shares.The Finance Regulations establishes specific quantitative limits to the trading portfolio; the Risks Committee defines strategies and objectives on the basis of market trends and periodically reviews performances.As at 31 December 2015, an asset management line with stock delegation was active and deemed consistent with the investment strategies of the bank concerning the basket of investable securities, the risk profile and profitability objectives. The performance of this equity asset management is reported to the Board of Directors on a quarterly basis.

B. Processes for managing and measurement methods relative to interest rate and price riskManagement of interest rate risk of the trading portfolio is implemented by the Risks Committee on the basis of the limits and proxies established by the Board of Directors, while activities for the measurement, control and

SECTION 2


256

verification of interest rate risk are implemented by the Risk Management department which also utilises the documentation produced by the Finance Division. Management and control of interest rate and price risk for the trading portfolio utilises a series of report that also include Value at Risk techniques. Calculation of the maximum potential loss of the trading portfolio occurs on a daily basis and over a time period of 10 working days along with a confidence interval of 99%. The model is based on a Montecarlo simulation method. The result is also monitored in order to control the operational limits established in the Finance Regulations.The objective of the reporting is to supply the information which is necessary for the control and correct management of market risk for operational purposes, in compliance with currently effective regulations. The monitored data may also serve to support decisions relative to the asset allocation of portfolios within the specific quantitative limits established by the Finance Regulations. The utilisation of What-If Analysis for simulation allows for a prior evaluation of the impact of a specific transaction on the potential losses of a portfolio.The market data utilised by the model are updated on a daily basis. Volatility is calculated with the exponential moving average method in order to lend greater weight to more recent observations compared to past ones. In this way, it is possible to obtain estimates of VaR values which are more reactive to market shocks and which return to phases of normality in faster time periods compared to the use of volatilities which are calculated with a simple average. The length of the historical data series is 1 year of data. The estimate of the exponential moving average is linked to the decay factor, equal to 0.94, which is deemed a good indicator in the case of calculation of a VaR with a holding period of 10 working days at 99%. The use of the exponential moving average is also utilised for the correlation estimate which is directly implemented within the software used for calculating the VaR. The maximum potential loss is subdivided into various risk factors (interest rate, exchange rate, performance of the stock market and specific risk of the issuer, if available and country risk for Italian government securities) and takes into account their correlations. The reports that are produced allow for a detailed analysis of the specific risk level of the trading portfolio, not only in terms of VaR, but also in terms of the sensitivity of the specific components to the primary factors of risk, by utilizing numerous statistics and stress scenarios. The maximum potential loss of the trading portfolio is illustrated in detail for each individual security by grouping the various typologies (funds, stocks, government securities with fixed or variable rates, corporate securities, transnational securities, and so forth) in order to highlight the specific risk level for the selected grouping level. Control over the reliability of the model is implemented through theoretical backtesting activities which verify daily changes in the market value of the trading portfolio, as calculated by the model with an estimate of the expected loss for the day. In the most recent year of data collection, changes were primarily due to sudden fluctuations in market factors linked to volatility in geo-political environments and the dynamics of the ongoing economic crisis.The year 2015 saw a continuation, with respect to VaR, of the quantification of issuer risk for Italian government securities, understood as VaR relating only to the risk factor expressed as the spread between the Italian and German government securities. The risk measurement model described is not utilised to determine capital requirements (whose calculation is not required by regulations for the portfolio in question) but represents an internal tool to support the management and internal control of risk.

EXPLANATORY NOTES

257

With regard to overall monitoring of (interest rate, price and exchange rate) risk, the Finance Regulations define:• the maximum sustainable level of loss, calculated as the sum of net income and losses realised in the year and structured according to a network of powers differentiated by competent body;

• the maximum VaR limits in order to set limits on portfolio asset allocation activities by the Risks Committee, and structured according to a network of powers differentiated by competent body.

Information relative to VaR calculations for the securities component of the regulatory trading portfolio during the course of 2015 is reported below:

Average VaR, 2015 VaR 31.12.2015 Minimum VaR, 2015 Maximum VaR, 2015 263,386 239,146 154,707 1,752,942

Amounts rounded to nearest Euro

With regard to stress tests, the outcomes of simulations of the impact of different shock scenarios on the theoretical value of the trading portfolio on 31.12.2015 is reported below. For the two scenarios relating to the parallel rate shocks, it was deemed appropriate to lower the impacts respectively by 50 and 100 basis points to 15 and 30 basis points, to make them closer to the current market situation, which operates with negative rates in the low part of the curve. Currently under assessment is the possibility of maintaining the stress test on the hypothesis of a non-parallel upward shift of the Italian rates curve, inasmuch as in the course of the year it yielded mixed results with regard to the trading book. The shocks replicate:1. a period of significant losses: it includes a time period relative to the second half of 2011 in which there were

significant increases in interest rates of the Italian government curve and a shock in the markets of the Euro zone which then had a strong impact on the owned portfolio;

2. stress on stock market indices: includes a 10% decrease in the primary European stock market indices;3. parallel rate shocks of +15 and +30 basis points for the primary rate curves that were used in the valuation

of securities within the owned portfolio.

Theoretical market value changeTheoretical

market value 31.12.2015

Significant losses Stock market indices -10%

Rates curves +15 basis points


2,798,323 -766,681 -272,068 -132,051 -246,037Amounts rounded to nearest Euro

As part of the Asset & Liability Management (ALM) analysis, the valuation of the impact on the interest margin and on Equity - following cases of rate shifts equal to +/- 100 basis points - should be noted. The data reported in the table are based on a dynamic model with constant volumes that assume the regeneration of items which expire during the course of the year so that the asset amounts remain constant during the period of analysis. The time period which was utilised is that of a calendar year and the percentage changes are calculated by taking the Regulatory Capital as a base of reference.


258

Increase 100 bp Decrease 100 bpImpact on

interest margin

Change in equity

Impact on interest margin

Change in equity

Trading portfolio: securities (absolute values in thousands of Euro) - - - -

as percentage of regulatory capital - - - -

Even with regard to price risk, the trading portfolio is constantly monitored by the Finance Division and by the Risk Management department; the latter checks that the limits set by the Finance Regulations are not exceeded for investments in securities which expose the Bank to this risk. Reporting information is available on a daily basis and reports details on securities, completed operations and economic results. The price risk of the trading portfolio is managed by the Finance Division on the basis of structured proxies which limit exposure in terms of total invested amount, listed markets and maximum capital loss amounts.With regard to delegated equity asset management - which is a high risk investment instrument - the contract provides for an early-warning level as well as a stop loss; once the latter is reached, the manager must liquidate the assets under management.The price risk measurement model is not utilised to determine capital requirements but represents a tool to support management and internal control.

EXPLANATORY NOTES

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1. Regulatory trading portfolio: distribution by residual duration (re-pricing date) of financial assets and liabilities in cash as well as financial derivatives

Type/residual duration

on demand

up to 3 months

from over 3 months to 6 months

from over 6 months to 1 year

from over 1 year to

5 years

from 5 years to

10 years

beyond 10 years

indefinite duration

1. Cash assets - - - - - 2 2 -1.1 Debt securities - - - - - 2 2 -- with option of advance reimbursement

- - - - - - - -

- other - - - - - 2 2 -1.2 Other assets - - - - - - - -2. Cash liabilities - - - - - - - -2.1 Borrowing

reverse repurchase agreements

- - - - - - - -

2.2 Other liabilities - - - - - - - -3. Financial

derivatives - -27 70 -8 2 - -4 -

3.1 With underlying security

- 1 - - - - -2 -

- Options - - - - - - - -+ long positions - - - - - - - -+ short positions - - - - - - - -- Other derivatives - 1 - - - - -2 -+ long positions - 1,555 1,328 - 120 106 - -+ short positions - 1,554 1,328 - 120 106 2 -3.2 Without underlying security - -28 70 -8 2 - -2 -

- Options - -16 25 -8 2 - -2 -+ long positions 16,204 32,689 33,964 22,582 486,461 451,101 118,605 -+ short positions 16,204 32,705 33,939 22,590 486,459 451,101 118,607 -- Other derivatives - -13 45 - - - - -+ long positions 42,351 388,428 239,818 25,950 162,256 34,444 16,607 -+ short positions 42,351 388,441 239,773 25,950 162,256 34,444 16,607 -

The above tables shows both transactions denominated in Euro and in foreign currencies, considering that the currency component is not significant; repos of securities or currencies are included in the item ‘3. Financial derivatives’.


260

2. Regulatory trading portfolio: distribution of exposures in equities and stock market indices for the main countries of the listed marketThe table is not reported given that a price risk sensitivity analysis for an internal model is supplied.

3. Regulatory trading portfolio: internal models and other methodologies for sensitivity analysisInformation relative to VaR calculations for equities and stock market indices included within the regulatory trading portfolio is reported below:

Average VaR, 2015 VaR 31.12.2015 Minimum VaR, 2015 Maximum VaR, 2015255,985 239,113 154,672 404,612


EXPLANATORY NOTES

261

2.2 Interest rate risk and price risk - Banking book


A. General elements as well as interest rate and price risk management processes and measurement methods

Primary sources of interest rate riskFair value interest rate risk is derived from fixed rate items while interest rate risk from cash flows is derived from variable rate items.The bank is exposed to different sources of interest rate risk for the banking book: these include credit, collection and finance processes given that the banking book is primarily composed of funding and loans in the interbank sector as well as financing to customers and various forms of customer deposits.Items on demand generally include asymmetrical behaviours, depending on whether one considers liability or asset items; the former - being characterised by greater stability - primarily refer to fair value risk while the second are more sensitive to markets changes and therefore ascribable to cash flow risk.The Bank - during the course of its operations - focuses adequate attention on both asset and liability items in order to determine interest rate risk.The banking book includes, amongst other items, investments in equities whose purpose is to attain medium to long-term strategic objectives. The banking book therefore also includes - in addition to traditional loans to customers and bond instruments, financial instruments which expose the bank to price risk, i.e.:• shareholdings relative to interests in companies promoted by the Cooperative Credit movement or in

companies or entities which are instrumental for the development of the bank’s activities or the cooperative movement;

• investment funds;• stocks.

Internal processes for managing and measuring interest rate riskCassa Centrale Banca implements measures for mitigating and controlling interest rate risk in order to avoid the possibility of assuming positions that exceed a certain level of risk.These mitigation and control measures are listed within company regulations, with the latter providing for monitoring that is based on position limits as well as systems with alert thresholds that are proportional to regulatory capital; once these thresholds are reached, various corrective actions are initiated.With regard to this point, the following are defined:• policies and procedures for managing interest rate risk that are consistent with the nature and complexity of

the activity carried out;• operational limits and internal procedural provisions which aim to maintain exposure within limits that are

consistent with the managerial policy and with the alert thresholds pursuant to prudential regulations;


262

• measurement of risk which generates warning levels and informational flows so as to allow for the prompt identification and initiative of suitable corrective actions.

The Bank has appointed the Finance Division, as well as the Risk Management department and the Risks Committee, as the company bodies which will supervise the process for managing interest rate risk within the banking book.Monitoring exposure to interest rate risk within the banking book is implemented on a quarterly basis, in compliance with regulations, as well as on a monthly basis on a managerial level and on the basis of internal regulations. In addition, specific simulations are prepared before carrying out operations of a certain amount which result in capital requirement increases. The Board of Directors of the bank has resolved to use the simplified algorithm described in Attachment C, Title III, Chapter 1, Section III of Circular no. 285/2013 of the Bank of Italy for the methodology used to measure risk and quantify the corresponding internal capital.The methodology estimates the change in the economic value of the banking book in the case of a hypothetical change in interest rates of +/-200 basis points.The application of the aforementioned simplified methodology is based on the following logical steps:1. definition of the banking book: composed of a group of assets and liabilities which are not part of the

trading portfolio for supervisory purposes;2. determination of ‘relevant currencies’, i.e. currencies whose measured weight - as a percentage of total

assets or liabilities of the banking book - is greater than 5%. Each relevant currency defines a group of positions. Currencies whose weight is less than 5% are grouped together;

3. classification of financial assets and liabilities in time periods: 14 time periods are defined. Assets and liabilities with a fixed rate are classified on the basis of their residual useful life, while those with variable rates are classified on the basis of the date of re-pricing of the interest rate. Without prejudice to certain specific classification rules that are explicitly provided for, assets and liabilities are inserted within the maturity ladder according to the criteria pursuant to Circular 272 ‘Manual for filling out the Accounts Matrix’. Non-performing, unlikely to pay and overdue-overrun positions are re-classified within the relevant brackets of residual life and on the basis of forecasts - for recovery of underlying cash flows – made by the bank for the purposes of financial statement valuations. Impaired positions for which there are no cash flow recovery forecasts are typically allocated within the various time period sectors on the basis of a proportional allocation, utilising - as a basis for the allocation - the distribution of the recovery forecasts - for the other impaired positions - within the various brackets of residual life (give the same type of impairment);

4. weighting of net positions for each bracket: within each bracket, asset and liability positions are offset, thereby resulting in a net position. The net position per bracket is multiplied by the corresponding weighting factor. Weighting factors per bracket are calculated as a product of the approximated duration - modified in relation to the bracket - and a hypothetical change in rates of 200 basis points for all brackets;

5. sum of net weighted positions for the various brackets: the net weighted position of the individual aggregate values is an estimate - in the case of the forecasted rate shock - of the change in present value of the items denominated in the currency of the aggregated value;

6. aggregation within the various currencies: positive positions relative to individual ‘relevant currencies’ as well as the aggregate value of the ‘non-relevant currencies’ are summed together. The value which is obtained represents the change in company economic value in the case of the forecasted scenario;

EXPLANATORY NOTES

263

7. determination of the risk indicator which is represented by the ratio between the value of the sum obtained and the Regulatory Capital value.

The provisions of prudential regulations which regulate the ICAAP – Internal Capital Adequacy Assessment Process provide for an alert threshold of the risk indicator equal to 20%.In the event this indicator exceeds the alert threshold, the Supervisory Body will analyse the results in depth with the Bank and reserves the right to implement the necessary actions. The risk indicator was not exceeded in 2015 for Cassa Centrale Banca on the four official quarterly calculations. The Bank also carried out annual stress tests through the aforementioned methodology by considering an increase of an additional 100 basis points for the rate shock. In addition to the monitoring activities for interest rate risk through the methodology described above, the Bank implements operational management activities by availing itself of the support offered by monthly ALM reporting. Within the analysis, assessment of the impact on capital for various cases of rate shocks is illustrated in the Sensitivity Report; the latter estimates the impact of parallel and simultaneous shifts in the yield curve of +/-100 and +/-200 basis points on the present value of assets, liabilities and derivatives. This impact is further broken down by individual type of asset and liability in order to highlight their contribution to overall sensitivity and to understand the various levels of reactivity of items with fixed, variable and mixed rates; in addition, its incidence on the bank’s capital is reported over time in order to promote systematic monitoring. Additional control activities in relation to overall exposure to interest rate risk on the part of the Bank is implemented through the measurements that are offered within the realm of the ALM Reports. In particular, variability of both the interest margin as well as of Equity is analysed for the different scenarios of changing interest rates and bank growth across a time period of 12 months. The simulation assumes that the bank maintains constant assets under management during the 12-month period of analysis with gradual changes in interest rates of +/- 100 basis points, thereby isolating the variability of the margin and Equity in different environments.The ALM analyses are presented by the Risk Management department to the Risks Committee. The Finance Regulations provide for an alert threshold for interest rate risk which is calculated as the net negative value - in the case of a shock increase or decrease of 200 basis points - equal to 25% of the Regulatory Capital.The bank retains bond securities issued by CR-BCCs which are classified within the portfolio ‘at fair value’; in order to specifically hedge against only interest rate risk for these securities, it issued debenture loans with the same characteristics of duration and rate. They have also been classified under liabilities at their fair value.In relation to the securities component of the banking book, the calculation of the VaR - subdivided by specific IAS portfolio (HTM, AFS and L&R) - is available on a daily basis.With regard to price risk, the Finance Regulations provide for specific limits to operations with stocks and similar instruments (ETFs, Certificates) as well as with investment funds with a stock component, structured by means of a grid of proxies regardless of the IAS classification category; compliance with regulatory limits is verified with first and second level controls. Limits to the acquisition of investment funds issued by individual asset management companies are also provided for and also structured on the basis of a network of proxies.The Risk Management department prepares periodical weekly reports which outline the details of the securities and the economic results which were attained.


264

B. Fair value hedging activitiesObjectives and strategies underlying fair value hedging transactions, types of derivative contracts utilized for hedging and nature of the hedged risk.

The Bank has implemented hedging transactions in order to hedge against changes in fair value; the Fair Value Option provisions are used to book these operations. The strategy adopted by the Bank aims to only contain interest rate risk and to stabilise the interest margin by means of non-listed interest rate swap transactions that are carried out with primary counterparties and in order to specifically hedge against interest rate risk deriving from loans or bond issues with fixed interest rates.The Bank does not implement fair value hedging transactions that are booked on the basis of fair value hedge accounting.

C. Cash flow hedgingObjectives and strategies underlying transactions for the hedging of cash flows, types of derivative contracts utilised and nature of the hedged risk.

The bank does not implement hedging transactions that are booked with cash flow hedge accounting.

D. Hedging of foreign investmentsThe Bank does not implement operations for the hedging of foreign investments.

EXPLANATORY NOTES

265


1. Banking book: distribution by residual duration (re-pricing date) of financial assets and liabilities

Type/residual duration on demand

up to 3 months

from over 3 months to 6

months


from over 1 year to

5 years

from over 5 years to 10 years

beyond 10 years

indefinite duration

1. Cash assets 1,018,224 2,204,251 1,460,224 76,842 257,176 123,996 78,775 -

1.1 Debt securities 802,865 486,816 1,326,630 - 210,975 123,996 76,407 -- with option of advance reimbursement 95 - - - 380 475 286 -

- other 802,770 486,816 1,326,630 - 210,595 123,521 76,122 -1.2 Financing to banks 74,214 1,565,494 4,771 24 - - - -1.3 Financing to customers 141,145 151,941 128,823 76,818 46,201 - 2,368 -- current accounts 54,408 - - - 13,651 - 206 -- other financing 86,737 151,941 128,823 76,818 32,549 - 2,162 -

- with option of advance reimbursement 14,573 147,336 122,513 36,486 16,388 - 2,162 -

- other 72,164 4,605 6,309 40,332 16,161 - - -2. Cash liabilities 1,787,513 2,023,021 137,168 542,934 473,345 10,240 24,610 -

2.1 Due to customers 278,778 1,030,988 - 45,295 102 152 24,610 -- current accounts 271,344 - - 45,295 - - 24,426 -- other payables 70,434 1,030,988 - - 102 152 184 -

- with option of advance reimbursement - - - - - - - -

- other 70,434 1,030,988 - - 102 152 184 -2.2 Due to banks 1,508,735 992,033 137,168 490,684 470,148 - - -- current accounts 1,484,586 - - - - - - -- other payables 24,149 992,033 137,168 490,684 470,148 - - -2.3 Debt securities - - - 6,954 3,094 10,087 - -


- other - - - 6,954 3,094 10,087 - -2.4 Other liabilities - - - - - - - -


- other - - - - - - - -3. Financial derivatives - -3,067 -6,343 282 7,465 1,595 67 -

3.1 With underlying security - - - - - - - -- Options - - - - - - - -+ long positions - - - - - - - -+ short positions - - - - - - - -- Other derivatives - - - - - - - -


266

Type/residual duration on demand

up to 3 months

from over 3 months to 6

months


from over 1 year to

5 years

from over 5 years to 10 years

beyond 10 years

indefinite duration

+ long positions - - - - - - - -+ short positions - - - - - - - -3.2 Without underlying

security - -3,067 -6,343 282 7,465 1,595 67 -

- Options - -3,112 -6,343 286 7,498 1,604 67 -+ long positions - 656 573 1,194 7,498 1,604 67 -+ short positions - 3,767 6,916 908 - - - -- Other derivatives - 45 - -4 -32 -9 - -+ long positions - 49 - - - - - -+ short positions - 4 - 4 32 9 - -4. Other off-balance-sheet operations - - - - - - - -

+ long positions - - - - - - - -+ short positions - - - - - - - -

The above tables shows both transactions denominated in Euro and in foreign currencies, considering that the currency component is not significant; repos of securities or currencies are included in the item ‘3. Financial derivatives’.

2. Banking book: internal models and other methodologies for sensitivity analysisIn accordance with what has been reported in the section relative to the regulatory trading portfolio, the measurement of market risk of the banking book is also supported by VaR reporting; information concerning the calculated results, calculated with relation to solely the securities component of the banking book, are provided below:

Average VaR, 2015 VaR 31.12.2015 Minimum VaR, 2015 Maximum VaR, 201512,978,914 8,336,592 6,959,984 22,330,033


Control over the reliability of the model is implemented through theoretical backtesting activities which verify daily changes in the market value of the trading portfolio, as calculated by the model with an estimate of the expected loss for the day. In the most recent year of data collection, changes were primarily due to sudden fluctuations in market factors linked to volatility in geo-political environments and the dynamics of the ongoing economic crisis. The year 2015 saw a continuation, with respect to VaR, of the quantification of issuer risk for Italian government securities, understood as VaR relating only to the risk factor expressed as the spread between the Italian and German government securities.

EXPLANATORY NOTES

267

With regard to stress tests, the outcomes of simulations of the impact of different shock scenarios on the theoretical value of the trading portfolio on 31.12.2015 is reported below. For the two scenarios relating to the parallel rate shocks, it was deemed appropriate to lower the impacts respectively by 50 and 100 basis points to 15 and 30 basis points, to make them closer to the current market situation, which operates with negative rates in the low part of the curve. The shocks replicate:1. a period of significant losses: it includes a time period relative to the second half of 2011 in which there were significant increases in interest rates of the Italian government curve and a shock in the markets of the Euro zone which then had a strong impact on the owned portfolio;2. a specific case of non-parallel shift upwards in the Italian rates curve which was composed of the primary daily

changes recorded in various points of the curve in the second half of 2011;3. stress on stock market indices: includes a 10% decrease in the primary European stock market indices;4. parallel rate shocks of +15 and +30 basis points for the primary rate curves that were used in the valuation

of securities within the owned portfolio.

Theoretical market value change

Theoretical market value 31.12.2015

Significant losses

Shift in Italian rates curve

Stock market indices

-10%



3,129,596,275 -171,257,086 -30,099,913 -4,016,795 -8,023,181 -15,967,677Amounts rounded to nearest Euro

For managerial purposes, the Bank also utilizes the quantitative results contained in the monthly ALM reporting.On the basis of dynamic ALM analyses with constant volumes as at 31 December 2015 - and given a scenario of an increase in interest rates of +/-100 basis points distributed over a time period of one year and uniformly across the entire rates curve (short, medium and long-term) – the effects on the interest margin and on the Equity are reported in relation to the banking book with a specification of the percentage impact compared to Equity/regulatory capital.

Increase 100 bp Decrease 100 bpImpact on

interest margin

Change in equity

Impact on interest margin

Change in equity

Banking book: securities (absolute values in thousands of Euro) 6,865 -21,019 -1 -13,522

as a percentage of Equity/Regulatory Capital 3.31% -8.75% 0.00% -5.63%Banking book: receivables (absolute values in thousands of Euro) 2,027 -5,231 -321 28,825

as percentage of Equity\Regulatory Capital 0.98% -2.18% -0.15% 11.99%Liabilities (absolute values in thousands of Euro) 8,065 -6,406 -271 2,801as a percentage of Equity/Regulatory Capital 3.89% -2.67% -0.13% 1.17%


268

2.3 Exchange rate risk


A. General aspects as well as processes for managing and measuring exchange rate riskGiven its role as currency supplier for CR-BCCs and as a result of transactions with customers, the Bank is exposed to exchange rate risk.The measurement involves the calculation of the ‘net exchange rate position’, i.e. the balance of all assets and liabilities (in the financial statements and off-statement of financial position) relative to each currency, including operations in Euro which are indexed to currency exchange rate changes. The Bank has, in any case, established a structure of internal limits and operational proxies for both the net exchange rate position at the end of the day as well as for the net position for individual currencies, thereby confirming a strategy which aims to minimise this type of risk; compliance with limits and proxies is continually verified by the Finance Division and, at the end of each day, by the Risk Management department.During the course of 2015, the analysis based on Value at Risk techniques was continued in order to monitor trends in the risk levels of the net exchange rate position, as defined above. This model is not utilised to determine capital requirements but represents an internal tool to support management and internal control of risk.

B. Exchange rate risk hedging activitiesExchange rate risk hedging activities are implemented through a policy of essentially balancing booked foreign currency positions; for this purpose, during 2015 the Bank has implemented hedging transactions against exchange rate risk by using outright derivative instruments.

EXPLANATORY NOTES

269


1. Distribution of assets, liabilities and derivatives by currency

ItemsCurrency

USD Pounds Yen Canadian dollars

Swiss francs

Other currencies

A. Financial assets 28,269 559 4,618 806 10,186 2,923A.1 Debt securities - - - - - -A.2 Equities - - - - - -A.3 Financing to banks 28,113 559 4,618 806 10,009 2,923A.4. Financing to customers 156 - - - 177 -A.5 Other financial assets - - - - - -B. Other assets 686 649 30 65 573 420C. Financial liabilities 48,858 1,234 131 880 5,607 3,709C.1 Due to banks 48,829 1,234 131 880 5,607 3,699C.2 Due to customers 29 - - - - 10C.3 Debt securities - - - - - -C.4 Other financial liabilities - - - - - -D. Other liabilities 30 - - - 5 -E. Financial derivatives 20,748 32 -4,516 88 -5,263 328- Options - - - - - -+ long positions - - - - - -+ short positions - - - - - -- Other derivatives 20,748 32 -4,516 88 -5,263 328+ long positions 38,085 250 147 91 2,076 960+ short positions 17,337 218 4,663 2 7,339 632TOTAL ASSETS 67,040 1,458 4,795 961 12,836 4,303TOTAL LIABILITIES 66,225 1,452 4,794 883 12,951 4,341IMBALANCE (+/-) 815 6 1 78 -116 -38

Forward currency transactions are included under item ‘E. Financial derivatives’.

2. Internal models and other methodologies for sensitivity analysis Internal models for sensitivity analysis are not utilised.


270

2.4 Derivative instruments

A. Financial derivativesA.1 Regulatory trading portfolio: period-end and average notional values

Underlying assets/type of derivativesTotal 2015 Total 2014

Over the counter

Central counterparties

Over the counter


1. Debt securities and interest rates 1,092,942 - 1,605,042 -a) Options 243,814 - 304,635 -b) Swaps 849,128 - 1,300,407 -c) Forwards - - - -d) Futures - - - -e) Other - - - -

2. Equities and stock market indices - - - -a) Options - - - -b) Swaps - - - -c) Forwards - - - -d) Futures - - - -e) Other - - - -

3. Currencies and gold 51,768 - 59,373 -a) Options - - - -b) Swaps - - - -c) Forwards 51,768 - 59,373 -d) Futures - - - -e) Other - - - -

4. Commodities - - - -5. Other underlying assets - - - -TOTAL 1,144,710 - 1,664,415 -AVERAGE VALUES 1,100,516 - 1,646,429 -

A.2 Banking book: period-end and average notional values

A.2.1 Hedging derivatives The table is not filled out because, on the date of the financial statements in question, there were no balances ascribable to the item in question.

EXPLANATORY NOTES

271

A.2.2. Other derivatives


Over the counter


Over the counter


1. Debt securities and interest rates 6,728 - 5,564 -a) Options 6,679 - 5,508 -b) Swaps 49 - 56 -c) Forwards - - - -d) Futures - - - -e) Other - - - -

2. Equities and stock market indices - - - -a) Options - - - -b) Swaps - - - -c) Forwards - - - -d) Futures - - - -e) Other - - - -

3. Currencies and gold - - - -a) Options - - - -b) Swaps - - - -c) Forwards - - - -d) Futures - - - -e) Other - - - -

4. Commodities - - - -5. Other underlying assets - - - -TOTAL 6,728 - 5,564 -AVERAGE VALUES 51 - 58 -


272

A.3 Financial derivatives: Positive fair value – breakdown by product


Over the counter


Over the counter


A. Regulatory trading portfolio: 22,196 - 35,860 -a) Options - - - -b) Interest rate swaps 21,714 - 34,901 -c) Cross currency swaps - - - -d) Equity swaps - - - -e) Forwards 482 - 959 -f) Futures - - - -g) Other - - - -

B. Hedging banking book - - - -a) Options - - - -b) Interest rate swaps - - - -c) Cross currency swaps - - - -d) Equity swaps - - - -e) Forwards - - - -f) Futures - - - -g) Other - - - -

C. Banking book - other derivatives 308 - 313 -a) Options 308 - 313 -b) Interest rate swaps - - - -c) Cross currency swaps - - - -d) Equity swaps - - - -e) Forwards - - - -f) Futures - - - -g) Other - - - -

TOTAL 22,504 - 36,173 -

EXPLANATORY NOTES

273

A.4 Financial derivatives: Gross negative fair value - breakdown by product


Over the counter


Over the counter


A. Regulatory trading portfolio: 21,714 - 35,080 -a) Options - - - -b) Interest rate swaps 21,260 - 34,406 -c) Cross currency swaps - - - -d) Equity swaps - - - -e) Forwards 454 - 674 -f) Futures - - - -g) Other - - - -

B. Hedging banking book - - - -a) Options - - - -b) Interest rate swaps - - - -c) Cross currency swaps - - - -d) Equity swaps - - - -e) Forwards - - - -f) Futures - - - -g) Other - - - -

C. Banking book - other derivatives 6 - 8 -a) Options - - - -b) Interest rate swaps 6 - 8 -c) Cross currency swaps - - - -d) Equity swaps - - - -f) Futures - - - -g) Other - - - -TOTAL 21,720 - 35,088 -


274

A.5 OTC financial derivatives - regulatory trading portfolio: notional values, positive and negative gross fair values by counterparty - contracts not part of offsetting agreements

Contracts not part of offsetting agreements

Governments and Central

Banks

Other public bodies

Banks Financial companies

Insurance companies

Non-financial

companies

Other subjects

1) Debt securities and interest rates

- notional value - - 406,625 13,110 - 123,556 3,180- positive fair value - - 7,804 966 - 936 82

- negative fair value - - 11,314 - - 438 7

- future exposure - - 2,985 45 - 105 32) Equities and

stock market indices

- notional value - - - - - - -- positive fair value - - - - - - -

- negative fair value - - - - - - -

- future exposure - - - - - - -3) Currencies

and gold

- notional value - - 51,768 - - - -- positive fair value - - 482 - - - -

- negative fair value - - 454 - - - -

- future exposure - - 511 - - - -4) Other assets

- notional value - - - - - - -- positive fair value - - - - - - -

- negative fair value - - - - - - -

- future exposure - - - - - - -

EXPLANATORY NOTES

275

A.6 OTC financial derivatives - regulatory trading portfolio: notional values, positive and negative gross fair values by counterparty - contracts that are part of offsetting agreements

Contracts that are part of offsetting agreements


Banks

Other public bodies


Insurance companies

Non-financial

companies

Other subjects

1) Debt securities and interest rates

- notional value - - 802,722 - - - -- positive fair value - - 22,972 - - - -- negative fair value - - 11,755 - - - -

2) Equities and stock market indices

- notional value - - - - - - -- positive fair value - - - - - - -- negative fair value - - - - - - -

3) Currencies and gold - notional value - - - - - - -- positive fair value - - - - - - -- negative fair value - - - - - - -

4) Other assets - notional value - - - - - - -- positive fair value - - - - - - -- negative fair value - - - - - - -


276

A.7 OTC financial derivatives: notional values, positive and negative gross fair values by counterparty - contracts not part of offsetting agreements

Contracts not part of offsetting agreements


Banks

Other public bodies


Insurance companies

Non-financial

companies

Other subjects

1) Debt securities and interest rates - - - - - - -

- notional value - - 49 - - 2,364 4,316- positive fair value - - - - - 46 262- negative fair value - - 6 - - - -- future exposure - - - - - 30 62

2) Equities and stock market indices - - - - - - -

- notional value - - - - - - -- positive fair value - - - - - - -- negative fair value - - - - - - -- future exposure - - - - - - -

3) Currencies and gold - - - - - - -- notional value - - - - - - -- positive fair value - - - - - - -- negative fair value - - - - - - -- future exposure - - - - - - -

4) Other assets - - - - - - -- notional value - - - - - - -- positive fair value - - - - - - -- negative fair value - - - - - - -- future exposure - - - - - - -

A.8 OTC financial derivatives: banking book: notional values, positive and negative gross fair values bycounterparty - contracts that are part of offsetting agreementsThe table is not filled out because, on the date of the financial statements in question, there were no balances ascribable to the item in question.

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A.9 Residual life of OTC financial derivatives: notional values

Underlying/residual life Up to 1 year

From 1 to 5 years

Beyond 5 years Total

A. Regulatory trading portfolio 720,876 321,731 102,103 1,144,710A.1 Financial derivatives on debt securities and

interest rates 669,108 321,731 102,103 1,092,942

A.2 Financial derivatives on equities and stock market indices - - - -

A.3 Financial derivatives on exchange rates and gold 51,768 - - 51,768

A.4 Financial derivatives on other assets - - - -B. Banking book: 20 800 5,909 6,729

B.1 Financial derivatives on debt securities and interest rates 20 800 5,909 6,729

B.2 Financial derivatives on equities and stock market indices - - - -

B.3 Financial derivatives on exchange rates and gold - - - -

B.4 Financial derivatives on other assets - - - -TOTAL 2015 720,896 322,531 108,012 1,151,439TOTAL 2014 1,068,762 505,469 95,747 1,669,979

A.10 OTC financial derivatives counterparty risk/financial risk – Internal modelsThe bank does not apply EPE internal models.

B. Credit derivatives This section is not filled out given that the bank does not hold credit derivatives.

C. Credit and financial derivativesThis section is not filled out inasmuch as the bank does not hold financial and credit derivatives.


278

LIQUIDITY RISK


A. General aspects as well as processes for managing and measuring the liquidity risk

Liquidity risk is defined as the possibility of the Bank not being able to fulfil its payment obligations due to an incapacity to obtain new funds (funding liquidity risk), the inability to sell assets on the market to cover an imbalance requiring financing (asset liquidity risk), or the fact that it may be forced to liquidate its assets in unfavourable market conditions, thereby sustaining very high costs in order to meet its commitments (market liquidity risk).The Board of Directors of the Bank has deliberated in favour of a document named “Policy for the governance and management of liquidity” which defines the policies, responsibilities, processes, operational limits and tools for managing liquidity risk, both during normal business operations as well as during potential liquidity crises.The policies include the strategies and organisational measures which serve to promptly contain liquidity risk; the ordinary and stress scenarios which the bank may encounter are defined. The sources of liquidity risk to which the Bank is exposed can primarily be identified within the Finance/Treasury, Funding and Credit processes.The Bank adopts a liquidity risk governance and management system which, in compliance with the provisions of the Supervisory Authorities, pursues the double objective of guaranteeing availability of liquid reserves in order to meet its payment obligations as well as financing its assets under the best possible market conditions - present and future - in order to maintain a substantial equilibrium between average due dates of loans and medium-long term deposits.Liquidity management is entrusted, for specific tasks, to the Finance Division, which avails itself of the schedule of cash inflows and outflows as well as of payment forecasts and cash flows nearing expiration.As also occurs for the measurement of interest rate risk for the banking book, the liquidity risk management and measurement is also supported by the ALM Reports. Risk management is conducted by the Finance Division, in collaboration with the Planning and Organisation Area. The Bank measures, monitors and controls its liquidity position, in the short-term (operational, up to 12 months), in the medium to long term (structural, beyond 12 months) and in the intra-day.The maturity ladder which is utilised to measure short-term liquidity is produced on a monthly basis. In particular, it is based on the so-called “hybrid method”, which is a hybrid of the “stock approach” and the “cash flow” approach; this method - in addition to the allocating cash flows of asset and liability items on the basis of their residual life - includes a category represented by the stock of financial assets which can easily be liquidated (AEL), i.e. the availability of monetary funds and assets which are rapidly convertible on a monetary basis through the liquidation of the relative positions or the attainment of credit lines by granting these with guarantees.Allocation - within the various time brackets - of cash flows generated by the various types of asset items (other than those included in the AEL group) and of liability items is implemented on the basis of prudential criteria (the application of haircuts, discharge coefficients of credit lines, collectability of cash inflows and outflows). This breakdown of cash flows of asset and liability items within the time brackets of the maturity ladder aims to reflect the bank’s expectations in addition to being representative of a context of ordinary operations or moderate tension from a liquidity perspective.

SECTION 3

EXPLANATORY NOTES

279

For this purpose, the Board of Directors has decided to:• draft organisational rules as well as procedures for the measurement and control of liquidity risk by taking into account:

- the situation of current and future equilibrium of assets and liabilities as well as of commitments and facilities respectively to issue or receive funds and financing;

- the complexity of the financial instruments which are used to manage activities relative to the collection and use of funds;

• assess the net liquidity position of the bank on the basis of the guidelines specified in Circular 285/13 of the Bank of Italy (Part One, Title IV, Chapter 6, Section III);

• define - as a final method for risk management – the primary guidelines of the so-called Contingency Funding Plan which – through specific responsibilities, as well as procedures and actions that are established in advance– allow a liquidity crisis to be managed.

The Basel 3 legislation provides new short-term liquidity risk supervision systems (Liquidity Coverage Ratio – LCR) and a more longer-term structural equilibrium rule (Net Stable Funding ratio – NSFR), plus principles for the management and supervision of liquidity risk at individual institution level. The rules for the construction of the two above-mentioned indicators are contained in EU Regulation no. 575/2013 (CRR); for the construction of the LCR, in addition, Delegated Regulation (EU) no. 2015/61 was issued; it supplements the provisions of the CRR and it is to be applied from 1 October 2015. While awaiting the official reporting templates of the LCR, the Supervisory Body has requested, in this provisional period, that a template prepared by EBA be prepared and transmitted on a quarterly basis; it is called Interim LCR Report to monitor banks’ compliance with the prescribed thresholds.With regard to states of crisis, stress tests will be applied in which the values relative to certain variables - which affect the future inflows and outflows of the Bank over a time period of 1 month - are modified. The percentage change in the values of these variables and the stress scenarios are defined on the basis of the specifications received from the Risks Committee.With regard to the management of structural liquidity, the Bank utilizes a method of analysis of the transformation of due dates which are available within the monthly ALM reporting. The report in question measures the duration and amount of the loans and deposits on the due date in order to propose useful summary indicators which can be used to assess the consistency and sustainability of the financial structure of the Bank over time. The bank monitors daily liquidity by using the two indicators derived from the ‘Annual report on financial stability’ of the Bank of Italy of November 2011 (LCNO – Largest cumulative net out flow and LIIP – Liquidity and intraday payment commitments). To complete the monitoring of the daily liquidity risk, a stress scenario is analysed, constructed according to the model presented in the study of the Bank of England ‘Intraday liquidity risk and regulation’ of June 2011.The results of the liquidity risk analysis are presented on a monthly basis from the Risk Management department to the Risks Committee; the latter also offers an evaluation in relation to needs deriving from financial flows as well as in relation to the growth plans of the bank, financing requirements or resources that must be invested in addition to supplying general guidelines for the directly involved organisational units. The positioning of the Bank with regard to operational and structural liquidity is also reported to the Board of Directors on a quarterly basis.The requirements of Cassa Centrale Banca are largely ascribable to decreases in liquidity available to shareholder banks or clients; the Risks Committee continually evaluates the Bank’s capacity to meet its needs, while taking the


280

following into account, in particular:• availability and price of securities that can be easily liquidated;• availability of credit within the interbank system;• potential of institutional bond funding;• use of other funding tools.The Bank carries out a ‘back-up liquidity’ estimate on a half-yearly basis relating to the maximum amount of liquidity that can be obtained under conditions of alert and crisis. The asset liquidity analysis involves the level of liquidity of company assets and makes it possible to evaluate not only high quality liquid assets, but also other items that can be used by the Bank to meet unforeseen liquidity requirements.With regard to attainable credit and the potential for bond funding, the Bank adopts the best practices in order to safeguard or improve the ratings attained thus far.

EXPLANATORY NOTES

281


1. Time-based distribution by residual contractual duration of financial assets and liabilities

Items/time period brackets

On demand

from 1 to 7 days

from 7 to 15 days

from over 15

days to 1 month

from over 1 month

to 3 months

from 3 to 6

months

from 6 months to

1 year

from 1 year to 5

years

Beyond 5 years

indefinite duration

Cash assets 188,231 33,010 8,925 803,938 761,034 39,893 1,017,484 2,051,144 389,714 -A.1 Government securities 1,440 - - - 6,861 11,223 944,124 1,815,000 215,003 -A.2 Other debt securities 123 - - - 22 320 382 13,411 14,590 -A.3 UCITS units 52,969 - - - - - - - - -A.4 Financing 133,699 33,010 8,925 803,938 754,151 28,351 72,978 222,733 160,121 -- banks 66,891 32,504 8,444 784,067 740,497 4,854 185 5,691 1,392 -- customers 66,808 507 481 19,872 13,654 23,496 72,793 217,042 158,729 -Cash liabilities 2,175,169 491,365 811 1,949,368 1,558,436 262,497 1,071,749 956,243 132,291 -B.1 Deposits 1,766,724 11,417 811 178,502 330,069 133,558 538,635 469,300 24,426 -- banks 1,499,167 11,356 781 177,772 328,006 127,786 490,694 469,300 - -- customers 267,556 60 30 730 2,062 5,772 47,941 - 24,426 -B.2 Debt securities - - - - 150 - 450 8,336 10,000 -B.3 Other liabilities 408,445 479,949 - 1,770,866 1,228,217 128,939 532,664 478,607 97,865 -Off-balance-sheet operations 455 -31 10 16 -8 45 - - -1 -

C.1 Financial derivatives with exchange of capital - -31 10 17 -8 45 1 - -1 -

- long positions - 11,849 9,511 4,885 28,019 6,045 3,261 120 142 -- short positions - 11,880 9,500 4,868 28,027 6,000 3,261 120 143 -C.2 Financial derivatives without exchange of capital

455 - - -1 - - -1 - - -

- long positions 22,317 - - - - - - - - -- short positions 21,862 - - 1 - - 1 - - -C.3 Deposits and loans to be received - - - - - - - - - -

- long positions - - - - - - - - - -- short positions - - - - - - - - - -C.4 Irrevocable commitments to issue funds - - - - - - - - - -

- long positions - - - - - - - - - -- short positions - - - - - - - - - -C.5 Financial guarantees issued - - - - - - - - - -

C.6 Financial guarantees received - - - - - - - - - -


282

Items/time period brackets

On demand

from 1 to 7 days

from 7 to 15 days

from over 15

days to 1 month

from over 1 month

to 3 months

from 3 to 6

months

from 6 months to

1 year

from 1 year to 5

years

Beyond 5 years

indefinite duration

C.7 Credit derivatives with exchange of capital - - - - - - - - - -

- long positions - - - - - - - - - -- short positions - - - - - - - - - -C.8 Credit derivatives without exchange of capital

- - - - - - - - - -

- long positions - - - - - - - - - -- short positions - - - - - - - - - -

The above tables shows both transactions denominated in Euro and in foreign currencies, considering that the currency component is not significant; repos of securities or currencies are included in the item ‘Off-balance-sheet operations’.

EXPLANATORY NOTES

283

OPERATING RISKS


A. General aspects as well as processes for managing and measuring the operating risk of an event.

Operating risk is the “risk of sustaining losses deriving from the inadequacy or dysfunction of procedures, human resources and internal systems or those caused by exogenous events.” This definition includes legal risk, but not reputational and strategic risk.Operating risk is a pure risk given that only negative symptoms of the event are linked to it. These symptoms are directly attributable to the activities of the Bank and concern its entire structure (governance, business and support).Operating risk - which is inherent in the performance of banking activities - is generated across all company processes. In general, the primary sources of operating risk are internal fraud, external fraud, workplace employment and safety reports, professional obligations with respect to clients or the nature and characteristics of products as well as damages from external events and the breakdown of IT systems. Risks related to significant outsourcing activities are relevant in this case. Given that it is a transversal risk across processes, operating risk can be controlled and mitigated through currently effective internal regulations (regulations, executive provisions, proxies) which are drafted primarily for the purposes of prevention. Specific line controls are then set up on the basis of these regulations as a verification and additional system for monitoring this type of risk. Currently effective regulations are also applied to IT procedures with the aim of constantly monitoring the correct assignment of authorisation as well as compliance with functional subdivisions on the basis of company roles.The Bank mapped the main banking processes, formalising the related controls within a specific database; this is based on the belief that process documentation represents the best answer to the need to monitor operating risks. All phases and activities which form standard operating procedures have been recorded, and the potential risks as well as the first level control contents have been identified for these. Specific audits were implemented with regard to authorisations and access to the company IT system as well as to the internet portal; with regard to this point, criteria and rules for risk containment have been adopted.The Bank has an “Operational Continuity Plan” which was drafted in order to protect the Bank itself in the case of crises which could damage its full operational capability; it therefore formalized the operating procedures that must be adopted in the crisis scenarios in question and clearly outlined the roles, responsibilities and time schedules of the various parties that are involved.With regard to organisational safeguards, the Compliance and Anti-money Laundering department - delegated to monitor and control compliance with norms - provides ex ante support to the process of preventing and managing the risk of being subject to judicial or administrative sanctions as well as the risk of reporting significant losses following the violation of external regulations (laws or regulations) or internal ones (Articles of Association, codes of conduct, corporate governance codes), carrying out ex post audit activities according to a risk based approach.The Security Manager and the ICT Manager are tasked with controlling the risks connected with the management of the IT system.

SECTION 4


284

The Internal Audit office – which is responsible for third level controls – conducts periodical audits on the overall functionality of the system of controls within the realm of the various company processes.With regard to the regulatory measurement of the prudential requirement for operating risks, the Bank - given that it does not reach the specific thresholds for accessing the advanced methodologies identified by Supervisory Authorities, and in light of its organisational, operational and size characteristics - applies the (Basic Indicator Approach – BIA).On the basis of this methodology, the capital requirement for operating risks is measured by applying the regulatory coefficient of 15% to the average of the last three observations, on an annual basis, of an indicator of the volume of company operations (so-called ‘relevant indicator’), relating to the situation at the end of the year (31 December), pursuant to art. 316 of Regulation (EU) no. 575/2013 (CRR).With regard to the governance of operating risks, importance was attached to the controls adopted in the context of the adjustment into line with the new regulations governing the outsourcing of company functions regulated by Circular 285/2013 (Part I, Title IV, Chapter 3, Section IV), which defines an organic framework of principles and rules to adhere to when outsourcing company functions, and requires the implementation of specific controls to cover the connected risks, and the maintenance of the capacity to control the work of the supplier and the necessary skills for any re-insourcing, if required, of outsourced activities.In this context, outsourcing agreements are being revised to ensure:• that all outsourced activities are mentioned; • the scope of application with the respective rights/obligations/responsibilities (in compliance with applicable laws and regulations);

• the methods of service performance; • the conditions on verification of which changes can be made; • the duration;• the methods of renewal and suspension; • the financial terms; • the clauses of protection of personal data, of sensitive personal data, of confidential information owned by the Bank.

With reference to the outsourcing of important operating functions and company control functions, which involves more stringent obligations in terms of contractual restrictions and specific requirements requested from the supplier, service levels (which must be objective and measurable), guaranteed service levels in the case of an emergency and the related continuity solutions are in the process of being defined. As regards cash outsourcing, in addition to those cited above, the additional controls required by specific reference legislation, linked to particular transactions, are already in place. Also with regards to the outsourcing of the IT system, the contractual references are under review in light of the additional obligations of the supplier, linked to data management and the logical security of applications.Within the issues pertaining to the IT systems and business continuity, the Bank, recognising the value of the management of IT risk as a tool to ensure the effectiveness and efficiency of the protection measures of its IT system, defined a method for analysing IT risk and the associated management process which is incorporated within the wider Bank risk management system.The adoption of this method will make it possible to integrate the management of operating risks by also considering the risks connected to IT and business continuity profiles, and to document the evaluation of IT risk based on the continuous information flows established with the software house.

EXPLANATORY NOTES

285

The adoption of these references is prior to the preparation of the process of verification, at least annually, of the evaluation of IT risk based on the results of the monitoring of the effectiveness of the measures to protect ICT resources.


Year AmountDecember 2015 67,963,167December 2014 57,449,986December 2013 59,751,819Relevant indicator average last 3 years 61,721,657Capital requirement (15% of the average) 9,258,249


The requirements shown in the table are calculated by using exclusively the values of the relevant indicator determined in accordance with art. 316 of CRR no. 575/2013. For the purposes of a more structured evaluation of operating risks, a series of activities have been initiated as of 2009 for the implementation of processes relative to funding as well as the preservation and analysis of internal data relating to the most significant events and operational losses. The mandatory use of a database - where events which caused operational losses, even potential, could be registered - was introduced; this tool represents a development in risk assessment methodologies and serves the purpose of identifying and removing process defects which could result in negative events.

Disclosure of information to the public In accordance with Circular 285/2013, Part Two, Chapter 13, Section I, it should be known that Cassa Centrale Banca - with reference to the requirement for disclosure of information to the public prescribed by the Third Pillar of Basel 2 - publishes the required information on its website, www.cassacentrale.it.


286

PART FINFORMATION ON EQUITY

Section 1 The company’s capital

Section 2 Regulatory capital and adequacy ratios

EXPLANATORY NOTES

287

THE COMPANY’S CAPITAL

A. INFORMATION OF A QUALITATIVE NATURE

One of the consolidated strategic priorities of the Bank is represented by the amount and movements of its capital assets. Capital constitutes the first control in respect of the risks connected with overall banking business and the main reference parameter for the assessments of banks’ strength by the regulatory authorities. It also contributes positively to the generation of operating income and adequately covers all the Bank’s technical and financial fixed assets. The evolution of company assets not only specifically occurs in connection with a growth in size but represents a decisive element in its development phases.The equity of the Bank is given by the sum of the share capital and of the share premium reserves, profit reserves, valuation reserves and the net income, as indicated in Part B of this section.International accounting standards, secondarily define Equity as the amount remaining of a company’s assets after having deducted all liabilities. From a financial perspective, as a result, the assets represent the monetary amount contributed by owned assets or generated by the company. The concept of capital that the Bank uses in its evaluations is essentially the notion of ‘regulatory capital’ as established by EU Regulation no. 575/2013 (CRR), as regards the three components of capital: Common equity tier 1 capital (CET 1), Tier 1 capital and Tier 2 capital. In fact, capital defined in this way represents, in the Bank’s opinion, the best reference for strategic management and in terms of the management of current operations. This constitutes the main safeguard of company risks according to the regulations for prudential supervision, given that it is a financial resource which is capable of absorbing potential losses generated by the Bank’s exposure to the aforementioned risks, thereby assuming a guarantee role with respect to depositing parties and creditors in general.As regards minimum capital requirements, reference is made to the mandatory parameters established by the aforementioned regulatory provisions, on the basis of which, in the absence of specific supplementary requests by the supervisory Authority, banks’ common equity CET 1 capital must account for at least 4.5% of total risk-weighted assets (‘CET1 capital ratio’), Tier 1 capital must represent at least 6% from 2015 of the total of the aforementioned weighted assets (‘Tier 1 capital ratio’) and total Bank regulatory capital must represent at least 8% of total weighted assets (‘total capital ratio’). The aforementioned risk-weighted assets are determined in relation to the so-called ‘pillar 1’ risk profiles represented by credit and counterparty risk (measured on the basis of the debtor counterparty category, duration and type of transactions and personal guarantees and collateral securities received), market risks on the trading portfolio and operating risk.The regulatory provisions also require additional Tier 1 capital to be held aside from the aforementioned minimum mandatory requirements, for use in adverse market phases in order to preserve the minimum level of regulatory capital (‘capital conservation reserve’, equal to 2.5% of total risk-weighted assets).Minimum capital requirements can be subject to increase as a result of the periodic Supervisory Review and Evaluation Process (SREP) carried out by the supervisory Authority on the individual banks or Groups. Aside from observance of the aforementioned minimum mandatory capital ratios in respect of ‘pillar 1’ risks, the regulatory legislation also requires banks to measure their current and prospective overall capital adequacy using internal methods and, under a ‘stress’ scenario, the set of company risks that

SECTION 1


288

include not only ‘pillar 1’ risks (credit, counterparty, market, operating), but additional risk factors that impact company business, such as, in particular, concentration risks, interest rate risk, liquidity risk, and excessive financial leverage risk (‘pillar 2’). The existence of the second pillar - along with the minimum mandatory ratios - effectively expands the concept of capital adequacy, thereby assuming a more global meaning and aimed at the overall verification of capital requirements and effectively available assets, in accordance with the strategic and growth objectives of the Bank itself. The Bank utilises the Internal Capital Adequacy Process, ICAAP, in order to determine the level of internal capital which is adequate to manage all types of risk within the domain of an assessment of current and future exposure that takes into account the strategies and evolution of the reference context. The objective of the Bank is therefore to maintain adequate capital coverage of the requirements required by supervisory norms; as part of the ICAAP process, their development is therefore estimated during the planning phase and on the basis of the objectives established by the Board of Directors. Verification of compliance with supervisory requirements and the consequent adequacy of capital is implemented on a quarterly basis. The elements which are audited primarily include ratios pertaining to the financial structure of the bank (loans, problem receivables, fixed assets, total assets) and the degree of hedging of risks.The current level of capital assets allows for compliance with the provisions for prudential monitoring provided for banks.

EXPLANATORY NOTES

289

B. INFORMATION OF QUANTITATIVE NATURE

This section illustrates the breakdown of accounts pertaining to the capital assets of the bank.

B.1 Company’s capital: breakdown

Items/Values Total 2015 Total 20141. Share capital 140,400 140,4002. Share premium 4,350 4,3503. Reserves 69,225 59,830

- of profit 69,207 59,812a) legal 23,368 22,422b) statutory - -c) own shares - -d) other 45,839 37,389- other 18 18

4. Equity instruments - -5. (Own shares) - -6. Valuation reserves 11,532 23,619

- Financial assets available for sale 10,933 23,120- Tangible assets - -- Intangible assets - -- Hedging of foreign investments - -- Cash flow hedging - -- Exchange rate differences - -- Non-current assets held for disposal - -- Actuarial gains (losses) from defined benefit plans -297 -398- Quotas of valuation reserves relative to shareholdings valuated with the equity method: - -

- Special revaluation laws 896 8967. Profit (loss) of the year 14,807 18,906TOTAL 240,314 247,105

The share capital of the Bank is composed of 2,550,000 ordinary shares as well as 150,000 preference shares with a nominal value of EUR 52 each and totalling EUR 140,400,000.The reserves pursuant to point 3 including already existing profit reserves as well as the positive and negative reserves associated with the effects of transition to IAS/IFRS international accounting standards which were not booked under the other items of Equity.The reserves for valuation of financial assets available for sale, and included in point 6, are specified in detail in table B.2 below.


290

B.2 Valuation reserves relative to financial assets available for sale: breakdown

AssetsTotal 2015 Total 2014

Positive reserve

Negative reserve

Positive reserve

Negative reserve

1. Debt securities 9,899 -241 21,078 -2142. Equities 24 - 17 -3. UCITS units 1,292 -41 2,356 -1174. Loans - - - -TOTAL 11,215 -282 23,451 -331

The column ‘Positive reserve’ specifies the cumulative amount of valuation reserves relative to financial instruments which - in relation to the category in question, and on the date of the financial statements - reported a fair value that was greater than their amortised cost (financial assets reporting capital gains).The column ‘Negative reserve’, on the other hand, specifies the cumulative amount of valuation reserves relative to financial instruments which - in relation to the category in question, and on the date of the financial statements - reported a fair value that was lower than their amortised cost (financial assets reporting capital losses).The specified amounts are reported net of the related tax effect.

B.3 Valuation reserves relative to financial assets available for sale: changes

Debt securities Equities UCITS

units Loans

1. Opening balances 20,864 17 2,239 -2. Positive changes 23,334 845 3,669 -

2.1 Fair value increases 7,582 - 1,800 -2.2 Reversals of negative reserves to the income statement 315 837 733 -

- from impairment - 837 636 -- on sale 315 - 97 -

2.3 Other changes 15,437 8 1,136 -3. Negative changes 34,540 838 4,657 -

3.1 Fair value decreases 4,509 837 627 -3.2 Impairment adjustments - - - -3.3 Reversals of positive reserves to the income statement: on sale 24,100 - 3,361 -

3.4 Other changes 5,931 1 669 -4. Closing balances 9,658 24 1,251 -

The amount reported in point 2.2, columns ‘Equities’ and ‘UCITS units’, refers to the reversal of the negative reserve to the Income Statement, booked under shares and funds as a result of impairment.

EXPLANATORY NOTES

291

B.4 Valuation reserves relating to defined benefit plans: annual changes

Total 20151. Opening balances -3982. Positive changes 139

2.1 Actuarial gains (losses) from defined benefit plans 1392.2 Other changes -2.3 Business combinations -

3. Negative changes 383.1 Actuarial losses from defined benefit plans -3.2 Other changes 383.3 Business combinations -

4. Closing balances -297

REGULATORY CAPITAL AND ADEQUACY RATIOS

2.1. Regulatory capital


The regulatory Capital and the capital ratios were calculated on the basis of financial values and the economic result which is determined by applying the financial statement regulations pursuant to IAS/IFRS international accounting standards and by taking into account the regulations pertaining to regulatory Capital and prudential ratios introduced by the issuing of EU Regulation no. 575/2013 (CRR) and EU Directive no. 63/2013 (CRD IV), and the related technical-application provisions of the EBA, subject to specific delegated regulations of the European Commission.The regulatory Capital is calculated as the sum of positive and negative items and on the basis of their financial quality; positive elements must be fully available to the bank so it can utilise them to cover the overall regulatory capital requirements pertaining to risks.Total regulatory capital, which constitutes the reference safeguard of the prudential regulatory provisions, is composed of Tier 1 capital and Tier 2 – T2 capital; in turn, Tier 1 capital is the sum of Common Equity Tier 1 - CET 1 and Additional Tier 1 – AT1 capital.In these aggregate values are deducted, according to pre-set percentages, the innovative and non-innovative capital instruments, hybrid capitalization instruments and subordinated assets, held in other banks and financial companies.The equity interests, held in other banks and financial companies, and the deferred tax assets (‘DTA’) that are based on future profitability and emerge from temporary differences, are subject to detraction for the amount exceeding specific exemption thresholds. The exempted amount is subject to 250% weighing in the Risk Weighted Assets (RWA).Also deducted are equity investments in insurance companies and the subordinated liabilities issued by the same companies, if computed by the issuer for the purposes of the statement of financial position, as are additional elements connected with the calculation of the capital requirements.

SECTION 2


292

In addition, specific adjustments are applied (‘prudential filters’) which have the objective of safeguarding the quality of the regulatory capital and to reduce its potential volatility connected with the adoption of the IAS/IFRS accounting standards.In relation to the prudential filters, it should be borne in mind that, at the time of issuing of Circular no. 285 of 17 December 2013 ‘Regulatory provisions for banks’, the Bank of Italy established the deadline of 31 January 2014 for banks to exercise any exemption concerning the temporary exclusion from CET1 of positive and negative valuation reserves in respect of securities held by banks in the financial assets available for sale portfolio, issued by the central Administrations. This exemption will apply until the European Commission has adopted, in compliance with EU Regulation no. 1606/2002, the specific regulation approving IFRS 9, replacing IAS 39.The bank, by communicating its decision through the parent company Centrale Finanziaria del Nord Est S.p.A. on 23 January 2014, availed itself of the possibility of confirming the option exercised on 28 June 2010.At 31 December 2015, the reserves of securities issued by the central administrations of EU countries presented a positive balance of approximately EUR 9.658 million; in the absence of this approach, the reserves would have involved an increase of roughly EUR 3.2 million in Regulatory capital in the presence of debt securities that are positive overall but can only partially be computed, in the transitory period, which expires at the end of 2017, introduced by EU Regulation no. 575/2013 of the European Parliament and Council (‘CRR’) and transposed by the Bank of Italy with Circular no. 285 of 17.12.2013.The provisions on regulatory capital and capital requirements are also subject to a transitory regime, which makes provision, in particular, for:• the gradual introduction (‘phase-in’) of some of these new rules over a period of generally 4 years (2014-2017);• ‘grandfathering rules’ which allow the partial inclusion, with the gradual exclusion by 2021, of the previous

equities of tier 1 capital and tier 2 capital which do not meet the requirements of the aforementioned EU Regulation no. 575/2013 for CET1, AT1 and T2 equities.

A part of the provisions that govern the aforementioned transitory regime were dictated by the Bank of Italy under the cited Circular no. 285/2013, as part of the national options permitted by EU Regulation no. 575/2013 to the competent national supervisory authorities.Shown below are the elements that make up Common Equity Tier 1 capital, Additional Tier 1 capital and Tier 2 capital.

1. Common Equity Tier 1 capital – CET1Common Equity Tier 1 capital, which represents the best quality capital components, is composed of the following: share capital, share premiums, profit and share capital reserves, valuation reserves, ‘prudential filters’, deductions (interim losses, goodwill and other intangible assets, own shares also held indirectly and/or synthetically and commitments to repurchase these, significant and insignificant stakes in the capital of other entities in the financial sector also held indirectly and/or synthetically, deferred tax assets, exposures to securitisations and other exposures which can be weighted at 1250% and deducted from tier 1 capital. In quantifying these elements, account must also be taken of the effects of the ‘transitory regime’.

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2. Additional Tier 1 – AT1 Any additional Tier 1 capital instruments and the associated premiums constitute capital elements of additional Tier 1 capital. The following must be deducted from these elements: any own AT 1 instruments also held indirectly and/or synthetically and commitments to repurchase these, as well as additional capital instruments, also held indirectly and/or synthetically, issued by other entities in the financial sector in respect of which significant shareholdings are held or not. In quantifying the aforesaid elements, account must also be taken of the effects of the ‘transitory regime’.

3. Tier 2 capital – T2Subordinated liabilities whose characteristics allow them to be included in T2 capital, including the associated issue premiums, constitute the capital elements of Tier 2 capital. The following must be deducted from these elements: any own subordinated liabilities also held indirectly and/or synthetically and commitments to repurchase these, as well as T2 capital instruments, also held indirectly and/or synthetically, issued by other entities in the financial sector in respect of which significant shareholdings are held or not. In quantifying the aforesaid elements, account must also be taken of the effects of the ‘transitory regime’.Subordinated liabilities fall under the calculation of Tier 2 capital when the contract envisages the following in particular:• they are fully subordinate to the receivables of all non-subordinated creditors;• they have an original duration of at least five years;• they do not make provision for early repayment by the bank;• any call or early repayment options provided in the provisions that regulate the instruments may only be

exercised by the bank;• they cannot be repaid or repurchased until five years from the issue date, based on the prior authorisation of

the Bank of Italy and provided they are replaced by other capital instruments of the same or higher quality and under sustainable conditions for the income capacity of the Bank, or if its capital exceeds the margin judged necessary by the Bank of Italy, the overall capital requirements and the combined requirement of the capital reserve. Repayment or repurchase before five years from the issue date can only take place if the previous conditions are met and in the event of unforeseeable legislative changes which are likely to involve the exclusion or the decrease in their capital value or unforeseeable and significant variations in their tax system;

• they do not indicate, neither explicitly nor implicitly, that they may be repaid or repurchased early in cases other than bank insolvency or liquidation;

• do not attribute the holder the right to precipitate future planned interest and capital payments, except in the case of bank insolvency or liquidation;

• the measurement of interest cannot be modified in relation to the creditworthiness of the bank or its parent company.

Tier 2 capital instruments are also subject to the amortisation obligation in the last 5 years of life based on the days remaining.


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The details of the main contractual characteristics of the subordinated liabilities issued by the Bank and existing as at 31 December are shown below:• ISIN code: IT0005054256• amount: EUR 10 million• duration: 84 months• expiry date: 15 September 2021• fixed interest rate: 3.00%• call or early repayment option: not provided• subordination conditions: ‘Tier2’ subordinated liability. Bonds will be repaid in terms of principal and residual

interest:1. only after all preferential and ordinary creditors of the Issuer have been satisfied;2. pari passu subordination with the holders of all equally subordinated issues of the Issuer, with the creditors

characterised by the same degree of subordination;3. in any case, prior to holders of bond instruments, similar securities, instruments or trading positions characterised

by a higher degree of subordination than that of Bonds.For the entire duration of the loan, in the event the Issuer is wound up or subject to bankruptcy proceedings, no offsetting will be permitted between the payable deriving from the bonds and the receivables due to the Issuer from bondholders. The possibility of obtaining or, in any case, enforcing guarantees or causes of pre-emption in connection with the bonds on the assets of the Issuer, or of third parties with the right to compensation from the Issuer, is also excluded.

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Total 2015 Total 2014A. Common Equity Tier 1 capital – CET1 before the application of prudential filters 231,298 235,494

of which CET1 instruments subject to transitory provisions 7,350 8,400B. CET1 prudential filters (+/-) -523 -716C. CET1 before elements to be deducted and effects of transitory regime (A +/- B) 230,775 234,778

D. Elements to be deducted from CET1 26,667 22,847E. Transitory regime - Impact on CET1 (+/-), including minority interests subject to transitory provisions 1,534 -10,504

F. Total Common Equity Tier 1 (CET1) (C - D +/- E) 205,642 201,426G. Additional Tier 1 (AT1) before elements to be deducted and effects of transitory regime - -

of which AT1 instruments subject to transitory provisions - -H. Elements to be deducted from AT1 - -I. Transitory regime - Impact on AT1 (+/-), including instruments issued by subsidiaries and included in AT1 due to transitory provisions -5,978 -6,320

L. Total Additional Tier 1 capital (AT) (G - H +/- I) - -M. Tier 2 capital (T2) before elements to be deducted and effects of transitory regime 10,087 10,000

of which T2 instruments subject to transitory provisions - -N. Number of Elements to be deducted from tier 2 capital 2,517 129O. Transitory regime - Impact on T2 (+/-), including instruments issued by subsidiaries and included in T2 capital due to effect of transitory provisions -5,741 -5,370

P. TOTAL TIER 2 CAPITAL (T2) (M - N +/- O) 1,829 4,501Q. TOTAL REGULATORY CAPITAL (F + L + P) 207,470 205,927

Common Equity Tier 1 capital at 31 December 2015, inclusive of the result for the year net of the part to be proposed for distribution, amounted to EUR 205,642, up compared to the previous year. The increase is mainly due to the increase in the earnings destination reserves (EUR 9,395 thousand) net of the higher detractions due for ‘insignificant financial investments’ (EUR 4,811 thousand).Additional Tier 1 capital remained equal to zero, as in the previous year.Tier 2 capital amounted to EUR 1,829 thousand at 31 December 2015, down (EUR -2,672 thousand) compared to the previous year by effect of the increase in the portion of ‘insignificant financial investments’ intended for that aggregate.Regulatory capital at 31 December 2015 amounted to EUR 207,470 thousand versus EUR 205,927 thousand of the previous year.


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2.2 Capital adequacy


Effective from 1 January 2014, the new harmonised regulations for banks and investment firms contained in EU Regulation no. 575/2013 (CRR) and in EU directive no. 63/2013 (CRD IV) of 26 June 2013 became applicable, which transpose to the European Union the standards defined by the Basel Committee for bank supervision (the Basel III framework).The legislative framework is accompanied by the technical execution standards, contained in the Regulatory Technical Standards – RTS’ and ‘Implementing Technical Standards – ITS’) adopted by the European Commission on the proposal of the European Banking Authority (EBA) and, in certain cases, of other European Supervisory Authorities (ESA).In order to implement and facilitate the application of the EU regulations and to achieve an overall revision and simplification of the Regulatory provisions for banks, the Bank of Italy issued Circular no. 285/2013 ‘Regulatory provisions for banks’, which acknowledges the regulations of CRD IV, sets out the methods for exercising the national discretionary powers attributed by EU CRR regulations to the national authorities and outlines a complete, organic, rational legislative framework that is integrated with the directly applied EU provisions.The legislation is based, in line with the past, on three Pillars: a) the first Pillar assigns importance to the measurement of risks and capital, providing for compliance with

capital requirements in order to cover the main types of risks associated with banking and financial activities (credit, counterparty, market and operating risks). Provision is also made for:

- the obligation to hold additional capital reserves based on the conservation of capital and on an anti-cyclical basis, as well as for the institutions of major importance in the banking sector;

- new liquidity risk requirements and supervision systems, both in terms of short-term liquidity (Liquidity Coverage Ratio – LCR) and in terms of more long-term structural equilibrium (Net Stable Funding Ratio – NSFR);

- a financial ‘leverage ratio’, which consists of the percentage relationship between Tier 1 capital and the total amount of unweighted cash and off-balance sheet exposures, without, moreover, the establishment of a mandatory minimum limit to be observed for the moment;

b) the second pillar requires intermediaries to equip themselves with a capital adequacy strategy and control process (so-called ‘Internal Capital Adequacy Assessment Process’ - ICAAP), from a current and prospective point of view and in a ‘stress’ scenario, in respect of all relevant risks for banking business (credit, counterparty, market, operating, concentration, interest rate, liquidity etc.) and a robust organisational, corporate governance and internal control system; furthermore, the second pillar framework also keeps the risk of excessive financial leverage under control. The Supervisory Body is responsible for the supervision of the conditions of stability, efficiency, sound and prudent management of banks and verification of the reliability and consistency of the results of their internal assessments (‘Supervisory Review and Evaluation Process’ - SREP), in order to adopt, where the situation calls for it, the necessary corrective measures;

c) the third pillar makes provision for specific reporting obligations to the public in relation to capital adequacy, exposure to risks and the general characteristics of the relative management, measurement and control systems.

EXPLANATORY NOTES

297

The mandatory prudential ratios at the close of this financial year are determined according to the methods set out in EU Regulation no. 575/2013, by adopting:i) the ‘standardised’ method, for calculating the capital requirements for credit and counterparty risk (including,

for derivative contracts, the present value method, and in this domain, the measurement of the risk of credit valuation adjustment (CVA) for derivatives other than those stipulated with qualified central counterparties);

ii) the ‘standardised’ method, for calculating the capital requirements for market risks (trading portfolio, position risk for debt securities and equities, regulation risks and concentration risk; with reference to the entire financial statements, exchange rate risk and position risk on commodities);

iii) the ‘basic’ model, for operating risk measurement.

Based on the aforementioned provisions, banks must constantly maintain, in respect of all pillar 1 risks (credit, counterparty, market, operating): - an amount of common equity Tier 1 capital (CET 1) equal to at least 4.5% of risk-weighted assets (‘CET1 capital ratio’);

- an amount of Tier 1 capital (T1) equal to at least 6% of risk-weighted assets (‘tier 1 capital ratio’);- an amount of regulatory capital equal to at least 8% of risk-weighted assets (‘total capital ratio’).

Lastly, banks are required to hold an additional capital ‘buffer’, in the form of an additional capital reserve, aimed at covering any situations of tension (capital conservation reserve), equal to 2.5% of weighted exposures for total risk and which must be supplied exclusively with unused common equity Tier 1 capital for the coverage of the mandatory capital requirements (including therein specific ones).


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CategoriesNon-weighted amounts Weighted amounts /

requirementsTotal 2015 Total 2014 Total 2015 Total 2014

A. RISK ASSETS A.1 Credit and counterparty risk 7,765,177 9,663,214 998,334 1,091,674

1. Standardised methodology 7,761,127 9,659,162 996,309 1,089,6472. Internal rating-based methodology - - - -

2.1 Basic - - - -2.2 Advanced - - - -

3. Securitisations 4,050 4,052 2,025 2,026B. REGULATORY CAPITAL REQUIREMENT

B.1 Credit and counterparty risk 65,570 69,855B.2 Credit valuation adjustment risk 1,052 1,204B.3 Regulation risk - -B.4 Market risk 6,954 10,290

1. Standard methodology 6,954 10,2902. Internal models - -3. Concentration risk - -

B.5 Operating risk 9,258 8,7431. Basic method 9,258 8,7432. Standardised method - -3. Advanced method - -

B.6 Other calculation elements 162 162B.7 Total prudential requirements

(B1+B2+B3+B4+B5+B6) 82,996 90,254

C. RISK ASSETS AND ADEQUACY RATIOS C.1 Risk-weighted assets 1,037,447 1,128,169C.2 Common equity Tier 1 capital/Total

risk-weighted assets (CET1 capital ratio)

19.82% 17.85%

C.3 Tier 1 capital/Total risk-weighted assets (Tier 1 Capital ratio)

19.82% 17.85%

C.4 Total regulatory capital/Risk-weighted assets (Total capital ratio)

20.00% 18.25%

‘Market risk’ also includes ‘exchange rate risk’ whose requirement also takes account of the assets and liabilities held ‘indirectly’ by the Bank in foreign currency, through the acquisition of UCITS units, including if these are listed in Euro. For the purposes of calculating capital absorption, the regulatory legislation in fact requires said assets

EXPLANATORY NOTES

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and liabilities to also be considered in the calculation. The effect of this regulation determines an absorption of EUR 3.1 million. As illustrated by the breakdown of regulatory capital and in the following details of prudential requirements, the Bank has a common equity Tier 1 capital/risk-weighted assets ratio (CET1 capital ratio) of 19.82%, higher than the 4.50% limit, a Tier 1 capital/risk-weighted assets ratio (T1 capital ratio) of 19.82%, higher than the 6.00% limit and a regulatory capital/risk-weighted assets ratio (total capital ratio) equal to 20.00% higher than the required minimum of 8.00%. The capital surplus calculated relative to the minimum regulatory requirements prescribed by Article 92 of the CRR was equal to EUR 124,475 thousand, net of the portion absorbed by credit risks, market risks and operating risks.


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Section 1 Transactions implemented during the year

Section 2 Transactions implemented after the close of the year

Section 3 Retrospective adjustments

PART GBUSINESS COMBINATIONS REGARDING COMPANIES OR BRANCHES

EXPLANATORY NOTES

301

TRANSACTIONS IMPLEMENTED DURING THE YEAR

During the course of the year, the Bank did not implement business combinations with companies or company branches.

TRANSACTIONS IMPLEMENTED AFTER THE CLOSE OF THE YEAR

From the date of closing of the year and up until the date of approval of the draft financial statements on the part of the Board of Directors, the Bank did not implement business combinations with companies or company branches.

RETROSPECTIVE ADJUSTMENTS

There are no retrospective adjustments to report.

SECTION 1

SECTION 2

SECTION 3


302

PART HTRANSACTIONS WITH RELATED PARTIES

1. Information on compensation of executives with strategic responsibilities

2. Information on transactions with related parties

EXPLANATORY NOTES

303

Executives with strategic responsibilities are those which retain powers and responsibilities pertaining to the planning, management and control of the company’s activities.In compliance with regulatory provisions pertaining to policies and practices relating to compensation and incentives within banks, as well as in accordance with the shareholders‘ meeting resolution of 24 May 2013, the reported compensation refers to executives with strategic responsibilities, i.e. directors and employees who are executives. In addition, the compensation assigned to the members of the Board of Statutory Auditors is reported.With regard to compensation solely disbursed to Executives during the course of 2015, it should be noted that - in addition to a fixed salary stipulated through individual agreements - there is a variable component which is linked to the attainment of the strategic objectives of the Group. With regard to fixed compensation, it should be noted that the latter includes not only the standard monetary disbursement but also a package of benefits such as a complementary pension fund, a healthcare insurance policy, an accident insurance policy and the potential assignment of a company car for mixed use.In particular, the following benefits should be noted:a) Short-term benefits Short-term benefits include salaries, social security contributions, fringe allowances for past unused holidays,

absences due to disease and benefits such as medical assistance.b) Benefits relative to the post-employment period These include social security, retirement and insurance plans as well as the provision for severance indemnity.

Compensation overall disbursed to executives with strategic responsibilities Total 2015- Salaries and other short-term benefits 2,049- Benefits relative to the post-employment period (social security, insurance, etc.) 76 Compensation overall disbursed to auditors Total 2015- Salaries and other short-term benefits 174- Benefits relative to the post-employment period (social security, insurance, etc.) -

The compensation disbursed to directors and auditors was determined by means of a resolution of the shareholders’ meeting dated 24 May 2013. This compensation includes attendance fees and the office indemnities that are due.

In accordance with the provisions of currently effective provisions, it should be noted that all operations conducted by the Bank with its related parties were implemented in compliance with the criteria of substantive and procedural fairness and under conditions that are analogous to those applied for operations implemented with independent third parties.In accordance with IAS 24, information pertaining to financial and economic relations between the related parties of the Bank and Group companies is reported below.

1. INFORMATION ON COMPENSATION OF EXECUTIVES WITH STRATEGIC RESPONSIBILITIES

2. INFORMATION ON TRANSACTIONS WITH RELATED PARTIES


304

In accordance with the international accounting principle IAS 24, a related party is a person or entity which is related to the entity which drafts the financial statements.a) A person or close relative of this person is related to the entity which drafts the financial statements if this person: i) retains control or joint control over the entity which drafts the financial statements; ii) retains significant influence over the entity which drafts the financial statements; or iii) is an executive with strategic responsibilities within the entity which drafts the financial statements or within a parent company of the latter.b) An entity is related to the entity which drafts the financial statements if any of the following conditions are applicable: i) the entity and the entity which drafts the financial statements are part of the same group (which implies that

each parent company, subsidiary and company of the group is related to the others); ii) an entity is an associate or is part of a joint venture of another entity (or an associate or part of a joint

venture which is part of the group to which the other entity belongs); iii) both entities are joint ventures of the same third party counterparty; iv) an entity is part of a joint venture of another entity and the other entity is a related party of the latter entity; v) the entity is represented by a plan of benefits relative to the post-employment period and provided to

employees of the entity which drafts the financial statements or of an entity related to the latter. If the entity which drafts the financial statements is also a plan of this type, even the employers which sponsor it are related to the entity which drafts the financial statements;

vi) the entity is controlled or jointly controlled by a person identified under point a); vii) a person identified under point a) i) has a significant influence on the entity or is an executive with strategic

responsibilities within the entity (or a parent company of the latter).

The statement of financial position and income statement relationships entered into during the year involving related parties are listed below:

Assets Liabilities Guarantees issued

Guarantees received Revenues Costs

Subsidiaries - 2,468 - - 46 145 Affiliated companies 15,461 912 - - 4,277 666 Directors and Executives 184 623 - 367 4 2,128Other related parties - - - - - -TOTAL 15,645 4,003 - 367 4,327 2,939

A transaction with a related party is a transaction which involves assuming risk assets as well as the transfer of resources, services or obligations between related parties, regardless of whether a compensation has been stipulated.Relations and transactions implemented with related parties do not include any critical elements given that they are ascribable to ordinary credit and service activities. During the course of the year, no atypical or unusual transactions were carried out with related parties which - due to their significance or amount - could have generated doubts in relation to the protection of company assets.The screening process relating to loan requests from related parties follows the same process used to grant credit to other non-related counterparties with the same creditworthiness level. With regard to transactions with entities

EXPLANATORY NOTES

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that exercise administration, management and control functions within the Bank, Article 136 of Italian Legislative Decree 385/1993 is applicable and, with regard to Directors, Article 2391 of the Italian Civil Code is applied. Transactions with related parties are regularly implemented under market conditions and, in any case, on the basis of evaluations of economic convenience and always in compliance with currently effective regulations, providing adequate justification of the reasons and justification to complete them.In particular:- executives with strategic responsibilities are subject to all the conditions reserved for personnel in general or pursuant to employment agreements;

- Directors and Statutory Auditors are subject to the conditions of clientele of analogous professional positions and standing.

Transactions with related parties do not have a significant incidence on the financial situation, economic result and cash flows of the Bank.There were no allocations or losses for doubtful receivables relative to related parties recorded in the financial statements.Only a collective write-down is applied to them.

Management and coordination on the part of the parent companyFollowing the reform of Italian corporate law (Italian Legislative Decree no. 6 of 17.1.2003), the financial statements relative to the current year 2015, as well as those of 2004 onwards, incorporate the amendments introduced by the aforementioned decree. With regard to this point, and in addition to norms which directly pertain to the preparation of the financial statements, there are other provisions contained in the regulations which must be taken into account when preparing the financial statements of subsidiaries given that they provide for financial reporting requirements for the companies subject to management and coordination.They are of three types.

Statement summarising the data of the most recent financial statements of the company which exercises management and coordinationThe provision contained in paragraph 4 of Article 2497 bis of the Italian Civil Code states that the “subsidiary company must report – within a specific section of its explanatory notes – a statement summarising the essential data of the most recent financial statements of the company or of the entity which exercises management and coordination over it”.We hereby report that the company which exercises management and coordination is the following:Centrale Finanziaria del Nord Est S.p.A., with a registered office in via Segantini, 5 - Trento, registration number within the Registry of Companies of Trento, tax ID and VAT no. 04369990967.In compliance with the aforementioned provision of Article 2497 bis, the following pages of this section reports the statement summarizing the data of the 2014 financial statements of Centrale Finanziaria del Nord Est S.p.A.; these are the most recently approved financial statements of the latter company which, during the course of 2015, exercised management and coordination over Cassa Centrale Banca.

Reporting of relations with the party exercising management and coordinationThe provision contained in paragraph 5 of Article 2497 bis of the Italian Civil Code states that the “directors must report - within the Report on Operations - the relations which were entertained with the entity which exercises


306

management and coordination as well as with other companies of the group which are subject to such management and coordination, in addition to reporting the effect which these activities had on corporate operations and results.”In compliance with this norm, summary information on the transactions carried out by Cassa Centrale Banca with respect to the parent company during the course of 2015 - and their economic value - is hereby reported. Justification, reasons and interests underlying the decisions made by the subsidiary following management and coordination.Article 2497 ter states that “the decisions of companies subject to management and coordination, and influenced by the latter, must be analytically justified and contain detailed information on the reasons and interests which affected the decisions.”According to this norm, the Report on Operation must include an analytical analysis justifying the decisions of the subsidiary company which were influenced by the parent company, i.e. those which originated or were determined by directives from the latter.With regard to this point, it should be noted that - during the course of the year in question - the decisions of Cassa Centrale Banca were not influenced or determined by the parent company.

STATEMENT OF FINANCIAL POSITION Assets 141,017 Liabilities 77 Share capital 133,000 Legal reserve 2,080 Other reserves 11 Net income 5,849 Equity 140,940 INCOME STATEMENT Revenues from ordinary activities 6,472 Costs of ordinary activities -474 Profit on ordinary activities 5,998Extraordinary income and charges - Income tax - 149 Net income 5,849

Financial and economic items relative to intercompany transactions are reported below:

STATEMENT OF FINANCIAL POSITION Assets item 60 - Loans to banks Centrale Finanziaria del Nord Est S.p.A. 13,366 Income Statement

item 10 - interest income item 150 - administrative expenses

Centrale Finanziaria del Nord Est S.p.A. 395 61

EXPLANATORY NOTES

307


308

PART IPAYMENT AGREEMENTS BASED ON OWN EQUITY INSTRUMENTSThe Bank has not entered into any payment agreements based on own equity instruments.

PART LSEGMENT REPORTINGThe Bank is not required to fill out this section given that it is an unlisted intermediary nor does it issue widely distributed securities.

EXPLANATORY NOTES

309


The amounts in the tables of the financial statements are expressed in Euros.


312


313



Code Assets 31.12.2015 31.12.2014B Fixed assets: 36,614 21,308B I Intangible fixed assets: - -B I 1 Start-up and expansion costs - -B II Tangible fixed assets: 35,414 19,208B II 4 Other assets 35,414 19,208

B IIIFinancial fixed assets, with separate reporting - for each item of receivables - of the amounts due within next year:

2,100 2,100

B III 1 Shareholdings in: 2,100 2,100B III 1d other companies 2,100 2,100C Current assets: 752,700 670,040

C II Receivables with separate reporting - for each item - of the amounts due beyond next year: 113,810 142,913

C IV Liquid funds: 638,890 527,127

D Accruals and deferrals, with separate specification of discounts on loans 3,743 1,274

T TOTAL ASSETS 793,057 692,622

Code Liabilities 31.12.2015 31.12.2014A Equity: 725,471 640,330A I Share capital 50,000 50,000A IV Legal reserve 29,517 26,427A VII Other reserves, distinctly specified 560,813 502,096A IX Net income (loss) of the year 85,141 61,807C Provisions for risks and charges 16,174 13,679

Provisions for accruals to be paid to personnel 16,174 13,679

D Payables with separate reporting - for each item - of the amounts due beyond next year 51,412 38,577

- within the year 51,412 38,577

E Accruals and deferrals, with separate specification of premiums on loans - 36

T TOTAL LIABILITIES 793,057 692,622


314

INCOME STATEMENT

Code Description 31.12.2015 31.12.2014A Value of production: 541,146 450,226A 1 Revenues from sales and services 532,044 450,226A 5 Other revenue and income 9,102 -B Cost of production: 416,339 364,942B 6 raw materials, supplies and goods in stock 6,585 9,017B 7 for services 244,287 193,123B 8 for use of third party assets 233 -B 9 for personnel: 146,704 145,734B 9a salaries and wages 109,284 105,056B 9b social security charges 30,696 33,995B 9c provision for severance indemnity 6,596 6,260B 9d retirement and similar benefits - -B 9e other costs 128 190B 10 Amortisation/depreciation and write-downs: 14,027 14,577B 10a amortisation of intangible fixed assets - 500B 10b depreciation of tangible fixed assets 14,027 14,077B 14 Other operating charges 4,503 2,491B T Difference between Value and Cost of production 124,807 85,284C Financial proceeds and charges: 9,114 6,333C 16 Other financial income: 9,267 6,384

C 16dproceeds other than the above, with separate reporting of those from subsidiary, affiliated and parent companies

9,267 6,384

C 17Interest and other financial charges, with separate reporting of those from subsidiary, affiliated and parent companies

153 50

E Extraordinary income and charges: -8,637 466

E 20Proceeds, with separate specification of capital gains from disposals whose revenues cannot be booked under no. 5)

929 2,031

E 20a capital gains E 20b other proceeds 929 2,031

E 21

Charges, with separate specification of capital losses from disposals - whose accounting effects cannot be booked under no. 14) - and of taxes relative to previous years

9,566 1,566

E 21b other charges 9,566 1,566E T Result before taxes 125,284 92,083E 22 Income taxes for the year 40,143 30,276E 26 NET INCOME (LOSS) OF THE YEAR 85,141 61,807


315


Code Assets 31.12.2015 31.12.2014B Fixed assets: 4,410 1,892B I Intangible fixed assets: 4,410 1,892B I 1 Start-up and expansion costs 4,410 1,892C Current assets: 2,844,872 56,157C I Inventories 750,000 -

C II Receivables with separate reporting - for each item - of the amounts due beyond next year 266,850 35

C IV Liquid funds 1,828,022 56,122

D Accruals and deferrals, with separate specification of discounts on loans 78 23

T TOTAL ASSETS 2,849,360 58,072

Code Liabilities 31.12.2015 31.12.2014A Equity: 2,022,457 56,069A I Share capital 2,000,000 50,000A IV Legal reserve 303 -A VII Other reserves 5,766 -A IX Net income (loss) of the year 16,388 6,069

D Payables with separate reporting - for each item - of the amounts due beyond next year 826,903 2,003

- within 12 months 826,903 2,003T TOTAL LIABILITIES 2,849,360 58,072



316

INCOME STATEMENT

Code Description 31.12.2015 31.12.2014A Value of production: 28,000 28,000A 1 Revenues from sales and services 28,000 28,000B Cost of production: 23,606 20,290B 7 for services 21,245 19,222B 10 Amortisation/depreciation and write-downs: 1,221 473B 10a amortisation of intangible fixed assets 1,221 473B 14 Other operating charges 1,140 595

B T Difference between Value and Cost of production 4,394 7,710

C Financial proceeds and charges: 11,887 39C 16 Other financial income: 11,887 39

C 16dproceeds other than the above, with separate reporting of those from subsidiary, affiliated and parent companies

11,887 39

E Extraordinary income and charges: 107 -E T Result before taxes 16,388 7,749E 22 Income taxes for the year - 1,680E 26 NET INCOME (LOSS) OF THE YEAR 16,388 6,069


317

FINANCIAL STATEMENT AS ATDECEMBER 31 2015

The figures shown in the balance sheets are in units of Euro.


320

FINANCIAL STATEMENT AS AT DECEMBER 31 2015

321

BALANCE SHEET

Assets 31.12.2015 31.12.201410. Cash and cash equivalents 32,573,545 32,577,49320. Financial assets held for trading 25,305,017 39,111,67830. Financial assets designated as at fair value 3,000,481 2,968,36540. Financial assets available for sale 2,644,649,442 2,334,654,59850. Held-to-maturity investments 459,988,950 454,297,69960. Loans to banks 1,648,567,985 4,063,447,59270. Loans to customers 557,583,174 1,407,043,801

100. Equity investments 22,718,290 22,017,002110. Tangible assets 13,916,261 12,346,951120. Intangible assets 394,277 322,398130. Tax assets 32,057,723 21,591,375

a) current tax assets 7,615,322 560,124 b) advance tax assets 24,442,401 21,032,251 - of Law n. 214/2011 21,851,701 20,029,062

150. Other assets 83,517,986 77,483,562 TOTAL ASSETS 5,524,273,131 8,467,862,514

Liabilities and net worth 31.12.2015 31.12.201410. Due to banks 3,598,768,517 7,273,497,98720. Due to customers 1,443,122,998 399,545,31830. Outstanding securities 10,087,368 291,622,28040. Financial liabilities held for trading 21,720,811 35,088,57950. Financial liabilities designated as at fair value 10,048,404 10,083,28480. Tax liabilities 5,304,037 13,293,524

a) current tax liabilities - 2,181,315 b) deferred tax liabilities 5,304,037 11,112,209

100. Other liabilities 186,866,469 193,914,081110. Employees’ leaving entitlements 2,356,995 2,786,317120. Provisions for contingencies and other charges 5,682,832 925,702

b) other 5,682,832 925,702130. Value adjustment reserve 11,532,090 23,619,069160. Reserves 69,225,423 59,830,110170. Share premium 4,350,000 4,350,000180. Share capital 140,400,000 140,400,000200. Net profit (Loss) of the period (+/-) 14,807,187 18,906,263

TOTAL LIABILITIES AND NET WORTH 5,524,273,131 8,467,862,514


322

Items of the profit and loss account 31.12.2015 31.12.201410. Interest income and similar revenues 45,279,161 80,221,407 20. Interest expenses and similar charges paid (23,636,432) (57,776,665)30. Net interest margin 21,642,729 22,444,742 40. Commission income 77,903,216 62,300,859 50. Commission expense (40,581,138) (31,908,918)60. Net commissions 37,322,078 30,391,941 70. Dividend and similar income 1,261,027 395,509 80. Net result from trading 1,783,023 1,090,338

100. Profit (Loss) on disposal or repurchase of: 38,333,238 42,047,644 a) loans 1,473,701 (838,861) b) financial assets available for sale 36,859,537 42,887,879 d) financial liabilities - (1,374)

110. Net result on financial assets and liabilities designated as at fair value 130,956 (442,927)

120. Total operating income 100,473,051 95,927,247 130. Net adjustments/recoveries to: (28,248,077) (34,901,361)

a) loans (25,359,710) (34,230,606) b) financial assets available for sale (1,489,715) (188,064) d) other financial assets (1,398,652) (482,691)

140. Net income from financial activities 72,224,974 61,025,886 150. Administrative expenses (49,235,498) (32,699,306)

a) personnel cost (15,543,735) (15,519,224) b) other (33,691,763) (17,180,082)

160. Net provisions for risks and charges (4,712,000) (150,000)170. Net adjustment/recoveries to tangible assets (1,266,449) (1,270,129)180. Net adjustment/recoveries to intangible assets (224,142) (171,982)190. Other operating charges/income 5,739,348 2,995,971 200. Operating costs (49,698,741) (31,295,446) 210. Profits (Losses) on equity investments (392,834) - 240. Gain and losses on disposal of investments 26,350 19,934 250. Profit (Loss) before tax from current operating activities 22,159,749 29,750,374 260. Income taxes for the period on current operating activities (7,352,562) (10,844,111)270. Profit (Loss) after tax from current operating activities 14,807,187 18,906,263 290. Net income (Loss) for the period 14,807,187 18,906,263

PROFIT AND LOSS ACCOUNT

FINANCIAL STATEMENT AS AT DECEMBER 31 2015

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CASSA CENTRALE BANCACREDITO COOPERATIVO DEL NORD EST

Società per azioniSede legale e direzione generale in Trento (38122)Via Segantini, 5Tel. 0461.313111 Fax 0461.313119 Capitale sociale sottoscritto Euro 140.400.000,00 interamente versatoSocietà iscritta all’albo delle Banche - Cod. ABI 03599Iscr. Reg. Imprese, Cod.Fisc.e P.IVA 00232480228Aderente al Fondo di Garanzia dei Depositanti del Credito Cooperativo e al Fondo Nazionale di GaranziaAppartenente al Gruppo Bancario Cassa Centrale Banca n. 20026Società soggetta all’attività di direzione e coordinamento di Centrale Finanziaria del Nord Est S.p.A.

Pubblicazione edita da Cassa Centrale Banca - maggio 2016Coordinamento editoriale: Cassa Centrale Banca - Marketing

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