A.1 – General part

Section 1 – Statement of compliance with international accounting standards

The 2011 consolidated financial statements have been drawn up in accordance with the IASs/IFRSs, together with the relative interpretations (IFRICs and SICs). These standards have been in force since 31 December 2011, were issued by the International Accounting Standards Board (IASB), endorsed by the European Commission in accordance with the provisions in article 6 of European Union Regulation no. 1606/2002 and implemented in Italy with Legislative Decree no. 38 of 28 February 2005.

Interpretation and adoption of the international accounting standards were carried out referring also to IASB’s ‘Framework for the preparation and presentation of financial statements’, even though it was not officially approved.

These consolidated financial statements are subject to certification by the delegated corporate bodies and the Corporate Accounting Reporting Officer, as per article 154 bis paragraph 5 of Legislative Decree no. 58 of 24 February 1998.

The consolidated financial statements are audited by KPMG S.p.A..

Section 2 - Basis of preparation

The consolidated financial statements consist of:

  • the consolidated financial statements (statement of financial position and income statement, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows);

  • the relative notes.

In addition, they contain the Directors’ Report.

The consolidated financial statements have been drawn up according to the general principles of IAS 1 (2007), also referring to IASB’s ‘Framework for the preparation and presentation of financial statements’, with particular attention to the fundamental principles of substance over legal form, the concepts of relevance and materiality of information, the accruals and going concern accounting concepts.

For the preparation of these financial statements, reference was made to the format set out by Bank of Italy’s Circular no. 262 of 22 December 2005, updated in full on 18 November 2009 due to changes in the accounting framework.

The money of account is Euro and, if not indicated otherwise, amounts are expressed in thousands of Euro. The tables included in the notes may contain roundings; any inconsistencies and/or discrepancies in the data presented in the different tables are due to these roundings.

Assets and liabilities, as well as costs and revenues, have been offset only if required or permitted by an accounting standard or the relevant interpretration.

Items in the financial statements were classified as in the previous financial year.

The notes do not show the items and tables required by Bank of Italy’s Regulation no. 262/2005 where these items are not applicable to the Banca IFIS Group.

Information on the business as a going concern

The Bank of Italy, Consob and Isvap, with document no. 2 issued on 6 February 2009 (“Disclosure in financial reports on the going concern assumption, financial risks, asset impairment tests and uncertainties in the use of estimations”), together with the subsequent document no. 4 of 4 March 2010, require directors to assess with particular accuracy the existence of the company as a going concern, as per IAS 1.

Unlike in the past, present conditions on financial markets and in the real economy, together with the negative short/medium-term forecasts, require particularly accurate assessments of the going concern assumption, as records of the company’s profitability and easy access to financial resources may no longer be sufficient in the current context.

In this regard, having examined the risks and uncertainties connected to the present macro-economic context, and considering the financial and economic plans drawn up by the parent company, the Banca IFIS Group can indeed be considered a going concern, in that it can be reasonably expected to continue to operate in the foreseeable future. Therefore, the 2011 consolidated financial statements have been prepared in accordance with this fact.

Uncertainties connected to credit and liquidity risks are considered insignificant or, at least, not significant enough to raise doubts over the company’s ability to continue as a going concern, thanks also to the good profitability levels that the bank has continually achieved, to the quality of its loans and to its current access to financial resources.

Section 3 - Consolidation scope and method

The consolidated financial statements have been prepared based on the draft financial statements at 31 December 2011, prepared by the directors of the companies included in the consolidation scope for approval by the Shareholders’ Meeting.

They include the financial statements (drawn up using the line-by-line method of consolidation) of the parent company, Banca IFIS S.p.A, its Polish subsidiary, IFIS Finance Sp. Z.o.o., and of Fast Finance S.p.A. and TF Sec S.r.l. The latter two companies were included In the Group’s scope following the acquisition of Toscana Finanza S.p.A. on 17 May 2011 and its ensuing merger into Banca IFIS S.p.A. on 28 December 2011.

The financial statements of subsidiaries expressed in foreign currencies are translated into Euro by applying the end-period exchange rate to asset and liability items. In the income statement, figures are translated according to the average exchange rate, which is considered as a valid approximation of the spot exchange rate at the date of the operation. Exchange differences arising from the application of different exchange rates for the statement of financial position and the income statement, together with the exchange differences from the translation of the investee companies’ equity, are recognised under capital reserves.

Assets and liabilities, off-balance-sheet transactions, income and expenses, as well as the profits and losses arising from relations between the consolidated companies are all eliminated.

Starting with the financial statements for periods beginning after 1 July 2009, business combinations must be recognised by applying the principles established by IFRS 3; purchases of equity investments in which control is obtained and counting as “business combinations” must be recognised by applying the acquisition method, which requires:

  • identification of the acquirer;

  • determination of the acquisition date;

  • recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree;

  • recognition and measurement of goodwill or a gain from a bargain purchase.

In particular, with reference to the acquisition of the controlling interest in Toscana Finanza S.p.A. the following steps applied:

Identification of the acquirer

Banca IFIS S.p.A., having obtained the absolute majority of Toscana Finanza’s ordinary shares and since it can therefore exercise control over the acquiree as defined by IAS 27 (2008), is identified as the acquirer.

Determination of the acquisition date

The formal acquisition date is the closing date of the takeover bid, on which Banca IFIS S.p.A obtained control of the Toscana Finanza Group; in particular, 30 June 2011 was established as the formal business combination date, since, as allowed by IFRS 3 BC110, this does not have a significant effect on consolidated values.

Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree

In accordance with IFRS 3, Banca IFIS recognised the identifiable assets acquired and liabilities assumed, as already recorded in the consolidated financial statements of the Toscana Finanza Group, measuring their respective fair values at the acquisition date.

Recognition and measurement of goodwill or a gain on a bargain purchase

The takeover of Toscana Finanza S.p.A. has led to the recognition (IFRS 3, para. 32) of a gain arising from a bargain purchase for 1,887 thousand Euro, recorded under the income statement item “Other operating income (expenses)”; this value is derived from the difference between items a) and b), as identified below:

  • the aggregate of:

  • the consideration paid by Banca IFIS following the closure of the takeover bid, i.e. 35,456 thousand Euro for the acquisition of 77.26% of Toscana Finanza S.p.A.’s share capital;

  • the amount of the non-controlling interest in compliance with IFRS 3, and in particular by applying the full goodwill method. Based on this method, the value of the swap of the residual shares held by non-controlling interests was reckoned at the value of the shares involved in the takeover bid (1.5 euro per share), for an amount of 10,436 thousand Euro.

  • the “net value of the identifiable assets acquired and the liabilities assumed”, equal to 47,779 thousand Euro.

As for the subsidiary IFIS Finance Sp. Z o.o. instead, the consolidation process has brought about goodwill for 792 thousand Euro, at the end-period exchange rate, recognised under item 130 ‘intangible assets’.

1. Investments in exclusively and jointly controlled companies (consolidated using the proportional method)

Name of company

Registered Office

Type

Investment

Voting rights % (2)

Held by

Quota %

Companies:

- Consolidated line by line

IFIS Finance Sp. Z o.o.

Varsavia

1

Banca IFIS S.p.A.

100%

100%

Fast Finance S.p.A.

Bologna

1

Banca IFIS S.p.A..

100%

100%

TF SEC S.r.l.

Firenze

1

Banca IFIS S.p.A.

100%

100%

Key

(1) Type:

1 = majority of voting rights in the Annual Shareholders’ Meeting

2 = dominant influence in the Annual Shareholders’ Meeting

3 = agreements with other shareholders

4 = other forms of control

5 = exclusive control as per article 26, paragraph 1, of Legislative Decree no. 87/92

6 = exclusive control as per article 26, paragraph 2, of Legislative Decree no. 87/92

7 = joint control

(2) Voting rights in the Annual Shareholders’ Meeting, distinguishing between effective and potential voting rights.

Section 4 – Subsequent events

No significant events occurred between year-end and the preparation of these consolidated financial statements other than those already included herein.

For information on such events, please refer to the Directors’ report.

Section 5 – Other aspects

Estimates on the carrying amounts of items recognised in the consolidated financial statements at 31 December 2011, as per the international accounting standards and regulations in force, are largely based on expected future recovery of the amounts recognised and were formulated on a going concern basis.

It is important to note that this estimation process was particularly complicated by the current macroeconomic and market setting, which could undergo unpredictable and rapid changes.

No other aspects as laid down by IAS 8, paragraphs 28, 29, 30, 31, 39, 40 and 49 require mentioning herein.

A.2 – Main items of the financial statements

1 – Financial assets held for trading

Classification criteria

Financial assets held for trading include financial instruments held with the intention of generating profit from fluctuations in their prices in the short term.

Recognition criteria

Debt and equity instruments, as well as contracts held for trading purposes, are classified in this category. Initial recognition is made at fair value, excluding the transaction costs attributable to the instrument, which are recognised in the income statement.

Measurement criteria

Also subsequent to initial recognition, financial assets held for trading purposes are measured at fair value. The fair value of instruments traded on an active market is determined based on market prices.

In the absence of an active market, the instruments’ value are measured according to estimation and assessment models accounting for all relevant risk factors and based on market data, such as: methods based on the valuation of similar listed instruments, expected discounted cash flow, prices recorded in recent comparable transactions, and internal models or measurement techniques generally used for pricing financial instruments.

Derecognition criteria

Financial assets held for trading are derecognised exclusively when all relevant risks and benefits have been transferred. Should the company retain part of the relevant risks and benefits, the financial assets will continue to be recognised, even though legal ownership has been actually transferred to a third party.

Where it is not possible to ascertain the substantial transfer of the risks and benefits, financial assets are derecognised if the company no longer has control over them. Otherwise, the financial assets are recognised proportionally to the entity’s continuing involvement in the asset, measured according to the exposure to changes in the transferred assets’ value and cash flow.

Lastly, as for the transfer of collection rights, transferred financial assets are derecognised even if contractual rights to receive cash flows are maintained but an obligation to pay such flows to one or more companies is taken on.

2 - Available for sale financial assets

Classification criteria

These are financial assets not classified as loans and receivables, held-to-maturity investments, or financial assets held for trading. They can fall under available-for-sale financial investments, money market securities, other debt instruments and equity securities.

Recognition criteria

Available for sale financial assets are initially recognised at fair value, i.e. the cost of the operation including transaction costs directly attributable to the instrument, if any.

For interest-bearing instruments, interest is recognised at amortised cost, using the effective interest method.

Measurement criteria

Subsequent to their initial recognition, these investments are measured at their year-end fair value. The fair value is calculated based on the same criteria as those used for financial assets held for trading. Profits and losses resulting from changes in fair value are recognised under a dedicated equity reserve until the financial asset is transferred: then, accrued profits and losses are recognised in the income statement. Changes in fair value recognised in the item “valuation reserve” are also included in the statement of comprehensive income under item 20 “Available for sale financial assets”.

If there is objective evidence that the asset is permanently impaired, the accrued loss recognised directly to equity is transferred to the income statement. The total amount of this loss is equal to the difference between the carrying amount (acquisition cost, net of any impairment losses previously recognised in the income statement) and the fair value.

As for debt instruments, any circumstances indicating that the borrower is experiencing financial difficulties which could undermine the collection of the principal or interests represent a permanent impairment loss.

As far as equity instruments are concerned, the existence of impairment losses is assessed on the basis of indicators such as fair value falling below cost and adverse changes in the environment in which the company operates, as well as the issuer’s debt servicing difficulties. A significant or lasting fall in the fair value of an equity instrument below its cost is considered objective evidence of an impairment loss. The impairment loss is considered significant if the fair value falls over 20% below cost, and is considered lasting if it persists for more than 9 months.

If, at a later date, the fair value of a debt instrument increases and such an increase can be objectively related to an event occurring after the period in which the impairment loss was recognised in the income statement, the impairment loss is reversed with recognition of a corresponding amount in the income statement.

As for equity securities, instead, if the grounds for impairment no longer exist, the impairment losses are later reversed with effect on equity.

Derecognition criteria

Available for sale financial assets are derecognised exclusively when all relevant risks and benefits have been transferred. Should the company retain part of the relevant risks and benefits, the financial assets will continue to be recognised, even though legal ownership has been actually transferred to a third party.

Where it is not possible to ascertain the substantial transfer of the risks and benefits, financial assets are derecognised if the company no longer has control over them. Otherwise, the financial assets are recognised proportionally to the entity’s continuing involvement in the asset, measured according to the exposure to changes in the transferred assets’ value and cash flow.

Lastly, as for the transfer of collection rights, transferred financial assets are derecognised even if contractual rights to receive cash flows are maintained but an obligation to pay such flows to one or more companies is taken on.

4 - Loans and receivables

Classification criteria

Receivables include loans to customers and banks with fixed or determinable payment dates and not traded on an active market.

Receivables due from customers consist of:

  • demand advances to customers during factoring operations vis-à-vis a receivables portfolio factored with recourse and still recognised in the selling counterparty’s statement of financial position, or vis-à-vis receivables factored without recourse, providing no contractual clauses that eliminate the conditions for their recognition exist.

  • non-performing loans acquired from banks and operators active in retail lending;

  • tax receivables resulting from insolvency proceedings.

Recognition criteria

Receivables are initially recognised at the date they are granted to the counterparty at their fair value, including any costs that are directly attributable to the acquisition or granting of credit and determinable right from the beginning of the transaction, even if settled at a later date. Costs meeting these characteristics, but to be reimbursed by the debtor counterparty or falling under normal internal administrative costs are excluded.

Measurement criteria

After initial recognition, the receivables are measured at amortised cost, which is equal to the initial amount minus/plus reimbursements of principal, impairment losses/reversals of impairment losses and amortisation, calculated using the effective interest method. The effective interest rate is calculated as the rate at which the present value of expected cash flows for the principal and interest is equal to the loan granted, including any directly attributable costs/revenues. This finance-based accounting method allows to spread the economic effect of costs/revenues over the expected residual life of the receivable.

The amortised cost method does not apply to short-term loans, as the effect of discounting would be insignificant. These are measured instead at their historical cost. A similar criterion applies to loans without a definite payment date or revocable loans.

At the closure of every reporting period, including interim periods, receivables are reviewed in order to identify those objectively at risk of impairment following events occurred after their initial recognition. In accordance with both Bank of Italy’s regulations and IASs, non-performing, substandard, restructured and past due loans fall into this category.

In the notes, write-downs of impaired loans are classified as analytical in the cited income statement item even with a lump-sum/statistical calculation method.

Specifically, non-performing loans are subject to an analytical measurement, and the total amount of the impairment loss on each loan is equal to the difference between the carrying amount at measurement (amortised cost) and the present value of expected future cash flows, calculated by applying the effective interest method at the moment in which the loan became non-performing. Expected cash flows are calculated taking into account expected recovery times based on historical elements and other significant characteristics, as well as the estimated realisable value of guarantees, if any.

Each subsequent change in the amount or maturities of expected cash flows causing a negative change from the initial estimates results in the recognition of an impairment loss in the income statement.

If the quality of an impaired receivable improves and there is reasonable certainty of a timely recovery of the principal and the interests, in keeping with the relative original contractual terms, the impairment loss is reversed in the income statement to a value not higher than the amortised cost that would have been recognised in the absence of previous write-downs.

Substandard loans are represented by loans to customers facing temporary difficulties which are likely to be overcome within a reasonable period of time (“subjective substandard loans”).

Based on the definition contained in the Bank of Italy’s regulations currently in force, substandard loans also include loans not classified as non-performing loans, granted to customers other than Public Administrations, and satisfying both the following conditions (“objective substandard loans”):

  • are past due and have not been paid and/or have been overdrawn for more than 270 days;

  • the total amount of the above loans and of the other instalments which have fallen due for less than 270 days relating to the same debtor is at least 10% of the total exposure to this debtor.

In the factoring sector, the continuity of past due amounts shall be determined as follows:

  • in the case of “non-recourse” transactions, for every invoice payer reference shall be made to the invoice with the biggest payment delay;

  • in the case of “recourse” transactions, the following conditions must be satisfied:

  • the advance payment made is equal or higher than the total amounts falling due;

  • there is at least one invoice which has been past due for more than 270 days and the overall amount of past due invoices is higher than 10% of total receivables.

Subjective or objective substandard loans relating to non-recourse loans or overdrafts amounting to more than 100,000 Euro are recognised analytically; the write-down to each loan is equal to the difference between the amount recognised in the balance sheet at the time of measurement (amortised cost) and the present value of expected future cash flows, calculated using the original effective interest rate or, in case of indexed rates, the last contractually applied rate.

Subjective or objective substandard loans relating to non-recourse loans or overdrafts amounting to less than 100,000 Euro are collectively tested for impairment.

Objective substandard loans relating to non-recourse loans are collectively tested for impairment, since they do not represent objectively troubled loans.

Restructured loans are defined as loans to counterparties with whom the bank agreed to suspend debt payments and renegotiate conditions at interest rates lower than the original ones. They are collectively tested for impairment or, should specific factors warrant it, to analytical measurement.

Past due loans, as defined by the Bank of Italy, are collectively tested for impairment.

Performing loans are collectively tested for impairment. Such measurement applies to categories of loans with a homogeneous credit risk. The relevant proportions of loss are estimated taking into account historical series based on observable elements existing at the time of measurement and allowing to calculate the value of latent losses for each category.

Derecognition criteria

A receivable is entirely derecognised when it is considered unrecoverable. Derecognitions are directly recorded under net impairment losses on receivables and are entered as a reduction of the principal. Partial or complete reversals of previous impairment losses are entered as a reduction of net impairment losses on receivables.

Sold or securitised financial assets are derecognised exclusively when all relevant risks and benefits have been transferred. Should the company retain part of the relevant risks and benefits, the financial assets will continue to be recognised, even though legal ownership has been actually transferred to a third party.

In such cases, a financial liability is recognised for an amount equal to that received at the moment of transfer.

If some, but not all, the risks and benefits have been transferred, financial assets are derecognised only if the company no longer has control over them. Otherwise, the financial assets are recognised proportionally to the entity’s continuing involvement in them.

Lastly, as for the transfer of collection rights, transferred financial assets are derecognised even if contractual rights to receive cash flows are maintained but an obligation to pay such flows to one or more entities is taken on.

6 – Hedges

Classification criteria

The item consists of the year-end value of I.R.S. (Interest Rate Swaps) instruments, designated as cash flow hedges pursuant to IAS 39.

Recognition and measurement criteria

These derivatives are initially recognised at fair value. Subsequently, changes in the fair value of derivatives effectively offsetting the risk of change in the hedged elements’ future cash flows are recognised directly under equity, while the ineffective part, is any, is immediately taken to the income statement.

8 – Property, plant and equipment and investment property

Classification criteria

The item includes tangible assets used in operations and those held for investment, also acquired under financial leasing.

All property (either fully owned or leased) held by the company for the purposes of obtaining rent and/or a capital gain fall under investment property.

All property (either fully owned or leased) held by the company for business and expected to be used for more than one fiscal year fall under property for functional use.

Property, plant and equipment for functional use include:

• land;

• buildings;

• furniture and accessories;

• electronic office machines;

• various machines and equipment;

• vehicles;

• Leasehold improvements on third-party property.

Those are physical assets held for use in production, in providing goods and services or for administrative purposes, and that are expected to be used for more than one fiscal year.

This item also includes assets used in the role of lessee in lease contracts.

Lease contracts are those that substantially transfer all the risks and benefits deriving from ownership of an asset to the lessee.

Leasehold improvements on third-party property are improvements and expenses relative to identifiable and separable asset. Normally, this kind of investment is sustained in order to make a property rented from third parties suitable for use.

Recognition criteria

Property, plant and equipment and investment property are initially recognised at cost, including all directly attributable costs connected to the acquisition or to the functioning of the asset.

Subsequently incurred expenses are added to the carrying amount of the asset, or recognised as separate assets, if they are likely to yield future economic benefits exceeding those initially estimated and if the cost can be reliably measured; otherwise, they are recognised in the income statement.

Measurement criteria

Property, plant and equipment and investment property are measured at cost, net of any depreciation or impairment losses.

Property, plant and equipment and investment property with a finite useful life are systematically depreciated on a straight-line basis over their useful life.

Property, plant and equipment and investment property with an indefinite useful life, whose residual value is equal to or higher than their carrying amount, are not depreciated.

For accounting purposes, land and buildings are treated separately, even when acquired together. Land is not depreciated, as it has an indefinite useful life. Where the value of land is included in the value of a building, the former is considered separately by applying the component approach. The separate value of the land and the building are calculated by independent experts in this field and only for entirely owned properties.

The useful life of property, plant and equipment and investment property is reviewed at the closure of each period and, if expectations are not in line with previous estimates, the depreciation rate for the current period and subsequent ones is adjusted.

If there is objective evidence that a single asset may be impaired, the asset’s carrying amount plus its recoverable amount, equal to the higher of its fair values less costs to sell, is compared to the relative value in use, intended as the present value of future cash flows expected to arise from this asset. Any adjustment in value is taken to the income statement.

When an impairment loss is reversed, the new carrying amount cannot exceed the net carrying amount that would have been measured if no impairment loss had been recognised on the asset in previous years.

The usually estimated useful lives are the following:

buildings: - not exceeding 34 years

furniture: - not exceeding 7 years

electronic systems: - not exceeding 3 years

other: not exceeding 5 years

leasehold improvements on third-party property: - not exceeding 5 years

Derecognition criteria

Property, plant and equipment and investment property are derecognised from the statement of financial position on disposal or when they are withdrawn from use and no future economic benefits are expected from their disposal.

9 – Intangible assets

Classification criteria

Intangible assets are non-monetary assets, identifiable even if they lack physical substance, that meet the requirements of identifiability, control of the resource and existence of future economic benefits. Intangible assets mainly include goodwill and software.

Recognition criteria

Intangible assets are recognised in the statement of financial position at cost, i.e. the purchase price and any direct cost incurred in preparing the asset for use.

Goodwill is represented by the positive difference between the acquisition cost and the fair value of the purchased company’s assets and liabilities and when such positive difference shows the capacity to give further return on the investment.

Measurement criteria

Intangible assets with a finite useful life are systematically amortised on a straight-line basis according to their estimated useful life.

If there is objective evidence that a single asset may be impaired, the asset’s carrying amount plus its recoverable amount, equal to the higher of its fair values less costs to sell, is compared to the relative value in use, intended as the present value of future cash flows expected to arise from this asset. Any adjustment in value is taken to the income statement.

Intangible assets with an indefinite useful life are not amortised. The carrying amount is compared with the recoverable amount at least on an annual basis. If the carrying amount is greater than the recoverable amount, a loss equal to the difference between the two amounts is recognised in the income statement.

Should the impairment of an intangible asset (excluding goodwill) be reversed, the increased net carrying amount cannot exceed the net carrying amount that would have been measured if no impairment loss had been recognised on the asset in previous years.

Goodwill is recognised in the statement of financial position at cost, net of any accrued losses, and is not subject to amortisation. Goodwill is annually tested for impairment by comparing its carrying amount to its recoverable amount. To this aim, goodwill must be allocated to cash-generating units (CGUs) in compliance with the maximum combination limit that cannot exceed the "operating segment" identified for internal management purposes.

The impairment loss, if any, is calculated based on the difference between the carrying amount of the CGU plus its recoverable amount, equal to the higher of the CGU’s fair values, less costs to sell, and the relative value in use.

The amount of any impairment losses is recognised in the income statement and is not derecognised in the following years in the case the ground for the adjustment ceases to exist.

Derecognition criteria

An intangible asset is derecognised from the statement of financial position on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal.

11 – Current and deferred taxes

Classification criteria

Current and deferred taxes, calculated in compliance with national tax laws, are entered in the income statement with the exception of items directly credited or debited to equity.

Current tax liabilities are shown in the statement of financial position net of relative tax advances paid for the current period.

Advanced and deferred taxes are recognised in the statement of financial position at pre-closing balances and without set offs, and are included in the item ‘tax assets’ and ‘tax liabilities’ respectively.

Recognition and measurement criteria

Advanced and deferred taxes are calculated based on temporary differences – without time limits – between the value attributed to the asset or liability according to statutory criteria and the corresponding tax value, applying the tax rates expected to be applicable for the year in which the tax asset will be realised, or the tax liability will be settled, according to theoretical tax laws in force at the realisation date.

Advanced tax assets are entered in the statement of financial position according to the likelihood of their recovery, calculated on the basis of the company’s (or, due to tax consolidation, the parent company’s) ability to continue to generate positive taxable income.

Deferred tax liabilities are entered in the statement of financial position, with the sole exception of the tax-relieved major assets represented by strategic investments not expected to be sold and reserves, as it can be safely assumed that operations giving rise to their taxation will be avoided, based on the amount of already taxed available reserves .

12 – Provisions for risks and charges

These provisions consist of liabilities arising when:

  • a legal or constructive obligation exists as a result of a past event;

  • it is likely that it will be necessary to spend resources which could generate economic benefits to settle the obligation;

  • the amount of the obligation can be reliably estimated.

Should all these conditions not be met, no liability is recognised.

13 – Payables and outstanding securities

Classification criteria

Payables due to banks and customers and outstanding securities include the various forms of interbank funding, as well as funding with customers and through outstanding bonds, net of any buybacks.

In addition, payables entered by the lessee in finance lease transactions are also included.

Recognition criteria

Payables due to banks and customers and outstanding securities are initially recognised at their fair value, which corresponds to the received price, net of transaction costs directly attributable to the financial liability.

Measurement criteria

After initial recognition at fair value, these instruments are later measured at amortised cost, using the effective interest method.

Compound debt instruments, connected to equity instruments, foreign currencies, credit instruments or indexes are all considered structured instruments. The embedded derivative is split from the host contract and accounted for separately if the criteria for splitting are met. The embedded derivative is recognised at its fair value and then measured. Any fair value changes are entered in the income statement.

The value corresponding to the difference between the total collected amount and the fair value of the embedded derivative is attributed to the host contract and then measured at amortised cost.

Instruments convertible into newly issued treasury shares are considered as structured instruments and imply the recognition, at the date of issue, of a financial liability and an equity component.

The instrument’s residual value resulting from the deduction from its overall value of the value separately calculated for a financial liability without conversion clause with the same cash flows is attributed to the equity component.

The financial liability is recognised net of directly attributable transaction costs and later measured at amortised cost using the effective interest method.

Derecognition criteria

Financial liabilities are derecognised when they expire or are settled. The difference between the carrying amount and the acquisition cost is entered in the income statement.

Such derecognition also occurs notwithstanding buybacks of previously issued securities, even when carried out with the purpose of reselling them in the future. Profits and losses from such derecognition are posted to the income statement when the buyback price is higher or lower than the carrying amount.

Subsequent sales of the company’s own bonds on the market are considered as an issue of new debt.

14 – Financial liabilities held for trading

Classification criteria

Financial liabilities held for trading refer to derivative contracts that are not hedging instruments.

Recognition criteria

At initial recognition, financial liabilities held for trading are recognised at fair value.

Measurement criteria

Also subsequent to initial recognition, financial liabilities held for trading are measured at fair value at the reporting date. The fair value is calculated based on the same criteria as those used for financial assets held for trading.

Derecognition criteria

Financial liabilities held for trading are derecognised when they are settled or when the obligation is fulfilled, cancelled or expired. The difference arising from their derecognition is taken to the income statement.

16 – Foreign currency transactions

Initial recognition

At initial recognition, foreign currency transactions are recognised in the money of account, applying the exchange rate at the date of the transaction.

Subsequent recognitions

At every reporting date, including interim periods, foreign currency monetary items are translated using the closing rate.

Non-monetary assets and liabilities recognised at historical cost are translated at the historical exchange rate, while those measured at fair value are translated using the year-end rate. Any exchange differences arising from the settlement of monetary elements or their translation at exchange rates different from those used at initial recognition or in previous financial statements are recognised in the income statement of the period in which they arise, excluding those relating to available for sale financial assets, as they are recognised against equity.

18 – Other information

Post-employment benefits

Applying IAS 19 “Employee benefits”, the so-called “Trattamento di fine rapporto” (employee severance indemnity) for the employees of the Group’s Italian companies was considered a ‘post-employment benefit’ classified as a ‘defined benefit plan’ until 31 December 2006. Therefore, it had to be recognised in the financial statements based on the actuarial amount calculated using the “Projected Unit Credit” method.

Following the coming into force of the 2007 Finance Law, which brought the reform regarding supplementary pension plans - as per Legislative Decree no. 252 of 5 December 2005 - forward to 1 January 2007, the employee was given a choice as to whether to allocate the post-employment benefit maturing as from 1 January 2007 to supplementary pension funds or to maintain it in the company, which would then transfer it to a dedicated fund managed by INPS (the Italian National Social Security Institute).

This reform has led to changes in the accounting of such benefit as for both the benefits earned up to 31 December 2006 and those earned from 1 January 2007.

In particular:

- benefits earned as from 1 January 2007 constitute a defined-contribution plan, whether the employee has chosen to allocate them to a supplementary pension fund or to INPS’s Treasury Fund. Those benefits shall be calculated according to contributions due without applying actuarial methods;

- benefits earned up to 31 December 2006 continue to be considered as a defined-benefit plan, and as such are calculated on an actuarial basis which, however, unlike the calculation method applied until 31 December 2006, no longer implies that the benefits be proportionally attributed to the period of service rendered: the employee’s service is considered entirely accrued due to the change in the accounting nature of benefits earned as from 1 January 2007.

Stock Options

They are share-based payments granted to employees as remuneration for their performance: they consist in the granting of subscription rights to participate in share capital increases.

As it is difficult to reliably estimate the fair value of services rendered by employees, reference is made to the fair value of the instruments representing the Parent Company’s capital measured at grant date.

The fair value of payments settled by issuing shares is apportioned on a straight-line basis over their vesting period and recognised in the income statement provided an offsetting capital reserve is entered as well.

Treasury shares

Pursuant to regulations in force in Italy, buying back treasury shares requires a specific resolution of the shareholders' meeting and the correspondent recognition of a specific capital reserve. Treasury shares in the portfolio are deducted from equity and measured at the cost calculated using the “Fifo” method. Differences between the purchase price and the selling price deriving from trading in these shares during the accounting period are recognised under capital reserves.

Recognition of revenues

Income from management and guarantee services for receivables purchased through factoring activities are recognised under commission income according to their duration. Components considered in the amortised cost to calculate the effective interest rate are excluded and recognised instead under interest income.

Dividends

Dividends are recognised in the income statement in the year in which the resolution concerning their distribution is passed.

Repurchase agreements

Securities received as a result of transactions that contractually mandate they are subsequently sold, as well as securities delivered as a result of transactions that contractually mandate they are subsequently repurchased, are not recognised in and/or derecognised from the financial statements.

Consequently, in cases of securities purchased under a resale agreement, the amount paid is recognised as due from customers or banks, or as a financial asset held for trading; and in cases of securities sold under a repurchase agreement, the liability is entered under payables due to banks or customers, or under financial liabilities held for trading. Income from these commitments, made up of the coupons matured on the securities and of the difference between their spot price and their forward price, is recognised under interest income in the income statement.

The two types of transactions are offset if, and only if, they have been carried out with the same counterpart and if such offsetting is contractually envisaged.

Amortised cost

The amortised cost of a financial asset or liability is its amount upon initial recognition, net of any principal repayments, plus or minus the overall amortisation of the difference between the initial and the maturity value calculated using the effective interest method, and deducting any impairment loss.

The effective interest method is a method of spreading interest income or interest expenses over the duration of a financial asset or liability. The effective interest rate is the rate that precisely discounts expected future payments or cash flows over the life of the financial instrument at the net carrying amount of the financial asset or liability. It includes all the expenses and basis points paid or received between the parties to a contract that are an integral part of such rate, as well as the transaction costs and all other premiums or discounts.

Commissions considered an integral part of the effective interest rate are the initial commissions received for selling or buying a financial asset not classified as measured at fair value: for example, those received as remuneration for the assessment of the debtor’s financial situation, for the assessment and the registration of sureties and, in general, for completing the transaction.

Transaction costs, in turn, include fees and commissions paid to agents (including employees that act as sales agents), advisors, brokers and dealers, levies by regulatory bodies and securities exchanges, and transfer taxes and duties. Transaction costs do not include financing, internal administration or management costs.

Methods for measuring fair value

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

The fair value of a financial liability which could be demanded (e.g. a demand deposit) cannot be worth less than the amount collectible on demand, discounted as from the first date on which request for payment could be made.

The fair value of a financial instrument at initial measurement is normally the transaction price, i.e. the consideration paid or received. However, if part of the consideration paid or received is attributable to other elements of the financial instrument, then the instrument’s fair value is estimated using a measurement technique.

The existence of official prices on an active market is the best proof of fair value and, where they exist, such prices are used to measure the financial asset or liability. A financial instrument is considered as quoted on an active market if quoted prices are easily and regularly available and represent real market transactions regularly occurring in normal trading. If a financial instrument in its entirety is not officially quoted on an active market, but the parts it is made up of are, the fair value is calculated based on the market prices of the parts that compose it. If the market of a financial instrument is not active, fair value is calculated using estimation methods and measurement models accounting for all risk factors related to the instruments and based on easily available market data, such as: methods based on the measurement of similar quoted instruments, present values of expected cash flows, internal models or measurement techniques generally used in finance, prices for comparable transactions.

The fair value of a financial instrument is based on the following factors, where significant: the time value of money, i.e. the risk-free basic interest rate; credit risk; foreign exchange rates; the prices of goods; prices of equity instruments; the extent of future changes in the price of a financial instrument, i.e its volatility; the early repayment and redemption risk; and the servicing costs of a financial asset or liability.

A.3 – Fair value

A.3.1 – Transfers between portfolios

The Banca IFIS Group has not reclassified any of the financial assets as foreseen by IAS 39, paragraphs 50B, 50D and 50E.

A.3.2 – Fair value hierarchy

A.3.2.1 Accounting portfolios: breakdown by levels of fair value

Financial assets/liabilities measured at fair value

31.12.2011

31.12.2010

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

1. Financial assets held for trading

188

-

 

293

-

-

2. Financial assets at fair value

-

-

-

-

-

-

3. Available for sale financial assets

1.604.449

20.426

60.288

748.171

39.672

30.664

4. Hedging derivatives

-

-

-

-

-

Total

1.604.637

20.426

60.288

748.464

39.672

30.664

1. Financial liabilities held for trading

-

201

399

-

-

-

2. Financial liabilities at fair value

-

-

-

-

-

-

3. Hedging derivatives

-

-

34

-

-

-

Total

-

201

433

-

-

-

Key

L1= Level 1: fair value of a financial instrument quoted on an active market;

L2= Level 2: fair value measured using measurement techniques based on market observables other than the financial instrument's price;

L3= Livello 3: fair value calculated using measurement techniques based on inputs not observable in the market.

A.3.2.2 Annual changes in financial assets measured at fair value (level 3)

FINANCIAL ASSETS

Held for trading

Measured at fair value

Available for sale

Hedging

1. Opening balance

-

-

30.664

-

2. Increases

-

-

32.049

-

2.1 Purchases

-

-

5.718

-

2.2 Profit taken to:

-

-

-

-

2.2.1 Income statement

-

-

 

-

-of which: capital gains

-

-

1

-

2.2.2 Equity

X

X

-

X

2.3 Transfers from other levels

-

-

25.701

-

2.4 Other increases

-

-

630

-

3. Decreases

-

-

2.425

-

3.1 Sales

-

-

1.503

-

3.2 Redemptions

-

-

-

-

3.3 Losses taken to:

-

-

-

-

3.3.1 Income statement

-

-

-

-

- of which capital losses

-

-

-

-

3.3.2 Equity

X

X

-

X

3.4 Transfers to other levels

-

-

-

-

3.5 Other reductions

-

-

922

-

4. Closing balance

-

-

60.288

-

A.3.2.3 Annual changes in financial liabilities measured at fair value (level 3)

FINANCIAL ASSETS

Held for trading

Measured at fair value

Hedging

1. Opening balance

-

-

-

2. Increases

399

-

34

2.1 Purchases

-

-

-

2.2 Profit taken to:

-

-

-

2.2.1 Income statement

-

-

-

-of which: capital gains

-

-

-

2.2.2 Equity

X

X

-

2.3 Transfers from other levels

-

-

-

2.4 Other increases

399

-

34

3. Decreases

-

-

-

3.1 Sales

-

-

-

3.2 Redemptions

-

-

-

3.3 Losses taken to:

-

-

-

3.3.1 Income statement

-

-

-

- of which capital losses

-

-

-

3.3.2 Equity

X

X

-

3.4 Transfers to other levels

-

-

-

3.5 Other reductions

-

-

-

4. Closing balance

399

-

34