Statement of financial positions items

MAIN STATEMENT OF FINANCIAL POSITION ITEMS
(in thousands of Euro)
BALANCES ABSOLUTE CHANGE
31.12.2012 30.06.2012 31.12.2011 12.12-06.12 06.12-12.11
Available for sale financial assets 1.974.591 1.360.854 1.685.163 613.737 (324.309)
Held to maturity financial assets 3.120.428 2.958.581 - 161.847 2.958.581
Due from banks 545.527 342.314 315.897 203.213 26.417
Due from customers 2.292.314 2.186.397 1.722.481 105.917 463.916
Property, plant and equipment and investment property and intangible assets 45.655 45.074 45.320 581 (246)
Other assets 145.615 103.604 145.310 42.011 (41.706)
Total assets 8.124.130 6.996.824 3.914.171 1.127.306 3.082.653
Due to banks 557.323 582.778 2.001.734 (25.455) (1.418.956)
Due to customers 7.119.008 6.071.698 1.657.224 1.047.310 4.414.474
Financial liabilities held for trading 389 415 600 (26) (185)
Other liabilities 138.393 84.200 58.331 54.193 25.869
Equity 309.017 257.733 196.282 51.284 61.451
Total liabilities and equity 8.124.130 6.996.824 3.914.171 1.127.306 3.082.653
 

Available for sale financial assets (AFS)

Available for sale financial assets include debt and equity securities and at the end of the year stood at 1.974,6 million Euro, up 17,2% compared to 1.685,2 million Euro in the prior year. The securities portfolio is held for the purposes described in the following section “Securities portfolio”.

Held to maturity (HTM) financial assets

The portfolio of held to maturity financial assets, established after 1 January 2012, stood at 3.120,4 million Euro at the end of the period and consists of Italian government bonds with residual maturity at the time of purchase of over one year, in light of the ability and willingness to hold them until maturity.

At the reporting date, this HTM portfolio shows unrecognised net capital gains amounting to 74,5 million Euro before taxes. Such net capital gains were not recognised according to the amortised cost method applicable to this portfolio.

The securities portfolio is held for the purposes described in the following section “Securities portfolio”.

Receivables due from banks

At 31 December 2012 receivables due from banks totalled 545.527 thousand Euro compared to 315.897 thousand Euro at 31 December 2011 (+72,7%).

Some securities not listed on an active market and eligible with the Eurosystem were classified under this item for an amount of 58.159 thousand Euro (-47,5% compared to 31 December 2011).

The securities portfolio is held for the purposes described in the following section “Securities portfolio”.

The item includes treasury loans with other lenders for 487.368 thousand Euro (+137,6% compared to 31 December 2011) largely related to maintaining levels of liquidity exceeding period-end maturities.

Securities portfolio

In order to provide a comprehensive analysis of the Group’s securities portfolio, the debt securities portfolio, represented by several asset items in the statement of financial position, and the equity portfolio are commented on below.

Debt securities portfolio

At the end of the period, securities trading reached a significant size, that is 5.140,1 million Euro (+188,5%) compared to 31 December 2011. Purchasing for an overall amount of 6.633,7 million Euro focused on Italian government bonds, at fixed rate for very short-term bonds and at floating rate for medium-term ones. Currently the portfolio's average return is high, considering the period in which most bonds were purchased.

This significant resource allowed Banca IFIS to access funding at reasonable costs through repurchase agreements on the MTS platform or refinancing operations on the Eurosystem.

These securities have been classified as shown in the following table on the basis of their characteristics and in compliance with the provisions of IAS 39.

DEBT SECURITIES PORTFOLIO (in thousands of Euro BALANCES CHANGE
31.12.2012 31.12.2011 ABSOLUTE %
DEBT SECURITIES INCLUDED UNDER:        
Available for sale financial assets 1.961.556 1.670.895 290.661 17,4%
Held to maturity financial assets 3.120.428 - 3.120.428 n.a.
Receivables due from banks - bonds 58.159 110.790 (52.631) (47,5)%
Other assets - 188 (188) (100,0)%
Total securities held 5.140.143 1.781.873 3.358.270 188,5%
 

At year-end, securities which had been purchased and still not settled had a par value of 187,5 million Euro, recognised under commitments.

Here below is the breakdown by issuer and by maturity of the debt securities held.

Issuer up to 3 months Over 3-6 months Over 6 months to 1 year 1 to 2 years over 2 years up to 5 years Total
Government securities 127.828 548.610 1.066.568 1.864.989 1.400.180 5.008.175
% of total 2,5% 10,7% 20,8% 36,2% 27,2% 97,4%
Banks 76.569 5.020 2.002 37.349 11.028 131.968
% of total 1,5% 0,1% 0,0% 0,8% 0,2% 2,6%
Total 204.397 553.630 1.068.570 1.902.338 1.411.208 5.140.143
% of total 4,0% 10,8% 20,8% 37,0% 27,4% 100%
 

Equity portfolio

Available for sale financial assets include equity securities relating to non-controlling interests in unlisted companies, strategic for Banca IFIS, amounting to 13.035 thousand Euro, down from 14.268 thousand Euro at 31 December 2011. This decrease is due, for 1.875 thousand Euro, to the full write-down of the interest in a subsidiary. Furthermore, consistently with the methodology used for equity securities, the convertible bond issued by the same company amounting to 770 thousand Euro and included in the debt securities portfolio was entirely written down.

Receivables due from customers

At year-end total receivables due from customers reached 2.292,3 million Euro, an increase of 33,1% or 569,8 million Euro compared to 1.722,5 million Euro at the end of 2011.

Trade receivables increased by 230,9 million Euro (+14,9%), non-performing loans by 17,3 million Euro (+20%), and tax receivables by 8,4 million Euro (+11,3%). Furthermore, the higher volume of margin lending related to repurchase agreements on government bonds on the MTS platform had a significant impact (+178,2 million Euro). Moreover, the Bank has invested 138,7 million Euro in repurchase agreements with Cassa di Compensazione e Garanzia as counterparty.

Receivables due from customers are composed as follows: 30,2% from the Public Administration (compared to 27,8% at 31 December 2011) and 69,8% from the private sector (compared to 72,2% at 31 December 2011).

Geographically, the item is broken down as follows: 98,3% from customers resident in Italy, and 1,7% from customers resident abroad. Both figures are unchanged from the previous year.

Finally, it should be noted that the item includes 1 position, for a total amount of 41,680 thousand Euro, which fall within the category of major risks.

Receivables due from customers, excluding non-performing loans for 115,3 million Euro, totalled 2.177 million Euro, an increase of 32,1% compared to the end of 2011.

Credit quality

Credit quality

 

Credit quality

 

By adopting a business model suitable for transferring risk from customers to better-structured debtors, the Bank manages to mitigate its exposure to customer default risk. Nevertheless, the protracted negative economic situation has caused even receivables due from more creditworthy debtor counterparties to deteriorate.

Total net impaired assets for the year totalled 440,2 million Euro, against 277,7 million Euro at the end of 2011 (+58,5%). This increase was largely due to the rise in past due loans; indeed, as from 1 January 2012 the prudential law in force for the purposes of identifying past due loans sets the limit at 90 days, instead of 180 days as up to 31 December 2011. In particular, the rise in past due loans is mainly due to receivables from the Public Administration and recourse loans. By way of comparison, it is noted that by applying the new limit of 90 days to the loans outstanding at 31 December 2011, net impaired assets at that date would have totalled 353.544 thousand Euro, and therefore the increase would amount to 24,5% rather than 58,5%.

The increase is also due to higher receivables in the NPL sector, rising from 86.735 thousand Euro to 104.044 thousand Euro (+20%). Toscana Finanza business area’s activity is by nature closely associated with recovering impaired assets. Therefore, loans in the NPL sector are recognised under non-performing or substandard loans. In particular, those loans maintain the same classification as that assigned by the invoice seller, provided the latter is subject to the same law as Banca IFIS: otherwise, if the Bank has not ascertained the debtor's state of insolvency, those loans are classified as substandard.

 

CREDIT QUALITY (in thousands of Euro) TRADE RECEIVABLES NPL TAX RECEIVABLES GOVERNANCE AND SERVICES CONSOLIDATED TOTAL
Non-performing loans          
   Amounts at 30.12.2012 76.711 35.974 2.566 - 115.251
   Amounts at 31.12.2011 66.199 7.822 - - 74.021
   % Change 15,9% 359,9% - - 55,7%
Substandard loans         -
   Amounts at 30.12.2012 136.124 68.070 - - 204.194
   Amounts at 31.12.2011 79.184 78.913 - - 158.097
   % Change 71,9% (13,7)% - - 29,2%
Restructured loans         -
   Amounts at 30.12.2012 7.910 - - - 7.910
   Amounts at 31.12.2011 3.897 - - - 3.897
   % Change 103,0% - - - 103,0%
Past due loans         -
   Amounts at 30.12.2012 112.820 - -   112.820
   Amounts at 31.12.2011 41.685 - - - 41.685
   % Change 170,6% - - - 170,6%
Total net impaired assets          
   Amounts at 30.12.2012 333.565 104.044 2.566 - 440.175
   Amounts at 31.12.2011 190.965 86.735 - - 277.700
   % Change 74,7% 20,0% - - 58,5%
Net performing loans due from customers         -
   Amounts at 30.12.2012 1.442.299 - 80.608 329.232 1.852.139
   Amounts at 31.12.2011 1.353.998 - 74.737 16.046 1.444.781
   % Change 6,5% - 7,9% 1.951,8% 28,2%
Total due from customers (cash)          
   Amounts at 30.12.2012 1.775.864 104.044 83.174 329.232 2.292.314
   Amounts at 31.12.2011 1.544.963 86.735 74.737 16.046 1.722.481
   % Change 14,9% 20,0% 11,3% 1951,8% 33,1%
 

Total non-performing loans due from customers, net of impairment, were 115,3 million Euro at 31 December 2012, compared to 74 million Euro at the end of 2011, with 36 million Euro in the NPL sector (7,8 million Euro at the end of 2011).

At December 2012 substandard loans totalled 204,2 million Euro, compared to 158,1 million Euro in 2011, of which 68,1 million Euro relating to the NPL segment. During 2012 the Bank classified as non-performing and substandard loans some positions related to a real estate group amounting to 31,5 million Euro gross of impairment losses, equal to 17,6 million Euro recognised in the second half of 2012, based on the group's recent corporate results and the reference market trends. The residual net exposure is 14 million Euro, broken down into 1,7 million Euro in non-performing loans and 12,3 million Euro in substandard loans. It should be noted that the Bank has no further significant exposure to the real estate industry.

As envisaged by the instructions of Bank of Italy, the item “substandard loans” also includes the so-called “objective substandard loans with recourse” which, due to the particular business undertaken by the Bank, are not deemed to represent particular problems. Specifically, “objective substandard loans with recourse” relate to loans to invoice sellers, whose account debtors show strong delays in payments. The Bank believes these positions are not objectively problematic, as payment delays on the part of the account debtor do not necessarily correspond to an objective financial difficulty of the invoice seller. If the Bank finds out that the invoice seller is also facing difficulties in fulfilling its commitments, the position is already automatically recorded under subjective substandard loans.

Past due loans totalled 112,8 million Euro, compared with 41,7 million Euro for the previous financial year. This increase was due to the reasons set out in the comment on impaired assets.

Lastly, it should be noted that net past due loans refer for 44,5 million Euro to receivables due from the Public Administration purchased outright within the factoring activity. Given the debtors and the quality of credit, we believe these positions are not subject to impairment. Furthermore, those positions, based on current regulations and contract law, bear interest on arrears that, in line with the market best practices, was conservatively recognised in the financial statements only subsequent to the definition of judicial and non-judicial collection actions brought by the Bank.

The ratio of net non-performing loans to loans goes from 4,3% to 5%, while that of substandard loans to loans from 9,2% to 8,9%.

The ratio of total net impaired assets to loans goes from 16,1% at the end of 2011 (20,5% based on the new regulation) to 19,2 at the end of 2012%.

IMPAIRED ASSETS
(in thousands of Euro)
NON PERFORMING (1) SUBSTANDARD RESTRUCTURED PAST DUE TOTAL
BALANCE AT 31.12.2012  
Gross amount 241.600 226.285 9.048 113.249 590.182
   Incidence on gross total receivables 9,9% 9,2% 0,4% 4,6% 24,1%
Adjustments 126.349 22.091 1.138 429 150.007
   Incidence on gross value 52,3% 9,8% 12,6% 0,4% 25,4%
Net amount 115.251 204.194 7.910 112.820 440.175
   Incidence on net total receivables 5,0% 8,9% 0,3% 4,9% 19,2%
BALANCE AT
31.12.2011




 
Gross amount169.497160.5084.42341.762376.190
  Incidence on gross total receivables9,3%8,8%0,2%2,3%20,6%
Adjustments95.4762.411526 7798.490
  Incidence on gross value 56,3% 1,5% 11,9%0,2%26,2%
Net Amount74.021158.097 3.89741.685277.700
  Incidence on net total receivables 4,3% 9,2% 0,2%2,4%16,1%
(1) As for non-performing loans, it should be noted that Banca IFIS enters its gross non-performing loans, recognised in the financial statements net of the related specific value adjustment funds, up to the point in which all legal credit collection procedures have been entirely completed.

Intangible assets and property, plant and equipment and investment property

Intangible assets totalled 5.683 thousand Euro against 6.096 thousand Euro at 31 December 2011 (-6,8%). The item refers to software (4.569 thousand Euro) and goodwill (850 thousand Euro) arising from the consolidation process of the investment in IFIS Finance Sp. Z o.o.

Property, plant and equipment and investment property increased by 1,.9% to 39.972 thousand Euro.

The property classified under property, plant and equipment and investment property mainly includes: the important historical building Villa Marocco, located in Mestre (Venice) and housing Banca IFIS’s registered office, and the property in Mestre (Venice), partly sub-leased to the parent company La Scogliera S.p.A.

The carrying amount of the property above has been confirmed by experts specialising in the appraisal of luxury property. Villa Marocco is not depreciated as its estimated residual value at the end of its useful life is expected to be higher than its carrying amount.

Following the acquisition of the Toscana Finanza Group, the latter’s head office in Florence, which was acquired under a finance lease, was recognised at 4.244 thousand Euro.

Some property of minor value is also recognised.

Tax assets and liabilities

These items include current and deferred tax assets and liabilities.

Deferred tax assets, amounting to 24.636 thousand Euro at 31 December 2012 (32.424 thousand euro at 31 December 2011), refer for 23.626 thousand Euro to impairment losses on receivables which can be deducted in the following years. The change from 31 December 2011, amounting to 7.788 thousand Euro, mainly refers to the decrease of the latent loss related to the fair value measurement of available for sale financial assets.

Deferred tax liabilities, amounting to 13.308 Euro at 31 December 2012, refer for 7.326 thousand Euro to the fair value measurement of tax receivables of the former subsidiary Fast Finance S.p.A. The fair value measurement was carried out at the time of the business combination.

Funding

Funding, net of the rendimax savings account, shall be analysed in a comprehensive manner based on market trends: it consists of wholesale funding through repurchase agreements (classified under receivables due from customers, as they are concluded on the MTS platform and therefore without a direct banking counterparty), refinancing transactions on the Eurosystem, and short-term treasury transactions with other lenders.

FUNDING 
(in migliaia di euro)
PERIOD CHANGE
2012 2011 ABSOLUTE %
Payables due to customers: 7.119.008 1.657.224 5.461.784 329,6%
   Repurchase agreements 4.039.330 49.127 3.990.203 8.122,2%
   Rendimax 3.046.172 1.555.862 1.490.310 95,8%
   Other payables 33.506 52.235 (18.729) (35,9)%
Payables due to banks: 557.323 2.001.734 (1.444.411) (72,2)%
   Eurosystem 500.000 1.861.665 (1.361.665) (73,1)%
   Other payables 57.323 140.069 (82.746) (59,1)%
Total funding 7.676.331 3.658.958 4.017.373 109,8%
 

Total funding, which at 31 December 2012 totalled 7.676,3 million Euro, an increase of 109,8% compared to 31 December 2011, is represented for 92,7% by Payables due to customers and for 7,3% by Payables due to banks.

Payables due to customers at 31 December 2012 totalled 7.119 million Euro, (+329,6% compared to 31 December 2011). Two factors determined this remarkable increase: the successful retail funding from the online rendimax savings account, which continues to grow also due to the launch of the new rendimax Like product, with deposits at period-end totalling 3.046,2 million Euro (+95,8% compared to the end of 2011); and the higher use of repurchase agreements with underlying government bonds and the Cassa di Compensazione e Garanzia (the Italian central counterparty) as counterparty, amounting to 4.039,3 million Euro at the end of the period (against 49,1 million Euro at 2011 year-end). Compared with the previous year, the Bank turned largely to the MTS platform, rather than Eurosystem auctions, as the former refinancing instrument was more convenient. Should market conditions change, the Bank may transfer its activity to the Eurosystem at any time.

Payables due to banks, which totalled 557,3 million Euro (-72,2% compared to December 2011), consist mainly of funds arising from refinancing transactions on the Eurosystem for 500 million Euro, markedly down from 1.861,2 million Euro at the end of 2011. These transactions were carried out using part of the debt securities held, as well as the securities obtained from the self-securitisation of trade receivables called “Ifis Collection Service”. The remainder of the payables due to banks consist of interbank deposits for 57,3 million Euro (-59,1% compared to the end of 2011).

Provisions for risks and charges

PROVISIONS FOR RISKS AND CHARGES
(in thousands of Euro)
YEAR CHANGE
2012 2011 ABSOLUTE %
Legal disputes 1.355 - 1.355 n.a.
Tax litigation 194 - 194 n.a.
Pensions and other post retirement benefit obligations - 407 (407) (100,0)%
Total 1.549 407 1.142 280,6%
 

Based on its legal consultants’ opinions, the Company allocated 1.025 thousand Euro at 31 December 2012 in view of a probable lawsuit with a former customer's receiver. The latter sued the Bank, demanding that the factoring contract be declared null and void, that sales could not be objected, and pursuant to Article 67, Para. 1 and 2 of the Bankruptcy Law and Article 2901 of the Italian Civil Code, that sales occurred during the year and in the six-month period before bankruptcy be revoked, for an amount of 4.923 thousand Euro. The Bank appeared as a plaintiff to challenge these claims. During the lawsuit proceedings the Bank proposed settlement to the receiver with a discharge payment and cancellation of the 1 million Euro amount due.

Supported by the legal opinion of its lawyers, the Bank also made a provision of 330 thousand Euro at 31 December 2012 for the settlement, which is considered likely, of a dispute initiated by an account debtor which sued the Bank and asked for revenues amounting to 859 thousand Euro to be returned, since they were related to non-existing receivables.

In addition, the Bank allocated 194 thousand Euro to the provision for tax litigation risks given the likely provisional enrolment on the Revenue Agency's register following the Bank’s appeal against a verification notice for the fiscal year 2005, as envisaged by the Bank of Italy's Circular of 8 August 2012, and decided not to make any provision for the risk of an adverse outcome in the ongoing tax dispute, as detailed in Part B, Section 12 Provisions for risks and charges of the Notes.

The amount of the provision for risks and charges at 31 December 2011 was due to the business combination with the Toscana Finanza Group, which took effect on 30 June 2011. It largely consisted of the "Provision for directors' severance pay", which was fully drawn on during 2012.

Capital adequacy and solvency ratios

Consolidated equity at 31 December 2012 was 309.017 thousand Euro compared to 196.282 thousand Euro at the end of the previous year. The changes in equity are explained in detail in the following table:

EQUITY: CHANGES
(in thousands of Euro)
YEAR 2012
Equity at 31.12.2011 196.282
Increases: 130.418
   Profit for the year 78.076
   Sale of treasury instruments 7.694
   Change in valuation reserve: 44.648
     - AFS securities 42.202
     - exchange differences 2.446
Decreases: (17.683)
   Dividends distributed (13.434)
   Purchase of treasury instruments (4.249)
Equity at 31.12.2012 309.017
 

The change in the fair value reserve for AFS securities refers mainly to the effects of the fair value measurement of government bonds held in the portfolio.

The change in the currency translation reserve refers mainly to exchange differences deriving from the consolidation of the subsidiary IFIS Finance Sp. Z o.o.

CAPITAL ADEQUACY RATIOS
(in thousands of Euro)
YEAR
31.12.2012 31.12.2011
Regulatory capital    
Tier 1 capital 282.144 214.527 
Tier 2 capital (4.216) (6.752) 
Deductibles -
Total capital 277.928 207.775 
Prudential regulatory requirement  
Credit risk 149.343 136.829 
Market risk 1.784 1.930 
Operating risk 23.608 14.835 
Total prudential requirements 174.735 153.594 
Solvency ratios  
Tier 1 capital/total weighted assets 12,92% 11,17% 
Total capital/Total weighted assets 12,72% 10,82% 
Capital surplus in excess of minimum requirements 103.193 54.181 
 

Pursuant to Bank of Italy’s Regulation dated 18 May 2010, the Banca IFIS Group calculated its regulatory capital at 31 December 2012 by adopting the so-called “symmetric filter”, which allows to neutralize both gains and losses on securities issued by the Central Administrations of EU Member States, for a positive net value of 5,4 million Euro, included under available for sale financial assets, as if they were valued at cost.

Gruppo Banca IFIS
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