SFIL Annual financial report 2018

Annual financial statements in accordance with French GAAP I 4 117 Annual Financial Report 2018 SFIL Management report Report on corporate governance Consolidated financial statements in accordance with IFRS Annual financial statements in accordance with French GAAP Shareholders’ Meeting of May 29, 2019 General information exception, unrealized losses are impaired in the following cases: •  a doubt about the issuer’s ability to meet his obligations; •  the probability that the Company will not hold these secu- rities until maturity due to new circumstances. 1.2.2.2. Placement securities Securities that do no fit in investment securities are recog- nized as placement securities . Placement securities are recognized on the date of pur- chase at acquisition clean price, excluding fees. Accrued interest at the date of acquisition and subsequently accrued interest at each closing date is recognized on the balance sheet in the same categories as the corresponding security. Interest on these securities is recognized as Inter- est income . The difference between the redemption value and the acqui- sition clean cost (discount or premium) is amortized accord- ing to a quasi-actuarial method over the residual maturity of the security. In application of the principle of prudence, placement secu- rities are recognized on the balance sheet at their acquisi- tion cost including if applicable the amortization of discount or premium or selling price at closing date, whichever is lower, after accounting, when relevant, for the value of the micro-hedge swap. If the market for a financial instrument is not active, valu- ation techniques are used to calculate its selling price. The valuation model should take into account all the factors that market players would consider to valuate the asset. Within this framework, SFIL relies on its own valuation models, making every effort to take into account the market condi- tions at the date of the valuation as well as any changes in the credit quality of these financial instruments and market liquidity. When the decrease in the value of the security exceeds the unrealized gain on the micro-hedge, the decrease in net value is recognized as asset impairment in Net gains (losses) on placement portfolio transactions , as well as sub- sequent impairment reversals and capital gains and losses on sales. Placement securities transferred to investment securities are recognized at their acquisition cost and previously recog- nized impairment is reversed over the residual maturity of the securities concerned. 1.2.3. Debt due to banks Debt due to banks is broken down according to the type of debt (sight accounts, current accounts, long-term loans or non-allocated receivables) and the initial maturity (sight or term debt). Interest accrued on this debt is recognized in liabilities, off- setting income statement. 1.2.4. Debt securities Debt securities are broken down between short term (Certif- icates of Deposit) and medium to long term (Euro Medium Term Notes) negotiable debt securities. Debt securities are recognized at nominal value. Prepayment indemnities are recognized in the income state- ment at the date they occur. A loan is considered as non-performing when it presents one of the following characteristics: •  a probable or certain risk that it will not be repaid (past- due for more than nine months for local government borrowers, and for more than three months for the other counterparties); •  the existence of a factual counterparty risk (worsening of the financial situation, alert procedures). Compromised non-performing loans are loans to borrowers whose recovery outlook is so downgraded that they might be ultimately written off. Loans accounted for as non-per- forming for more than one year are transferred to this category. Impairment charges are recognized for non-performing and compromised non-performing loans: •  the fraction of principal impaired is determined by Risk Management in function of incurred losses. Underlying impairment charges and subsequent reversals are recog- nized as Cost of risk as well as the losses and subsequent recoveries on the principal of non-recoverable loans; •  interest is fully impaired. Underlying impairment charges and subsequent reversals are recognized in the net inter- est margin as well as the losses and subsequent recoveries on the interest of non-recoverable loans. 1.2.2. Securities Securities held by SFIL are recognized on the asset side of the balance sheet under the item Government and public securities or Bonds and other fixed income securities. The item Government and public securities includes securi- ties issued by public sector entities that may be refinanced through the European system of central banks. The item Bonds and other fixed income securities includes: •  securities issued by public sector entities that are not eli- gible for refinancing by central banks; •  securities guaranteed by public sector entities. Securities held by SFIL are recognized as either investment securities or placement securities . 1.2.2.1. Investment securities Fixed-income securities with a specified maturity are rec- ognized as investment securities when there is the inten- tion and the capacity to hold them to maturity. Securities in this category are subject to back-financing or interest-rate hedging over their residual maturity. Investment securities are recognized on the date of pur- chase at acquisition clean price, excluding fees. Accrued interest at the date of acquisition and subsequently accrued interest at each closing date is recognized on the balance sheet in the same categories as the corresponding security. Interest on these securities is recognized as Interest income. The difference between the redemption value and the acqui- sition clean cost (discount or premium) is amortized accord- ing to a quasi-actuarial method over the residual maturity of the security. At closing date, unrealized gains are not recognized and unrealized losses are generally not impaired. By way of