SFIL Annual financial report 2018

Consolidated financial statements in accordance with IFRS I 3 95 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 7.1.1. Composition of the fair value of the assets 12/31/2017 Book value Fair value Unrecognized fair value adjustment Central banks 2,560 2,560 - Loans and advances due from banks 295 307 12 Loans and advances to customers 57,014 54,000 (3,014) Financial assets available for sale 2,790 2,790 - Derivatives 4,715 4,715 - TOTAL 67,374 64,372 (3,002) 12/31/2018 Book value Fair value Unrecognized fair value adjustment Central banks 1,927 1,927 - Financial assets at fair value through net income 5,586 5,586 - Financial assets at fair value through equity 1,563 1,563 - Loans and advances due from banks at amortized cost 239 254 15 Loans and advances to customers at amortized cost 44,706 44,201 (505) Bonds at amortized cost 9,384 8,165 (1,219) Hedging derivatives 4,415 4,415 - TOTAL 67,820 66,111 (1,709) 7.1.2. Composition of the fair value of the liabilities, excluding equity 12/31/2017 Book value Fair value Unrecognized fair value adjustment Due to banks 4,215 4,259 44 Hedging derivatives 8,067 8,067 - Debt securities 56,315 57,603 1,288 TOTAL 68,597 69,929 1,332 12/31/2018 Book value Fair value Unrecognized fair value adjustment Financial liabilities at fair value through net income 1,229 1,229 - Due to banks at amortized cost 1,928 1,934 6 Debt securities at amortized cost 60,068 59,968 (100) Hedging derivatives 6,134 6,134 - TOTAL 69,359 69,265 (94) 7.1.3. Methods used to determine the fair value of financial instruments The fair value of a financial instrument is determined on the basis of prices that can be observed in the market for the instrument itself or for a comparable instrument, or with the help of a technical evaluation utilizing observable market data. A hierarchy of the methods used to establish fair value has been drawn up. It is composed of the following three levels: •  Level 1 corresponds to the instruments considered to be liquid, i.e. that their valuation is based on the price observed in a liquid market, for which SFIL assured itself of the existence of a large number of contributors. Level 1 securities include in particular certain government bonds. •  Level 2 uses another method to determine the value of instruments for which SFIL can not observe market prices, but observes such for similar instruments by the same issuer or guarantor listed in the market. In this case, observable prices and other data observable in the market are used and an adjustment is made to account for the degree of the security’s lack of liquidity. •  In level 3, when there is no active market or observable market data, the fair value of instruments is determined by using a valuation spread developed from an internal model. Derivatives are valued using these internal models. The measurement of derivatives is based on an analysis combining the observability of the market data used in the assess- ment and the robustness of the valuation models measured in tems of efficiency to provide a valuation in market consensus. The result of this application is that the derivatives used by SFIL in hedging its activities are primarily of level 2. For the derivatives in level 3, this classification mainly involves hybrid, structured products (interest rate – foreign exchange), spread (correlation) products and options on interest rates. This classification is mainly due to the fact that these products present complex payo s which require an advanced statis- tical model with variable parameters which are sometimes unable to be seen in the market.