Statement of financial positions items

MAIN STATEMENT OF FINANCIAL POSITION ITEMS
(in thousands of Euro)
AMOUNTS ATCHANGE
 20142013ABSOLUTE%
Available for sale financial assets 243.325 2.529.179 (2.285.854) (90,4)%
Held to maturity financial assets 4.827.363 5.818.019 (990.656) (17,0)%
Due from banks 274.858 415.817 (140.959) (33,9)%
Loans to customers 2.814.330 2.296.933 517.397 22,5%
Property, plant and equipment and intangible assets 57.238 47.100 10.138 21,5%
Other assets 92.180 230.749 (138.569) (60,1)%
Total assets 8.309.294 11.337.797 (3.028.503) (26,7)%
Due to banks 2.258.967 6.665.847 (4.406.880) (66,1)%
Due to customers 5.483.474 4.178.276 1.305.198 31,2%
Financial liabilities held for trading  - 130 (130) (100,0)%
Other liabilities 129.003 113.221 15.782 13,9%
Equity 437.850 380.323 57.527 15,1%
Total liabilities and equity 8.309.294 11.337.797 (3.028.503) (26,7)%

Available for sale (AFS) financial assets

Available for sale financial assets include debt and equity securities, and at 31 December 2014 stood at 243,3 million Euro, down 90,4% compared to 2.529,2 million Euro at the end of 2013. The valuation reserve, net of the tax impact, amounted to 6,0 million Euro at 31 December 2014 (-10,0 million Euro compared to the end of 2013). The change in the size of the portfolio from the end of the previous year was the main reason for the decrease in the AFS reserve.

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

Held to maturity (HTM) financial assets

The portfolio of held to maturity (HTM) financial assets stood at 4.827,4 million Euro at 31 December 2014, down 17,0% compared to the previous year, and consists of Italian government bonds with residual maturity at the time of purchase of over one year. At the reporting date, the HTM portfolio showed unrecognised net capital gains amounting to 133,7 million Euro before taxes. These 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 “Securities portfolio” section below.

Receivables due from banks

At 31 December 2014, receivables due from banks totalled 274,9 million Euro, compared to 415,8 million Euro at 31 December 2013 (-33,9%). This item includes some securities not listed on an active market with banking counterparties, totalling 11,0 million Euro (-54,2% compared to 31 Decem

ber 2013), and treasury loans with other lenders, amounting to 263,8 million Euro (-32,7% compared to 31 December 2013), largely related to maintaining excess liquidity in the system.

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

Debt securities held in the portfolio at 31 December 2014 amounted to 5.068,3 million Euro, down 39,4% compared to 31 December 2013 as a result of 3.538.0 million Euro in redemptions of bonds maturing in the period. The Bank does not carry out any trading activity on the security portfolio. At 31 December 2014, 44,1% of securities in the portfolio would mature in December 2015, 14,8% in December 2016, 13,8% in 2017, and 27,3% before the end of 2018.

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.

DEBIT SECURITIES PORTFOLIO
(in thousands of Euro)
AMOUNTS ATCHANGE
 31.12.201431.12.2013ABSOLUTE%
DEBIT SECURITIES INCLUDED UNDER:        
Available for sale financial assets 229.868 2.515.810 (2.285.942) (90,9)%
Held to maturity financial assets 4.827.363 5.818.019 (990.656) (17,0)%
Receivables due from banks - bonds 11.025 24.048 (13.023) (54,2)%
Total securities held 5.068.256 8.357.877 (3.289.621) (39,4)%

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

Issuer/Maturity Within 31.03.2015Between 1.04.2015 and 30.06.2015Between 1.07.2015 and 30.09.2015 Between 1.10.2015 and 31.12.2015 Between 1.01.2016 and 31.12.2016 Between 1.01.2017 and 31.12.2018Total
Government securities 178.649 1.193.483 155.721 697.049 747.447 2.084.369 5.056.718
% of total 3,5% 23,5% 3,1% 13,8% 14,7% 41,1% 99,7%
Banks 3.014 3.005   - 5.006 513 11.538
% of total 0,1% 0,1% 0,0% 0,0% 0,1% 0,0% 0,3%
Total   181.663 1.196.488 155.721 697.049 752.453  2.084.882  5.068.256
% of total 3,6% 23,6% 3,1% 13,8% 14,8% 41,1% 100%
     

Equity portfolio

Available for sale financial assets include equity securities relating to non-controlling interests in unlisted companies, amounting to 13,5 million Euro (+0,7% compared to 31 December 2013), which are considered strategic for Banca IFIS. 

Loans to customers

At 31 December 2014, total loans to customers reached 2.814,3 million Euro, up 22,5% or +517,4 million Euro compared to 2.296,9 million Euro at the end of 2013. Specifically, trade receivables increased by 516,6 million Euro compared to the end of 2013 (+26,7%). The sustained growth in lending was driven by increased marketing efforts towards Italy's businesses, which paid off in a scenario where banks continued to reduce loans, and occurred despite significant collections concerning positions due from the Public Administration (PA). Receivables due from the PA at 31 December 2014 accounted for 27,1% of total receivables in the segment, compared to 27,0% at 31 December 2013, while receivables due from the private sector accounted for 72,9% (compared to 73,0% at 31 December 2013). Distressed Retail Loans rose by 7,5 million Euro (+5,8%) and tax receivables by 29,2 million Euro (+32,3%). As far as the Governance and Services segment is concerned, loans fell by 35,9 million Euro (-25,6%) mainly due to 52,7 million Euro in reverse repurchase agreements with Cassa di Compensazione e Garanzia coming to maturity. Such fall was partially offset by the 22,6 million Euro increase in margin lending with Cassa di Compensazione e Garanzia related to repurchase agreements in government bonds on the MTS platform.

LOANS TO CUSTOMERS:
BREAKDOWN BY SEGMENT
(in thousands of Euro)
AMOUNTS ATCHANGE
 31.12.201431.12.2013ABSOLUTE%
Trade receivables 2.455.052 1.938.415 516.637 26,7%
- of which impaired 112.628 162.609 (49.981) (30,7)%
Distressed retail loans 135.429 127.945 7.484 5,8%
- of which impaired 135.426 127.945 7.481 5,8%
Tax receivables 119.473 90.282 29.191 32,3%
- of which impaired 34 499 (465) (93,2)%
Governance and services 104.376 140.291 (35.915) (25,6)%
- of which with Cassa di Compensazione e Garanzia 102.707 80.090 22.617 28,2%
- of which receivable repurchase agreements  - 52.698 (52.698) (100,0)%
Total loans to customers 2.814.330 2.296.933 517.397 22,5%
- of which impaired 248.088 291.053 (42.965) (14,8)%

The breakdown of loans to customers is essentially in line with the Trade Receivables segment, with 27,9% of receivables due from the Public Administration (compared to 26,7% at 31 December 2013) and 72,1% due from the private segment (compared to 73,3% at 31 December 2013).

With regard to activities in support of SMEs, the loans duration was confirmed as short-term, in line with the strategy to support working capital that represents the core business.

Geographically, the item is broken down as follows: 95,4% of loans are to customers resident in Italy (97,9% at 31 December 2013) and 4,6% to customers resident abroad (2,1% at 31 December 2013).

Finally, it should be noted that the item includes 4 positions, for a total amount of 181,0 million Euro, which fall within the category of major risks.

BANKING PRODUCTS
(in thousands of Euro)
AMOUNTS ATCHANGE
31.12.201431.12.2013ABSOLUTE %
Current accounts 105.018 133.271 (28.253)  (21,2)%
Advance accounts for future receivable transfers and other financing 90.146 42.328 47.818 113,0%
Factoring advance accounts 2.228.221 1.717.301 510.920 29,8%
Non-performing loans 65.340 61.440 3.900 6,3%
Tax receivables 119.473 89.783 29.690 33,1%
Mortgages 287 2.214 (1.927)  (87,0)%
Receivable repurchase agreements - 52.698 (52.698)  (100,0)%
Other operations 102.707 80.090 22.617 28,2%
Total net current loans (2) 2.711.192 2.179.125 532.067 24,4%
Net non-performing loans 103.138 117.808 (14.670)  (12,5)%
Total due from customers 2.814.330 2.296.933 517.397 22,5%

(1) Total net current loans include substandard, restructured and past due loans classified as impaired loans, pursuant to the Bank of Italy's provisions (see table 7.1 in the Notes to the financial statements)

Credit quality

Can a small/medium sized enterprise have the same creditworthiness as a large enterprise?

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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. Even though the prolonged economic downturn has caused also receivables due from higher-quality debtor to deteriorate, the improvement concerning the most significant impaired loans—i.e. those in the Trade Receivables segment—registered in 2013 continued into 2014, as shown in the table below. Specifically, said improvement was due to the following factors: a) new bad loans continued to decrease; b) the Group is extremely effective at promptly recognising losses on positions found to be impaired (adjusting the item impairment/losses in profit or loss accordingly); finally, c) particular attention was paid to objective substandard loans, considerably improving their situation.

Total net impaired loans amounted to 248,1 million Euro, compared to 291,1 million Euro at the end of 2013 (-14,8%). In the Trade Receivables segment alone, whose performance is crucial for the purpose of assessing the Bank’s overall credit quality, total impaired loans dropped 30,7%, from 162,6 million Euro at the end of 2013 to 112,6 million Euro.

Impaired loans, including receivables in the DRL segment, rose from 127,9 million Euro to 135,4 million Euro (+5,8%). This was the result, on the one hand, of the purchase of a significant portfolio of non-performing loans with a par value of 1.3 billion Euro, and on the other hand, of the sale of bills of exchange with a par value of 219 million Euro. This segment's business is closely associated with recovering impaired loans: therefore, DRL loans are recognised as bad 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. In light of the above, the amount of distressed retail loans classified as bad or substandard is not critical: on the contrary, it is an indicator of the normal and positive performance of the segment.

CREDIT QUALITY
(in thousands of Euro)
TRADE RECEIVABLESDRLsTAX RECEIVABLESGOVERNANCE AND SERVICESCONSOLIDATED TOTAL
Non-performing loans          
Figures at 31.12.2014 33.049 70.089 - - 103.138
Figures at 31.12.2013 50.804 66.505 499 - 117.808
Change % (34,9)% 5,4% (100,0)% - (12,5)%
Substandard loans         -
Figures at 31.12.2014 37.857 65.337 34 - 103.228
Figures at 31.12.2013 61.796 61.440 - - 123.236
Change % (38,7)% 6,3% 0,0% - (16,2)%
Restructured loans         -
Figures at 31.12.2014 14.374 - - - 14.374
 Figures at 31.12.2013 8.351 - - - 8.351
Change % 72,1% - - - 72,1%
Past due loans         -
Figures at 31.12.2014 27.348 - - - 27.348
Figures at 31.12.2013 41.658 - - - 41.658
Change % (34,4)% - - - (34,4)%
Total net impaired loans          
Figures at 31.12.2014 112.628 135.426 34 - 248.088
Figures at 31.12.2013 162.609 127.945 499 - 291.053
Change % (30,7)% 5,8% (93,2)% - (14,8)%
Net performing loans to customers         -
Figures at 31.12.2014 2.342.424 3 119.439 104.376 2.566.242
Figures at 31.12.2013 1.775.806 - 89.783 140.291 2.005.880
Change % 31,9% 0,0% 33,0% (25,6)% 27,9%
Total loans to customers (cash)          
Figures at 31.12.2014 2.455.052 135.429 119.473 104.376 2.814.330
Figures at 31.12.2013 1.938.415 127.945 90.282 140.291 2.296.933
Change % 26,7% 5,8% 32,3% (25,6)% 22,5%

As for Trade Receivables, total net bad loans to customers at 31 December 2014, net of impairment losses, were 33,0 million Euro, compared to 50,8 million Euro in December 2013 (down 34,9%). This decrease was due to the slowing pace of new bad loans, the gains arising from some items that had already been classified as bad loans in previous years, as well as the adjustments made during the period.

Total substandard loans were 37,9 million Euro, compared to 61,8 million Euro in the previous year (-38,7%), while restructured loans rose from 8,4 million Euro in 2013 to 14,4 million Euro.

Past due loans totalled 27,3 million Euro, compared with 41,7 million Euro in December 2013 (-34,4%). Net past due loans refer for 3,9 million Euro (6,0 million Euro at the end of 2013) to receivables due from the Public Administration purchased outright as part of financing operations.

The positive trend in impaired loans despite the adverse economic scenario is also due to the correct balance of the model for assuming credit risk and the careful management of loans to customers coupled with a virtuous monitoring process.

The ratio of net bad loans to loans improved sharply, from 2,6% at the end of 2013 to 1,3% at 31 December 2014, as did the ratio of net substandard loans to loans, falling from 3,2% to 1,5%. The ratio of total net impaired loans to loans dropped from 8,4% at the end of 2013 to 4,6% at 31 December 2014. Net impaired loans amounted to 25,7% as a percentage of equity (42,8% at the end of 2013).

IMPAIRED TRADE RECEIVABLES
(in thousands of Euro)
NON PERFORMING (1)SUBSTANDARDRESTRUCTUREDPAST DUETOTAL
BALANCE AT 31.12.2014          
Gross amount 243.729 51.291 15.972 28.020 339.012
Incidence on gross total receivables 9,1% 1,9% 0,6% 1,0% 12,6%
Adjustments 210.680 13.434 1.598 672 226.384
Incidence on gross value 86,4% 26,2% 10,0% 2,4% 66,8%
Net amount 33.049 37.857 14.374 27.348 112.628
Incidence on net total receivables 1,3% 1,5% 0,6% 1,1% 4,6%
BALANCE AT 31.12.2013          
Gross amount 234.681 72.302 9.395 42.432 358.810
Incidence on gross total receivables 11,0% 3,4% 0,4% 2,0% 16,8%
Adjustments 183.877 10.506 1.044 774 196.201
Incidence on gross value 78,4% 14,5% 11,1% 1,8% 54,7%
Net amount 50.804 61.796 8.351 41.658 162.609
Incidence on net total receivables 2,6% 3,2% 0,4% 2,1% 8,4%

(1) Bad loans are recognised in the financial statements up to the point in which all credit collection procedures have been entirely completed. 

 

Intangible assets and property, plant and equipment and investment property

Intangible assets totalled 6,6 million Euro, against 6,4 million Euro at 31 December 2013 (+3,1%).

The item refers to software (5,8 million Euro) and goodwill (0,8 million Euro) arising from the consolidation of the investment in IFIS Finance Sp.Z o.o.

Property, plant and equipment and investment property amounted to 50,7 million Euro, up 24,4% following the purchase of a property in Florence which will house the new headquarters of the NPL business area.

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), where some of the Bank’s services were relocated.

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.

The current head office of the NPL business area in Florence, which was acquired under a finance lease, was recognised at 4,0 million Euro.

Tax assets and liabilities

These items include current and deferred tax assets and liabilities.

Deferred tax assets, amounting to 38,3 million Euro at 31 December 2014, refer for 36,0 million Euro to impairment losses on receivables which can be deducted in the following years.

Deferred tax liabilities, amounting to 14,3 million Euro at 31 December 2014, refer mainly for 6,1 million Euro to the measurement of the tax receivables of the former subsidiary Fast Finance S.p.A., which was carried out at the time of the business combination, and for 2,8 million Euro to taxes on the valuation reserve for AFS securities held in the portfolio.

Other assets and liabilities

At 31 December 2014, other assets stood at 51,8 million Euro (-73,1% from 31 December 2013), mainly due to the conclusion of the securitisation entailing the cancellation of receivables due from the SPV. Said receivables correspond to the funds available to the SPV arising from the collections of receivables which have not yet been paid to the originator, on the basis of the technical characteristics of the transaction. The item includes a 10,6 million Euro receivable due from the parent company La Scogliera S.p.A. deriving from the tax consolidation regime, as payments on account were higher than the tax bill.

Other liabilities, totalling 111,1 million Euro at the end of the period, showed an increase of 17,2 million Euro, mainly related to amounts due to customers that have not yet been credited.

Funding

Funding, net of the rendimax savings account and the contomax current account, shall be analysed in a comprehensive manner based on market trends; it consists of wholesale funding through repurchase agreements (classified under payables due to customers, as they are carried out with counterparties formally other than banks), refinancing transactions on the Eurosystem, and short-term treasury transactions with other lenders.

FUNDING
(in thousands of Euro)
YEARCHANGE
 20142013ABSOLUTE%
Due to customers: 5.483.474 4.178.276 1.305.198 31,2%
 Repurchase agreements 2.082.854 263.670 1.819.184 689,9%
   Rendimax 3.241.746 3.817.745 (575.999) (15,1)%
   Contomax 72.454 50.342 22.112 43,9%
 Other payables 86.420 46.519 39.901 85,8%
Due to banks: 2.258.967 6.665.847 (4.406.880) (66,1)%
 Eurosystem 2.226.872 6.656.465 (4.429.593) (66,5)%
 Other payables 32.095 9.382 22.713 242,1%
Total funding 7.742.441 10.844.123 (3.101.682) (28,6)%

Total funding, which amounted to 7.742,4 million Euro at 31 December 2014, down 28,6% compared to 31 December 2013, is represented for 70,8% by Payables due to customers (compared to 38,5% at 31 December 2013) and for 29,2% by Payables due to banks (compared to 61,5% at 31 December 2013).

The significant decrease in Payables due to banks compared to the end of the previous year is due to the fact that the Bank carried out less refinancing operations on the Eurosystem, rather using the MTS platform and dealing with Cassa di Compensazione e Garanzia as counterparty (classified as payables due to customers). The Bank turns to the ECB or the MTS platform exclusively based on which is more convenient in light of interest rate trends.

Payables due to customers at 31 December 2014 totalled 5.483,5 million Euro (+31,2% compared to 31 December 2013). This increase was mainly due to the higher use of repurchase agreements with underlying Government bonds and Cassa di Compensazione e Garanzia as counterparty, amounting to 2.082.9 million Euro (compared to 263,7 million Euro at the end of 2013). Retail founding totalled 3.314,2 million Euro at 31 December 2014, down from 3.868,1 million Euro at 31 December 2013, as interest rates slid gradually throughout the year.

The Bank still bears proportional stamp duty costs on rendimax and contomax, which amount to 0,20%.

Payables due to banks, amounting to 2.259,0 million Euro (compared to 6.665,8 million Euro at 31 December 2013), mainly consisted of funding from refinancing operations on the Eurosystem for 2.226,9 million Euro, compared with 6.656,5 million Euro at 31 December 2013. These amounts include 500,0 million Euro in LTRO loans at a 0,05% rate (ECB's key interest rate) maturing on 26 February 2015 as well as the 119,6 million Euro TLTRO loan received in December 2014 at a fixed 0,15% rate and maturing on 26 September 2018. In October 2014, the Bank cancelled the bonds it had issued and repurchased and which were guaranteed by the Italian Government, totalling 207 million Euro.

The remainder of payables due to banks consists of 32,1 million Euro in interbank deposits, including 10,0 million Euro on the E-Mid platform.

Provisions for risks and charges

PROVISIONS FOR RISKS AND CHARGES
(in thousands of Euro)
AMOUNTS ATCHANGE
 20142013ABSOLUTE%
Legal disputes 1.527 375 1.152 307,2%
FITD provisions (Deposit Protection Fund) 461 158 303 191,8%
Total provisions for risks and charges 1.988 533 1.455 273,0%

Legal disputes

The provision outstanding at 31 December 2014, amounting to 2,0 million Euro, includes 45 thousand Euro for a labour dispute, 1,449 thousand Euro for four disputes concerning the Trade Receivables segment – of which 1,119 thousand Euro were set aside during 2014 – and 33 thousand Euro for five disputes concerning the DRL segment, which were fully set aside during the year.

Overall, the Bank recognises contingent liabilities totalling 12,4 million Euro in claims, represented by 17 disputes; supported by the legal opinion of its lawyers, the Bank made no provisions for these positions, as the risk of defeat is low.

Tax dispute

On 25 July 2008, the Italian Revenue Agency – Regional Department of Veneto started a check relating to the tax year 2005. This inspection ended on 5 December 2008: the relevant report of verification included two challenges concerning the correct calculation of limits for the deductibility of receivables (ceiling) as per art. 106 paragraph 3 of Presidential Decree 917/86, for a total of 1,4 million Euro. Moreover, considering that the ceiling mechanism sets limits for deducting impairment losses on receivables and that the surplus (arising from the difference between the ceiling and net impairments) is deductible on a straight-line basis over the next eighteen years, the application of the criterion indicated in the aforementioned report of verification would imply a tax benefit for the Bank in the years following 2005.

The aforementioned report of verification included also a notification regarding an alleged case of tax avoidance as set out in Article 37-bis of Presidential Decree 600/73 regarding the write-down in 2003 of the equity investment in Immobiliare Marocco S.p.A. (which merged into the Issuer with deed dated 19 October 2009). This investment was deducted in fifths in the following years based on the losses recognised by this company pursuant to arts. 61 and 66 of Presidential Decree 917/86 (in force up to 31 December 2003). On 2 February 2009 the Agency sent a verification notice to the Bank, requesting clarification on the write-down. The Bank promptly replied to it.

Again in reference to the notification of the alleged tax avoidance, on 3 December 2009 the Bank received a verification notice relating to the year 2004, in which the Revenue Agency revised the income for the year 2004 subject to the corporate tax (IRES), applying the anti-avoidance provision no. 26 as set out in art. 37-bis of Presidential Decree 600/73 for a total of 837 thousand Euro, with a higher tax liability relating to the tax year concerned of approximately 276 thousand Euro plus interest and penalties.

On 21 June 2010, the Bank received a verification notice referring to the following year, in which the Revenue Agency revised the income for the year 2005 subject to the corporate tax (IRES), applying the anti-avoidance provision as set out in art. 37-bis of Presidential Decree 600/73, for a total

amount of 837 thousand Euro, with a higher tax liability relating to the tax year in question of approximately 276 thousand Euro plus interest and penalties. The same verification notice relating to the year 2005 treated as taxable the amount relating to the redetermination of the ceiling for deducting losses on receivables concerning the above-mentioned findings, for a total of 1,4 million Euro, with higher taxes of around 478 thousand plus interests and penalties due in relation to the year 2005.

Subsequently, by the end of 2010 the Bank received a notice cancelling under the appeal process the verification notices issued for 2005.

On 22 February 2011, the appeal regarding the verification notice for the tax year 2004 was discussed before the first level Provincial Tax Commission of Venice. On 29 June 2011, the Provincial Tax Commission of Venice rejected the appeal. On 7 November 2011, the Bank was served a notice of payment for the amounts enrolled on the tax register following the ruling of the court of first instance, pursuant to the laws on tax verification and collection, totalling 423 thousand Euro. Banca IFIS paid those amounts on 29 December 2011. Subsequently, the company filed an appeal with the Regional Tax Commission against this sentence. On 25 September 2012 the appeal was heard before the second-degree Regional Tax Commission of Venice. On 18 October 2012 the Commission’s ruling was issued: it accepted the appeal by Banca IFIS S.p.A. and La Scogliera S.p.A. and, overturning the first-instance ruling, it proceeded to cancel the verification notices for 2004 that had been challenged and ordered the Revenue Agency to reimburse the costs for the two-level proceedings to the appellant.

As a consequence of the second-instance ruling, the Revenue Agency returned the sums paid by the Bank following the negative outcome of the first appeal. These had been previously recognised as a 423 thousand Euro receivable in the Bank’s accounts.

On 22 August 2012, the Bank received a verification notice for 2005 that is closely related to the notices received during 2010 and subsequently cancelled under appeal process by the end of the same year. The verification notice, besides containing the same points and therefore the sums requested (in terms of taxes and penalties) included in the previous notice that was then cancelled, considers as tax avoidance some security trading and lending transactions and challenges the deduction of sums such as non-deductible capital losses and manufactured dividends for a total of 6,3 million Euro. The higher tax overall due in relation to this latter finding totals 2,1 million Euro, plus interest and penalties.

Therefore, the overall amount subjected to taxation in the verification notice totals 8,6 million Euro, with higher taxes for the year under review of 2,8 million Euro. The verification notice, which has now passed the ordinary deadline for its issue, i.e. 31 December 2010, was sent on the basis of the Tax Office’s assumption that the doubling of the statute of limitations provided for by the law can be applied to this case, i.e. it represents a criminal offence.

In relation to this verification notice, the Bank applied for composition proceedings with the aim of finding out whether the Office was willing to reconsider its stance, but the application was rejected; the Revenue Agency preferred to continue with the dispute by appealing to the Court of Cassation regarding the verification notice for 2004, effectively forcing the Bank to file a counter-appeal with the Court on 29 January 2013, within the legal time limits; the analysis of the Revenue Agency’s appeal exposes the weakness of their case, already apparent in the previous hearings. Therefore, the tax consultants assisting the Bank in the proceedings believe the chance of defeat is unlikely, and the Bank did not make any provisions for the tax proceedings concerned.

The appeal against the verification notice for 2005 was filed on 11 February 2013.

Before examining in detail the individual findings and the assessment errors made by the Revenue Agency, the appeal focuses on the reasons why the judges should completely annul the notice. Serious material errors were made, to the point that they completely invalidate the act: the criminal charge, which seeks to have the statute of limitations doubled and that the Public Prosecutor completely rejected by ordering a non-suit; a series of verification notices served and then cancelled under the appeal process; and several legal errors contained in the last act issued.

Besides this, the defence case, which had already been set out in the application for composition proceedings, has been expanded and explained in detail. The fragility of the challenge to the write-down on the equity investment in Immobiliare Marocco was highlighted once again, and made even more apparent by the victory in the court of second instance regarding 2004 and which, at this point, would cover all the subsequent years.

Then, the appeal sets out the reasons why the challenges to the calculations of the ceiling for the deduction of receivables are wrong, both as far as the method adopted and interpretation provided by the tax officials in the report of verification are concerned, and even more so in light of the subsequent amendments and supplements to the laws regulating the principles for determining the income of long-time and first-time adopters of IAS.

As for the claims related to securities trading, the appeal highlighted that the transactions concerned produced positive results for the Bank, net of taxes, and they were not completely risk-free or entered into guaranteeing right from the start the conditions to neutralise any profit or loss from the transaction. The cross call and put options only had the effect of limiting the risk of losses and the potential excess returns, and in any case did not rule them out completely, as was hastily claimed in the verification notice. Above all, the challenged transactions simply applied the regime in force at the time, without eluding the law or its underlying principles; in fact, the system established with the 2004 reform envisages a double regime for stock transfers. Therefore, there is nothing strange in short-term equity trading on equity investments that do not qualify for participation exemption, with dividends received partially exempt from tax and deductible capital losses.

In any case, the Bank asked to recalculate the challenged amounts, which did not take into account the positive components that, as taxable income, are included in the determination of income. In April 2013, the Bank was notified of the Revenue Agency's response to the appeal. At 31 December 2014, the date for the first instance hearing had yet to be settled.

In light of the above, the tax consultants hired to resolve the dispute have stated that they reasonably believe it possible to validly defend the Bank’s case, and that therefore the chance of defeat is unlikely.

However, it is necessary to consider the Circular dated 8 August 2012 in which the Bank of Italy clarified that intermediaries, should they have to pay the tax authorities a certain amount following the enrolment in the tax register of higher taxes and the relevant interest and penalties, must assess whether or not it represents a contingent asset as defined by IAS 37. On the basis of this accounting standard, the asset should not be recognised whenever the profit on the same is not all but certain, and the amounts paid to the tax authorities must therefore be recognised at cost and not as tax receivables.

At 31 December 2012, 159 thousand Euro were allocated to the provision for tax proceedings for higher taxes and 35 thousand Euro for interest, resulting in a total of 194 thousand Euro against the likely provisional enrolment on the tax register(1) following the appeal, pursuant to Bank of Italy's Circular dated 8 August 2012. The Bank will not make any provision for the risk of defeat in the on-going tax proceedings. At 30 September 2013, the Bank recognised an adjustment to said provision based on the amounts actually enrolled on the tax register and notified to the Bank on 9 October 2013. Compared to the provision previously made, there was a difference of 13 thousand Euro, mainly due to the reimbursement of collection costs. The Bank promptly paid the amount requested in light of the obligations pursuant to the law, although it expects a positive outcome.

Provision for the share of the Interbank Deposit Protection Fund's intervention

Italy's Interbank Deposit Protection Fund (FITD, Fondo Interbancario di Tutela dei Depositi), of which Banca IFIS is a member, approved in a letter dated 16 September 2014 another rescue loan to Banca Tercas, based in Ascoli Piceno. The relevant potential obligation for Banca IFIS amounts to 0,5 million Euro. Therefore, Banca IFIS allocated said amount to the provisions for risks and charges.

Equity and capital adequacy ratios

At 31 December 2014, consolidated Equity was 437,8 million Euro, compared to 380,3 million Euro at 31 December 2013 (+15,1%). The breakdown of the item and the change compared to the previous year are detailed in the tables below.

EQUITY: BREAKDOWN
(in thousands of Euro)
AMOUNTS ATCHANGE
 31.12.201431.12.2013ABSOLUTE%
Capital 53.811 53.811 - 0,0%
Share premiums 57.113 75.560 (18.447) (24,4)%
Valuation reserve: (109) 10.959 (11.068) (101,0)%
- AFS securities 5.969 15.980 (10.011) (62,6)%
- post-employment benefit (262) (76) (186) 244,7%
- exchange differences (5.816) (4.945) (871) 17,6%
Reserves 237.874 163.055 74.819 45,9%
Treasury shares (6.715) (7.903) 1.188 (15,0)%
Profit for the period 95.876 84.841 11.035 13,0%
Equity 437.850 380.323 57.527 15,1%
 

EQUITY:CHANGES
 (in thousands of Euro)
YEAR 2014
Equity at 31.12.2013 380.323
Increases: 98.761
Profit for the year 95.876
Sale of treasury instruments 2.741
Other variations 144
Decreases: 41.234
Dividends distributed 30.166
Change in valuation reserve: 11.068
 - AFS securities 10.011
- post-employment benefit 186
- exchange differences 871
Equity at 31.12.2014 437.850
 

The change in the valuation reserve for AFS securities mainly refers to the effects of the fair value measurement of Government bonds held in the portfolio and the redemption of some of them.

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

OWN FUNDS AND CAPITAL RATIOS
(in thousands of Euro)
AMOUNTS AT
 31.12.2014 (1)31.12.2014 (2)31.12.2013 (3)
Common equity Tier 1 Capital (CET1) (4) 387.228 390.507 332.851
Tier 1 Capital (AT) 389.778 390.507 332.851
Total own funds 396.202 390.627 328.131
Total RWA 2.789.103 2.830.990 2.433.597
Common Equity Tier 1 Ratio 13,88% 13,79% 13,68%
Tier 1 Capital Ratio 13,98% 13,79% 13,68%
Total own funds Capital Ratio 14,21 13,80 13,48%

(1) Data recognised according to the new regulations (Basel 3), that require for the inclusion of the Group Holding in the consolidation scope.
(2) Data recognised according to the previous regulations (Basel 2).
(3) Data recognised according to the previous regulations (Basel 2).
(4) Core tier 1 capital includes the profit for the year net of estimated dividends.

The new set of harmonised regulations for banks and investment firms included in EU Regulation no. 575/2013 and in Directive 2013/36/EU (CRD IV) is applicable as from 1 January 2014. In order to assess consolidated regulatory capital and capital absorption, this regulatory framework requires for the inclusion of the Group Holding in the consolidation scope and regulates the recognition of non-controlling interests under consolidated equity. The data shown in this table have been recognised according to the new regulations. To allow for a comparison with the previous period, the data at 31 December 2014 recognised according to the previous regulations is shown as well.

Pursuant to Bank of Italy’s Regulation dated 18 May 2010, the Banca IFIS Group calculated its equity at 31 December 2014 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. The net amount of the item was 5,7 million Euro, included under available for sale financial assets, as if those securities were measured at cost.

(1) The provisional amounts enrolled on the tax register are those made on the basis of a verification notice that is not final, since it has been challenged. An appeal filed against a verification notice does not suspend its execution; pending the rulings of the court of first instance and of the court of second instance, part of the verified income tax, plus interest and part of the penalties, can be collected. In particular, as regards the income tax and value added tax, after the verification notice has been served, the Office can enrol on the tax register 1/3 of the verified taxes and interests. In relation to the charges relating to the anti-avoidance provision as set out in art. 37 bis of Presidential Decree 600/73, the amounts due before the first instance ruling cannot be enrolled on the tax register (para. 6, art. 37 bis, Presidential Decree 600/73). Subsequent to the rulings of the tax commissions, further fractions of the amounts due become payable, based on the grounds of the decision and the level of the judicial body.

 

Last updated on 2015-02-18