Argenta Savings Bank 2008 I F R S F I N A N C I A L S T A T E M E N T S

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1 Argenta Savings Bank 28 I F R S F I N A N C I A L S T A T E M E N T S

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3 Argenta Savings Bank I F R S F I N A N C I A L S T A T E M E N T S 2 8 Financial statements for the 28 financial year of Argenta Savings Bank (in Dutch: Argenta Spaarbank nv ), covering the period from 1 January 28 to 31 December 28, prepared in accordance with the international Financial Reporting Standards (IFRS)

4 4 Table of Contents The statutory auditor s report 6 Consolidated balance sheet 8 Consolidated income statement 9 Consolidated statement of changes in equity 1 Consolidated cash flow statement 11 Notes General information Accounting policies Changes in accounting policies Accounting policies accounting rules Equity attributable to the shareholders Minority interests Risk management Financial risk Market risk Liquidity risk Credit risk Operational risk Solvency and capital management Capital management Regulations and solvency Remuneration of Board Members and Managers Composition of the Board Remuneration of the non-executive Managers Remuneration of the Executive Managers Remuneration of the statutory auditor 5 9. Transactions with related parties 5 1. Segment information 53 Notes to the consolidated balance sheet Cash and cash balances with central banks Financial assets and liabilities held for trading Available-for-sale financial assets Loans and receivables Loans to and receivables from credit institutions Loans to and receivables from other clients Derivatives, hedge accounting and fair value changes of the hedged items Property, plant and equipment Goodwill and other intangible assets Tax assets and liabilities Other assets Financial liabilities measured at amortised cost Deposits from credit institutions Deposits from other than credit institutions Debt certificates, including bonds Subordinated liabilities Provisions Other liabilities Fair value of the financial assets and liabilities Derivatives 76

5 5 Notes to the consolidated income statement Net interest income Dividends Net income from commissions and fees Realised gains and losses on financial assets and liabilities that are not measured at fair value in the income statement Gains and losses on financial assets and liabilities held for trading Gains and losses from hedge accounting Gains and losses on derecognition of assets other than held for sale Other net operating income Administration expenses Impairments Income tax expenses 86 Other disclosures Securitization policy Off-balance sheet commitments Contingent liabilities Post-balance sheet events 89 Additional information 9

6 6 The statutory auditor s report REPORT OF THE STATUTORY AUDITOR CONCERNING THE consolidated FINANCIAL STATEMENTS for the year closed on 31 December 28 ADDRESSED TO the GENEral meeting of shareholders of argenta spaarbank NV To the shareholders, In accordance with provisions of law and the articles of association, we present you with this report in the context of the appointment as statutory auditor for which we were engaged. This report contains our opinion concerning the consolidated financial statements as well as the required additional reports and disclosures. Unqualified audit opinion on the consolidated financial statements We have conducted the audit of the consolidated financial statements of Argenta Spaarbank nv (hereafter the Company) and its subsidiaries (jointly the Bank Pool), prepared in accordance with the International Financial Reporting Standards (IFRS) as approved in the European Union and with the provisions of administrative law applicable in Belgium. These consolidated financial statements consist of the consolidated balance sheet as at 31 December 28, the consolidated income statement, the consolidated statement of changes in equity, the consolidated cash flow statement, a summary of the most significant accounting policies used and notes. The consolidated balance sheet total amounts to EUR 3,37,79,547 and the consolidated profit (share of the group) for the financial year amounts to EUR 82,657,15. The preparation of the consolidated financial statements is the responsibility of the Company s board of directors. This responsibility includes, among other things: designing, implementing and maintaining an internal control concerning the preparation and the fair presentation of the consolidated financial statements so that these contain no material misstatements as result of fraud or of errors; selecting and applying suitable accounting policies; and making accounting estimates which are reasonable under the given circumstances. It is our responsibility to express an opinion concerning these financial statements on the basis of our audit. We conducted our audit in accordance with the statutory provisions and audit standards applicable in Belgium, as enacted by the Belgian Institute of Auditors. These auditing standards require that our audit is planned and completed in such a way that a reasonable degree of assurance is obtained that the consolidated financial statements do not contain any material misstatements. In accordance with these auditing standards, we have carried out audit procedures to obtain auditing information concerning amounts and notes incorporated in the consolidated financial statements. The selection of these audit procedures is dependent on our assessment that includes an estimation of the risk that the consolidated financial statements contain material misstatements as result of fraud or of errors. When making our risk accounting estimate, we take into account the existing internal control of the group concerning the preparation and the fair presentation of the consolidated financial statements in order to determine the appropriate activities in the circumstances, but not to give an opinion concerning the effectiveness of the internal control of the company. We have also assessed the soundness of the accounting policies, the reasonability of the accounting estimates made by the Company, as well as the presentation of the consolidated financial statements as a whole. Finally, we have obtained the required clarifications and information for our audit procedures from the Company s board of directors and the people responsible from the Company. We are of the opinion that the audit information we obtained forms a reasonable basis for the publication of our opinion. In our opinion, and on the basis of the reports of the other auditors, the consolidated financial statements give a true and fair view of the financial position of the group as at 31 December 28 and of the result and cash flows for the year then ended in accordance with the International Financial Reporting Standards as approved in the European Union and the provisions of administrative law applicable in Belgium.

7 Verslag van de commissaris 7 Additional statements The preparation and the contents of the consolidated annual report are the responsibility of the Company s board of directors. It is our responsibility to include in our report the following additional statements that are not of such a nature that would modify the scope of our report concerning the consolidated financial statements: The consolidated annual report contains the information required by law and is in accordance with the consolidated financial statements. We cannot, however, provide any opinion on the description of the main risks and uncertainties that confront the Group, or on its position, its foreseeable trend, or the considerable influence of specific facts on its future development. We can, however, confirm that the information provided does not show any clear contradictions with the information that we have access to as part of our mandate. Antwerp, 18 March 29 The statutory auditor Deloitte Bedrijfsrevisoren BV o.v.v.e. CVBA Represented by Jurgen Kesselaers IFRS financial statements 28

8 8 Consolidated balance sheet (prior to profit appropriation) Assets Note 31 Dec Dec. 28 Cash and cash balances with central banks Financial assets held for trading Available-for-sale financial assets Loans and receivables Loans to and receivables from credit institutions Loans to and receivables from other clients Derivatives, hedge accounting Fair value changes of the hedged items in a portfolio hedge of interest rate risk Property, plant and equipment Buildings, land, equipment Investment properties Goodwill and other intangible assets Tax assets Other assets ,937,37 6,969,856 3,353,23,894 25,97,884,638 6,531,86,169 18,566,798,469 35,858,873 27,68,798 8,25,75 11,221,575 9,871,114 2,736,88 27,413,368 78,29,718 8,75,535,282 21,38,731,674 2,239,792,845 19,14,938, ,786,645 39,496,41 39,213, ,48 16,342,16 9,721, ,553,944 Total assets 28,739,473,345 3,37,79,547 Liabilities, equity and minority interest Financial liabilities held for trading Financial liabilities measured at amortised cost Deposits from credit institutions Deposits from other than credit institutions Debt certificates, including bonds Subordinated liabilities Derivatives, hedge accounting Fair value changes of the hedged items in a portfolio hedge of interest rate risk Provisions Tax liabilities Other liabilities ,193,678 27,787,39, ,695,236 16,993,37,94 9,313,181, ,63,19 6,534,925 1,657, ,982,439 84,66,396 28,677,356,367 47,494,188 19,394,976,137 8,57,395, ,49, ,434,323 7,385,428 23,377,43 219,69,42 Total liabilities 28,83,678,275 29,31,849,986 Equity attributable to the shareholders Equity attributable to the minority interests ,636, , ,759,742 18,819 Total liabilities, equity and minority interest 28,739,473,345 3,37,79,547

9 Consolidated income statement 9 Note 31 Dec Dec. 28 Financial and operating income and expenses Net interest income Interest income Interest expenses 25 29,392, ,889,969 1,78,441, ,551,59 218,115, ,335,186 1,356,474,321-1,92,139,135 Dividends 26 15, 14,25 Net income from commissions and fees Income from commissions and fees Expenses related to commissions and fees 27-84,547,163 44,542, ,89,562-89,32,45 43,695, ,728,197 Realised gains and losses on financial assets and liabilities that are not measured at fair value in the income statement 28 4,23,416 7,214,447 Gains and losses on financial assets and liabilities held for trading 29-12,653,284 8,933,423 Gains and losses from hedge accounting 3 16,324,474 Gains and losses on derecognition of assets other than held for sale 31 4,278,196-24,959 Other net operating income 32 5,179,22 1,351,18 Administration expenses Employee expenses General and administrative expenses 33-8,456,15-2,896,264-59,559,886-92,73,966-26,11,73-65,972,236 Depreciation Property, plant and equipment Investment properties Intangible assets ,687,93-3,257,915-17,852-3,259,163-9,99,578-4,315,614-7,11-4,776,953 Provisions 21-2,619,324-85,53 Impairments Available-for-sale financial assets Loans and receivables 34-4,66,187-4,66,187-9,745,39-1,15,953-8,639,356 Total profit before taxes and minority interest 115,562,565 16,346,78 Income tax expenses 35-29,43,85-23,678,973 Total profit after taxes and before minority interest 86,158,76 82,667,15 Minority interests 4-14,86-1, Net profit or loss 86,143,954 82,657,15 Per share data 3 Basic earnings per share Diluted earnings per share IFRS financial statements 28

10 1 Consolidated statement of changes in equity Paid in capital Revaluation reserve on Available For Sale financial assets Reserves Income from the current year Shareholders equity Minority interest Total Equity 31 December 26 13,255, 46,847, ,351,936 96,314,47 633,769, ,69 633,931,996 - Profit (loss) 86,143,954 86,143,954 14,86 86,158,76 - Declared dividends -13,, -13,, -13,, - AFS changes -51,276,545-51,276,545-6,52-51,283,65 - Capital increase 2,, -2,, - Arfo consolidation change -3,621-3,621 - Green Apple capital 18, 18, - Transfer to retained earnings 96,314,47-96,314,47 - Other changes Equity 31 December 27 33,255, -4,428,564 27,666,398 86,143, ,636, , ,795,7 - Profit (loss) 82,657,15 82,657,15 1, 82,667,15 - Declared dividends -11,, -11,, -11,, - AFS changes 8,465,849 8,465,849 12,537 8,478,386 - Transfer to retained earnings 86,143,954-86,143,954 Equity 31 December 28 33,255, 4,37, ,81,352 82,657,15 735,759,742 18, ,94,561 The reserves item (EUR 345,81,352 at 31 December 28) includes the Company s statutory reserves. The changes in these statutory reserves are given under note 3. The Available-for-sale (AFS) financial assets are measured at fair value and all the fluctuations of fair value are being recognised on a separate line in equity until the assets are sold or until an impairment occurs. As a result of the decrease in 27 of the fair value of the AFS portfolio, the revaluation reserve (after taxes) evolved from plus EUR 46,847,981 on 31 December 26 to minus EUR 4,428,564 per 31 December 27. The EUR 4,428,564 included a postponed tax claim of EUR 2,11,786. At the end of 28, the fair value of the AFS portfolio (per credit) increased again, which resulted in a positive revaluation reserve of EUR 4,37,285. This amount of EUR 4,37,285 includes a postponed tax claim of EUR 2,571,47. In 27, no special value reductions were posted for the AFS portfolio. However, in 28, a special value reduction of EUR 1,15,953 was posted for the investment funds that are in the AFS portfolio. In notes 13, 28 and 34, more information can be found regarding the impairments and the realised gains and losses on the AFS portfolio.

11 Consolidated cash flow statement Dec Dec. 28 Cash and cash equivalents at the start of the period Operating activities Net profit (loss) Payable and deferred tax expenses, recognised in the income statement Minority interests recognised in the group s income statement 86,143,954-14,716,173 14,86 82,657,15 24,935,465 1, Investing and financing activities Amortisation/Depreciation Net provisions (reversals) 6,687,93 2,619,324 9,99,578 85,53 Operating activities Net income (loss) on the sale of investments Net unrealised gains on available-for-sale investments Other adjustments -4,278,196-51,283,65 5,16,76 24,959 8,478,386 8,738,271 Cash flows from operating profits before changes in operating assets and liabilities Changes in operating assets (except cash and cash equivalents) Changes in loans and receivables Changes in available-for-sale assets Changes in financial assets held for trading Derivatives, hedge accounting Changes in other assets -5,55,91, ,75,22 17,81, ,635 1,764,621,584-4,723,617,341-71,269, ,786,645 43,182,144 Changes in operating liabilities (except cash and cash equivalents) Changes in deposits from credit institutions Changes in deposits from other than credit institutions Changes in debt certificates (including saving bonds) Changes in financial liabilities held for trading Changes in derivatives, hedge accounting Changes in other liabilities Changes in working capital, net Cash flow from operational activities (Paid) Refunded income taxes Net cash flow from operating activities 753,57,834 1,186,77,164 2,75,57,281 22,231,785 19,749, ,999, ,795,171-3,73, ,868,934-79,21,48 2,41,66,43-742,785,772 61,412, ,434,323-41,467,972-1,98,871,828-1,846,77,561-6,89,272-1,852,967,833 Investing activities (Cash payments to acquire property, plant and equipment) Cash proceeds from disposal of property, plant and equipment (Cash payments to acquire intangible assets) Cash proceeds from disposal of intangible assets Net cash flow from investing activities -9,853,666 4,41,82-7,36,46-12,83,27-8,115,24 129,911-9,897,538-17,882,651 Financing activities (Paid dividends) Cash proceeds from the issue of subordinated liabilities (Cash repayments of subordinated liabilities) Net cash flow from financing activities -13,, 148,29,476-59,182,669 76,17,87-11,, 743,833-6,316,35-7,572,517 Cash and cash equivalents at the end of the period 2,584,58, ,635,724 IFRS financial statements 28

12 12 Consolidated cash flow statement 31 Dec Dec. 28 Components of cash and cash equivalents: Cash in hand Cash balances at agents Cash balances with central banks Loans and receivables 2,25,35 2,381,698 1,35,34 2,56,121,418 6,79,784 2,642,632 69, ,222,356 Total cash and cash equivalents at the end of the period 2,584,58, ,635,724 Additional disclosures for cash flows from operating activities Received interest income Dividends received Paid interest expenses 1,76,178,198 15, -754,376,957 1,354,428,365 14,25-1,6,21,315 The consolidated cash flow statement above was prepared according to the indirect method. The cash in hand, cash balances at authorised agents, and cash balances with central banks can be found under the balance sheet item cash and cash balances with central banks. The amount of loans and receivables can be found under the balance sheet item loans to and receivables from credit institutions. This concerns term deposit accounts and the associated pro rata interest amounts.

13 Notes General Information Argenta Spaarbank nv (hereinafter the Company) is established in Belgium under Belgian law. It has the legal form of a naamloze vennootschap (public limited liability company) that has made a public appeal to the savings system (statutory Belgian credit institution). The company has an unlimited duration. The registered office of the Company is at Belgiëlei 49-53, 218 Antwerp. The Company has the statute of a Belgian credit institution. The core activities of the Company are attracting funds, offering mortgages to private individuals and providing means of payment. In addition, shares of the Argenta Pension Saving Fund, shares of Argenta- Fund sicav, as well as shares of other local and foreign institutions for collective investment and structured notes of third parties are also offered. Argenta Bank- en Verzekeringsgroep nv (hereafter referred to as BVg) is the policy holding company of the Argenta Group. The operating activities of BVg are limited to the cross-sector functions (internal audit, compliance, group risk management, HRM, facilities, central staff and communications), which are organised at group level. BVg has the statute of a mixed financial holding in accordance with article bis of the Law of 22 March 1993 regarding the statute of and the supervision of credit institutions. BVg consolidates and is responsible for the joint management of the insurance activities of its subsidiary Argenta Assuranties PLC (hereafter referred to as Aras), which has the statute of a Belgian insurance company, and the banking activities of the Company. Since 21 December 27, Argenta Nederland nv (hereafter referred to as Arne), a Dutch SPV for issueing bond loans, was also included on this level in the consolidation. The subsidiaries of BVg, namely the Company and Argenta Assuranties PLC (hereafter referred to as Aras), have several subsidiaries in their consolidation. Aras and its subsidiaries are hereafter referred to as the Insurance Pool. The Company and its subsidiaries are hereafter referred to as the Bank Pool. Arne has no subsidiaries. The Insurance Pool, the Bank Pool, BVg and Arne are hereafter jointly referred to as the Argenta Group. In December 28, a second securitisation transaction was performed in which Dutch mortgage loans with an NHG (Nationale Hypotheek Garantie- national mortgage guarantee) were sold to an SPV (Special Purpose Vehicle) called Green Apple. Although there is no capital link with the Company, the management decided that the SPV should be consolidated in which the transferred loans continue to be recognised on the Group s balance sheet. Until 7 September 27, Argenta Fund Management PLC (hereafter referred to as Arfo) was the management company of the Argenta Pension Saving Fund (hereafter referred to as Arpe). Starting from 7 September 27, Petercam Management Services nv, a limited liability company with its registered offices in Sint-Goedeleplein, 19 (1 Brussels) (hereafter referred to as PMS) was appointed as the management company of Arpe. With the appointment of PMS as the management company of Arpe, the independent existence of Arfo was no longer required. In the course of the financial year 28, Arfo (as acquired company) was acquired by the Company (as acquiring company) after joining all shares in one hand in accordance with article 71 of the Belgian Company Code. The average number of people employed by the Bank Pool during the 28 financial year amounted to 454 ( in 27). This concerns an average of administrative staff (338.7 in 26) and 21.8 executive board employees (28.4 in 27) in full-time equivalents (FTEs). A breakdown of the staff costs for the financial year can be found under note 33. IFRS financial statements 28

14 14 Notes Argenta Bank- en Verzekeringsgroep nv (B) Holding company 4,68,315 shares 1,69,999 shares 99,99% 5 shares 1% 168,974 shares 99,99% Argenta Assuranties nv (B) Insurance company 1,61, shares Argenta Nederland nv (NL) Management company 5 shares Argenta Spaarbank nv (B) Savings bank 168,975 shares 57,69 shares 1% 1,864 shares 99,95% 349 shares 99,71% shares 99,95% Argenta-Life Nederland nv (NL) Life insurance company 57,69 shares Argenta Life Luxembourg SA (L) Life insurance company 1,865 shares Argentabank Luxembourg SA (L) Credit institution 35 shares Centraal Bureau voor Hypothecair Krediet nv (B) Mortgage company 2,2 shares 1 share =,5% 1 share =,29% 1 share =,5%

15 Notes Accounting policies On 19 July 22, the European Parliament and the Council enacted EC regulation no. 166/22. This regulation requires that all the consolidated financial statements concerning financial years that commence on or after 1 January 25 published by companies listed on stock markets in the European Union must be prepared in accordance with the International Financial Reporting Standards (IFRS) as determined by the International Accounting Standards Board (IASB). These standards and interpretations consist of (a) International Financial Reporting Standards, (b) International Accounting Standards and (c) Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC). These standards are subject to approval by the Council of Europe as recommended by the regulatory committee for financial accounting of the European Union, the EU Accounting Regulatory Committee (ARC). Moreover, on the basis of this regulation no. 166/22, the EU member states can permit or oblige companies other than listed enterprises to prepare their consolidated financial statements in accordance with the IFRS that have been approved by the Council. The Belgian Royal Decree of 5 December 24 (amending the Royal Decree of 23 September on the consolidated financial statements of the credit institutions) introduced the requirement for credit institutions to prepare their consolidated financial statements in accordance with IFRS with effect from 1 January 26. General In accordance with the stipulation of the Royal Decree of 5 December 24, the consolidated financial statements of the Company have been prepared in accordance with IFRS including the International Accounting Standards (IAS) and Interpretations on 31 December 28, as accepted by the European Union. Accounting policies that are not mentioned specifically in detail in these financial statements correspond with IFRS as adopted by the European Union. Accounting estimates The preparation of financial statements on the basis of IFRS requires a number of accounting estimates. Furthermore, the management was asked to provide its assessment during the process of applying these accounting policies. Actual results can deviate from these accounting estimates and assessments. Accounting estimates and assessments are found particularly in the following areas: - accounting estimates of the recoverable amount with impairments - assessment of the fair value of unlisted financial instruments - assessment of the expected useful life of property, plant and equipment, and intangible assets - accounting estimates of the current liabilities that result from events in the past with the recognition of provisions The management also decided that the Green Apple SPV should be consolidated and that consequently the transferred loans should remain on the group s balance sheet. IFRS financial statements 28

16 16 Notes 2.1. Changes in accounting policies The accounting policies used in the preparation of these 28 consolidated financial statements are consistent with the policies applied as at 31 December 27. The following Standards and Interpretations applied in 28: IFRIC 11 IFRS 2 Group and Treasury share Transactions (applicable for accounting years beginning on or after 1 March 27); IFRIC 12 Service Concession Arrangements (applicable for accounting years beginning on or after 1 January 28); IFRIC 14 IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction (applicable for accounting years beginning on or after 1 January 28). Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures (amendments to be applied as from 1 July 28 onwards). The Company hasn t used the adaptation (applicable since 1 July 28) of IAS 39 Financial instruments: inclusion and valuation and IFRS 7 Financial instruments: information supply. The other standards that came into effect (see summary above) had no impact. The following Standards and Interpretations have been published but are not yet applicable to 28: IAS 1 Presentation of Financial Statements (annual periods beginning on or after 1 January 29). This Standard replaces IAS 1 Presentation of Financial Statements (revised in 23) as amended in 25; Amendment to IAS 27 Consolidated and Separate Financial Statements (applicable for annual periods beginning on or after 1 July 29). This Standard amends IAS 27 Consolidated and Separate Financial Statements (revised 23); Amendment to IFRS 2 Vesting Conditions and Cancellations (applicable for annual periods beginning on or after 1 January 29); Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements Puttable financial instruments an obligations arising on liquidation (annual periods beginning on or after 1 January 29); Amendments to IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items (annual periods beginning on or after 1 July 29); IFRS 3 Business Combinations (applicable to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 29). This Standard replaces IFRS Business Combinations as issued in 24; IFRS 8 Operating Segments (applicable for accounting years beginning on or after 1 January 29); Amendment to IAS 23 Borrowing Costs (applicable for accounting years beginning on or after 1 January 29). Improvements to IFRS 28 (normally applicable for accounting years beginning on or after 1 January 29) Amendments to IFRS 1 First Time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements (normally prospective application for annual periods beginning on or after 1 January 29); IFRS 1 First-time Adoption of International Financial Reporting Standards (applicable for accounting years beginning on or after 1 January 29); IFRIC 13 Customer Loyalty Programmes (applicable for accounting years beginning on or after 1 July 28);

17 Notes 17 IFRIC 15 Agreements for the construction of real estate (applicable for accounting years beginning on or after 1 January 29); IFRIC 16 Hedges of a net investment in a foreign operation (applicable for accounting years beginning on or after 1 October 28); IFRIC 17 Distributions of Non-cash Assets to Owners (applicable for accounting years beginning on or after 1 July 29); IFRIC 18 Transfers of Assets from Customers (applicable for Transfers received on or after 1 July 29). Based on the current available information, no significant impact is expected from the above-mentioned (adapted or new) Standards or Interpretations Accounting policies accounting rules Consolidation principles The consolidated financial statements include those of the Company and its subsidiaries (hereinafter: Subsidiaries). Subsidiaries are those companies in which the Company, directly or indirectly, has the power to govern the financial and operational policies of the entity in order to obtain benefits from these activities (hereinafter referred to as Control). Subsidiaries are consolidated from the date on which effective control is transferred to the Company and are no longer consolidated from the date on which that control ceases. The Subsidiaries are consolidated using the method of full consolidation. This method involves the shares of the Subsidiary held by the Company being replaced in the balance sheet of the Company by the assets and the liabilities of this Subsidiary. Intercompany transactions, balances and results on transactions between the Argenta Group companies are eliminated. Minority interests in the net assets and net results of consolidated Subsidiaries are shown separately on the balance sheet and income statement. These minority interests are measured at the fair value of the net asset on the date of acquisition. Subsequent to the date of acquisition, minority interests comprise the amount calculated at the date of acquisition and the minority s share of changes in equity since the date of acquisition. Before proceeding with the consolidation of the individual financial statements, the principles applying to the measurement of the assets and liabilities components were harmonised on the basis of the accounting principles that apply to the Company. Because all companies recognised in the Company s consolidated financial statements close the financial year on 31 December of each calendar year, this date is also taken as the year-end closing date for the consolidation. Segment reporting Within a particular economic environment, a geographical segment supplies products or services that are subject to risks and returns that are different compared to those of segments that operate in other economic environments. A business segment provides financial products or services that are subject to different risks and returns (different from those of other business segments). The Company has taken the geographical segments of Belgium, the Netherlands and Luxembourg as primary segmentation format on the basis of its internal system of financial accounting. The secondary segmentation on the basis of the business activities is irrelevant because the Company only has one main activity, specifically retail banking. IFRS financial statements 28

18 18 Notes Foreign currency The consolidated financial statements are stated in euros, the functional currency of all Argenta Group entities. Foreign currency transactions are stated at the exchange rate applicable on the date of the transaction. On the balance sheet date, outstanding balances in foreign currencies are translated at the year-end closing exchange rates for monetary items. Non-monetary items carried at historical cost are translated using the historical exchange rate that applied at the date of the transaction. Non-monetary items that are carried at fair value are translated using the exchange rate on the date that the fair values were determined. Transaction date and settlement date accounting Financial assets and liabilities are recognised on the balance sheet at the moment when the Company becomes a party to the contractual provisions of the instruments. Purchases and sales of financial assets settled by cash transactions according to standard market convention are recognised by the Company as at the settlement date on the balance sheet. Netting Financial assets and liabilities are netted and the net amount is recognised on the balance sheet when (a) there is a legally enforceable right to net the recognised amounts and (b) there is an intention to settle the obligation on a net basis, or realise the asset and settle the liability simultaneously. Assets are recognised after deduction of accumulated impairment losses, if applicable. Financial assets and liabilities All financial assets and liabilities including derivatives are recognised according to the IFRS classification system. Each classification is subject to its own specific measurement rules. The following classifications exist for financial assets: (a) loans and receivables, (b) held-to-maturity assets, (c) financial assets designated at fair value through profit or loss, and (d) available-for-sale assets. (a) Loans and receivables: all non-derivative financial assets with fixed or determinable payments that are not listed on an active market. These are measured on acquisition at fair value, including transaction costs, and subsequently measured at amortised cost using the effective interest method, in which the regular amortisation is recognised in the income statement. If necessary, impairments are accrued. All unlisted loans to and receivables from banks and clients are recognised under this classification by the Company. (b) Held-to-maturity assets: all non-derivative financial assets with a fixed maturity and fixed or determinable payments that the Company fully intends and is able to hold to maturity. These are measured on acquisition at fair value, including transaction costs, and subsequently measured at amortised cost using the effective interest method, in which the regular amortisation is recognised in the income statement. If necessary, impairments are accrued.

19 Notes 19 (c) Financial assets designated at fair value through profit or loss include: - financial assets held for trading, including derivative instruments that are not designated as effective hedging instruments - financial assets that are designated at initial recognition or first-time adoption of IFRS as held at fair value through profit or loss. These are measured on acquisition at fair value, excluding transaction costs, and subsequently at fair value, with all changes in fair value recognised in the income statement. All derivatives with a positive fair value are considered by the Company as assets held for trading unless they are designated as effective hedging instruments. (d) Available-for-sale financial assets: all non-derivative financial assets that are not classified as (a) loans and receivables, (b) held-tomaturity assets, or (c) financial assets designated at fair value through profit or loss. These assets are measured at fair value, with all fair value changes being recognised on a separate line in equity until the assets are sold or until they are impaired. In this case, the cumulative fair value changes are transferred from equity to profit or loss for the financial year. For the investments in instruments other than equity instruments, the difference between the acquisition price and the redemption value based on the effective interest method is taken to the result in proportion to the securities residual term to maturity as an item of the interest income from these securities. The changes in fair value of these securities, which are recognised on a separate line in equity, are the result of calculating the changes between (a) their acquisition price plus or minus the portion of the difference mentioned above that is taken to the result, and (b) the fair value. The Company classifies the complete portfolio of shares and interest-bearing securities under this category, with exception of the interest-bearing securities that are classified as loans and receivables. The following classifications exist for financial liabilities: (a) financial liabilities designated at fair value through profit or loss and (b) other financial liabilities. This IFRS classification determines the measurement and recognition in the income statement as follows: (a) financial liabilities designated at fair value through profit or loss include: - financial liabilities held for trading, including derivative instruments that are not designated as effective hedging instruments; - financial liabilities that are designated at initial recognition or first-time adoption of IFRS as held at fair value through profit or loss. These are measured on acquisition at fair value, excluding transaction costs, and subsequently at fair value, with all changes in fair value recognised in the income statement. All derivatives with a negative fair value are considered by the Company as liabilities held for trading, unless they are designated as effective hedging instruments. (b) Other financial liabilities: these are all other non-derivative financial liabilities that do not fall under the previous category. These are measured on acquisition at fair value, including transaction costs, and subsequently measured at amortised cost using the effective interest method, in which the regular amortisation is recognised in the income statement. IFRS financial statements 28

20 2 Notes Cash and cash equivalents The cash and cash equivalents, as used in the cash flow statement, include cash in hand, freely available balances at central banks and other non-derivative financial assets with a duration of less than or equal to three months from the date of acquisition. Tangible assets Property, plant and equipment All property, plant and equipment assets are recognised at cost, which is the value at acquisition, including directly attributable acquisition costs, less accumulated depreciation and any impairments. The rates of depreciation are determined on the basis of the anticipated useful life of the assets and are applied according to the straight-line method from the moment the assets are available for use. When property, plant or equipment is sold, the realised gains or losses are recognised immediately in the income statement. Investment property Investment properties are those properties held to earn rental income or for capital appreciation or to realise both. The accounting policy outlined for property, plant and equipment also applies to investment property. Because the construction or acquisition of property, plant and equipment is not a core business of Argenta Group, no borrowing costs are calculated or capitalised. Specific accounting policies Land and buildings for own use and investment property The purchase price and purchase costs of land are not depreciated, regardless of whether the site has been developed or not. With the purchase of a property site with a building, the values of the land and of the building are calculated, and the transaction costs are divided proportionately between the land and the building. The building s value will be depreciated over the estimated useful life of the building, i.e. at a rate of 3% per annum on a proportional basis. For the registered office and adjoining buildings, the Company has chosen to recognise the reassessed value that, according to previously applied Belgian accounting principles, is stated at deemed cost on the date of the revaluation on or before the date of transition to IFRS, because this was generally comparable with the fair value. The purchase price and purchase costs of renovations are depreciated at 1% per annum on a proportional basis. The purchase price and purchase costs of the interior of rented buildings are depreciated over the duration of the rental contract. IT equipment The purchase price and purchase costs of hardware are depreciated at 33.33% per annum on a proportional basis. Other equipment (including vehicles) The purchase price and purchase costs of furnishings and equipment are depreciated at 1% per year on a proportional basis. The purchase price and purchase costs of vehicles are depreciated at 25% per year on a proportional basis.

21 Notes 21 Goodwill and intangible assets Goodwill Goodwill is defined as the portion of the cost of the acquisition of a business combination that exceeds the acquirer s interest in the fair value of the identifiable assets, liabilities and contingent liabilities acquired, and is calculated as at the date of acquisition. It is recognised as a non-current intangible asset and is carried at cost less any impairment. Goodwill is not amortised, but is tested at least once a year for impairment. With the first application of IFRS, the Company opted not to apply IFRS 3 Business Combinations retroactively to business combinations that existed before the date of transition to IFRS. Intangible assets An intangible asset is an identifiable non-monetary asset with no physical form. It is recognised at cost if and only if it will generate future economic benefits and if the cost of the asset can be measured reliably. If the capitalisation criteria are met, acquired software is recognised at cost under intangible assets. The acquisition price and acquisition cost are amortised according to the straight-line method from the moment that the software is available for use. No internally generated intangible assets are capitalised. Specific accounting policies The purchase price and purchase costs of acquired software are amortised at 2% per year on a proportional basis. Other intangible assets, including the fee paid for the brand name of Centraal Bureau voor Hypothecair Krediet (CBHK), are amortised at 1% per year. Recognition of impairment losses An impairment is recognised for an asset when its carrying amount exceeds its recoverable amount. The Company tests all its assets at each balance sheet date for indications of impairment. The carrying amount of an impaired asset is reduced to its estimated recoverable amount, and the amount of the change in the current reporting period is recognised in the income statement. If, in a subsequent period, the amount of the impairment on assets other than goodwill or available-for-sale equity instruments is reduced due to an event occurring after the write-down, the reduced amount is reversed by adjusting the impairment and recognising it in the income statement. Financial assets A financial asset, or a group of financial assets is considered to be impaired if (1) there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and (2) that loss event or events had an impact on the estimated future cash flows from the financial asset, or group of financial assets, which can be reliably estimated. Depending on the type of financial asset, the recoverable amount can be estimated as follows: - the fair value using an observable market price - the present value of expected future cash flows discounted at the financial asset s original effective interest rate, or - based on the fair value of the collateral obtained. Impairments to available-for-sale equity instruments cannot be reversed through the income statement in subsequent periods. IFRS financial statements 28

22 22 Notes Besides the impairments that are determined on an individual basis, also collective portfolio-based impairments are created in the form of IBNR (incurred but not reported) provisions. Incurred but not reported provisions are justified for assets for which no special impairments are created on an individual basis. This collective evaluation of impairments includes the implementation of a loss confirmation period with regards to the probability of non-payment. The loss confirmation period is a concept that takes into account the fact that there is a period between the moment that indicators for impairments occur and the moment at which these are included in the credit risk systems of the Company. The implementation of the loss confirmation period thus assures that the impairments, which have already occurred but have not been indentified as such, are sufficiently included in the created impairments. The IBNR is calculated and created for all credit portfolios for which credit risk models were developed in Basel II. Based on the probability of default (hereafter referred to as PD), the portfolios are divided into risk classes. For each risk class, the chance of a credit in this class becoming default within three months is calculated. Other assets For non-financial assets, the recoverable amount is measured as the higher of the fair value less cost to sell and the value in use. Fair value less cost to sell is the amount obtainable from the sale of an asset in an arm s-length transaction between knowledgeable, willing parties, after deduction of disposal costs. Value in use is the discounted value of estimated future cash flows expected to arise from continuing use of an asset and from its disposal at the end of its useful life. Goodwill Goodwill is tested at least once a year for impairment. An impairment loss is recognised if the carrying amount of the cash-generating unit to which the goodwill belongs exceeds its recoverable amount. Impairment on goodwill cannot be reversed. Specific rules of available-for-sale financial assets If a drop in the fair value of an available-for-sale financial asset has been recognised directly in the equity, and there are objective indications that the asset has suffered impairment, the accumulated loss that has been directly booked to equity is recognised in the income statement, even though the financial asset has not been removed from the balance sheet. The amount of the accumulated loss that is transferred from equity to the income statement is equal to the difference between the acquisition price (after deducting any redemptions on the principal amount and amortisation) and the current fair value, less any writedown losses on the asset previously recognised in the income statement. - Investments in equity instruments A considerable or long-term fall in the real value of an investment in an equity instrument below the cost price constitutes an objective indication for impairment. This situation will be assessed individually each time, but if there are no additional assessment elements available, the Company considers a duration of six months as long term, and a fall of at least 1% as considerable. Impairments recognised in the income statement on investments in equity instruments classified as available for sale cannot be reversed via the income statement. - Investments in other non-equity instruments Impairments are applied in cases of sustained lower value or loss of value attributable to financial difficulties of the debtor.

23 Notes 23 If the fair value of an available-for-sale debt certificate increases in a subsequent period, and the increase can be objectively related to an event that occurred after the impairment was recognised in the income statement, the impairment must be reversed, with the amount of the reversal being recognised in the income statement. Derivatives Derivatives are financial instruments, such as swaps, forward contracts and options. Such financial instruments have values that change in response to changes in various underlying variables, require little or no net initial investment, and are settled at a future date. They are classified as held-for-trading derivatives, unless they are designated as effective hedging instruments. The Company applies hedge accounting (effective hedging instruments) if all the required conditions have been met (according to the requirements of hedging transactions of IAS 39 as approved by the EU). Those conditions are as follows: the hedge relationship must be formally designated and documented on the inception of the hedge; the hedge must be expected to be highly effective and this effectiveness must be able to be measured reliably; and the measurement of hedge effectiveness must take place on a continuous basis during the reporting period in which the hedge can be considered to be effective. For fair value hedges, both the derivatives hedging the risks and the hedged positions are measured at fair value, with all fair value changes being taken to the income statement. Accrued interest income form rate swaps are included in net interest income. Hedge accounting is discontinued once the hedge accounting requirements are no longer met or if the hedging instrument expires or is sold. In this case, the gain or loss recorded in equity on the hedged position (for fixed-income financial instruments) will be taken to profit or loss on an accruals basis until maturity. Fair value hedges for a portfolio of interest rate risk (portfolio hedge of interest rate risk) are applied by the Company to hedge the interest rate risk for a portfolio of loans with interest rate swaps. The interest rate swaps are measured at fair value, with fair value changes reported in profit or loss. Accrued interest income form these swaps is included in net interest income. The fair value of the hedged amount is presented as a separate line item of the assets on the balance sheet. In case of hedge ineffectiveness, the cumulative change in the fair value of the hedged amount will be amortised through profit or loss over the remaining lifetime of the hedged assets or immediately removed from the balance sheet if the ineffectiveness is due to the fact that the corresponding loans have been derecognised. For cash flow hedges, derivatives hedging the risks are measured at fair value, with those fair value gains or losses determined to be an effective hedge being recognised separately in equity. Accrued interest income from rate swaps is included in net interest income. The ineffective portion of the hedge is recognised in income for the financial year. Hedge accounting will be discontinued if the hedge accounting criteria are no longer met. In this case, the derivatives will be treated as held-for-trading derivatives and measured accordingly. Held-for-trading derivatives are recognised on the balance sheet at fair value on the transaction date. Subsequently, they are measured at fair value, with fair value changes being recognised as profit or loss for the financial year on the income statement. Held-for-trading derivatives with a positive fair value are recorded on the asset side of the balance sheet, and those with a negative fair value on the liabilities side. Embedded derivatives Financial assets or liabilities can include derivatives embedded in a contract. Such contracts are often referred to as hybrid financial instruments. If the host contract of the hybrid financial instrument (1) is not carried at fair value through profit or loss, and (2) the characteristics and risks of the embedded derivative are not closely related to those of the host contract, the embedded derivative should be separated from the host contract and measured at fair value as a separate derivative. IFRS financial statements 28