Red de Transporte Público

1. Due to customers, deposits from banks and debt securities in issue

Classification

Due to customers, deposits from banks and debt securities in issue include the various forms of customer and interbank funding, together with the funds gathered by issuing various types of bond and certificates of deposit, net of any amounts repurchased by the Bank.

This caption also includes securities which are due at the balance sheet date but have not yet been redeemed.

Recognition

These financial liabilities are initially recorded on receipt of the amounts collected or on the is- sue of the debt securities.

They are initially measured at the fair value of the liabilities, usually corresponding to the amount collected or the issue price, plus any additional costs/proceeds directly attributable to the individual funding transaction or issue and not reimbursed by the creditor. Internal adminis- trative costs are excluded.

The implicit derivatives embedded in the above financial liabilities are separated and valued in accordance with IAS 32 and 39.

Measurement criteria

Following initial recognition, the above financial liabilities are stated at amortized cost using the effective interest method, except that short-term liabilities continue to be stated at nominal value since the effect of discounting is negligible.

Derecognition

Financial liabilities are derecognized when they expire or are settled. Derecognition also applies when issued securities are repurchased, even if this acquisition is only temporary. Any differ- ences between the book value of the derecognized liability and the amount paid is recorded in the “profit/loss from disposal or repurchase” caption of the income statement. If, subsequent to repurchase, the Bank places its own securities back in the market, this transaction is treated as a new issue and the liabilities is recorded at the new placement price.

2. Financial liabilities held for trading

Classification

This caption comprises all the financial liabilities, regardless of their technical form (debt securi- ties, loans etc.), that are classified in the trading portfolio.

This caption includes the negative value of trading derivatives and the negative value of implicit derivatives embedded in hybrid contracts but not closely correlated with them, that are, accord- ingly, separated from the “host” instrument, as well as the negative value of derivative contracts covered by application of the fair value option.

It also includes the liabilities originating from the technical mismatches generated by trading in securities.

Measurement criteria

All trading liabilities are stated at fair value, determined on the basis described in the paragraph on “financial assets held for trading”.

3. Financial liabilities at fair value

Classification

This caption comprises those financial liabilities or groups of financial liabilities stated at fair value through the income statement, following exercise of the fair value option (FVO) envisaged by IAS 39.

At the reporting date, this caption comprises own bonds hedged by derivative contracts, as well as bonds with an embedded implicit derivative contract that has not been separated out.

Recognition, measurement, derecognition and recording of the effects on the income statement The recognition, measurement, derecognition and recording of the effects on the income state- ment of the above financial liabilities are described in the earlier paragraph on “financial assets at fair value”.

4. Hedging derivatives

This caption reports the financial derivatives designated as effective hedging instruments which have a negative fair value at the balance sheet date. The recognition, measurement, derecogni- tion and recording of the related effects on the income statement are described in the paragraph on the corresponding asset caption.

5. Liabilities associated with non-current assets held for sale

Reference is made to the paragraph on “non-current assets and groups of assets held for sale”.

6. Provision for severance indemnities

IFRIC has determined that the provision for severance indemnities is a “post-employment bene- fit” and, accordingly, is covered by IAS 19. As a consequence, the year-end actuarial valuation of this caption was carried out with reference to earned benefits using the projected unit credit method. This method involves the projection of future payments with reference to historical and statistical analyses and probabilities, adopting suitable demographic techniques. The discount- ing rate used is determined with reference to the spot rate curve, identified from conditions in the Italian market for government securities, and to the average residual working life of bank employees. Actuarial gains/losses are recognized using the corridor method.

7. Provisions for risks and charges

In accordance with IAS 37, the provisions for risks and charges reflect known obligations (legal or implicit) deriving from past events, the settlement of which is likely to involve the use of eco- nomic resources whose timing and extent are uncertain, on condition that a reliable estimate can be made of the amount needed to settle them. If settlement of the liability is likely to be deferred and the effect of discounting would be significant, the provisions are discounted using current market rates. Provisions are classified in the “net provisions for risks and charges” caption of the income statement.

8. Equity instruments

This caption reports the carrying value of bonds convertible into treasury shares, determined in accordance with IAS 32, since these represent equity instruments other than share capital and reserves.

9. Deferred tax assets and liabilities

Current and deferred income taxes are calculated in accordance with current fiscal legislation. Income taxes are recorded in the income statement, except for the captions credited or debited directly to stockholders’ equity.

The provision for income taxes represents a prudent estimate of the current tax charge and the related changes in deferred tax assets and liabilities. In particular, deferred tax assets and liabili- ties are determined with reference to temporary differences between the book value of assets and liabilities and their values for fiscal purposes. Deferred tax assets are recognized if they are likely to be recoverable, determined with reference to the Group’s ongoing ability to generate taxable income.

Deferred tax assets and liabilities are recorded in the balance sheet as, respectively, “Tax assets” and “Tax liabilities”, on an open account basis without offset.

Changes in deferred tax assets and liabilities are recorded in the income statement, except for those relating to gains or losses on AFS financial assets and to changes in the fair value of deriva- tive instruments that hedge future cash flows or investments denominated in foreign currencies, which are recorded directly to stockholders’ equity net of taxation.

In accordance with para. 52b of IAS 12, no provision for deferred taxation has been recorded in relation to the reserves and revaluation surpluses that are in suspense for tax purposes, since their distribution is not envisaged; in this regard, the Group has not carried out, and has no short or medium-term plans to carry out, any activities which could give rise to the payment of deferred taxes.

10. Liabilities deriving from insurance products

IFRS 4 distinguishes between insurance contracts covered by IFRS 4 and financial contracts covered by IAS 39 with reference to the presence, or otherwise, of a significant insurance risk i.e. a pre-existing, non-financial risk transferred from the insured party to the insurer. In the ap- propriate circumstances, the insurance element can be separated from products deemed to be fi- nancial products.

Liabilities deriving from products which, under IFRS 4, qualify as insurance products are classified in the “Technical reserves” caption and measured in accordance with Italian legal requirements.

Liabilities deriving from products which, under IFRS 4, qualify as financial products in which the insurer has discretion in the determination of performance (discretionary participation fea- ture - DPF) are classified in the “Technical reserves” caption and measured in accordance with Italian legal requirements.

The effects on stockholders’ equity of the unrealized gains/losses on the AFS financial assets un- derlying DPF products are recorded in the “Technical reserves” caption, to the extent that they derive from application of the shadow accounting method.. Unrealized gains/losses on securities assigned to the separate administration are allocated based on the ratio of technical interest rec- ognized to insured parties to the net income for the year of the separate administration.

This coefficient is applied to the unrealized gains/losses after having adjusted them for any dif- ferences between the carrying values of the separate administration and the related book values. The liabilities deriving from products which, under IFRS 4, qualify as financial products, are classified as “Financial liabilities at fair value”, with the separation of the insurance element.