NATIXIS - 2018 Registration document and annual financial report

5 FINANCIAL DATA

Consolidated financial statements and notes

Leases 6.2 Transactions where Natixis is the lessor

The provisions for finance leases are described in Note 6.3. Assets provided under operating leases are shown in the balance sheet under property, plant and equipment or intangible assets in the case of equipment leases, and investment property in the case of property leases. Lease income from operating leases is recognized in the income statement on a straight-line basis over the lease term, under “Income or expenses from other activities”. Transactions where Natixis is the lessee For consolidation purposes, property, plant and equipment used in the business and held under finance leases is restated and reported under “Property, plant and equipment” if it is material. At the inception of the lease term, leased property, plant and equipment is recognized at the lower of fair value and the present value of the minimum lease payments, with a corresponding entry under debt on the liability side of the balance sheet. Leased assets are depreciated in the same way as owned assets of the same nature. For operating leases, the leased assets are not recognized in the lessee’s assets. Payments made for operating leases are recognized in the income statement on a straight-line basis over the lease term under “expenses from other activities”. Impairment of assets at amortized cost 6.3 and at fair value through other comprehensive income and provisions for financing and guarantee commitments Debt instruments classified as financial assets at amortized cost or at fair value through other comprehensive income, loan commitments and financial guarantee contracts that are not recognized at fair value through profit or loss, as well as lease receivables, are impaired or covered by a provision for expected credit losses (ECL) as of the date of initial recognition. These financial assets will be divided into three categories depending on the increase in credit risk observed since their initial recognition. An impairment charge shall be recorded on outstanding amounts in each category, as follows: Stage 1 (or S1) These are performing loans for which credit risk has not increased materially since initial recognition. Impairment or provision for credit risk on these loans is recorded in the amount of 12-month expected credit losses. Interest income on these loans is recognized through profit or loss using the effective interest rate method applied to the gross carrying amount of the instrument before impairment. Stage 2 (or S2) Performing loans for which credit risk has increased materially since initial recognition are transferred to Stage 2. The impairment or the provision for credit risk is determined on the basis of the instrument’s expected credit losses at maturity (lifetime ECL). Interest income on these outstandings is recognized through profit or loss using the effective interest rate method applied to the gross carrying amount of the instrument before impairment.

Leases are classified as finance leases when substantially all of the risks and rewards incidental to ownership are transferred to the lessee. All other leases are classified as operating leases. IAS 17, which sets forth the accounting treatment of leases, gives five examples of situations where substantially all of the risks and rewards incidental to ownership are transferred to the lessee: the lease transfers ownership of the asset to the lessee by the a end of the lease term; the lessee has the option to purchase the asset at a price that a is expected to be sufficiently below the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; the lease term is for the major part of the economic life of the a asset; at the inception of the lease, the present value of the minimum a lease payments amounts to at least substantially all of the fair value of the leased asset; the leased assets are of such a specialized nature that only the a lessee can use them without major modifications. IAS 17 also describes three indicators that individually or in combination could also lead to a lease being classified as a finance lease: if the lessee cancels the lease, the lessor’s losses associated a with the cancellation are borne by the lessee (capital loss on the asset, etc.) ; gains or losses from the change in the fair value of the residual a value accrue to the lessee; the lessee has the ability to continue the lease at a rent that is a substantially below the market rent. At inception, assets held under a finance lease are recognized in the lessor’s balance sheet and presented as a receivable at an amount equal to the net investment in the lease, corresponding to the present value of minimum lease payments due from the lessee discounted at the rate of return implicit in the lease, plus any non-guaranteed residual value accruing to the lessor. Revenues under the finance lease are recognized as income at the interest rate implicit in the lease so as to produce a constant periodic rate of return on the lessor’s net investment. The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes: the aggregate present value of the minimum lease payments a receivable by the lessor and the non-guaranteed residual value, to be equal to the sum of; the fair value of the leased asset and any initial direct costs of a the lessor, i.e. the costs incurred specifically by the lessor during the set-up of the leasing contract. These two items form the initial value of the asset. IAS 17 requires that non-guaranteed residual value be reviewed on a regular basis. If there has been a reduction in the estimated non-guaranteed residual value, the allocation of revenues over the lease term is revised (revised depreciation schedule) and any reduction in respect of amounts accrued is recognized immediately. Finance lease contract revenues corresponding to interest are recognized in the income statement under “Interest and similar income”.

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Natixis Registration Document 2018