IBRC annual report for 2011 - Irish Bank Resolution Corporation ...

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Financial assetsFinancial assets at fair value through profit or loss- held on own accountThe Bank2011Level 1 Level 2 Level 3 Total€m €m €m €m- - 5 5Available-for-sale financial assets 925 227 124 1,276Derivative financial instruments - 879 501 1,380925 1,106 630 2,661Financial liabilitiesDerivative financial instruments - 2,178 11 2,189Other financial liabilities - - 18 18- 2,178 29 2,207Financial assetsThe Bank2010Level 1 Level 2 Level 3 Total€m €m €m €mFinancial assets at fair value through profit or loss- held on own account- - 5 5Available-for-sale financial assets 1,434 567 167 2,168Derivative financial instruments - 1,566 611 2,177Derivative financial instruments held for sale to NAMA- 4 13 171,434 2,137 796 4,367Financial liabilitiesDerivative financial instruments - 2,996 7 3,003Other financial liabilities - - 31 31- 2,996 38 3,034The reduction in available-for-sale financial assets during the year is primarily attributable to disposals and maturities of debtsecurities. Senior bonds issued by financial institutions with a fair value of €115m were transferred from level 1 to level 2 duringthe year due to the lack of an active market for these securities. Transfers of derivative financial assets from level 2 to level 3 of€165m occurred as a result of an increase in the credit valuation adjustment recorded on corporate clients during the year. Theoverall decline in level 3 derivative financial assets is due to maturities, redemptions and disposals.Financial assets at fair value through profit or loss - held on own accountThe Group and Bank's remaining portfolio of financial assets at fair value through profit or loss held on own account consistsprimarily of unlisted equity shares. Fair values are determined using valuation techniques which refer to observable and nonobservablemarket data.Available-for-sale financial assetsThe Group and Bank's portfolio of available-for-sale financial assets consists of debt securities and NAMA subordinated bondsonly. The fair values of debt securities are primarily sourced from independent third party pricing service providers and pricesreceived from dealer/brokers. NAMA subordinated bonds, which are valued using standard discounted cash flow techniques,are included in level 3. The Bank does not use models to value other AFS securities and does not adjust any external pricesobtained.Derivative financial instrumentsDerivative financial instruments derive their value from the price of underlying variables such as interest rates, foreign exchangerates, credit spreads or equity or other indices. Fair values are typically estimated using industry standard valuation techniquesincorporating inputs that are derived from observable market data. The fair value of derivative transactions with corporateclients includes a credit valuation adjustment which incorporates a significant, but unobservable, counterparty credit input.These derivatives are classified as level 3.139