4 Financial Instruments

4.1 Accounting classification

The following table shows the carrying amounts of financial assets and financial liabilities.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which FMO has access at that date.

	June 30, 2024
	FVPL	Fair value hedging instruments	FVOCI-equity instruments	Amortized cost	Financial liabilities used as hedged items	Total
Financial assets
Banks	-	-	-	59,118	-	59,118
Current accounts with state funds and other programs	-	-	-	7,861	-	7,861
Short-term deposits	332,621	-	-	1,409,144	-	1,741,765
Other receivables	-	-	-	35,127	-	35,127
Interest-bearing securities	104,065	-	-	505,784	-	609,849
Derivative financial instruments	158,813	9,568	-	-	-	168,381
Loans to the private sector	603,276	-	-	4,509,871	-	5,113,147
Equity investments	2,235,494	-	181,143	-	-	2,416,637
Total Financial assets	3,434,269	9,568	181,143	6,526,905	-	10,151,885
Financial liabilities
Short-term credits	-	-	-	67,750	-	67,750
Current accounts with state funds and other programs	-	-	-	2,775	-	2,775
Derivative financial instruments	282,334	180,552	-	-	-	462,886
Other financial liabilities	83,144	-	-	-	-	83,144
Debentures and notes	-	-	-	825,805	5,322,109	6,147,914
Accrued liabilities	-	-	-	54,315	-	54,315
Other liabilities	-	-	-	21,254	-	21,254
Total Financial liabilities	365,478	180,552	-	971,899	5,322,109	6,840,038

During the current period FMO acquired new interest bearing securities. Interest rate swaps are entered into to manage the risk associated with the securities and these swaps are measured at fair value through profit and loss. Therefore, to eliminate a possible accounting mismatch, the interest bearing securities are designated at fair value through profit and loss. The maximum credit exposure of the securities is €106 million and the cumulative change in fair value for the period is a loss of €2 million. The notional value of the swaps is €105 million, and the cumulative change in fair value for the period is a gain of €1 million. The movements in fair value are attributable to market risk.

	December 31, 2023
	FVPL	Fair value hedging instruments	FVOCI-equity instruments	Amortized cost	Financial liabilities used as hedged items	Total
Financial assets
Banks		-	-	49,273	-	49,273
Current accounts with state funds and other programs	-	-	-	488	-	488
Short-term deposits	613,031	-	-	1,220,359	-	1,833,390
Other receivables	-	-	-	33,677	-	33,677
Interest-bearing securities	-	-	-	539,708	-	539,708
Derivative financial instruments	160,512	36,638	-	-	-	197,150
Loans to the private sector	587,940	-	-	4,295,723	-	4,883,663
Equity investments	2,193,771	-	167,074	-	-	2,360,845
Total Financial assets	3,555,254	36,638	167,074	6,139,228	-	9,898,194
Financial liabilities
Short-term credits	-	-	-	97,114	-	97,114
Current accounts with state funds and other programs	-	-	-	43	-	43
Derivative financial instruments	231,910	186,929	-	-	-	418,839
Other financial liabilities	74,003	-	-		-	74,003
Debentures and notes	-		-	758,768	5,301,915	6,060,683
Accrued liabilities	-	-	-	29,498	-	29,498
Other liabilities	-	-	-	35,821	-	35,821
Total Financial liabilities	305,913	186,929	-	921,244	5,301,915	6,716,001

4.2 Short-term deposits

	June 30, 2024	December 31, 2023
Collateral delivered (related to derivative financial instruments)	392,025	331,546
Dutch central bank	990,809	863,825
Mandatory reserve deposit with Dutch central bank	6,799	6,352
Collateral delivered to European Central Bank	2,946	2,946
Other short-term deposits	16,565	15,690
Short term deposits measured at AC	1,409,144	1,220,359
Commercial paper	229,850	457,794
Money market funds	102,771	155,237
Short term deposits measured at FVPL	332,621	613,031
Balance at December 31	1,741,765	1,833,390

Mandatory reserve represents the average daily target set by regulator and is not available for user in FMO’s day-to-day operations.

4.3 Derivatives

FMO uses various derivatives to hedge its assets and liabilities against interest rate risk and market risk. During the first half of 2024, the derivatives position has increased related to additions of interest rate swaps and cross - currency interest swaps (see tables below).

The following table summarizes the notional amounts and the fair values of the derivatives. These derivatives are held to reduce interest rate risks and currency risks but do not meet the specified criteria to apply hedge accounting at reporting period. The following table also includes derivatives related to the asset portfolio.

	2024
	Carrying amount
	Notional amount	Assets	Liabilities	Change in fair value used for calculating hedge ineffectiveness	Ineffectiveness recorded in profit or loss	Line item in P&L that includes hedge ineffectiveness
Derivatives hedge accounting instruments:
Interest rate swaps	5,463,385	9,568	180,552	-17,309	795	Results from financial transactions

Derivatives other than hedge accounting instruments:
Currency swaps	826,909	9,377	503
Interest rate swaps	2,479,819	57,916	2,874
Cross-currency interest rate swaps	3,301,641	91,520	267,281
Subtotal	6,608,369	158,813	270,658
Embedded derivatives related to asset portfolio		-	11,676
Total derivative assets /(liabilities) other than hedge accounting instruments	6,608,369	158,813	282,334
Balance at June 30	12,071,754	168,381	462,886

	2023
	Carrying amount
	Notional amount	Assets	Liabilities	Change in fair value used for calculating hedge ineffectiveness	Ineffectiveness recorded in profit or loss	Line item in P&L that includes hedge ineffectiveness
Derivatives hedge accounting instruments:
Interest rate swaps	5,438,525	36,638	186,929	134,237	-4,462	Results from financial transactions

Derivatives other than hedge accounting instruments:
Currency swaps	609,876	355	10,498
Interest rate swaps	1,810,968	48,057	6,610
Cross-currency interest rate swaps	3,030,180	112,100	203,931
Subtotal	5,451,024	160,512	221,039
Embedded derivatives related to asset portfolio		-	10,871
Total derivative assets /(liabilities) other than hedge accounting instruments	5,451,024	160,512	231,910
Balance at December 31	10,889,549	197,150	418,839

The amounts relating to items designated as hedged items were as follows:

	2024
	Carrying amount of the hedged item	Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item
Balance sheet line item	Liabilities	Assets	Liabilities	Change in fair value used for calculating hedge ineffectiveness	Accumulated amount remaining in the balance sheet for any hedged items that have ceased to be adjusted for hedging gains and losses
Debentures and notes	5,322,109	-	-	18,104	-
Balance at June 30	5,322,109	-	-	18,104	-

	2023
	Carrying amount of the hedged item	Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item
Balance sheet line item	Liabilities	Assets	Liabilities	Change in fair value used for calculating hedge ineffectiveness	Accumulated amount remaining in the balance sheet for any hedged items that have ceased to be adjusted for hedging gains and losses
Debentures and notes	5,301,915	-	-	-138,699	-
Balance at December 31	5,301,915	-	-	-138,699	-

4.4 Equity Investments

The positive change in fair value as per June 2024 is mainly driven by FX exchange results. Unrealized results from capital movement for FVPL positions is 5 million, please also refer to note 11.

	Equity measured at FVOCI	Equity measured at FVPL	Total
Net balance at January 1, 2024	167,074	2,193,771	2,360,845
Purchases and contributions	-	104,563	104,563
Return of Capital (including sales)	-	-121,668	-121,668
Changes in fair value	14,069	58,828	72,897
Total balance at June 30, 2024	181,143	2,235,494	2,416,637

	Equity measured at FVOCI	Equity measured at FVPL	Total
Balance at January 1, 2023	150,733	2,130,903	2,281,636
Purchases and contributions	-	333,825	333,825
Conversion of loans to equity	-	1,879	1,879
Return of capital (including sales)	-	-224,513	-224,513
Changes in fair value	16,341	-48,323	-31,982
Total balance at December 31, 2023	167,074	2,193,771	2,360,845

4.5 Associates and Joint Ventures

	June 30, 2024	December 31, 2023
Net balance	308,179	297,960
Purchases and contributions	197	14,260
Return of capital (including sales)	-	-6,657
Share in net results	14,501	26,065
Exchange rate differences	904	-23,449
Total	323,781	308,179

4.6 Other Financial Liabilities

	June 30, 2024	December 31, 2023
Net Balance	74,003	82,328
Purchases and contributions	3,293	2,916
Return of Capital (including sales)	-	-
Changes in fair value through profit & loss	1,348	-23,741
Other changes	4,500	12,500
Total	83,144	74,003

The other financial liabilities relate to the FMO Ventures Program. FMO applies the net asset value valuation technique. The valuation is based on the overall program value which is a level 3 input. Other changes in 2024 relate to the recognition of liabilities for FMO's obligations to the public fund programs managed on behalf of the Dutch State.

4.7 Fair values

Fair value hierarchy

All financial instruments for which fair value is recognized or disclosed are categorized within the fair value hierarchy, based on lowest level input that is significant to the fair value measurement as a whole, as follows:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 – Valuation technique for which the lowest level input that is significant to the fair value measurement is unobservable.

Valuation processes

For recurring and non-recurring fair value measurements categorized within Level 3 of the fair value hierarchy, FMO uses the valuation processes to decide its valuation policies and procedures and analyze changes in fair value measurement from period to period.

FMO’s fair value methodology and governance over applied methods includes a number of controls and other procedures to ensure appropriate safeguards are in place to ensure quality and adequacy. The responsibility of ongoing measurement resides with the relevant departments. Once submitted, fair value estimates are also reviewed and challenged by the Investment Risk Committee (IRC). The IRC approves the fair values measured including the valuation techniques and other significant input parameters used. The appropriateness of the valuation techniques applicable to the underlying instruments is assessed as part of the valuation process and any potential changes between levels in the fair value hierarchy are considered.

Valuation techniques

When available, the fair value of an instrument is measured by using the quoted price in an active market for that instrument (level 1). A market is regarded as active if transactions of the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, valuation techniques are used that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Valuation techniques include:

Recent broker/ price quotations
Discounted cash flow models
Option-pricing models

The techniques incorporate current market and contractual prices, time to expiry, yield curves and volatility of the underlying instrument. Inputs used in pricing models are market observable (level 2) or are not market observable (level 3). A substantial part of fair value (level 3) is based on net asset values.

Investments are measured at fair value when a quoted market price in an active market is available or when fair value can be estimated reliably by using a valuation technique. The main part of the fair value measurement related to investments (level 3) is based on net asset values of investment funds as reported by the fund manager and are based on advanced valuation methods and practices. When available, these fund managers value the underlying investments based on quoted prices, if not available multiples are applied as input for the valuation.

The table below presents the carrying value and estimated fair value of FMO’s non fair value financial assets and liabilities.

The carrying values in the financial asset and liability categories are valued at amortized cost except for the funding in connection with hedge accounting.

Financial assets-liabilities not measured at fair value
	June 30, 2024		December 31, 2023
	Carrying amount	Fair value	Carrying amount	Fair value
Financial assets not measured at fair value
Short term deposits at AC	1,409,110	1,409,110	1,220,359	1,220,359
Banks	59,118	59,118	49,273	49,273
Interest-bearing securities	505,784	486,531	539,708	522,820
Loans to the private sector at AC	4,509,871	4,352,108	4,295,723	3,790,288
Current accounts with state funds and other programs	7,861	7,861	488	488
Other receivables	35,127	35,127	33,677	33,677
Total financial assets not measured at fair value	6,526,871	6,349,855	6,139,228	5,616,905
Financial liabilities not measured at fair value
Short-term credits	67,750	67,750	97,114	97,114
Debentures and notes	6,147,914	6,063,310	6,060,683	5,986,337
Current accounts with state funds and other programs	2,775	2,775	43	43
Accrued liabilities	54,315	54,315	29,498	29,498
Other liabilities	21,254	21,254	35,821	35,821
Total financial liabilities not measured at fair value	6,294,008	6,209,404	6,223,159	6,148,813

The valuation technique we use for the fair value determination of loans to the private sector and non-hedged funding is based on the discounted cash-flow method. The discount rate we apply is a spread curve based on the average spread of the portfolio.

The following table gives an overview of the financial instruments valued at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

June 30, 2024	Level 1	Level 2	Level 3	Total

Financial assets mandatorily at FVPL
Short-term deposits	102,771	229,850	-	332,621
Derivative financial instruments	-	168,381	-	168,381
Loans to the private sector	94,044	-	509,232	603,276
Equity investments	24,874	-	2,210,620	2,235,494

Financial assets designated at FVPL
Interest bearing securities	104,065	-	-	104,065

Financial assets at FVOCI
Equity investments	-	-	181,143	181,143
Total financial assets at fair value	325,754	398,231	2,900,995	3,624,980

Financial liabilities mandatorily at FVPL
Derivative financial instruments	-	451,210	11,676	462,886

Financial liabilities designated at FVPL
Other financial liabilities	-	-	83,144	83,144
Total financial liabilities at fair value	-	451,210	94,820	546,030

December 31, 2023	Level 1	Level 2	Level 3	Total

Financial assets mandatorily at FVPL
Short-term deposits	170,901	442,130	-	613,031
Derivative financial instruments	-	197,150	-	197,150
Loans to the private sector	87,482	-	500,458	587,940
Equity investments	32,965	-	2,160,806	2,193,771

Financial assets at FVOCI
Equity investments	-	-	167,074	167,074
Total financial assets at fair value	291,348	639,280	2,828,338	3,758,966

Financial liabilities mandatorily at FVPL
Derivative financial instruments	-	407,968	10,871	418,839

Financial liabilities designated at FVPL
Other financial liabilities	-	-	74,003	74,003
Total financial liabilities at fair value	-	407,968	84,874	492,842

Movements in financial instruments measured at fair value based on level 3	Derivative financial instruments	Loans to the private sector	Equity investments	Total financial assets

Balance at January 1, 2023	-	432,150	2,247,785	2,679,935
Total gains or losses
-In profit and loss (changes In fair value)	-	48,772	13,533	62,305
-In other comprehensive income (changes in fair value)	-	-	16,341	16,341
Purchases /disbursements	-	117,126	333,825	450,951
Sales/repayments	-	-50,729	-224,513	-275,242
Interest capitalization	-	4,964	-	4,964
Write-offs	-	-42,200	-	-42,200
Accrued income	-	6,010	-	6,010
Exchange rate differences	-	-13,058	-60,970	-74,028
Derecognition and/or restructuring FVPL versus AC	-	-698	-	-698
Conversion from loans to equity	-	-1,879	1,879	-
Conversion associate/FVPL	-	-	-	-
Other changes¹	-	-	-	-
Balance at December 31, 2023	-	500,458	2,327,880	2,828,338
	-	-	-	-
Total gains or losses	-	-	-	-
-In profit and loss (changes In fair value)	-	4,093	9,600	13,693
-In other comprehensive income (changes in fair value)	-	-	14,070	14,070
Purchases /disbursements	-	16,945	104,563	121,508
Sales/repayments	-	-22,629	-117,832	-140,461
Interest Capitalization	-	622	-	622
Write-offs	-	-804	-	-804
Accrued income	-	-2,085	-	-2,085
Exchange rate differences	-	12,632	53,482	66,114
Balance at June 30, 2024	-	509,232	2,391,763	2,900,995

Valuation techniques and unobservable inputs used measuring fair value of loans to the private sector

Type of debt investment	Fair value at June 30, 2024	Valuation technique	Range (weighted average) of significant unobservable inputs	Fair value measurement sensitivity to unobservable inputs

Loans	73,847	Discounted cash flow model	Based on client spread	A decrease/increase of the used spreads with 1% will result is a higher/lower fair value of approx €2.4 million
	118,175	Discounted cash flow model	Based on client rating	An improvement / deterioration of the Client Rating with 1 notch wil result 0.4% increase/decrease
	37,764	Discounted cash flow model	n/a	n/a
Debt Funds	279,446	Net Asset Value	n/a	n/a
Total	509,232

Valuation techniques and unobservable inputs used measuring fair value of equity investments

Type of equity investment	Fair value at June 30, 2024	Valuation technique	Range (weighted average) of significant unobservable inputs	Fair value measurement sensitivity to unobservable inputs

Private equity fund investments	1,318,541	Net Asset Value	n/a	n/a
Private equity direct investments	45,365	Recent transactions	Derived from arm’s length recent transactions	n/a
	545,512	Book multiples	1.0 – 1.12	A decrease/increase of the book multiple with 10% will result in a lower/higher fair value of €55 million.
	216,636	Earning Multiples	Depends on several unobservable data such as EBITDA multiples (range 1.0 - 10.0)	A decrease/increase of the used unobservable data with 10% will result in a lower/higher fair value of €22million.
	63,006	Discounted Cash Flow (DCF)	Based on discounted cash flows	A decrease/increase of the used unobservable data with 10% will result in a lower/higher fair value of €6 million.
	33,921	Put option	The guaranteed floor depends on several unobservable data such as IRR, EBITDA multiples, book multiples and Libor rates	A decrease/increase of the used unobservable data with 10% will result in a lower/higher fair value of €3 million.
	168,782	Firm offers	Based on offers received from external parties	n/a
Total	2,391,763