BPCE - 2018 Registration document

5 FINANCIAL REPORT

BPCE parent company annual financial statements

Balances on terminations or transfers are recognized as follows: balances on transactions classified under specialized asset ● management or isolated open positions are recognized immediately in income; for micro-hedging and macro-hedging transactions, balances are ● amortized over the remaining term of the initially hedged item or reported immediately in the income statement. Options The notional amount of the underlying asset of an option or forward or futures contract is recognized by distinguishing between hedging contracts and contracts traded as part of capital market transactions. For transactions involving interest rate, foreign exchange, or equity options, the premiums paid or received are recognized in a temporary account. At the end of the fiscal year, any options traded in an organized or similar market are valued and recognized in income. For over-the-counter (OTC) options, provisions are recognized for capital losses but unrealized capital gains are not recognized. When an option is sold, repurchased, or exercised, or when an option expires, the corresponding premium is recognized immediately in income. Income and expenses for hedging instruments are recognized symmetrically with those from the hedged item. Seller options are not eligible for classification as macro-hedging instruments. Over-the-counter markets may be treated as organized markets when market makers ensure continuous quotations with spreads that reflect market practice or when the underlying financial instrument is itself quoted on an organized market. Interest and similar commission income 2.3.10 Interest and similar commission income is recognized on a pro rata basis. The Group has chosen the following option to account for negative interest: when income from an asset is negative, it is deducted from interest ● income in the income statement; when income from a liability is positive, it is deducted from interest ● expenses in the income statement. Commissions and fees related to granting or acquiring a loan are treated as additional interest amortized over the effective life of the loan, on a pro rata basis according to the outstanding amount due. Other commission income is recognized according to the type of service provided as follows: commissions received for an ad hoc service are recognized on ● completion of the service; commissions received for an ongoing or discontinued service paid ● for through several installments are recognized over the period that the service is provided. Income from securities 2.3.11 Dividends are recognized when the right to receive payment has been decided by the competent body. They are recognized under “Income from variable-income securities”. The portion of income received during the year from bonds or negotiable debt securities is also recognized. The same applies to perpetual deeply subordinated notes that meet the definition of a

Tier 1 regulatory capital instrument. The Group considers that these revenues are effectively similar in nature to interest. Income tax 2.3.12 As of 2010, BPCE opted to apply the provisions of Article 91 of the amended French Finance Act for 2008 which extended the tax consolidation regime to networks of mutual banks. This option is modeled on the tax consolidation for mutual insurers and takes into account consolidation criteria not based on ownership interest (the scheme is usually available if at least 95% of the share capital of a subsidiary is owned by a parent company). As head of the Group, BPCE signed a tax consolidation agreement with members of its group (including the 14 Banque Populaire banks, the 15 Caisses d’Epargne, and BPCE subsidiaries, including BPCE International, Crédit Foncier, Banque Palatine, BP Covered Bonds and BPCE SFH). In accordance with the terms of this agreement, BPCE recognizes a receivable for the tax to be paid to it by the other members of the tax consolidation group along with a payable corresponding to the tax to be paid to the tax authorities on behalf of the consolidation group. The income tax expense for the period corresponds to the tax expense of BPCE in respect of 2018, corrected to reflect the impact of tax consolidation upon the Group. Contributions to banking resolution mechanisms 2.3.13 The procedure for setting up the deposit and resolution guarantee fund was changed by a decree dated October 27, 2015. In 2016, the Autorité de contrôle prudentiel et de résolution (ACPR – French prudential supervisory authority for the banking and insurance sector), in decision No. 2016-C-51 dated October 10, 2016, approved a method for calculating contributions to the deposit guarantee mechanism. For the Deposit Guarantee Fund, the cumulative amount of contributions made to the fund for deposit, collateral and securities guarantee mechanisms represented a non-material amount. Contributions (which are non-refundable in the event of a voluntary withdrawal of approval to operate) had no material impact on BPCE financial statements. Contributions paid in the form of partner or association certificates and cash security deposits recognized as assets on the balance sheet were not material. Directive 2014/59/EU (BRRD – Bank Recovery and Resolution Directive), which establishes the framework for the recovery and resolution of banks and investment firms, and European Regulation 806/2014 (SRM Regulation) established the introduction of a resolution fund as of 2015. In 2016, this fund became a Single Resolution Fund (SRF) between the member States participating in the Single Supervisory Mechanism (SSM). The SRF is a resolution financing mechanism available to the resolution authority (Single Resolution Board) which may use this fund when implementing resolution procedures. In 2018, in accordance with Delegated Regulation 2015/63 and Implementing Regulation 2015/81 supplementing BRRD on ex-ante contributions to financing mechanisms for the resolution, the Single Resolution Board set the level of contributions for 2018. The amount of contributions made to the fund for the fiscal year totaled € 49.6 million, of which € 42.2 million recognized as an expense and € 7.4 million in cash security deposits recognized as assets on the balance sheet (15% in cash security deposits). The cumulative amount of contributions recognized as assets on the balance sheet was € 22.2 million.

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Registration document 2018