FY 2014 IFRS consolidated financial statements

Transcription

1 FY 214 IFRS consolidated financial statements Meeting of the Board of Directors of March 17, 215 Version audited by the Statutory Auditors 1

2 1. Consolidated balance sheet ASSETS thousands Notes 12/31/214 12/31/213 Cash and amounts due from central banks , ,32 Financial assets at fair value through profit and loss ,756 93,995 Hedging derivatives ,144 13,14 Available-for-sale financial assets , ,691 Loans and receivables due from credit institutions ,137,412 2,32,461 Trade receivables and loans due from clients ,464,932 9,173,453 Current tax assets Deferred tax assets ,88 85,966 13,662 86,219 Accrued income and other assets , ,11 Investments in associates ,311 2,89 Investment property ,597 26,891 Property, plant and equipment , ,3 Intangible assets ,22 13,942 Goodwill ,22 44,653 TOTAL ASSETS 13,741,943 13,354,133 LIABILITIES thousands Notes 12/31/214 12/31/213 Amounts due to central banks Financial liabilities at fair value through profit and loss , ,957 Hedging derivatives , ,251 Amounts due to credit institutions ,3,668 4,144,251 Trade payables ,256,979 6,782,498 Debt securities , ,37 Current tax liabilities Deferred tax liabilities 5.7 6,93 15,24 6,821 15,46 Accrued expenses and other liabilities , ,848 Provisions ,9 66,444 Subordinated debts , ,211 Shareholders equity Shareholders equity (Group share) Share capital and additional paid-in capital Retained earnings Gains and losses recognized directly in equity Net income for the period Non-controlling interests (minority interests) ,26,438 1,74, ,771 42,858-4,741-63, ,66 1,187,638 1,58, ,771 27,14-7, , ,349 TOTAL LIABILITIES 13,741,943 13,354,133 First application of standards IFRS 1 and IFRS 11 has no impact on the financial statements of Groupe BPCE International et Outre-Mer. 2

3 2. Consolidated income statement INCOME thousands Notes FY 214 FY 213 Interest and related income 6.1 Interest and related expenses 6.1 Commissions (income) 6.2 Commissions (expenses) 6.2 Net gains or losses on financial instruments at fair value through profit or loss 6.3 Net gains or losses on available-for-sale financial assets 6.4 Income from other activities 6.5 Expenses from other activities , , ,16-34,634-6,68-11,194 31,821-12, , ,98 178,2-32,799 15,776-28,487 3,437-13,37 Net banking income 364, ,812 Operating expenses 6.6 Net depreciation, amortization and impairment of property, plant and equipment and intangible assets -37,135-19,35-33,887-2,413 Gross operating income 37,772 24,512 Cost of risk ,74-42,27 Operating income 3,32 198,485 Share in net income of associates 6.8 Gains or losses on other assets 6.9 Change in value of goodwill Income before tax 3, ,722 Income tax ,765-48,346 Net income -47, ,376 Non-controlling interests (minority interests) -16,329-13,38 NET INCOME (GROUP SHARE) -63, ,338 First application of standards IFRS 1 and IFRS 11 has no impact on the financial statements of Groupe BPCE International et Outre-Mer. 3

4 3. Net income and gains and losses recognized directly in equity thousands Notes FY 214 FY 213 Net income -47, ,376 Revaluation differences on defined-benefit pension schemes Tax impact of revaluation differences on defined-benefit pension schemes Items that cannot be reclassified in income Foreign exchange rate adjustments Changes in value of available-for-sale financial assets Changes in value of hedging derivatives Tax Items that can be reclassified in income Share of unrealized gains and losses recognized directly in the equity of associates Change in value for the period with an impact on equity Change in value for the period linked to income -1, ,398 2,711 1, , ,745-29, , Gains and losses recognized directly in equity (after income tax) Net income and gains and losses recognized directly in equity Group share Non-controlling interests 2,774-44,878-44,413 14,498-6,333 97,4 15,92 7,458 First application of standards IFRS 1 and IFRS 11 has no impact on the financial statements of Groupe BPCE International et Outre-Mer. 4

5 4. Statement of changes in equity Gains and losses recognized directly in equity Share capital and additional paid-in capital Change in fair value of financial instruments Equity attributa ble to equity holders of the parent Share capital Additional paid-in capital Perpetual deeply subordinated notes Retained earnings Foreign exchange rate adjustments Revaluation differences on employee benefits Availablefor-sale financial assets Hedging derivatives Net income attribut able to equity holders of the parent thousands Equity at January 1, , ,439 25, -237,669-11,281 42,656 1,11,833 Cash flows associated with relations with shareholders Dividend payments Capital increase Capital reductions intended to cover losses -38,356 38,356-55,563 Buyback of deeply subordinated notes -1, 44,437 Interest on deeply subordinated notes Impact of acquisitions and disposals on 1,99 1,99 non-controlling interests Subtotal -38,356-1, 354,72-53,654 Gains and losses recognized directly in equity Other changes ,299 Income 136, ,338 3,71 Other changes 3,71 Subtotal 3,71 136, ,49 398, ,439 15, 12,14-19,886 12, ,338 1,58,289 Equity at December 31, Allocation of net income for FY , ,338 Equity at January 1, , ,439 15, 256,442-19, ,167 1,58,289 Cash flows associated with relations with shareholders Dividend payments Capital increase 8, 8, Capital reductions intended to cover losses Buyback of deeply subordinated notes Interest on deeply subordinated notes Impact of acquisitions and disposals on non-controlling interests Subtotal 8, 14 8,14 Gains and losses recognized directly in equity 2,571-1,247 1,859 3,183 Other changes Income -63,516-63,516-3,688 Other changes -3,688 Subtotal -3,688-63,516-67,24 478,332 15, 252,858-17,315 14,26-63,516 1,74,372 Equity at December 31, ,439-1,247 5

6 5. Consolidated cash flow statement In thousands FY 214 FY 213 Income before tax 3, ,722 Net depreciation and amortization of property, plant and equipment, and intangible assets Goodwill impairment Net charge to provisions and provisions for impairment (including insurance companies technical reserves) Share in net income of associates Net cash flows generated by investment activities Income/expense from financing activities Other changes Net increase or decrease arising from transactions with credit institutions Net increase or decrease arising from transactions with clients Net increase or decrease arising from transactions involving financial assets and liabilities Net increase or decrease arising from transactions involving non-financial assets and liabilities Taxes paid Net increase/(decrease) in assets and liabilities resulting from operating activities 19,66 115, ,891-46,891 78,863 82,89 182,727 41,2-333,49-39,569-66,962 2,799 25, ,129 5, ,998 81,179-6,154 16,433-36,89-224,349 Net cash flows generated by operating activities (A) 15,479-2,693 Net increase or decrease related to financial assets and equity investments Net increase or decrease related to investment property Net increase or decrease related to property, plant and equipment, and intangible assets Net cash flows generated by investment activities (B) -1, ,536-13,883 27, ,538-5,711 Net increase (decrease) arising from transactions with shareholders (1) Other increases or decreases generated by financing activities Net cash flows generated by financing activities (C) 75, ,376-5, ,447 Impact of changes in exchange rates (D) 4,537-1,46 TOTAL NET CASH FLOWS (A+B+C+D) -35,491-33,257 Cash and net balance of accounts with central banks Cash and net balance of accounts with central banks (assets) Due to central banks (liabilities) Net balance of demand transactions with credit institutions Current accounts with overdrafts Demand accounts and loans Demand accounts in credit Demand repurchase agreements Opening cash and cash equivalents Cash and net balance of accounts with central banks Cash and net balance of accounts with central banks (assets) Due to central banks (liabilities) Net balance of demand transactions with credit institutions Current accounts with overdrafts (2) Demand accounts and loans Demand accounts in credit Demand repurchase agreements Closing cash and cash equivalents 667,9 668, ,84 543,329 46,37-234,562 1,22,74 623,7 623, , , , , , , ,73 47,825 29,99-125,742 1,55, ,9 668, ,84 543,329 46,37-234,562 1,22,74 CHANGE IN NET CASH AND CASH EQUIVALENTS -35,491-33,257 (1) Cash flows from or to the shareholders include: The 8 million capital increase of BPCE IOM The impact of dividend payouts in the amount of 5 million (2) Current accounts with overdrafts do not include Livret A, LDD and LEP savings account funds centralized with Caisse des Dépôts et Consignations. First application of standards IFRS 1 and IFRS 11 has no impact on the financial statements of Groupe BPCE International et Outre-Mer. 6

7 6. Notes to the Group financial statements 1 NOTE 1. GENERAL BACKGROUND GROUPE BPCE GROUPE BPCE INTERNATIONAL ET OUTRE-MER GUARANTEE MECHANISM SIGNIFICANT EVENTS POST-BALANCE SHEET EVENTS NOTE 2. APPLICABLE ACCOUNTING STANDARDS AND COMPARABILITY REGULATURY FRAMEWORK STANDARDS FIRST APPLICATION OF IFRS 1, IFRS 11 AND IFRS USE OF ESTIMATES PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND BALANCE SHEET DATE NOTE 3 CONSOLIDATION PRINCIPLES AND METHODS SCOPE OF CONSOLIDATION CONSOLIDATION AND VALUATION METHODS CONSOLIDATION RULES NOTE 4 ACCOUNTING PRINCIPLES AND MEASUREMENT METHODS FINANCIAL ASSETS AND LIABILITIES INVESTMENT PROPERTY PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS ASSSETS HELD FOR SALE AND ASSOCIATED TIES PROVISIONS INTEREST INCOME AND EXPENSES COMMISSIONS ON SERVICES FOREIGN CURRENCY TRANSACTIONS FINANCE LEASES AND SIMILAR TRANSACTIONS EMPLOYEE BENEFITS DEFERRED TAX ASSETS AND LIABILITIES REAL ESTATE DEVELOPMENT NOTE 5 NOTES TO THE BALANCE SHEET CASH AND AMOUNTS DUE FROM CENTRAL BANKS FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS HEDGING DERIVATIVES AVAILABLE-FOR-SALE FINANCIAL ASSETS FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES LOANS AND RECEIVABLES DEFERRED TAX ASSETS AND LIABILITIES ACCRUED INCOME AND OTHER ASSETS INVESTMENTS IN ASSOCIATES INVESTMENT PROPERTY PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS GOODWILL AMOUNTS DUE TO CREDIT INSTITUTIONS AND CUSTOMERS DEBT SECURITIES ACCRUED EXPENSES AND OTHER LIABILITIES PROVISIONS SUBORDINATED DEBT ORDINARY SHARES AND EQUITY INSTRUMENTS ISSUED CHANGE IN GAINS AND LOSSES RECOGNIZED DIRECTLY IN EQUITY NOTE 6 NOTES TO THE INCOME STATEMENT INTEREST AND SIMILAR EXPENSES FEE AND COMMISSION INCOME AND EXPENSES NET GAINS OR LOSSES ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS NET GAINS OR LOSSES ON AVAILABLE-FOR-SALE FINANCIAL ASSETS INCOME AND EXPENSES FROM OTHER ACTIVITIES

8 6.6. OPERATING EXPENSES COST OF RISK SHARE IN NET INCOME OF ASSOCIATES NET GAINS OR LOSSES ON OTHER ASSETS CHANGE IN VALUE OF GOODWILL INCOME TAX NOTE 7 EXPOSURE TO REGULATORY RISKS AND RATIOS CREDIT RISK AND COUNTERPARTY RISK MARKET RISK INTEREST RATE RISK AND EXCHANGE RATE RISK LIQUIDITY RISK NOTE 8 EMPLOYEE BENEFITS PAYROLL COSTS EMPLOYEE BENEFITS NOTE 9 SEGMENT REPORTING NOTE 1 COMMITMENTS FINANCING AND GUARANTEE COMMITMENTS NOTE 11 RELATED-PARTY TRANSACTIONS TRANSACTIONS WITH CONSOLIDATED COMPANIES RELATED-PARTY TRANSACTIONS NOTE 12 TRANSFERRED FINANCIAL ASSETS, OTHER FINANCIAL ASSETS PLEDGED AS COLLATERAL AND ASSETS RECEIVED AS COLLATERAL THAT CAN BE SOLD OR REPLEDGED TRANSFERRED FINANCIAL ASSETS NOT FULLY DERECOGNIZED AND OTHER FINANCIAL ASSETS PLEDGED AS COLLATERAL FINANCIAL ASSETS RECEIVED AS COLLATERAL THAT CAN BE SOLD OR REPLEDGED NOTE 13 OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOTE 14 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES AT AMORTIZED COST NOTE 15 SCOPE OF CONSOLIDATION CHANGES IN THE SCOPE OF CONSOLIDATION DURING FY SCOPE OF CONSOLIDATION AT DECEMBER 31, NOTE 16 INTERESTS IN NON-CONSOLIDATED STRUCTURED ENTITIES NATURE OF INTERESTS IN NON-CONSOLIDATED STRUCTURED ENTITIES NATURE OF RISKS RELATING TO INTERESTS IN NON-CONSOLIDATED STRUCTURED ENTITIES NOTE 17 OTHER INFORMATION STATUTORY AUDITORS FEES

9 NOTE 1. GENERAL BACKGROUND BPCE International et Outre-Mer (BPCE IOM) is Groupe BPCE's supervisory structure for retail banking abroad in and French overseas territories Groupe BPCE Groupe BPCE comprises the Banque Populaire network, the Caisse d Epargne network, the BPCE central institution and its subsidiaries. The two banking networks: Banque Populaire banks and Caisses d Epargne Groupe BPCE is a cooperative group whose shareholders own the two local retail banking networks, the 18 Banque Populaire banks and the 17 Caisses d Epargne. Each of the two networks owns an equal share in BPCE, the Group s central institution. The Banque Populaire network consists of the Banque Populaire banks and the Mutual Guarantee Companies granting them the exclusive benefit of their guarantees. The Caisse d Epargne network consists of the Caisses d Epargne and the local savings companies (LSCs). The Banque Populaire banks are wholly-owned by their cooperative shareholders. The capital of the Caisses d Epargne is wholly-owned by the LSCs. Local savings companies are cooperative structures with open-ended share capital owned by cooperative shareholders. LSCs are tasked with coordinating the cooperative shareholder base, in line with the general objectives defined by the individual Caisse d Epargne with which they are affiliated, and cannot perform banking transactions. BPCE BPCE, a central institution as defined by French banking law and a credit institution licensed to operate as a bank, was created pursuant to law No of June 18, 29. BPCE was incorporated as a French limited liability company governed by a Management Board and a Supervisory Board, whose share capital is owned jointly and equally by the 18 Banque Populaire banks and the 17 Caisses d Epargne. BPCE s corporate mission embodies the continuity of the cooperative principles underlying the Banque Populaire banks and the Caisses d Epargne. Specifically, BPCE represents the interests of its various affiliates in dealings with supervisory authorities, defines the range of products and services offered by them, organizes depositor protection, approves key appointments of company directors and oversees the smooth functioning of the Group s institutions. As a holding company, BPCE is the head entity of the Group and holds the joint ventures between the two networks in retail banking, corporate banking and financial services, and their production units. It defines the Group s corporate strategy and growth and expansion policies. BPCE s main subsidiaries are organized around three major segments: Natixis, a 71.51%-owned listed company that combines Wholesale Banking, Investment Solutions and Specialized Financial Services; Commercial Banking and Insurance (including Crédit Foncier, Banque Palatine and BPCE International et Outre-Mer); subsidiaries and Equity interests. In respect of the Group s Financial functions, BPCE is responsible, in particular, for the centralized management of surplus funds, for the execution of any financial transactions required to develop and fund the Group, and for choosing the most appropriate counterparty for these transactions in the broader interests of the Group. BPCE also provides banking services to the other Group entities Groupe BPCE International et Outre-Mer BPCE International et Outre-Mer is a French limited liability company governed by a Board of Directors, whose share capital is fully owned by BPCE. Groupe BPCE International et Outre-Mer is responsible for driving the development of Groupe BPCE internationally, as well as that of interests in French overseas territories. 9

10 In this context, the holding leads and implements the strategy of network banks. It assists its subsidiaries regarding commercial development, as well as financial and administrative management. Groupe BPCE International et Outre-Mer comprises a diversified network of: - five banking subsidiaries located in French overseas territories (Banque des Antilles Françaises, Banque de Saint Pierre et Miquelon, Banque de la Réunion, Banque de Tahiti, Banque de Nouvelle Calédonie); - five banking subsidiaries located abroad (Banque des Mascareignes, Banque Tuniso-Koweitienne, Banque Internationale du Cameroun pour l Epargne et le Crédit, Banque Commerciale Internationale and Banque Malgache de l Océan Indien); - four minority equity interests in banks (Fransabank, Banque Nationale de Développement Agricole, Banque Centrale Populaire au Maroc (BCP Maroc), Banca Carige); - two financial engineering firms specializing in tax optimization (Ingépar and Océorane); - and one firm specializing in guidance and consulting for SMEs and mid-caps in the context of their international development (Pramex International). BPCE International et Outre-Mer offers this network its own expertise in the field of specialized financing Guarantee mechanism Pursuant to Article L of the French Monetary and Financial Code, the guarantee and solidarity mechanism was set up to ensure the liquidity and capital adequacy of the Group and its associates, and to organize financial support within the Banque Populaire and Caisse d Epargne networks. BPCE is tasked with taking all measures necessary to guarantee the capital adequacy of the Group and each of the networks, including implementing the appropriate internal financing mechanisms within the Group and establishing a Mutual Guarantee Fund common to both networks, for which it determines the operating rules, the conditions for the provision of financial support to the existing funds of the two networks, as well as the contributions of associates to the fund s initial capital endowment and reconstitution. BPCE manages the Banque Populaire network Fund and the Caisse d Epargne Network Fund and has put in place the Mutual Guarantee Fund. The Banque Populaire network Fund is made up of a 45 million deposit carried out by the Banks, booked by BPCE in the form of an indefinitely renewable 1-year term account. The Caisses d Epargne Network Fund receives a 45 million deposit by the Caisses, booked by BPCE in the form of an indefinitely renewable 1-year term account. The Mutual Guarantee Fund is made up of deposits carried out by Banque Populaire banks and Caisses d Epargne. These deposits are booked by BPCE in the form of indefinitely renewable 1-year term accounts. The amount of the deposits by network was 18.2 million as of December 31, 214, and the funds will be topped up each year by an amount equivalent to 5% of the contributions made by the Banque Populaire banks, the Caisses d Epargne, and their subsidiaries to the Group s consolidated income. The total amount of deposits made to BPCE in respect of the Banque Populaire network Fund, the Caisse d Epargne network Fund and the Mutual Guarantee Fund may not be less than.15% and may not exceed.3% of the total risk-weighted assets of the Group. The booking of deposits in the institutions individual accounts under the guarantee and solidarity system results in the recording of an item of an equivalent amount under a dedicated capital heading. The Mutual Guarantee Companies (sociétés de caution mutuelle), whose sole corporate purpose is to guarantee loans issued by Banque Populaire banks, are covered by the liquidity and capital adequacy guarantee of the Banque Populaire banks with which they are jointly licensed in accordance with Article R of the French Monetary and Financial Code. The liquidity and capital adequacy of the Caisses de Crédit Maritime Mutuel are guaranteed in respect of each individual Caisse, by the Banque Populaire bank which is both the core shareholder and provider of technical and operational support for the Caisse in question to the partner Banque Populaire bank. The liquidity and capital adequacy of the local savings companies are secured, firstly, at the level of each individual local savings company by the Caisse d Epargne which is the shareholder of the local savings company in question. BPCE s Management Board holds all the requisite powers to mobilize the resources of the various contributors without delay and in accordance with the agreed order, on the basis of prior authorizations given to BPCE by the contributors. Groupe BPCE International et Outre-Mer, a BPCE affiliate, naturally benefits from the guarantee mechanism described above. 1

11 1.4. Significant events BPCE International et Outre-Mer capital increase The Extraordinary General Meeting of Shareholders of June 3, 214 approved the 8 million capital increase in cash fully subscribed by BPCE SA, bringing the capital from million to million. Banca Carige securities BPCE International et Outre-Mer subscribed to the capital increase of Banca Carige. The Group's shareholding remained unchanged. BPCE International et Outre-Mer thus exercised 214,372,85 priority subscription rights, subscribing to 797,467,2 new shares for million. Following this transaction, BPCE International et Outre-Mer held 1,14,692,641 shares for a purchase price of million. Banca Carige's share price at December 31, 214 was.545, compared to.445 at December 31, 213. This led to additional lasting impairment of million in the 214 financial statements of BPCE International et Outre-Mer, bringing total lasting impairment to million, i.e. net book value of million at December 31, 214. Acquisition of securities Over FY 214, BPCE International et Outre-Mer carried out the following transactions: 1 - purchase of 58,937 shares from minority shareholders in its subsidiary Banque de Saint-Pierre-et- Miquelon (BDSPM) for million, thus increasing its shareholding from 8.6% at December 31, 213 to 92.28% at December 31, acquisition of 2,234,68 Proparco securities for million, bringing its shareholding from 7.92% at December 31, 213 to 9.96% at December 31, 214. Provisions on structured loans Following the Asset Quality Review carried out by the European Central Bank (ECB), Groupe BPCE received a recommendation on behalf of the ECB relating to its Credit Valuation Adjustment mechanisms. BPCE thus modified its valuation mechanisms, resulting in an million provision in BPCE International et Outre- Mer's 214 consolidated financial statements Post-balance sheet events Impact of the change in value of the Swiss franc The increase in value of the Swiss franc since January 1, 215 led to a maximum impact of million in the month of January regarding valuation of structured loans. This negative impact came to million at January 31,

12 NOTE 2. AND COMPARABILITY APPLICABLE ACCOUNTING STANDARDS 2.1. Regulatory framework In accordance with EC regulation No. 166/22 of July 19, 22 on the application of international accounting standards, Groupe BPCE International et Outre-Mer prepared its consolidated financial statements for the fiscal year ended December 31, 214 in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the European Union and applicable at that date, thereby excluding certain provisions of IAS 39 relating to hedge accounting( 1 ) Standards The standards and interpretations used and detailed in the annual financial statements as at December 31, 214 were complemented by standards, amendments and interpretations whose application is mandatory for reporting periods starting from January 1, 214, and, more specifically: New consolidation standards IFRS 1 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interest in Other Entities. On December 11, 212, the European Commission adopted EU regulation No. 1254/212 related to IFRS 1 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interest in Other Entities and on April 4, 213 it adopted EU regulation No. 313/213 concerning the phase-in measures applicable to these new standards. In terms of disclosures for non-consolidated structured entities, the amendments remove the obligation to present comparative data for periods preceding those where IFRS 12 was applied for the first time. IFRS 1 and IFRS 11 have been applied retrospectively. The impact of the first application of these standards on the financial statements at December 31, 214 is described in Note 2.3. As a result of these new standards, on December 11, 212 the European Commission adopted the amendment to EC regulation No. 1126/28 concerning IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures. IFRS 12 aims at requiring better disclosure about subsidiaries, joint arrangements, associates and structured entities. The application of IFRS 12 resulted, in the financial statements for the year ending December 31, 214, in enhanced disclosure about Groupe BPCE interests in non-consolidated structured entities and other entities. The main enhancements are presented in Note 2.3. The European Commission also adopted on November 2, 213 regulation No. 1174/213 concerning amendments to international standards of financial IFRS 1 Consolidated Financial Statements, IFRS 12 Disclosure of Interest in Other Entities and revised IAS 27 Separate Financial Statements. Amendment to IAS 32 Presentation: Offsetting Financial Assets and Financial Liabilities On December 13, 212, the European Commission adopted EU regulation No. 1256/212, amending EC regulation No. 1126/28 and notably adopting amendments to IAS 32. These amendments, applicable retrospectively from January 1, 214, clarify the rules governing the disclosure conditions for offsetting financial assets and liabilities in the balance sheet. 1 These standards are available on the website of the European Commission at the following address: 12

13 In particular, these clarifications cover the concepts of the legally enforceable right to offset and simultaneous settlement. Amendment to IAS 39 and IFRS 9 Novation of derivatives and continuation of hedge accounting. On December 19, 213 the European Commission adopted EU regulation No. 1375/213, amending EC regulation No. 1126/28 and notably adopting amendments to IAS 39. These amendments, applicable from January 1, 214, exceptionally allow the continuation of hedge accounting in the event that a derivative designated as a hedging instrument is transferred by novation from a counterparty to a central counterparty due to legislative or regulatory provisions. This amendment did not have a material impact on the Group s financial statements. The other standards, amendments and interpretations adopted by the European Union did not have a material impact on the Group s financial statements. Groupe BPCE International et Outre-Mer did not elect for early adoption of IFRIC 21 Levies in 214. This interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets outlines the accounting for a debt related to public authority levies. The entity must only recognize this debt at the date on which the activity that triggers its payment, in accordance with legislation, takes place. The liability is recognized progressively over the same period if the obligating event occurs over a period of time. Finally, if the obligation to pay is triggered by reaching a certain threshold, the liability is only recognized when that threshold is reached. Groupe BPCE International et Outre-Mer will adopt the interpretation of IFRIC 21 Levies in its consolidated financial statements from January 1, 215. Application at January 1, 214 would not have had a material impact on the financial statements of Groupe BPCE IOM First application of standards IFRS 1, IFRS 11 and IFRS 12 This note summarizes the impacts of the first application of IFRS 1 and IFRS 11 on the consolidated balance sheet at December 31, 213 and on the consolidated income statement for FY 213. IFRS 1 replaces IAS 27, Consolidated and Separate Financial Statements, for the section on consolidated financial statements and the SIC 12 interpretation Consolidation - Special Purpose Entities. It defines a single audit model applicable to all entities, whether or not they are structured entities. The control of an entity will now be analyzed using three cumulative criteria: influence over relevant activities of the entity, exposure to the entity s variable returns and the ability to influence variable returns obtained by the entity. IFRS 11 replaces IAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities Non-Monetary Contributions by Venturers. It bases the recording of partnerships on their substance, thereby making it necessary to analyze the rights and obligations of the joint agreement. The application of these new standards had no impact on the balance sheet, the consolidated income statement, gains and losses recorded directly in equity or the cash flow statement. 13

14 2.4. Use of estimates Preparation of the financial statements requires Management to make estimates and assumptions in certain areas with regard to uncertain future events. These estimates are based on the judgment of the individuals preparing these financial statements and the information available at the balance sheet date. Actual future results may differ from these estimates. Specifically with respect to the financial statements for the period ended December 31, 214, the accounting estimates involving assumptions were mainly used for the following measurements: the fair value of financial instruments determined on the basis of valuation models (Note 4.1); the amount of impairment of financial assets, and more specifically permanent impairment losses on available-for-sale assets and impairment losses applicable to loans and receivables on an individual basis or calculated on the basis of portfolios (Note 4.1.7); provisions recorded under liabilities in the balance sheet and more specifically the provision for regulated home savings products (Note 4.5); calculations related to the cost of pensions and future employee benefits (Note 4.1); deferred tax assets and liabilities (Note 4.11); goodwill impairment testing (Note 3.3.3) Presentation of the consolidated financial statements and balance sheet date As no specific format is required under IFRS, the presentation used by the Group for summarized statements follows Recommendation No issued by the Autorité des Normes Comptables (ANC French national accounting standards authority) on November 7, 213. The consolidated financial statements are based on the financial statements at December 31, 214 for companies included in the scope of consolidation of Groupe BPCE International et Outre-Mer. The Group s consolidated financial statements for the period ended December 31, 214 were approved by the Board of Directors on March 17, 215. They will be presented to the Annual General Meeting of Shareholders on May 29,

15 NOTE 3 CONSOLIDATION PRINCIPLES AND METHODS 3.1. Scope of consolidation and consolidation methods Group BPCE International et Outre-Mer s financial statements include the financial statements of all entities over which Group BPCE International et Outre-Mer exercises control or significant influence, whose consolidation had a material impact on the financial statements of Group BPCE International et Outre-Mer. The scope of entities consolidated by Group BPCE International et Outre-Mer is described in Note 15 Scope of consolidation Entities controlled by the Group The subsidiaries controlled by Groupe BPCE are fully consolidated. Definition of control Control exists when the Group has the power to govern an entity s relevant activities, that it is exposed to or is entitled to variable returns due to its links with the entity and has the ability to exercise its power over the entity to influence the amount of returns it obtains. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing the control exercised. These potential voting rights may result, for example, from share call options traded on the market, debt or equity instruments that are convertible into ordinary shares, or equity warrants attached to other financial instruments. However, potential voting rights are not taken into account to calculate the percentage of ownership. Exclusive control is presumed to exist when the Group holds directly or indirectly either the majority of the subsidiary s voting rights, or at least half of an entity s voting rights and a majority within the management bodies, or is in a position to exercise significant influence. Specific case of structured entities Entities described as structured entities are those organized in such a way that voting rights are not a key criterion when determining who has control. This is the case in particular when voting rights only apply to administrative duties and relevant activities are managed through contractual agreements. A structured entity frequently exhibits some or all of the following characteristics: (a) well-defined activities; (b) a specific and well-defined aim, for example: implementing a tax-efficient lease, carrying out research and development, providing an entity with a source of capital or funding, or providing investors with investment options by transferring associated risk and advantages to the structured entity s assets; (c) insufficient equity for the structured entity to finance its activities without subordinated financial support; (d) financing through the issue, to investors, of multiple instruments interrelated by contract and which create concentrations of credit risk or other credit ( tranches ). The Group therefore uses, among others, collective investment vehicles within the meaning of the French Monetary and Financial Code and equivalent bodies governed by foreign law as structured entities. Before the introduction of the new consolidation standards, the Group held exclusive control when it had the ability to pilot the operational and financial policies of an entity in order to benefit from the business of said entity. This definition applied to all entities with the exception of special purpose entities, for which the interpretation SIC 12 introduced control indicators. Assessment of control was grounded in voting rights in accordance with IAS 27, while SIC 12 attached considerable importance to the majority's entitlement to economic advantages and exposure to risks vis-a-vis the special purpose entity. 15

16 Full consolidation method The full consolidation of a subsidiary in the Group s consolidated financial statements begins at the date on which the Group takes control and ends on the day on which the Group loses control of this entity. The portion of interest which is not directly or indirectly attributable to the Group corresponds to a noncontrolling interest. Income and all components of other items of comprehensive income (gains and losses recognized directly in equity) are divided between the Group and non-controlling interests. The comprehensive income of subsidiaries is divided between the Group and non-controlling interests, including when this division results in the allocation of a loss to non-controlling interests. Changes to the percentage of interests in subsidiaries that do not lead to a change in control are recognized as transactions affecting equity. The effects of these transactions are recognized in equity at their after-tax amount and therefore do not impact consolidated income attributable to equity holders of the parent. Exclusion from the scope of consolidation Non-material controlled entities are excluded from the scope in accordance with the principle set out in Note Employee pension funds and supplementary health insurance plans are excluded from the scope of consolidation insofar as IFRS 1 does not apply to either post-employment benefit funds or other long-term employee benefit plans to which IAS 19, Employee Benefits, applies. Likewise, interests acquired with a view to their subsequent short-term disposal are recorded as available for sale and recognized in accordance with the provisions of IFRS 5 Non-current assets held in view of sale and discontinued activities Investments in Associates and Joint Ventures Definitions An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of an entity, without exercising control or joint control over those policies. It is presumed to exist if the Group holds, directly or indirectly, 2% or more of the voting rights of an entity. A joint venture is a partnership in which the parties which exercise joint control over the entity have rights over its net assets. Joint control is the contractually agreed sharing of control over a company which exists only when the strategic decisions require the unanimous consent of the parties sharing control. Equity method Income, assets and liabilities of investments in associates and joint ventures are accounted for in the Group s consolidated financial statements using the equity method. An investment in an associate or a joint venture is initially recognized at its acquisition cost and subsequently adjusted for the Group share in the income and other comprehensive income of the associate or joint venture. The equity method is applied from the date on which the entity becomes an associate or a joint venture. On the acquisition of an associate or a joint venture, the difference between the cost of investment and the Group s share in the net fair value of the entity s identifiable assets and liabilities are recognized in goodwill. When the net fair value of the entity s identifiable assets and liabilities is higher than the cost of investment, the difference is recognized in income. The share of net income of entities accounted for under the equity method is included in the Group s consolidated income. When a Group entity carries out a transaction with a Group joint venture or associate, the profit and loss resulting from this transaction is recognized in interests held by third parties in the associate or joint venture. The provisions of IAS 39 Financial Instruments: Recognition and Measurement are applied to determine whether impairment testing is required for its investment in an associate or joint venture. If necessary, the total carrying amount of the investment (including goodwill) is subject to impairment testing according to the provisions of IAS 36 Impairment of Assets. 16

17 Exception to the equity method When the investment is held by a venture capital organization, an investment fund, an investment company with variable share capital or a similar entity such as an insurance asset investment fund, the investor may choose not to recognize the investment using the equity method. Revised IAS 28 authorizes, in this case, the investor to recognize the investment at its fair value (with changes in fair value recognized in income) in accordance with IAS 39. These investments are therefore recognized as Financial assets at fair value through profit or loss Investments in joint activities Definition A joint activity is a partnership where parties that have joint control over an entity have direct rights over the assets, and obligations for liabilities, of this entity. Accounting treatment of joint activities An investment in a joint enterprise is accounted for by integrating all interests held in the joint activity, i.e. the entitled share in each asset and liability and element of comprehensive income. These interests are allocated by nature to the various lines of the consolidated balance sheet, consolidated income statement and the statement of net income and gains and losses recognized directly in equity. Before the introduction of the new consolidation standards, jointly-controlled companies were proportionally consolidated Consolidation rules The consolidated financial statements are prepared using uniform accounting policies for reporting similar transactions in comparable circumstances. Where material, consolidation adjustments are made to ensure the consistency of the measurement methods applied by consolidated entities Foreign currency translation The consolidated financial statements of Groupe BPCE International et Outre-Mer are expressed in euros. Balance sheet items of foreign subsidiaries and branches whose functional currency is not the euro are translated using the exchange rate in force at the balance sheet date. Income and expense items are translated at the average exchange rate for the period, which is the approximate value of the transaction price if there are no significant fluctuations. Foreign exchange rate adjustments arise from a difference in: net income for the period translated at the average rate and at the closing rate; equity (excluding net income for the period) translated at the historic exchange rate and at the year-end rate. The portion attributable to equity holders of the parent is recorded in equity under Foreign exchange rate adjustments and the portion attributable to minority shareholders under Non-controlling interests Elimination of intra-group transactions The impact of inter-company transactions on the consolidated balance sheet and consolidated income statement has been eliminated. Dividends, as well as gains and losses on inter-company asset disposals, have also been eliminated. Where appropriate, capital losses from asset disposals resulting in impairment are maintained Business combinations Transactions completed before January 1, 21 All business combinations are accounted for by applying the purchase method, except business combinations involving two or more mutual insurers or entities under joint control, as these transactions are explicitly excluded from the scope of the previous version of IFRS 3. The cost of a business combination is the aggregate amount of the fair values at the date of acquisition of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the entity. Costs directly attributable to the business combination are considered acquisition costs. 17

18 All identifiable assets, liabilities, and contingent liabilities of the acquired entities are recognized at fair value at the acquisition date. The initial measurement of a business combination may be adjusted within 12 months of the acquisition date. Goodwill represents the difference between the cost of the business combination and the acquirer s share in the assets, liabilities and any liabilities at fair value. Positive goodwill is recognized in the acquirer s balance sheet and negative goodwill is recognized immediately in income. In the event that the Group increases its interest in an entity it already controls, the transaction gives rise to the recognition of additional goodwill, which is determined by comparing the cost of the shares with the Group s share of the net assets acquired. Goodwill is recognized in the functional currency of the acquired entity and is translated at the closing exchange rate. On the acquisition date, goodwill is allocated to one or more cash generating units (CGUs) likely to enjoy the benefits of the acquisition. Cash-generating units have been defined within the Group s core businesses so as to represent the lowest level within an activity used by Management to monitor ROI. Goodwill is tested for impairment at least once a year, or more frequently if events or changes in circumstances indicate that it may be impaired. Impairment tests consist in comparing the carrying amount of each CGU or group of CGUs (including allocated goodwill) with its recoverable amount, i.e. the higher of the fair value of the unit and its value in use. The fair value less costs to sell is defined as the fair value of the amount, less costs, for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm s length transaction. This estimate is based on available market information and takes account of any specific circumstances. The value in use of each CGU is calculated using the most appropriate method, although generally with reference to the present value of estimated future cash flows. A permanent impairment loss is recognized in income if the carrying amount of the CGU exceeds its recoverable amount. Transactions completed after January 1, 21 The treatments described are amended as follows by revised IFRS 3 and IAS 27: Combinations between mutual insurers are now included within the scope of IFRS 3; Costs directly linked to business combinations are now recognized in net income for the period; Contingent considerations payable are now included in the acquisition cost at their fair value at the date of acquisition of a controlling interest in an entity, even if they are only potential. Depending on the settlement method, transferred considerations are recognized against: o capital and later price revisions will not be booked; or o debts and later adjustments are recognized against income (financial debts) or according to the appropriate standards (other debts outside the scope of IAS 39). On an entity s acquisition date, non-controlling interests may be valued: o Either at fair value (method resulting in the allocation of a share of the goodwill to noncontrolling interests); or o At the share in the fair value of the identifiable assets and liabilities of the entity acquired (method similar to that applicable to transactions prior to December 31, 29). The choice between these two methods must be made for each business combination. Whatever method chosen when the acquisition is made, increases in the percentage interest in an entity already controlled will be systematically recognized in capital: When control is taken of an entity, any share previously held by the Group must be revalued at fair value through profit or loss. Consequently, in the event of a step acquisition, the goodwill is determined by referring to the fair value when the Group takes control. When the Group loses control of a consolidated company, any share previously held by the Group must be revalued at fair value through profit or loss. 18

19 Commitments to buy out non-controlling interests (written puts) The Group has entered into commitments with minority shareholders of certain fully consolidated companies to buy out their shares. In accordance with IAS 32, when minority shareholders are granted written puts for their investment, their share of the net assets of subsidiaries should be treated as debt and not as equity. The difference between this commitment and non-controlling interests, which are the counterpart of debt, is recognized differently according to whether the commitments to buy out non-controlling interests were concluded before January 1, 21, which is when IFRS 3 and IAS 27 came into force (recognition in goodwill), or afterwards (recognition in equity). 19

20 NOTE 4 ACCOUNTING PRINCIPLES AND MEASUREMENT METHODS 4.1. Financial assets and liabilities Loans and receivables Amounts due from credit institutions and customers and certain investments not quoted in an active market are generally recorded in Loans and receivables (see Note 4.1.2). Loans and receivables are initially recorded at fair value plus any costs directly related to their issuance, less any proceeds directly attributable to issuance. On subsequent balance sheet dates, they are measured at amortized cost using the effective interest method. The effective interest rate is the rate that discounts estimated future cash flows to the value of the loan at inception. This rate includes any discounts recorded in respect of loans granted at below-market rates, as well as any transaction income or costs directly related to the issue of the loans, which are treated as an adjustment to the effective yield on the loan. No internal cost is included in the calculation of amortized cost. When loans are extended under conditions that are less favorable than market conditions, a discount corresponding to the difference between the nominal value of the loan and the sum of future cash flows discounted at the market interest rate is deducted from the nominal value of the loan. The market interest rate is the rate applied by the vast majority of local financial institutions at a given time for instruments and counterparties with similar characteristics. A discount is applied to loans restructured following a loss event as defined by IAS 39, to reflect the difference between the present value of the contractual cash flows at inception and the present value of expected principal and interest repayments after restructuring. The discount rate used is the original effective interest rate. This discount is expensed to Cost of risk in the income statement and offset against the corresponding outstanding on the balance sheet. It is written back to net interest income in the income statement over the life of the loan using an actuarial method. The restructured loan is reclassified as performing based on expert opinion when no uncertainty remains as to the borrower s capacity to honor the commitment. The external costs consist primarily of commissions paid to third parties in connection with the arrangement of loans. They essentially comprise commissions paid to business partners. Income directly attributable to the issuance of new loans principally comprises set-up fees charged to customers, re-billed costs and commitment fees (if it is more probable than improbable that the loan will be drawn down). The loan commitment fees received that will not result in any drawdowns are apportioned on a straight-line basis over the life of the commitment. Expenses and income arising on loans with a term of less than one year at inception are deferred on a pro rata basis with no recalculation of the effective interest rate. For floating or adjustable rate loans, the effective interest rate is adjusted at each rate re-fixing date Securities Securities recorded as assets are classified into four categories as defined by IAS 39: Financial assets at fair value through profit or loss; Held-to-maturity financial assets; Loans and receivables; Available-for-sale financial assets. Financial assets and liabilities at fair value through profit and loss This category includes: financial assets and liabilities held for trading, i.e. securities acquired principally for the purpose of selling them in the near term; and financial assets that the Group has chosen to recognize at fair value through profit or loss at inception using the fair value option available under IAS 39. These assets are measured at fair value at the date of initial recognition and at each balance sheet date. Changes in fair value over the period, interest, dividends, gains or losses on disposals on these instruments are recognized in Net gains or losses on financial instruments at fair value through profit or loss. Groupe BPCE International et Outre-Mer holds no securities classified as financial assets at fair value through profit and loss. 2