BPCE_REGISTRATION_DOCUMENT_2017

5 FINANCIAL REPORT

IFRS Consolidated Financial Statements of BPCE SA group as at December 31, 2017

Policy concerning fair value hierarchy transfers Transfers between fair value levels are reviewed and validated by ad hoc committees at Natixis comprising representatives of various functions, particularly Finance, Risk and Business Lines. The committee considers various indicators of market activity and liquidity as described in the GeneralPrinciples. A review is undertakenfor any instrumentthat ceases to meet these criteria or once again complies with the criteria. Transfers to and from Level3 are subject to prior validation. At December 31, 2017, in accordance with this procedure, certain foreign currency options, along with volatility caps/floors, were transferred to Level 3 of the fair value hierarchy depending in their liquidity horizons, determined by underlying currencies (see Note 5.5.3). Under this procedure, multi-underlying equity products with a residual maturity of between 4 and 5 years were transferred to fair value Level 3 over the course of 2016 (seeNote 5.5.3). Instruments affected by the financial crisis Instrumentsaffected by the financial crisis and carried at fair value on the balancesheet are essentiallyheld by Natixis,which calculates their fair valueusing the models described below: Since December 31, 2015 the valuation model used to measure write-downs on CDS contracted with monoline insurers has been similar to the Credit Valuation Adjustment (CVA) used for counterparty risk. It also takes into account the expected amortization of exposures and the counterparty spread implicit in market data. The method for determining provisions for contracts with CDPCs (Credit Derivatives Product Companies) consisted in applying a transparency-basedapproach to the underlying assets, based on an estimate of exposure at the time of default, with the PD and LGD based on the tranche’smaturity.A stress factor of 1.2 was applied to the probabilities of default thus determined for the underlyings, based on a recovery rate of 27%. Counterparties were associated with a probabilityof default whenever the losses resulting from the calculation exceededthe CDPC’s net available assets. As CDPC positions reached maturity in 2017, impairmentpreviously recorded (specific impairment and general reserve) using the above-mentioned method was fully reversed. OTHER INSTRUMENTS NOT EXPOSED TO US RESIDENTIAL MORTGAGE RISK MEASURED BY NATIXIS USING A VALUATION MODEL The section below describes the underlying principles used to value assets resultingfrom securitizationtransactionsfor which no market prices could be identified and which were thereforemeasured using valuation models: CLO At December 31, 2017, Natixis no longer held any CLO positions valued using a scoring model. This scoring model defining the level of risk associated with certain structures was applied based on a series of criteria. Trust Preferred Securities (TruPS) CDOs The valuation model is based on projected future cash flows and default rates determined according to a statistical approach that deduces the default probabilityof banks accordingto their financial ratios. For other sectors, default rates are estimated consideringthe current ratingsof assets. CDS CONTRACTED WITH CREDIT ENHANCERS (MONOLINE INSURERS AND CDPCS)

Private Finance Initiative CDS (PFI CDS) The valuation model used for Private Finance Initiative (PFI) CDS is based on an approach calibrated to the market prices of underlying PFI bondsand the use of auniformcollectionrate. INSTRUMENTS NOT CARRIED AT FAIR VALUE ON THE BALANCE SHEET IFRS 13 requires disclosure in the notes to the financial statements of the fair value, and the associatedfair value levels, of all financial instruments carried at amortizedcost, includingloans. The valuation methods used to determine the fair value disclosed in the notes to the financial statements are described below. ASSETS AND LIABILITIES OF NATIXIS BUSINESS LINES, THE CASH MANAGEMENT POOL AND BPCE Credit and loans classified as “Loans and receivables” and amounts payable under finance leases The fair value of these instruments is determined by discounting future cash flows. The discount rate applied for a given loan is the rate at which the Group would grant a loan with similar characteristicsto a similar counterparty at the reporting date. The interest rateand counterparty risk components are re-assessed. The fair value of repurchaseagreementsis calculatedby discounting expected cash flows at the market rate on the closing date and adding aliquidity spread. If there is a quoted price that meets the criteria of IFRS 13, the quoted price is used. The fair value of loans with an initial term of less than one year is generally considered to be their carrying amount. This is also generallythe case for financialassets with a term of one year or less and current accounts.The correspondingreceivablesare classifiedin Level 2 of the fair value hierarchy. Loans and receivablesgranted to affiliates are also classified in Level 2. Borrowings and savings At Natixis, the assessmentof the fair value of securities borrowings and debts is based on the method of discountingfuture cash flows using inputs on the reportingdate such as the interest rate curve of the underlyings andthe spreadat whichNatixislends or borrows. The fair value of debts maturing in less than one year is considered to be the book value and they are classified in Level 2 of the fair value hierarchy,as are debts payableto affiliates. The fair value of other amounts due to credit institutions and customerswith a term of over one year is deemed to be equal to the present value of future cash flows discounted at the interest rate observed at the balance sheet date, plus the own credit risk of BPCE SA group. Investment property recognized at cost The fair value of investmentproperty(excludinginvestmentproperty held by insurance companies) is determined by reference to the capitalization of rents, a method widely used by real estate professionals.The capitalizationrate applied to the propertydepends on a number of factors such as location, the quality and type of building,use, type of ownership,quality of lessee and characteristics of the lease, the interest rate and competition in the real estate market.

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Registration document 2017