Consolidated Financial Statements 2018

Consolidated Financial Statements 2018

of the Volksbanken Raiffeisenbanken Cooperative Financial Network

Income statement for the period January 1 to December 31, 2018

	Note no.	2018 € million	2017 € million
Net interest income	2.	18,368	18,638
Interest income and current income and expenses		23,659	25,227
Interest expense		–5,291	–6,589
Net fee and commission income	3.	6,816	6,491
Fee and commission income		7,989	7,811
Fee and commission expenses		–1,173	–1,320
Gains and losses on trading activities	4.	461	709
Gains and losses on investments	5.	–913	–144
Loss allowances	6.	–151	–576
Other gains and losses on valuation of financial instruments	7.	–122	289
Premiums earned	8.	15,997	15,181
Gains and losses on investments held by insurance companies and other insurance company gains and losses	9.	1,246	3,447
Insurance benefit payments	10.	–14,208	–15,312
Insurance business operating expenses	11.	–2,172	–2,033
Administrative expenses	12.	–18,079	–17,884
Other net operating income	13.	528	110
Profit before taxes		7,771	8,916
Income taxes	14.	–2,369	–2,843
Net profit		5,402	6,073
Attributable to:
Shareholders of the Cooperative Financial Network		5,305	5,958
Non-controlling interests		97	115

Statement of comprehensive income for the period January 1 to December 31, 2018

	2018 € million	2017 € million
Net profit	5,402	6,073
Other comprehensive income/loss	–453	–208
Items that may be reclassified to the income statement	–444	–53
Gains and losses on debt instruments measured at fair value through other comprehensive income	–655
Gains and losses on available-for-sale financial assets		–26
Gains and losses on cash flow hedges	–5	20
Exchange differences on currency translation of foreign operations	25	–43
Gains and losses on hedges of net investments in foreign operations	–6	23
Share of other comprehensive income/loss of joint ventures and associates accounted for using the equity method		–12
Income taxes	197	–15
Items that will not be reclassified to the income statement	–9	–155
Gains and losses on equity instruments for which the fair value OCI option has been exercised	–8
Gains and losses in relation to financial liabilities for which the fair value option has been exercised, attributable to changes in own credit risk	35
Gains and losses arising from remeasurements of defined benefit plans	–42	–231
Income taxes	6	76
Total comprehensive income	4,949	5,865
Attributable to:
Shareholders of the Cooperative Financial Network	4,915	5,759
Non-controlling interests	34	106

Comparative information in accordance with IAS 39

Balance sheet as at December 31, 2018

Assets	Note no.	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Cash and cash equivalents	15.	75,169	63,669¹
Loans and advances to banks	16.	18,000	19,967²
Loans and advances to customers	16.	794,916	761,880
Hedging instruments (positive fair values)	17.	883	1,096
Financial assets held for trading	18.	37,500	38,107
Investments	19.	239,083	243,732
Loss allowances	20.	–8,988	–7,363
Investments held by insurance companies	21.	99,855	95,431
Property, plant and equipment, and investment property	22.	12,241	11,731
Income tax assets	23.	4,359	2,980
Other assets	24.	19,359	12,086
Total assets		1,293,177	1,243,316

1 Adjustment by €+31,075 million due to change in presentation.
2 Adjustment by €-31,075 million due to change in presentation.

Equity and liabilities	Note no.	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Deposits from banks	25.	119,300	113,065
Deposits from customers	25.	842,420	801,031
Debt certificates issued including bonds	26.	56,111	64,807
Hedging instruments (negative fair values)	17.	5,962	7,086
Financial liabilities held for trading	27.	42,451	36,760
Provisions	28.	12,562	12,562
Insurance liabilities	29.	93,252	89,324
Income tax liabilities	23.	1,408	1,183
Other liabilities	30.	9,464	8,874
Subordinated capital	31.	2,740	4,186
Equity	32.	107,704	104,438
Equity of the Cooperative Financial Network		105,176	101,783
Subscribed capital		12,332	11,930
Capital reserves		722	722
Retained earnings		85,954	81,446
Reserves from other comprehensive income		863	1,676
Unappropriated earnings		5,305	5,958
Non-controlling interests		2,528	2,655
Total equity and liabilities		1,293,177	1,243,316

Statement of changes in equity

€ million

	Subscribed capital	Capital reserves	Equity earned by the Cooperative Financial Network	Reserves from other comprehensive income	Equity of the Cooperative Financial Network	Non-controlling interests	Total equity
Equity as at Jan. 1, 2017	11,443	696	81,963	1,784	95,886	2,683	98,569
Net profit	–	–	5,958	–	5,958	115	6,073
Other comprehensive income/loss	–	–	–156	–43	–199	–9	–208
Total comprehensive income	–	–	5,802	–43	5,759	106	5,865
Issue and repayment of equity	487	26	–	–	513	–1	512
Changes in the scope of consolidation	–	–	14	–14	–	–	–
Acquisition/disposal of non-controlling interests	–	–	39	–	39	–80	–41
Dividends paid	–	–	–414	–	–414	–53	–467
Equity as at Dec. 31, 2017	11,930	722	87,404	1,727	101,783	2,655	104,438
First-time application of IFRS 9 in the consolidated financial statements	–	–	–991	–487	–1,478	–18	–1,496
Adjusted equity as at Jan. 1, 2018	11,930	722	86,413	1,240	100,305	2,637	102,942
Net profit	–	–	5,305	–	5,305	97	5,402
Other comprehensive income/loss	–	–	–23	–367	–390	–63	–453
Total comprehensive income	–	–	5,282	–367	4,915	34	4,949
Issue and repayment of equity	402	–	–	–	402	–9	393
Changes in the scope of consolidation	–	–	–11	12	1	4	5
Acquisition/disposal of non-controlling interests	–	–	–16	11	–5	–92	–97
Reclassifications within equity	–	–	33	–33	–	–	–
Dividends paid	–	–	–442	–	–442	–46	–488
Equity as at Dec. 31, 2018	12,332	722	91,259	863	105,176	2,528	107,704

The composition of equity is detailed in Note 32.

Statement of cash flows

	2018 € million	2017 € million
Net profit	5,402	6,073
Non-cash items included in net profit and reconciliation to cash flows from operating activities
Depreciation, amortization, impairment losses, and reversal of impairment losses on assets, and other non-cash changes in financial assets and liabilities	3,637	–1,390
Non-cash changes in provisions	92	–546
Changes in insurance liabilities	3,928	7,732
Other non-cash income and expenses	1,581	239
Gains and losses on the disposal of assets and liabilities	38	124
Other adjustments (net)	–18,641	–16,122
Subtotal	–3,963	–3,890
Cash changes in assets and liabilities arising from operating activities
Loans and advances to banks and customers	–38,380	–23,643¹
Other assets from operating activities	–1,338	200
Derivative hedging instruments (positive and negative fair values)	–1,070	–617
Financial assets and financial liabilities held for trading	6,792	3,944
Deposits from banks and customers	48,128	36,961
Debt certificates issued including bonds	–8,597	–6,111
Other liabilities from operating activities	28	–1,690
Interest, dividends and operating lease payments received	25,778	26,808
Interest paid	–5,979	–8,022
Income taxes paid	–2,735	–1,637
Cash flows from operating activities	18,664	22,303
Proceeds from the sale of investments	18,920	20,184
Proceeds from the sale of investments held by insurance companies	23,658	20,224
Payments for acquisitions of investments	–15,671	–12,629
Payments for acquisitions of investments held by insurance companies	–30,488	–25,778
Net payments for acquisitions of property, plant and equipment, and investment property (excl. assets subject to operating leases)	–1,141	–1,525
Net payments for acquisitions of intangible non-current assets	–245	–40
Changes in the scope of consolidation	2	7
Cash flows from investing activities	–4,965	443
Proceeds from capital increases by shareholders of the Cooperative Financial Network	402	513
Dividends paid to shareholders of the Cooperative Financial Network	–442	–414
Dividends paid to non-controlling interests	–46	–53
Other payments to non-controlling interests	–9	–1
Net change in cash and cash equivalents from other financing activities (including subordinated capital)	–2,104	–705
Cash flows from financing activities	–2,199	–660

Cash and cash equivalents as at January 1	63,669	41,583²
Cash flows from operating activities	18,664	22,303³
Cash flows from investing activities	–4,965	443
Cash flows from financing activities	–2,199	–660
Cash and cash equivalents as at December 31	75,169	63,669⁴

1 Adjustment by €+14,913 million due to change in presentation.
2 Adjustment by €+16,162 million due to change in presentation.
3 Adjustment by €+14,913 million due to change in presentation.
4 Adjustment by €+31,075 million due to change in presentation.

The statement of cash flows shows the changes in cash and cash equivalents during the financial year. Cash and cash equivalents consist of cash on hand, balances with central banks and other government institutions. The cash reserve does not include any financial investments with maturities of more than three months at the date of acquisition. Changes in cash and cash equivalents are broken down into operating, investing and financing activities.

Cash flows from operating activities comprise cash flows mainly arising in connection with the revenue-generating activities of the Cooperative Financial Network or other activities that cannot be classified as investing or financing activities. Cash flows related to the acquisition and disposal of non-current assets are allocated to investing activities. Cash flows from financing activities include cash flows arising from transactions with equity owners and from other borrowings to finance business activities.

Notes to the consolidated financial statements

A General disclosures

Explanatory information on the consolidated financial statements

The consolidated financial statements of the Volksbanken Raiffeisenbanken Cooperative Financial Network prepared by the National Association of German Cooperative Banks (BVR) are based on the significant financial reporting principles set out in the annex. The cooperative shares and share capital of the local cooperative banks are held by their members. The local cooperative banks own the share capital of the central institution either directly or through intermediate holding companies. The Cooperative Financial Network does not qualify as a corporate group as defined by the International Financial Reporting Standards (IFRS), the German Commercial Code (HGB) or the German Stock Corporation Act (AktG).

These consolidated financial statements have been prepared for information purposes and to present the business development and performance of the Cooperative Financial Network, which is treated as a single economic entity in terms of its risks and strategies. In addition, the financial statements were prepared in order to comply with the provisions set out in article 113(7)(e) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012 (Capital Requirements Regulation – CRR). These consolidated financial statements are not a substitute for analysis of the consolidated entities’ financial statements.

The underlying data presented in these consolidated financial statements is provided by the separate and consolidated financial statements of the entities in the Cooperative Financial Network and also includes data from supplementary surveys of the local cooperative banks. The consolidated financial statements of DZ BANK included in these consolidated financial statements have been prepared on the basis of IFRS as adopted by the European Union.

The financial year corresponds to the calendar year. The consolidated entities have generally prepared their financial statements on the basis of the financial year ended December 31, 2018. There is one

subsidiary (2017: 1 subsidiary) included in the consolidated financial statements with a different reporting date for its annual financial statements. With 47 exceptions (2017: 40 exceptions), the separate financial statements of the entities accounted for using the equity method are prepared using the same balance sheet date as that of the consolidated financial statements.

In the interest of clarity, some items on the face of the balance sheet and the income statement have been aggregated and are explained by additional disclosures.

Information as regards the significant financial reporting principles can be found in the annex to the consolidated financial statements.

Change in accounting policies

As at January 1, 2018, the rules of IFRS 9 Financial Instruments replaced the rules of IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes the requirements for the substantially revised subject areas of classification and measurement of financial instruments, accounting for impairment of financial instruments as well as hedge accounting. The modified implementation of these rules in the consolidated financial statements is described in the Annex “Significant Financial Reporting Principles” in the section “Financial instruments.”

Upon the transition to IFRS 9 in the consolidated financial statements, changes in presentation were introduced in relation to various elements of the consolidated financial statements. The major changes in presentation are described in the following section in the order of their occurrence in the consolidated financial statements:

In order to reduce the increased complexity of the presentation of the components of reserves from other comprehensive income caused by the introduction of IFRS 9, these components will be combined and presented in one single column in the statement of changes in equity. The individual equity components are presented in the disclosures on equity in Note 32.

In contrast to the previous procedure applicable under IAS 39, the loss allowance determined in accordance with IFRS 9 is reported within all of the balance sheet items on a gross basis in the consolidated financial statements for financial instruments of the category “financial assets measured at amortized cost,” except for the balance sheet item “Investments held by insurance companies.” Accordingly, financial instruments are also presented on a gross basis within the balance sheet item “Investments” in accordance with IFRS 9. As a consequence, the loss allowance for financial assets measured at amortized cost is reported in the balance sheet below the line item “Investments.” Accordingly, the loss allowance is presented in the income statement below the item “Gains and losses on investments.” The loss allowance for financial instruments of the category “Financial assets measured at fair value through other comprehensive income” is reported in equity as part of the changes in reserves from other comprehensive income.

The modified retrospective application of IFRS 9 had the following effects on the balance sheet items of the consolidated financial statements as at the date of first-time application January 1, 2018:

The first-time application of the IFRS 9 rules led to a reduction in equity after taxes by €1,496 million as at the date of first-time application January 1, 2018. Of that amount, a decrease of €991 million was attributable to retained earnings, a decrease of €487 million to the reserve from other comprehensive income and a decrease of €18 million to non-controlling interests. The reduction in equity primarily results from the increase in loss allowances by €2,340 million. The reason for this is the assessment of expected credit losses over the entire lifetime as required under IFRS 9.

Scope of consolidation

The consolidated financial statements comprise, as consolidated entities, 875 cooperative banks (2017: 915) as well as all companies included in the consolidated financial statements of DZ BANK, Münchener Hypothekenbank eG (MHB), the BVR protection scheme, and BVR Institutssicherung GmbH. The consolidated cooperative banks include Deutsche Apotheker- und Ärztebank eG, the Sparda banks, the PSD banks, and specialized institutions such as BAG Bankaktiengesellschaft.

The cooperative banks and MHB are the legally independent, horizontally structured parent entities of the Cooperative Financial Network, whereas the other companies and the DZ BANK Group are consolidated as subsidiaries. The cooperative central institution and a total of 390 subsidiaries (2017: 434) have been consolidated in the DZ BANK Group. Further information on the shareholdings can be found in the list of shareholdings included in the annual report of the DZ BANK Group.

The consolidated financial statements include 20 joint ventures between a consolidated entity and at least one other non-network entity (2017: 21) and 44 associates (2017: 44) over which a consolidated entity has significant influence, that are accounted for using the equity method.

Assets	Dec. 31, 2017 € million	Adjustment amount	Jan. 1, 2018 € million
Cash and cash equivalents	63,669¹	–	63,669
Loans and advances to banks	19,967²	189	20,156
Loans and advances to customers	761,880	743	762,623
Hedging instruments (positive fair values)	1,096	–18	1,078
Financial assets held for trading	38,107	–1,019	37,088
Investments	243,732	–657	243,075
Loss allowances	–7,363	–2,340	–9,703
Investments held by insurance companies	95,431	2,021	97,452
Property, plant and equipment, and investment property	11,731	–	11,731
Income tax assets	2,980	719	3,699
Other assets	12,086	665	12,751
Total assets	1,243,316	303	1,243,619

1 Adjustment by €+31,075 million due to change in presentation.
2 Adjustment by €–31,075 million due to change in presentation.

Equity and liabilities	Dec. 31, 2017 € million	Adjustment amount	Jan. 1, 2018 € million
Deposits from banks	113,065	61	113,126
Deposits from customers	801,031	–131	800,900
Debt certificates issued including bonds	64,807	–683	64,124
Hedging instruments (negative fair values)	7,086	275	7,361
Financial liabilities held for trading	36,760	540	37,300
Provisions	12,562	68	12,630
Insurance liabilities	89,324	1,694	91,018
Income tax liabilities	1,183	93	1,276
Other liabilities	8,874	–107	8,767
Subordinated capital	4,186	–11	4,175
Equity	104,438	–1,496	102,942
Equity of the Cooperative Financial Network	101,783	–1,478	100,305
Subscribed capital	11,930	–	11,930
Capital reserves	722	–	722
Retained earnings	81,446	–991	80,455
Reserves from other comprehensive income	1,676	–487	1,240
Unappropriated earnings	5,958	–	5,958
Non-controlling interests	2,655	–18	2,637
Total equity and liabilities	1,243,316	303	1,243,619

Volksbanken Raiffeisenbanken Cooperative Financial Network

B Selected disclosures of interests in other entities

Investments in subsidaries

Share in the business operations of the Cooperative Financial Network attributable to non-controlling interests

DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK) and its subsidiaries are included together in the consolidated financial statements as a subgroup. DZ BANK is focused on its customers and owners, the local cooperative banks, as central institution, commercial bank and holding company. The objective of this focus is to sustainably expand the position of the Cooperative Financial Network as one of the leading bancassurance groups.

The shares of DZ BANK, with its headquarters in Frankfurt/Main, Germany, are held by the cooperative banks and by MHB, with ownership interests amounting to 94.6 percent (2017: 94.5 percent). The remaining shares of 5.4 percent (2017: 5.5 percent) are attributable to shareholders that are not part of the Cooperative Financial Network. The prorata share in net profit attributable to non-controlling interests amounted to €97 million (2017: €115 million). The carrying amount of non-controlling interests amounted to €2,528 million (2017: €2,655 million). In the financial year under review, the dividend payment made to non-controlling interests amounts to €46 million (2017: €53 million).

Nature and extent of significant restrictions

National regulatory requirements, contractual provisions, and provisions of company law restrict the ability of the DZ BANK Group companies included in the consolidated financial statements to transfer assets within the group. Where restrictions can be specifically assigned to individual line items on the balance sheet, the carrying amounts of the assets and liabilities subject to restrictions on the balance sheet date are shown in the following table:


	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Assets	85,850	81,559
Loans and advances to customers	2,689	2,812
Investments	5	5
Investments held by insurance companies	83,152	78,738
Other assets	4	4
Liabilities	140,359	132,474
Deposits from banks	1,793	1,776
Deposits from customers	59,996	56,642
Provisions	1,072	983
Insurance liabilities	77,498	73,073

Nature of the risks associated with interests in consolidated structured entities

Risks arising from interests in consolidated structured entities largely result from loans to fully consolidated funds within the DZ BANK Group, some of which are extended in the form of junior loans.

Interests in joint arrangements and associates

Nature, extent, and financial effects of interests in joint arrangements

The carrying amount of individually immaterial joint ventures accounted for using the equity method totaled €462 million as at the balance sheet date (2017: €522 million).

Aggregated financial information for equityaccounted joint ventures that, individually, are not material:


	2018 € million	2017 € million
Share of profit/loss from continuing operations	76	83
Share of other comprehensive income/loss	–8	–36
Share of total comprehensive income	68	47

Nature, extent and financial effects of interests in associates

The carrying amount of individually immaterial associates accounted for using the equity method totaled €288 million as at the balance sheet date (2017: €315 million).

Aggregated financial information for equityaccounted associates that, individually, are not material:


	2018 € million	2017 € million
Share of profit/loss from continuing operations	5	–44
Share of other comprehensive income/loss	–	6
Share of total comprehensive income	5	–38

Interests in unconsolidated structured entities

Structured entities are entities that have been designed so that voting rights or similar rights are not the dominant factor in deciding who controls the entity. The Cooperative Financial Network mainly distinguishes between the following types of interests in unconsolidated structured entities, based on their design and the related risks; these entities largely concern companies of the DZ BANK Group:

Interests in investment funds issued by the Cooperative Financial Network
Interests in investment funds not issued by the Cooperative Financial Network
Interests in securitization vehicles
Interests in asset-leasing vehicles

Interests in investment funds issued by the Cooperative Financial Network

The interests in the investment funds issued by the Cooperative Financial Network largely comprise investment funds issued by entities in the Union Investment Group in accordance with the contractual form model without voting rights and, to a lesser extent, those that are structured as a company with a separate legal personality. Furthermore, the DVB Bank Group makes subordinated loans available to fully consolidated funds for the purpose of transport finance. In turn, these funds make subordinated loans or direct equity investments available to unconsolidated entities.

The maximum exposure of the investment funds issued and managed by the Cooperative Financial Network is determined as a gross value, excluding deduction of available collateral, and amounts to €8,855 million as at the reporting date (2017: €10,051 million). These investment fund assets resulted in losses of €85 million (2017: losses of €77 million) as well as income of €2,192 million (2017: €1,984 million).

Interests in investment funds not issued by the Cooperative Financial Network

The interests in the investment funds not issued by the Cooperative Financial Network above all comprise investment funds managed by entities in the Union Investment Group within the scope of their own decision-making powers that have been issued by entities outside the Cooperative Financial Network and parts of such investment funds. Their total volume amounted to €37,405 million (2017: €37,852 million). Moreover, loans to investment funds are extended in order to generate interest income. In addition, there are investment funds issued by entities outside the Cooperative Financial Network in connection with unit-linked life insurance of the R+V Group (R+V) amounting to €7,244 million (2017: €7,498 million) that, however, do not result in a maximum exposure.

The maximum exposure arising of the investment funds not issued by the Cooperative Financial Network is determined as a gross value, excluding deduction of available collateral, and amounts to €4,493 million as at the reporting date (2017: €4,022 million). Income generated from these investment fund assets in the financial year 2018 amounted to €154 million (2017: €133 million).

Interests in securitization vehicles

The interests in securitization vehicles are interests in vehicles where the Cooperative Financial Network involvement goes beyond that of an investor.

The material interests in securitization vehicles comprise the two multi-seller asset-backed commercial paper programs: CORAL and AUTOBAHN. DZ BANK acts as sponsor and program agent for both programs. It is also the program administrator for AUTOBAHN.

The maximum exposure of the interests in securitization vehicles in the Cooperative Financial Network is determined as a gross value, excluding deduction of available collateral, and amounts to €3,895 million as at the reporting date (2017: €3,983 million). Income generated from these interests in the financial year 2018 amounted to €48 million (2017: €56 million).

Interests in asset-leasing vehicles

The interests in asset-leasing vehicles comprise shares in limited partnerships and voting rights, other than the shares in limited partnerships established by VR LEASING for the purpose of real estate leasing (asset-leasing vehicles), in which the asset, and the funding occasionally provided by the DZ BANK Group, are placed.

The actual maximum exposure of the interests in asset-leasing vehicles in the Cooperative Financial Network is determined as a gross value, excluding deduction of available collateral, and amounts to minus €4 million (2017: minus €13 million) as at the reporting date. As in the previous year, interest income and current income and expense generated from these interests amounted to €5 million.

C Income statement disclosures

1. Information on operating segments Financial year 2018 € million	Retail Customers and SMEs¹	Central Institution and Major Corporate Customers²	Real Estate Finance	Insurance	Other/Consolidation	Total
Net interest income	16,321	1,371	1,423	–	–747	18,368
Net fee and commission income	6,918	550	–110	–	–542	6,816
Gains and losses on trading activities	195	267	1	–	–2	461
Gains and losses on investments	–1,130	195	6	–	16	–913
Loss allowances	–232	70	2	–	9	–151
Other gains and losses on valuation of financial instruments	–34	79	–16	–	7	–122
Premiums earned	–	–	–	15,997	–	15,997
Gains and losses on investments held by insurance companies and other insurance company gains and losses	–	–	–	1,342	–96	1,246
Insurance benefit payments	–	–	–	–14,208	–	–14,208
Insurance business operating expenses	–	–	–	–2,721	549	–2,172
Administrative expenses	–15,386	–1,944	–885	–	136	–18,079
Other net operating expense/income	274	1	56	3	194	528
Profit/loss before taxes	6,926	431	477	413	–476	7,771
Cost/income ratio (percent)	68.2	84.3	65.1	–	–	69.5

Financial year 2017 € million	Retail Customers and SMEs¹	Central Institution and Major Corporate Customers²	Real Estate Finance	Insurance	Other/Consolidation	Total
Net interest income	16,489	1,525	1,492	–	–868	18,638
Net fee and commission income	6,646	519	–122	–	–522	6,491
Gains and losses on trading activities	213	485	11	–	–	709
Gains and losses on investments	–174	–17	25	–	22	–144
Loss allowances	95	–693	12	–	10	–576
Other gains and losses on valuation of financial instruments	20	–10	292	–	–13	289
Premiums earned	–	–	–	15,181	–	15,181
Gains and losses on investments held by insurance companies and other insurance company gains and losses	–	–	–	3,531	–84	3,447
Insurance benefit payments	–	–	–	–15,312	–	–15,312
Insurance business operating expenses	–	–	–	–2,595	562	–2,033
Administrative expenses	–15,245	–1,969	–804	–	134	–17,884
Other net operating expense/income	44	67	22	–10	–13	110
Profit/loss before taxes	8,088	–93	928	795	–802	8,916
Cost/income ratio (percent)	65.6	76.6	46.7	–	–	65.3

1 The operating segment “Retail Customers and SMEs” was previously named “Retail.” The segment’s composition has not changed.
2 The operating segment “Central Institution and Major Corporate Customers” was previously named “Bank.” The segment’s composition has not changed.

Definition of operating segments

The Volksbanken Raiffeisenbanken Cooperative Financial Network is founded on the underlying principle of decentralization. It is based on the local primary banks, whose business activities are supported by the central institution – DZ BANK – and by specialized service providers within the cooperative sector. These specialized service providers are integrated into the central institution. The main benefit derived by the primary banks from their collaboration with these specialized services providers and the central institution is that they can offer a full range of financial products and services.

The operating segment “Retail Customers and SMEs” (2017: “Retail”) covers private banking and activities relating to asset management. The segment focuses on retail clients. It mainly includes cooperative banks as well as the DZ PRIVATBANK, TeamBank AG Nürnberg (TeamBank) and Union Investment Group.

The operating segment “Central Institution and Major Corporate Customers” (2017: “Bank”) combines the activities of the Cooperative Financial Network in the corporate customers, institutional customers and capital markets businesses. The operating segment focuses on corporate customers. It essentially comprises DZ BANK, the VR LEASING Group and DVB Bank Group.

The Real Estate Finance operating segment encompasses the buildings society operations, mortgage banking, and real estate business. The entities allocated to this operating segment include the Bausparkasse Schwäbisch Hall Group (BSH), Deutsche Genossenschafts-Hypothekenbank AG (DZ HYP), and MHB.

Insurance operations are reported under the Insurance operating segment. This operating segment consists solely of R+V.

Other/Consolidation contains the BVR protection scheme (BVR-SE) as well as BVR Institutssicherung GmbH (BVR-ISG), whose task is to avert impending or existing financial difficulties faced by member institutions by taking preventive action or implementing restructuring measures. This operating segment also includes intersegment consolidation items.

Presentation of the disclosures on operating segments

The information on operating segments presents the interest income generated by the operating segments and the associated interest expenses on a netted basis as net interest income.

Intersegment consolidation

The adjustments to the figure for net interest income resulted largely from the consolidation of dividends paid within the Cooperative Financial Network.

The figure under Other/Consolidation for net fee and commission income relates specifically to the fee and commission business transacted between the primary banks, TeamBank, BSH, and R+V.

The figure under Other/Consolidation for administrative expenses includes the contributions paid to BVR-SE and BVR-ISG by member institutions of the Cooperative Financial Network.

The remaining adjustments are largely attributable to the consolidation of income and expenses.

2. Net interest income	2018 € million	2017 € million
Interest income and current income and expense	23,659	25,227
Interest income from	22,463	23,929
Lending and money market business	21,222	22,204
of which: Building society operations	1,044	1,032
Finance leases	113	126
Fixed-income securities	2,080	2,456
Other assets	–541	–624
Financial assets with a negative effective interest rate	–298	–107
Current income from	1,113	1,197
Shares and other variable-yield securities	973	1,168
Investments in subsidiaries and equity investments	141	92
Operating leases	–1	–63
Income / loss from using the equity method for	38	41
Investments in joint ventures	24	40
Investments in associates	14	1
Income from profit-pooling, profit-transfer and partial profit-transfer agreements	45	60
Interest expense	–5,291	–6,589
Interest expense on	–5,058	–6,279
Deposits from banks and customers	–4,530	–5,336
of which: Building society operations	–828	–822
Debt certificates issued including bonds	–820	–993
Subordinated capital	–172	–224
Other liabilities	130	172
Financial liabilities with a positive effective interest rate	334	102
Other interest expense	–233	–310
Total	18,368	18,638

The interest income from other assets and the interest expense on other liabilities result from gains and losses on the amortization of fair value changes of the hedged items in portfolio hedges of interest-rate risk. Owing to the current low level of interest rates in the money markets and capital markets, there may be a negative effective interest rate for financial assets and a positive effective interest rate for financial liabilities.

3. Net fee and commission income	2018 € million	2017 € million
Fee and commission income	7,989	7,811
Securities business	3,499	3,609
Asset management	423	397
Payments processing including card processing	2,746	2,627
Lending business and trust activities	174	158
Financial guarantee contracts and loan commitments	171	173
International business	132	129
Building society operations	31	25
Other	813	693
Fee and commission expenses	–1,173	–1,320
Securities business	–342	–481
Asset management	–121	–124
Payments processing including card processing	–215	–243
Lending business	–55	–97
Financial guarantee contracts and loan commitments	–22	–17
International business	–24	–28
Building society operations	–69	–60
Other	–325	–270
Total	6,816	6,491

4. Gains and losses on trading activities	2018 € million	2017 € million
Gains and losses on trading in financial instruments	179	217
Gains and losses on trading in foreign exchange, foreign notes and coins, and precious metals	104	311
Gains and losses on commodities trading	178	181
Total	461	709

5. Gains and losses on investments	2018 € million	2017 € million
Gains and losses on securities	-1,034	-239
Gains and losses on investments in subsidiaries and equity investments	121	95
Total	-913	-144

6. Loss allowances	2018 € million	2017 € million
Additions	–3,453	–2,636
Reversals	3,061	1,881
Directly recognized impairment losses	–110	–155
Recoveries on loans and advances previously impaired	232	289
Other	18	–
Changes in the provisions for loan commitments, provisions for financial guarantee contracts and other provisions for loans and advances	101	45
Total	–151	–576

7. Other gains and losses on valuation of financial instruments	2018 € million	2017 € million
Gains and losses from hedge accounting	–21	–27
Fair value hedges	–22	–27
Ineffectiveness of hedges of net investments in foreign operations	1	–
Gains and losses on derivatives held for purposes other than trading	–53	–15
Gains and losses on financial instruments designated as at fair value through profit or loss	–37	331
Gains and losses from contingent consideration in business combinations	–11	–
Total	–122	289

8. Premiums earned	2018 € million	2017 € million
Net premiums written	16,009	15,235
Gross premiums written	16,133	15,338
Reinsurance premiums ceded	–124	–103
Change in provision for unearned premiums	–12	–54
Gross premiums	–7	–59
Reinsurers’ share	–5	5
Total	15,997	15,181

9. Gains and losses on investments held by insurance companies and other insurance company gains and losses	2018 € million	2017 € million
Interest income and current income	2,411	2,521
Administrative expenses	–150	–131
Gains and losses on valuation and disposals as well as from additions to and reversals of loss allowances	–1,187	773
Other gains and losses of insurance companies	172	284
Total	1,246	3,447

The net amount of additions to and reversals of loss allowances recorded in the fiscal year was €1 million.

10. Insurance benefit payments	2018 € million	2017 € million
Expenses for claims	–10,742	–10,138
Gross expenses for claims	–10,786	–10,161
Reinsurers’ share	44	23
Changes in benefit reserve, reserve for premium refunds, and in other insurance liabilities	–3,466	–5,174
Changes in gross provisions	–3,483	–5,171
Reinsurers’ share	17	–3
Total	–14,208	–15,312

Claims rate trend for direct non-life insurance business including claim settlement costs

Gross claims provisions in direct business and payments made against the original provisions:

€ million	2018	2017	2016	2015	2014	2013	2012	2011	2010	2009	2008
At the end of the year	4,551	4,276	4,173	3,856	3,634	3,901	3,345	3,341	3,324	2,953	2,704
1 year later	–	4,142	4,103	3,767	3,523	3,847	3,336	3,359	3,135	2,901	2,623
2 years later	–	–	4,046	3,682	3,457	3,769	3,247	3,279	3,160	2,763	2,527
3 years later	–	–	–	3,647	3,389	3,731	3,220	3,254	3,139	2,756	2,533
4 years later	–	–	–	–	3,382	3,696	3,189	3,241	3,122	2,756	2,505
5 years later	–	–	–	–	–	3,691	3,198	3,250	3,139	2,768	2,513
6 years later	–	–	–	–	–	–	3,126	3,183	3,080	2,710	2,469
7 years later	–	–	–	–	–	–	–	3,172	3,065	2,685	2,466
8 years later	–	–	–	–	–	–	–	–	3,060	2,680	2,449
9 years later	–	–	–	–	–	–	–	–	–	2,680	2,447
10 years later	–	–	–	–	–	–	–	–	–	–	2,449
Settlements	–	134	127	209	252	210	219	169	264	273	255

Net claims provisions in direct business and payments made against the original provisions:

€ million	2018	2017	2016	2015	2014	2013	2012	2011	2010
At the end of the year	4,518	4,255	4,110	3,827	3,574	3,669	3,313	3,298	3,254
1 year later	–	4,118	4,050	3,736	3,460	3,613	3,300	3,317	3,056
2 years later	–	–	3,994	3,655	3,393	3,533	3,211	3,236	3,077
3 years later	–	–	–	3,624	3,331	3,490	3,180	3,208	3,057
4 years later	–	–	–	–	3,361	3,465	3,139	3,194	2,939
5 years later	–	–	–	–	–	3,670	3,166	3,191	3,049
6 years later	–	–	–	–	–	–	3,095	3,144	2,957
7 years later	–	–	–	–	–	–	–	3,134	2,957
8 years later	–	–	–	–	–	–	–	–	2,977
Settlements	–	137	116	203	213	–1	218	164	277

Claims rate trend for inward reinsurance business

Gross claims provisions in inward reinsurance business and payments made against the original provisions:

€ million	2018	2017	2016	2015	2014	2013	2012	2011	2010	2009	2008
Gross provisions for claims outstanding	3,642	3,197	2,718	2,433	1,976	1,710	1,506	1,409	1,190	892	712
Cumulative payments for the year concerned and prior years
1 year later	–	852	569	622	464	481	385	463	437	282	232
2 years later	–	–	852	867	783	685	630	640	632	399	347
3 years later	–	–	–	919	897	764	345	739	468	410	250
4 years later	–	–	–	–	1,026	987	930	891	856	516	447
5 years later	–	–	–	–	–	1,051	996	1,029	922	588	475
6 years later	–	–	–	–	–	–	1,035	1,072	1,043	626	528
7 years later	–	–	–	–	–	–	–	1,103	1,067	652	555
8 years later	–	–	–	–	–	–	–	–	1,090	658	574
9 years later	–	–	–	–	–	–	–	–	–	684	585
10 years later	–	–	–	–	–	–	–	–	–	–	597
Gross provisions for claims outstanding and payments made against the original provision
At the end of the year	3,642	3,197	2,718	2,433	1,976	1,710	1,506	1,409	1,190	892	712
1 year later	–	3,392	2,654	2,434	2,157	1,840	1,593	1,536	1,401	1,026	779
2 years later	–	–	2,561	2,271	2,004	1,859	1,569	1,472	1,343	872	765
3 years later	–	–	–	2,224	1,915	1,779	1,628	1,014	1,338	826	696
4 years later	–	–	–	–	1,887	1,720	1,580	1,528	1,360	837	680
5 years later	–	–	–	–	–	1,699	1,550	1,501	1,396	858	691
6 years later	–	–	–	–	–	–	1,536	1,486	1,379	870	709
7 years later	–	–	–	–	–	–	–	1,481	1,368	876	719
8 years later	–	–	–	–	–	–	–	–	1,354	873	725
9 years later	–	–	–	–	–	–	–	–	–	864	725
10 years later	–	–	–	–	–	–	–	–	–	–	723
Settlements	–	–195	157	209	89	11	–30	–72	–164	28	–11

Net claims provisions in inward reinsurance business and payments made against the original provisions:

€ million	2018	2017	2016	2015	2014	2013	2012	2011	2010
Net provisions for claims outstanding	3,639	3,193	2,710	2,428	1,970	1,695	1,491	1,389	1,164
Cumulative payments for the year concerned and prior years
1 year later	–	851	567	622	464	473	383	461	432
2 years later	–	–	849	866	782	677	620	636	625
3 years later	–	–	–	1,020	918	888	754	333	729
4 years later	–	–	–	–	1,025	978	919	878	839
5 years later	–	–	–	–	–	1,042	985	1,016	904
6 years later	–	–	–	–	–	–	1,024	1,059	1,025
7 years later	–	–	–	–	–	–	–	1,090	1,049
8 years later	–	–	–	–	–	–	–	–	1,071
Net provisions for claims outstanding and payments made against the original provision
At the end of the year	3,639	3,193	2,710	2,428	1,970	1,695	1,491	1,389	1,164
1 year later	–	3,388	2,648	2,429	2,152	1,827	1,576	1,519	1,377
2 years later	–	–	2,555	2,267	1,999	1,845	1,554	1,454	1,321
3 years later	–	–	–	2,219	1,911	1,766	1,612	997	1,314
4 years later	–	–	–	–	1,883	1,708	1,566	1,510	1,337
5 years later	–	–	–	–	–	1,687	1,536	1,484	1,372
6 years later	–	–	–	–	–	–	1,522	1,470	1,357
7 years later	–	–	–	–	–	–	–	1,464	1,346
8 years later	–	–	–	–	–	–	–	–	1,332
Settlements	–	–195	155	209	87	8	–31	–75	–168

11. Insurance business operating expenses	2018 € million	2017 € million
Gross expenses	–2,193	–2,049
Reinsurers’ share	21	16
Total	–2,172	–2,033

12. Administrative expenses	2018 € million	2017 € million
Staff expenses	–10,076	–10,137
General and administrative expenses	–7,011	–6,793
Depreciation/amortization and impairment losses	–992	–954
Total	–18,079	–17,884

13. Other net operating income	2018 € million	2017 € million
Gains and losses on non-current assets classified as held for sale and disposal groups	2	126
Other operating income	1,266	979
Other operating expenses	–740	–995
Total	528	110

14. Income taxes	2018 € million	2017 € million
Current tax expense	–2,731	–2,649
Income from/expense on deferred taxes	362	–194
Total	–2,369	–2,843

Current taxes in relation to the German limited companies are calculated using an effective corporation tax rate of 15.825 percent based on a corporation tax rate of 15 percent plus the solidarity surcharge. The effective rate for trade tax is 14.35 percent based on an average trade tax multiplier of 410 percent. The tax rates correspond to those for the previous year.

Deferred taxes must be calculated using tax rates expected to apply when the tax asset or liability arises. The tax rates used are therefore those that are valid or have been announced for the periods in question as at the balance sheet date.

	2018 € million	2017 € million
Profit before taxes	7,771	8,916
Notional rate of income tax of the Cooperative Financial Network (in percent)	30,175	30,175
Income taxes based on notional rate of income tax	–2,345	–2,690
Tax effects	–24	–153
Tax effects of tax-exempt income and non-tax deductible expenses	22	192
Tax effects of different tax types, different trade tax multipliers, and changes in tax rates	14	–8
Tax effects of different tax rates in other countries	–20	–74
Current and deferred taxes relating to prior reporting periods	32	–3
Change in deferred tax assets due to valuation adjustments	3	–92
Other tax effects	–75	–168
Total	–2,369	–2,843

The table shows a reconciliation from notional income taxes to recognized income taxes based on application of the current tax law in Germany.

D Balance sheet disclosures

15. Cash and cash equivalents	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Cash on hand	8.102	7.672
Balances with central banks and other government institutions	67.067	55.997¹
Total	75.169	63.669

1 Adjustment by €+31,075 million due to change in presentation.

16. Loans and advances to banks and customers	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Loans and advances to banks	18,800	19,967
Repayable on demand	8,419	8,931¹
Other loans and advances	10,381	11,036
Mortgage loans and other loans secured by mortgages on real estate	60	60
Local authority loans	5,814	6,783
Finance leases	–	22
Other loans and advances	4,507	4,171
Loans and advances to customers	794,916	761,880
Mortgage loans and other loans secured by mortgages on real estate	325,468	308,329
Local authority loans	31,699	34,889
Home savings loans advanced by building society	45,454	41,005
Finance leases	2,017	2,918
Other loans and advances	390,278	374,739

1 Adjustment by €–31,075 million due to change in presentation.

17. Hedging instruments (positive and negative fair values)	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Derivatives	883	1,096
for fair value hedges	883	1,086
for cash flow hedges	–	8
for hedges of net investments in foreign operations	–	2
Derivatives (negative fair values)	5,962	7,086
for fair value hedges	5,962	7,083
for cash flow hedges	–	3

18. Financial assets held for trading	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Derivatives (positive fair values)	15,647	17,101
Interest-linked contracts	13,773	14,749
Currency-linked contracts	1,194	813
Share- and index-linked contracts	403	256
Credit derivatives	225	367
Other contracts	52	916
Securities	11,790	10,429
Bonds and other fixed-income securities	10,788	9,013
Shares and other variable-yield securities	1,002	1,416
Loans and advances	9,714	10,242
Inventories and trade receivables	349	334
Other assets held for trading	–	1
Total	37,500	38,107

19. Investments	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Securities	234,813	239,819
Bonds and other fixed income securities	171,621	179,296
Shares and other variable-yield securities	63,192	60,523
Investments in subsidiaries	1,618	1,471
Equity investments	2,652	2,442
Investments in joint ventures	462	525
Investments in associates	289	318
Other shareholdings	1,901	1,599
Total	239,083	243,732

20. Loss allowances for loans and advances to banks	Stage 1 € million	Stage 2 € million	Stage 3 € million	POCI € million	Total € million
Balance as at Jan. 1, 2018	202	16	22	–	240
Additions	15	12	3	–	30
Reversals	–17	–14	–22	–	–53
Balance as at Dec. 31, 2018	200	14	3	–	217

Loss allowances for loans and advances to customers	Stage 1 € million	Stage 2 € million	Stage 3 € million	POCI € million	Total € million
Balance as at Jan. 1, 2018	955	1,903	6,389	11	9,258
Additions	310	798	2,159	18	3,285
Utilizations	–	–1	–1,129	–	–1,130
Reversals	–461	–337	–2,024	–25	–2,847
Other changes	149	–211	74	–1	11
Balance as at Dec. 31, 2018	953	2,152	5,469	3	8,577

Loss allowances for investments	Stage 1 € million	Stage 2 € million	Stage 3 € million	POCI € million	Total € million
Balance as at Jan. 1, 2018	57	125	24	–	206
Additions	41	86	1	–	128
Utilizations	–	–	–1	–	–1
Reversals	–31	–102	–8	–	–141
Other changes	–1	2	1	–	2
Balance as at Dec. 31, 2018	66	111	17	–	194

Comparative information in accordance with IAS 39	Specific loan loss allowance € million	Portfolio loan loss allowance € million	Total € million
Balance as at Jan. 1, 2018	6,530	990	7,520
Additions	2,410	226	2,636
Utilizations	–795	–1	–796
Reversals	–1,589	–305	–1,894
Changes in the scope of consolidation	–28	–	–28
Other changes	–79	4	–75
Balance as at Dec. 31, 2018	6,449	914	7,363

21. Investments held by insurance companies	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Investment property	2,842	2,539
Investments in subsidiaries, joint ventures and associates	776	715
Mortgage loans	9,307	9,142
Promissory notes and loans	7,083	7,342
Registered bonds	9,076	8,800
Other loans	653	721
Variable-yield securities	9,186	9,276
Fixed-income securities	48,764	44,808
Derivatives (positive fair values)	168	299
Loss allowances	–4
Deposits with ceding insurers	294	240
Assets related to unit-linked contracts	11,710	11,549
Total	99,855	95,431

In the previous year, the loss allowance was not presented separately, but deducted from the individual items.

22. Property, plant and equipment, and investment property	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Land and buildings	6,693	6,756
Office furniture and equipment	1,361	1,403
Assets subject to operating leases	72	138
Investment Property	258	254
Other fixed assets	3,857	3,180
Total	12,241	11,731

23. Income tax assets and liabilities	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Income tax assets	4,359	2,980
Current income tax assets	909	896
Deferred tax assets	3,450	2,084
Income tax liabilities	1,408	1,183
Current income tax liabilities	856	813
Deferred tax liabilities	552	370

	Deferred tax assets Dec. 31, 2018 € million	Deferred tax assets Dec. 31, 2017 € million	Deferred tax liabilities Dec. 31, 2018 € million	Deferred tax liabilities Dec. 31, 2017 € million
Tax loss carryforwards	39	103
Loans and advances to banks and customers	130	51	350	139
Financial assets and liabilities held for trading, derivatives used for hedging (positive and negative fair values)	634	525	197	20
Investments	298	298	249	518
Loss allowances	900		2
Investments held by insurance companies	123	53	641	676
Deposits from banks and customers	277	374	239	198
Debt certificates including bonds	151	46	4	6
Provisions	2,151	2,138	50	38
Insurance liabilities	78	75	195	399
Other balance sheet items	192	182	148	137
Total (gross)	4,973	3,845	2,075	2,131
Netting of deferred tax assets and deferred tax liabilities	–1,523	–1,761	–1,523	–1,761
Total (net)	3,450	2,084	552	370

Deferred tax assets and liabilities are recognized for temporary differences in respect of the balance sheet items shown in the table as well as for tax loss carryforwards.

In the previous year, the loss allowance, which is reported separately in the year under review, was included in loans and advances to banks and customers.

24. Other assets	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Other assets held by insurance companies	3,372	3,090
Goodwill	59	58
Other intangible assets	551	463
Prepaid expenses	184	162
Other receivables	3,560	3,485
Non-current assets and disposal groups classified as held for sale	7,133	84
Fair value changes of the hedged items in portfolio hedges of interest-rate risk	4,000	4,128
Residual other assets	500	616
Total	19,359	12,086

The breakdown of other assets held by insurance companies is as follows:

	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Intangible assets	140	151
Reinsurers’ share of insurance liabilities	139	168
Provision for unearned premiums	6	11
Benefit reserves	36	60
Provisions for claims outstanding	97	97
Loans and advances	1,650	679
Receivables arising out of direct insurance operations	450	305
Receivables arising out of reinsurance operations	271	294
Other receivables	929	80
Credit balances with banks, checks and cash on hand	409	110
Residual other assets	1,036	1,982
Property, plant and equipment	379	387
Prepaid expenses	34	31
Remaining assets held by insurance companies	623	1,564
Loss allowances	–2
Total	3,372	3,090

In the previous year, the loss allowance was not presented separately, but deducted from the individual items.

25. Deposits from banks and customers	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Deposits from banks	119,300	113,065
Repayable on demand	10,733	7,664
With agreed maturity or notice period	108,567	105,401
Deposits from customers	842,420	801,031
Savings deposits and home savings deposits	246,029	242,345
Savings deposits with agreed notice period of three months	177,790	175,547
Savings deposits with agreed notice period of more than three months	8,242	10,156
Home savings deposits	59,997	56,642
Other deposits from customers	596,391	558,686
Repayable on demand	488,884	450,264
With agreed maturity or notice period	107,507	108,422

26. Debt certificates issued including bonds	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Bonds issued	43,110	47,696
Mortgage Pfandbriefe	33,737	30,390
Public-sector Pfandbriefe	2,683	3,548
Other bonds	6,690	13,758
Other debt certificates issued	13,001	17,111
Total	56,111	64,807

27. Financial liabilities held for trading	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Derivatives (negative fair values)	16,080	16,813
Interest-linked contracts	12,100	13,848
Currency-linked contracts	1,975	871
Share- and index-linked contracts	1,853	742
Credit derivatives	74	77
Other contracts	78	1,275
Short positions	1,102	617
Bonds issued including share- and index- and other debt certificates	20,250	13,028
Liabilities	4,866	6,255
Liabilities from commodities transactions and commodity lending	53	47
Total	42,451	36,760

28. Provisions	Dec. 31, 2018 € million
Provisions for defined benefit plans	7,407
Provisions for loan commitments	222
Provisions for financial guarantee contracts	137
Other provisions for loans and advances	39
Provisions relating to building society operations	1,072
Residual provisions	3,488
Total	12,365

Comparative information in accordance with IAS 39	Dec. 31, 2017 € million
Provisions for defined benefit plans	7,630
Provisions for loans and advances	419
Provisions relating to building society operations	983
Residual provisions	3,530
Total	12,562

Funding status of defined benefit obligations	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Present value of defined benefit obligations not funded by plan assets	6,831	6,924
Present value of defined benefit obligations funded by plan assets	2,732	2,722
Present value of defined benefit obligations	9,563	9,646
less fair value of plan assets	–2,158	–2,016
Defined benefit obligations (net)	7,405	7,630
Recognized surplus	2	–
Provisions for defined benefit plans	7,407	7,630

Changes in the present value of defined benefit obligations	2018 € million	2017 € million
Present value of defined benefit obligations as at Jan. 1	9,646	9,464
Current service cost	109	136
Interest expense	169	165
Pension benefits paid including plan settlements	–354	–353
Past service cost	–	–2
Actuarial gains (–)/losses (+)	–34	243
Other changes	27	–7
Present value of defined benefit obligations as at Dec. 31	9,563	9,646

Changes in plan assets	2018 € million	2017 € million
Fair value of plan assets as at Jan. 1	2,016	1,239
Interest income	37	24
Contributions to plan assets	231	814
Pension benefits paid	–69	–65
Return on plan assets (excluding interest income)	–65	14
Other changes	8	–10
Fair value of plan assets as at Dec. 31	2,158	2,016

Actuarial assumptions used for defined benefit obligations	Dec. 31, 2018 (percent)	Dec. 31, 2017 (percent)
Weighted discount rate	1.75	1.75
Weighted salary increase	1.98	1.99
Weighted pension increase	1.92	1.93

29. Insurance liabilities	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Provision for unearned premiums	1,171	1,169
Benefit reserve	61,709	58,670
Provision for claims outstanding	12,079	11,064
Provision for premium refunds	8,283	8,446
Other insurance liabilities	64	68
Reserve for unit-linked insurance contracts	9,946	9,907
Total	93,252	89,324

Change in provision for unearned premiums	2018 € million	2017 € million
Balance as at Jan. 1	1,169	1,119
Additions	1,235	1,235
Utilizations/reversals	–1,228	–1,176
Changes attributable to currency translation	–5	–9
Balance as at Dec. 31	1,171	1,169

Change in benefit reserve	2018 € million	2017 € million
Balance as at Jan. 1	58,670	55,167
Additions	5,876	6,255
Interest component	1,045	1,067
Utilizations / reversals	–3,882	–3,818
Changes attributable to currency translation	–	–1
Balance as at Dec. 31	61,709	58,670

Supplementary change-in-discount-rate reserves totaling €3,306 million have been recognized for policies with a discount rate in excess of the reference rate specified in the German Regulation on the Principles Underlying the Calculation of the Premium Reserve (DeckRV) (December 31, 2017: €2,998 million).

Change in the provision for claims outstanding	2018 € million	2017 € million
Balance as at Jan. 1	11,064	10,071
Claims expenses	6,650	6,175
Less payments	–5,630	–5,078
Changes attributable to currency translation	–5	–104
Balance as at Dec. 31	12,079	11,064

Change in the provision for premium refunds	2018 € million	2017 € million
Balance as at Jan. 1	8,446	8,918
Adjustments due to first-time application of IFRS 9	1,694
Balance as at Jan, 1 adjusted	10,140	8,918
Additions	878	672
Utilizations/reversals	–705	–1,290
Changes resulting from unrealized gains and losses on investments (through other comprehensive income)	–1,488	–136
Changes resulting from other remeasurements (through profit or loss)	–542	316
Changes attributable to currency translation	–	–34
Balance as at Dec. 31	8,283	8,446

The breakdown of maturities for insurance liabilities is shown in the following tables:

	≤ 1 year € million	> 1 year – 5 years € million	> 5 years € million	Indefinite € million
Balance as at December 31, 2018
Provision for unearned premiums	950	166	55	–
Benefit reserve	1,810	6,178	13,050	40,671
Provision for claims outstanding	4,388	4,301	3,390	–
Provision for premium refunds	833	644	713	6,093
Other insurance liabilities	41	13	7	3
Total	8,022	11,302	17,215	46,767
Balance as at December 31, 2017
Provision for unearned premiums	1,011	124	34	–
Benefit reserve	1,677	6,601	13,258	37,134
Provision for claims outstanding	4,764	3,608	2,692	–
Provision for premium refunds	763	632	754	6,297
Other insurance liabilities	46	14	5	3
Total	8,261	10,979	16,743	43,434

30. Other liabilities	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Other liabilities of insurance companies	5,806	5,464
Other liabilities and accruals	2,462	2,318
Liabilities included in disposal groups classified as held for sale	281	–
Fair value changes of the hedged items in portfolio hedges of interest-rate risk	329	335
Residual other liabilities	586	757
Total	9,464	8,874

The breakdown of other liabilities of insurance companies is as follows:

	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Residual provisions	373	354
Provisions for employee benefits	336	317
Provisions for share-based payment transactions	2	1
Other provisions	35	36
Payables and residual other liabilities	5,433	5,110
Subordinated capital	87	85
Deposits received from reinsurers	43	75
Payables arising out of direct insurance operations	1,500	1,465
Payables arising out of reinsurance operations	342	269
Debt certificates issued including bonds	30	30
Deposits from banks	580	596
Derivatives (negative fair values)	11	39
Liabilities from capitalization transactions	2,086	1,861
Other liabilities	120	199
Residual other liabilities	634	491
Total	5,806	5,464

31. Subordinated capital	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Subordinated liabilities	2,566	3,774
Profit-sharing rights	161	391
Share capital repayable on demand	13	21
Total	2,740	4,186

32. Equity Breakdown of subscribed capital	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Cooperative shares	12,085	11,672
Share capital	178	178
Capital of silent partners	69	80
Total	12,332	11,930

The capital reserves comprise the amounts by which the notional value of the shares of the corporations included in the consolidated financial statements was exceeded upon the issuance of the shares.

Retained earnings contain the undistributed equity earned by the companies included in the consolidated financial statements as well as the gains and losses arising on remeasurements of defined benefit plans after taking into account deferred taxes.

Reserves from other comprehensive income consist of the following items:

€ million	No reclassification to the income statement Reserve from equity instruments for which the fair value OCI option has ben exercised	No reclassification to the income statement Reserve from gains and losses on financial liabilities for which the fair value option has been exercised, attributable to changes in own credit risk	Reclassification to the income statement Reserve from debt instruments measured at fair value through other comprehensive income	Reclassification to the income statement Revaluation reserve	Reclassification to the income statement Cash flow hedge reserve	Reclassification to the income statement Currency translation reserve
Equity as at Jan. 1, 2017				1.720	–10	74
Other comprehensive income/loss				–30	15	–28
Total comprehensive income				–30	15	–28
Changes in the scope of consolidation				–14	–	–
Equity as at Dec. 31, 2017				1.676	5	46
First-time application of IFRS 9 in the consolidated financial statements	465		724	–1.676
Adjusted equity as at Jan. 1, 2018	465		724	–	5	46
Other comprehensive income/loss	1	22	–413	–	–5	28
Total comprehensive income	1	22	–413		–5	28
Changes in the scope of consolidation	–	–	–		1	11
Acquisition/disposal of non-controlling interests	5	–	6		–	–
Reclassifications within equity	–33	–	–		–	–
Equity as at Dec. 31, 2018	438	22	317		1	85

E Financial instruments disclosures

33. Fair value of financial instruments	Carrying amount Dec. 31, 2018 € million	Fair value Dec. 31, 2018 € million	Carrying amount Dec. 31, 2017 € million	Fair value Dec. 31, 2017 € million
Assets
Cash and cash equivalents	67,067	67,067	55,997⁴	55,997⁴
Loans and advances to banks¹	18,583	20,471	19,948⁵	21,198⁵
Loans and advances to customers¹	786,339	788,727	754,536	756,447
Hedging instruments (positive fair values)	883	883	1,096	1,096
Financial assets held for trading²	37,151	37,151	37,773	37,773
Investments^1,3	238,138	239,950	242,889	243,064
Investments held by insurance companies^1,2,3	85,009	85,562	81,086	81,936
Other assets²	8,897	8,366	7,575	7,849
Equity and liabilities
Deposits from banks	119,300	121,346	113,065	114,502
Deposits from customers	842,420	843,600	801,031	802,258
Debt certificates issued including bonds	56,111	56,264	64,807	64,849
Hedging instruments (negative fair values)	5,962	5,962	7,086	7,086
Financial liabilities held for trading²	42,398	42,398	36,713	36,713
Other liabilities²	2,878	2,745	2,653	2,542
Subordinated capital	2,740	2,839	4,186	4,365

1 Carrying amounts less loss allowances (in the previous year, the loss allowance for investments, and for investments held by insurance companies was not reported separately).
2 Fair values and carrying amounts are only disclosed for financial instruments.
3 Excluding investments in joint ventures and in associates.
4 Adjustment by €+31,075 million due to change in presentation
5 Adjustment by €–31,075 million due to change in presentation

34. Maturity analysis	≤ 3 months € million	> 3months – 1 year € million	> 1 year € million	Indefinite € million
Balance as at December 31, 2017
Loans and advances to banks	8,314	1,821	12,959	270
Loans and advances to customers	39,739	60,927	688,932	20,658
Deposits from banks	34,241	10,278	80,128	790
Deposits from customers	701,225	20,448	64,861	60,400
Debt certificates issued including bonds	9,240	5,843	44,407	-
Balance as at December 31, 2016
Loans and advances to banks	25,818	3,858	25,622	553
Loans and advances to customers	36,444	57,180	666,093	19,531
Deposits from banks	31,076	10,266	80,021	680
Deposits from customers	660,963	19,084	70,079	57,023
Debt certificates issued including bonds	12,252	7,869	45,840	236

The contractual maturities shown in the above table do not match the estimated actual cash inflows and cash outflows.

F Other disclosures

35. Capital requirements and regulatory indicators	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Total capital	101,671	97,680
Tier 1 capital	87,272	82,191
of which: Common Equity Tier 1	86,746	81,463
Additional Tier 1 capital	526	728
Tier 2 capital	14,399	15,489
Total risk exposure	642,352	611,490

Common Equity Tier 1 capital ratio (percent)	13.5	13.3
Tier 1 capital ratio (percent)	13.6	13.4
Total capital ratio (percent)	15.8	16.0
Common Equity Tier 1 capital ratio incl. reserves pursuant to Section 340f HGB (percent)¹	15.5	15.4
Tier 1 capital ratio incl. reserves pursuant to Section 340f HGB (percent)¹	15.6	15.6

Leverage ratio (percent)²	6.9	6.8
Leverage ratio incl. reserves pursuant to Section 340f HGB (percent)^1,3	7.8	7.7

1 The balance of reserves pursuant to Section 340f HGB is based on the financial statements data reported for regulatory purposes before additions and reversals within the scope of the 2017 and 2016 financial statements.
2 Disclosure of the leverage ratio of the bank-specific protection system using the transitional definition for Tier 1 capital.
3 Disclosure of ratio after full introduction of the new CRR provisions (fully loaded), subject to the assumption of full reclassification and inclusion of reserves pursuant to Section 340f HGB as Tier 1 capital from a business point of view.

The disclosures relate to the institutional protection scheme (cooperative joint liability scheme) and the respective reporting date. The disclosures relating to own funds and capital requirements are based on the outcome of the extended aggregated calculation in accordance with article 49 (3) CRR in conjunction with article 113 (7) CRR.

36. Financial guarantee contracts and loan commitments	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Financial guarantee contracts	19,636	18,436
Loan commitments	87,811	75,634
Total	107,447	94,070

The amounts shown for financial guarantee contracts and loan commitments are the nominal values of the respective exposure.

37. Trust activities	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Trust assets	923	1,468
of which: trust loans	52	477
Trust liabilities	923	1,468
of which: trust loans	52	477

38. Asset management by the Union Investment Group	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Fund assets	284,649	286,295
Other types of asset management	50,083	49,833
Unit-linked asset management	1,687	1,489
Institutional asset management	9,961	9,654
Advisory and outsourcing	38,435	38,690
Accounts managed by third parties	–11,362	–12,209
Total	323,370	323,919

As at the balance sheet date, the Union Investment Group (through Union Asset Management Holding AG) had total assets under management of €323,370 million (December 31, 2017: €323,919 million). The fund assets comprise equity funds, fixed-income funds, money market funds, mixed funds, other securities funds, capital preservation funds, real estate funds, alternative investment funds and hybrid funds issued by Union Investment Group.

In addition, Union Investment Group has assets under management within the scope of institutional asset management, unit-linked asset management, and advisory and outsourcing. The fund volume of funds that have been issued by Union Investment Group but whose portfolio management has been outsourced is shown as a deduction. The definition of assets under management is based on the aggregate statistics from the Federal Association of German Fund Management Companies (BVI), Frankfurt/Main.

39. Leases Finance leases with the Cooperative Financial Network as lessor	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Gross investment	2,164	3,203
Up to 1 year	711	1,007
More than 1 year and up to 5 years	1,330	1,929
More than 5 years	123	267
less unearned finance income	–144	–263
Net investment	2,020	2,940
less present value of unguaranteed residual values	–42	–57
Present value of minimum lease payment receivables	1,978	2,883
Up to 1 year	642	882
More than 1 year and up to 5 years	1,225	1,763
More than 5 years	111	238

As at the balance sheet date, the accumulated allowance for uncollectable minimum lease payments at lessor companies amounted to €20 million (December 31, 2017: €26 million).

The DVB Bank Group and the VR LEASING Group are active as finance lessors in the Cooperative Financial Network. The entities in the DVB Bank Group primarily enter into leases for ships, ship containers, and aircraft. Entities in the VR LEASING Group mainly enter into equipment leases with their customers.

40. Changes in the contract portfolios held by Bausparkasse Schwäbisch Hall	Not allocated, Number of contracts € million	Not allocated, Home savings sum € million	Allocated, Number of contracts € million	Allocated, Home savings sum € million	Total, Number of contracts € million	Total, Home savings sum € million
Balance as at Dec. 31, 2017	7,808,225	281,261	653,931	17,698	8,462,156	298,959
Additions in 2018 as a result of
New contracts (redeemed contracts)¹	523,070	26,736	–	–	523,070	26,736
Transfers	21,056	637	676	17	21,732	654
Allocation waivers and cancellations	6,553	261	–	–	6,553	261
Splitting	151,242	–	32	–	151,274	–
Allocations and acceptance of allocations	–	–	355,026	9,056	355,026	9,056
Other	68,737	2,326	21	1	68,758	2,327
Total	770,658	29,960	355,755	9,074	1,126,413	39,034
Disposals in 2018 as a result of
Allocations and acceptance of allocations	–355,026	–9,056	–	–	–355,026	–9,056
Reductions	–	–856	–	–	–	–856
Termination	–316,174	–8,294	–299,989	–7,807	–616,163	–16,101
Transfers	–21,056	–637	–676	–17	–21,732	–654
Pooling¹	–64,302	–	–1	–	–64,303	–
Expiration	–	–	–120,072	–3,041	–120,072	–3,041
Allocation waivers and cancellations	–	–	–6,553	–261	–6,553	–261
Other	–68,737	–2,326	–21	–1	–68,758	–2,327
Total	–825,295	–21,169	–427,312	–11,127	–1,252,607	–32,296
Net addition/disposal	–54,637	8,791	–71,557	–2,053	–126,194	6,738
Balance as at Dec. 31, 2018	7,753,588	290,052	582,374	15,645	8,335,962	305,697

1 Including increases

Volume of unredeemed contracts	Number of contracts € million	Home savings sum € million
Contracts signed prior to Jan. 1, 2018	45,700	2,742
Contracts signed in 2018	177,479	11,915

41. Changes in the allocation assets of Bausparkasse Schwäbisch Hall	2018 € million
Additions
Amounts carried forward from 2017 (surplus)
Amounts not yet disbursed	55,106
Additions in 2018
Savings deposits (including credited residential construction bonuses)	9,251
Repayable amounts (including credited residential construction bonuses)¹	1,159
Interest on home savings deposits	690
Total	66,206
Withdrawals
Withdrawals in 2018
Amounts allocated (if disbursed)
Home savings deposits	5,183
Home savings loans	1,028
Repayment of deposits on non-allocated home savings contracts	1,482
Surplus of additions
(Amounts not yet disbursed) at the end of 2018²	58,513
Total	66,206

1 Amounts repaid are the portion of the loan principal actually repaid.
2 The surplus amounts allocated include:
a undisbursed home savings deposits from allocated home savings contracts: €93 million
b undisbursed home savings loans from funds allocated: €3,174 million

42. Cover statement for the mortgages and local authority loans extended by the mortgage banks	Mortgage Pfandbriefe Dec. 31, 2018 € million	Mortgage Pfandbriefe Dec. 31, 2017 € million	Public-sector Pfandbriefe Dec. 31, 2018 € million	Public-sector Pfandbriefe Dec. 31, 2017 € million
Ordinary cover	57,419	53,757	20,810	23,367
Loans and advances to banks	25	28	214	489
of which: Mortgage loans	25	28	–	–
Local authority loans	–	–	214	489
Loans and advances to customers	57,248	53,582	16,962	18,624
of which: Mortgage loans	57,248	53,582	53	57
Local authority loans	–	–	16,909	18,567
Investments consisting of bonds and other fixed-income securities	–	–	3,634	2,577
Property, plant and equipment	146	147	–	1,677
Extended cover	1,687	2,253	106	132
Loans and advances to banks	–	–	36	17
Investments consisting of bonds and other fixed-income securities	1,687	2,253	70	115
Total cover	59,109	56,010	20,916	23,499
Pfandbriefe requiring cover	–53,839	–50,360	–17,578	–20,289
Nominal excess cover	5,267	5,650	3,338	3,210
Present value of excess cover	9,098	9,312	4,039	3,879
Risk-related present value of excess cover	8,544	8,257	3,529	3,416

The present value of excess cover is higher than the nominal excess cover because it includes an interest component.

Maturity structure of mortgage Pfandbriefe and public-sector Pfandbriefe in issue	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Mortgage Pfandbriefe	53,839	50,360
<= 6 months	2,549	1,919
> 6 months and <= 12 months	2,692	1,799
> 12 months and <= 18 months	2,173	2,023
> 18 months and <= 2 years	2,086	2,718
> 2 years and <= 3 years	3,463	3,630
> 3 years and <= 4 years	4,457	3,458
> 4 years and <= 5 years	4,390	4,482
> 5 years and <= 10 years	17,863	17,316
> 10 years	14,166	13,015
Public-sector Pfandbriefe	17,578	20,289
<= 6 months	690	716
> 6 months and <= 12 months	1,322	1,941
> 12 months and <= 18 months	1,005	637
> 18 months and <= 2 years	1,023	1,370
> 2 years and <= 3 years	1,265	2,091
> 3 years and <= 4 years	753	1,285
> 4 years and <= 5 years	992	798
> 5 years and <= 10 years	4,769	4,788
> 10 years	5,759	6,663

Fixed-interest periods of cover assets	Dec. 31, 2018 € million	Dec. 31, 2017 € million
Mortgage Pfandbriefe	56,106	56,010
<= 6 months	2,186	2,799
> 6 months and <= 12 months	2,320	2,304
> 12 months and <= 18 months	2,208	2,170
> 18 months and <= 2 years	2,549	2,183
> 2 years and <= 3 years	4,967	4,841
> 3 years and <= 4 years	5,446	5,069
> 4 years and <= 5 years	5,121	5,031
> 5 years and <= 10 years	20,537	19,812
> 10 years	13,772	11,801
Public-sector Pfandbriefe	20,916	23,499
<= 6 months	1,054	1,110
> 6 months and <= 12 months	1,114	902
> 12 months and <= 18 months	970	917
> 18 months and <= 2 years	654	988
> 2 years and <= 3 years	1,358	1,721
> 3 years and <= 4 years	1,173	1,381
> 4 years and <= 5 years	1,117	1,246
> 5 years and <= 10 years	5,093	5,896
> 10 years	8,383	9,338

57 properties were in forced administration as at the reporting date (December 31, 2017: 85). The mortgage loans held as cover include past-due payments for interests to be paid in the amount of €1 million (December 31, 2017: € 1 million).

43.
Board of Managing Directors of the BVR

Marija Kolak (President)
Gerhard Hofmann
Dr. Andreas Martin

Berlin, July 4, 2019

National Association of German Cooperative Banks
BVR

The Board of Managing Directors

Marija Kolak Gerhard Hofmann Dr. Andreas Martin

< Management Report 2018

Annex >

Consolidated Financial Statements 2018