NOVO BANCO Annual Report 2020

Plain-text annual report

Annual Report 2020 Abbreviations and Acronyms NB NOVO BANCO GNB NOVO BANCO Group ECB European Central Bank DG Comp Directorate-General | Competition CCA Contingent Capital Agreement YTD YoY NII LCR Year-to-date - change since the start of the year Year-on-Year - change on a year earlier Net Interest Income Liquidity Coverage Ratio €, EUR euro €mn million euro €bn bps pp billion euro basis points percentage points Additional Notes to this Report NOVO BANCO discloses its results, since 2018, presenting separately the financial results of “NOVO BANCO Recurrent”, and those of “NOVO BANCO Legacy”. Therefore, all the references in this report must take in consideration this segmentation. In 3rd quarter 2020, NOVO BANCO classified the Spanish Branch as discontinued operations, in line with the strategy to discontinue the Spanish business. Thus, for comparison purposes, 2019 is presented pro-forma. This Annual Report is a free translation into English of the original Portuguese version. In case of doubt or misinterpretation the Portuguese version will prevail. NOVO BANCO, S.A. Head Office: Av. da Liberdade, n. 195, 1250-142 Lisbon Commercial and Tax identification number: 513 204 016 Share Capital: €5 900 000 000.00 2 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESNOVO BANCO MANAGEMENT REPORT 2020Contents Message from the Chairman of the General and Supervisory Board . . . . . . . . . . . . . . . . . 4 Message from the Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 I. MANAGEMENT REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 II. SUSTAINABILITY REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 III. FINANCIAL STATEMENTS AND FINAL NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 IV. ANNEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 Auditor’s Report on the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 Auditor’s Report on the Separate Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510 Report of the General and Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520 Evaluation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522 3 NOVO BANCO MANAGEMENT REPORT 2020Message from the Chairman of the General and Supervisory Board BYRON HAYNES Chairman of the General and Supervisory Board Dear Stakeholders, Year 2020 will forever be shaped by the Covid-19 global health pandemic that has changed and impacted all our lives. NOVO BANCO’s focus, despite the unprecedented challenges of COVID-19, has been to remain fully open, servicing and supporting our clients and society at large, while at the same time protecting the health and welfare of our employees. NOVO BANCO’s rapid response in strengthening its remote servicing capabilities, supporting clients use of digital and remote channels, maintaining key payment, on-line and ATM network systems and ensuring operational and IT stability and security has ensured that NOVO BANCO’s clients could access the Bank’s products and services to meet all their daily banking needs. At the same time the Bank has taken care that its employees’ health and welfare have been protected and supported throughout this Covid-19 pandemic through such measures as the launch of the Pandemic Plan on People Safety, home office working, access to occupational doctors and regular interaction and dialogue with the health authorities. Year 2020 has not only been about managing the impact of Covid-19 but also it has been a pivotal year for NOVO BANCO in securing its long-term viability. The Bank has largely met one of the key targets for the year, the completion of the de-risking of the balance sheet through the clean-up of the past legacy issues, including disposal of non-core assets. This de-risking process of the past legacy issues was first launched immediately following the acquisition of 75% of NOVO BANCO by Nani Holdings SGPS S.A. in October 2017, and has been executed throughout this period to year-end 2020 in accordance with the agreed 4 NOVO BANCO ANNUAL REPORT 20201.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESRestructuring Plans and commitments by the Republic of Portugal to the European Commission, State Aid Director General for Competition (“DGComp”). The Legacy Bank further reduced its balance sheet by €1.4bn during the year through non-core asset disposals and real estate asset sales as well as through the normal year-end impairment and revaluation processes. Given the ongoing public debate around the sale of non-performing loans (“NPLs”) and real estate assets by NOVO BANCO and related limitations imposed on the Bank, the deleveraging of such non-productive assets as required by the European Central Bank (“ECB”) and under the Restructuring Plans agreed with DGComp have been focused on assets not covered by the Contingent Capital Agreement (“CCA”). In this context, NOVO BANCO has been able to sell c.€626mn of gross NPLs and real estate assets during 2020. NOVO BANCO was able to take advantage of the continued investor appetite for these types of assets in Portugal with the sale of the assets having been executed at levels, which have been capital accretive to the Bank. NOVO BANCO has been able to further reduce the NPL ratio from 11.8% in 2019 to 8.9% in 2020, targeting a further reduction during 2021. The Recurrent Bank has been impacted by Covid-19 during 2020 realising a loss of €130mn, mainly due to an increase in cost of risk of 46bps compared to 2019. Despite the challenges of managing Covid-19, NOVO BANCO has continued to invest, transform and develop its commer- cial businesses, including the roll-out of the New Retail Distribution Model from the fourth quarter of 2020 onwards. During 2020 the Bank has maintained liquidity. The CCA provided the capital support in the clean- up of the past legacy issues. A loan to deposit ratio of 90% and a liquidity coverage ratio of 144% reflects the healthy liquidity position of the Bank at year-end 2020. Throughout the year 2020, the General and Supervisory Board (“GSB”) and the respective GSB committees supervised and supported the Executive Board of Directors (“EBD”) in the execution of NOVO BANCO’s response to the Covid-19 pandemic as well as the monitoring of the execution of the Bank’s strategic goals and financial targets as set out and agreed in the medium-term plan. At the end of year 2020, Vitor Fernandes, José Bettencourt and Jorge Cardoso left NOVO BANCO following the completion of their respective EBD mandates. On behalf of the GSB, I would like to thank them for their significant individual contributions since 2014 and wish them every success in their future endeavors. I would also like to take this opportunity, on behalf of the GSB, in welcoming Andres Baltar, a vastly experienced Corporate Banker particularly in the Portuguese and Spanish markets, who joined NOVO BANCO as a member of the EBD at the end of year 2020. The EBD is now comprised of six people, under the leadership of António Ramalho, which reflects NOVO BANCO’s recently simplified business and operating models, who are focused on continuing to build and invest in the Bank’s commercial franchises and in managing the risk and impact of Covid-19 going forward. For year 2021, realistic strategic goals and financial targets for NOVO BANCO have been set and agreed, in line with the current market and economic conditions and projections. It is expected that NOVO BANCO will deliver profits in 2021, the first time in NOVO BANCO’s history, a very important milestone for all its stakeholders, demonstrating continued future viability. On behalf of the GSB, I would like to thank our customers and our other stakeholders for their continued trust and loyalty to NOVO BANCO during this challenging year of 2020. Finally, the GSB and myself would like to thank the EBD and the employees of NOVO BANCO for all their hard work, dedication and commitment in managing the impact of Covid-19 and ensuring that NOVO BANCO continued to service its customers and society in general throughout, as well as achieving the key milestones and targets for year 2020. 5 NOVO BANCO ANNUAL REPORT 2020Message from the Chief Executive Officer ANTÓNIO RAMALHO Chief Executive Officer Dear Stakeholders, The year 2020 would always have been a crucial year in the life of NOVO BANCO. This was the year defined in the Bank's capitalisation agreements as the year of conclusion of the restructuring process and legacy winddown. And it should not be forgotten that NOVO BANCO was born with an undeniably heavy legacy. This was achieved through the fulfilment of all the commitments assumed with the European Union, which implied a 79% reduction of the legacy assets, a 19 percentage points reduction in the NPL ratio, the conclusion of the sale of 15 international structures, and determining an adequate volume of impairments in loans not protected by the contingent capital agreement. This long process was subject to high scrutiny, both by regulators and other authorities, and by the public opinion, making this year a particularly challenging one in terms of stakeholder management. But even more so, 2020 was a crucial year in the face of the sudden emergence of the pandemic. In this unknown environment, NOVO BANCO demonstrated its experience, professionalism, agility, resilience and dedica- tion by responding quickly to the new needs of its clients. We had a decisive role in terms of lending under protocoled lines (more than one billion euros in 6 months), we ensured moratoria to our clients without penalising their future (6.9 billion euros), and we processed the social grants provided under the simplified lay off scheme. At the same time, we ensured protection to our employees and our clients, promoting various initiatives to support society. The pandemic did not just have consequences for our health and daily lives: it also impacted, albeit unevenly, the vitality of Portugal's business fabric. All the while, the Bank kept its doors open, created COVID-related impairments in the amount of 268.8 million euros covering 7.7% of stage 2 loans and 56.5% of stage 3 loans, and thus ensured that the conditions 6 NOVO BANCO ANNUAL REPORT 20201.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESwere in place to maintain its mission of standing by the Portuguese companies, “the Portugal that does”, helping them to reinvent themselves and to turn great difficulties into opportunities. Without ever neglecting its role of supporting families. In these circumstances, the trust that our clients keep placing in their relationship with us should be highlighted. This is reflected in the annual growth of credit (+2.2%), with corporate loans rising by 5.1%, as well as in customer funds (+0.5% growth in the deposit base). It was this relationship that enabled the recurring activity to post a core operating income of 369 million euros (+4%), underpinned by the growth of Commercial Banking Income. Even so, despite the significant increase in net interest income (+11%) and the reduction in costs (-1%), the net result of the recurrent activity was signifi- cantly affected by the creation of provisions, foreshadowing potential adverse impacts of the pandemic. But in 2020 we also laid the foundations for a future for NOVO BANCO in its determination to serve its clients. We launched a "New Distribution Model", which is one of the strategic pillars of the bank's transformation, and which comprises a set of cross-cutting initiatives bearing on the manner in which the Bank interacts with the cli- ent, transforming the branches into a meeting place and a place of relationship-building with the client and the community, and promoting increased process automation and digitisation as well as the constant improvement and expansion of the digital channels’ functionalities. The approach to digital deserved particular attention, with new solutions launched for individuals and companies recognised by the market and our clients alike, alongside information and training for employees and clients, aligned with best security standards and. Also in 2020, the sustainability principles underlying NOVO BANCO's activity gained increased importance, with a special focus on the social dimension, health, safety and the mitigation of less favourable economic scenarios. On the environmental front, and within the scope of the “Letter of Commitment for Sustainable Finance in Portugal”, signed in 2019, the Bank reinforced its offer of products with environmental concerns. We also successfully concluded the first edition of the Social Dividend model, a commitment to give back to society that NOVO BANCO assumed before the community and its employees, consisting of four programmes - Equal Gender, Work & Life, the Environment, and Social Responsibility - whose targets, set in 2017, at the time of its creation, were exceeded. In 2021, this model will have a new edition, which will continue to address issues such as gender equality and the reconciliation of professional, personal and family life, and minimising the environmental impact from the Bank's activity. The Bank's sustainability model, together with the social and environmental measures implemented, are an integral part of NOVO BANCO's strategy and business, contributing to reinforce the trust that the different stakeholders place in the Bank. It is with this vision that we will continue to be part of and foster a sustainable society. The objectives set for 2021 also involved an adjustment in the executive team that I have the honour of leading. And in this respect, I would like to draw attention to the work done by Mr. Vitor Fernandes, Mr. Jose Bettencourt, and Mr. Jorge Cardoso, and to their dedication to this project and the results obtained, and also take the opportunity to thank Mr. Andres Baltar for his smooth integration into an executive team strongly committed to the Bank's success. The reduction of the Executive Committee to 6 members further contributed to the simplification of processes. I would like to thank each and every one of our employees for their commitment and dedication in this unprecedented year. A word to the regulators, which in the case of Novo Banco also involve EU regulators, and an emphasis on the exacting professionalism that has enabled us to achieve many objectives which some thought impossible. Finally, I would like to thank our clients for their loyalty and their preference, making us their partners in good times and in adversity. To the other stakeholders and society in general, I would like to assure them that they can continue to count on NOVO BANCO's experience and professionalism in supporting the economy. Novo Banco is today turning a page that will allow it to focus on creating value for its clients and shareholders, and in doing so contribute to the development of the Portuguese economy. We have been and will always be open! 7 NOVO BANCO ANNUAL REPORT 2020Management Report 2020 8 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESNOVO BANCO MANAGEMENT REPORT 2020Management Report 2020 Contents I. MANAGEMENT REPORT 1.0 1.1 1.2 2.0 2.1 2.2 3.0 3.1 3.2 3.3 3.3.1 3.3.2 3.4 3.4.1 3.4.2 3.5 3.6 3.7 3.8 3.9 3.10 4.0 4.1 4.2 4.3 5.0 5.1 5.2 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 7.0 7.1 7.2 7.3 7.3.1 7.3.2 7.4 WHO WE ARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 NOVO BANCO Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Organisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 OUR STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 DGCOMP objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 OUR PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Economic Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Recurrent and Legacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Novo Banco Recurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Novo Banco Legacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 NOVO BANCO Group (consolidated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Balance Sheet and Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Corporate Branding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Retail Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 NOVO BANCO Separate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Main Risks and Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 CAPITAL, LIQUIDITY & RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Capital Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Liquidity and Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 OUTLOOK 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Economic Expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Strategic Priorities for 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 CORPORATE GOVERNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Shareholder Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Corporate Bodies: Composition and Functioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Internal Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Main Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Credit to Members of the Corporate Bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Remuneration of the Members of the Corporate Bodies and Identified Employees . . . . . . . . . . . . . . . . . . . . . . . . 90 Securities Held by Members of the Corporate Bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Non-Material Indirect Investment in NOVO BANCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 FINANCIAL STATEMENTS AND FINAL NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Separate Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Final Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Declaration of Conformity with the Financial Information Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Proposal for the distribution of NOVO BANCO results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Note of Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 8.0 ALTERNATIVE PERFORMANCE MEASURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 9 NOVO BANCO MANAGEMENT REPORT 2020Who We Are 1.0 Title: Quem espera sempre alcança Author: Marta Vieira Pereira 1.1 Novo Banco Group NOVO BANCO, S.A. ("NOVO BANCO" or "Bank") together with the subsidiaries and equity holdings that make up the NOVO BANCO Group ("Group" or "GNB") is mainly active in the Portuguese banking sector, but also in asset management, and also has equity stakes in companies operating in venture capital, real estate, renting and corporate services. NOVO BANCO was born in 2014 upon the resolution of Banco Espírito Santo S.A. From the outset, NOVO BANCO has shown its resilience, overcoming the huge challenges resulting from its status as a transitional bank and from the new commitments imposed by the European Commission for the sale, in October 2017, of 75% of the Resolution Fund's holdings to Lone Star, through Nani Holdings S.G.P.S., S.A.. Chronology 2014 2015 2016 2017 2018 2019 2020 AUGUST Incorporation of Novo Banco upon the Resolution applied to Banco Espírito Santo by the Bank of Portugal. DECEMBER Restructuring Plan agreed with DG COMP EC) involving the separation between core and non-core assets. MARCH Announcement of sale of 75% of Novo Banco's share capital to Lone Star OCTOBER Completion of sale process of 75% of Novo Banco's share capital to Nani Holdings (Lone Star Group) with subsequent injection of €750mn (Oct) and €250mn (Dec) by the bank's main shareholder. JUNE Issuance of €400mn Tier 2 Subordinated Debt combined with a securities exchange offer. TRANSITION Closure of 33% of the Branch Network. Divestment process included BESV, BICV, New York, London and Venezuela Branches along with non-strategic assets, such as GNB Vida, GNB Seguros and Novo Activos Financieros España and non-productive assets, such as the portfolios Nata I and II, Viriato, Sertorius and Carter RESTRUCTURING POST-2020 With a proven track record of reducing costs and increasing commercial efficiency, NOVO BANCO prepares to embark on a new phase where it asserts itself as a leading commercial bank in SMEs, with a strong presence in the Corporate segment and a relationship of proximity with the client. REBIRTH In 2020 the Group continued to deploy the strategy defined for 2019-2021, focusing its actions on: i. optimising its core activity, by striving for improved and increasingly efficient processes, and for the deleveraging of its Legacy assets; ii. consolidating its digital transformation by incorporating the most advanced technological developments and pre-empting the new client interaction trends; and iii. continuing to build up factors of differentiation, notably products and services specifically designed for Business and Small companies. 11 Who We Are 1.0 Title: Quem espera sempre alcança Author: Marta Vieira Pereira NOVO BANCO MANAGEMENT REPORT 2020A team of professionals committed… PEOPLE 4 582 GNB employees €288.5k investment in training and development 45 training hours per employee¹ ...to supporting families, and driving Portuguese companies to innovate, reinvent, export… BUSINESS 1.4 million clients 96.3% satisﬁed and very satisﬁed clients – Retail 98.1% satisﬁed and very satisﬁed clients – Medium Enterprises 359 branches ...and to turning great difficulties into great opportunities… FINANCIAL RESOURCES €25.2bn Loans granted €26.1bn Deposits 31% Reduction in Legacy activity assets (vs 2019) ... using an omnichanel approach based on agile methodology... TECHNOLOGY & EXPERIENCE 14 multidisciplinary agile teams working on digital transformation 600 thousand active clients in the digital channels 41% of total sales are digital (vs 25% in 2019) ... to give back to community the support it has received. SOCIETY 8 initiatives/solutions addressing social issues 1. NOVO BANCO 12 24 paintings loaned in 2020, increasing to 75 the works on permanent exhibition in 33 Museums around the country 4 562 people helped through community programmes in 2020 1.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESNOVO BANCO MANAGEMENT REPORT 20201.1.1 Business Model NOVO BANCO focuses its business model on three main segments – domestic commercial banking - retail, domestic commercial banking - corporate, and asset management. NOVO BANCO seeks to anticipate and respond to the needs of its clients through its offer of innovative, effective and transparent banking products and services, based on high ethical and integrity standards and customer satisfaction assessment tools. Domestic commercial banking - corporate BUSINESS Domestic commercial banking - retail Asset management BRANDS: NOVO BANCO NOVO BANCO is a universal bank that provides the full spectrum of financial products to individual, corporate and institutional clients, serving the entire national territory, with a strong focus on servicing and supporting the Portuguese business community. The Bank's differentiation element is its strong relational DNA, which underpins the high quality of the service provided to more than 1.3 million clients and is implemented through a service model sectioned to serve five different client segments: Retail Banking • Individual Clients, served by a straightforward and comprehensive digital platform and a national network of 339 branches • NB360º Individual Clients, served by a dedicated account manager through the digital channels, remotely or at NOVO BANCO's branches. • usinesses served by a dedicated account manager specialised in supporting small business clients through the national branch network or the digital channels. Corporate Banking • Medium-sized Companies served by a corporate account manager at one of the 20 corporate centres across the country. • Large Companies, served by a corporate account manager at 2 Corporate Centres, in Lisbon and Porto. NOVO BANCO DOS AÇORES NBA is the result of a strategic alliance between NOVO BANCO (57.5%) and Santa Casa da Misericórdia de Ponta Delgada (30%), which was joined by the Bensaude Group (10%) and thirteen other Santa Casa da Misericórdia institutions from all the Azores islands (2.5%). The mission of NBA is to serve its clients (individual, corporate and institutional) and the Azorean regional economy by deepening the links with the Azorean emigrant communities, particularly in the United States, Canada, Bermuda and Brazil. Its strategy leverages on unique competitive advantages such as economic and financial strength, a culture of service to the benefit of the population of the Azores, wide experience of the local markets and a strong tradition of close relationships with the Clients. As at December 2020, NBA had total assets of €584.4mn, representing a YoY increase of 4.6%. Detailed information on the activity of NBA available here: www.novobancodosacores.pt 13 NOVO BANCO MANAGEMENT REPORT 2020Best - Banco Electrónico de Serviço Total, S.A. Banco Best offers the full range of products and services of an open architecture universal bank with a strong techno- logy content. The services available at Banco BEST (saving, investment, credit and day-to-day financial management solutions) are designed to let clients take full advantage of the new information technologies through the internet, namely greater speed and efficiency in the treatment of processes and transactions and access to innovative services that facilitate and streamline the clients’ relationship with the Bank. BEST's business strategy is geared towards serving the investment needs of a segment of individual clients who share the need for more diversified and sophisticated financial services. Through its B2B activity, BEST also makes its cus- tomised platform available to national and international institutional investors, allowing these entities a comprehensive, agile and effective management of their financial assets. As at December 2020, BEST had €2.2bn in assets under management, corresponding to a YoY increase of 6.1%. Detailed information on the activity of BEST available here: www.bancobest.pt GNB Gestão Ativos GNB GA develops its asset management business through a product range that covers all types of funds - mutual funds, real estate funds and pension funds - besides pro- viding discretionary and portfolio management services. In December 2020, the entire share capital of NOVO ACTIVOS FINANCIEROS ESPAÑA, S.A. was sold, as part of the strategy of focusing on the domestic banking busi- ness and consequent divestment of non-strategic assets. As at December 2020, GNB GA had €10.0bn assets under management in Portugal and the Luxembourg. Detailed information on the activity of GNBGA available here: www.gnbga.pt GNB GA - AuM 11% 13% €10.0bn 25% 51% Discritionary/Portfolio Mgmt Pension Fund Real Estate Funds NOVO BANCO... Partner Bank a reliable partner and a reference in high quality service Professional Bank with an approach that is both highly professional and builds a relationship of trust with all clients Proximity Bank with a differentiating, unique and integrated experience of omnichannel relationships. As at December 2020, NOVO BANCO had a global market share of 11% and total assets of €44.4bn. • €26.1bn in Customer Deposits, of which 72% from Retail Clients • €25.2bn in Customer Loans, of which 55% to Corporate Clients The strategy of permanently enhancing the quality of customer service and of the services provided also entails a large investment in digitisation. In 2020, 41% of sales to retail clients were digital. 14 1.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESNOVO BANCO MANAGEMENT REPORT 20201.1.2 Awards NOVO BANCO elected Best Trade Finance Bank in Portugal In 2020 NOVO BANCO was once again elected the Best Trade Finance Bank in Portugal, by the Global Finance international magazine. GNB Gestão de Ativos’s NB Euro Bond won the 2020 Morningstar Portugal Fund Award The NB Euro Bond Fund, managed by GNB Gestão de Ativos, was the winner in the Best Foreign Fund in Euro Bonds category of the Morningstar Fund Awards 2020. NOVO BANCO once again elected by Global Finance In 2020 NOVO BANCO was once again elected the Bank in the provision of Securities Custody Services in Portugal by the Global Finance international magazine. NOVO BANCO earns award for “Best Integrated Corporate Banking Site in Western Europe” NB earned recognition for the quality of its digital solutions for the corporate market, which include Nbnetwork, its Internet Banking service for businesses, with a broad-based functional coverage permitting to carry out a vast range of transactions autonomously and in a simple, intuitive and effective manner. NOVO BANCO shortlisted for Finovate Awards 2020 O NOVO BANCO has been shortlisted for the Finovate Awards 2020, with two initiatives: Home Buying and Small Business Finance. Finovate, the promoter of these awards, is the most prestigious ﬁrm showcasing technology oriented to the ﬁnancial sector worldwide. NBnetwork innovative solution wins Portugal Digital Awards 2020’ prize for "Best Banking Project" The innovative NBnetwork+ solution, launched by NB for clients in the Small Businesses and Corporate segments, won the "Best Banking Project" award at the 2020 edition of the Portugal Digital Awards. NOVO BANCO awarded two honourable mentions in the Banking Tech Awards 2020 edition NOVO BANCO awarded two honourable mentions in the 2020 edition of the Banking Tech Awards. From NOVO BANCO's three shortlisted initiatives, two earned awards: Small Business Finance (in the Best Digital Initiative category) and Onboarding Digital (in the Best Use of IT in Retail Banking category). The prestigious Banking Tech Awards, which are already in their 21st edition, reward the use of information technology in the ﬁnancial sector worldwide. 15 JAN APR JUL AUG SEP DEC NOVO BANCO MANAGEMENT REPORT 20201.1.3 Main Events in 2020 16 1.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESNOVO BANCO MANAGEMENT REPORT 2020JANFEBMARAPRMAYJUNJULAGOSEPOCTNOVDECNOVO BANCO applies artiﬁcial intelligence to the real estate sectorNOVO BANCO closed a partnership with a Portuguese start-up Alfredo AI, aiming to bring the latest artiﬁcial intelligence innovations to the real estate sector.SISAB 2020 - Best Trade Finance Bank in Portugal supports agrifood exportsNOVO BANCO was present in the International Trade Fair for Portuguese Food and Beverages (SISAB), the largest and most important annual fair for the Portuguese agrifood business.NOVO BANCO Group Activity and Results - 2019On 28 February, NOVO BANCO GROUP disclosed its 2019 results, a consolidated loss of €1,066.5mn. In the recurrent activity, GNB posted a €177.6mn proﬁt for the year.NOVO BANCO launches package of products and services designed to address the COVID-19 contextNB creates “green tollway” ﬁnancing to support business sectors in the context of COVID-19NOVO BANCO makes available to its clients and to the Portuguese business community a set of cash management support and ﬁnancing solutions, a true “green tollway” designed to help companies deal with the economic effects from Covid-19NOVO BANCO decides to pay all suppliers immediately upon receipt of invoiceGiven the context of crisis caused by COVID-19, NOVO BANCO decided that all its suppliers would start being paid immediately upon receipt, checking and posting of invoices by the bank’s Purchasing Structures. NOVO BANCO creates pre-payment line for companies using the Simpliﬁed Lay-off Line to pay salariesNOVO BANCO launches solutions to assist landlords overcome liquidity problemsNOVO BANCO, S.A. informs about changes in the Board of the General MeetingNOVO BANCO informs on a change in the composition of the Board of the General Meeting following the resignation of Pedro Moreira de Almeida Queiroz de Barros as the General Meeting’s Secretary and the election of Mário Nuno de Almeida Martins to this position.NOVO BANCO Group Activity and Results - 1st half 2020On 31 July, NOVO BANCO disclosed a consolidated loss of €556.8mn for the 1st half of the year, with activity being constrained not only by the restructuring of the bank's balance sheet but also by the impacts of the Covid-19 pandemic. Even so, the Bank's results from the recurrent activity in the ﬁrst six months of the year were a net proﬁt of €34mn.Press Release on conclusion of Deloitte auditNOVO BANCO launches new campaign praising the country's production capacity“This is the Portugal that does. And this is the Bank that helps it do it” - new campaign that reinforces NB's position at the side of Portuguese companies to help them innovate, reinvent and export. The campaign included conferences in various regions of the country, bringing together companies and associations to discuss and share experiences and knowledge.NOVO BANCO, S.A. Informs on conclusion of sale agreement on the sale of its equity holding in GNB – Companhia de Seguros, S.A.NOVO BANCO, together with its subsidiaries BEST and GNB-GA, entered an agreement to sell their 25% shareholding in GNB – Companhia de Seguros, S.A., (“GNB Seguros”), a non-life insurance company, for a total consideration of €15.9mn, to Crédit Agricole Assurances, S.A., a company of Crédit Agricole Group, which already held the remaining 75% of the share capital of GNB Seguros.NOVO BANCO launches NB smarterThe ﬁrst app of a new generation of smarter, more personalised applications that revolutionises the way clients interact with the bank in their everyday life.NOVO BANCO GROUP ACTIVITY AND RESULTS - 3rd quarter 2020NOVO BANCO’s recurrent activity continued to exhibit a positive trend, the bank posting a net proﬁt of €98.2mn. At consolidated level, the process of restructuring and sale of legacy assets continued, with the NPL ratio dropping to 9.7% and for the ﬁrst time reaching a single digit ﬁgure. The legacy activity was reduced by 24.1% (-€1 078mn) since the start of the year, to €4 482mn. NOVO BANCO, S.A. Informs on beginning of term of office of a member of the Executive Board of DirectorsUpon conclusion of the ﬁt and proper process, on 1 December 2020, Andrés Baltar Garcia took office as member of the Executive Board of Directors of NOVO BANCO, with the position of Chief Commercial Officer - Corporate, for the ongoing mandate (2017-2020)NOVO BANCO, S.A. informs on sale of entire share capital of NOVO ACTIVOS FINANCIEROS ESPAÑA, S.A.Through its subsidiary GNB Gestão de Ativos, SA, NOVO BANCO concludes the sale of the entire share capital of NOVO ACTIVOS FINANCIEROS ESPAÑA, S.A., for a total consideration of €12.9mn.NOVO BANCO, S.A. informs on Sale and Purchase Agreement for a portfolio of NPLsConclusion of a competitive bid process for the sale of a portfolio of non-performing loans and related assets (together known as Project Carter) with a gross book value of €79mn. The sale price was approximately €37mn.NOVO BANCO GROUP ACTIVITY AND RESULTS - 1st quarter 2020On 5 June, NOVO BANCO GROUP disclosed a consolidated net loss of €179.0mn, a result signiﬁcantly penalised by the impact of the Covid-19 pandemic in the period, with an increase in the cost of risk and markdowns in the bank's investment portfolio. NOVO BANCO, S.A. informs on appointment of corporate bodiesOn 22 October, the General Meeting of NOVO BANCO appointed the members of the GSB for the 2021-2024 mandate, subject to the authorisation of the competent regulatory authorities. The Meeting also approved the composition of the Board of the General Shareholders Meeting, and the appointment of the Statutory Auditor for the 2021-2024 mandate. NOVO BANCO, S.A. informs about change in composition and appointment of members of the Executive Board of Directors for the new mandateOn 22 October, the members of the Executive Board of Directors Jorge Freire Cardoso, José Eduardo Bettencourt and Vítor Fernandes handed in their resignation from their positions, with effect from 30 November 2020, and, to replace Vítor Fernandes, Andrés Baltar Garcia was appointed by the General and Supervisory Board as a member of the Executive Board of Directors for the current mandate, subject to the authorisation of the relevant regulatory authorities. The bank also informed that the General and Supervisory Board had appointed the members of the Executive for the 2021-2024 period, and subject to the authorisation of the relevant regulatory authorities.NOVO BANCO, S.A. – AnnouncementOn 27 November, NOVO BANCO noted the approval of the legislative proposal no. 61/XIV/2 concerning the Portuguese State Budget for 2021, which aims to withdraw the authorisation for the Resolution Fund to transfer additional funds to NOVO BANCO under the Contingent Capital Agreement (“CCA”). The Bank noted that it had fulﬁlled and continued to fulﬁl all its commitments, and that based on three years of Resolution Fund having met its payment obligations, the Bank believed that it would continue to do so. It also noted the statement made by the Portuguese Prime Minister to the President of the ECB where he guaranteed “full compliance with the commitments undertaken in the framework of the sale of NOVO BANCO”.NOVO BANCO, S.A. Informs on appointment of the members of the Monitoring CommitteeOn 26 November the General Meeting elected the members of the Monitoring Committee provided for in the CCA for the 2021-2024 mandate.17 NOVO BANCO MANAGEMENT REPORT 2020JANFEBMARAPRMAYJUNJULAGOSEPOCTNOVDECNOVO BANCO applies artiﬁcial intelligence to the real estate sectorNOVO BANCO closed a partnership with a Portuguese start-up Alfredo AI, aiming to bring the latest artiﬁcial intelligence innovations to the real estate sector.SISAB 2020 - Best Trade Finance Bank in Portugal supports agrifood exportsNOVO BANCO was present in the International Trade Fair for Portuguese Food and Beverages (SISAB), the largest and most important annual fair for the Portuguese agrifood business.NOVO BANCO Group Activity and Results - 2019On 28 February, NOVO BANCO GROUP disclosed its 2019 results, a consolidated loss of €1,066.5mn. In the recurrent activity, GNB posted a €177.6mn proﬁt for the year.NOVO BANCO launches package of products and services designed to address the COVID-19 contextNB creates “green tollway” ﬁnancing to support business sectors in the context of COVID-19NOVO BANCO makes available to its clients and to the Portuguese business community a set of cash management support and ﬁnancing solutions, a true “green tollway” designed to help companies deal with the economic effects from Covid-19NOVO BANCO decides to pay all suppliers immediately upon receipt of invoiceGiven the context of crisis caused by COVID-19, NOVO BANCO decided that all its suppliers would start being paid immediately upon receipt, checking and posting of invoices by the bank’s Purchasing Structures. NOVO BANCO creates pre-payment line for companies using the Simpliﬁed Lay-off Line to pay salariesNOVO BANCO launches solutions to assist landlords overcome liquidity problemsNOVO BANCO, S.A. informs about changes in the Board of the General MeetingNOVO BANCO informs on a change in the composition of the Board of the General Meeting following the resignation of Pedro Moreira de Almeida Queiroz de Barros as the General Meeting’s Secretary and the election of Mário Nuno de Almeida Martins to this position.NOVO BANCO Group Activity and Results - 1st half 2020On 31 July, NOVO BANCO disclosed a consolidated loss of €556.8mn for the 1st half of the year, with activity being constrained not only by the restructuring of the bank's balance sheet but also by the impacts of the Covid-19 pandemic. Even so, the Bank's results from the recurrent activity in the ﬁrst six months of the year were a net proﬁt of €34mn.Press Release on conclusion of Deloitte auditNOVO BANCO launches new campaign praising the country's production capacity“This is the Portugal that does. And this is the Bank that helps it do it” - new campaign that reinforces NB's position at the side of Portuguese companies to help them innovate, reinvent and export. The campaign included conferences in various regions of the country, bringing together companies and associations to discuss and share experiences and knowledge.NOVO BANCO, S.A. Informs on conclusion of sale agreement on the sale of its equity holding in GNB – Companhia de Seguros, S.A.NOVO BANCO, together with its subsidiaries BEST and GNB-GA, entered an agreement to sell their 25% shareholding in GNB – Companhia de Seguros, S.A., (“GNB Seguros”), a non-life insurance company, for a total consideration of €15.9mn, to Crédit Agricole Assurances, S.A., a company of Crédit Agricole Group, which already held the remaining 75% of the share capital of GNB Seguros.NOVO BANCO launches NB smarterThe ﬁrst app of a new generation of smarter, more personalised applications that revolutionises the way clients interact with the bank in their everyday life.NOVO BANCO GROUP ACTIVITY AND RESULTS - 3rd quarter 2020NOVO BANCO’s recurrent activity continued to exhibit a positive trend, the bank posting a net proﬁt of €98.2mn. At consolidated level, the process of restructuring and sale of legacy assets continued, with the NPL ratio dropping to 9.7% and for the ﬁrst time reaching a single digit ﬁgure. The legacy activity was reduced by 24.1% (-€1 078mn) since the start of the year, to €4 482mn. NOVO BANCO, S.A. Informs on beginning of term of office of a member of the Executive Board of DirectorsUpon conclusion of the ﬁt and proper process, on 1 December 2020, Andrés Baltar Garcia took office as member of the Executive Board of Directors of NOVO BANCO, with the position of Chief Commercial Officer - Corporate, for the ongoing mandate (2017-2020)NOVO BANCO, S.A. informs on sale of entire share capital of NOVO ACTIVOS FINANCIEROS ESPAÑA, S.A.Through its subsidiary GNB Gestão de Ativos, SA, NOVO BANCO concludes the sale of the entire share capital of NOVO ACTIVOS FINANCIEROS ESPAÑA, S.A., for a total consideration of €12.9mn.NOVO BANCO, S.A. informs on Sale and Purchase Agreement for a portfolio of NPLsConclusion of a competitive bid process for the sale of a portfolio of non-performing loans and related assets (together known as Project Carter) with a gross book value of €79mn. The sale price was approximately €37mn.NOVO BANCO GROUP ACTIVITY AND RESULTS - 1st quarter 2020On 5 June, NOVO BANCO GROUP disclosed a consolidated net loss of €179.0mn, a result signiﬁcantly penalised by the impact of the Covid-19 pandemic in the period, with an increase in the cost of risk and markdowns in the bank's investment portfolio. NOVO BANCO, S.A. informs on appointment of corporate bodiesOn 22 October, the General Meeting of NOVO BANCO appointed the members of the GSB for the 2021-2024 mandate, subject to the authorisation of the competent regulatory authorities. The Meeting also approved the composition of the Board of the General Shareholders Meeting, and the appointment of the Statutory Auditor for the 2021-2024 mandate. NOVO BANCO, S.A. informs about change in composition and appointment of members of the Executive Board of Directors for the new mandateOn 22 October, the members of the Executive Board of Directors Jorge Freire Cardoso, José Eduardo Bettencourt and Vítor Fernandes handed in their resignation from their positions, with effect from 30 November 2020, and, to replace Vítor Fernandes, Andrés Baltar Garcia was appointed by the General and Supervisory Board as a member of the Executive Board of Directors for the current mandate, subject to the authorisation of the relevant regulatory authorities. The bank also informed that the General and Supervisory Board had appointed the members of the Executive for the 2021-2024 period, and subject to the authorisation of the relevant regulatory authorities.NOVO BANCO, S.A. – AnnouncementOn 27 November, NOVO BANCO noted the approval of the legislative proposal no. 61/XIV/2 concerning the Portuguese State Budget for 2021, which aims to withdraw the authorisation for the Resolution Fund to transfer additional funds to NOVO BANCO under the Contingent Capital Agreement (“CCA”). The Bank noted that it had fulﬁlled and continued to fulﬁl all its commitments, and that based on three years of Resolution Fund having met its payment obligations, the Bank believed that it would continue to do so. It also noted the statement made by the Portuguese Prime Minister to the President of the ECB where he guaranteed “full compliance with the commitments undertaken in the framework of the sale of NOVO BANCO”.NOVO BANCO, S.A. Informs on appointment of the members of the Monitoring CommitteeOn 26 November the General Meeting elected the members of the Monitoring Committee provided for in the CCA for the 2021-2024 mandate.1.2 Organisation 1.2.1 Governance Model NOVO BANCO's management relies on a governance model that is unique for systemic banks within the Portuguese financial sector. In line with international best practices in management, and under the new shareholder structure, since 18 October 2017 the Bank has a General and Supervisory Board (GSB) and an Executive Board of Directors (EBD). The GSB is responsible for regularly monitoring, advising and supervising the management of the Bank and of the Group companies, as well as for supervising the EBD with regard to compliance with the relevant regulatory requirements of banking activity. The GSB meets on a monthly basis, and its Chairman maintains regular communication and dialogue with the CEO. In its activity, the GSB is supported by committees to which it delegates some of its powers: the Finan- cial Affairs (Audit) Committee, the Risk Committee, the Compliance Committee, the Nomination Committee and the Remuneration Committee. These committees are chaired by independent members of the GSB and its composition complies with the applicable legislation regarding the majority of independent members (when required). The GSB has the responsibilities and powers provided for by law, by the Articles of Association and by its internal regulations, including the supervision of all matters related to risk management, compliance and internal audit, as well as granting prior approval on relevant matters for NOVO BANCO, which are detailed in the Articles of Association. The Executive Board of Directors is responsible for the management of the Bank, for the definition of the general policies and strategic objectives, and for ensuring the running of the business in compliance with the rules and good banking practices. The governance model was designed to ensure monitoring of the Bank's activity and achievement of its strategic objectives: Organograma do Modelo de Governo do NOVO BANCO GENERAL SHAREHOLDERS MEETING Statutory Auditor Company Secretary GENERAL AND SUPERVISORY BOARD Risk Committee EXECUTIVE BOARD OF DIRECTORS MONITORING COMMITTEE Capital, Assetc and Liabilities Committee (CALCO) Non-Performing Assets (NPA) Sub Committee Financial Affairs (Audit) Committee Risk Committee Sub Committee Risk Model Remuneration Committee Compliance and Product Committee Sub Committee Operational Risk Nomination Committee Internal Control System Committee Compliance Committee Digital Transformation Committee Financial and Credit Committee Investment and Costs Committee Impairment Committee Further information is provided in the Corporate Governance Report, namely points 6.2.3 General Supervisory Board and 6.2.4 Executive Board of Directors. 18 1.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESNOVO BANCO MANAGEMENT REPORT 2020 1.2.2 Organisational structure The composition of the corporate and statutory bodies, at the signature date of this Report, is as follows: BOARD OF THE GENERAL MEETING MONITORING COMMITTEE Chairman: Fernando Augusto de Sousa Ferreira Pinto Chairman: José Bracinha Vieira Vice-Chairwoman: Magdalena Ivanova Ilieva Secretary: Mário Nuno de Almeida Martins Adegas Member: Member: Carlos Miguel de Paula Martins Roballo Pedro Miguel Marques e Pereira GENERAL AND SUPERVISORY BOARD (GSB) STATUTORY AUDITOR Chairman: Byron James Macbean Haynes Ernst & Young, Audit & Associados – SROC, S.A., registered Vice-Chairman: Karl-Gerhard Eick in the Portuguese Securities Market Commission (“CMVM”) Member: Member: Member: Member: Member: Member: Member: Donald John Quintin Kambiz Nourbakhsh Mark Andrew Coker under number 20161480 and in the Portuguese Institute of Statutory Auditors (“OROC”) under number 178, represented by António Filipe Dias da Fonseca Brás, registered in the Benjamin Friedrich Dickgiesser CMVM under number 20161271 and in the OROC under John Ryan Herbert Robert Alan Sherman Carla Antunes da Silva number 1661, and by João Carlos Miguel Alves, as alternate statutory auditor, registered in the CMVM under number 20160515 and in the OROC under number 896. EXECUTIVE BOARD OF DIRECTORS (EBD) COMPANY SECRETARY Chairman: António Manuel Palma Ramalho Mário Nuno de Almeida Martins Adegas Chief Executive Officer Ana Rita Amaral Tabuada Fidalgo Brás (Alternate Secretary) Member: Mark George Bourke Chief Financial Officer Member: Rui Miguel Dias Ribeiro Fontes Chief Risk Officer Member: Luísa Marta Santos Soares da Silva Amaro de Matos Chief Legal & Compliance Officer Member: Luís Miguel Alves Ribeiro Chief Commercial Officer (Retail) Member: Andrés Baltar Garcia Chief Commercial Officer (Corporate) Pursuant to resolution of the General Meeting held on 22 October 2020, all the members of the GSB (including a new member William Henry Newton) and, pursuant to the resolution of GSB of the same date, all the members of the EBD were appointed for the new mandate (2021-2024) subject to the corresponding fit and proper authorisations which, at the date of this report, are still pending. Accordingly, the remaining members of NOVO BANCO corporate bodies are already in functions under the new mandate. 19 NOVO BANCO MANAGEMENT REPORT 20201.2.3 Human Capital NOVO BANCO seeks to follow the best fair-process practices in decision-making, focusing not only on results but also on sustainability and involving the employees in the process of seeking results. The bank thus endeavours to be aware of the needs and difficulties experienced by employees throughout their life cycle and to meet their expectations, so as to contribute to their full development and allow them to fully unlock their potential. One of the main tools to analyse the organisational climate and the employees’ involvement is the NB Experience questionnaire, used by the first time in late 2018. Successive half-yearly updates, through the PULSE rapid surveys, allow a continuous assessment and evolution of employee confidence levels, with the last survey in October 2020 seeing a participation rate of 79%. 4 582 EMPLOYEES 53% WOMEN 45 years 18 years AVERAGE AGE AVERAGE LENGTH OF SERVICE 47% MEN 31% FROM 27% IN 2019 THE PERCENTAGE OF WOMEN IN HEADS OF DEPARTMENT INCREASED 43.4% FROM 41.5% IN 2019 NUMBER OF WOMEN SENIOR EXECUTIVES INCREASED 20 1.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESNOVO BANCO MANAGEMENT REPORT 2020Our Strategy 2.0 Title: Gare do Oriente Author: Marta Vieira Pereira 2.1 Overview The 2019-2021 strategic plan is based on four strategic pillars that drive the Bank in the transition to a growth strategy, namely in terms of adjusting risk processes, fostering talent and merit, optimising IT, data and processes, and revolutionising the distribution model. These four strategic pillars are implemented within a framework of operational circles: optimisation, digitisation and differentiation. The 2019-2021 strategic plan has been built to enable NOVO BANCO to make the leap from a bank in resolu- tion to a transformation bank. In 2020, the framework of the strategic plan progressed on two main fronts: reinforced focus on rebuilding its Purpose and Identity and closing the final phase of divestment of the Legacy assets. NOVO BANCO is committed to be a positive contributor to the ecosystem of which it is part, continuously monitoring the impact of its behaviour on society, and continuing to demonstrate authenticity, transparency, integrity and con- sistency. The circles and pillars of NOVO BANCO's Strategic Plan serve as the basis for the 9 priorities underlying the bank's growth strategy. Activation Efficiency 1 Purpose and Identity 2 Optimisation Digitalisation New business 4 Differentiation Divestment Legacy 3 5 Activation 9 8 7 6 Distribution Model IT, Data & Processes Talent and Merit Risk Adjustment 22 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES1. Purpose and Identity NOVO BANCO steers its activity by sustainability principles and with the resolve to give back to the community the support it has received from it. With the aim of managing the business in a responsible manner, the Bank has been implementing a culture that involves permanent monitoring of its impact on the surrounding ecosystem, training and raising the awareness of its employees, business partners and clients, and promoting the values of authenticity, transparency, integrity and consistency. In order to support the local economies and its clients, NOVO BANCO launched the NB Marketplace - a free-of-charge platform that, in the context of the pandemic, allowed clients in the Small Business segment to open a new sales channel, and individual clients to buy from local suppliers without having to leave their homes. At the same time, and from the onset of the pandemic, NOVO BANCO strengthened its reference position as a pro- ximity and present Bank, developing initiatives to discuss the challenges that each sector and region are facing in the current context, and to support, promote and give voice to Portuguese companies and entrepreneurs that persevere and reinvent themselves. Highlights: • The 3 editions of the “NOVO BANCO Summit - Our champions” - webinars on the Agrofood, Tourism and Manu- facturing sectors held in the 1st half of 2020; • The 5 editions of the “Portugal that Does Roadshows” carried out by NOVO BANCO about the business activity; More information on the sustainability strategy is provided in the Sustainability Report. 2. Optimisation To increase operational profitability and gain competitive advantage, NOVO BANCO has been de- veloping and implementing a set of measures that reduce costs and streamline the bank's processes and restructuring. In 2020, the Bank developed a set of actions, with a strong impact on Commercial Network efficiency and the customer experience, which allowed to: • Streamline and dematerialise 28 processes, in a teleworking environment, including credit approval processes; • Create and improve critical business processes, namely in the credit and remote transactional areas, which included a new process to obtain loan mora- toria through NBnetwork or the Centres and Branch- es, a protocoled credit origination process through NBnetwork, and the Acceptance of the Qualified Electronic Signature (QES). The divestment/liquidation of subsidiaries and interna- tional activity to focus on domestic activity along with ongoing recalibration of operating model and structure and through the implementation of innovative initiatives and processes, the Bank has been optimising the cost structure, reaching in 2020 a Cost to Income ratio 11 pp lower than in 2018. Efficiency: Cost Income Ratio / Consolidated % 63% 55% 52% 2018 2019 2020 23 NOVO BANCO MANAGEMENT REPORT 20203. Digitalisation NOVO BANCO strives for a higher level of digitalisation to increase efficiency and meet the clients’ expectations. This means a transition to a more efficient business model, driven by an integrated intelligent service, combined with a differentiating and innovative experience. Digital transformation requires an organisational transformation. NOVO BANCO therefore conti- nued to implement some key pillars to prepare the organisation: a customer-centric strategy (+150 clients interviewed), an agile organisation (+200 people and 14 agile teams), a specific governance model (+25 Board-led meetings in 2020), an adjusted working environment (+1000 sqm agile already) and a deep technological transformation. Know more here: Objectives of the Digital Transformation Strategy To be the Best Bank for Clients in Portugal To transition towards a highly efficient operational model To develop new business models bringing in new revenue sources Workstreams implemented, providing solutions aligned with the highest standards, and best service and satisfaction levels... ...with repercussions in terms of activation and digital sales DIGITAL ACTIVATION 50% (+4% active digital clients vs 2019) RETALHO - MOBILE 35% (+9% YoY active mobile Clients 600 thousand Active Digital Clients 388 thousand Mobile Clients DIGITAL SALES 41% (+16 p.p. vs 2019) +36% units sold digitally vs 2019 COVERAGE 71% functional coverage of sales (products available online) Pillars of the Digital Transformation Strategy New Customer Journeys Digital Channels Renovation Leveraged on Data Science Home purchase digital omnichannel experience Digital Financial Advisor for Small Businesses HIGHLIGHTS: Online Account Opening Stronger relationship through mobile/phygital Mass personalisation to leverage relationship Support to the central areas (risk, compliance, AML) 24 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES4. Differentiation NOVO BANCO develops differentiated proposals and new business lines that diversify revenue sources and distinguish the Bank from its competitors, increasing the Group's differentiation. In 2020 the Bank launched, for its Corporate clients, NBnetwork+, a solution that supports companies in their daily financial management, allowing them to aggregate all the company's accounts in one place with an integrated view of the consolidated balance, to manage payments and to ensure financial control through the vision and categorisation of executed and planned transactions. For its Individual clients, NOVO BANCO launched in 2020 a new offer of service-accounts that seeks to respond to the daily needs of the various segments, making it possible to open an account totally remotely, by video call or digital mo- bile key. And as sustainability is central to the Bank's activity, its accounts offer also seeks to reduce the environmental impact and support social, environmental and cultural solidarity causes. 5. Legacy Legacy Total Assets Evolution Net; €bn NOVO BANCO has concluded the clean-up of its Legacy balance sheet, preparing the next cycle of focus on its core business. 10.7 -71% In December 2020, Legacy's net assets totalled €3.1bn, representing a decrease of 71% vs. 2018. Mostly through asset revaluations and disposal processes, the share of Legacy assets in NOVO BANCO's balance sheet de- creased from 22% in 2018 to 7% in 2020. 4.5 3.1 2018 2019 2020 6. Risk Adjustment Holistic, specialised, resilient and efficient risk management and control is a key pillar of NOVO BANCO Group's Strategy and Culture, supporting the decision-making processes at the various levels, from top management to the first lines of defence. The programmes defined aim to ensure the alignment of risk management and control by continuously factoring in the new industry challenges, customer demands, new technological competitors, and the emerging risks, in compliance with the risk appetite rules defined by the Executive Board of Directors, as follows: RISK MANAGEMENT PROGRAMME RESULTS Financial and non-Financial Risks • Permanent adaptation of Risk Policies to incorporate changes in the regulatory framework and innovation in business models and to continuously reinforce effective risk control • Regular revision of risk models to incorporate new scenarios and the necessary regulatory adjustments • Continuous strengthening of the risk control culture in the 1st and 2nd lines of defence 25 NOVO BANCO MANAGEMENT REPORT 2020 Credit Risk Market Risk • Deﬁnition of the risk appetite in line with the Bank's strategy and its timely and conservative adjustment to the risks underlying macroeconomic conditions, particularly with regard to the industry sectors and professional activities more affected by the pandemic and the economic deterioration • Compliance with the risk appetite metrics deﬁned for the different credit portfolios • Once implementation is consolidated, control and maintenance of, and compliance with, a conservative risk appetite in the Bank's trading activity and of an investment portfolio policy designed for liquidity management and net interest income generation • Strengthening of the mechanisms for monitoring risk appetite metrics as well as the implementation of mitigation measures to deal with the impacts of the pandemic crisis on the ﬁnancial markets; Liquidity Risk • Continuous monitoring and control of liquidity risk, using indicators that permit prompt assessment of the liquidity position • Compliance with regulatory limits and the liquidity risk appetite Operational Risk • Reinforcement of the operational risk culture, namely in risk identiﬁcation and control processes by the ﬁrst lines of defence • Strengthening/improving the management and control of risks with greater exposure, such as cyber risk, and continuous effort of adaptation to regulatory and strategic challenges (such as digitisation) 7. Talent and Merit NOVO BANCO implements a comprehensive talent and merit strategy, establishing and commu- nicating sound governance policies to attract and retain talent, enable employees to realise their potential and offer a better employee experience from recruitment to retirement. The 2019-2021 talent and merit plan, built upon employee's feedback, is structured in 3 journeys: Look & Join, Live & Grow, Transition & Depart, and its aim is to ensure a deep evolution in human capital management. The main achievements aimed to respond to six challenges: 1. Attracting and retaining talent; 2. Employee develop- ment; 3. Gender equality, equal opportunities and respect for diversity; 4. Conciliation of professional, personal and family life; 5. Social responsibility; and 6. Health, well-being and safety at work Attracting and retaining talent With the objective of rejuvenating the teams by attracting and retaining young talent using intervention models suited to the new generation, the Trainee programme "Talent Attracts Talent" and the "Tech Academy" have contributed to increase the share of employees under 30 (from 3.5% in 2018 to 6% in 2020). Employee development Through function-adjusted training, with a special emphasis on regulatory / legal contents and a mobility and meritocracy model involving a regular promotion and progress process where the criteria for appointment to new positions are focused on employee performance. Gender equality, equal opportunities and respect for diversity Through the objectives defined in the Social Dividend Model, NOVO BANCO promotes diversity and gender equality as an integral part of its human capital management. One of the programmes developed with this aim in mind is the NB Equal Gender, comprising a set of indicators to monitor the Bank's performance in this area and push it towards greater gender equality and fairness, having contributed to increase the share of women in senior management from 41.5% in 2019 to 43.4% in 2020. 26 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESHealth, well-being and safety at work The pandemic significantly magnified the challenge of "Looking after health, well-being and safety at work". Besides resorting to telework whenever the functions in question allowed it and there were conditions for that,, the Bank developed a package of benefits to address employees’ households financial needs, when such existed, including bringing forward the payment of 50% of the Christmas bonus, loans with special conditions, computer equipment and training, family coaching sessions and psychological support (psychology, psychiatry and nutrition consul- tations), and the "My Side B" programme focusing on 8 dimensions (Health, Food, Physical Exercise, Emotional Management, Family and Home, Interpersonal Relations, Personal Image, Culture and Leisure). 8. IT, Data & Processes NOVO BANCO continues to streamline processes and systems and to implement new ways of working, so as to become a leaner bank and thus improve the customer experience, maximise operational efficiency and reduce the cost of service. In 2020, the new data and AI platform went live, enabling the agile development of predictive models, the real-time provision of insights for our clients, as well as the cross-fertilisation and mining of very high volume and frequency data sources. In 2020 the Bank stepped up the introduction of new efficiency tools such as robotics, having launched a programme to achieve a broad-based implementation of these tools in its various areas and processes by 2022. A Robotic Officer and Robotics Champions were also appointed in all departments. In 2000, 10 new processes were robotised. 9. Distribution Model NOVO BANCO's new distribution model emerges from the need to innovate and thus meet the expectations of clients, who are increasingly demanding and digital, but also value the proximity and relationship with their account manager. This new model will help build a more personalised, simple and convenient relationship between the client and the bank, based on intelligent tools that will give client a unique, global and cohesive experience in their relationship and contact with the Bank throughout the different processes and through the different channels. To execute the new distribution model, NOVO BANCO has designed a 3-year investment plan that includes the re- newal of the physical network, technological infrastructures in the branch network, the creation of an omnichannel experience, new sales channels under partnerships, redefinition of roles in the organisation, communication and engagement with the community, and customer migration and activation. These innovations will allow the client to: • Schedule a meeting from a digital device or self-check-in, and be serviced in the space/medium they deem most appropriate • Make self-service deposits of banknotes, coins and cheques 24/7 in the new Branch Model • Have the support of a specialist immediately upon starting a search and simulation on the website, and finalizing the process with a remote or face-to-face account manager 2020 was above all a year dedicated to designing and testing pilot solutions, which have meanwhile been implemented under more than 45 initiatives launched and worked on by multidisciplinary teams. Three full-service branches and one master branch were remodelled in an innovative and functional layout focused on the relationship with the client, featuring a distinctive self-service cash management service, employee mobility and digital communication. This re- modelling took into account sustainability principles, focusing, among others, on the reduction of paper consumption as well as on the suppliers and construction materials used. Also, in the area of omnicanality, new face-to-face and remote contact services were tried out, as well as new approaches to contacting clients and building customer loyalty. 2021 will be the year of industrialisation of the processes tried out in 2020 with a view to transforming NOVO BANCO. 27 NOVO BANCO MANAGEMENT REPORT 2020 2.2 DGCOMP² Objectives 2020 targets fully achieved³ The letter of commitment agreed between the Portuguese State and the European Commission in connection to the authorisation of state aid in the context of the sale process of 75% shareholding in NOVO BANCO established 33 commitments to be fulfilled by the Bank until the end of the restructuring period (currently defined as 31 December 2021). These commitments are divided into three categories, and compliance therewith is closely monitored and confirmed every six months by an international audit company chosen by the European Commission (the Monitoring Trustee). Structural Commitments Namely the divestment commitments in various geographies and businesses and the reduction of the Bank's non-core assets, which included divestment of the insurance business - GNB Seguros -, concluded this year. Behavioural Commitments Namely the establishment of ROE (Return on Equity) based pricing tools subject to deﬁned minimum limits, restrictions on acquisitions, dividend distribution ban, ban on the exercise of voting rights by the minority shareholder (the Resolution Fund) and caps (of 10x the Bank's average salary) on the remuneration of any employee or member of the Bank's corporate bodies4. Viability Commitments Interim targets and 2021 targets, notably Full Time equivalent (FTE) reduction targets, branch reduction targets, and Cost-to-Income targets, and the reinforcement of risk management policies, already carried out. Given the pandemic context and its impact on the banking sector and consequent need for closer monitoring, in 2020 the DGCOMP asked the Monitoring Trustee to perform a specific quarterly monitoring of the Bank with a particular focus on its financial performance. Although deeply marked by the adverse effects of the pandemic context, the year 2020 stood out, for the second consecutive time, by the fulfilment of all the commitments⁵ assumed by the Portuguese State before the European Commission. In 2020, NOVO BANCO continued to pursue its goal of reduction the legacy assets, an essential factor to achieve the Bank's viability in 2021, and in line with the 2019-2022 strategic plan. At the same time, and in accordance with the defined strategy, the Bank maintained its focus on reducing costs, while continuing to provide a service of excellence to its corporate and individual clients, through a strong commitment to digital and information technology. The implementation of the strategic plan and achievement of the DGCOMP targets allowed, as expected, a very posi- tive evolution in the performance of NOVO BANCO's recurrent banking activity. 2. Directorate-General Competition – European Commission 3. Pending the Monitoring Trustee’s certification due in May 2021; 4. In view of the fulfilment of the commitments for 2019, this latter restriction ceased to be effective in July 2020. However, the Bank opted to maintain this cap, keeping its remuneration policy unchanged. 5. Pending the Monitoring Trustee’s certification due in May 2021; 28 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESOur Performance 3.0 Title: Depois da Chuva Author: Marta Vieira Pereira 3.1 Economic Context 2020 was inexorably marked by the Covid-19 pandemic, which infected 83.9 million people and caused 1,8 million deaths globally. Economic activity was severely affected by the containment and mitigation measures adopted in most countries - which included periods of mandatory lockdown and restrictions on production in several industry sectors -, as well as by fears of contagion and of unknown impacts on the economy (e.g. unem- ployment), postponing household consumption decisions. The high level of uncertainty in turn penalised companies’ productive investment. In this context, international trade flows fell by 6.5% in 2020, with a 17,6% YoY downfall in May. The world economy contracted by 3.5% in the year, with GDP falling by 4.9% in the advanced economies and by 2,4% in the emerging economies. In the US, GDP retreated by 3.5% in 2020. The US unemployment rate rose to a peak of 14,8% of the labour force in April, subsequently subsiding to 6.7% at the end of the year, above the 3.5% seen in January. In the Eurozone, where restrictions to activity were more prolonged and severe, the economy shrank by 6.6%. Unemployment rose from 7.4% to 8.3% of the labour force, being assuaged by the employment and income protection public policies implemented in the various countries. The number of hours worked, however, actually slumped by close to 15% YoY in 2Q20, with the first period of confinement. In Portugal, which registered 414,000 cases and 6,900 deaths from Covid-19 in 2020, GDP fell by 7.6% in the year. This is broadly the cumulative contraction suffered by the Portuguese GDP between 2009 and 2013, during the sovereign debt crisis. Although Covid-19's reach was by nature widespread and global, its economic impacts across countries, industry sectors, and groups within each economy were asymmetrical, spawning increased inequality. In the Eurozone the peripheral economies were more affected than the core economies. This is because they were more exposed to the tourism and hospitality services industries, which were particularly penalised by the pandemic, and also due to their weaker budgetary capacity to allay the effects of the crisis. The sharper effects of the pandemic on the Portuguese economy were felt in 2Q20, upon the first lockdown, with GDP retreating by 13.9% QoQ and 16.3% YoY. Activity partially recouped in the second half of the year, with 13.3% growth in 3Q20 and 0.2% growth in 4Q20, in spite of a second wave of the pandemic forcing new restrictions. The tourism accommodation sector was particularly penalised, with the number of guests and overnight stays at one point falling as low as by 95% YoY, or 99% in the case of non-resident overnight stays. At the end of the year the sector's activity was still 76% lower than in the same period in 2019. With trade and restaurants also severely hit, turnover from services contracted by around 15% in the year. Industrial production retreated by 7% in 2020, after hitting a low of nearly 30% YoY. Industrial activity was quicker to take off in 2Q20, as seen in the recovery of exports of goods and in particular of agrifood goods. Even so, exports of goods and services as a whole fell 18.6% in real terms in 2020, contributing to a decline in the external account surplus, from 0.8% to close to 0% of GDP. This despite a significant (and forced) increase in household savings, to 10.8% of disposable income by 3Q20, and a sharp contraction in imports. The adverse effects of the pandemic were mitigated by several stabilisation measures, including, among others, em- ployment and income protection schemes (such as simplified layoff and support for the gradual resumption of business activity), State guarantees for loans taken by companies of up to €13bn (or 6,8% of GDP), mainly operated by the banking sector, and the deferral of taxes and social contributions (for an estimated €7.9bn, or 37% of GDP). A moratoria scheme for loans to companies and individuals affected by the pandemic was approved, which reached 21,5% of total loans. And certain regulatory and macro-prudential requirements imposed on the banking sector were temporarily relaxed. Together, these measures definitely limited the negative impacts of Covid-19 on the labour and housing markets. The average unemployment rate rose from 6.5% to 6.8% of the labour force, even if at some point the number of hours worked in industry and services fell by as low as 25% to 30% YoY. Home prices also proved resilient, decelerating from 10.3% to 7.1% YoY between 1Q20 and 3Q20. In this context, the banking sector's NPL ratio prolonged in 2020 the downward trend of recent years, falling from 6.2% to 5.3% between the end of 2019 and 3Q20. The budgetary support measures and the activity downturn pushed up the budget and public debt deficits to around 7.3% and 136% of GDP respectively. 30 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESOverall, the pandemic significantly accelerated some existing structural trends. Chief among these are the digitisation of economic activity, namely featuring significant growth in online trade and entertainment, as well as in electronic payments. The disruption of productive activity during the first wave of the pandemic led to adjustments in value chains, so as to mitigate their risks, to the benefit of locally or regionally based chains. Health restrictions forced a reorganisation and flexibilisation of labour in companies, including - where possible - a generalisation of teleworking. Families and companies became more selective in their spending, with the former favouring the acquisition of food and certain durable goods, associated with staying and working at home for longer periods. Sustainability gained more visibility, both in terms of consumer requirements and in terms of corporate practices and communication, leading to an increase in the relative weight of ESG investment in the financial markets. On top of Covid-19, economic activity and financial markets were also marked in 2020 by some political uncertainty factors. With Brexit implementation completed at the end of January, negotiations between the EU and the UK on their future trade relationship dragged on until the end of the year, with the threat of a hard Brexit after the transition period conditioning investment decisions. The agreement reached in December avoided the imposition of tariffs and quotas, but introduced frictions in the free movement of people, goods and services between the two economies. Financial services were not part of the agreement and will be subject to separate discussions in 2021. The pound lost 5.6% against the euro in the full year. Other factors of political uncertainty included the lingering of trade tensions between the US and China, despite the "Phase One" agreement in January, and the US Presidential and Congressional elections in November, after several months of political and social instability in the country. These factors fuelled some volatility in the financial markets. In response to the deterioration of activity caused by the pandemic, the main central banks intensified the expansionary stance of monetary policy in 2020. In the US, the Federal Reserve lowered the fed funds target rate from 1.5%-1.75% to 0%-0.25% and expanded its balance sheet from $4.2tn to $7.4tn, through the creation of several liquidity injection programmes. The Fed also announced in August a major change to its monetary policy framework, aiming for average inflation of 2% over time, in a suggestion of greater tolerance to possible inflation overshooting. In the Eurozone, the ECB maintained the key rates unchanged (refinancing rate at 0% and deposit facility rate at -0.5%), but significantly increased its purchases of debt securities, creating new programmes (PEPP, PELTRO), reinforcing those already in place (PSPP), and easing restrictions on the purchase of debt from the peripheral economies. The ECB balance sheet expanded from €4.7tn to close to €7tn in the year. The strong monetary stimuli averted liquidity constraints during the Covid-19 crisis by maintaining favourable financing conditions, particularly in the peripheral economies most affected by the pandemic. This stance of the Central Banks was made possible by the persistence of low levels of inflation. Although following a rising trend from a low of 0.1% in May, year-on-year inflation in the US fell from 2.5% to 1.4% in 2020. In the Eurozone year-on-year inflation slid from 1.4% to -0.3% in 2020, entering negative ground as from August. In addition to falling economic activity and cuts to indirect taxes, the decline in oil prices (by an annual average of -32.5% for Brent) also pressured down inflation. Fiscal policy also took on a strongly expansionary stance in the main economies. In the US, the Federal deficit rose in 2020 from 6.3% to 18.7% of GDP, not only through the effect of dwindling activity but also reflecting the two stimulus packages approved by Congress in March and December, totalling $2tn and $900mn, respectively. In the Eurozone, where fiscal support included employment protection measures, tax cuts or deferrals, subsidies to companies, and, at another level, State guarantees to loans, the combined public deficit surged from 0.6% to 10.1% of GDP. The EU approved a Recovery Fund (Next Generation EU) with an estimated allocation of €750bn, in part funded by common debt issues, including more than €312bn in outright grants. The retrenchment of inflation and inflationary expectations, combined with the ECB's expansionary stance, pushed the 3-month Euribor from an annual high of -0.16% in April down to -0.545% at the end of the year. Following a period of high volatility between March and June, the yield on the 10-year Bund went on a downward slide, to close the year at -0.569%. The spread on the 10-year PGB remained tight, closing the year at 60 bps (vs. 63 bps at the start of the year and 134 bps at the end of 1Q20). Portuguese debt benefited from a relatively favourable external perception of the Portuguese economy, from the ECB's purchase of Portuguese debt, and from the optimism generated around the announcement of the European Recovery Fund. 31 NOVO BANCO MANAGEMENT REPORT 2020This context of ample liquidity, aggressive fiscal stimuli, and, in the context of a more digital economy, the attractive- ness of the technology industry, drove a strong rally in the stock market, from its lows in March. The S&P 500 and Euro Stoxx 600 climbed by 67.9% and 42.7% respectively, after hitting those lows. In the full year, the S&P 500 gained 16.3%, while the Euro Stoxx 600 fell 4%. The Nasdaq went up by 87.9% since its low in March and by 43.6% in the full year. An environment of risk propensity in financial markets and the more accommodative posture of the Federal Reserve penalised the dollar, which retreated by 7% in real terms. Against the US currency, the euro advanced by 8.8%, to €/US$ 1.222. 3.2 Highlights During 2020, NOVO BANCO transferred the Spanish Branch to discontinued operations, in line with the decision to discontinue the Spanish business. Thus, for comparison purposes only, 2019 is presented pro-forma. Highlights • NOVO BANCO delivered €189.0mn of adjusted6 recurrent income before taxes, generated from a recurrent commercial banking income of €787.8mn (+1.7% YoY) and operating costs of €418.6mn (-0.6% YoY). • Completion of balance sheet clean-up, with a YoY reduction of legacy assets of 31.2% or -€1.400mn, of which loans to customers (net) (-26.3%; -€359mn), real estate (-28.8%; -€235mn) and other assets (-35.1%; -€806mn); A 79% reduction in total legacy assets has been achieved in the 3 years since Dec.17. • Reduction of non-performing loans (NPL) ratio to 8.9%, being 3.2 pp lower YoY and leading to a NPL coverage ratio of 74.1% (Dec.19: 56.5%). • Contingent Capital Agreement (CCA) - As a result of the losses in the CCA assets and regulatory capital requirements, NOVO BANCO will request €598.3mn under the Contingent Capital Agreement; - The total amount of the requested payments from 2017 to 2019, and to be called in 2020, is €3.57bn. The maximum amount of compensation established in the CCA is €3.89bn. Continued improvement in recurrent profitability • NOVO BANCO increased its recurrent core operating income (commercial banking income – operating costs) to €369.1mn (+4.5% YoY), as a result of: - Higher recurrent commercial banking income (2020: €787.7mn; +1.7% YoY), supported by an improvement in net interest income (+€52.3mn; +11.3% YoY); - Lower operating costs (-0.6% YoY), benefiting from the implementation of cost optimization measures along with efficient and automatized processes. • The YoY growth of €177.6mn in recurrent impairments and provisions (Dec.20: €386.0mn, Dec.19: €208.4mn) reflects the impact of the Covid-19 pandemic (€250.7mn). Without this effect, impairments and provisions would total €135.3mn, well below 2019 values; • Recurrent loan volumes increased by +2.2% YoY (+€492mn) building on the momentum of the previous year (2019: +5.6%; +€1,303mn); 6. After adjusting for Covid-19 provisions (€250.7mn) and losses from the Liability Management Exercise (LME; -€24.8mn) 32 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES• Total Customer funds remained unchanged YoY. Deposits were stable at €26.1bn (+0.5% YoY; +€127mn) reflecting NB customers’ continued confidence in NOVO BANCO; • NPL ratio of the recurrent activity was 3.2% (Dec.19: 3.5%), with a coverage ratio of 88.0% (Dec.20: 69.5%). Completion of the restructuring process NOVO BANCO Group's results and activity for the financial year of 2020 reflect the deleveraging of legacy assets, discontinuation of the Spanish business, additional imairment of non-performing loans and the impact of the Covid-19 pandemic, resulting in a consolidated net income at -€1,329.3mn (of which legacy accounted for -€1,198.9mn). In Dec.20, NOVO BANCO legacy assets totalled €3.1bn, representing a substantial YoY reduction of 31.2% or -€1,400mn. The lower exposure of NOVO BANCO to legacy assets is a result of: • A reduction in non-performing loans (NPL) stock of -€814mn YoY to €2,498mn, leading to a NPL ratio of 8.9% (Dec.19: 12.0%); • A reduction in the stock of real estate assets of -€235mn YoY to €582mn, thus reducing its exposure as % of total assets to 2.0% (vs Dec.19: 2.5%); • An independent valuation assessment of the restructuring funds, including appraisals of underlying assets, which resulted in a €300.2mn loss. In light of the execution of the deleveraging plan and reflecting the slowdown of economic activity and market volatility due to the Covid-19 pandemic, the Bank recorded increased credit impairments of €736.1mn in the period. The additional impairments for credit, guarantees and securities risk specifically arising from the Covid-19 pandemic totalled €268.8mn. NOVO BANCO continues to deliver on its plan, targets and commitments assumed by the Portuguese Government with respect to DGComp. The Bank has strong liquidity, which leaves it well positioned to continue supporting its retail and corporate customers. 33 NOVO BANCO MANAGEMENT REPORT 2020MAIN HIGHLIGHTS - CONSOLIDATED 31-Dec-19 31-Dec-19 Pro-forma* (exc. Spain) 31-Dec-20 ACTIVITY (mn€) Net Assets Customer Loans (gross) Customer Deposits Equity SOLVENCY (3) Common EquityTier I / Risk Weighted Assets Tier I / Risk Weighted Assets Total Capital / Risk Weighted Assets LIQUIDITY (mn€) European Central Bank Funding (2) Eligible Assets for Repo Operations (ECB and others), net of haircut (Total Credit - Credit Provision) / Customer Deposits (1) Liquidity Coverage Ratio (LCR) (3) Net Stable Funding Ratio (NSFR) (3) ASSET QUALITY Overdue Loans > 90 days / Customer Loans (gross) Non-Performing Loans (NPL) / (Customer Loans + Deposits with banks and Loans and advances to banks) Credit Provision / Overdue Loans > 90 days Credit Provision / Customer Loans (gross) Cost of Risk PROFITABILITY 45 296 27 055 27 835 4 003 13.5% 13.5% 15.1% 4 714 15 253 92% 143% 101% 4.0% 11.8% 171.0% 6.8% 2.32% 45 296 44 396 25 396 25 217 25 966 26 093 4 003 3 147 13.5% 13.5% 15.1% 11.3% 11.3% 13.3% 4 714 4 740 15 253 16 684 92% 143% 101% 4.0% 12.0% 90% 144% 113% 2.4% 8.9% 178.6% 262.2% 7.1% 2.13% 6.3% 2.08% Net Income for the Period (mn€) -1 058.8 -1 058.8 -1 329.3 Income before Taxes and Non-controlling interests / Average Net Assets (1) Banking Income / Average Net Assets (1) Income before Taxes and Non-controlling interests / Average Equity (1) EFFICIENCY Operating Costs / Banking Income (1) Staff Costs / Banking Income (1) EMPLOYEES (No.) Total - Domestic - International BRANCH NETWORK (No.) Total - Domestic - International -2.1% 0.9% -22.3% 113.8% 63.1% 4 869 4 648 221 387 375 12 -2.1% 0.6% -2.9% 1.4% -22.3% -32.0% 156.1% 87.7% 4 671 4 648 23 376 375 1 69.9% 39.7% 4 582 4 560 22 359 358 1 * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 (1) According to Banco de Portugal Instruction n. 16/2004, in its version in force (2) Includes funds from and placements with the ESCB; positive = net borrowing; negative = net lending (3) Preliminary 34 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESMAIN HIGHLIGHTS - RECURRENT ACTIVITY (mn€) Net Assets Customer Loans (gross) Customer Deposits ASSET QUALITY Non-Performing Loans (NPL) / (Customer Loans + Deposits with banks and Loans and advances to banks) Credit Provision / Overdue Loans > 90 days Credit Provision / Customer Loans (gross) Cost of Risk PROFITABILITY Net Income for the Period (mn€) Income before Taxes and Non-controlling interests / Average Net Assets (1) Banking Income / Average Net Assets (1) Income before Taxes and Non-controlling interests / Average Equity (1) EFFICIENCY Operating Costs / Banking Income (1) EMPLOYEES (No.) Total - Domestic - International BRANCH NETWORK (No.) Total - Domestic - International 31-Dec-19 40 814 24 380 27 835 31-Dec-19 Pro-forma* (exc. Spain) 31-Dec-20 40 814 22 835 25 966 41 314 23 327 26 093 3.6% 68.3% 2.6% 0.91% 177.6 0.4% 2.1% 5.3% 3.5% 69.5% 2.6% 0.87% 177.6 0.4% 2.0% 5.3% 3.2% 88.0% 3.1% 1.34% -130.4 -0.2% 1.7% -2.7% 54.9% 52.3% 58.3% 4 869 4 648 221 387 375 12 4 671 4 648 23 376 375 1 4 582 4 560 22 359 358 1 * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 (1) According to Banco de Portugal Instruction n. 16/2004, in its version in force MAIN HIGHLIGHTS - LEGACY ACTIVITY (mn€) Net Assets Customer Loans (gross) ASSET QUALITY Non-Performing Loans (NPL) / (Customer Loans + Deposits with banks and Loans and advances to banks) Credit Provision / Overdue Loans > 90 days Credit Provision / Customer Loans (gross) Cost of Risk PROFITABILITY Net Income for the Period (mn€) Income before Taxes and Non-controlling interests / Average Net Assets (1) Banking Income / Average Net Assets (1) Income before Taxes and Non-controlling interests / Average Equity (1) 31-Dec-19 31-Dec-19 Pro-forma* (exc. Spain) 31-Dec-20 4 482 2 675 81.3% 51.7% 45.2% 15.15% 4 482 2 562 3 082 1 890 83.1% 76.2% 51.9% 46.6% 13.33% 67.3% 46.6% 11.26% -1 236.4 -1 236.4 -1 198.9 -7.1% -2.5% -70.7% -14.3% -6.2% -31.7% -2.6% -142.6% -230.6% * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 (1) According to Banco de Portugal Instruction n. 16/2004, in its version in force 35 NOVO BANCO MANAGEMENT REPORT 20203.3 Recurrent and Legacy As in 2018 and 2019, NOVO BANCO discloses its full year 2020 results presenting separately the financial results of NOVO BANCO Recurrent, which include all the core banking activity, and those of NOVO BANCO Legacy, which includes loans to clients, integrating not only loans included in the CCA, as well as other credits, bonds, real estate and discontinued operations, mostly considered as non-strategic in the commitments imposed by DGCOMP after the resolution, therefore, all the references in this report must take in consideration this segmentation. NOVO BANCO considers that differentiating between NOVO BANCO Recurrent and NOVO BANCO Legacy will allow customers and other stakeholders to better understand the progress of the Bank’s ongoing restructuring. 3.3.1 NOVO BANCO Recurrent Results In 2020, NOVO BANCO Recurrent achieved an income before taxes of €189.0mn, adjusted by credit and securities impairments arising from the Covid-19 pandemic (€250.7mn) and results of the Liability Management Exercise (LME; -€24.8mn) performed in 4Q20.funding, the expansion of the loan volume and continued focus on pricing policy. INCOME STATEMENT Net Interest Income Fees and Commissions Commercial Banking Income Capital Markets Results Other Operating Results Banking Income Operating Costs Net Operating Income Restructuring funds - independent valuation Net Impairments and Provisions Credit Securities Other Assets and Contingencies Income before Taxes Corporate Income Tax and Special Tax on Banks Income after Taxes Non-Controlling Interests Net Income for the period Income before taxes Covid Impairment LME Normalized Income Before Taxes Recurrent até 31-Dec-19 31-Dec-19 Pro-forma* (exc. Spain) Change 31-Dec-20 absolute 491.2 320.7 811.9 72.2 - 45.5 838.6 460.8 377.8 0.0 202.5 222.4 3.5 - 23.4 175.3 -10.6 185.8 8.2 177.6 464.7 309.5 774.3 71.9 - 41.5 804.7 421.0 383.7 0.0 208.4 199.1 3.6 5.7 175.3 -10.6 185.8 8.2 517.0 270.6 787.7 -23.1 -46.4 718.2 418.6 299.6 0.0 386.0 311.6 41.7 32.6 -86.4 48.3 52.3 -38.9 13.4 -95.0 -4.9 -86.5 -2.4 -84.1 0.0 177.6 112.6 38.2 26.9 -261.7 58.9 -134.7 -320.6 -4.4 -12.6 177.6 -130.4 -308.0 -86.4 -250.7 -24.8 189.0 % 11.3% -12.6% 1.7% ... -11.8% -10.8% -0.6% -21.9% ... 85.2% 56.5% ... ... ... ... ... ... ... * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 36 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES31-Dec-19 31-Dec-20 mn€ NET INTEREST INCOME (NII) AND NET INTEREST MARGIN (NIM) Average Balance Avg. Rate Income / Costs Average Balance Avg. Rate Income / Costs Interest earning assets Customer Loans Money Market Placements Securities and Other Assets 35 237 23 902 1 056 10 279 1.86% 2.23% 0.01% 1.18% Interest earning assets and other 35 237 1.86% 666 543 0 123 666 35 892 1.75% 22 593 2.20% 2 689 -0.07% 10 610 1.27% 35 252 1.79% Interest bearing liabilities and other NIM /NII (without stage 3 impairment adjustment) Stage 3 impairment NIM / NII 35 237 0.48% 172 35 252 0.33% 1.38% 1.37% 494 - 3 491 1.46% 1.44% 640 505 - 2 137 640 117 523 - 6 517 Net interest income increased by €52.3mn compared to Dec.19, to €517.0mn (+11.3%), reflecting an improved cost of funding, the expansion of loan volumes and a continued focus on pricing policy. Compared with the previous financial year, there was an increase in the average volumes of loans (excluding the effect of the transfer of the Spanish Branch to discontinued operations). The competitive market conditions, origination of guaranteed credit lines, and the consequent pressure on interest rates on loans to companies resulted in a marginal decrease in average interest rates to 2.20%. Continued liability management led to a reduction of the average cost of funding from 0.48% to 0.33%. The net interest margin was 1.44%, above the margin achieved in 2019 (1.37%). Fees and commissions on banking services contributed +€270.6mn, which compares with +€309.5mn in the previous year (-12.6%). The decrease occurred across all products lines, reflecting the impact of Covid-19 on the economy, and client activity. The Capital markets results were negative at -€23.1mn, of which -€24.8mn was from the Liability Management Exercise performed in 4Q20. Total Group securities portfolio amounts to circa €11.4bn, of which about €6.5bn relates to sovereign debt which is marked to market with changes in fair value booked in reserves. At the end of 2020 the fair value reserve on this portfolio was €364mn, being higher YoY (Dec.19: €331mn). Other Operating Results of -€46.4mn, including €35mn of contributions to the resolution funds. Operating costs totalled €418.6mn, a slight decrease of -0.6% YoY, which, notwithstanding the investment in the core business and in digital transformation, reflects continued focus on cost optimization. Core operating income (commercial banking income net of operating costs) reached €369.1mn, +4.5% compared with previous year. The cost of risk reached 134bps, an increase comparing to 2019, due to the impact of the Covid-19 pandemic which resulted in credit impairments of €200.7mn. Without this effect, the cost of risk was 48bps. 37 NOVO BANCO MANAGEMENT REPORT 2020Activity Throughout 2020, net assets increased by €500mn (+1.2%), with net customer loans growing by 1.7% (+€374mn) compared to Dec.19. The growth in corporate loans reflects the continued support of domestic companies, across all economic sectors, with a focus on small and medium-sized enterprises (SMEs) and the establishment of Covid-19 related credit lines to corporate customers. Recurrent activity Customer loans (net) Real estate Other assets Total Net Assets Total Liabilities and Equity 31-Dec-19 31-Dec-19 Pro-forma* (exc. Spain) YTD Change 31-Dec-20 absolute 23 735 307 16 772 40 814 40 814 22 234 22 608 306 18 274 40 814 40 814 299 18 406 41 314 41 314 374 -7 132 500 500 mn€ % 1.7% -2.2% 0.7% 1.2% 1.2% * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Comparing to 2019, the recurrent asset quality indicators showed an improvement as the NPL ratio reduced to 3.2% and the coverage ratio increased +18.6pp to 88.0%. Customer loans 31-Dec-19 31-Dec-19 Pro-forma* (exc. Spain) YTD Change 31-Dec-20 absolute Customer Loans (gross) Corporate Residential Mortgage Consumer finance and other Non-Performing Loans (NPL)¹ Impairment NPL Ratio¹ NPL coverage¹ Cost of Risk (bps) 24 380 12 925 10 100 1 355 946 645 3.6% 68.3% 91 22 835 23 327 11 727 9 909 1 199 866 601 3.5% 12 311 9 857 1 158 817 718 492 585 - 52 - 41 - 49 118 3.2% -0.4 p.p. 69.5% 88.0% 18.6 p.p. 87 134 46 mn€ % 2.2% 5.0% -0.5% -3.4% -5.6% 19.6% … … … 1 Includes Deposits and Loans and advances to Banks and Customer Loans * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 38 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES3.3.2 NOVO BANCO Legacy NOVO BANCO Legacy reported a loss of -€1,198.9mn in the financial year 2020. This result includes the following significant items: • independent assessment of the Bank's investment in restructuring funds based on a third party valuation, including appraisals of underlying assets, with a negative impact of -€300.2mn; • net impairments and provisions of -€805.5mn, the discontinuation of Spanish activities (-€166.0mn), the provision for restructuring (-€123.9mn), and higher credit costs (loans to customers, guarantees and financial institutions). including Income Statement Net Interest Income Fees and Commissions Commercial Banking Income Capital Markets Results Other Operating Results Banking Income Operating Costs Net Operating Income Restructuring funds - independent valuation Net Impairments and Provisions Credit Securities Other Assets and Contingencies mn€ % -20.1% -54.5% -22.0% 81.7% 68.4% 80.1% -25.1% 78.3% 31-dez-19 Pro-forma* (exc. Espanha) 31-Dec-19 Change 31-Dec-20 absolute 49.4 2.7 52.2 - 269.0 - 201.5 -418.3 17.7 -436.0 0.0 732.9 405.1 - 3.7 331.5 47.7 2.7 50.5 - 269.6 - 285.2 - 504.4 17.7 -522.1 38.1 1.3 39.4 - 49.5 - 90.1 -100.2 13.2 -113.5 - 9.6 - 1.5 - 11.1 220.2 195.1 404.2 -4.4 408.6 646.8 341.5 - 3.7 308.9 805.5 212.8 - 0.7 593.4 0.0 - 300.2 -300.2 ... 158.7 - 128.7 2.9 284.5 - 50.3 - 97.9 47.7 10.2 37.5 24.5% -37.7% 79.8% 92.1% -4.3% ... 3.8% 64.0% 3.0% Income before Taxes -1 168.9 -1 168.9 -1 219.1 Corporate Income Tax and Special Tax on Banks 83.4 83.4 -14.5 Income after Taxes -1 252.3 -1 252.3 -1 204.6 Non-Controlling Interests -15.9 -15.9 -5.7 Net Income for the period -1 236.4 -1 236.4 -1 198.9 * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 There are no liabilities directly allocated to the legacy activity. Funding costs for legacy assets are calculated based on the Group’s average balance sheet funding rate (0.34%). NOVO BANCO Legacy assets decreased by €1,400mn (-31.2%) compared to Dec.19, underpinned by a reduction of the net loan book of €359mn (-26.3%), real estate assets €235mn (-28.8%), and other assets, which includes restructuring funds, €806mn (-35.1%). 39 NOVO BANCO MANAGEMENT REPORT 2020Legacy activity Customer loans (net) Real estate Other assets Total Net Assets Total Liabilities and Equity 31-Dec-19 31-Dec-19 Pro-forma* (exc. Spain) YTD Change 31-Dec-20 absolute 1 467 829 2 186 4 482 4 482 1 368 818 2 297 4 482 4 482 1 009 582 1 491 3 082 3 082 - 359 - 235 - 806 -1 400 -1 400 * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Customer loans 31-Dec-19 31-Dec-19 Pro-forma* (exc. Spain) YTD Change 31-Dec-20 absolute Customer Loans (gross) Corporate Residential Mortgage Consumer finance and other Non-Performing Loans (NPL)¹ Impairment NPL Ratio¹ NPL coverage¹ Cost of Risk (bps) 2 675 2 307 165 203 2 485 1 208 81.3% 51.7% 1 515 2 562 2 194 165 203 2 446 1 194 83.1% 51.9% 1 333 1 890 1 562 153 175 1 681 881 76.2% 67.3% - 672 - 632 - 11 - 28 - 765 - 312 -6.9 p.p. 15.3 p.p. 1 126 -207 1. Includes Deposits and Loans and advances to Banks and Customer Loans * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations. which occurred in the third quarter of 2020 mn€ % -26.3% -28.8% -35.1% -31.2% -31.2% mn€ % -26.2% -28.8% -6.9% -13.9% -31.3% -26.2% … … … 3.4 NOVO BANCO Group (Consolidated) 3.4.1 Results NOVO BANCO Group reported a net loss of -€1,329.3mn in financial year 2020, including the following: • a negative impact of €300.2mn as a result of the independent valuation of restructuring funds; • €1,191.5mn of impairments and provisions, resulting from the discontinuation of the business in Spain and higher credit risk (loans to customers, guarantees and financial institutions), including €268.8mn of additional impairment for credit risks arising from Covid-19; and • €123.9mn increase in provisions for restructuring. 40 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESIncome statement 31-Dec-19 Change 31-Dec-20 absolute Net Interest Income Fees and Commissions Commercial Banking Income Capital Markets Results Other Operating Results Banking Income Operating Costs Net Operating Income Restructuring funds - independent valuation Net Impairments and Provisions Credit Securities Other Assets and Contingencies - 40.4 -12.9% 31-Dec-19 Pro-forma* (exc. Spain) 512.4 312.3 824.7 - 197.7 555.1 271.9 827.0 - 72.5 -326.8 - 136.6 300.2 438.7 -138.4 617.9 431.8 186.1 540.6 323.5 864.1 - 196.8 - 247.0 420.3 478.5 - 58.2 42.7 2.3 125.2 190.2 317.7 - 6.8 324.5 0.0 0.0 - 300.2 - 300.2 935.4 627.5 - 0.2 308.1 855.1 540.6 - 0.1 314.7 1 191.5 336.3 524.4 41.0 626.0 - 16.1 41.1 311.4 mn€ % 8.3% 0.3% 63.3% 58.2% ... -1.6% ... ... 39.3% -3.0% ... 98.9% Income before Taxes - 993.6 -993.6 -1 305.6 - 312.0 -31.4% Corporate Income Tax Special Tax on Banks 45.8 27.1 45.8 27.1 1.1 32.8 - 44.7 -97.6% 5.7 20.9% Income after Taxes -1 066.5 -1 066.5 -1 339.4 - 272.9 -25.6% Non-Controlling Interests -7.7 - 7.7 - 10.1 - 2.4 -31.6% Net Income for the period -1 058.8 -1 058.8 -1 329.3 - 270.5 -25.5% * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The most relevant aspects of the combined activity during the year of 2020 include the following: • Commercial banking income at €827.0mn, stable YoY with the increase in Net Interest Income (+8.3%), offsetting the decrease in Fees and commissions (-12.9%; given Covid-19 impact on the economy and client activity); • Capital markets results at -€72.5mn, reflecting volatility in the financial and capital markets during 2020 and the results of the Liability Management Exercise (LME; -€27mn); • The 2.4% YoY increase of Core operating income (commercial banking income – operating costs), backed by higher Net Interest Income (+8.3%) and lower Operating costs (-1.6%), reflecting the ongoing recalibration of the business model and optimisation of the corporate structure, leading to an improvement of Bank’s efficiency ratios; • The provision charge in the period, totalling €1,191.5mn, includes €268.8mn impact of the Covid-19 pandemic, €550.2mn from impairments and provisions, resulting mainly from higher impairment charges in Legacy assets, and the discontinuation of the business in Spain (€166.0mn). 41 NOVO BANCO MANAGEMENT REPORT 2020 Net Interest Income The reduction in the average interest rate on assets of 5bps YoY (from 1.82% to 1.77%) was offset by the reduction of 14bps average interest rate on liabilities. That resulted in a net interest margin increase of 9bps YoY (from 1.32% to 1.41%). 31-Dec-19 31-Dec-20 mn€ Net interest income (NII) and net interest margin (NIM) Average Balance Avg. Rate Income / Costs Average Balance Avg. Rate Income / Costs 745 601 385 127 89 19 125 745 196 97 25 73 - 38 597 1.77% 24 939 13 624 9 987 1 328 2 993 10 665 2.13% 2.42% 1.20% 6.24% 0.54% 1.26% 38 597 1.77% 36 769 0.35% 25 775 0.27% 9 913 1 081 1 828 -0.13% 6.70% - 694 541 335 122 84 16 137 694 132 72 - 13 74 - Interest earning assets 40 344 1.82% Customer Loans 28 558 2.08% Corporate Mortgage Consumer & Others Money Market Placements 17 131 9 860 1 567 1 442 Securities and Other Assets 10 344 2.22% 1.27% 5.58% 1.32% 1.19% Interest earning assets and other 40 344 1.82% Interest bearing liabilities 37 960 0.51% 27 949 8 931 1 080 2 383 0.34% 0.28% 6.68% - Customer Deposits Money Market Funding Other Liabilities Other non-interest bearing liabilities Interest bearing liabilities and other NIM / NII (without stage 3 impairment adjustment) Stage 3 impairment NIM / NII 40 344 0.48% 196 38 597 0.34% 132 1.34% 1.32% 549 - 9 541 1.43% 1.41% 561 - 6 555 The average rate on customer loans was 2.13%. The average balance of deposits was €25.8bn, with an average interest rate of 0.27%, and Money Market Funding was €9.9bn, with -0.13% average interest rate, benefiting in part from the conditions of the ECB long-term refinancing operations (TLTRO III). The Group therefore continued to increase the spread between the rate on interest earning assets (1.77%; Dec.19: 1.82%) and the cost of liabilities (0.34%; Dec.19: 0.48%) with a positive impact on overall net interest margin (1.41%; Dec.2019: 1.32%). 42 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESFees and Commissions Fees and commissions on banking services contributed +€271.9mn which compares with +€312.3mn in 2019, -12.9% YoY given lower levels of transactions and banking activity in Portugal. Fees and commissions 31-Dec-19 Payments Management Commissions on Loans, Guarantees and Similar Asset Management and Bancassurance Advising, Servicing and Other 117.2 107.8 71.5 26.9 31-Dec-19 Pro-forma* (exc. Spain) mn€ Change 31-Dec-20 absolute % 115.6 108.5 -7.1 -6.1% 102.6 65.4 28.8 86.3 61.4 15.6 -16.2 -15.8% -3.9 -6.0% -13.2 -45.9% TOTAL 323.5 312.3 271.9 -40.4 -12.9% * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Operating Costs Operating costs reduced by -1.6% YoY, reflecting the continued optimisation and simplification of organisational struc- ture and processes. Operating costs 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 mn€ Change 31-Dec-20 absolute % 31-Dec-19 Pro-forma* (exc. Spain) Staff Costs 303.5 275.7 266.1 265.4 246.4 245.6 - 0.8 -0.3% General and Administrative Costs 231.4 215.4 199.0 179.5 161.9 153.2 - 8.8 -5.4% Depreciation 56.1 58.1 22.1 33.7 30.3 33.1 2.7 9.0% TOTAL 590.9 549.2 487.3 478.5 438.7 431.8 - 6.8 -1.6% * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Staff costs totalled €245.6mn (-0.3% YoY). The significant reduction since Dec.16 (-19.1%) results from the continuous recalibration of the business model with the aim of increasing efficiency. Compared to 2019, there was a headcount reduction of 287 employees (including the effect of the transfer of Spanish Branch to discontinued operations). As at 31 December 2020, NOVO BANCO Group had 4,582 employees (4,869 on 31 December 2019). General and administrative costs decreased 5.4% YoY, to €153.2mn. This reduction also reflects the continued rationali- sation and streamlining of the Bank’s internal processes that allowed these costs to reduce by 33.8% in the last 5 years. As at 31 December 2020 the branch network comprised 359 units (vs Dec.19: 387), of which 358 were in Portugal. 43 NOVO BANCO MANAGEMENT REPORT 2020 Impairments and Provisions NOVO BANCO Group increased provisions by €1,191.5mn (+€336.3mn YoY), including a €268.8mn impact from Covid-19 (customer loans and securities; anticipating losses specifically related to the pandemic), €550.2mn from impairments and provisions resulting mainly from higher charges in Legacy assets, and the discontinuation of the business in Spain (€166.0mn). The cost of risk was 208bps. Excluding the above-mentioned impairment related to the impact of Covid-19, the cost of risk in the period would have been 121bps. Net impairments and provisions 31-Dec-19 Customer Loans Securities Other Assets and Contingencies TOTAL 627.5 -0.2 308.1 935.4 Change 31-Dec-20 absolute 31-Dec-19 Pro-forma* (exc. Spain) 540.6 -0.1 314.7 524.4 41.0 626.0 -16.1 41.1 311.4 336.3 855.1 1 191.5 mn€ % -3.0% ... 98.9% 39.3% * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 3.4.2 Balance Sheet and Activity Customer loans NOVO BANCO's strategy is one of supporting the domestic business community combined with a robust lending policy. This support has been provided across all industry sectors and all companies, with an emphasis on exporting SMEs and those that focus on innovation in their products, services or production systems. Customer loans 31-Dec-19 31-Dec-19 Pro-forma* (exc. Spain) Change 31-Dec-20 absolute Loans to corporate customers Loans to Individuals Residential Mortgage Other Loans 15 232 11 823 10 264 1 558 13 921 13 873 11 476 11 344 10 108 10 010 1 368 1 333 Customer Loans (gross) 27 055 25 396 25 217 Provisions 1 852 1 794 1 600 Customer Loans (net) 25 202 23 602 23 617 - 47 - 132 - 63 - 69 - 180 -195 15 * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 mn€ % -0.3% -1.2% -0.6% -4.9% -0.7% -10.8% 0.1% 44 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES NOVO BANCO’s commitment to support corporates and households resulted in the granting of €6.9bn of support moratoria, representing circa 27% of the gross loan book, along with €1.1bn of guaranteed credit lines granted to corporates, of which ~92% are already disbursed. The moratoria under the regulatory framework support more than 40,000 clients and represented ~33% of the corporate portfolio, ~20% of the mortgage book and ~16% of Other individual loans portfolio. In December 2020, gross customer loans reached €25,217mn, showing a slight YoY decrease (-0.7%) entirely due to the evolution of the legacy loan book (-€672mn; -26.2% vs Dec.19). In the recurrent activity, loan volumes increased by 2.2%, propelled by the corporate portfolio of +5.0%. The main credit risk indicators are shown below compared with December 2019: Asset quality and coverage ratios 31-Dec-19 Overdue Loans > 90 days Non-Performing Loans (NPL)¹ Overdue Loans > 90 days / Customer Loans (gross) Non-Performing Loans (NPL)¹ / Customer Loans (gross) + Deposits with banks and advances to banks (gross) 31-Dec-19 Pro-forma* (exc. Spain) 1 005 3 312 4.0% 1 083 3 430 4.0% mn€ YtD Change 31-Dec-20 absolute % 610 2 498 -395 -814 -39.3% -24.6% 2.4% -1.5 p.p. 11.8% 12.0% 8.9% -3.2 p.p. Credit Provisions / Customer Loans 6.8% 7.1% 6.3% -0.7 p.p. Coverage of Overdue Loans > 90 days 171.0% 178.6% 262.2% 83.6 p.p. Coverage of Non-Performing Loans¹ 56.2% 56.5% 74.1% 17.6 p.p. 1 Includes Deposits and Loans and advances to Banks and Customer Loans * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 - - - - - The reduction in loans overdue by more than 90 days, and in non-performing loans (including deposits with banks and loans and advances to banks), led to an improvement in the respective asset quality ratios to 2.4% and 8.9%, respectively (versus 4.0% and 12.0% on Dec.19). On 31 December 2020, the coverage of non-performing loans by impairments (including deposits with banks and loans and advances to banks) was 74.1% (+17.6 pp compared to Dec.19). Provisions for credit amounted to €1.6bn, representing 6.3% of the total loan book. 45 NOVO BANCO MANAGEMENT REPORT 20203.5 Business Segments NOVO BANCO focuses its business model on three main segments – domestic commercial banking - retail, domestic commercial banking - corporate, and asset management –, with digital transformation applying to all the activities developed. NOVO BANCO's Digital Transformation emerges from a context of fast-expanding and increasingly intense digital disruption, with ever higher customer expectations. In 2020 the Bank set as a priority to address the needs created by the Covid-19 pandemic. With the Covid-related restrictions on mobility and economic impacts, new opportunities arose to better serve the clients, meet their needs and cement the commercial relationship. The Bank thus started to provide a set of structural developments: Onboarding Account opening remote solutions, through Digital Mobile Key / Video Call, for an all-inclusive and efficient onboarding experience. • Average monthly growth rate of 25% (accounts opened digitally in 2020). • Reduction of the average time to open an account by up to 80%. • Reduction of 62,000 litres of water, and elimination of paper documentation (in 2020). • International recognition - honourable mention in the 2020 Banking Tech Awards , on top of the accolades already received in 2019 (Exame informática, Portugal Digital Awards). NB smarter Launch of a new app for Individual Clients: renewed design and customer experience, adaptable, customisable, and predictive (based on data science), and offering a wide range of services and solutions, including the aggregation of accounts with other banks. • Launched in December 2020, this is a new-generation App, better prepared to address the speciﬁc needs of the less digitally inclined. • Broad range of services and solutions plus new functionalities: i) Balance/ movements enquiries in all accounts (regardless of the bank where they are held); ii) Categorisation and automatic organisation of all transactions allow giving Clients concrete suggestions to improve their ﬁnancial life. Homebuying origin in 2020 • +55% of daily applications and 80% of title deeds with digital Reinvention of the home buying experience, from simulation to title deed. Now with a new branch platform that completes the omnichannel experience. A simpler, faster and more transparent process. • 50% of online-sourced applications are from new clients and of these 25% are from foreign clients • Up to 55% reduction in the number of clicks to submit a loan application • Reduction of 80,000 litres of water, and elimination of paper documentation • International Recognition - Shortlisted for Finovate Awards 2020 and Banking Tech Awards 2020 46 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESPhygital Improves the customer experience through mobility and sharing, enabling a remote but close relationship. Streamlines processes through digital signatures with validation code and handwritten electronic signature, fostering transparent relationships. Adoption of digital processes that promote a paperless culture. NBnetwork+ Digital ﬁnancial management solution for companies, pioneering in Portugal, that allows a combined view of bank accounts, permits to initiate payments, and whose functionalities improve companies’ operating efficiency: Financial calendar, categorisation of expenses and alerts and notiﬁcations. Based on analytical and predictive capabilities. Small Business Finance Digital solution for loans to small businesses: automated and integrated access to credit through the NBnetwork digital channel. Totally secure, with no need to deliver any documentation or go to the branch, and with funds made available in less than 48 hours. • Mobile customer service solution made available to 3000 employees. • Impacts in pilot phase: - +50% (vs 2019) in homebanking sharing sessions - Sharp rise in the volume of eligible operations executed through the new solutions (+55%) - Environmental impacts in 2020: saving of 199 thousand litres of water. • Solution launched in October 2020 • Available to all the companies that use NBnetwork (NOVO BANCO's Internet Banking) • Winner in the ‘Best Banking Project’ category of the 2020 edition of the Portugal Digital Awards • Funds made available to clients in <48 hours • Greater efficiency: 80% to 100% reduction in process times, and 100% paperless. • # of self-service transactions account for 40% of the total equivalent • Honourable Mention in the Banking Tech Awards 2020 3.5.1 Corporate During 2020 NOVO BANCO maintained its role as strategic partner of its corporate clients, at three key levels: i. providing financial support to small and medium-sized enterprises in the Covid context - by Dec-20 it had granted €1.1bn under Credit Lines with Mutual Guarantee Entities, covering more than 4,900 clients. ii. responding to requests for moratoria on loans which to date reach approximately 7,700 corporate clients and total €4.6bn; iii. maintaining its focus on the digital transformation of processes, investing on remote relationship and signature tools to continue to address the needs of its clients quickly but in compliance with the social distancing restrictions imposed in the Covid context. 47 NOVO BANCO MANAGEMENT REPORT 2020NOVO BANCO, which continues to be a reference bank for the national companies, has remained faithful to its matrix of proximity to the business community, seeking, as always, and beyond the financial support, to help companies adjust their strategies to the new realities, by recognizing that it is more important than ever to share experiences, to learn more about distribution chains, to receive specialized advice and information on new opportunities, and to access international markets, among others. Therefore, in 2020 NOVO BANCO continued to promote and/or participate in several initiatives, aiming at the joint search for solutions and the promotion of outstanding economic sectors, regions and companies that can be set as a reference for the remaining national business community. From this set of initiatives, the following stand out: • Regional and Sector-specific Events "Portugal que Faz" (“Portugal that Does”), an initiative under a partnership with Global Media, aimed at giving voice to the Business Associations representing the Portuguese business fabric, by identifying companies’ needs across the board and discussing the necessary solutions to achieve a future of overcoming and resilience; • PME Líder: Developed in partnership with Exame magazine, it aims to foster the role of SMEs in the Portuguese business fabric. In 2020 the newsletters and webinars focused, among others, on security inside and outside organisations, the acceleration of digital transformation and increasing competitiveness, the ability to adapt to new business models, the change of production processes, and financial aid. • Exports and Internationalisation: Portugal Exportador, in partnership with the AIP Foundation and AICEP Portugal Global, is considered the biggest event for the promotion of exports and internationalisation. 3.5.2 Retail During 2020, NOVO BANCO remained open and available to serve its clients, and its response included, among others, the opening of branches and incentives and training on the use of remote and digital channels. The Bank also supported its clients by setting in motion and making available credit lines to assist companies affected by the crisis, and taking part in the banking sector's global solution to help families in difficulties due to the pandemic (Moratoria on Mortgage Loans and Personal Loans). The following should thus be stressed in terms of the offer: • The performance in the various lending components, which, after some months of slowdown, consolidated a re- covery trajectory. Notwithstanding the economic downturn in the last quarter of 2020, Mortgage Loans production exceeded that of the third quarter, surpassing the established targets and consolidating the quality of the digital subscription process. • Production in the Non-Financial Offer, through which the bank regularly launches thematic products, was signifi- cantly higher than in the previous year. • Investment Advisory Service for NB360o clients, which provides the most adequate investment propositions to fit the profile of each client. • Process flexibility and digitisation to mitigate the impact of the pandemic on normal commercial activity, namely with regard to the remote subscription/ formalisation of contracts, proved to be an added value. • Redefinition of the risk insurance offer, including the launch of: Life Insurance for young adults, who require protection appropriate to their age and lifestyle, and Insurance for older adults, with a significant increase in coverage for disability, and expansion of the array of protection for Serious Illnesses. • Redefinition of the Service-account offer, reflecting sustainability concerns. In the new Service-account products, the Bank offsets the non-avoided CO2 emissions of all the users of these accounts, making them carbon neutral. • Regular launch of ESG (Environmental, Social and Governance) Structured Deposits, whose remuneration is linked to the share performance of companies that stand out for their capacity to lead social and governance changes and change in environmental criteria. 48 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESNOVO BANCO AÇORES NBA's strategy of supporting the Azores regional business fabric was developed with rigor, and with a focus on SMEs and companies that incorporate innovation into their products, services or productive systems. NBA continued to work closely with its clients, providing support for the pressing and growing needs of the Azorean society. The activity results had a positive performance compared to the previous year, with banking income and net interest income increasing by 3.8% and 1.8%, respectively. NBA reported a net profit of €2.8mn, which compares with €4.0mn in 2019. This reduction was mainly due to the reinforcement of impairments, mainly for credit risks, as a result of the Covid-19 pandemic, and for real estate. In 2020, assets increased by €25.8mn (+4.6%), with net customer loans growing by 3.2% (+€11.0mn) compared to December 2019. The growth in corporate loans reflects the continued support to the regional business community, across all sectors and all companies, with a focus on SMEs, and the availability of Covid-19 related credit lines for corporate clients. NBA recorded the lowest amount of non-performing loans in recent years (€7.1mn), corresponding to a non-performing loans ratio of 1.9% only. As to customer funds, at the end of the year customer deposits totalled €392.7mn (+7.0% vs. 2019). BEST - Banco Electrónico de Serviço Total, S.A. In 2020 the financial markets recorded historically high levels of volatility, with a significant impact on the AUMs of Banco Best's clients, - which, even so, increased by 6% YoY, to €2,193mn, as well as on the volume of customer loans (of which 94% collateralised by financial assets), which contracted by 17% YoY, to €123mn, of which only a small amount in moratoria (€0.3mn). On the other hand, the volume of customer deposits reached €694mn, showing a significant increase of 27% YoY. Trading, which, together with Asset Management, is one of BEST's core activities, strongly benefited from this financial market’s volatility, with the volume of transactions up to December 2020 having more than doubled compared to the previous year. As a result, Banco Best recorded a net profit of €1.8mn in 2020. BEST's strong traditional presence in digital banking is reflected, among others, on the fact that the number of new clients increased by 28%, with 40% of the new accounts being opened by video call or through the Digital Mobile Key. In 2020, and all the more so due to the context of the Covid-19 pandemic, BEST pursued its strategy of focusing on digital banking, on the innovation of its offer of financial products and services - particularly in the area of asset management -, and on the reinforcement of the independence of the offer, as shown by the following achievements: Main achievements in 2020 ENRICHMENT OF THE OPEN INVESTMENT PLATFORM (ASSET MANAGEMENT), IN LINE WITH MARKET TRENDS AND TO BOLSTER MARKET LEADERSHIP: Business • Launch of precious metals ETCs (Platinum, gold and silver) • Exclusive distribution of Mutual Fund (Square Property Core) • New partnerships: Amundi (ETF ESG), Flossbach von Storch, BlueBay, Natixis and Sixty Degrees • New post-Covid related “investment themes”: Technology, Health, ESG, Lower interest rates and A-Commerce. 49 NOVO BANCO MANAGEMENT REPORT 2020BEST'S NEW APP, FOCUSED ON BANKING SERVICES INTEGRATION AND WITH NEW OPTIONS: Innovation • Mutual funds, targeted saving, plus TDs and Auctions • Equipment and travel insurance • Cards blocking and unblocking • Sending of notiﬁcations (SCA) • Upload of certiﬁcates and document photos for data updates (KYC) THE INVESTMENT MADE TO SUPPORT THE CORE ACTIVITY GENERATED ADDITIONAL VALUE FOR THE CLIENT AND INCREASED PROCESS EFFICIENCY: Structural • Commercial Dashboard (Capital gains and losses on Funds and Securities) • Replacement of structure for receiving quotes from stock exchanges • New approach to the Investor Proﬁle Questionnaire, now with a modular rationale ASSET MANAGEMENT Net Profit Evolution €mn GNB GA's management remained faithful to its mission of creating financial value, notwithstanding the disrup- tion in the financial markets caused by the pandemic context. In December 2020, in line with the strategy of focusing on the domestic banking business and divesting non-strategic assets, Novo Activos Financieros España, S.A. was sold. In 2020 income from asset management activities in- creased by 1.6%, to €8.3mn, with the positive impact of the disposal of the asset management business in Spain being partially offset by non-recurrent events. Highlights in 2020 Mutual Funds: +1.6% 8.2 8.3 2019 2020 • +28% increase, to €1.1bn, in assets under management of all the funds domiciled in Portugal and Luxembourg. • Awards: GNB GA earned 5 awards in 2020, in connection to pension funds, bond mutual funds and flexible mutual funds. The main highlight was the Lipper award in the segment of Euro bond funds sold in Europe. The NB Euro Bond fund won in this category for the 2nd consecutive year in all three tenors: 3, 5 and 10 years. • Sustainability: GNB GA continued to take important steps to reinforce the incorporation of sustainability principles. Having formally adopted ESG criteria in the management of equity funds, the company went on developing other initiatives to include more products in its offer of funds considered socially responsible. 50 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESGNB Real Estate: • GNB GA's management remained faithful to its mission of creating financial value, pursuing its main objective of reducing exposure to non-strategic real estate. • The volume under management of real estate invest- ment funds totalled approximately €1,066mn on 31 December 2020 (+2.7% vs 2019). • The implementation of the project to reorganise the portfolio of real estate funds managed by the com- pany, involving the transfer in kind of properties, had its first phase starting in December. • GNB RE closed 2020 with a market share of 10.2% (vs 10.4% in 2019). Wealth Management: Mutual Funds - AuM €mn +28% 1 129 885 312 573 465 665 2019 2020 Portugal Luxembourg • Confirming the confidence placed by clients in GNB GA management, the number of clients with discretionary management portfolios increased to 1,002 (vs 985 in 2019). Including the remaining management contracts, the amount of assets under management totals €5.1bn. 3.6 NOVO BANCO Separate Results NOVO BANCO reported a net loss of €1 374.2mn in 2020, which compares with a net loss of €1 087.6million in 2019. Commercial banking income reached €812.2mn (+1.4% YoY) driven by the increase in net interest income (+9.7%), despite lower fees and commissions (-13.9%). Capital markets results were negative, at €224.2mn, and the impact of the independent evaluation of NOVO BANCO's restructuring funds had a negative effect of € 300.2mn. Operating costs decreased by -1.7% YoY, to €402.7mn, reflecting staff cuts and the improvements achieved in terms of simplifying processes and streamlining the structures. Net operating income (excluding the extraordinary effect of the independent assessment of restructuring funds) was positive, at €149.4mn. On the other hand, the evolution of impairments and provisions, which increased by 21.1% YoY, to €1 195.5mn, was influenced by the impairments associated with the Covid-19 pandemic (€268.8mn). 51 NOVO BANCO MANAGEMENT REPORT 2020 31-Dec-19 31-Dec-19 Pro-forma* (exc. Spain) 31-Dec-20 % Change mn€ Income statement Net Interest Income Fees and Commissions Commercial Banking Income Capital Markets Results Other Operating Results Banking Income Operating Costs Net Operating Income Restructuring funds - independent valuation Net Impairments and Provisions Credit Securities Other Assets and Contingencies 546.2 295.0 841.1 -313.9 -31.4 495.8 450.7 45.1 0.0 1 067.4 630.9 0.2 436.3 517.6 283.5 801.1 -314.9 -111.6 374.6 409.7 -35.1 0.0 987.1 543.9 0.3 442.9 568.0 244.2 812.2 -224.2 -35.9 552.1 402.7 149.4 -300.2 1 195.5 520.5 40.9 634.1 Income before Taxes -1 022.2 -1 022.2 -1 346.3 Taxes Special Tax on Banks Net Income for the year 38.7 26.6 38.7 26.6 -4.2 32.2 -1 087.6 -1 087.6 -1 374.2 * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 9.7% -13.9% 1.4% 28.8% 67.8% 47.4% -1.7% ... ... 21.1% -4.3% ... 43.2% -31.7% ... 20.8% -26.4% Activity NOVO BANCO’s activity in 2020 was developed under the same guidelines already referred to for NOVO BANCO Group Activity evolution 31-Dec-19 Assets Customer Loans (gross) Loans to Individuals Residential Mortgage Other Loans Loans to corporate customers On Balance Sheet Funds Deposits Other Customer Funds (1) Debt Securities Subordinated Debt 45 026 25 046 9 939 8 524 1 415 15 106 28 891 27 419 561 496 415 31-Dec-19 Pro-forma* (exc. Spain) 45 026 23 367 9 593 8 334 1 259 13 775 27 019 25 547 561 496 415 mn€ Change 31-Dec-20 absolute % 44 042 23 332 9 609 8 395 1 214 13 723 26 709 25 557 222 515 415 - 984 - 35 16 61 - 44 - 51 - 310 10 - 340 19 0 -2.2% -0.1% 0.2% 0.7% -3.5% -0.4% -1.1% 0.0% -60.5% 3.9% 0.0% (1) Includes checks and pending payment instructions, Repos and other funds. * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 52 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESOn 31 December 2020, customer deposits totaled €25.6bn, being stable YoY (Dec.19: €25.5bn). Gross customer loan portfolio remained stable YoY (Dec.20: €23.3bn; Dec.19: € 23.4bn), together with a significant decrease in non-performing loans (-€808M; -24.8%). The quality of the loan portfolio at the end of the period shows a transversal improvement in NOVO BANCO's asset quality, with the Overdue loans >90 days / Gross loans ratio decreasing to 2.6% (Dec.19: 4.3%) and with the NPL coverage ratio rising to 65.2% (Dec.19: 54.8%). Asset quality 31-Dec-19 DATA BASIS (Euro millions) 31-Dec-19 Pro-forma* (exc. Spain) mn€ Change 31-Dec-20 absolute % Customer Loans (gross) 25 046 23 367 23 332 - 35 -0.1% Overdue Loans Overdue Loans > 90 days Forborne Loans Non-Performing Loans (NPL)* Customer Loans Impairment ASSET QUALITY AND COVERAGE RATIOS (%) Overdue Loans / Gross Loans to Customers Overdue Loans > 90 days / Gross Loans to Customers Forborne Loans / Gross Loans to Customers Non-Performing Loans (NPL)* / Gross Loans to Customers + Gross Loans to Credit Institutions Impairment / Total Loans to Customers Impairment / Overdue Loans Impairment / Overdue Loans > 90 days Impairment / Non-Performing Loans* 1 097 1 073 2 694 3 372 1 841 4.4% 4.3% 10.8% 12.4% 7.4% 167.8% 171.6% 54.6% 1 009 994 2 536 3 253 1 783 4.3% 4.3% 10.9% 12.8% 7.6% 176.8% 179.3% 54.8% 616 603 2 054 2 445 1 587 - 393 -38.9% - 392 -39.4% - 482 -19.0% - 808 -24.8% - 196 -11.0% 2.6% -1.7 p.p. 2.6% -1.7 p.p. 8.8% -2.1 p.p. 9.3% -3.5 p.p. 6.8% -0.8 p.p. 257.5% 80.8 p.p. 263.3% 83.9 p.p. 64.9% 10.1 p.p. - - - - - - - - * includes Credit Institutions * Pro-forma values to consider the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 53 NOVO BANCO MANAGEMENT REPORT 20203.7 Relevant facts from the activity and subsequent events • On 1 September, NOVO BANCO received the Independent Audit Report prepared by Deloitte prepared pursuant to Law 15/2019. As referred in the note sent by the Ministry of Finance, the audit report "shows that the losses incurred by NOVO BANCO resulted primarily from exposures to assets that originated in the period of activity of Banco Espírito Santo and that were transferred to NOVO BANCO within the scope of the resolution". • On 8 October NOVO BANCO completed the sale of its 25% stake in GNB – Seguros, a non-life insurance company, for a total consideration of €15.9mn, to Crédit Agricole Assurances, a company of Crédit Agricole Group, which already held the remaining 75% of the share capital of GNB – Seguros. The transaction also included the renegotiation of the non-life insurance distribution agreement for the Portuguese market for a period of 22 years. The sale had an expected positive impact on the income statement of approximately €6mn; • On 22 October the General Meeting of NOVO BANCO appointed the members of GSB for the 2021-2024 four-year mandate, subject to authorisation by the competent regulatory authorities, ten members led by Byron Haynes as Chairman and Karl-Gerhard Eick as Vice-Chairman, including the new member William Henry Newton. • The GSB also appointed the members to the EBD subject to authorisation by the competent regulatory authorities for the 2021-2024 mandate. The GSB appointed António Ramalho as Chief Executive Officer, Mark Bourke as Chief Financial Officer, Luísa Soares da Silva as Chief Legal and Compliance Officer, Rui Fontes as Chief Risk Officer, Luís Ribeiro as Chief Commercial Officer (Retail) and Andrés Baltar as the new member of the Bank's Executive Board of Directors as Chief Commercial Officer (Corporate). • On 11 November NOVO BANCO announced a tender offer on NB Finance’s outstanding bonds. • On 27 November, NOVO BANCO noted the approval of the legislative proposal no. 61/XIV/2 concerning the Portu- guese State Budget for 2021, which aims to withdraw the authorisation for the Resolution Fund to transfer additional funds to NOVO BANCO under the CCA. Considering that the Resolution Fund had met its payment obligations over the last three years, the Bank trusted it would continue to do so. Also, in this context, the Bank stressed the statement made by the Portuguese Prime Minister to the President of the ECB where he guaranteed “full compliance with the commitments undertaken in the framework of the sale of NOVO BANCO”. • On 22 December, NOVO BANCO, through its subsidiary GNB Gestão de Ativos, S.A., announced the conclusion of the sale of the total share capital of NOVO ACTIVOS FINANCIEROS ESPAÑA, S.A. (“NAFE”) to TEAM & WORK 5000, S.L. (“TEAM & WORK”), which holds 100% of the share capital of TREA ASSET MANAGEMENT, S.G.I.I.C., S.A., for a total amount of €12.9mn. NAFE holds the entire share capital of NOVO BANCO GESTION, S.G.I.I.C., S.A. and NOVO BANCO PENSIONES, S.G.I.I.C., S.A., and in November 2020 the assets under management totalled €678mn. The sale had an expected positive impact on the 2020 Income Statement of approximately €3.5mn. • On 28 December NOVO BANCO informed that following a competitive bid process, on 23 December a Sale and Purchase Agreement had been signed for the sale of a portfolio of non-performing loans and related assets (together known as Project Carter), with a gross book value of €79mn, to a company owned by affiliated companies, advised by AGG Capital Management Limited and Christofferson, Robb & Company, LLC. The sale price was approximately €37mn, and the completion of the transaction, on the agreed terms, is expected to have a marginal positive impact on NOVO BANCO's income statement and capital. • On March 5 2021, NOVO BANCO informed that, following a competitive bid process, it had signed a Sale and Purchase Agreement with BURLINGTON LOAN MANAGEMENT DAC, a company affiliated with, and advised by, DAVIDSON KEMPNER EUROPEAN PARTNERS, LLP, for the sale of a portfolio of non-performing loans and related exposures (also known as Project Wilkinson) with an outstanding balance amount of €216.3mn (still being subject to perimeter adjustments usual in transactions of this nature). The portfolio sale price totalled €67.5mn, and the completion of the transaction on the agreed terms is expected to have a marginally positive impact on NOVO BANCO’s capital and its 2021 income statement. 54 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES3.8 Main Risks and Uncertainties 2021 will continue to be marked by the Covid-19 pandemic which, despite the progress being made in terms of vaccination, which should start yielding results as the year advances, continues to exert acute pressure on the economy due to the imposition of successive states of emergency, with potential impacts in terms of Credit and Liquidity Risk. With the slowdown of the world's main economies, the financial markets sustained large and widespread losses, fore- shadowing a severe deterioration of the global macroeconomic scenario. This environment generates risks for all Financial Institutions, namely: i) geopolitical uncertainties; ii) stock of non-pro- ductive assets and their potential growth; iii) cybercrime and disruption in Information Technology (IT); iv) low interest rates; and v) growing competition from non-banking entities. 55 NOVO BANCO MANAGEMENT REPORT 2020Capital, Liquidity & Risk 4.0 Title: Sobre o Rio Author: Francisco Costa 4.1 Capital Ratios NOVO BANCO’s Common Equity Tier 1 (CET1) is protected at pre-established levels up to the amounts of losses already recorded on the assets protected by the Contingent Capital Agreement. The amount to be requested in 2020 (of €598.3mn), considers the losses incurred on the assets covered by the Contingent Capital Agreement, as well as the minimum capital condition applicable at the end of 2020 under the Contingent Capital Agreement. As at 31 December 2020, the CET1 ratio was 11.3% and total solvency ratio was 13.3%, representing a decrease com- pared with 2019, due to the decrease in the minimum capital condition of the Contingent Capital Agreement. In this context, it is important to highlight the fact that the European Central Bank (ECB) disclosed during March 2020 several measures that allow Banks to operate temporarily below the required capital level. Following these measures NOVO BANCO opted for the IFRS9 dynamic approach. These measures aim to prevent Banks from suspending financing to the economy in an adverse economic environment. In addition, changes were introduced to the regulatory framework on the calculation of capital ratios, in force since June 2020, aimed at mitigating the impacts of the Covid-19 pandemic, both at the level of related impairment reinforcement and at the level of risk-weighted assets. In addition, the accounts contain an aggregate provision of €166mn in relation to the discontinuation of Spanish operations. As there is a potential for dispute between the parties and therefore potential barrier to immediate access of this amount, the Bank, as a matter of prudence, has deducted this amount from regulatory capital calculation. Capital ratios (CRD IV/CRR) Risk Weighted Assets Own Funds Common Equity Tier 1 Tier 1 Total Own Funds Common Equity Tier 1 Ratio Tier 1 Ratio Solvency Ratio Leverage Ratio milhões de euros 31-Dec-19 (Phased-in) 31-Dec-20 (Phased-in)¹ 31-Dec-20 (fully loaded)¹ 29 579 26 719 26 411 3 996 3 998 4 475 13.5% 13.5% 15.1% 8.4% 3 029 3 030 3 541 11.3% 11.3% 13.3% 6.5% 2 638 2 638 3 150 10.0% 10.0% 11.9% 5.7% (A) (B) (C) (D) (B/A) (C/A) (D/A) (1) Preliminary; Novo Banco and Fundo de Resolução have different positions regarding the implementation of IFRS9 from the phase-in to the fully-loaded regime, and so both parties have submitted the matter to arbitration, in accordance with the rules of the CCA, the impact of such implementation in the calculation of the amount due by Fundo de Resolução under the CCA for 2019 financial year. It was further agreed that NB would not change the implementation of IFRS9 from the transitional arrangements to the full implementation, pending a settlement of the dispute. In the event the arbitration decides in favor of NB, Fundo de Resolução shall pay an amount corresponding to the amount that would have been paid had NB implemented IFRS9 in full as of 31 December 2019, provided that the CCA cap is not exceeded. The arbitration proceeding is still pending, and the decision is expected in the 4Q2021. Novo Banco requested the ECB's authorization to apply the transitional arrangements (IFRS 9 dynamic approach), subject to arbitration, in the context of Novo Banco and Fundo de Resolução having recognized another divergence regarding the application of such regime. 57 NOVO BANCO MANAGEMENT REPORT 20204.2 Liquidity and Funding Liquidity remains at comfortable levels and well above regulatory requirements. Stable funding structure, relying mainly in customer deposits. Cost optimization continues to be one of the main focus of the bank, without incurring undesirable liquidity risks. Liquidity Management NOVO BANCO manages liquidity in accordance with all the regulatory rules and its own management principles, guaranteeing that all responsibilities are met, whether in normal market conditions or under stress conditions. These include, among others, the ECB´s legal reserves, liquidity ratios (LCR and NSFR), maintenance of adequate levels of liquid assets, definition of funding transfer pricing (FTP) framework and establishment of an offer of financial products that results in a diversified panel of funding sources. Short-term liquidity is monitored through daily mismatch reports, prepared in accordance with pre-established guide- lines and internally defined metrics, which allows the bank to make an early detection of any signals of crisis with potential impacts on the Bank, namely through idiosyncratic risk, contagion risk (due to market tensions) or the risk of repercussions of an economic crisis on the Bank. The report monitors the evolution of the liquidity position, including eligible assets and liquidity buffers, main cash inflows and outflows, deposits’ evolution, medium- and long-term funding, central banks funding, the evolution of the treasury gap (net interbank deposits), as well as several warning indicators established for the purpose. This process ensures an ongoing and active role in liquidity risk management and risk assessment from the EBD and also allows the Bank to take immediate action whenever necessary. In addition, the liquidity position is also regularly reported to the Joint Supervisory Team. In terms of the structural liquidity, NOVO BANCO manages its activity and funding sources in order to achieve funding stability and cost optimization, avoiding as much as possible undesirable liquidity risks. The structural liquidity of the bank is analysed in detail on the Capital and Asset Liability Committee (CALCO), which meets on a monthly basis. Among other, CALCO analyses and discusses the Bank's liquidity position, performs a comprehensive analysis of the liquidity risk and its evolution, with special focus on current liquidity buffers and generation / maintenance of eligible assets for rediscount with the ECB and respective impacts on the liquidity ratios. NOVO BANCO Group’s funding policy is one of the major components of the Bank’s liquidity risk management, which stresses the diversification of funding sources by instruments, investors and maturities. Given the commercial nature of the balance sheet, NOVO BANCO's strategy has, since its incorporation, largely relied on boosting customer deposits as its major source of funding, as deposits were severely hit by the resolution and market access has not been normalized. Additionally, the bank prepares a monthly liquidity report (for more details see ‘4.3. Risk Management), considering not only the effective maturity but also behavioural maturity of the various products, which allows to determine the structural mismatches for each time bucket. Based on this information and the Bank’s medium-term plan, the annual activity funding plan is prepared considering the established budget targets. This plan, which is regularly reviewed, favours, as much as possible, stable funding instruments. The Bank also has in place a contingency liquidity plan, which comprises a set of measures that, if triggered, would allow the bank to manage and/or minimize the effects of a severe liquidity crisis. These measures aim to address additional liquidity needs and boost the resilience of NOVO BANCO in a potential stress situation. Finally, the Bank also performs, on an annual basis, an Internal Liquidity Adequacy Assessment Process or ILAAP, which evaluates the liquidity position of the Bank in a normal and stress scenario. The results of this process, which is approved by the EBD, must be sent to the regulatory authorities and concluded that the Bank’s funding and liquidity structure and Internal processes are solid and that the Bank could withstand a stress scenario. 58 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESFunding structure and Liquidity in 2020 NOVO BANCO maintained a comfortable liquidity position in 2020, with deposits at the ECB having increased by €0.9bn, to €2.4bn. During the year, liquidity management continued to involve the rationalization of funding sources and improvement of profitability. At the end of 2020 NOVO BANCO’s customer deposits totalled €26.1bn, having remained stable since the end of 2019, excluding the effect of the transfer of the Spanish Branch to discontinued operations. However, retail customer deposits showed a very positive performance having increased €0.8 bn YoY, notwithstanding the reduction of interest rates. The Bank managed to maintain the weight of customer deposits in its financing structure, achieving, however, a relevant reduction in the associated cost. Customer Deposits (€bn) Funding Structure (€bn) 27.8 26.0 26.1 45.3 44.4 Deposits 57% 26.0 26.1 Deposits 59% 2019 2020 Customer Deposits Pro-forma excl. Spain ECB and Interbank Funding 22% Debt Securities 2% Other Liabilities 10% Equity 9% 9.8 1.1 4.4 4.0 2019 Pro-forma ECB and Interbank Funding 23% Debt Securities 2% Other Liabilities 9% Equity 7% 10.1 1.0 4.1 3.1 2020 At the end of 2020, customer deposits remained the Bank's main funding source, accounting for 59% of its funding structure (61% at the end of 2019, or 57% excluding the effect of the Spanish Branch), of which 72% were deposits from the retail segment. In terms of loan portfolio, the Bank’s core business continued to grow both on the retail and corporate segment, reflecting the moratorium in place and the Covid-19 credit lines for the corporate segment. However, given the continuous effort to reduce non-strategic and non-productive assets, either through write-offs, outright sales and/or other deleveraging strategies, the total loan book, remained fairly stable standing at €25.2bn at December 2020, a YoY decrease of €0.2bn, excluding the effect of the Spanish Branch. 59 NOVO BANCO MANAGEMENT REPORT 2020Gross Loan Book Evolution (€bn) Securities Portfolio (€bn) 27.1 25.4 25.2 12.0 1.3 Other Bonds 2.9 Other Sovereign Debt 3.8 Portuguese Sovereign Debt 4.1 11.4 0.9 3.3 3.7 3.5 2019 2020 2019 2020 Customer Loans Pro-forma excl. Spain On the other hand, the securities portfolio reduced by around €0.6bn, largely due to the de-risking strategy followed by the Bank as a result of the Covid-19 outbreak and the market disruption it caused at the time. The Bank’s security portfolio remained substantially composed of high-quality liquid assets (HQLAs), and among these approximately 80% are public debt securities. In 2020, as mentioned above, within its HQLA’s portfolio, as part of the de-risk strategy, the Bank sold a portion of the longer dated sovereign bonds and partially replaced it with HQLA corporate bonds with a maturity up to 10 years. One of the main liquidity events on 2020 was the capital contribution of €1.0bn made by the Resolution Fund to NOVO BANCO under the CCA in May 2020, which had a significant positive impact on the liquidity position of the Bank. In terms of medium- and long-term funding, the Bank performed a liability management exercise at the end of 2020. This exercise consisted of a Tender Offer and Consent Solicitation on all the outstanding bonds issued by NB Finance, NOVO BANCO’s debt issuing vehicle based in the Cayman Islands. As foreseen in the EU Commitments, NOVO BANCO should, on best-effort basis, unwind NB Finance by the end of 2021. However, given the long maturity dates of the outstanding bonds and the voluntary nature of any transaction that attempted to substitute or exchange the existing bonds, the execution of the transaction on economic favourable terms to the investors was enough to ensure compliance with the said commitment. The transaction was very successful, and it allowed the Bank to redeem 97% of the bonds (€370mn in nominal amount, or €160mn in book value). Regarding medium- and long-term funding, the sub- stitution of some credit lines for longer and cheaper financing including, but not limited, the TLTRO III will also improve the funding profile of the Bank in the coming years. As of the end of 2020, gross funding from the ECB increased €0.9bn YoY, all under the TLTRO III, to €7.0bn. However, net funding remained stable at €4.7bn, as the amount of cash placed with the ECB increased €0.9 bn as well, to €2.3bn. During 2020, as deposits with the ECB largely exceeded tiering, the Bank decided to significantly redeem short term repo transactions in the amount of €0.7bn. Evolution of Funding from the ECB (€bn) 6.1 7.0 4.7 4.7 2019 2020 Gross Funding Net Funding 60 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESDespite the reduction of the HQLA’s securities portfolio, NOVO BANCO maintained its liquidity buffer at very comfortable, due to not only the liquidity inflows referred above but also to the collateral easing measures applied by the ECB in April. In December 2020, the portfolio of eligible securities for rediscount with the ECB totalled €16.7bn (net of haircuts), which compares with €15.3bn in 2019. NOVO BANCO thus maintained a comfortable liquidity position, with the regulatory Liquidity Coverage Ratio (LCR) standing at 144% at the end of 2020 and the Net Stable Funding Ratio (NSFR) at 113%, well above the regulatory requirement Evolution of Eligible Assets at the ECB (€bn) Liquidity Ratios (%) 15.3 16.7 143% 144% 101% 113% 2019 2020 2019 2020 NSFR LCR 61 NOVO BANCO MANAGEMENT REPORT 20204.3 Risk Management The definition of a risk management framework with standards, patterns, objectives and responsibilities established for all areas of NOVO BANCO Group, allows to follow the strategic direction in compliance of the established risk appetite. Supporting top management in effective risk management and in the development of a strong risk culture, this frame- work defines the following: • the main risks faced by NOVO BANCO Group; • the risk appetite requirements; • the responsibility functions in risk management; • the risk management governance structures and committees. Risk Management Framework 1 2 3 4 5 6 1. GOVERNANCE Risk management and control Committee; Deﬁnition of Policies, roles and responsibilities 2. RISK APPETITE STATEMENT Deﬁnition of the level of risk that the Group is willing to take on 3. RISK CULTURE Risk culture embedded at the various levels of the organisation making all employees accountable for risk management and control 4. RISK CLASSES Shared holistic vision of the Credit, Market, Liquidity and Operational Risk classes 5. RISK TOOLS Stress testing, limits policy, model validation, quantiﬁcation and evaluation methodologies 6. 3 LINES OF DEFENCE The pillar for ongoing risk management at the various levels of the Bank The Risk Culture at NOVO BANCO Group NOVO BANCO Group is naturally exposed to the various classes of risk inherent to the banking system, arising from external and internal factors, namely from the nature of the markets in which it operates. GNB considers that Risk Management is a key pillar for sustained value creation over time. GNB's Risk Management is therefore grounded on the following assumptions: • Independence vis-à-vis the other Bank’s units • Universality, through application across the whole GNB • Integration of the risk culture, through a holistic and preemptive approach to risk • Specialisation 62 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES• Three lines of defence model, viewing the adequate detection, measurement, monitoring and control of all material risks to which GNB is exposed. This Model implies that all employees, in their sphere of activity, are responsible for the management and control of risks. RISKS NOVO BANCO Group 1ST LINE OF DEFENCE 2ND LINE OF DEFENCE 3TH LINE OF DEFENCE Business Areas • Global Risk Department • Compliance Department Internal Audit Department Function Maximise return Control Limitation Takes risk according to Risk Appetite Does not take risk Mission • Correctly identify risks • Make sure that risk remains within deﬁned limits • Measure, monitor, report • Independent review • Ensure adequacy of policies and processes • Ensure correct implementation of policies and processes Risk Management Function The risk management function is organised in such a way as to allow effective management of the risks considered relevant and material by GNB (those to which senior management pays special attention and which may impact the achievement of the objectives defined by the Bank) as well as those considered as emerging (those where little is known about their components, and whose impact may occur over a longer time horizon). The risks identified as relevant and material are quantified within the scope of the Internal Capital Adequacy Self- Assessment (ICAAP) exercise, the most relevant being: i. credit risk, which includes default, counterparty and concentration risk, ii. liquidity risk, iii. market risk in the trading book and banking book, which includes interest rate risk (IRRBB), equities risk, credit spread risk, real estate risk and pension fund risk, iv. operational risk, which includes operations risk, information systems risk, compliance risk, and reputational risk, and v. business risk. Emerging risks, which are closely monitored by the risk structures, include climate change and regulatory changes, among others. Risk Management is Considered Vital for NB Group Risk Management, as a vital function for the development of GNB’s activity, is centralised in the Risk Management Function, which comprises the Global Risk Department (GRD) and the Rating Department (RTD). It defines holistic principles for risk management and control, in close coordination with the Compliance Function, which is responsible for operationalizing and implementing the policies defined by the EBD. 63 NOVO BANCO MANAGEMENT REPORT 2020All materially relevant risks are reported to the management and supervision bodies (as applicable, to the EBD, GSB, both Risk Committees and the specialised committees), which are responsible for supervising, monitoring, assessing and defining the Risk Appetite and control principles. At operational level, the GRD centralises NB Group's Risk Management Function, namely in terms of the responsibilities inherent to the function, supervising the various institutions of the Group and ensuring independence vis-à-vis the business areas. The Head of GNB’s Risk Management Function is the Head of the GRD. To ensure maximum efficiency in the articulation with the GRD, a local Risk Function Officer was appointed in each relevant entity of GNB. The GRD acts either directly or as coordinator, in articulation with the units in charge of the local Risk Management Function. The Risk Appetite framework defines: The mais risks to which GNB is exposed The risk appetite statements The roles and responsibilities in risk management The organization and function in risk management Governance and risk decision-taking and monitoring committees RISKS CONCEPT MANAGEMENT Credit The risk of ﬁnancial loss arising from the failure of a borrower or counterparty to honour the contractual obligations established with NOVO BANCO within the scope of its lending activity Management and control of risks of this nature are based on an internal risk identiﬁcation, assessment and quantiﬁcation system Liquidity The current or future risk deriving from an institution’s inability to satisfy its commitments as they mature, without incurring excessive losses Market The risk of a potential loss resulting from an adverse change in the value of a ﬁnancial instrument due to ﬂuctuations in interest rates, foreign exchange rates, equity prices, commodity prices, real estate prices, volatility and credit spreads The risk of occurrence of events with negative impacts on results or equity, resulting from inadequacies or weaknesses in procedures or information systems, staff behaviour, or external events, including legal risk. Operational risk is, therefore, understood to be the sum of the following risks: Operations, Information Systems, Compliance and Reputational. Operational 64 Based on the measurement of liquidity outﬂows from contractual and contingent positions in normal or stress situations, the management and control of this risk consists, on the one hand, in determining the size of the liquidity pool available at any given time and, on the other hand, in planning for stable sources of funding in the medium and long term. A GRD expert team centralises GNB’s market risk management and control, in line with the regulations and good risk practices • A GRD expert team deﬁnes the Operational Risk Policies, with other units, namely the Compliance Department and the Information Security Office issuing speciﬁc risk Policies • The implementation of operational risk identiﬁcation and control methodologies is carried out through the operational risk management Representatives appointed for each organisational Unit, promoting the risk culture in the ﬁrst line of defence in continuous collaboration with the GRD NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESRISKS RISK APPETITE FOCUS IN 2021 Credit Conservative risk appetite • Reinforcement of the Bank's operational capacity to manage credit exposures under moratoria by identifying early signs of ﬁnancial deterioration and deﬁning strategies for timely action with viable debtors in need of debt service support to avoid potential "cliff effects" at the end of the moratoria • Reinforcement of remote service models and creation of automated credit assessment and decision tools • Reinforcement of continuous monitoring processes of credit portfolios Liquidity • Funding of medium- and long-term assets through stable liabilities; • Withstanding liquidity stresses for a minimum of 12 months • Always respect the limits imposed by the regulations • Permanent alignment to regulatory framework • Increasing risk management support to the commercial and management areas, ensuring the Bank's overall alignment • Compliance with the established risk appetite Market Market investments of cash and liquidity surpluses in accordance with conservative risk appetite predeﬁned rules Operational The operational risk appetite deﬁned for GNB covers the various categories under this risk, reﬂecting the infeasibility of eliminating it, from a cost-beneﬁt perspective, along with GNB’s ethical and conduct values. Incorporation of the new reference interest rates (short-term rates and IBORs) into market risk models, namely market risk control models, IRRBB and economic capital calculations within the scope of the ICAAP exercise • Strengthen the Fraud Risk framework in light of the increasingly sophisticated fraud typologies • Reinforcement of compliance with the established risk appetite • Reinforcement of the risk culture as the basis for the activity and decision-taking at the various levels of the organisation • Due to the change in Customers behaviour and the Bank's digitalization strategy, further strengthening of Cyber risk prevention and control mechanisms 65 NOVO BANCO MANAGEMENT REPORT 2020i. p64 word Outlook 2021 5.0 Title: Visitus Author: Pedro Biu 5.1 Economic Expectations Economic activity in 2021 will be conditioned by the evolution of the Covid-19 pandemic and as such should remain subject to very high levels of uncertainty. In a baseline scenario, the start of the vaccination process at the end of 2020 bolsters expectations of a more visible recovery of growth as from the second half of the year. However, this recovery could be constrained by the possible need for new confinements and restrictions on activity (as was the case in 1Q21) should there be no herd immunity and also as a result of the natural logistic hurdles of mass vaccination. Hence it is assumed at both European and Portuguese level that in a first phase the recovery will be gradual, non-linear and incomplete, as opposed to a V-shaped recovery. With this recovery profile, activity should remain for quite some time below its pre-Covid levels. In the Eurozone GDP is expected to grow by 3% to 4% in the year. As to the Portuguese economy, the expectation is that GDP will grow by around 2.7% in 2021. This recovery should be asymmetrical, with industrial activity showing more vigour and services (mainly tourism and hospitality) being initially slower to pick up. This recovery baseline scenario is supported by several factors. First, the expected progress in vaccination allowing a gradual evolution towards herd immunity between the end of 2021 and the first half of 2022, with a consequent increase in confidence levels. Second, the release of forced household savings should allow the materialisation of demand postponed during the confinement. In this context, stronger growth should be seen in demand for the services most penalised by the pandemic, including tourism and hospitality services. Third, the recovery should be driven by strong monetary and fiscal policy stimuli in the main economies. In the Eurozone the ECB is expected to maintain key interest rates unchanged and extend or reinforce several liquidity injections programmes. Expansionary monetary and financial conditions are therefore assumed, including in the Portuguese economy. Fiscal policy should also take an expansionary stance, with domestic stimuli being complemented by the start of disbursements under the European Recovery Fund (NextGenEU) as from 2Q21 and on a larger scale in 2022. In the baseline scenario, the external environment is expected to be favourable, with stronger GDP growth in the US and China, in the first case benefiting from aggressive fiscal stimuli within the new political environment. Ample liquidity combined with a strong increase in public spending, and some production restrictions, are conducive to a climate of reflation in the global economy. Market expectations for inflation are on the rise and, as soon as in 1H21 some statistical base effects related to the sharp fall in oil prices and the temporary drop in indirect taxes in 2020 could heighten year-on-year price growth and generate noise in financial markets. However, the persistence of excess production capacity in the projected recovery profile (including unemployment rates above pre-Covid levels) should contain any significant wage-induced inflationary pressures. It is therefore assumed that Central Banks will avoid a sudden withdrawal of stimuli, even if markets may anticipate less expansionary monetary policies. In addition to the possible rise in inflation, other main risks include delays in the vaccination process, difficulties in overcoming the pandemic (e.g. due to virus mutations), less aggressive fiscal stimuli than expected, and the markets’ revaluation of assets upon an increase in indebtedness and risk exposure driven by widely available liquidity. In Portugal, concerns about high debt levels and the possible withdrawal of support measures, including credit moratoria and employment protection schemes, may condition activity. Other risks include the possibility of political uncertainty towards the end of the year. Besides cyclical developments, the outlook is also marked by the need for economic agents to adapt to several ongoing structural trends. At the macro level, the following stand out: the State's increased role in the economy and greater focus on inequality; the persistence of high levels of indebtedness and low interest rates; population ageing; growing focus on sustainability; shifts in globalisation towards more diversified and local or regional value chains; and, above all, a more digital economy. At the micro level, consumption trends favour a greater use of digital channels. In addition, consumers are also expected to be more focused on physical, mental and financial health, and to demand greater convenience, quality, transparency, purpose and social responsibility from companies. 67 Outlook 2021 5.0 Title: Visitus Author: Pedro Biu NOVO BANCO MANAGEMENT REPORT 20205.2 Strategic Priorities For 2021 In 2020, NOVO BANCO completed the restructuring process launched upon the sale of the Bank to Lone Star, characterised by the subsequent restoration of profitability focused on the deleveraging of non-core businesses and non-productive assets, as well as on cost optimisation. Real Estate Exposure: Evolution % Net Assets NPL: Evolution % Consolidated Reported Figures Efficiency: Cost to Income Rate % Consolidated Reported Figures 4.8% 4.2% 28% 22% 75% 63% 55% 52% 2.5% 2.0% 12% 9% 2017 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020 In 2021 NOVO BANCO embarks on a new phase, affirming itself as a partner, professional, and proximity bank. A Bank focused on responding to a new market reality and regaining indisputable relevance in the Portuguese market. AS IT ENTERS THIS PHASE OF RENEWAL AND TRANSFORMATION, NOVO BANCO AIMS TO LEVERAGE ON ITS HISTORIC COMPETITIVE ADVANTAGES: • Market leader in the Portuguese SMEs segment, with a strong position in Corporate Banking • Distinctive relational DNA, especially focused on SMEs and affluent clients • Resilient organisation, capable of reinventing itself to tackle different contexts and environments • Proven track record in reducing costs while meeting commercial targets IN ORDER TO: Support the growth of the Portuguese economy Maintain its support to businesses and in particular to SMEs, increasing the value per current client and strengthening / diversifying the portfolio of corporate clients; Leverage the competitive edge in the SME segment to serve and promote small businesses by offering them integrated products, POS solution and a "simpliﬁed and innovative" credit process; Optimise the retail commercial banking model Grow the customer base, positioning itself as a modern, easy to interact with and humane bank, with a simple and differentiated offer covering life's major events; Maintain a relationship-focused service model targeting affluent and singular clients, with simple and complementary offers and superior customer service. 68 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESIn 2020 NOVO BANCO remained at the side of the Portuguese families and businesses, helping the Portuguese busi- ness community to innovate, reinvent and export, and assisting them, not only in turning difficulties into opportunities, but also with measures to ensure cash flow and employment protection. The Bank redesigned its offer for this segment in order to meet the needs of its individual and corporate clients in this year's abnormal context. The Bank strengthened and reinvented its unique project to bring to light regional entrepreneurs, businesses and other relevant entities through Regional and Sectoral Summits. In 2021, the sustainability model will remain an essential part of the Bank's strategy, bolstering the confidence of the various stakeholders in NOVO BANCO. This model will focus on the mitigation of less favourable economic scenarios by continuing to provide banking services and adapting them to the new needs, implementing a renewed Social Divi- dend Programme and enhancing its offer of Sustainable Financing. Contributing to society's sustainable future is a commitment that NOVO BANCO embraces in this new phase. 69 NOVO BANCO MANAGEMENT REPORT 2020Corporate Governance 6.0 Title: Reﬂexos Author: Marta Vieira Pereira 6.1 Shareholder Structure 6.1.1 Qualified holdings in NOVO BANCO’s share capital NOVO BANCO has a share capital of €5,900,000,000.000 (five billion nine hundred million euros), divided into 9,799,999,997 (nine billion, seven hundred ninety-nine million, nine hundred ninety-nine thousand and nine hundred ninety-seven) nominative dematerialised shares with no nominal value, fully subscribed and paid up. Qualified holdings in NOVO BANCO’s share capital as at 31 December 2020: SHAREHOLDER NUMBER OF SHARES % OF SHARE CAPITAL Nani Holdings S.G.P.S., S.A. 7.349.999.998 Fundo de Resolução (Resolution Fund) 2.449.999.999 75% 25% 6.1.2 Equity holders with special rights There are no shareholders with special rights. 6.1.3 Restrictions on voting rights By virtue of the commitments assumed by the Portuguese State before the European Commission in the context of the approval of the sale of a 75% holding in the share capital of NOVO BANCO under European Union rules on State aid, the shareholder Resolution Fund should refrain from exercising its non-economic rights, namely its voting rights. 71 NOVO BANCO MANAGEMENT REPORT 20206.2 Corporate Bodies: Composition And Functioning 6.2.1 Composition and functioning of the management and supervisory corporate bodies and changes in the Company’s Articles of Association Under the terms of the Company's articles of association, the corporate and statutory bodies of NOVO BANCO are the Shareholder’s General Meeting, the General and Supervisory Board, the Executive Board of Directors, the Monitoring Committee, the Statutory Auditor and the Company’s Secretary. The members of the corporate bodies are elected for four-year mandates and they may be re-elected once or more than once. Also in accordance with the Articles of Association, the members of the Board of the Shareholder’s General Meeting, General and Supervisory Board, and Monitoring Committee are elected by the Shareholder’s General Meeting. The Shareholder’s General Meeting also has the powers to appoint and replace the Bank's Statutory Auditor, acting upon a proposal of the General and Supervisory Board, based on a proposal of the Financial Affairs (Audit) Committee. The members of the Executive Board of Directors are appointed by the General and Supervisory Board. The Company’s Secretary and Alternate Secretary are appointed by the EBD, after consulting with the GSB. 6.2.2 Amendments to the Articles of Association Changes to NOVO BANCO’s Articles of Association are the responsibility of the Shareholder’s General Meeting. In 2020 there were no changes in NOVO BANCO's Articles of Association. 6.2.3 General and Supervisory Board The GSB is the supervisory body of NOVO BANCO and its members are elected by the Shareholder’s General Meeting. In October 2020, the General Meeting of NOVO BANCO appointed the following members of the General and Super- visory Board for the 2021-2024 mandate e subject to the authorisation of the competent regulatory authorities, which is still pending: Byron Haynes Chairman Benjamin Dickgiesser Karl-Gerhard Eick Vice-Chairman John Herbert Donald Quintin Kambiz Nourbakhsh Mark Coker Robert A. Sherman Carla Antunes da Silva William Henry Newton 72 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESAll the members in office in the previous term were reappointed, with the exception of Mr. William Henry Newton, and therefore, until the fit and proper authorisations are obtained, the current mandate stands and the GSB is composed of 9 members. At the date of this Annual Report, 6 (six) of the 9 (nine) members of the General and Supervisory Board, including its Chairman, are independent. The General and Supervisory Board has the powers vested upon it by law and by the Articles of Association, having as main functions to regularly monitor, advise and supervise the management of NOVO BANCO and of the Group companies, as well as to supervise the Executive Board of Directors with regard to compliance with the relevant regulatory requirements of banking activity. Additionally, the General and Supervisory Board has specific powers to elect the members of the Executive Board of Directors and responsibilities in granting previous consents for approval by the Executive Board of Directors of certain matters established in the Articles of Association, namely in what concerns the approval of (i) credit, risk and accounting policies, (ii) business plan, budget and activity plan, (iii) change of registered address, and closure or changes to representation structures abroad, (iv) capital expenditure, debt or refinancing, sales or acquisitions, creation of liens or granting of loans above certain limits and within certain conditions, (v) practice or omission of any material act related with the Contingent Capital Agreement; and (vi) hiring of employees with annual remuneration above certain limits. The General and Supervisory Board holds meetings on a monthly basis. The Chairman of the General and Supervisory Board and the Chief Executive Officer maintain regular, and at least weekly, dialogue and communication between them. In its activity, the General and Supervisory Board is directly supported by 5 (five) Committees, namely the Financial Affairs (Audit) Committee, the Risk Committee, the Compliance Committee, the Nomination Committee and the Remuneration Committee, these holding some powers delegated by the General and Supervisory Board. These Committees are composed of and chaired by independent members of the General and Supervisory Board. Their meetings may also be attended by members of the Executive Board of Directors responsible for the matters that are dealt with by said committees. Financial Affairs (Audit) Committee The Financial Affairs (Audit) Committee has monitoring and supervision responsibilities concerning the financial perfor- mance of the Bank and other financial entities included in the prudential consolidation perimeter, the accounting and accounts reporting policies and procedures and the follow-up of the external auditor, and in particular, has the powers provided for in the Companies Code. This Committee also has delegated powers of the General and Supervisory Board with regard to, among others, material changes to accounting policies, the approval of the annual budget, and prior consent to the issuance of certain debt instruments. In addition, this Committee supports the General and Supervisory Board in overseeing the effectiveness of the internal control system, risk management system and internal audit system of the Bank and of the financial companies within its scope of prudential consolidation. At the signature date of this Report the members of the Financial Affairs (Audit) Committee are the following: Chairman: Karl-Gerhard Eick Byron Haynes Kambiz Nourbakhsh 73 NOVO BANCO MANAGEMENT REPORT 2020Risk Committee The Risk Committee advises and supports the General and Supervisory Board in monitoring the Bank's actual and future global risk appetite and risk strategy as well as the effectiveness of the internal control system and risk management system of the Bank and the financial companies included in its prudential consolidation perimeter. This Committee also has the powers provided for by law and the delegated powers of the General and Supervisory Board with regard to certain credit transactions and changes in risk policies. At the signature date of this Report the members of the Risk Committee are the following: Chairman: Byron Haynes Karl-Gerhard Eick Kambiz Nourbakhsh Benjamin Dickgiesser William Newton will become the Chairman of the Risk Committee of the General and Supervisory Board upon obtaining the fit and proper approval by the regulatory authorities. Compliance Committee The Compliance Committee advises and supports the General and Supervisory Board, among others, in monitoring compliance issues pertaining to the Bank, the members of corporate bodies and employees, internal policies and processes related to compliance, policies on business conduct and ethics, and compliance and reputational risk. In addition, it has delegated powers in matters related to related parties (except for transactions between the Bank and shareholders and their related parties, a non-delegable matter that falls to the General and Supervisory Board). The above functions also extend to the following financial subsidiaries: BEST, NOVO BANCO Açores and GNB Gestão de Ativos. At the signature date of this Report the members of the Compliance Committee are the following: Chairman: Robert Sherman John Herbert Mark Coker Nomination Committee The Nomination Committee supports the General and Supervisory Board in overseeing the Executive Board of Directors’ action in the establishment of, and in ensuring compliance with, consistent and well-integrated nomination policies at the Bank and the following financial subsidiaries: BEST, NOVO BANCO Açores and GNB Gestão de Ativos companies. At the signature date of this Report the members of the Nomination Committee are the following: Chairman: John Herbert Robert Sherman Donald Quintin Mark Coker Carla Antunes da Silva7 7. Appointed by the General and Supervisory Board on 22 October 2020 to serve on the Nomination Committee of the General and Supervisory Board 74 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESRemuneration Committee The Committee advises and supports the General and Supervisory Board in the establishment of adequate, consistent and well-integrated remuneration policies in the Bank and in monitoring the implementation of remuneration policies in the Bank and in its financial subsidiaries BEST, NOVO BANCO Açores and GNB Gestão de Ativos companies. This Committee also has delegated powers with regard to the hiring of employees with annual remuneration above €200,000.00. At the signature date of this Report the members of the Remuneration Committee are the following: Chairman: Byron Haynes Karl-Gerhard Eick Benjamin Dickgiesser The company documents and main regulations can be accessed at www.novobanco.pt > Institutional > Governance > Company Documents > here 6.2.4 Executive Board of Directors The members of the Executive Board of Directors (EBD) are appointed by the General and Supervisory Board, which also appoints the Chief Executive Officer (CEO). Regarding the composition of the EBD, the members of the EBD in office at the date of this report (identified in point 1.2 Who We Are - Organisation) are the following: António Manuel Palma Ramalho Chief Executive Officer Luísa Marta Santos Soares da Silva Amaro de Matos Chief Legal & Compliance Officer Mark George Bourke Chief Financial Officer Luís Miguel Alves Ribeiro Chief Commercial Officer (Retail) Rui Miguel Dias Ribeiro Fontes Chief Risk Officer Andrés Baltar Garcia Chief Commercial Officer (Corporate) In 2020 changes in the composition of the Executive Board of Directors included the appointment of Mr. Andrés Baltar Garcia by the General and Supervisory Board on 22 October 2020. Mr. Andrés Garcia took office on 2 December 2020, replacing Mr. Vítor Manuel Lopes Fernandes, who had resigned on 22 October 2020, with effect from 30 November 2020. On 22 October 2020, Mr. Jorge Telmo Maria Freire Cardoso and Mr. José Eduardo Tavares de Bettencourt also resigned, with effect from 30 November 2020, and were not replaced. Upon obtaining the fit and proper approval by the regulatory authorities, the EBD members will begin functions for the new mandate (2021-2024) following their appointment on 22 October 2020 by the GSB. Committees of the Executive Board of Directors The activity of the EBD is supported by several Committees. In accordance with its rules of procedure, the EBD may establish committees to complement its own management activity, ensuring the monitoring of the Bank's activity in areas that are considered relevant. 75 NOVO BANCO MANAGEMENT REPORT 2020Risk Committee Responsible for issuing an opinion on, approving, under the powers delegated by the Executive Board of Directors, and monitoring NOVO BANCO Group’s policies and risk levels. In this context, the Risk Committee is responsible for monitoring the evolution of GNB’s integrated risk profile, and for analysing and proposing methodologies, policies, procedures and instruments to deal with all types of risk, namely credit, market, liquidity and operational. Chairman: Rui Fontes Financial and Credit Committee Responsible for deciding the main credit operations in which the NOVO BANCO Group participates, in line with the risk policies defined for NOVO BANCO Group. Chairman: António Ramalho Capital, Assets and Liabilities Committee (CALCO) Responsible for the definition of the balance sheet management policies (capital, pricing, and interest rate, liquidity and foreign exchange risk) and for monitoring their impact at NOVO BANCO Group level. The CALCO also monitors early warning indicators with regard to the Recovery Plan and Liquidity, proposing mitigation measures, and if necessary, triggering the recovery plan and/or the liquidity contingency plan. Chairman: Mark Bourke Internal Control System Committee The Committee monitors all issues related to NOVO BANCO Group’s Internal Control System, without prejudice to the responsibilities attributed in this regard to the Executive Board of Directors and other Committees in place at NOVO BANCO Group, namely the Risk Committee, the Operational Risk Subcommittee and the Compliance and Product Committee. Chairman: Rui Fontes Compliance and Product Committee Responsible for approving, from a compliance standpoint, products and services to be developed and/or distributed by the Bank, issuing an opinion on all of them within the scope of the products’ signoff process in force, as well as monitor the issues related to control implementation, without prejudice of competences of other governing bodies and GSB Committees. Chairwoman: Luísa Soares da Silva Digital Transformation Committee Responsible for defining and driving digital transformation at NOVO BANCO. Chairman: António Ramalho Costs and Investments Committee Responsible for approving the execution of expenses, within the limits of the powers conferred upon it. Its objectives include the definition of an annual expenditure plan and the revision of the acquisition’s strategy. Chairman: Mark Bourke 76 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESImpairment Committee Responsible for defining the amount of impairment to be allocated to each client, when NOVO BANCO has an expo- sure above €100 million to that client or group of clients. Chairman: Rui Fontes In addition, the Executive Board of Directors has set up 3 (three) subcommittees, (i) Non-Performing Assets (NPA) Subcommittee; (ii) Extended Models Risk Subcommittee; (iii) Operational Risk Subcommittee and 6 (six) steering groups for the areas of (i) Retail, (ii) Corporate Clients, (iii) Human Capital, (iv) Management Information System (MIS), (v) Investment and (vi) Business Monitoring. The Steering Groups have no rules of their own, their composition and rules of procedure being decided on a case-by-case basis by the members of the Executive Board of Directors. 6.2.5 Monitoring Committee The Monitoring Committee is a statutory advisory body ruled by the Articles of Association and deriving from the CCA. It is composed of three members elected by the Shareholders’ General Meeting, one of whom to act as Chair- man. The composition of the Monitoring Committee must respect the following criteria: one of its members must be independent from the parties to the CCA, and another shall be a registered charter accountant. Two of its members are appointed by the Resolution Fund. The Committee has as main tasks to discuss and issue (non-binding) opinions on any Relevant Issue concerning the CCA upon which it is requested to issue an opinion. The members of the Monitoring Committee are entitled to attend as observers and speak (but note vote) at all meetings of the GSB. 6.2.6 Supervision Supervision is the responsibility of the General and Supervisory Board and the Statutory Auditor. The Statutory Auditor and Alternate Statutory Auditor are elected and removed by the Shareholders’ General Meeting, under a proposal of the General and Supervisory Board, and they have the powers and responsibilities provided for in the law. 6.2.7 Powers of the management body Including regarding resolutions on share capital increases The Executive Board of Directors is the corporate body in charge of the management of the Bank. Under the law and the Articles of Association, and respecting the powers of the other corporate bodies, it is responsible for defining the general policies and strategic objectives of the Bank and of the Group and for ensuring the activity not comprised within the functions of other bodies of the Bank, in compliance with the rules and standards of good banking practice. The EBD has no powers to resolve on capital increases, or on the issuance of securities convertible into shares or securities granting subscription rights, such decisions being the exclusive responsibility of the Shareholders’ General Meeting. In the case of securities’ issuance, the GSB issues a previous opinion. 77 NOVO BANCO MANAGEMENT REPORT 20206.3 Internal Control Definition and Objectives Internal Control is integral to the running of the organisation, combining strategies, policies, processes, systems and procedures to ensure the medium- and long-term sustainability of the institution and the prudent exercise of its activity. An efficient and effective internal control system is key for the organisation to ensure: • the fulfilment of the objectives set out in strategic planning, through the efficient execution of operations, the efficient use of the institution's resources and the safeguarding of its assets; • the proper identification, assessment, monitoring and control of the risks to which the institution is or may come to be exposed; • the existence of comprehensive, relevant, reliable, and timely financial and non-financial information; • the adoption of solid accounting principles; • compliance with the legislation, regulations and guidelines applicable to the institution's activity, issued by the competent authorities, with the institution's own internal regulations, and with professional and ethical standards and practices and with rules on conduct and relationship with clients. Internal Control concerns all the members of the management and supervisory bodies, and Institution's employees, who perform their duties in accordance with internal policies and standards of ethics, integrity and professionalism, also applying to the structural units responsibilities and to all the institution's business segments, outsourced activities, and product distribution channels. Each employee has a role to play as well as duties and responsibilities, which contribute to ensure the efficiency and effectiveness of Internal Control. The Executive Board of Directors is the body with ultimate and global responsibility for the institution and that which defines, supervises and is responsible for the implementation of an adequate Internal Control System, with a clear organisational structure and independent and efficient functions in terms of risk management, compliance and audit. In turn, it is incumbent upon the General and Supervisory Board, among other duties detailed in the Bank’s Articles of Association, to ensure that the Executive Board of Directors establishes and maintains adequate, independent and effective internal control, in compliance with the law, regulations and internal policies. NOVO BANCO Group's Internal Control System is consistently implemented across all the financial entities of the Group where management control exists, without prejudice to additional requirements of host territories and of the specificities of the functions involved in the System. General Principles In order to effectively achieve the defined objectives, NOVO BANCO Group's Internal Control System is based on the following principles: • Adequate control environment reflecting the importance recognized by NOVO BANCO Group for the Internal Control System and whose organization is supported by a model of 3 lines of defence, which defines the levels of responsibility in terms of governance and risk management for the different functions that integrate each line, including permanent, independent and effective Internal Control functions; • Solid risk management system, designed to identify, assess, monitor and control all risks that may influence the strategy, risk appetite and objectives of NOVO BANCO Group (as detailed in section 4.3 – Risk Management); 78 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES• Efficient information and communication system that guarantees the capture, treatment and exchange of relevant, reliable, complete, comprehensive and consistent information, in a timely manner and in a way that allows effective and timely management and control of the activity and the inherent risks; • Effective monitoring process, implemented to ensure the adequacy and effectiveness of the Internal Control System over time, ensuring in particular the timely identification of any deficiencies and opportunities for improvement that will enable the Internal Control System to be strengthened, promoting the triggering of corrective actions. Under NOVO BANCO Group’s Internal Control System, policies, processes, procedures, systems and controls are formalised in internal standards, process catalogues, internal control manuals, presentations supporting the main committees involved in the management of risk, information and communication, control function reports, and in the Annual Self-assessment Report itself. 3 Lines of Defence Model The Internal Control System is grounded on the 3 lines of defence model, which clearly defines the levels of interven- tion and responsibility in risk management and in the execution of controls, in order to guarantee the adequacy and overall effectiveness of Internal Control within in the organisation. General and Supervisory Board EXECUTIVE BOARD OF DIRECTORS Internal Control System 3RD LINE OF DEFENCE Assessment of the adequacy and effectivness of control Internal Audit Function 2ND LINE OF DEFENCE Risk and Control Monitoring 1ST LINE OF DEFENCE Risk Management Control Function (Risk and Compliance) Other Functions Business Function E x t e r n a l A u d i t e r s R e g u l a t o r s The 1st line of defence is held by the organisational units that daily assume and manage the risk of their activities, of the IT processes and systems they sponsor, and of the outsourced activities under their responsibility, within pre- established limits set by the Executive Board of Directors. These units are responsible for the continuous identification, assessment and control of risks in the activities under their responsibility. It is up to them to defend the institution from taking risks that are not duly mitigated. Maintaining effective internal controls and conducting established control procedures is also their responsibility. The mission of the 2nd line of defence is to maintain the Bank within its risk limits by controlling, measuring and monitoring risks and reporting any deviations relative to the risk policies in force. This line of defence comprises the "Risk Management" and "Compliance" Control Functions, for which the Global Risk and the Rating Departments, and the Compliance Department are respectively responsible, being complemented by activities carried out by other departments of the Bank (e.g., Accounting, Consolidation and Taxation Department, Internal Control and Data Protection Department, Chief Information Security Officer). 79 NOVO BANCO MANAGEMENT REPORT 2020 The 2nd line of defence defines risk management and control policies, methodologies and tools, exercising functional supervision and monitoring over the effectiveness of the 1st Line, controls legal and regulatory compliance, and reports to the Bank's management and supervisory bodies as well as to the competent external authorities, when applicable. The 3rd line of defence is held by the Internal Audit Department, and its mission is to assess, independently and based on risk, the adequacy and effectiveness of the entity's organizational culture and its governance and internal control systems. To ensure its necessary independence, the internal audit function: • Reports functionally to the Financial Affairs (Audit) Committee of the General and Supervisory Board, and adminis- tratively (i.e., daily operations) to the Chief Executive Officer; • Performs its activity in accordance with a pre-established plan and a risk-based approach. This plan is approved by the General and Supervisory Board; • Cannot have any kind of responsibility or authority over the design, implementation and execution of the control procedures which it audits. The Executive Board of Directors may request information and opinions from the internal audit function, namely in matters of risk, internal control and compliance. Additionally, and as external intervenients in the defence of the Internal Control System (4th line of defence): • the Statutory Auditor, bearing in mind its functions, acts as an additional line of defence, essentially of an account’s supervision nature, including within the scope of the internal control report; and • the Supervision Authorities (European Central Bank and Banco de Portugal) act as the last line of defence, monitoring and promoting compliance with prudential rules at financial level and at the level of people, incentives schemes, governance structures, systems and processes. The intervention of the supervision authorities does not exempt the institution from its responsibility of ensuring sound and prudent management and compliance with the prudential rules. This line of defence external to the Bank promotes a strong risk culture as well as a more efficient risk management within the parameters institutionally defined for the purpose. In this context, these entities contribute in the following manner: (I) They provide guidelines/recommendations and supervise the governance of the Bank, including through detailed assessments and regular interaction with the Executive Board of Directors and top management; (ii) request improvements and remediation measures, when and if necessary. Control Functions Independence The independence of the control functions is ensured through implementation of the following mechanisms: • Internal authority: the functions are established at an appropriate hierarchical level and report hierarchically to the Executive Board of Directors and functionally to the General and Supervisory Board and respective committees, regularly participating in the meetings of these bodies; • Head of function: the person responsible for the control function does not carry out activities in business or support areas that are subject to control; • Human Resources: the employees allocated to these functions only perform control functions and are independent of the negotiation and support units that they supervise and control. However, they are not isolated from them, and are familiar with their activity. The control functions have an adequate number of qualified employees (at both the Bank and in its branches and subsidiaries); • Remuneration: the remuneration of control function employees is not linked to the results of the activities which they supervise and control, nor does it compromise, in any other way, their objectivity; 80 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES• Technical resources and organisation: the functions have adequate technical resources at their disposal and are organisationally independent from each other; • Scope: the Bank's control functions carry out supervision activities over the control functions of its branches and subsidiaries. 6.4 Main Policies For NOVO BANCO Group, the legal framework that regulates its activities is as decisive for its course of action as the set of values, principles and good practices which it assumes and which steer its actions and define the standards that shape the manner in which the Group does business and carries out its activities. The existence and application of a Code of Conduct, policies on the Prevention of Conflicts of Interest, a Whistleblowing Policy and an Anti-Bribery and Anti-Corruption Policy are therefore paramount across the entire NOVO BANCO Group. Additionally, but no less importantly, the scrutiny and transparency requirements of the Related-Party Transactions Policy, the strict application of the Law and Policies on the Prevention of Money Laundering and Terrorist Financing, the care and transparency towards clients and investors derived from the Investor Protection and Market Transparency Policies, and the assurance of sound and prudent management ensured by the Remuneration Policies for the Management and Supervisory Bodies and for the Employees, altogether provide evidence of the importance that NOVO BANCO attributes to the compliance culture dimension. The commitment assumed by NOVO BANCO Group focuses on the prevention, detection, reporting and management of situations involving risks of conduct or irregular conducts, based on principles of integrity, honesty, diligence, com- petence, transparency and fairness. Code of Conduct NOVO BANCO Group’s Code of Conduct, which entered into force in 2015, applies to the members of the General and Supervisory Board and Executive Board of Directors, to the employees of NOVO BANCO and to the NOVO BANCO Group companies, and also to all third parties which, at the request of NOVO BANCO, adhered to this Code. The Code of Conduct promotes a set of rules and good practices to be followed by the employees in their relationship with the clients and with the Bank itself and aims to ensure that everyone knows the ethical and professional principles and standards that should guide their performance and is aware of the need and importance to follow them so as to ensure that the interests of shareholders, employees and clients are at all times respected. The Code of Conduct is available at NOVO BANCO's website, in Portuguese and English, at NOVO BANCO > Governance > Compliance > here. Monitoring the Code of Conduct and clarifying employees’ doubts about its content and application is the responsibility of the Compliance Department. In 2020, in NOVO BANCO, as a result of non-compliance with internal regulations and negligence in the performance of their duties, 13 employees received sanctions, namely: 1 dismissal without any indemnity or compensation; 10 cases of days of suspension without pay and with loss of seniority; and 2 registered reprimands. Policies on the Prevention of Conflicts of Interest The Policies on the Prevention of Conflicts of Interest establish rules on the identification, management and monitoring of potential conflicts of interest in the various activities of NOVO BANCO and the NOVO BANCO Group, but also with respect to their corporate bodies, employees, and ultimately, their suppliers. They enable compliance with the applica- ble legal and regulatory provisions, as well as with the recommendations of the European Central Bank, the European Securities and Markets Authority, the Bank of Portugal, and the Securities and Exchange Commission (CMVM), and seek 81 NOVO BANCO MANAGEMENT REPORT 2020to ensure that any possible situation of conflict of interests identified is recorded, assessed, and, as the case may be, mitigated or, at limit, abstaining from action, by the Group, the Bank and its agents. The Conflicts of Interest Policy is available at NOVO BANCO's website, in Portuguese and English, at NOVO BANCO > Governance > Compliance > here. Related-Party Transactions Policy NOVO BANCO’s Related-Party Transactions Policy sets down rules aimed at identifying transactions concluded be- tween NOVO BANCO and Related Parties and at ensuring that the Bank complies with several provisions and regula- tions, namely the European Banking Authority (EBA) Guidelines on Internal Governance (EBA/GL/2017/11), Articles 85 and 109 of the General Law on Credit Institutions and Financial Companies and the International Accounting Standards (IAS 24). In this context, the control system implemented identifies those involved in transactions contracted with the Bank, in strict compliance with the applicable legislation, and the process of identification, analysis and validation is described in Internal Regulations. Assessment and approval of any transaction (credit, sale of assets, passive or contractual rela- tionship) are mandatory prior to its conclusion - all proposed transactions with related parties must be submitted to the Compliance Department, which checks their conformity with the applicable internal rules and legal and regulatory provisions, and subsequently to the approval of the Compliance Committee of the General and Supervisory Board, ratification of the General and Supervisory Board and approval by the Executive Board of Directors. The Related-Party Transactions Policy is available at NOVO BANCO's website, in Portuguese and English, at NOVO BANCO > Governance > Compliance > here. During 2020, transactions were carried out with Related Parties (credit transactions, provision of services and other contracts) under which credit transactions, including extensions and renewals of limits, reached a total amount of €1,767 million. Article 85 of the General Law on Credit Institutions and Financial Companies stipulates that credit institutions may not grant credit, in any form or type, including the provision of guarantees, to members of their management or super- visory bodies and their relatives, or to companies or other collective bodies directly or indirectly controlled by them. However, the granting of credit to companies and other collective bodies not included in paragraph 1, of which they are managers or in which they have a qualifying holding is allowed under paragraph 8 of the same article 85. In this context, the Compliance Department issued favourable opinions on 13 credit transactions allowed under said paragraph 8 of Article 85, which subsequently received the approval of the Compliance Committee of the General and Supervisory Board, the approval of the Executive Board of Directors and the ratification of the General and Supervisory Board. In addition, under Article 109 of the General Law on Credit Institutions and Financial Companies, credit granting to qualifying shareholders, or entities directly or indirectly controlled or in a group relationship with them is allowed, sub- ject to certain limits. During 2020 NOVO BANCO did not conclude any credit transactions with qualifying shareholders, under said legal rule. Whistleblowing Policy NOVO BANCO remains strongly committed to the growing internalisation of a culture of compliance, namely entailing the reporting of undue or irregular behaviours or behaviours that go against the law, the regulations, good practices, and the Bank's internal policies. The Whistleblowing Policy regulates the reporting of irregularities by the Bank's employees, as well as by service pro- viders or any third parties, and its objectives are to preserve the Bank's reputation, effectively protect its assets and those of its clients, and prevent or detect in advance any irregularities that may be committed. 82 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESExamples of irregularities are any violations committed within NOVO BANCO in the fields of accounting, internal accounting controls, auditing, prevention of corruption and banking and financial crime, crimes against the market, or breaches of the Law and regulations that inform the internally defined policies, procedures and controls on the prevention of money laundering and terrorist financing. The communication of irregularities - which may be anonymous but in any case guarantees at all times that the author is maintained confidential, providing he/she acts in good faith -, is made in writing and submitted through any of the following channels, at the choice of the author: Addressed to the Compliance Committee of the General and Supervisory Board • Avenida da Liberdade, 195, 14º, 1250-142 Lisbon, Portugal; or • Through the form available at NBWeb; or • By e-mail to the address: irregularidades@novobanco.pt. The General and Supervisory Board is responsible for managing the irregularities communication system, ensuring the confidentiality of communications. The Whistleblowing Policy is available at NOVO BANCO's website, in Portuguese and English, at NOVO BANCO > Governance > Compliance > here. Anti-Bribery and Anti-Corruption Policy Corruption and bribery represent one of the key challenges in modern society and fighting them requires a joint effort by all sectors of society, including banking, which plays an important role in promoting a culture of public integrity. The fight against practices of corruption and bribery becomes everyone’s responsibility, requiring the development of a new set of preventive duties and methodologies across organisations and public and private entities. The Anti-Bribery and Anti-Corruption Policy approved by the Compliance Committee of the General and Supervisory Board, and by the Executive Board of Directors aims to prevent and mitigate the risk of corruption and bribery, and related practices, reaffirming NOVO BANCO's commitment to building up integrity in society. The Anti-Bribery and Anti-Corruption Policy is available at NOVO BANCO's website, in Portuguese and English, at NOVO BANCO > Governance > Compliance > here. Policies on the Prevention of Money Laundering and Terrorist Financing A Bank's ability to detect and prevent activities capable of constituting money laundering is directly linked to its knowledge of certain key elements relating to its counterparties and their transactions. The NOVO BANCO Group, through its Compliance Department, sets up the conditions that enable the Bank to detect and prevent, through adequate policies and procedures, the possibility of the Bank and the Group being used as vehicles for money laundering or terrorist financing activities, such risks materialising to a significant extent within the financial system. Aware of the challenge that this control and preventive action represents, the NOVO BANCO Group maintains the ongoing reassessment of the risks it incurs, by virtue of its business, operations and the geographies where it operates, endeavouring to identify weaknesses and areas of greater exposure, in order to ensure it has in place adequate methods of control and mitigation of money laundering or terrorist financing risks. The ability to prevent and, if possible, detect activities capable of constituting such crimes is directly linked to the Bank's knowledge about its clients, their counterparties and the transactions they engage in, particularly at the following moments: • Opening of contract or change of a party in an existing contract, through what is known as KYC (Know Your Customer) - i.e., the identification of contract parties, representatives and beneficial owners must be effectively established; 83 NOVO BANCO MANAGEMENT REPORT 2020• Monitoring contracts' transactions - KYT (Know Your Transactions), spotting unusual situations, either beforehand or by contacting the client after the situation was detected. • Analysis of counterparties in investment and divestment transactions, and of transaction and source of funds circuits, under the terms of the Law. To that end, NOVO BANCO Group, using software tools with internationally recognised results to complement the experience of its human capital, has created and developed assessment models that will ensure that greater scrutiny is applied where this proves more necessary. NOVO BANCO Group, complying with its regulatory obligations, develops training exercises in preventing money laun- dering and terrorist financing for all its employees (commercial and central structures, including senior management). Training can be remote or face-to-face, the latter mainly directed to new employees, and the objective is to equip them with skills that enable them to collaborate with the control functions in mitigating the risks inherent to the execution of their functions. In 2020, NOVO BANCO reinforced training on money laundering and terrorism financing prevention, having provided 23 634 hours of online training (including 955 hours for senior management) and 38 hours of face-to-face training (of which 4 hours for senior management), making a total of 23 672 hours. Training is seen as a key tool for a correct flagging by the employees of potential situations of money laundering and terrorist financing. On the other hand, it is also useful for compliance with the legal and regulatory duties to which the Bank is subject. The prevention of money laundering and terrorist fi- nancing is one of the foundations of confidence in the financial system and as such will continue to deserve permanent attention by the NOVO BANCO Group. In 2020 the NOVO BANCO Group examined 3 362 new contracts, of which 99 were rejected. In addition, 1 068 other contracts were analysed, upon which their own- ership was changed. It also analysed 13 186 transactions under existing contracts, of which 893 were reported to the competent authorities. Reports to the competent authorities (number) 1 078 893 2019 2019 2020 The Bank's Policies on the Management of the Risk of money laundering and terrorist financing are available at NOVO BANCO's website, in Portuguese and English, at NOVO BANCO > Governance > Compliance > here. Policies on Investor Protection and Market Transparency The Markets in Financial Instruments Directive, no. 2014/65/EU, of 15 May 2014 (“MiFID II), and related regulations, which entered into force in January 2018, aim to reinforce investor protection and increase the transparency and quality of the financial market operation and services provided, and cover all persons and entities operating in the mar- kets in financial instruments. In addition, the national legislation on financial intermediation activities (in particular the Securities Code) and life insurance mediation (in particular Law 7/2019 of 16 January) constitutes the basic framework for fair and transparent action by financial market operators and, as such, for the NOVO BANCO Group. To address the international trend towards a tightening of the duties of financial intermediaries - of transparency, legality, completeness of information, diligence and protection of investors -, as well as changes in the rules for mar- keting financial instruments, NOVO BANCO has adopted the best practices in terms of the governance of products and services, ensuring the prior assessment and subsequent monitoring of its offer, with the Compliance Department having extended responsibilities in this area. 84 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESIn compliance with the legal framework, NOVO BANCO has approved its standards and policies, and discloses them in a dedicated area of its website, at www.novobanco.pt > Produtos > Poupança e Investimento > Informação ao Investidor (here). The most salient aspects of these standards and policies are summarised below: Recording and register of communications. NOVO BANCO is obliged to keep recordings and registers of all com- munications with Customers and potential Customers, with regard to all services, activities and operations carried out. Customer classification. NOVO BANCO classifies its customers for the purpose of transactions in financial instruments into one of three categories: non-professional, professional and eligible counterparty. These classifications have impli- cations on the level of protection allocated to the investor. The lower the knowledge and experience of the customer about markets and financial instruments the greater the level of protection. Assessment of adequacy. In order to ensure that the financial instruments or investment services it provides suit its Customers’ investment profile, NOVO BANCO asks its Customers and potential Customers to complete investor profile questionnaires, in order to obtain a more comprehensive and detailed image of, inter alia, their experience and knowledge of investment, their financial situation, their investment objectives (including capacity to withstand losses) and their risk tolerance. This sharing of information and knowledge permits to assess whether a given investment product or service is adequate to the specific situation of the investing client. Safeguard of Customer Assets. The Securities Code sets forth that in all acts performed, as well as in accounting and transactions records, the financial intermediary should adopt procedures and implement measures permitting to main- tain a clear distinction between its assets and the assets of each of its clients to ensure that the opening of proceedings for the insolvency, recovery of the company or reorganisation of the financial intermediary does not have effects on actions carried out by the financial intermediary on behalf of its clients. The financial intermediary may not utilise, for its own or a third party’s benefit, the clients’ financial instruments or exercise the rights inherent thereto, unless the holders have agreed thereto. NOVO BANCO has in place procedures that ensure compliance with these rules. Offer screening process. NOVO BANCO has established procedures that govern the design, approval, distribution and monitoring of the products and services offered. These procedures provide for the screening of new products and services offers, and the monitoring of the existing offer. Remuneration Policies for the Management and Supervisory Bodies and Staff Members Under the terms and for the purposes of Regime Geral das Instituições de Crédito e Sociedades Financeiras (“RGICSF”), and Banco de Portugal Notice no. 3/2020, and for compliance with the disclosure duties related to the remuneration policies provided for therein, the Remuneration Committee has undertaken the annual review and assessment of these remuneration policies to be presented, discussed and reviewed by the General and Supervisory Board and the Executive Board of Directors. A report prepared by the Remuneration Committee regarding the annual review and assessment of the remuneration policy for the Management and Supervisory Bodies is to be submitted for approval at the General Shareholders’ Meeting of NOVO BANCO. Prior to the closing of year end 2020, an assessment and review has been made by several NOVO BANCO departments (Human Capital, Legal, Compliance and Risk) with respect to the remuneration policies for the Management and Supervisory Bodies and for Staff and these remuneration policies have been amended accordingly. These amendments are mainly related with: i. Update of current regulatory framework, for example, Notice 03/2020 of Banco de Portugal among others; ii. Improvement of the internal governance process regarding the definition and approval of the total annual Variable Remuneration Budget and related matters. These Policies have been prepared in accordance with the legislation in force on this date, in particular RGICSF, and the EBA Guidelines no. 2015/22 on sound remuneration policies and related legislation and reflect the Bank's objectives, 85 NOVO BANCO MANAGEMENT REPORT 2020strategy, structure and culture, steered by principles of meritocracy and transparency. Recently, these Policies have also been amended (subject to the approval of the General Shareholders’ Meeting regarding the Management and Supervi- sory Bodies policy) to reflect the changes in the legislation, including Banco de Portugal Notice no. 3/2020, Regulation (UE) No. 2019/2088, of 27 November 2019, on sustainability-related disclosures in the financial services sector (SRDR), where gender neutrality guidance have also been introduced following the best practices and recommendations. Their implementation aims to foster adequate professional practices and conducts, namely in the sale of products and services, as well as in the prevention of conflicts of interest with clients. The Remuneration Committee believes that the Remuneration Policies are appropriate to the current situation of NOVO BANCO, being in line with the objectives of the Restructuring Plan and respect the related limitations. Accordingly, the incentives defined for the members of the Executive Board of Directors and for the different categories of employees, as well as the structure of those incentives, are considered to support the long-term objectives of the institution and of the various stakeholders. The Governance of the Remuneration Policy provides for the involvement of several internal bodies and structures, notably the Remuneration Committee, the Risk Committee of the General and Supervisory Board, and also several Departments of the Bank, including the Risk, Compliance, Audit, Legal, and Human Capital Departments, ensuring full alignment of the established practices with the applicable regulatory requirements and the higher interests of the institution. i) Limits to remuneration in NOVO BANCO Following the sale process of NOVO BANCO, and in the context of the State aid granted, the Portuguese State assumed certain commitments before the European Commission (State Aid no.SA.49275 (2017 / N)) up to the end of the Restructuring Period – currently 31 December 2021 (hereinafter the “Restructuring Period”). This situation entails the following limitations to the Remuneration of the Management and Supervisory Bodies and the Employees of NOVO BANCO: • Up to 30 June 2020 the Bank could not pay any employee or Member of a Management or Supervisory Body a total annual salary (includes salary, pension contribution, premium/bonus) above 10 times the average annual salary of the employees of NOVO BANCO. In the period comprised between 30 June 2020 and the end of the Restructuring Period, this limit may be exceeded providing all the established viability commitments have been met. In any case, the Bank may attribute deferred bonuses for performance during the Restructuring Period, making the respective payment only at the end of this period. In view of the fulfilment of the commitments for 2019, the above restriction ceased to be effective in July 2020. However, the Bank opted to maintain this cap, keeping its remuneration policy unchanged. • Up to the end of the Restructuring Period, the total remuneration and respective conditions of payment/attribution may be affected by non-compliance with the commitments referred to above. The aforementioned Remuneration Policies are thus subject to changes resulting from the said commitments. ii) Description of the Remuneration Policy of the Management and Supervisory Bodies Policy Approval Powers. The approval of the Remuneration Policy of the Management and Supervisory Bodies is the responsibility of the General Shareholders’ Meeting, upon proposal of the Remuneration Committee of the General and Supervisory Board, and this Committee is also responsible for, among others: • Decide on the remuneration to be attributed to the members of the Executive Board of Directors, as well as their KPIs, and set and approve, when applicable, the budget for the total variable remuneration of employees, based on, amongst other factors, the operating results in the period; • Verify if the existing remuneration policies are updated and if necessary, propose the appropriate changes; • Review the mechanisms and systems used to ensure that remuneration systems are consistent with sound and effective risk management and assess the criteria used to define remuneration and ex ante risk adjustment based on actual risk outcomes (Clawback or Malus). 86 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESGeneral and Supervisory Board. Only the independent members of the General and Supervisory Board shall receive remuneration from NOVO BANCO, such remuneration being fixed only and paid 12 times per year. If applicable, the members of the General and Supervisory Board shall also be subject to the limitations referred to in i) above. Executive Board of Directors. The remuneration of the Executive Board of Directors consists of a fixed component and a variable component. The fixed remuneration is established according to the complexity, level of responsibility and skills required for the function, and is paid 14 times per year. The variable component of the remuneration is awarded on a discretionary basis, according to individual and collective performance assessment that takes into account quan- titative and qualitative criteria. These criteria are set by the Remuneration Committee and informed in due time to the members of the Executive Board of Directors. The following criteria are also considered in the process of attribution of variable remuneration: • It may only be attributed if it does not jeopardise the Bank's ability to maintain a solid capital base, if the Bank has achieved a positive operational performance, and if its attribution is consistent with sound and effective risk management practices; • It is subject to a maximum cap of 100% of the annual fixed remuneration; • It is phased over a multi-year framework, being fully deferred proportionally over a minimum period of three years. However, during the Restructuring Period, the amounts attributed relative to 2019 and 2020 are 100% deferred and will only become a vested right and, consequently, will only be paid, at the end of that period, under the terms defined in the respective Policy. • 50% of the amounts attributed shall take the form of “Remuneration Units”, whose terms and conditions regarding the award, vesting and payment are defined in the Remuneration Units Regulation. The value of each “Remunera- tion Unit” is determined by the Remuneration Committee, according to financial indicators of the Bank, prior to any settlement of any deferred amount. Besides any commitment agreed in the hiring process under the form of a sign-on bonus, no other Variable Remuneration shall be guaranteed in any way. All amounts paid or deferred, regardless of whether they constitute vested rights, are subject to risk-based adjustments, Clawback and/or Malus, including those that are deferred as a result of the application of the limits established in point i) (Limitations on remuneration at NOVO BANCO). In what concerns other benefits, such as Health Insurance or Mobile Phone, their attribution is aligned to the internal policies for the employees of the Bank. iii) Identified staff Policy Approval Powers. The approval of the Remuneration Policy for Staff Members is the responsibility of the Executive Board of Directors, upon a proposal of the Remuneration Committee. Selection of employees. The Bank's Staff Members Remuneration Policy includes specific chapters applicable to em- ployees who have or may have a significant impact on NOVO BANCO's risk profile and that are classified as Identified Staff in accordance with the criteria set out in the Policy. The list of Identified Staff is shared every year with the Bank of Portugal, under Bank of Portugal Notice 3/2020. Components of Remuneration The attribution of a Fixed Remuneration shall reflect the skills, experience and responsibility inherent to the function performed, and does not depend on performance. The attribution of Variable Remuneration to the Identified Staff, as well as its annual amount, depends on the discretionary decision of the Remuneration Committee. When a Variable Remuneration exists, it is calculated based on individual and collective performance, taking into account the following principles: • Performance must be assessed according to quantitative and qualitative criteria and through financial and non- financial variables; 87 NOVO BANCO MANAGEMENT REPORT 2020• The period of assessment of performance and attribution of variable remuneration must be multi-annual - which implies that a substantial part of the amount attributed be deferred so as to take into account economic cycles and the management of risk -, and promote the retention of Identified Employees; • The existence of risk adjustment mechanisms (Malus and Clawback), as described in the Remuneration Policy; • The amount attributed is limited to 100% of the annual Fixed Remuneration; • 50% of the amounts attributed shall take the form of “Remuneration Units”, whose terms and conditions regarding the award, vesting and payment are defined in the Remuneration Units Regulation. The value of each “Remunera- tion Unit” is determined by the Remuneration Committee, according to financial indicators of the Bank, prior to any settlement of any deferred amount; • Guaranteed variable remuneration can only be established in the first year after hiring, under the form of a Sign-on bonus; • Limits to Remuneration set in i) above, also apply to these employees. iv) Disclosure of Remuneration Refer to point 6.6 Remuneration of the members of the Corporate Bodies and Identified Staff. Policy for Selection and Assessment of the Management and Supervisory Bodies and Key Function Holders NOVO BANCO approved in March 2018 a Policy for Selection and Assessment of the Management and Supervisory Bodies and Key Function Holders (the “Policy”), thus ensuring compliance with the regulations in force and the implementation of the required governance standards for Significant Financial Institutions. The Policy was approved by the Nomination Committee, the Executive Board of Directors, the General and Supervisory Board, and the General Meeting. The Policy aims to ensure that the members of the Management and Supervisory Bodies and Key Function Holders (essentially the holders of the Risk, Audit, and Compliance Functions and the general managers of branches) meet all the fit and proper criteria to perform their functions, both at the time of appointment and throughout their mandates. This suitability to the function basically refers to the capacity to permanently ensure a sound and prudent management of the institution, which is assessed in accordance with the following requirements: i) Experience; ii) Repute; iii) Independence; iv) Availability; and v) Collective Suitability. Recently, this Policy has been amended (subject to the approval of the General Shareholders’ Meeting) and includes the heads of Treasury and Marketing as Key Function Holders. Policy for the Selection and Evaluation of NOVO BANCO’ Statutory Auditor and the Contracting of Non-prohibited Non-audit services. NOVO BANCO approved in 2018 and amended in 2020 its Policy for the Selection and Evaluation of Novo Banco' Statutory Auditor and for the contracting of non-prohibited non-audit services (the "Policy"), in compliance of the applicable regulations. This Policy was approved by the Financial Affairs (Audit) Committee of the General and Supervisory Board and by NOVO BANCO’s General Shareholders’ Meeting. The Policy applies to the selection and assessment of the Statutory Auditor and aims to ensure that the Statutory Auditor fulfils the necessary requirements of suitability (“fit and proper”), professional experience, independence and availability, taking into account the nature, dimension and complexity of NOVO BANCO’ activity and the responsibilities inherent to the specific tasks to be performed. To achieve its purpose, the Policy defines the assessment criteria, the internal responsibilities and the procedures that must be followed. In addition, the Policy defines the criteria and procedures to apply in case non-audit services are contracted with the Statutory Auditor and defines the ones which are allowed and the ones which are prohibited. 88 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES6.5 Credit to Members ff The Corporate Bodies At 31 December 2020 the outstanding amount of loans to persons and entities falling under the provisions of art. 85 of the General Law on Credit Institutions and Financial Companies (Regime Geral das Instituições de Crédito e Sociedades Financeiras – RGICSF) is presented below: Name Position Amount (in euros) Members of the Corporate Bodies in office at the date of this Report Executive Board of Directors Luís Miguel Alves Ribeiro Closely related persons General and Supervisory Board Carla Alexandra Severino Antunes da Silva Closely related persons Statutory Auditor António Filipe Dias da Fonseca Brás Member of the Executive Board of Directors €192 477.13 €138 601.53 Member of the General and Supervisory Board €294 637.67 Statutory Auditor, representative of Ernst & Young Audit & Associados - SROC, S.A. €132 536.77 Entity where a member of the Executive Board of Directors holds a management position LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. NOVO BANCO dos AÇORES SIBS - SGPS SA UNICRE - Instituição Financeira de Crédito SA Members of the Corporate Bodies no longer in office at the date of this Report Executive Board of Directors €115 801 359.57 €1 294 560.00 €25 080 335.73 €22 550 000.00 José Eduardo Fragoso Tavares de Bettencourt Closely related persons Member of the Executive Board of Directors €56 747.85 Mr. José Eduardo Fragoso Tavares de Bettencourt resigned his position on 22.10.2020 with effects from 30.11.2020. The amounts shown in the tables above concern Residential Mortgage Loans, save for those listed for Entities where a member of the Executive Board of Directors holds a management position and the person related to the member of the General and Supervisory Board, where they concern corporate loans and bank guarantees. For the disclosure purposes of Art. 109 (7) of the RGICSF, during 2020 there were no loans granted to direct or indirect holders of qualified holdings. For the purposes of the same article, outstanding amount of loans to persons related were as follows: Name Type of Credit Amounts (in euros) Entities controlled directly or indirectly by a person holding directly or indirectly a stake in the credit institution Esmalglass Portugal Productos Ceramicos, S.A. Bank Guarantee Inframoura - Empresa de Infraestruturas de Vilamoura, E.M. Leasing €1 500.00 €114 061.82 89 NOVO BANCO MANAGEMENT REPORT 20206.6 Remuneration of the Members of the Corporate Bodies and Identified Staff According to several regulatory obligations, among others, Bank of Portugal Notice 3/2020 and Regulation (EU) No 575/2013 of the European Parliament and of the Council, NOVO BANCO shall disclose the Remuneration of Members of Corporate Bodies and Identified Staff. i) Executive Board of Directors Executive Board of Directors António Manuel Palma Ramalho Mark George Bourke Rui Miguel Dias Ribeiro Fontes Role CEO Member Member Amount in euros Total 2020 Fixed Remuneration Others Total Paid and Deferred Other post-EBD Paid Salary benefits Deferred Compensation 2 638 587 2 606 044 2 396 903 2 891 32 543 206 250 400 000 367 457 367 457 350 000 350 000 350 000 0 0 276 173 276 173 275 000 1 173 Luisa Marta Santos Soares da Silva Amaro de Matos Member 275 000 275 000 275 000 0 Luis Miguel Alves Ribeiro Andres Baltar Garcia (*) Jorge Telmo Maria Freire Cardoso (**) Vitor Manuel Lopes Fernandes (**) Member Member Member Member 276 173 276 173 275 000 1 173 29 235 29 235 29 235 343 750 343 750 275 000 343 750 343 750 275 000 0 0 0 José Eduardo Fragoso Tavares de Bettencourt (**) Member 344 505 344 505 275 211 545 General and Supervisory Board 875 000 867 457 867 457 Byron James Macbean Haynes Chairman 375 000 367 457 367 457 Karl - Gerhard Eick Donald John Quintin Kambiz Nourbakhsh Mark Andrew Coker Benjamin Friedrich Dickgiesser John Ryan Herbert Robert Alan Sherman Carla Alexandra Severino Antunes da Silva Vice-Chairman 250 000 250 000 250 000 Member Member Member Member Member Member Member 0 0 0 0 0 0 0 0 0 0 0 0 95 000 95 000 95 000 95 000 95 000 95 000 60 000 60 000 60 000 (i) Member of EBD from 1st of December 2020 (ii) Resigned from their EBD mandate with effect on the 30th of November 2020 and remained available for transition 0 0 0 0 0 0 0 0 0 0 32 543 0 0 0 0 0 0 0 0 7 543 7 543 0 0 0 0 0 0 0 0 0 0 0 0 0 0 68 750 68 750 68 750 0 0 0 0 0 0 0 0 0 In 2020, there were no amounts paid to the members of the corporate bodies of NOVO BANCO by other group companies. Additionally, and resulting from the commitment to take up Andrés Baltar Garcia as new Executive Board Member, €320 thousand were paid in December 2020 to this Board Member as a sign-on bonus. 90 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESFor the year 2020, Variable Remuneration was conditionally attributed, subject to the verification of several conditions, of 1 860 thousand euros to the members of the Executive Board of Directors. This award was based on individual and collective performance of each member, which was assessed by the Remuneration Committee. This attribution did not create vested rights and no payment to the members was made. The totality of the Variable Remuneration attributed is subject to the maximum limit of 100% of the annual Fixed Remu- neration of each member, 50% of which is attributed in the form of cash and 50% in the form of Remuneration Units. The value of the Remuneration Units at the date of the attribution is 1 (one) Euro and their value is then reassessed, by the Remuneration Committee, at the time of payment. According to the Regulation of Remuneration Units, at the time of payment, the value of the Remuneration Units can only be adjusted downwards when compared to that defined at the time of attribution. As in the previous year (2019), this award was fully deferred and there shall be no payments until after the end of the Restructuring Period, on the date currently defined as December 31, 2021 and, upon that the payment depends on the conditions set out in the Policy. This Variable Remuneration does not constitute an acquired right until after the end of the Restructuring Period and will be subject to the risk adjustment mechanisms provided for in the Remuneration Policy, namely, Malus and/or Claw back. The 2020 Variable Remuneration attributed to the members of the Executive Board of Directors is subject to future adjustments. In particular, there is no vested right or certainty as to what the final Variable Remuneration amount will be attributed or when payments will be made. In particular: i. the right to receive will only be effective after the end of the Restructuring Period (currently, December 31, 2021), so there will be no payments until that date; and ii. the value of the Variable Remuneration component paid in Remuneration Units may be less than the assigned amount or even zero, depending on the Bank's financial indicators at the time of payment, after the end of the Restructuring Period. Other benefits and compensation and non-cash benefits Nothing to report. Compensation paid or due to former members of the Executive Board of Directors in relation to early contract termination in the reporting year As reported in the table above, the three members of the Executive Board of Directors resigned from their mandate with effect on the 30th of November 2020 and remained available for transition. Each received an amount equivalent to 3 months of their pro-rata annual base salary, as a condition for them to cooperate and remain available to NOVO BANCO during the course of the first quarter of 2021. Plans for the attribution of shares or stock options Nothing to report. ii) Identified Staff Following the annual self-assessment procedure stated in the Remuneration Policy, the list of the Identified Staff was updated by the Executive Board of Directors and reviewed and approved by the Remuneration Committee in Decem- ber 2020. A group of 44 employees was classified as Identified Staff and the table below show their Fixed and Variable Award Remuneration for 2020. 91 NOVO BANCO MANAGEMENT REPORT 2020Total 2020 (**) Fixed Remuneration # Employees Total Paid and Awarded Pais Salary Other post- employment benefics Amount in euros Variable Remuneration Award of 2020 (*) 44 8 266 161 5 766 161 5 739 116 27 046 2 500 000 8 4 1 214 434 874 371 867 028 699 866 538 553 537 967 32 6 351 862 4 353 237 4 334 121 7 343 587 19 116 340 063 161 313 1 998 625 Identified Staff Commercial Control Functions Suport (*) The 2020 award will be deferred and paid out in subsequent years in accordance with Remuneration Policy. (**) As of 31st December 2020 2/3 of the identified Staff Bonus award of 2018 and 1/3 of Bonus award 2019 have been paid (1.402.588€). 6.7 Securities held by members of the management and supervisory bodies As at 31 December 2020, and with regard to 2020, the members of the management and supervisory bodies of NOVO BANCO did not hold any securities issued by NOVO BANCO or by companies in a control or group relationship with NOVO BANCO. Additionally, no acquisitions, disposals or transmissions of securities issued by NOVO BANCO or by companies in a control or group relationship with NOVO BANCO were carried out in this period by the members of the management and supervisory bodies of NOVO BANCO. 6.8 Non-Material Indirect Investment in Novo Banco All members of the Executive Board of Directors and certain members of the General and Supervisory Board acquired in 2018 (as disclosed in the 2018 Annual Report), using their own resources, holdings in an indirect investment structure in Novo Banco, which had been set up (and is controlled) by LSF Nani GP, LLP, which owns indirectly a 75% interest in Novo Banco. This indirect investment represents a shareholding of substantially less than 1% in Novo Banco and has no financial impact on the Bank, or in the exercise of the functions, suitability and independence of the aforesaid members, taking into account the reduced weight of their investment as a percentage of the share capital, either collectively or individually. These situations were disclosed to the relevant supervisory authorities and internal control bodies. There were no changes in 2020. 92 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESFinancial Statements and Final Notes 7.0 Title: Feno Author: António Capitão 7.1 Consolidated Financial Statements Consolidated income statement as at 31 december 2020 and 2019 Interest Income Interest Expenses Net Interest Income Dividend income Fee and comission income Fee and comission expenses Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Gains or losses on financial assets and liabilities held for trading Gains or losses on financial assets mandatorily at fair value through profit or loss Gains or losses on financial assets and liabilities designated at fair value through profit and loss Gains or losses from hedge accounting Exchange differences Gains or losses on derecognition of non-financial assets Other operating income Other operating expenses Operating Income Administrative expenses Staff expenses Other administrative expenses Cash contributions to resolution funds and deposit guarantee schemes Depreciation Provisions or reversal of provisions Commitments and guarantees given Other provisions Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates Impairment or reversal of impairment on non-financial assets Share of the profit or loss of investments in subsidiaries, joint ventures and associates accounted for using the equity method Profit or loss before tax from continuing operations Tax expense or income related to profit or loss from continuing operations Current tax Deferred tax Profit or loss after tax from continuing operations Profit or loss from discontinued operations Profit or loss for the period Attributable to Shareholders of the parent Attributable to non-controlling interests thousands of Euros 31.12.2019 31.12.2020 753 087 743 707 ( 212 474) ( 188 573) 540 613 9 909 367 400 ( 53 456) 555 134 16 478 313 823 ( 47 305) 61 554 88 472 ( 59 223) ( 91 611) ( 253 720) ( 364 000) 4 ( 1 740) 38 829 3 954 - ( 11 641) ( 2 414) ( 3 416) 139 802 120 732 ( 368 592) ( 230 294) 425 334 343 958 ( 444 840) ( 265 350) ( 179 490) ( 34 707) ( 33 664) ( 21 297) 60 776 ( 398 769) ( 245 606) ( 153 163) ( 35 048) ( 33 072) ( 186 423) ( 22 116) ( 82 073) ( 164 307) ( 627 294) ( 755 070) 333 ( 4 192) ( 287 159) ( 245 778) 1 470 9 430 ( 1 021 824) ( 1 304 964) ( 45 769) ( 8 804) ( 36 965) (1 082) 8 639 ( 9 721) ( 1 067 593) ( 1 306 046) 1 128 ( 33 345) ( 1 066 465) ( 1 339 391) ( 1 058 812) ( 1 329 317) ( 7 653) ( 10 074) ( 1 066 465) ( 1 339 391) The Certificated Accountant Executive Board of Directors 94 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESConsolidated balance sheet as at 31 december 2020 and 2019 ASSETS Cash, cash balances at central banks and other demand deposits Financial assets held for trading Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortised cost Securities Loans and advances to banks Loans and advances to customers Derivatives – Hedge accounting Fair value changes of the hedged items in portfolio hedge of interest rate risk Investments in subsidiaries, joint ventures and associates Tangible assets Tangible fixed assets Investment properties Intangible assets Tax assets Current Tax Assets Deferred Tax Assets Other assets Non-current assets and disposal groups classified as held for sale TOTAL ASSETS LIABILITIES Financial liabilities held for trading Financial liabilities designated at fair value through profit or loss Financial liabilities measured at amortised cost Deposits from central banks and other banks Due to customers Debt securities issued, Subordinated debt and liabilities associated to transferred assets Other financial liabilities Derivatives – Hedge accounting Provisions Tax liabilities Current Tax liabilities Deferred Tax liabilities Other liabilities Liabilities included in disposal groups classified as held for sale TOTAL LIABILITIES EQUITY Capital Accumulated other comprehensive income Retained earnings Other reserves Profit or loss attributable to Shareholders of the parent Minority interests (Non-controlling interests) TOTAL EQUITY TOTAL LIABILITIES AND EQUITY thousands of Euros 31.12.2019 31.12.2020 1 854 081 2 695 459 748 732 1 314 742 655 273 960 962 8 849 896 7 907 587 27 141 460 25 898 046 1 622 545 369 228 2 229 947 113 795 25 149 687 23 554 304 7 452 52 540 92 628 889 152 188 408 700 744 26 378 900 095 1 628 898 467 3 378 492 40 255 12 972 63 859 93 630 779 657 187 052 592 605 48 833 775 498 610 774 888 2 944 292 1 559 518 45 295 903 44 395 586 544 825 102 012 554 791 - 39 673 649 37 808 767 9 849 623 10 102 896 28 400 127 26 322 060 1 065 211 358 688 58 855 307 817 17 980 11 873 6 107 1 017 928 365 883 72 543 384 382 14 324 9 203 5 121 586 066 417 762 1 942 1 996 382 41 293 146 41 248 951 5 900 000 5 900 000 ( 702 311) ( 823 420) ( 6 115 245) ( 7 202 828) 5 942 501 6 570 153 ( 1 058 812) ( 1 329 317) 36 624 32 047 4 002 757 3 146 635 45 295 903 44 395 586 The Certificated Accountant Executive Board of Directors 95 NOVO BANCO MANAGEMENT REPORT 20207.2 Separate Financial Statements Income statement as at 31 december 2020 and 2019 Interest Income Interest Expenses Net Interest Income Dividend income Fee and comission income Fee and comission expenses Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss thousands of Euros 31.12.2019 31.12.2020 765 259 760 111 ( 219 109) ( 192 112) 546 150 567 999 17 313 16 928 333 362 279 878 ( 48 049) ( 41 438) 59 377 86 183 Gains or losses on financial assets and liabilities held for trading ( 60 446) ( 91 208) Gains or losses on financial assets mandatorily at fair value through profit or loss ( 372 645) ( 521 059) Gains or losses on financial assets and liabilities designated at fair value through profit and loss Gains or losses from hedge accounting Exchange differences Gains or losses on derecognition of non-financial assets Other operating income Other operating expenses Operating Income Administrative expenses Staff expenses Other administrative expenses Cash contributions to resolution funds and deposit guarantee schemes Depreciation Provisions or reversal of provisions Commitments and guarantees given Other provisions Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates Impairment or reversal of impairment on non-financial assets Profit or loss before tax from continuing operations Tax expense or income related to profit or loss from continuing operations Current tax Deferred tax Profit or loss after tax from continuing operations Profit or loss from discontinued operations Profit or loss for the period ( 102) ( 2 261) 38 599 7 996 62 522 - ( 12 053) ( 2 000) 2 272 87 599 ( 78 216) ( 89 879) 503 600 283 222 ( 413 977) ( 367 635) ( 242 098) ( 223 604) ( 171 879) ( 144 031) ( 34 448) ( 36 681) ( 34 766) ( 35 033) ( 101 844) ( 187 839) 60 467 ( 21 595) ( 162 311) ( 166 244) ( 631 044) ( 750 975) ( 36 040) ( 41 285) ( 298 424) ( 215 397) ( 1 048 858) ( 1 349 708) ( 38 726) ( 2 541) ( 36 185) 4 216 13 400 ( 9 184) ( 1 087 584) ( 1 345 492) - ( 28 754) ( 1 087 584) ( 1 374 246) The Certificated Accountant Executive Board of Directors 96 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES Balance sheet as at 31 december 2020 and 2019 ASSETS Cash, cash balances at central banks and other demand deposits Financial assets held for trading Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortised cost Securities Loans and advances to banks Loans and advances to customers Derivatives – Hedge accounting Fair value changes of the hedged items in portfolio hedge of interest rate risk Investments in subsidiaries, joint ventures and associates Tangible assets Tangible fixed assets Investment properties Intangible assets Tax assets Current Tax Assets Deferred Tax Assets Other assets Non-current assets and disposal groups classified as held for sale TOTAL ASSETS LIABILITIES Financial liabilities held for trading Financial liabilities measured at amortised cost Deposits from central banks and other banks (dos quais: Operações com acordo de recompra) Due to customers thousands of Euros 31.12.2019 31.12.2020 1 674 826 2 524 868 748 836 655 327 3 044 724 2 445 605 8 758 131 7 813 584 26 042 243 24 804 483 2 392 843 2 873 753 495 252 245 472 8 - 23 154 148 21 685 258 7 992 49 884 231 425 194 753 194 753 26 043 892 713 680 13 606 60 976 189 924 188 968 188 968 48 331 771 854 - 892 033 771 854 3 333 586 2 956 010 21 273 1 568 912 45 026 429 44 042 448 544 400 554 343 39 924 564 37 895 984 10 542 549 10 778 468 2 168 488 1 625 724 27 980 577 25 778 507 Debt securities issued, Subordinated debt and liabilities associated to transferred assets 1 044 445 Other financial liabilities Derivatives – Hedge accounting Provisions Tax liabilities Current Tax liabilities Other liabilities Liabilities included in disposal groups classified as held for sale TOTAL LIABILITIES EQUITY Capital Accumulated other comprehensive income Retained earnings Other reserves Profit or loss attributable to Shareholders of the parent TOTAL EQUITY TOTAL LIABILITIES AND EQUITY The Certificated Accountant Executive Board of Directors 97 356 993 58 854 371 744 9 239 9 239 974 996 364 013 72 543 438 572 5 536 5 536 471 626 314 611 - 2 007 770 41 380 427 41 289 359 5 900 000 5 900 000 ( 632 033) ( 749 259) ( 6 115 245) ( 7 202 828) 5 580 864 6 179 422 ( 1 087 584) ( 1 374 246) 3 646 002 2 753 089 45 026 429 44 042 448 NOVO BANCO MANAGEMENT REPORT 20207.3 Final Notes 7.3.1 Declaration of Conformity with the Financial Information Reported In accordance with Article 246-1-c) of the Portuguese Securities Code (“Código dos Valores Mobiliários”), the members of the Executive Board of Directors of NOVO BANCO, S.A., named below, state that: i. the separate and consolidated financial statements of NOVO BANCO, S.A., for the year ended on 31 December 2020 were prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted in the European Union; ii. to the best of their knowledge the financial statements referred to in (i) provide a true and fair view of the assets and liabilities, equity and earnings of NOVO BANCO and of NOVO BANCO Group, in accordance with the referred standards; iii. the management report describes accurately the evolution of the businesses, the performance and the financial position of NOVO BANCO and of NOVO BANCO Group in 2020 and includes a description of the main risks and uncertainties faced. The management report and the individual and consolidated financial statements have been approved at the meeting of the Executive Board of Directors held on 24 March 2021. 7.3.2 Proposal for the distribution of NOVO BANCO results Under the terms of Article 66 (5-f) and for the purposes of Article 376 (1-b) of the Portuguese Companies Code, and pursuant to Article 29 of the Bank’s Articles of Association, the Executive Board of Directors of NOVO BANCO proposes, for approval by the General Meeting, that the net loss reported in the separate accounts for financial year 2020, in the amount of -€1 374 246 267.71 be allocated to the "Other Reserves and Retained Earnings" caption on the Balance Sheet. 7.4 Note of Recognition The General and Supervisory Board and the Executive Board of Directors hereby express their recognition for the loyalty, trust and involvement with the Bank of its Clients and Employees, as well as for the collaboration of the Governmental, Supervision and Resolution Authorities and the European Commission. Lisbon, 24 March 2021 Executive Board of Directors António Manuel Palma Ramalho Luísa M. S. Soares da Silva Amaro de Matos Rui Miguel Dias Ribeiro Fontes Luís Miguel Alves Ribeiro Mark George Bourke Andrés Baltar 98 Alternative Performance Measures 8.0 Title: Nascer do Sol Author: João Ribeiro NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURES Alternative Performance Measures 8.0 Title: Nascer do Sol Author: João Ribeiro 99 NOVO BANCO MANAGEMENT REPORT 2020The European Securities and Markets Authority (ESMA) issued on 5 October 2015 a set of guidelines on the disclosure of Alternative Performance Measures (APM) by issuers of securities (ESMA/2015/1415), of compulsory application from 03 July 2016. The NOVO BANCO Group uses a set of indicators in the analysis of its financial performance that can be classified as Alternative Performance Measures, in accordance with the referred ESMA guidelines. In compliance with the ESMA guidelines, we present hereunder (i) the reconciliation of the Consolidated Income Statement and (ii) the Alternative Performance Measures: I – Reconciliation of the Income Statement Reconciliation between the Official Consolidated Income Statement and the Management Consolidated Income Statement used by NOVO BANCO's management as a work tool in the analysis of the Group's performance: Net Interest Income Fees and Commissions Market Results Other Operating Results General and Administrative Costs Staff Costs 555 134 271 891 ( 72 548) ( 136 555) ( 245 606) ( 153 163) euro thousand Official Income Statement Interest Income Interest Expenses Net Interest Income Dividend income Fee and comission income Fee and comission expenses Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Gains or losses on financial assets and liabilities held for trading 743 707 743 707 ( 188 573) ( 188 573) 555 131 16 478 313 823 ( 47 305) 88 472 ( 91 611) Gains or losses on financial assets mandatorily at fair value through profit or loss ( 364 000) Gains or losses on financial assets and liabilities designated at fair value through profit and loss Gains or losses from hedge accounting Exchange differences Gains or losses on derecognition of non-financial assets Other operating income Other operating expenses Operating Income Administrative expenses Staff expenses Other administrative expenses Contributions to resolution funds and deposit guarantee schemes Depreciation Provisions or reversal of provisions Commitments and guarantees given Other provisions Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates Impairment or reversal of impairment on non-financial assets Share of the profit or loss of investments in subsidiaries, joint ventures and associates accounted for using the equity method - ( 11 641) ( 2 414) ( 3 416) 120 732 ( 230 294) 339 804 ( 245 606) ( 153 163) ( 35 048) ( 33 072) ( 22 116) ( 164 307) ( 755 070) ( 4 192) ( 245 778) 9 430 Profit or loss before tax from continuing operations (1 316 991) Tax expense or income related to profit or loss from continuing operations Current tax Deferred tax Profit or loss after tax from continuing operations Profit or loss from discontinued operations Profit or loss for the period Attributable to Shareholders of the parent Attributable to non-controlling interests 100 8 639 ( 9 721) (1 309 358) ( 33 345) (1 338 310) ( 1 328 236) ( 10 074) (1 339 391) 16 478 313 823 ( 47 305) 88 575 ( 103) ( 91 611) ( 63 825) ( 11 641) ( 2 414) 5 373 30 683 ( 3 416) 84 676 ( 38 793) ( 158 749) ( 245 606) ( 153 163) ( 35 048) 9 430 ( 33 345) NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESOfficial Income Statement Depreciation Restructuring funds - independent valuation Credit Impairment Securities Impaiment Other Assets and Contingencies Provisions Taxes Special Tax on Banks ( 33 072) ( 300 175) ( 524 442) ( 40 999) ( 626 022) ( 1 082) ( 32 752) Interest Income Interest Expenses Net Interest Income Dividend income Fee and comission income Fee and comission expenses Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Gains or losses on financial assets and liabilities held for trading Gains or losses on financial assets mandatorily at fair value through profit or loss ( 300 175) Gains or losses on financial assets and liabilities designated at fair value through profit and loss Gains or losses from hedge accounting Exchange differences Gains or losses on derecognition of non-financial assets Other operating income Other operating expenses Operating Income Administrative expenses Staff expenses Other administrative expenses ( 33 072) Contributions to resolution funds and deposit guarantee schemes Depreciation Provisions or reversal of provisions Commitments and guarantees given Other provisions Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates Impairment or reversal of impairment on non-financial assets Share of the profit or loss of investments in subsidiaries, joint ventures and associates accounted for using the equity method Profit or loss before tax from continuing operations Tax expense or income related to profit or loss from continuing operations Current tax Deferred tax Profit or loss after tax from continuing operations Profit or loss from discontinued operations Profit or loss for the period Attributable to Shareholders of the parent Attributable to non-controlling interests 101 ( 32 752) ( 22 116) ( 164 307) ( 524 442) ( 40 999) ( 189 629) ( 4 192) ( 245 778) 8 639 ( 9 721) NOVO BANCO MANAGEMENT REPORT 2020II – Alternative performance measures Information on the Alternative Performance Measures (definition, calculation method and scope). Income Statement Designation Definition/Utility Calculation Basis Conciliation with the Financial Statements Fees and Commissions Commercial banking income Indicator of results of financial activity directly related to services provided to clients Historical financial performance indicator Indicator of the results of commercial activity most directly related to customers Historical financial performance indicator Fee and commission income less fee and commission expenses (DR): Fee and commission income and Fee and commission expenses Financial margin + Customer services Capital markets results Indicator of results of activity in the financial markets Historical financial performance indicator Results from trading and hedging operations, assets at fair value through other comprehensive income and at amortized cost (DR): Dividend income, gains or losses on the derecognition of financial assets and liabilities not measured at fair value through profit or loss, gains or losses on financial assets and liabilities held for trading, gains or losses on financial assets that must be accounted for at fair value through profit or loss, gains or losses on financial assets and liabilities accounted for at fair value through profit or loss, gains or losses from hedge accounting and exchange differences Other operating results Indicator of other diverse results, not directly related to activity with customers and markets Historical financial performance indicator Gains or losses on the derecognition of non financial assets + Other operating income + Other operating expenses + Proportion of profits or losses from investments in subsidiaries and joint ventures and associates accounted for using the equity method (DR): Gains or losses on the derecognition of non -financial assets, other operating income, other operating expenses, proportion of profits or losses from investments in subsidiaries and joint ventures and associates accounted for using the equivalence method Banking Income Financial activity results indicator Historical financial performance indicator Net interest income + Fees and commissions + Capital markets results + Other operating results Operating costs Operational result Indicator of structural costs that support commercial activity and whose analysis allows to assess the trajectory of progression of costs Indicator of historical financial performance Indicator of results of financial activity less costs and before impairment. Measures the extent to which the income generated covers / exceeds operating costs Historical financial performance indicator Provisions, net of replacement / Impairments Indicator of net reinforcements of impairments made in the year Historical financial performance indicator Personnel expenses + Other administrative expenses + Depreciation (DR): Personnel expenses, Other administrative expenses and Depreciation Banking income Operating costs Provisions or reversal of provisions + Impairment or reversal of financial assets not measured at fair value through profit or loss + Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates + Impairment or reversal of impairment of non-financial assets (DR): Provisions or reversal of provisions, Impairment or reversal of impairment of financial assets not measured at fair value through profit or loss, Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates and Impairment or reversal of impairment of non-assets financial 102 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESBalance Sheet/Liquidity Designation Definition/Utility Calculation Basis Conciliation with the Financial Statements Assets eligible for rediscount transactions with the ECB Securities portfolio Trading financial securities or other types of assets, such as non-marketable assets or cash, accepted as collateral by the ECB in financing operations Indicator of historical financial performance Indicator of the size of funds invested in trading assets, at fair value through profit or loss, at fair value through profit or loss mandatory, at fair value through other comprehensive income and at amortized cost Historical financial performance indicator na na Securities (bonds, shares and other variable income securities) recorded in trading portfolios, at fair value through profit or loss, at fair value through mandatory income, at fair value through equity and amortized cost. (BAL): Securities held for trading and Securities portfolio Customer deposits Instruction No 16/2004 of Banco de Portugal Indicator of the asset's financing capacity Historical financial performance indicator Set of amounts entered in the following general ledges accounting items: [# 400 # 34120 + # 52020 + # 53100] (BAL): Customer resources Net financing from the ECB Indicator that reflects the net amount that was obtained from the ECB to finance the activity Historical financial performance indicator Difference between the amount of financing obtained from the ECB and investments in the ECB (BAL): Applications at the ECB and Resources from the ECB Customer funds Indicator of the asset's financing capacity Historical financial performance indicator 'Deposits + Other customer funds + Debt securities placed on customers (BAL): Customer funds, Debt securities issued, subordinated liabilities and Liabilities associated with transferred assets Off-balance funds Indicator of off-balance sheet customer funds Historical financial performance indicator Off-balance sheet resources managed by Group companies, which include real estate and investment funds, pension funds, banking insurance, portfolio management and discretionary management Total customer funds Indicator of customer resources registered on the balance sheet and off balance sheet Historical financial performance indicator Deposits + Other customer resources + Issued bonds + Subordinated liabilities + Disintermediation resources (BAL): Customer resources, Liabilities represented by securities, subordinated liabilities and Liabilities associated with transferred assets Commercial gap Liquidity gap Loans to Deposit Ratio Instruction No 16/2004 of Banco de Portugal Indicator that measures the need / excess of financing in absolute value of the commercial area Historical financial performance indicator Indicator that allows assessing the need / excess liquidity accumulated up to 1 year, in each cumulative scale of residual maturity. Historical financial performance indicator Indicator of the relationship between the financing of the Indicator of the relatioship between the financing of the activity and the funds raised from customers Historical financial performance indicator Difference between customer deposits and net credit (BAL): Net customer loans and customer deposits Difference between [(Net assets volatile liabilities)] Ratio between [(total credit - accumulated impairment for credit) and customer deposits] (BAL): Net customer loans and customer deposits 103 NOVO BANCO MANAGEMENT REPORT 2020Asset Quality and Coverage Ratios Designation Definition/Utility Calculation Basis Overdue loans ratio Ratio of loans overdue for more than 90 days Loans quality indicator, showing the proportion of the gross loan portfolio that is in default Historical financial performance indicator Loans quality indicator, reflects the proportion of the gross loan portfolio that has been in default for more than 90 days Historical financial performance indicator Non-performing loans ratio Loans portfolio quality indicator, reflects the proportion of the gross loans portfolio including cash and deposits with loans institutions that are in a non-performing situation Historical financial performance indicator Ratio between overdue loans and total loans Ratio between loans overdue for more than 90 days and total loans Ratio between the total balance of loans agreements with customers and cash equivalents and investments in loans institutions identified as: (i) being in default (internal definition in line with Article 178 of the Capital Requirements Regulation, that is, contracts with higher material defaults) 90 days and contracts identified as unlikely to pay, according to qualitative criteria; and (ii) having specific impairment and total loans Conciliation with the Financial Statements (BAL): Overdue loans, that is, loans with installments of capital and interest in default and loans to customers, gross (BAL): Loans overdue for more than 90 days, that is, loans with installments of capital and interest in default for more than 90 days and loans to customers, gross (BAL). Loans identified as non- productive loans and Gross customer loans Forborne ratio Instruction No 32/2013 of Banco de Portugal Loans quality indicator, reflects the proportion of the gross loan portfolio that was restructured Historical financial performance indicator Ratio between forborne and total loans (BAL). Loans identified as restructured due to financial difficulties of the customer and loans to customers gross Overdue loans coverage Coverage of loans overdue for more than 90 days Non-performing loans coverage Coverage of loans to customers Cost of Risk Indicator of the ability to absorb potential losses related to loans default Historical financial performance indicator Indicator of the ability to absorb potential losses related to loans default for more than 90 days Historical financial performance indicator Indicator of the capacity to absorb potential losses related to non- performing loans default Historical financial performance indicator Indicator of the ability to absorb potential losses related to the customer loan portfolio Historical financial performance indicator Measure of the cost recognised in the year to cover the risk defaultin the customer loans book -historical financial performance measure Ratio between balance sheet impairments for loans to customers and the amount of overdue loans (BAL): Provisions for loans and overdue loans to customers Ratio between balance sheet impairments for loans to customers and loans overdue for more than 90 days (BAL): Provisions for loans and loans to customers overdue by more than 90 days Ratio between balance sheet impairments for loans to customers and non-performing loans (BAL): Provisions for loans and non-performing loans Ratio between balance sheet loan impairments and gross loans to customers (BAL): Provisions for loans and gross loans to customers Ratio between impairment charges recorded in the period for loans risk and the balance of loans to customers gross (DR): Reinforcement of provisions for loans, in the year (BAL): Gross customer loans 104 NOVO BANCO MANAGEMENT REPORT 20201.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 OUTLOOK 2021 6.0 CORPORATE GOVERNMENT 7.0 STATEMENTS 8.0 ALTERNATIVE MEASURESEfficiency and Profit Ability Ratio Designation Definition/Utility Calculation Basis Conciliation with the Financial Statements EFFICIENCY I Instruction No 16/2004 of Banco de Portugal EFFICIENCY Il Instruction No 16/2004 of Banco de Portugal Cost to Income PROFITABILITY Instruction No 16/2004 of Banco de Portugal It expresses the proportion of income necessary to cover the staff costs incurred. The lower the value of the indicator, the higher the level of efficiency of the organization's human resources Historical financial performance indicator Expresses the proportion of income necessary to cover operating costs incurred. The lower the value of the indicator, the greater the level of efficiency of the organization Historical financial performance indicator It expresses the proportion of income necessary to face the operating costs incurred and allows to measure the progression of efficiency levels. The lower the value of the indicator, the greater the level of efficiency of the organization Historical financial performance indicator Expresses the banking income (in%) generated by the asset, in the period and provides an analysis of the capacity to generate income per unit of assets used Indicator of historical financial performance Ratio between staff expenses and banking income (DR): Staff expenses Ratio between [administrative expenses and depreciation] and banking income (DR): Operating costs include Staff expenses, Other administrative expenses and Depreciation Ratio between operating costs and banking income Ratio between banking income and average net assets (BAL): Active; the calculation of the average net asset includes, in addition to the values at the ends of the period under analysis, the values recorded in each of the months in the interval considered (DR): Profit or loss from continuing operations before taxes (BAL): Assets; the calculation of the average net asset includes, in addition to the values at the ends of the period under analysis, the values recorded in each of the months in the interval considered (DR): Profit or loss from continuing operations before taxes (BAL): Equity; the calculation of average equity includes, in addition to the values at the ends of the period under analysis, the values recorded in each of the months in the interval considered Return on average net assets Instruction No 16/2004 of Banco de Portugal Expresses the income (in%) generated by the asset, in the period and provides an analysis of the capacity to generate results per unit of assets used Indicator of historical financial performance Ratio between profits or losses of continuing operations before taxes and average net assets. Return on average equity Instruction No 16/2004 of Banco de Portugal Expresses the income (in%) generated by equity in the period and provides information on the efficiency with which capital is used to generate results Indicator of historical financial performance Ratio between profits or losses of continuing operations before taxes and average equity 105 NOVO BANCO MANAGEMENT REPORT 2020Sustainability Report 2020 Sustainability Report 2020 Contents II. SUSTAINABILITY REPORT 1.0 1.1 1.2 1.3 1.4 2.0 2.1 2.2 2.3 2.3.1 2.3.2 2.4 2.5 3.0 3.1 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.3 3.4 3.5 3.6 4.0 4.1 4.2 4.2.1 4.2.2 4.2.3 4.3 4.4 4.5 4.51 4.5.2 5.0 5.1 5.2 5.2.1 5.2.2 5.2.3 6.0 6.1 6.2 7.0 7.1 7.2 7.3 SUSTAINABILITY AT NOVO BANCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Key indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Approach to sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 OUR CLIENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Listening to the clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Retail Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Corporate Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Medium-sized companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Large companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 New technological experiences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Customer protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 OUR EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Listening to the employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Attracting Talent and Merit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127 Capturing talent to NOVO BANCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Internal mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Performance Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Valuing employee development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Promoting gender equality, equal opportunities and respect for diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Promoting the reconciliation of professional, personal and family life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Addressing social work needs - internal social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Looking after heath, well-being and safety at work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 OUR SUSTAINABLE BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Listening to the stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Sustainable products and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 NB 18.25 Account and NB26.31 Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 ESG and NOVO BANCO ECO Structured Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Credit products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Financial Inclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Environmental impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Environmental performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 New Distribution Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 OUR RESPONSIBLE CONDUCT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Governance Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Giving back to the community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Social Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 NOVO BANCO Solidary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Cultural Patronage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 OUR PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 Social Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Environmental Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 ABOUT THIS REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 Methodological Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 Global Reporting Initiative (GRI) Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Independent Limited Assurance Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 107 NOVO BANCO SUSTAINABILITY REPORT 2020Sustainability at NOVO BANCO 1.0 Títle: I can see clearly know Author: Nair Domingues 1.1 Key indicators Social Indicators Employees Training (no. of hours) Staff Turnover Total of Women (%) Women in management positions (%) Women in first line positions (%) Gender pay gap (%) Environmental Indicators ESG Structured Products launched in the period (#) Subscription of ESG Structured Products in the period (#) Cumulative subscription of ESG Structured Products (#) Clients that subscribed ESG Structured Products in the period (#) Cumulative Clients that subscribed ESG Structured Products (#) Total ESG Structured Products subscribed in the period (€mn) Total cumulative ESG Structured Products subscribed in the period (€mn) C02 emissions from electricity consumption (ton) Active Digital Clients (# thousand) Corporate Governance Indicators 2019 2020 2020 vs 2021 4 326 4 321 200 545 194 925 9 - 25.0% 6.7 52.5% 34.7 31.3 9.6 12 5 339 6 735 4 870 5 973 121 151 5 828 566 7.4 53.5% 38.2 31.3 10.2 5 120 11 855 4 911 9 540 117 268 4 241 600 -0.1% -2.8% 0.7 p.p. 1.0 p.p. 3.5 p.p. - 0.6% -5.2% 76.0% 0.8% 59.7% -3.3% 77.5% -27.2% 6.0% -0.3% -18.6% -16.3% -20.8% 47.6% Entries of analysed accounts (# warnings) 11 457 11 422 Notifications to the authorities (#) Account openings investigated (#) Insertion of investigated participations Account openings refused after investigation Economic Indicators: Community and Society 1 035 3 705 1 138 63 843 3 101 901 93 Planned saving/"Poupança programada” (# clients) 277 495 225 935 - 18.6% Planned saving/"Poupança programada” (€mn) Minimum banking services account (#) No of suppliers with sustainability scoring Clients Very Satisfied and Satisfied with customer service - Retail (%) Clients Very Satisfied and Satisfied with customer service - SMEs (%) Donations (€mn) Direct economic value generated (€mn) Economic value distributed (€mn) Economic value retained (€mn) 109 1 090 8 491 496 97.0 95.1 0.58 841 412 429 1 039 9 740 569 96.3 94.0 0.50 812 381 431 -4.7% 14.7% 14.7% -0.7 p.p. -1.2 p.p. -13.8% -3.4% -7.5% 0.5% NOVO BANCO SUSTAINABILITY REPORT 20201.2 Highlights 110 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTJANFEBMARAPRMAYJUNJULAUGSEPOCTNOVDEC7 | NOVO BANCO CULTURA NOVO BANCO offers a tour guide on the NOVO BANCO CULTURA website, showing several regions and museums in the country and walking you through their painting collections.11 | NOVO BANCO CULTURANOVO BANCO lends six paintings from German painter Günther Förg to the Ourique Art Gallery.12 | NOVO BANCO SUMMIT DO ALENTEJOIn partnership with SIC Notícias TV channel and the Expresso newspaper, NOVO BANCO held a regional summit, where it highlighted entrepreneurs, businesses, and other relevant entities in the region.23 | NB ESG MELHOR SAÚDENOVO BANCO launches new structured deposit, with interest rate pegged to the share performance of companies included in the STOXX® Global ESG Impact index, which stand out for compliance with environmental, social and internal governance criteria.25 | CLIENTS SUPPORT MEASURESNOVO BANCO launches support measures for families and companies due to Covid-19 context.11 | SOS CORONAVÍRUS NOVO BANCO joins the Associação Empresarial de Portugal in the SOS-Coronavirus campaign.20 | NB ESG INOVAÇÃO BIOFARMACÊUTICA and NB ESG MAIS SAÚDENB launches two new structured deposits, with interest rate pegged to the share performance of companies that engage in pharmaceutical and biotechnology research and development and are included in the STOXX® Global ESG Impact index.20 | "A FRIEND IN NEED IS A FRIEND INDEED"NOVO BANCO joins AMI – Foundation for International Medical Assistance in the "A friend in need is a friend indeed" campaign to provide this organisation's most vulnerable beneﬁciaries, who are alone at home, with food and health goods.28 | INSTITUTIONAL CAMPAIGNNOVO BANCO launches a campaign to position its brand in the context of Covid-19, where it highlights its strategic traits of being essential, convenient, close and nonconformist.4 | GLOBAL RESPONSE TO COVID-19 NOVO BANCO joins the “Global Response to Covid-19” initiative, through which Portugal will contribute €10 million to accelerate the development, production and equitable access to Covid-19 vaccines, diagnostics and treatments.6 | SUSTAINABILITY REPORTNOVO BANCO publishes 2019 Sustainability Report.10 | NB ESG MAIS NUTRIÇÃONOVO BANCO launches new structured deposit - NB ESG Mais Nutrição (more nutrition), with interest rate pegged to the share performance of companies included in the MSCI World ESG Leaders Index, which stand out for compliance with the environ-mental, social and internal governance criteria established in global sustainable investment requirements.13 | NOVO BANCO CULTURANOVO BANCO lends the works of Frederico Ayres to the Viana do Castelo museums. 14 | NOVO BANCO CULTURANOVO BANCO lends a set of works by Nikias Skapinakis, Maluda and Noronha da Costa to the Mirandela Municipal Museum.15 | NB MAIS ELÉTRICONOVO BANCO launches new structured deposit with interest rate pegged to the share performance of electrical car makers included in the STOXX® Global ESG Impact Index, which stand out for compliance with the environmental, social and internal governance criteria established in global sustainable investment requirements.3| NBnetwork + NOVO BANCO earns award for "Best Banking Project" at this year's Portugal Digital Awards. 10 | NOVO BANCO CULTURANOVO BANCO lends two paintings by Thomas Buttersworth to the Olhão Municipal Museum.10 | NOVO BANCO CULTURANOVO BANCO Photo Collection opens “Território Solar” exhibition at Faro museum.10 | EPIM AWARDNOVO BANCO earns the EIPM (European Institute of Purchasing Management), award in the ‘Business Continuity’ Master category.15 | NB ESG INFRASTRUCTURES STRUCTURED DEPOSITNOVO BANCO launches new structured deposit, with interest rate pegged to the share performance of 3 companies included in the STOXX® Global ESG Impact index, which stand out for compliance with sustainable investment global requirements.18 | NOVO BANCO CULTURANOVO BANCO lends a set of works by Júlio Resende, Manuel Amado, Francisco Relógio, Roberto Chichorro and Noronha da Costa to the Barrancos Municipal Museum.9 | NOVO BANCO TOURISM SUMMITIn partnership with SIC Notícias and the Expresso newspaper, NB organises a summit on the tourism sector, the ﬁrst in webinar format.25 | NOVO BANCO CULTURANOVO BANCO's Photography Collection in international prominence though its inclusion in the study group of the International Association of Corporate Collections.1 | NOVO BANCO CULTURAOpening of “REFLEX: World with a Future Exhibition”, an initiative of Cais, which the Bank is a sponsor. The exhibition enhances positive and sustainable initiatives.3 | NOVO BANCO EDUCATION PATRONAGEClosing Ceremony of the 38th edition of the Portuguese Mathematics Olympics.22 | NOVO BANCONOVO BANCO appoints Andrés Baltar as new member of Executive committee and approves corporate bodies.23 | NOVO BANCO CULTURANOVO BANCO Photo Collection exhibits works by Vik Muniz at Universidade NOVA SBE.26 | INSTITUTIONAL CAMPAIGNNOVO BANCO launches new campaign praising the country's production capacity, under the motto “Portugal que faz” (Portugal that does).9 | NOVO BANCO DigitalNOVO BANCO launches the ﬁrst app of a new generation of smarter, more personalised applications that revolutionises the way clients interact with the bank in their everyday life.23 | NB ECO ZERO CARBONONOVO BANCO launches new structured deposit - NB ECO Zero, with interest rate pegged to the share performance of companies with clear commitments to reduce carbon emissions.3 | NBnetwork +NOVO BANCO earns award for “Best Integrated Corporate Banking Site in Western Europe”.10 | TALENT ATTRACTS TALENTNOVO BANCO opens applications for the 3rd edition of the 6-month or 1-year traineeships programme for young graduates.8 | NOVO BANCONOVO BANCO shares with its clients and the community in general specialised and technical information (GPS) that can support decision making in the context of Covid and preparation for post-Covid.11 | NOVO BANCONOVO BANCO publishes a page on its website with advice and measures intended for employees, clients and the community in the context of COVID-19.19 | NOVO BANCO AGRIFOOD SUMMITIn partnership with SIC Notícias and the Expresso newspaper, NOVO BANCO organises a summit on the agrifood sector, the ﬁrst in webinar format.26 | NOVO BANCO CULTURANOVO BANCO lends ﬁve works by Portuguese painters Graça Morais, Manuel Amado and Luís Noronha da Costa to the Lousã Museum17 | NOVO BANCO INDUSTRY SUMMITIn partnership with SIC Notícias and the Expresso newspaper, NOVO BANCO holds another industry-speciﬁc summit in webinar format, this time addressing the industrial sector.26 | NEW DISTRIBUTION MODELNOVO BANCO opens its ﬁrst branch in the New Distribution Model, with social and environmental criteria.31 | SOCIAL DIVIDEND MODELEnd of the 1st edition of the Social Dividend Model, surpassing the target points for 2020.111 NOVO BANCO SUSTAINABILITY REPORT 2020JANFEBMARAPRMAYJUNJULAUGSEPOCTNOVDEC7 | NOVO BANCO CULTURA NOVO BANCO offers a tour guide on the NOVO BANCO CULTURA website, showing several regions and museums in the country and walking you through their painting collections.11 | NOVO BANCO CULTURANOVO BANCO lends six paintings from German painter Günther Förg to the Ourique Art Gallery.12 | NOVO BANCO SUMMIT DO ALENTEJOIn partnership with SIC Notícias TV channel and the Expresso newspaper, NOVO BANCO held a regional summit, where it highlighted entrepreneurs, businesses, and other relevant entities in the region.23 | NB ESG MELHOR SAÚDENOVO BANCO launches new structured deposit, with interest rate pegged to the share performance of companies included in the STOXX® Global ESG Impact index, which stand out for compliance with environmental, social and internal governance criteria.25 | CLIENTS SUPPORT MEASURESNOVO BANCO launches support measures for families and companies due to Covid-19 context.11 | SOS CORONAVÍRUS NOVO BANCO joins the Associação Empresarial de Portugal in the SOS-Coronavirus campaign.20 | NB ESG INOVAÇÃO BIOFARMACÊUTICA and NB ESG MAIS SAÚDENB launches two new structured deposits, with interest rate pegged to the share performance of companies that engage in pharmaceutical and biotechnology research and development and are included in the STOXX® Global ESG Impact index.20 | "A FRIEND IN NEED IS A FRIEND INDEED"NOVO BANCO joins AMI – Foundation for International Medical Assistance in the "A friend in need is a friend indeed" campaign to provide this organisation's most vulnerable beneﬁciaries, who are alone at home, with food and health goods.28 | INSTITUTIONAL CAMPAIGNNOVO BANCO launches a campaign to position its brand in the context of Covid-19, where it highlights its strategic traits of being essential, convenient, close and nonconformist.4 | GLOBAL RESPONSE TO COVID-19 NOVO BANCO joins the “Global Response to Covid-19” initiative, through which Portugal will contribute €10 million to accelerate the development, production and equitable access to Covid-19 vaccines, diagnostics and treatments.6 | SUSTAINABILITY REPORTNOVO BANCO publishes 2019 Sustainability Report.10 | NB ESG MAIS NUTRIÇÃONOVO BANCO launches new structured deposit - NB ESG Mais Nutrição (more nutrition), with interest rate pegged to the share performance of companies included in the MSCI World ESG Leaders Index, which stand out for compliance with the environ-mental, social and internal governance criteria established in global sustainable investment requirements.13 | NOVO BANCO CULTURANOVO BANCO lends the works of Frederico Ayres to the Viana do Castelo museums. 14 | NOVO BANCO CULTURANOVO BANCO lends a set of works by Nikias Skapinakis, Maluda and Noronha da Costa to the Mirandela Municipal Museum.15 | NB MAIS ELÉTRICONOVO BANCO launches new structured deposit with interest rate pegged to the share performance of electrical car makers included in the STOXX® Global ESG Impact Index, which stand out for compliance with the environmental, social and internal governance criteria established in global sustainable investment requirements.3| NBnetwork + NOVO BANCO earns award for "Best Banking Project" at this year's Portugal Digital Awards. 10 | NOVO BANCO CULTURANOVO BANCO lends two paintings by Thomas Buttersworth to the Olhão Municipal Museum.10 | NOVO BANCO CULTURANOVO BANCO Photo Collection opens “Território Solar” exhibition at Faro museum.10 | EPIM AWARDNOVO BANCO earns the EIPM (European Institute of Purchasing Management), award in the ‘Business Continuity’ Master category.15 | NB ESG INFRASTRUCTURES STRUCTURED DEPOSITNOVO BANCO launches new structured deposit, with interest rate pegged to the share performance of 3 companies included in the STOXX® Global ESG Impact index, which stand out for compliance with sustainable investment global requirements.18 | NOVO BANCO CULTURANOVO BANCO lends a set of works by Júlio Resende, Manuel Amado, Francisco Relógio, Roberto Chichorro and Noronha da Costa to the Barrancos Municipal Museum.9 | NOVO BANCO TOURISM SUMMITIn partnership with SIC Notícias and the Expresso newspaper, NB organises a summit on the tourism sector, the ﬁrst in webinar format.25 | NOVO BANCO CULTURANOVO BANCO's Photography Collection in international prominence though its inclusion in the study group of the International Association of Corporate Collections.1 | NOVO BANCO CULTURAOpening of “REFLEX: World with a Future Exhibition”, an initiative of Cais, which the Bank is a sponsor. The exhibition enhances positive and sustainable initiatives.3 | NOVO BANCO EDUCATION PATRONAGEClosing Ceremony of the 38th edition of the Portuguese Mathematics Olympics.22 | NOVO BANCONOVO BANCO appoints Andrés Baltar as new member of Executive committee and approves corporate bodies.23 | NOVO BANCO CULTURANOVO BANCO Photo Collection exhibits works by Vik Muniz at Universidade NOVA SBE.26 | INSTITUTIONAL CAMPAIGNNOVO BANCO launches new campaign praising the country's production capacity, under the motto “Portugal que faz” (Portugal that does).9 | NOVO BANCO DigitalNOVO BANCO launches the ﬁrst app of a new generation of smarter, more personalised applications that revolutionises the way clients interact with the bank in their everyday life.23 | NB ECO ZERO CARBONONOVO BANCO launches new structured deposit - NB ECO Zero, with interest rate pegged to the share performance of companies with clear commitments to reduce carbon emissions.3 | NBnetwork +NOVO BANCO earns award for “Best Integrated Corporate Banking Site in Western Europe”.10 | TALENT ATTRACTS TALENTNOVO BANCO opens applications for the 3rd edition of the 6-month or 1-year traineeships programme for young graduates.8 | NOVO BANCONOVO BANCO shares with its clients and the community in general specialised and technical information (GPS) that can support decision making in the context of Covid and preparation for post-Covid.11 | NOVO BANCONOVO BANCO publishes a page on its website with advice and measures intended for employees, clients and the community in the context of COVID-19.19 | NOVO BANCO AGRIFOOD SUMMITIn partnership with SIC Notícias and the Expresso newspaper, NOVO BANCO organises a summit on the agrifood sector, the ﬁrst in webinar format.26 | NOVO BANCO CULTURANOVO BANCO lends ﬁve works by Portuguese painters Graça Morais, Manuel Amado and Luís Noronha da Costa to the Lousã Museum17 | NOVO BANCO INDUSTRY SUMMITIn partnership with SIC Notícias and the Expresso newspaper, NOVO BANCO holds another industry-speciﬁc summit in webinar format, this time addressing the industrial sector.26 | NEW DISTRIBUTION MODELNOVO BANCO opens its ﬁrst branch in the New Distribution Model, with social and environmental criteria.31 | SOCIAL DIVIDEND MODELEnd of the 1st edition of the Social Dividend Model, surpassing the target points for 2020.JANFEBMARAPRMAYJUNJULAUGSEPOCTNOVDEC7 | NOVO BANCO CULTURA NOVO BANCO offers a tour guide on the NOVO BANCO CULTURA website, showing several regions and museums in the country and walking you through their painting collections.11 | NOVO BANCO CULTURANOVO BANCO lends six paintings from German painter Günther Förg to the Ourique Art Gallery.12 | NOVO BANCO SUMMIT DO ALENTEJOIn partnership with SIC Notícias TV channel and the Expresso newspaper, NOVO BANCO held a regional summit, where it highlighted entrepreneurs, businesses, and other relevant entities in the region.23 | NB ESG MELHOR SAÚDENOVO BANCO launches new structured deposit, with interest rate pegged to the share performance of companies included in the STOXX® Global ESG Impact index, which stand out for compliance with environmental, social and internal governance criteria.25 | CLIENTS SUPPORT MEASURESNOVO BANCO launches support measures for families and companies due to Covid-19 context.11 | SOS CORONAVÍRUS NOVO BANCO joins the Associação Empresarial de Portugal in the SOS-Coronavirus campaign.20 | NB ESG INOVAÇÃO BIOFARMACÊUTICA and NB ESG MAIS SAÚDENB launches two new structured deposits, with interest rate pegged to the share performance of companies that engage in pharmaceutical and biotechnology research and development and are included in the STOXX® Global ESG Impact index.20 | "A FRIEND IN NEED IS A FRIEND INDEED"NOVO BANCO joins AMI – Foundation for International Medical Assistance in the "A friend in need is a friend indeed" campaign to provide this organisation's most vulnerable beneﬁciaries, who are alone at home, with food and health goods.28 | INSTITUTIONAL CAMPAIGNNOVO BANCO launches a campaign to position its brand in the context of Covid-19, where it highlights its strategic traits of being essential, convenient, close and nonconformist.4 | GLOBAL RESPONSE TO COVID-19 NOVO BANCO joins the “Global Response to Covid-19” initiative, through which Portugal will contribute €10 million to accelerate the development, production and equitable access to Covid-19 vaccines, diagnostics and treatments.6 | SUSTAINABILITY REPORTNOVO BANCO publishes 2019 Sustainability Report.10 | NB ESG MAIS NUTRIÇÃONOVO BANCO launches new structured deposit - NB ESG Mais Nutrição (more nutrition), with interest rate pegged to the share performance of companies included in the MSCI World ESG Leaders Index, which stand out for compliance with the environ-mental, social and internal governance criteria established in global sustainable investment requirements.13 | NOVO BANCO CULTURANOVO BANCO lends the works of Frederico Ayres to the Viana do Castelo museums. 14 | NOVO BANCO CULTURANOVO BANCO lends a set of works by Nikias Skapinakis, Maluda and Noronha da Costa to the Mirandela Municipal Museum.15 | NB MAIS ELÉTRICONOVO BANCO launches new structured deposit with interest rate pegged to the share performance of electrical car makers included in the STOXX® Global ESG Impact Index, which stand out for compliance with the environmental, social and internal governance criteria established in global sustainable investment requirements.3| NBnetwork + NOVO BANCO earns award for "Best Banking Project" at this year's Portugal Digital Awards. 10 | NOVO BANCO CULTURANOVO BANCO lends two paintings by Thomas Buttersworth to the Olhão Municipal Museum.10 | NOVO BANCO CULTURANOVO BANCO Photo Collection opens “Território Solar” exhibition at Faro museum.10 | EPIM AWARDNOVO BANCO earns the EIPM (European Institute of Purchasing Management), award in the ‘Business Continuity’ Master category.15 | NB ESG INFRASTRUCTURES STRUCTURED DEPOSITNOVO BANCO launches new structured deposit, with interest rate pegged to the share performance of 3 companies included in the STOXX® Global ESG Impact index, which stand out for compliance with sustainable investment global requirements.18 | NOVO BANCO CULTURANOVO BANCO lends a set of works by Júlio Resende, Manuel Amado, Francisco Relógio, Roberto Chichorro and Noronha da Costa to the Barrancos Municipal Museum.9 | NOVO BANCO TOURISM SUMMITIn partnership with SIC Notícias and the Expresso newspaper, NB organises a summit on the tourism sector, the ﬁrst in webinar format.25 | NOVO BANCO CULTURANOVO BANCO's Photography Collection in international prominence though its inclusion in the study group of the International Association of Corporate Collections.1 | NOVO BANCO CULTURAOpening of “REFLEX: World with a Future Exhibition”, an initiative of Cais, which the Bank is a sponsor. The exhibition enhances positive and sustainable initiatives.3 | NOVO BANCO EDUCATION PATRONAGEClosing Ceremony of the 38th edition of the Portuguese Mathematics Olympics.22 | NOVO BANCONOVO BANCO appoints Andrés Baltar as new member of Executive committee and approves corporate bodies.23 | NOVO BANCO CULTURANOVO BANCO Photo Collection exhibits works by Vik Muniz at Universidade NOVA SBE.26 | INSTITUTIONAL CAMPAIGNNOVO BANCO launches new campaign praising the country's production capacity, under the motto “Portugal que faz” (Portugal that does).9 | NOVO BANCO DigitalNOVO BANCO launches the ﬁrst app of a new generation of smarter, more personalised applications that revolutionises the way clients interact with the bank in their everyday life.23 | NB ECO ZERO CARBONONOVO BANCO launches new structured deposit - NB ECO Zero, with interest rate pegged to the share performance of companies with clear commitments to reduce carbon emissions.3 | NBnetwork +NOVO BANCO earns award for “Best Integrated Corporate Banking Site in Western Europe”.10 | TALENT ATTRACTS TALENTNOVO BANCO opens applications for the 3rd edition of the 6-month or 1-year traineeships programme for young graduates.8 | NOVO BANCONOVO BANCO shares with its clients and the community in general specialised and technical information (GPS) that can support decision making in the context of Covid and preparation for post-Covid.11 | NOVO BANCONOVO BANCO publishes a page on its website with advice and measures intended for employees, clients and the community in the context of COVID-19.19 | NOVO BANCO AGRIFOOD SUMMITIn partnership with SIC Notícias and the Expresso newspaper, NOVO BANCO organises a summit on the agrifood sector, the ﬁrst in webinar format.26 | NOVO BANCO CULTURANOVO BANCO lends ﬁve works by Portuguese painters Graça Morais, Manuel Amado and Luís Noronha da Costa to the Lousã Museum17 | NOVO BANCO INDUSTRY SUMMITIn partnership with SIC Notícias and the Expresso newspaper, NOVO BANCO holds another industry-speciﬁc summit in webinar format, this time addressing the industrial sector.26 | NEW DISTRIBUTION MODELNOVO BANCO opens its ﬁrst branch in the New Distribution Model, with social and environmental criteria.31 | SOCIAL DIVIDEND MODELEnd of the 1st edition of the Social Dividend Model, surpassing the target points for 2020.1.3 Partnerships Signatory Corporate citizenship initiative which had its origin, back in 2000, in a proposal by the then UN Secretary-General, Koﬁ Annan. It is based on ten fundamental Principles, in the areas of human rights, labour practices, environmental protection and anti-corruption, and aims to promote businesses’ public and voluntary commitment to endorse these principles. Member Non-proﬁt association that brings together and represents more than 90 leading companies in Portugal, which are actively committed to the transition to sustainability. Member Organisations for Equality Forum, created in 2013, comprises 69 organisations committed to reinforcing and highlighting their organisational culture of social responsibility, incorporating, in their strategies and management models, the principles of equality between women and men at work. Associate Main entity representing the Portuguese banking sector, it was created in 1984 to strengthen the ﬁnancial system and contribute to the development of a more solid banking sector. Associate Portuguese Association of Investment and Pension Funds and Asset Management Firms, which represents the interests of Mutual Funds management, Real Estate Funds management, Pension Funds Management and Asset Management, viewing a more efficient defence of these activities. Associate The Portuguese Quality Association is a non-proﬁt organisation, founded in 1969, that aims to promote and disseminate theoretical and practical knowledge in the ﬁeld of Quality and Excellence in Portugal. Associate National Customer Satisfaction Index is a system for measuring the quality of goods and services available in the national market, through customer satisfaction surveys. Subscriber Document presented by the United Nations Global Compact, which has as its main objective to achieve the transition to a low carbon economy and to avoid the overheating of the atmosphere. Subscriber Commitment to Sustainable Finance in Portugal Letter, which aims to contribute to the promotion of sustainable investment practices. 112 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORT1.4 Approach to sustainability NOVO BANCO steers its activity based on sustainability principles and with the firm resolve to give a positive contribution to the entire ecosystem within which it operates. With the aim of managing its business in a fair and responsible manner, the Bank has been implementing a culture that involves permanent monitoring of its impact on the community, training and raising the awareness of its employees, business partners and clients, and adherence to the principles and policies that govern its activity. Business ethics and social and environmental responsibility criteria are incorporated in NOVO BANCO's management model. By integrating these criteria, the Bank commits itself to managing the business with a view to creating value for clients, employees, shareholder(s), people, the environment and the communities where it develops its activity. NOVO BANCO’s management model thus aims to ensure sustainable development both within its line of activity and in terms of the dimension that links sustainability to the community, i.e., Corporate Social Responsibility (CSR). To this end and to strengthen its sustainability governance model, in 2020 NOVO BANCO started up a multidisci- plinary working group which, after sounding the various stakeholders, will review the Bank's sustainability strategy, in an integrated approach with its business plan and economic and financial objectives. This working group will assist and strengthen the Bank's governance and management in carrying out their activities by reconciling economic development issues with social, environmental and ethical responsibility issues to ensure that the Bank's operations are aligned to its sustainability strategy. To implement its sustainability strategy in 2020, several studies and trend analyses were carried out to validate the materiality of the issues to be considered. In light of the constraints caused by the pandemic, the Bank immediately decided to take a more proactive social stance, acting based on the following themes of first materiality matrix, published in 2020: • Physical and digital security of the Client and security of its financial assets • Financial inclusion of people and companies • Health and safety in the workplace and reconciling the personal and professional lives of employees Materiality Matrix Security of ﬁnancial assets, phusical and digital security of customers Products with social and environmental aspects Customer satisfaction and service quality Financing with sustainable criteria Occupational health and safety and work/life balance Financial inclusion of people and companies Business ethics in stakeholders relations Eco-efficiency at the bank’s branches, buildings and operations Management of social and environmental risks in the loan portfolio The bank’s reputation Recycling and circular economy Climate change strategy Supplier selection using environmental, social and ethical criteria Partnerships with private charity institutions and NGOs Human rights Community investments Strategy and results Diversity and gender equality Digitization and omni-channel approach Attracting and developping talent Important issues Material issues Management bodies l s r e d o h e k a t S s e u s s I l a i r e t a M s e u s s i t n a t r o p m I 113 NOVO BANCO SUSTAINABILITY REPORT 2020 Despite the commitments made in 2019, where environmental commitments were very relevant, in 2020 the social area was paramount in the Bank's ESG (Governance, Social Environment) activities. Striving to provide a quick and prompt response to issues arising from the pandemic, NOVO BANCO focused its activity in favour of the community, and sought to give its best contribution to its individual and corporate clients, its employees and society in general, in an attempt to mitigate the adverse context. NOVO BANCO is aware of the challenge that sustainable financing poses to the financial sector, faced with the need to classify and redirect private financial resources towards more sustainable investments, and therefore assumes the commitment to gradually transition its business model to fit a more sustainable economy, in compliance with the provisions of the Community directives deriving from the European Ecological Pact and the commitment made by the European Union in the framework of the Paris Agreement. In its social dimension, in 2020 the Bank will continue to support its individual and corporate clients in their transition towards a more sustainable and carbon-neutral economy. The new climate change financing framework will provide the Bank with the opportunity to take effective measures to mitigate climate change and risks that are already present, and to address their causes. To this end, the Bank pays and will continue to pay particular attention to the two-way relationship maintained with its various stakeholders through the existing communication channels. Canais de comunicação de stakeholders Employees Clients Regulators Request for in-person feedback via questionnaires and meetings Intranet (Somos NOVO BANCO, NBweb and Human Resources Portal) Thematics Mailboxes Email (including CEO Office and “Ask the Chairman” address”) HCD manager for active and retired employees Human Resources Business Partner Executive leadership visits to the commercial network Whistleblower line Workshops and Lectures Annual Meeting and other meetings Thematic meetings, workshops, clariﬁcation sessions and webinars Workers Committee, Union Secretariat and Information and Consultation Procedure Suppliers Contacts established through a speciﬁc website (Grupo NOVO BANCO Supplier Portal), coordinating the exchange of information via e-mail, telephone and in person. 114 Request for by phone, online and in person; Formal system for ﬁling complaints; Branch Network, Corporate Centres and Regional Divisions; Social networks (NOVO BANCO Cultura, NOVO BANCO Facebook and Linkedin) Provision of mandatory and voluntary information Request for feedback by phone, online and in person. Investor Relations team Regular meetings with investors Events, such as NOVO BANCO Summit Quarterly results presentation Investors website Media Community Information provided in-person, by phone and online; Press conferences Quarterly results presentation Sharing of specialized knowledge through social networks and media (radio, newspa- pers, televisions). Continuous in-person, telephone and online dialogue with Associations, Private Social Solidarity Institutions, social and environ- mental NGOs; Corporate Social Responsibility Initiatives Participation in conferences Social networks (NOVO BANCO Cultura, NOVO BANCO Facebook and Linkedin) NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTOur Clients 2.0 Title: Namoro ao pôr do sol Author: Isabel Chapert NOVO BANCO shapes its business strategy according to the specific needs and preferences of its clients, with the aim of providing an offer of products and services with value and appropriate to each of the segments, supported by a commercial network and the various business channels available to the client. In this extremely challenging year, marked by the constraints and limitations arising from the Covid-19 pandemic, NOVO BANCO sought to protect its community of clients, by keeping its branches open (following the appropriate protection rules), and taking several initiatives, including financial support through credit lines and moratorium, encouraging the use of remote channels, creating more flexible ways of subscribing to products, and promoting the secure use of digital channels, NOVO BANCO positioned itself from the outset as a strategic partner for its clients. More information is provided in chapter 1.1.1 - Business Model, of the Annual Report. 2.1 Listening to the clients In order to offer the best experience to its clients, the Bank seeks to gather as much information as possible about what they want, when, where and how. Knowing the clients’ expectations throughout their life cycle permits to identify opportunities for improvement, using a robust model for monitoring the customer experience based on several action pillars. Customer Experience Monitoring Model SERVICE QUALITY EXTERNAL SURVEYS MOMENTS OF TRUTH AD HOC SURVEYS DIGITAL CHANNELS QUALITY INDICATOR MISTERY CLIENT Monitoring the clients’ experience of the service provided in all the commercial structures of the Bank, through a questionnaire designed to measure their satisfaction with the various dimensions of service, as well as other global indicators. Continuous monitoring of the clients' experience immediately after the main moments of their relationship with the Bank, in order to identify improvements that will allow them to meet their expectations and needs. Customer satisfaction survey targeting the different aspects of the digital channels (available features, ease of use, security, visual attractiveness) and comparison with the competition. Service quality Moments of Truth Digital channels 116 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTMystery Client Quality Indicator Ad hoc surveys External Surveys Development of a customised Mystery Client programme with the main objective of assessing compliance with the quality principles deﬁned by the Bank, and identifying any service weaknesses as well as training needs. Development of a Quality indicator for the commercial areas that reﬂects the quality of service and other elements that impact the customer experience. Carrying out speciﬁc surveys on a case-by-case basis and using different methodologies, depending on the critical themes of the moment. Monitoring of external benchmark market surveys such as the ECSI (National Customer Satisfaction Index), developed by APQ and NOVA IMS, BASEF Banca, developed by Marktest, and the Financial Services Barometer, developed by DATA E. The information obtained through this monitoring model is shared with the Bank's commercial structures and with the central areas, enabling a set of actions to be taken that aim to improve this group of stakeholders’ experience of the Bank in its various dimensions. In order to correct the reasons of dissatisfaction conveyed by clients through satisfaction surveys, the Restart pro- gramme sends a lead to the commercial network's workstations, allowing it to assess the grounds for dissatisfaction and mitigate them whenever possible. The management of complaints also has a significant impact on the clients’ relationship with the bank, providing an opportunity to win back unhappy clients. For each complaint received, the underlying causes are analysed, the ensuing losses are quantified and corrective and preventive measures are implemented to avoid the recurrence of failures. In 2020, the Bank received 0.35 complaints for every thousand active customers, which compares with 0.30 in 2019. Clients may lodge complaints through several channels, and an effort is made to solve problems at the first contact with the client. NB NET NB DIRETO 707 24 7 365 NOVO BANCO BRANCHES CORPORATE CENTRES E-MAIL satisfacao@novobanco.pt ONLINE FORM LETTER A frank and continuous contact with the clients requires fast and efficient replies to their comments or complaints, and helps to develop a relationship of trust. The Bank maintains its ambition to be recommended as a reliable, straightforward, and fast-response bank, with easy physical and digital access, viewing the strengthening of customer confidence and the development of a sustainable business. 117 NOVO BANCO SUSTAINABILITY REPORT 20202.2 Retail Banking The Bank seeks to learn about the needs of its clients at every step of their lives, listening carefully to what they have to say through the various channels available, so as to keep developing and implementing offers and products that best suit the clients' needs. In 2020, approximately 54 thousand replies to the satisfaction questionnaires were collected, covering the three segments of Retail: individual clients, 360º and Small Businesses. Customer Service - Retail (%) Retail (total) Individual Clients 3.7% 9.2% 3.6% 9.9% 3.7% 6.8% 360 4.7% 9.3% Small Businesses 87.1% 86.5% 89.5% 86.0% Not Satisﬁed Satisﬁed Very Satisﬁed In 2020 the confidence index¹ is 75%. Global satisfaction (very satisfied clients) stands at 75%, up from 70% in 2019. The Net Promoter Score (which indicates the intention to recommend the Bank) is currently 25. In 2020, a survey was once again conducted to sound the opinion of clients (around 15.8 thousand) concerning their experience in the main moments of truth in their relationship with the Bank, and in particular with regards to: personal loans, mortgage loans and account opening. The Bank also promotes a Mystery Client programme that covers all the commercial structures of Retail. However, in 2020, due to the Covid-19 restrictions imposed, there were no Mystery Client visits. Moments of Truth Very satisfied clients (%) 88% 83% 94% Account opening Mortage loans Personal loans 1. See methodological notes 118 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTA survey was carried out in April to the individual clients and businesses segments to assess their opinion on some of the measures implemented by the bank to address the Covid-19 pandemic. For 88% of the clients surveyed, the measures imple- mented by NOVO BANCO were in line with or above their expectations. The level of satisfaction with the manner in which NOVO BANCO informs on the measures taken to respond to the Covid-19 outbreak is worth noting, with 84% of the respondents saying they were satisfied or very satisfied. In terms of the offering, NOVO BANCO developed a large set of initiatives aimed at supporting individual and small business clients, by setting in motion and making available credit lines of support to companies affected by the crisis, and taking part in the financial sector's global solution to support families in financial difficulties due to the pandemic (moratoria for Residential Mortgage Loans and Personal Loans), thus encouraging and promoting Do the measures taken by the NB to respond to the Covid-19 outbreak meet your needs/ expectations? (%) 12% 80% 8% Above expectations In line with expectations Below expectations a digital relationship with the Client. Moreover, the Bank offered temporary exemptions from payment on certain commissions (such as on digital transfers and cash advances), and made available free-of-charge debit cards, as well as insurance products with special Covid-19 related coverage. 2.3 Corporate Banking In terms of support to companies, NOVO BANCO positioned itself from the outset as a strategic partner, providing financial support to small and medium-sized enterprises through the available lines (Capitalizar 2018-Covid-19 Credit Line and industry-specific lines of Support to the Economy), responding to requests for loan moratoria, and developing the ‘NB Empresas – Antecipação Fundos Lay-off” (to receive in advance the funds provided by the Social Security Institute for the payment of salaries by companies using the simplified lay-off scheme). The Bank also strongly focused on the digital transformation of processes, investing in remote relationship and signature tools so as to continue to address the needs of its clients quickly but in compliance with the social distancing restrictions imposed in the COVID context. Customer Service - Corporate (%) 6.0% 7.4% 1.9% 9.3% Large corporate Medium-sized corporate 119 86.6% 88.8% Not satisﬁed Satisﬁed Very satisﬁed NOVO BANCO SUSTAINABILITY REPORT 2020Trade Finance is another business area where the Bank stands out, providing a wide range of products and specialised advice designed to support international trade. In January 2020 NOVO BANCO was once again elected the ‘Best trade finance bank’ in Portugal by the Global Finance international magazine, based on its activity in 2019. In June 2020, NOVO BANCO was also elected "Best Sub-custodian Bank 2020" in Portugal by Global Finance”. Creating a value proposition for the Corporate segment that is innovative, competitive and profitable, and bolsters NOVO BANCO's role as the reference bank for companies in Portugal, remains one of the Bank's priorities, and the customers’ voice gives a crucial contribution to attaining this goal. In 2020, Corporate Banking obtained approximately 2,400 replies to customer service satisfaction surveys. The results show that 89% of the Medium-sized corporate clients and 87% of the Large corporate clients are very satisfied with the Bank's service, which proves that the Bank's activity matches the needs and expectations of its clients. 2.3.1 Medium-sized companies In 2020 the confidence index was 75%. Global satisfaction continued to improve, with the percentage of very satisfied clients standing at 75% in 2020, which compares with 69% in 2019. The Net Promoter Score is currently 24. Also, in the Medium-sized Companies segment, the Bank evaluates the customers’ experience after taking out a loan. The resulting data is shared not only with the commercial areas, but also with the marketing areas, and are used to support the introduction of innovations and the launch of new products and services. In June and July, the Bank conducted surveys to assess how the measures and solutions adopted in the context of Covid-19 measured up to the clients’ needs and expectations, where 93% of the corporate clients responded that they were in line or above their expectations. It should be noted that 71% of these clients were very satisfied with the support provided by NOVO BANCO in this period. Of those surveyed, about 37% had resorted to a specific Credit Line, or a Moratorium, or both, and of these, 89% were very satisfied with the Bank's follow-up during the process. How do you rank your satisfaction with the support provided by NOVO BANCO during this period in which we are living? (%) How do you rank your satisfation with each of the following aspects of the Covid-19 Lines to which you resorted? (%) 71.3% Very satisﬁed Time elapsed until the approval was communicated 8.3% 17.5% 74.2% Time elapsed until the amount was availabre 9.0% 22.9% 68.1% 3.9% 7.4% 88.7% Bank´s follow up during the process 22.4% Satisﬁed 6.3% Not satisﬁed Medium-sized Corporate Not satisﬁed Satisﬁed Very satisﬁed 120 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORT2.3.2 Large companies In the Large Companies segment, clients answer a very detailed annual questionnaire that aims to assess the various items that count towards their choice of NOVO BANCO as their Bank. In 2020, the confidence index of these clients was 74%, which compares with 64% in 2019. As to global satisfaction, 64% of the clients are very satisfied with the Bank. Additionally, 67% of the clients are very satisfied with customer service and 87% are very satisfied with the service provided by their Account Manager. 2.4 New technological experiences Its digital transformation is one of NOVO BAN- CO's top priorities, emerging this year in an even more demanding context in terms of speed in response to the clients’ new needs and expectations. The aim is to have an agile organisation, focused on the client and its needs. The digital offer covers all the different segments of the bank. In 2020 we launched NB smarter, the new mobile app. For retail customers, NOVO BANCO offers the NB smart app and the NB smarter mobile solutions (the latter is the new mobile app launched at the end of 2020), the NBnet homebanking service and the NB app tablet. To its corporate clients, NOVO BANCO offers the NBnetwork internet banking service, this year further reinforced with the NBnetwork+, a digital financial management solution for companies, pioneering in Portugal and allowing a combined view of all their bank accounts, which permits to initiate payments and has functionalities such as a Financial Calendar, the categorisation of account entries, as well as alerts and notifications, contributing to improve the operational efficiency of NOVO BANCO's clients and their digital transformation. NBnetwork + solution won the prize for "Best Banking Project. The NBnetwork + solution won Portugal Digital Awards 2020’ prize for "Best Banking Project”, which recognised NOVO BANCO’s effort to deliver excellence in value creation for its clients. As part of NOVO BANCO's digital transformation strategy, and with a view to widening the scope of this strategy, improving efficiency, and addressing environmental and social positive impacts, the following solutions stand out: • New account opening remote solutions, using the Digital Mobile Key or by Video Call, offering a new onboarding experience that is complete, fast, intelligent, efficient, and entirely digital; • Launch of a new app for Individual Clients (NB smarter) with a completely renewed design and customer experi- ence, adaptable and customisable, inclusive and predictive (based on data science) and offering a wide range of services and solutions, including the aggregation of accounts with other banks; • Reinvention of the home buying experience, from simulation to title deed. Now with a new branch platform that completes the omnichannel experience. A simpler, faster and more transparent process; 121 NOVO BANCO SUSTAINABILITY REPORT 2020• Development of Phygital solutions aimed at i) improving the customer experience through mobility and sharing, also allowing a remote but close relationship with the bank; ii) streamlining processes through digital signatures with validation code and handwritten electronic signature, reinforcing transparency in relationships, and iii) adoption of digital processes that foster a paperless culture; • Digital solution for loans to small businesses: automated and integrated access to credit through the NBnetwork digital channel. A totally secure process, with no need to deliver any documentation or go to the branch, with funds made available in less than 48 hours. Throughout the year, the Bank also continued to renew its digital channels and to leverage on new data science skills: • A new Non-Financial Offering was made available online; • The approval circuit for personal loans requested through the digital channels was streamlined; • The offer of more 60 Investment Funds available for subscription through the Digital Channels was expanded (Morning Star offer); • Alternative signature solution via NBnetwork, with no need for Digital Certificates / PKI (public key infrastructure) Signatures; • Batch payments, payments to the Social Security and sending of payment files now available through the Open Banking channel; • Introduction of new functionalities in the app to enhance convenience for the client: new Mbway functionalities (Account division and credit card request); • Machine Learning models introduced in money laundering prevention methods; • Contributions to the customer days through the development of customisation models and functionalities in the channels; • Support to business using propensity models, to activate or deactivate clients, or identify better offers. Faced with the adverse scenario resulting from the Covid-19 pandemic, NOVO BANCO used digital transformation to support its clients: • Launch of a regional Marketplace hosted on the novobanco.pt website to support clients in the small businesses segment implement or reinforce their digital presence; • • Improvements in applications for loans under the protocol credit; lines, as well as for moratoria (individual and corpo- rate clients): the process is now more automated and access can be made directly through NOVO BANCO's website; In 2020 we launched the Marketplace to boost local commerce. • The process of activating the Digital Channels on NOVO BANCO's website (individual and corporate clients) was streamlined and made easier, and client/bank communication tools were promoted on the app (mail messaging, appointment of meetings and contact request); • Development of several use cases using Artificial Intelligence to predict and model Covid-19 impacts on the national economy. 122 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTWith a view to promoting digital education, in 2020, NOVO BANCO made a commitment to Lar Escola António Luis de Oliveira to support both the Foundation itself and the young people which it supports, by providing equipment and digital know-how, together with its partners. In order to assess the impact of technological innovations on the customer experience, in 2020 approximately 42 thousand people were surveyed to assess the global satisfaction with the Bank's channels - NBSmart app, NB net, and Nbnetwork. In addition, another 3.5 thousand people were surveyed to assess the use of these channels’ functionalities, to analyse the competition and to detect opportunities for improvement. In terms of customer satisfaction, the channel with the best score is NBnet, followed by NBnet and NBnetwork. 61 54 37 Net Promoter Score NB smart app Net Promotor Score NBnet Net Promotor Score NBnetwork As regards the intention to recommend, the NB smart app was the channel with the highest Net Promoter Score. The year 2020 closed with 600 thousand active clients in the digital channels and more than 415 thousand active mobile clients. The goal for 2021 is therefore to continue to grow and to innovate. The result of the ongoing digital transformation is clearly visible in customer interactions with the bank. Most of the interactions between NOVO BANCO and its individual clients already take place through the Bank's mobile channel (in December the figure was 55%, far outstripping the points of contact made through ATMs). Currently 70% of the contact points with the bank are made through the digital channels. 600 thousand 415 thousand DIGITAL ACTIVE CLIENTS MOBILE CLIENTS Mobile clients’ interaction has seen exponential growth over the last five years, having in 2017 surpassed online interactions. In 2015, only 7% of NOVO BANCO's clients used this channel, with 2018, 2019 and, of course, 2020 being the years of strongest growth. 123 NOVO BANCO SUSTAINABILITY REPORT 20202.5 Customer protection The protection of customers can only be properly safeguarded if NOVO BANCO's activity is adequately pro- tected. Therefore, and in accordance with the best market practices and legal and regulatory requirements, the Bank ensures the confidentiality, integrity and availability of information. Customer protection is present in all the Bank's activities, including the safety of the client, the security of the transactions carried out, and the protection of the personal data of clients and remaining account holders. To ensure privacy and the correct treatment of personal data, the Bank has developed a set of procedures and internal rules, as well as a Privacy Policy, and its website provides detailed information on the treatment of personal data. To prevent, detect and react to the new cyber threats arising from digitisation, leading to increased attention and stronger technical control. The Bank invests in the strengthening of its software and continuously warns its clients about the latest fraud at- tempts issuing security advice for safe Internet browsing and safeguarding the security of transactions and per- sonal data, in the various channels (namely e-mail, direct channels, PC, smartphone, tablet). During 2020, in the context of the pandemic, NOVO BANCO also stepped up information security, including in its annual plan different communication activities to raise awareness among the employees to topics such as cyber security and social engineering. In 2020 we reinforce the digital protection of our customers Given the key role played by all the employees in the prevention of cyber risks, the Bank provided tips on security that may come useful both in the professional context and in the personal and family context, thus contributing to enhance security and resilience in the global cyberspace. The digital channels, which permit to view all contents very quickly and practically, at any time and from anywhere, were also much focused in the communication campaign. The digital channels are indeed essential to ensure confidence in the ecosystem in the context of teleworking. In 2020 the Bank received no complaints originating from the National Data Protection Commission (CNPD). The only complaint, received in 2019, has been solved with no consequences for the Bank. NOVO BANCO seeks to satisfy the needs of its clients, allowing them to fulfil their dreams, build up and strengthen their business, always aiming for a long-term relationship, based on trust, the security of their assets and the privacy of their data. 124 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTOur Employees 3.0 Title: Projetos futuros Author: Jorge Esteves da Costa Being aware that good results stem from a diversified, and inclusive human capital, bringing different life experiences, NOVO BANCO bases its relationship with all its employees on the Talent & Merit pillar of its strategic plan, as well as on other sound governance policies and general principles, which aim to respond to five challenges: • Attract and Retain talent; • Promote gender equality, equal opportunities and respect for diversity; • Promote the conciliation of professional, personal and family life; • Address social work / internal social responsibility needs; and • Watch over health, well-being and safety at work. Total staff Total NOVO BANCO Employees in Portugal Women Men 2018 4 382 2 274 2 108 2019 4 326 2 272 2 054 2020 2020 vs 2019 4 321 2 313 2 008 - 0.1% 1.8% -2.2% 94% UNIONISED EMPLOYEES 98% 53.5% EMPLOYEES COVERED BY COLLECTIVE WAGE AGREEMENT WOMEN 46.5% MEN 3.1 Listening to the employees To implement its human capital strategy, NOVO BANCO seeks to follow the best fair-process practices in deci- sion-making, focusing not only on results, but deploying a fair and reasoned process with strong engagement of the employees, in order to deliver results. The Bank thus endeavours to be aware of the needs and difficulties experienced by employees throughout their life cycle and to meet their expectations, so as to contribute to their full development, and allow them to fully unlock their potential and maintain their motivation. In 2020 NOVO BANCO once again conducted the half-yearly Engagement Survey, one of its main tools to sound the organisational climate of the Bank - which had a participation rate of around 79%, as well as the Internal Customer Satisfaction Survey and the Psychosocial Risk Questionnaire. 126 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTEngagement Results (%) 50% 40% 45% 47% 49% 54% 68% 32% 37% 31% 36% 32% 31% 18% 23% 24% 17% 19% 15% 24% 8% Engagement Would I remain at NOVO BANCO even if they offered the same salary and/or beneﬁts in any other company? Would I recommend NOVO BANCO as a good company to work for? I am proud to work at NOVO BANCO Overall, at the moment, how would you rate your level of satisfation with NOVO BANCO? I am motivated to came daily to work I am motivated and avalable to overcame whait is expected of me, to help boast the success of NB Unfavorable Neutral Favorable Sounding and keeping in touch with the employees became even more important in 2020, especially when teleworking took on a prominent role in the performance of each employee's duties. In this context, the Bank made available new communication channels, such as the "We are NOVO BANCO" platform, based on SharePoint technology, to bring news to the employees and ensure that all relevant information was disclosed in real time, and the Yammer social network, which put everyone in contact with each other in a new form of communication marked by greater proximity, participation and collaboration. These new communication channels proved to be an essential factor in an adverse scenario, by promoting integration, union and motivation within the NOVO BANCO team. 3.2 Attracting Talent and Merit NOVO BANCO uses a set of means and initiatives to capture new talent and retain existing talent from within the personal and professional development of all its employees. This model is deployed in four stages: 3.2.1 Capturing talent to NOVO BANCO In 2020 there were two internship programmes aimed at attracting young talent at the beginning of their professional careers, seeking not only to address the Banks’ staff recruitment and rejuvenation needs, but also to give young pro- fessionals career opportunities and the possibility to establish themselves in regions where labour supply is scarcer: • Talent Attracts Talent Programme – annual programme of paid internships lasting 6 or 12 months for young graduates or with a master's degree, to be carried out not only in the central departments but also in the commercial areas. In 2020, 58 young people were integrated into the Bank's staff, of whom 33 came from the second edition of this programme and 25 from the NB Retail Banking Programme (an exclusive programme for the Commercial Network of the North Commercial Department). The third edition of the Talent Attracts Talent Programme received a further 49 young graduates. 127 NOVO BANCO SUSTAINABILITY REPORT 2020• NB UP Programme- programme with the duration of one month for young people attending national higher edu- cation institutions. The programme allows these students to have working experience during the summer holidays and is also paid. In 2020, 117 young people participated in this internship. 3.2.2 Internal mobility NOVO BANCO encourages the career development of each employee throughout his or her professional career. To this end the Bank has in place, among other tools, an internal mobility programme that enhances the Bank's human capital, enabling its employees to embrace new challenges and opportunities for individual development and progress. In 2020, 19 employees were given the opportunity to change their jobs. By enabling and contributing to the develop- ment of a more motivating working environment, the Bank contributes to the retention of talent. 3.2.3 Performance Assessment The Performance Management Process, which covers all employees and is included in the Employee Portal (called “My Portal”), offers a personal development programme where each employee can define his or her own objectives in terms of continuous improvement in the performance of their functions. Performance Evaluation, carried out annually, is based on two aspects: • fulfilment of objectives; • skills and behaviour observed (general, specific and technical). It is an important tool in the alignment between the organisational strategy and the performance of each employee/team, supporting a constructive and continuous dialogue between each Employee and his or her line manager. We launched the AppRH, a new mobile for employees Download Transforming Our World - Sustainable Development Goals - Full Size PNG Image - PNGkitIn line with the new operating models and evolution of NOVO BANCO, which are based on modernisation and We launched the AppRH, a new mobile for employees digitisation, AppRH was launched in 2020. AppRH is a new mobile tool for fast and intuitive access to "My Portal", the Bank's Employees Portal, from the employees’ private smartphones, which allows executing the task involved in the Performance Assessment process. Employees can also access other personal data through this app, such as details of their holidays and absences, as well as general data of the Bank, search other employees’ professional contacts, and view and browse through the Bank's organisational chart. 3.2.4 Valuing employee development By continually reinforcing the knowledge of its employees, NOVO BANCO promotes their retention, also contributing to the recognition of the diverse talent possessed by its staff and guaranteeing they have the decisive skills required to attain the challenging objectives it proposes to achieve. Aware of the current environment of deep changes and huge challenges faced by the financial sector, the Bank seeks innovative solutions that enhance the contribution of its employees, continuing to invest consistently in the design and implementation of distinctive and motivating training, enabling the improvement of performance, and the development and evolution of NOVO BANCO's employees. 128 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTTo ensure that employees had access to adequate training, approximately 288.5 thousand euros were invested in training, averaging 45.1 hours per employee, with a special focus on: • Regulatory Training | Markets and Financial Instru- ments Directive (MiFID II), IDD - New Insurance and Reinsurance Distribution Law, Mortgage Credit Marketing Directive; Prevention of Money Laundering and Financing of Terrorism and Information Security; We provide more than 194 thousand hours of training to our employees • Continuous professional training|: New Investment Advisory Platform (provided to 425 employees working in NB360 segment); • Training designed for the New Distribution Model: the implementation of this new Model, which is included in one of NOVO BANCO's strategic transformation pillars, entails a set of initiatives intended to give the Clients a new experience, both inside and outside the branch, and using all the forms and channels( digitals, remotes and in person) with which the Bank relates to its clients. Because the practical learning at NOVO BANCO is highly valued the on-the-job training is also provided at the 20 School branches all over the country, although this year it is being provided remotely due to the pandemic. Based on the concept of learning by doing, this is a pioneering project in Portuguese banking, which over the years has broadened its scope of action and is now responsible for: • the initial training framework for new employees; • the reinforcement of skills of current employees; • the development of appropriate skills to support functional mobility; • the monitoring of current employees returned from extended leaves; • support in the implementation of strategic projects. During 2020, 210 employees attended school branch training, 53 of whom were part of the group of employees who joined the Bank via the "Talent attracts Talent" programme. Included in the various tools to attract and retain talent, in 2020 the Bank made 712 promotions on merit, 16 promo- tions due to change of job and 66 promotions on the basis of seniority, making a total of 794 promotions. 129 NOVO BANCO SUSTAINABILITY REPORT 20203.3 Promoting gender equality, equal opportunities and respect for diversity NOVO BANCO's relationship with all its employees is based on two fundamental policies: the Human Rights Policy and the Policy of Non-Discrimination and Equal Opportunities. These policies tackle issues such as equal opportu- nities, diversity, respect for freedom of association, rejection of forced and child labour, discrimination, any form of harassment and, in general, respect for the Employee as a Person. NOVO BANCO complies with the legislation, rules and regulations in force and develops its activity in full compliance with its Equality and Non-Discrimination Policy and Human Rights Policy, defined based on: • the United Nations Global Compact Principles; • the Universal Declaration of Human Rights; • The Guidelines of the Organization for Economic Cooperation and Development (OECD) for Multinational Enterprises; • European and National Legislation on Gender Equality and Harassment prevention. Diversity and gender equality are an integral part of human capital management, with gender parity already a reality in NOVO BANCO, where women account for 53.5% of the workforce. However, the Bank is strongly committed to further reinforcing women representation at top management level. Although there has clearly been a positive evolu- tion, there is still a way to go (namely in terms of closing the wage gap). Gender equality is part of the NOVO BANCO Social Dividend model, a model created in 2017 of commitment to give back to the community and the employees. The model comprises four programmes, one of which, #NB Equal Gender, measures and sets targets for three indicators: percentage of women in top jobs, percentage of women in management positions and gender pay gap. The DCH (Human Capital Department) produces an internal Gender Equality report where various Human Capital Management processes are monitored by gender (e.g., admissions, exits, performance evaluation, distribu- tion of each functional group, vocational training, use of work and life benefits, etc). The Bank actively participates in the iGen Forum for Gender Equality, and in 2020 the working group of which it is part produced a book (to be launched in the first half of 2021) aimed at raising awareness among children and young people to the need for a fairer world in terms of gender equality. 130 #NB Equal Gender 36.2% 24.2% 36.1% 31.3% 9.4% 9.6% 38.2% 31.3% 10.2% 2018 2019 2020 Woman in senior leadership roles rate Woman in leadership roles rate Pay Gap We actively participate in iGen working group producing a book that aims to raise awareness among young people about a more equal world NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTIn 2020, the representation of the female gender increased in management and administrative functions. Employees by Gender Professional Category Total Men Women 2018 4 382 2019 4 326 2020 2020 vs 2019 4 321 -0.1% 2 108 (48.1%) 2 054 (47.5%) 2 008 (46.5%) - 2.2% 2 274 (51.9%) 2 272 (52.5%) 2 313 (53.5%) Management 435 (9.9%) 375 (8.7%) 382 (8.8%) Men Women 278 (63.9%) 245 (65.3%) 236 (61.8%) 157 (36.1%) 130 (34.7%) 146 (38.2%) Heads of Department 441 (10.1%) 546 (12.6%) 484 (11.2%) -11.4% 1.8% 1.9% -3.7% 12.3% 0.2% 3.3% 0 5.8% 261 (59.2%) 314 (57.5%) 271 (56.0%) -13.7% 180 (40.8%) 232 (42.5%) 213 (44.0%) -8.2% 1 889 (43.1%) 2 070 (47.9%) 2078 (48.1%) -0.4% 882 (46.7%) 925 (44.7%) 931 (44.8%) -0.6% 1 007 (53.3%) 1 145 (55.3%) 1 147 (55.2%) 672 (42.1%) 559 (42.3%) 559 (40.9%) 926 (57.9%) 763 (57.7%) 807 (59.1%) 19 (0.4%) 13 (0.3% 11 (0.3%) -15.4% 15 (78.9%) 11 (84.6%) 11 (100%) 0 4 (21.1%) 2 (15.4%) 0 (0%) -100% Administrative 1 598 (36.5%) 1 322 (30.6%) 1 366 (31.6%) Men Women Specific Men Women Men Women Auxiliary Men Women 131 NOVO BANCO SUSTAINABILITY REPORT 20203.4 Promoting the reconciliation of professional, personal and family life The balance between the professional, personal and family life of its employees deserves a special attention from NOVO BANCO and it is also a talent acquisition and retention tool. The Bank therefore integrated the “# NB Work & Life” programme, a set of initiatives that promote conciliation and flexibility at work, into the Social Dividend Model. Under this programme, the employees may enjoy the following benefits: • Holiday purchase - possibility to purchase up to 5 additional holiday days per year; • Leave on special days - the employee's birthday; afternoon on the birthday of dependent children and/or stepchildren up to the age of 18, first day of classes for the 1st to 5th school year of dependent children and/or dependent stepchildren; • Early Friday / Late Monday - Half-day leave (Friday afternoon or Monday morning), compensated by additional work during the week; • Home Office - remote work, for greater flexibility in terms of workplace and working hours; • Take Away - the employees can buy and take home low-cost and nutritionally balanced meals. In 2020, Home Office/Telework took on a particular importance due to the pandemic situation. The fact that the Bank had created this benefit and established the rules and instruments on its use prior to the outbreak of Covid-19 was crucial for the success of Telework in this context. The results obtained in each of these initiatives show their importance for the employees and justify their maintenance. NB Work& Life # Employees Leave on Special Days 18 942 15 707 # Employees in Home Office # Employees Purchase of Holidays 12 093 11 912 2 200 630 175 296 334 580 13 23 2018 2019 2020 Goal 2018 2019 2020 Goal 2018 2019 2020 Goal # Employees Early Friday/Late Monday # Takeaway Meals 1 188 1 290 1 348 450 145 269 124 466 84 834 82 500 2018 2019 2020 Goal 2018 2019 2020 Goal 132 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORT 3.5 Addressing social work needs - internal social responsibility NOVO BANCO has a strong concern for the social well-being of its employees. Therefore, it offers a set of benefits that go beyond monetary retribution and aim to strengthen employees’ relationship with NOVO BANCO, personal satisfaction and savings. These benefits, attributed within the scope of the internal social responsibility programme, take the form of: • Education support for children of employees in active service; • Support to retired employees; • Christmas presents for employees and their children and dependent stepchildren; • Special conditions in NOVO BANCO's commercial offer. In 2020, due to the impossibility of holding the traditional employee Christmas dinner and in order to keep the Christmas spirit alive, the Bank instead gave each of its employees a basket composed exclusively of Portuguese products produced by NOVO BANCO's client companies, in line with its positioning in support of the national economy, as featured in its external communication: “This is the Portugal that does and this is the Bank that helps doing”. In addition to the benefits enjoyed under the Banking Sector Collective Bargaining Agreement, namely birth support allowance, child allowance and study allowance, NOVO BANCO also provides a series of social supports aimed at the education of its employees' children, as well as providing for the basic necessities for its retired employees, such as charges for internment in homes, day centres, home support, among others. In 2020 we gave 2,990 Christmas presents to the children of the employees. Employee Benefits Education support Early childhood benefits School grants Support to children and youths with special needs Support to retired employees 2018 2019 2020 2020 vs 2019 391 435 434 0.2% 506 000 € 532 000 € 509 440 208 210 262 164 800 € 164 100 € 192 835€ 78 73 81 -4.2% 24.8% 17.5% 11.0% 90 000 € 90 000 € 79 940€ -11.2% Expenses with senior residences, day-care centres, home support, medicines and other basic necessities. 66 66 60 -9.1% 126 900 € 126 900 € 108 640€ -14.4% 133 NOVO BANCO SUSTAINABILITY REPORT 2020In 2020, approximately 92.6% of the employees who applied for the social support provided by the Bank were granted that support. O NOVO BANCO also has four canteens where working and retired employees can have lunch and order take away meals. These canteens serve low-cost nutritionally balanced meals, with 3 to 4 options to choose from every day, each coming with the respective nutrient information sheet (nutrition traffic light). In addition to providing free meals, the aim is also to encourage each employee to make responsible choices in terms of healthy eating. Awareness-raising initiatives sometimes also take place in the canteen areas. In 2020, despite the significant increase in teleworking the Bank maintained its canteens and bars in full operation, and increased the take-away component, all in full compliance with the social distancing and hygiene rules imposed under COVID 19. Loans to employees (€mn) The employees, including retired employees up to 65 years old, also benefit from special conditions in mort- gage and consumer loans. In 2020, new loans to em- ployees totalled €18.3 million, from a total loan portfolio of circa €75.5 million. Aware of the difficulties caused by the pandemic, the Bank granted moratoria on mortgage loan payments (Purchase, Works or Construction of Own Permanent Housing) and Consumer Loan payments to its employees experiencing a fall in income. 13.1 13.5 15.8 3.9 3.3 2.5 2018 2019 2020 Mortgage Loans Consumer Loans 3.6 Looking after health, well-being and safety at work The physical, psychological and social well-being of its employees is essential for the Bank, which to this end has in place a health and well-being policy based on five lines of action: 1. Communicate and raise awareness enhancing continuous and relevant communication about the Bank's path and strategy, as well as providing contents in various formats about health and well-being, encouraging employees to make conscious and healthy choices; 2. Diagnose and prevent risk situations early, so as to act preventively; 3. Dynamise and promote moments of focus on certain topics to increase employee involvement and accelerate positive results; 4. Offer and provide benefits aligned with best practices in healthy habits that contribute positively to the holistic well-being of employees; 5. Reconcile and flexibilise practices for a balance between professional, personal and family life. Due to the pandemic, the challenge of "Looking after health, well-being and safety at work" became a paramount issue for NOVO BANCO's Human Capital. In a first step, resources focused on emergency response, where the priority was to protect people and implement measures aimed at providing a sense of security. As many employees as possible were put in telework, while safeguarding the activity and safety of the organisation. 134 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTSince banking activity has a social and society support component, a set of operational services had to be kept running, even during the State of Emergency, and there- fore the Branches were always open to the public. Hence the Bank always kept a significant part of its staff working In Office. In the Commercial Network, about two thirds of the workforce was always present (commercial func- tions do not allow for full teleworking) and in the Central Departments this figure was around 25%. The Employees were therefore in one of three working contexts: • Always in Office; • Always in Telework (priority for risk groups and pregnant women); • Rotation between thus Office and Telework. As part of our Covid-19 Prevention effort, we provided our employees around 1 494 hours of health and safety training. For those who remained in Office, ensuring their protection and comfort was the priority, thus they were provided with all the personal protection equipment items (masks, disinfectant gel, acrylics, etc). The canteens and takeaway service were kept in operation, parking spaces were available, and remote communication tools were ensured. An effective communication plan was deployed to ensure greater proximity as well as information on how to manage the natural anxiety and fears caused by the situation at hand. In addition, the employees impacted by Covid (infected or in isolation) were accompanied by the Bank's occupational physicians, as a complement to the NHS. After the first months of the pandemic and once the response to the emergency had been ensured, an everyday approach to this context that was set to continue for an indefinite period of time was sought. The activities that had been suspended - namely, General and Family Medicine, Psychology, Psychiatry and Nutrition consultations, and the so-called "Meu Lado B”(My W Side- W of Well-Being) programme - were resumed, with adjustments to the situation. The purpose of the "Meu lado B” programme is to provide a holistic wellbeing to the Employees, through a set of initiatives - the Wellbeing experiences - deployed at 8 levels: Health, Food, Physical Exercise, Emotional Management, Family and Home, Interpersonal Relations, Personal Image, Culture and Leisure. A series of workshops, Conversations with Experts, and Lectures on these themes were made available in virtual format. In addition to access to loan moratoria, a package of benefits was also made available to address possible financial needs experienced by Employees’ families, including the possibility of prepaying 50% of the Christmas allowance, access to loans under special conditions to purchase IT equipment or pay for other education needs, access to Family Coaching sessions and psychological support. It should also be noted that during the initial state of emergency the Bank took care to minimise the impact of confinement on Employees and, among others, complemented the salary of Employees at home to care for children under 12. At the end of the year, the Bank rewarded the employees who had been at the forefront of the emergency response by granting them two days of leave to be taken during 2021. In terms of occupational health, the Bank also has clinical posts that offer a range of services in privileged support conditions to employees, both in preventive and curative terms. 135 NOVO BANCO SUSTAINABILITY REPORT 2020Health Services 2018 2019 2020 2020 vs 2019 Occupational Health - Occupational Medicine Medical Exams 2 808 2 731 1 437 - 47.4% General Practice Consultations Curative Medicine consultations and prescriptions 18 966 10 296 9 444 - 8.3% Consultations in other medical specialities Psychology Consultations and Psychiatric Consultations Nutrition Consultations Nursing Total procedures (treatments, vaccination, medication, ECG) Risk Prevention and Control Programmes Cardiovascular screening Cancer screening Vision screening Executive Check-up (senior executives) 1 043 820 1 061 945 751 348 -29.2% -63.2% 7 373 8 984 5 760 -35.9% 2 319 739 2 696 286 2 314 727 2 601 306 1 064 -55.4% 338 -53.5% 1 161 - 55.4% 82 -73.2% In 2020 the number of occupational health examinations was significantly lower than in previous years. This is explained by the suspension of regular medical examinations between the end of March and the beginning of September due to the pandemic. During this period only onboarding and one-off examinations were performed. In 2020 the absenteeism rate was 4.9%, which compares with 2.6% in 2019. To provide the best response to the pandemic and maintain adequate working conditions, in 2020 NOVO BANCO provided appropriate and useful information to all its employees through different channels and took measures adjusted to both the commercial network and the central departments in order to minimise the transmission of the new coronavirus, namely the setting of conduct and social etiquette rules and the provision of personal protection of equipment. For employees in telework, NOVO BANCO designed a set of tips and good practices for easier adaptation to this new working environment, not only in terms of individual good practices, but also covering team management and security, in order to ensure healthy working conditions and protect the physical and mental health of everyone. In the area of occupational safety in the specific context of the pandemic, in 2020 NOVO BANCO conducted audits of the Central Buildings, where the larger number of employees is concentrated, the canteens and some branches, in order to check that the procedures and practices put in place in the context of the pandemic were being followed. In terms of safety and security at work, NOVO BANCO continues to assess the risks inherent to conditions in the workplace and the functions performed. 136 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTOur Sustainable Business 4.0 Title: O Momento Author: Ana Ferreira Sustainability is present in the manner in which NOVO BANCO manages its activity. The incorporation of environmental and social criteria in business expansion viewing the progressive transition to a low carbon economy, recognising the duty to support the community in which it operates, is an objective which NOVO BANCO proposes to achieve. 4.1 Listening to the stakeholders Adjusting products and services to customer needs, new market trends and regulatory requirements has been the basis for the redefinition of NOVO BANCO's offer, which is increasingly more attuned to environmental, social and ethical concerns. The results obtained through the materiality matrix questionnaire and other channels at the disposal of the various stakeholders permitted to assess the concerns considered as material concerning the approach in which the Bank carries out its activity, including its value chain. 4.2 Sustainable products and services The Bank is aware that the manner in which it carries out its business has an impact, not only on the com- munity where it operates, but also at a wider level, i.e., on the Planet. For this reason, it always seeks to take into account not only the economic perspective, but also environmental and social ones, contributing to the construction of more ecological society based on equal opportunities. The Bank's strategic plan designate a sustainable purpose, concerned with developing a business that promotes sus- tainability. New technologies contribute to reducing the direct impact of banking on the environment, but the indirect impact will also have to be reduced. Therefore, and in order to build a strong and lasting relationship with the clients and respond to their concerns about climate change, which were further increased by the Covid-19 pandemic, in 2019 the Bank signed the "Letter of Commitment for Sustainable Financing in Portugal", and in 2020 pursued its strategy of increasing the offer of products with environmental, social and social responsibility considerations. In 2020, NOVO BANCO thus restructured its service accounts aimed at the day-to-day financial management of its clients and adjusted them to their new needs, while linking the 100% NB Account and 360º NB Account to social responsibility causes reflecting social, cultural and environmental concerns. When opening a NB 100% or NB 360º account, clients can choose which of the projects supported by NOVO BANCO they wish to follow: SEMEAR (Sow) Project Social inclusion programme for young people and adults with intellectual and developmental difficulties organised by the BIPP Association. The programme provides certiﬁed training, and development of skills for employability and professional integration, in the processing and production of components from organic farming. This programme minimises the limitations of these young people and adults by encouraging them to develop their full potential and become autonomous. Este Espaço Que Habito (This space I Inhabit) Project This project is promoted by the PHOTOGRAPHIC EXPRESSION MOVEMENT (MEF) in 5 Educational Centres hosting young people in compulsory internment, and uses photography as a technical and personal expression means to search for and develop one's own identity based on the spaces photographed. The project is developed in partnership with the Ministry of Justice and the Youth Justice Services. Recreational Toys Recycling Project Developed by ZERO WASTE LAB, the project aims to help with the problem of what to make with discarded plastic toys. It promotes the recycling and circulation of plastic and other toy materials for new purposes and raises the awareness of and educates citizens about the problems arising from the increase in waste production. More information at https://www.novobanco.pt/site/cms.aspx?labelid=causas 138 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORT4.2.1 NB 18.25 Account and NB26.31 Account We have already neutralized the equivalent to 2 290 round-trip single flights between Lisbon and London. In the context of transition to a low-carbon economy, the Bank aims to contribute to the promotion of sustainable investment practices in Portugal, and in so doing help accelerate the process of transition to a carbon neutral economy by 2050. In this context and also to build a strong and lasting relationship with its clients, the Bank restruc- tured the NB 18.31 account by adapting it to the needs of younger age groups and providing for the neutralisation of its carbon emissions. These accounts, designed to have a low environmental impact, are totally carbon neutral. This is due to the fact that they are online accounts and therefore have very low emissions, and because these emissions are neutralised in accordance with the PAS 2050:2008 methodology, which analyses the entire life cycle of products and services, to calculate the emissions produced. These accounts neutralise unavoidable emissions by supporting the Soil & More project, a green waste composting project in South Africa that not only reduces carbon emissions but also contributes social and economic benefits for local communities and sustainable development and Kamuthi project, a photovoltaic solar park project to replace the production of energy from coal plants. The NB 18.31, NB 18.25 and NB 26.31 accounts have an estimated carbon impact of about 944g CO2eq/year. At 31 December 2020, NOVO BANCO had 138,862 NB 18.31, NB 18.25 and NB26.31 Accounts with offset emissions, which corresponds to the neutralisation of 1 498 tonnes of CO2, of which 152 in 2020. These accounts have already permitted to neutralise the equivalent of emissions from 2,290 single return flights between Lisbon and London. 4.2.2 ESG and NOVO BANCO ECO Structured Products The Bank continued to strengthen its commitment to the marketing of structured products whose remuneration is indexed to the share performance of companies that stand out for leading social and governance changes towards environmental goals. The selection of companies to integrate these products is subject to a rigorous assessment process and criteria, which was further strengthened in 2020 not only in line with the Bank's risk policy, but also with industry-sector exclusion criteria (companies producing or selling tobacco, or engaged in coal mining and nuclear energy are not eligible), and criteria governing the exclusion of companies engaging in practices involving violations of human and labour rights, including child and/or forced labour. When manufacturing, construction, transport, tourism, agriculture and forestry, electricity, gas and oil companies are at stake, the Bank undertakes to assess their environmen- tal and social performance, and will not include companies with: • air pollutant activity: > 50% of turnover, or • Reduced the weight of their air polluting activity in the last 5 years by: < 5%, or • Have no defined environmental objectives. The nine ESG structured savings products subscribed in 2020 represent an investment of €116.8 million, making up a cumulative investment of €268 million in subscriptions as at 31 December. The ESG and NOVO BANCO ECO Structured Products account for 77.39% of the total structured product portfolio that NOVO BANCO makes available to its clients. NOVO BANCO received the “Best Performance Distributor, Portugal” award, given by SRP (Structured Retail Products), of the Euromoney Group, seeing internationally recognized its Structured Products offer. 139 NOVO BANCO SUSTAINABILITY REPORT 20204.2.3 Credit products The mortgage loans offer also has an environmental component whereby the client may benefit from a spread reduc- tion when buying a property with A+, A or B certification. In 2020, there were 39 loans granted based on this criterion. The ‘Casa Eficiente’ 2020 line (Efficient Home line) continues to be part of the offering, providing favourable conditions in transactions that promote the improvement of the environmental performance of private residential buildings. NOVO BANCO also offers its small and medium company’s customers the Credit Line for Decarbonization and Circular Economy, a credit line to finance the implementation of sustainable projects. This line of financing allows the investment in existing equipment by other more innovative, modern and efficient ones, investment in renewable sources for self-consumption in the production process or in circular strategies for any stage of the product / service life cycle, the implementation of monitoring, control and performance devices that allow optimizing the conditions of use, energy consumption and consumption of raw materials, among many others projects. 4.3 Financial Inclusion The adaptation of products to the needs of customers also involves the progressive integration of social con- cerns. NOVO BANCO intends to increasingly adapt its products to the new realities of its clients. Accordingly, its saving products permit to build up a nest according to each family's budget. In line with this positioning, the Bank has designed a package of Micro Savings solutions comprising three products, namely Planned Savings, Micro Savings and the Targeted Savings Smart app, under which a cumulative amount of €1 059 million in savings were reached in 2020. This encouraged clients to adopt saving behaviours, through the regular deposit of small amounts, the rounding up of bills, or similar practices. Planned Saving Micro Saving Permits to build up savings from as low as 10 euros per month through the subscription of a monthly plan in which the clients set the amount and the time of month of deposits, thus adjusting savings to the family budget. 226 thousand subscriber clients €1,039 million in savings This solution allows any client to start saving money by small amounts through the rounding up of debits of day-to-day expenses (such as residential mortgage loan instalments or personal loan repayments, insurance premiums, or direct debits), which are transferred to a savings account. Used by ca. 42 thousand clients €8.2 million in savings NB smart app (Targeted savings) Launched in 2017, this is an exclusive product for Clients who have installed the NB smart app: once the Client has deﬁned his/her saving objectives (how much and for how long he/she wants to save) the NB smart app traces the path to reach this objective. 8.3 thousand subscriber clients €11.2 million in savings 140 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTThese products account for 4.7% of NOVO BANCO's total portfolio of saving products. To expand the reach of financial services and consequently achieve wider social inclusion, the Bank offers the Minimum Banking Services Account, a current account providing a debit and a credit card, with an annual maintenance fee of €4.12. This account is intended for: • individuals who hold no other current account in any other institution, or who hold only one current account which is converted into a Minimum Banking Services Account; • persons who hold other current accounts, but wish to open a minimum banking services account in which one of the holders is over 65 years old or is dependent on others. In 2020 the Bank had 9.7 thousand Minimum Banking Services accounts. Given the increasing digitisation of services and the difficulties experienced by older people in using digital channels, during the pandemic NOVO BANCO launched digital and financial literacy actions to teach people a clear and simple way of going to the Bank without actually having to go to a branch. 4.4 Suppliers The management of a sustainable business extends to the Bank's entire value chain, including its suppliers. As a relevant buyer of products and services in the market, NOVO BANCO has set up a supplier relationship model (around €268 million invoiced to NOVO BANCO in 2020), which is based on a commitment to follow good international practices and principles. This model, which is based on the recognition of the importance of the economic, environmental and social impacts produced by this group of stakeholders, is based on two main pillars: • Code of conduct, which determines that the process of supplier evaluation and selection is strict and carried out in accordance with the highest standards of transparency and ethics; • Supplier Relationship Principles - these principles aligned with the OECD guidelines for multinational companies and the United Nations Global Compact, setting the minimum requirements, not only for suppliers but also for the Bank, with regard to business practices, health and safety at work, ethics and environmental management. Supplier selection principles are based on: - Fairness - equal treatment, without privileges or cronyism, and always seeking to avoid conflicts of interest; - Transparency and Ethics - adequate disclosure of information; - Quality and Efficiency as criteria for selecting the best suppliers. The signature of the Global Compact ten principles, issued by the United Nations as a result of a corporate citizenship initiative launched by Secretary-General Kofi Annan, and announced on 31 January 1999 at the World Economic Forum, were the basis for the design of the set of Supplier Relationship Principles residential buildings and the integration of sustainability in the Bank's value chain. Group NOVO BANCO's suppliers are invited to subscribe to these principles, which imply the adoption of consistent conduct, namely with regards to the environment, employment conditions and ethics. A responsible and consistent attitude in the selection of suppliers starts with the total availability with which all presen- tations and proposals from the most varied entities that intend to provide services or supply goods are received. To this end, the Supplier Portal (https://fornecedores.novobanco.pt/) is the place where any supplier, actual or potential, may introduce itself and register. In addition to providing the prime sourcing basis for market consultation processes, the database of registered entities allows for an easier and faster detection, assessment and comparison of the suppliers' characteristics, technical skills and commercial propositions. 141 NOVO BANCO SUSTAINABILITY REPORT 2020The quality of this information permits to select the best propositions, i.e., the suppliers best capable of meeting the Group's needs and service requirements. The de- gree of suppliers’ coverage, in terms of billing, that had completed their registration or were in the process of registering (pre-registered) in the Portal was 92% at 31 December 2020. For a more rigorous selection of this group of Stake- holders and based on the information provided, NOVO BANCO calculates the “sustainability scoring”, which takes into account ethical, labour, hygiene and safety at work, and environmental aspects. Around 26% of NOVO BANCO’s suppliers registered in the Portal have a score of excellent and 91% have a positive score cumulatively, which compares with 83% in 2019. In 2020 we increased by 15% the number of suppliers with sustainability scoring; of these, 63% have an excellent or good scoring. Sustainability Score (%) 2% 7% 26% 37% 28% Bad Improving Acceptable Good Excellent Maintaining a professional relationship with suppliers also implies responsible action, namely guaranteeing payment periods of 30 days, in line and in compliance with good market practices. This includes giving suppliers access to their current account, free of charge and at all times, simply by logging into the supplier's account on the Supplier Portal. In line with its stance of support to the Portuguese economy, in 2020 the Bank increased its preference for domestic suppliers, which represented 88.2% of the total. In 2020 the Bank's supplier management model earned the EIPM (European Institute of Purchasing Management) award in the ‘Master of Business Continuity’ category, an independent recognition that attests to the Bank's good performance in terms of organisation, innovation and respect for the environment and society. 4.5 Environmental impact The reduction of the direct environmental impact resulting from NOVO BANCO's activities, achieved through the implementation of various measures that promote the reduction of consumption, including the consump- tion of electricity and paper, among others, is part of the Bank's environmental responsibility. Given its importance, the NOVO BANCO Social Dividend model comprises a commitment to give back to society and the Bank's employees (see pages 148 and 149), is in- cluded. Comprising 4 programmes, one of which is #NB Environment, it sets goals and monitors 5 indicators, viewing the consolidation of environmentally responsi- ble management. In 2020 electricity consumption was reduced by around -8.6% compared to 2019. 142 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORT#NB Environment 83 88 88.8 83 #NB Environment Cars CO2 emissions (ton) 100 3 993 4 036 3 947 2 829 43.2 40.1 38.1 35.1 40 40 40 27.1 23 20.9 25 Digital communication with clients (%) Electricity consumption (GWh) Paper consumption (millions of leaves) Recycling (%) 2018 2019 2020 Goal 2018 2019 2020 Goal 2018 2019 2020 Goal Of the five objectives, two have already been achieved – 88.8% of communications with clients is digital and electricity consumption has decreased to 21 GWh. 4.5.1 Environmental performance NOVO BANCO has promoted different initiatives to improve its environmental performance, investing heavily in raising the awareness of its employees to the need to promote and integrate in their daily routines, an ethical and responsible management of the resources provided by the Bank. Paper, in particular, has been under focus, as one of the most widely used consumables in the financial sector, whose rationalisation, both internally and externally, remains a must for the Bank. To this end, dematerialisation operations involving digitisation of processes have been carried out and will be further stepped up, while at the same time the Bank promotes actions to raise awareness among its employees, and to change their habits, both in the central departments and in the branch network. 46kg PAPER/EMPLOYEE In 2020, the Bank started its Phygital project, currently in a pilot phase, which involves the digitalisation of some processes and their formalisation through a digital signature and will help promote a paperless organisation with a paperless culture. The Bank expects that once the project has been rolled out to the entire commercial network and all the use cases have been completed, it will permit to reduce printing by approximately 8,5 million sheets of paper, the equivalent of 41 tons of paper. Through the Phygital project we will continue to reduce paper In 2020 the Bank used 199.6 tonnes of white paper and 109.8 tonnes of finishing forms and account statements, a year-on-year increase of 6% and 16% respectively. As regards its external communication, and in addition to the account statements, NOVO BANCO also sends most other banking documents to its clients in digital format (credit card statements, deposit certificates, account entry notices, statements of securities and investment funds’ portfolio movements and position, entry notices, integrated billing noti- ces, and sundry notices). 88.8% of client communications are now digital, surpassing the 83% target set for 2020. 143 NOVO BANCO SUSTAINABILITY REPORT 2020 # Accounts with digital statement (Million) # Credit card accounts with digital statements (Million) 1 291.1 1 376.3 1 474.6 406.5 431.4 357.6 169.5 85.1 98.3 62.5 49.0 24.9 2018 Accumulated 2019 Accumulated 2020 Accumulated 2018 Accumulated 2019 Accumulated 2020 Accumulated 2018 2019 2020 2018 2019 2020 In 2020, new measures for waste collection were implemented. For easy and adequate waste management, new con- tainers were placed in all the Bank's central buildings, cafeterias and bars, differentiated according to the type of waste: • Yellow container placed near the pantries, for packages; • Green Covid-19 container, placed at the entrance to buildings, canteens and bars, for masks, gloves and tissues; • Black container next to pantries and coffee machines, for undifferentiated rubbish. The Bank continued to separate waste and promote its reuse and recycling, namely: • paper and cardboard are separated, safely destroyed and sent for recycling; • toner cartridges are recycled through Lexmark; • waste separation in the clinical units. Environmental performance 2018 2019 2020 2020 vs 2019 White paper Internal use (tonnes) Internal use (tonne/employee) Energy Total electricity 215.3 0.049 188.8 0.043 199.6 0.046 Total electricity consumption (GJ) 97 456 82 138 75 098 Electricity consumption (kWh) 27 071 205 22 816 220 20 860 668 Total electricity consumption (kWh/employee) 6 178 5 274 4 828 Water Water consumption from public supply network (m³) Water consumption per employee (m³/employee) 56 552 12.9 56 145 13.0 45 394 10.5 5.8% 7.0% -8.6% -8.6% -8.5% -19.1% -19.1% 144 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTEnvironmental performance 2018 2019 2020 2020 vs 2019 Trips Vehicles gasoline consumption (litres) Vehicles gasoline consumption (GJ) 840 28 21 140.4 693 840 28 Vehicles diesel consumption (litres) 1 520 591 1 506 128 1 484 134 Vehicles diesel consumption (GJ) 54 668 54 148 53 358 Number of vehicles Number of flights CO2 Emissions Direct emissions (Scope 1) Indirect emissions (Scope 2) Indirect emissions (Scope 3) Total (Scopes 1, 2 and 3) 832 615 4 012.8 9 089.0 6 183.5 866 762 4 039 5 828 6 430.0 868 331 3 948.4 4 240.6 4 609.7 19 285.0 16 297.1 12 798.7 Total (Scopes 1, 2 and 3/employee) 4.4 3.7 3.0 - 96.0% -96.0% - 3.4% - 3.4% 0.2% -56.6% -2.2% -27.2% -28.3% -21.5% -18.9% Being aware that there is a direct relationship between energy consumption and CO2 emissions, NOVO BANCO monitors and calculates its direct and indirect emissions (Scope 1, 2 and 3) according to the guidelines of the Inter- governmental Panel on Climate Change (IPCC), and the WRI/WBCSD Greenhouse Gas Protocol. In 2020, the total CO2 emissions decreased by 22% compared to 2019. 4.5.2 New Distribution Model In 2020, the Bank rolled out a new distribution model, which included the redefinition of two branches and paid special attention to environmental responsibility, not only under the Phygital project but also involving the dematerialisation of promotional communication to the clients. The branches’ redesign was based on a choice of environmentally certified materials and companies, namely wood furniture with PEFC certification, which attests that the wood is sourced from sustainably managed forests. Digital and lighting equipment were also chosen with a focus on energy efficiency. Through its New Distribution Model, the Bank makes available, in its Master and / or Full Service branches, bicycle parking supports produced exclusively with 30 kg of recycled plastic, promoting ecological mobility to its customers and employees. The New Distribution Model has environmental concerns 145 NOVO BANCO SUSTAINABILITY REPORT 2020Our Responsible Conduct 5.0 Title: Transparência Author: Joao Diogo Ribeiro For NOVO BANCO it is essential to conduct its activity with the firm resolve to give a positive contribution to the entire ecosystem within which it operates. This performance requires not only correctness in financial performance, but also a responsible performance that integrates social, environmental and ethical concerns in the interaction with all stakeholders. NOVO BANCO manages its business based on a governance model steered by integrity and policies and principles that ensure an effective and prudent management and the commitment to give back to society the fruit of its activity. 5.1 Governance Model NOVO BANCO's entire activity is based on a strong and solid governance structure that enables effective, responsible and transparent decision making, in accordance with the provisions of the law and NOVO BANCO's corporate documents and regulations, which are published on the Bank's corporate governance website. The Bank's statutory governing bodies - General Meeting, General and Supervisory Board, Executive Board of Directors, Monitoring Committee, Statutory Auditor and Company Secretary - are appointed for 4-year terms and may be re-elected once or more than once. Decision-making may be monitored by the different Committees of the General and Supervisory Board and Executive Board of Directors. More information on NOVO BANCO’s governance model is provided in chapter 6 CORPORATE GOVERNANCE of the Management Report. 5.2 Giving back to the community In the Covid-19 pandemic context, NOVO BANCO considered that it had to reinforce its role as an active agent in the ecosystem to which it belongs, with a particular focus on "reviving the economy" and supporting the community. Under the slogan "The economy is all of us", the Bank put its experience and knowledge at the service of the players and decision-makers of the economic future of the country and shared with its clients and society in general, specialised and technical information, which it considered could support decision-making in the pandemic context and in the preparation for the post-Covid. This led to the development of several initiatives, such as: NB Marketplace A free-of-charge online shopping platform where the products and services of some of the Bank's small business clients are made available to the population at large. Under this concept, NOVO BANCO helps its small business clients to open a new sales channel, and in turn to buy products from local suppliers, thus supporting the local community and economy. GPS Publication featuring macroeconomic updates, trends in consumer behaviour patterns, ﬁnancial markets outlook, among others. Open to Information and the economy "Open to Information", a cycle of daily conversations at TSF, a Portuguese radio station in 3 editions where employees of the Bank shared forecasts and economic scenarios, among others, for different sectors of activity, and for consumption and new habits, thus placing their knowledge at the service of society. "Open to the economy", a cycle of twelve webtalks in partnership with ECO, a Portuguese newspaper where the various dimensions and effects of Covid-19 in different economic contexts were reviewed. During the pandemic, the Bank continued its unprecedented project to highlight regional entrepreneurs, businesses and other relevant entities, through Regional and Sector-speciﬁc Summits. During 2020, it held 4 Summits, 3 in webinar format, supporting companies that persevere and reinvent themselves, despite the adversities, setting an example to the rest of the business community. Summits 147 NOVO BANCO SUSTAINABILITY REPORT 20205.2.1 Social Dividend In 2020, the first edition Corporate Social Responsibility (CSR) programme - a commitment to give back made by NOVO BANCO to society and its employees -, created in 2017 and known as the Social Dividend model, came to an end. Composed of 4 programmes - #NB Equal Gender/#NB Work & Life/#NB Environment/#NB Social Responsibility -, with specific goals to be achieved by 2020, for four years it had a reference role in the Bank’s CSR structure. In 2020, the goal of 200 points for 2020 were surpassed in 2 points. Several initiatives achieved very good results, namely: leaves on special days, Home Office, Early Friday/Late Monday, take away meals, percentage of digital communication to customers, electricity consumption, and cultural patronage. The Social Dividend model includes the #NB Social Responsibility programme, which monitors 3 indicators, and under which the NOVO BANCO Revelação initiative had a very good performance. Participation in the other initiatives was reduced, given the current context. In the case of the Mathematics Olympics, this involved postponing the final phase of its 38th edition to September, holding just one test instead of the usual two, and holding it in five different locations due to social distancing requirements. The #NB Social Responsibility programme gave continuity to the Corporate Social Responsibility architecture, with the aim of helping devise solutions for important issues within the community in which the Bank operates. This programme is deployed in three areas, namely: • Cultural patronage, to promote and spread culture throughout the country; • Solidarity, promoting solidarity initiatives or under partnerships with a diverse range of private social solidarity insti- tutions (“IPSS”) and NGOs; • Financial Inclusion, in close collaboration with the Portuguese Mathematics Society. In 2020, given the adverse context created by the pandemic, the Bank focused its activity on helping the community and showing the utmost sense of social responsibility through a number of different initiatives. 148 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTSocial Dividend (% of objective reached) % of Woman in Leadership roles #NB EQUAL GENDER % of woman in Senior leadership roles Global salary gap Leave on special days 52.5% 51.3% 77.5% 70.6% 70.6% 5.5% 10.6% 6.9% -4.7% 101.9% 139.3% 172.8% Home Office 2.1% 3.7% #NB WORK & LIFE Early Friday ou Late Monday 349,2% 264,0% 286,7% 299,6% Purchase of holidays 30.2% 51.0% 57.6% TakeAway 102.8% 152.1% 176.1% CO₂ Emissions 50.0% 60,47% Digital communication with clients (%) #NB ENVIRONMENT Electricity consumption (GWh) Paper consumption (million of leaves) Recycling (%) NB Crowdfunding donators 100.0% 125.0% 129.0% 87.0% 112.1% 124.7% 77.0% 91.6% 85.9% 40.0% 40.0% 40.0% 37.0% 43.2% 48.4% #NB SOCIAL RESPONSIBILITY Cultural patronage 56.0% 105.7% 254,9% Educacional patronage 25.0% 50.8% 63,9% 2018 2019 2020 149 NOVO BANCO SUSTAINABILITY REPORT 20205.2.2 NOVO BANCO Solidary The NOVO BANCO Solidary programme, through which the Bank aims to help overcome financial, social and emo- tional needs, on its own or in partnership with IPSS and/or NGOs, saw its scope of action enlarged in 2020 due to the social, health and financial fragility of the community and their needs arising from the Covid-19 situation, which the Bank sought to respond to by joining efforts in various incentives: “Amigos são para as ocasiões” (A friend in need is a friend indeed) Project NOVO BANCO has joined AMI, a long-standing partner, in its "A friend in need is a friend indeed" project, a fund-raising initiative calling on voluntary work to help the beneﬁciaries of this association, namely elderly people living alone, single-parent families with minor children and people at risk or with chronic diseases, which in the Covid- 19 context became even more vulnerable, suffering from social exclusion and having no family support network. In this campaign the Bank helped around 390 beneﬁciaries of the AMI association during two months, in seven Portuguese cities, through the delivery of approximately 920 baskets containing food, hygiene and health items to meet the needs of each beneﬁciary for 15 days. 170 volunteers cooperated in this initiative. The results of this campaign were positive, and none of the AMI's beneﬁciaries at risk was contaminated by COVID 19. SOS COVID-19 Account NOVO BANCO has joined a fund-raising initiative of Associação Empresarial de Portugal (AEP) in partnership with the Ordem dos Médicos (Portuguese Medical Association) to assist health professionals and to build an infectious disease unit at S. João Hospital, in Porto. To this end, an account was opened at NOVO BANCO to collect the donations, to which the Bank contributed with €30 thousand. In addition, given the increase in requests for food support from users of the National Health Service, part of the money raised with this campaign was donated to the Food Bank against Hunger. Acquisition of Ventilators NOVO BANCO joined the Portuguese Association of Banks and its member banks in an effort to reinforce the means at the disposal of health professionals to treat citizens infected by Covid -19. The funds raised were donated to the National Health Service for the acquisition of 100 fans and 100 monitors. Global Response to Covid-19 NOVO BANCO joined the “Global Response to Covid-19” initiative, through which Portugal will contribute €10 million to accelerate the development, production and equitable access to Covid-19 vaccines, diagnostics and treatments. Launched in April 2020, this campaign, which brought together European and global organisations and foundations from the health, retail, banking and other industry sectors, committed to the development of solutions to combat Covid-19, raised to €7.5 billion to ﬁnance diagnosis, therapies, treatment and vaccine development activities aimed at ﬁnding solutions to ﬁght Covid-19. 150 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTDespite the context, the bank maintained some of its solidarity initiatives, such as the NOVO BANCO Christmas cam- paign, which this year had a new focus, namely helping the national economy. At the Bank, Christmas began with the usual solidarity initiative which every year gathers the employees around a common cause. In 2020, the Bank selected the "Barrete de Natal Solidário" (Christmas Solidarity Bonnet) campaign, of the Salvador Association, a fund-raising campaign aimed at supporting people with reduced mobility. In exchange for a donation of 2 euros, each employee received a Christmas Bonnet. Around 1,100 employees participated in the initiative, raising among them approximately €4,500. The novelty of NOVO BANCO's 2020 Christmas campaign was the Christmas basket offered to its employees, made up entirely of Portuguese products produced by NOVO BANCO's client companies, in line with its positioning of support to the national economy, under the motto "This is Portugal that does, and This is the Bank that helps you to do", in which the Bank assumes a clear positioning of support and encouragement of the national businesses that contribute to the country's development. In this manner the Bank enhanced its support to the community by helping small businesses to further their capacity to innovate, reinvent and turn difficulties into opportunities. In 2020, the Bank launched a page in its website aimed at its clients, employees and society where it publishes advice, recommendations and the initiatives taken in the context of Covid-19, all with the intent of being of help in the present situation. 5.2.3 Cultural Patronage Even in the context of a pandemic, NOVO BANCO pursued its strategy of cultural patronage, namely focusing on its NOVO BANCO Cultura programme, under which it lent works from its collection to various Museums. In 2020, the Bank lent 24 works, increasing to 75 the number of its works now on permanent exhibition in 33 Museums around the country. The Bank also published a platform with a road map to various regions and museums in the country, where the works of the NOVO BANCO Painting Collection can be visited. In terms of photography, the NOVO BANCO Photography Collection was included in the study group of the Interna- tional Association of Corporate Collections (IACCCA), affording recognition to the techniques and practises used in the Bank's collection. Comprising approximately 1,000 works by more than 300 artists of 38 nationalities from all over the world, NOVO BANCO's Contemporary Photography Collection is one of the corporate collections in Europe that has won more awards. Two exhibitions featuring works from the Photography Collection were opened this year, namely Vick Muniz's show at the Nova School of Business and Economics and the "Solar Territory" Exhibition at the Faro Museum. In 2020, the exhibition of the 2019 edition of the REFLEX photo competition, of the Cais Association - an initiative supported by the Bank since its first edition - was inaugurated at the Estufa Fria, Lisbon. The competition, under the theme ‘World with Future Exhibition’ received more than 150 applications, and around 370 photographs, which aimed to portray positive and sustainable initiatives aimed at counteracting the uncertain future arising from climate change and the scarcity of resources, translating into photography the small and big actions that can make a difference at the environmental level and that prove that change is possible if we expand our gestures. 151 NOVO BANCO SUSTAINABILITY REPORT 2020Our Performance 6.0 Title: Plantar o Futuro Author: Marta Vieira Pereira NOVO BANCO manages its business by constant monitoring financial and non-financial data, which allows it to gauge its performance, not only financial, but also at social, environmental and corporate governance level. Monitoring social, environmental and corporate governance indicators over time is essential for the Bank to assess its progress and adjust its action plan in order to achieve the best results. 6.1 Social Indicators Total staff Total NOVO BANCO Employees in Portugal Employment contract Permanent Women Men Fixed-term Women Men Temporary Women Men Internships Women Men Other Women Men 2018 4 382 2018 4 268 2 210 2 058 49 30 19 49 27 22 14 7 7 2 0 2 2019 4 326 2019 4 130 2 153 1 977 84 54 30 59 39 20 51 26 25 2 0 2 2020 2020 vs 2019 4321 -0.1% 2020 2020 vs 2019 4 093 -0.9% 2 176 1 917 1.1% -3.0% 146 -73.8% 85 61 34 23 11 47 29 18 1 0 1 57.4% 103.3% - 42.4% -41.0% -45.0% -7.8% 11.5% -28.0% -50.0% 0 -50.0% Approximately 95% of NOVO BANCO's employees work on permanent employment contracts, which gives them greater professional stability, and only 3.4% work on fixed-term contracts. 153 NOVO BANCO SUSTAINABILITY REPORT 2020Staff Turnover (%) Total Gender Women Men Age bracket < 30 years old 30 to 50 years old > 50 years old 2018 3.9 4.0 3.8 36.4 2.8 2.8 2019 5.8 6.2 5.2 63.0 3.0 5.6 2020 2020 vs 2019 7.4 1.6 p.p. 6.8 8.0 0.6 p.p. 2.8 p.p. 45.3 -17.7 p.p. 3.0 9.6 - 4 p.p. New hires and new hires rate (%) 2018 2019 2020 Absolute values 2020 vs 2019 2020 Total Gender Women Men Age bracket < 30 years old 30 to 50 years old > 50 years old 2.7 6.7 7.3 317 0.6 p.p. 2.7 2.7 7.6 5.7 6.8 8.0 50.3 94.1 45.3 1.2 0.3 2.5 0.6 3.0 9.6 138 179 178 114 24 -0.5 p.p. 2.3 p.p. -48.4 p.p. 0.5% 9.0 p.p. 2018 2019 2020 2020 vs 2019 Admissions Resignations Admissions Resignations Admissions Resignations Admissions Resignations 130 469 267 323 317 322 18.7% -0.3% 70 60 81 45 4 259 210 113 154 43 163 180 246 95 9 164 159 71 137 115 138 179 178 114 25 185 137 82 65 22.1% 16.2% 12.8% -13.8% 9.2% 15.5% 20.0% -52.6% 175 117.8% -52.2% Admissions and resignations Gender Women Women Men Age bracket < 30 years old 30 to 50 years old > 50 years old 154 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORT2018 2019 2020 2020 vs 2019 Training hours / employee Total Average per employee Total Average per employee Total Average per employee Total Average per employee 275 183 62.7 200 545 46.4 194 924 45.1 -2.8% -10.6% 135 039 61.6 109 365 48.1 107 522 46.5 -1.7% 140 143 64.1 91 181 44.4 87 403 43.5 -4.1% -3.3% -2.0% Total Gender Women Men Professional Category Management 25 377 58.3 16 807 44.8 7 822 20.5 -53.5% -54.2% Heads of Department 38 697 87.7 17 107 31.3 22 048 45.6 28.9% 45.7% Specific 120 150 63.6 77 811 37.6 86 432 41.6 11.1% 10.6% Administrative 90 916 56.9 88 820 67.2 78 622 57.6 -11.5% -14.3% Auxiliary 42 2.2 0 0 0 0 - - Employee distribution by gender and professional categories Total Men Women 2018 2019 2020 2020 vs 2019 4 382 4 326 4 321 - 0.1% 2 108 (48.1%) 2 054 (47.5%) 2 008 (46.5%) 2 274 (51.9%) 2 272 (52.5%) 2 312 (53.5%) Management 435 (9.9%) 375 (8.7%) 382 (8.8%) Men Women 278 (63.9%) 245 (65.3%) 236 (61.8%) 157 (36.1%) 130 (34.7%) 146 (38.2%) < 30 years old 0 (0.0%) 3 (0.8%) 1 (0.3%) 30 to 50 years old 287 (66.0%) 249 (66.4%) 261 (68.3%) > 50 years old 148 (34.0%) 123 (32.8%) 120(31.4%) Heads of Department 441 (10.1%) 546 (12.6%) 484 (11.2%) Men Women 261 (59.2%) 314 (57.5%) 271 (56.0%) 180 (40.8%) 232 (42.5%) 213 (44%) < 30 years old 0 (0.0%) 0 (0.0%) 0 (0.0%) 30 to 50 years old 357 (81.0%) 424 (77.7%) 362 (74.8%) > 50 years old 84 (19.0%) 122 (22.3%) 122 (25.2%) 155 -2.2% 1.8% 1.9% -3.7% 12.7% 0.3% 68.3% 31.4% -11.4% -13.7% -8.2% - -17.1% 0.0% NOVO BANCO SUSTAINABILITY REPORT 2020Employee distribution by gender and professional categories Specific Men Women 2018 2019 2020 2020 vs 2019 1 889 (43.1%) 2 070 (47.9%) 2 078 (48.1%) 882 (46.7%) 925 (44.7%) 931 (44.8%) 1 007 (53.3%) 1 145 (55.3%) 1 147 (55.2%) < 30 years old 60 (3.2%) 112 (5.4%) 152 (7.3%) 30 to 50 years old 1 551 (82.1%) 1 601 (77.3%) 1 550 (74.6% > 50 years old 278 (14.7%) 357 (17.2%) 376 (18.1%) Administrative 1 598 (36.5%) 1 322 (30.6%) 1 366 (31.6%) Men Women 672 (42.1%) 559 (42.3%) 559 (40.9%) 926 (57.9%) 763 (57.7%) 807 (59.1%) < 30 years old 86 (5.4%) 104 (7.9%) 134 (9.8%) 30 to 50 years old 1 093 (68.4%) 812 (61.4%) 820 (60%) > 50 years old 419 (26.2%) 406 (30.7%) 413 (30.2%) Auxiliary Men Women 19 (0.4%) 13 (0.3%) 11 (0.3%) 15 (78.9%) 11 (84.6%) 11 (100%) 4 (21.1%) 2 (15.4%) 0 (0.0%) 0 (0.0%) < 30 years old 1 (5.3%) 1 (7.7%) 30 to 50 years old 9 (47.4%) 5 (38.5%) 4 (40.0%) > 50 years old 9 (47.7%) 7(53.8%) 6 (60.0%) 0.4% 0.6% 0.2% 35.7% -3.2% 5.3% 1.1% 0.0% 5.8% 28.8% 1.0% 1.7% -15.4% 0.0% -100% - 100% -20% 16.7% Health in the workplace Cardiovascular screenings Cancer screening Mammography PSA screenings Vision screening Executive Check-ups 156 2018 2 319 151 588 2 696 286 2019 2 314 140 587 2 601 306 2020 2020 vs 2019 1 064 -55.4% 70 268 1 161 82 - 50.0% -54.3% 55.4% 73.2% NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTParental Leave Employees entitled to parental leave Employees who took parental leave Employees who returned to work after parental leave ended 2018 2019 2020 2020 vs 2019 Men Woman Men Woman Men Woman Men Woman 4 382 4 326 4 321 -0.1% 84 84 138 88 81 80 124 83 72 71 122 -11.1% -1.6% 92 -11.3% .10.8% Return to work rate 100% 63.8% 98.8% 66.9% 98.6% 75.4% -0.2 p.p. 5.5 p.p. Health and Safety Indicators 2018 2019 2020 2020 vs 2019 Work related accidents Men Women Occupational diseases Men Women Deaths Men Women Accident rate Men Women Lost days rate Men Women Absenteeism rate Men Women Health and safety training Number of hours of health training Number of hours of safety training 157 22 7 15 0 0 0 0 0 0 3.0% 1.9% 4.0% 0.1% 0.03% 0.19% 2.3% 1.8% 2.7% 2018 181 1 257 54 37 17 0 0 0 0 0 0 7.7% 5.0% 10.2% 0.1% 0.06% 0.11% 2.6% 2.0% 3.2% 29 17 37 0 0 0 0 0 0 4.1% 3.2% 4.9% 0.0% 0.03% 0.09% 4.9% 3.2% 6.3% -26.3% -35.3% -46.3% - - - - - - - 3.7p.p. - 1.8 p.p. - 3.9 p.p. 0.03 p.p. 0.02 p.p. 2.3 p.p. 1.2 p.p. 3.1 p.p. 2019 2020 2020 vs 2019 81 81 113 39.5% 1 381 1 650.2% NOVO BANCO SUSTAINABILITY REPORT 20206.2 Environmental Indicators Environmental Indicators - Materials consumed 2018 2019 2020 2020 vs 2019 White paper Internal use (tonnes) Internal use (tonne/employee) Forms - printing and finishing area (tonnes) IT and electronic consumables Toner cartridges (units) Ink cartridges (units) Bands (units) DVD/CDRom (units) Batteries 215.3 0.049 116.4 41 245 4 237 2 340 2 742 Total IT and electronic consumables 5 641 188.8 0.043 94.6 13 23 484 735 1 499 2 754 199.6 0.046 109.7 3 36 1 061 1 630 2 402 5 218 5.76% 7.0% 16.0% -82.1% 52.6% 119.0% 121.7% 60.2% 86.3% Environmental Indicators - Energy 2018 2019 2020 2020 vs 2019 Total electricity Total electricity consumption (GJ) 97 456 82 138 75 098 Electricity consumption (kWh) 27 071 205 22 816 220 20 860 668 Data Centre Electricity consumption (GJ) Electricity consumption (kWh)* 27 495 5 076* 7 637 400 1 409 929* na na -8.6% -8.6% - - Electricity consumption (kWh/employee) 6 178 5 274* 4 828 -8.5% Natural gas** Natural gas consumption (GJ) Natural gas consumption (N.m3) Propane gas** Propane gas consumption (GJ) Propane gas consumption (kg) Diesel*** Generator diesel consumption (litres) Generator diesel consumption (GJ) 256 6 663 70 1 485 400 14 na na na na 1 135 41 na na na na 400 14 Vehicles diesel consumption (litres) 1 520 591 1 506 128 1 484 134 Vehicles diesel consumption (GJ) 54 668 54 148 53 358 Gasoline Vehicles gasoline consumption (litres) Vehicles gasoline consumption (GJ) 840 28 21 140.4 693 840 28 Total energy consumption (GJ) 152 493 137 021 128 498 Trips Number of vehicles Number of flights 832 615 866 762 868 331 - - - - -65% -66% - 3.4% -1.5% 96.0% 96.0% -6.2% 0.2% -56.6% Na - non applicable *Includes Data Centre up to July 2019 ** In 2019 NOVO BANCO decommissioned its canteen at Carnaxide and therefore ceased to consume propane gas. *** Diesel consumption in 2019 is an estimate based on the number of hours generators were operating. In 2018 only the consumption of two generators had been reported, which explains the increase in 2019. 158 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTEnvironmental Indicators - Emissions (tCO2e)* 2018 2019 2020 2020 vs 2019 Direct emissions (Scope 1) 4 012.8 4039.0 3 948.4 Emissions from trips in company cars 3 993 4036.0 3 947.3 Emissions from natural gas and butane gas kitchen equipment Emissions from emergency generators 18.7 1.1 0 3.0 0 1.1 Indirect emissions (Scope 2)** 9 089.0 5 828 4 240.6 -2.3% -0.6% 0.00% -64.6% -4.8% Emissions from the production of electricity purchased (market-based method) Emissions from the production of electricity purchased (Location based method) Total (Scopes 1 and 2) Indirect emissions (Scope 3) 9 089.0 5 828 4 240.6 -4.8% 9 800 5 336 3 524.9 -36.6% 13 101.8 9 867.1 8 189.0 6 183.5 6 430.0 4 609.7 Emissions from Employees’ business trips. including flights 323.8 405.3 139,2 Emissions from employees’ home/ work daily trips*** 5 696.0 5 973.0 4 323.1 Emissions from wastewater treatment*** 52.4 51.7 Emissions in the life cycle of paper consumed *** Emissions in the paper recycling process *** Emissions from water consumption *** 38.9 93.9 3.6 12.0 -17.1% -28.3% -65.7% -27.6% -24.8% - - - Total (Scopes 1. 2 and 3) 19 285.0 16 297.1 12 798.7 -21.5% *See methodological notes in GRI table. **Scope 2 calculation by location-based method since 2018 only. The Total (A1+A2) was calculated using the Market-Based approach. *** Activities whose emissions started to be calculated in 2020 Environmental Indicators - Water consumption 2018 2019 2020 2020 vs 2019 Water consumption from public supply network (m³) 56 552 56 145 45 394 Water consumption per employee (m³/employee) 12.9 13.0 10.5 -19.1% -19.1% Environmental Indicators - Waste management Paper sent for recycling (tonnes) Cardboard sent for recycling (tonnes) Toner cartridges (units) Ink cartridges (units) Bands (units) DVD/CDRom (units) Batteries 2018 434.2 60.3 41 245 4 273 2 340 2 742 2019 265.6 10.6 13 23 484 735 1499 Total IT and electronic consumables collected (units) 9 641 2 754 2020 2020 vs 2019 106.1 61.3 8 300 na na na na na -60.1% 476.0% - - - - - - 159 NOVO BANCO SUSTAINABILITY REPORT 2020About this Report 7.0 Title: Complementariedade Author: Paulo Gil This report describes the manner in which NOVO BANCO approaches sustainability in the management of its activity, in its involvement with employees and clients, in carrying out sustainable business and in ensuring responsible conduct. It also details the sustainability performance over the last three years, therefore the data presented concern only to the NOVO BANCO scope. This report was drawn up in accordance with the Global Reporting Initiative (GRI) model, standard option. The GRI table is available in the Bank's website, at: NOVO BANCO/Institutional/Sustainability/Sustainability Report. This report, which under the terms of Article 508-G of the Commercial Companies Code constitutes the Non-Financial Statement of NOVO BANCO, is also drawn up for compliance with the legal requirements introduced by Decree-Law no. 89/2017, of 28 July. Ernst & Young, Audit & Associados, SROC, SA carried out an independent review for a limited level of assurance of reliability, non-financial and sustainability information contained in the 2020 Sustainability Report, regarding its sustainability performance, considering that the acceptable indicators were reported in accordance with the GRI sustainability reporting standards and Decree-Law No. 89/2017, as can see on pages 197 and 198. The 2020 Sustainability Report complements and details the information contained in the 2020 Annual Report, providing evidence that sustainability is an integral part of the Bank's strategy. In order to continue to progress and improve its performance, NOVO BANCO takes into account the concerns and suggestions of its stakeholders. To this end, any questions, comments or suggestions may be sent to the following email address: sustentabilidade@novobanco.pt 161 NOVO BANCO SUSTAINABILITY REPORT 20207.1 Methodological Notes SOCIAL INDICATORS Staff Turnover New hires rate Accident Rate Absenteeism Rate Return to Work Rate Average training hours per gender Average training hours per professional category Remuneration Ratio Pay gap Social Dividend #NB Equal Gender and #NB Work & Life Branches located in low density areas. ENVIRONMENTAL INDICATORS Electricity Generators diesel Natural gas Propane gas Water Social Dividend | NB Environment 162 ((Number of admissions + resignations/ 2) total employees) 2 New hires in 2020/total number of employees in 2020 Number of accidents at work/Hours worked*1000000 Number of absences (without maternity / paternity leave)/Possible working hours*100 * Employees who returned to work after parental leave ended and remained in service after 12 months, based on the number of returns in 2020 Total number of training hours per gender/Total number of employees in each gender Total number of training hours per professional category/Total number of employees in each category Ratio of average base remuneration and total average remuneration between women and men, by function category - (remuneration for women / remuneration for men) * 100 Sum of the gap weighted by functional group) / (Average value of male salary). Amount reached in December 2020 - baseline value 2016/target set for 2020 - baseline value 2016 The methodology for the Home office, Early Friday/ Late Monday and purchase of holidays initiatives was changed in 2109. In the previous methodology, no account was taken of the employees who used the initiatives, regardless of the year in which the benefit was used. From 2020 and with the new methodology only repetitions within the same year are excluded. This new calculation formula is justified by the extended monitoring period of the indicators. Number of branches located in the 165 low-density municipalities identified by Deliberation 55/2015 of the Interministerial Commission for Coordination, Portugal 2020 Amount calculated directly from EDP records and billing *** Diesel consumption in 2020 is an estimate based on the number of hours generators were operating. The amount calculated corresponds to the total invoices for the year 2018 and 2017. In 2019 the Bank ceased to consume natural gas. The amount calculated corresponds to the total invoices for the year 2018 and 2017. In 2019 the Bank ceased to consume natural gas. Estimate based on real water consumption in 100% of the central buildings and 48% of the branches. Amount reached in December 2020 - baseline value 2016/target set for 2020 - baseline value 2016 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTEnergy The following formula was used to calculate direct energy consumption (fuel consumption) in GJ: Fuel consumption (l) * PCIX * Density X/1000, using the following conversion factors: PCI diesel (road) Density of diesel (generators) PCI Propane gas (LPG) and Natural gas Electricity 42.8 GJ/t (Source: Order No. 17313/2008 (SGCIE) 0.84 (Source: DGEG 2017, data for 21-09-2019) 46.65 GJ/t (Source: APA 2013 - https://apambiente.pt/_zdata/DPAAC/CELE/tabela_ PCI_FE_FO_2013.pdf) conversion:1 kWh = 0.0036 GJ (Source: International Energy Agency and GRI) The following formula was used to calculate direct energy consumption (fuel con- sumption) in GJ: Fuel consumption (l) * PCIX * Density X/1000, using the following conversion factors: - PCI diesel (generators) - 43.07 GJ/ (Source: APA - Fuel density values to be used under the EU ETS) - Diesel density (generators) - 0.837 kg/l (Source: APA - Fuel density values to be used under the EU ETS) - It also includes the following emission factors and parameters used to calculate Greenhouse Gas (GHG) emissions: - Passenger car, petrol, engine capacity < 1 400 cm3 - 0.173 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) - Passenger car, petrol, engine capacity ≥ 1 400 and < 2 000 cm3 - 0.215 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) - Passenger car, petrol, engine capacity ≥ 2 000 cm3 - 0.299 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) - Passenger car, diesel, engine capacity < 2 000 cm3 - 0.181 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) - Passenger car, diesel, engine capacity ≥ 2 000 cm3 - 0.245 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) - Hybrid Car - 0.143 kg CO2e/km (Source: APA - NIR 2020) - Electric car - 0.022 kg CO2e/km (consumption of 13.3 kW/100 km) (Source: APREN, 2020) In calculating the transformation of indirect electricity consumption to GJ the fol- lowing conversion factor was used: 1 kWh= 0.0036 GJ. The following formula was used to calculate electricity consumption: Emission = Consumption X * Emission factor (EF)X It also includes the following emission factors and parameters used to calculate GHG emissions: - Mainland electricity production - market based method - 0.266 kg CO2e/kWh (Source: EDP Sustainability Report 2019) - Mainland electricity production - location-based method - 0.162 kg CO2e/kWh (Source: APREN, energy mix 2020) - Electricity production in Madeira - location and market method - 0.510 kg CO2e/ kWh (Source: EE Madeira 2019) The calculation includes emissions from employee commuting, from home/work/ home (HWH) commuting, using the following formula: Emission = Journey (km) X * FEX It also includes the following emission factors and parameters used to calculate GHG emissions: - Diesel Car - 0.200 kg CO2e/km (Source: APA - NIR 2020) - Petrol Car - 0.205 kg CO2e/km (Source: APA - NIR 2020) - LPG Car - 0.195 kg CO2e/km (Source: APA - NIR 2020) - Hybrid Car - 0.143 kg CO2e/km (Source: APA - NIR 2020) - Electric car - 0.022 kg CO2e/km (consumption of 13.3 kW/100 km) (Source: APREN 2020) - Bus - 0.103 kg CO2e/km (Source: DEFRA 2020); 1.420 kg CO2e/km (Source: STCP 2011) and 0.115 kg CO2e/km (Source: Carris 2019) - Underground - 0.0467 kg CO2e (Source: Metro Lisboa 2016) and km, 0.040 kg CO2e/km (Source: Metro do Porto 2018) CO2 Emissions Scope 1 CO2 Emissions Scope 2 CO2 Emissions Scope 3 163 NOVO BANCO SUSTAINABILITY REPORT 2020 - Train - 0.0157 kg CO2e/km (Source: CP 2019) and 0.021 kg CO2e/km (Source: Fertagus 2013/2014) - Ferry - 0.190 CO2e/km (Source: Transtejo+Soflusa, 2014) - Motorbike (petrol) - 0.129 kg CO2e/km (Source: APA - NIR 2020) - Motorbike (electric) - 0.015 kg CO2e/km (Consumption of 9 kW/100 km) (Source: APREN 2020) - Aircraft Emission = Trip (Km) X * FEX * Take-off Factor * RFI2 - It also includes the following emission factors and parameters used to calculate GHG emissions: - Aircraft, Domestic Flight FE CO2 - 0.17147 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools 2017) - Aircraft, Short Haul Flight FE CO2 - 0.09700 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools 2017) - Aircraft, Long Haul FE CO2 - 0.11319 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools 2017) The weight of customers very satisfied with the service is measured by the % of responses of 8 to 10 on a scale of 1 to 10 The weight of customers very satisfied with the Bank is measured by the % of responses of 8 to 10 on a scale of 1 to 10 The confidence index corresponds to the average of responses on a scale of 0 to 10, with the average being converted into an index of 0 to 100 The Net Promoter Score is calculated based on the recommendation intention, as the difference between the % of promoters and the % of detractors The % of promoters corresponds to the % of responses of 9 to 10 on a scale of 0 to 10 The % of detractors corresponds to the % of responses of 0 to 6 on a scale of 0 to 10 CO2 Emissions Scope 3 CLIENT INDICATORS Customer service Global satisfaction Confidence Net Promoter Score Very Satisfied Clients The weight of very satisfied clients is measured by the % of responses of 8 to 10 on a scale of 1 to 10 Complaint rate per 1000 active clients Number of existing complaints divided by the number of active clients, with active clients considered as those that used the Bank's service in the last 3 months. 164 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORT7.2 Global Reporting Initiative (GRI) Table GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope ORGANISATIONAL PROFILE 102-1 Name of the organisation AR - page 2 102-2 Main brands, products, and services SR - pages 120-123; 138-141 MR - pages 13-14; 45-51 Institutional website, product and corporate 102-3 Location of headquarters AR - page 2 102-4 Number of countries where the organisation operates, and the names of countries where it has significant operations and/ or that are relevant to the topics covered in the report. MR - pages 13-14; 45-51 The 2020 Sustainability Reports covers only the scope of NOVO BANCO in Portugal. 102-5 Ownership and legal form FS- page 205 102-6 102-7 102-8 102-9 Markets served: - geographic locations where products and services are offered; - sectors served; - types of customers and beneficiaries Scale of the organisation: - total number of employees; - total number of operations; - net sales; - total capitalisation broken down in terms of debt and equity; - quantity of products or services provided Total number of employees by employment contract (permanent and temporary), by gender and region A description of the organisation's supply chain, including its main elements as they relate to the organisation's activities, primary brands, products, and services MR - 13-14; 45-51 The 2020 Sustainability Reports covers only the scope of NOVO BANCO in Portugal. SR - pages 109; 126; 131; 154 MR - pages 11-14; 20; 34-45; 45-51 Notes to the financial statements- pages SR - pages 131; 153-156 MR - pages 12; 20 8 6 SR - pages 141-142 102-10 Significant changes to the organisation's size, structure, ownership, or supply chain during reporting period MR - pages 54-55 165 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 102-11 Precautionary Principle or approach RM - pages 57-61 102-12 A list of externally-developed economic, environmental and social charters, principles, or other initiatives to which the organisation subscribes, or which it endorses. SR - page 112 102-13 A list of the main memberships of industry or other associations, and national or international advocacy organizations SR - page 112 STRATEGY 102-14 A statement from the most senior decision-maker of the organisation (such as CEO, chair, or equivalent senior position) about the relevance of sustainability to the organisation and its strategy for addressing sustainability. AR- pages 6-7 102-15 A description of key impacts, risks, and opportunities SR - pages 113-114 MR - pages 30-32; 57-69 ETHICS AND INTEGRITY 102-16 Values, principles, standards, and norms of behaviour. SR – page 147 MR- pages 18-19; 71-81 16 10 102-17 A description of internal and external mechanisms for: seeking advice about ethical and lawful behaviour, and organisational integrity; reporting concerns about unethical or unlawful behaviour, and organisational integrity. CORPORATE GOVERNANCE 102-18 102-19 Governance structure of the organization, including committees of the highest governance body. Committees responsible for decision making on economic, environmental, and social topics. Process for delegating authority for economic, environmental, and social topics from the highest governance body to senior executives and other employees. SR - pages 147-149 MR - pages 81-93 Institutional website 16 10 SR - pages 147-149 MR-pages 18-19; 71-81 Institutional website SR - pages 147-149 102-20 Executive-level responsibility for economic, environmental, and social topics. Chairman of the Executive Board of Directors SR - pages 147-149 AR Institutional website 102-21 Consulting stakeholders on economic, environmental, and social topics SR - pages 113-114; 116-117; 119-123 Institutional website 16 166 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 102-22 Composition of the highest governance body and its committees MR - pages 18-19 Institutional website 102-23 102-24 Whether the chair of the highest governance body is also an executive officer in the organisation. If the chair is also an executive officer, describe his or her function within the organisation’s management and the reasons for this arrangement. Nomination and selection processes for the highest governance body and its committees and criteria used for nominating and selecting highest governance body members- 5, 16 16 MR - pages 18-19 Institutional website MR - pages 71-81 Institutional website - NOVO BANCO Articles of Association 5, 16 102-25 Processes for the highest governance body to ensure conflicts of interest are avoided and managed. MR - page 82 Institutional website, Conflicts of Interest Policy 16 The CEO based on objectives defined for 2020 (which are monitored through an action plan and the coordination of teams appointed for the implementation of the Social Dividend model) controls this model on a quarterly basis. This model ensures the alignment of sustainability performance across the Bank's various operations, through coordination of the initiatives with the officers appointed in each operation. Sustainability issues are submitted to the Chairman of the Executive Board of Directors whenever justified. The Social Dividend model is submitted quarterly. The social dividend aims to give back to the bank's employees and the community in general what the bank generates with its activity. Through quarterly monitoring, it assesses the Bank's environmental and social performance against the targets set for 2020. The performance assessment processes, with regard to the identification of risks and opportunities in economic, social and environmental issues, are identified and managed by the Executive Board of Directors, Committees, Commissions, Departments and subsequently submitted to the highest hierarchical governance body and to the Chairman of the Executive Board of Directors. For more information see MR – pages 77-89 4 102-26 Highest governance body’s and senior executives’ roles in the development, approval, and updating of the organisation’s purpose, value or mission statements, strategies, policies, and goals related to economic, environmental, and social topics. 102-27 Measures taken to develop and enhance the highest governance body’s collective knowledge of economic, environmental, and social topics. 102-28 Processes for evaluating the highest governance body’s performance with respect to governance of economic, environmental, and social topics 167 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 102-29 102-30 102-31 102-32 Highest governance body’s role in identifying and managing economic, environmental, and social topics and their impacts, risks, and opportunities – including its role in the implementation of due diligence processes. Highest governance body’s role in reviewing the effectiveness of the organisation’s risk management processes for economic, environmental, and social topics Frequency of the highest governance body’s review of economic, environmental, and social topics and their impacts, risks, and opportunities The highest committee or position that formally reviews and approves the organisation’s sustainability report and ensures that all material aspects are covered MR - pages 77-89 16 MR - pages 57 -65; 77-89 The CEO analyses the performance of the Social Dividend model on a quarterly basis; this model that assesses 17 environmental and social indicators. The AR and the Sustainability Report are approved by the Executive Board of Directors and the General and Supervisory Board. 102-33 Process for communicating critical concerns to the highest governance body. MR - pages 77-89 102-34 Total number and nature of critical concerns that were communicated to the highest governance body. SR - pages 109; 113-114 MR - pages 77-89 Institutional website - supervision committees and Whistle-blowing Policy a. Remuneration policies for the highest governance body and se- nior executives for the following types of remuneration: • Fixed pay and variable pay, including: - performance-based pay, equity-based pay, bonuses, and deferred or vested shares; - Sign-on bonuses or recruitment incentive payments; • Termination payments; - Clawbacks; - Retirement benefits, including the difference between benefit schemes and contribution rates for the highest governance body, senior executives, and all other employees. b. How performance criteria in the remuneration policies relate to the highest governance body’s and senior executives’ objectives for economic, environmental, and social topics. 102-35 168 MR - pages 86-89 Institutional website, Remuneration Policies NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 102-36 Process for determining remuneration. MR - pages 86-89 Institutional website, Remuneration Policies 102-37 Stakeholders’ opinions with regard to remuneration are requested and taken into account, including through voting on remuneration policies and proposals, when applicable. 102-38 102-39 Ratio of the annual total compensation for the organisation’s highest-paid individual in each country of significant operations to the median annual total compensation for all employees (excluding the highest-paid individual) in the same country Ratio of the percentage increase in annual total compensation for the organization’s highest- paid individual in each country of significant operations to the median percentage increase in annual total compensation for all employees (excluding the highest-paid individual) in the same country SR - pages 113-114; 116-117; 126- 127; 132-133 MR- pages 86-89 Institutional website, Remuneration Policies Median annual total compensation for all employees (excluding the highest-paid individual); 33 014.8 CEO total annual remuneration: €367 457 Ratio of the CEO total annual compensation to the median annual total compensation for all employees (excluding the highest- paid individual) 11.3% The wage increase in 2020, as per the Collective wage agreement, was + 0.30%. Change 2019/2020 Average remuneration – 0.5% STAKEHOLDER INVOLVEMENT 102-40 List of stakeholder groups SR - pages 113-115 102-41 102-42 102-43 Percentage of total employees covered by collective bargaining agreements Identifying and selecting stakeholders Approach to stakeholder engagement SR - pages 113-115 8 3 SR - pages 113-115 SR - pages 113-115 102-44 Key topics and concerns raised SR - pages 113-115 REPORTING PRACTICE 102-45 Entities included in the consolidated financial statements MR- pages 45-51 102-46 Defining report content and topic boundaries SR - pages 113-114 102-47 List of material topics SR - pages 113-114 102-48 Restatements of information The 2020 Sustainability Report details the performance over the last three years for the NOVO BANCO scope, therefore the data presented in this report for 2018 and 2019 concern only NOVO BANCO and were recalculated for this scope. 169 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 102-49 Changes in reporting The 2020 Sustainability Report details the performance over the last three years for the NOVO BANCO scope, therefore the data presented in this report for 2018 and 2019 concern only the NOVO BANCO scope. 102-50 Reporting period 1 January to 31 December 2020 102-51 Date of most recent report 2020 102-52 Reporting cycle Annual 102-53 Contact point for questions regarding the report 102-54 Claims of reporting in accordance with the GRI Standards sustentabilidade@novobanco.pt “Core option” 102-55 5 GRI content index SR - pages 162-196 102-56 A description of the organisation’s policy and current practice with regard to seeking external assurance for the report. ECONOMIC INDICATORS TOPIC: ECONOMIC PERFORMANCE SR - page 161 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders and will become the basis of its Sustainability Strategy, alongside the commitments assumed and the objectives defined. NOVO BANCO is also in the process of selecting the SDGs to which its strategy and medium-term plan will be aligned. The Strategic Plan defined for the 2019-2021 three-year period, on which the management approach has been based, was designed to put in place the necessary conditions for NOVO BANCO to transition from a restructuring bank into a growth bank prepared for the future. To this end, the Bank is defining a new distribution model, streamlining its technological and process infrastructure, rejuvenating and enhancing its human capital, and fine-tuning its risk model, electing as cross-cutting priorities optimisation, digitisation and differentiation. 170 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 103-3 Evaluation of the management approach 201-1 Direct economic value generated and distributed 201-2 Financial implications and other risks and opportunities due to climate change NOVO BANCO has over the years promoted several initiatives with economic impacts. The Bank's activity has been shaped by and developed in accordance with the objectives established in the Strategic Plan, which resulted in the growth of the recurrent credit portfolio, with a reduction in the cost of risk, in significant improvements in commercial banking income, and in the continuous reduction of operating costs, despite the strong increase in investment. The Bank monitors the indicators defined for this topic on a monthly basis. Banking Income: €812.2 million MR - page 52 Economic Value Generated: €812.2 million MR - page 52 General and administrative expenses €144.0 million MR - page 96 Staff Costs: €223.6 million MR - page 96 Payments to providers of Capital - Shareholders - There was no distribution of dividends Taxes: €13.4 million MR - page 96 Community Investments: €0.5 million in donations Economic Value Distributed: €381.4 million Economic Value Retained €430.8 million With regard to climate change, NOVO BANCO offers its clients a number of environmental products, namely the NB 18.31, NB 18.25 and NB 26.31 account, as well as structured products with environmental concerns. It is also concerned with dematerialising client communications and reducing the direct environmental impact of its activity. The Bank has recently signed commitments concerning the decarbonisation of the economy. SR - pages 139-140 2, 5, 8, 9 13 201-3 Defined benefit plan obligations and other retirement plans SR - pages 132-136 171 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope FS - pages 203; 204; 424; 440 NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy based on this matrix, the commitments assumed and the objectives defined, and is also selecting the SDGs that will be aligned to its strategy and medium-term plan. The Strategic Plan defined for the 2019-2021 three-year period, on which the management approach has been based, was designed to put in place the necessary conditions for NOVO BANCO to transition from a restructuring bank into a growth bank prepared for the future. To this end, the Bank is defining a new distribution model, streamlining its technological and process infrastructure, rejuvenating and enhancing its human capital, and fine-tuning its risk model, electing as cross-cutting priorities optimisation, digitisation and differentiation. The Bank develops its activity with a strong focus on the Iberian market. NOVO BANCO has over the years promoted several initiatives with economic impacts. The Bank's activity has been steered by the objectives established in the Strategic Plan, translating into the growth of the recurrent credit portfolio, with a reduction in the cost of risk, a significant improvement in commercial banking income, and the continuous reduction of operating costs, despite the strong increase in investment. The Bank monitors the indicators defined for this topic on a monthly basis. For the professional categories that are representative of its workforce, NOVO BANCO pays a minimum salary that is higher than the national minimum wage (the lowest salary paid by NOVO BANCO is 1.39% times higher than the national minimum wage). 201-4 Financial assistance received from government TOPIC: MARKET PRESENCE 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 202-1 Ratios of standard entry level wage by gender compared to local minimum wage 172 5, 7, 8 6 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 8 6 The Sustainability Report is restricted to NOVO BANCO and its activity in Portugal. Local hiring is an integral part of the Bank's hiring practices. Priority is always given to local employees, so as to build a sustained and competent workforce, with possibilities for career advancement, moving on to leadership positions. Consequently, management positions are mostly held by local employees and non-local employees are few. At national level and taking into account senior management - Executive Board of Directors - employees of Portuguese nationality and women employees represent 33.3% and 16.7% of the workforce NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Investment in the community as a material topic. NOVO BANCO has over the years promoted several initiatives with indirect economic impacts. The Bank monitors indicators pertaining to this topic and reports the results in its Annual Report, institutional website and Sustainability Report. 202-2 Proportion of senior management hired from the local community TOPIC: INDIRECT ECONOMIC IMPACTS 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 2, 5, 7, 9, 11 1, 2, 3, 8, 10, 17 203-1 Infrastructure investments and services supported SR - pages - 118-124; 138-141 MR - pages 45-51 203-2 Significant identified indirect economic impacts of the organisation, including positive and negative impacts TOPIC: PROCUREMENT PRACTICES 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 173 SR - pages 118-124; 138-141 MR - pages 45-51 NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is building its Sustainability Strategy and considers the Selection of suppliers with environmental, social and ethical criteria as a material topic. NOVO BANCO has over the years promoted several initiatives in this area, having namely designed a sustainability scoring for the process of registration of suppliers in its Supplier Portal SR - pages 141-142 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 103-3 Evaluation of the management approach 204-1 Percentage of the procurement budget used for significant locations of operation that is spent on suppliers local to that operation TOPIC: ANTI-CORRUPTION 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach The Bank monitors indicators pertaining to this topic and reports the results in its Annual Report, institutional website and Sustainability Report. NOVO BANCO Group acquires its regular consumption products, such as stationery, equipment and specialised services for mainland Portugal and Islands, from national companies. Around 82.2% of the expenses refer to national suppliers vs 11.8% from international suppliers. Taking into account the Covid-19 context, in 2020 the Bank reduced its payment period to suppliers to 22 days, from 23 days in 2019. NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is building its Sustainability Strategy and considers Corporate ethics and ethics in the relationship with stakeholders as a material topic. NOVO BANCO focuses on the prevention, detection, reporting and management of situations involving risks of conduct or irregular conducts, based on principles of integrity, honesty, diligence, competence, transparency and fairness. The Bank monitors indicators pertaining to this topic and reports the results in its Annual Report, institutional website and Sustainability Report. 205-1 205-2 Total number and percentage of operations assessed for risks related to corruption NOVO BANCO SR - page 109 MR - pages 81-89 Communication and training about anti-corruption policies and procedures SR - page 109 MR - pages 84-85 205-3 Confirmed incidents of corruption and actions taken During 2020 no instances of corruption came to the attention of NOVO BANCO concerning operations. 12 16 16 16 10 10 10 174 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope ANTI-COMPETITIVE BEHAVIOUR NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Corporate ethics and ethics in the relationship with stakeholders as a material topic. The survey carried out in order to build the materiality matrix included questions to the Bank's peers. The Bank also assumed commitments in terms of Sustainable Financing in partnership with the main financial players, which involved the development of common approaches and not anti- competitive behaviour. NOVO BANCO has over the years participated in several initiatives in the area of sustainable financing, in partnership with its peers. In 2019 the Bank signed the “Letter of Commitment for Sustainable Finance in Portugal”, which aims to contribute to the promotion of sustainable investment practices in the country, with the purpose of accelerating the process of transition to a carbon neutral economy by 2050, in full partnership with its peers. The Bank also participates in another two working groups on Sustainable Finance, promoted respectively by the Portuguese Association of Banks and the Portuguese Association of Investment and Pension Funds and Asset Management Firms. The Bank monitors indicators pertaining to this topic and reports the results in its Annual Report, institutional website and Sustainability Report. There is no record of any legal action regarding anti-competitive behaviour and violations of anti- trust and monopoly legislation involving the Bank in 2020. 16 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 206-1 Number of legal actions pending or completed during the reporting period regarding anti-competitive behaviour and violations of anti-trust and monopoly legislation in which the organisation has been identified as a participant. 175 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope ENVIRONMENTAL INDICATORS TOPIC: MATERIALS 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 301-1 Materials used by weight or volume 301-2 301-3 Percentage of recycled input materials used to manufacture the organisation’s primary products and services. Percentage of reclaimed products and their packaging materials for each product category TOPIC: ENERGY 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Recycling and the Circular Economy as an important topic. NOVO BANCO has over the years promoted several initiatives aimed at reducing its direct environmental impact, namely through its NB Environment programme, integrated in its Social Dividend model. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. SR - pages 109; 142-145;158-159 8,12 7,8 NOVO BANCO does not monitor this type of materials. 8,12 The Bank's activity does not allow reclaiming products, therefore this indicator is not reported. 8,12 8 8 NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Eco- efficiency in the Bank's branches, buildings and operations as a material topic. Energy, along with paper, is the resource most consumed by the Bank, and as such has deserved special attention. NOVO BANCO has over the years promoted several initiatives aimed at reducing its direct environmental impact, namely through its NB Environment programme, integrated in its Social Dividend model. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. 302-1 Energy consumption within the organisation SR - pages 142-144; 149; 158 7, 8, 12, 13 7,8 176 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 302-2 Energy consumption outside of the organisation NOVO BANCO does not monitor this consumption. 7, 8, 12, 13 302-3 Energy intensity SR - pages 142-144; 149; 158 302-4 Reduction of energy consumption 302-5 Reductions in energy requirements of products and services TOPIC: WATER SR - pages 142-144; 149; 158 SR - pages 142-144; 149; 158 7, 8, 12, 13 7, 8, 12, 13 7, 8, 12, 13 8 8 8,9 8,9 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Eco- efficiency in the Bank's branches, buildings and operations as a material topic. Given the scarcity of this resource, NOVO BANCO has over the years promoted several initiatives aimed at reducing its direct environmental impact in terms of water consumption. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. 303-1 Water withdrawal by source SR - pages 144; 159 6 7,8 303-2 Water sources significantly affected by withdrawal of water NOVO BANCO's operations are located in urban or urbanised areas, with all water consumed coming from the public supply system. Therefore, any impacts associated with water management upstream of its activity are outside NOVO BANCO's sphere of influence. 303-3 Water recycled and reused NOVO BANCO has no systems for water recycling and reuse. 6, 8, 12 BIODIVERSITY 8 8 103-1 Explanation of the material topic and its Boundary NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers climate change as a material topic. Climatic change affects biodiversity, however this topic is not included in the indicators monitored. 103-2 The management approach and its components Non applicable 177 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 103-3 Evaluation of the management approach Non applicable 6, 14, 15 6, 14, 15 6, 14, 15 6, 14, 15 8 8 8 8 304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas 304-2 Significant impacts of activities, products, and services on biodiversity 304-3 Habitats protected or restored 304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operations TOPIC: EMISSIONS 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components NOVO BANCO's operations are located in urban or urbanised areas, therefore any environmental impacts directly linked to its activity are naturally limited. NOVO BANCO's operations are located in urban or urbanised areas, therefore any environmental impacts directly linked to its activity are naturally limited. NOVO BANCO's operations are located in urban or urbanised areas, therefore any environmental impacts directly linked to its activity are naturally limited. NOVO BANCO's operations are located in urban or urbanised areas, therefore any environmental impacts directly linked to its activity are naturally limited. NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Eco- efficiency in the Bank's branches, buildings and operations as a material topic. Sustainable Financing is considered a material topic. NOVO BANCO has over the years promoted several initiatives aimed at reducing its direct environmental impact, namely through its NB Environment programme, integrated in its Social Dividend model. NOVO BANCO measures and monitors the CO2 indicators. In 2019, within the scope of its commitment to reduce CO2 emissions, the Bank signed the ‘Business Ambition for 1.5ºC’ letter, a document recently issued by the United Nations Global Compact. With this signature, the Bank assumes its commitment to preserve the planet and contribute to limit the temperature increase to 1.5ºC by 2050, and undertakes to submit a scientific project to reduce the CO2 emissions resulting from its activity. 178 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 3, 12, 13, 14, 15 3, 12, 13, 14, 15 3, 12, 13, 14, 15 13, 14, 15 13, 14, 15 7, 8 7, 8 7, 8 8 8, 9 3, 12 7, 8 3, 12, 14, 15 7, 8 103-3 Evaluation of the management approach NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. 305-1 Direct (Scope 1) GHG emissions SR - pages 143-144; 149, 159 305-2 Energy indirect (Scope 2) GHG emissions SR - pages 109; 143-144; 149, 159 305-3 Energy indirect (Scope 3) GHG emissions SR - pages 143-144; 149, 159 305-4 GHG emissions intensity SR - pages 143-144; 149, 159 305-5 Reduction of GHG emissions SR - pages 109; 143-144; 149, 159 305-6 Emissions of ozone-depleting substances (ODS) 305-7 Nitrogen oxides (NOx), sulphur oxides (SOx), and other significant air emissions EFFLUENTS AND WASTE 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components There have been no recharges of gases with the potential to destroy the ozone layer since 2015, as these are prohibited under Regulation (EC) No. 1005/2009, on substances that deplete the ozone layer. Moreover, NOVO BANCO had been gradually replacing equipment that emit ozone- depleting gases, when such exist. SOx and NOx emissions linked to NOVO BANCO's activity result from combustion associated with transportation, emergency generators and boilers. However, due to the reduced expression of these activities within the Bank's typical activity, these emissions are immaterial and therefore are not accounted for. NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Recycling and the Circular Economy as a material topic. NOVO BANCO has over the years promoted several initiatives aimed at reducing its direct environmental impact, namely through its #NB Environment programme, integrated in its Social Dividend model. 179 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 103-3 Evaluation of the management approach 306-1 Water discharge by quality and destination 306-2 Waste by type and disposal method NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. NOVO BANCO has implemented no regular monitoring processes for effluents produced at its facilities. Discharge is classified as a typical domestic discharge, taking into account that all the Bank's facilities are in urban areas with basic sanitation infrastructures. NOVO BANCO monitors only the disposal method for the most frequent types of waste produced, namely paper, cardboard and consumables, however it does not yet have a data systematisation system allowing it to collect data and report on the total waste produced by type and disposal method. 3, 6, 12, 14 3, 6, 12 306-3 Significant spills Not applicable to the activity of NOVO BANCO. 3, 6, 12, 14 306-4 Hazardous waste transported. Hazardous waste imported. Hazardous waste exported. Hazardous waste treated. Percentage of hazardous waste shipped internationally. 306-5 Water bodies affected by water discharges and/or runoff ENVIRONMENTAL COMPLIANCE Not applicable to the activity of NOVO BANCO. 3, 12 NOVO BANCO's operations are located in urban or urbanised areas, therefore any environmental impacts directly linked to its activity are naturally limited. 6, 14, 15 8 8 8 8 8 NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Corporate ethics and ethics in the relationship with stakeholders as a material topic. NOVO BANCO has over the years promoted several initiatives aimed at reducing its direct environmental impact, namely through its #NB Environment programme, integrated in its Social Dividend model. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 180 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 307-1 Significant fines and non- monetary sanctions for non- compliance with environmental laws and/or regulations In 2020 there were no instances of non-compliance with environmental laws and/or regulations, nor were any fines paid in connection therewith. 16 8 TOPIC: SUPPLIERS ENVIRONMENTAL ASSESSMENT NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers the Selection of suppliers with environmental, social and ethical criteria as a material topic. NOVO BANCO has over the years promoted several initiatives to ensure a judicious selection of its suppliers, based on the information provided. The Bank calculates the suppliers’ ‘sustainability scoring’, which takes into account environmental, ethical, labour, hygiene and safety in the workplace aspects of its suppliers. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. SR - pages 109; 141-142 SR - pages 109; 141-142 NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Attracting and developing talent as a material topic. NOVO BANCO has over the years promoted several initiatives concerning the development of programmes that ensure human capital management focused on talent acquisition and retention, the rejuvenation of teams and the unlocking of the potential of the more experienced employees, using methodologies and programmes aimed at individual development, a balance between professional and personal life, and the creation of a circle of knowledge and sharing. 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 308-1 308-2 New suppliers that were screened using environmental criteria Negative environmental impacts in the supply chain and actions taken TOPIC: EMPLOYMENT 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 181 8 8 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. SR - pages 109, 154 5, 8 6 NOVO BANCO does not usually hire part-time employees, or only on an exceptional basis. In this context, benefits are granted under equal circumstances to all the Bank's employees and subsidies are attributed based on the employee's income. Trainees and temporary workers are not entitled to these benefits. SR - pages 132-136 8 SR - page 157 8 6 Taxa de Retenção não reportada NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Attracting and developing talent as a material topic. NOVO BANCO has over the years promoted several initiatives concerning the development of programmes that ensure human capital management focused on talent acquisition and retention, the rejuvenation of teams and the unlocking of the potential of the more experienced employees, using methodologies and programmes aimed at individual development, a balance between professional and personal life, and the creation of a circle of knowledge and sharing. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. 103-3 Evaluation of the management approach 401-1 Total number and rate of new employee hires during the reporting period, by age group, gender and region. 401-2 Benefits provided to full-time employees that are not provided to temporary or part-time employees 401-3 Total number of employees that were entitled to parental leave, by gender and return to work and retention rates of employees that took parental leave, by gender LABOUR/MANAGEMENT RELATIONS 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 182 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 402-1 Minimum notice periods regarding operational changes and whether the notice period and provisions for consultation and negotiation are specified in collective agreements NOVO BANCO informs its employees of any relevant facts pertaining to their career management in accordance with the established notice periods, seeking compliance with clause 27 of the Collective Wage Agreement, which stipulates that workplace transfers are subject to an advice notice of at least 30 days. 5 3 TOPIC: OCCUPATIONAL HEALTH AND SAFETY NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Health, safety in the work place and a balance between personal and professional life as a material topic. The physical, psychological and social well-being of its employees is essential for the Bank, which to this end has in place a health and well-being policy based on five lines of action. The physical, psychological and social well-being of its employees is essential for the Bank, which to this end has in place a health and well-being policy based on five lines of action: 1. Communicate and raise awareness; 2. Diagnose and prevent: 3. Encourage and promote; 4. Offer and provide; 5. Reconcile and flexibilise: practices for a balance between professional, personal and family life. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. NOVO BANCO has no formal safety commissions, however it engages its employees in the definition and implementation of safety practices and the prevention of occupational hazards. The national legislation requires a minimum guarantee of hygiene, health and safety conditions. NOVO BANCO goes beyond the requirements of the law, annually reporting its practices and results in the management of hygiene, health and safety of all its employees. 8 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 403-1 Percentage of workers whose work, or workplace, is controlled by the organisation, that are represented by formal joint management-worker health and safety committees. 183 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 403-2 Types of injury and rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities by gender SR - page 157 8 8 8 NOVO BANCO is not aware of a high incidence or high risk of diseases related to their occupation amongst its employees. NOVO BANCO has entered into Company-level Agreements with all the trade unions represented in the institution, which enshrine the obligations of Occupational Medicine and hygiene and safety in the workplace. In addition to the legally mandatory consultations and exams, the Bank has in place other measures. SR - pages 133-136 NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Attracting and developing talent as a material topic. The Bank consistently invests in the design and implementation of distinctive and motivating training, enabling the improvement of performances, and the development and evolution of its employees. NOVO BANCO has over the years promoted several initiatives and programmes to ensure that human capital management is focused on talent attraction and retention. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. SR - pages 109; 128 ;155 4, 5, 8 6 SR - pages 128; 134-136 8 403-3 Workers with high incidence or high risk of diseases related to their occupation 403-4 Health and safety topics covered in formal agreements with trade unions TOPIC: TRAINING AND EDUCATION 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach Average hours of training that the organisation’s employees have undertaken during the reporting period, by gender and employee category Programas para a gestão de competências e aprendizagem contínua que apoiam a continuidade da empregabilidade dos funcionários e para a gestão de carreira 404-1 404-2 184 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 404-3 Percentage of employees receiving regular performance and career development reviews NOVO BANCO's Performance Management Model, based on the continuous management of employee performance and development, is integrated in the Employee Portal, called “My Portal”. The Performance Management Process covers all employees and includes a personal development programme where each employee can define his or her objectives in terms of continuing improvement in the performance of their functions. At the closing date of this report the 2020 performance assessment had not been concluded. 5, 8 6 TOPIC: DIVERSITY AND EQUAL OPPORTUNITIES 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 405-1 Percentage of individuals within the organisation's governance bodies in each of the following diversity categories: Gender, Age group, Other indicators of diversity where relevant (such as minority or vulnerable groups). 405-2 Ratio of basic salary and remuneration of women to men for each employee category NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Gender diversity and gender equality as a material topic. NOVO BANCO has over the years promoted several initiatives within its #NB Equal Gender programme, which monitors three indicators and aims to develop a fair and gender-equal model, having for the purpose defined specific objectives for 2020. NOVO BANCO monitors indicators pertaining to this topic and annually reports the results in its website and Sustainability Report. SR - pages 109; 130-131; 147 -149; 153-156 MR - page 18 - 20 5, 8 6 Management: - Heads of Department: 94% / 86% - Technical staff: 96% / 95% - Administrative: 94% /89% - Total: 90% /82% 5, 8, 10 6 185 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope TOPIC: NON-DISCRIMINATION 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 406-1 Total number of incidents of discrimination and corrective actions taken NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Gender equality and Human Rights as a material topic. NOVO BANCO has over the years promoted several initiatives aimed at reducing discrimination negative impacts, namely through its #NB Equal Gender programme, integrated in its Social Dividend model. NOVO BANCO has over the years promoted several initiatives within its #NB Equal Gender programme, which monitors three indicators with the aim of making the bank fairer and more gender-equal, having for the purpose defined specific objectives for 2020. In 2020 no incidents or lawsuits came to the attention of NOVO BANCO concerning discrimination on grounds of race, colour, gender, religion, public opinion or social class. TOPIC: FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk At NOVO BANCO, the majority of the employees is covered by collective bargaining agreements and perform their activity in accordance with the obligations established therein. NOVO BANCO has over the years promoted several initiatives viewing non-discrimination, and in this context meets often with the Workers’ Committee and the Trade Unions. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. In 2020, NOVO BANCO was not aware of any instances of non-compliance with laws and regulations for breaches of the right to freedom of association and collective bargaining, or the payment of fines in connection thereof, within its value chain. 5, 8, 16 6 3 186 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope TOPIC: CHILD LABOUR 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 408-1 Operations and suppliers at significant risk for incidents of child labour TOPIC: FORCED OR COMPULSORY LABOUR 103-1 Explanation of the material topic and its Boundary NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Human Rights as a material topic. NOVO BANCO only employs adults (in accordance with the labour legislation). The Bank assumes unconditional respect for the United Nations Declaration of Human Rights and the requirements of the International Labour Organisation. NOVO BANCO's Human Rights Policy reflects its endorsement and commitment to the Global Compact Principles. The compliance and audit functions and the mechanisms in place for the anonymous reporting of irregularities minimise the risk of any such occurrences within the Bank and in connection to its employees. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. During 2020 no instances came to the attention of NOVO BANCO concerning operations and suppliers at significant risk for incidents of child labour. NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Human Rights as a material topic. 8, 16 5 187 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope NOVO BANCO complies with the legislation, rules and regulations in force and develops its activity in full compliance with its Equality and Non-Discrimination Policy and Human Rights Policy, defined based on: - the United Nations Global Compact Principles; - the Universal Declaration of Human Rights; - The Guidelines of the Organization for Economic Cooperation and Development (OECD) for Multinational Enterprises; - the Core Conventions of the International Labour Organization (ILO). NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. During 2020 no instances came to the attention of NOVO BANCO concerning operations and suppliers at significant risk for incidents of forced or compulsory labour. NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Human Rights as a material topic. NOVO BANCO has over the years promoted several initiatives in this area for compliance with the legislation in force. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. In 2020 NOVO BANCO did not provide training in human rights policies or procedures to its security personnel. NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Human Rights as a material topic. 8 4 16 1 103-2 The management approach and its components 103-3 Evaluation of the management approach 409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labour TOPIC: SECURITY PRACTICES 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 410-1 Security personnel trained in human rights policies or procedures TOPIC: RIGHTS OF INDIGENOUS PEOPLES 103-1 Explanation of the material topic and its Boundary 188 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 103-2 The management approach and its components NOVO BANCO does not promote initiatives in this regard as its activity is developed in urban or urbanised areas. 103-3 Evaluation of the management approach Non applicable 411-1 Total number of identified incidents of violations involving the rights of indigenous peoples during the reporting period and remediation action taken NOVO BANCO's operations are located in urban or urbanised areas, therefore there are no instances of violation of the rights of indigenous people. 2 1 TOPIC: HUMAN RIGHTS ASSESSMENT 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Human Rights as a material topic. NOVO BANCO has over the years promoted several initiatives aimed at reducing negative impacts arising from Human Rights issues, namely through its #NB Equal Gender programme, integrated in its Social Dividend model. The development of a culture of respect for human beings is part of NOVO BANCO's standards of excellence: respect for employees, respect in the manner we deal with clients, suppliers and other stakeholders, respect in the relationships established with the communities in the locations where the Bank operates. The Bank has a Human Rights policy that can be consulted on its website. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 412-1 Total number and percentage of operations that have been subject to human rights reviews or impact assessments Non applicable 412-2 Employee training on human rights policies or procedures In 2020 NOVO BANCO did not provide training on this topic. 1 1 189 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope All NOVO BANCO Group's suppliers are covered by its Principles for Suppliers, which require compliance with Human Rights obligations. These criteria are included in the agreements entered into with all suppliers (100%). The certification of suppliers requires answering mandatory response questions concerning human rights policies and practices. The Bank visits all its material suppliers to check their supply capabilities and their compliance with the requirements of the Principles for Suppliers. In 2020 the Group found no instance of non- compliance with these principles by its material Suppliers, namely through its visits to their facilities. Should any cases of violation of human rights occur, NOVO BANCO undertakes to investigate them and reserves the right to terminate the agreement with the Supplier in question if it finds evidence of non-compliance with Human Rights obligations. NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Investment in the community as a material topic. NOVO BANCO has over the years promoted several initiatives under its Corporate Social Responsibility programme, which aims to help devise solutions for important issues within the community in which the Bank operates. This programme is deployed based on three pillars, namely: culture, financial literacy and solidarity. These pillars are an integral part of the NB Social Responsibility programme, included within the Bank's Social Dividend Model. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. SR - pages 138-139; 147-151 412-3 Significant investment agreements and contracts that include human rights clauses or that underwent human rights screening TOPIC: LOCAL COMMUNITIES 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach Operations with local community engagement, impact assessments, and development programmes 413-1 413-2 190 Operations with significant actual and potential negative impacts on local communities NOVO BANCO is not aware of any operations having negative impacts on local communities. 1, 2 2 1 1 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope TOPIC: SUPPLIERS SOCIAL ASSESSMENT 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers the Selection of suppliers with environmental, social and ethical criteria as a material topic. NOVO BANCO has over the years promoted several initiatives addressing its value chain, namely endorsing the Principles of Relationship with Suppliers, and calculating the “sustainability scoring”, which takes into account environmental, ethical, labour, hygiene and safety in the workplace aspects of its suppliers. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report and website. 414-1 414-2 New suppliers that were screened using social criteria SR - pages 109; 141-142 Negative social impacts in the supply chain and actions taken In 2020 NOVO BANCO was not aware of any impacts at this level. 5, 16 5, 16 2 2 TOPIC: PUBLIC POLICY 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 415-1 Political contributions NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Corporate ethics and ethics in the relationship with stakeholders as a material topic. NOVO BANCO manages its activity in full compliance with the legislation in force. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. Political contributions by companies are not permitted under Decree Law No. 19/2003, of 20 June, and NOVO BANCO complies with these provisions. 16 10 191 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope TOPIC: CUSTOMER HEALTH AND SAFETY 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 416-1 Assessment of the health and safety impacts of product and service categories NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Security of the financial assets, and physical and digital security of the client as a material topic. NOVO BANCO has over the years promoted several initiatives across all client security activities, namely with respect to the clients’ safety, the security of transactions, and the safeguard of the personal data of clients and other data subjects. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. The Bank's facilities comply with all existing rules for secure and private customer service. NOVO BANCO conducts its relationship with clients in accordance with the new General Data Protection Regulation, guaranteeing privacy and security in the treatment of customer data. More information may be found in Indicator 418-1. 416-2 Total number of incidents of non-compliance concerning the health and safety impacts of products and services In 2020 there were no penalties and/or fines applied to NOVO BANCO in relation to the General Data Protection Regulation (GDPR). 16 TOPIC: LABELLING OF PRODUCTS AND SERVICES NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Customer satisfaction and service quality, and financial products and services as a material topic. NOVO BANCO has over the years promoted several initiatives aimed at providing clear and transparent information about its products and services to its clients. Products disclosure is subject to prior approval by the competent supervision authority. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 192 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 417-1 Requirements for product and service information and labelling and percentage of significant product or service categories covered by and assessed for compliance with such procedures. 417-2 417-3 Número total de incidentes resultantes da não conformidade com os regulamentos e códigos voluntários relativos à informação e rotulagem de produtos e serviços, discriminados por tipo de resultado Total number of incidents of noncompliance with regulations and/or voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship, by type of result TOPIC: CUSTOMER PRIVACY 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach NOVO BANCO provides clear information about each product or service offered, including about their characteristics and specific conditions. This information and underlying processes are subject to strict internal controls in terms of the Bank's internal audit and quality control, as well as strict external controls, through the supervision conducted by the Bank of Portugal, the CMVM and the external audits to the Bank's processes. 12, 16 In 2020 no incidents of non- compliance with voluntary procedures and voluntary codes concerning product and service information or labelling of NOVO BANCO were identified. 16 In 2020 no incidents of non- compliance with voluntary procedures and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship by NOVO BANCO were identified. NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is building its Sustainability Strategy and considers Security of the financial assets, and physical and digital security of the client as a material topic. NOVO BANCO has over the years promoted several initiatives to ensure it performs its activity in accordance with best market practices and the legal and regulatory requirements. The Bank ensures the confidentiality, integrity and availability of the information. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 418-1 Total number of substantiated complaints received concerning breaches of customer privacy In 2020, there were no sanctions and/or fines imposed on NOVO BANCO related to the General Data Protection Regulation (NDPC). 12 193 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope TOPIC: SOCIOECONOMIC COMPLIANCE 16 NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Corporate ethics and ethics in the relationship with stakeholders as a material topic. NOVO BANCO has over the years promoted several initiatives to ensure it performs its activity in accordance with best market practices and the legal and regulatory requirements. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report. In 2020 NOVO BANCO was convicted and fined for 8 infractions for breaches of the duty of bank secrecy, duty of information and in administrative proceedings which resulted in three sanctions.in the amount of 23 500 euros. NOVO BANCO's materiality matrix, which contains the sustainability topics, results from the dialogue with the stakeholders NOVO BANCO is developing its Sustainability Strategy and considers Customer Satisfaction and Service Quality, as well as Financial products with social and environmental concerns as material topics. NOVO BANCO has been enhancing its customer experience monitoring model with a view to offering the best experience to its clients. Knowing the clients’ expectations throughout their life cycle permits to identify opportunities for improvement, using a robust model for monitoring the customer experience based on several action pillars. The Bank has also reinforced its offering and services based on environmental criteria. NOVO BANCO monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 419-1 Significant fines and non- monetary sanctions for non- compliance with laws and/or regulations in the social and economic area FINANCIAL SUPPLEMENT INDICATORS TOPIC: PORTFOLIO OF PRODUCTS 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 194 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORTGENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope Policies with specific environmental and social components applied to business lines. Procedures for assessing and screening environmental and social risks in business lines. SR - pages 138-141 SR - pages 138-141 10 10 Processes for monitoring clients’ implementation of and compliance with environmental and social requirements included in agreements or transactions. Management Approach NOVO BANCO has in place several mechanisms to regulate customer monitoring. In cases which may be considered more sensitive, prevention and monitoring plans are negotiated, and the situations are monitored, resorting, when necessary, to external experts. Process(es) for improving staff competency to implement the environmental and social policies and procedures as applied to business lines NOVO BANCO provides adequate training to its employees on the marketing of products with environmental and social concerns. Interactions with clients/ investees/business partners regarding environmental and social risks and opportunities Percentage of the portfolio for business lines by specific region, size (e.g., micro/SME/ large) and by sector Monetary value of products and services designed to deliver a specific social benefit for each business line broken down by purpose Monetary value of products and services designed to deliver a specific environmental benefit for each business line broken down by purpose FS6 FS7 FS8 SR - pages 112-114; 118-123; 126-127; 127-138 10 MR - páginas 12-14 1, 8, 9 SR - pages 138-141 1, 8, 9, 10, 11 SR - pages 138-141 TOPIC: AUDIT FS9 Coverage and frequency of audits to assess implementation of environmental and social policies and risk assessment procedures TOPIC: ACTIVE OWNERSHIP No audits strictly dedicated to the implementation of environmental and social policies are carried out. NOVO BANCO annually assesses the practices implemented and the quantitative data through an external independent verification of its AR and Sustainability Report. Percentage and number of companies held in the institution’s portfolio with which the reporting organisation has interacted on environmental or social issues Percentage of assets subject to positive and negative environmental or social screening SR - pages 109 -112 Non applicable FS10 FS11 195 10 10 10 NOVO BANCO SUSTAINABILITY REPORT 2020GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope FS12 Voting policy(ies) applied to environmental or social issues for shares over which the reporting organisation holds the right to vote shares or advises on voting TOPIC: LOCAL COMMUNITIES FS13 Access points in low-populated or economically disadvantaged areas by type FS14 Initiatives to improve access to financial services for disadvantaged people NOVO BANCO’s equity holdings in other companies are always aimed at obtaining profitability in the long term. Having said that, the Bank's stance as a shareholder takes into account the relevant principles to ensure consistent ethical, social and environmental management. Despite the downsizing carried out, NOVO BANCO still has a large network of branches across the country and has 53 branches in low populated areas. NOVO BANCO has been investing in the digitisation of its services, which has permitted greater coverage and easier contact with its clients, wherever they are. NOVO BANCO's branch network is equipped with access ramps and lifting platforms. It also provides lowered ATMs with Braille keyboards. his equipment is being installed if and when necessary, as the branch network is refurbished. The aim is to gradually extend these access improvements to all NOVO BANCO's branches and services. TOPIC: LABELLING OF PRODUCTS AND SERVICES 1, 10 FS15 Policies for the fair design and sale of financial products and services All the financial products and services are designed in compliance with the legal requirements, the regulators’ guidelines and the policies of the institution. NOVO BANCO regularly reports to its regulators proof of its respect for and compliance with politics and rules of conduct, externally and internally. The internal and external audits to the Bank's procedures verify whether its procedures comply with the requirements issued by the Bank of Portugal and the Portuguese Insurance Institute. 10 FS16 Initiatives to enhance financial literacy by type of beneficiary SR - pages 148-150 1, 8, 10 AR MR SR FS Annual Report Management Report Sustainability Report Financial Statements and Final Notes NOVO BANCO NOVO BANCO Group 196 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORT7.3 Independent Limited Assurance Report Ernst & Young Audit & Associados - SROC, S.A. Avenida da República, 90-6º 1600-206 Lisboa Portugal Tel: +351 217 912 000 Fax: +351 217 957 586 www.ey.com (Free translation from the Original Independent Limited Assurance Report in Portuguese. In case of any discrepancy, the Portuguese version always prevails) Independent Limited Assurance Report of the Sustainability Report To the Board of Directors of Novo Banco, S.A. Introduction 1. We were contracted by the Board of Directors of Novo Banco, S.A. to proceed with the independent review of the “Sustainability Report 2020”, hereinafter the “Sustainability Report”,included in the “Report and Accounts 2020” relating to the sustainability performance from 1 January to 31 December 2020. Responsibilities 2. 3. The Board of Directors is responsible for preparing the “Sustainability Report” and to maintain an appropriate internal control system that allows the information presented to be free of material misstatements due to fraud or error. It is our responsibility to issue a limited assurance report, professional and independent, based on the procedures performed and described in the “Scope” section below. Scope 4. 5. Our review procedures have been planned and executed in accordance with the International Standard on Assurance Engagements (ISAE 3000, Revised) – “Assurance engagements other than Audits and Reviews of Historical Financial Information”, for a limited level of assurance. The procedures performed in a limited assurance engagement vary in timing and nature from, and are less in extent than for, a reasonable assurance engagement, therefore, the assurance provided by these procedures is lower than the assurance that would have been obtained had a reasonable assurance engagement been performed. Our independent review procedures comprised the following: ► Conducting interviews with Management, in order to understand how the information system is structured and assess their level of knowledge of the topics addressed in the report; ► Review of the processes, criteria and systems adopted to collect, consolidate, report and validate the data for the year 2020; ► Review, on a sample basis, of the data calculated by Management, and of quantitative and qualitative information disclosed in the report; ► Confirmation on how collection, consolidation, validation and report procedures are being implemented in selected operating units; ► Verification of the conformity of the information included in the “Sustainability Report” with the results of our work. 6. Regarding sustainability reporting standards of the Global Reporting Initiative – GRI Standards, we performed a review of the self-evaluation made by Management of the adopted option to apply the GRI Standards and conformity with Article 66B of the Portuguese Companies Act (Código das Sociedades Comerciais) (disclose of non-financial information). Sociedade Anónima - Capital Social 1.335.000 euros - Inscrição n.º 178 na Ordem dos Revisores Oficiais de Contas - Inscrição N.º 20161480 na Comissão do Mercado de Valores Mobiliários Contribuinte N.º 505 988 283 - C. R. Comercial de Lisboa sob o mesmo número A member firm of Ernst & Young Global Limited 197 NOVO BANCO SUSTAINABILITY REPORT 2020 Financial Statements and Final Notes Novo Banco, S.A. (Free translation from the Original Independent Limited Assurance Report in Portuguese. In case of any discrepancy, the Portuguese version always prevails) Independent Limited Assurance Report of the 2020 Sustainability Report Report 1 of January to 31 of December 2020 Quality and independence 7. Our firm applies International Standard on Quality Control 1 (ISQC 1), and consequently maintains a global quality control system which includes documented policies and procedures relating to compliance with ethical requirements, professional standards, and the legal and regulatory provisions applicable and we comply with the independence and ethical requirements of the International Ethics Standards Board for Accountants (IESBA) Code of Ethics and the Code of Ethics of the Order of Chartered Accountants (OROC). Conclusion 8. Based on our work, nothing has come to our attention that causes us to believe that the systems and procedures for the collection, consolidation, validation and reporting of the “Sustainability Report” are not operating appropriately and the information disclosed is not free from relevant material misstatements. Additionally, nothing has come to our attention that causes us to believe that the “Sustainability Report” do not include all the required data and information as defined by the Article 66B of the Portuguese Companies Act. Lisboa, March 25, 2021 Ernst & Young Audit & Associados – SROC, S.A. Sociedade de Revisores Oficiais de Contas Represented by: (signed) Manuel Ladeiro de Carvalho Coelho da Mota – ROC nº 1410 Registered with the Portuguese Securities Market Commission under license nr. 20161020 198 2/2 NOVO BANCO SUSTAINABILITY REPORT 20201.0 SUSTAINABILITY 2.0 CLIENTS 3.0 EMPLOYEES 4.0 SUSTAINABLE BUSINESS 5.0 RESPONSIBLE CONDUCT 6.0 PERFORMANCE 7. ABOUT THIS REPORT Financial Statements and Final Notes Title: White Cars Author: Pedro Biu Consolidated income statement for the years ended 31 December 2020 and 2019 CONSOLIDATED INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2020 AND 2019 NOVO BANCO GROUP Notes 31.12.2020 31.12.2019 * (in thousands of Euros) Interest Income Interest Expenses Net Interest Income Dividend income Fees and comission income Fees and comission expenses Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Gains or losses on financial assets and liabilities held for trading Gains or losses on financial assets mandatorily at fair value through profit or loss Gains or losses on financial assets and liabilities designated at fair value through profit and loss Gains or losses from hedge accounting Exchange differences Gains or losses on derecognition of non-financial assets Other operating income Other operating expenses Operating Income Administrative expenses Staff expenses Other administrative expenses Contributions to resolution funds and deposit guarantee Depreciation Provisions or reversal of provisions Commitments and guarantees given Other provisions Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates Impairment or reversal of impairment on non-financial assets 5 5 6 7 7 8 9 10 10 11 12 13 14 14 15 17 18 25, 27 32 22 24 27, 29, 30 Share of the profit or loss of investments in subsidiaries, joint ventures and associates accounted for using the equity method 24 Profit or loss before tax from continuing operations Tax expense or income related to profit or loss from continuing operations Current tax Deferred tax Profit or loss after tax from continuing operations Profit or loss before tax from discontinued operations Profit or loss for the period Attributable to Shareholders of the parent Attributable to non-controlling interests Basic earnings per share (in Euros) Diluted earnings per share (in Euros) Basic earnings per share of continuing activities (in Euros) Diluted earnings per share of continuing activities (in Euros) 30 35 19 19 19 19 743 707 ( 188 573) 555 134 16 478 313 823 ( 47 305) 88 472 ( 91 611) ( 364 000) - ( 11 641) ( 2 414) ( 3 416) 120 732 ( 230 294) 720 519 ( 208 087) 512 432 9 866 352 136 ( 49 254) 61 553 ( 59 945) ( 253 729) 106 ( 1 924) 38 716 11 516 132 574 ( 364 505) 343 958 389 542 ( 398 769) ( 245 606) ( 153 163) ( 35 048) ( 33 072) ( 186 423) ( 22 116) ( 164 307) ( 755 070) ( 4 192) ( 245 778) 9 430 ( 408 323) ( 246 393) ( 161 930) ( 34 707) ( 30 341) ( 41 407) 56 596 ( 98 003) ( 540 437) 337 ( 273 634) 1 470 (1 304 964) ( 937 500) ( 1 082) 8 639 ( 9 721) ( 45 790) ( 8 815) ( 36 975) (1 306 046) ( 983 290) ( 33 345) ( 83 175) (1 339 391) (1 066 465) (1 329 317) ( 10 074) (1 058 812) ( 7 653) (1 339 391) (1 066 465) (0,14) (0,14) (0,13) (0,13) (0,11) (0,10) (0,11) (0,10) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The accompanying explanatory notes are as integral part of these consolidated financial statements. The accompanying explanatory notes are an integral part of these consolidated financial statements 31 December 2020 Notes to the Consolidated Financial Statements 2 200 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDConsolidated statement of comprehensive income for the years ended 31 December 2020 and 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2020 AND 2019 NOVO BANCO GROUP Net profit / (loss) for the period Other comprehensive income/(loss) Items that will not be reclassified to results Actuarial gains / (losses) on defined benefit plans Other comprehensive income from associates accounted for using the equity method Fair value changes of equity instruments measured at fair value through other comprehensive income Fair value changes of financial liabilities at fair value through profit or loss that is attributable to changes in their credit risk Items that may be reclassified to results Foreign exchange differences Financial assets at fair value through other comprehensive income Total other comprehensive income/(loss) for the period Attributable to non-controlling interest Attributable to Shareholders of the Bank a) See Statement of Changes in the Consolidated Equity Notes 31.12.2020 31.12.2019 (in thousands of Euros) ( 1 339 391) ( 1 066 465) a) a) a) a) a) a) ( 127 689) ( 124 331) ( 107 623) ( 107 341) ( 2 048) ( 12 193) 10 883 6 580 ( 1 518) 8 098 897 1 692 ( 2 871) 209 412 31 209 381 (1 460 500) ( 964 676) ( 10 074) (1 450 426) ( 7 653) ( 957 023) The accompanying explanatory notes are as integral part of these consolidated financial statements. The accompanying explanatory notes are an integral part of these consolidated financial statements 201 31 December 2020 Notes to the Consolidated Financial Statements 3 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESConsolidated balance sheet as at 31 December 2020 and 2019 NOVO BANCO GROUP CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2020 AND 2019 (in thousands of Euros) Notes 31.12.2020 31.12.2019 ASSETS Cash, cash balances at central banks and other demand deposits Financial assets held for trading Financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortised cost Securities Loans and advances to banks Loans and advances to customers Derivatives – Hedge accounting Fair value changes of the hedged items in portfolio hedge of interest rate risk Investments in subsidiaries, joint ventures and associates Tangible assets Tangible fixed assets Investment properties Intangible assets Tax assets Current Tax Assets Deferred Tax Assets Other assets Non-current assets and disposal groups classified as held for sale TOTAL ASSETS LIABILITIES Financial liabilities held for trading Financial liabilities designated at fair value through profit or loss Financial liabilities measured at amortised cost Deposits from banks (of which, Repurchase Agreement) Due to customers Debt securities issued, Subordinated debt and liabilities associated to transferred assets Other financial liabilities Derivatives – Hedge accounting Provisions Tax liabilities Current Tax liabilities Deferred Tax Liabilities Other liabilities Liabilities included in disposal groups classified as held for sale TOTAL LIABILITIES EQUITY Capital Accumulated other comprehensive income Retained earnings Other reserves Profit or loss attributable to Shareholders of the parent Minority interests (Non-controlling interests) TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 20 21 22 22 22 23 23 24 25 26 27 28 29 30 21 31 31 23 32 28 33 30 34 35 35 35 35 2 695 459 655 273 960 962 7 907 587 25 898 046 2 229 947 113 795 23 546 405 12 972 63 859 93 630 779 657 187 052 592 605 48 833 775 498 610 774 888 2 944 292 1 559 518 1 854 081 748 732 1 314 742 8 849 896 27 141 460 1 622 545 369 228 25 149 687 7 452 52 540 92 628 889 152 188 408 700 744 26 378 900 095 1 628 898 467 3 378 492 40 255 44 395 586 - 45 295 903 554 791 - 37 808 767 10 102 896 1 625 724 26 322 060 1 017 928 365 883 72 543 384 382 14 324 9 203 5 121 417 762 1 996 382 544 825 102 012 39 673 649 9 849 623 2 168 488 28 400 127 1 065 211 358 688 58 855 307 817 17 980 11 873 6 107 586 066 1 942 41 248 951 41 293 146 5 900 000 ( 823 420) (7 202 828) 6 570 154 (1 329 317) 32 046 5 900 000 ( 702 311) (6 115 245) 5 942 501 (1 058 812) 36 624 3 146 635 4 002 757 44 395 586 45 295 903 The accompanying explanatory notes are as integral part of these consolidated financial statements. The accompanying explanatory notes are an integral part of these consolidated financial statements 202 31 December 2020 Notes to the Consolidated Financial Statements 4 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDConsolidated statement of changes in equity for the years ended 31 December 2020 and 2019 NOVO BANCO GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2020 AND 2019 Notes Share Capital Other Comprehen sive Income Retained earnings Other reserves (in thousands of Euros) Net profit/(loss) for the period attributable to shareholders of the Bank Non-controlling interests Other Comprehensive Income Other Total Balance as at 31 December 2018 5 900 000 ( 790 884) ( 4 682 300) 4 872 841 ( 1 412 642) ( 25 258) 60 604 3 922 361 Other Increase / (Decrease) in Equity Appropriation to retained earnings of net profit / (loss) of the previous period Reserve of Contingent Capital Agreement Transactions with non-controlling interests Other movements Other changes in non-controlling Interests Total comprehensive income for the period Changes in fair value, net of tax Foreign exchange differences, net of tax Remeasurement of defined benefit plans, net of tax Other comprehensive income appropriated from associated companies Variation in the credit risk of financial liabilities at fair value, net of taxes Reserves of impairment of securities at fair value through OCI Reserves of sales of securities at fair value through OCI Net profit / (loss) for the period - - - - - - - - - - - - - - - ( 13 216) - - - ( 13 216) - 101 789 211 207 31 ( 107 341) 897 ( 2 871) 4 336 ( 4 470) - ( 1 432 945) ( 1 412 642) - - ( 20 303) - - - - - - - - - - 1 069 660 - 1 037 013 - 32 647 - - - - - - - - - - 1 412 642 1 412 642 - - - - ( 1 058 812) - - - - - - - ( 1 058 812) ( 1) - - - - ( 1) ( 7 653) - - - - - - - ( 7 653) 8 932 - - ( 1 746) - 10 678 - - - - - - - - - 1 045 072 - 1 037 013 ( 1 746) ( 872) 10 677 ( 964 676) 211 207 31 ( 107 341) 897 ( 2 871) 4 336 ( 4 470) ( 1 066 465) Balance as at 31 December 2019 5 900 000 ( 702 311) ( 6 115 245) 5 942 501 ( 1 058 812) ( 32 912) 69 536 4 002 757 Other Increase / (Decrease) in Equity Appropriation to retained earnings of net profit / (loss) of the previous period Reserve of Contingent Capital Agreement Other movements Total comprehensive income for the period Changes in fair value, net of tax Foreign exchange differences, net of tax Remeasurement of defined benefit plans, net of tax Other comprehensive income appropriated from affiliates Credit risk changes of financial liabilites at fair value, net of tax Reserves of impairment of securities at fair value through OCI Reserves of sales of securities at fair value through OCI Net income of the period 35 35 16 35 35 35 - - - - - - - - - - - - - - - - - ( 121 109) 12 729 ( 1 518) ( 124 331) ( 2 048) 10 883 ( 1 852) ( 14 972) - ( 1 087 583) ( 1 087 584) - 1 - - - - - - - - - 627 653 28 772 596 315 2 566 - - - - - - - - - 1 058 812 1 058 812 - - ( 1 329 317) - - - - - - - ( 1 329 317) - - - - ( 10 074) - - - - - - - ( 10 074) 5 496 - - 5 496 - - - - - - - - - 604 378 - 596 315 8 063 ( 1 460 500) 12 729 ( 1 518) ( 124 331) ( 2 048) 10 883 ( 1 852) ( 14 972) ( 1 339 391) Balance as at 31 December 2020 5 900 000 ( 823 420) ( 7 202 828) 6 570 154 ( 1 329 317) ( 42 986) 75 032 3 146 635 The accompanying explanatory notes are as integral part of these consolidated financial statements. The accompanying explanatory notes are an integral part of these consolidated financial statements 203 31 December 2020 Notes to the Consolidated Financial Statements 5 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESConsolidated cash flow statement for the years ended 31 December 2020 and 2019 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2020 AND 2019 NOVO BANCO GROUP Cash flows from operating activities Interest received Interest paid Fees and commissions received Fees and commissions paid Recoveries on loans previously written off Contributions to the pension fund Contributions to resolution funds and deposit guarantee Cash payments to employees and suppliers Changes in operating assets and liabilities: Deposits with / from Central Banks Financial assets mandatorily at fair value through profit or loss Financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortised cost Debt securities Loans and advances to banks Loans and advances to customers Financial liabilities at amortised cost Deposits from banks Due to customers Derivatives - Hedge accounting Other operating assets and liabilities (in thousands of Euros) Notes 31.12.2020 31.12.2019 727 929 ( 239 957) 314 412 ( 47 304) 30 181 ( 269 419) ( 35 048) ( 392 640) 88 154 915 128 ( 453 921) 173 802 686 478 647 ( 654 460) 64 756 1 068 351 (2 696 827) ( 655 784) (2 041 043) ( 3 151) 840 403 723 210 ( 217 305) 367 940 ( 53 456) 31 372 ( 1 535) ( 34 707) ( 449 187) 366 332 ( 297 651) ( 248 408) 85 964 ( 869 032) (1 194 539) ( 185 695) 54 090 (1 062 934) 1 491 918 1 781 604 ( 289 686) ( 2 225) 122 956 Net cash from operating activities before corporate income tax ( 38 708) ( 544 685) Corporate income taxes paid Net cash from operating activities Cash flows from investing activities Acquisition of investments in subsidiaries and associated companies Sale of investments in subsidiaries and associated companies Dividends received Acquisition of investment properties Sale of investment properties Acquisition of tangible fixed assets Sale of tangible fixed assets Acquisition of intangible assets Sale of intangible assets Net cash from investing activities Cash flows from financing activities Contingent Capitalization Mechanism Issuance of bonds and other liabilities Repayment of bonds and other liabilities Net cash from financing activities Net changes in cash and cash equivalents Cash and cash equivalents at the beginning of the period Net changes in cash and cash equivalents Cash and cash equivalents at the end of the period Cash and cash equivalents include: Cash Deposits with Central Banks (of which, Restricted balances) Deposits with banks Total ( 22 645) ( 61 353) ( 2 919) 58 283 16 478 ( 11 966) 67 581 ( 48 285) 4 566 ( 26 866) 6 013 ( 34 868) ( 579 553) ( 36 700) 163 828 9 909 - 197 058 ( 19 959) 16 477 ( 26 439) - 62 885 304 174 1 035 016 - ( 189 913) 1 149 295 1 300 000 (1 307 855) 845 103 1 141 440 846 635 866 061 1 585 602 846 635 719 541 866 061 2 432 237 1 585 602 20 20 20 149 205 2 292 797 ( 263 222) 253 457 179 220 1 408 908 ( 268 479) 265 953 2 432 237 1 585 602 The accompanying explanatory notes are an integral part of these consolidated financial statements The accompanying explanatory notes are as integral part of these consolidated financial statements. 31 December 2020 Notes to the Consolidated Financial Statements 6 204 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDNotes to the Consolidated Financial Statements as at 31 December 2020 (Amounts expressed in thousands of Euro, except when otherwise indicated) NOTE 1 – Activity and group structure NOVO BANCO, S.A. is the main entity of the financial Group NOVO BANCO focused on the banking activity, having been incorporated on the 3rd of August 2014 per deliberation of the Board of Directors of Banco de Portugal (the Central Bank of Portugal) dated 3rd of August 2014 (8 p.m.), under No. 5 of article 145-G of the General Law on Credit Institutions and Financial Companies (“Regime Geral das Instituições de Crédito e Sociedades Financeiras” (RGICSF)¹, approved by Decree-Law No. 298/92, of 31 December, following the resolution measure applied by Bank of Portugal to Banco Espírito Santo, S.A. (BES), under the terms of paragraphs 1 and 3-c) of article 145-C of the RGICSF, from which resulted the transfer of certain assets, liabilities and off-balance sheet elements as well as assets under management of BES from BES to NOVO BANCO, S.A. (NOVO BANCO or the Bank). As a result of the resolution measure applied, Fundo de Resolução (“Resolution Fund”) became the sole owner of the share capital of NOVO BANCO, in the amount of Euro 4,900 million, which acquired the status of a transition Bank, with a limited duration, due to the commitment assumed by the Portuguese State with the European Commission to sell its shares within two years from the date of its incorporation, extendable for one year. On 31 March 2017, the Resolution Fund signed the sale agreement of NOVO BANCO. On 18 October 2017, the sale process was concluded, following the acquisition of the majority (75%) of its share capital by Nani Holdings, SGPS, SA, a company belonging to the North-American Group Lone Star, through two share capital increases in the amount of Euro 750 million and Euro 250 million, in October and December, respectively. Thus, as at 30 June 2020 and 31 December 2019, the share capital of NOVO BANCO amounted to Euro 5,900 million, represented by 9,799,999,997 nominative shares, with no nominal value. Within the sale process, a Contingent Capital Agreement was created, which in case its capital ratios decrease below the regulatory requirements defined for NOVO BANCO, and cumulatively, losses are recorded in a delimited portfolio of assets, the Resolution Fund makes a payment corresponding to the lower of the losses recorded and the amount needed to restore the capital ratios at the relevant level, up to a maximum of Euro 3,890 million. With the conclusion of the sale process, NOVO BANCO ceased to be considered a transition Bank and began to operate normally, although still being subject to certain measures restricting its activity, imposed by the European Competition Authority. Since 18 October 2017 the financial statements of NOVO BANCO are consolidated by Nani Holdings SGPS, S.A., with registered office at Avenida D. João II, No. 46, 4A, Lisbon. LSF Nani Investments S.à.r.l., headquartered in Luxembourg, is the parent company of the Group. NOVO BANCO, S.A. has its registered office in Lisbon, at Avenida da Liberdade, No. 195. NOVO BANCO Group (hereinafter also designated as Group or NB Group) has a retail network comprising 386 branches in Portugal and abroad (31 December 2019: 387 branches), including branches in Spain and Luxembourg, and 4 representative offices overseas (31 December 2019: 4 representative offices). Group companies in which the Bank has a direct or indirect holding higher or equal to 20%, over which the Bank exercises control or significant influence, and that were included in the consolidation perimeter, are presented below. 1. References made to RGICSF refer to the version in force at the date of the resolution measure. The current version of the RGICSF has suffered changes, namely in article 145, following the publication of Law 23-A 2015, of 26 March, that came into force on the day following its publication. 205 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe entities directly consolidated into NOVO BANCO are the following: The entities directly consolidated into NOVO BANCO are the following: Year incorporated Year acquired Registered office Activity % Economic Interest Consolidation method NOVO BANCO, SA Novo Banco dos Açores, SA (NB Açores) BEST - Banco Electrónico de Serviço Total, SA (BEST) NB África, SGPS, SA GNB - Gestão de Ativos, SGPS, SA (GNB GA) ES Tech Ventures, S.G.P.S., SA (ESTV) NB Finance, Ltd. (NBFINANCE) GNB - Recuperação de Credito, ACE (GNBREC) GNB Concessões, SGPS, SA (GNB CONCESSÕES) GNB - Serviços de Suporte Operacional, ACE (GNB ACE) Espírito Santo Representações, Ltda. (ESREP) Fundo de Capital de Risco NOVO BANCO PME Capital Growth Fundo FCR PME / NOVO BANCO Fundo de Gestão de Património Imobiliário - FUNGEPI - Novo Banco Fundo de Gestão de Património Imobiliário - FUNGEPI - Novo Banco II FUNGERE - Fundo de Gestão de Património Imobiliário ImoInvestimento – Fundo Especial de Investimento Imobiliário Fechado Prediloc Capital – Fundo Especial de Investimento Imobiliário Fechado Imogestão – Fundo de Investimento Imobiliário Fechado Arrábida - Fundo Especial de Investimento Imobiliário Fechado Invesfundo VII – Fundo de Investimento Imobiliário Fechado NB Logística - Fundo Especial de Investimento Imobiliário Aberto NB Património - Fundo de Investimento Imobiliário Aberto Fundes - Fundo Especial Investimento Imobiliário Fechado NB Arrendamento - Fundo de Investimento Imobiliário Fechado para Arrendamento Habitacional Fimes Oriente - Fundo de Investimento Imobiliário Fechado Fundo de Investimento Imobiliário Fechado Amoreiras ASAS Invest - Fundo Especial de Investimento Imobiliário Fechado Novimove - Fundo de Investimento Imobiliario Fechado Febagri-Actividades Agropecuárias e Imobiliárias SA Autodril - Sociedade Imobiliária, SA JCN - IP - Investimentos Imobiliários e Participações, SA Greenwoods Ecoresorts empreendimentos imobiliários, SA Sociedade Imobiliária Quinta D. Manuel I, SA Quinta da Areia - Sociedade Imobiliária, SA Sociedade Agrícola Turística e Imobiliária da Várzea da Lagoa, SA Imalgarve - Sociedade de Investimentos Imobiliários, SA Promotur - Empreendimentos Turístico, SA Herdade da Boina - Sociedade Imobiliária Ribagolfe - Empreendimentos de Golfe, SA Benagil - Promoção Imobiliária, SA Imoascay - Promoção Imobiliária, SA Fundo de Investimento Imobiliário Fechado Quinta da Ribeira Promofundo - Fundo Especial de Investimento Imobiliário Fechado Herdade da Vargem Fresca VI - Comércio e Restauração SA Locarent - Companhia Portuguesa de Aluguer de Viaturas, SA (LOCARENT) UNICRE - Instituição Financeira de Crédito, SA Ijar Leasing Algérie Edenred Portugal, SA 2014 2002 2001 2009 1992 2000 2015 1998 2002 2006 1996 2009 1997 1997 2011 1997 2012 2006 2006 2006 2008 2007 1992 2008 2009 2004 2006 2010 2004 2006 1998 1995 2012 2012 2012 2012 1986 1983 1999 1995 1970 2011 2006 2008 1997 2003 1974 2011 1984 - 2002 2001 2009 1992 2000 2015 1998 2003 2006 1996 2009 1997 2012 2012 2012 2012 2012 2013 2013 2013 2012 2014 2015 2012 2012 2015 2013 2019 2012 2012 2012 2012 2012 2012 2012 2014 2014 2012 2012 2012 2012 2017 2018 2012 2003 2010 2011 2013 Portugal Portugal Portugal Portugal Portugal Portugal Bank Bank 57,53% Full consolidation Eletronic Bank 100,00% Full consolidation Holding Holding Holding 100,00% Full consolidation 100,00% Full consolidation 100,00% Full consolidation Cayman Islands Issue and distribution of securities 100,00% Full consolidation Portugal Portugal Portugal Brazil Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Algeria Portugal Debt Collection 99,15% Full consolidation Holding 100,00% Full consolidation Provision of various services 97,86% Full consolidation Representation services 99,99% Full consolidation Venture Capital Fund 100,00% Full consolidation Venture Capital Fund 56,78% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 95,28% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 91,22% Full consolidation Real Estate Investment Fund 55,90% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 95,24% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real estate promotion 100,00% Full consolidation Real estate promotion 100,00% Full consolidation Real estate promotion 95,28% Full consolidation Real estate promotion 100,00% Full consolidation Real estate promotion 100,00% Full consolidation Real estate promotion 100,00% Full consolidation Real estate promotion 100,00% Full consolidation Real estate promotion 100,00% Full consolidation Real estate promotion 99,875% Full consolidation Real estate promotion 100,00% Full consolidation Golf Course Exploration 100,00% Full consolidation Real estate promotion 100,00% Full consolidation Real estate promotion 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Real Estate Investment Fund 100,00% Full consolidation Catering sector 95,28% Full consolidation Renting 50,00% Equity method Financial credit company 17,50% a) Equity method Leasing 18,85% Equity method Provision of various services 50,00% b) Equity method a) The percentage presented above reflects the Group's economic interest. These entities were included in the consolidated balance sheet via the equity method as the Group exercises significant influence over their activities b) Entities consolidated under the equity method as the voting rights grant control to the other shareholders. 31 December 2020 Notes to the Consolidated Financial Statements 8 206 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Subgroups: Subgroups: Subgroups: GNB - Gestão de Ativos, SGPS, SA (GNB GA) Year incorporated Year acquired Registered office Activity % Economic Interest Consolidation method 1992 1992 Portugal Management of shareholdings 100,00% Full Consolidation GNB Fundos Mobiliários - Sociedade Gestora de Organismos de Investimento Coletivo, SA GNB Real Estate - Sociedade Gestora de Organismos de Investimento Coletivo, SA 1987 Year incorporated 1992 1987 Year acquired 1992 GNB - Sociedade Gestora de Fundos de Pensões, SA GNB - Gestão de Ativos, SGPS, SA (GNB GA) Espírito Santo International Asset Management, Ltd. GNB Fundos Mobiliários - Sociedade Gestora de Organismos de Investimento Coletivo, SA GNB - Sociedade Gestora de Patrimónios, SA GNB Real Estate - Sociedade Gestora de Organismos de Investimento Coletivo, SA GNB - International Management, SA GNB - Sociedade Gestora de Fundos de Pensões, SA ES Tech Ventures, S.G.P.S., SA (ESTV) Espírito Santo International Asset Management, Ltd. Yunit Serviços, SA GNB - Sociedade Gestora de Patrimónios, SA Fundo de Capital de Risco NOVO BANCO PME Capital Growth GNB - International Management, SA Righthour, SA ES Tech Ventures, S.G.P.S., SA (ESTV) Yunit Serviços, SA Imbassaí Participações, SA Fundo de Capital de Risco NOVO BANCO PME Capital Growth Lírios Investimentos Imobiliários, Ltda Righthour, SA UCH Investimentos Imobiliários, Ltda Imbassaí Participações, SA UCS Participações e Investimentos, Ltda UR3 Investimentos Imobiliários, Ltda Lírios Investimentos Imobiliários, Ltda Fundo FCR PME / NOVO BANCO UCH Investimentos Imobiliários, Ltda LOGI C - Logística Integrada, SA UCS Participações e Investimentos, Ltda Epedal - Indústria de Componentes Metálicos, S.A. UR3 Investimentos Imobiliários, Ltda Fundo FCR PME / NOVO BANCO Nexxpro - Fábrica de Capacetes, S.A. Cristalmax – Indústria de Vidros, S.A. LOGI C - Logística Integrada, SA Ach Brito & Ca, SA Epedal - Indústria de Componentes Metálicos, S.A. M. N. Ramos Ferreira, Engenharia, SA Nexxpro - Fábrica de Capacetes, S.A. GNB Concessões, SGPS, SA (GNB CONCESSÕES) Cristalmax – Indústria de Vidros, S.A. Lineas – Concessões de Transportes, SGPS, SA Ach Brito & Ca, SA 1989 1992 1998 1987 1987 1992 1995 1989 2000 1998 2000 1987 2009 1995 2013 2000 2009 2000 2007 2009 2007 2013 2004 2009 2007 2007 1997 2007 2014 2004 1981 2007 2001 1997 1994 2014 1918 1981 1983 2001 2002 1994 2008 1918 1989 1992 1998 1987 1987 1992 1995 1989 2000 1998 2000 1987 2009 1995 2013 2000 2013 2000 2013 2009 2013 2013 2013 2013 2013 2013 1997 2013 2016 2013 2015 2013 2015 1997 2017 2016 2015 2015 2013 2015 2003 2017 2010 2015 Portugal Registered office Portugal Portugal Portugal Investment fund management Activity Investment fund management 100,00% % Economic Interest 100,00% Full Consolidation Consolidation method Full Consolidation Investment fund management Management of shareholdings 100,00% 100,00% Full Consolidation Full Consolidation English Virgin Islands Portugal Investment fund management Investment fund management 50,00% 100,00% b) Equity method Full Consolidation Portugal Portugal Wealth management Investment fund management 100,00% 100,00% Full Consolidation Full Consolidation Luxembourg Portugal Investment fund management Investment fund management 100,00% 100,00% Simplified integral Full Consolidation Portugal English Virgin Islands Management of shareholdings Investment fund management 100,00% 50,00% b) Full Consolidation Equity method Portugal Portugal Portugal Luxembourg Internet portal management Wealth management 33,33% 100,00% Equity method Full Consolidation Venture Capital Fund Investment fund management 100,00% 100,00% Full Consolidation Simplified integral Portugal Portugal Brazil Portugal Brazil Portugal Brazil Portugal Brazil Brazil Brazil Brazil Portugal Brazil Portugal Brazil Portugal Brazil Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Services Provider Management of shareholdings 100,00% 100,00% Full Consolidation Full Consolidation Management of shareholdings Internet portal management 100,00% 33,33% Full Consolidation Equity method Real estate investment management Venture Capital Fund 100,00% 100,00% Full Consolidation Full Consolidation Real estate investment management Services Provider 100,00% 100,00% Full Consolidation Full Consolidation Real estate investment management Management of shareholdings 100,00% 100,00% Full Consolidation Full Consolidation Real estate investment management Real estate investment management 100,00% 100,00% Full Consolidation Full Consolidation Venture Capital Fund Real estate investment management Logistic Real estate investment management Management of shareholdings Real estate investment management 56,78% 100,00% a) 20,74% 100,00% a) 12,22% 100,00% Full Consolidation Full Consolidation Equity method Full Consolidation Equity method Full Consolidation Helmet manufacturing Venture Capital Fund 38,99% 56,78% Equity method Full Consolidation Glass manufacturing Logistic Soap manufacture Management of shareholdings Engineering Helmet manufacturing 18,96% 20,74% a) a) a) a) 8,77% 12,22% 8,11% 38,99% a) Equity method Equity method Equity method Equity method Equity method Equity method Management of shareholdings Glass manufacturing a) 100,00% 18,96% Full Consolidation Equity method Management of shareholdings Soap manufacture 40,00% 8,77% a) 8,11% a) Equity method Equity method Equity method Lusitano Mortgages No.6 plc (*) Lusitano Mortgages No.7 plc (*) Lusitano Mortgages No.6 plc (*) Lusitano Mortgages No.7 plc (*) a) The percentage presented above reflects the Group's economic interest. These entities were included in the consolidated balance sheet via the equity method as the Group exercises significant influence over their activities. 1983 2013 Portugal Engineering M. N. Ramos Ferreira, Engenharia, SA b) Entities consolidated under the equity method as the voting rights grant control to the other shareholders. GNB Concessões, SGPS, SA (GNB CONCESSÕES) 2002 2003 Portugal Management of shareholdings 100,00% Full Consolidation Additionally, and considering the requirements of IFRS 10, the Group’s consolidation perimeter includes the following structured Lineas – Concessões de Transportes, SGPS, SA Additionally, and considering the requirements of IFRS 10, the Group’s consolidation perimeter includes the following entities: structured entities: a) The percentage presented above reflects the Group's economic interest. These entities were included in the consolidated balance sheet via the equity method as the Group exercises significant influence over their activities. b) Entities consolidated under the equity method as the voting rights grant control to the other shareholders. Management of shareholdings Equity method Portugal 40,00% 2008 2010 Year incorporated Year acquired Consolidation method % Economic Interest Registered office Additionally, and considering the requirements of IFRS 10, the Group’s consolidation perimeter includes the following structured entities: 2007 Full Consolidation 100% 2007 2008 Year incorporated 2008 Year acquired 100% % Economic Interest Full Consolidation Consolidation method Ireland Registered Ireland office (*) - Structured entities set up in the scope os securitization operations, recorded in the consolidated financial statements in accordance with the continued involvement of the Group in these operations, determined based on the percentage of the equity pieces held of the respective vehicles (see Note 38) 2007 2008 2007 2008 Ireland Ireland 100% 100% Full Consolidation Full Consolidation During 2020, the main changes in NOVO BANCO Group’s structure were as follows: (*) - Structured entities set up in the scope os securitization operations, recorded in the consolidated financial statements in accordance with the continued involvement of the Group in these operations, determined based on the percentage of the equity pieces held of the respective vehicles (see Note 38) - Subsidiaries and branches During 2020, the main changes in NOVO BANCO Group’s structure were as follows:  In April 2020, NOVO BANCO sold the entire participation and supplementary contributions of Herdade do Pinheirinho and Herdade do Pinheirinho II, recording a gain of Euro 209 thousand. - Subsidiaries and branches During 2020, the main changes in NOVO BANCO Group’s structure were as follows: In September 2020, Orey Urban Rehabilitation Fund was liquidated;  In November 2020, there was a capital reduction of the NB Arrendamento Fund in the amount of Euro 2,800 thousand;  In April 2020, NOVO BANCO sold the entire participation and supplementary contributions of Herdade do Pinheirinho and  Durante o exercício de 2020 as alterações mais relevantes ao nível da estrutura do Grupo NOVO BANCO foram as In December 2020, Solid and R Invest Funds, as well as Sociedade Portucale, were liquidated and the holding held in Sociedade  Herdade do Pinheirinho II, recording a gain of Euro 209 thousand. Herdade da Vargem Fresca VI is now held directly by Fungere Fund; seguintes: In September 2020, Orey Urban Rehabilitation Fund was liquidated;  In December 2020, a capital increase of NB Logística Fund was carried out in the amount of Euro 23,200 thousand;  In November 2020, there was a capital reduction of the NB Arrendamento Fund in the amount of Euro 2,800 thousand;  In December 2020, there was a capital increase of Fungepi Fund in the amount of Euro 84,079 thousand, having been subscribed Subsidiaries and branches  In December 2020, Solid and R Invest Funds, as well as Sociedade Portucale, were liquidated and the holding held in Sociedade  by the Fungepi II and Fundes Funds (Euro 12,787 thousand and Euro 71,292 thousand, respectively), with in-kind entry of real Herdade da Vargem Fresca VI is now held directly by Fungere Fund; estate; In April 2020, NOVO BANCO sold the entire participation and supplementary contributions of Herdade do In December 2020, a capital increase of NB Logística Fund was carried out in the amount of Euro 23,200 thousand; In December 2020, a capital increase of Fungepi II Fund was carried out in the amount of Euro 1,444 thousand, having been In December 2020, there was a capital increase of Fungepi Fund in the amount of Euro 84,079 thousand, having been subscribed Pinheirinho and Herdade do Pinheirinho II, recording a gain of Euro 209 thousand. subscribed by Fungepi Fund and by the entities Febagri and Imoascay (Euro 963 thousand, Euro 30 thousand and Euro 451 by the Fungepi II and Fundes Funds (Euro 12,787 thousand and Euro 71,292 thousand, respectively), with in-kind entry of real thousands, respectively) with in-kind entry of real estate. estate; In September 2020, Orey Reabilitação Urbana Fund was liquidated; In December 2020, a capital increase of Fungepi II Fund was carried out in the amount of Euro 1,444 thousand, having been subscribed by Fungepi Fund and by the entities Febagri and Imoascay (Euro 963 thousand, Euro 30 thousand and Euro 451 In November 2020, there was a capital reduction of the NB Arrendamento Fund in the amount of Euro 2,800 thousands, respectively) with in-kind entry of real estate. thousand; In June 2020, FCR PME NB converted a credit granted to Nexxpro in the amount of Euro 639 thousand into supplementary contributions. - Associated companies In December 2020, Solid and R Invest Funds, as well as Sociedade Portucale, were liquidated and the holding held • In June 2020, FCR PME NB sold its stake in Enkrott, at the balance sheet value;  in Sociedade Herdade da Vargem Fresca VI is now held directly by Fungere Fund; In June 2020, FCR PME NB converted a credit granted to Nexxpro in the amount of Euro 639 thousand into supplementary contributions. In June 2020, FCR PME NB sold its stake in Enkrott, at the balance sheet value; 31 December 2020 •  - Associated companies • Notes to the Consolidated Financial Statements •    9    207 31 December 2020 Notes to the Consolidated Financial Statements 9 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES• In December 2020, a capital increase of NB Logística Fund was carried out in the amount of Euro 23,200 thousand; • • In December 2020, there was a capital increase of Fungepi Fund in the amount of Euro 84,079 thousand, having been subscribed by the Fungepi II and Fundes Funds (Euro 12,787 thousand and Euro 71,292 thousand, respectively), with in-kind entry of real estate; In December 2020, a capital increase of Fungepi II Fund was carried out in the amount of Euro 1,444 thousand, having been subscribed by Fungepi Fund and by the entities Febagri and Imoascay (Euro 963 thousand, Euro 30 thousand and Euro 451 thousands, respectively) with in-kind entry of real estate. Associated companies • In June 2020, FCR PME NB converted a credit granted to Nexxpro in the amount of Euro 639 thousand into supplementary contributions. • In June 2020, FCR PME NB sold its stake in Enkrott, at the balance sheet value; • • In December 2020, FCR PME NB converted a credit granted to Nexxpro in the amount of EUR 2,280 thousand into supplementary installments; In December 2020, Ijar Leasing made a capital increase, and NOVO BANCO did not accompany this operation, so the Group's participation in this Company went from 24.5% to 18.85%; • In December 2020, the PNCB - Plataforma de Negociação Integrada de Créditos Bancários, A.C.E. has been extinct. During the financial year of 2019, the main changes in NOVO BANCO Group’s structure were as follows: Subsidiaries and branches • In January 2019, the London branch was closed; • In March 2019, the early redemption of Lusitano Project Finance No. 1, FTC; • In September 2019, BES GMBH merged into NOVO BANCO; • In December 2019, a capital increase was made in the Fundo Amoreiras in the amount of Euro 36,200 thousand, entirely carried out by the NB, with the holding percentage going from 94.16% to 95.24%; • In December 2019, Fundo Fimes Oriente capital was reduced in the amount of Euro 163,815 thousand; • In December 2019, the Cayman Islands branch was closed: • In December 2019, BESIL was merged into NOVO BANCO; • In December 2019, ES Plc was merged into NOVO BANCO. Associated companies • In March 2019, the Nexxpro, an associated company held by the FCR PME NB Fund, made a capital increase of Euro 440 thousand, which was fully subscribed by the Fund. As such, the Fund's participation percentage in this Company went from 59.58% to 68.68%; • In August 2019, Epedal, SGPS, S.A. was merged into Epedal - Indústria de Componentes Metálicos, S.A. During 2020 and 2019, the movements relating to acquisitions, disposals and other investments and reimbursements in subsidiaries and associated companies are detailed as follows: 208 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDSubsidiaries Companies Herdade do Pinheirinho Herdade do Pinheirinho II NB Arrendamento NB Logística Fungepi Fungepi II Benagil Ribagolfe Associated Companies Nexxpro Enkrott 31.12.2020 (in thousands of Euros) Acquision Value Acquisitions Other Investments (a) Total Sales Price Other Reimbursements (a) Sales Total Gains/Losses in sales/settlements - - - - - - - - - - - - - - - - 23 200 84 079 1 444 500 100 109 323 - - - 23 200 84 079 1 444 500 100 109 323 2 919 - 2 919 2 919 - 2 919 14 996 44 744 - - - - - - 59 740 - 1 134 1 134 - - ( 2 800) - - - - - ( 2 800) - - - 14 996 44 744 ( 2 800) - - - - - 56 940 - 1 134 1 134 4 284 ( 4 075) - - - - - - 209 - - - 112 242 112 242 60 874 ( 2 800) 58 074 209 (a) Capital increases / decreases, supplementary capital, supplies, transactions involving the exchange of financial instruments and incorporation of companies. Subsidiaries Companies Autodril Amoreiras Fimes Oriente Associated Companies Nexxpro 31.12.2019 (in thousands of Euros) Acquision Value Acquisitions Other Investments (a) Total Sales Price Sales Price Other Reimburseme nts (a) Total Gains/Losses in sales/settlements - - - - - - 60 36 200 - 36 260 440 440 36 700 60 36 200 - 36 260 - 440 440 36 700 - - - - - - - - - ( 163 815) ( 163 815) - - ( 163 815) ( 163 815) - - - - - ( 163 815) ( 163 815) - - - - - - - (a) Capital increases/decreases, supplementary capital, supplies, transactions involving the exchange of financial instruments and incorporation of companies. The subsidiaries classified under IFRS 5 as non-current assets held for sale and discontinued operations, are detailed in Note 30. NOTE 2 – Main accounting policies 2.1. Basis of presentation In accordance with Regulation (EC) No. 1606/2002 of 19 July 2002 of the European Council and the Parliament and Notices 5/2015 of the Bank of Portugal, the consolidated financial statements from NOVO BANCO, S.A. (the group or NOVO BANCO) were prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union effective as of 1 January 2020. The IFRS comprise accounting standards issued by International Accounting Standards Board (IASB) as well as inter- pretations issued by the International Reporting Interpretations Committee (IFRIC), and by their predecessor bodies Standing Interpretations Committee (“SIC”). 209 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe consolidated financial statements of NOVO BANCO are presented as at 31 December 2020. The accounting poli- cies used by the Group in their preparation are consistent with those used in the preparation of the financial statements as at 31 December 2019. Changes to the most relevant accounting policies are described in the following section. The accounting standards and interpretations recently issued, but which have not yet come into force and which the Bank has not yet applied in the preparation of its financial statements can also be analyzed in Note 47. The consolidated financial statements are expressed in thousands of Euro, rounded to the are expressed in thousands of Euro, rounded to the nearest thousand. They have been prepared under the assumption of continuity of operations from the accounting records and following the historical cost convention, except for the assets and liabilities account- ed for at fair value, namely derivative financial instruments, financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment properties and hedged assets and liabilities, in respect of their hedged component. Changes in Accounting Estimates The preparation of the financial statements in accordance with IFRS requires the Group to make judgments and esti- mates and use assumptions that affect the application of accounting policies and the amounts of income, costs, assets and liabilities. Changes in such assumptions or differences in relation to reality may have an impact on current estimates and judgments. The areas that involve a higher level of judgment or complexity or where significant assumptions and estimates are used in the preparation of the consolidated financial statements, are analyzed in Note 3. The consolidated financial statements and the Management Report of 31 December 2020 were approved at the Execu- tive Board of Directors’ meeting held on 24 March 2021 and will be submitted to the General Assembly of Shareholders, which has the power to justifiably decide to change them. However, it is Executive Board of Directors conviction that these consolidated financial statements will be approved without changes. 2.2. Consolidation principles These consolidated financial statements comprise the assets, liabilities, income, expenses, other comprehensive income and cash flows of NOVO BANCO and of its subsidiaries (Group or NOVO BANCO Group) and the results attributable to the Group relating to shareholdings in associated companies. These accounting policies have been consistently applied to all the Group companies during the financial years covered by these consolidated financial statements, with the exception of Gama Life -Companhia de Seguros Vida, S.A. (Gama Life) (formerly known as GNB - Companhia de Seguros de Vida, S.A. (GNB Vida)) which did not adopt IFRS 9 as of 1 January 2018 due to the company benefiting from the deferment period of the adoption of this standard granted to Insurance Companies, which extends until 1 January 2021, which is why its assets and liabilities recognized in discontinued operations still follow the valuation recommended in IAS 39 - Financial Instruments. The sale process of this entity was concluded in the second half of 2019. Subsidiaries Subsidiaries are entities (including investment funds and securitization vehicles) over which the Group exercises con- trol. The Group controls an entity when it is exposed, or has rights, to the variability of the return deriving from its involvement with that entity and may take possession of same by way of the power it has over the entity (de facto control) and has the ability to affect these variable returns through the power it held over the relevant activities of the entity. As provided in IFRS 10, the Group analyses the objective and the structuring of how an entity’s operations are developed when assessing its control over such entity. Subsidiaries are fully consolidated from the date on which control over their activities is transferred to the Group and until the date that control ceases. Holdings of third parties in these entities are presented in the caption Non-controlling interests, except for open investment funds in which these values are presented in the caption Other liabilities, due to the high probability of their redemption. The accumulated losses of a subsidiary are attributed proportionally to non-controlling interests even if this results in the recognition of non-controlling interests of a negative value. 210 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDWhen control is obtained in a business combination achieved in stages (step acquisition) the Group remeasures its previously held non-controlling interest in the entity at its fair value and recognizes the resulting gain or loss in the income statement upon determining the respective goodwill. At the moment of a partial sale, resulting in the loss of control of a subsidiary, any remaining non-controlling interest retained is remeasured to its fair value at the date the control is lost, and the resulting gain or loss is recognized in the income statement. The entity identified as acquirer or incorporator integrates the results of the entity/ business acquired as from the date of its acquisition, that is, from the date of the takeover of control. The accounting treatment of mergers by incorporation, between entities under common control, follows the same principles - the integration of the assets and liabilities of the entity to be incorporated is carried out at the amounts presented in the consolidated financial statements of the entity that has control over the two entities, at the highest level of the Group's financial holdings chain (the "predecessor"). The difference between the carrying book value of the incorporated assets and liabilities and the amount of the financial investment is recognized as a merger reserve. Associated companies Associated companies are those entities over which the Group has significant influence over the company’s financial and operating policies, but not its control. Generally, when the Group owns more than 20% of the voting rights but less than 50%, it is presumed to have a significant influence. Even if the Group owns less than 20% of the voting rights, it can still have a significant influence through its participation in the management of the associated company or its representation in its executive Management bodies. Investments in associated companies are recorded in the consolidated financial statements of the Bank using the equity method of accounting from the date on which significant influence is attained by the Group and until the date that significant influence ceases. The carrying value of the investments in associated companies includes the value of the respective goodwill determined at the acquisition date and is presented net of impairment losses. The Group carries out impairment tests on its investments in associated companies, whenever there are any indications of impairment. Impairment losses recognized in prior years may be reversed, up to the limit of the accumulated losses. In a step acquisition that results in the Group obtaining significant influence over an entity, any previously held stake in that entity is remeasured to its fair value through the income statement when the equity method is first applied. When the Group’s share of losses of an associated company equals or exceeds its interest in the associated company, including any medium and long-term interest, the Group discontinues the application of the equity method, except when it has a legal or constructive obligation to cover those losses or has made payments on behalf of the associated company. Gains or losses on disposals of shares in associated companies are recognized in the income statement even if those disposals do not result in the loss of significant influence. Dividends attributed by associated companies reduce the balance sheet value recognized by the Group. Structured Entities (SE) The Group consolidates, using the full consolidation method, certain special purpose entities, created specifically to accomplish a narrow and well-defined objective, when the substance of the relationship with those entities indicates that they are controlled by the Group, irrespective of the percentage of the equity held. The evaluation of the existence of control is made based on the established by IFRS 10 – Consolidated Financial Statements, according to which a SE is controlled if (i) the Group is exposed, or has rights to its results; and (ii) the Group has the power to affect the SE’s results through the control it exercises over them. Investment funds managed by the Group As part of its asset management activity, the Group manages investment funds on behalf of the holders of the participa- 211 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTEStion units. The financial statements of these funds are not consolidated by the Group except in the cases where control is exercised over their activity, according to the criteria established by IFRS 10. Goodwill Goodwill represents the difference between the acquisition cost and the fair value of the Group’s share of identifiable net assets, liabilities and contingent liabilities acquired. Business combinations occurring after 31 December 2009 were accounted for using the purchase method. The ac- quisition cost includes the fair values: i) of the assets transferred, ii) of the liabilities assumed by the acquirer before the previous shareholders of the acquired, and iii) of the equity instruments issued. In accordance with IFRS 3 – Business Combinations, the Group measures goodwill as the difference between the fair value of the consideration transferred including the fair value of any non-controlling interest previously held, and the fair value attributable to the assets acquired and the liabilities assumed and any equity instruments issued. The fair values are determined at the acquisition date. The costs directly attributable to the acquisition are expensed at the moment of the acquisition. As at the acquisition date, the non-controlling interests are measured at their proportional interest in the fair value of the net identifiable assets acquired and liabilities assumed, without their respective portion of goodwill. As a result, the goodwill recognized in these consolidated financial statements corresponds solely to the portion attributable to the shareholders of the Bank. In accordance with IFRS 3 – Business Combinations, positive goodwill is recognized as an asset at its cost and is not amortised. Goodwill relating to the acquisition of associated companies is included in the carrying book value of the investments in those associated companies, determined using the equity method. Negative goodwill is recognized directly in the income statement in the period the business combination occurs. Impairment losses of goodwill may not be reversed in the future. The recoverable amount of the goodwill recognized as an asset is reviewed annually, regardless of whether there is, or not, any indication of impairment. Impairment losses are expensed directly in the income statement. The recoverable amount corresponds to the lower of market value less costs to sell and the respective value in use. In determining value in use, estimated future cash flows are discounted using a rate that reflects market conditions, the time value of money and business risks. Transactions with non-controlling interests Acquisitions of non-controlling interests that do not result in a change in control over a subsidiary are accounted for as transactions with shareholders and, therefore, no additional goodwill is recognized as a result of such transactions. Any difference between the acquisition cost and the carrying book value of the non-controlling interest acquired is recognized directly in reserves. Similarly, gains or losses arising from sale of non-controlling interests that do not result in a loss of control over a subsidiary, are always recorded against reserves. Transcription of financial statements in foreign currency The financial statements of each of the Group’s subsidiaries and associated companies are prepared using their func- tional currency, which is defined as the currency of the primary economic environment in which that entity operates. The Group’s consolidated financial statements are prepared in Euro, which is NOVO BANCO’s functional currency. The financial statements of each of the Group entities that have a functional currency different from the Euro are translated into Euro in accordance with the following criteria: • Assets and liabilities are translated using the exchange rate prevailing at the reporting date; • Income and expenses are translated at exchange rates approximating the real rates ruling at the dates of the trans- actions; 212 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED• The exchange differences arising between the translation amount of the equity at the beginning of the period and the amount determined at the balance sheet date of the consolidated accounts, using the exchange rates applica- ble at that date, are recorded against reserves (other comprehensive income). Similarly, regarding the subsidiaries and associated companies’ results, the exchange differences arising from the translation of income and expenses at the rates ruling at the dates of the transactions and that determined at the balance sheet date are recorded in reserves. When the entity is sold, such exchange differences are recognized in results as an integral part of the gain or loss on the disposal. Balances and transactions eliminated with consolidation Intercompany balances and transactions, including any unrealised gains and losses on transactions between Group companies, are eliminated in preparing the consolidated financial statements, unless the unrealised losses provide evidence of an impairment loss that should be recognized in the consolidated financial statements. Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies. Unrealised losses are also eliminated unless the transactions reveal evidence of impairment. The accounting policies of subsidiaries and associated companies are changed, whenever necessary, to ensure that same are applied consistently throughout the Group. 2.3. Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Euro at the foreign exchange rates ruling at the balance sheet date. Foreign exchange differences arising on this translation are recognized in the income statement. Non-monetary assets and liabilities recorded at historical cost, denominated in foreign currency, are translated using the exchange rate prevailing at the transaction date. Non-monetary assets and liabilities, denominated in foreign currency, that are stated at fair value are translated into Euro at the foreign exchange rates ruling at the dates the fair value was determined. The resulting exchange differences are accounted for in the income statement, except if related to equity instruments classified as financial assets at fair value through other comprehensive income, which are recorded in equity reserves. Foreign exchange differences relating to cash flow hedges and the hedging of the net investment in foreign operational units, when they exist, are recognized in other comprehensive income. 2.4. Derivative financial instruments and hedge accounting Classification The Group classifies its derivative portfolio into (i) fair value hedge and (ii) trading derivatives, which include, in addition to the trading book, other derivatives contracted for the purpose of hedging certain assets and liabilities designated at fair value through profit or loss but not classified as hedging (fair value option). Recognition and measurement Derivative financial instruments are initially recognized at their fair value on the date the derivative contract is entered into (trade date). Subsequent to initial recognition, the fair value of derivative financial instruments is remeasured on a regular basis and the resulting gains or losses on remeasurement are recognized directly in the income statement, except for derivatives designated as hedging instruments. The recognition of the resulting gains or losses arising on the derivatives designated as hedging instruments depends on the nature of the risk being hedged and the hedge model used. 213 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESDerivatives traded on organised markets, namely futures and some options contracts, are recorded as trading derivatives and their fair value changes are recorded against the income statement. The margin accounts are included under other assets and other liabilities (see Notes 29 and 33) and comprise the minimum collateral mandatory for open positions. The fair value of the remaining derivative financial instruments corresponds to their market value, if available, or is determined using valuation techniques, including discounted cash flow models and options pricing models, as appro- priate. Hedge accounting Classification criteria Derivative financial instruments used for hedging purposes may be classified in the accounts as hedging instruments provided the following criteria are cumulatively met: i. Hedging instruments and hedged items are eligible for the hedge relationship; ii. At the inception of the hedge, the hedge relationship is identified and documented, including identification of the hedged item and hedging instrument and evaluation of the effectiveness of the hedge; iii. There is an economic relationship between the hedged item and the hedging instrument; iv. The effect of credit risk does not dominate the changes in value that result from this economic relationship; v. The effectiveness of the hedge can be reliably measured, both at the inception of the hedge and on an ongoing basis. For the cases in which the Group uses macro hedging, accounting is performed in accordance with IAS 39 (using the policy choice permitted under IFRS 9), with the Group carrying out prospective tests on the hedge relationship start date, when applicable, and retrospective tests in order to confirm, on each balance sheet date, the effectiveness of hedging relationships, demonstrating that changes in the fair value of the hedging instrument are covered by changes in the fair value of the hedged item in the portion attributed to the hedged risk. Any ineffectiveness found is recognized in the income statement when it occurs in gains or losses of hedge accounting. The use of derivatives is framed in the Group's risk management strategy and objectives. Fair value hedge In a fair value hedging operation, the carrying value of the hedged asset or liability, determined in accordance with the respective accounting policy, is adjusted to reflect the changes in its fair value attributable to the risk being hedged. Changes in the fair value of the derivatives that are designated as hedging instruments are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the risk hedged. In cases where the hedging instrument covers an equity instrument designated at fair value through other comprehensive income, changes in fair value are also recognized in other comprehensive income. If the hedge no longer meets the effectiveness requirement, but the objective of risk management stays the same, the Group may adjust the hedging operation in order to meet the eligibility criteria (rebalancing). If the hedge no longer meets the criteria for hedge accounting (if the hedging instrument expires, is sold, terminated or exercised, without having been replaced in accordance with the entity's documented risk management objec- tive), the derivative financial instrument is transferred to the trading portfolio and hedge accounting is discontinued prospectively. The cumulative adjustment to the carrying book value of a hedged asset or liability corresponding to a fixed income instrument, is amortised via the income statement over the period to its maturity, using the effective interest rate method. Cash flow hedge When a derivative financial instrument is designated as a hedge against the variability of highly probable future cash 214 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDflows, the effective portion of the changes in the fair value of the hedging derivative is recognized in reserves, being re- cycled to the income statement in the periods in which the hedged item affects the income statement. The ineffective portion is recognized in the income statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss recognized in reserves at that time is recognized in the income statement when the hedged transaction also affects the income statement. When a hedged transaction is no longer expected to occur, the cumu- lative gain or loss reported in equity is recognized immediately in the income statement and the hedging instrument is reclassified to the trading portfolio. As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of reference interest rates, which led to the transition from EONIA (Euro OverNight Index Average) to € STR (Euro Short Term Rate ), in the course of 2020, the Group changed the discount curve of its positions in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the implementation principle of the aforementioned regulation, that no substantial changes to the original objective of risk management or discontinuation of hedging relationships will occur, the Group did not record any relevant impacts on retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships were subject to the same change (hedged and hedged items). Embedded derivatives If a hybrid contract includes a host contract that is a financial asset under IFRS 9, the Group classifies the entire contract in accordance with the policy outlined in Note 2.5. If a hybrid contract includes a host contract that is not an asset under IFRS 9, an embedded derivative shall be separated from the host contract and accounted for as a derivative under this Standard if, and only if: a. The economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b. a separate financial instrument with the same terms as the embedded derivative satisfies the definition of a derivative; and c. The hybrid contract is not measured at fair value and changes in fair value are recognized in profit or loss (a derivative that is embedded in a financial liability at fair value through profit or loss is not separated). These embedded derivatives are measured at fair value with the changes in fair value being recognized in the income statement. 2.5. Other financial assets: placements with credit institutions, customer loans and securities The Group initially classifies all of its financial assets based on the business model for managing the assets and the asset’s contractual terms. This classification determines how the asset is measured after its initial recognition: • Amortised cost: if it is held within a business model with the objective to hold financial assets in order to collect contractual cash flows that are solely payments of principal and interest (SPPI - solely payments of principal and interest); • Fair value through other comprehensive income: if it is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets and the contractual cash flows fall under the scope of SPPI. In addition, upon initial recognition, the Bank may choose to classify irrevocably equity instruments in the fair value through other comprehensive income portfolio being the changes in the fair value recognized in equity; • Mandatorily measured at fair value through profit or loss: all cases not within the scope of SPPI; 215 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES• Measured at fair value through profit or loss: other financial instruments not included in the business models described above. If these assets are acquired for the purpose of trading in the short term, they are classified as held for trading. Initial recognition and measurement These financial assets are initially recognized at fair value plus transaction costs, except for financial assets at fair value through profit or loss, where transaction costs are directly recognized in the income statement. Deposits and loans and advances to Banks and loans and advances to customers are recorded on the date the amount of the transaction is advanced to the counterparty. Acquisitions and disposals of securities are recognized on the trade date, that is, on the date on which the Group undertakes to acquire or dispose of the asset. Financial assets at amortised cost or accounted at fair value through other comprehensive income In accordance with IFRS 9 - Financial Instruments, for a financial asset to be classified and measured at amortised cost or at fair value through other comprehensive income, it is necessary that: i. The contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest (SPPI - solely payments of principal and interest) on the principal amount outstanding. Principal, for the purposes of this test is defined as the fair value of the financial asset at initial recognition. The contractual terms that are SPPI are consistent with a basic lending arrangement. Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement, such as exposure to changes in stocks or commodity prices, do not give rise to contractual cash flows that are solely payments of principal and interest on the amount outstanding. In such cases, the financial asset is required to be measured at fair value through profit or loss; ii. The financial asset is held within a business model with the objective to hold financial assets to maturity to collect contractual cash flows (financial assets at amortised cost) or to collect the contractual cash flows until maturity and selling the financial asset (financial assets at fair value through other comprehensive income). The assessment of the business models of the financial asset is fundamental for its classification. The Group determines the business models by financial asset groups according to how they are managed to achieve a particular business objective. The Group's business models determine whether cash flows will be generated by obtaining only contractual cash flows, from selling the financial assets or both. At initial recognition of a financial asset, the Group determines whether it is part of an existing business model or if it reflects a new business model. The Group reassesses its business models in each reporting period in order to determine whether there have been changes in business models since the last reporting period. The above requirements do not apply to lease receivables, which meet the criteria defined in IFRS 16 – Leases. Financial assets that are subsequently measured at amortised cost or at fair value through other comprehensive income are subject to impairment. Financial assets at fair value through other comprehensive income are initially recorded at fair value and subsequen- tly measured at fair value with changes in the fair value recognized in reserves (other comprehensive income) until derecognition, when cumulative potential gains and losses recognized in reserves are reclassified to the caption Gains and losses on financial assets and liabilities designated at fair value through profit or loss. In the specific case of equity instruments, the cumulative gains/ (losses) previously recognized in equity is not reclassified to profit or losses being reclassified between equity accounts. However, dividends received from these equity instruments are recognized in profit or loss in the exercise. At initial recognition, financial assets at amortised cost are recorded at acquisition cost, and subsequently measured at amortised cost based on the effective interest rate. Interest, calculated at the effective interest rate, and dividends are recognized in profit or loss. 216 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDFinancial assets at fair value through profit or loss Financial assets measured at fair value through profit or loss present the following characteristics: • contractual cash flows are not SPPI (mandatorily measured at fair value through profit or loss); and/or • it is held within a business model which objective is neither to obtain only contractual cash flows or to obtain contractual cash flows and sale; or • it is designated at fair value through profit or loss as a result of applying the fair value option. These assets are measured at fair value and the respective revaluation gains or losses are recognized in the income statement. Reclassifications If the Group changes a business model, the financial assets included in that model are reclassified and the classification and measurement requirements for the new category are applied prospectively as from that date. Impairment The Group record impairment allowance for expected credit losses ("ECLs") for the following debt instruments: • Loans and advances to customers; • Financial and performance guarantees; • Import documentary credits; • Confirmed export documentary credits; • Undrawn loan commitments; • Money market exposures; • Securities portfolio. Debt instruments at amortised cost or at fair value through other comprehensive income are in the scope of the impairment calculation. Impairment losses identified are recognized in the income statement and are subsequently reversed through the income statement if, in a subsequent period, the amount of impairment losses decreases. Staging The impairment calculation approach distinguishes between the 12 months’ expected credit losses - Stage 1 - and the lifetime expected credit losses. To determine expected lifetime losses, the approach considers the projection of contractual cash flows - Stage 2 - or the present value of the expected recoveries - Stage 3. Thus, the model of impairment calculation by Stage is summarized as follows: • expected credit loss resulting from a potential loss event occurring within the next 12 months after the calculation date (Stage 1); or • expected credit loss, resulting from all potential loss events expected over the lifetime, applied to the projection of contractual cash flows (Stage 2); or • expected credit loss resulting from the difference between the amount outstanding and the present value of the cash flows estimated to be recovered from the exposure² (Stage 3). Therefore, for the determination of impairment, the classification by Stage for all exposures according to their level of credit risk, as summarized in the figure below, is made beforehand: 2. Parameters used to determine recoveries vary, mainly depending on the risk profile / nature of the exposure. 217 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESStage 1 Stage 2 Stage 3 Signiﬁcant increase in credit risk? Objective evidence of impairment? • Stage 3 The process of assigning Stage to an exposure starts by checking if the Stage 3 criteria applies. If the exposure is classified as Default - according to the internal definition¹ - that exposure is classified as Stage 3. Thus, the classification of exposures in Stage 3 is based on the occurrence of a default event, with objective evidence of loss occurring at the time from which a significant change occurs in the creditor-debtor relationship, being the creditor exposed to a monetary loss. Whether by measuring the specific triggers of Default, or by the Stage 3 determination indicators, the result will be the determination of Default and Stage 3 in a consistent manner, starting with the Default setting. • Stage 2 Exposures are classified as Stage 2 whenever there is a significant increase in credit risk, since initial recognition. If there is no objective evidence of loss associated with the exposure, criteria are analyzed to determine whether exposure has significantly increased its credit risk. The significant increase in credit risk is assessed through qualitative and quantitative evidence. Once it is verified that - at least - one of these triggers is active, the exposure is classified in Stage 2. The table below describes the criteria and respective thresholds applicable: Criteria for Stage 2 classiﬁcation1 Low default portfolios (Risk Solutions Templates) Rated on the reporting and origination date Not rated on the origination Note rated on the reporting date3 Exposure Quantitative Triggers • PD relative and absolute change since origination Qualitative Triggers • PD Lifetime Forward Looking (LT FL) captured on origination and comparison (absolute and relative) - SICR2 • Relative Threshold of +200% • Absolute Threshold of +1.5% • Worse Rating / Worse Scoring • Credit in litigation/written off on CRC; or • Check use inhibition; or • Forborne due to ﬁnancial difficulties; or Backstop Triggers • Past due for more than 30 days, above materiality • > €100 overdue, for loans to individuals • > €500 overdue, for corporate loans 1. To some of the criteria presented, there are applicable concept of contamination and cure period. 2. SICR not applicable in the case the rating/scoring atribute to the contract/client represents a PD lower than 0.75 (3 x Investment Grade Rating) 3. For unrated exposures it is only applicable qualitative and backstop triggers, in order to assess if they classify as for Stage 2. 218 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDAs explained in IFRS 9, the assessment of the significant increase in credit risk also involves comparing the current risk level of an exposure against the level of risk at origination. The Group assigns an internal credit risk grade to the exposure / borrower, depending on its quality and associated with the probability of default. In assessing whether the exposure credit risk has increased significantly since initial recognition, the Group compares, at the reporting date, the lifetime probability of default with the probability of default at origination of the exposure. Depending on whether the observed variation falls above a defined threshold - relative and / or absolute - the exposure is classified in Stage 2. In addition to this event, the Group considers other events, that if verified imply the classification in Stage 2 (e.g.: material default for more than 30 days, risk events in the financial system, internal credit risk grade above a certain threshold, among others). • Stage 1 The classification of exposures as Stage 1 depends of: i. absence of active events that qualify for Stage 3 and Stage 2, which were mentioned and described above; or ii. the framing of these exposures under the low-credit risk exemption. These exposures, if not in Stage 3, are automatically classified in Stage 1. The outlined vision is based not only on the requirement in IFRS 9, but also on the approach defined for capital calculation, where for these exposures a 0% risk weight is considered. Thus, entities that are not classified as default and fully comply with the conditions mentioned above are classified as low credit risk, being assigned stage 1. Each month the list of entities in these conditions is reviewed, whose majority is composed of Portuguese public debt, public debt in the Euro zone, American public debt and / or equivalent. Segmentation For purposes of the collective assessment of impairment, loans are grouped on the basis of similar credit risk characteristics, taking in consideration the Group’s credit risk management process. For each of these homogeneous risk groups, risk factors are estimated and then applied for impairment assessment purposes. For the purpose of determining collective impairment, operations are allocated to risk sub-segments in accordance with the following definitions in the table below: Client Type Corporate Risk Segment Large Companies Real Estate Medium Companies Small Companies Start-ups Financial Institutions Sovereign Rating Notation Individuals Product Type Mortgage Consumer Loans Credit Cards Other Individuals Scoring Notation Collaterals - LTV Typically, Corporate segments consider the value of collateral for segmentation purposes The mortgage segment considers the value of the ﬁnanced asset for the purposes of segmentation 1st Segmentation 2nd Segmentation 3rd Segmentation 4th Segmentation 219 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESScenarios As required by IFRS 9, the impairment assessment of the Group reflects different expectations of macroeconomic developments, i.e., it incorporates multiple scenarios. In order to incorporate the effects of future macroeconomic behaviour on loss estimates, forward looking macroeconomic estimates are included in some of the risk parameters used to calculate impairment. In fact, different possible scenarios giving rise to the same number of impairment results are considered. In this context, the process of defining macroeconomic scenarios considers the following principles: • Representative scenarios that capture the existing non-linearities (e.g. a base scenario, an optimistic and a pessi- mistic scenario); • The base scenario should be consistent with the inputs used in other exercises in the Group (e.g., Planning). This is ensured since the option used for the purpose of calculating impairment was precisely the same methodology that the Group uses in internal and / or regulatory planning exercises; • Alternative scenarios to the base scenario should not originate extreme scenarios; • The correlation between the projected variables should be realistic with the economic reality (e.g. if GDP is increasing it is expected that unemployment is decreasing). Write-offs Write-off is defined as the derecognition of a financial asset from the Group’s balance sheet, which should only occur when cumulatively: i. the total amount of the credit has been demanded, that is, the credit must be fully recognized as overdue credit. Exemptions from this requirement are extra-judicial agreements, PER and Insolvency, where part of the credit may remain due and the remaining debt is written off by judicial/ extra-judicial decision; ii. All the recovery efforts, considered appropriate, have been developed (and the relevant evidence gathered) and additional efforts to recover the asset will not be considered economically viable; iii. The credit recovery expectations are very low, leading to an extreme scenario of total impairment– 100% impair- ment. This rule is only applicable for contracts without real estate collateral and if the whole contract is classified as overdue. In all other cases, it is necessary to ensure that the amount to be written off is fully impaired (at least in the month prior to the month of the write-off); and iv. A final agreement has been obtained as part of a restructuring process and the remaining debt can no longer be recovered. Subsequent payments received after the write-off must be recognized as subsequent write-off recoveries at other operating income. Derecognition Financial assets are derecognized from the balance sheet when (i) the Group's contractual rights relating to the respective cash flows have expired, (ii) the Group has substantially transferred all the risks and benefits associated with its ownership, or (iii) despite the Group having withholding part, but not substantially all of the risks and benefits associated with its ownership, control over the assets has been transferred. When an operation measured at fair value through other comprehensive income is derecognized, the accumulated gain or loss previously recognized in other comprehensive income is reclassified to results. In the specific case of equity instruments, the accumulated gain or loss previously recognized in other equity is not reclassified to profit or loss, being transferred between equity items. In the specific case of loans to customers, at the time of sale, the difference between the sale value and the book value must be 100% provisioned, and at the time of the sale, the credit sold will be derecognized against the funds / assets received. and consequent use of impairment on the balance sheet. 220 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED2.6. Assets sold with repurchase agreements, securities loaned and short sales Securities sold subject to repurchase agreements (repos) at a fixed price or at a price that corresponds to the sales price plus a lender’s return are not derecognized from the balance sheet. The corresponding liability is included under amounts due to banks or to customers, as appropriate. The difference between the sale and repurchase price is treated as interest and deferred over the life of the agreement, using the effective interest rate method. Securities purchased under agreements to resell (reverse repos) at a fixed price or at a price that corresponds to the purchase price plus a lender’s return are not recognized in the balance sheet, the purchase price paid being recorded as loans and advances to banks or customers, as appropriate. The difference between the purchase and resale price is treated as interest and deferred over the life of the agreement, using the effective interest rate method. Securities ceded under loan agreements are not derecognized in the balance sheet, being classified and measured in accordance with the accounting policy described in Note 2.5. Securities received under borrowing agreements are not recognized in the balance sheet. Short sales correspond to securities sold that are not included in the Group’s assets. They are recorded as financial liabilities held for trade, at the fair value of the assets to be returned in the scope of the repurchase agreement. Gains and losses resulting from the change in their respective fair value are recognized directly in the income statement in Gains or Losses from financial assets and liabilities held for trading. 2.7. Passivos financeiros An instrument is classified as a financial liability when it contains a contractual obligation to transfer cash or another financial asset, regardless of its legal form. Financial liabilities are derecognized when the underlying obligation is liquidated, expires or is cancelled. Non-derivatives financial liabilities include deposits from banks and customers, loans, debt securities, subordinated debt and short sales. Preference shares issued are considered to be financial liabilities when the Group assumes the obligation of reimbursement and/or the payment of dividends. These financial liabilities are recognized (i) initially, at fair value less transaction costs and (ii) subsequently, at amortised cost, using the effective interest rate method, except for short sales and financial liabilities designated at fair value through profit or loss, which are measured at fair value. The Group designates, at inception, certain financial liabilities at fair value through profit or loss when: • It eliminates or significantly reduces, a measurement or recognition inconsistency (accounting mismatch) that would otherwise occur; • The financial liability it’s part of a portfolio of financial assets or financial liabilities or both, managed and evaluated on a fair value basis, according with the Group’s risk management or investment strategy; or • These financial liabilities contain embedded derivatives and IFRS 9 allows designate the entire hybrid contract at fair value through profit and loss. Reclassifications between categories of liabilities are not allowed. The structured products issued by the Group – except for the structured products for which the embedded derivatives were separated, recorded separately and revalued at fair value - are classified under the fair value through profit or loss category because they always meet one of the abovementioned conditions. The fair value of listed financial liabilities is their current market bid prices. In the absence of a quoted price, the Group establishes the fair value by using valuation techniques based on market information, including the Group issuer’s own credit risk. Profits or losses arising from the revaluation of liabilities at fair value are recorded in the income statement. However, the change in fair value attributable to changes in credit risk is recognized in other comprehensive income. At the time 221 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESof derecognition of the liability, the amount recorded in other comprehensive income attributable to changes in credit risk is not transferred to the income statement. The Group accounts material changes in the terms of an existing liability or part of it as an extinction of the original financial liability and recognises of a new liability. The terms are assumed to be substantially different if the present value of the cash flows under the new terms, including any fees paid net of commissions received, and discounted using the original effective interest rate is at least 10% different from the discounted present value of the remaining cash flows from the original financial liability. The difference between the carrying amount of the original liability and the value of the new liability is recognized in the income statement. If the Group repurchases debt securities issued, these are derecognized from the balance sheet and the difference between the carrying book value of the liability and its acquisition cost is recognized in the income statement. 2.8. Financial and performance guarantees Financial guarantees Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss due to non-compliance with the contractual terms of a debt instrument, namely the payment of principal and/or interest. Financial guarantees are initially recognized in the financial statements at fair value. Financial guarantees are subse- quently measured at the higher of (i) the fair value recognized on initial recognition and (ii) the amount of any financial obligation arising as a result of guarantee contracts, measured at the balance sheet date. Any change in the amount of the liability relating to guarantees is taken to the income statement. Financial guarantee contracts issued by the Group normally have a stated maturity date and a periodic fee, usually paid in advance, which varies in function of the counterpart risk, the amount and the time period of the contract. Conse- quently, the fair value of the financial guarantee contracts issued by the Group, at the inception date, is approximately equal to the initial fee received, considering that the conditions agreed to are market conditions. Hence, the amount recognized at the contract date is equal to the amount of the commission initially received, which is recognized in the income statement over the period to which it relates. Subsequent periodic fees are recognized in the income statement in the period to which they relate. Performance guarantees Performance guarantees are contracts that result in the compensation of a party if the other does not comply with its contractual obligation. Performance guarantees are initially recognized at their fair value, which is normally evidenced by the amount of the commissions received during the contract period. When there is a breach of contract, the Group has the right to reverse the guarantee, recognizing the amounts in Loans and advances to customers after transferring the compensation for the losses to the collateral taker. 2.9. Equity instruments An instrument is classified as an equity instrument when it does not contain a contractual obligation to deliver cash or another financial asset, regardless of its legal form, but evidences a residual interest in the assets of an entity after deducting all of its liabilities. Transaction costs directly attributable to the issuance of equity instruments are recorded against equity as a deduction from the amount issued. Amounts paid or received relating to acquisitions or sales of equity instruments are recognized in equity, net of transaction costs. Distributions to holders of an equity instrument are deducted directly from equity as dividends, when declared. Preference shares issued are considered equity instruments if the Group has no contractual obligation to redeem these and if dividends, non-cumulative, are paid only if, and when, declared by the Group. 222 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED2.10. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. The legally enforceable right may not be contingent on future events, and must be enforceable in the course of the normal activity of the NOVO BANCO Group, as well as in the event of default, bankruptcy or insolvency of the Group or the counterparty. 2.11. Foreclosed properties and non-current assets held for sale Non-current assets or disposal groups (groups of assets to be disposed of together and the related liabilities that include at least one non-current asset) are classified as held for sale when their carrying values will be recovered mainly through a sale transaction (including those acquired exclusively with a view to their subsequent disposal), the assets or disposal groups are available for immediate sale and the sale is highly probable (within the period of one year). Immediately before the initial classification as held for sale, the measurement of the non-current assets (or of all the assets and liabilities in a disposal group) is brought up to date in accordance with the applicable IFRS. Subsequently, these assets or disposal groups are remeasured at the lower of their carrying value and fair value less costs to sell. In the scope of its loan granting activity, the Group incurs in the risk of the borrower failing to repay all the amounts due. In case of loans and advances with mortgage collateral, the Group executes these and receives real estate properties resulting from foreclosure. Due to the provisions of the General Law on Credit Institutions and Financial Companies (“Regime Geral das Instituições de Crédito e Sociedades Financeiras” (RGICSF)), banks are prevented, unless authorised by Bank of Portugal, from acquiring real estate property that is not essential to their installation and daily operations and the pursuit of their object (No. 1 of article 112 of RGICSF), being able to acquire, however, real estate property in exchange for loans granted by same. This real estate property must be sold within 2 years, period which may, based on reasonable grounds, be extended by Bank of Portugal, on the conditions to be determined by this Authority (article 114 of RGICSF). Although the Group’s objective is to immediately dispose of all real estate property acquired as payment in kind for loans, during financial year 2016 the Group changed the classification of this real estate properties from Non-current assets held for sale to Other assets (and to Investment properties, in the case of assets owned by investment funds or real estate properties leased out), due to the permanence of same in the portfolio exceeding 12 months. However, the accounting method has not changed, these being initially recognized at the lower of their fair value less costs to sell and the carrying amount of the subjacent loans. Subsequently, these real estate properties are measured at the lower of its initial carrying amount and the corresponding fair value less costs to sell and it is not depreciated. For real estate properties recorded in the balance sheet of NOVO BANCO and of the remaining credit institutions integrating the consolidation perimeter of the Group, the amount recoverable from their immediate sale is considered to be their respective fair value. For real estate properties held by investment funds, and in accordance with Law No. 16/2015, of February 24, fair value is determined as the average between two valuations, obtained from independent entities, determined at the best price that could be obtained if it were put up for sale under normal market conditions at the time of valuation, which is reviewed at least annually or, in the case of open investment funds, with the frequency of redemption, and whenever acquisitions or disposals occur or when significant changes in the value of the real estate property occur. The market value of properties for which a promissory purchase and sale agreement was entered into corresponds to the value of that agreement. The valuation of these real estate properties is performed in accordance with one of the following methodologies, applied in accordance with the specific situation of the asset: i. Market Method The Market Comparison Criteria takes as a reference transaction values of similar and comparable real estate prop- erties to the real estate property under valuation, obtained through market prospection carried out in the zone. 4. Definição em vigor de acordo com a aprovação da JST. 223 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESii. Income Method Under this method, the real estate property is valued based on the capitalization of its net income, discounted to the present using the discounted cash-flow method. iii. Cost Method This method aims to reflect the current amount that would be required to substitute the asset in its present con- dition, separating the value of the real estate property into its fundamental components: Urban Ground Value and Urbanity Value; Construction Value; and Indirect Costs Value. Valuations carried out are performed by independent entities specialized in these services. The valuation reports are analyzed internally, namely comparing the sales values with the revalued amounts of the assets so as to assess the parameters and process adequacy with the market evolution. Additionally, since these are assets whose fair value level in the hierarchy of IFRS 13 mostly corresponds to level 3, given the subjectivity of some assumptions used in the valuations and the fact that there are external indications with alternative values, the Group proceeds to analysis on the assumptions used, which may imply additional adjustments to their fair value, supported by additional internal or external valuations. Assets / liabilities of subsidiaries acquired for resale purposes reflect, essentially, assets and liabilities of subsidiaries acquired by the Group in the scope of loan restructuring operations, for which the Group’s objective is their subsequent disposal within one year. Since these acquisitions arise from loan restructuring operations, they are recognized at their fair value, and any differences between their fair values and those of the extinguished loans following the acquisitions, are recognized as impairment losses on loans and advances. On the acquisition of an entity meeting the subsidiary criteria and for which the Group’s objective is its resale, it is consolidated in accordance with the applicable procedures adopted by the Group and its assets and liabilities are measured at fair value at the acquisition date. However, in these specific cases, the assets are classified as non-current assets held for sale and the liabilities are classified as non-current liabilities held for sale. Consequently, and at the first consolidation date, the net value of the assets and liabilities of the subsidiary reflects their fair value determined at the acquisition date (which results from the loan restructuring operation). These subsidiaries are consolidated until their effective sale. At each balance sheet date, the net carrying book value of their assets and liabilities is compared with their fair value, less costs to sell, and impairment losses are recognized when necessary. Assets and liabilities relating to discontinued operations are recorded in accordance with the valuation policies applicable to each category of assets and liabilities, as set down in IFRS 5, according to the IAS/IFRS applicable to the respective assets and liabilities. For purposes of determining the fair value of subsidiaries held for resale, the Group adopts the following methodologies: • for subsidiaries which assets comprise fundamentally real estate, their fair value is determined with reference to the value of those assets, which is based on valuations performed by independent specialised entities; • for the remaining entities, their fair value is determined based on the discounted cash flow methodology, using assumptions consistent with the business risks of each of the subsidiaries under valuation. If these subsidiaries cease to comply with the conditions necessary to be recorded as non-current assets held for sale in accordance with IFRS 5, their assets and liabilities are fully consolidated in the respective asset and liability captions, in accordance with that provided for in Note 29. 2.12. Tangible fixed assets The Group’s tangible fixed assets are measured at cost less accumulated depreciation and impairment losses. The cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs with tangible fixed assets are only recognized when it is probable that future economic benefits associated with them will flow to the Group. All repair and maintenance costs are charged to the income statement during the period in which they are incurred, on the accrual basis. 224 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDGroup proceeds to analysis on the assumptions used, which may imply additional adjustments to their fair value, supported by additional internal or external valuations. Assets / liabilities of subsidiaries acquired for resale purposes reflect, essentially, assets and liabilities of subsidiaries acquired by the Group in the scope of loan restructuring operations, for which the Group’s objective is their subsequent disposal within one year. Since these acquisitions arise from loan restructuring operations, they are recognized at their fair value, and any differences between their fair values and those of the extinguished loans following the acquisitions, are recognized as impairment losses on loans and advances. On the acquisition of an entity meeting the subsidiary criteria and for which the Group’s objective is its resale, it is consolidated in accordance with the applicable procedures adopted by the Group and its assets and liabilities are measured at fair value at the acquisition date. However, in these specific cases, the assets are classified as non-current assets held for sale and the liabilities are classified as non-current liabilities held for sale. Consequently, and at the first consolidation date, the net value of the assets and liabilities of the subsidiary reflects their fair value determined at the acquisition date (which results from the loan restructuring operation). These subsidiaries are consolidated until their effective sale. At each balance sheet date, the net carrying book value of their assets and liabilities is compared with their fair value, less costs to sell, and impairment losses are recognized when necessary. Assets and liabilities relating to discontinued operations are recorded in accordance with the valuation policies applicable to each category of assets and liabilities, as set down in IFRS 5, according to the IAS/IFRS applicable to the respective assets and liabilities.   For purposes of determining the fair value of subsidiaries held for resale, the Group adopts the following methodologies: for subsidiaries which assets comprise fundamentally real estate, their fair value is determined with reference to the value of those assets, which is based on valuations performed by independent specialised entities; for the remaining entities, their fair value is determined based on the discounted cash flow methodology, using assumptions consistent with the business risks of each of the subsidiaries under valuation. If these subsidiaries cease to comply with the conditions necessary to be recorded as non-current assets held for sale in accordance with IFRS 5, their assets and liabilities are fully consolidated in the respective asset and liability captions, in accordance with that provided for in Note 29. 2.12. Tangible fixed assets The Group’s tangible fixed assets are measured at cost less accumulated depreciation and impairment losses. The cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs with tangible fixed assets are only recognized when it is probable that future economic benefits associated with them will flow to the Group. All repair and maintenance costs are charged to the income statement during the period in which they are incurred, on the accrual basis. Land is not depreciated. The depreciation of tangible fixed assets is calculated using the straight-line method, at the following depreciation rates that reflect their estimated useful lives: Land is not depreciated. The depreciation of tangible fixed assets is calculated using the straight-line method, at the following depreciation rates that reflect their estimated useful lives: Own use properties Leased building improvements Computer equipment Furniture and material Indoor facilities Safety equipment Machines and tools Transport material Other equipment Number of years 35 to 50 10 4 to 8 4 to 10 5 to 10 4 to 10 4 to 10 4 5 The useful lives and residual values of the tangible fixed assets are reviewed at each reporting date. The useful lives and residual values of the tangible fixed assets are reviewed at each reporting date. When there is an indication that an asset may be impaired, IAS 36 requires its recoverable amount to be estimated and an impairment loss recognized when the book value of the asset exceeds its recoverable amount. Impairment losses are recognized in the income statement, being reversed in subsequent periods, when the reasons that led to their initial recognition cease to exist. For this purpose, the new depreciated amount shall not exceed that which would be recorded had the impairment losses not been imputed to the asset but considering the normal depreciation the asset would have been subject to. When there is an indication that an asset may be impaired, IAS 36 requires its recoverable amount to be estimated and an impairment loss recognized when the book value of the asset exceeds its recoverable amount. Impairment losses are recognized in the income statement, being reversed in subsequent periods, when the reasons that led to their initial recognition cease to exist. For this purpose, the new depreciated amount shall not exceed that which would be recorded had the impairment losses not been imputed to the asset but considering the normal depreciation the asset would have been subject to. The recoverable amount is determined as the lower of its net selling price and its value in use, which is based on the net present value of the estimated future cash flows arising from the continued use and ultimate disposal of the asset at the end of its useful life. On the date of the derecognition of a tangible fixed asset, the gain or loss determined as the difference between the net selling price and the net carrying book value is recognized under the caption Other operating income or Other operating expenses. The recoverable amount is determined as the lower of its net selling price and its value in use, which is based on the net present value of the estimated future cash flows arising from the continued use and ultimate disposal of the asset at the end of its useful life. On the date of the derecognition of a tangible fixed asset, the gain or loss determined as the difference between the net selling price and the net carrying book value is recognized under the caption Other operating income or Other 31 December 2020 22 Notes to the Consolidated Financial Statements operating expenses. 2.13. Intangible assets The costs incurred with the acquisition, production and development of software are capitalised, as are additional costs incurred by the Group to implement said software. These costs are amortised on a straight-line basis over their expected useful lives, which usually range between 3 and 6 years. Costs that are directly associated with the development of specific software applications, that will probably generate economic benefits beyond one financial year, are recognized and recorded as intangible assets. All remaining costs associated with information technology services are recognized as an expense as incurred. 2.14. Leases IFRS 16 – Leases A. Lease Definition Determining whether an Agreement Contains a Lease: The Group assesses whether a contract is or contains a lease based on the lease definition which focuses on controlling the identified asset. In accordance with IFRS 16, a contract is or contains a lease if it has the right to control the use of an identified asset, allowing to obtain substantially all the economic benefits of using it and the right to guide the use of that identified asset for a certain period of time in exchange for retribution. 225 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe Group has adopted some practical expedients provided for in the standard in applying IFRS 16: • Applies the exception, mentioned above, of non-recognition of assets under right of use and liabilities for short- term leases (i.e. with a lease term of 12 months or less); • Apply the exception, mentioned above, of non-recognition of assets under use and liabilities for low value leases (i.e. new value less than Euro 5 thousand); • For leases in which the entity is a lessee, it was decided not to separate the non-lease components and account for the lease and non-lease components as a single lease component. The option of not applying this standard to leases of intangible assets was also used. B. As lessee In accordance with IFRS 16, the Group recognizes leased assets and lease liabilities for some asset classes, i.e., these leases are on the entity's balance sheet. Leasing contracts are recorded on the date they start, in assets and liabilities, being capitalized to the lower of the fair value of the leased assets and the minimum lease payments contracted. Rents are constituted (i) by the financial charge that is charged to the income statement and (ii) by the financial amortization of the capital that is deducted from the liability. Financial charges are recognized as costs over the lease period, in order to produce a constant periodic interest rate on the remaining balance of the liability in each period. The Group leases various assets, including real estate, vehicles and IT equipment. As previously mentioned, the Group has opted not to recognize assets under right of use and liabilities for short-term leases, with a lease term of 12 months or less, and low value asset leases (e.g. IT equipment) with a new value of less than Euro 5 thousand. The Group recognizes the lease payments associated with these leases as expenses on a straight-line basis over the lease term in income statement as “Other administrative expenses – rents and rentals”. The Group presents assets under right of use that do not fit the definition of investment property as "tangible fixed assets", in the same line as the underlying assets of the same nature that they own. Right-of-use assets that fall under the definition of investment property are presented as investment property. The Group presents the lease liabilities under "Other liabilities" in the statement of financial position. Significant judgment in determining contract lease term The Group has applied judgment to determine the lease term of certain agreements, in which it acts as lessee, and which include renewal and termination options. The Group determines the lease term as the non-cancellable lease term, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if reasonably certain not to be exercised. This assessment will have an impact on the lease term, which will significantly affect the amount of the lease liabilities and recognized right-of-use assets. The Group has the option, namely in real estate lease agreements, to lease assets for additional periods from 1 month to 20 years. The Group applies judgment in assessing whether it is reasonably right to exercise the renewal option. That is, it considers all the relevant factors that create an economic incentive for renewal. Measurement and remeasurement of assets under right of use and lease liabilities Lease payments are discounted at the lessee's incremental financing interest rate, which incorporates the risk-free interest rate curve plus the Group’s risk spread, applied over the weighted average term of each lease. The lease liability is initially recorded at the present value of the future cash flows from the lease and is subsequently measured (i) by increasing it’s carrying amount to reflect interest on it, (ii) by decreasing its carrying amount by to reflect lease payments. An asset under right of use, initially measured at cost, must take into account the present value of the future cash flows of the lease liability, being subsequently subject to depreciation / amortization according to the lease term of each contract and to tests of impairment. 226 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDC. As lessor In accordance with IFRS 16, lessors will continue to classify leases as financial or operational. Financial leases Transactions in which the risks and benefits inherent in the ownership of an asset are substantially transferred to the lessee are classified as finance leases. Financial leasing contracts are recorded in the balance sheet as credits granted for an amount equivalent to the net investment made in the leased assets, together with any estimated non-guaranteed residual value. Interest included in rents charged to customers is recorded as income while capital amortizations, also included in rents, are deducted from the amount of credit granted to customers. The recognition of interest reflects a constant periodic rate of return on the lessor's remaining net investment. Operating leases All lease transactions that do not fall under the definition of finance lease are classified as operating leases. Payments made by the Group under operating lease agreements, from the perspective of the lessee, are recorded in costs in the periods to which they relate. 2.15. Employee benefits Pensions Pursuant to the signature of the Collective Labour Agreement (“Acordo Coletivo de Trabalho” (ACT)) for the banking sector and its subsequent amendments resulting from the 3 tripartite agreements described in Note 16, pension funds and other mechanisms were set up to cover liabilities assumed with pensions on retirement, disability, survival and health-care benefits. The liabilities’ coverage is assured, for most of the Group companies, by pension funds managed by GNB - Sociedade Gestora de Fundos de Pensões, SA, subsidiary of the Group. The pension plans of the Group are defined benefit plans, as they establish the criteria to determine the pension benefit to be received by employees during retirement, usually dependent on one or more factors such as age, years of service and salary level. The retirement pension liabilities are calculated semi-annually, in 31 December and 30 June of each year, for each plan individually, using the Projected Unit Credit Method, being annually reviewed by qualified independent actuaries. The discount rate used in this calculation is determined with reference to market rates associated with high-quality corporate bonds, denominated in the currency in which the benefits will be paid out and with a maturity similar to the expiry date of the plan’s liabilities. The Group determines the net interest income / expense for the period incurred with the pension plan by multiplying the plan’s net assets / liabilities (liabilities net of the fair value of the fund’s assets) by the discount rate used to measure the retirement pension liabilities referred to above. On that basis, the net interest income / expense was determined based on the interest cost on the retirement pension liabilities net of the expected return on the funds’ assets, both calculated using the discount rate applied in the determination of the retirement pension liabilities. Re-measurement gains and losses, namely (i) actuarial gains and losses arising due to differences between actuarial assumptions used and real values verified (experience adjustments) and changes in actuarial assumptions and (ii) gains and losses arising due to the difference between the expected return on the fund’s assets and the actual investment returns, are recognized in equity under the caption other comprehensive income. The Group recognizes as a cost in the income statement a net total amount that includes (i) current service costs, (ii) net interest income / expense with the pension fund, (iii) the effect of early retirement, (iv) past service costs, and (v) the effect of settlements or curtailments occurring during the period. The net interest income / expense with the pension plan is recognized as interest income or interest expense, depending on its nature. Early retirement costs correspond to increases in liabilities due to employees retiring before turning 65 (normal retirement age foreseen in the ACTV) and which forms the basis of the actuarial calculation of pension fund liabilities. Whenever the possibility of the early 227 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESretirement provided for in the pension fund regulation is invoked, the responsibilities of same must be incremented by the value of the actuarial calculation of the liabilities corresponding to the period between the early retirement and the employee turning 65. The Group makes payments to the funds to assure their solvency, the minimum levels set by Bank of Portugal being: (i) the liability with pensioners must be totally funded at the end of each period, and (ii) the liability relating to past service costs for active employees must be funded at a minimum level of 95%. The Group assesses the recoverability of any excess in a fund regarding he retirement pension liabilities, based on the expectation of reductions in future contributions. Health-care benefits The Group provides to its banking employees health-care benefits through a specific Social-Medical Assistance Ser- vice. This Social-Medical Assistance Service (SAMS) is an autonomous entity which is managed by the respective Union. SAMS provides its beneficiaries services and/or contributions with medical assistance expenses, diagnostics, medica- tion, hospitalization and surgeries, in accordance with its funding availability and internal regulations. Arising from the signature of the new Collective Labour Agreement (ACT) on 5 July 2016, published in Labour Bulletin (Boletim do Trabalho) No. 29, of 8 August 2016, the Group’s contributions to SAMS, correspond to a monthly fixed amount (as per Annex VI of the new ACT) for each employee, 14 times a year, recorded on a monthly basis in personnel costs, while the component to be paid by the employee is discounted monthly in the processing of salary, against the caption Amounts payable (SAMS). The calculation and recognition of the Group’s liability with post-retirement health-care benefits is similar to the calcu- lation and recognition of the pension liability described above. These benefits are covered by the Pension Fund, which presently covers all liabilities with pensions and health-care benefits (defined benefit plan). Career bonus The ACT provides for the payment by the Group of a career bonus, due at the time immediately prior to the employee's retirement if he retires at the Group's service, corresponding to 1.5 of his salary at the time of payment. These long-term service bonuses were accounted for by the Group in accordance with IAS 19, as other long-term employee benefits. The Group’s liability with these long-term service bonuses were periodically estimated by the Group using the Projected Unit Credit Method. The actuarial assumptions used were based on expectations as to future salary increases and mortality tables. The discount rate used in this calculation was determined using the methodology described for retirement pensions. In each period, the increase in the liability for long-term service bonuses, including actuarial gains and losses and past service costs, was charged to the income statement, in Personnel Expenses. Employees’ variable remuneration and other obligations The Group recognises under costs the short-term benefits paid to employees who were at its services in the respective accounting period. • Profit-sharing and bonus plans The Group recognizes the cost expected with profit-sharing pay-outs and bonuses when it has a present, legal or constructive, obligation to make such payments as a result of past events, and can make a reliable estimate of the obligation. • Obligations with holidays, holiday subsidy and Christmas subsidy In accordance with the legislation in force in Portugal, employees are annually entitled to one month of holidays and one month of holiday subsidy, this being a right acquired in the year prior to their payment. In addition, employees are annually entitled to one month of Christmas subsidy, which right is acquired throughout the year and settled during the month of December of each calendar year. Hence, these liabilities are recorded in the period in which the employees acquire the right to same, regardless of the date of their respective payment. 228 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED2.16. Corporate Income tax NOVO BANCO and its subsidiaries are subject to the tax regime consigned in the Código do Imposto sobre o Rendi- mento das Pessoas Coletivas (IRC Code). Corporate income tax comprises current tax and deferred tax. Corporate income tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized under deferred tax reserves (other comprehensive income). Corporate income tax recognized directly in equity relating to fair value remeasurement of financial assets at fair value through other comprehensive income and cash flow hedges is subsequently recognized in the income statement when the gains or losses giving rise to said income tax are also recognized in the income statement. Current tax Current tax is the tax expected to be paid on the taxable profit for the year, calculated using tax rules and tax rates enacted or substantively enacted in each jurisdiction. The tax is recognized in each financial reporting period based on management estimates as regards the average effective tax rate foreseen for the entire fiscal year. Current tax is calculated based on taxable income for the period, which differs from the accounting result due to adjustments resulting from expenses or income not relevant for tax purposes or which will only be considered in subsequent years. Deferred tax Deferred tax is calculated on timing differences arising between the carrying book values of assets and liabilities for financial reporting purposes and their respective tax base and is calculated using the tax rates enacted or substantively enacted at the balance sheet date in each jurisdiction and that are expected to apply when the timing differences are reversed. Deferred tax liabilities are recognized for all taxable timing differences except for: i) goodwill non-deductible for tax purposes; ii) differences arising on the initial recognition of assets and liabilities that neither affect the accounting nor taxable profit; iii) that do not result from a business combination, and iv) differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future and the Group does not control the timing of the reversal of the timing differences. Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the deductible timing differences can be offset. Deferred tax liabilities are always accounted for, regardless of the performance of Group. Deferred tax assets are recognized only to the extent that it is expected that there will be taxable profits in the future, which will absorb temporary deductible differences for tax purposes (including reportable tax losses). The Group, as established in IAS 12, paragraph 74, offsets deferred tax assets and liabilities whenever (i) it has the legally enforceable right to offset current tax assets and current tax liabilities; and (ii) they relate to corporate income taxes levied by the same Taxation Authority, on the same tax entity or different taxable entities that intent to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which the deferred tax liabilities or assets are expected to be settled or recovered. The Bank complies with the guidelines of IFRIC 23 - Uncertainty on the Treatment of Income Tax with regard to the determination of taxable profit, tax bases, tax losses to be reported, tax credits to be used and tax rates in scenarios of uncertainty regarding the treatment of income tax, with no material impact on its financial statements resulting from its application. 2.17. Provisions and Contingent liabilities Provisions are recognized when: (i) the Group has a current legal or constructive obligation, (ii) it is probable that its settlement will be required in the future and (iii) a reliable estimate of the obligation can be made. 229 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESProvisions related to legal cases opposing the Group to third parties, are constituted according to internal risk assessments made by Management, with the support and advice of its legal advisors. When the effect of the passage of time (discounting) is material, the provision corresponds to the net present value of the expected future payments, discounted at an appropriate rate considering the risk associated with the obligation. In these cases, the increase in the provision due to the passage of time is recognized in financial expenses. Restructuring provisions are recognized when the Group has approved a formal, detailed restructuring plan and such restructuring has either commenced or has been publicly announced. A provision for onerous contracts is recognized when the benefits expected to be derived by the Group from a contract are lower than the unavoidable costs of meeting its obligation under the contract. This provision is measured at the present value of the lower of the estimated cost of terminating the contract and the estimated net costs of continuing the contract. If a future outflow of funds is not probable, this situation reflects a contingent liability. Contingent liabilities are always disclosed, except when the likelihood of their occurrence is remote. 2.18. Recognition of interest income and expense Interest income and expense is recognized in the income statement under interest and similar income and interest expense and similar charges for all financial instruments measured at amortised cost and for all financial assets at fair value through other comprehensive income, using the effective interest rate method. Interest arising on financial assets and liabilities at fair value through profit or loss is also included under interest and similar income or interest expense and similar charges, as appropriate. The effective interest rate is the rate that discounts the estimated future cash payments or receipts throughout the expected life of the financial instrument or, when appropriate, a shorter period to the net book value of the financial asset or liability. The effective interest rate is calculated at inception and is not subsequently revised, except in respect of financial assets and liabilities with a variable interest rate. In this case, the effective interest rate is periodically revised, taking into consideration the impact of the change in the interest rate of reference on the estimated future cash flows. When calculating the effective interest rate, the Group estimates the cash flows considering all the contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all the commissions that are an integral part of the effective interest rate, transaction costs and all other related premiums or discounts. Interest and similar income includes interest from financial assets for which were recognized impairment. The interest from financial assets classified as Stage 3 are determined based on the effective interest rate method applied to the net book value. When the asset is no longer classified as Stage 3, the interest is calculated based on the gross book value. For derivative financial instruments, the interest component in the change in fair value of derivative financial instru- ments classified as fair value hedge and fair value option is recognized under interest income or interest expense. For other derivatives, the interest component inherent in the fair value change will not be separated and will be classified under the income statement of assets and liabilities at fair value through profit or loss (see Note 2.4). 2.19. Recognition of fee and commission income Fees and commissions income are recognized as revenue from customer contracts to the extent that performance obligations are met: • Fees and commissions that are earned on the execution of a significant act, such as loan syndication fees, are recognized as income when the significant act has been completed; • Fees and commissions earned over the period during which the services are provided are recognized as income in the financial year in which the services are provided; 230 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED• Fees and commissions that are an integral part of the effective interest rate of a financial instrument are recognized as income using the effective interest rate method, as described in note 2.18. 2.20. Recognition of dividend income Dividend income is recognized when the right to receive the dividend payment is established. 2.21. Earnings per share Basic earnings per share are calculated by dividing the net income attributable to the shareholders of the parent com- pany by the weighted average number of ordinary shares outstanding during the period. For the calculation of diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted to reflect the impact of all potential dilutive ordinary shares, such as those resulting from convertible debt and share options granted to employees. The dilution effect translates into a decrease in earnings per share, based on the assumption that the convertible instruments will be converted or the options granted exercised. 2.22. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with a maturity of less than three month from the date of acquisition / contracting and whose risk of change in value is immaterial, including cash, deposits with Central Banks and deposits with other credit institutions. Cash and cash equivalents exclude restricted balances with Central Banks. 2.23. Investment properties The Group classifies as investment properties the real estate assets held to earn rentals or for capital appreciation or both. Investment properties are initially recognized at acquisition cost, including directly attributable transaction costs, and subsequently at their fair value. Changes in fair value determined at each balance sheet date are recognized in the income statement, under the caption Other operating income and expenses, based on periodic valuations performed by independent entities specialised in this type of service. Investment properties are not depreciated. Since these are assets whose fair value level in the hierarchy of IFRS 13 mostly corresponds to level 3, given the subjectivity of some assumptions used in the valuations and the fact that there are external indications with alternative values, the Group proceeds to analysis on the assumptions used, which may imply additional adjustments to their fair value, supported by additional internal or external valuations. Reclassifications to and from the caption Investment properties may occur whenever a change in respect of the use of a real estate property is verified. On the reclassification of investment properties to real estate properties held for own use, the estimated cost, for accounting purposes, is the fair value, at the date of the change in usage. If a real estate property held for own use is reclassified to investment properties, the Group records that asset in accordance with the policy applicable to real estate properties held for own use, up to the date of its reclassification to investment properties and at fair value subsequently, with the difference arising in its measurement at the date of the reclassification being recognized in revaluation reserves. If a real estate property is transferred from other assets to investment properties, any difference between the fair value of the asset at that date and the previous carrying book value is recognized in the income statement. Subsequent expenditure is capitalised only when it is probable that the Group will obtain future economic benefits in excess of those originally estimated based on the performance of the asset. Gains and losses on the disposal of investment properties resulting from the difference between the realised value and the carrying book value are recognized in the income statement for the year under the caption Other operating income and expenses. Gains and losses on the disposal of investment properties resulting from the difference between 231 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESthe realised value and the carrying book value are recognized in the income statement for the year under the caption Other operating income or Other operating expenses. Investment properties recorded relate solely to non-banking activities (Investment Funds and Real Estate Companies). NOTE 3 – Main accounting estimates and judgements used in preparing the financial statements Considering that the current accounting framework requires applying judgements and calculating estimates involving some degree of subjectivity, the use of different parameters or judgements based on different evidence may result in different estimates. The main accounting estimates and judgments used in applying the accounting principles by the Group are discussed in this Note in order to improve the understanding of how their application affects the reported results of the Bank and its disclosure. The Bank and its subsidiaries do not have projects or intentions for actions that could question the continuity of the operations. The COVID-19 pandemic, despite the government and regulatory response measures adopted, resulted in an addi- tional high level of uncertainty about the Portuguese and European economy and in particular banking activity, with an impact on the judgments and estimates used in the financial statements. However, the internal control policies and standards adopted by the Group allow us to consider that these judgments and estimates were made independently and appropriately as of 31 December 2020. The relevant judgments made by management in the application of the Group's accounting policies and the main sources of uncertainty in the estimates were the same as those described in the last reporting of the Financial State- ments. 3.1. Impairment of financial assets at amortised cost and at fair value through other comprehensive income The critical judgements with greater impact on the recognized impairment values for the financial assets at amortised cost and at fair value through other comprehensive income are the following: • Assessment of the business model: the measurement and classification of financial assets depends on the results of SPPI test and on the business model setting. The Group determines its business model based on how it manages the financial assets and its business objectives. The Group monitors if the business model classification is appropriate based on the analysis on the anticipated derecognition of the assets at amortised cost or at fair value through other comprehensive income, assessing if it is necessary to prospectively apply any changes; • Significant increase on the credit risk: as mentioned on the Note 2.5 – Other financial assets investments in credit institutions, customer loans and securities, the determination of the transfer of an asset from stage 1 to stage 2 with the purpose of determining the respective impairment is made based on the judgement that, in accordance to the Group management, constitutes a significant increase on credit risk; • Classification of default: the internal definition of exposure in default is broadly in line with the regulatory definition in Article 178 of CRR/CRD IV. This regulation defines qualitative criteria for assessing the default classification – unlikely to pay -, which are replicated in the internal definition implemented by NOVO BANCO and which result in performing judgements when assessing the high probability that the borrower does not fulfil its obligations within the conditions agreed with NOVO BANCO. This concept is covered in more detail below; • Definition of groups of financial assets with similar credit risk characteristics: when the expected credit losses are measured through collective model, the financial instruments are aggregated based on the same risk 232 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDcharacteristics. The Group monitors the credit risk characteristics in order to assure the correct reclassification of the assets, in cases of changes on the credit risk characteristics; • Models and assumptions: the Group uses several models and assumptions on the measurement of the expected credit losses. The judgement is applied on the identification of the more appropriate model for each type of asset as well as in the determination of the assumptions used in these models, including the assumptions related with the main credit risk drivers. In addition, in compliance with the IFRS9 regulation that clarifies the need for the impairment result to consider multiple scenarios, a methodology for incorporating different scenarios into the risk parameters was implemented. Thus, the calculation of collective impairment considers several scenarios with a specific weighting, based on the internal methodology defined about scenarios - definition of multiple perspectives of macroeconomic evolution, with probability of relevant occurrence. 3.2. Fair value of derivative financial instruments and other financial assets and liabilities at fair value Fair value is based on listed market prices when available; otherwise fair value is determined based on similar recent arm’s length transaction prices or using valuation methodologies, based on the net present value of estimated future cash flows taking into consideration market conditions, the time value, the yield curve and volatility factors, in accor- dance with IFRS 13 - Fair Value Measurement. The Group uses several models and assumption in measuring the fair value of financial assets. Judgement is applied on the identification of the more appropriate model for each type of asset as well as in the determination of the assumptions used in these models, including the assumptions related with the main credit risk drivers. Consequently, the use of a different methodology or different assumptions or judgements in applying a particular model could have produced different financial results, summarised in Note 40. 3.3. Corporate income taxes The Group is subject to corporate income tax in numerous jurisdictions. Certain interpretations and estimates are required in determining the overall corporate income tax amount. Different interpretations and estimates could result in a different level of income tax, current and deferred, being recognized in the period and evidenced in Note 28. This aspect assumes additional relevance for effects of the analysis of the recoverability of deferred taxes, while the Bank considers forecasts of futures taxable profits based on a group of assumptions, including the estimate of income before taxes, adjustments to the taxable income and its interpretation of fiscal legislation. This way, the recoverability of deferred taxes depends on the concretization of the strategy of the Executive Board of Directors, namely in the capacity to generate the estimated taxable results and its interpretation of fiscal legislation. The Tax Authorities are charged with reviewing the calculation of the tax base made by the Bank during a period of four or twelve years, in the event of reportable tax losses. Thus, it is possible that there are corrections to the tax base, resulting mainly from differences in the interpretation of tax legislation. However, the Bank's Executive Board of Directors believes that there will be no significant corrections to taxes on profits recorded in the financial statements. 3.4. Pensions and other employee benefits The determination of the retirement pension liabilities presented in Note 14 requires the use of assumptions and esti- mates, including the use of actuarial tables, assumptions regarding the growth of pensions, salaries and discounts rates (which are determined based on the market rates associated with high quality corporate bond, denominated in the same currency in which the benefits will be paid and with a maturity similar to the expiry date of the plan's obligations). These assumptions are based on the expectations of the NOVO BANCO Group for the period during which the liabilities will be settled as well as other factors that may impact the costs and liabilities of the pension plan. Changes in these assumptions could materially affect the amounts determined. 233 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES3.5. Provisions and Contingent Liabilities The recognition of provisions involves a significant degree of complex judgment, namely identifying whether there is a present obligation and estimating the probability and timing, as well as quantifying the outflows that may arise from past events. When events are at an early stage, judgments and estimates can be difficult to quantify due to the high degree of uncertainty involved. The Executive Board of Directors monitors these matters as they develop to regularly reassess whether the provisions should be recognized. However, it is often not feasible to make estimates, even when events are already at a more advanced stage, due to existing uncertainties. The complexity of such issues often requires expert professional advice in determining estimates, particularly in terms of legal and regulatory issues. The amount of recognized provisions may also be sensitive to the assumptions used, which may result in a variety of potential results that require judgment in order to determine a level of provision that is considered appropriate in view of the event in question. The Group recognises provisions intended to cover for losses arising from commercial offers approved by the Executive Board of Directors of the Bank, when these are not opposed by Bank of Portugal. The amount of the provisions reflects NOVO BANCO’s best estimate as each reporting date. The subjectivity inherent to the determination of the probability and amount of the internal resources required for the payment of the obligations may lead to significant adjustments (i) due to variations in the assumptions used (ii) for the future recognition of provisions previously disclosed as contingent liabilities; and/or (iii) for the future write-off of provisions, when they start to classify as contingent liabilities only. The provisions are detailed in Note 32. 3.6. Investment properties, Assets received from credit recovery and Non-current assets held for sale Investment properties are initially recognized at cost, including directly related transaction costs and subsequently at fair value. Assets received from credit recovery and Non-current assets held for sale are measured at the lower of the net book value and the fair value less costs to sell. The fair value of these assets is determined based on valuations conducted by independent entities specialized in this type of service, using the market, income or cost methods, as defined in Notes 2.11 and 2.23. The valuation reports are analyzed internally, namely comparing the sales values with the revalued values of the properties, to keep the valuation parameters and processes updated to the market evolution. The use of alternative methodologies and different assumptions may result in a different level of fair value with respec- tive impact on the recognized balance sheet value. 3.7. Entities included in the consolidation perimeter For the determination of the entities to be included in the consolidation perimeter, the Group evaluates the extent to which (i) it is exposed, or has rights, to the variability of the return from its involvement with this entity, and (ii) it can seize that return through of its power. In this analysis, the Bank also considers shareholder agreements that may exist and that result in the power to take decisions that impact the management of the entity's activity. The decision that an entity should be consolidated by the Group requires the use of judgments to determine to what extent the Group is exposed to the variability of an entity's return and has the power to seize that return. In using this judgment, the Group analyses assumptions and estimates. Thus, other assumptions and estimates could lead to a different consolidation perimeter, with a direct impact on the balance sheet. NOTA 4 – Segment reporting NOVO BANCO Group activities are centered on the financial sector targeting corporate, institutional and private indi- vidual customers. Its decision center is in Portugal, making the domestic territory its main market. 234 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThe products and services rendered include deposit taking, granting of loans to corporate and private customers, investment fund management, broker and custodian services and the commercialization of life and non-life insurance products. Additionally, the Group makes short-, medium- and long-term investments in the financial and currency exchange markets with the objective of taking advantage of price changes or to get returns on its available financial resources. For this purpose, as at 31 December 2020, the Group has NOVO BANCO as its main operating unit - with 339 branches in Portugal (31 December 2019: 356 branches) and branches in Luxembourg and Spain (discontinued) and 4 repre- sentation offices – with NBA Açores (13 branches), Banco BEST (6 branches), GNB GA and GNB Seguros (non-life insurance segment), amongst other companies. When evaluating performance by business area, the Group considers the following Operating Segments: (1) Domestic Commercial Banking, including Retail, Corporate and Private Banking; (2) International Commercial Banking; (3) Asset Management; (4) Life Insurance (December 31, 2019 only); (5) Markets; and (6) Corporate Centre. Each segment integrates the NOVO BANCO structures that directly relate to it, as well as the units of the Group whose businesses are mainly related to the segments. The individual and independent monitoring of each operating unit of the Group is complemented, at the Board of Directors of NOVO BANCO level, by the definition of specific strategies and commercial programs for each unit. In accordance with the commitments assumed with Directorate General for Competition – European Commission (“DGComp”), at the end of 2019 the Bank discontinued the Private Banking services. Additionally, in 2019 NOVO BANCO derecognized the investment on Gama Life (formerly GNB Vida), after obtaining the necessary regulatory authorizations, discontinuing the information reported in the Life Insurance Activity segment. During 2020, NOVO BANCO started the sale process of the Spanish Branch, which was reclassified to a discontinued operation. 4.1. Description of the operating segments Each of the operating segments includes the following activities, products, customers and Group structures, aggregated by criteria of risk, market / geography and nature of the products and services: Domestic Commercial Banking This Operating Segment includes all the banking activity developed on national territory involving corporate and pri- vate customers and using the branch network, corporate centres and other channels, and includes the following sub segments: a. Retail: corresponds to all the activity developed in Portugal with private customers and small businesses. The financial information of the segment relates, amongst other products and services, to mortgage loans, consumer credit, small business financing, deposits, retirement plans and other insurance products sold to private customers, account management and electronic payments and placement of investment funds, brokerage and custodian services; b. Corporate and Institutional: includes the activities developed in Portugal with medium- and large-sized companies, developed through a commercial structure dedicated to this segment, which includes 20 Corporate Centres. This segment also includes activities with institutional and municipal customers. The Group maintains an important presence in this segment, the result of the support it has lent to the development of the national business community, focused on companies with good risk, an innovative nature and an exporter activity; c. Private Banking: comprises the Private banking activity integrating all the asset-side products and the fundraising activities, namely, deposits, discretionary management services, custodian services, brokerage services and insurance products. 235 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESInternational Commercial Banking This Operating Segment integrates the units located abroad, which banking activities focus both on corporate and private customers, excluding the asset management business, which is integrated in the corresponding segment. Amongst the units comprising this segment are NOVO BANCO’s branches in Spain, London (closed at the beginning of 2019) and Luxembourg. The aggregation of this units in the same segment is related with the geographic criteria and with the nature of the clients, the products and the services provided. Asset Management This segment, which depends on the specific nature of the products and services provided, includes the asset manage- ment activities developed both in Portugal and abroad through specialised companies incorporated for the purpose. The product range includes all types of funds - investment funds, real estate funds and pension funds - as well as discretionary management and portfolio management. Life insurance Segment that depends on the specific nature of the products and services provided, including the activities of Companhia de Seguros Gama Life (formerly GNB Vida) that sells traditional and investment insurance contracts and retirement plans. As mentioned in Note 30, NOVO BANCO derecognized this investment in September 2019, after obtaining the necessary regulatory authorizations, discontinuing the information reported in this segment. Markets This segment includes the overall financial management of the Group, including the taking and ceding of funds on the financial markets, as well as the investment and risk management of credit, interest rate, currency and securities instruments, whether of a strategic nature or related to the current activity of the Markets’ area. It also covers the activity involving non-resident institutional investments and the effects of strategic decisions with a transversal impact on the Group. Corporate Centre This area does not correspond to an operational segment in the true sense of the concept, it is an aggregation of trans- versal corporate structures that ensure the basic functions of the Group's global management, such as those linked to the Administration and Supervision, Compliance, Planning, Accounting, Risk Management and Control, Institutional Communication, Internal Audit, Organization and Quality, among others. Since the Bank is in a tax loss situation in the first six months of 2020 and 2019, the deferred taxes recognized were fully allocated to this segment. 4.2. Criteria for the allocation of activities and results to the operating segments The financial information presented for each segment was prepared in accordance with the criteria followed in the preparation of the internal information that is analyzed by the Executive Board of Directors of the Group, as required by IFRS. The accounting policies applied in the preparation of the financial information related to the operating segments are consistent with those used in the preparation of these consolidated financial statements, which are described in Note 2, with the adoption of the following additional principles: Measurement of the profit or loss of the segments The Group uses net income / (loss) before taxes as the measure of the profit or loss for purposes of evaluating the performance of each operating segment. 236 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDAutonomous operating units As mentioned above, each autonomous operating unit (foreign branches, subsidiaries and associated companies) is evaluated separately, as each of these units is considered an investment centre. Additionally, based on the characteris- tics of the primary business developed by these units, they are fully integrated into one of the Operating Segments, i.e. their assets, liabilities, income and expenses. NOVO BANCO structures dedicated to the Segment NOVO BANCO’s activity, given its characteristics, can be allocated to most of its operating segments and is, therefore, accordingly disaggregated. For purposes of allocating the financial information, the following principles are used: (i) the origin of the operation, i.e. the operation is allocated to the same segment that the commercial structure that originated it integrates, even if, in a subsequent phase, the Group, strategically, decides to securitize some of the assets; (ii) the allocation of a commercial margin to mass-products, defined at top management level when the products are launched; (iii) for non-mass pro- ducts, the allocation of a margin directly negotiated by the commercial structures with customers; (iv) the allocation of the direct costs of commercial and central structures dedicated to the segment; (v) the allocation of indirect costs (central support and IT services) determined based on specific drivers; (vi) the allocation of credit risk determined in accordance with the impairment model; and (vii) the allocation of NOVO BANCO’s total equity to the Markets segment. The transactions between the legally autonomous units of the Group are made at market prices; the price for services rendered between the structures of each unit, namely the price established for internal funding between units, is determined using the margins process referred to above (which varies in accordance with the strategic relevance of the product and the equilibrium of the structures’ funding and lending functions); the remaining internal transactions are allocated to the segments, without any margin for the supplier; the strategic decisions and/or of an exceptional nature are analyzed on a case-by-case basis, with the income and/or costs being generally allocated to the Markets segment. The interest rate risk, currency risk, liquidity risk and others, excluding credit risk, are included in the Financial Depart- ment, which mission it is to undertake the Bank’s financial management, and which activity and results are included in the Markets segment. Interest and similar income / expense Since the Group’s activities are exclusively carried out in the financial sector, the income reflects, fundamentally, the difference between interest received on assets and interest paid on liabilities. This situation and the fact that the seg- ment evaluation is based on margins previously negotiated or determined for each product, leads to the presentation of the results from the intermediation activity, as permitted by IFRS 8, paragraph 23, at the net value of interest, under the designation “Net interest income / expense”. Investments presented using the equity method Investments in associated companies presented under the equity method are included in the Markets segment, in the case of NOVO BANCO’s associated companies. For other associated companies of the Group, these entities are included in the segment to which they relate. Non-current assets Non-current assets, according to IFRS 8, include Tangible fixed assets, Intangible assets and Non-current assets held for sale. NOVO BANCO includes these assets in the Markets segment, with the non-current assets held by the remaining subsidiaries being allocated to the segment in which these subsidiaries primarily develop their business. Corporate income tax Corporate income tax is part of the Group’s net income that, for purposes of monitoring the performance of the 237 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESOperating Segments, by the Executive Board of Directors, does not affect the evaluation of most of the Operating Segments. In the tables presented below the deferred tax recognized in net income for the year are included in the Corporate Centre. Deferred tax assets and liabilities are included in the Markets segment. Domestic and International Areas In the presentation of financial information by geographic areas, the operational units that integrate the International Area are NOVO BANCO’s branches in Spain, Luxembourg and London (closed in early 2019), and the subsidiaries Novo Banco Servicios, Ijar Leasing Algérie, as well as units located outside GNB GA, and the discontinued operations NOVO AF and Banco Delle Tre Venezie. The financial and economic elements related to the international area are those consistent with the financial statements of such units, with the respective consolidation adjustments and eliminations. Legacy and recurrent activity From 2018 the GROUP started to present separate financial information between "NOVO BANCO Recurrent", that includes all the core banking activity, and "NOVO BANCO Legacy” that include loans and advances to customers, integrating not only the credits included in Contingent Capital Agreement, as well as other receivables, securities, real estate and discontinued operations considered, on its majority, as no strategic in the commitments imposed by DGCOMP after the resolution measure, so the references in these explanatory notes should be read taking this segmentation into account. When determining the NOVO BANCO Legacy, the Bank considered the following items: • Loans and advances include the entire CCA perimeter and other non-strategic exposures; • Securities and associated companies were selected by contract and include restructuring funds, minority equity stakes, real estate funds, commercial paper and mandatory convertible securities (“VMOCs”); • The portfolio of real estate properties available for sale has been selected by contract and excludes yielding assets; • Assets and liabilities of the discontinued operations were allocated to legacy, based on a case-by-case analysis insofar as they were considered by management to be legacy assets; • All profit and loss associated with legacy assets was considered as results of this activity; • There are no liabilities directly allocated to the legacy activity, therefore the funding costs for legacy assets are calculated based on the Group’s average balance sheet funding rate; and • Operating costs include all CCA costs, and the operating costs of some departments, according to the weight of legacy assets in their activity. The Group considers that the split between the NOVO BANCO Recurrent and NOVO BANCO Legacy will allow customers and other stakeholders to have a better understanding of the Bank's ongoing restructuring process. The segment reporting is presented as follows: 238 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Net interest income Net fees and commissions Other operating income Total operating income Operational expenses Of which: Provisions / Impairment losses Depreciation and amortization Net gains / (losses) from investments in subsidiaries, joint ventures and associated companies registered by the equity method Retail 200 736 165 851 19 288 Corporate and Institutional 221 839 98 403 24 873 385 875 345 115 354 653 515 379 100 195 477 820 12 355 920 - - Profit / (loss) from continued operations before taxes and non-controlling interests 31 222 ( 170 264) Taxes Profit / (loss) of discontinued operations Net Profit / (loss) for the period attributable to non-controlling interests Net Profit / (loss) for the period attributable to Shareholders of the parent Intersegment operating income (1) Total Net Assets Total Liabilities Investments in associated companies Investments in tangible fixed assets Investments in intangible assets Investments in investment properties Investments in other assets - real estate properties (1) inter-segment operating income is mainly characterized by interest (financial result) Net interest income Net fees and commissions Other operating income Total operating income Operational expenses Of which: - - 1 134 - - - 30 088 ( 170 264) 4 164 5 977 20 626 864 10 704 403 20 372 193 10 862 412 - 3 718 340 - 624 - - - - - Retail 153 602 Corporate and Institutional 170 274 171 441 110 009 15 480 18 514 340 523 298 797 273 315 694 359 31.12.2020 Private banking International Commercial Banking Asset Management Life Insurance Markets Corporate centre Total (in thousands of Euros) - - - - - - - - - - - - - - - - - - - - - 19 687 10 022 ( 28 727) 982 29 252 20 996 668 - ( 11) 26 023 170 26 182 14 755 1 624 640 - ( 28 270) 11 427 55 ( 40 830) 3 104 1 498 - - - - - - - - - - 8 057 112 883 ( 33 781) ( 493 298) ( 414 196) - - - - 639 600 104 713 590 828 - 1 215 17 274 555 134 266 518 ( 477 694) 343 958 1 658 352 1 191 463 33 072 9 430 - 9 430 (1 044 366) ( 104 713) (1 304 964) 11 617 ( 2 070) ( 13 694) - - - - - ( 11 208) ( 69 155) 78 170 4 474 776 4 470 127 - 305 - - 1 941 9 821 189 88 507 11 554 - 825 18 - - 8 057 (1 046 845) ( 91 019) - ( 80 342) - - - - - - - 8 501 036 5 532 665 93 630 43 093 26 508 11 966 28 126 - - - - 344 - - - 31.12.2019 * Private banking International Commercial Banking Asset Management Life Insurance Markets Corporate centre Total (in thousands of Euros) 2 538 5 121 ( 5) 7 654 4 680 29 668 12 337 ( 14 132) 27 873 2 25 747 ( 1 056) 24 693 - - - - 156 348 ( 21 773) ( 444 573) ( 309 998) - - - - 48 761 12 179 4 082 192 619 98 517 1 082 ( 33 345) ( 10 074) (1 329 317) 8 158 44 395 586 41 248 951 93 630 48 285 26 866 11 966 30 691 512 432 302 882 ( 425 772) 389 542 1 328 512 855 141 30 341 1 470 Provisions / Impairment losses Depreciation and amortization Net gains / (losses) from investments in subsidiaries, joint ventures and associated companies registered by the equity method 16 172 10 803 653 594 ( 1 452) 882 423 39 028 671 - - - - 536 433 - 4 082 143 181 - - - 1 550 15 579 1 470 - Profit / (loss) from continued operations before taxes and non-controlling interests 67 208 ( 395 562) 2 974 ( 20 888) 12 514 ( 4 082) ( 501 147) ( 98 517) ( 937 500) Taxes Profit / (loss) of discontinued operations Net Profit / (loss) for the period attributable to non-controlling interests - - 1 736 - - - - - - ( 21 339) ( 103 470) 3 418 ( 392) - 1 533 3 391 ( 73) - - - ( 9 389) 41 093 - - Net Profit / (loss) for the period attributable to Shareholders of the parent 65 472 ( 395 562) 2 974 Intersegment operating income (1) Total Net Assets Total Liabilities Investments in associated companies Investments in tangible fixed assets Investments in intangible assets Investments in other assets - real estate properties 4 970 6 005 19 835 663 11 223 700 19 541 454 11 605 333 - 1 633 282 1 134 - - - - - - - - - - - ( 103 019) 112 670 4 846 926 4 964 199 - 767 703 4 358 8 704 610 84 058 13 649 - 1 196 18 - ( 2 549) ( 495 222) ( 139 610) - ( 114 418) - - - - - - 9 305 556 5 168 511 92 628 16 363 25 436 81 319 - - - - - - - 26 563 ( 102 402) ( 7 653) (1 058 812) 9 837 45 295 903 41 293 146 92 628 19 959 26 439 86 811 (1) Intersegment operating income refers essentially to interest (net interest income) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The geographical information of the different business units of the Group is as follows: The geographical information of the different business units of the Group is as follows: Portugal Spain Luxembourg Brazil Angola Cape Verde Macao Other Total 31.12.2020 (in thousands of Euros) (1 300 233) ( 37 559) 8 322 153 - - - - (1 329 317) Net profit / (loss) for the period attributable to Shareholders of the parent (of which: rel. to discontinued units) Total income Intersegment operating income Net assets (of which: rel. to discontinued units) Investments in associated companies Investments in tangible fixed assets Investments in intangible assets Investments in investment properties 6 466 4 693 042 ( 41 855) 40 323 724 7 861 93 630 47 980 26 866 11 966 ( 39 811) - - 2 062 005 1 545 138 - - - - - 244 271 50 013 1 998 432 - - 305 - - Investments in other assets - real estate properties 28 750 1 941 - - 1 054 - 1 740 - - - - - - - - - 3 060 1 037 - - - - - - - - - - 1 299 - - - - - - - - - - - - 1 883 - - - - - - - - - - - 6 625 2 300 - - - - - - - 7 ( 33 345) 4 938 367 8 158 44 395 586 1 559 518 93 630 48 285 26 866 11 966 30 691 (1 304 964) 803 893 4 582 33 Profits / (losses) of continuing operating units before taxes and non-controlling interests Turnover (a) (b) Number of employees (a) 31 December 2020 (1 315 492) ( 817) 11 187 158 107 489 10 Notes to the Consolidated Financial Statements 695 966 4 560 438 5 - - - - (a) Financial information presented according to art. 2 of DL no. 157/2014 (b) Turnover corresponds to the sum of the following items in the consolidated operating account: interest income, dividend income, fee and commission income, gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss on financial assets and liabilities held for trading, gains or losses on financial assets mandatorily at fair value through profit or loss, gains or losses on financial assets and liabilities ca rried at fair value through profit or loss hedge accounting losses, exchange differences, gains or losses on derecognition of non-financial assets, other operating operating income and proportion of profits or losses on investments in subsidiaries, joint ventures and associates accounted for under the equity method. Net profit / (loss) for the period attributable to Shareholders of ( 930 114) ( 103 761) ( 20 909) ( 303) (of which: rel. to discontinued units) 1 460 ( 84 635) 239 the parent Total income Net assets Intersegment operating income (of which: rel. to discontinued units) Investments in associated companies Investments in tangible fixed assets Investments in intangible assets Investments in other assets - real estate properties Profits / (losses) of continuing operating units before taxes and non-controlling interests Turnover (a) (b) Number of employees (a) (a) Financial information presented according to art. 2 of DL no. 157/2014 Portugal Spain Luxembourg Brazil Angola Cape Verde Macao Other Total 31.12.2019 * (in thousands of Euros) 40 772 690 2 011 246 2 498 979 3 303 3 060 2 946 1 299 4 121 2 300 40 255 4 348 294 ( 38 977) 25 349 92 628 19 192 25 736 82 453 - - - 4 240 767 703 4 358 497 028 48 814 919 - - - - - - - - - - - - - ( 911 060) ( 291) ( 22 121) ( 303) 945 859 4 648 - 70 591 198 11 367 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ( 3 725) (1 058 812) ( 83 175) 4 846 241 9 837 6 625 45 295 903 92 628 19 959 26 439 86 811 - - - - - - - ( 3 725) ( 937 500) - 1 016 817 7 4 869 (b) Turnover corresponds to the sum of the following items in the consolidated operating account: interest income, dividend income, fee and commission income, gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss on financial assets and liabilities held for trading, gains or losses on financial assets mandatorily at fair value through profit or loss, gains or losses on financial assets and liabilities ca rried at fair value through profit or loss hedge accounting losses, exchange differences, gains or losses on derecognition of non-financial assets, other operating operating income and proportion of profits or losses on investments in subsidiaries, joint ventures and associates accounted for under the equity method. *Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 31 December 2020 Notes to the Consolidated Financial Statements 34 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe geographical information of the different business units of the Group is as follows: Portugal Spain Luxembourg Brazil Angola Cape Verde Macao Other Total 31.12.2020 (in thousands of Euros) Net profit / (loss) for the period attributable to Shareholders of (1 300 233) ( 37 559) 8 322 153 (of which: rel. to discontinued units) 6 466 ( 39 811) the parent Total income Net assets Intersegment operating income (of which: rel. to discontinued units) Investments in associated companies Investments in tangible fixed assets Investments in intangible assets Investments in investment properties 4 693 042 ( 41 855) 244 271 50 013 1 054 40 323 724 2 062 005 1 998 432 1 740 7 861 1 545 138 - - - - - - - - - - - - 305 - - - - - - - - 93 630 47 980 26 866 11 966 28 750 Investments in other assets - real estate properties 1 941 Profits / (losses) of continuing operating units before taxes and non-controlling interests Turnover (a) (b) Number of employees (a) (1 315 492) ( 817) 11 187 695 966 4 560 - - 107 489 10 158 438 5 3 060 1 037 1 299 1 883 6 625 2 300 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 (1 329 317) ( 33 345) 4 938 367 8 158 44 395 586 1 559 518 93 630 48 285 26 866 11 966 30 691 (1 304 964) 803 893 4 582 (a) Financial information presented according to art. 2 of DL no. 157/2014 (b) Turnover corresponds to the sum of the following items in the consolidated operating account: interest income, dividend income, fee and commission income, gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss on financial assets and liabilities held for trading, gains or losses on financial assets mandatorily at fair value through profit or loss, gains or losses on financial assets and liabilities ca rried at fair value through profit or loss hedge accounting losses, exchange differences, gains or losses on derecognition of non-financial assets, other operating operating income and proportion of profits or losses on investments in subsidiaries, joint ventures and associates accounted for under the equity method. Portugal Spain Luxembourg Brazil Angola Cape Verde Macao Other Total 31.12.2019 * (in thousands of Euros) ( 930 114) ( 103 761) ( 20 909) ( 303) - - - ( 3 725) (1 058 812) Net profit / (loss) for the period attributable to Shareholders of the parent (of which: rel. to discontinued units) Total income Intersegment operating income Net assets (of which: rel. to discontinued units) Investments in associated companies Investments in tangible fixed assets Investments in intangible assets Investments in other assets - real estate properties 1 460 4 348 294 ( 38 977) 40 772 690 25 349 92 628 19 192 25 736 82 453 ( 84 635) - - 2 011 246 4 240 - 767 703 4 358 - 497 028 48 814 2 498 979 - - - - - - 919 - 3 303 - - - - - Profits / (losses) of continuing operating units before taxes and non-controlling interests Turnover (a) (b) Number of employees (a) ( 911 060) ( 291) ( 22 121) ( 303) 945 859 4 648 - 198 70 591 11 367 - - - - 3 060 2 946 - - - - - - - - - - - 1 299 - - - - - - - - - - - 4 121 - - - - - - - ( 83 175) 4 846 241 9 837 6 625 45 295 903 40 255 2 300 92 628 - 19 959 - 26 439 - 86 811 - - - - ( 3 725) ( 937 500) - 7 1 016 817 4 869 (a) Financial information presented according to art. 2 of DL no. 157/2014 (b) Turnover corresponds to the sum of the following items in the consolidated operating account: interest income, dividend income, fee and commission income, gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss on financial assets and liabilities held for trading, gains or losses on financial assets mandatorily at fair value through profit or loss, gains or losses on financial assets and liabilities ca rried at fair value through profit or loss hedge accounting losses, exchange differences, gains or losses on derecognition of non-financial assets, other operating operating income and proportion of profits or losses on investments in subsidiaries, joint ventures and associates accounted for under the equity method. *Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The information aggregated by legacy and recurring activity is as follows: The information aggregated by legacy and recurring activity is as follows: Net interest income Net fees and commissions Other operating income Total operating income 31.12.2020 31.12.2019 * (in thousands of Euros) Recurrent Legacy Total Recurrent Legacy Total 517 020 265 266 ( 43 003) 739 283 38 114 1 252 ( 434 691) ( 395 325) 555 134 266 518 ( 477 694) 343 958 463 007 300 133 133 967 897 107 49 425 2 749 ( 559 739) ( 507 565) 512 432 302 882 ( 425 772) 389 542 839 641 818 711 1 658 352 664 051 664 461 1 328 512 386 000 805 463 1 191 463 208 363 646 778 855 141 Operating expenses Includes: Provisions / Impairment losses Net gains / (losses) from investments in subsidiaries, joint ventures and associated companies registered by the equity method Taxes Profit / (loss) of discontinued operations 31 December 2020 Net Profit / (loss) for the period attributable to non-controlling interests ( 4 354) ( 5 720) ( 10 074) 8 217 ( 15 870) 5 732 3 698 9 430 Notes to the Consolidated Financial Statements 15 554 ( 24 568) ( 14 472) ( 8 777) 1 082 ( 33 345) 4 462 ( 37 653) ( 89 328) ( 2 992) 83 443 6 153 1 470 45 790 ( 83 175) 34 ( 7 653) Net Profit / (loss) for the period attributable to Shareholders of the parent ( 130 394) (1 198 923) (1 329 317) 177 626 (1 236 438) (1 058 812) Total net Assets 41 313 597 3 081 989 44 395 586 40 813 669 4 482 234 45 295 903 (of which: related to discontinued operations) 1 451 195 108 323 1 559 518 15 891 24 364 40 255 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 5 – NET INTEREST INCOME The breakdown of this caption as at 31 December 2020 and 2019 is as follows: NOTE 5 – Net interest income 31.12.2020 31.12.2019 * (in thousands of Euros) The breakdown of this caption as at 31 December 2020 and 2019 is as follows: Calculated by the effective interest method Other Calculated by the effective interest method Other Interest Income Interest from loans and advances Interest from deposits with and loans and advances to banks Interest from securities Interest from derivatives held for risk management purposes Other interest and similar income Interest Expenses Interest on debt securities issued Interest on amounts due to customers Interest on deposits from Central Banks and other banks 240 Interest on subordinated liabilities Interest on derivatives held for risk management purposes Other interest and similar expenses From assets / liabilities at fair value through other comprehensive income and assets at amortised cost Income/expenses from negative interest rates From assets / liabilities at fair value through profit or loss Total From assets / liabilities at fair value through other comprehensive income and assets at amortised cost Income/expenses from negative interest rates From assets / liabilities at fair value through profit or loss Total 538 083 19 111 125 806 - 530 683 530 39 487 71 688 15 991 34 165 - 7 549 168 880 514 650 - 39 401 - 1 630 - 41 031 - - 2 750 - 5 771 356 8 877 32 154 - - 10 793 8 353 - 19 146 - - - - 10 816 - 10 816 8 330 538 083 58 512 136 599 9 983 530 743 707 39 487 71 688 18 741 34 165 16 587 7 905 188 573 555 134 563 716 20 205 117 855 - 1 402 703 178 38 956 93 831 19 269 34 166 - 6 771 192 993 510 185 - 3 118 - 496 - - - 7 063 6 664 - 563 716 23 323 124 918 7 160 1 402 3 614 13 727 720 519 - - 1 864 - 4 114 147 6 125 ( 2 511) - - - - 8 969 - 8 969 4 758 38 956 93 831 21 133 34 166 13 083 6 918 208 087 512 432 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Interest on amounts due to customers and deposits from Central Banks and other banks include as at 31 December 2020, respectively, the amounts of Euro 16 thousand and Euro 822 thousand related to repurchase agreement operations (31 December 2019: Euro -2 thousand of interest on deposits with and loans and advances to Banks, Euro 16 thousand in customer deposits and Euro 2,166 thousand in interest on deposits from other banks). As at 31 December 2020, Interest from loans and advances to customers includes Euro 35,385 thousand related to finance lease operations (31 December 2019: Euro 40,035 thousand). Interest income and expense items related to derivative interest include, according to the accounting policy described in Notes 2.4 and 2.18, interest from hedging derivatives and from derivatives used to manage the economic risk of certain financial assets and liabilities designated at fair value through profit or loss, as per the accounting policies described in Notes 2.4 e 2.7. The measures adopted to reduce the cost of customer deposits justify the decrease in the interest expense related to these liabilities. NOTE 6 – DIVIDEND INCOME The breakdown of this caption is as follows: 31 December 2020 Notes to the Consolidated Financial Statements 35 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThe information aggregated by legacy and recurring activity is as follows: Net interest income Net fees and commissions Other operating income Total operating income Operating expenses Includes: 31.12.2020 31.12.2019 * (in thousands of Euros) Recurrent Legacy Total Recurrent Legacy Total 517 020 265 266 ( 43 003) 739 283 38 114 1 252 ( 434 691) ( 395 325) 555 134 266 518 ( 477 694) 343 958 463 007 300 133 133 967 897 107 49 425 2 749 ( 559 739) ( 507 565) 512 432 302 882 ( 425 772) 389 542 839 641 818 711 1 658 352 664 051 664 461 1 328 512 Provisions / Impairment losses 386 000 805 463 1 191 463 208 363 646 778 855 141 Net gains / (losses) from investments in subsidiaries, joint ventures and associated companies registered by the equity method Taxes Profit / (loss) of discontinued operations 5 732 3 698 9 430 15 554 ( 24 568) ( 14 472) ( 8 777) 1 082 ( 33 345) 4 462 ( 37 653) ( 89 328) ( 2 992) 83 443 6 153 1 470 45 790 ( 83 175) Net Profit / (loss) for the period attributable to non-controlling interests ( 4 354) ( 5 720) ( 10 074) 8 217 ( 15 870) ( 7 653) Net Profit / (loss) for the period attributable to Shareholders of the parent ( 130 394) (1 198 923) (1 329 317) 177 626 (1 236 438) (1 058 812) Total net Assets 41 313 597 3 081 989 44 395 586 40 813 669 4 482 234 45 295 903 (of which: related to discontinued operations) 1 451 195 108 323 1 559 518 15 891 24 364 40 255 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 5 – NET INTEREST INCOME The breakdown of this caption as at 31 December 2020 and 2019 is as follows: 31.12.2020 31.12.2019 * (in thousands of Euros) Calculated by the effective interest method Other Calculated by the effective interest method Other From assets / liabilities at fair value through other comprehensive income and assets at amortised cost Income/expenses from negative interest rates From assets / liabilities at fair value through profit or loss Total From assets / liabilities at fair value through other comprehensive income and assets at amortised cost Income/expenses from negative interest rates From assets / liabilities at fair value through profit or loss Total 538 083 19 111 125 806 - 530 683 530 39 487 71 688 15 991 34 165 - 7 549 168 880 514 650 - 39 401 - 1 630 - 41 031 - - 2 750 - 5 771 356 8 877 32 154 - - 10 793 8 353 - 19 146 - - - - 10 816 - 10 816 8 330 538 083 58 512 136 599 9 983 530 743 707 39 487 71 688 18 741 34 165 16 587 7 905 188 573 555 134 563 716 20 205 117 855 - 1 402 703 178 38 956 93 831 19 269 34 166 - 6 771 192 993 510 185 - 3 118 - 496 - - - 7 063 6 664 - 563 716 23 323 124 918 7 160 1 402 3 614 13 727 720 519 - - 1 864 - 4 114 147 6 125 ( 2 511) - - - - 8 969 - 8 969 4 758 38 956 93 831 21 133 34 166 13 083 6 918 208 087 512 432 Interest Income Interest from loans and advances Interest from deposits with and loans and advances to banks Interest from securities Interest from derivatives held for risk management purposes Other interest and similar income Interest Expenses Interest on debt securities issued Interest on amounts due to customers Interest on deposits from Central Banks and other banks Interest on subordinated liabilities Interest on derivatives held for risk management purposes Other interest and similar expenses * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Interest on amounts due to customers and deposits from Central Banks and other banks include as at 31 December 2020, respectively, the amounts of Euro 16 thousand and Euro 822 thousand related to repurchase agreement operations (31 December 2019: Euro -2 thousand of interest on deposits with and loans and advances to Banks, Euro 16 thousand in customer deposits and Euro 2,166 thousand in interest on deposits from other banks). Interest on amounts due to customers and deposits from Central Banks and other banks include as at 31 December 2020, respectively, the amounts of Euro 16 thousand and Euro 822 thousand related to repurchase agreement As at 31 December 2020, Interest from loans and advances to customers includes Euro 35,385 thousand related to finance lease operations (31 December 2019: Euro -2 thousand of interest on deposits with and loans and advances to Banks, Euro operations (31 December 2019: Euro 40,035 thousand). 16 thousand in customer deposits and Euro 2,166 thousand in interest on deposits from other banks). Interest income and expense items related to derivative interest include, according to the accounting policy described in Notes 2.4 and 2.18, interest from hedging derivatives and from derivatives used to manage the economic risk of certain financial assets and As at 31 December 2020, Interest from loans and advances to customers includes Euro 35,385 thousand related to liabilities designated at fair value through profit or loss, as per the accounting policies described in Notes 2.4 e 2.7. finance lease operations (31 December 2019: Euro 40,035 thousand). The measures adopted to reduce the cost of customer deposits justify the decrease in the interest expense related to these liabilities. Interest income and expense items related to derivative interest include, according to the accounting policy described NOTE 6 – DIVIDEND INCOME in Notes 2.4 and 2.18, interest from hedging derivatives and from derivatives used to manage the economic risk of certain financial assets and liabilities designated at fair value through profit or loss, as per the accounting policies The breakdown of this caption is as follows: described in Notes 2.4 e 2.7. 31 December 2020 Notes to the Consolidated Financial Statements The measures adopted to reduce the cost of customer deposits justify the decrease in the interest expense related to these liabilities. 35 NOTE 6 – Dividend income The breakdown of this caption is as follows: Financial assets mandatorily at fair value through profit or loss Shares Participation units Financial assets at fair value through other comprehensive income Shares Participation units (in thousands of Euros) 31.12.2020 31.12.2019 * 1 781 6 407 8 290 - 16 478 3 374 4 080 2 257 155 9 866 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 In 2020, dividend income of Euro 16,478 thousand was recorded (31 December 2019: Euro 9,866 thousand), which is detailed as follows: • Euro 8,188 thousand in financial assets that are mandatorily accounted for at fair value through profit or loss, which include dividends received from the Fundo Solução Renda in the amount of Euro 3,141 thousand, from the Fundo Mais Mais in the amount of Euro 1,593 thousands, from Euronext NV in the amount of Euro 1,391 thousand and Explorer III B in the amount of Euro 634 thousands (31 December 2019: Euro 7,454 thousands, which include dividends received from Euronext in the amount of Euro 1, 348 thousands, from Fundo Soluções Leasing in the amount of Euro 1,767 thousands, from Sealion Ltd of Euro 1,161 thousands and the Explorer III Fund in the amount of Euro 738 thousands); and • Euro 8,290 thousand in financial assets accounted for at fair value through other comprehensive income, which include dividends received from FLITPTREL X in the amount of Euro 6,000 thousands, from SIBS SGPS in the amount of Euro 978 thousands and from ESA Energia in the Euro 1,106 thousand (31 December 2019: Euro 2,412 thousand, which includes dividends received from ESA Energia of Euro 1,080 thousand, from the Explorer III Fund in the amount of Euro 738 thousand and from SIBS SGPS in the Euro 922 thousand). 241 NOTE 7 – FEE AND COMMISSION INCOME AND FEE AND COMISSION EXPENSES The breakdown of this caption is as follows: Fees and commissions income From banking services From guarantees provided From transaction of securities From commitments to third parties From transactions carried out on behalf of third parties - cross-selling Other fee and commission income Fees and commissions expenses With banking services rendered by third parties With guarantees received With transaction of securities Other fee and commission income * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 (in thousands of Euros) 31.12.2020 31.12.2019 * 233 059 35 096 5 241 8 065 30 882 1 480 313 823 32 525 1 755 2 527 10 498 47 305 250 054 42 935 7 146 7 793 35 089 9 119 352 136 35 220 1 900 2 219 9 915 49 254 266 518 302 882 31 December 2020 Notes to the Consolidated Financial Statements 36 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES(in thousands of Euros) In 2020, dividend income of Euro 16,478 thousand was recorded (31 December 2019: Euro 9,866 thousand), which is detailed as follows: 31.12.2019 * 31.12.2020 Financial assets mandatorily at fair value through profit or loss Shares • Euro 8,188 thousand in financial assets that are mandatorily accounted for at fair value through profit or loss, Participation units which include dividends received from the Fundo Solução Renda in the amount of Euro 3,141 thousand, from the Financial assets at fair value through other comprehensive income Fundo Mais Mais in the amount of Euro 1,593 thousands, from Euronext NV in the amount of Euro 1,391 thousand Shares and Explorer III B in the amount of Euro 634 thousands (31 December 2019: Euro 7,454 thousands, which include Participation units dividends received from Euronext in the amount of Euro 1, 348 thousands, from Fundo Soluções Leasing in the amount of Euro 1,767 thousands, from Sealion Ltd of Euro 1,161 thousands and the Explorer III Fund in the amount of Euro 738 thousands); and In 2020, dividend income of Euro 16,478 thousand was recorded (31 December 2019: Euro 9,866 thousand), which is detailed as * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 1 781 6 407 3 374 4 080 2 257 155 8 290 - 16 478 9 866 follows: • Euro 8,290 thousand in financial assets accounted for at fair value through other comprehensive income, which • Euro 8,188 thousand in financial assets that are mandatorily accounted for at fair value through profit or loss, which include dividends include dividends received from FLITPTREL X in the amount of Euro 6,000 thousands, from SIBS SGPS in the amount received from the Fundo Solução Renda in the amount of Euro 3,141 thousand, from the Fundo Mais Mais in the amount of Euro of Euro 978 thousands and from ESA Energia in the Euro 1,106 thousand (31 December 2019: Euro 2,412 thousand, 1,593 thousands, from Euronext NV in the amount of Euro 1,391 thousand and Explorer III B in the amount of Euro 634 thousands which includes dividends received from ESA Energia of Euro 1,080 thousand, from the Explorer III Fund in the (31 December 2019: Euro 7,454 thousands, which include dividends received from Euronext in the amount of Euro 1, 348 thousands, from Fundo Soluções Leasing in the amount of Euro 1,767 thousands, from Sealion Ltd of Euro 1,161 thousands and the Explorer amount of Euro 738 thousand and from SIBS SGPS in the Euro 922 thousand). III Fund in the amount of Euro 738 thousands); and • Euro 8,290 thousand in financial assets accounted for at fair value through other comprehensive income, which include dividends received from FLITPTREL X in the amount of Euro 6,000 thousands, from SIBS SGPS in the amount of Euro 978 thousands and from ESA Energia in the Euro 1,106 thousand (31 December 2019: Euro 2,412 thousand, which includes dividends received from ESA Energia of Euro 1,080 thousand, from the Explorer III Fund in the amount of Euro 738 thousand and from SIBS SGPS in the Euro 922 thousand). NOTE 7 – Fee and commission income and fee and comission expenses NOTE 7 – FEE AND COMMISSION INCOME AND FEE AND COMISSION EXPENSES The breakdown of this caption is as follows: The breakdown of this caption is as follows: Fees and commissions income From banking services From guarantees provided From transaction of securities From commitments to third parties From transactions carried out on behalf of third parties - cross-selling Other fee and commission income Fees and commissions expenses With banking services rendered by third parties With guarantees received With transaction of securities Other fee and commission income * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 (in thousands of Euros) 31.12.2020 31.12.2019 * 233 059 35 096 5 241 8 065 30 882 1 480 313 823 32 525 1 755 2 527 10 498 47 305 250 054 42 935 7 146 7 793 35 089 9 119 352 136 35 220 1 900 2 219 9 915 49 254 266 518 302 882 NOTE 8 – Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss The breakdown of this caption is as follows: 31 December 2020 Notes to the Consolidated Financial Statements 36 242 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDNOTE 8 – GAINS OR LOSSES ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS The breakdown of this caption is as follows: 31.12.2020 31.12.2019 * Gains Losses Total Gains Losses Total (in thousands of Euros) From financial assets at fair value through other comprehensive income NOTE 8 – GAINS OR LOSSES ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS Bonds and other fixed income securities Securities The breakdown of this caption is as follows: Issued by government and public entities Issued by other entities 95 449 1 010 6 529 7 482 88 920 ( 6 472) 67 860 2 442 2 021 443 (in thousands of Euros) 65 839 1 999 96 459 31.12.2020 14 011 82 448 70 302 31.12.2019 * 2 464 67 838 From financial assets and liabilities at amortised cost Gains Losses Total Gains Losses Total From financial assets at fair value through other comprehensive income Bonds and other fixed income securities Securities Securities Issued by other entities Bonds and other fixed income securities Issued by government and public entities Loans Issued by other entities 6 281 154 6 127 2 050 - 2 050 95 449 8 336 1 010 14 617 96 459 111 076 6 529 8 439 7 482 8 593 14 011 22 604 88 920 ( 103) ( 6 472) 6 024 82 448 88 472 67 860 23 662 2 442 25 712 70 302 96 014 2 021 31 997 443 31 997 2 464 34 461 65 839 ( 8 335) 1 999 ( 6 285) 67 838 61 553 From financial assets and liabilities at amortised cost * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Securities Bonds and other fixed income securities NOTE 9 - GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING 6 127 Issued by other entities 6 281 154 2 050 - 2 050 The breakdown of this caption is as follows: Loans 8 336 8 439 ( 103) 23 662 31 997 ( 8 335) NOTE 9 - Gains or losses on financial assets and liabilities held for trading (in thousands of Euros) 31 997 31.12.2019 * 34 461 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 31.12.2020 Losses Losses 111 076 61 553 14 617 25 712 22 604 88 472 96 014 ( 6 285) Gains Gains 8 593 6 024 Total Total NOTE 9 - GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING TítulosSecurities The breakdown of this caption is as follows: Bonds and other fixed income securities The breakdown of this caption is as follows: Issued by government and public entities Issued by other entities Financial Derivatives TítulosSecurities Foreign exchange rate contracts Interest rate contracts Equity / Index contracts Credit default contracts Other Issued by government and public entities Issued by other entities Bonds and other fixed income securities 13 710 5 13 121 - 589 5 26 480 260 10 963 - 15 517 260 (in thousands of Euros) 68 313 Gains 604 219 82 587 42 488 13 710 769 364 5 Losses 31.12.2020 52 606 713 130 81 270 71 777 13 121 860 975 - 15 707 Total ( 108 911) 1 317 ( 29) ( 289) 589 ( 91 611) 5 24 466 Gains 643 255 93 255 78 141 4 566 26 480 870 423 260 31.12.2019 * 26 441 Losses 719 091 92 499 78 522 2 852 10 963 930 368 - ( 1 975) Total ( 75 836) 756 ( 381) 1 714 15 517 ( 59 945) 260 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Financial Derivatives In accordance with the accounting policy described in Note 2.5, financial instruments are initially recorded at fair value. It is deemed that the best evidence of the fair value of the instrument at inception is the transaction price. However, in certain circumstances, the fair value of a financial instrument at inception, determined based on valuation techniques, may differ from the transaction price, namely due to the existence of an intermediation fee, originating a day one profit. Foreign exchange rate contracts Interest rate contracts Equity / Index contracts Credit default contracts Other 15 707 ( 108 911) 1 317 ( 29) ( 289) 24 466 643 255 93 255 78 141 4 566 26 441 719 091 92 499 78 522 2 852 52 606 713 130 81 270 71 777 68 313 604 219 82 587 42 488 ( 1 975) ( 75 836) 756 ( 381) 1 714 769 364 860 975 ( 91 611) 870 423 930 368 ( 59 945) The Group recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is generated, * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 primarily, through currency and derivative financial product intermediation, given that the fair value of these instruments, both at inception and subsequently, is determined based solely on observable market data and reflects the Group’s access to the (wholesale In accordance with the accounting policy described in Note 2.5, financial instruments are initially recorded at fair value. It is deemed market). that the best evidence of the fair value of the instrument at inception is the transaction price. However, in certain circumstances, the fair value of a financial instrument at inception, determined based on valuation techniques, may differ from the transaction price, As at 31 December 2020, the gains recognized in the income statement arising from intermediation fees, which are essentially related namely due to the existence of an intermediation fee, originating a day one profit. In accordance with the accounting policy described in Note 2.5, financial instruments are initially recorded at fair value. to foreign exchange transactions, amounted to approximately Euro 5,100 thousand (31 December 2019: Euro 3,114 thousand). It is deemed that the best evidence of the fair value of the instrument at inception is the transaction price. However, in The Group recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is generated, certain circumstances, the fair value of a financial instrument at inception, determined based on valuation techniques, primarily, through currency and derivative financial product intermediation, given that the fair value of these instruments, both at may differ from the transaction price, namely due to the existence of an intermediation fee, originating a day one profit. inception and subsequently, is determined based solely on observable market data and reflects the Group’s access to the (wholesale market). The Group recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is As at 31 December 2020, the gains recognized in the income statement arising from intermediation fees, which are essentially related generated, primarily, through currency and derivative financial product intermediation, given that the fair value of these to foreign exchange transactions, amounted to approximately Euro 5,100 thousand (31 December 2019: Euro 3,114 thousand). instruments, both at inception and subsequently, is determined based solely on observable market data and reflects the Group’s access to the (wholesale market). As at 31 December 2020, the gains recognized in the income statement arising from intermediation fees, which are essentially related to foreign exchange transactions, amounted to approximately Euro 5,100 thousand (31 December 2019: Euro 3,114 thousand). 31 December 2020 Notes to the Consolidated Financial Statements 243 31 December 2020 Notes to the Consolidated Financial Statements 37 37 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESNOTA 10 – Gains or losses on financial assets mandatorily at fair value through profits or loss and gains or losses on financial assets and liabilities designated at fair value through profit and loss NOTE 10 - GAINS OR LOSSES ON FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFITS OR LOSS AND GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS The breakdown of this caption is as follows: The breakdown of this caption is as follows: 31.12.2020 (in thousands of Euros) 31.12.2019 * Gains Losses Total Gains Losses Total Gains or losses on financial assets mandatorily at fair value through profit or loss NOTE 10 - GAINS OR LOSSES ON FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFITS OR LOSS AND GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS Bonds and other fixed income securities Securities Issued by other entities The breakdown of this caption is as follows: Shares Other variable income securities Gains or losses on financial assets and liabilities designated Gains or losses on financial assets mandatorily at fair value through profit and loss at fair value through profit or loss Securities Securities Other variable income securities Bonds and other fixed income securities Issued by other entities Shares 12 877 36 600 ( 23 723) 3 031 6 062 ( 3 031) 23 557 141 372 ( 117 815) 35 257 90 864 (in thousands of Euros) ( 55 607) 746 31.12.2020 223 208 ( 222 462) 16 600 211 691 31.12.2019 * ( 195 091) 37 180 Gains 401 180 Losses ( 364 000) Total 54 888 Gains 308 617 Losses ( 253 729) Total - 12 877 - - 36 600 - - ( 23 723) - 106 3 031 106 - 6 062 - 106 ( 3 031) 106 23 557 37 180 141 372 401 180 ( 117 815) ( 364 000) 35 257 54 994 90 864 308 617 ( 55 607) ( 253 623) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Other variable income securities 746 223 208 ( 222 462) 16 600 211 691 ( 195 091) 37 180 401 180 ( 364 000) 54 888 308 617 ( 253 729) Securities Other variable income securities As at December 31, 2020, gains or losses on financial assets that are mandatorily accounted for at fair value through profit or loss - securities - shares and other variable income securities include a loss of Euro -300.2 million, resulting from the completion of an Gains or losses on financial assets and liabilities designated at fair value through profit and loss independent appraisal of the restructuring funds. These funds are “level 3” assets in accordance with the IFRS 13 fair value hierarchy As at December 31, 2020, gains or losses on financial assets that are mandatorily accounted for at fair value through (quotations provided by third parties whose parameters used are not observable in the market), and NOVO BANCO requested an independent evaluation from an international consulting company in articulation with real estate consultancy companies. This work profit or loss - securities - shares and other variable income securities include a loss of Euro -300.2 million, resulting resulted in a market value of Euro 498.8 million for the total investment held in these assets (see Note 22), which led to the recording from the completion of an independent appraisal of the restructuring funds. These funds are “level 3” assets in of the said loss of Euro -300.2 million in 2020 (see Note 40). accordance with the IFRS 13 fair value hierarchy (quotations provided by third parties whose parameters used are not * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 observable in the market), and NOVO BANCO requested an independent evaluation from an international consulting NOTE 11 – GAINS OR LOSSES FROM HEDGE ACCOUNTING As at December 31, 2020, gains or losses on financial assets that are mandatorily accounted for at fair value through profit or loss - company in articulation with real estate consultancy companies. This work resulted in a market value of Euro 498.8 securities - shares and other variable income securities include a loss of Euro -300.2 million, resulting from the completion of an million for the total investment held in these assets (see Note 22), which led to the recording of the said loss of Euro The breakdown of this caption is as follows: independent appraisal of the restructuring funds. These funds are “level 3” assets in accordance with the IFRS 13 fair value hierarchy (in thousands of Euros) -300.2 million in 2020 (see Note 40). (quotations provided by third parties whose parameters used are not observable in the market), and NOVO BANCO requested an independent evaluation from an international consulting company in articulation with real estate consultancy companies. This work resulted in a market value of Euro 498.8 million for the total investment held in these assets (see Note 22), which led to the recording of the said loss of Euro -300.2 million in 2020 (see Note 40). Fair value changes of hedging instruments Fair value changes of hedging instruments NOTE 11 – Gains or losses from hedge accounting Foreign exchange rate contracts 31.12.2019 * 31.12.2020 ( 253 623) ( 364 000) 401 180 308 617 ( 16 178) ( 22 010) 50 141 76 026 98 036 66 319 37 180 54 994 Losses Losses Gains Gains 106 106 106 106 Total Total - - - - - - - - Fair value changes of hedging item attributable to hedged risk Instrumentos financeiros derivados NOTE 11 – GAINS OR LOSSES FROM HEDGE ACCOUNTING The breakdown of this caption is as follows: 50 369 40 000 10 369 29 079 14 825 14 254 126 395 138 036 ( 11 641) 79 220 81 144 ( 1 924) The breakdown of this caption is as follows: Compensations for hedging operations interruptions (see Note 14) 438 - 438 461 - 461 (in thousands of Euros) Amount net of compensations 126 833 138 036 31.12.2020 ( 11 203) 79 681 81 144 31.12.2019 * ( 1 463) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Gains Losses Total Gains Losses Total Fair value changes of hedging instruments Fair value changes of hedging instruments NOTE 12 – EXCHANGE DIFFERENCES Foreign exchange rate contracts Fair value changes of hedging item attributable to hedged risk Instrumentos financeiros derivados The breakdown of this caption is as follows: 76 026 98 036 ( 22 010) 50 141 66 319 ( 16 178) 50 369 40 000 10 369 29 079 14 825 14 254 126 395 138 036 ( 11 641) 79 220 81 144 (in thousands of Euros) ( 1 924) Compensations for hedging operations interruptions (see Note 14) Amount net of compensations 438 31.12.2020 126 833 Losses Gains - 438 138 036 Total ( 11 203) Gains 461 - 31.12.2019 * 81 144 79 681 Losses 461 ( 1 463) Total * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Foreign exchange revaluation 1 305 708 1 308 122 ( 2 414) 1 114 460 1 075 744 38 716 NOTE 12 – EXCHANGE DIFFERENCES * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 1 305 708 1 308 122 ( 2 414) 1 114 460 1 075 744 38 716 The breakdown of this caption is as follows: This caption includes the results arising from the foreign currency revaluation of monetary assets and liabilities denominated in foreign currency in accordance with the accounting policy described in Note 2.3. (in thousands of Euros) 31.12.2020 31.12.2019 * 244 Foreign exchange revaluation 1 305 708 1 308 122 ( 2 414) 1 114 460 1 075 744 38 716 31 December 2020 Notes to the Consolidated Financial Statements 1 305 708 1 308 122 ( 2 414) 1 114 460 1 075 744 38 716 38 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Gains Losses Total Gains Losses Total This caption includes the results arising from the foreign currency revaluation of monetary assets and liabilities denominated in foreign currency in accordance with the accounting policy described in Note 2.3. 31 December 2020 Notes to the Consolidated Financial Statements 38 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDNOTE 10 - GAINS OR LOSSES ON FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFITS OR LOSS AND GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS The breakdown of this caption is as follows: Gains or losses on financial assets mandatorily at fair value through profit or loss Bonds and other fixed income securities Issued by other entities Securities Shares Other variable income securities Gains or losses on financial assets and liabilities designated at fair value through profit and loss Securities Other variable income securities 31.12.2020 (in thousands of Euros) 31.12.2019 * Gains Losses Total Gains Losses Total 12 877 36 600 ( 23 723) 3 031 6 062 ( 3 031) 23 557 141 372 ( 117 815) 35 257 90 864 ( 55 607) 746 223 208 ( 222 462) 16 600 211 691 ( 195 091) 37 180 401 180 ( 364 000) 54 888 308 617 ( 253 729) - - - - - - 106 106 - - 106 106 37 180 401 180 ( 364 000) 54 994 308 617 ( 253 623) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 As at December 31, 2020, gains or losses on financial assets that are mandatorily accounted for at fair value through profit or loss - securities - shares and other variable income securities include a loss of Euro -300.2 million, resulting from the completion of an independent appraisal of the restructuring funds. These funds are “level 3” assets in accordance with the IFRS 13 fair value hierarchy (quotations provided by third parties whose parameters used are not observable in the market), and NOVO BANCO requested an independent evaluation from an international consulting company in articulation with real estate consultancy companies. This work resulted in a market value of Euro 498.8 million for the total investment held in these assets (see Note 22), which led to the recording of the said loss of Euro -300.2 million in 2020 (see Note 40). NOTE 11 – GAINS OR LOSSES FROM HEDGE ACCOUNTING The breakdown of this caption is as follows: Fair value changes of hedging instruments Fair value changes of hedging instruments Foreign exchange rate contracts 31.12.2020 31.12.2019 * Gains Losses Total Gains Losses Total (in thousands of Euros) 76 026 98 036 ( 22 010) 50 141 66 319 ( 16 178) Fair value changes of hedging item attributable to hedged risk Instrumentos financeiros derivados 50 369 40 000 10 369 29 079 14 825 14 254 126 395 138 036 ( 11 641) 79 220 81 144 ( 1 924) Compensations for hedging operations interruptions (see Note 14) 438 - 438 461 - 461 Amount net of compensations 126 833 138 036 ( 11 203) 79 681 81 144 ( 1 463) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 12 – Exchange differences NOTE 12 – EXCHANGE DIFFERENCES The breakdown of this caption is as follows: The breakdown of this caption is as follows: 31.12.2020 31.12.2019 * Gains Losses Total Gains Losses Total (in thousands of Euros) Foreign exchange revaluation 1 305 708 1 308 122 ( 2 414) 1 114 460 1 075 744 38 716 1 305 708 1 308 122 ( 2 414) 1 114 460 1 075 744 38 716 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 This caption includes the results arising from the foreign currency revaluation of monetary assets and liabilities denominated in foreign currency in accordance with the accounting policy described in Note 2.3. This caption includes the results arising from the foreign currency revaluation of monetary assets and liabilities deno- minated in foreign currency in accordance with the accounting policy described in Note 2.3. 31 December 2020 Notes to the Consolidated Financial Statements 38 NOTE 13 – Gains or losses on derecognition of non-financial assets NOTE 13 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS The breakdown of this caption is as follows: The breakdown of this caption is as follows: 31.12.2020 31.12.2019 * (in thousands of Euros) Real Estate NOTE 13 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS Equipment Other The breakdown of this caption is as follows: ( 4 527) ( 520) 1 631 ( 3 416) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 31.12.2020 9 962 ( 479) 2 034 (in thousands of Euros) 11 516 31.12.2019 * NOTE 14 – OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES Real Estate Equipment The breakdown of these captions is as follows: Other NOTE 14 – Other operating income and other operating expenses * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Other operating income NOTE 14 – OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES The breakdown of these captions is as follows: 11 516 31.12.2019 * (in thousands of Euros) 31.12.2020 ( 3 416) ( 4 527) ( 520) 1 631 9 962 ( 479) 2 034 The breakdown of these captions is as follows: Gains / (losses) on recoveries of loans Non-recurring advisory services Income of Funds and real estate companies Gains on investment properties revaluation (see Note 26) Other income Other operating income Other operating expenses Other operating expenses Gains / (losses) on recoveries of loans Losses on repurchase of Group debt securities (see Note 31) Non-recurring advisory services Direct and indirect taxes Income of Funds and real estate companies Contribution on the banking sector and solidarity additional Gains on investment properties revaluation (see Note 26) Membership fees and donations Other income Expenses of Funds and real estate companies Charges with Supervisory entities Losses on investments properties revaluation (see Note 26) Losses on repurchase of Group debt securities (see Note 31) Other expenses Direct and indirect taxes Contribution on the banking sector and solidarity additional Membership fees and donations Expenses of Funds and real estate companies Charges with Supervisory entities Losses on investments properties revaluation (see Note 26) Other expenses Other operating income / (expenses) 30 181 264 29 955 3 590 56 742 120 732 31.12.2020 30 181 ( 26 998) 264 ( 8 476) 29 955 ( 32 752) 3 590 ( 1 666) 56 742 ( 11 647) 120 732 ( 2 321) ( 107 900) ( 26 998) ( 38 534) ( 8 476) ( 230 294) ( 32 752) ( 109 562) ( 1 666) ( 11 647) ( 2 321) ( 107 900) ( 38 534) ( 230 294) (in thousands of Euros) 31.12.2019 * 30 731 1 299 37 858 44 347 18 339 132 574 30 731 ( 465) 1 299 ( 12 929) 37 858 ( 27 091) 44 347 ( 2 396) 18 339 ( 14 317) 132 574 ( 2 456) ( 260 466) ( 465) ( 44 385) ( 12 929) ( 364 505) ( 27 091) ( 231 931) ( 2 396) ( 14 317) ( 2 456) ( 260 466) ( 44 385) ( 364 505) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 As at 31 December 2020, the amount received as compensation for discontinued hedging operations, included in other income, amounts to Euro 438 thousand (31 December 2019: Euro 461 thousand) (see Note 11). NOTE 15 – STAFF EXPENSES Other operating income / (expenses) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The breakdown of these captions is as follows: ( 109 562) ( 231 931) (in thousands of Euros) As at 31 December 2020, the amount received as compensation for discontinued hedging operations, included in other income, amounts to Euro 438 thousand (31 December 2019: Euro 461 thousand) (see Note 11). 31.12.2019 * 31.12.2020 245 Wages and salaries NOTE 15 – STAFF EXPENSES Remuneration Long-term service / Career bonuses (see Note 16) The breakdown of these captions is as follows: Mandatory social charges Costs with post-employment benefits (see Note 16) Other costs Wages and salaries * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Remuneration Long-term service / Career bonuses (see Note 16) The provisions and costs related to the restructuring process are presented in Note 32. Mandatory social charges Costs with post-employment benefits (see Note 16) As at 31 December 2020 and 2019, the number of employees of NOVO BANCO Group has the following breakdown: Other costs 4 803 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Novo Banco employees The provisions and costs related to the restructuring process are presented in Note 32. Employees of the Group's subsidiaries As at 31 December 2020 and 2019, the number of employees of NOVO BANCO Group has the following breakdown: Total employees of the Group 4 582 245 606 31.12.2020 246 393 31.12.2019 Notes to the Consolidated Financial Statements 31.12.2020 31.12.2019 Novo Banco employees 31 December 2020 Employees of the Group's subsidiaries Total employees of the Group 31 December 2020 Notes to the Consolidated Financial Statements 1 735 (in thousands of Euros) 14 31.12.2020 4 803 31.12.2019 * 4 563 183 798 182 847 951 55 270 245 606 183 798 182 847 951 55 270 1 735 4 256 326 4 256 326 4 582 185 453 184 589 864 56 363 246 393 185 453 184 589 864 56 363 14 4 563 4 428 441 4 869 4 428 39 441 4 869 39 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESNOTE 13 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS The breakdown of this caption is as follows: NOTE 13 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS The breakdown of this caption is as follows: Real Estate Equipment Other Real Estate Equipment * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Other NOTE 14 – OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES The breakdown of these captions is as follows: * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 14 – OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES Other operating income The breakdown of these captions is as follows: Gains / (losses) on recoveries of loans Non-recurring advisory services Income of Funds and real estate companies Gains on investment properties revaluation (see Note 26) Other operating income 31.12.2020 31.12.2019 * (in thousands of Euros) 31.12.2020 ( 3 416) ( 4 527) ( 520) 1 631 ( 4 527) ( 520) 1 631 ( 3 416) 9 962 ( 479) (in thousands of Euros) 2 034 31.12.2019 * 11 516 9 962 ( 479) 2 034 11 516 (in thousands of Euros) 31.12.2020 31.12.2019 * 30 181 30 731 264 (in thousands of Euros) 1 299 31.12.2020 29 955 31.12.2019 * 37 858 3 590 44 347 Other operating expenses Other operating expenses Other income Gains / (losses) on recoveries of loans Non-recurring advisory services Income of Funds and real estate companies Losses on repurchase of Group debt securities (see Note 31) Gains on investment properties revaluation (see Note 26) Direct and indirect taxes Other income Contribution on the banking sector and solidarity additional Membership fees and donations Expenses of Funds and real estate companies Losses on repurchase of Group debt securities (see Note 31) Charges with Supervisory entities Direct and indirect taxes Losses on investments properties revaluation (see Note 26) Contribution on the banking sector and solidarity additional Other expenses Membership fees and donations As at 31 December 2020, the amount received as compensation for discontinued hedging operations, included in other Expenses of Funds and real estate companies income, amounts to Euro 438 thousand (31 December 2019: Euro 461 thousand) (see Note 11). Other operating income / (expenses) Charges with Supervisory entities * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Losses on investments properties revaluation (see Note 26) Other expenses 18 339 30 731 132 574 1 299 37 858 ( 465) 44 347 ( 12 929) 18 339 ( 27 091) 132 574 ( 2 396) ( 14 317) ( 465) ( 2 456) ( 12 929) ( 260 466) ( 27 091) ( 44 385) ( 2 396) ( 364 505) ( 14 317) ( 231 931) ( 2 456) ( 260 466) ( 44 385) ( 364 505) 56 742 30 181 120 732 264 29 955 ( 26 998) 3 590 ( 8 476) 56 742 ( 32 752) 120 732 ( 1 666) ( 11 647) ( 26 998) ( 2 321) ( 8 476) ( 107 900) ( 32 752) ( 38 534) ( 1 666) ( 230 294) ( 11 647) ( 109 562) ( 2 321) ( 107 900) ( 38 534) ( 230 294) As at 31 December 2020, the amount received as compensation for discontinued hedging operations, included in other income, amounts to Euro 438 thousand (31 December 2019: Euro 461 thousand) (see Note 11). Other operating income / (expenses) NOTE 15 – Staff expenses ( 109 562) ( 231 931) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 15 – STAFF EXPENSES The breakdown of these captions is as follows: As at 31 December 2020, the amount received as compensation for discontinued hedging operations, included in other income, The breakdown of these captions is as follows: amounts to Euro 438 thousand (31 December 2019: Euro 461 thousand) (see Note 11). (in thousands of Euros) 31.12.2020 31.12.2019 * 31.12.2020 183 798 182 847 951 55 270 1 735 183 798 4 803 182 847 245 606 951 55 270 1 735 4 803 (in thousands of Euros) 185 453 184 589 864 31.12.2019 * 56 363 14 185 453 4 563 184 589 246 393 864 56 363 14 4 563 NOTE 15 – STAFF EXPENSES Wages and salaries The breakdown of these captions is as follows: Remuneration Long-term service / Career bonuses (see Note 16) Mandatory social charges Costs with post-employment benefits (see Note 16) Wages and salaries Other costs Remuneration Long-term service / Career bonuses (see Note 16) Mandatory social charges Costs with post-employment benefits (see Note 16) Other costs 4 428 441 39 4 869 39 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The provisions and costs related to the restructuring process are presented in Note 32. As at 31 December 2020 and 2019, the number of employees of NOVO BANCO Group has the following breakdown: * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The provisions and costs related to the restructuring process are presented in Note 32. 245 606 246 393 The provisions and costs related to the restructuring process are presented in Note 32. As at 31 December 2020 and 2019, the number of employees of NOVO BANCO Group has the following breakdown: 4 428 441 As at 31 December 2020 and 2019, the number of employees of NOVO BANCO Group has the following breakdown: Novo Banco employees Employees of the Group's subsidiaries 4 256 326 31.12.2020 31.12.2019 Total employees of the Group Novo Banco employees Employees of the Group's subsidiaries 31 December 2020 Total employees of the Group Notes to the Consolidated Financial Statements 4 256 326 4 582 31.12.2020 4 582 31.12.2019 4 869 31 December 2020 Notes to the Consolidated Financial Statements By professional category, the number of employees at NOVO BANCO Group is analyzed as follows: By professional category, the number of employees at NOVO BANCO Group is analyzed as follows: Senior management functions Middle management positions Specific positions Administrative and other functions NOTE 16 – EMPLOYEE BENEFITS 31.12.2020 31.12.2019 472 513 2 175 1 422 4 582 481 591 2 348 1 449 4 869 Pension and health-care benefits NOTE 16 – Employee benefits In compliance with the Collective Labour Agreement (ACT) for the banking sector established with the unions, the Bank undertook the commitment to grant its employees, or their families, pensions on retirement, disability and survival. These payments consist of Pension and health-care benefits a percentage that increases in accordance with the years of service, applied to each year’s negotiated salary table for the active In compliance with the Collective Labour Agreement (ACT) for the banking sector established with the unions, the Bank workforce. undertook the commitment to grant its employees, or their families, pensions on retirement, disability and survival. Banking employees also receive health-care benefits through a specific Social-Medical Assistance Service (SAMS) managed by the These payments consist of a percentage that increases in accordance with the years of service, applied to each year’s Union. As a result of the signing of the new Collective Labour Agreement (ACT) on July 5, 2016, with publication in Labour Bulletin negotiated salary table for the active workforce. No. 29 of August 8, 2016, the contributions to SAMS, under the responsibility of the Group, as of February 1, 2017 started to correspond to a fixed amount (according to Annex VI of the new ACT) for each employee, 14 times in a year. The calculation and recording of the Group's obligations with health benefits attributable to workers at retirement age are carried out in a similar way to Banking employees also receive health-care benefits through a specific Social-Medical Assistance Service (SAMS) pension liabilities. These benefits are covered by the Pension Fund, which integrates all liabilities with pensions and health benefits. managed by the Union. As a result of the signing of the new Collective Labour Agreement (ACT) on July 5, 2016, with publication in Labour Bulletin No. 29 of August 8, 2016, the contributions to SAMS, under the responsibility of the For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions consecrated under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension fund, managed by GNB – Sociedade Gestora de Fundos de Pensões, S.A.. 246 Protection of employees in the event of maternity, paternity and adoption, as well as old age, is covered by the General Social Security Regime, given that with the publication of Decree-Law No. 1-A/2011, of 3 January, all banking employees who were beneficiaries of “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated in the General Social Security Regime as from 1 January 2011. Employees hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. Retirement pensions of banking employees integrated in the General Social Security Regime within the scope of the 2nd tripartite agreement continue to be calculated in accordance with the provisions of the ACT and other conventions; however, banking employees are entitled to receive a pension under the General Regime that considers the number of years of contributions under that regime. The Banks are responsible for the difference between the pension determined in accordance with the provisions of the ACT and that which the banking employees are entitled to receive from the General Social Security Regime. The contribution rate is 26.6%, 23.6% paid by the employer and 3% paid by the employees on the behalf of Caixa de Abono de Família dos Empregados Bancários (CAFEB), abolished by said Decree-law. In consequence of this change, pension entitlements of active employees are to be covered on the terms defined under the General Social Security Regime, for the length of their employment between 1 January 2011 and their retirement date. The differential required to make up the pension guaranteed under the ACT is paid by the Banks. At the end of financial year 2011 and pursuant to the 3rd tripartite agreement, it was decided to transfer, definitively and irreversibly, to the General Social Security Regime all the banks’ liabilities with pensions in payment to retirees and pensioners that were in that condition as at 31 December 2011 at constant values (0% discount rate) for the component foreseen in the “Instrumento de Regulação Coletiva de Trabalho” (IRCT) applicable to banking employees, including the eventualities of death, disability and survival. The liabilities relating to the updating of pension amounts, pension benefits other than those to be borne by Social Security, health- care contributions to SAMS, death allowances and deferred survivor’s pensions will remain under the banks’ responsibility, with the corresponding funding being met through the respective pension funds. The agreement further established that the financial institutions’ pension fund assets relating to the part allocated to the satisfaction responsibilities for those pensions, be transferred to the State. According to the deliberation of the Board of Directors of Bank of Portugal of 3 August 2014 (8 p.m.), considering the resolution by the same Board of Directors of 11 August 2014 (5 p.m.), and the additional clarifications contained in the deliberation of the Board of Directors of Bank of Portugal, of 11 February 2015, it was clarified that the BES responsibilities not transferred to NOVO BANCO relate to the retirement and survival pensions and complementary retirement and survival pensions of the Directors of BES who had been members of its Executive Committee, as defined in BES’s Articles of Association and BES’s General Assembly Regulations to which the Articles of Association refer, not having, therefore, been transferred to NOVO BANCO, without prejudice to the transfer of the responsibilities relating exclusively to the employment contracts with BES. 31 December 2020 Notes to the Consolidated Financial Statements 40 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDGroup, as of February 1, 2017 started to correspond to a fixed amount (according to Annex VI of the new ACT) for each employee, 14 times in a year. The calculation and recording of the Group's obligations with health benefits attributable to workers at retirement age are carried out in a similar way to pension liabilities. These benefits are covered by the Pension Fund, which integrates all liabilities with pensions and health benefits. For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions consecrated under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension fund, managed by GNB – Sociedade Gestora de Fundos de Pensões, S.A.. Protection of employees in the event of maternity, paternity and adoption, as well as old age, is covered by the General Social Security Regime, given that with the publication of Decree-Law No. 1-A/2011, of 3 January, all banking employees who were beneficiaries of “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated in the General Social Security Regime as from 1 January 2011. Employees hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. Retirement pensions of banking employees integrated in the General Social Security Regime within the scope of the 2nd tripartite agreement continue to be calculated in accordance with the provisions of the ACT and other conven- tions; however, banking employees are entitled to receive a pension under the General Regime that considers the number of years of contributions under that regime. The Banks are responsible for the difference between the pension determined in accordance with the provisions of the ACT and that which the banking employees are entitled to receive from the General Social Security Regime. The contribution rate is 26.6%, 23.6% paid by the employer and 3% paid by the employees on the behalf of Caixa de Abono de Família dos Empregados Bancários (CAFEB), abolished by said Decree-law. In consequence of this change, pension entitlements of active employees are to be covered on the terms defined under the General Social Security Regime, for the length of their employment between 1 January 2011 and their retirement date. The differential required to make up the pension guaranteed under the ACT is paid by the Banks. At the end of financial year 2011 and pursuant to the 3rd tripartite agreement, it was decided to transfer, definitively and irreversibly, to the General Social Security Regime all the banks’ liabilities with pensions in payment to retirees and pensioners that were in that condition as at 31 December 2011 at constant values (0% discount rate) for the component foreseen in the “Instrumento de Regulação Coletiva de Trabalho” (IRCT) applicable to banking employees, including the eventualities of death, disability and survival. The liabilities relating to the updating of pension amounts, pension benefits other than those to be borne by Social Security, health-care contributions to SAMS, death allowances and deferred survivor’s pensions will remain under the banks’ responsibility, with the corresponding funding being met through the respective pension funds. The agreement further established that the financial institutions’ pension fund assets relating to the part allocated to the satisfaction responsibilities for those pensions, be transferred to the State. According to the deliberation of the Board of Directors of Bank of Portugal of 3 August 2014 (8 p.m.), considering the resolution by the same Board of Directors of 11 August 2014 (5 p.m.), and the additional clarifications contained in the deliberation of the Board of Directors of Bank of Portugal, of 11 February 2015, it was clarified that the BES responsibilities not transferred to NOVO BANCO relate to the retirement and survival pensions and complementary retirement and survival pensions of the Directors of BES who had been members of its Executive Committee, as defined in BES’s Articles of Association and BES’s General Assembly Regulations to which the Articles of Association refer, not having, therefore, been transferred to NOVO BANCO, without prejudice to the transfer of the responsibilities relating exclusively to the employment contracts with BES. Given the aforementioned, liabilities arising exclusively from the employment contracts with BES were transferred to NOVO BANCO. Considering the foregoing, only the pension fund liabilities arising from the Complementary Executive Committee Plan were split, with a part (described above) remaining in BES, with the other part being transferred to NOVO BANCO, together with the Pension Fund’s liabilities relating to the Base Plan and the Complementary Plan. To quantify the amounts relating to the split of the Pension Fund assets allocated to the liabilities that remained in BES, following the decision of Bank of Portugal of 11 February 2015, from those that were transferred to NOVO BANCO, the 247 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESassets existing on 3 August 2014 were split in proportion to the liabilities calculated on the same date, allocated to each of the groups of former participants and beneficiaries allocated to each of the entities. The split performed on these Given the aforementioned, liabilities arising exclusively from the employment contracts with BES were transferred to NOVO BANCO. Considering the foregoing, only the pension fund liabilities arising from the Complementary Executive Committee Plan were split, terms will result, on 3 August 2014, in a level of funding of the Complementary Plan of the Executive Commission that with a part (described above) remaining in BES, with the other part being transferred to NOVO BANCO, together with the Pension is equal for each of the associates of the Fund (NOVO BANCO and BES). Fund’s liabilities relating to the Base Plan and the Complementary Plan. Given the aforementioned, liabilities arising exclusively from the employment contracts with BES were transferred to NOVO BANCO. On June 16, 2020, the Insurance and Pension Funds Supervisory Authority (“ASF”) approved the extinction of the por- To quantify the amounts relating to the split of the Pension Fund assets allocated to the liabilities that remained in BES, following the Considering the foregoing, only the pension fund liabilities arising from the Complementary Executive Committee Plan were split, decision of Bank of Portugal of 11 February 2015, from those that were transferred to NOVO BANCO, the assets existing on 3 August tion that finances the Plan of the former Executive Committee and, simultaneously, the amendment of the Constitutive with a part (described above) remaining in BES, with the other part being transferred to NOVO BANCO, together with the Pension 2014 were split in proportion to the liabilities calculated on the same date, allocated to each of the groups of former participants and Fund’s liabilities relating to the Base Plan and the Complementary Plan. Contract of the NOVO BANCO Pension Fund. This approval led to the creation of three aspects of the Executive beneficiaries allocated to each of the entities. The split performed on these terms will result, on 3 August 2014, in a level of funding Committee's Pension Plan: (i) Executive Committee - BES, (ii) Executive Committee - NOVO BANCO and (iii) Undivided of the Complementary Plan of the Executive Commission that is equal for each of the associates of the Fund (NOVO BANCO and To quantify the amounts relating to the split of the Pension Fund assets allocated to the liabilities that remained in BES, following the BES). Party. The assets of the undivided party are not allocated to any liability of NOVO BANCO or BES until the final decision decision of Bank of Portugal of 11 February 2015, from those that were transferred to NOVO BANCO, the assets existing on 3 August 2014 were split in proportion to the liabilities calculated on the same date, allocated to each of the groups of former participants and of the court (limit of article 402), so NOVO BANCO transferred the amount of Euro 21.2 million of net liabilities of the On June 16, 2020, the Insurance and Pension Funds Supervisory Authority (“ASF”) approved the extinction of the portion that beneficiaries allocated to each of the entities. The split performed on these terms will result, on 3 August 2014, in a level of funding amount of the fund's assets relating to the undivided portion for Provisions. finances the Plan of the former Executive Committee and, simultaneously, the amendment of the Constitutive Contract of the Novo of the Complementary Plan of the Executive Commission that is equal for each of the associates of the Fund (NOVO BANCO and Mercado Pension Fund Bank. This approval led to the creation of three aspects of the Executive Committee's Pension Plan: (i) BES). On 1 June 2016, an amendment was made to Fundo de Pensões NB´s constitutive contract, where the complementary Executive Committee - BES, (ii) Executive Committee - NOVO BANCO and (iii) Undivided Party. The assets of the undivided party are not allocated to any liability of NOVO BANCO or BES until the final decision of the court (limit of article 402), so NOVO BANCO On June 16, 2020, the Insurance and Pension Funds Supervisory Authority (“ASF”) approved the extinction of the portion that plan became a defined contribution instead of a defined benefit plan. Considering this, and in accordance with IAS 19, transferred the amount of Euro 21.2 million of net liabilities of the amount of the fund's assets relating to the undivided portion for finances the Plan of the former Executive Committee and, simultaneously, the amendment of the Constitutive Contract of the Novo this plan´s responsibilities and assets are net of the amounts presented for the defined benefit plans. On 31 December Provisions. Mercado Pension Fund Bank. This approval led to the creation of three aspects of the Executive Committee's Pension Plan: (i) 2020, the amount of Euro 535 thousand was recorded in Personnel Costs related to the defined contribution plan (31 Executive Committee - BES, (ii) Executive Committee - NOVO BANCO and (iii) Undivided Party. The assets of the undivided party On 1 June 2016, an amendment was made to Fundo de Pensões NB´s constitutive contract, where the complementary plan became are not allocated to any liability of NOVO BANCO or BES until the final decision of the court (limit of article 402), so NOVO BANCO December 2019: Euro 492 thousand). a defined contribution instead of a defined benefit plan. Considering this, and in accordance with IAS 19, this plan´s responsibilities transferred the amount of Euro 21.2 million of net liabilities of the amount of the fund's assets relating to the undivided portion for and assets are net of the amounts presented for the defined benefit plans. On 31 December 2020, the amount of Euro 535 thousand Provisions. The key actuarial assumptions used to calculate retirement pension and health-care liabilities are identical and are as was recorded in Personnel Costs related to the defined contribution plan (31 December 2019: Euro 492 thousand). follows: On 1 June 2016, an amendment was made to Fundo de Pensões NB´s constitutive contract, where the complementary plan became The key actuarial assumptions used to calculate retirement pension and health-care liabilities are identical and are as follows: a defined contribution instead of a defined benefit plan. Considering this, and in accordance with IAS 19, this plan´s responsibilities and assets are net of the amounts presented for the defined benefit plans. On 31 December 2020, the amount of Euro 535 thousand was recorded in Personnel Costs related to the defined contribution plan (31 December 2019: Euro 492 thousand). 31.12.2020 31.12.2019 Actual The key actuarial assumptions used to calculate retirement pension and health-care liabilities are identical and are as follows: Assumptions Assumptions Actual Actuarial Assumptions Projected rate of return on plan assets Discount rate Pension increase rate Actuarial Assumptions Salary increase rate Projected rate of return on plan assets Mortality table men Discount rate Mortality table women Pension increase rate Salary increase rate 31.12.2020 31.12.2019 1,00% 1,00% Assumptions 0,25% 0,50% 1,00% 1,00% 0,25% 0,50% 2,41% - Actual 1,34% 3,07% 2,41% - 1,34% 3,07% 1,35% 1,35% Assumptions 0,25% 0,50% 1,35% 1,35% 0,25% 0,50% TV 88/90 TV 88/90-2 anos TV 88/90 TV 88/90-2 anos 6,82% - Actual 0,49% 1,20% 6,82% - 0,49% 1,20% Mortality table men Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as at 31 December Mortality table women 2020 and 31 December 2019 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as at of the liabilities. 31 December 2020 and 2019 was based on: (i) the evolution of the main indices for high quality corporate bonds and Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as at 31 December Pension plan participants are detailed as follows: (ii) the duration of the liabilities. 2020 and 31 December 2019 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. Pension plan participants are detailed as follows: Pension plan participants are detailed as follows: TV 88/90 TV 88/90-2 anos TV 88/90 TV 88/90-2 anos 31.12.2020 31.12.2019 Employees Pensioners and survivors 4 417 6 949 4 520 6 818 31.12.2020 31.12.2019 11 338 4 520 6 818 The application of IAS 19 in terms of liabilities and coverage levels as at 31 December 2020 and 31 December 2019 is as follows: TOTAL Employees Pensioners and survivors 11 366 4 417 6 949 TOTAL 11 366 11 338 The application of IAS 19 in terms of liabilities and coverage levels as at 31 December 2020 and 31 December 2019 is as follows: The application of IAS 19 in terms of liabilities and coverage levels as at 31 December 2020 and 2019 is as follows: 31 December 2020 Notes to the Consolidated Financial Statements 248 31 December 2020 Notes to the Consolidated Financial Statements 41 41 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDAssets / (liabilities) recognized in the balance sheet Total liabilities Pensioners Employees Assets / (liabilities) recognized in the balance sheet Coverage Fair value of plan assets Total liabilities Net assets / (liabilities) in the balance sheet (See Notes 29 and 33) Pensioners (in thousand Euros) 31.12.2020 31.12.2019 (1 934 668) (1 848 930) (in thousand Euros) (1 368 021) 31.12.2020 ( 566 647) (1 287 349) 31.12.2019 ( 561 581) 1 907 616 (1 934 668) 1 695 857 (1 848 930) (in thousand Euros) ( 27 052) (1 368 021) 31.12.2020 ( 153 073) (1 287 349) 31.12.2019 Employees ( 566 647) 723 723 ( 561 581) 599 454 1 907 616 (1 934 668) 1 695 857 (1 848 930) (1 368 021) ( 27 052) ( 566 647) 723 723 Accumulated actuarial deviations recognized in other comprehensive income Assets / (liabilities) recognized in the balance sheet Coverage Fair value of plan assets Total liabilities According to the policy defined in Note 2.15 - Employee Benefits, the Group calculates liabilities for pensions and actuarial gains and Pensioners losses half-yearly and evaluates at each balance sheet date and for each plan separately, the recoverability of the excess of the Net assets / (liabilities) in the balance sheet (See Notes 29 and 33) According to the policy defined in Note 2.15 - Employee Benefits, the Group calculates liabilities for pensions and Employees respective pension liabilities. Accumulated actuarial deviations recognized in other comprehensive income actuarial gains and losses half-yearly and evaluates at each balance sheet date and for each plan separately, the Coverage As at 31 December 2019, the net book value includes Euro 30,4 million related to the deficit of the complementary plan CE - NOVO recoverability of the excess of the respective pension liabilities. Fair value of plan assets BANCO's participation. With respect to the base and complementary net liabilities as at 31 December 2019, the Group has made the According to the policy defined in Note 2.15 - Employee Benefits, the Group calculates liabilities for pensions and actuarial gains and Net assets / (liabilities) in the balance sheet (See Notes 29 and 33) contribution in early 2020. losses half-yearly and evaluates at each balance sheet date and for each plan separately, the recoverability of the excess of the As at 31 December 2019, the net book value includes Euro 30,4 million related to the deficit of the complementary plan respective pension liabilities. Accumulated actuarial deviations recognized in other comprehensive income CE - NOVO BANCO's participation. With respect to the base and complementary net liabilities as at 31 December 2019, As at 31 December 2020 and 2019, the sensitivity analysis to a 0.25% change in the assumptions rate used and one year in the the Group has made the contribution in early 2020. mortality table results in the following changes in the current value of liabilities determined for past services: As at 31 December 2019, the net book value includes Euro 30,4 million related to the deficit of the complementary plan CE - NOVO According to the policy defined in Note 2.15 - Employee Benefits, the Group calculates liabilities for pensions and actuarial gains and BANCO's participation. With respect to the base and complementary net liabilities as at 31 December 2019, the Group has made the (in thousands of Euros) losses half-yearly and evaluates at each balance sheet date and for each plan separately, the recoverability of the excess of the contribution in early 2020. As at 31 December 2020 and 2019, the sensitivity analysis to a 0.25% change in the assumptions rate used and one respective pension liabilities. year in the mortality table results in the following changes in the current value of liabilities determined for past services: As at 31 December 2020 and 2019, the sensitivity analysis to a 0.25% change in the assumptions rate used and one year in the of +0.25% in the of +0.25% in the As at 31 December 2019, the net book value includes Euro 30,4 million related to the deficit of the complementary plan CE - NOVO mortality table results in the following changes in the current value of liabilities determined for past services: rate used rate used BANCO's participation. With respect to the base and complementary net liabilities as at 31 December 2019, the Group has made the Discount rate contribution in early 2020. Salary increase rate As at 31 December 2020 and 2019, the sensitivity analysis to a 0.25% change in the assumptions rate used and one year in the Pension increase rate 54 664 57 714 of +0.25% in the of +0.25% in the mortality table results in the following changes in the current value of liabilities determined for past services: rate used rate used in +1 ano in +1 ano of -0.25% in the rate used (in thousands of Euros) 73 693 Change in the amount of liabilities due to the change: Change in the amount of liabilities due to the change: of -0.25% in the rate used in -1 ano (1 287 349) ( 153 073) ( 561 581) 599 454 of -0.25% in the rate used Assumptions Assumptions 31.12.2020 31.12.2019 31.12.2020 31.12.2019 ( 153 073) 1 695 857 1 907 616 ( 27 052) 723 723 599 454 ( 73 282) ( 68 854) ( 52 943) ( 16 935) ( 18 882) ( 50 705) 26 643 78 127 27 329 Discount rate Mortality table Salary increase rate Assumptions Change in the amount of liabilities due to the change: ( 73 282) ( 70 811) 26 643 31.12.2020 78 127 71 808 ( 16 935) ( 68 854) ( 64 631) 27 329 31.12.2019 of -0.25% in the rate used (in thousands of Euros) in -1 ano 73 693 65 300 ( 18 882) Pension increase rate The evolution of the actuarial gains and losses in the balance sheet can be analyzed as follows: ( 52 943) of +0.25% in the 57 714 rate used in +1 ano of -0.25% in the rate used in -1 ano ( 73 282) ( 70 811) 26 643 78 127 71 808 ( 16 935) of +0.25% in the 54 664 rate used in +1 ano 31.12.2020 ( 68 854) ( 64 631) 27 329 ( 50 705) of -0.25% in the rate used in -1 ano (in thousands of Euros) 73 693 65 300 ( 18 882) 31.12.2019 Discount rate Mortality table Salary increase rate 54 664 1 848 930 in +1 ano ( 50 705) 1 675 608 in -1 ano (in thousands of Euros) Pension increase rate Retirement pension liabilities at beginning of the exercise The evolution of the actuarial gains and losses in the balance sheet can be analyzed as follows: ( 52 943) 57 714 in +1 ano in -1 ano 14 31 687 65 300 2 645 285 1 675 608 31.12.2019 71 808 ( 70 811) 31.12.2020 425 23 870 ( 64 631) 2 617 238 1 848 930 Current service cost Interest cost Mortality table The evolution of the actuarial gains and losses in the balance sheet can be analyzed as follows: Plan participants' contribution Contributions from other entities Retirement pension liabilities at beginning of the exercise The evolution of the actuarial gains and losses in the balance sheet can be analyzed as follows: Actuarial (gains) / losses in the exercise: Current service cost - Changes in financial assumptions Interest cost - Experience adjustments (gains) / losses Plan participants' contribution Pensions paid by the fund / transfers and once-off bonuses Retirement pension liabilities at beginning of the exercise Contributions from other entities Amount of the responsibilities transferred to defined contribution plans Actuarial (gains) / losses in the exercise: Early retirement Current service cost - Changes in financial assumptions Foreign exchange differences and other Interest cost - Experience adjustments (gains) / losses Plan participants' contribution Retirement pension liabilities at end of the exercise Pensions paid by the fund / transfers and once-off bonuses Contributions from other entities Amount of the responsibilities transferred to defined contribution plans Actuarial (gains) / losses in the exercise: Early retirement The evolution of the value of pension funds in the years ended 31 December 2020 and 2019 can be analyzed as follows: - Changes in financial assumptions Foreign exchange differences and other - Experience adjustments (gains) / losses Pensions paid by the fund / transfers and once-off bonuses Retirement pension liabilities at end of the exercise Amount of the responsibilities transferred to defined contribution plans Early retirement The evolution of the value of pension funds in the years ended 31 December 2020 and 2019 can be analyzed as follows: Foreign exchange differences and other 425 101 787 23 870 50 737 2 617 ( 73 073) 1 848 930 238 ( 54 679) 32 902 425 101 787 914 23 870 50 737 2 617 1 934 668 ( 73 073) 238 ( 54 679) 32 902 101 787 914 50 737 ( 73 073) 1 934 668 ( 54 679) 32 902 914 31.12.2020 14 125 523 31 687 64 098 2 645 ( 69 708) 1 675 608 285 - 15 670 14 125 523 3 108 31 687 64 098 2 645 1 848 930 ( 69 708) 285 - 15 670 125 523 3 108 64 098 ( 69 708) 1 848 930 - 15 670 3 108 31.12.2019 (in thousands of Euros) Retirement pension liabilities at end of the exercise 1 934 668 1 848 930 The evolution of the value of pension funds in the years ended 31 December 2020 and 2019 can be analyzed as follows: 31 December 2020 Notes to the Consolidated Financial Statements 249 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 42 42 42 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe evolution of the value of pension funds in the years ended 31 December 2020 and 2019 can be analyzed as follows: Fair value of fund assets at beginning of period (in thousands of Euros) 31.12.2020 31.12.2019 1 695 857 1 648 168 - - 97 31 66 75 - Total Total 7 818 6 683 Quoted Quoted Quoted Quoted Quoted 57 984 71 489 59 309 39 710 39 710 1 59 309 75 39 710 - 39 710 216 168 395 969 163 866 324 480 1 013 356 1 105 727 1 105 727 115 855 - 250 183 71 489 - 163 866 250 183 395 969 - 324 480 - 1 013 356 - 1 105 727 115 855 1 105 727 31.12.2019 31.12.2020 31.12.2020 31.12.2020 31.12.2019 Structured debt (in thousands of Euros) (in thousands of Euros) (in thousands of Euros) Derivatives Equity instruments Debt instruments Real estate properties 31 437 633 - 75 Net return from the fund 31.12.2019 (in thousands of Euros) 74 (in thousands of Euros) - 216 168 1 907 616 66 1 469 983 39 710 - Investment funds Cash and cash equivalents 107 166 74 (in thousands of Euros) Cash and cash equivalents Investment funds 31.12.2020 Unquoted 31.12.2020 Unquoted 31.12.2020 Unquoted Fund balance at the end of the year Structured debt Total Equity instruments Derivatives - Share of the net interest on the assets - Return on assets excluding net interest - Share of the net interest on the assets - Return on assets excluding net interest - Share of the net interest on the assets - Return on assets excluding net interest Group contributions Fair value of fund assets at beginning of period Employee contributions Net return from the fund Pensions paid by the fund / transfers and once-off bonuses Transfer to Undivided Party Foreign exchange differences and other Group contributions Fair value of fund assets at beginning of period Fund balance at the end of the year Employee contributions Net return from the fund Pensions paid by the fund / transfers and once-off bonuses Pension fund assets can be analyzed as follows: Transfer to Undivided Party Foreign exchange differences and other Group contributions Fair value of fund assets at beginning of period Fund balance at the end of the year Employee contributions Pension fund assets can be analyzed as follows: Net return from the fund Pensions paid by the fund / transfers and once-off bonuses Equity instruments - Share of the net interest on the assets Pension fund assets can be analyzed as follows: Transfer to Undivided Party - Return on assets excluding net interest Debt instruments Foreign exchange differences and other Group contributions Investment funds Fund balance at the end of the year Employee contributions Pensions paid by the fund / transfers and once-off bonuses Pension fund assets can be analyzed as follows: Transfer to Undivided Party Real estate properties Debt instruments Foreign exchange differences and other 110 313 28 026 82 287 1 535 1 648 168 2 645 110 313 ( 69 708) 28 026 - 82 287 2 904 1 535 1 648 168 1 695 857 2 645 110 313 ( 69 708) 28 026 - 82 287 2 904 1 535 1 648 168 1 695 857 2 645 Total 110 313 ( 69 708) 223 175 28 026 - 82 287 1 013 430 2 904 1 535 274 152 1 695 857 2 645 Total 14 501 ( 69 708) 1 223 175 - 107 166 1 013 430 2 904 63 432 274 152 1 695 857 Total 14 501 1 695 857 223 175 1 Pension fund assets can be analyzed as follows: The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as follows: 1 013 430 74 107 166 107 166 (in thousands of Euros) (in thousands of Euros) 47 403 19 891 27 512 269 419 1 695 857 2 617 47 403 ( 73 073) 19 891 ( 35 523) 27 512 916 269 419 1 695 857 1 907 616 2 617 47 403 ( 73 073) 19 891 ( 35 523) 27 512 916 269 419 31.12.2019 1 695 857 1 907 616 2 617 Unquoted 47 403 ( 73 073) 19 891 ( 35 523) 27 512 916 269 419 31.12.2019 1 907 616 2 617 Unquoted ( 73 073) ( 35 523) 916 Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period 31.12.2020 6 683 1 400 073 - 163 866 131 265 - 1 013 356 63 630 31.12.2020 6 683 1 400 073 - 131 265 - 63 630 - 31.12.2020 194 895 274 152 63 432 31.12.2019 Total 14 501 Structured debt 1 695 857 Total 1 Derivatives 223 175 Equity instruments 92 601 Participation units The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as follows: 107 166 Real estate properties 1 013 430 Debt instruments 75 851 Real estate properties (in thousands of Euros) 63 432 Cash and cash equivalents 274 152 Investment funds 168 452 Total 14 501 97 Structured debt 1 695 857 1 907 616 Total The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed 1 75 Derivatives 92 601 Participation units The evolution of actuarial deviations on the balance sheet can be analyzed as follows: as follows: The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as follows: 107 166 115 855 Real estate properties 75 851 Real estate properties (in thousands of Euros) (in thousands of Euros) 63 432 Cash and cash equivalents 31.12.2019 168 452 Total 31.12.2019 1 695 857 Total 492 177 92 601 Participation units Actuarial (gains) / losses in the period: The evolution of actuarial deviations on the balance sheet can be analyzed as follows: The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as follows: - Changes in assumptions 75 851 Real estate properties (in thousands of Euros) - Financial assumptions 125 523 101 787 (in thousands of Euros) 23 225 ( 18 189) ( 57) ( 743) 492 177 599 454 599 454 723 723 - Plan assets return (excluding net of interests) Other Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period Accumulated actuarial losses recognized in other comprehensive income at the end of the period Participation units Actuarial (gains) / losses in the period: The evolution of actuarial deviations on the balance sheet can be analyzed as follows: - Changes in assumptions Real estate properties - Financial assumptions 92 601 75 851 (in thousands of Euros) The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: 31.12.2019 - Plan assets return (excluding net of interests) 168 452 The evolution of actuarial deviations on the balance sheet can be analyzed as follows: (in thousand of Euros) Other Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period Accumulated actuarial losses recognized in other comprehensive income at the end of the period Actuarial (gains) / losses in the period: The evolution of actuarial deviations on the balance sheet can be analyzed as follows: - Changes in assumptions (in thousands of Euros) Current service cost 14 125 523 - Financial assumptions 3 661 Net interest The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: ( 18 189) - Plan assets return (excluding net of interests) - Reformas antecipadas ( 57) Other (in thousand of Euros) 492 177 Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period Post-employment benefits costs 3 675 599 454 Accumulated actuarial losses recognized in other comprehensive income at the end of the period Actuarial (gains) / losses in the period: - Changes in assumptions Current service cost - Financial assumptions The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: Net interest - Plan assets return (excluding net of interests) Reformas antecipadas (in thousand of Euros) Other 425 101 787 3 979 31.12.2020 23 225 1 310 ( 743) 599 454 5 714 723 723 131 265 63 630 31.12.2020 194 895 101 787 23 225 ( 743) 599 454 723 723 125 523 ( 18 189) ( 57) 492 177 599 454 425 101 787 3 979 23 225 1 310 ( 743) - 216 168 194 895 14 125 523 3 661 ( 18 189) - ( 57) Total 97 1 907 616 39 710 75 Total 97 1 907 616 75 39 710 131 265 63 630 31.12.2019 168 452 31.12.2019 66 1 469 983 - 39 710 66 1 469 983 - 6 683 1 400 073 163 866 - 31.12.2019 Unquoted 31 437 633 75 - 7 818 295 784 1 59 309 31 437 633 75 7 818 295 784 1 7 818 295 784 59 309 1 31.12.2020 194 895 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2019 31.12.2020 31.12.2020 1 105 727 - 1 105 727 115 855 1 013 356 - 31.12.2019 31.12.2020 - 1 105 727 115 855 1 105 727 1 469 983 1 907 616 1 400 073 - 115 855 71 489 250 183 395 969 250 183 Unquoted Unquoted 324 480 - 216 168 - 31.12.2019 250 183 71 489 250 183 395 969 107 166 74 115 855 - - 324 480 295 784 107 166 250 183 115 855 437 633 250 183 63 432 57 984 57 984 63 432 599 454 63 432 57 984 63 432 Quoted Quoted Quoted Total Total - - Accumulated actuarial losses recognized in other comprehensive income at the end of the period Post-employment benefits costs 31.12.2020 723 723 5 714 31.12.2019 599 454 3 675 Current service cost The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: Net interest Reformas antecipadas (in thousand of Euros) 14 3 661 - 425 3 979 1 310 Post-employment benefits costs 31 December 2020 Current service cost 250 Net interest Reformas antecipadas Post-employment benefits costs 31.12.2020 5 714 31.12.2019 3 675 Notes to the Consolidated Financial Statements 425 3 979 1 310 5 714 14 43 3 661 - 3 675 43 43 43 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDFair value of fund assets at beginning of period Net return from the fund - Share of the net interest on the assets - Return on assets excluding net interest Group contributions Employee contributions Transfer to Undivided Party Foreign exchange differences and other Fund balance at the end of the year Pensions paid by the fund / transfers and once-off bonuses Pension fund assets can be analyzed as follows: Quoted Total Quoted Total 31.12.2020 Unquoted (in thousands of Euros) 31.12.2019 Unquoted 39 710 1 105 727 324 480 66 - - - 71 489 395 969 - - 31 75 115 855 250 183 39 710 1 105 727 97 75 115 855 250 183 163 866 1 013 356 216 168 59 309 223 175 74 1 013 430 57 984 274 152 6 683 7 818 14 501 - - - 1 1 107 166 107 166 63 432 63 432 1 469 983 437 633 1 907 616 1 400 073 295 784 1 695 857 The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as follows: Equity instruments Debt instruments Investment funds Structured debt Derivatives Real estate properties Cash and cash equivalents Total Participation units Real estate properties Total (in thousands of Euros) 31.12.2020 31.12.2019 1 695 857 1 648 168 47 403 19 891 27 512 269 419 2 617 ( 73 073) ( 35 523) 916 110 313 28 026 82 287 1 535 2 645 ( 69 708) - 2 904 1 907 616 1 695 857 (in thousands of Euros) 31.12.2020 31.12.2019 131 265 63 630 92 601 75 851 194 895 168 452 (in thousands of Euros) 31.12.2020 31.12.2019 The evolution of actuarial deviations on the balance sheet can be analyzed as follows: Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period 599 454 492 177 Actuarial (gains) / losses in the period: - Changes in assumptions - Financial assumptions - Plan assets return (excluding net of interests) Other 101 787 23 225 ( 743) 125 523 ( 18 189) ( 57) Accumulated actuarial losses recognized in other comprehensive income at the end of the period The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: (in thousand of Euros) 723 723 599 454 Current service cost Net interest Reformas antecipadas Post-employment benefits costs 31.12.2020 31.12.2019 425 3 979 1 310 5 714 14 3 661 - 3 675 The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2020 The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2020 and 2019 as and 2019 as follows: follows: 31.12.2020 31.12.2019 (in thousands of Euros) ( 153 073) 31.12.2020 (in thousands of Euros) Notes to the Consolidated Financial Statements The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2020 and 2019 as At the beginning of the period follows: 31 December 2020 Cost for period Actuarial gains / (losses) recognized in other comprehensive income Contributions made in the period Undivided transfer and reduction of responsibilities The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2020 and 2019 as At the beginning of the period Other follows: Cost for period At the end of the period Actuarial gains / (losses) recognized in other comprehensive income Contributions made in the period Undivided transfer and reduction of responsibilities In 2020, the value of early retirements amounted to Euro 32.9 million (31 December 2019: Euro 15.7 million), of which Euro 31.6 At the beginning of the period Other million are part of the Group's restructuring process and as such, they were recognized against the use of the provision for Cost for period restructuring (see Note 32). These amounts are considered in Other in the previous table. At the end of the period Actuarial gains / (losses) recognized in other comprehensive income In 2020, the value of early retirements amounted to Euro 32.9 million (31 December 2019: Euro 15.7 million), of which Contributions made in the period Euro 31.6 million are part of the Group's restructuring process and as such, they were recognized against the use of the The summary of the last five years of the funds liabilities and the funds balances, as well as experience gains and losses, is analyzed In 2020, the value of early retirements amounted to Euro 32.9 million (31 December 2019: Euro 15.7 million), of which Euro 31.6 Undivided transfer and reduction of responsibilities as follows: million are part of the Group's restructuring process and as such, they were recognized against the use of the provision for Other provision for restructuring (see Note 32). These amounts are considered in Other in the previous table. restructuring (see Note 32). These amounts are considered in Other in the previous table. At the end of the period The summary of the last five years of the funds liabilities and the funds balances, as well as experience gains and losses, The summary of the last five years of the funds liabilities and the funds balances, as well as experience gains and losses, is analyzed is analyzed as follows: In 2020, the value of early retirements amounted to Euro 32.9 million (31 December 2019: Euro 15.7 million), of which Euro 31.6 as follows: million are part of the Group's restructuring process and as such, they were recognized against the use of the provision for Retirement pension liabilities restructuring (see Note 32). These amounts are considered in Other in the previous table. Funds balance ( 27 440) 43 ( 3 675) ( 107 277) 1 535 - ( 27 440) ( 16 216) ( 3 675) ( 153 073) ( 107 277) 1 535 - ( 27 440) ( 16 216) ( 3 675) ( 153 073) ( 107 277) 1 535 - ( 16 216) ( 5 714) ( 124 269) 269 419 19 156 ( 153 073) ( 32 571) ( 5 714) ( 27 052) ( 124 269) 269 419 19 156 ( 153 073) ( 32 571) ( 5 714) ( 27 052) ( 124 269) 269 419 19 156 ( 32 571) ( 153 073) (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2019 31.12.2019 ( 27 052) (1 934 668) (1 848 930) (1 675 608) (1 663 489) (1 577 750) 1 907 616 1 695 857 1 648 168 1 648 405 1 557 979 31.12.2019 31.12.2018 31.12.2016 31.12.2020 31.12.2017 (in thousands of Euros) (Under) / overfunding of liabilities The summary of the last five years of the funds liabilities and the funds balances, as well as experience gains and losses, is analyzed as follows: Retirement pension liabilities (Gains) / losses on experience adjustments in retirement pension liabilities (1 934 668) 50 737 (1 848 930) 64 098 (1 675 608) 17 839 (1 577 750) 12 318 (1 663 489) 15 263 ( 153 073) 31.12.2019 31.12.2018 31.12.2016 31.12.2020 31.12.2017 ( 27 052) ( 27 440) ( 15 084) ( 19 771) Funds balance (Gains) / losses on experience adjustments in plan assets 1 907 616 ( 27 512) 1 695 857 ( 82 287) 1 648 168 53 917 1 648 405 ( 91 900) 1 557 979 43 716 (in thousands of Euros) (Under) / overfunding of liabilities ( 27 052) 31.12.2020 ( 153 073) 31.12.2019 ( 27 440) 31.12.2018 ( 15 084) 31.12.2017 ( 19 771) 31.12.2016 The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2019: approximately 16 years). The (Gains) / losses on experience adjustments in retirement pension liabilities Retirement pension liabilities following table shows the temporal detail of the estimated benefits to be paid: (Gains) / losses on experience adjustments in plan assets Funds balance 53 917 1 648 168 ( 27 512) 1 907 616 ( 82 287) 1 695 857 ( 91 900) 1 648 405 17 839 (1 675 608) 15 263 (1 663 489) 12 318 (1 577 750) 50 737 (1 934 668) 64 098 (1 848 930) (Under) / overfunding of liabilities The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2019: approximately 16 years). The following table shows the temporal detail of the estimated benefits to be paid: (Gains) / losses on experience adjustments in retirement pension liabilities Estimated amount of benefits payable 1 879 351 222 542 73 801 74 092 ( 153 073) ( 27 052) ( 27 440) ( 15 084) 17 839 50 737 64 098 15 263 12 318 Up to 1 year From 1 to 2 years (Gains) / losses on experience adjustments in plan assets The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2019: approximately 16 Career bonuses years). The following table shows the temporal detail of the estimated benefits to be paid: The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2019: approximately 16 years). The Estimated amount of benefits payable following table shows the temporal detail of the estimated benefits to be paid: As at 31 December 2020, the liabilities assumed by the Group amounted to Euro 7,523 thousand, corresponding to the liabilities for past services subjacent to the career bonuses, as described in Note 2.15 – Employee benefits (31 December 2019: Euro 7,106 thousand) (see Note 33). Career bonuses 43 716 More than 5 years From 2 to 5 years From 1 to 2 years (in thousands of Euros) Up to 1 year 1 879 351 222 542 73 801 74 092 ( 82 287) ( 27 512) ( 91 900) 53 917 (in thousands of Euros) From 1 to 2 years From 2 to 5 years More than 5 years Up to 1 year As at 31 December 2020, the costs recognized with career bonuses were Euro 951 thousand (31 December 2019: Euro 864 Estimated amount of benefits payable As at 31 December 2020, the liabilities assumed by the Group amounted to Euro 7,523 thousand, corresponding to the liabilities for thousand) (see Note 15). past services subjacent to the career bonuses, as described in Note 2.15 – Employee benefits (31 December 2019: Euro 7,106 thousand) (see Note 33). Career bonuses As at 31 December 2020, the costs recognized with career bonuses were Euro 951 thousand (31 December 2019: Euro 864 As at 31 December 2020, the liabilities assumed by the Group amounted to Euro 7,523 thousand, corresponding to the liabilities for thousand) (see Note 15). past services subjacent to the career bonuses, as described in Note 2.15 – Employee benefits (31 December 2019: Euro 7,106 thousand) (see Note 33). 1 879 351 222 542 73 801 74 092 As at 31 December 2020, the costs recognized with career bonuses were Euro 951 thousand (31 December 2019: Euro 864 thousand) (see Note 15). 251 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 44 44 44 From 2 to 5 years 43 716 (in thousands of Euros) 1 557 979 More than 5 ( 19 771) years NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESCareer bonuses As at 31 December 2020, the liabilities assumed by the Group amounted to Euro 7,523 thousand, corresponding to the liabilities for past services subjacent to the career bonuses, as described in Note 2.15 – Employee benefits (31 December 2019: Euro 7,106 thousand) (see Note 33). As at 31 December 2020, the costs recognized with career bonuses were Euro 951 thousand (31 December 2019: Euro 864 thousand) (see Note 15). NOTE 17 – Other administrative expenses NOTE 17 – OTHER ADMINISTRATIVE EXPENSES The breakdown of this caption is as follows: The breakdown of this caption is as follows: (in thousands of Euros) 31.12.2020 31.12.2019 * NOTE 17 – OTHER ADMINISTRATIVE EXPENSES The breakdown of this caption is as follows: (in thousands of Euros) 31.12.2020 2 800 6 739 12 113 8 766 1 386 4 584 3 123 45 610 2 800 2 569 6 739 1 322 12 113 11 625 8 766 4 938 1 386 24 688 4 584 3 185 3 123 1 487 45 610 18 228 2 569 153 163 1 322 11 625 4 938 24 688 3 185 1 487 18 228 3 457 8 443 11 795 8 945 3 086 4 267 31.12.2019 * 2 621 45 920 3 457 3 614 8 443 1 525 11 795 10 482 8 945 7 407 3 086 24 979 4 267 3 681 2 621 1 588 45 920 20 120 3 614 161 930 1 525 10 482 7 407 24 979 3 681 1 588 20 120 Rentals Advertising Communication Maintenance and repairs expenses Travelling and representation Transportation of valuables Insurance IT services Rentals Independent work Advertising Temporary work Communication Electronic payment systems Maintenance and repairs expenses Legal costs Travelling and representation Consultancy and audit fees Transportation of valuables Water, energy and fuel Insurance Consumables IT services Other costs Independent work Temporary work Electronic payment systems Legal costs Consultancy and audit fees Water, energy and fuel Consumables Other costs * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The caption Other costs includes, amongst others, specialised service costs incurred with security and surveillance, information services, training and sundry external supplies. As at 31 December 2020, rental costs includes an amount of Euro 196 thousand related to short-term operating lease contracts, as The caption Other costs includes, amongst others, specialised service costs incurred with security and surveillance, described in note 2.14. * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 information services, training and sundry external supplies. The fees invoiced during the years 2020 and 2019 by the Statutory Audit Firm, according to that laid down in article 508-F of the Portuguese Companies Code (Código das Sociedades Comerciais), have the following: The caption Other costs includes, amongst others, specialised service costs incurred with security and surveillance, information As at 31 December 2020, rental costs includes an amount of Euro 196 thousand related to short-term operating lease services, training and sundry external supplies. contracts, as described in note 2.14. As at 31 December 2020, rental costs includes an amount of Euro 196 thousand related to short-term operating lease contracts, as The fees invoiced during the years 2020 and 2019 by the Statutory Audit Firm, according to that laid down in article described in note 2.14. 508-F of the Portuguese Companies Code (Código das Sociedades Comerciais), have the following: The fees invoiced during the years 2020 and 2019 by the Statutory Audit Firm, according to that laid down in article 508-F of the Portuguese Companies Code (Código das Sociedades Comerciais), have the following: NOTE 18 - CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES Statutory audit of annual accounts Other reliability assurance services Total value of billable services (in thousands of Euros) 1 685 1 043 2 307 802 31.12.2020 31.12.2019 161 930 153 163 3 109 2 728 This caption on 31 December 2020 and 2019 is analyzed as follows: Statutory audit of annual accounts Other reliability assurance services (in thousands of Euros) 31.12.2020 31.12.2019 31.12.2020 2 307 802 1 685 (In thousands of Euros) 1 043 31.12.2019 * Total value of billable services Contribution to the Fundo Único de Resolução Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos NOTE 18 - CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES 3 109 22 266 12 743 39 35 048 2 728 22 469 12 196 42 34 707 This caption on 31 December 2020 and 2019 is analyzed as follows: * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 18 - Contributions to resolution funds and deposit guarantee schemes NOTE 19 – EARNINGS PER SHARE Basic earnings per share The basic earnings per share are calculated dividing the net profit attributable to the shareholders of the Bank by the weighted This caption on 31 December 2020 and 2019 is analyzed as follows: average number of ordinary shares in circulation during the financial year /period. Contribution to the Fundo Único de Resolução Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos 22 469 12 196 42 22 266 12 743 39 31.12.2019 * 31.12.2020 34 707 35 048 (In thousands of Euros) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 19 – EARNINGS PER SHARE Net consolidated profit / (loss) attributable to shareholder of the Bank (In thousands of Euros) 31.12.2020 31.12.2019 * (1 328 236) (1 058 812) 252 Basic earnings per share Weighted average number of common shares outstanding (thousands) The basic earnings per share are calculated dividing the net profit attributable to the shareholders of the Bank by the weighted Basic earnings per share attributable to shareholders of NOVO BANCO (in Euros) average number of ordinary shares in circulation during the financial year /period. 9 800 000 9 800 000 (0,11) (0,14) Basic earnings per share from continuing activities attributable to shareholders of NOVO BANCO (in Euros) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Net consolidated profit / (loss) attributable to shareholder of the Bank Weighted average number of common shares outstanding (thousands) (In thousands of Euros) 31.12.2020 (0,13) 31.12.2019 * (0,10) (1 328 236) (1 058 812) 9 800 000 9 800 000 Basic earnings per share attributable to shareholders of NOVO BANCO (in Euros) 31 December 2020 Notes to the Consolidated Financial Statements Basic earnings per share from continuing activities attributable to shareholders of NOVO BANCO (in Euros) (0,14) (0,13) (0,11) 45 (0,10) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 31 December 2020 Notes to the Consolidated Financial Statements 45 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDNOTE 17 – OTHER ADMINISTRATIVE EXPENSES The breakdown of this caption is as follows: NOTE 17 – OTHER ADMINISTRATIVE EXPENSES The breakdown of this caption is as follows: Rentals Advertising Communication Maintenance and repairs expenses Travelling and representation Transportation of valuables Rentals Insurance Advertising IT services Communication Independent work Maintenance and repairs expenses Temporary work Travelling and representation Electronic payment systems Transportation of valuables Legal costs Insurance Consultancy and audit fees IT services Water, energy and fuel Independent work Consumables Temporary work Other costs Electronic payment systems Legal costs Consultancy and audit fees Water, energy and fuel Consumables Other costs (in thousands of Euros) 31.12.2020 31.12.2019 * (in thousands of Euros) 31.12.2020 1 386 31.12.2019 * 3 086 2 800 6 739 12 113 8 766 4 584 2 800 3 123 6 739 45 610 12 113 2 569 8 766 1 322 1 386 11 625 4 584 4 938 3 123 24 688 45 610 3 185 2 569 1 487 1 322 18 228 11 625 4 938 153 163 24 688 3 185 1 487 18 228 3 457 8 443 11 795 8 945 4 267 3 457 2 621 8 443 45 920 11 795 3 614 8 945 1 525 3 086 10 482 4 267 7 407 2 621 24 979 45 920 3 681 3 614 1 588 1 525 20 120 10 482 7 407 161 930 24 979 3 681 1 588 20 120 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The caption Other costs includes, amongst others, specialised service costs incurred with security and surveillance, information services, training and sundry external supplies. 153 163 161 930 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 As at 31 December 2020, rental costs includes an amount of Euro 196 thousand related to short-term operating lease contracts, as described in note 2.14. The caption Other costs includes, amongst others, specialised service costs incurred with security and surveillance, information services, training and sundry external supplies. The fees invoiced during the years 2020 and 2019 by the Statutory Audit Firm, according to that laid down in article 508-F of the Portuguese Companies Code (Código das Sociedades Comerciais), have the following: As at 31 December 2020, rental costs includes an amount of Euro 196 thousand related to short-term operating lease contracts, as (in thousands of Euros) described in note 2.14. 31.12.2019 31.12.2020 Statutory audit of annual accounts Other reliability assurance services 1 685 The fees invoiced during the years 2020 and 2019 by the Statutory Audit Firm, according to that laid down in article 508-F of the 1 043 Portuguese Companies Code (Código das Sociedades Comerciais), have the following: 2 728 (in thousands of Euros) Total value of billable services 2 307 802 3 109 NOTE 18 - CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES Statutory audit of annual accounts Other reliability assurance services Total value of billable services This caption on 31 December 2020 and 2019 is analyzed as follows: NOTE 18 - CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES Contribution to the Fundo Único de Resolução Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos This caption on 31 December 2020 and 2019 is analyzed as follows: 31.12.2020 31.12.2019 2 307 802 1 685 1 043 3 109 2 728 (In thousands of Euros) 31.12.2019 * 31.12.2020 22 266 12 743 39 22 469 12 196 42 (In thousands of Euros) 31.12.2020 35 048 31.12.2019 * 34 707 22 266 12 743 39 22 469 12 196 42 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Contribution to the Fundo Único de Resolução Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos NOTE 19 – EARNINGS PER SHARE NOTE 19 – Earnings per share Basic earnings per share * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The basic earnings per share are calculated dividing the net profit attributable to the shareholders of the Bank by the weighted Basic earnings per share average number of ordinary shares in circulation during the financial year /period. NOTE 19 – EARNINGS PER SHARE The basic earnings per share are calculated dividing the net profit attributable to the shareholders of the Bank by the Basic earnings per share weighted average number of ordinary shares in circulation during the financial year /period. (1 058 812) Net consolidated profit / (loss) attributable to shareholder of the Bank The basic earnings per share are calculated dividing the net profit attributable to the shareholders of the Bank by the weighted average number of ordinary shares in circulation during the financial year /period. Weighted average number of common shares outstanding (thousands) (In thousands of Euros) 31.12.2019 * (1 328 236) 31.12.2020 9 800 000 34 707 35 048 9 800 000 (In thousands of Euros) Basic earnings per share attributable to shareholders of NOVO BANCO (in Euros) Net consolidated profit / (loss) attributable to shareholder of the Bank Basic earnings per share from continuing activities attributable to shareholders of NOVO BANCO (in Euros) Weighted average number of common shares outstanding (thousands) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Basic earnings per share attributable to shareholders of NOVO BANCO (in Euros) Basic earnings per share from continuing activities attributable to shareholders of NOVO BANCO (in Euros) 31 December 2020 Notes to the Consolidated Financial Statements * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Diluted earnings per share 31 December 2020 Notes to the Consolidated Financial Statements 31.12.2020 (0,14) 31.12.2019 * (0,11) (1 328 236) (0,13) (1 058 812) (0,10) 9 800 000 9 800 000 (0,14) (0,13) (0,11) (0,10) 45 45 The diluted earnings per share are calculated considering the net profit attributable to the shareholders of the Bank and the weighted average number of ordinary shares in circulation, adjusted for the effects of all potential dilutive ordinary shares. The diluted earnings per share do not differ from the basic earnings per share, since there are no dilutive effects. Diluted earnings per share The diluted earnings per share are calculated considering the net profit attributable to the shareholders of the Bank and the weighted average number of ordinary shares in circulation, adjusted for the effects of all potential dilutive ordinary shares. NOTE 20 – Cash, cash balances at Central Banks and other demand deposits The diluted earnings per share do not differ from the basic earnings per share, since there are no dilutive effects. NOTE 20 – CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: Cash Demand deposits with Central Banks Bank of Portugal Other Central Banks Deposits in other domestic credit institutions Repayable on demand Uncollected checks Deposits with banks abroad Repayable on demand Other deposits (in thousands of Euros) 31.12.2020 31.12.2019 149 205 179 220 2 289 339 3 458 1 387 250 21 658 2 292 797 1 408 908 19 565 51 590 71 155 143 614 38 688 182 302 12 303 51 437 63 740 175 761 26 452 202 213 2 695 459 1 854 081 253 The caption Demand Deposits with Bank of Portugal includes mandatory deposits to comply with the minimum legal cash reserve requirements in an amount of Euro 262.2 million (31 December 2019: Euro 246.8 million). According to the European Central Bank Regulation (EU) No. 1358/2011, of 14 December 2011, minimum cash requirements of demand deposits with Bank of Portugal are interest-bearing and correspond to 1% of the deposits and debt certificates maturing in less than 2 years, after excluding from these the deposits of institutions subject to the European System of Central Banks minimum reserve requirements. As at 31 December 2020, the average interest rate on these deposits was null (31 December 2019: null). Compliance with minimum cash requirements, for a given observation period, is monitored taking into account the average amount of the deposits with Bank of Portugal over said period. The balance of the account with Bank of Portugal as at 31 December 2020 was included in the observation period running from 16 December 2020 to 26 January 2020. Checks to be collected on credit institutions at home and abroad were sent for collection within the first business days following the reference dates. NOTE 21 – FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: Financial assets held for trading Securities Bonds and other fixed income securities Issued by government and public entities Derivatives Derivatives held for trading with positive fair value Fair value option derivatives with positive fair value Financial liabilities held for trading Derivatives Derivatives held for trading with negative fair value (in thousands of Euros) 31.12.2020 31.12.2019 267 016 267 016 388 257 - 388 257 655 273 254 848 254 848 419 791 74 093 493 884 748 732 554 791 554 791 544 825 544 825 31 December 2020 Notes to the Consolidated Financial Statements 46 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESDiluted earnings per share The diluted earnings per share are calculated considering the net profit attributable to the shareholders of the Bank and the weighted average number of ordinary shares in circulation, adjusted for the effects of all potential dilutive ordinary shares. The diluted earnings per share do not differ from the basic earnings per share, since there are no dilutive effects. NOTE 20 – CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: Cash Demand deposits with Central Banks Bank of Portugal Other Central Banks Deposits in other domestic credit institutions Repayable on demand Uncollected checks (in thousands of Euros) 31.12.2020 31.12.2019 149 205 179 220 2 289 339 3 458 1 387 250 21 658 2 292 797 1 408 908 19 565 51 590 12 303 51 437 71 155 63 740 The caption Demand Deposits with Bank of Portugal includes mandatory deposits to comply with the minimum legal cash reserve requirements in an amount of Euro 262.2 million (31 December 2019: Euro 246.8 million). According Deposits with banks abroad to the European Central Bank Regulation (EU) No. 1358/2011, of 14 December 2011, minimum cash requirements of Repayable on demand Other deposits demand deposits with Bank of Portugal are interest-bearing and correspond to 1% of the deposits and debt certificates maturing in less than 2 years, after excluding from these the deposits of institutions subject to the European System of Central Banks minimum reserve requirements. As at 31 December 2020, the average interest rate on these deposits was null (31 December 2019: null). The caption Demand Deposits with Bank of Portugal includes mandatory deposits to comply with the minimum legal cash reserve requirements in an amount of Euro 262.2 million (31 December 2019: Euro 246.8 million). According to the European Central Bank Compliance with minimum cash requirements, for a given observation period, is monitored taking into account the Regulation (EU) No. 1358/2011, of 14 December 2011, minimum cash requirements of demand deposits with Bank of Portugal are average amount of the deposits with Bank of Portugal over said period. The balance of the account with Bank of interest-bearing and correspond to 1% of the deposits and debt certificates maturing in less than 2 years, after excluding from these the deposits of institutions subject to the European System of Central Banks minimum reserve requirements. As at 31 December Portugal as at 31 December 2020 was included in the observation period running from 16 December 2020 to 26 2020, the average interest rate on these deposits was null (31 December 2019: null). January 2021. Compliance with minimum cash requirements, for a given observation period, is monitored taking into account the average amount Checks to be collected on credit institutions at home and abroad were sent for collection within the first business days of the deposits with Bank of Portugal over said period. The balance of the account with Bank of Portugal as at 31 December 2020 was included in the observation period running from 16 December 2020 to 26 January 2020. following the reference dates. 143 614 38 688 175 761 26 452 1 854 081 2 695 459 202 213 182 302 Checks to be collected on credit institutions at home and abroad were sent for collection within the first business days following the reference dates. NOTE 21 – Financial assets and liabilities held for trading NOTE 21 – FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING As at 31 December 2020 and 2019, this caption is analyzed as follows: As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: Financial assets held for trading Securities Bonds and other fixed income securities Issued by government and public entities Derivatives Derivatives held for trading with positive fair value Fair value option derivatives with positive fair value Financial liabilities held for trading Derivatives Derivatives held for trading with negative fair value (in thousands of Euros) 31.12.2020 31.12.2019 267 016 267 016 388 257 - 388 257 655 273 254 848 254 848 419 791 74 093 493 884 748 732 554 791 554 791 544 825 544 825 31 December 2020 Notes to the Consolidated Financial Statements Securities held for trading Securities held for trading In accordance with the accounting policy described in Note 2.5, securities held for trading are those acquired to be In accordance with the accounting policy described in Note 2.5, securities held for trading are those acquired to be traded in the traded in the short-term regardless of their maturity. short-term regardless of their maturity. 46 As of 31 December 2020 and 2019, the schedule of securities held for trading by maturity is as follows: As of 31 December 2020 and 2019, the schedule of securities held for trading by maturity is as follows: 1 to 5 years More than 5 years (in thousands of Euros) 31.12.2020 31.12.2019 3 734 263 282 267 016 117 227 137 621 254 848 A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 40. Derivatives As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: Notional 31.12.2020 Fair Value Assets Liabilities Notional (in thousands of Euros) 31.12.2019 Fair Value Assets Liabilities - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell Trading derivatives 254 Exchange rate contracts Forward - buy - sell Currency Swaps Currency Interest Rate Swaps Currency Options Interest rate contracts Interest Rate Swaps Swaption - Interest Rate Options Interest Rate Caps & Floors Equity / Index contracts Equity / Index Swaps Equity / Index Options Credit default contracts Credit Default Swaps Fair value option derivatives Interest rate contracts Interest Rate Swaps - compras - vendas 5 307 5 757 23 668 7 956 743 210 744 649 1 019 987 1 025 562 22 951 22 947 219 866 192 493 7 808 593 7 809 654 400 000 - 93 846 91 073 152 294 152 294 711 682 743 755 2 883 2 883 622 307 605 890 967 872 968 543 21 390 21 390 168 095 167 870 7 138 184 7 139 186 - - 89 767 165 221 30 467 30 467 663 491 685 480 2 399 2 399 - - 1 431 5 468 1 118 490 21 363 21 363 21 875 21 870 10 743 10 706 6 240 5 836 57 205 45 493 34 540 33 953 318 578 499 782 349 152 499 619 - - 2 821 1 177 1 084 3 961 966 893 319 662 503 743 352 939 501 689 2 337 2 204 3 988 3 739 3 335 5 539 16 16 28 323 32 311 1 1 5 402 9 141 42 42 388 257 554 791 419 791 544 825 171 371 171 371 - - 74 093 74 093 - - 9 053 11 390 - - - - a) Derivatives traded on organized markets, whose market value is settled daily through the margin account (see Note 28) Fair value option derivatives include instruments designed to manage the risk associated with certain financial assets and liabilities designated at fair value through profit or loss, in accordance with the accounting policy described in Notes 2.4 and 2.7, and which the Group has not designated for hedge accounting. 31 December 2020 Notes to the Consolidated Financial Statements 47 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDSecurities held for trading In accordance with the accounting policy described in Note 2.5, securities held for trading are those acquired to be traded in the short-term regardless of their maturity. As of 31 December 2020 and 2019, the schedule of securities held for trading by maturity is as follows: (in thousands of Euros) 31.12.2020 31.12.2019 1 to 5 years More than 5 years 3 734 263 282 A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 40. 267 016 117 227 137 621 254 848 A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 40. Derivatives Derivatives As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: Notional 31.12.2020 Fair Value Assets Liabilities Notional (in thousands of Euros) 31.12.2019 Fair Value Assets Liabilities Trading derivatives Exchange rate contracts Forward - buy - sell Currency Swaps - buy - sell Currency Interest Rate Swaps - buy - sell Currency Options - buy - sell Interest rate contracts Interest Rate Swaps - buy - sell Swaption - Interest Rate Options - buy - sell Interest Rate Caps & Floors - buy - sell Equity / Index contracts Equity / Index Swaps - buy - sell Equity / Index Options - buy - sell Credit default contracts Credit Default Swaps - buy - sell Fair value option derivatives Interest rate contracts Interest Rate Swaps - compras - vendas 622 307 605 890 967 872 968 543 21 390 21 390 168 095 167 870 7 138 184 7 139 186 - - 89 767 165 221 30 467 30 467 663 491 685 480 2 399 2 399 23 668 7 956 1 431 5 468 21 363 21 363 10 743 10 706 743 210 744 649 1 019 987 1 025 562 22 951 22 947 219 866 192 493 5 307 5 757 1 118 490 21 875 21 870 6 240 5 836 57 205 45 493 34 540 33 953 318 578 499 782 - - 1 084 3 961 7 808 593 7 809 654 400 000 - 93 846 91 073 349 152 499 619 2 821 1 177 966 893 319 662 503 743 352 939 501 689 2 337 2 204 9 053 11 390 - - 3 335 5 539 16 16 152 294 152 294 711 682 743 755 2 883 2 883 3 988 3 739 28 323 32 311 1 1 5 402 9 141 42 42 388 257 554 791 419 791 544 825 - - - - 171 371 171 371 - - 74 093 74 093 - - a) Derivatives traded on organized markets, whose market value is settled daily through the margin account (see Note 28) Fair value option derivatives include instruments designed to manage the risk associated with certain financial assets and liabilities designated at fair value through profit or loss, in accordance with the accounting policy described in Notes 2.4 and 2.7, and which Fair value option derivatives include instruments designed to manage the risk associated with certain financial assets the Group has not designated for hedge accounting. and liabilities designated at fair value through profit or loss, in accordance with the accounting policy described in Notes 2.4 and 2.7, and which the Group has not designated for hedge accounting. 31 December 2020 Notes to the Consolidated Financial Statements The Group calculates the Credit Valuation Adjustment (CVA) for derivative instruments in accordance with the following methodology: (i) Portfolio basis – the calculation of the CVA corresponds to the application, to the aggregate exposure of each counterpart, of an expected loss and a recovery rate, considering the average duration period estimated for each exposure; (ii) Individual basis – the calculation of the CVA on an individual basis is based on the determination of the exposure using stochastic methods (Expected Positive Exposure) which translates into the calculation of the expected fair value exposure that each derivative is likely to assume over its remaining life. Subsequently, are applied to the exposure determined, an expected loss and a recovery rate. 47 In the financial year of 2020, the Group recognized a loss of Euro -291 thousand related to the CVA of derivative instruments (31 December 2019: gain of Euro 1,796 thousand). 255 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe Group calculates the Credit Valuation Adjustment (CVA) for derivative instruments in accordance with the following methodology: (i) Portfolio basis – the calculation of the CVA corresponds to the application, to the aggregate exposure of each counterpart, of an expected loss and a recovery rate, considering the average duration period estimated for each exposure; (ii) Individual basis – the calculation of the CVA on an individual basis is based on the determination of the exposure using stochastic methods (Expected Positive Exposure) which translates into the calculation of the expected fair value exposure that each derivative is likely to assume over its remaining life. Subsequently, are applied to the exposure determined, an expected loss and a recovery rate. In the financial year of 2020, the Group recognized a gain of Euro -291 thousand related to the CVA of derivative instruments (31 The Group chooses not to register "Debt Valuation Adjustment" (DVA), which represents the market value of own credit December 2019: gain of Euro 1,796 thousand). risk of the group of a certain negative exposure to a counterparty, reflecting a prudent perspective of application of The Group chooses not to register "Debt Valuation Adjustment" (DVA), which represents the market value of own credit risk of the this regulation. It should be noted that the exposure potentially subject to DVA is controlled on a monthly basis and has group of a certain negative exposure to a counterparty, reflecting a prudent perspective of application of this regulation. It should be assumed immaterial values. noted that the exposure potentially subject to DVA is controlled on a monthly basis and has assumed immaterial values. The Group calculates the Credit Valuation Adjustment (CVA) for derivative instruments in accordance with the following methodology: (i) Portfolio basis – the calculation of the CVA corresponds to the application, to the aggregate exposure of each counterpart, of an As at 31 December 2020 and 2019, the analysis of the derivatives held for trading by maturity period is as follows: expected loss and a recovery rate, considering the average duration period estimated for each exposure; (ii) Individual basis – the As at 31 December 2020 and 2019, the analysis of the derivatives held for trading by maturity period is as follows: calculation of the CVA on an individual basis is based on the determination of the exposure using stochastic methods (Expected Positive Exposure) which translates into the calculation of the expected fair value exposure that each derivative is likely to assume over its remaining life. Subsequently, are applied to the exposure determined, an expected loss and a recovery rate. (in thousands of Euros) 31.12.2020 31.12.2019 Assets In the financial year of 2020, the Group recognized a gain of Euro -291 thousand related to the CVA of derivative instruments (31 December 2019: gain of Euro 1,796 thousand). Liabilities Liabilities Assets Derivatives held for negotiation Notional Fair Value (net) Fair Value (net) Notional Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years The Group chooses not to register "Debt Valuation Adjustment" (DVA), which represents the market value of own credit risk of the group of a certain negative exposure to a counterparty, reflecting a prudent perspective of application of this regulation. It should be noted that the exposure potentially subject to DVA is controlled on a monthly basis and has assumed immaterial values. ( 81) 8 725 ( 23 606) ( 151 572) ( 166 534) 2 094 664 1 053 257 2 111 144 5 916 247 11 175 312 1 597 161 822 432 2 329 447 4 954 932 9 703 972 1 597 477 805 003 2 349 045 5 034 921 9 786 446 ( 892) 16 406 1 301 ( 141 849) ( 125 034) As at 31 December 2020 and 2019, the analysis of the derivatives held for trading by maturity period is as follows: Fair value option derivatives More than 5 years - - - - - - 171 371 171 371 74 093 74 093 (in thousands of Euros) 1 924 137 843 821 2 098 238 5 919 114 10 785 310 171 371 171 371 31.12.2019 Credit Support Annex (CSA) Derivatives held for negotiation 31.12.2020 Notional Assets Liabilities Fair Value (net) Notional Assets Liabilities Fair Value (net) Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Credit Support Annex (CSA) NOVO BANCO has several contracts negotiated with counterparts with which it trades derivatives on the Over-the-counter market. The CSAs take the form of collateral agreements established between two parties negotiating over-the-counter derivatives with each other, with the main objective of providing protection against credit risk, defining for that purpose rules regarding collateral. Derivative NOVO BANCO has several contracts negotiated with counterparts with which it trades derivatives on the Over-the- transactions are regulated by the International Swaps and Derivatives Association (ISDA) and have minimum risk margin that may counter market. The CSAs take the form of collateral agreements established between two parties negotiating over- change according to the ratings of the parties. the-counter derivatives with each other, with the main objective of providing protection against credit risk, defining for NOTE 22 – FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, DESIGNATED AT FAIR - that purpose rules regarding collateral. Derivative transactions are regulated by the International Swaps and Derivatives VALUE THROUGH PROFIT OR LOSS, AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME AND AT AMORTISED - Association (ISDA) and have minimum risk margin that may change according to the ratings of the parties. COST 2 094 664 1 053 257 2 111 144 5 916 247 11 175 312 1 924 137 843 821 2 098 238 5 919 114 10 785 310 1 597 477 805 003 2 349 045 5 034 921 9 786 446 1 597 161 822 432 2 329 447 4 954 932 9 703 972 ( 81) 8 725 ( 23 606) ( 151 572) ( 166 534) ( 892) 16 406 1 301 ( 141 849) ( 125 034) Fair value option derivatives 171 371 171 371 171 371 171 371 74 093 74 093 More than 5 years - - - - As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: Credit Support Annex (CSA) NOVO BANCO has several contracts negotiated with counterparts with which it trades derivatives on the Over-the-counter market. The CSAs take the form of collateral agreements established between two parties negotiating over-the-counter derivatives with each other, with the main objective of providing protection against credit risk, defining for that purpose rules regarding collateral. Derivative transactions are regulated by the International Swaps and Derivatives Association (ISDA) and have minimum risk margin that may change according to the ratings of the parties. NOTE 22 – Financial assets mandatorily at fair value through profit or loss, designated at fair value through profit or loss, at fair value through other comprehensive income and at amortised cost NOTE 22 – FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS, AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME AND AT AMORTISED COST Fair value through other comprehensive income Mandatorily at fair value through profit and loss Loans and advances to banks Fair value changes * Amortised cost 11 099 625 7 907 587 2 229 947 31.12.2020 113 795 960 962 113 795 Securities 1 129 Total - - - (in thousands of Euros) Loans and advances to customers As at 31 December 2020 and 2019, this caption is analyzed as follows: As at 31 December 2020 and 31 December 2019, this caption is analyzed as follows: - - 960 962 7 907 587 * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 23) 23 554 304 62 730 23 617 034 25 898 046 63 859 34 830 454 (in thousands of Euros) 31.12.2020 Mandatorily at fair value through profit and loss Fair value through other comprehensive income Amortised cost Fair value changes * Total Securities Loans and advances to banks Loans and advances to customers 960 962 7 907 587 - - - - 2 229 947 113 795 23 554 304 31 December 2020 25 898 046 Notes to the Consolidated Financial Statements 7 907 587 960 962 * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 23) 1 129 - 62 730 63 859 11 099 625 113 795 23 617 034 34 830 454 48 256 31 December 2020 Notes to the Consolidated Financial Statements 48 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Mandatorily at fair Mandatorily at fair value through value through profit and loss profit and loss Fair value Fair value through other through other comprehensive comprehensive income income 31.12.2019 31.12.2019 (in thousands of Euros) (in thousands of Euros) Amortised cost Amortised cost Fair value Fair value changes * changes * Total Total Securities Securities Loans and advances to banks Loans and advances to banks Loans and advances to customers Loans and advances to customers 1 314 742 1 314 742 - - - - 1 314 742 1 314 742 8 849 896 8 849 896 - - - - 8 849 896 8 849 896 1 622 545 1 622 545 369 228 369 228 25 149 687 25 149 687 27 141 460 27 141 460 - - - - 52 540 52 540 52 540 52 540 11 787 183 11 787 183 369 228 369 228 25 202 227 25 202 227 37 358 638 37 358 638 * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 23) * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 23) Securities Securities As at 31 December 2020 and 31 December 2019, the detail of securities portfolio is as follows: Securities As at 31 December 2020 and 31 December 2019, the detail of securities portfolio is as follows: As at 31 December 2020 and 2019, the detail of securities portfolio is as follows: Securities mandatorily at fair value through profit or loss Securities mandatorily at fair value through profit or loss Bonds and other fixed income securities Bonds and other fixed income securities From other issuers From other issuers Shares Shares Other securities with variable income Other securities with variable income Securities at fair value through other comprehensive income Securities at fair value through other comprehensive income Bonds and other fixed income securities Bonds and other fixed income securities From public issuers From public issuers From other issuers From other issuers Shares Shares Other variable income securities Other variable income securities Securities at amortised cost Securities at amortised cost Bonds and other fixed income securities Bonds and other fixed income securities From public issuers From public issuers From other issuers From other issuers Impairment Impairment Value adjustments for hedging operations for interest rate risk * Value adjustments for hedging operations for interest rate risk * * See Note 23 * See Note 23 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 31.12.2019 31.12.2019 160 184 160 184 406 104 406 104 394 674 394 674 960 962 960 962 6 490 076 6 490 076 1 352 759 1 352 759 64 752 64 752 - - 57 590 57 590 603 851 603 851 653 301 653 301 1 314 742 1 314 742 7 108 022 7 108 022 1 661 538 1 661 538 80 334 80 334 2 2 7 907 587 7 907 587 8 849 896 8 849 896 421 249 421 249 2 009 935 2 009 935 ( 201 237) ( 201 237) 2 229 947 2 229 947 1 129 1 129 459 260 459 260 1 322 059 1 322 059 ( 158 774) ( 158 774) 1 622 545 1 622 545 - - 11 099 625 11 099 625 11 787 183 11 787 183 The securities mandatorily accounted at fair value through profit or loss include the participation units held by the Group in The securities mandatorily accounted at fair value through profit or loss include the participation units held by the Group in Restructuring Funds, which are accounted for in accordance with the accounting policy described in Note 2.5, based on the net book Restructuring Funds, which are accounted for in accordance with the accounting policy described in Note 2.5, based on the net book value disclosed by the Management Companies, which may be adjusted according to information, analyzes or independent value disclosed by the Management Companies, which may be adjusted according to information, analyzes or independent evaluations deemed necessary to determine its fair value, in response to guidelines from the European Central Bank. evaluations deemed necessary to determine its fair value, in response to guidelines from the European Central Bank. The securities mandatorily accounted at fair value through profit or loss include the participation units held by the Group in Restructuring Funds, which are accounted for in accordance with the accounting policy described in At the end of 2020, NOVO BANCO completed the independent assessment of the restructuring funds. These funds are “level 3” At the end of 2020, NOVO BANCO completed the independent assessment of the restructuring funds. These funds are “level 3” Note 2.5, based on the net book value disclosed by the Management Companies, which may be adjusted according assets in accordance with the fair value hierarchy of IFRS 13 (quotations provided by third parties whose parameters used are not assets in accordance with the fair value hierarchy of IFRS 13 (quotations provided by third parties whose parameters used are not observable in the market), and NOVO BANCO requested an independent evaluation from an international consulting company in observable in the market), and NOVO BANCO requested an independent evaluation from an international consulting company in to information, analyzes or independent evaluations deemed necessary to determine its fair value, in response to articulation with real estate consultancy companies. This work resulted in a market value of Euro 498.8 million for the total investment articulation with real estate consultancy companies. This work resulted in a market value of Euro 498.8 million for the total investment guidelines from the European Central Bank. held in these assets, which led to the recording of a loss of Euro -300.2 million in the year 2020 recorded under the heading of gains held in these assets, which led to the recording of a loss of Euro -300.2 million in the year 2020 recorded under the heading of gains or losses with financial assets mandatorily accounted for at fair value through profit or loss (see Note 10). This assessment included or losses with financial assets mandatorily accounted for at fair value through profit or loss (see Note 10). This assessment included At the end of 2020, NOVO BANCO completed the independent assessment of the restructuring funds. These funds the establishment of assumptions for the valuation of assets included in the funds, a discount at the level of the fund based on the establishment of assumptions for the valuation of assets included in the funds, a discount at the level of the fund based on parameters equivalent to quoted funds and an appreciation of the potential evolution of the fund. parameters equivalent to quoted funds and an appreciation of the potential evolution of the fund. are “level 3” assets in accordance with the fair value hierarchy of IFRS 13 (quotations provided by third parties whose parameters used are not observable in the market), and NOVO BANCO requested an independent evaluation from an international consulting company in articulation with real estate consultancy companies. This work resulted in a market value of Euro 498.8 million for the total investment held in these assets, which led to the recording of a loss of Euro -300.2 million in the year 2020 recorded under the heading of gains or losses with financial assets mandatorily accounted for at fair value through profit or loss (see Note 10). This assessment included the establishment of assump- tions for the valuation of assets included in the funds, a discount at the level of the fund based on parameters equivalent to quoted funds and an appreciation of the potential evolution of the fund. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 31 December 2020 31 December 2020 49 49 257 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES As at 31 December 2020 and 2019, the detail of the fair value securities through other comprehensive income is as As at 31 December 2020 and 2019, the detail of the fair value securities through other comprehensive income is as follows: follows: Cost (1) Fair value reserve Positive Negative Balance sheet value Impairment reserves (in thousands of Euros) From public issuers Bonds and other fixed income securities ( 3 125) As at 31 December 2020 and 2019, the detail of the fair value securities through other comprehensive income is as follows: ( 1 435) ( 1 690) (in thousands of Euros) ( 565) Impairment ( 3) reserves ( 562) 360 033 129 520 230 513 68 749 Fair value reserve 107 68 642 6 490 076 2 780 473 3 709 603 1 352 759 Balance sheet 27 378 value 1 325 381 6 130 285 2 650 953 3 479 332 1 286 344 Cost (1) 29 605 1 256 739 Residents Non residents From other issuers ( 242) - ( 242) ( 2 334) ( 2 334) - Residents Non residents Negative Positive Shares Bonds and other fixed income securities Other securities with variable income From public issuers Residents Non residents Residents Non residents From other issuers Residents Residents Non residents Balance as at 31 December 2020 (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. Shares Residents Non residents Other securities with variable income Residents Balance as at 31 December 2020 Bonds and other fixed income securities (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. From public issuers Residents Non residents From other issuers Residents Non residents 463 232 359 127 6 130 285 104 105 2 650 953 3 479 332 2 1 286 344 2 29 605 1 256 739 7 879 863 463 232 359 127 104 105 Cost (1) 2 2 7 879 863 6 781 109 3 201 240 3 579 869 1 575 607 33 212 Cost (1) 1 542 395 18 163 15 396 360 033 2 767 129 520 230 513 - 68 749 - 107 68 642 446 945 ( 416 643) ( 319 824) ( 242) ( 96 819) - ( 242) ( 2) ( 2 334) ( 2) ( 2 334) - ( 419 221) 64 752 54 699 6 490 076 10 053 2 780 473 3 709 603 - 1 352 759 - 27 378 1 325 381 7 907 587 - - ( 3 125) - ( 1 435) ( 1 690) - ( 565) - ( 3) ( 562) ( 3 690) 18 163 15 396 2 767 Fair value reserve ( 416 643) ( 319 824) ( 96 819) - - Negative ( 2) ( 2) Positive 446 945 327 605 162 006 165 599 87 363 Fair value reserve 20 711 66 652 ( 419 221) ( 692) ( 490) ( 202) ( 1 432) - ( 1 432) Negative Positive 64 752 54 699 10 053 - - (in thousands of Euros) - Balance sheet - value - Impairment - reserves - 7 907 587 7 108 022 3 362 756 3 745 266 1 661 538 Balance sheet 53 923 value 1 607 615 ( 3 690) ( 4 527) ( 2 158) ( 2 369) (in thousands of Euros) ( 1 029) Impairment ( 8) reserves ( 1 021) From public issuers Residents Non residents Other securities with variable income Shares Bonds and other fixed income securities 25 771 24 590 327 605 1 181 162 006 165 599 2 87 363 - 20 711 2 66 652 440 741 25 771 24 590 1 181 Balance as at 31 December 2019 Shares (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. 480 591 375 391 6 781 109 105 200 3 201 240 3 579 869 2 1 575 607 2 33 212 - 1 542 395 8 837 309 480 591 375 391 105 200 Residents Non residents Residents Non residents From other issuers Residents Residents Non residents Non residents - - ( 4 527) - ( 2 158) ( 2 369) - ( 1 029) - ( 8) - ( 1 021) ( 5 556) - - During the year 2020, the Group sold Euro 1,323.9 million of financial instruments classified at fair value through other comprehensive - income (31 December 2019: Euro 3,761.0 million), with a gain of Euro 82, 4 million (31 December 2019: gain of Euro 67.8 million), - Other securities with variable income recorded in the income statement, from the sale of debt instruments and a loss of Euro 15.0 million that were transferred from - During the year 2020, the Group sold Euro 1,323.9 million of financial instruments classified at fair value through other revaluation reserves to sales-related reserves (31 December 2019: loss of Euro 4.5 million). - comprehensive income (31 December 2019: Euro 3,761.0 million), with a gain of Euro 82, 4 million (31 December 2019: ( 5 556) Balance as at 31 December 2019 The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: gain of Euro 67.8 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 15.0 (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. million that were transferred from revaluation reserves to sales-related reserves (31 December 2019: loss of Euro 4.5 During the year 2020, the Group sold Euro 1,323.9 million of financial instruments classified at fair value through other comprehensive income (31 December 2019: Euro 3,761.0 million), with a gain of Euro 82, 4 million (31 December 2019: gain of Euro 67.8 million), million). recorded in the income statement, from the sale of debt instruments and a loss of Euro 15.0 million that were transferred from revaluation reserves to sales-related reserves (31 December 2019: loss of Euro 4.5 million). The movements in the impairment reserves in fair value securities through other comprehensive income are Balance as at 31 December 2018 presented as follows The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: 80 334 64 764 7 108 022 15 570 3 362 756 3 745 266 2 1 661 538 - 53 923 2 1 607 615 8 849 896 80 334 64 764 15 570 ( 426 028) ( 335 217) ( 692) ( 90 811) ( 490) ( 202) ( 2) ( 1 432) ( 2) - - ( 1 432) ( 428 154) ( 426 028) ( 335 217) ( 90 811) Impairment movement of securities at fair value through other comprehensive income Residents Non residents (in thousands of Euros) ( 2) ( 2) - 2 2 - 2 - 2 2 - 2 8 837 309 8 849 896 ( 428 154) 440 741 Stage 1 Stage 2 Stage 3 1 191 1 213 Total 22 - Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements 6 233 ( 1 729) ( 137) ( 2) - ( 18) - ( 4) Impairment movement of securities at fair value through other comprehensive income - 6 233 (in thousands of Euros) ( 1 747) - ( 137) - ( 6) - Balance as at 31 December 2019 Stage 1 5 556 Stage 2 - Stage 3 Balance as at 31 December 2018 Increases due to changes in credit risk Decreases due to changes in credit risk Increases due to changes in credit risk Utilization during the period Decreases due to changes in credit risk Other movements Utilization during the period Other movements Balance as at 31 December 2020 Balance as at 31 December 2019 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2020 31 December 2020 258 1 191 3 516 ( 5 080) 6 233 ( 232) ( 1 729) ( 70) ( 137) ( 2) 3 690 5 556 3 516 ( 5 080) ( 232) ( 70) 3 690 22 38 - - ( 44) ( 18) 6 - ( 4) - - 38 - ( 44) 6 - Notes to the Consolidated Financial Statements - - - - - - - - - - - - - - - - - Total 5 556 1 213 3 554 ( 5 080) 6 233 ( 276) ( 1 747) ( 64) ( 137) ( 6) 3 690 5 556 3 554 ( 5 080) ( 276) ( 64) 3 690 50 31 December 2020 Notes to the Consolidated Financial Statements 50 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDChanges in impairment losses on amortised cost securities are as follows: Changes in impairment losses on amortised cost securities are as follows: Balance as at 31 December 2018 2 233 57 623 134 930 194 786 Impairment movement of securities at amortised cost Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) Derecognized financial assets Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2019 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2020 - 8 212 ( 8 208) - 59 - 638 922 ( 642 526) ( 1) 38 ( 3 424) 6 616 ( 7 690) ( 28 019) 9 ( 3 424) 653 750 ( 658 424) ( 28 020) 106 2 296 54 056 102 422 158 774 10 187 ( 8 816) ( 36) 294 3 925 717 848 ( 683 933) ( 2) ( 317) 10 533 ( 3 294) - ( 1) 738 568 ( 696 043) ( 38) ( 24) 87 652 109 660 201 237 In accordance with the accounting policy mentioned on Note 2.5, the Group regularly evaluate if there is any objective evidence of impairment in its securities portfolio at a fair value through other comprehensive income based on the judgement criteria mentioned on Note 3.1. In accordance with the accounting policy mentioned on Note 2.5, the Group regularly evaluate if there is any objective The dotation for impairment for securities during 2020 financial year include Euro 29.0 million, reflecting the update of information in evidence of impairment in its securities portfolio at a fair value through other comprehensive income based on the IFRS 9 models, anticipating losses related to the Covid-19 pandemic. judgement criteria mentioned on Note 3.1. As at 31 December 2020 and 2019, the securities portfolio, by residual maturity period, is as follows: (in thousands of Euros) The dotation for impairment for securities during 2020 financial year include Euro 29.0 million, reflecting the update of information in IFRS 9 models, anticipating losses related to the Covid-19 pandemic. Loans and advances to banks in Portugal As at 31 December 2020 and 2019, the securities portfolio, by residual maturity period, is as follows: 31.12.2020 31.12.2019 Very short-term placements Deposits Loans Other loans and advances 4 075 4 897 30 280 4 8 902 9 342 34 013 3 (in thousands of Euros) 52 260 31.12.2019 39 256 31.12.2020 Loans and advances to banks abroad Loans and advances to banks in Portugal Deposits Very short-term placements Loans Deposits Other loans and advances Loans Other loans and advances Outstanding applications Loans and advances to banks abroad Deposits Loans Other loans and advances Impairment losses Overdue loans The detail of the securities portfolio by fair value hierarchy is presented in Note 40. The portfolio securities pledged by the Group are analyzed in Note 36. Impairment losses The detail of the securities portfolio by fair value hierarchy is presented in Note 40. The portfolio securities pledged by the Group are analyzed in Note 36. 10 532 4 075 - 4 897 279 419 30 280 4 289 951 39 256 34 726 10 532 363 933 - ( 250 138) 279 419 289 951 113 795 10 850 8 902 1 645 9 342 381 561 34 013 3 394 056 52 260 - 10 850 446 316 1 645 ( 77 088) 381 561 394 056 369 228 34 726 - 363 933 446 316 ( 250 138) ( 77 088) 113 795 369 228 31 December 2020 Notes to the Consolidated Financial Statements 51 259 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESLoans and advances to Banks As at 31 December 2020 and 31 December 2019, the detail of Loans and advances to Banks is as follows: Loans and advances to Banks (in thousands of Euros) 31.12.2020 31.12.2019 Loans and advances to banks in Portugal As at 31 December 2020 and 31 December 2019, the detail of Loans and advances to Banks is as follows: As at 31 December 2020 and 31 December 2019, the detail of Loans and advances to Banks is as follows: Loans and advances to banks in Portugal Very short-term placements Deposits Loans and advances to Banks Loans Other loans and advances Loans and advances to banks abroad Loans and advances to banks abroad Loans and advances to banks in Portugal Very short-term placements Deposits Loans Deposits Other loans and advances Loans Very short-term placements Operations with reverse repurchase agreements Deposits Other loans and advances Loans Deposits Other loans and advances Loans Operations with reverse repurchase agreements Other loans and advances Deposits Loans Operations with reverse repurchase agreements Other loans and advances Overdue loans Loans and advances to banks abroad Impairment losses Outstanding applications (in thousands of Euros) 31.12.2020 31.12.2019 (in thousands of Euros) 31.12.2020 31.12.2019 4 075 4 897 30 280 4 39 256 4 075 4 897 30 280 10 532 4 - 4 075 - 39 256 4 897 279 419 30 280 10 532 289 951 4 - 39 256 - 34 726 279 419 363 933 10 532 289 951 - ( 250 138) - 34 726 279 419 113 795 363 933 289 951 8 902 9 342 34 013 3 52 260 8 902 9 342 34 013 10 850 3 1 645 8 902 - 52 260 9 342 381 561 34 013 10 850 394 056 3 1 645 52 260 - - 381 561 446 316 10 850 394 056 1 645 ( 77 088) - - 381 561 369 228 446 316 394 056 Impairment losses Outstanding applications ( 250 138) 34 726 113 795 363 933 ( 77 088) - 369 228 446 316 Impairment losses Investments in credit institutions are all recorded in the amortised cost portfolio. Investments in credit institutions are all recorded in the amortised cost portfolio. As at 31 December 2020 and 2019, the analysis of loans and advances to banks, by residual maturity is as follows: 113 795 As at 31 December 2020 and 2019, the analysis of loans and advances to banks, by residual maturity is as follows: ( 250 138) ( 77 088) 369 228 Investments in credit institutions are all recorded in the amortised cost portfolio. (in thousands of Euros) As at 31 December 2020 and 2019, the analysis of loans and advances to banks, by residual maturity is as follows: 31.12.2020 31.12.2019 Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Up to 3 months Unlimited duration (Overdue Loans) From 3 months to 1 year From 1 to 5 years More than 5 years Unlimited duration (Overdue Loans) Changes in impairment losses on loans and advances to banks are presented as follows: 31.12.2020 16 200 4 854 302 182 5 971 16 200 34 726 4 854 302 182 363 933 5 971 34 726 (in thousands of Euros) 31.12.2019 24 302 11 793 406 305 3 916 24 302 - 11 793 406 305 446 316 3 916 - 363 933 446 316 (in thousands of Euros) Changes in impairment losses on loans and advances to banks are presented as follows: Loans and advances to Banks Changes in impairment losses on loans and advances to banks are presented as follows: Stage 1 Stage 2 Stage 3 Total Balance as at 31 December 2018 Balance as at 31 December 2018 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Increases due to changes in credit risk Other movements Decreases due to changes in credit risk Other movements Balance as at 31 December 2019 Balance as at 31 December 2019 170 Stage 1 406 ( 234) - 170 ( 24) 406 318 ( 234) - 536 ( 24) ( 436) 12 318 75 143 Loans and advances to Banks (in thousands of Euros) 75 740 427 Stage 2 2 752 ( 2 959) ( 22) 75 143 1 427 2 752 76 341 ( 2 959) ( 22) 2 457 1 427 ( 1 948) ( 76 848) 76 341 Stage 3 - - - 427 2 - 429 - - 317 540 2 ( 128 520) 60 257 429 Total 3 158 ( 3 193) ( 22) 75 740 1 405 3 158 77 088 ( 3 193) ( 22) 320 533 1 405 ( 130 904) ( 16 579) 77 088 Balance as at 31 December 2020 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements 250 138 320 533 ( 130 904) The increase of impairment for investments in credit institutions verified in 2020 results from the degradation of the credit risk of ( 16 579) international exposures analyzed on an individual basis, whose partial default situation at the end of 2020, among other signs of 250 138 Balance as at 31 December 2020 impairment, led to the transfer of the same to stage 3 and the constitution of additional impairments of Euro 189.6 million, and the total impairment recorded on 31 December 2020 for this exposure was Euro 249.3 million. The increase of impairment for investments in credit institutions verified in 2020 results from the degradation of the credit risk of international exposures analyzed on an individual basis, whose partial default situation at the end of 2020, among other signs of impairment, led to the transfer of the same to stage 3 and the constitution of additional impairments of Euro 189.6 million, and the total impairment recorded on 31 December 2020 for this exposure was Euro 249.3 million. 249 706 317 540 ( 128 520) 60 257 2 2 457 ( 1 948) ( 76 848) 430 536 ( 436) 12 249 706 430 2 260 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 52 52 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThe increase of impairment for investments in credit institutions verified in 2020 results from the degradation of the credit risk of international exposures analyzed on an individual basis, whose partial default situation at the end of 2020, among other signs of impairment, led to the transfer of the same to stage 3 and the constitution of additional impairments of Euro 189.6 million, and the total impairment recorded on 31 December 2020 for this exposure was Euro 249.3 million. Loans and advances to customers Loans and advances to customers As at 31 December 2020 and 31 December 2019, the detail of loans and advances to customers is presented as follows: As at 31 December 2020 and 31 December 2019, the detail of loans and advances to customers is presented as follows: Domestic loans and advances Corporate Current account loans Loans Discounted bills Factoring Overdrafts Financial leases Other loans and advances Individuals Residential Mortgage loans Consumer credit and other loans Foreign loans and advances Corporate Current account loans Loans Discounted bills Factoring Overdrafts Financial leases Other loans and advances Individuals Residential Mortgage loans Consumer credit and other loans Overdue loans and advances and interests Under 90 days Over 90 days Impairment losses Fair value adjustaments of interest rate hedges * Corporate Loans Individuals Residential Mortgage loans * See Note 23 (in thousands of Euros) 31.12.2020 31.12.2019 1 147 959 8 980 908 81 843 576 766 7 109 1 421 599 21 077 8 977 196 1 118 813 1 408 191 8 436 268 121 203 710 493 3 061 1 523 091 29 617 9 102 659 1 178 338 22 333 270 22 512 921 851 881 146 986 4 51 483 8 321 - 1 950 312 186 020 2 195 008 667 842 1 068 336 21 206 138 292 39 158 37 422 1 1 085 701 321 114 3 379 072 15 632 610 169 26 695 1 083 494 625 801 1 110 189 25 154 079 27 002 182 (1 599 775) (1 852 495) 23 554 304 25 149 687 6 774 14 390 55 956 62 730 38 150 52 540 23 617 034 25 202 227 During the year of 2020, the Group completed the sale of a portfolio of non-performing loans (called “Carter”) and the impact of this operation on the balance sheet resulted in a reduction of net loans and advances to customers of Euro 37.0 million (Euro 82.8 million During the year of 2020, the Group completed the sale of a portfolio of non-performing loans (called “Carter”) and the in gross value and Euro 45.8 million in impairment) and the impact on results translated into a gain of Euro 2.9 million (see Note 43). impact of this operation on the balance sheet resulted in a reduction of net loans and advances to customers of Euro During the year of 2019, the Group completed the sale of a portfolio of non-performing loans (called “NATA II”), and the impact of 37.0 million (Euro 82.8 million in gross value and Euro 45.8 million in impairment) and the impact on results translated this operation on the balance sheet resulted in a reduction in net loans and advances to customers of Euro 128.1 million (Euro 1,189.3 into a gain of Euro 2.9 million (see Note 43). million in gross value and Euro 1,061.1 million in impairment), and the impact on results was a loss of Euro 83.5 million (see Note 43). During the year of 2019, the Group completed the sale of a portfolio of non-performing loans (called “NATA II”), and the Loans to customers are all recorded in the amortised cost portfolio. impact of this operation on the balance sheet resulted in a reduction in net loans and advances to customers of Euro 128.1 million (Euro 1,189.3 million in gross value and Euro 1,061.1 million in impairment), and the impact on results was As at 31 December 2020, the amount of loans and advances to customers (net of impairment) includes the amount of Euro 1,390.3 million (31 December 2019: Euro 1,608.7 million), related to securitization operations in which, according to the accounting policy a loss of Euro -79.0 million (see Note 43). referred to in Note 2.2, structured entities are consolidated by the Group (see Notes 1 and 39). The liabilities associated with these securitization operations were recognized as Debt Securities (see Note 31). 261 As at 31 December 2020, the caption Loans and advances to customers include Euro 6,104.8 million of mortgage loans related to the issuance of mortgage bonds (31 December 2019: Euro 6,076.8 million) (see Note 31). 31 December 2020 Notes to the Consolidated Financial Statements 53 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESLoans to customers are all recorded in the amortised cost portfolio. As at 31 December 2020, the amount of loans and advances to customers (net of impairment) includes the amount of Euro 1,390.3 million (31 December 2019: Euro 1,608.7 million), related to securitization operations in which, according to the accounting policy referred to in Note 2.2, structured entities are consolidated by the Group (see Notes 1 and 39). The liabilities associated with these securitization operations were recognized as Debt Securities (see Note 31). As at 31 December 2020, the caption Loans and advances to customers include Euro 6,104.8 million of mortgage loans related to the issuance of mortgage bonds (31 December 2019: Euro 6,076.8 million) (see Note 31). As at 31 December 2020, the amount of interest and commissions recorded in the balance sheet relating to credit operations amounts to Euro 25,256 thousand (31 December 2019: Euro 26,343 thousand). As at 31 December 2020, the amount of interest and commissions recorded in the balance sheet relating to credit operations amounts to Euro 25,256 thousand (31 December 2019: Euro 26,343 thousand). As at 31 December 2019 and 2018, the analysis of loans and advances to customers, by residual maturity period, is as As at 31 December 2020, the amount of interest and commissions recorded in the balance sheet relating to credit operations amounts to Euro 25,256 thousand (31 December 2019: Euro 26,343 thousand). follows: As at 31 December 2019 and 2018, the analysis of loans and advances to customers, by residual maturity period, is as follows: (in thousands of Euros) As at 31 December 2019 and 2018, the analysis of loans and advances to customers, by residual maturity period, is as follows: 31.12.2019 (in thousands of Euros) 1 773 496 1 496 699 5 108 121 1 773 496 17 566 217 1 496 699 1 110 189 5 108 121 17 566 217 27 054 722 1 110 189 Up to 3 months From 3 months to 1 year From 1 to 5 years Up to 3 months More than 5 years From 3 months to 1 year Unlimited duration (Overdue Loans) From 1 to 5 years More than 5 years Unlimited duration (Overdue Loans) 1 049 929 1 299 816 5 157 298 1 049 929 17 083 965 1 299 816 625 801 5 157 298 17 083 965 25 216 809 625 801 31.12.2019 31.12.2020 31.12.2020 Changes in credit impairment losses are presented as follows: 25 216 809 27 054 722 Changes in credit impairment losses are presented as follows: Changes in credit impairment losses are presented as follows: Credit Impairment Movement (in thousands of Euros) (in thousands of Euros) Stage 1 Stage 2 Stage 3 Total 265 353 Stage 1 110 355 Stage 2 Balance as at 31 December 2019 Balance as at 31 December 2018 Total Financial assets derecognised ( 1 056 780) Balance as at 31 December 2018 3 957 922 Increases due to changes in credit risk 949 544 Financial assets derecognised ( 1 056 780) Decreases due to changes in credit risk ( 322 027) Increases due to changes in credit risk 949 544 Utilization during the period ( 1 710 042) Decreases due to changes in credit risk ( 322 027) Other movements 33 878 ( 1 710 042) Utilization during the period 1 852 495 33 878 Other movements ( 294 007) Financial assets derecognised Balance as at 31 December 2019 1 852 495 808 179 Increases due to changes in credit risk ( 294 007) Financial assets derecognised ( 283 737) Decreases due to changes in credit risk Increases due to changes in credit risk 808 179 Utilization during the period ( 441 450) Other movements (a) ( 283 737) Decreases due to changes in credit risk ( 41 705) Utilization during the period ( 441 450) 1 599 775 Other movements (a) ( 41 705) (a) It includes 58 046 thousand euros of impairment of credits of the Spanish Branch transferred to discontinued operations (22 427 thousand euros in stage 1 and 35 619 thousand euros in stage 1 599 775 3). Credit Impairment Movement 3 582 214 Stage 3 ( 1 055 717) 3 582 214 705 452 ( 1 055 717) ( 133 970) 705 452 ( 1 709 571) ( 133 970) 270 367 ( 1 709 571) 1 658 775 270 367 ( 294 005) 1 658 775 428 745 ( 294 005) ( 68 607) 428 745 ( 441 321) ( 68 607) ( 55 246) ( 441 321) 1 228 341 ( 55 246) ( 1 050) 265 353 137 482 ( 1 050) ( 156 076) 137 482 ( 49) ( 156 076) ( 191 715) ( 49) 53 945 ( 191 715) ( 2) 53 945 40 289 ( 2) ( 116 192) 40 289 ( 16) ( 116 192) 83 405 ( 16) 61 429 83 405 ( 13) 110 355 106 610 ( 13) ( 31 981) 106 610 ( 422) ( 31 981) ( 44 774) ( 422) 139 775 ( 44 774) - 139 775 339 145 - ( 98 938) 339 145 ( 113) ( 98 938) ( 69 864) ( 113) 310 005 ( 69 864) Balance as at 31 December 2020 Balance as at 31 December 2020 1 228 341 3 957 922 310 005 61 429 (a) It includes 58 046 thousand euros of impairment of credits of the Spanish Branch transferred to discontinued operations (22 427 thousand euros in stage 1 and 35 619 thousand euros in stage 3). The increase of impairment for credit risk during the year 2020 include Euro 218.8 million, reflecting the updating of the information in the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic. The increase of impairment for credit risk during the year 2020 include Euro 218.8 million, reflecting the updating of the information in the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic. Credit distribution by type of rate is as follows: The increase of impairment for credit risk during the year 2020 include Euro 218.8 million, reflecting the updating of Credit distribution by type of rate is as follows: the information in the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic. (in thousands of Euros) 31.12.2020 31.12.2019 (in thousands of Euros) Credit distribution by type of rate is as follows: Fixed rate Variable rate Fixed rate Variable rate Fixed rate Variable rate 262 31.12.2020 3 982 917 21 233 887 3 982 917 31.12.2020 25 216 804 21 233 887 31.12.2019 (in thousands of Euros) 3 705 246 23 349 476 3 705 246 31.12.2019 27 054 722 23 349 476 3 982 917 25 216 804 21 233 892 3 705 246 27 054 722 23 349 476 25 216 809 27 054 722 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 54 54 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED An analysis of finance lease loans, by residual maturity period, is presented as follows: An analysis of finance lease loans, by residual maturity period, is presented as follows: 31.12.2020 31.12.2019 (in thousands of Euros) Gross investment in finance leases receivable An analysis of finance lease loans, by residual maturity period, is presented as follows: Up to 1 year 1 to 5 years More than 5 years An analysis of finance lease loans, by residual maturity period, is presented as follows: Gross investment in finance leases receivable Unrealized finance income in finance leases Up to 1 year Up to 1 year 1 to 5 years 1 to 5 years More than 5 years Gross investment in finance leases receivable More than 5 years Up to 1 year 1 to 5 years Unrealized finance income in finance leases More than 5 years Present value of minimum lease payments receivable Up to 1 year Up to 1 year 1 to 5 years 1 to 5 years More than 5 years Unrealized finance income in finance leases More than 5 years Up to 1 year 1 to 5 years More than 5 years Impairment Up to 1 year 1 to 5 years More than 5 years Present value of minimum lease payments receivable Present value of minimum lease payments receivable 270 188 761 487 571 105 31.12.2020 1 602 780 31.12.2020 270 188 44 830 761 487 67 455 571 105 32 654 1 602 780 270 188 144 939 761 487 571 105 44 830 1 602 780 225 358 67 455 694 032 32 654 538 285 144 939 44 830 1 457 675 67 455 32 654 ( 220 447) 225 358 144 939 694 032 1 237 228 538 285 293 189 827 824 (in thousands of Euros) 663 672 31.12.2019 1 784 685 31.12.2019 (in thousands of Euros) 293 189 35 558 827 824 91 219 663 672 57 541 1 784 685 293 189 184 318 827 824 663 672 35 558 1 784 685 257 631 91 219 736 605 57 541 605 996 184 318 35 558 1 600 232 91 219 57 541 ( 202 575) 257 631 184 318 736 605 1 397 657 605 996 Up to 1 year 1 to 5 years Impairment More than 5 years NOTE 23 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS At 31 December 2020 and 31 December 2019, the fair value of the hedging derivatives is analyzed as follows: NOTE 23 – Derivatives – hedge accounting and fair value changes of the hedged items NOTE 23 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS (in thousands of Euros) Impairment 1 397 657 31.12.2019 1 237 228 ( 202 575) ( 220 447) 31.12.2020 1 457 675 225 358 694 032 ( 220 447) 538 285 1 237 228 1 457 675 1 600 232 257 631 736 605 ( 202 575) 605 996 1 397 657 1 600 232 Hedging derivatives At 31 December 2020 and 31 December 2019, the fair value of the hedging derivatives is analyzed as follows: At 31 December 2020 and 31 December 2019, the fair value of the hedging derivatives is analyzed as follows: Assets Liabilities NOTE 23 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS 12 972 ( 72 543) ( 59 571) 7 452 ( 58 855) (in thousands of Euros) ( 51 403) 31.12.2020 31.12.2019 31.12.2020 12 972 1 129 ( 72 543) 62 730 ( 59 571) 63 859 (in thousands of Euros) 7 452 - ( 58 855) 52 540 ( 51 403) 52 540 31.12.2019 12 972 ( 72 543) ( 59 571) 1 129 62 730 63 859 7 452 ( 58 855) ( 51 403) - 52 540 52 540 At 31 December 2020 and 31 December 2019, the fair value of the hedging derivatives is analyzed as follows: Fair value component of the assets and liabilities hedged for interest rate risk Hedging derivatives Financial assets Assets Liabilities Securities (see Note 22) Loans to customerss (see Note 22) Hedging derivatives Assets Liabilities Financial assets Fair value component of the assets and liabilities hedged for interest rate risk Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives are recognized in the income statement in the caption Gains and losses from hedge accounting. Securities (see Note 22) Loans to customerss (see Note 22) Fair value component of the assets and liabilities hedged for interest rate risk Financial assets Securities (see Note 22) Loans to customerss (see Note 22) The Group calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology described in Note 21 - financial assets and liabilities held for trading. Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives are recognized in the income statement in the caption Gains and losses from hedge accounting. As at 31 December 2020 and 2019, fair value hedging operations may be analyzed as follows: Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives (in thousands of Euros) The Group calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives are are recognized in the income statement in the caption Gains and losses from hedge accounting. 31.12.2020 described in Note 21 - financial assets and liabilities held for trading. recognized in the income statement in the caption Gains and losses from hedge accounting. The Group calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the Hedged risk The Group calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology As at 31 December 2020 and 2019, fair value hedging operations may be analyzed as follows: methodology described in Note 21 - financial assets and liabilities held for trading. described in Note 21 - financial assets and liabilities held for trading. 31.12.2020 Change in fair value component of item hedged in period (1) Change in fair value of derivative in period Fair value component of item hedged(1) Fair value of derivatives (2) - 52 540 1 129 62 730 (in thousands of Euros) Hedged item Derivative 63 859 52 540 Notional As at 31 December 2020 and 2019, fair value hedging operations may be analyzed as follows: Interest Rate Swap As at 31 December 2020 and 2019, fair value hedging operations may be analyzed as follows: Interest Rate Swap/ CIRS Securities at amortized cost Loans to customers 801 ( 9 045) Interest rate Interest and exchange rates Hedged risk 31.12.2020 378 000 3 325 224 Notional 3 703 224 665 ( 60 236) Fair value of ( 59 571) derivatives (2) Change in fair value of derivative in period ( 8 244) 1 129 62 730 Fair value component of 63 859 item hedged(1) Derivative Hedged item (1) Attributable to hedged risk (2) Includes accrued interest Derivative Interest Rate Swap Interest Rate Swap/ CIRS Securities at amortized cost Loans to customers Hedged item Hedged risk Interest rate Interest and exchange rates Notional 378 000 3 325 224 Fair value of 665 derivatives (2) ( 60 236) Change in fair value of derivative in period 801 ( 9 045) Fair value component of 1 129 item hedged(1) 62 730 1 130 Change in fair 11 416 value (in thousands of Euros) component of 12 546 item hedged in period (1) Change in fair value component of 1 130 item hedged 11 416 in period (1) 31 December 2020 (1) Attributable to hedged risk Interest Rate Swap (2) Includes accrued interest Interest Rate Swap/ CIRS Securities at amortized cost Loans to customers ( 59 571) Notes to the Consolidated Financial Statements 665 ( 60 236) Interest rate Interest and exchange rates 378 000 3 325 224 3 703 224 ( 8 244) 63 859 801 ( 9 045) 1 129 62 730 12 546 55 1 130 11 416 (1) Attributable to hedged risk (2) Includes accrued interest 31 December 2020 Notes to the Consolidated Financial Statements 263 31 December 2020 Notes to the Consolidated Financial Statements 55 55 3 703 224 ( 59 571) ( 8 244) 63 859 12 546 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESProduto derivado Hedged item Hedged risk Notional 31.12.2019 (in thousands of Euros) Fair value of derivatives (2) Change in fair value of derivative in period Fair value component of item hedged(1) Change in fair value component of item hedged in period (1) Interest Rate Swap/ CIRS Loans to customers Interest and exchange rates 3 295 352 ( 51 403) ( 16 142) 52 540 18 007 (1) Attributable to hedged risk (2) Includes accrued interest 3 295 352 ( 51 403) ( 16 142) 31.12.2019 52 540 (in thousands of Euros) 18 007 Fair value of derivatives (2) Change in fair value of derivative in period Fair value component of item hedged(1) Change in fair value component of item hedged in period (1) 18 007 Notional 52 540 52 540 ( 51 403) ( 16 142) ( 16 142) ( 51 403) 3 295 352 (2) Includes accrued interest (2) Includes accrued interest (1) Attributable to hedged risk (1) Attributable to hedged risk Hedged item Hedged item Produto derivado (in thousands of Euros) Loans to customers Loans to customers Fair value of derivatives (2) 3 295 352 Notional 3 295 352 Fair value component of item hedged(1) Change in fair value of derivative in period Hedged risk On 31 December 2020, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 4.3 million, was recorded in the income statement (31 December 2019: profit of Euro 1.8 million). The Group periodically conducts tests of the 31.12.2019 effectiveness of existing hedging relationships. On 31 December 2020, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 4.3 Interest and exchange rates Interest Rate Swap/ CIRS Hedged risk Produto derivado million, was recorded in the income statement (31 December 2019: profit of Euro 1.8 million). The Group periodically As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which 18 007 led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their positions conducts tests of the effectiveness of existing hedging relationships. in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original Interest and exchange rates Interest Rate Swap/ CIRS As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference objective of risk management or discontinuation of hedging relationships will occur, the Group did not record significant impacts on On 31 December 2020, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 4.3 million, was interest rates, which led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships were recorded in the income statement (31 December 2019: profit of Euro 1.8 million). The Group periodically conducts tests of the given the same change (hedged items and hedging). the discount curve of their positions in derivative financial instruments cleared in central counterparty (CCP) from effectiveness of existing hedging relationships. EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the principle of implementation of the Transactions with risk management and hedge derivatives as of 31 December 2020 and 2019, by maturity, can be analyzed as As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which On 31 December 2020, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 4.3 million, was aforementioned regulation, that no substantial changes to the original objective of risk management or discontinuation follows: led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their positions recorded in the income statement (31 December 2019: profit of Euro 1.8 million). The Group periodically conducts tests of the of hedging relationships will occur, the Group did not record significant impacts on retrospective and prospective in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD effectiveness of existing hedging relationships. SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original (in thousands of Euros) effectiveness, taking into account that all assets and liabilities involved in hedging relationships were given the same objective of risk management or discontinuation of hedging relationships will occur, the Group did not record significant impacts on As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which change (hedged items and hedging). retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships were led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their positions Fair value (net) given the same change (hedged items and hedging). in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD Transactions with risk management and hedge derivatives as of 31 December 2020 and 2019, by maturity, can be SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original 170 866 Transactions with risk management and hedge derivatives as of 31 December 2020 and 2019, by maturity, can be analyzed as objective of risk management or discontinuation of hedging relationships will occur, the Group did not record significant impacts on analyzed as follows: 803 084 follows: retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships were 877 662 given the same change (hedged items and hedging). 3 months to 1 year 1 to 5 years More than 5 years Change in fair value component of item hedged in period (1) 170 866 803 084 877 662 - 772 860 874 816 - 772 860 874 816 - ( 14 413) ( 36 990) ( 912) ( 8 747) ( 49 912) ( 51 403) (in thousands of Euros) Transactions with risk management and hedge derivatives as of 31 December 2020 and 2019, by maturity, can be analyzed as follows: Fair value (net) 31.12.2020 31.12.2019 31.12.2020 31.12.2019 1 851 612 1 851 612 1 647 676 1 647 676 ( 59 571) Notional Notional 3 295 352 ( 51 403) ( 16 142) ( 51 403) ( 16 142) 52 540 52 540 18 007 18 007 Buy Buy Sell Sell Notional Notional Fair value (net) NOTE 24 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Buy Sell Buy Sell ( 912) Investments in subsidiaries, joint ventures and associates are presented as follows: ( 8 747) ( 49 912) Fair value (net) 3 months to 1 year 1 to 5 years More than 5 years Notional 170 866 803 084 877 662 Buy 1 851 612 170 866 803 084 Cost of participation 877 662 170 866 31.12.2020 803 084 877 662 Sell 1 851 612 170 866 803 084 877 662 Notional - 772 860 874 816 Buy 1 647 676 - 772 860 874 816 31.12.2019 - 772 860 874 816 Sell 1 647 676 - 772 860 874 816 Fair value (net) (in thousands of Euros) - ( 14 413) ( 36 990) Fair value (net) (in thousands of Euros) ( 51 403) - ( 14 413) Group profit / losses ( 36 990) attributable to the Group ( 59 571) ( 912) ( 8 747) ( 49 912) Economic interest (b) Book value 3 months to 1 year 1 to 5 years More than 5 years NOTE 24 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES 31.12.2020 1 851 612 31.12.2019 1 851 612 31.12.2020 ( 59 571) 31.12.2019 31.12.2020 1 647 676 31.12.2019 1 647 676 31.12.2020 ( 51 403) 31.12.2019 LOCARENT Investments in subsidiaries, joint ventures and associates are presented as follows: LINEAS - CONCESSÕES DE TRANSPORTES NOTE 24 – Investments in subsidiaries, joint ventures and associates EDENRED NOTE 24 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES UNICRE a) 146 769 146 769 11 497 11 497 28 983 24 640 20 607 19 612 60 200 61 786 ( 1 784) 17,50% 17,50% 50,00% 50,00% 40,00% 40,00% 50,00% 50,00% 2 967 2 967 1 021 4 526 4 984 4 984 2 102 1 992 1 325 469 513 2 624 4 242 (in thousands of Euros) ( 828) ( 1 208) Group profit / losses attributable to the Group 9 430 1 470 Others Investments in subsidiaries, joint ventures and associates are presented as follows: Investments in subsidiaries, joint ventures and associates are presented as follows: Economic interest (b) Impairment Cost of participation 194 789 194 598 28 381 28 572 19 701 20 915 131 593 Book value 128 945 ( 37 963) ( 36 317) 31.12.2019 (in thousands of Euros) a) Despite the Group's economic interest being less than 20%, this entity was included in the consolidated balance sheet using the equity method since the Group exercises significant influence 1 325 1 021 LOCARENT over its activities. LINEAS - CONCESSÕES DE TRANSPORTES b) The percentage of economic interest indicated corresponds to the proportion of voting rights held. EDENRED Group profit / losses attributable to the Group Economic interest (b) Cost of participation 146 769 Book value 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 146 769 93 630 92 628 20 607 19 612 60 200 61 786 ( 1 784) 50,00% 50,00% 40,00% 40,00% 50,00% 50,00% 2 967 2 967 4 984 4 526 4 984 2 102 1 992 469 513 UNICRE a) Others LOCARENT LINEAS - CONCESSÕES DE TRANSPORTES EDENRED Impairment 31.12.2020 11 497 31.12.2019 11 497 31.12.2020 17,50% 31.12.2019 17,50% 31.12.2020 28 983 31.12.2019 24 640 31.12.2020 4 242 31.12.2019 2 624 28 572 2 967 146 769 194 789 4 984 28 381 2 967 146 769 194 598 4 984 50,00% 40,00% 50,00% 50,00% 40,00% 50,00% 19 701 20 607 60 200 131 593 2 102 ( 37 963) 20 915 19 612 61 786 128 945 1 992 ( 36 317) ( 828) 1 021 4 526 9 430 469 ( 1 208) 1 325 ( 1 784) 1 470 513 2 624 UNICRE a) a) Despite the Group's economic interest being less than 20%, this entity was included in the consolidated balance sheet using the equity method since the Group exercises significant influence ( 1 208) Others over its activities. 28 983 93 630 24 640 92 628 11 497 11 497 28 381 28 572 19 701 20 915 17,50% 17,50% 4 242 ( 828) b) The percentage of economic interest indicated corresponds to the proportion of voting rights held. Impairment 194 789 194 598 131 593 128 945 9 430 1 470 ( 37 963) ( 36 317) 93 630 92 628 a) Despite the Group's economic interest being less than 20%, this entity was included in the consolidated balance sheet using the equity method since the Group exercises significant influence over its activities. Notes to the Consolidated Financial Statements 31 December 2020 56 b) The percentage of economic interest indicated corresponds to the proportion of voting rights held. 264 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 56 56 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThe financial information of the most relevant associated companies is presented in the following table: The financial information of the most relevant associated companies is presented in the following table: Income The financial information of the most relevant associated companies is presented in the following table: Liabilities Assets Equity (in thousands of Euros) Profit / (loss) for the period 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2019 LOCARENT 278 892 285 608 238 299 247 005 40 593 LINEAS - CONCESSÕES DE TRANSPORTES EDENRED 239 341 Assets 78 399 314 608 74 183 154 744 Liabilities 227 063 67 973 63 978 84 597 Equity 10 426 38 603 87 545 10 205 33 115 66 882 2 649 (in thousands of Euros) 2 042 19 769 Income 7 083 2 272 7 713 12 333 ( 4 461) Profit / (loss) for the period 1 026 938 UNICRE a) The financial information of the most relevant associated companies is presented in the following table: LOCARENT Note: Data adjusted for consolidation purposes 148 490 140 802 210 647 257 476 165 619 376 266 398 278 278 892 285 608 238 299 247 005 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 40 593 38 603 33 115 31.12.2019 156 270 31.12.2020 24 239 31.12.2019 14 995 66 882 2 042 2 649 227 063 LINEAS - CONCESSÕES DE TRANSPORTES a) Despite the Group's economic interest being less than 20%, this entity was included in the consolidated balance sheet using the equity method since the Group exercises significant influence over its activities. EDENRED ( 4 461) (in thousands of Euros) 938 1 026 154 744 314 608 239 341 67 973 87 545 84 597 10 426 10 205 63 978 74 183 19 769 12 333 78 399 2 272 7 083 7 713 UNICRE a) 376 266 Assets 398 278 210 647 Liabilities 257 476 165 619 Equity 140 802 148 490 Income 156 270 14 995 Profit / (loss) for the period 24 239 7 713 7 083 2 272 2 042 1 026 ( 4 461) 24 239 78 399 12 333 19 769 66 882 33 115 63 978 38 603 10 205 10 426 67 973 87 545 84 597 40 593 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2020 31.12.2019 31.12.2020 31.12.2019 148 490 257 476 210 647 376 266 398 278 238 299 278 892 247 005 239 341 140 802 165 619 154 744 227 063 31.12.2020 31.12.2019 31.12.2020 31.12.2019 938 (in thousands of Euros) Balance at the end of the exercise Balance at the beginning of the exercise (a) As of 31 December 2019 it includes 22 904 thousand euros related to the reclassification of GNB Seguros, ESEGUR and Multipessoal for discontinued operations (see Note 29) The changes in the caption as at 31 December 2020 and 2019, is analyzed as follows: Note: Data adjusted for consolidation purposes 31.12.2019 a) Despite the Group's economic interest being less than 20%, this entity was included in the consolidated balance sheet using the equity method since the Group exercises significant influence over its 2 649 285 608 LOCARENT activities. The changes in the caption as at 31 December 2020 and 2019, is analyzed as follows: 314 608 LINEAS - CONCESSÕES DE TRANSPORTES 74 183 EDENRED The changes in the caption as at 31 December 2020 and 2019, is analyzed as follows: UNICRE a) Balance at the beginning of the exercise Note: Data adjusted for consolidation purposes Additional acquisitions and investments (see Note 1) Share of profits / (losses) of associated companies Impairment in associated companies Balance at the beginning of the exercise Fair value reserves of investments in associated companies The changes in the caption as at 31 December 2020 and 2019, is analyzed as follows: Additional acquisitions and investments (see Note 1) Dividends received Share of profits / (losses) of associated companies Foreign exchange differences and other (a) Impairment in associated companies Fair value reserves of investments in associated companies Dividends received Foreign exchange differences and other (a) Additional acquisitions and investments (see Note 1) Share of profits / (losses) of associated companies Impairment in associated companies Fair value reserves of investments in associated companies Dividends received Foreign exchange differences and other (a) 14 995 118 698 (in thousands of Euros) - a) Despite the Group's economic interest being less than 20%, this entity was included in the consolidated balance sheet using the equity method since the Group exercises significant influence over its 1 470 activities. 333 118 698 709 - ( 5 371) 1 470 ( 23 211) 333 92 628 709 ( 5 371) 118 698 ( 23 211) - 1 470 92 628 333 In 2020, dividend income of Euro 1,541 thousand was recorded in financial assets in investments in associates and subsidiaries, (a) As of 31 December 2019 it includes 22 904 thousand euros related to the reclassification of GNB Seguros, ESEGUR and Multipessoal for discontinued operations (see 709 which include dividends received from Locarent in the amount of Euro 958 thousand, from Edenred in the amount of Euro 583 Note 29) ( 5 371) thousand and ESEGUR in the amount of Euro 548 thousand (31 December 2019: Euro 5,371 thousands, which include dividends ( 23 211) received from Unicre in the amount of Euro 4,165 thousand, from Locarent in the amount of Euro 1.050 thousand and Edenred in the In 2020, dividend income of Euro 1,541 thousand was recorded in financial assets in investments in associates and subsidiaries, amount of Euro 156 thousand). which include dividends received from Locarent in the amount of Euro 958 thousand, from Edenred in the amount of Euro 583 thousand and ESEGUR in the amount of Euro 548 thousand (31 December 2019: Euro 5,371 thousands, which include dividends (a) As of 31 December 2019 it includes 22 904 thousand euros related to the reclassification of GNB Seguros, ESEGUR and Multipessoal for discontinued operations (see The changes in impairment losses for investments in associates are presented as follows: In 2020, dividend income of Euro 1,541 thousand was recorded in financial assets in investments in associates and received from Unicre in the amount of Euro 4,165 thousand, from Locarent in the amount of Euro 1.050 thousand and Edenred in the Note 29) (in thousands of Euros) amount of Euro 156 thousand). subsidiaries, which include dividends received from Locarent in the amount of Euro 958 thousand, from Edenred in the amount of Euro 583 thousand and ESEGUR in the amount of Euro 548 thousand (31 December 2019: Euro 5,371 In 2020, dividend income of Euro 1,541 thousand was recorded in financial assets in investments in associates and subsidiaries, The changes in impairment losses for investments in associates are presented as follows: which include dividends received from Locarent in the amount of Euro 958 thousand, from Edenred in the amount of Euro 583 thousands, which include dividends received from Unicre in the amount of Euro 4,165 thousand, from Locarent in the Balance at the beginning of the period thousand and ESEGUR in the amount of Euro 548 thousand (31 December 2019: Euro 5,371 thousands, which include dividends amount of Euro 1,050 thousand and Edenred in the amount of Euro 156 thousand). received from Unicre in the amount of Euro 4,165 thousand, from Locarent in the amount of Euro 1.050 thousand and Edenred in the amount of Euro 156 thousand). The changes in impairment losses for investments in associates are presented as follows: Balance at the beginning of the period The changes in impairment losses for investments in associates are presented as follows: 156 270 92 628 2 919 9 430 ( 4 192) 92 628 691 2 919 ( 1 541) 9 430 ( 6 305) ( 4 192) 93 630 691 ( 1 541) 92 628 ( 6 305) 2 919 9 430 93 630 ( 4 192) 691 ( 1 541) ( 6 305) Balance at the end of the exercise Balance at the end of the exercise (in thousands of Euros) 31.12.2019 31.12.2020 31.12.2020 31.12.2019 31.12.2020 36 317 92 628 93 630 Charges Uses Reversals Foreign exchange differences Charges Uses Reversals Foreign exchange differences Balance at the end of the period Balance at the beginning of the period Balance at the end of the period Charges Uses Reversals Foreign exchange differences 31.12.2020 31.12.2019 36 650 (in thousands of Euros) 5 142 1 - ( 2 680) 36 650 36 317 ( 334) ( 950) 134 - 1 5 142 (in thousands of Euros) - ( 2 680) 36 317 37 963 ( 334) ( 950) - 134 36 650 36 317 36 317 37 963 1 5 142 - ( 2 680) ( 334) ( 950) - 134 31.12.2019 Balance at the end of the period 37 963 36 317 31 December 2020 Notes to the Consolidated Financial Statements 265 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 57 57 57 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESNOTE 25 – Tangible fixed assets NOTE 25 – TANGIBLE FIXED ASSETS This caption as at 31 December 2020 and 2019 is analyzed as follows: This caption as at 31 December 2020 and 31 December 2019 is analyzed as follows: Real estate properties For own use Improvements in leasehold properties Assets under right-of-use Equipment Computer equipment Fixtures Furniture Security equipment Office equipment Transport equipment Assets under right-of-use Other Work in progress Improvements in leasehold properties Real estate properties Equipment Others Accumulated impairment Accumulated depreciation (in thousands of Euros) 31.12.2020 31.12.2019 225 571 135 909 53 082 207 553 139 257 60 531 414 562 407 341 106 337 56 936 52 296 24 248 7 993 583 10 228 189 110 371 58 243 71 061 24 829 8 230 640 5 952 1 195 258 810 280 521 673 372 687 862 - 148 1 1 417 1 566 22 67 6 - 95 674 938 687 957 ( 13 943) ( 473 943) ( 10 609) ( 488 940) 187 052 188 408 31 December 2020 Notes to the Consolidated Financial Statements 58 266 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED The changes in this caption were as follows: The changes in this caption were as follows: Real estate properties Equipment Other (in thousand of Euros) Work in progress Total Acquisition cost Balance at 31 December 2018 Acquisitions Disposals/write-offs Transfers (a) IFRS16 transition impact Foreign exchange differences and other Balance at 31 December 2019 Acquisitions Disposals/write-offs Transfers Foreign exchange differences and other (c) 347 224 8 230 ( 20 244) 491 66 644 4 996 407 341 31 178 ( 12 539) ( 1 665) ( 9 753) 286 815 11 371 ( 22 634) 950 4 461 ( 442) 280 521 15 514 ( 10 360) ( 147) ( 26 718) Balance at 31 December 2020 414 562 258 810 Depreciation Balance at 31 December 2018 Depreciation Disposals/write-offs Transfers (a) Foreign exchange differences and other Balance at 31 December 2019 Depreciation Disposals/write-offs Transfers (b) Foreign exchange differences and other (d) 225 713 20 542 ( 5 998) ( 210) 1 085 241 132 17 829 ( 8 928) ( 805) ( 801) 257 149 11 866 ( 21 292) ( 74) 142 247 791 12 456 ( 9 973) ( 143) ( 24 622) Balance at 31 December 2020 248 427 225 509 Impairment Balance at 31 December 2018 Balance at 31 December 2019 Impairment loss Balance at 31 December 2020 10 609 10 609 3 334 13 943 - - - - Net book value at 31 December 2020 152 192 33 301 Net book value at 31 December 2019 155 600 32 730 - - - - - - - - - - - - 16 1 - - - 17 - ( 7) - ( 3) 7 - - - - ( 7) ( 17) 1 942 358 - ( 2 205) - - 95 1 593 - ( 121) ( 1) 1 566 - - - - - - - - - - - - - - - 635 981 19 959 ( 42 878) ( 764) 71 105 4 554 687 957 48 285 ( 22 899) ( 1 933) ( 36 472) 674 938 482 878 32 409 ( 27 290) ( 284) 1 227 488 940 30 285 ( 18 908) ( 948) ( 25 426) 473 943 10 609 10 609 3 334 13 943 1 566 187 052 95 188 408 (a) Includes Euro 764 thousand of fixed assets (real estate and equipment) and Euro 284 thousand of accumulated amortizations related to discontinued branches which were transferred by the net amount to the appropriate balance sheet items. (b) Includes Euro 1 951 thousand of fixed assets (real estate and equipment) and Euro 1 064 thousand of accumulated amortizations related to discontinued branches which were transferred by the net amount to the appropriate balance sheet items. (c) Includes Euro 9 005 thousand and Euro 27 118 thousand of fixed asset (real estate and equipment) transferred by discontinued activities during the financial year 2020. (d) Includes Euro 2 034 thousand and Euro 24 274 thousand of amortizations related to fixed assets (real estate and equipment) of the Spain branch transferred to discontinued activities during the financial year 2020. NOTE 26 – Investment properties The changes in the caption Investment properties is presented as follows: Balance at the beginning of the exercise Changes in consolidation perimeter Acquisitions Sales Changes in fair value Other (a) Balance at the end of the exercise 31.12.2020 (in thousands of Euros) 31.12.2019 700 744 - 11 966 ( 67 581) ( 101 827) 49 303 592 605 1 098 071 9 455 - ( 197 058) ( 216 119) 6 395 700 744 (a) Includes Euro 52 915 thousand of real estate assets transferred in financial year 2020 within the scope of the Restructuring of Real Estate Funds that were previously classified as Other Assets (see Note 29). 31 December 2020 Notes to the Consolidated Financial Statements 59 267 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESNOTE 26 – INVESTMENT PROPERTIES The changes in the caption Investment properties is presented as follows: 31.12.2020 (in thousands of Euros) 31.12.2019 592 605 700 744 700 744 - 11 966 ( 67 581) ( 101 827) 49 303 1 098 071 9 455 - ( 197 058) ( 216 119) 6 395 Balance at the beginning of the exercise Changes in consolidation perimeter Acquisitions Alienation Changes in fair value According to the accounting policy described in Note 2.23, the book value of investment properties is the fair Other (a) value of the properties, as determined by a registered and independent appraiser with a recognized professional Balance at the end of the exercise qualification and experience in the geographical location and category of the property being valued. For the purposes (a) Includes Euro 52 915 thousand of real estate assets transferred in financial year 2020 within the scope of the Restructuring of Real Estate Funds that were previously classified as Other Assets (see Note of determining the fair value of these assets, generally accepted criteria and methodologies are used, which integrate 29). analyses by the income method and the market method, corresponding to level 3 of the fair value hierarchy (see Note 40). In view of the uncertainty associated with the estimated value of these assets, NOVO BANCO Group According to the accounting policy described in Note 2.23, the book value of investment properties is the fair value of the properties, considers the impacts of the current context of the Covid-19 pandemic as the assets are subject to revaluation. as determined by a registered and independent appraiser with a recognized professional qualification and experience in the geographical location and category of the property being valued. For the purposes of determining the fair value of these assets, generally accepted criteria and methodologies are used, which integrate analyses by the income method and the market method, Investment properties comprise some assets held by Funds and Real Estate firms, and include commercial properties corresponding to level 3 of the fair value hierarchy (see Note 40). In view of the uncertainty associated with the estimated value of leased for revenue and properties held for valuation. Most of the lease contracts have no specific tenor, enabling the these assets, NOVO BANCO Group considers the impacts of the current context of the Covid-19 pandemic as the assets are subject lessee to cancel it at any time. However, for a small number of these commercial properties leased to third parties there to revaluation. is a non-cancelling clause for approximately 10 years. Subsequent leases are negotiated with the lessee. Investment properties comprise some assets held by Funds and Real Estate firms, and include commercial properties leased for revenue and properties held for valuation. Most of the lease contracts have no specific tenor, enabling the lessee to cancel it at any In the financial year of 2020, the decrease in the fair value of investment properties of Euro 101.8 million (31 December time. However, for a small number of these commercial properties leased to third parties there is a non-cancelling clause for 2019: reduction of Euro 216.1 million) (see Note 14), and the rental income from investment properties of Euro 19.3 approximately 10 years. Subsequent leases are negotiated with the lessee. million (31 December 2019: Euro 15.0 million), are recognized in Other operating income and expenses. In the financial year of 2020, the decrease in the fair value of investment properties of Euro 101.8 million (31 December 2019: reduction of Euro 216.1 million) (see Note 14), and the rental income from investment properties of Euro 19.3 million (31 December The fair value changes and sales presented as at 31 December 2019 include Euro 35.0 million and Euro 17.4 million 2019: Euro 15.0 million), are recognized in Other operating income and expenses. related to the sale of real estate assets (Project Sertorius) (see Note 43). The fair value changes and sales presented as at 31 December 2019 include Euro 35.0 million and Euro 17.4 million related to the sale of real estate assets (Project Sertorius) (see Note 43). NOTE 27 – Intangible assets NOTE 27 – INTANGIBLE ASSETS This caption as at 31 December 2020 and 31 December 2019, is analyzed as follows: This caption as at 31 December 2020 and 31 December 2019, is analyzed as follows: Goodwill Internally developed Software - Automatic data processing system Other Acquired from third parties Software - Automatic data processing system Other Work in progress Accumulated amortization Impairment losses (in thousands of Euros) 31.12.2020 31.12.2019 13 907 13 908 69 511 1 69 408 1 353 678 - 371 533 4 423 190 440 946 21 439 17 464 458 536 472 318 ( 395 796) ( 13 907) ( 432 032) ( 13 908) 48 833 26 378 31 December 2020 Notes to the Consolidated Financial Statements 60 268 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThe changes in this caption were as follows: The changes in this caption were as follows: The changes in this caption were as follows: Acquisition cost Balance as at 31 December 2018 Goodwill e Value In Force Goodwill e Value 251 004 In Force (in thousands of Euros) Software Work in progress Total (in thousands of Euros) Software 442 494 Work in progress 2 618 Total 696 116 Acquisitions Acquisition cost Acquired from third parties Balance as at 31 December 2018 Acquired from third parties Disposals / write-offs Acquisitions Transfers Foreign exchange differences and other Disposals / write-offs Transfers Acquisitions Foreign exchange differences and other Balance as at 31 December 2019 Acquired from third parties Balance as at 31 December 2019 Acquired from third parties Disposals / write-offs Acquisitions Transfers Foreign exchange differences and other (a) Disposals / write-offs Transfers Foreign exchange differences and other (a) Balance as at 31 December 2020 Amortizations Balance as at 31 December 2020 Balance as at 31 December 2018 Balance as at 31 December 2019 Amortizations Balance as at 31 December 2018 Amortization for the period Disposals / write-offs Foreign exchange differences and other Amortization for the period Disposals / write-offs Amortization for the period Foreign exchange differences and other Disposals / write-offs Foreign exchange differences and other (b) Amortization for the period Disposals / write-offs Foreign exchange differences and other (b) Balance as at 31 December 2019 Balance as at 31 December 2020 Impairment Balance as at 31 December 2020 Balance as at 31 December 2018 Impairment losses Impairment Reversal of impairment losses Balance as at 31 December 2018 Foreign exchange changes and other Impairment losses Balance as at 31 December 2019 Reversal of impairment losses Impairment losses Foreign exchange changes and other Disposals / write-offs Foreign exchange differences and other Impairment losses Disposals / write-offs Foreign exchange differences and other Balance as at 31 December 2019 Balance as at 31 December 2020 Net balance at 31 December 2020 - 251 004 ( 234 575) - - ( 2 521) ( 234 575) 13 908 - ( 2 521) - 13 908 - - - ( 1) - 13 907 - ( 1) 13 907 - - - - - - - - - - - - - - - - - - 250 561 443 ( 234 575) 250 561 ( 2 521) 443 13 908 ( 234 575) - ( 2 521) - 13 908 ( 1) - 13 907 - ( 1) - 3 421 442 494 ( 7 458) 4 467 3 421 ( 1 978) ( 7 458) 440 946 4 467 ( 1 978) 2 730 440 946 ( 24) 20 161 2 730 ( 40 623) ( 24) 423 190 20 161 ( 40 623) 423 190 440 130 1 254 ( 7 460) 440 130 ( 1 892) 1 254 432 032 ( 7 460) 2 787 ( 1 892) ( 20) 432 032 ( 39 003) 2 787 395 796 ( 20) ( 39 003) 395 796 - - - - - - - - - - - - - - - - - 27 394 Balance as at 31 December 2020 Net balance at 31 December 2019 Net balance at 31 December 2020 (a) Includes 40 083 thousands of Euros of projects assigned to the Spain branch transferred to Discontinued Entities during the financial year 2020. 13 907 - - - 8 914 27 394 23 018 2 618 - ( 8 172) 23 018 - - 17 464 ( 8 172) - 24 136 17 464 - ( 20 161) 24 136 - - 21 439 ( 20 161) - 21 439 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 21 439 - 17 464 21 439 Net balance at 31 December 2019 (b) Includes 38 463 thousands of Euros of investment projects related to the Spanish Branch transferred to Discontinued Entities during the financial year 2020. 8 914 - 17 464 (a) Includes 40 083 thousands of Euros of projects assigned to the Spain branch transferred to Discontinued Entities during the financial year 2020. (b) Includes 38 463 thousands of Euros of investment projects related to the Spanish Branch transferred to Discontinued Entities during the financial year 2020. Goodwill is recognized in accordance with the accounting policy described in Note 2.2, is analyzed as follows: 26 439 696 116 ( 242 033) ( 3 705) 26 439 ( 4 499) ( 242 033) 472 318 ( 3 705) ( 4 499) 26 866 472 318 ( 24) - 26 866 ( 40 624) ( 24) 458 536 - ( 40 624) 458 536 440 130 1 254 ( 7 460) 440 130 ( 1 892) 1 254 432 032 ( 7 460) 2 787 ( 1 892) ( 20) 432 032 ( 39 003) 2 787 395 796 ( 20) ( 39 003) 395 796 250 561 443 ( 234 575) 250 561 ( 2 521) 443 13 908 ( 234 575) - ( 2 521) - 13 908 ( 1) - 13 907 - ( 1) 48 833 13 907 26 378 48 833 26 378 Goodwill is recognized in accordance with the accounting policy described in Note 2.2, is analyzed as follows: Goodwill is recognized in accordance with the accounting policy described in Note 2.2, is analyzed as follows: (in thousands of Euros) 31.12.2020 31.12.2019 Subsidiaries Imbassaí Other Subsidiaries Imbassaí Other Imbassaí Other Imbassaí Other Impairment losses Impairment losses 31.12.2020 13 526 381 13 907 13 526 381 (13 526) 13 907 ( 381) (13 907) (13 526) - ( 381) (13 907) (in thousands of Euros) 31.12.2019 13 526 382 13 908 13 526 382 (13 526) 13 908 ( 382) (13 908) (13 526) - ( 382) (13 908) - - 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 269 Notes to the Consolidated Financial Statements 61 61 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESNOTE 28 – Income taxes NOVO BANCO and its subsidiaries and associated companies located in Portugal are subject, individually, to taxation in accordance with the Corporate Income Tax (IRC) Code. As a result, deferred taxes are recorded depending on the temporary differences between accounting and tax income relevant for IRC purposes, whenever such temporary differences are to be reverted in the future. The income taxes correspond to the value determined of taxable income (if applicable) of the period, using the overall Corporate Income Tax (IRC) at the general rate of 21% and autonomous taxations. Corporate income taxes (current or deferred) are recognized in the income statement except when the underlying transactions or items to which they are related have been reflected under equity captions (e.g. revaluation of financial assets at a fair value through other comprehensive income). In these situations, the corresponding tax is also charged to equity, not affecting the net profit / (loss) for the year. Deferred taxes are calculated based on the tax rates expected to be in force at the temporary differences’ reversal date, which correspond to the rates enacted or substantively enacted at the balance sheet date. Thus, at 31 December 2020 the deferred tax related to temporary differences was determined based on an aggregate rate of 31%, resulting from the sum of the general IRC rate (21%), the Municipal Surcharge of 1.5% and an average rate of State Surcharge of 8.5%. On 4th September 2019, Law No. 98/2019 was published, which amended the IRC Code on the tax treatment of credit institutions' impairments, creating rules applicable to impairment losses recorded in the tax periods beginning before 1st January 2019, not yet accepted for tax purposes. This Law established a transition period for the aforementioned tax regime, which allows taxpayers in the five tax periods beginning on or after January 1, 2019, to continue to apply the tax regime in force before publication of this law, except if they perform the exercise of opt in until the end of October of each tax period of the adaptation regime. The IRC payment declarations are subject to inspection and possible adjustment by the Tax Authorities for a period of four years or during the period in which it is possible to deduct tax losses or tax credits (up to a maximum of twelve years, depending on the year of determination). Thus, possible additional tax assessments may take place due essentially to different interpretations of tax legislation. However, Management believes that, in the context of the consolidated financial statements, there will be no additional charges of significant value. In 2020 and 2019, NOVO BANCO Group recorded deferred tax assets associated with impairments not accepted for tax purposes for credit operations, which have already been written off, considering the expectation that these will contribute to a taxable profit in the periods taxation in which the conditions required for tax deductibility are met. Pursuant to Law No. 55-A/2010, of 31 December, a Bank Levy was established, which is levied on the average annual liabilities recorded on the balance sheet net of own funds and of deposits covered by the guarantee of the Deposit Guarantee Fund and on the notional amount of derivative financial instruments. The Bank Levy is not eligible as a tax cost, and the respective regime has been extended. As at 31 December 2020, NOVO BANCO Group recognized Banking Levy charges as a cost in the amount of Euro 27,440 thousand (31 December 2019: Euro 27,091 thousand). The cost recognized as at 31 December 2020 has been calculated and paid based on the maximum rate of 0.110% levied on the average annual liabilities recorded on the balance sheet, net of own funds and deposits covered by the guarantee of the Deposit Guarantee Fund, approved by Law No. 7-A/2016, of 30 March and by Ordinance No. 165-A/2016, of 14 June. In 2020, following one of the measures provided for in Economic and Social Stabilization Program (SSPE) and following the art. 18 of Law no. 27 -A / 2020, of July 24, the Solidarity Additional on the Banking Sector was created, which, similarly to what happens with the Contribution on the Banking Sector, is levied on the average annual liability calcu- lated balance sheet deducted from own funds and deposits covered by the Deposit Guarantee Fund guarantee and on the notional value of derivative financial instruments. Its settlement is carried out until the end of June of the year following the year to which the surcharge relates. A transitional regime was established for the year 2020 and 2021, the settlement of which was carried out in accordance with the following rules: 270 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED• The reserve base is calculated by reference to the half-yearly average of the final balances of each month, which correspond in the accounts for the first half of 2020, in the case of the solidarity surcharge due in 2020, and in the accounts for the second half of 2020 , in the case of the solidarity surcharge due in 2021, published in compliance with the obligation established in Banco de Portugal Notice No. 1/2019; • Settlement is carried out by the taxable person through the declaration to be sent until 15 December 2020 and 2021, respectively, with payment due on the same dates. The Solidarity Additional on the Banking Sector is not eligible as a tax cost. As at 31 December 2020, the Bank recog- nized as an expense in relation to the Solidarity Additional on the Banking Sector the amount of Euro 5,312 thousand. The recognized expense was calculated and paid based on the maximum rate of 0.02% which is levied on the average annual liability calculated on the balance sheet less the own funds and deposits covered by the Deposit Guarantee Fund guarantee. The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2020 and 2019 may be The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2020 and 31 December 2019 may be analyzed as follows: analyzed as follows: The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2020 and 31 December 2019 may be analyzed as follows: 31.12.2020 31.12.2019 (in thousands of Euros) Assets Liabilities Assets Liabilities The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2020 and 31 December 2019 may be analyzed as follows: (in thousands of Euros) Current tax Corporate tax recoverable Other Deferred tax Current tax Corporate tax recoverable Other Deferred tax Current tax 31.12.2020 610 144 466 774 888 Assets 775 498 610 144 31.12.2020 466 774 888 610 775 498 144 466 774 888 9 203 9 129 74 5 121 Liabilities 14 324 9 203 9 129 74 5 121 9 203 14 324 9 129 74 31.12.2019 5 121 The deferred tax assets and liabilities recognized in the balance sheet in this period are as follows: Liabilities Assets Assets Liabilities 31.12.2020 31.12.2019 31.12.2020 Corporate tax recoverable Other The deferred tax assets and liabilities recognized in the balance sheet in this period are as follows: The deferred tax assets and liabilities recognized in the balance sheet in this period are as follows: Deferred tax Financial instruments Impairment losses on loans and advances to customers Other tangible assets Liabilities Provisions The deferred tax assets and liabilities recognized in the balance sheet in this period are as follows: Pensions Long-term service bonuses Financial instruments Other Impairment losses on loans and advances to customers Tax losses carried forward Other tangible assets Deferred tax asset / (liability) Provisions Pensions Asset / liability set-off for deferred tax purposes Financial instruments Long-term service bonuses Net Deferred tax asset / (liability) Impairment losses on loans and advances to customers Other Other tangible assets Tax losses carried forward Provisions Deferred tax asset / (liability) Pensions The changes occurred in the deferred tax captions are as follows: Long-term service bonuses Asset / liability set-off for deferred tax purposes Other Net Deferred tax asset / (liability) Tax losses carried forward ( 138 855) 14 324 - ( 8 203) - - 31.12.2020 - ( 138 855) ( 9 989) - - ( 8 203) ( 157 047) - 31.12.2020 - 151 926 ( 138 855) - ( 5 121) - ( 9 989) ( 8 203) - - ( 157 047) - - 151 926 ( 9 989) ( 5 121) - 64 322 790 784 - Assets 39 136 31 676 31.12.2020 22 64 322 123 790 784 751 - Assets 926 814 39 136 31.12.2020 31 676 ( 151 926) 64 322 22 774 888 790 784 123 - 751 39 136 926 814 31 676 22 ( 151 926) 123 774 888 751 54 531 906 917 - 48 560 27 375 31.12.2019 23 54 531 5 364 906 917 762 - 1 043 532 48 560 31.12.2019 27 375 ( 145 065) 54 531 23 898 467 906 917 5 364 - 762 48 560 1 043 532 27 375 23 ( 145 065) 5 364 898 467 762 ( 137 302) - ( 8 377) - - 31.12.2019 - ( 137 302) ( 5 493) - - ( 8 377) ( 151 172) - 31.12.2019 - 145 065 ( 137 302) - ( 6 107) - ( 5 493) ( 8 377) - - ( 151 172) - - 145 065 ( 5 493) ( 6 107) - 775 498 Liabilities Assets Net Liabilities Liabilities 900 095 31.12.2019 (in thousands of Euros) (in thousands of Euros) 11 873 7 865 4 008 6 107 1 628 802 826 898 467 Assets 900 095 1 628 802 31.12.2019 826 898 467 1 628 900 095 802 826 31.12.2020 898 467 17 980 11 873 7 865 4 008 6 107 11 873 17 980 7 865 4 008 31.12.2019 6 107 ( 82 771) ( 74 533) 17 980 790 784 906 917 ( 8 203) ( 8 377) 39 136 48 560 31 676 27 375 31.12.2020 31.12.2019 22 23 ( 74 533) ( 82 771) ( 9 866) ( 129) (in thousands of Euros) 790 784 906 917 751 762 ( 8 203) ( 8 377) 769 767 892 360 39 136 48 560 31.12.2019 31.12.2020 31 676 27 375 - - ( 82 771) ( 74 533) 22 23 892 360 769 767 906 917 790 784 ( 9 866) ( 129) ( 8 377) ( 8 203) 762 751 48 560 39 136 892 360 769 767 27 375 31 676 23 22 - - ( 129) ( 9 866) (in thousands of Euros) 892 360 769 767 762 751 (in thousands of Euros) Net Net Deferred tax asset / (liability) 926 814 1 043 532 ( 157 047) 31.12.2020 ( 151 172) 769 767 31.12.2019 892 360 - ( 5 121) 774 888 151 926 898 467 ( 145 065) ( 151 926) The changes occurred in the deferred tax captions are as follows: The changes occurred in the deferred tax captions are as follows: Asset / liability set-off for deferred tax purposes The changes occurred in the deferred tax captions are as follows: Net Deferred tax asset / (liability) Balance at the beginning of the exercise Recognised in Results for the exercise Recognised in Fair value reserves Recognised in Other reserves Balance at the beginning of the exercise Conversion of Deferred taxes into Tax credits Recognised in Results for the exercise Foreign exchange differences and other Recognised in Fair value reserves Balance at the end of the exercise (Assets / (Liabilities)) Recognised in Other reserves Balance at the beginning of the exercise Conversion of Deferred taxes into Tax credits Recognised in Results for the exercise Foreign exchange differences and other Recognised in Fair value reserves Recognised in Other reserves Conversion of Deferred taxes into Tax credits Foreign exchange differences and other - 1 190 122 892 360 ( 36 965) ( 105 943) ( 74) 1 190 122 ( 145 899) ( 36 965) ( 8 881) ( 105 943) 892 360 ( 74) 1 190 122 ( 145 899) ( 36 965) ( 8 881) ( 105 943) ( 74) 892 360 (in thousands of Euros) ( 145 899) ( 8 881) Recognised in Recognised in The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the following origins: 892 360 the income reserves statement 145 065 892 360 ( 6 107) ( 9 721) ( 4 699) 2 169 892 360 ( 107 705) ( 9 721) ( 2 637) ( 4 699) 769 767 2 169 892 360 ( 107 705) ( 9 721) ( 2 637) ( 4 699) 2 169 769 767 ( 107 705) ( 2 637) The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the following origins: Balance at the end of the exercise (Assets / (Liabilities)) Balance at the end of the exercise (Assets / (Liabilities)) Recognised in 769 767 the income statement Recognised in reserves 769 767 (in thousands of Euros) (in thousands of Euros) (in thousands of Euros) 31.12.2019 31.12.2019 31.12.2020 31.12.2020 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2019 31.12.2020 Financial instruments 105 943 ( 11 350) The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the following origins: Recognised in - 14 041 Impairment losses on loans and advances to customers Recognised in the income - ( 174) Other tangible assets reserves statement - 9 424 Provisions 271 ( 2 100) 74 Pensions 105 943 ( 11 350) Financial instruments Recognised in Recognised in - 1 Long-term service bonuses the income - 14 041 Impairment losses on loans and advances to customers reserves statement - ( 132) Other - ( 174) Other tangible assets - Tax losses carried forward 11 9 424 - Provisions 105 943 ( 11 350) Financial instruments 1 897 Recognised in ( 135 968) the income ( 175) statement 33 255 944 1 897 Recognised in - the income ( 135 968) statement ( 1 120) ( 175) 138 132 33 255 1 897 4 699 - Recognised in - reserves - ( 2 169) 4 699 Recognised in - - reserves - - - - 4 699 (in thousands of Euros) Pensions Deferred taxes Impairment losses on loans and advances to customers Long-term service bonuses Other tangible assets Current taxes Other Provisions Tax losses carried forward Total tax recognised (income) / expense Pensions Deferred taxes Long-term service bonuses Current taxes Tax losses carried forward Total tax recognised (income) / expense Deferred taxes 31 December 2020 Current taxes Total tax recognised (income) / expense ( 2 100) 9 721 14 041 1 ( 174) ( 8 639) ( 132) 9 424 11 1 082 ( 2 100) 9 721 1 ( 8 639) 11 1 082 9 721 ( 8 639) 1 082 - - - - - - - - - - ( 2 169) 2 530 2 530 ( 2 169) 2 530 - 2 530 2 530 2 530 944 36 965 ( 135 968) - ( 175) 8 804 ( 1 120) 33 255 138 132 45 769 944 36 965 - 8 804 138 132 45 769 36 965 8 804 45 769 106 017 74 - - - - - - ( 74) 105 943 74 106 017 - ( 74) - 105 943 106 017 63 ( 74) 105 943 The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: Notes to the Consolidated Financial Statements Other The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: ( 1 120) ( 132) - - The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: Notes to the Consolidated Financial Statements 31 December 2020 63 31 December 2020 Notes to the Consolidated Financial Statements 63 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2020 and 31 December 2019 may be analyzed as follows: Corporate tax recoverable Current tax Other Deferred tax 31.12.2020 (in thousands of Euros) 31.12.2019 Assets Liabilities Assets Liabilities 610 144 466 774 888 775 498 9 203 9 129 74 5 121 14 324 1 628 802 826 898 467 900 095 11 873 7 865 4 008 6 107 17 980 The deferred tax assets and liabilities recognized in the balance sheet in this period are as follows: Impairment losses on loans and advances to customers Financial instruments Other tangible assets Provisions Pensions Other Long-term service bonuses Tax losses carried forward Deferred tax asset / (liability) Assets Liabilities Net 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2019 (in thousands of Euros) 64 322 790 784 - 39 136 31 676 22 123 751 54 531 906 917 48 560 27 375 23 5 364 762 ( 138 855) ( 137 302) - ( 8 203) ( 8 377) ( 9 989) ( 5 493) ( 74 533) 790 784 ( 8 203) 39 136 31 676 22 ( 9 866) 751 - - - - - ( 82 771) 906 917 ( 8 377) 48 560 27 375 23 ( 129) 762 - - - - - 926 814 1 043 532 ( 157 047) ( 151 172) 769 767 892 360 Asset / liability set-off for deferred tax purposes ( 151 926) ( 145 065) 151 926 145 065 - - Net Deferred tax asset / (liability) 774 888 898 467 ( 5 121) ( 6 107) 769 767 892 360 The changes occurred in the deferred tax captions are as follows: Balance at the beginning of the exercise Recognised in Results for the exercise Recognised in Fair value reserves Recognised in Other reserves Conversion of Deferred taxes into Tax credits Foreign exchange differences and other (in thousands of Euros) 31.12.2020 31.12.2019 892 360 ( 9 721) ( 4 699) 2 169 ( 107 705) ( 2 637) 1 190 122 ( 36 965) ( 105 943) ( 74) ( 145 899) ( 8 881) Balance at the end of the exercise (Assets / (Liabilities)) 769 767 892 360 The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the following origins: The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the following origins: Financial instruments Impairment losses on loans and advances to customers Other tangible assets Provisions Pensions Long-term service bonuses Other Tax losses carried forward Deferred taxes Current taxes Total tax recognised (income) / expense 31.12.2020 31.12.2019 Recognised in the income statement Recognised in reserves Recognised in the income statement Recognised in reserves (in thousands of Euros) ( 11 350) 14 041 ( 174) 9 424 ( 2 100) 1 ( 132) 11 9 721 ( 8 639) 1 082 4 699 - - - ( 2 169) - - - 2 530 - 2 530 1 897 ( 135 968) ( 175) 33 255 944 - ( 1 120) 138 132 36 965 8 804 45 769 105 943 - - - 74 - - - 106 017 ( 74) 105 943 The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: Notes to the Consolidated Financial Statements 31 December 2020 63 Income before tax Tax rate of NOVO BANCO Income tax calculated based on the tax rate of NOVO BANCO Tax-exempt dividends Impairment on investments in subsidiaries or associated companies subject to Participation Exemption Rate differential on the generation / reversal of timing differences Profits / losses in units with a more favorable tax regime Taxes of Bank Branches and tax withheld abroad Impairments and provisions for loans Impairments for stocks Provisions for other risks, costs and contingencies Annulment of tax losses carried forward Share of profits / (losses) of associated companies Deffered tax assets not recognized under tax losses for the exercise Extraordinary Contribution and Solidarity Additional over the Banking Sector Other Total tax recognized (in thousands of Euros) 31.12.2020 31.12.2019 % Amount % Amount 21,0 0,0 (3,0) 3,5 (0,2) (0,2) (11,0) (7,8) (1,6) - (0,0) (1,2) (0,5) 0,9 (0,1) (1 338 309) (1 020 696) ( 281 045) ( 214 346) 21,0 ( 482) 40 166 ( 46 706) 2 107 2 902 147 255 104 665 21 988 - 61 15 913 6 860 ( 12 602) 1 082 0,2 (2,2) (3,8) (0,1) (0,3) 22,1 (0,1) 0,6 (13,5) (0,0) (24,9) (0,6) (2,8) (4,5) ( 1 759) 22 788 38 344 592 3 391 ( 225 299) 922 ( 6 264) 138 030 426 254 300 5 689 28 955 45 769 Deferred tax assets are recognized to the extent they are expected to be recovered with future taxable income. The Group has evaluated the recoverability of the deferred tax assets considering its expectations of future taxable profits until 2028. The recoverability of deferred tax assets covered by the Special Regime (per Law no. 61/2014) applicable to Deferred Tax Assets is not Deferred tax assets are recognized to the extent they are expected to be recovered with future taxable income. The dependent on the generation of future taxable income. Group has evaluated the recoverability of the deferred tax assets considering its expectations of future taxable profits The assessment of the recoverability of the deferred tax assets is made annually. With reference to 31 December 2020, this exercise until 2028. The recoverability of deferred tax assets covered by the Special Regime (per Law no. 61/2014) applicable to was made based on the latest business plan (“MTP”) for the period 2021-2023, submitted to the European Central Bank in the end Deferred Tax Assets is not dependent on the generation of future taxable income. of February 2021.  In the evaluation of the expectation of future taxable income generation in Portugal for the purposes of the above recovery exercise, The assessment of the recoverability of the deferred tax assets is made annually. With reference to 31 December 2020, the following assumptions were also considered: this exercise was made based on the latest business plan (“MTP”) for the period 2021-2023, submitted to the European In addition to the detailed estimates up to 2023, it is assumed, thereafter an increase in pre-tax results at a rate of 2.64% Central Bank in the end of February 2021. from 2023; Financial results moderate growth (average of 4%), with the expected cost of debt issuing to meet MREL requirements offset In the evaluation of the expectation of future taxable income generation in Portugal for the purposes of the above by the development of new lines of activity and the resumption of economic activity, which is strongly affected by the current pandemic situation. The growth in economic activity should also provide a return to commission levels to values similar to recovery exercise, the following assumptions were also considered: previous years;   Operating costs reduction, based on specific cost reduction plans and the implementation of a new distribution model, reflecting the favorable effect of the decrease in the number of employees and branches and, generally, the simplification and increase in the efficiency of processes; and Credit impairment charges in line with the evolution of the Bank's activity and supported by macroeconomic projections, bearing in mind, in particular, the significant effort made in the last few years in the provisioning of the loan portfolio and the progressive convergence towards gradually normalized risk costs.  272 The evolution of the business plan used for this exercise is strongly conditioned by the evolution of the Covid-19 pandemic situation, whose evolution is difficult to predict. Depending on the analysis mentioned above, the amount of deferred taxes not recognized for tax losses, per year of expiry, is as follows: 2024-2026 2028 and following 31.12.2020 31.12.2019 (in thousands of Euros) 468 903 1 124 790 482 974 1 124 790 1 593 693 1 607 764 In addition, during the financial year 2020, the Bank became aware of the Tax Authority’s position with regards to adjustments resulting from the application of fair value to units in real estate investment funds and private equity funds. Such position implies that fair value adjustments to units of real estate investment funds and private equity funds do not contribute to the taxable profit in the respective year of booking. For the purpose of taxable income, such adjustments will only be accounted for at the moment of the respective realization, namely upon sale of the participation units or liquidation of the funds. In this context, the Bank is assessing the impacts related to the potential creation of deferred tax assets arising from temporary differences Special Regime applicable to Deferred Tax Assets 31 December 2020 Notes to the Consolidated Financial Statements 64 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Income tax calculated based on the tax rate of NOVO BANCO ( 281 045) ( 214 346) Impairment on investments in subsidiaries or associated companies subject to Participation Exemption Income before tax Tax rate of NOVO BANCO Tax-exempt dividends Rate differential on the generation / reversal of timing differences Taxes of Bank Branches and tax withheld abroad Profits / losses in units with a more favorable tax regime • p75 word Impairments and provisions for loans Impairments for stocks Provisions for other risks, costs and contingencies Annulment of tax losses carried forward Share of profits / (losses) of associated companies Deffered tax assets not recognized under tax losses for the exercise Extraordinary Contribution and Solidarity Additional over the Banking Sector Other Total tax recognized (in thousands of Euros) 31.12.2020 31.12.2019 % Amount % Amount (1 338 309) (1 020 696) (11,0) 21,0 0,0 (3,0) 3,5 (0,2) (0,2) (7,8) (1,6) - (0,0) (1,2) (0,5) 0,9 (0,1) 21,0 0,2 (2,2) (3,8) (0,1) (0,3) 22,1 (0,1) 0,6 (13,5) (0,0) (24,9) (0,6) (2,8) (4,5) ( 482) 40 166 ( 46 706) 2 107 2 902 147 255 104 665 21 988 - 61 15 913 6 860 ( 12 602) 1 082 ( 1 759) 22 788 38 344 592 3 391 ( 225 299) 922 ( 6 264) 138 030 426 254 300 5 689 28 955 45 769 Deferred tax assets are recognized to the extent they are expected to be recovered with future taxable income. The Group has evaluated the recoverability of the deferred tax assets considering its expectations of future taxable profits until 2028. The recoverability of deferred tax assets covered by the Special Regime (per Law no. 61/2014) applicable to Deferred Tax Assets is not dependent on the generation of future taxable income. • In addition to the detailed estimates up to 2023, it is assumed, thereafter an increase in pre-tax results at a rate of 2.64% from 2023; The assessment of the recoverability of the deferred tax assets is made annually. With reference to 31 December 2020, this exercise was made based on the latest business plan (“MTP”) for the period 2021-2023, submitted to the European Central Bank in the end • Financial results moderate growth (average of 4%), with the expected cost of debt issuing to meet MREL of February 2021. requirements offset by the development of new lines of activity and the resumption of economic activity, which In the evaluation of the expectation of future taxable income generation in Portugal for the purposes of the above recovery exercise, is strongly affected by the current pandemic situation. The growth in economic activity should also provide a the following assumptions were also considered: return to commission levels to values similar to previous years;  In addition to the detailed estimates up to 2023, it is assumed, thereafter an increase in pre-tax results at a rate of 2.64% from 2023; • Operating costs reduction, based on specific cost reduction plans and the implementation of a new distribution Financial results moderate growth (average of 4%), with the expected cost of debt issuing to meet MREL requirements offset  model, reflecting the favorable effect of the decrease in the number of employees and branches and, generally, the by the development of new lines of activity and the resumption of economic activity, which is strongly affected by the current pandemic situation. The growth in economic activity should also provide a return to commission levels to values similar to simplification and increase in the efficiency of processes; and previous years;  Operating costs reduction, based on specific cost reduction plans and the implementation of a new distribution model, • Credit impairment charges in line with the evolution of the Bank's activity and supported by macroeconomic pro- reflecting the favorable effect of the decrease in the number of employees and branches and, generally, the simplification jections, bearing in mind, in particular, the significant effort made in the last few years in the provisioning of the loan and increase in the efficiency of processes; and portfolio and the progressive convergence towards gradually normalized risk costs. Credit impairment charges in line with the evolution of the Bank's activity and supported by macroeconomic projections,  bearing in mind, in particular, the significant effort made in the last few years in the provisioning of the loan portfolio and the The evolution of the business plan used for this exercise is strongly conditioned by the evolution of the Covid-19 progressive convergence towards gradually normalized risk costs. pandemic situation, whose evolution is difficult to predict. The evolution of the business plan used for this exercise is strongly conditioned by the evolution of the Covid-19 pandemic situation, whose evolution is difficult to predict. Depending on the analysis mentioned above, the amount of deferred taxes not recognized for tax losses, per year of expiry, is as follows: Depending on the analysis mentioned above, the amount of deferred taxes not recognized for tax losses, per year of expiry, is as follows: 2024-2026 2028 and following 31.12.2020 (in thousands of Euros) 31.12.2019 468 903 1 124 790 482 974 1 124 790 1 593 693 1 607 764 In addition, during the financial year 2020, the Bank became aware of the Tax Authority’s position with regards to adjustments resulting from the application of fair value to units in real estate investment funds and private equity funds. Such position implies that fair value adjustments to units of real estate investment funds and private equity funds do not contribute to the taxable profit in the respective year of booking. For the purpose of taxable income, such adjustments will only be accounted for at the moment of In addition, during the financial year 2020, the Bank became aware of the Tax Authority’s position with regards to the respective realization, namely upon sale of the participation units or liquidation of the funds. In this context, the Bank is adjustments resulting from the application of fair value to units in real estate investment funds and private equity funds. assessing the impacts related to the potential creation of deferred tax assets arising from temporary differences Such position implies that fair value adjustments to units of real estate investment funds and private equity funds do not Special Regime applicable to Deferred Tax Assets contribute to the taxable profit in the respective year of booking. For the purpose of taxable income, such adjustments will only be accounted for at the moment of the respective realization, namely upon sale of the participation units or liquidation of the funds. In this context, the Bank is assessing the impacts related to the potential creation of deferred tax assets arising from temporary differences Notes to the Consolidated Financial Statements 31 December 2020 64 Special Regime applicable to Deferred Tax Assets During 2014, NOVO BANCO adhered to the Special Regime applicable to deferred tax assets, after a favourable decision of the Shareholders General Meeting. The Special Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, covers deferred tax assets resulting from non-deduction of expenses and negative equity changes related to impairment losses on credit and with post-employment or long-term employee benefits. The changes to the mentioned above regime, introduced by Law No. 23/2016, of August 19, limited the temporal appli- cation of the above mentioned negative expenses and equity variations, accounted for in the tax periods beginning on or after 1 January 2016, as well as the associated deferred taxes. Thus, the deferred taxes covered by this special regime correspond only to expenses and negative equity variations calculated up to 31 December 2015. Deferred tax assets covered by the above mentioned regime are convertible into tax credits when the taxpayer records a negative net result in the respective tax period, or in case of liquidation by voluntary dissolution or insolvency decreed by court decision. 273 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES During 2014, NOVO BANCO adhered to the Special Regime applicable to deferred tax assets, after a favourable decision of the Shareholders General Meeting. The Special Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, covers deferred tax assets resulting from non-deduction of expenses and negative equity changes related to impairment losses on credit and with post- employment or long-term employee benefits. During 2014, NOVO BANCO adhered to the Special Regime applicable to deferred tax assets, after a favourable decision of the The changes to the mentioned above regime, introduced by Law No. 23/2016, of August 19, limited the temporal application of the Shareholders General Meeting. above mentioned negative expenses and equity variations, accounted for in the tax periods beginning on or after 1January 2016, as well as the associated deferred taxes. Thus, the deferred taxes covered by this special regime correspond only to expenses and The Special Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, covers deferred tax assets negative equity variations calculated up to 31 December 2015. resulting from non-deduction of expenses and negative equity changes related to impairment losses on credit and with post- To convert to a tax credit (other than by liquidation or insolvency), a special reserve should be created for the amount employment or long-term employee benefits. Deferred tax assets covered by the above mentioned regime are convertible into tax credits when the taxpayer records a negative of the respective tax credit increased by 10%. The exercise of conversion rights results in the capital increase of the net result in the respective tax period, or in case of liquidation by voluntary dissolution or insolvency decreed by court decision. The changes to the mentioned above regime, introduced by Law No. 23/2016, of August 19, limited the temporal application of the taxable person by incorporation of the special reserve and issuance of new common shares. This special reserve may above mentioned negative expenses and equity variations, accounted for in the tax periods beginning on or after 1January 2016, as To convert to a tax credit (other than by liquidation or insolvency), a special reserve should be created for the amount of the respective not be distributed. well as the associated deferred taxes. Thus, the deferred taxes covered by this special regime correspond only to expenses and tax credit increased by 10%. The exercise of conversion rights results in the capital increase of the taxable person by incorporation negative equity variations calculated up to 31 December 2015. of the special reserve and issuance of new common shares. This special reserve may not be distributed. Deferred tax assets recorded by the Group and considered eligible the special regime at 31 December 2020 and 2019, are as follows: Deferred tax assets covered by the above mentioned regime are convertible into tax credits when the taxpayer records a negative Deferred tax assets recorded by the Group and considered eligible the special regime at 31 December 2020 and 31 December 2019, net result in the respective tax period, or in case of liquidation by voluntary dissolution or insolvency decreed by court decision. are as follows: To convert to a tax credit (other than by liquidation or insolvency), a special reserve should be created for the amount of the respective tax credit increased by 10%. The exercise of conversion rights results in the capital increase of the taxable person by incorporation of the special reserve and issuance of new common shares. This special reserve may not be distributed. 31.12.2019 31.12.2020 Credit impairment (in thousands of Euros) Deferred tax assets recorded by the Group and considered eligible the special regime at 31 December 2020 and 31 December 2019, are as follows: Following the determination of a negative net income for the years between 2015 and 2019, the deferred tax assets converted or estimated to be converted by reference to the deferred tax assets eligible at the balance sheet date are as follows: (in thousands of Euros) 31.12.2020 400 414 400 414 516 072 516 072 31.12.2019 (in thousands of Euros) 516 072 400 414 Credit impairment Following the determination of a negative net income for the years between 2015 and 2019, the deferred tax assets converted or estimated to be converted by reference to the deferred tax assets eligible at the balance sheet date are Tax credit as follows: Following the determination of a negative net income for the years between 2015 and 2019, the deferred tax assets converted or As a result of Law No. 61/2014, the amount of deferred tax assets to be converted into a tax credit and the constitution of the special estimated to be converted by reference to the deferred tax assets eligible at the balance sheet date are as follows: reserve shall be subject to certification by a statutory auditor, as well as to confirmation by the Tax and Customs Authority, within the (in thousands of Euros) scope of the review procedures for the assessment of the taxable income for the relevant tax periods 516 072 153 555 400 414 99 474 127 575 161 974 110 922 2019 2016 2018 2017 2015 2018 2017 2016 2015 2019 Tax credit 110 922 161 974 127 575 99 474 153 555 As a result of Law No. 61/2014, the amount of deferred tax assets to be converted into a tax credit and the constitution of the special reserve shall be subject to certification by a statutory auditor, as well as to confirmation by the Tax and Customs Authority, within the scope of the review procedures for the assessment of the taxable income for the relevant tax periods As a result of Law No. 61/2014, the amount of deferred tax assets to be converted into a tax credit and the constitution of the special reserve shall be subject to certification by a statutory auditor, as well as to confirmation by the Tax and Customs Authority, within the scope of the review procedures for the assessment of the taxable income for the relevant tax periods. 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 65 65 274 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDNOTE 29 – OTHER ASSETS NOTE 29 – Other assets As at 31 December 2020 and 31 December 2019, the caption Other assets is analyzed as follows: As at 31 December 2020 and 2019, the caption Other assets is analyzed as follows: Collateral deposits placed Derivative products Collateral CLEARNET and VISA Collateral deposits relating to reinsurance operations Other collateral deposits Debtors for mortgage credit interest subsidies Public sector Contingent Capital Agreement Other debtors Income receivable Deferred costs Precious metals, numismatics, medal collection and other liquid assets Real estate properties a) Equipment a) Stock exchange transactions pending settlement Other assets Impairment losses Real estate properties a) Equipment a) Other debtors - Shareholder loans, supplementary capital contributions Other a) Real estate properties and equipment received in settlement of loans and discontinued (in thousands of Euros) 31.12.2020 31.12.2019 806 215 655 952 33 092 117 127 45 6 756 703 701 598 312 491 627 64 025 52 822 9 722 770 054 3 488 60 917 62 752 3 630 391 ( 481 358) ( 2 285) ( 124 939) ( 77 517) ( 686 099) 807 810 631 994 33 175 141 697 944 4 663 459 752 1 037 013 611 802 36 319 56 910 9 555 977 465 3 130 - 138 881 4 143 300 ( 542 589) ( 2 404) ( 126 452) ( 93 363) ( 764 808) 2 944 292 3 378 492 venture capital business which are entirely provisioned (31 December 2019: Euro 14.7 million, entirely provisioned); The caption Collateral deposits placed includes, amongst others, deposits made by the Group as collateral in order to celebrate certain derivative contracts on organised markets (margin accounts) and on over the counter markets (Credit Support Annex – CSA). The caption Collateral deposits placed includes, amongst others, deposits made by the Group as collateral in order to At 31 December 2020, the caption Other debtors includes, amongst others: celebrate certain derivative contracts on organised markets (margin accounts) and on over the counter markets (Credit  Euro 14.7 million in shareholder loans and supplementary capital contributions granted to entities within the scope of the Group’s Support Annex – CSA).  Euro 111.6 million of shareholder loans and supplementary capital contributions resulting from the assignment of loans and At 31 December 2020, the caption Other debtors includes, amongst others:  Euro 67.0 million receivable relation to the sale operation of non-performing loans (Project NATA II) (31 December 2019: Euro • Euro 14.7 million in shareholder loans and supplementary capital contributions granted to entities within the scope  Euro 28.8 million of receivables related to the property sale operation carried out in 2019 (called “Project Sertorius”) (31 December of the Group’s venture capital business which are entirely provisioned (31 December 2019: Euro 14.7 million, entirely 2019: Euro 28.0 million); provisioned); in 2019 (denominated “Project Albatross”) (31 December 2019: Euro 37.7 million); and  Euro 37.9 million receivable in relation to the sale operation of real estate assets and non-performing loans in the Spanish Branch advances which are entirely provisioned (31 December 2019: Euro 111.6 million, entirely provisioned), 135.9 million relating to NATA I and Euro 110.8 million relating to NATA II) (see Note 43); • Euro 111.6 million of shareholder loans and supplementary capital contributions resulting from the assignment of  Euro 27.4 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”). loans and advances which are entirely provisioned (31 December 2019: Euro 111.6 million, entirely provisioned), As at 31 December 2020, the caption Deferred costs includes the amount of Euro 41,346 thousand (31 December 2019: Euro 43, • Euro 67.0 million receivable relation to the sale operation of non-performing loans (Project NATA II) (31 December 836 thousand) related to the difference between the nominal amount of the loans and advances granted to Group employees under the Collective Labour Agreement (ACT) for the banking sector and their respective fair value at grant date, calculated in accordance with IFRS 9. This amount is charged to the income statement under staff costs over the lower of the remaining period to the maturity of the loan granted and the estimated remaining years of service life of the employee. • Euro 28.8 million of receivables related to the property sale operation carried out in 2019 (called “Project Sertorius”) 2019: Euro 135.9 million relating to NATA I and Euro 110.8 million relating to NATA II) (see Note 43); (31 December 2019: Euro 28.0 million); Stock exchange transactions pending settlement refer to transactions of securities, recorded at the trade date and pending settlement, in accordance with the accounting policy described in Note 2.5. • Euro 37.9 million receivable in relation to the sale operation of real estate assets and non-performing loans in the Spanish Branch in 2019 (denominated “Project Albatross”) (31 December 2019: Euro 37.7 million); and The captions of Real estate properties and Equipment relate to foreclosed assets through the recovery of loans and advances and to discontinued facilities, for which the Group has the objective of immediate sale. • Euro 27.4 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”). The Group implemented a plan aimed at the immediate sale of all real estate property recorded in Other assets, continuing its efforts to meet the sales program established, of which we highlight the following (i) the existence of a web site specifically aimed at the sale 31 December 2020 Notes to the Consolidated Financial Statements 66 275 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES As at 31 December 2020, the caption Deferred costs includes the amount of Euro 41,346 thousand (31 December 2019: Euro 43,836 thousand) related to the difference between the nominal amount of the loans and advances granted to Group employees under the Collective Labour Agreement (ACT) for the banking sector and their respective fair value at grant date, calculated in accordance with IFRS 9. This amount is charged to the income statement under staff costs over the lower of the remaining period to the maturity of the loan granted and the estimated remaining years of service life of the employee. Stock exchange transactions pending settlement refer to transactions of securities, recorded at the trade date and pending settlement, in accordance with the accounting policy described in Note 2.5. The captions of Real estate properties and Equipment relate to foreclosed assets through the recovery of loans and advances and to discontinued facilities, for which the Group has the objective of immediate sale. The Group implemented a plan aimed at the immediate sale of all real estate property recorded in Other assets, con- tinuing its efforts to meet the sales program established, of which we highlight the following (i) the existence of a web site specifically aimed at the sale of real estate properties; (ii) the development and participation in real estate events both in Portugal and abroad; (iii) the establishment of protocols with several real estate agents; and (iv) the regular sponsorship of auctions. Despite its intention to sell these assets, the Group regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the period the Group has to hold foreclosed assets. In the financial year of 2020, the Group recorded impacts related to the sale of a portfolio of real estate assets (Project Anibal), in the financial year of 2019, the Group recorded impacts related to the sale of a portfolio of real estate assets (Project Sertorius) and to a sale of a portfolio of non-performing loans and real estate assets (Project Albatros). The details of these operations can be found in Note 43. of real estate properties; (ii) the development and participation in real estate events both in Portugal and abroad; (iii) the establishment of protocols with several real estate agents; and (iv) the regular sponsorship of auctions. Despite its intention to sell these assets, the Group regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the period the Group has to During the year 2020, an impairment value of Euro 64.4 million was recorded for properties in the portfolio (31 hold foreclosed assets. December 2019: Euro 281.3 million). In view of the uncertainty associated with the estimated value of these assets, NOVO BANCO Group considers the impacts of the current context of the Covid-19 pandemic as the assets are In the financial year of 2020, the Group recorded impacts related to the sale of a portfolio of real estate assets (Project Anibal), in the financial year of 2019, the Group recorded impacts related to the sale of a portfolio of real estate assets (Project Sertorius) and to a subject to revaluation. sale of a portfolio of non-performing loans and real estate assets (Project Albatros). The details of these operations can be found in Note 43. During 2020, the Group started a process of reorganization of the real estate funds that are the object of consolida- tion, which implied the transfer of properties from Other assets to Investment properties according to the strategy During the year 2020, an impairment value of Euro 64.4 million was recorded for properties in the portfolio (31 December 2019: Euro 281.3 million). In view of the uncertainty associated with the estimated value of these assets, NOVO BANCO Group considers the defined for them. The gross value of the transferred properties amounted to Euro 118,987 thousand and the respective impacts of the current context of the Covid-19 pandemic as the assets are subject to revaluation. impairment to Euro 66,072 thousand. Since the valuation method for these properties is different, as indicated in the accounting policies (Notes 2.11 and 2.23), the change resulted in the recognition of a gain of Euro 1,805 thousand During 2020, the Group started a process of reorganization of the real estate funds that are the object of consolidation, which implied the transfer of properties from Other assets to Investment properties according to the strategy defined for them. The gross value of recorded in Other operating income. the transferred properties amounted to Euro 118,987 thousand and the respective impairment to Euro 66,072 thousand. Since the valuation method for these properties is different, as indicated in the accounting policies (Notes 2.11 and 2.23), the change resulted The changes occurred in impairment losses are presented as follows: in the recognition of a gain of Euro 1,805 thousand recorded in Other operating income. The changes occurred in impairment losses are presented as follows: Balance at the beginning of the exercise Allocation for the exercise Utilisation during the exercise Write-back for the exercise Foreign exchange differences and other (a) Balance at the end of the exercise (in thousands of Euros) 31.12.2020 31.12.2019 764 808 78 613 ( 34 848) ( 13 938) ( 108 536) 686 099 866 348 309 572 ( 370 341) ( 28 259) ( 12 512) 764 808 (a) Includes 66 072 thoousand euros of impairment of assets transferred to Investment Properties during the financial year 2020 (see Note 26) and 19 854 thousand euros of impairment of assets of the Spanish Branch transferred to discontinued operations. The changes occurred in the real estate properties were as follows: Balance at the beginning of the exercise Additions Sales Other movements 276 Balance at the end of the exercise (in thousands of Euros) 31.12.2020 31.12.2019 977 465 30 691 ( 93 936) ( 144 166) 770 054 1 551 977 86 811 ( 657 235) ( 4 088) 977 465 (a) Includes 118 987 thoousand euros of assets transferred to Investment Properties during the financial year 2020 (see Note 26) and 31 732 thousand euros of assets of the Spanish Branch transferred to discontinued operations. As at 31 December 2020 and 2019, the detail of the real estate properties included in Other assets, by type, is as follows: 31 December 2020 Notes to the Consolidated Financial Statements 67 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDof real estate properties; (ii) the development and participation in real estate events both in Portugal and abroad; (iii) the establishment of protocols with several real estate agents; and (iv) the regular sponsorship of auctions. Despite its intention to sell these assets, the Group regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the period the Group has to hold foreclosed assets. Note 43. In the financial year of 2020, the Group recorded impacts related to the sale of a portfolio of real estate assets (Project Anibal), in the financial year of 2019, the Group recorded impacts related to the sale of a portfolio of real estate assets (Project Sertorius) and to a sale of a portfolio of non-performing loans and real estate assets (Project Albatros). The details of these operations can be found in During the year 2020, an impairment value of Euro 64.4 million was recorded for properties in the portfolio (31 December 2019: Euro 281.3 million). In view of the uncertainty associated with the estimated value of these assets, NOVO BANCO Group considers the impacts of the current context of the Covid-19 pandemic as the assets are subject to revaluation. During 2020, the Group started a process of reorganization of the real estate funds that are the object of consolidation, which implied the transfer of properties from Other assets to Investment properties according to the strategy defined for them. The gross value of the transferred properties amounted to Euro 118,987 thousand and the respective impairment to Euro 66,072 thousand. Since the valuation method for these properties is different, as indicated in the accounting policies (Notes 2.11 and 2.23), the change resulted in the recognition of a gain of Euro 1,805 thousand recorded in Other operating income. The changes occurred in impairment losses are presented as follows: Balance at the beginning of the exercise Allocation for the exercise Utilisation during the exercise Write-back for the exercise Foreign exchange differences and other (a) Balance at the end of the exercise (in thousands of Euros) 31.12.2020 31.12.2019 764 808 78 613 ( 34 848) ( 13 938) ( 108 536) 686 099 866 348 309 572 ( 370 341) ( 28 259) ( 12 512) 764 808 (a) Includes 66 072 thoousand euros of impairment of assets transferred to Investment Properties during the financial year 2020 (see Note 26) and 19 854 thousand euros of impairment of assets of the Spanish Branch transferred to discontinued operations. The changes occurred in the real estate properties were as follows: The changes occurred in the real estate properties were as follows: Balance at the beginning of the exercise Additions Sales Other movements Balance at the end of the exercise (in thousands of Euros) 31.12.2020 31.12.2019 977 465 30 691 ( 93 936) ( 144 166) 770 054 1 551 977 86 811 ( 657 235) ( 4 088) 977 465 (a) Includes 118 987 thoousand euros of assets transferred to Investment Properties during the financial year 2020 (see Note 26) and 31 732 thousand euros of assets of the Spanish Branch transferred to discontinued operations. As at 31 December 2020 and 2019, the detail of the real estate properties included in Other assets, by type, is as follows: As at 31 December 2020 and 2019, the detail of the real estate properties included in Other assets, by type, is as follows: 31.12.2020 (in thousands of Euros) Number of properties Gross value Impairment Net book value Fair value of assets (b) Land Urban Rural Buildings under construction Commercial Residential Other Other (a) 31 December 2020 520 207 727 1 041 1 483 - 2 524 2 75 122 195 556 270 678 356 643 142 592 - 499 235 34 055 145 732 179 787 255 203 38 721 - 293 924 142 7 648 Notes to the Consolidated Financial Statements 770 055 3 253 481 359 41 067 49 824 90 891 101 440 103 871 - 205 311 ( 7 506) 288 696 46 030 58 652 104 682 138 103 115 506 - 253 609 ( 7 506) 350 785 67 (a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties (b) Determined in accordance with accounting policy mentioned in Note 2.11 Land Urban Rural Buildings under construction Commercial Residential Other Buildings constructed Commercial Residential Other Other (a) 31.12.2019 (in thousands of Euros) Number of properties Gross value Impairment Net book value Fair value of assets (b) 594 246 840 2 3 2 7 493 2 177 308 2 978 146 600 216 860 363 460 36 580 1 668 2 284 259 668 185 915 142 068 587 651 71 049 140 986 212 035 4 413 830 1 247 164 932 52 122 59 300 276 354 5 24 070 52 953 3 830 977 465 542 589 75 551 75 874 151 425 32 167 838 1 037 94 736 133 793 82 768 311 297 ( 28 883) 434 876 151 269 79 484 230 753 59 730 838 1 627 106 343 156 752 86 686 349 781 ( 28 883) 553 278 (a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties (b) Determined in accordance with accounting policy mentioned in Note 2.11 The detail of the real estate properties included in Other assets, by ageing, is as follows: Land Urban Rural 277 Buildings under construction Commercial Residential Other Other (a) 31.12.2020 (in thousands of Euros) Up to 1 year 1 to 2.5 years 2.5 to 5 years More than 5 years Total net book value 128 153 281 10 975 7 707 - 18 682 ( 3 537) 2 110 2 730 4 840 20 020 16 779 - - 29 295 15 500 44 795 23 541 28 444 - - 9 535 31 442 40 977 46 904 50 939 - 41 067 49 824 90 891 101 440 103 871 - ( 3 969) ( 7 506) 36 799 51 985 97 843 205 311 15 426 41 639 96 780 134 851 288 696 (a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties 31 December 2020 Notes to the Consolidated Financial Statements 68 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES(a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties (b) Determined in accordance with accounting policy mentioned in Note 2.11 Buildings under construction Land Urban Rural Commercial Residential Other Other (a) Buildings under construction Land Urban Rural Commercial Residential Other Buildings constructed Commercial Residential Other Other (a) Number of properties Gross value Impairment Net book value 31.12.2020 (in thousands of Euros) Fair value of assets (b) 520 207 727 1 041 1 483 - 2 524 2 75 122 195 556 270 678 356 643 142 592 - 34 055 145 732 179 787 255 203 38 721 - 41 067 49 824 90 891 101 440 103 871 - 46 030 58 652 104 682 138 103 115 506 - 499 235 293 924 205 311 253 609 142 7 648 ( 7 506) ( 7 506) 3 253 770 055 481 359 288 696 350 785 Number of properties Gross value Impairment Net book value 31.12.2019 (in thousands of Euros) Fair value of assets (b) 594 246 840 2 3 2 7 493 2 177 308 2 978 146 600 216 860 363 460 36 580 1 668 2 284 259 668 185 915 142 068 587 651 71 049 140 986 212 035 4 413 830 1 247 164 932 52 122 59 300 276 354 5 24 070 52 953 3 830 977 465 542 589 75 551 75 874 151 425 32 167 838 1 037 94 736 133 793 82 768 311 297 ( 28 883) 434 876 151 269 79 484 230 753 59 730 838 1 627 106 343 156 752 86 686 349 781 ( 28 883) 553 278 (a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties (b) Determined in accordance with accounting policy mentioned in Note 2.11 The detail of the real estate properties included in Other assets, by ageing, is as follows: The detail of the real estate properties included in Other assets, by ageing, is as follows: Land Urban Rural Buildings under construction Commercial Residential Other Other (a) 31.12.2020 (in thousands of Euros) Up to 1 year 1 to 2.5 years 2.5 to 5 years More than 5 years Total net book value 128 153 281 10 975 7 707 - 18 682 ( 3 537) 2 110 2 730 4 840 20 020 16 779 - 36 799 - 29 295 15 500 44 795 23 541 28 444 - 51 985 - 9 535 31 442 40 977 46 904 50 939 - 97 843 ( 3 969) 41 067 49 824 90 891 101 440 103 871 - 205 311 ( 7 506) 15 426 41 639 96 780 134 851 288 696 (a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties 31.12.2019 (in thousands of Euros) 31 December 2020 Land Urban Rural Buildings under construction Commercial Residential Other Buildings constructed Commercial Residential Other Other (a) Notes to the Consolidated Financial Statements 1 to 2.5 years 2.5 to 5 years Up to 1 year More than 5 years Total net book value 68 2 359 7 698 10 057 - 68 - 68 2 587 8 845 8 887 20 318 ( 28 883) 3 397 13 493 16 890 - - - - 5 661 33 882 10 398 49 941 - 43 946 7 474 51 420 29 - 825 854 9 698 33 188 11 180 54 066 - 25 849 47 209 73 058 3 99 13 115 76 790 57 878 52 303 186 971 75 551 75 874 151 425 32 167 838 1 037 94 736 133 793 82 768 311 297 - ( 28 883) 1 560 66 831 106 340 260 144 434 876 (a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties As at 31 December 2020, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 35,535 thousand (31 December 2019: Euro 16,569 thousand), having the Group recorded impairment losses for these assets in the total amount of Euro 28,661 thousand (31 December 2019: Euro 8,079 thousand). As at 31 December 2020, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 35,535 thousand (31 December 2019: Euro 16,569 thousand), having the Group recorded impairment NOTE 30 – NON-CURRENT ASSETS AND DISPOSAL GROUPS FOR SALE CLASSIFIED AS HELD FOR SALE AND LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE losses for these assets in the total amount of Euro 28,661 thousand (31 December 2019: Euro 8,079 thousand). Under IFRS 5 - Non-current assets held for sale and discontinued operations, a group of directly associated assets and liabilities are reclassified for discontinued operations if their balance sheet value is recoverable through a sale transaction, which must be ready for immediate sale. NOTE 30 – Non-current assets and disposal groups for sale classified as held for sale and liabilities included in disposal groups classified as held for sale This category includes the subsidiaries and associated companies in the Group's consolidation perimeter, but which the Bank intends to sell and are actively in the process of selling with the net value of assets and liabilities measured at the lower of book value or fair value net of costs to sell. The breakdown of Non-current assets and liabilities held for sale and discontinued operations on 31 December 2020 and 2019, net of consolidation adjustments, is as follows: Under IFRS 5 - Non-current assets held for sale and discontinued operations, a group of directly associated assets and liabilities are reclassified for discontinued operations if their balance sheet value is recoverable through a sale transaction, which must be ready for immediate sale. 278 31 December 2020 Notes to the Consolidated Financial Statements 69 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThis category includes the subsidiaries and associated companies in the Group's consolidation perimeter, but which the Bank intends to sell and are actively in the process of selling with the net value of assets and liabilities measured at the lower of book value or fair value net of costs to sell. The breakdown of Non-current assets and liabilities held for sale and discontinued operations on 31 December 2020 and 2019, net of consolidation adjustments, is as follows: Assets/Liabilities of discontinued operations Assets/Liabilities of discontinued operations International Investment Bank, S.A. (previous BICV) Banco Well Link (previous NB Ásia) Banco Delle Tre Venezie International Investment Bank, S.A. (previous BICV) Económico FI Banco Well Link (anterior NB Ásia) Greendraive Banco Delle Tre Venezie NOVO AF Económico FI GNB Seguros Greendraive ESEGUR NOVO AF Multipessoal GNB Seguros Novo Banco - Spain Branch ESEGUR NB Servicios Multipessoal Novo Vanguarda Novo Banco - Spain Branch Nueva Pescanova NB Servicios Novo Vanguarda Impairment losses Nueva Pescanova Novo Banco - Spain Branch Banco Delle Tre Venezie Impairment losses Económico FI Novo Banco - Spain Branch Greendraive Banco Delle Tre Venezie ESEGUR Económico FI Greendraive ESEGUR (in thousand of Euros) 31.12.2020 31.12.2019 Assets Liabilities Assets Liabilities (in thousand of Euros) 31.12.2020 31.12.2019 Assets 1 299 1 883 9 633 1 299 3 060 1 883 1 887 9 633 - 3 060 - 1 887 14 003 - 2 687 - 1 696 245 14 003 14 845 2 687 48 1 696 245 - 14 845 1 745 590 48 - ( 166 000) 1 745 590 ( 7 333) ( 2 023) ( 166 000) ( 1 887) ( 7 333) ( 8 829) ( 2 023) ( 186 072) ( 1 887) 1 559 518 ( 8 829) ( 186 072) Liabilities - - - - - - 1 969 - - - - 1 969 - - - - 1 993 851 - 535 - 27 1 993 851 - 535 1 996 382 27 - - 1 996 382 - - - - - - - - - 1 996 382 - Assets 1 299 4 121 9 633 1 299 3 060 4 121 856 9 633 2 770 3 060 8 209 856 14 499 2 770 2 641 8 209 - 14 499 - 2 641 - - 1 470 - 48 558 - 1 470 - 48 558 ( 7 333) ( 114) - ( 856) ( 7 333) - ( 114) ( 8 303) ( 856) 40 255 - Liabilities - - - - - - 982 - 960 - - 982 - 960 - - - - - - - - - - 1 942 - - - 1 942 - - - - - - - - - 1 942 - - ( 8 303) - 1 559 518 1 996 382 40 255 1 942 As at 31 December 2020 and 2019, the results from discontinued operations is as follows: As at 31 December 2020 and 2019, the results from discontinued operations is as follows: Profit / (loss) generated by discontinued operations Greendraive NOVO AF GNB Seguros ESEGUR Multipessoal NB Espanha NB Servicios (in thousand of Euros) 31.12.2020 31.12.2019 * ( 1 694) 1 498 8 057 52 51 ( 40 830) ( 479) ( 761) ( 392) 1 533 487 201 ( 84 243) - ( 33 345) ( 83 175) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The impairment movement for non-current Assets and Liabilities for disposal classified as held for sale is as follows: Balance at the beginning of the exercise Allocation / reversals for the exercise Utilizations Exchange differences and other Balance at the end of the exercise 31.12.2020 (in thousands of Euros) 31.12.2019 8 303 217 559 177 769 - - 186 072 5 403 ( 214 658) ( 1) 8 303 279 During 2019, the associates GNB Seguros, Esegur, Multipessoal and Novo AF were transferred to non-current assets held for sale because they are in active sale processes with the objective of their sale in the short term. 31 December 2020 Notes to the Consolidated Financial Statements 70 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESAssets/Liabilities of discontinued operations International Investment Bank, S.A. (previous BICV) Banco Well Link (anterior NB Ásia) Banco Delle Tre Venezie Económico FI Greendraive NOVO AF GNB Seguros ESEGUR Multipessoal Novo Banco - Spain Branch NB Servicios Novo Vanguarda Nueva Pescanova Impairment losses Novo Banco - Spain Branch Banco Delle Tre Venezie Económico FI Greendraive ESEGUR Greendraive NOVO AF GNB Seguros ESEGUR Multipessoal NB Espanha NB Servicios 31.12.2020 31.12.2019 Assets Liabilities Assets Liabilities (in thousand of Euros) 1 696 245 1 993 851 1 299 1 883 9 633 3 060 1 887 - - 14 003 2 687 14 845 48 - ( 166 000) ( 7 333) ( 2 023) ( 1 887) ( 8 829) ( 186 072) 1 969 535 27 - - - - - - - - - - - - - - - 1 299 4 121 9 633 3 060 856 2 770 8 209 14 499 2 641 1 470 ( 7 333) ( 114) ( 856) ( 8 303) - - - - - 982 960 - - - - - - - - - - - - - - - - - 1 745 590 1 996 382 48 558 1 942 1 559 518 1 996 382 40 255 1 942 (in thousand of Euros) 31.12.2020 31.12.2019 * ( 1 694) 1 498 8 057 52 51 ( 40 830) ( 479) ( 761) ( 392) 1 533 487 201 ( 84 243) - ( 33 345) ( 83 175) As at 31 December 2020 and 2019, the results from discontinued operations is as follows: Profit / (loss) generated by discontinued operations * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The impairment movement for non-current Assets and Liabilities for disposal classified as held for sale is as follows: The impairment movement for non-current Assets and Liabilities for disposal classified as held for sale is as follows: Balance at the beginning of the exercise Allocation / reversals for the exercise Utilizations Exchange differences and other Balance at the end of the exercise 31.12.2020 (in thousands of Euros) 31.12.2019 8 303 217 559 177 769 - - 186 072 5 403 ( 214 658) ( 1) 8 303 During 2019, the associates GNB Seguros, Esegur, Multipessoal and Novo AF were transferred to non-current assets held for sale because they are in active sale processes with the objective of their sale in the short term. During 2019, the associates GNB Seguros, Esegur, Multipessoal and NOVO AF were transferred to non-current assets held for sale because they are in active sale processes with the objective of their sale in the short term. 31 December 2020 Notes to the Consolidated Financial Statements 70 Gama Life (former GNB Vida) As consequence of the commitments made between the Portuguese State and European Commission Competition Authority communicated to the Group by the end of 2017, after the completion of Bank’s sale process, the group launched in 2017 an organized sale process of 100% of the share capital of GNB Vida. Therefore, this entity was considered as a discontinued operation on 31 December 2017. On 12 September 2018, the Group entered into a purchase and sale agreement of the entire share capital of GNB Vida, with Bankers Insurance Holdings, S.A., a company of the Global Bankers Insurance Group, LLC. The derecognition of this investment occurred in September 2019, after obtaining the necessary regulatory authorizations (see Note 42). GNB Seguros Also due to the commitments assumed between the Portuguese State and the European Competition Comission and communicated to the Group at the end of 2017, during the financial year 2020 the Group completed the process of divesting its stake in GNB Seguros (25%), recognized a gain of Euro 6.4 million. Spanish Branch Following the accounting policy followed by the Group, and in accordance with IFRS5 5 - Non-current assets held for sale and discontinued operations, during the financial year 2020 the Group transferred its activity in Spain to the caption of Non-current assets and divestiture groups classified as held for sale, as their value is expected to be recovered through a sale transaction and it is highly probable, with the respective assets in immediate sale conditions. The determination of fair value less costs to sell, which took into account the amounts received from potential interested in partial sales of this activity, the cost of selling a selected loan portfolio, and the cost of discontinuing the remaining residual activity, resulted in a need to establish an impairment of Euro 166.0 million. NOTE 31 – Financial liabilities designated at fair value through profit or loss and financial liabilities measured at amortised cost This caption as at 31 December 2020 and 2019 is analyzed as follows: 280 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDGama Life (former GNB Vida) As consequence of the commitments made between the Portuguese State and European Commission Competition Authority communicated to the Group by the end of 2017, after the completion of Bank’s sale process, the group launched in 2017 an organized sale process of 100% of the share capital of GNB Vida. Therefore, this entity was considered as a discontinued operation on 31 December 2017. On 12 September 2018, the Group entered into a purchase and sale agreement of the entire share capital of GNB Vida, with Bankers Insurance Holdings, S.A., a company of the Global Bankers Insurance Group, LLC. The derecognition of this investment occurred in September 2019, after obtaining the necessary regulatory authorizations (see Note 42). Also due to the commitments assumed between the Portuguese State and the European Competition Comission and communicated to the Group at the end of 2017, during the financial year 2020 the Group completed the process of divesting its stake in GNB Seguros (25%), recognized a gain of Euro 6.4 million. GNB Seguros Spanish Branch Following the accounting policy followed by the Group, and in accordance with IFRS5 5 - Non-current assets held for sale and discontinued operations, during the financial year 2020 the Group transferred its activity in Spain to the caption of Non-current assets and divestiture groups classified as held for sale, as their value is expected to be recovered through a sale transaction and it is highly probable, with the respective assets in immediate sale conditions. The determination of fair value less costs to sell, which took into account the amounts received from potential interested in partial sales of this activity, the cost of selling a selected loan portfolio, and the cost of discontinuing the remaining residual activity, resulted in a need to establish an impairment of Euro 166.0 million. NOTE 31 – FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS AND FINANCIAL LIABILITIES MEASURED AT AMORTISED COST This caption as at 31 December 2020 and 31 December 2019 is analyzed as follows: 31.12.2020 (in thousands of Euros) Fair value through profit and loss Measured at amortised cost Fair value changes * Total Deposits from banks Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities * Fair value changes of the elements covered by the interest rate hedge portfolio Deposits from banks Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities * Fair value changes of the elements covered by the interest rate hedge portfolio - - - - - - - Fair value through profit and loss 10 102 896 26 322 060 1 017 928 365 883 37 808 767 - - - - - 10 102 896 26 322 060 1 017 928 365 883 37 808 767 31.12.2019 (in thousands of Euros) Measured at amortised cost Fair value changes * Total 9 849 623 28 400 127 102 012 1 065 211 - 358 688 102 012 39 673 649 - - - - - 9 849 623 28 400 127 1 167 223 358 688 39 775 661 Deposits from Banks Deposits from Banks The balance of Deposits from banks is composed, as to its nature, as follows: The balance of Deposits from banks is composed, as to its nature, as follows: Deposits from Central Banks From the European System of Central Banks Deposits Other funds 31 December 2020 Deposits from credit institutions Notes to the Consolidated Financial Statements Domestic Deposits Other funds Foreign Deposits Loans Operations with repurchase agreements Other resources (in thousands of Euros) 31.12.2020 31.12.2019 29 030 7 004 000 7 033 030 155 313 4 788 160 101 651 656 596 534 1 625 724 35 851 2 909 765 3 069 866 10 102 896 36 176 6 087 000 6 123 176 71 105 183 12 827 118 010 780 583 634 557 2 168 488 24 809 3 608 437 3 726 447 9 849 623 As at 31 December 2020, the balance of the European Resources System of Central Banks caption includes Euro 7,004 million collateralized by the Group's financial assets, within the scope of the third series of long-term refinancing operations of the European Central Bank (TLTRO III ) The bonus introduced by the ECB in the interest rate of these operations, in accordance with the stipulated in IAS 20, is being deducted from the financing costs on a linear basis for accounting purposes, taking into account the Bank's As at 31 December 2020, the balance of the European Resources System of Central Banks caption includes Euro 7,004 expectation of complying with the requirements of eligibility criteria defined by the ECB. million collateralized by the Group's financial assets, within the scope of the third series of long-term refinancing The balance of the caption Repurchase agreements operations corresponds to the sale of securities with purchasing agreement operations of the European Central Bank (TLTRO III). The bonus introduced by the ECB in the interest rate of these (repos), recorded in accordance with the accounting policy mentioned in Note 2.6. operations, in accordance with the stipulated in IAS 20, is being deducted from the financing costs on a linear basis for accounting purposes, taking into account the Bank's expectation of complying with the requirements of eligibility As at 31 December 2020 and 2019, the analysis of Deposits from banks, by maturity, is as follows: criteria defined by the ECB. (in thousands of Euros) Deposits from Central Banks Up to 3 months From 3 months to 1 year From 1 to 5 years 281 Deposits from credit institutions Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years International Up to 3 months From 3 months to 1 year From 1 to 5 years The analysis of Repurchase agreements operations, by residual maturity, is as follows: 31.12.2020 31.12.2019 29 030 - 7 004 000 7 033 030 1 286 176 3 210 000 1 627 000 6 123 176 918 156 496 630 1 085 594 569 486 3 069 866 1 993 950 98 131 1 089 749 544 617 3 726 447 10 102 896 9 849 623 (in thousands of Euros) 31.12.2020 31.12.2019 225 507 350 014 1 050 203 1 306 243 199 972 662 273 1 625 724 2 168 488 31 December 2020 Notes to the Consolidated Financial Statements 72 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESDeposits from Banks The balance of Deposits from banks is composed, as to its nature, as follows: Deposits from Banks The balance of Deposits from banks is composed, as to its nature, as follows: (in thousands of Euros) Deposits from Central Banks From the European System of Central Banks Deposits from Central Banks Deposits Other funds From the European System of Central Banks Deposits from credit institutions Other funds Deposits from credit institutions Deposits Deposits Domestic Other funds Domestic Deposits Foreign Other funds Deposits Loans Foreign 31.12.2020 31.12.2019 (in thousands of Euros) 31.12.2020 31.12.2019 29 030 7 004 000 7 033 030 29 030 7 004 000 7 033 030 155 313 4 788 160 101 155 313 4 788 651 656 160 101 596 534 36 176 6 087 000 6 123 176 36 176 6 087 000 6 123 176 105 183 12 827 118 010 105 183 12 827 780 583 118 010 634 557 Operations with repurchase agreements 1 625 724 2 168 488 Deposits Loans Operations with repurchase agreements Other resources 780 583 24 809 634 557 3 608 437 2 168 488 24 809 3 726 447 3 608 437 9 849 623 3 726 447 As at 31 December 2020, the balance of the European Resources System of Central Banks caption includes Euro 7,004 million 9 849 623 collateralized by the Group's financial assets, within the scope of the third series of long-term refinancing operations of the European Central Bank (TLTRO III ) The bonus introduced by the ECB in the interest rate of these operations, in accordance with the stipulated As at 31 December 2020, the balance of the European Resources System of Central Banks caption includes Euro 7,004 million in IAS 20, is being deducted from the financing costs on a linear basis for accounting purposes, taking into account the Bank's collateralized by the Group's financial assets, within the scope of the third series of long-term refinancing operations of the European expectation of complying with the requirements of eligibility criteria defined by the ECB. The balance of the caption Repurchase agreements operations corresponds to the sale of securities with purchasing Central Bank (TLTRO III ) The bonus introduced by the ECB in the interest rate of these operations, in accordance with the stipulated in IAS 20, is being deducted from the financing costs on a linear basis for accounting purposes, taking into account the Bank's agreement (repos), recorded in accordance with the accounting policy mentioned in Note 2.6. The balance of the caption Repurchase agreements operations corresponds to the sale of securities with purchasing agreement expectation of complying with the requirements of eligibility criteria defined by the ECB. (repos), recorded in accordance with the accounting policy mentioned in Note 2.6. As at 31 December 2020 and 2019, the analysis of Deposits from banks, by maturity, is as follows: The balance of the caption Repurchase agreements operations corresponds to the sale of securities with purchasing agreement As at 31 December 2020 and 2019, the analysis of Deposits from banks, by maturity, is as follows: (repos), recorded in accordance with the accounting policy mentioned in Note 2.6. 651 656 35 851 596 534 2 909 765 1 625 724 35 851 3 069 866 2 909 765 10 102 896 3 069 866 Other resources 10 102 896 (in thousands of Euros) As at 31 December 2020 and 2019, the analysis of Deposits from banks, by maturity, is as follows: 31.12.2020 31.12.2019 Deposits from Central Banks Up to 3 months From 3 months to 1 year From 1 to 5 years Deposits from Central Banks Up to 3 months From 3 months to 1 year From 1 to 5 years Deposits from credit institutions Up to 3 months From 3 months to 1 year Deposits from credit institutions From 1 to 5 years More than 5 years Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years The analysis of Repurchase agreements operations, by residual maturity, is as follows: The analysis of Repurchase agreements operations, by residual maturity, is as follows: The analysis of Repurchase agreements operations, by residual maturity, is as follows: (in thousands of Euros) 31.12.2020 29 030 - 7 004 000 29 030 7 033 030 - 7 004 000 7 033 030 918 156 496 630 1 085 594 918 156 569 486 496 630 3 069 866 1 085 594 10 102 896 569 486 3 069 866 31.12.2019 1 286 176 3 210 000 1 627 000 1 286 176 6 123 176 3 210 000 1 627 000 6 123 176 1 993 950 98 131 1 089 749 1 993 950 544 617 98 131 3 726 447 1 089 749 9 849 623 544 617 3 726 447 10 102 896 9 849 623 (in thousands of Euros) 31.12.2020 31.12.2019 (in thousands of Euros) International Up to 3 months From 3 months to 1 year From 1 to 5 years International Up to 3 months From 3 months to 1 year From 1 to 5 years 31 December 2020 Notes to the Consolidated Financial Statements 1 625 724 31.12.2020 225 507 350 014 1 050 203 225 507 1 625 724 350 014 1 050 203 31.12.2019 1 306 243 199 972 662 273 1 306 243 2 168 488 199 972 662 273 72 2 168 488 31 December 2020 Notes to the Consolidated Financial Statements 72 Due to customers Due to customers The balance of Deposits due to costumers is composed, as follows: The balance of Deposits due to costumers is composed, as follows: Repayable on demand Demand deposits Time deposits Time deposits Other Savings accounts Retirement saving accounts Other Other funds Other (in thousands of Euros) 31.12.2020 31.12.2019 11 883 026 12 159 032 9 234 116 251 9 234 367 233 160 4 742 284 4 975 444 11 307 364 262 11 307 626 244 009 4 494 220 4 738 229 216 598 216 598 195 240 195 240 26 322 060 28 400 127 As at 31 December 2020 and 2019, the caption Due to customers, by residual maturity periods, is as follows: 282 Repayable on demand Term deposits Up to 3 months 3 months to 1 year 1 to 5 years More than 5 years (in thousands of Euros) 31.12.2020 31.12.2019 11 883 026 12 159 032 7 128 529 5 678 797 1 591 570 40 138 7 252 713 5 930 567 2 598 190 459 625 14 439 034 16 241 095 26 322 060 28 400 127 Debt Securities issued, subordinated debt and financial liabilities associated to transferred assets This caption has the following breakdown: Debt securities issued Euro Medium Term Notes (EMTN) Bonds Bonds Subordinated debt Financial liabilities associated to transferred assets Asset lending operations Fair value through profit and loss 31.12.2020 Measured at amortised cost Total through profit Fair value and loss Measured at amortised cost Total (in thousands of Euros) 31.12.2019 - - - - - - 518 866 39 377 558 243 518 866 39 377 558 243 102 012 102 012 559 837 45 855 605 692 661 849 45 855 707 704 415 234 415 234 415 069 415 069 44 451 44 451 44 450 44 450 1 017 928 1 017 928 102 012 1 065 211 1 167 223 - - - Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum amount of Euro 10,000 million, the Group issued covered bonds which, on 31 December 2020, amount to Euro 5,500 million (31 December 2019: Euro 5,500 million), being these covered bonds totally repurchased by the Group. The main characteristics of the outstanding issues as at 31 December 2020 and 2019 are as follows: 31 December 2020 Notes to the Consolidated Financial Statements 73 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDDue to customers Due to customers The balance of Deposits due to costumers is composed, as follows: The balance of Deposits due to costumers is composed, as follows: Repayable on demand Demand deposits Repayable on demand Demand deposits Time deposits Time deposits Time deposits Other Time deposits Other Savings accounts Savings accounts Retirement saving accounts Other Retirement saving accounts Other Other funds Other Other funds Other (in thousands of Euros) 31.12.2020 (in thousands of Euros) 31.12.2019 31.12.2020 31.12.2019 11 883 026 12 159 032 11 883 026 12 159 032 9 234 116 251 9 234 116 9 234 367 251 9 234 367 233 160 4 742 284 233 160 4 975 444 4 742 284 4 975 444 216 598 216 598 216 598 216 598 26 322 060 26 322 060 11 307 364 262 11 307 364 11 307 626 262 11 307 626 244 009 4 494 220 244 009 4 738 229 4 494 220 4 738 229 195 240 195 240 195 240 195 240 28 400 127 28 400 127 As at 31 December 2020 and 2019, the caption Due to customers, by residual maturity periods, is as follows: As at 31 December 2020 and 2019, the caption Due to customers, by residual maturity periods, is as follows: As at 31 December 2020 and 2019, the caption Due to customers, by residual maturity periods, is as follows: (in thousands of Euros) Repayable on demand Term deposits Repayable on demand Term deposits Up to 3 months 3 months to 1 year Up to 3 months 1 to 5 years 3 months to 1 year More than 5 years 1 to 5 years More than 5 years 31.12.2020 31.12.2019 (in thousands of Euros) 31.12.2020 11 883 026 31.12.2019 12 159 032 11 883 026 7 128 529 5 678 797 7 128 529 1 591 570 5 678 797 40 138 1 591 570 14 439 034 40 138 26 322 060 14 439 034 12 159 032 7 252 713 5 930 567 7 252 713 2 598 190 5 930 567 459 625 2 598 190 16 241 095 459 625 28 400 127 16 241 095 26 322 060 28 400 127 Debt Securities issued, subordinated debt and financial liabilities associated to transferred assets Debt Securities issued, subordinated debt and financial liabilities associated to Debt Securities issued, subordinated debt and financial liabilities associated to transferred assets transferred assets This caption has the following breakdown: This caption has the following breakdown: This caption has the following breakdown: Debt securities issued Debt securities issued Euro Medium Term Notes (EMTN) Bonds Euro Medium Term Notes (EMTN) Bonds Subordinated debt Bonds Subordinated debt Financial liabilities associated to transferred assets Bonds Asset lending operations Financial liabilities associated to transferred assets Asset lending operations 31.12.2020 Measured at 31.12.2020 amortised cost Measured at amortised cost 518 866 39 377 518 866 558 243 39 377 558 243 415 234 415 234 44 451 Total Total 518 866 39 377 518 866 558 243 39 377 558 243 415 234 415 234 44 451 Fair value through profit Fair value and loss through profit and loss 102 012 - 102 012 102 012 - 102 012 - - - (in thousands of Euros) 31.12.2019 (in thousands of Euros) Measured at 31.12.2019 amortised cost Measured at amortised cost Total Total 559 837 45 855 559 837 605 692 45 855 605 692 415 069 415 069 44 450 661 849 45 855 661 849 707 704 45 855 707 704 415 069 415 069 44 450 1 017 928 44 451 1 017 928 44 451 102 012 - 1 065 211 44 450 1 167 223 44 450 Fair value through profit Fair value and loss through profit and loss - - - - - - - - - - - 1 017 928 1 167 223 - Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum amount of Euro 10,000 million, the Group issued covered bonds which, on 31 December 2020, amount to Euro 5,500 million (31 December 2019: Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum amount of Euro Euro 5,500 million), being these covered bonds totally repurchased by the Group. The main characteristics of the outstanding issues 10,000 million, the Group issued covered bonds which, on 31 December 2020, amount to Euro 5,500 million (31 December 2019: as at 31 December 2020 and 2019 are as follows: Euro 5,500 million), being these covered bonds totally repurchased by the Group. The main characteristics of the outstanding issues Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum as at 31 December 2020 and 2019 are as follows: amount of Euro 10,000 million, the Group issued covered bonds which, on 31 December 2020, amount to Euro 5,500 million (31 December 2019: Euro 5,500 million), being these covered bonds totally repurchased by the Group. The main characteristics of the outstanding issues as at 31 December 2020 and 2019 are as follows: 1 017 928 1 065 211 102 012 31 December 2020 31 December 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 73 73 (in thousands of Euros) Designation NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 NB 2019 SR.6 NB 2019 SR.7 Designation NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 NB 2019 SR.6 NB 2019 SR.7 Nominal value (in thousands of Euros) Carrying book value (in thousands of Euros) 31.12.2020 Issue date Maturity date 1 000 000 1 000 000 1 000 000 700 000 500 000 750 000 550 000 5 500 000 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 10/12/2019 10/12/2019 07/10/2021 07/10/2024 07/10/2020 07/10/2022 22/12/2023 10/06/2023 10/12/2024 - - - - - - - - Nominal value (in thousands of Euros) Carrying book value (in thousands of Euros) 31.12.2019 Issue date Maturity date 1 000 000 1 000 000 1 000 000 700 000 500 000 750 000 550 000 5 500 000 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 10/12/2019 10/12/2019 07/10/2021 07/10/2024 07/10/2020 07/10/2022 22/12/2023 10/06/2023 10/12/2024 - - - - - - - - Interest payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Interest payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Interest Rate Market Rating Moody's DBRS 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% XDUB XDUB XDUB XDUB XDUB XDUB XDUB A2 A2 A2 A2 A2 A2 A2 A A A A A A A Interest Rate Market (in thousands of Euros) Rating Moody's DBRS 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% XDUB XDUB XDUB XDUB XDUB XDUB XDUB A2 A2 A2 A2 A2 A2 A2 A A A A A A A 283 These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in NOVO BANCO Group’s accounts as autonomous patrimony and over which the holders of the relevant covered debt securities have a special creditor privilege. The conditions of the covered debt securities issues are framed in Decree-Law No. 59/2006, and in Notices No. 5, 6 and 8 and Instruction No. 13 of Bank of Portugal. As at 31 December 2020, the assets that collateralize these covered debt securities amount to Euro 6,104.8 million (31 December 2019: Euro 6,076.8 million) (see Note 22). The changes in the financial years of 2020 and 2019 in Debt securities issued, subordinated debt and financial liabilities associated to transferred assets was as follows: Balance as at 31.12.2019 Issues Redemptions LME (in thousands of Euros) Net Other Balance as at purchases movements a) 31.12.2020 a) Other movements include accrued interest, corrections for hedging operations, corrections of fair value and exchange rate changes. ( 6 476) ( 155 869) ( 570) 13 620 1 017 928 Debt securities issued Euro Medium Term Notes (EMTN) Bonds Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations Debt securities issued Euro Medium Term Notes (EMTN) Bonds Mortgage bonds Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations - ( 155 869) ( 570) ( 155 869) ( 570) 13 456 ( 2) 13 454 518 866 39 377 558 243 661 849 45 855 707 704 415 069 44 450 1 167 223 634 186 55 066 - 689 252 414 903 44 450 - - - - - - - - - - ( 6 476) ( 6 476) - - - - - - 1 300 000 1 300 000 ( 9 210) ( 9 210) Balance as at 31.12.2018 Issues Redemptions LME - - - - - - - - - - - - - - - - - 165 415 234 1 44 451 (in thousands of Euros) Net Other Balance as at purchases movements a) 31.12.2019 (1 300 000) (1 300 000) 27 663 ( 1) - 661 849 45 855 - 27 662 707 704 166 415 069 - 44 450 a) Other movements include accrued interest, corrections for hedging operations, corrections of fair value and exchange rate changes. 1 148 605 1 300 000 ( 9 210) (1 300 000) 27 828 1 167 223 31 December 2020 Notes to the Consolidated Financial Statements 74 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESDesignation Issue date Maturity date Interest Rate Market Nominal value (in thousands of Euros) Carrying book value (in thousands of Euros) NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 NB 2019 SR.6 NB 2019 SR.7 07/10/2015 07/10/2015 07/10/2015 07/10/2021 07/10/2024 07/10/2020 700 000 • p 85 word 22/12/2016 10/12/2019 10/12/2019 07/10/2015 22/12/2023 10/06/2023 10/12/2024 07/10/2022 500 000 750 000 550 000 - - - - 1 000 000 1 000 000 1 000 000 5 500 000 - - - - 31.12.2020 Interest payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly 31.12.2019 Designation Nominal value (in thousands of Euros) Carrying book value (in thousands of Euros) Issue date Maturity date Interest payment Interest Rate Market (in thousands of Euros) Rating Moody's DBRS (in thousands of Euros) Rating Moody's DBRS 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% XDUB XDUB XDUB XDUB XDUB XDUB XDUB A2 A2 A2 A2 A2 A2 A2 A A A A A A A - - - - - - - 07/10/2021 07/10/2024 07/10/2020 07/10/2022 22/12/2023 10/06/2023 10/12/2024 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 10/12/2019 10/12/2019 1 000 000 1 000 000 1 000 000 700 000 500 000 750 000 550 000 NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 NB 2019 SR.6 These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in NB 2019 SR.7 NOVO BANCO Group’s accounts as autonomous patrimony and over which the holders of the relevant covered debt securities have a special creditor privilege. The conditions of the covered debt securities issues are framed in These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in NOVO BANCO Decree-Law No. 59/2006, and in Notices No. 5, 6 and 8 and Instruction No. 13 of Bank of Portugal. As at 31 December Group’s accounts as autonomous patrimony and over which the holders of the relevant covered debt securities have a special creditor privilege. The conditions of the covered debt securities issues are framed in Decree-Law No. 59/2006, and in Notices No. 5, 6 and 8 2020, the assets that collateralize these covered debt securities amount to Euro 6,104.8 million (31 December 2019: and Instruction No. 13 of Bank of Portugal. As at 31 December 2020, the assets that collateralize these covered debt securities Euro 6,076.8 million) (see Note 22). amount to Euro 6,104.8 million (31 December 2019: Euro 6,076.8 million) (see Note 22). 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% 3 months Euribor rates + 0,25% Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly XDUB XDUB XDUB XDUB XDUB XDUB XDUB A2 A2 A2 A2 A2 A2 A2 A A A A A A A 5 500 000 - The changes in the financial years of 2020 and 2019 in Debt securities issued, subordinated debt and financial liabilities The changes in the financial years of 2020 and 2019 in Debt securities issued, subordinated debt and financial liabilities associated associated to transferred assets was as follows: to transferred assets was as follows: Debt securities issued Euro Medium Term Notes (EMTN) Bonds Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations Balance as at 31.12.2019 Issues Redemptions LME Net purchases (in thousands of Euros) Balance as at 31.12.2020 Other movements a) 661 849 45 855 707 704 415 069 44 450 1 167 223 - - - - - - - ( 6 476) ( 6 476) ( 155 869) - ( 155 869) ( 570) - ( 570) 13 456 ( 2) 13 454 518 866 39 377 558 243 - - - - - - 165 415 234 1 44 451 ( 6 476) ( 155 869) ( 570) 13 620 1 017 928 a) Other movements include accrued interest, corrections for hedging operations, corrections of fair value and exchange rate changes. Debt securities issued Euro Medium Term Notes (EMTN) Bonds Mortgage bonds Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations Balance as at 31.12.2018 Issues Redemptions LME 634 186 55 066 - 689 252 - - 1 300 000 1 300 000 - ( 9 210) - ( 9 210) 414 903 44 450 - - - - 1 148 605 1 300 000 ( 9 210) Net purchases (in thousands of Euros) Balance as at 31.12.2019 Other movements a) - - (1 300 000) (1 300 000) 27 663 ( 1) - 27 662 661 849 45 855 - 707 704 - - 166 415 069 - 44 450 (1 300 000) 27 828 1 167 223 - - - - - - - a) Other movements include accrued interest, corrections for hedging operations, corrections of fair value and exchange rate changes. Liability Management Exercise (LME) – NB Finance Liability Management Exercise (LME) – NB Finance 31 December 2020 Notes to the Consolidated Financial Statements As at 10 December 2020, following an early redemption offer, the EMTN issued by the subsidiary NB Finance with a total nominal As at 10 December 2020, following an early redemption offer, the EMTN issued by the subsidiary NB Finance with a amount of Euro 440.8 million (out of a total amount of Euro 453.3 million). This operation resulted in a loss in the amount of Euro total nominal amount of Euro 440.8 million (out of a total amount of Euro 453.3 million). This operation resulted in a 26,980 thousand (See Note 14). loss in the amount of Euro 26,980 thousand (See Note 14). The residual duration of liabilities represented by securities and subordinated liabilities, as at 31 December 2020 and 2019, is as The residual duration of liabilities represented by securities and subordinated liabilities, as at 31 December 2020 and follows: 2019, is as follows: 74 Debt securities issued 1 to 5 years More than 5 years Subordinated debt 1 to 5 years Financial liabilities associated to transferred assets Undetermined maturity 31.12.2020 31.12.2019 At fair value through profit and loss Measured at amortised cost Total At fair value through profit and loss Measured at amortised cost Total (in thousands of Euros) - - - - - - - - 1 773 556 470 558 243 1 773 556 470 558 243 - 102 012 102 012 2 237 603 455 605 692 2 237 705 467 707 704 415 234 415 234 415 234 415 234 44 451 44 451 44 451 44 451 - - - - 415 069 415 069 415 069 415 069 44 450 44 450 44 450 44 450 1 017 928 1 017 928 102 012 1 065 211 1 167 223 The main characteristics of these liabilities, as at 31 December 2020 and 31 December 2019, are as follows: 284 Entity ISIN Description Currency Issue date Unit Price (€ ) Carrying Book value Maturity Interest rate Market 31.12.2020 (in thousands of Euros) Bonds Euro Medium Term Notes NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB Finance NB Finance Subordinated debt a) Date of the next call option Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 XS0312981649 XS0312982290 Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nr 6- Classe B 37 877 1 500 2031 a) 2031 a) Euribor 3m + 0,40% Euribor 3m + 0,60% Ireland Ireland XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 XS0439764191 XS0723597398 BES Luxembourg 3.5% 02/01/43 BES Luxembourg 3.5% 23/01/43 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg ZC Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 19/02/49 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 06/03/2051 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 16/04/46 EMTN 57 EMTN 114 EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2007 2007 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2009 2011 0,24 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 42 287 97 153 63 183 46 521 36 398 45 717 40 220 34 848 15 212 43 649 38 646 11 477 1 782 1 773 973 477 2043 2043 2043 2043 2048 2049 2049 2051 2051 2048 2052 2046 2044 2021 Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Fixed rate 6% XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX NOVO BANCO PTNOBFOM0017 NB 06/07/2028 EUR 2018 100,00 415 234 2023 a) 8.5% XDUB 31 December 2020 Notes to the Consolidated Financial Statements 75 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThe main characteristics of these liabilities, as at 31 December 2020 and 31 December 2019, are as follows: Entity ISIN Description Currency Issue date Unit Price (€ ) Carrying Book value Maturity Interest rate Market 31.12.2020 (in thousands of Euros) Bonds Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 XS0312981649 XS0312982290 Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nr 6- Classe B Euro Medium Term Notes NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB Finance NB Finance Subordinated debt XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 XS0439764191 XS0723597398 BES Luxembourg 3.5% 02/01/43 BES Luxembourg 3.5% 23/01/43 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg ZC Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 19/02/49 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 06/03/2051 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 16/04/46 EMTN 57 EMTN 114 EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2007 2007 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2009 2011 0,24 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 37 877 1 500 2031 a) 2031 a) Euribor 3m + 0,40% Euribor 3m + 0,60% Ireland Ireland 42 287 97 153 63 183 46 521 36 398 45 717 40 220 34 848 15 212 43 649 38 646 11 477 1 782 1 773 2043 2043 2043 2043 2048 2049 2049 2051 2051 2048 2052 2046 2044 2021 Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Fixed rate 6% XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX NOVO BANCO PTNOBFOM0017 NB 06/07/2028 EUR 2018 100,00 415 234 2023 a) 8.5% XDUB 973 477 a) Date of the next call option 31.12.2019 (in thousands of Euros) Entity ISIN Description Currency Issue date Unit Price (€ ) Carrying Book value Maturity Interest rate Market Bonds Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 XS0312981649 XS0312982290 Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nr 6- Classe B Euro Medium Term Notes NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB Finance NB Finance NB Finance NB Finance NB Finance NB Finance NB Finance NB Finance Subordinated debt XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 XS0210172721 XS0439763979 XS0439764191 XS0439639617 XS0442126842 XS0442126925 XS0442127063 XS0723597398 BES Luxembourg 3.5% 02/01/43 BES Luxembourg 3.5% 23/01/43 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg ZC Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 19/02/49 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 06/03/2051 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 16/04/46 EMTN 40 EMTN 56 EMTN 57 EMTN 58 EMTN 59 EMTN 60 EMTN 61 EMTN 114 a) EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2007 2007 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2005 2009 2009 2009 2009 2009 2009 2011 0,26 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 44 355 1 500 2031 b) 2031 b) Euribor 3m + 0.40% Euribor 3m + 0.60% Ireland Ireland 41 798 96 270 62 461 46 011 34 344 42 861 37 674 32 615 14 236 40 699 36 317 10 703 102 012 11 498 3 745 5 677 14 859 15 716 10 116 2 237 2043 2043 2043 2043 2048 2049 2049 2051 2051 2048 2052 2046 2035 2043 2044 2045 2042 2040 2041 2021 Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Indexed to swap 12m Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Fixed rate 6% XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX NOVO BANCO PTNOBFOM0017 NB 06/07/2028 EUR 2018 100,00 415 069 2023 b) 8.5% XDUB 1 122 773 a) Liabilities at fair value through profit and loss b) Date of the next call option As at 31 December 2019, this caption includes a balance sheet value of Euro 102,012 thousand of liabilities repre- sented by securities recorded at fair value through profit or loss. This compares with Euro 104,699 thousand related to the amount to be repaid at the maturity date of this issue. This issue was repaid during 2020 within the scope of the LME program previously mentioned. 285 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESEntity ISIN Description Currency Issue date Maturity Interest rate Market 31.12.2019 Unit Price Carrying (€ ) Book value (in thousands of Euros) Bonds Euro Medium Term Notes NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB (Luxemburgo Branch) NB Finance NB Finance NB Finance NB Finance NB Finance NB Finance NB Finance NB Finance Subordinated debt Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 XS0312981649 XS0312982290 Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nr 6- Classe B 44 355 1 500 2031 b) 2031 b) Euribor 3m + 0.40% Euribor 3m + 0.60% Ireland Ireland XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 XS0210172721 XS0439763979 XS0439764191 XS0439639617 XS0442126842 XS0442126925 XS0442127063 XS0723597398 BES Luxembourg 3.5% 02/01/43 BES Luxembourg 3.5% 23/01/43 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg ZC Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 19/02/49 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 06/03/2051 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 16/04/46 EMTN 40 EMTN 56 EMTN 57 EMTN 58 EMTN 59 EMTN 60 EMTN 61 EMTN 114 EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2007 2007 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2005 2009 2009 2009 2009 2009 2009 2011 0,26 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 41 798 96 270 62 461 46 011 34 344 42 861 37 674 32 615 14 236 40 699 36 317 10 703 102 012 11 498 3 745 5 677 14 859 15 716 10 116 2 237 2043 2043 2043 2043 2048 2049 2049 2051 2051 2048 2052 2046 2035 2043 2044 2045 2042 2040 2041 2021 Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Zero Coupon Fixed rate 6% XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX a) Indexed to swap 12m NOVO BANCO PTNOBFOM0017 NB 06/07/2028 EUR 2018 100,00 415 069 2023 b) 8.5% XDUB 1 122 773 a) Liabilities at fair value through profit and loss b) Date of the next call option As at 31 December 2019, this caption includes a balance sheet value of Euro 102,012 thousand of liabilities represented by securities recorded at fair value through profit or loss. This compares with Euro 104,699 thousand related to the amount to be repaid at the maturity date of this issue. This issue was repaid during 2020 within the scope of the LME program previously mentioned. The table below presents the fair value component attributable to the credit risk of the fair value through profit or loss: The table below presents the fair value component attributable to the credit risk of the fair value through profit or loss: Fair value attributable to credit risk at the beginning of the exercise Recognized in other comprehensive income Changes through other comprehensive income Variation due to debt repurchases Fair value attributable to credit risk at the end of the exercise (in thousands Euros) 31.12.2020 31.12.2019 47 935 50 806 10 883 ( 58 818) - ( 2 871) - 47 935 The change in fair value attributable to changes in the credit risk of the issues is calculated using the credit spread observed in recent issues of similar debt, adjusted for subsequent changes in the credit spread of the senior debt CDS issued by Group entities. As of January 1, 2018, in accordance with IFRS 9, this liability component is reflected in Other comprehensive income. With the redemption The change in fair value attributable to changes in the credit risk of the issues is calculated using the credit spread in 2020 of the issue recorded at fair value through profit or loss, the Group no longer has associated credit risk. However, the credit risk recognized since 1 January 2018 in the amount of Euro 9,214 thousand, was fixed in the respective credit risk reserve caption, observed in recent issues of similar debt, adjusted for subsequent changes in the credit spread of the senior debt CDS in accordance with IFRS 9 (see Note 35). issued by Group entities. As of January 1, 2018, in accordance with IFRS 9, this liability component is reflected in Other comprehensive income. With the redemption in 2020 of the issue recorded at fair value through profit or loss, the The Group did not present capital or interest defaults on its debt issued in the financial years of 2020 and 2019. Group no longer has associated credit risk. However, the credit risk recognized since 1 January 2018 in the amount of Euro 9,214 thousand, was fixed in the respective credit risk reserve caption, in accordance with IFRS 9 (see Note 35). NOTE 32 – PROVISIONS The Group did not present capital or interest defaults on its debt issued in the financial years of 2020 and 2019. As at 31 December 2020 and 2019, the caption Provisions presents the following changes: NOTE 32 – Provisions As at 31 December 2020 and 2019, the caption Provisions presents the following changes: 31 December 2020 Balance as at 31 December 2018 Balance as at 31 December 2019 Balance as at 31 December 2018 Reinforcements / (replacements) Utilization during the period Reinforcements / (replacements) Transfers Utilization during the period Foreign exchange differences and other Transfers Foreign exchange differences and other Reinforcements / (replacements) Balance as at 31 December 2019 Utilization during the period Reinforcements / (replacements) Foreign exchange differences and other (a) Utilization during the period Foreign exchange differences and other (a) Balance as at 31 December 2020 Programme of antecipated Programme of repayment of antecipated liabilities repayment of Notes to the Consolidated Financial Statements liabilities 38 865 Provision for guarantees and Provision for commitments guarantees and commitments Restructuring provision Restructuring provision Commercial Offers Commercial Offers 189 661 72 877 9 781 9 781 47 291 ( 33 052) 47 291 24 ( 33 052) - 24 24 044 - 123 915 24 044 ( 42 188) 123 915 ( 8 798) ( 42 188) 96 973 ( 8 798) 189 661 ( 60 776) - ( 60 776) - - ( 31 799) - 97 086 ( 31 799) 22 116 97 086 ( 2 188) 22 116 ( 15 028) ( 2 188) 101 986 ( 15 028) 72 877 ( 1 366) ( 29 937) ( 1 366) - ( 29 937) ( 240) - 41 334 ( 240) ( 629) 41 334 ( 29 506) ( 629) - ( 29 506) 11 199 - 38 865 ( 1 172) ( 37 694) ( 1 172) - ( 37 694) 1 - - 1 - - - - - - - - Other provisions Other provisions 114 751 114 751 37 320 ( 22 188) 37 320 - ( 22 188) 15 470 - 145 353 15 470 41 021 145 353 ( 16 578) 41 021 4 428 ( 16 578) 174 224 4 428 (a) Includes 8 798 thousand euros of restructuring provisions and 14. 420 thousand euros of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations. Balance as at 31 December 2020 101 986 96 973 11 199 174 224 - (in thousands of Euros) (in thousands of Euros) Total Total 76 425 935 425 935 21 297 ( 122 871) 21 297 24 ( 122 871) ( 16 568) 24 307 817 ( 16 568) 186 423 307 817 ( 90 460) 186 423 ( 19 398) ( 90 460) 384 382 ( 19 398) 384 382 (a) Includes 8 798 thousand euros of restructuring provisions and 14. 420 thousand euros of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations. The changes in the caption Provisions for guarantees, are detailed as follows: The changes in the caption Provisions for guarantees, are detailed as follows: The changes in the caption Provisions for guarantees, are detailed as follows: (in thousands of Euros) Balance as at 31 December 2018 Balance as at 31 December 2018 Increases due to changes in credit risk Decreases due to changes in credit risk Increases due to changes in credit risk Other movements Decreases due to changes in credit risk Other movements Balance as at 31 December 2019 Balance as at 31 December 2019 Increases due to changes in credit risk Decreases due to changes in credit risk Increases due to changes in credit risk Utilization during the period Decreases due to changes in credit risk Other movements Utilization during the period Other movements Balance as at 31 December 2020 Stage 1 Stage 2 Stage 3 (in thousands of Euros) Total Stage 1 26 779 Stage 2 16 832 Stage 3 143 738 26 779 312 ( 2 511) 312 ( 21 331) ( 2 511) ( 21 331) 3 249 3 249 1 086 ( 627) 1 086 - ( 627) ( 2 392) - ( 2 392) 1 316 16 832 6 729 ( 7 710) 6 729 ( 1 753) ( 7 710) ( 1 753) 14 098 14 098 20 502 ( 12 830) 20 502 - ( 12 830) 2 299 - 2 299 24 069 143 738 37 973 ( 96 409) 37 973 ( 8 715) ( 96 409) ( 8 715) 76 587 76 587 23 309 ( 16 000) 23 309 ( 2 188) ( 16 000) ( 14 930) ( 2 188) ( 14 930) 66 778 Total 187 349 187 349 45 014 ( 106 630) 45 014 ( 31 799) ( 106 630) ( 31 799) 93 934 93 934 44 897 ( 29 457) 44 897 ( 2 188) ( 29 457) ( 15 023) ( 2 188) ( 15 023) 92 163 Balance as at 31 December 2020 (a) Includes 14 420 thousand euros of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (2 360 thousand euros on stage 1 and 12. 060 thousand euros on stage 3). (a) Includes 14 420 thousand euros of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (2 360 thousand euros on stage 1 and 12. 060 thousand euros on stage 3). 92 163 66 778 24 069 1 316 The changes in the caption Provisions for commitments are detailed as follows: The changes in the caption Provisions for commitments are detailed as follows: 286 Balance as at 31 December 2018 Balance as at 31 December 2018 Increases due to changes in credit risk Decreases due to changes in credit risk Increases due to changes in credit risk Other movements Decreases due to changes in credit risk Balance as at 31 December 2019 Other movements Balance as at 31 December 2019 Increases due to changes in credit risk Decreases due to changes in credit risk Increases due to changes in credit risk Other movements Decreases due to changes in credit risk Other movements Balance as at 31 December 2020 Balance as at 31 December 2020 (in thousands of Euros) Stage 1 Stage 2 Stage 3 (in thousands of Euros) Total Stage 1 1 867 Stage 2 445 Stage 3 - Total 2 312 1 867 509 ( 432) 509 40 ( 432) 1 984 40 6 617 1 984 ( 3 875) 6 617 1 093 ( 3 875) 1 093 5 819 5 819 445 949 ( 183) 949 ( 43) ( 183) 1 168 ( 43) 5 572 1 168 ( 1 605) 5 572 ( 1 131) ( 1 605) ( 1 131) 4 004 4 004 212 - ( 215) 212 ( 215) 3 3 - - - ( 33) - 33 ( 33) 33 - - 2 312 1 670 ( 830) 1 670 ( 830) - 3 152 - 12 189 3 152 ( 5 513) 12 189 ( 5 513) ( 5) ( 5) 9 823 9 823 The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising from the Group's sale and restructuring process. During the financial year of 2020, a provision of Euro 127.4 million was set up, and The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising there was also a reversal of the provisions set up in 2016 and 2017 in the amount of Euro 3.4 million. As of December 31, 2020, the from the Group's sale and restructuring process. During the financial year of 2020, a provision of Euro 127.4 million was set up, and amount of restructuring provisions on the balance sheet is Euro 97.0 million. there was also a reversal of the provisions set up in 2016 and 2017 in the amount of Euro 3.4 million. As of December 31, 2020, the amount of restructuring provisions on the balance sheet is Euro 97.0 million. Other provisions amounting to Euro 174.2 million (31 December 2019: Euro 145.4 million) are intended to cover certain identified contingencies related to the Group’s activities, the most relevant being: Other provisions amounting to Euro 174.2 million (31 December 2019: Euro 145.4 million) are intended to cover certain identified contingencies related to the Group’s activities, the most relevant being:  Contingencies associated with ongoing tax processes. To cover for these contingencies, the Group maintains provisions of Euro 29.2 million (31 December 2019: Euro 32.2 million);  Contingencies associated with ongoing tax processes. To cover for these contingencies, the Group maintains provisions of Euro  Contingencies associated with legal proceedings amounting to Euro 11.1 million (31 December 2019: Euro 16.2 million); 29.2 million (31 December 2019: Euro 32.2 million);  Contingencies associated with sales processes in the amount of Euro 41.1 million (31 December 2019: Euro 35.5 million);  Contingencies associated with legal proceedings amounting to Euro 11.1 million (31 December 2019: Euro 16.2 million);  Contingencies associated with sales processes in the amount of Euro 41.1 million (31 December 2019: Euro 35.5 million); 31 December 2020 31 December 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 77 77 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Restructuring provision Provision for guarantees and commitments Commercial Offers Balance as at 31 December 2018 Reinforcements / (replacements) Utilization during the period Transfers Foreign exchange differences and other Balance as at 31 December 2019 Reinforcements / (replacements) Utilization during the period Foreign exchange differences and other (a) Balance as at 31 December 2020 9 781 47 291 ( 33 052) 24 - 24 044 123 915 ( 42 188) ( 8 798) 96 973 189 661 ( 60 776) - - ( 31 799) 97 086 22 116 ( 2 188) ( 15 028) 101 986 (a) Includes 8 798 thousand euros of restructuring provisions and 14. 420 thousand euros of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations. The changes in the caption Provisions for guarantees, are detailed as follows: Programme of antecipated repayment of liabilities 38 865 ( 1 172) ( 37 694) 1 - - - - - - 72 877 ( 1 366) ( 29 937) - ( 240) 41 334 ( 629) ( 29 506) - 11 199 (in thousands of Euros) Other provisions Total 114 751 425 935 37 320 ( 22 188) - 15 470 145 353 41 021 ( 16 578) 4 428 174 224 21 297 ( 122 871) 24 ( 16 568) 307 817 186 423 ( 90 460) ( 19 398) 384 382 Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) 26 779 312 ( 2 511) ( 21 331) 3 249 1 086 ( 627) - ( 2 392) 16 832 6 729 ( 7 710) ( 1 753) 143 738 187 349 37 973 ( 96 409) ( 8 715) 45 014 ( 106 630) ( 31 799) 14 098 76 587 93 934 20 502 ( 12 830) - 2 299 23 309 ( 16 000) ( 2 188) ( 14 930) 44 897 ( 29 457) ( 2 188) ( 15 023) 1 316 24 069 66 778 92 163 Balance as at 31 December 2018 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements Balance as at 31 December 2019 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2020 (a) Includes 14 420 thousand euros of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (2 360 thousand euros on stage 1 and 12. 060 thousand euros on stage 3). The changes in the caption Provisions for commitments are detailed as follows: The changes in the caption Provisions for commitments are detailed as follows: Balance as at 31 December 2018 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements Balance as at 31 December 2019 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements Balance as at 31 December 2020 Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) 1 867 509 ( 432) 40 1 984 6 617 ( 3 875) 1 093 5 819 445 949 ( 183) ( 43) 1 168 5 572 ( 1 605) ( 1 131) 4 004 - 212 ( 215) 3 - - ( 33) 33 - 2 312 1 670 ( 830) - 3 152 12 189 ( 5 513) ( 5) 9 823 The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising from the Group's sale and restructuring process. During the financial year of 2020, a provision of Euro 127.4 million was set up, and there was also a reversal of the provisions set up in 2016 and 2017 in the amount of Euro 3.4 million. As of December 31, 2020, the The restructuring provisions were set up within the scope of the commitments assumed before the European amount of restructuring provisions on the balance sheet is Euro 97.0 million. Commission arising from the Group's sale and restructuring process. During the financial year of 2020, a provision of Other provisions amounting to Euro 174.2 million (31 December 2019: Euro 145.4 million) are intended to cover certain identified Euro 127.4 million was set up, and there was also a reversal of the provisions set up in 2016 and 2017 in the amount of contingencies related to the Group’s activities, the most relevant being: Euro 3.4 million. As of December 31, 2020, the amount of restructuring provisions on the balance sheet is Euro 97.0 million.  Contingencies associated with ongoing tax processes. To cover for these contingencies, the Group maintains provisions of Euro 29.2 million (31 December 2019: Euro 32.2 million);  Contingencies associated with legal proceedings amounting to Euro 11.1 million (31 December 2019: Euro 16.2 million); Other provisions amounting to Euro 174.2 million (31 December 2019: Euro 145.4 million) are intended to cover certain  Contingencies associated with sales processes in the amount of Euro 41.1 million (31 December 2019: Euro 35.5 million); identified contingencies related to the Group’s activities, the most relevant being: • Contingencies associated with ongoing tax processes. To cover for these contingencies, the Group maintains Notes to the Consolidated Financial Statements 31 December 2020 77 provisions of Euro 29.2 million (31 December 2019: Euro 32.2 million); • Contingencies associated with legal proceedings amounting to Euro 11.1 million (31 December 2019: Euro 16.2 million); • Contingencies associated with sales processes in the amount of Euro 41.1 million (31 December 2019: Euro 35.5 million); • Contingencies related to the undivided part of the Executive Committee's pension plan, in the amount of Euro 19.2 million, transferred from the liability items net of the value of the assets of the Pension Fund (see Note 16); • The remaining amount, of Euro 73.6 million (31 December 2019: Euro 61.5 million), is intended to cover losses  Contingencies related to the undivided part of the Executive Committee's pension plan, in the amount of Euro 19.2 million, transferred from the liability items net of the value of the assets of the Pension Fund (see Note 16); arising from the Group's normal activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contin-  The remaining amount, of Euro 73.6 million (31 December 2019: Euro 61.5 million), is intended to cover losses arising from the gencies related to asset sale processes, among others. Group's normal activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contingencies related to asset sale processes, among others. NOTE 33 – OTHER LIABILITIES NOTE 33 – Other liabilities As at 31 December 2020 and 31 December 2019, the caption Other liabilities is analyzed as follows: As at 31 December 2020 and 31 December 2019, the caption Other liabilities is analyzed as follows: Public sector Creditors for supply of goods Other creditors Non-controlling interests of Open Investment Funds (see Note 35) Career bonuses (see Note 16) Retirement pensions and health-care benefits (see Note 16) Other accrued expenses Deferred income Foreign exchange transactions pending settlement Other transactions pending settlement (in thousands of Euros) 31.12.2020 31.12.2019 34 658 58 793 64 412 90 206 7 591 27 052 75 495 2 175 - 57 380 417 762 33 110 78 686 77 350 99 394 7 106 153 073 86 277 2 557 6 577 41 936 586 066 As at 31 December 2020, the caption Creditors for supply of goods includes Euro 39,826 thousand related to creditors of assets for right of use (31 December 2019: Euro 46,127 thousand), whose maturity dates are present the following detail: 287 Up to 3 months 3 months to 1 year 1 to 5 years More than 5 years NOTE 34 – SHARE CAPITAL Ordinary shares Nani Holdings, SGPS, SA Resolution Fund (1) (in thousands of Euros) 31.12.2020 80 484 22 194 17 068 39 826 % Share Capital 31.12.2020 31.12.2019 75.00% 25.00% 75.00% 25.00% 100.00% 100.00% In 2017 and following the acquisition of 75% of NOVO BANCO by Lone Star, two capital increases in the amounts of Euro 750 million and Euro 250 million, in October and December, respectively, were realised. Thus, as at 31 December 2020 and 2019, the share capital of the Bank amounts to Euro 5,900,000,000, represented by 9 799 999 997 registered shares, with no nominal value, fully subscribed and realised by the following shareholders: (1) In view of the commitments assumed by the Portuguese Republic before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. As mentioned in Note 28, NOVO BANCO adhered to the Special Regime applicable to Deferred Tax Assets (DTA) approved by Law No. 61/2014, of 26 August. Said regime applies to deferred tax assets related to the non-deduction, for corporate income tax purposes, of costs and negative equity changes recorded up to 31 December 2015 for impairment losses on loans and advances to customers and with employee post-employment or long-term benefits. Said regime foresees that those assets can be converted into tax credits when the taxable entity reports an annual net loss. 31 December 2020 Notes to the Consolidated Financial Statements 78 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES  Contingencies related to the undivided part of the Executive Committee's pension plan, in the amount of Euro 19.2 million, transferred from the liability items net of the value of the assets of the Pension Fund (see Note 16);  The remaining amount, of Euro 73.6 million (31 December 2019: Euro 61.5 million), is intended to cover losses arising from the Group's normal activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contingencies related to asset sale processes, among others.  Contingencies related to the undivided part of the Executive Committee's pension plan, in the amount of Euro 19.2 million, transferred from the liability items net of the value of the assets of the Pension Fund (see Note 16); NOTE 33 – OTHER LIABILITIES  The remaining amount, of Euro 73.6 million (31 December 2019: Euro 61.5 million), is intended to cover losses arising from the Group's normal activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contingencies related to asset sale As at 31 December 2020 and 31 December 2019, the caption Other liabilities is analyzed as follows: processes, among others. NOTE 33 – OTHER LIABILITIES As at 31 December 2020 and 31 December 2019, the caption Other liabilities is analyzed as follows: (in thousands of Euros) 31.12.2020 31.12.2019 Public sector Creditors for supply of goods Other creditors Non-controlling interests of Open Investment Funds (see Note 35) Career bonuses (see Note 16) Public sector Retirement pensions and health-care benefits (see Note 16) Creditors for supply of goods Other accrued expenses Other creditors Deferred income Non-controlling interests of Open Investment Funds (see Note 35) Foreign exchange transactions pending settlement Career bonuses (see Note 16) Other transactions pending settlement Retirement pensions and health-care benefits (see Note 16) Other accrued expenses As at 31 December 2020, the caption Creditors for supply of goods includes Euro 39,826 thousand related to creditors Deferred income of assets for right of use (31 December 2019: Euro 46,127 thousand), whose maturity dates are present the following Foreign exchange transactions pending settlement As at 31 December 2020, the caption Creditors for supply of goods includes Euro 39,826 thousand related to creditors of assets for detail: Other transactions pending settlement right of use (31 December 2019: Euro 46,127 thousand), whose maturity dates are present the following detail: 33 110 78 686 77 350 99 394 7 106 33 110 153 073 78 686 86 277 77 350 2 557 99 394 6 577 7 106 41 936 153 073 586 066 86 277 2 557 6 577 41 936 34 658 58 793 64 412 90 206 7 591 34 658 27 052 58 793 75 495 64 412 2 175 90 206 - 7 591 57 380 27 052 417 762 75 495 2 175 - 57 380 (in thousands of Euros) 31.12.2020 31.12.2019 (in thousands of Euros) As at 31 December 2020, the caption Creditors for supply of goods includes Euro 39,826 thousand related to creditors of assets for right of use (31 December 2019: Euro 46,127 thousand), whose maturity dates are present the following detail: 31.12.2020 417 762 586 066 Up to 3 months 3 months to 1 year 1 to 5 years More than 5 years Up to 3 months 3 months to 1 year 1 to 5 years More than 5 years NOTE 34 – SHARE CAPITAL 31.12.2020 80 (in thousands of Euros) 484 22 194 17 068 80 39 826 484 22 194 17 068 Ordinary shares NOTE 34 – Share capital In 2017 and following the acquisition of 75% of NOVO BANCO by Lone Star, two capital increases in the amounts of Euro 750 NOTE 34 – SHARE CAPITAL million and Euro 250 million, in October and December, respectively, were realised. Thus, as at 31 December 2020 and 2019, the Ordinary shares share capital of the Bank amounts to Euro 5,900,000,000, represented by 9 799 999 997 registered shares, with no nominal value, Ordinary shares fully subscribed and realised by the following shareholders: In 2017 and following the acquisition of 75% of NOVO BANCO by Lone Star, two capital increases in the amounts of In 2017 and following the acquisition of 75% of NOVO BANCO by Lone Star, two capital increases in the amounts of Euro 750 Euro 750 million and Euro 250 million, in October and December, respectively, were realised. Thus, as at 31 December million and Euro 250 million, in October and December, respectively, were realised. Thus, as at 31 December 2020 and 2019, the share capital of the Bank amounts to Euro 5,900,000,000, represented by 9 799 999 997 registered shares, with no nominal value, 2020 and 2019, the share capital of the Bank amounts to Euro 5,900,000,000, represented by 9 799 999 997 registered fully subscribed and realised by the following shareholders: shares, with no nominal value, fully subscribed and realised by the following shareholders: % Share Capital 31.12.2020 31.12.2019 39 826 Nani Holdings, SGPS, SA Resolution Fund (1) 75.00% 75.00% 25.00% % Share Capital 25.00% 31.12.2020 100.00% 31.12.2019 100.00% (1) In view of the commitments assumed by the Portuguese Republic before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. Nani Holdings, SGPS, SA Resolution Fund (1) 25.00% 75.00% 75.00% 25.00% 100.00% As mentioned in Note 28, NOVO BANCO adhered to the Special Regime applicable to Deferred Tax Assets (DTA) approved by Law No. 61/2014, of 26 August. Said regime applies to deferred tax assets related to the non-deduction, for corporate income tax (1) In view of the commitments assumed by the Portuguese Republic before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. purposes, of costs and negative equity changes recorded up to 31 December 2015 for impairment losses on loans and advances to customers and with employee post-employment or long-term benefits. Said regime foresees that those assets can be converted into tax credits when the taxable entity reports an annual net loss. As mentioned in Note 28, NOVO BANCO adhered to the Special Regime applicable to Deferred Tax Assets (DTA) approved by Law No. 61/2014, of 26 August. Said regime applies to deferred tax assets related to the non-deduction, for corporate income tax As mentioned in Note 28, NOVO BANCO adhered to the Special Regime applicable to Deferred Tax Assets (DTA) purposes, of costs and negative equity changes recorded up to 31 December 2015 for impairment losses on loans and advances to customers and with employee post-employment or long-term benefits. Said regime foresees that those assets can be converted approved by Law No. 61/2014, of 26 August. Said regime applies to deferred tax assets related to the non-deduction, into tax credits when the taxable entity reports an annual net loss. for corporate income tax purposes, of costs and negative equity changes recorded up to 31 December 2015 for impairment losses on loans and advances to customers and with employee post-employment or long-term benefits. Said regime foresees that those assets can be converted into tax credits when the taxable entity reports an annual net loss. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 31 December 2020 31 December 2020 100.00% 78 78 The conversion of the eligible deferred tax assets into tax credits was made according to the proportion of the amount of said net loss to total equity at the individual company level. A special reserve was established with an amount identical to the tax credit approved, increased by 10%. This special reserve was established using the originating reserve and is to be incorporated in the share capital. The conversion rights are securities that grant the State the right to demand of NOVO BANCO the respective share capital increase, through the incorporation of the amount of the special reserve and the consequent issue and delivery of ordinary shares at no cost. It is estimated that the conversion rights to be issued and allocated to the State following the net loss of years 2015 and 2019 will confer a shareholding of up to approximately 12.82% of the share capital of NOVO BANCO, which will only dilute, in accordance to the sale contract, the Resolution Fund stake. 288 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThe conversion of the eligible deferred tax assets into tax credits was made according to the proportion of the amount of said net loss to total equity at the individual company level. A special reserve was established with an amount identical to the tax credit approved, increased by 10%. This special reserve was The conversion of the eligible deferred tax assets into tax credits was made according to the proportion of the amount of said net established using the originating reserve and is to be incorporated in the share capital. loss to total equity at the individual company level. The conversion rights are securities that grant the State the right to demand of NOVO BANCO the respective share capital increase, A special reserve was established with an amount identical to the tax credit approved, increased by 10%. This special reserve was through the incorporation of the amount of the special reserve and the consequent issue and delivery of ordinary shares at no cost. established using the originating reserve and is to be incorporated in the share capital. It is estimated that the conversion rights to be issued and allocated to the State following the net loss of years 2015 and 2019 will The conversion rights are securities that grant the State the right to demand of NOVO BANCO the respective share capital increase, confer a shareholding of up to approximately 12.82% of the share capital of NOVO BANCO, which will only dilute, in accordance to through the incorporation of the amount of the special reserve and the consequent issue and delivery of ordinary shares at no cost. the sale contract, the Resolution Fund stake. NOTE 35 – Accumulated other comprehensive income, retained earnings, other reserves and minority interests (non-controlling interests) It is estimated that the conversion rights to be issued and allocated to the State following the net loss of years 2015 and 2019 will confer a shareholding of up to approximately 12.82% of the share capital of NOVO BANCO, which will only dilute, in accordance to NOTE 35 – ACCUMULATED OTHER COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES AND the sale contract, the Resolution Fund stake. MINORITY INTERESTS (NON-CONTROLLING INTERESTS) NOTE 35 – ACCUMULATED OTHER COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES AND As at 31 December 2020 and 2019, the accumulated other comprehensive income, retained earnings and other re- As at 31 December 2020 and 31 December 2019, the accumulated other comprehensive income, retained earnings and other MINORITY INTERESTS (NON-CONTROLLING INTERESTS) reserves present the following detail: serves present the following detail: As at 31 December 2020 and 31 December 2019, the accumulated other comprehensive income, retained earnings and other reserves present the following detail: 31.12.2020 31.12.2019 (in thousands of Euros) Other accumulated comprehensive income Retained earnings Other reserves Other accumulated comprehensive income Originating reserve Retained earnings Special reserve Other reserves Other reserves and Retained earnings Originating reserve Special reserve Other accumulated comprehensive income Other reserves and Retained earnings ( 823 420) ( 702 311) (in thousands of Euros) ( 7 202 828) 31.12.2020 ( 6 115 245) 31.12.2019 6 570 154 ( 823 420) 1 976 173 ( 7 202 828) 728 561 6 570 154 3 865 420 1 976 173 ( 1 456 094) 728 561 5 942 501 ( 702 311) 2 098 188 ( 6 115 245) 606 547 5 942 501 3 237 766 2 098 188 ( 875 055) 606 547 3 865 420 ( 1 456 094) 3 237 766 ( 875 055) The movements in Other accumulated comprehensive income were as follows: Other accumulated comprehensive income Other accumulated comprehensive income The movements in Other accumulated comprehensive income were as follows: The movements in Other accumulated comprehensive income were as follows: Other accumulated comprehensive income (in thousands of Euros) Balance as at 31 December 2018 Actuarial deviations Fair value changes, net of taxes Foreign exchange differences Balance as at 31 December 2018 Changes in credit risk of financial liabilities at fair value, net of taxes Actuarial deviations Impairment reserves of securities at fair value through Fair value changes, net of taxes other comprehensive income Foreign exchange differences Reserves of sales of securities at fair value through other Changes in credit risk of financial liabilities at fair value, comprehensive income net of taxes Other comprehensive income of associated companies Impairment reserves of securities at fair value through Other other comprehensive income Reserves of sales of securities at fair value through other Balance as at 31 December 2019 comprehensive income Other comprehensive income of associated companies Actuarial deviations Other Fair value changes, net of taxes Foreign exchange differences Balance as at 31 December 2019 Changes in credit risk of financial liabilities at fair value, net of taxes Actuarial deviations Impairment reserves of securities at fair value through Fair value changes, net of taxes other comprehensive income Foreign exchange differences Reserves of sales of securities at fair value through other Changes in credit risk of financial liabilities at fair value, comprehensive income net of taxes Other comprehensive income of associated companies Impairment reserves of securities at fair value through other comprehensive income Balance as at 31 December 2020 Reserves of sales of securities at fair value through other comprehensive income Other comprehensive income of associated companies Credit risk reserves Sales reserves Fair value reserves Other accumulated comprehensive income Other variations of other comprehensive income Actuarial deviations (net of taxes) (in thousands of Euros) Total Impairment reserves 1 211 Impairment reserves - - - 1 211 - - - 4 336 - - - - - 4 336 5 547 - - - - - 1 202 Credit risk reserves - - ( 3 315) Sales reserves - - - 1 202 ( 2 871) - - - - - ( 2 871) - - - ( 1 669) - - - - - - ( 3 315) - - - - - ( 4 470) - - - - ( 7 785) ( 4 470) - - - - - 5 547 - ( 1 669) - ( 7 785) - - 10 883 - - ( 1 852) - - - - ( 1 852) 3 695 - - - - - - 10 883 - - 9 214 - - - - - - - ( 14 972) - - - ( 22 757) ( 14 972) - ( 297 995) Fair value reserves - 211 207 - ( 297 995) - - 211 207 - - - - 897 - - ( 85 891) - 897 - - 12 729 - ( 85 891) - - 12 729 - - - - ( 2 048) - ( 75 210) - ( 2 048) Other variations of ( 191) other comprehensive income - - Actuarial ( 491 796) deviations (net of taxes) ( 107 341) - 31 ( 191) - ( 491 796) - - - - 31 - - - ( 13 216) - ( 13 376) - - - ( 13 216) - ( 1 518) ( 13 376) - ( 107 341) - - - - - - - - ( 599 137) - - ( 124 331) - - - ( 599 137) - - - ( 124 331) - - ( 1 518) - - - - - - - - - - ( 14 894) - ( 723 468) - - - - Total ( 790 884) ( 107 341) 211 207 31 ( 790 884) ( 2 871) ( 107 341) 211 207 4 336 31 ( 4 470) ( 2 871) 897 ( 13 216) 4 336 ( 702 311) ( 4 470) 897 ( 124 331) ( 13 216) 12 729 ( 1 518) ( 702 311) 10 883 ( 124 331) 12 729 ( 1 852) ( 1 518) ( 14 972) 10 883 ( 2 048) ( 1 852) ( 823 420) ( 14 972) ( 2 048) Balance as at 31 December 2020 3 695 9 214 ( 22 757) ( 75 210) ( 14 894) ( 723 468) ( 823 420) 31 December 2020 Notes to the Consolidated Financial Statements 31 December 2020 Fair value reserve Notes to the Consolidated Financial Statements 79 79 The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferred taxes and non-controlling interests. 289 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Fair value reserve The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferred taxes and non-controlling interests. Fair value reserve The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as follows: a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferred follows: taxes and non-controlling interests. The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as follows: 31.12.2020 Fair value reserves (in thousands of Euros) 31.12.2019 Fair value reserves Financial assets at fair value through other comprehensive income Deferred tax reserves Total fair value reserves 31.12.2020 Financial assets at fair value through other comprehensive income Deferred tax reserves (in thousands of Euros) Total fair value reserves 31.12.2019 Fair value reserve The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at Balance at the beginning of the exercise a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferred Total fair Changes in fair value 383 497 value reserves taxes and non-controlling interests. Foreign exchange differences ( 6 678) Alienations in the exercise ( 70 140) Balance at the beginning of the exercise ( 297 995) Impairment in the exercise - The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as follows: Deferred taxes recognized in the exercise in reserves Changes in fair value ( 293 622) Financial assets at fair 383 497 value through other ( 6 678) comprehensive income ( 70 140) ( 293 622) - 13 057 Financial assets at fair 95 596 value through other ( 4 280) comprehensive income ( 69 652) 13 057 ( 6 284) Total fair 95 596 value reserves ( 4 280) ( 69 652) ( 85 891) ( 6 284) Deferred tax - reserves - - ( 98 948) - - - - ( 4 373) - Deferred tax reserves Fair value reserves Fair value reserves ( 297 995) ( 98 948) ( 85 891) ( 4 373) - 383 497 ( 94 575) 383 497 ( 94 575) - - 95 596 ( 4 699) 95 596 ( 4 699) - Foreign exchange differences Balance at the end of the exercise Alienations in the exercise Impairment in the exercise The fair value reserves are analyzed as follows: Deferred taxes recognized in the exercise in reserves Balance at the end of the exercise The fair value reserves are analyzed as follows: The fair value reserves are analyzed as follows: ( 4 280) 28 437 ( 69 652) ( 6 284) - ( 103 647) - - 31.12.2020 - Fair value reserves 28 437 Financial assets at fair value through other comprehensive income Deferred tax reserves ( 103 647) ( 4 699) ( 4 280) ( 75 210) ( 69 652) ( 6 284) ( 4 699) ( 75 210) Total fair value reserves ( 6 678) 13 057 ( 70 140) - - ( 98 948) - - ( 6 678) ( 85 891) ( 70 140) (in thousands of Euros) - ( 94 575) 31.12.2019 Fair value reserves - ( 94 575) 13 057 Financial assets at fair value through other 31.12.2020 comprehensive income Deferred tax reserves ( 85 891) ( 98 948) (in thousands of Euros) Total fair value reserves 31.12.2019 Balance at the beginning of the exercise Amortised cost of financial assets at fair value through other comprehensive income Changes in fair value Market value of financial assets at fair value through other comprehensive income Foreign exchange differences Alienations in the exercise Unrealised gains / (losses) recognized in fair value reserve Impairment in the exercise Amortised cost of financial assets at fair value through other comprehensive income Fair value reserves by the equity method Deferred taxes recognized in the exercise in reserves Market value of financial assets at fair value through other comprehensive income Balance at the end of the exercise Fair value reserves of discontinued activities 95 596 ( 4 280) ( 69 652) ( 6 284) - 28 437 13 057 Unrealised gains / (losses) recognized in fair value reserve Non-controlling Interests The fair value reserves are analyzed as follows: Fair value reserves by the equity method Total fair value reserve Fair value reserves of discontinued activities Deferred Taxes Non-controlling Interests Fair value reserve attributable to shareholders of the Bank Total fair value reserve ( 98 948) - - - - ( 4 699) ( 85 891) 95 596 ( 4 280) ( 69 652) ( 6 284) ( 4 699) ( 103 647) ( 75 210) ( 293 622) 7 879 863 383 497 7 907 587 31.12.2020 ( 6 678) ( 70 140) 27 724 - 7 879 863 917 - 7 907 587 13 057 1 193 27 724 ( 1 397) 917 28 437 1 193 ( 103 647) 31.12.2020 ( 1 397) ( 75 210) 28 437 ( 4 373) (in thousands of Euros) 31.12.2019 ( 297 995) 8 837 309 383 497 8 849 896 ( 6 678) ( 70 140) 12 587 - 8 837 309 2 965 ( 94 575) 8 849 896 ( 85 891) - - - - - ( 94 575) ( 98 948) 12 587 ( 2 495) 2 965 13 057 - ( 98 948) (in thousands of Euros) ( 2 495) ( 85 891) 13 057 31.12.2019 917 1 193 2 965 ( 1 397) 12 587 27 724 8 849 896 ( 85 891) 7 907 587 ( 75 210) 8 837 309 ( 98 948) 7 879 863 ( 103 647) Amortised cost of financial assets at fair value through other comprehensive income Deferred Taxes Originating reserve Market value of financial assets at fair value through other comprehensive income Fair value reserve attributable to shareholders of the Bank The originating reserve results from the difference between the assets and liabilities transferred from BES to NOVO BANCO, on the terms defined in the resolution measure applied by Bank of Portugal to BES. The amount of the reserve includes the effects of Bank Unrealised gains / (losses) recognized in fair value reserve of Portugal’s Resolution Measure (“Medida de Resolução”) and those of the conclusions reached through the audit conducted by the Fair value reserves by the equity method Originating reserve independent auditor nominated by Bank of Portugal. The originating reserve results from the difference between the assets and liabilities transferred from BES to NOVO BANCO, on the Fair value reserves of discontinued activities terms defined in the resolution measure applied by Bank of Portugal to BES. The amount of the reserve includes the effects of Bank Non-controlling Interests Originating reserve of Portugal’s Resolution Measure (“Medida de Resolução”) and those of the conclusions reached through the audit conducted by the Total fair value reserve Special reserve independent auditor nominated by Bank of Portugal. The originating reserve results from the difference between the assets and liabilities transferred from BES to NOVO As mentioned in Note 34, the special reserve was created as a result of the adhesion of NOVO BANCO to the Special Regime Deferred Taxes applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, which implied the conversion of eligible deferred tax BANCO, on the terms defined in the resolution measure applied by Bank of Portugal to BES. The amount of the reserve Fair value reserve attributable to shareholders of the Bank assets into tax credits and the simultaneous establishment of a special reserve. Special reserve includes the effects of Bank of Portugal’s Resolution Measure (“Medida de Resolução”) and those of the conclusions As mentioned in Note 34, the special reserve was created as a result of the adhesion of NOVO BANCO to the Special Regime Following the net losses recorded from 2015 until 2019 and with reference to the eligible deferred tax assets at the end of each year, reached through the audit conducted by the independent auditor nominated by Bank of Portugal. Originating reserve applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, which implied the conversion of eligible deferred tax the special reserve was set up for the same amount of the tax credit calculated, increased by 10%, as follows: The originating reserve results from the difference between the assets and liabilities transferred from BES to NOVO BANCO, on the assets into tax credits and the simultaneous establishment of a special reserve. terms defined in the resolution measure applied by Bank of Portugal to BES. The amount of the reserve includes the effects of Bank (in thousands of Euros) of Portugal’s Resolution Measure (“Medida de Resolução”) and those of the conclusions reached through the audit conducted by the Following the net losses recorded from 2015 until 2019 and with reference to the eligible deferred tax assets at the end of each year, Special reserve independent auditor nominated by Bank of Portugal. the special reserve was set up for the same amount of the tax credit calculated, increased by 10%, as follows: 31.12.2020 As mentioned in Note 34, the special reserve was created as a result of the adhesion of NOVO BANCO to the Special 2016 (net loss of 2015) Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, which implied the conversion of 2017 (net loss of 2016) Special reserve 31.12.2020 eligible deferred tax assets into tax credits and the simultaneous establishment of a special reserve. 2018 (net loss of 2017) As mentioned in Note 34, the special reserve was created as a result of the adhesion of NOVO BANCO to the Special Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, which implied the conversion of eligible deferred tax 2019 (net loss of 2018) 2016 (net loss of 2015) assets into tax credits and the simultaneous establishment of a special reserve. 2020 (net loss of 2019) Following the net losses recorded from 2015 until 2019 and with reference to the eligible deferred tax assets at the 2017 (net loss of 2016) 2018 (net loss of 2017) end of each year, the special reserve was set up for the same amount of the tax credit calculated, increased by 10%, as Following the net losses recorded from 2015 until 2019 and with reference to the eligible deferred tax assets at the end of each year, 2019 (net loss of 2018) follows: the special reserve was set up for the same amount of the tax credit calculated, increased by 10%, as follows: 2020 (net loss of 2019) 168 911 109 421 150 044 178 171 168 911 122 014 109 421 150 044 728 561 178 171 122 014 168 911 109 421 150 044 178 171 168 911 - 109 421 150 044 606 547 178 171 - (in thousands of Euros) 31.12.2019 31.12.2019 ( 103 647) ( 75 210) ( 98 948) ( 85 891) 28 437 13 057 ( 2 495) - Other reserves and retained earnings 31 December 2020 Other reserves and retained earnings 2016 (net loss of 2015) 2017 (net loss of 2016) 2018 (net loss of 2017) 2019 (net loss of 2018) 2020 (net loss of 2019) 31 December 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 728 561 (in thousands of Euros) 606 547 31.12.2020 31.12.2019 168 911 109 421 150 044 178 171 122 014 728 561 168 911 80 109 421 150 044 178 171 80 - 606 547 Other reserves and retained earnings 290 31 December 2020 Notes to the Consolidated Financial Statements 80 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Other reserves and retained earnings Following the conditions agreed in the NOVO BANCO’S sale process, a Contingent Capital Agreement was created. In this context, if the capital ratios fall below a certain threshold and, cumulatively, losses are recorded in a delimited asset portfolio, the Resolution Fund makes a payment corresponding to the lower of the losses recorded and the amount necessary to restore the ratios to the defined threshold, of up to a maximum of Euro 3,890 million (see Note 35 – Contingent liabilities and commitments). The capital corresponds to a previously defined asset perimeter, with an initial net book value (June 2016) of around Euro 7.9 billion. As at 31 December 2020 these assets had a net value of Euro 2.1 billion, mainly as a result of losses Following the conditions agreed in the NOVO BANCO’S sale process, a Contingent Capital Agreement was created. In this context, if the capital ratios fall below a certain threshold and, cumulatively, losses are recorded in a delimited asset portfolio, the Resolution recorded as well as payments and recoveries (31 December 2019: net value of Euro 3.1 billion). Fund makes a payment corresponding to the lower of the losses recorded and the amount necessary to restore the ratios to the defined threshold, of up to a maximum of Euro 3 890 million (see Note 35 – Contingent liabilities and commitments). As a result of the losses recorded by NOVO BANCO on 31 December 2019, 2018 and 2017, the conditions determining The capital corresponds to a previously defined asset perimeter, with an initial net book value (June 2016) of around Euro 7.9 billion. the payment by Resolution Fund of Euro 1,035,016 thousand, Euro 1,149,295 thousand and Euro 791,695 thousand Following the conditions agreed in the NOVO BANCO’S sale process, a Contingent Capital Agreement was created. In this context, As at 31 December 2020 these assets had a net value of Euro 2.1 billion, mainly as a result of losses recorded as well as payments if the capital ratios fall below a certain threshold and, cumulatively, losses are recorded in a delimited asset portfolio, the Resolution and recoveries (31 December 2019: net value of Euro 3.1 billion). were meet and the payments occurred in May 2020, 2019 and 2018, respectively. In the financial year of 2020, the Fund makes a payment corresponding to the lower of the losses recorded and the amount necessary to restore the ratios to the caption Reserves registered the responsibility of the Resolution Fund amounting to Euro 598,312 thousand relating to defined threshold, of up to a maximum of Euro 3 890 million (see Note 35 – Contingent liabilities and commitments). As a result of the losses recorded by NOVO BANCO on 31 December 2019, 2018 and 2017, the conditions determining the payment the Contingent Capital Agreement. The amount is accounted for under Other reserves and it results at each Balance The capital corresponds to a previously defined asset perimeter, with an initial net book value (June 2016) of around Euro 7.9 billion. by Resolution Fund of Euro 1,035,016 thousand, Euro 1,149,295 thousand and Euro 791,695 thousand were meet and the payments As at 31 December 2020 these assets had a net value of Euro 2.1 billion, mainly as a result of losses recorded as well as payments occurred in May 2020, 2019 and 2018, respectively. In the financial year of 2020, the caption Reserves registered the responsibility Sheet date of the incurred losses and of the regulatory ratios in force at the moment of its determination. and recoveries (31 December 2019: net value of Euro 3.1 billion). of the Resolution Fund amounting to Euro 598,312 thousand relating to the Contingent Capital Agreement. The amount is accounted for under Other reserves and it results at each Balance Sheet date of the incurred losses and of the regulatory ratios in force at the As a result of the losses recorded by NOVO BANCO on 31 December 2019, 2018 and 2017, the conditions determining the payment moment of its determination. Non-controlling interests by Resolution Fund of Euro 1,035,016 thousand, Euro 1,149,295 thousand and Euro 791,695 thousand were meet and the payments occurred in May 2020, 2019 and 2018, respectively. In the financial year of 2020, the caption Reserves registered the responsibility The caption Non-controlling interests, by subsidiary, is detailed as follows: of the Resolution Fund amounting to Euro 598,312 thousand relating to the Contingent Capital Agreement. The amount is accounted Non-controlling interests for under Other reserves and it results at each Balance Sheet date of the incurred losses and of the regulatory ratios in force at the The caption Non-controlling interests, by subsidiary, is detailed as follows: moment of its determination. (in thousands of Euros) Non-controlling interests The caption Non-controlling interests, by subsidiary, is detailed as follows: NB Património a) NB Açores Amoreiras Other - 18 451 9 099 4 496 Balance sheet ( 7 759) 1 134 ( 123) ( 3 326) 31.12.2020 Balance sheet Income statement 32 046 ( 10 074) % Non- controlling interests 44,17% 42,47% 4,76% % Non- controlling interests 31.12.2020 Income statement NB Património a) ( 7 759) a) Non-controlling interests relating to Open real estate investment funds are recorded as Other liabilities (see Note 33) 1 134 NB Açores ( 123) Amoreiras The changes occurred in the caption Non-controlling interests may be analyzed as follows: ( 3 326) Other - 18 451 9 099 4 496 44,17% 42,47% 4,76% 32 046 ( 10 074) Balance sheet - 18 745 9 222 8 657 Balance sheet 36 624 - 18 745 9 222 8 657 36 624 31.12.2019 Income statement % Non- controlling interests 31.12.2019 ( 7 189) 1 736 ( 166) ( 2 034) Income statement (in thousands of Euros) 44,27% 42,47% 4,76% % Non- controlling interests ( 7 653) ( 7 189) 1 736 ( 166) ( 2 034) 44,27% 42,47% 4,76% ( 7 653) (in thousands of Euros) a) Non-controlling interests relating to Open real estate investment funds are recorded as Other liabilities (see Note 33) 31.12.2020 31.12.2019 The changes occurred in the caption Non-controlling interests may be analyzed as follows: The changes occurred in the caption Non-controlling interests may be analyzed as follows: Non-controlling interests at the beginning of the exercise Changes in consolidation perimeter and control percentages 36 624 ( 1 553) 35 346 ( 1 746) Increases / (decreases) in share capital of subsidiaries Changes in fair value reserves Other Non-controlling interests at the beginning of the exercise Net profit / (loss) for the period Changes in consolidation perimeter and control percentages Non-controlling interests at the end of the exercise Increases / (decreases) in share capital of subsidiaries Changes in fair value reserves Other NOTE 36 – CONTINGENT LIABILITIES AND COMMITMENTS Net profit / (loss) for the period (in thousands of Euros) - ( 830) 1 798 225 31.12.2019 31.12.2020 7 879 36 624 ( 10 074) ( 1 553) 32 046 - ( 830) 7 879 ( 10 074) 8 654 35 346 ( 7 653) ( 1 746) 36 624 1 798 225 8 654 ( 7 653) Non-controlling interests at the end of the exercise In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 30 December 2020 and 31 December 2019 are the following: 32 046 36 624 NOTE 36 – CONTINGENT LIABILITIES AND COMMITMENTS (in thousands of Euros) 31.12.2020 31.12.2019 In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 30 December 2020 and 31 Contingent liabilities December 2019 are the following: Guarantees and standby letters Financial assets pledged as collateral Open documentary credits 2 826 190 14 101 034 410 292 2 993 785 11 833 012 516 162 (in thousands of Euros) 31.12.2019 31.12.2020 Contingent liabilities Commitments Guarantees and standby letters Revocable commitments Financial assets pledged as collateral Irrevocable commitments Open documentary credits 17 337 516 15 342 959 2 826 190 6 389 435 14 101 034 631 500 410 292 7 020 935 17 337 516 2 993 785 6 845 430 11 833 012 411 378 516 162 7 256 808 15 342 959 Commitments Revocable commitments 291 Irrevocable commitments Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Group. 6 389 435 631 500 6 845 430 411 378 As at 31 December 2020, the caption financial assets pledged as collateral includes:  The market value of financial assets pledged as collateral to the European Central Bank in the scope of a liquidity facility, in the 7 020 935 7 256 808 amount of Euro 13.1 billion (31 December 2019: Euro 11.5 billion); Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Group. As at 31 December 2020, the caption financial assets pledged as collateral includes: Notes to the Consolidated Financial Statements 31 December 2020  The market value of financial assets pledged as collateral to the European Central Bank in the scope of a liquidity facility, in the amount of Euro 13.1 billion (31 December 2019: Euro 11.5 billion); 31 December 2020 Notes to the Consolidated Financial Statements 81 81 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESFollowing the conditions agreed in the NOVO BANCO’S sale process, a Contingent Capital Agreement was created. In this context, if the capital ratios fall below a certain threshold and, cumulatively, losses are recorded in a delimited asset portfolio, the Resolution Fund makes a payment corresponding to the lower of the losses recorded and the amount necessary to restore the ratios to the defined threshold, of up to a maximum of Euro 3 890 million (see Note 35 – Contingent liabilities and commitments). The capital corresponds to a previously defined asset perimeter, with an initial net book value (June 2016) of around Euro 7.9 billion. As at 31 December 2020 these assets had a net value of Euro 2.1 billion, mainly as a result of losses recorded as well as payments and recoveries (31 December 2019: net value of Euro 3.1 billion). As a result of the losses recorded by NOVO BANCO on 31 December 2019, 2018 and 2017, the conditions determining the payment by Resolution Fund of Euro 1,035,016 thousand, Euro 1,149,295 thousand and Euro 791,695 thousand were meet and the payments occurred in May 2020, 2019 and 2018, respectively. In the financial year of 2020, the caption Reserves registered the responsibility of the Resolution Fund amounting to Euro 598,312 thousand relating to the Contingent Capital Agreement. The amount is accounted for under Other reserves and it results at each Balance Sheet date of the incurred losses and of the regulatory ratios in force at the moment of its determination. Non-controlling interests The caption Non-controlling interests, by subsidiary, is detailed as follows: NB Património a) NB Açores Amoreiras Other Balance sheet Balance sheet 31.12.2020 Income statement ( 7 759) 1 134 ( 123) ( 3 326) ( 10 074) - 18 451 9 099 4 496 32 046 % Non- controlling interests 44,17% 42,47% 4,76% (in thousands of Euros) % Non- controlling interests 44,27% 42,47% 4,76% 31.12.2019 Income statement ( 7 189) 1 736 ( 166) ( 2 034) ( 7 653) - 18 745 9 222 8 657 36 624 a) Non-controlling interests relating to Open real estate investment funds are recorded as Other liabilities (see Note 33) The changes occurred in the caption Non-controlling interests may be analyzed as follows: (in thousands of Euros) 31.12.2020 31.12.2019 Non-controlling interests at the beginning of the exercise Changes in consolidation perimeter and control percentages Increases / (decreases) in share capital of subsidiaries Changes in fair value reserves Other Net profit / (loss) for the period 36 624 ( 1 553) - ( 830) 7 879 ( 10 074) Non-controlling interests at the end of the exercise 32 046 NOTE 36 – Contingent liabilities and commitments 35 346 ( 1 746) 1 798 225 8 654 ( 7 653) 36 624 NOTE 36 – CONTINGENT LIABILITIES AND COMMITMENTS In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 30 December In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 30 December 2020 and 31 2020 and 2019 are the following: December 2019 are the following: Contingent liabilities Guarantees and standby letters Financial assets pledged as collateral Open documentary credits Commitments Revocable commitments Irrevocable commitments (in thousands of Euros) 31.12.2020 31.12.2019 2 826 190 14 101 034 410 292 17 337 516 6 389 435 631 500 7 020 935 2 993 785 11 833 012 516 162 15 342 959 6 845 430 411 378 7 256 808 Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Group. As at 31 December 2020, the caption financial assets pledged as collateral includes: Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the  The market value of financial assets pledged as collateral to the European Central Bank in the scope of a liquidity facility, in the Group. amount of Euro 13.1 billion (31 December 2019: Euro 11.5 billion); As at 31 December 2020, the caption financial assets pledged as collateral includes: 31 December 2020 Notes to the Consolidated Financial Statements 81 • The market value of financial assets pledged as collateral to the European Central Bank in the scope of a liquidity facility, in the amount of Euro 13.1 billion (31 December 2019: Euro 11.5 billion); • Securities pledged as collateral to the Portuguese Securities and Exchange Commission (“Comissão do Mercado de Valores Mobiliários” (CMVM)) in the scope of the Investors Indemnity System (“Sistema de Indemnização aos Investidores”), in the amount of Euro 9.7 million (31 December 2019: Euro 9.6 million); • Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), in the amount of Euro 70.8 million (31 December 2019: Euro 73.1 million); • Securities pledged as collateral to the European Investment Bank, in the amount of Euro 769.7 million (31 December 2019: Euro 98.5 million); • Securities delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 107.0 million (31 December 2019: Euro 113.0 million). The above mentioned financial assets pledged as collateral are recorded in the various asset categories of the Group’s balance sheet and may be executed in the event the Group does not fulfil its obligations under the terms and conditions of the contracts celebrated. The increase in the value of securities pledged as collateral to the European Investment Bank is related to the reinforcement of the collateral due to changes in the minimum required amounts. Documentary credits are irrevocable commitments made by the Group, on behalf of its customers, to pay or order to pay a certain amount to a supplier of goods or services, within a determined period, upon the presentation of documentation of the expedition of the goods or rendering of the services. The condition of “irrevocable” derives from the fact that they may not be cancelled neither changed without the agreement of all involved parties. Revocable and irrevocable commitments represent contractual agreements to extend credit to customers of the Group (e.g. undrawn credit lines), which are, generally, contracted for fixed periods of time or with other expiration conditions and, usually, require the payment of a fee. Almost all credit commitments in force require that customers continue meeting certain conditions that were verified at the time the credit was contracted. Despite the characteristics of these contingent liabilities and commitments, these operations require a previous rigorous risk assessment of the solvency of the customer and of its business, similarly to any other commercial operation. When necessary, the Group requires the collateralisation of these transactions. Since it is expected that the majority of these operations will mature without any funds having been drawn, these amounts do not necessarily represent future cash out-flows. 292 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Securities pledged as collateral to the Portuguese Securities and Exchange Commission (“Comissão do Mercado de Valores Mobiliários” (CMVM)) in the scope of the Investors Indemnity System (“Sistema de Indemnização aos Investidores”), in the amount  Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), in the amount of Euro 70.8  Securities pledged as collateral to the European Investment Bank, in the amount of Euro 769.7 million (31 December 2019: Euro of Euro 9.7 million (31 December 2019: Euro 9.6 million); million (31 December 2019: Euro 73.1 million); 98.5 million); million (31 December 2019: Euro 113.0 million).  Securities delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 107.0 The above mentioned financial assets pledged as collateral are recorded in the various asset categories of the Group’s balance sheet and may be executed in the event the Group does not fulfil its obligations under the terms and conditions of the contracts celebrated. The increase in the value of securities pledged as collateral to the European Investment Bank is related to the reinforcement of the collateral due to changes in the minimum required amounts. Documentary credits are irrevocable commitments made by the Group, on behalf of its customers, to pay or order to pay a certain amount to a supplier of goods or services, within a determined period, upon the presentation of documentation of the expedition of the goods or rendering of the services. The condition of “irrevocable” derives from the fact that they may not be cancelled neither changed without the agreement of all involved parties. Revocable and irrevocable commitments represent contractual agreements to extend credit to customers of the Group (e.g. undrawn credit lines), which are, generally, contracted for fixed periods of time or with other expiration conditions and, usually, require the payment of a fee. Almost all credit commitments in force require that customers continue meeting certain conditions that were verified at the time the credit was contracted. Despite the characteristics of these contingent liabilities and commitments, these operations require a previous rigorous risk assessment of the solvency of the customer and of its business, similarly to any other commercial operation. When necessary, the Group requires the collateralisation of these transactions. Since it is expected that the majority of these operations will mature without any funds having been drawn, these amounts do not necessarily represent future cash out-flows. Additionally, liabilities recorded in off-balance sheet items related to banking services provided are as follows: Additionally, liabilities recorded in off-balance sheet items related to banking services provided are as follows: Deposit and custody of securities and other items Amounts received for subsequent collection Securitized loans under management (servicing) Other responsibilities related with banking services (in thousands of Euros) 31.12.2020 31.12.2019 35 469 555 233 699 697 905 1 519 011 36 644 517 283 647 776 249 2 582 526 37 920 170 40 286 939 Pursuant to the resolution measure applied to BES by resolution of Banco de Portugal of 3 August 2014 (point 1., point b), subparagraph (vii) of Annex 2), as amended by the decision of Banco de Portugal of 11 August 2014, the “excluded liabilities” of transfer to NOVO BANCO include “any obligations, guarantees, liabilities or contingencies assumed in the commercialization, Pursuant to the resolution measure applied to BES by resolution of Banco de Portugal of 3 August 2014 (point 1., point financial intermediation and distribution of debt instruments issued by entities that are part of the Espírito Santo Group (…) ”. b), subparagraph (vii) of Annex 2), as amended by the decision of Banco de Portugal of 11 August 2014, the “excluded Pursuant to point and subparagraph above and subpoint (v), liabilities excluded also include “any liabilities or contingencies, namely liabilities” of transfer to NOVO BANCO include “any obligations, guarantees, liabilities or contingencies assumed in the those arising from fraud or violation of regulatory, criminal or administrative offenses or provisions”. commercialization, financial intermediation and distribution of debt instruments issued by entities that are part of the Espírito Santo Group (…) ”. On December 29, 2015, Banco de Portugal adopted a new resolution on “Clarification and retransmission of responsibilities and contingencies defined as liabilities excluded in subparagraphs (v) to (vii) of paragraph 2 (b) of Annex 2 to the Resolution of Banco de Portugal of 3 August 2014 (8 pm), as amended by the Resolution of Banco de Portugal of 11 August 2014 (5 pm) ”. Under the terms Pursuant to point and subparagraph above and subpoint (v), liabilities excluded also include “any liabilities or contin- of this resolution, Banco de Portugal came: gencies, namely those arising from fraud or violation of regulatory, criminal or administrative offenses or provisions”. (i) Clarify the treatment as liabilities excluded from BES's contingent and unknown liabilities (including litigious liabilities related to pending litigation and liabilities or contingencies resulting from fraud or the violation of regulatory, criminal or administrative On December 29, 2015, Banco de Portugal adopted a new resolution on “Clarification and retransmission of respon- offenses or provisions), regardless of their nature ( tax, Labour, civil or other) and whether or not they are registered in BES's accounts, under the terms of sub-paragraph (v) of paragraph (b) of paragraph 1 of Exhibit 2 of the Resolution of 3 August; sibilities and contingencies defined as liabilities excluded in subparagraphs (v) to (vii) of paragraph 2 (b) of Annex 2 to and the Resolution of Banco de Portugal of 3 August 2014 (8 pm), as amended by the Resolution of Banco de Portugal of 11 August 2014 (5 pm) ”. Under the terms of this resolution, Banco de Portugal came: a. All credits related to preferred shares issued by vehicle companies established by BES and sold by BES; b. All credits, indemnities and expenses related to real estate assets that have been transferred to NOVO BANCO; c. All indemnities related to non-compliance with contracts (purchase and sale of real estate and other assets) signed i. Clarify the treatment as liabilities excluded from BES's contingent and unknown liabilities (including litigious liabilities related to pending litigation and liabilities or contingencies resulting from fraud or the violation of d. All indemnities related to life insurance contracts, in which the insurer was BES - Companhia de Seguros de Vida, regulatory, criminal or administrative offenses or provisions), regardless of their nature ( tax, Labour, civil or other) and whether or not they are registered in BES's accounts, under the terms of sub-paragraph (v) of paragraph (b) of paragraph 1 of Exhibit 2 of the Resolution of 3 August; and 31 December 2020 (ii) Clarify that the following BES liabilities have not been transferred from BES to NOVO BANCO: Notes to the Consolidated Financial Statements and executed before 8:00 pm on August 3, 2014; S.A .; 82 ii. Clarify that the following BES liabilities have not been transferred from BES to NOVO BANCO: a. All credits related to preferred shares issued by vehicle companies established by BES and sold by BES; b. All credits, indemnities and expenses related to real estate assets that have been transferred to NOVO BANCO; c. All indemnities related to non-compliance with contracts (purchase and sale of real estate and other assets) signed and executed before 8:00 pm on August 3, 2014; d. All indemnities related to life insurance contracts, in which the insurer was BES - Companhia de Seguros de Vida, S.A .; e. All credits and indemnities related to the alleged cancellation of certain loan agreement clauses in which BES was the lender; f. All indemnities and credits resulting from the cancellation of operations carried out by BES as a provider of financial and investment services; g. Any responsibility that is the subject of any of the processes described in Appendix I of said resolution. iii. To the extent that, despite the clarifications made above, it turns out that any liabilities of BES that, under the terms of any of those paragraphs and the Resolution of August 3, were effectively transferred to NOVO BANCO legal liabilities, these liabilities will be retransmitted from NOVO BANCO to BES, with effect from 8:00 pm on August 3, 2014. 293 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESIn the preparation of its consolidated financial statements for 31 December 2020 (as well as in the previous financial statements), NOVO BANCO incorporated the determinations resulting from the resolution measure, as amended, with regard to the perimeter of transfer of assets, liabilities, off-balance sheet items and assets under BES management, as well as the decisions of Banco de Portugal of 29 December 2015, in particular, regarding the clarification of the non-transmission to NOVO BANCO of contingent and unknown liabilities and clarifications relating to the liabilities contained in paragraph (ii) above, including the lawsuits listed in that resolution. Additionally, also by resolution of Banco de Portugal of 29 December 2015, it was decided that the Resolution Fund is responsible for neutralizing, at the level of NOVO BANCO, the effects of decisions that are legally binding, outside the will of NOVO BANCO and for the which it has not contributed and that, simultaneously, translate into the materialization of responsibilities and contingencies that, according to the transfer perimeter to NOVO BANCO, as defined by Banco de Portugal, should remain within the sphere of BES or give rise to the establishment compensation in the context of the execution of annulments of decisions adopted by Banco de Portugal. Considering that the creation of the Bank results from the application of a resolution measure to BES, which had significant impacts on the equity of third parties, and without prejudice to the decisions of Banco de Portugal of December 29, 2015, there are still relevant litigation risks , although mitigated, namely, regarding the various litigations related to the loan made by Oak Finance to BES, the commercialization by BES of debt instruments and those related to the issue of senior bonds relayed to BES, as well as the risk of non-recognition and / or application of the various decisions of Banco de Portugal by Portuguese or foreign courts (as in the case of courts in Spain) in disputes related to the perimeter of assets, liabilities, off-balance sheet items and assets under BES management transferred to NOVO BANCO. These disputes include the two lawsuits brought at the end of January 2016, before the Supreme Court of Justice of Venezuela, by the Banco de Desarrollo Económico y Social de Venezuela and the Fondo de Desarrollo Nacional against BES and NOVO BANCO, relating to the sale of debt instruments issued by entities belonging to the Espírito Santo Group, in the amount of US $ 37 million and US $ 335 million, respectively, and in which reimbursement of the amount invested is requested, plus interest, indemnity for the inflation value and costs (in the global value estimated by the respective authors of US $ 96 milion and US $ 871 million, respectively). These main actions and the respective precautionary foreclosure procedures are still pending before the Supreme Court of Justice of Venezuela. In the preparation of NOVO BANCO's individual and consolidated financial statements of 31 December 2020 (as well as in the previous financial statements), the Executive Board of Directors reflected the Resolution Measure and related decisions taken by Banco de Portugal, in particular the decisions of 29 December 2015. In this context, these financial statements, namely with regard to provisions for contingencies arising from lawsuits, reflect the exact perimeter of assets, liabilities, off-balance sheet items and assets under BES management and liabilities transferred to NOVO BANCO, as determined by Banco de Portugal and with reference to the current legal bases and the information available at the present date. Additionally, within the scope of the NOVO BANCO sale operation, concluded on 18 October 2017, the respective contractual documents contain specific provisions that produce effects equivalent to the resolution of the Board of Directors of Banco de Portugal, of 29 December 2015, regarding the neutralization, at the level of NOVO BANCO, of the effects of unfavorable decisions that are legally binding, although, now, with contractual origin, thus maintaining the framework of contingent responsibilities of the Resolution Fund. Relevant disputes For the purposes of contingent liabilities, and without prejudice to the information contained in these notes to the accounts, namely with regard to the conformity of the policy of setting up provisions with the resolution measure and subsequent decisions of Banco de Portugal (and criteria for the allocation of responsibilities and contingencies arising therefrom), it is also necessary to identify the following disputes whose effects or impacts on the financial statements of GRUPO NOVO BANCO are, at the present date, insusceptible to determine or quantify: i. Legal action brought by Partran, SGPS, S.A., Massa Insolvente by Espírito Santo Financial Group, S.A. and Massa Insolvente by Espírito Santo Financial (Portugal), S.A. against NOVO BANCO and Calm Eagle Holdings, S.A.R.L. 294 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDthrough which it is intended the declaration of nullity of the pledge constituted on the shares of Companhia de Seguros Tranquilidade, S.A. and, alternatively, the annulment of the pledge or the declaration of its ineffectiveness; ii. Lawsuit filed by NOVO BANCO to challenge the resolution in favor of the insolvent estate of the acts of incorpora- tion and subsequent execution of the pledge on the shares of Companhia de Seguros Tranquilidade, SA, declared by the insolvency administrator of Partran, SGPS, SA, considering that there are no grounds for the resolution of the aforementioned acts, as well as for the return of the amounts received as a price (Euro 25 million corresponding to the initial price and the respective positive adjustments) for the sale of the shares of Companhia de Seguros Tranquilidade , SA. NOVO BANCO has judicially challenged the resolution act, running the process attached to the insolvency process of Partran, SGPS, SA; iii. Lawsuits brought after the execution of the contract for the purchase and sale of NOVO BANCO's share capital, signed between the Resolution Fund and Lone Star on 31 March 2017, related to the conditions of the sale, namely the lawsuit administrative action brought by Banco Comercial Português, SA against the Resolution Fund, of which NOVO BANCO is not a party and, under which, according to the public disclosure of privileged information made by BCP on the CMVM website on September 1, 2017, the legal assessment of the contingent capitalization obligation assumed by the Resolution Fund within the scope of the CCA is requested; iv. NOVO BANCO was notified of an order from the Central Court of Criminal Investigation that determines the provision of a bond by NB in the amount of approximately Euro 51 million due to an alleged breach of a bank seizure order, having used the respective means of reaction to oppose the application of the aforementioned asset guarantee measure due to the absence of a legal basis. Resolution Fund The Resolution Fund is a public legal person with administrative and financial autonomy, created by Decree-Law no. 31-A / 2012, of 10 February, which is governed by the RGICSF and its regulations and whose mission is provide financial support to the resolution measures applied by Banco de Portugal, as the national resolution authority, and to perform all other functions conferred by law in the scope of the execution of such measures. The Bank, like most financial institutions operating in Portugal, is one of the institutions participating in the Resolution Fund, making contributions that result from the application of a rate defined annually by Banco de Portugal based essentially on the amount of its liabilities. As at 31 December 2020, the Group's periodic contribution amounted to Euro 12,743 thousand (31 December 2019: Euro 12,196 thousand). Within the scope of its responsibility as a supervisory and resolution authority, Banco de Portugal, on 3 August 2014, decided to apply a resolution measure to BES, pursuant to paragraph 5 of article 145-G of the General Regime of Institutions Credit and Financial Companies (RGICSF), which consisted of transferring most of its activity to NOVO BANCO, created especially for this purpose, with the capitalization being ensured by the Resolution Fund. For the realization of NOVO BANCO's share capital, the Resolution Fund made available Euro 4,900 million, of which Euro 365 million corresponded to its own financial resources. A loan from a banking syndicate was also granted to the Resolution Fund, in the amount of Euro 635 million, with the participation of each credit institution being weighted according to several factors, including the respective size. The remaining amount (Euro 3,900 million) originated from a loan granted by the Portuguese State. In December 2015, the national authorities decided to sell most of the assets and liabilities associated with the activity of Banif - Banco Internacional do Funchal, SA (BANIF) to Banco Santander Totta, SA (Santander Totta), for Euro 150 million, also within the framework of the application of a resolution measure. In the context of this resolution measure, Banif's assets identified as problematic were transferred to an asset management vehicle, created for this purpose - Oitante, S.A.. This operation involved public support estimated at Euro 2,255 million, which aimed at covering future contingencies, financed at Euro 489 million by the Resolution Fund and Euro 1,766 million directly by the Portuguese State. 295 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe situation of serious financial imbalance in which BES was in 2014 and BANIF in 2015, which justified the application of resolution measures, created uncertainties related to the risk of litigation involving the Resolution Fund, which is significant , as well as with the risk of an eventual insufficiency of resources to ensure the fulfillment of the liabilities, in particular the short-term repayment of the borrowings. It was in this context that, in the second half of 2016, the Portuguese Government reached an agreement with the European Commission to change the financing conditions granted by the Portuguese State and by the banks partici- pating in the Resolution Fund, in order to preserve financial stability. through the promotion of conditions that provide predictability and stability to the contributory effort for the Resolution Fund. To this end, an amendment to the financ- ing contracts to the Resolution Fund was formalized, which introduced a set of changes on the repayment plans, the remuneration rates and other terms and conditions associated with these loans in order to adjust them. the Resolution Fund's ability to fully meet its obligations based on its regular revenues, that is, without the need to be charged, to the banks participating in the Resolution Fund, special contributions or any other type of extraordinary contribution. According to the statement of the Resolution Fund of 21 March 2017, issued following an earlier statement of September 28, 2016 and the statement of the Ministry of Finance issued on the same date, the revision of the conditions of financing granted by the State Portuguese and participating banks aimed to ensure the sustainability and financial balance of the Resolution Fund, based on a stable, predictable and affordable charge for the banking sector. Based on this review, the Resolution Fund assumed that the full payment of its liabilities is ensured, as well as the respective remuneration, without the need for recourse to special contributions or any other type of extraordinary contributions by the banking sector. On March 31, 2017 , Banco de Portugal announced that it had selected the Lone Star Fund for the purchase of NOVO BANCO, which was completed on October 18, 2017, through the injection, by the new shareholder, of Euro 750 million, which was followed by a new a capital contribution of Euro 250 million, made on 21 December 2017. The Lone Star Fund now holds 75% of NOVO BANCO's share capital and the Resolution Fund the remaining 25%. Additionally, the approved conditions include: • A contingent capitalization mechanism, under which the Resolution Fund may be called upon to make payments in the event of certain cumulative conditions materializing, related to: (i) the performance of a restricted set of assets of NOVO BANCO and (ii ) the evolution of the Bank's capitalization levels. Any payments to be made under this contingent mechanism are subject to an absolute ceiling of EUR 3,890 million; • An indemnity mechanism to NOVO BANCO, if certain conditions are met, it will be sentenced to pay any liability, by a final judicial decision that does not recognize or is contrary to the resolution measure applied by Banco de Portugal, or to the perimeter NOVO BANCO's assets and liabilities. Notwithstanding the possibility provided for in the applicable legislation for the collection of special contributions, in view of the renegotiation of the conditions for loans granted to the Resolution Fund by the Portuguese State and a banking union, and to public notices issued by the Resolution Fund and the Office of the Minister of Finance. Finances that state that this possibility will not be used, these financial statements reflect the expectation of the Executive Board of Directors that the Bank will not be required to make special contributions or any other type of extraordinary contributions to finance the resolution measures applied to BES and BANIF , as well as the contingent capitalization mechanism and the indemnity mechanism referred to in the preceding paragraphs. Any changes regarding this matter and the application of these mechanisms may have relevant implications for the Group's financial statements. 296 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDand (ii ) the evolution of the Bank's capitalization levels. Any payments to be made under this contingent mechanism are subject to an absolute ceiling of EUR 3 890 million;  An indemnity mechanism to NOVO BANCO, if certain conditions are met, it will be sentenced to pay any liability, by a final judicial decision that does not recognize or is contrary to the resolution measure applied by Banco de Portugal, or to the perimeter NOVO BANCO's assets and liabilities. Notwithstanding the possibility provided for in the applicable legislation for the collection of special contributions, in view of the renegotiation of the conditions for loans granted to the Resolution Fund by the Portuguese State and a banking union, and to public notices issued by the Resolution Fund and the Office of the Minister of Finance. Finances that state that this possibility will not be used, these financial statements reflect the expectation of the Executive Board of Directors that the Bank will not be required to make special contributions or any other type of extraordinary contributions to finance the resolution measures applied to BES and BANIF , as well as the contingent capitalization mechanism and the indemnity mechanism referred to in the preceding paragraphs. Any changes regarding this matter and the application of these mechanisms may have relevant implications for the Group's financial statements. NOTE 37 – Assets under management (disintermediation) NOTE 37 – ASSETS UNDER MANAGEMENT (DISINTERMEDIATION) In accordance with the legislation in force, the managing companies together with the depositary Bank are jointly liable to the participants of the funds for the non-fulfilment of obligations assumed under the terms of the law and the In accordance with the legislation in force, the managing companies together with the depositary Bank are jointly liable to the regulations of the funds managed. participants of the funds for the non-fulfilment of obligations assumed under the terms of the law and the regulations of the funds managed. As at 31 December 2020 and 2019, the value of the assets under management by the Group companies are analyzed As at 31 December 2020 and 31 December 2019, the value of the assets under management by the Group companies are analyzed as follows: as follows: Investment funds Real estate investment funds Pension funds Discretionary management (in thousands of Euros) 31.12.2020 31.12.2019 1 128 238 74 654 2 463 098 710 054 1 344 949 90 184 2 386 809 1 103 025 4 376 044 4 924 967 The amounts included in these captions are measured at fair value, determined at the balance sheet date. NOTE 38 – Related parties transactions NOTE 38 – RELATED PARTIES TRANSACTIONS The group of entities considered to be related parties by NOVO BANCO in accordance with the IAS 24 definitions, are (i) key The group of entities considered to be related parties by NOVO BANCO in accordance with the IAS 24 definitions, are management personnel (members of the Executive Board of Directors and members of the General Supervisory Board of NOVO (i) key management personnel (members of the Executive Board of Directors and members of the General Supervisory BANCO); (ii) people or entities with a family, legal or business relationship with key management personnel; (iii) people or entities Board of NOVO BANCO); (ii) people or entities with a family, legal or business relationship with key management with a family, legal or business relationship with shareholders; (iv) shareholders holding direct or indirect stakes equal to or exceeding 2% of the share capital or voting rights of NOVO BANCO; (v) subsidiaries consolidated for accounting purposes under the full personnel; (iii) people or entities with a family, legal or business relationship with shareholders; (iv) shareholders holding consolidation method; (vi) associated companies, that is, companies over which NOVO BANCO Group has significantly influence on direct or indirect stakes equal to or exceeding 2% of the share capital or voting rights of NOVO BANCO; (v) subsidiaries the company’s financial and operational polices, despite not having control; and (vii) entities under joint control of NOVO BANCO consolidated for accounting purposes under the full consolidation method; (vi) associated companies, that is, compa- (joint ventures). nies over which NOVO BANCO Group has significantly influence on the company’s financial and operational polices, During 2020, the following transactions with Related Parties (credit and other types) were carried out: despite not having control; and (vii) entities under joint control of NOVO BANCO (joint ventures). During 2020, the following transactions with Related Parties (credit and other types) were carried out: 31 December 2020 Notes to the Consolidated Financial Statements 85 297 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1) Credit Operations Entities / Individuals ACH Brito S.A. Category Associate AGA - Alcool e Géneros Alimentares S.A. Diretor / Manager / Family APB - Associação Portuguesa Bancos AVIZMED Unipessoal Lda Cristalmax - Indústria Vidros S.A. EDENRED - Portugal S.A. Diretor / Manager / Family Diretor / Manager / Family Associate Associate Enkroot - Gestão e Tratamento de Águas S.A. Associate Operation Amount (Euro) Limite de Crédito - NB Express Bill Limites de Cartões de Crédito Financiamento Médio/Longo Prazo Limite de Crédito - NB Express Bill Conta Empréstimo Conta-Corrente Financiamento Médio/Longo Prazo Limite de Crédito - NB Express Bill Limites Débitos Diretos Crédito Documentário de Importação Garantia Bancária - Instalação Sistema Garantia Bancária - Adiantamento Descoberto Autorizado Financiamento Médio/Longo Prazo Limites para Garantias Bancárias Factoring 75 000 10 000 400 000 650 000 1 100 000 500 000 100 000 410 000 17 901 66 210 66 210 500 000 500 000 500 000 650 000 Entidades GNB (BEST, NB dos Açores, NBSE, NB Lux e NB Finance) Subsidiary Limites Interbancários (Operações de Sala Mercados) Limites Comerciais 1 420 990 000 EPEDAL Indústria de Componentes Metálicos S.A. Associate Limites de Cartões de Crédito 10 000 GERMEN - Moagens Cereais SA GNB Companhia de Seguros S.A. Greendraive - Gestão e Exporação de Campos de Golf e Complexos Turísticos S.A. Grupo Esegur (Esegur - Soluções de Segurança S.A.) Grupo Multipessoal (Multipessoal - Recursos Humanos SGPS S.A.) Diretor / Manager / Family Associate Subsidiary Associate Associate Jorge Cabrañes Azcona Director / Manager / Family Locarent- Coompanhia Portuguesa Aluguer Viaturas S.A. Associate Logi C Logística Integrada S.A. M N Ramos Ferreira Engenharia S.A. Associate Associate Nacional Conta – Contabilidade, Consultadoria e Administração, Lda. Director / Manager / Family Nexxpro - Fábrica de Capacetes S.A. Novo Banco Servicios Corporativos SL Righthour S.A. TRADISA Logicauto S.L. TRADISA Operador Turístico S.A. Unicre - Cartão Internacional de Crédito S.A. Associate Subsidiary Subsidiary Director / Manager / Family Director / Manager / Family Associate Limite de Crédito - NB Express Bill Self- Confirming Limites Débitos Diretos Financiamento Médio/Longo Prazo Suprimentos Limites de Cartões de Crédito Leasing Limites para Garantias Bancárias Limites de Cartões de Crédito Limite de Crédito - NB Express Bill Linha Grupada Garantias Financiamento Médio/Longo Prazo Descoberto Autorizado Factoring Crédito Individual Limites de Cartões de Crédito Conta Empréstimo Conta-Corrente Operações Sala Mercado (RCE) Limites Débitos Diretos Plafond de crédito - Leasing Plafond de crédito - Leasing Programa de Papel Comercial Limites de Cartões de Crédito Conta Empréstimo Conta-Corrente Limites de Cartões de Crédito Limite de Crédito - NB Express Bill Limite de Crédito - NB Express Bill Exclusive Financiamento Médio/Longo Prazo Limites de Cartões de Crédito Conta Empréstimo Conta-Corrente Financiamento Médio/Longo Prazo Desconto de Livrança - Apoio Tesouraria Factoring Financiamento Médio/Longo Prazo Suprimentos Conta Empréstimo Conta-Corrente Emissão de Distrate Financiamento Médio/Longo Prazo Conta Empréstimo Conta-Corrente Financiamento Médio/Longo Prazo 1 250 000 5 000 000 80 600 000 125 000 700 000 200 000 200 000 1 000 000 112 500 500 000 1 750 000 3 000 000 6 500 000 9 200 000 35 000 10 000 2 500 000 3 000 000 4 000 000 32 150 000 45 000 000 50 000 000 10 000 200 000 3 750 100 000 200 000 250 000 1 000 100 000 200 000 200 000 750 000 1 000 000 4 750 000 25 000 000 181 237 300 000 400 000 10 000 000 2) Services rendered and other signed contracts 298 31 December 2020 Notes to the Consolidated Financial Statements 87 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED2) Services rendered and other signed contracts Entities / Individuals BEST - Banco Electrónico de Serviço Total S.A. EDENRED - Portugal S.A. ENKROOT - Gestão e Tratamento de Águas S.A. Entities / Individuals BEST - Banco Electrónico de Serviço Total S.A. EDENRED - Portugal S.A. GNB Companhia de Seguros S.A. ENKROOT - Gestão e Tratamento de Águas S.A. GNB-GP GNB Companhia de Seguros S.A. Gestão de Patrimónios S.A. GNB REAL ESTATE – Soc. Gestora de Organismo de Investimento Coletivo S.A. GNB-GP Gestão de Patrimónios S.A. LINEAS - Concessões de Transportes SGPS S.A. GNB REAL ESTATE – Soc. Gestora de Organismo de Investimento Coletivo S.A. NANI Holdings SGPS SA / LSF NANI Investments Sarl LINEAS - Concessões de Transportes SGPS S.A. NANI Holdings SGPS SA / HUDSON Advisors Portugal NANI Holdings SGPS SA / LSF NANI Investments Sarl Unipessoal Lda Novo Banco Pensiones EGFP S.A. NANI Holdings SGPS SA / HUDSON Advisors Portugal Unipessoal Lda Category Subsidiary Associate Associate Category Subsidiary Associate Associate Associate Subsidiary Associate Subsidiary Subsidiary Associate Subsidiary Shareholder Associate Shareholder Acionista Subsidiary Acionista Novo Banco Pensiones EGFP S.A. Subsidiary • • Operation Intra Group Service Delivery Agreement Amendment to the Distribution Agreement Exemption from filing requirements for debtors Factoring Operation 4th Amendment to the Contract Intra Group Service Delivery Agreement New Product: Personal Accidents Amendment to the Distribution Agreement 5th Amendment to the Contract New Product: Health Insurance Exemption from filing requirements for debtors Factoring 4th Amendment to the Contract New Product: Personal Accidents Amendment to the Discretionary Management Agreement 5th Amendment to the Contract New Product: Health Insurance Harmonization of the calculation base of the Management Fee of 4 Funds under Company Management • • • Internal Campaigns: Business Protection Insurance • Management Committee Review 2 Funds [FUNGEPI and FUNGEPI II] • Internal Campaigns: Business Protection Insurance • Amendment to the Discretionary Management Agreement • Consent to sell 50% of the concessionaire: Rodovias do Tietê S.A. Harmonization of the calculation base of the Management Fee of 4 Funds under Company Management Amendment and Consolidation of the Group's Financial Reporting and Shared • Management Committee Review 2 Funds [FUNGEPI and FUNGEPI II] Information Agreement (Amendment and Restatement Agreement to the Intragroup Financial Reporting and Information Sharing Agreement) Consent to sell 50% of the concessionaire: Rodovias do Tietê S.A. 3rd Amendment to the Contract for the Provision of Services and the Contract for the Provision of Real Estate Services Amendment and Consolidation of the Group's Financial Reporting and Shared Change to the Services Agreement and to the Real Estate Services Agreement - Information Agreement (Amendment and Restatement Agreement to the 3rd Amendment Intragroup Financial Reporting and Information Sharing Agreement) 3rd Amendment to the Contract for the Provision of Services and the Contract Amendment to the Asset Management Contract for the Provision of Real Estate Services Change to the Services Agreement and to the Real Estate Services Agreement - 3rd Amendment Amendment to the Asset Management Contract The Group Balance Sheet balances with related parties as at 31 December 2020 and 2019, as well as the respective The Group Balance Sheet balances with related parties as at 31 December 2020 and 2019, as well as the respective profit and profit and losses, can be summarised as follows: losses, can be summarised as follows: Shareholders NANI HOLDINGS FUNDO DE RESOLUÇÃO Associated companies LINEAS LOCARENT GNB SEGUROS* ESEGUR UNICRE MULTIPESSOAL BANCO DELLE TRE VENEZIE EDENRED ENKROTT PNBC Other HUDSON ADVISORS PORTUGAL NACIONAL CONTA LDA INFRAMOURA ESMALGLASS MARINA VILAMOURA Other *sold in 2020 Assets Liabilities 31.12.2020 Guarantees Income Expenses Assets Liabilities (in thousands of Euros) 31.12.2019 Guarantees Income Expenses - 598 312 64 933 115 832 - 2 955 22 597 2 030 - 2 - - 806 661 - 295 114 - - 409 153 - 6 505 633 - 1 650 49 31 94 81 821 - - 90 936 - 52 16 107 1 176 - - 332 - - 12 743 - 1 037 013 153 - - - 332 - - 12 196 - - - 915 - 273 - 62 - - 1 250 - - - 2 - 2 2 871 1 081 - - 289 31 1 967 15 - 6 586 - - - - - - - 3 806 - - - - 37 276 16 862 4 685 - - - - 97 656 122 802 - 4 157 28 360 3 520 - 4 1 332 - 1 294 844 - 117 - - - 4 685 117 29 556 376 14 390 1 510 2 500 35 11 57 300 1 - 105 832 - 8 - - - 8 - - - 69 - 273 - - 53 - 395 - - - - - - 2 609 1 176 2 - 180 22 - - 22 - 4 343 - - - - - - - 4 215 1 - - - - 22 - 1 477 17 911 3 912 - - - - 3 912 The amount of assets receivable from the Resolution Fund corresponds to the amount of the triggering of the Contingent Capital Agreement regarding the financial years 2020 and 2019. The amount indicated in 2019 was adjusted to Euro 1,035,016 thousand during the financial year 2020, having been paid in full by the Resolution Fund. The amount of assets receivable from the Resolution Fund corresponds to the amount of the triggering of the In June 2018 a contract was entered into between NANI HOLDINGS, SGPS, S.A., LSF NANI INVESTMENTS S.à.r.l. and NOVO Contingent Capital Agreement regarding the financial years 2020 and 2019. The amount indicated in 2019 was BANCO, to provide support services for the preparation of consolidated information and regulatory reports. adjusted to Euro 1,035,016 thousand during the financial year 2020, having been paid in full by the Resolution Fund. The assets on the balance sheet related to associated companies included in the table above refer mainly to loans and advances, In June 2018 a contract was entered into between NANI HOLDINGS, SGPS, S.A., LSF NANI INVESTMENTS S.à.r.l. and and shareholder loans granted, or debt securities acquired in the scope of the Group’s activity. The liabilities relate mainly to Bank deposits taken NOVO BANCO, to provide support services for the preparation of consolidated information and regulatory reports. The guarantees related to associated companies included in the table above refer essentially to guarantees provided. The assets on the balance sheet related to associated companies included in the table above refer mainly to loans and advances, and shareholder loans granted, or debt securities acquired in the scope of the Group’s activity. The liabilities Related party transactions were carried out at arm's length, under similar terms and conditions, when compared with others carried relate mainly to Bank deposits taken out with unrelated parties, and when these conditions were not verified, those exceptions were substantiated in accordance with the Bank’s Related Party Transactions Policy. All the loans granted to related parties are included in the impairment model, being subject to the determination of impairment in the same manner as the commercial loans and advances granted by the Group in the scope of its activity. All assets placed with related 299 31 December 2020 Notes to the Consolidated Financial Statements 88 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe guarantees related to associated companies included in the table above refer essentially to guarantees provided. Related party transactions were carried out at arm's length, under similar terms and conditions, when compared with others carried out with unrelated parties, and when these conditions were not verified, those exceptions were substan- tiated in accordance with the Bank’s Related Party Transactions Policy. All the loans granted to related parties are included in the impairment model, being subject to the determination of impairment in the same manner as the commercial loans and advances granted by the Group in the scope of its activity. All assets placed with related parties earn interest between 0% and 8,00% (the rates correspond to the rates applied according to the original currency of the asset). parties earn interest between 0% and 8,00% (the rates correspond to the rates applied according to the original currency of the asset). The costs with remunerations and other benefits granted to Key Management Personnel of NOVO BANCO in 2020 and The costs with remunerations and other benefits granted to Key Management Personnel of NOVO BANCO in 2020 and 2019, are as 2019, are as follows: follows: (in thousands of Euros) Executive Board of Directors 31.12.2020 General and Supervisory Board Executive Board of Directors 31.12.2019 General and Supervisory Board parties earn interest between 0% and 8,00% (the rates correspond to the rates applied according to the original currency of the asset). Short-term employment benefits 993 The costs with remunerations and other benefits granted to Key Management Personnel of NOVO BANCO in 2020 and 2019, are as follows: Post-employment benefits 3 792 2 676 3 669 2 812 980 3 3 3 3 - - Other long-term benefits 33 2 712 8 1 001 41 3 713 43 2 858 21 1 001 64 3 859 Total Total (in thousands of Euros) - 3 3 3 Total Total 980 993 2 812 3 669 2 676 8 1 001 33 2 712 Other long-term benefits Post-employment benefits Short-term employment benefits Executive Board of Directors Executive Board of Directors 31.12.2019 General and Supervisory Board 31.12.2020 General and Additionally, in 2020, costs of Euro 320 thousand were recorded as a sign-on bonus resulting from the admission of a new Executive Supervisory Director, and compensations for the termination of the mandate of three Executive Directors were recorded, in the amount of Euro Board 206 thousand. In 2020, variable remuneration to the Board of Directors amounted to Euro 1,860 thousand, which respects to the remuneration that does not constitute acquired rights of the respective members until after the end of the restructuring period Additionally, in 2020, costs of Euro 320 thousand were recorded as a sign-on bonus resulting from the admission of (currently, 31 December 2021), and its payment is subject to approval and verification of certain conditions (31 December 2019: Euro a new Executive Director, and compensations for the termination of the mandate of three Executive Directors were 1,997 thousand). recorded, in the amount of Euro 206 thousand. In 2020, variable remuneration to the Board of Directors amounted to As at 31 December 2020, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: Euro 1,860 thousand, which respects to the remuneration that does not constitute acquired rights of the respective (i) to members of the Executive Board of Directors and their immediate relatives was Euro 388 thousand; and (ii) members of the members until after the end of the restructuring period (currently, 31 December 2021), and its payment is subject to General and Supervisory Board and their immediate relatives did not had credit granted. Additionally, in 2020, costs of Euro 320 thousand were recorded as a sign-on bonus resulting from the admission of a new Executive approval and verification of certain conditions (31 December 2019: Euro 1,997 thousand). Director, and compensations for the termination of the mandate of three Executive Directors were recorded, in the amount of Euro As at 31 December 2019, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: 206 thousand. In 2020, variable remuneration to the Board of Directors amounted to Euro 1,860 thousand, which respects to the (i) to members of the Executive Board of Directors and their immediate relatives was Euro 447 thousand; and (ii) members of the As at 31 December 2020, the amount of credit granted to members of Key Management Personnel of NOVO BANCO remuneration that does not constitute acquired rights of the respective members until after the end of the restructuring period General and Supervisory Board and their immediate relatives did not had credit granted. was as follows: (i) to members of the Executive Board of Directors and their immediate relatives was Euro 388 thou- (currently, 31 December 2021), and its payment is subject to approval and verification of certain conditions (31 December 2019: Euro sand; and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted. 1,997 thousand). NOTE 39 – SECURITISATION OF ASSETS As at 31 December 2020, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: As at 31 December 2019, the amount of credit granted to members of Key Management Personnel of NOVO BANCO As at 31 December 2020 e 2019, the outstanding securitization transactions made by the Group were as follows (i) to members of the Executive Board of Directors and their immediate relatives was Euro 388 thousand; and (ii) members of the was as follows: (i) to members of the Executive Board of Directors and their immediate relatives was Euro 447 thou- General and Supervisory Board and their immediate relatives did not had credit granted. sand; and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted. As at 31 December 2019, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: (i) to members of the Executive Board of Directors and their immediate relatives was Euro 447 thousand; and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted. Lusitano Mortgages No.4 plc 312 836 Mortgage loans (general scheme) 64 3 859 41 3 713 43 2 858 21 1 001 Asset securitized Original amount Current amount September 2005 (in thousands of Euros) 1 200 000 31.12.2020 31.12.2019 Start date 3 792 280 051 Issue 3 - NOTE 39 – Securitisation Of Assets Lusitano Mortgages No.5 plc September 2006 1 400 000 417 854 463 413 Mortgage loans (general scheme) Lusitano Mortgages No.6 plc NOTE 39 – SECURITISATION OF ASSETS As at 31 December 2020 e 2019, the outstanding securitization transactions made by the Group were as follows Lusitano Mortgages No.7 plc 1 900 000 As at 31 December 2020 e 2019, the outstanding securitization transactions made by the Group were as follows 630 385 Lusitano SME No.3 1 090 124 Mortgage loans (general scheme) 434 463 Mortgage loans (general scheme) 88 937 Loans to small and medium-sized enterprises September 2008 November 2016 1 100 000 1 003 303 July 2007 396 083 - (in thousands of Euros) Current amount Issue Start date Original amount The loans and advances to customers covered by the securitization operation Lusitano SME No. 3 was not derecognized from the balance sheet since the Group substantially retained all the risks and rewards of ownership associated with the securitised assets. During the year of 2020, the Lusitano SME securitization operation No. 3 was settled. The remaining securitisation operations were Lusitano Mortgages No.4 plc derecognized as the Group substantially transferred all the risks and rewards of ownership. Lusitano Mortgages No.5 plc In accordance with the consolidation rules established in IFRS 10, Lusitano Mortgages No. 6 plc and Lusitano Mortgages No. 7 plc Lusitano Mortgages No.6 plc are consolidated using the full consolidation method as from the date of their incorporation (see Note 1). The following are the main Lusitano Mortgages No.7 plc impacts of the consolidation of these entities on the Group's accounts: Lusitano SME No.3 1 090 124 Mortgage loans (general scheme) 463 413 Mortgage loans (general scheme) 312 836 Mortgage loans (general scheme) 434 463 Mortgage loans (general scheme) 88 937 Loans to small and medium-sized enterprises September 2005 September 2006 September 2008 November 2016 1 400 000 1 200 000 1 900 000 1 100 000 31.12.2020 31.12.2019 1 003 303 630 385 July 2007 280 051 417 854 396 083 - Asset securitized The loans and advances to customers covered by the securitization operation Lusitano SME No. 3 was not derecognized from the balance sheet since the Group substantially retained all the risks and rewards of ownership associated with the securitised assets. During the year of 2020, the Lusitano SME securitization operation No. 3 was settled. The remaining securitisation operations were Cash, cash balances with central banks and other demand deposits derecognized as the Group substantially transferred all the risks and rewards of ownership. 300 Loans to Customers (net of impairment) 31.12.2020 31.12.2019 1 390 316 1 608 684 122 769 146 364 (in thousands of Euros) Liabilities represented by securities In accordance with the consolidation rules established in IFRS 10, Lusitano Mortgages No. 6 plc and Lusitano Mortgages No. 7 plc are consolidated using the full consolidation method as from the date of their incorporation (see Note 1). The following are the main (a) See Note 31 impacts of the consolidation of these entities on the Group's accounts: 39 377 45 855 31 December 2020 Notes to the Consolidated Financial Statements (in thousands of Euros) 89 Cash, cash balances with central banks and other demand deposits Loans to Customers (net of impairment) Liabilities represented by securities (a) See Note 31 31.12.2020 31.12.2019 122 769 1 390 316 39 377 146 364 1 608 684 45 855 31 December 2020 Notes to the Consolidated Financial Statements 89 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDparties earn interest between 0% and 8,00% (the rates correspond to the rates applied according to the original currency of the The costs with remunerations and other benefits granted to Key Management Personnel of NOVO BANCO in 2020 and 2019, are as asset). follows: Short-term employment benefits Post-employment benefits Other long-term benefits Executive Board of Directors 31.12.2020 General and Supervisory Board Total Total Executive Board of Directors 31.12.2019 General and Supervisory Board (in thousands of Euros) 2 676 3 33 2 712 993 - 8 1 001 3 669 3 41 3 713 2 812 3 43 2 858 980 - 21 1 001 3 792 3 64 3 859 Additionally, in 2020, costs of Euro 320 thousand were recorded as a sign-on bonus resulting from the admission of a new Executive Director, and compensations for the termination of the mandate of three Executive Directors were recorded, in the amount of Euro 206 thousand. In 2020, variable remuneration to the Board of Directors amounted to Euro 1,860 thousand, which respects to the remuneration that does not constitute acquired rights of the respective members until after the end of the restructuring period (currently, 31 December 2021), and its payment is subject to approval and verification of certain conditions (31 December 2019: Euro 1,997 thousand). As at 31 December 2020, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: (i) to members of the Executive Board of Directors and their immediate relatives was Euro 388 thousand; and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted. As at 31 December 2019, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: (i) to members of the Executive Board of Directors and their immediate relatives was Euro 447 thousand; and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted. NOTE 39 – SECURITISATION OF ASSETS As at 31 December 2020 e 2019, the outstanding securitization transactions made by the Group were as follows Issue Start date Original amount Current amount 31.12.2020 31.12.2019 (in thousands of Euros) Asset securitized Lusitano Mortgages No.4 plc September 2005 1 200 000 Lusitano Mortgages No.5 plc September 2006 1 400 000 Lusitano Mortgages No.6 plc July 2007 1 100 000 280 051 417 854 396 083 312 836 Mortgage loans (general scheme) 463 413 Mortgage loans (general scheme) 434 463 Mortgage loans (general scheme) Lusitano Mortgages No.7 plc September 2008 1 900 000 1 003 303 1 090 124 Mortgage loans (general scheme) November 2016 Lusitano SME No.3 The loans and advances to customers covered by the securitization operation Lusitano SME No. 3 was not derecognized from the balance sheet since the Group substantially retained all the risks and rewards of ownership The loans and advances to customers covered by the securitization operation Lusitano SME No. 3 was not derecognized from the associated with the securitised assets. During the year of 2020, the Lusitano SME securitization operation No. 3 was balance sheet since the Group substantially retained all the risks and rewards of ownership associated with the securitised assets. settled. The remaining securitisation operations were derecognized as the Group substantially transferred all the risks During the year of 2020, the Lusitano SME securitization operation No. 3 was settled. The remaining securitisation operations were derecognized as the Group substantially transferred all the risks and rewards of ownership. and rewards of ownership. 88 937 Loans to small and medium-sized enterprises 630 385 - In accordance with the consolidation rules established in IFRS 10, Lusitano Mortgages No. 6 plc and Lusitano Mortgages No. 7 plc In accordance with the consolidation rules established in IFRS 10, Lusitano Mortgages No. 6 plc and Lusitano Mortgages are consolidated using the full consolidation method as from the date of their incorporation (see Note 1). The following are the main No. 7 plc are consolidated using the full consolidation method as from the date of their incorporation (see Note 1). The impacts of the consolidation of these entities on the Group's accounts: following are the main impacts of the consolidation of these entities on the Group's accounts: Cash, cash balances with central banks and other demand deposits Loans to Customers (net of impairment) Liabilities represented by securities (a) (a) See Note 31 (in thousands of Euros) 31.12.2020 31.12.2019 122 769 1 390 316 39 377 146 364 1 608 684 45 855 31 December 2020 Notes to the Consolidated Financial Statements 89 Additionally, Lusitano Mortgages No. 4 plc and Lusitano Mortgages No. 5 plc are not consolidated since they do not meet the rules defined in IFRS 10, namely because the interest retained by the Group is residual. Additionally, Lusitano Mortgages No. 4 plc and Lusitano Mortgages No. 5 plc are not consolidated since they do not meet the rules defined in IFRS 10, namely because the interest retained by the Group is residual. The main characteristics of these operations, as at 31 December 2020 and 31 December 2019, may be analyzed as follows: The main characteristics of these operations, as at 31 December 2020 and 31 December 2019, may be analyzed as follows: 31.12.2020 (in thousands of Euros) Issue Bonds issued Initial nominal value Current nominal value Interest held by Group (Nominal value) Interest held by Group (Book value) Maturity date Initial rating of the bonds Current rating of the bonds Fitch Moody's S&P DBRS Fitch Moody's S&P DBRS Lusitano Mortgages No.4 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.7 plc Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class F Class A Class B Class C Class D 1 134 000 22 800 19 200 24 000 10 200 1 323 000 26 600 22 400 28 000 11 900 943 250 65 450 41 800 17 600 31 900 22 000 1 425 000 294 500 180 500 57 000 214 891 14 224 11 978 14 973 5 100 311 465 25 494 21 469 26 836 11 900 235 906 65 450 41 800 17 600 31 900 22 000 528 003 294 500 180 500 57 000 - - - - - - - - - - 188 337 63 950 41 800 17 600 31 900 22 000 528 003 294 500 180 500 57 000 - - - - - - - - - - December 2048 AAA December 2048 AA December 2048 A+ December 2048 BBB+ December 2048 NA December 2059 AAA December 2059 AA December 2059 A December 2059 BBB+ December 2059 N/A 180 754 52 775 32 562 11 906 8 458 - 488 778 265 146 116 051 - March 2060 AAA March 2060 AA March 2060 A March 2060 BBB March 2060 BB - March 2060 October 2064 October 2064 October 2064 October 2064 - - - - Aaa Aa2 A1 Baa1 - Aaa Aa2 A1 Baa2 - Aaa Aa3 A3 Baa3 - - - - - - AAA AA A+ BBB- NA AAA AA A BBB N/A AAA AA A BBB BB - AAA BBB- - - - - - - - - - - - - - - - - - - BB BB BB CCC - BB BB B CC - A BBB- B CCC CC - AAA - - - - - - - Aa3 Baa1 Ba3 Caa3 - A1 Baa3 B3 Ca - Aa3 Baa1 Ba3 Caa3 - - - - - - AA BB+ B+ B- - AA A BBB B - A- A- BBB+ CCC D - AA BBB - - - - - - - - - - - - - - - - - - AAA - - - 31.12.2019 (in thousands of Euros) Issue Bonds issued Initial nominal value Current nominal value Interest held by Group (Nominal value) Interest held by Group (Book value) Maturity date Initial rating of the bonds Current rating of the bonds Fitch Moody's S&P DBRS Fitch Moody's S&P DBRS Lusitano Mortgages No.4 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.7 plc Lusitano SME No.3 301 Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class F Class A Class B Class C Class D Classe A Classe B Classe C Classe D Classe E Classe S 1 134 000 22 800 19 200 24 000 10 200 1 323 000 26 600 22 400 28 000 11 900 943 250 65 450 41 800 17 600 31 900 22 000 1 425 000 294 500 180 500 57 000 385 600 62 700 62 700 116 000 9 500 88 771 241 493 15 985 13 461 16 827 5 100 355 021 25 494 21 469 26 836 11 900 264 905 65 450 41 800 17 600 31 900 22 000 616 503 294 500 180 500 57 000 - - - 103 316 3 135 5 214 - - - - - - - - - - 220 548 63 950 41 800 17 600 31 900 22 000 616 503 294 500 180 500 57 000 - - - 103 316 3 135 5 214 - - - - - - - - - - December 2048 AAA December 2048 AA December 2048 A+ December 2048 BBB+ December 2048 NA December 2059 AAA December 2059 AA December 2059 A December 2059 BBB+ December 2059 N/A 210 489 57 981 32 227 11 906 9 371 - 563 186 264 601 154 463 - - - - 100 534 2 776 3 218 March 2060 AAA March 2060 AA March 2060 A March 2060 BBB March 2060 BB - March 2060 October 2064 October 2064 October 2064 October 2064 December 2037 December 2037 December 2037 December 2037 December 2037 December 2037 - - - - - - - - - - Aaa Aa2 A1 Baa1 - Aaa Aa2 A1 Baa2 - Aaa Aa3 A3 Baa3 - - - - - - A3 Baa3 B1 - - - AAA AA A+ BBB- NA AAA AA A BBB N/A AAA AA A BBB BB - AAA BBB- - - - - - - - - - - - - - - - - - - - - - - - - AAA - - - AA BBB B - - - BB BB BB CCC - AAA AA A BBB+ - A BBB- B CCC CC - - - - - - - - - - - Aa3 Baa1 Ba3 Caa3 - Aaa Aa2 A1 Baa2 - Aa3 Baa1 Ba3 Caa3 - - - - - - WR WR A3 - - - AA BBB- BB- B- - AAA AA A BBB - A- A- BBB+ CCC D - AA BBB - - - - - - - - - - - - - - - - - - - - - - - - AAA - - - - - AAA - - - 31 December 2020 Notes to the Consolidated Financial Statements 90 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESAdditionally, Lusitano Mortgages No. 4 plc and Lusitano Mortgages No. 5 plc are not consolidated since they do not meet the rules defined in IFRS 10, namely because the interest retained by the Group is residual. The main characteristics of these operations, as at 31 December 2020 and 31 December 2019, may be analyzed as follows: 31.12.2020 (in thousands of Euros) Issue Bonds issued Initial nominal Current value nominal value Interest held by Interest held by Group (Nominal Group (Book Maturity date value) value) Initial rating of the bonds Current rating of the bonds Fitch Moody's S&P DBRS Fitch Moody's S&P DBRS Lusitano Mortgages No.4 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.7 plc Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class F Class A Class B Class C Class D 1 134 000 22 800 19 200 24 000 10 200 1 323 000 26 600 22 400 28 000 11 900 943 250 65 450 41 800 17 600 31 900 22 000 1 425 000 294 500 180 500 57 000 214 891 14 224 11 978 14 973 5 100 311 465 25 494 21 469 26 836 11 900 235 906 65 450 41 800 17 600 31 900 22 000 528 003 294 500 180 500 57 000 - - - - - - - - - - 188 337 63 950 41 800 17 600 31 900 22 000 528 003 294 500 180 500 57 000 - - - - - - - - - - December 2048 AAA December 2048 AA December 2048 A+ December 2048 BBB+ December 2048 NA December 2059 AAA December 2059 AA December 2059 A December 2059 BBB+ December 2059 N/A 180 754 52 775 32 562 11 906 8 458 - 488 778 265 146 116 051 - March 2060 AAA March 2060 AA March 2060 A March 2060 BBB March 2060 BB - March 2060 October 2064 October 2064 October 2064 October 2064 - - - - Aaa Aa2 A1 Baa1 - Aaa Aa2 A1 Baa2 - Aaa Aa3 A3 Baa3 - - - - - - AAA AA A+ BBB- NA AAA AA A BBB N/A AAA AA A BBB BB - AAA BBB- - - - - - - - - - - - - - - - - - - BB BB BB CCC - BB BB B CC - A BBB- B CCC CC - AAA - - - - - - - Aa3 Baa1 Ba3 Caa3 - A1 Baa3 B3 Ca - Aa3 Baa1 Ba3 Caa3 - - - - - - AA BB+ B+ B- - AA A BBB B - A- A- BBB+ CCC D - AA BBB - - - - - - - - - - - - - - - - - - AAA - - - Issue Bonds issued Initial nominal value Current nominal value Interest held by Group (Nominal value) Interest held by Group (Book value) Maturity date Initial rating of the bonds Current rating of the bonds Fitch Moody's S&P DBRS Fitch Moody's S&P DBRS 31.12.2019 (in thousands of Euros) Lusitano Mortgages No.4 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.7 plc Lusitano SME No.3 Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class F Class A Class B Class C Class D Classe A Classe B Classe C Classe D Classe E Classe S 1 134 000 22 800 19 200 24 000 10 200 1 323 000 26 600 22 400 28 000 11 900 943 250 65 450 41 800 17 600 31 900 22 000 1 425 000 294 500 180 500 57 000 385 600 62 700 62 700 116 000 9 500 88 771 241 493 15 985 13 461 16 827 5 100 355 021 25 494 21 469 26 836 11 900 264 905 65 450 41 800 17 600 31 900 22 000 616 503 294 500 180 500 57 000 - - - 103 316 3 135 5 214 - - - - - - - - - - 220 548 63 950 41 800 17 600 31 900 22 000 616 503 294 500 180 500 57 000 - - - 103 316 3 135 5 214 - - - - - - - - - - December 2048 AAA December 2048 AA December 2048 A+ December 2048 BBB+ December 2048 NA December 2059 AAA December 2059 AA December 2059 A December 2059 BBB+ December 2059 N/A 210 489 57 981 32 227 11 906 9 371 - 563 186 264 601 154 463 - - - - 100 534 2 776 3 218 March 2060 AAA March 2060 AA March 2060 A March 2060 BBB March 2060 BB - March 2060 October 2064 October 2064 October 2064 October 2064 December 2037 December 2037 December 2037 December 2037 December 2037 December 2037 - - - - - - - - - - Aaa Aa2 A1 Baa1 - Aaa Aa2 A1 Baa2 - Aaa Aa3 A3 Baa3 - - - - - - A3 Baa3 B1 - - - AAA AA A+ BBB- NA AAA AA A BBB N/A AAA AA A BBB BB - AAA BBB- - - - - - - - - - - - - - - - - - - - - - - - - AAA - - - AA BBB B - - - BB BB BB CCC - AAA AA A BBB+ - A BBB- B CCC CC - - - - - - - - - - - Aa3 Baa1 Ba3 Caa3 - Aaa Aa2 A1 Baa2 - Aa3 Baa1 Ba3 Caa3 - - - - - - WR WR A3 - - - AA BBB- BB- B- - AAA AA A BBB - A- A- BBB+ CCC D - AA BBB - - - - - - - - - - - - - - - - - - - - - - - - AAA - - - - - AAA - - - NOTE 40 – Fair value of financial assets and liabilities The governance model of the valuation of the Bank's financial instruments is defined in internal regulations, which establish the policies and procedures to be followed in the identification and valuation of financial instruments, the control procedures and the definition of the responsibilities of the parties involved in this process. The fair value of listed financial assets is determined based on the closing price (bid-price), the price of the last transaction made or the value of the last known price (bid). In the absence of quotation, the Group estimates fair value using (i) valuation methodologies, such as the use of prices for recent transactions, similar and carried out under market conditions, discounted cash flow techniques and customized option valuation models. in order to reflect the particularities and circumstances of the instrument and (ii) valuation assumptions based on market information. 31 December 2020 For the assets included in the level 3 of fair value hierarchy, whose quotation is provided by a third party using parameters not observable in the market, the Group proceeds, when applicable, to a detailed analysis of the historical and liquidity performance of these assets, which may imply an additional adjustment to its fair value, as well as a result of additional internal or external valuations. Notes to the Consolidated Financial Statements 90 In accordance with the methodology for valuing assets and liabilities at fair value, they are classified in the corresponding hierarchy of fair value defined in IFRS 13 - Fair Value. The following is a brief description of the type of assets and liabilities included in each level of the hierarchy and the corresponding form of valuation: Quoted market prices (level 1) This category includes financial instruments with market prices quoted on official markets and those with dealer price quotations provided by entities that usually disclose transaction prices for these instruments traded on active markets. The priority in terms of which price is used is given to those observed on official markets; where there is more than one official market the choice falls on the main market on which those instruments are traded. The Group considers market prices those disclosed by independent entities, assuming that these act for their own eco- nomic benefit and that such prices are representative of the active market, using, whenever possible, prices supplied by more than one entity (for a specific asset and/or liability). For the process of re-evaluating financial instruments, the Bank analyses the various prices in order to select the one it considers most representative for the instrument under analysis. Additionally, when they exist, prices relating to recent transactions with similar financial instruments are used as inputs, being subsequently compared to those supplied by said entities to better justify the option taken by the Bank 302 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDin favour of a specific price. This category includes, amongst others, the following financial instruments: i. Derivatives traded on an organized market; ii. Shares quoted on a stock exchange; iii. Open investment funds quoted on a stock exchange; iv. Closed investment funds whose subjacent assets are solely financial instruments listed on a stock exchange; v. Bonds with observable market quotes; vi. Financial instruments with market offers even if these are not available at the normal information sources (e.g. securities traded based on recovery rate). Valuation models based on observable market parameters / prices (level 2) In this category, the financial instruments are valued using internal valuation techniques, namely discounted cash flow models and option pricing models which imply the use of estimates and require judgments that vary in accordance with the complexity of the financial instruments. Notwithstanding, the Bank uses as inputs in its models, observable market data such as interest rate curves, credit spreads, volatility and market indexes. This category also includes instruments with dealer price quotations but which markets have a lower liquidity. Additionally, the Bank also uses as observable market variables, those that result from transactions with similar instruments and that are observed with a certain regularity on the market. This category includes, amongst others, the following financial instruments: i. Bonds without observable market valuations valued using observable market inputs; ii. Derivatives (OTC) over-the-counter valued using observable market inputs; and iii. Unlisted shares valued using internal models using observable market inputs. Valuation models based on unobservable market parameters (level 3) This level uses models relying on internal valuation techniques or quotations provided by third parties, but which imply the use of non-observable market information. The bases and assumptions for the calculation of fair value are in accordance with IFRS 13. This category includes, amongst others, the following financial instruments: i. Debt securities valued using non-observable market inputs; ii. Unquoted shares; iii. Closed real estate funds; iv. Hedge funds; v. Private equities; vi. Restructuring funds; and vii. Over the counter (OTC) derivatives with prices provided by third parties The valuation models used by type of instrument are as follows: Money market operations and loans and advances to customers: fair value is determined by the discounted cash flows method, with future cash flow being discounted considering the currency yield curve plus the credit risk of the entity contractually liquidating that flow. 303 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESCommercial paper: its fair value is determined by discounting future cash flows considering the currency yield curve plus the credit risk of the issuer determined in the issuance program. Debt instruments (bonds) with liquidity: the selective independent valuation methodology is used based on obser- vations available on Bloomberg, designated as 'Best Price', where all the valuations available are requested, but only previously validated sources considered as input, with the model excluding prices due to seniority and outlier prices. In the specific case of the Portuguese sovereign debt, and due to the market making activity and the materiality of the Bank's positions, the CBBT source valuations are always considered (the CBBT is a composite of valuations prepared by Bloomberg, which considers the average of executable prices with high liquidity). Debt instruments (bonds) with reduced liquidity: the models considered for the valuation of low liquidity bonds with- out observable market valuations are determined taking into account the information available on the issuer and the instrument, with the following models being considered: (i) discounted cash flows - cash flows are discounted con- sidering the interest rate risk, credit risk of the issuer and any other risks subjacent to the instrument; or (ii) valuations made available by external counterparties, when it is impossible to determine the fair value of the instrument, with the selection always falling on reliable sources with reputed credibility in the market and impartiality in the valuation of the instruments being analyzed. Convertible bonds: the cash flows are discounted considering the interest rate risk, the issuer's credit risk and any other risks that may be associated with the instrument, increased by the net present value (NPV) of the convertibility options embedded in the instrument. Shares and quoted funds: for quoted market products, the quotation on the respective stock exchange is considered. Unquoted Shares: the valuation is carried out using external valuations made of the companies in which the shareholding is held. In the event the request for an external valuation is not justified due to the immateriality of this position in the balance sheet, the position is revalued considering the book value of the entity. Unquoted funds: the valuation considered is that provided by the fund's management company. In the event there are calls for capital after the reference date of the last available valuation, the valuation is recalculated considering the capital calls subsequent to the reference date at the amount at which these were made, until a new valuation is made available by the management company, already considering the capital calls realised. It should be noted that, although it accepts the valuations provided by the management companies, when applicable in accordance with the funds' regulations, the Bank requests the legal certification of accounts issued by independent auditors in order to obtain additional assurance about the information provided by the management company. In the specific case of the Restructuring Funds (“Assessed Assets”), their assessment was carried out by an independent external international entity (“Appraiser”), which engaged renowned real estate appraisal companies to determine the fair value of real estate assets, which represent a significant part of the funds' portfolio. The fair vale estimation Assessed Assets requires a multi-step approach, taking into account the following (i) The fair value of the assets invested by each fund (the “Underlying Assets”); (ii) The nature of the participation of the respective Fund in each of the Underlying Assets; (iii) The other assets and liabilities on the Fund's balance; (iv) The nature of Novo Banco's investment in each of the funds; and (v) Consideration of any applicable discounts or premiums. The fair value of the Underlying Assets was estimated using three valuation approaches (market, income and cost) depending, among other things, on the specific nature of each asset, its state of development, the information available and the date of the initial investment. The other assets and liabilities in the fund's balances would normally be valued using the cost approach, with potential adjustments based on the market, and the consideration of discounts and premiums, normally assessed using market data and benchmarks. Underlying assets are mainly divided into Non-Real Estate assets and Real Estate assets (which can be subdivided into Hotels and Other Real Estate assets). For Non-Real Estate Assets, the Appraiser considered the Market approach based essentially on Market Multiples for comparable assets and considering the historical performance of each asset. For Real Estate Assets, the appraiser considered either the market approach or the income approach, depending on the state of each asset. In the case of hotels, the main value-based assumptions considered were the average room rate, the occupancy rate, the GOP margin, the EBITDA margin, the Capex needs and the discount rate. In relation to Other 304 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDReal Estate Assets, the main assumptions of value were sales prices, construction costs, timeline (both to development and sale) and Discount Rates. Each of the assumptions described above considered in the valuation of real estate assets was determined from asset to asset (total of 149 major assets subdivided into a total of more than 1,000 assets), depending on the status of the asset, the asset's historical performance, location and market competitors. Derivative instruments: if these are traded on organised markets, the valuations are observable in the market, otherwise these are valued using standard models and relying on observable variables in the market, namely: • Foreign currency options: are valued through the front office system, which considers models such as Garman- Kohlhagen, Binomial, Black & Scholes, Levy or Vanna-Volga; • Interest rate swaps and foreign currency swaps: the valuation of these instruments is done through the front office system, where the fixed leg cash flows of the instrument are discounted based on the yield curve of the respective currency, and the cash flows of the variable leg are projected considering the forward curve and discounted, also considering discount factors and forward rates based on the yield curve of the respective currency; • Credit Default Swaps (CDS): both legs of the CDS are composed of cash flows contingent on the credit risk of the underlying asset and are therefore valued using market credit spreads; • Futures and Options: the Bank trades these products on an organised market, but also has the possibility to trade them on the OTC market. For futures and options traded on an organised market, the valuations are observable in the market, with the valuation being received daily through the broker selected for these products. For futures and options traded on the OTC market, and depending on the type of product and the underlying asset type, discrete time (binominal) or continuous time (Black & Scholes) models may be used. Investment properties: its fair value is determined based on periodic evaluations carried out by independent entities specialized in this type of service, however, given the subjectivity of some assumptions used in the assessments, the Group carries out internal analysis on the assumptions used, which may imply additional adjustments to fair value, supported by additional internal or external valuations (see accounting policy in Note 2.23). The market value of properties for which a promissory purchase and sale agreement has been entered into corresponds to the value of that contract. Validation of the valuation of financial instruments is performed by an independent area, which validates the models used and the prices attributed. More specifically, this area is responsible for independent price verification for mark-to- market valuations, for mark-to-model valuations, validates the models used and changes to them wherever they exist. For prices supplied by external entities, the validation performed consists in confirming the use of the correct prices. The fair value of financial assets and liabilities and non-financial assets (investment properties) measured at fair value of the Group is as follows: 305 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES    Derivative instruments: if these are traded on organised markets, the valuations are observable in the market, otherwise these are valued using standard models and relying on observable variables in the market, namely: Foreign currency options: are valued through the front office system, which considers models such as Garman-Kohlhagen, Binomial, Black & Scholes, Levy or Vanna-Volga; Interest rate swaps and foreign currency swaps: the valuation of these instruments is done through the front office system, where the fixed leg cash flows of the instrument are discounted based on the yield curve of the respective currency, and the cash flows of the variable leg are projected considering the forward curve and discounted, also considering discount factors and forward rates based on the yield curve of the respective currency; Credit Default Swaps (CDS): both legs of the CDS are composed of cash flows contingent on the credit risk of the underlying asset and are therefore valued using market credit spreads; Futures and Options: the Bank trades these products on an organised market, but also has the possibility to trade them on the OTC market. For futures and options traded on an organised market, the valuations are observable in the market, with the valuation being received daily through the broker selected for these products. For futures and options traded on the OTC market, and depending on the type of product and the underlying asset type, discrete time (binominal) or continuous time (Black & Scholes) models may be used. Investment properties: its fair value is determined based on periodic evaluations carried out by independent entities specialized in this type of service, however, given the subjectivity of some assumptions used in the assessments, the Group carries out internal analysis on the assumptions used, which may imply additional adjustments to fair value, supported by additional internal or external valuations (see accounting policy in Note 2.23). The market value of properties for which a promissory purchase and sale agreement has been entered into corresponds to the value of that contract. Validation of the valuation of financial instruments is performed by an independent area, which validates the models used and the prices attributed. More specifically, this area is responsible for independent price verification for mark-to-market valuations, for mark- to-model valuations, validates the models used and changes to them wherever they exist. For prices supplied by external entities, the validation performed consists in confirming the use of the correct prices. The fair value of financial assets and liabilities and non-financial assets (investment properties) measured at fair value of the Group is as follows: 31 December 2020 Financial assets held for trading Securities held for trading Bonds issued by public entities Derivatives held for trading Exchange rate contracts Interest rate contracts Others Financial assets mandatorily at fair value through profit or loss Bonds issued by other entities Shares Other variable income securities Financial assets at fair value through other comprehensive income Bonds issued by public entities Bonds issued by other entities Shares Other variable income securities Derivatives - Hedge Accounting Interest rate contracts Investment properties (in thousands of Euros) Quoted market prices At Fair Value Valuation models based on observable market parameters Valuation models based on unobservable market parameters (Level 1) (Level 2) (Level 3) Total Fair Value 267 016 267 016 267 016 - - - - 214 882 82 203 132 525 154 7 854 337 6 490 076 1 352 759 11 502 - - - - 388 257 - - 388 257 57 205 319 662 11 390 36 849 50 - 36 799 10 028 - - 10 028 - 12 972 12 972 - - - - - - - - 709 231 77 931 273 579 357 721 43 222 - - 43 222 - - - 592 605 655 273 267 016 267 016 388 257 57 205 319 662 11 390 960 962 160 184 406 104 394 674 7 907 587 6 490 076 1 352 759 64 752 - 12 972 12 972 592 605 Assets at fair value 8 336 235 448 106 1 345 058 10 129 399 Financial liabilities held for trading Derivatives held for trading Exchange rate contracts Interest rate contracts Credit default contracts Other Derivatives - Hedge Accounting Interest rate contracts Liabilities at fair value - - - - - - - - - 552 633 552 633 45 493 501 585 16 5 539 72 543 72 543 625 176 2 158 2 158 - 2 158 - - - - 2 158 554 791 554 791 45 493 503 743 16 5 539 72 543 72 543 627 334 31 December 2020 Notes to the Consolidated Financial Statements 93 306 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED31 December 2019 Financial assets held for trading Securities held for trading Bonds issued by public entities Derivatives held for trading 31 December 2019 Exchange rate contracts Interest rate contracts Financial assets held for trading Credit default contracts Other Bonds issued by public entities Securities held for trading Economic hedging derivatives Derivatives held for trading Interest rate contracts Exchange rate contracts Interest rate contracts Credit default contracts Bonds issued by other entities Other Shares Economic hedging derivatives Other variable income securities Interest rate contracts Bonds issued by public entities Bonds issued by other entities Bonds issued by other entities Shares Shares Other variable income securities Other variable income securities Investment properties Interest rate contracts Bonds issued by public entities Bonds issued by other entities Shares Other variable income securities Assets at fair value Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets mandatorily at fair value through profit or loss Derivatives - Hedge Accounting Financial assets at fair value through other comprehensive income Investment properties Derivatives - Hedge Accounting Financial liabilities held for trading Interest rate contracts Derivatives held for trading Exchange rate contracts Interest rate contracts Credit default contracts Other Assets at fair value Financial liabilities held for trading Financial liabilities at fair value through profit or loss Derivatives held for trading Debt securities issued Exchange rate contracts Derivatives - Hedge Accounting Interest rate contracts Interest rate contracts Credit default contracts Other Liabilities at fair value Financial liabilities at fair value through profit or loss Debt securities issued At Fair Value Valuation models based on observable market parameters (Level 2) At Fair Value (Level 2) Valuation models based on 419 600 observable market - parameters - 419 600 34 540 352 748 419 600 1 - 32 311 - - 419 600 - 34 540 48 352 748 1 48 32 311 - - - - 28 976 - 48 - 48 28 976 - - - 7 452 28 976 7 452 - - - 28 976 456 076 - 7 452 542 988 7 452 542 988 - 33 953 499 852 456 076 42 9 141 542 988 - 542 988 - 33 953 58 855 499 852 58 855 42 601 843 9 141 - - 58 855 58 855 Quoted market prices (Level 1) (Level 1) Quoted market 254 848 prices 254 848 254 848 - - - 254 848 - 254 848 - 254 848 - - - - 172 030 - - 57 535 - 114 296 - 199 - 8 783 741 7 108 022 172 030 1 661 538 57 535 14 181 114 296 - 199 - 8 783 741 - 7 108 022 - 1 661 538 14 181 9 210 619 - - - - - - - - 9 210 619 - - - 102 012 - 102 012 - - - - - 102 012 - 102 012 102 012 - - (in thousands of Euros) Total Fair Value (in thousands of Euros) Valuation models based on unobservable market parameters (Level 3) Valuation models based on unobservable market parameters (Level 3) 74 284 - - 191 - 191 74 284 - - - - 74 093 191 74 093 - 1 142 664 191 - 7 - 489 555 74 093 653 102 74 093 37 179 - 1 142 664 - 7 37 177 489 555 2 653 102 - 37 179 - - 700 744 - 37 177 1 954 871 2 - 1 837 - 1 837 700 744 1 837 1 954 871 1 837 - 1 837 - - 1 837 - 1 837 - - - - Total Fair Value 748 732 254 848 254 848 419 791 34 540 352 939 748 732 1 254 848 32 311 254 848 74 093 419 791 74 093 34 540 1 314 742 352 939 1 57 590 32 311 603 851 74 093 653 301 74 093 8 849 896 7 108 022 1 314 742 1 661 538 57 590 80 334 603 851 2 653 301 7 452 8 849 896 7 452 7 108 022 700 744 1 661 538 80 334 11 621 566 2 7 452 544 825 7 452 544 825 700 744 33 953 501 689 11 621 566 42 9 141 544 825 102 012 544 825 102 012 33 953 58 855 501 689 58 855 42 705 692 9 141 102 012 102 012 58 855 58 855 The changes occurred in financial assets and liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2020 and 2019, may be analyzed as follows: Derivatives - Hedge Accounting Interest rate contracts Liabilities at fair value 102 012 601 843 1 837 The changes occurred in financial assets and liabilities valued based on non-observable market information (level 3 of The changes occurred in financial assets and liabilities valued based on non-observable market information (level 3 of the fair value the fair value hierarchy) during the financial years of 2020 and 2019, may be analyzed as follows: Financial assets at Financial assets held for trading Financial assets Financial hierarchy) during the financial years of 2020 and 2019, may be analyzed as follows: fair value through mandatorily at fair assets at fair other value through value through Economic comprehensive profit or loss profit or loss hedging income derivatives 31.12.2020 37 179 Derivatives held for trading Financial liabilities held for trading Balance as at 31 December 2019 Derivatives held for trading Investment properties (in thousands of Euros) Total liabilities Total assets 31.12.2020 1 142 664 1 954 871 700 744 74 093 1 837 191 - 705 692 (in thousands of Euros) Balance as at 31 December 2019 Balance as at 31 December 2020 Acquisitions Attainment of maturity Liquidation Transfers in Transfers out Sales Acquisitions Changes in value Attainment of maturity Other movements Liquidation Transfers in Transfers out Sales Changes in value Other movements Economic hedging derivatives Financial assets held for trading Financial assets 8 479 mandatorily at fair ( 41 302) value through ( 1 583) profit or loss - ( 27 541) 1 142 664 - 8 479 ( 371 486) ( 41 302) - ( 1 583) 709 231 - ( 27 541) - ( 371 486) - - - - Derivatives - held for trading - 191 - - ( 191) - - - - - - - ( 191) - - - ( 80 489) - - 74 093 - - 6 396 - - ( 80 489) - - - - 6 396 - Financial - assets at fair - value through - profit or loss - - - - - - - - - - - - - - - Financial assets at 5 125 fair value through - other ( 22 913) comprehensive 16 326 income ( 2 685) 37 179 - 5 125 10 190 - - ( 22 913) 43 222 16 326 ( 2 685) - 10 190 - 11 966 Investment - properties - - - 700 744 ( 67 581) 11 966 ( 101 828) - 49 304 - 592 605 - - ( 67 581) ( 101 828) 49 304 25 570 ( 41 302) Total assets ( 104 985) 16 326 ( 30 226) 1 954 871 ( 67 581) 25 570 ( 456 919) ( 41 302) 49 304 ( 104 985) 1 345 058 16 326 ( 30 226) ( 67 581) ( 456 919) 49 304 1 837 Financial liabilities - held for trading - - Derivatives held for - trading - 1 837 - - 321 - - - 2 158 - - - 321 - - - Total liabilities - - - 1 837 - - 321 - - - 2 158 - - - 321 - Balance as at 31 December 2020 - - 709 231 - 43 222 592 605 1 345 058 2 158 2 158 31 December 2020 Notes to the Consolidated Financial Statements 307 31 December 2020 Notes to the Consolidated Financial Statements 94 94 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Financial assets held for trading Financial assets mandatorily at fair value through profit or loss Derivatives held for trading Economic hedging derivatives 31.12.2019 Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Investment properties Total assets (in thousands of Euros) Financial liabilities held for trading Derivatives held for trading Total liabilities Balance as at 31 December 2018 396 70 177 1 487 630 - 45 713 1 098 071 2 701 987 (in thousands of Euros) 2 724 2 724 Financial assets at fair value through profit or loss 31.12.2019 14 309 100 - - Financial assets at fair value through ( 14 692) - other - - comprehensive - ( 16) income - - ( 84) ( 8 151) - - - 45 713 Investment properties - - - 9 455 - ( 197 058) ( 216 119) 6 395 Total assets 101 237 ( 44 412) ( 108 744) 9 455 ( 16) ( 197 058) ( 513 973) 6 395 Financial liabilities held for trading Derivatives held for trading - - ( 347) Total liabilities - - - ( 540) - - - ( 347) - - - ( 540) - 2 724 2 724 1 098 071 2 701 987 Balance as at 31 December 2018 Acquisitions Attainment of maturity Liquidation Transfers in Transfers out Sales Changes in value Other movements Acquisitions Attainment of maturity Liquidation Transfers in Transfers out Sales Changes in value Other movements - Economic hedging derivatives 86 828 ( 44 412) Financial assets held for trading Financial assets ( 93 656) mandatorily at fair - value through - profit or loss - ( 293 726) 1 487 630 - 86 828 ( 44 412) 1 142 664 ( 93 656) - - - ( 293 726) - ( 396) - Derivatives - held for trading - 191 396 - - 191 ( 396) - - - 191 - - - - - - - 3 916 70 177 - - - 74 093 - - - - 3 916 - - Balance as at 31 December 2019 - - 1 837 ( 347) - Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value hierarchy are recorded - in profit or loss or revaluation reserves in accordance with the respective asset accounting policy. The amounts calculated at 31 - ( 540) December 2020 and 2019 were as follows: - (in thousands of Euros) Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value Balance as at 31 December 2019 hierarchy are recorded in profit or loss or revaluation reserves in accordance with the respective asset accounting Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value hierarchy are recorded policy. The amounts calculated at 31 December 2020 and 2019 were as follows: in profit or loss or revaluation reserves in accordance with the respective asset accounting policy. The amounts calculated at 31 December 2020 and 2019 were as follows: Derivatives held for trading 101 237 ( 44 412) 1 954 871 ( 108 744) 9 455 ( 16) ( 197 058) ( 513 973) 6 395 - - - 9 455 - ( 197 058) ( 216 119) 6 395 14 309 - ( 14 692) - - - ( 8 151) - - - 1 837 ( 347) - - - ( 540) - Recognised in the income statement Recognised in the income statement 100 - - - ( 16) - ( 84) - Recognised in reserves Recognised in reserves - 31.12.2020 31.12.2019 1 142 664 1 954 871 23 605 23 605 700 744 700 744 37 179 37 179 74 093 682 1 837 1 837 Total Total 191 - - Economic hedging derivatives - ( 68 722) ( 68 722) - Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Investment properties Derivatives held for trading Economic hedging derivatives - 10 905 Recognised in - reserves 31.12.2020 ( 359 642) - Recognised in the income statement ( 104 310) 10 905 - - ( 509 390) 23 605 ( 68 722) ( 359 642) 10 905 Total ( 104 310) ( 498 485) 23 605 ( 68 722) - 11 Recognised in reserves - 31.12.2019 ( 287 694) - Recognised in the income statement ( 216 119) 11 - - ( 496 927) 682 6 204 ( 287 694) 11 Total ( 216 119) ( 496 916) 682 6 204 Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income The following table presents, for financial assets included in level 3 of the fair value hierarchy, the main valuation methods used and Investment properties the impact of changing the main variables used in their valuation, when applicable: ( 359 642) 10 905 ( 287 694) - ( 287 694) 11 ( 359 642) - - 10 905 - 11 ( 104 310) ( 104 310) ( 216 119) ( 216 119) - - ( 509 390) ( 498 485) ( 496 916) ( 496 927) 10 905 11 (in millions of Euros) The following table presents, for financial assets included in level 3 of the fair value hierarchy, the main valuation methods used and The following table presents, for financial assets included in level 3 of the fair value hierarchy, the main valuation the impact of changing the main variables used in their valuation, when applicable: methods used and the impact of changing the main variables used in their valuation, when applicable: Financial assets mandatorily at fair value through profit or loss Carrying book value Assets classified under level 3 Unfavorable scenario Favorable scenario Variable analysed Valuation Model 31.12.2020 Change Change Impact Impact ( 22.2) 709.2 12.2 682 (in thousands of Euros) 6 204 6 204 Obligations of other issuers Shares Assets classified under level 3 Assets classified under level 3 Other variable income securities Financial assets mandatorily at fair value through Financial assets mandatorily at fair value through profit or loss profit or loss Financial assets at fair value through other comprehensive income Obligations of other issuers Obligations of other issuers Shares Shares Shares Discounted cash flow model Valuing adjusted management company Specific Impairment (b) 31.12.2020 31.12.2020 77.9 273.6 -50% ( 22.2) - +50% (in millions of Euros) (in millions of Euros) 12.2 - Valuation Model Valuation Model Valuing adjusted management company Valuation of the management company Variable analysed Variable analysed (b) (c) Discounted cash flow model Discounted cash flow model Valuing adjusted management company Valuing adjusted management company Specific Impairment Specific Impairment (b) (b) Carrying book Carrying book value value 357.7 225.3 1 123.5 709.2 709,2 Unfavorable scenario Unfavorable scenario Impact Change Impact Change - - - ( 22.2) ( 22,2) Favorable scenario Favorable scenario Impact Change Impact Change - - - 12.2 12,2 -50% -50% +50% +50% Total Other variable income securities Other variable income securities Discounted cash flow model Other Valuing adjusted management company Valuing adjusted management company Valuation of the management company Valuation of the management company (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. Financial assets at fair value through other Financial assets at fair value through other (b) For the sensitivity analysis carried out on the valuation of the Restructuring Funds, taking into account the valuation methodologies applied and considering that real estate assets represent more than 95% of the underlying assets of the Funds, a variation of comprehensive income comprehensive income + 10% was considered and -10% in the fair value of the main real estate assets of each Fund, which leads to an impact of + 6.15% and -5.8% in the fair value of the restructuring funds. Renewable energy Rates (a) (b) (b) (c) (c) ( 2.9) ( 2,9) 43.2 43,2 0.1 0,1 Shares Shares (c) In the specific case of participation units valued in accordance with quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the quotation by the entity Discounted cash flow model Discounted cash flow model Other Other Renewable energy Rates Renewable energy Rates (a) (a) 43.2 77.9 77,9 273.6 273,6 43.2 16.2 357.7 357,7 27.0 225.3 225,3 752.5 1 123.5 132,5 43.2 43,2 16.2 16,2 27.0 27,0 ( 22.2) ( 2.9) ( 22,2) - - ( 2.9) ( 2.9) - - - - - ( 25.1) - - ( 2.9) ( 2,9) ( 2.9) ( 2,9) - - 12.2 0.1 12,2 - - 0.1 0.1 - - - - - 12.3 - - 0.1 0,1 0.1 0,1 - - Total Total 752.5 752,5 ( 25.1) ( 25,1) 12.3 12,3 (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. (b) For the sensitivity analysis carried out on the valuation of the Restructuring Funds, taking into account the valuation methodologies applied and considering that real estate assets represent more than 95% of the underlying assets of the Funds, a variation of (b) For the sensitivity analysis carried out on the valuation of the Restructuring Funds, taking into account the valuation methodologies applied and considering that real estate assets represent more than 95% of the underlying assets of the Funds, a variation of + + 10% was considered and -10% in the fair value of the main real estate assets of each Fund, which leads to an impact of + 6.15% and -5.8% in the fair value of the restructuring funds. 10% was considered and -10% in the fair value of the main real estate assets of each Fund, which leads to an impact of + 6.15% and -5.8% in the fair value of the restructuring funds. (c) In the specific case of participation units valued in accordance with quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the (c) In the specific case of participation units valued in accordance with quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the quotation quotation by the entity by the entity 31 December 2020 Notes to the Consolidated Financial Statements 308 31 December 2020 Notes to the Consolidated Financial Statements 95 95 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED NOVO BANCO (in millions of Euros) Change Favorable scenario NOVO BANCO Impact - - - (in millions of Euros) - - - Assets classified under level 3 Valuation Model Variable analysed 31.12.2019 Carrying book value Unfavorable scenario Change Impact Other (a) (b) 74,3 0,2 74,1 Financial assets held for trading Derivatives held for trading Economic hedging derivatives Financial assets mandatorily at fair value through profit or loss Shares Assets classified under level 3 Financial assets held for trading Derivatives held for trading Economic hedging derivatives Other variable income securities Financial assets mandatorily at fair value through profit or loss Shares Financial assets at fair value through other comprehensive income Shares Total Valuation Model Discounted cash flow model Other Valuation of the management company Other Other Valuation of the management company Variable analysed Specific Impairment (a) Net assets value (c) (a) (b) Discounted cash flow model Other Valuation of the management company Other Specific Impairment (a) Net assets value (c) (a) 31.12.2019 1 142,7 ( 34,1) 40,6 Carrying book value Unfavorable scenario Change -50% Impact Favorable scenario Change +50% Impact 489,6 74,7 2,8 74,3 412,1 0,2 653,1 74,1 27,7 625,4 1 142,7 37,2 37,2 489,6 74,7 2,8 1 254,1 412,1 653,1 27,7 625,4 ( 29,3) ( 29,3) - - - - ( 4,8) - - ( 4,8) ( 34,1) ( 29,3) ( 29,3) - - ( 4,8) - ( 4,8) ( 34,1) -50% -50% +50% - - +50% 31,0 31,0 - - 9,6 - 9,6 - - - 40,6 - - 31,0 31,0 - 40,6 - 9,6 - 9,6 Other variable income securities (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. (b) In the specific case of derivatives valued according to information provided by external entities, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the quotation by the entity (c) In the specific case of participation units valued in accordance with quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the quotation by the entity Other Valuation of the management company +50% -50% Financial assets at fair value through other comprehensive income 37,2 The main parameters used, at 30 December 2020 and 2019, in the valuation models were as follows: Shares Other 37,2 (a) Total 1 254,1 - - ( 34,1) - - 40,6 (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. (b) In the specific case of derivatives valued according to information provided by external entities, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the quotation by the entity (c) In the specific case of participation units valued in accordance with quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the quotation by the entity Interest rate curves The main parameters used, at 30 December 2020 and 2019, in the valuation models were as follows: The short-term rates presented reflect benchmark interest rates for the money market, whilst those presented for the long-term represent the interest rate swap quotations for the respective periods: The main parameters used, at 30 December 2020 and 2019, in the valuation models were as follows: Interest rate curves (%) 31.12.2020 31.12.2019 USD USD EUR EUR EUR GBP GBP 31.12.2020 Interest rate curves The short-term rates presented reflect benchmark interest rates for the money market, whilst those presented for the long-term represent the interest rate swap quotations for the respective periods: The short-term rates presented reflect benchmark interest rates for the money market, whilst those presented for the long-term represent the interest rate swap quotations for the respective periods: -0,4560 -0,4380 -0,3830 -0,3240 -0,3174 -0,3161 -0,2380 -0,1205 0,0160 0,2110 0,4670 0,5990 0,6370 0,6310 -0,5780 -0,5540 -0,5450 -0,5260 -0,5125 -0,4990 -0,5080 -0,4575 -0,3845 -0,2650 -0,0720 0,0090 0,0090 -0,0250 0,1000 0,0900 0,0900 0,1450 0,1950 -0,0125 0,0913 0,1926 0,2799 0,3966 0,5200 0,5730 0,5805 0,5741 0,0776 0,1439 0,2384 0,2576 0,2995 0,3419 0,2370 0,4275 0,6478 0,9170 1,1835 1,3033 1,3680 1,3998 0,7500 (%) 0,7650 0,8650 0,9000 0,9450 0,7419 0,8243 0,8844 0,9406 1,0172 1,0968 1,1206 1,1130 1,1082 1,6000 1,7900 1,9200 1,9300 1,9100 1,7490 1,6556 1,6990 1,7630 1,8470 1,9650 2,0160 2,0350 2,0420 31.12.2019 GBP GBP EUR USD USD -0,5780 -0,5540 -0,5450 -0,5260 -0,5125 -0,4990 -0,5080 -0,4575 -0,3845 -0,2650 -0,0720 0,0090 0,0090 -0,0250 0,0776 0,1439 0,2384 0,2576 0,2995 0,3419 0,2370 0,4275 0,6478 0,9170 1,1835 1,3033 1,3680 1,3998 0,1000 0,0900 0,0900 0,1450 0,1950 -0,0125 0,0913 0,1926 0,2799 0,3966 0,5200 0,5730 0,5805 0,5741 -0,4560 -0,4380 -0,3830 -0,3240 -0,3174 -0,3161 -0,2380 -0,1205 0,0160 0,2110 0,4670 0,5990 0,6370 0,6310 1,6000 1,7900 1,9200 1,9300 1,9100 1,7490 1,6556 1,6990 1,7630 1,8470 1,9650 2,0160 2,0350 2,0420 0,7500 0,7650 0,8650 0,9000 0,9450 0,7419 0,8243 0,8844 0,9406 1,0172 1,0968 1,1206 1,1130 1,1082 Credit Spreads The credit spreads used by the Group in the valuation of credit derivatives are those disclosed on a daily basis by Markit, representing observations pertaining to around 85 renowned international financial entities. The evolution of the main indexes, understood as being representative of the credit spread behaviour in the market during the year, is presented as follows: Overnight 1 month 3 months 6 months 9 months Overnight 1 year 1 month 3 years 3 months 5 years 6 months 7 years 9 months 10 years 1 year 15 years 3 years 20 years 5 years 25 years 7 years 30 years 10 years 15 years 20 years 25 years 30 years Credit Spreads Credit Spreads The credit spreads used by the Group in the valuation of credit derivatives are those disclosed on a daily basis by Markit, representing observations pertaining to around 85 renowned international financial entities. The evolution of the main indexes, understood as being representative of the credit spread behaviour in the market during the year, is presented as follows: The credit spreads used by the Group in the valuation of credit derivatives are those disclosed on a daily basis by Markit, representing observations pertaining to around 85 renowned international financial entities. The evolution of the main indexes, understood as being representative of the credit spread behaviour in the market during the year, is presented as follows: 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 256- 309 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 256- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Index Series 1 year 3 years 5 years 7 years NOVO BANCO (basis points) NOVO BANCO 10 years (basis points) Index 1 year Series 7 years 3 years 5 years Index 31 December 2020 CDX USD Main 31 December 2020 iTraxx Eur Main CDX USD Main iTraxx Eur Senior Financial iTraxx Eur Main 31 December 2019 iTraxx Eur Senior Financial 31 December 2020 CDX USD Main 31 December 2019 CDX USD Main iTraxx Eur Main CDX USD Main iTraxx Eur Main iTraxx Eur Senior Financial iTraxx Eur Main iTraxx Eur Senior Financial iTraxx Eur Senior Financial 31 December 2019 CDX USD Main Interest rate volatility Interest rate volatility iTraxx Eur Main The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: iTraxx Eur Senior Financial Interest rate volatility The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: 9,09 - - The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: 10 years NOVO BANCO 90,52 86,37 (basis points) 90,52 89,30 10 years 86,37 89,30 90,08 90,52 85,26 90,08 86,37 83,45 85,26 89,30 83,45 30,35 27,66 30,35 0,00 3 years 27,66 0,00 23,31 30,35 23,32 23,31 27,66 - 23,32 0,00 - 49,98 47,95 49,98 59,06 5 years 47,95 59,06 45,30 49,98 44,22 45,30 47,95 51,59 44,22 59,06 51,59 70,70 66,24 70,70 0,00 7 years 66,24 0,00 67,47 70,70 64,99 67,47 66,24 - 64,99 0,00 - 18,95 0,00 18,95 0,00 1 year 0,00 0,00 9,09 18,95 - 9,09 0,00 - - 0,00 - 35 34 35 34 Series 34 34 33 32 33 32 32 32 90,08 85,26 83,45 45,30 44,22 51,59 67,47 64,99 - 23,31 23,32 - 33 32 32 35 34 34 (%) 31.12.2020 31.12.2019 Interest rate volatility The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: 1 year EUR 15,39 EUR 21,33 15,39 28,38 21,33 34,60 28,38 41,18 34,60 46,54 41,18 EUR 15,39 21,33 46,54 28,38 USD 31.12.2020 118,44 USD 91,12 118,44 84,06 31.12.2020 91,12 65,41 84,06 62,77 65,41 - 62,77 91,12 - 84,06 118,44 USD GBP - GBP - - - - - GBP - - - - - - - - - EUR 12,71 EUR 22,74 12,71 33,51 22,74 40,12 EUR 33,51 46,46 40,12 51,03 46,46 12,71 22,74 51,03 33,51 USD 31.12.2019 18,87 USD 39,23 18,87 36,57 39,23 39,25 USD 36,57 34,71 39,25 - 34,71 18,87 39,23 31.12.2019 - 36,57 (%) GBP (%) 48,83 GBP 57,73 48,83 64,04 57,73 67,79 GBP 64,04 70,87 67,79 48,83 - 70,87 57,73 - 64,04 3 years 1 year 5 years 3 years 7 years 5 years 10 years 7 years 15 years 10 years 1 year 3 years 15 years 5 years - - - - - - Foreign exchange rates and volatility Presented below, are the foreign exchange rates (European Central Bank) at the balance sheet date and the implicit volatilities (at the money) for the main currencies used in the derivatives’ valuation: Foreign exchange rates and volatility Presented below, are the foreign exchange rates (European Central Bank) at the balance sheet date and the implicit volatilities (at the money) for the main currencies used in the derivatives’ valuation: 10 years 15 years 7 years 34,60 46,54 41,18 70,87 46,46 51,03 39,25 65,41 34,71 40,12 62,77 67,79 1 year 1,2271 1 month EUR/USD EUR/GBP 9 months 3 months 6 months 31.12.2019 31.12.2020 Volatility (% ) Foreign exchange rate Foreign exchange rate 1,1234 31.12.2019 0,8508 1,1234 1,0854 0,8508 9,8638 31.12.2019 1,0854 4,2568 9,8638 69,9563 4,2568 4,0197 69,9563 5,9501 4,0197 Foreign exchange rates and volatility Foreign exchange rates and volatility Presented below, are the foreign exchange rates (European Central Bank) at the balance sheet date and the implicit Presented below, are the foreign exchange rates (European Central Bank) at the balance sheet date and the implicit volatilities (at volatilities (at the money) for the main currencies used in the derivatives’ valuation: the money) for the main currencies used in the derivatives’ valuation: 1,2271 31.12.2020 0,8990 1,2271 1,0802 0,8990 10,4703 31.12.2020 1,0802 4,5597 10,4703 91,4671 4,5597 5,1940 91,4671 7,4265 5,1940 EUR/USD Foreign exchange rate EUR/GBP EUR/USD EUR/CHF EUR/GBP EUR/NOK EUR/CHF EUR/PLN EUR/NOK EUR/RUB EUR/PLN USD/BRL a) EUR/RUB USD/TRY b) USD/BRL a) a) Calculated based on EUR / USD and EUR / BRL exchange rates. USD/TRY b) EUR/PLN b) Calculated based on EUR / USD and EUR / TRY exchange rates. a) Calculated based on EUR / USD and EUR / BRL exchange rates. Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the b) Calculated based on EUR / USD and EUR / TRY exchange rates. valuation. Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the Equity indexes valuation. The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the valuation of equity derivatives: Equity indexes Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the valuation of valuation. equity derivatives: Volatility (% ) 6,45 6 months 7,24 6,45 4,85 7,24 8,78 4,85 6,38 8,78 8,71 6,38 7,24 18,30 8,71 4,85 17,83 18,30 8,78 a) Calculated based on EUR / USD and EUR / BRL exchange rates. b) Calculated based on EUR / USD and EUR / TRY exchange rates. 6,59 3 months 7,63 6,59 4,68 7,63 8,91 3 months 4,68 6,98 8,91 8,07 6,98 7,63 19,24 8,07 4,68 18,18 19,24 8,91 6,43 9 months 7,10 6,43 5,00 7,10 8,63 9 months 5,00 6,05 8,63 6,43 9,29 6,05 7,10 17,93 9,29 5,00 17,80 17,93 8,63 6,81 1 month 7,96 6,81 4,41 7,96 8,99 1 month 4,41 7,85 8,99 7,51 7,85 20,76 7,51 18,31 20,76 6,37 1 year 6,98 6,37 5,16 6,98 8,48 1 year 5,16 5,75 8,48 6,37 9,58 5,75 6,98 17,56 9,58 5,16 17,75 17,56 8,48 EUR/RUB USD/BRL a) USD/TRY b) Volatility (% ) 6 months EUR/NOK EUR/CHF 69,9563 10,4703 91,4671 18,18 6,98 7,4265 5,9501 0,8508 9,8638 4,2568 1,1234 1,0854 4,0197 5,9501 4,5597 1,0802 7,4265 0,8990 5,1940 17,83 6,38 17,80 6,05 17,75 5,75 18,31 18,31 17,83 17,56 17,75 17,93 17,80 20,76 18,18 18,30 19,24 8,99 6,59 4,41 6,81 7,85 7,96 6,45 8,07 7,51 8,71 9,58 9,29 Equity indexes The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the valuation of equity derivatives: 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 257- 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES 310 - 257- 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 257- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the valuation. Equity indexes The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the valuation of equity derivatives: NOVO BANCO 31.12.2020 31.12.2020 Quotation Quotation 31.12.2019 31.12.2019 % Change % Change 3 553 3 553 4 898 4 898 8 074 8 074 6 461 6 461 13 719 13 719 3 756 3 756 119 017 119 017 3 745 3 745 5 214 5 214 9 549 9 549 7 542 7 542 13 249 13 249 3 231 3 231 115 645 115 645 5,42% 5.42% 6,45% 6.45% 18,28% 18.28% 16,75% 16.75% -3,42% -3.42% -13,99% -13.99% -2,83% -2.83% Historical volatility Historical volatility 1 month 1 month 13,27 13.27 17,03 17.03 18,26 18.26 14,68 14.68 14,97 14.97 9,45 9.45 16,43 16.43 3 months 3 months 21,62 21.62 20,33 20.33 24,88 24.88 19,00 19.00 22,50 22.50 18,74 18.74 22,72 22.72 Implied Volatility Implied Volatility - - - - - - 20,72 20.72 20,88 20.88 17,34 17.34 25,72 25.72 DJ Euro Stoxx 50 DJ Euro Stoxx 50 PSI 20 PSI 20 IBEX 35 IBEX 35 FTSE 100 FTSE 100 DAX DAX S&P 500 S&P 500 BOVESPA BOVESPA The fair value of financial assets and liabilities recorded in the balance sheet at amortised cost is analyzed as follows, having been The fair value of financial assets and liabilities recorded in the balance sheet at amortised cost is analyzed as follows, having been estimated based on the main methodologies and assumptions described below: The fair value of financial assets and liabilities recorded in the balance sheet at amortised cost is analyzed as follows, estimated based on the main methodologies and assumptions described below: having been estimated based on the main methodologies and assumptions described below: 31 December 2020 31 December 2020 Cash, cash balances at central bank and other demand deposits Cash, cash balances at central bank and other demand deposits Financial assets at amortised cost Financial assets at amortised cost Debt securities Debt securities Loans and advances to banks Loans and advances to banks Loans and advances to customers Loans and advances to customers Fair Value Fair Value (in thousands of Euros) (in thousands of Euros) Assets / liabilities Assets / liabilities recorded at recorded at amortised cost amortised cost Quoted market Quoted market prices prices Valuation models Valuation models based on observable based on observable market parameters market parameters Valuation models Valuation models based on based on unobservable unobservable market parameters market parameters Total fair value Total fair value (Level 1) (Level 1) (Level 2) (Level 2) (Level 3) (Level 3) 2 695 459 2 695 459 2 229 947 2 229 947 113 795 113 795 23 554 304 23 554 304 - - 2 695 459 2 695 459 - - 2 695 459 2 695 459 846 176 846 176 - - - - 378 588 113 795 - 378 588 113 795 - 1 203 883 - 23 784 698 1 203 883 - 23 784 698 2 428 647 2 428 647 113 795 113 795 23 784 698 23 784 698 Financial assets Financial assets 28 593 505 28 593 505 846 176 846 176 3 187 842 3 187 842 24 988 581 24 988 581 29 022 599 29 022 599 Financial liabilities measured at amortised cost Financial liabilities measured at amortised cost Deposits from banks Deposits from banks Due to customers Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities Other financial liabilities Financial liabilities Financial liabilities 10 102 896 10 102 896 26 322 060 26 322 060 1 017 928 1 017 928 365 883 365 883 37 808 767 37 808 767 - - - - 1 146 753 1 146 753 1 146 753 1 146 753 10 143 505 10 143 505 - - 1 800 1 800 - - 10 145 305 10 145 305 - - 26 322 060 26 322 060 82 898 82 898 365 883 365 883 10 143 505 26 322 060 1 231 451 365 883 10 143 505 26 322 060 1 231 451 365 883 26 770 841 26 770 841 38 062 899 38 062 899 Fair Value Fair Value (in thousands of Euros) (in thousands of Euros) Assets / liabilities Assets / liabilities recorded at recorded at amortised cost amortised cost Quoted market Quoted market prices prices Valuation models Valuation models based on observable based on observable market parameters market parameters Valuation models Valuation models based on based on unobservable unobservable market parameters market parameters Total fair value Total fair value (Level 1) (Level 1) (Level 2) (Level 2) (Level 3) (Level 3) 31 December 2019 31 December 2019 Cash, cash balances at central bank and other demand deposits Cash, cash balances at central bank and other demand deposits Financial assets at amortised cost Financial assets at amortised cost Debt securities Loans and advances to banks Loans and advances to customers Debt securities Loans and advances to banks Loans and advances to customers Financial assets Financial assets Financial liabilities measured at amortised cost Financial liabilities measured at amortised cost Deposits from banks Deposits from banks Due to customers Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred Debt securities issued, subordinated debt and liabilities associated to transferred assets assets Other financial liabilities Other financial liabilities Financial liabilities Financial liabilities 1 854 081 1 854 081 1 622 545 1 622 545 369 228 369 228 25 149 687 25 149 687 28 995 541 28 995 541 9 849 623 9 849 623 28 400 127 28 400 127 1 065 211 1 065 211 358 688 358 688 39 673 649 39 673 649 - - 84 535 84 535 - - - - 84 535 84 535 - - - - 1 365 636 1 365 636 1 365 636 1 365 636 1 854 081 1 854 081 636 336 369 228 - 636 336 369 228 - 2 859 645 2 859 645 9 875 850 - 9 875 850 - - - 9 875 850 - - 9 875 850 - - 1 046 352 - 25 478 179 1 046 352 - 25 478 179 26 524 531 26 524 531 - 28 400 127 - 28 400 127 89 087 89 087 358 688 358 688 28 847 902 28 847 902 1 854 081 1 854 081 1 767 223 369 228 25 478 179 1 767 223 369 228 25 478 179 29 468 711 29 468 711 9 875 850 28 400 127 9 875 850 28 400 127 1 454 723 1 454 723 358 688 358 688 40 089 388 40 089 388 Cash and deposits with Central Banks, Deposits with banks and Loans and advances to credit institutions and Deposits from Central Cash and deposits with Central Banks, Deposits with banks and Loans and advances to credit institutions and Deposits from Central Banks. Banks. Considering the short-term nature of these financial instruments, their carrying book value is a reasonable estimate of their fair value. 311 Considering the short-term nature of these financial instruments, their carrying book value is a reasonable estimate of their fair value. Securities at amortised cost Securities at amortised cost The fair value of securities recorded at fair value is estimated according to the methodologies used for the valuation of securities The fair value of securities recorded at fair value is estimated according to the methodologies used for the valuation of securities recorded at fair value, as described at the beginning of the current Note. recorded at fair value, as described at the beginning of the current Note. Loans and advances to customers Loans and advances to customers 31 December 2020 Notes to the Consolidated Financial Statements 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES 98 - 258- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Cash and deposits with Central Banks, Deposits with banks and Loans and advances to credit institutions and Deposits from Central Banks. Considering the short-term nature of these financial instruments, their carrying book value is a reasonable estimate of their fair value. Securities at amortised cost The fair value of securities recorded at fair value is estimated according to the methodologies used for the valuation of securities recorded at fair value, as described at the beginning of the current Note. Loans and advances to customers The fair value of loans and advances to customers is estimated based on the discounted expected future cash flows of principal and interest, assuming that the instalments are paid on the dates contractually defined. The expected future cash flows from portfolios of loans with similar credit risk characteristics, such as residential mortgage loans, are estimated collectively on a portfolio basis. The discount rates used by the Group are the current interest rates used for loans with similar characteristics. Deposits from credit institutions The fair value of deposits from Central Banks and Deposits from credit institutions is estimated based on the discounted expected future cash flows of principal and interest. Due to customers The fair value of these financial instruments is estimated based on the discounted expected future cash flows of principal and interest. The discount rate used by the Group is that which reflects the current interest rates applicable to deposits with similar characteristics at the balance sheet date. Given that the interest rates applicable to these instruments are renewed for periods under one year, there are no material relevant differences in their fair value. Debt securities issued and Subordinated debt The fair value of these instruments is based on quoted market prices, when available. When not available, the Group estimates their fair value by discounting their expected future cash flows of principal and interest. Other financial liabilities These liabilities are short-term and therefore the book value is a reasonable estimate of their fair value. NOTE 41 – Assets transfers As part of the restructuring process of the Portuguese real estate sector, several initiatives were launched to create financial, operational and management conditions to the sector. Accordingly, the Government, in close liaison with the business and the financial sector, including BES, encouraged the creation of companies and specialised funds which, through concentration, aggregation, mergers and integrated management, could achieve the required synergies to recover the companies. Pursuing the goals established, companies (parent companies) were incorporated, in which the Originating Bank had minority interests and which, in turn, now hold almost all the share capital of certain subsidiaries (subsidiaries of those parent companies) to acquire certain real estate Bank loans. Several assignments operations of financial assets (namely loans and advances to customers) were made to the latter entities (subsidiaries of the parent companies). These entities are responsible for managing the assets received as collateral and, after the assignment of the loans and advances to customers, for implementing a plan to increase their value. Almost all the financial assets assigned under these operations were derecognized from the balance sheet of the Group, since a substantial portion of the risks and rewards associated with these, as well as the respective control, were transferred to those third parties. 312 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThese acquiring entities have a specific management structure, fully autonomous from the assignor Banks, appointed on the date of their incorporation and have the following main responsibilities: • define the entity’s purpose; • to administer and manage, exclusively and independently, the assets acquired, to define the objectives and invest- ment policy as well as the management and affairs of the entity. The acquiring entities are predominantly financed through the issuance of senior equity instruments, fully subscribed by the parent companies. The amount of capital represented by senior securities equals the fair value of the underlying asset, determined through a negotiation process based on valuations made by both parties. These securities are re- munerated at an interest rate that reflects the risk of the company holding the assets. Additionally, the funding can be supplemented through Bank underwriting of junior capital instruments in an amount equal to the difference between the carrying book value of the assets transferred and the fair value subjacent to the senior securities’ valuation. These junior capital instruments, when subscribed by the Group, will give rise to a contingent positive amount, if the value of the assets assigned exceeds the value of the senior securities plus their remuneration, and are normally limited to a maximum of 25% of the aggregate amount of the senior and junior securities issued. Given that these junior securities reflect a differential assessment (gap) of the fair value of the assets assigned, based on a valuation performed by independent entities and a negotiation process between the parties, they are fully provided for in the Group's balance sheet. Therefore, following the asset assignment operations, the Group subscribed: • equity instruments, representing the capital of parent companies in which the cash flow that will enable the company to be recovered come from a wide range of assets provided by the various Banks. These securities are recognized in the assets portfolio mandatorily at fair value through profit or loss being valued to market, with valuation released regularly by the mentioned companies whose accounts are audited at the end of each year; • junior instruments issued by the loan acquiring companies, which are fully provided for to reflect the best estimate of the impairment of the financial assets transferred The instruments subscribed by NOVO BANCO Group represent clear minority positions in the share capital of the parent companies and of its subsidiaries. In this context, holding no control but being exposed to some of the risks and rewards of ownership, the NOVO BANCO Group, in accordance with IFRS 9 3.2.7, performed an analysis of its exposure to the variability of the risks and rewards of the transferred assets before and after the operation, having concluded that it has not substantially retained all the risks and rewards of ownership. Additionally, and considering that it has no control either, it proceeded, in accordance with IFRS 9 3.2.6c (i) with the derecognition of the assets transferred and (ii) the recognition of the assets received in return, as shown in the following table: 313 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESUp to 31 December 2012 Fundo Recuperação Turismo, FCR FLIT SICAV Discovery Portugal Real Estate Fund Fundo Vallis Construction Sector Fundo Recuperação, FCR Up to 31 December 2013 Fundo Vallis Construction Sector FLIT SICAV Discovery Portugal Real Estate Fund Fundo Recuperação Turismo, FCR Fundo Recuperação, FCR Fundo Reestruturação Empresarial Up to 31 December 2014 Discovery Portugal Real Estate Fund Fundo Vallis Construction Sector Fundo Recuperação, FCR Fundo Reestruturação Empresarial Fundo Aquarius FLIT SICAV Up to 31 December 2015 Fundo Aquarius Fundo Recuperação, FCR Discovery Portugal Real Estate Fund Up to 31 December 2016 Fundo Aquarius Fundo Vallis Construction Sector Up to 31 December 2017 Fundo Aquarius FLIT SICAV Up to 31 December 2018 Fundo Aquarius FLIT SICAV Fundo Vallis Construction Sector Up to 31 December 2019 Fundo Aquarius Amounts at transfer date (in thousands of Euros) Amounts of the assets transferred Securities subscribed Net assets transferred Transfer amount Result of the transfer Shares (Senior securities) Junior securities Total Impairment Carrying book value 282 121 252 866 96 196 66 272 145 564 18 552 80 769 51 809 11 066 52 983 67 836 282 121 254 547 93 208 66 272 149 883 18 552 80 135 45 387 11 066 52 963 67 836 73 802 74 240 - - 5 389 108 517 - 24 883 1 471 5 348 710 14 156 555 3 261 839 - - - - 5 389 108 481 - 24 753 1 471 5 774 602 14 156 470 3 298 644 - - - 1 682 (2 988) - 4 319 - ( 634) (6 422) - ( 20) - 438 - - - ( 36) - ( 130) - 427 ( 108) - ( 86) 37 ( 194) - - 256 892 235 318 96 733 81 002 148 787 1 606 85 360 51 955 - 726 99 403 58 238 1 289 14 565 4 078 104 339 1 500 30 406 - 4 855 600 14 453 624 - 644 3 348 ( 1) 2 323 1 821 ( 503) 1 821 34 906 23 247 - 21 992 36 182 2 874 - - - - - - 314 - - - - - - - - - - - - - - - 291 798 ( 34 906) 258 565 ( 23 247) 96 733 102 994 184 970 4 480 85 360 51 955 - 726 99 403 58 238 1 603 14 565 4 078 104 339 1 500 30 406 - 4 855 600 14 453 624 - 644 3 348 ( 1) 1 821 - (21 992) (23 000) (2 874) - - - - - - ( 314) - - - - - - - - - - - - - - - 256 892 235 318 96 733 81 002 161 970 1 606 85 360 51 955 - 726 99 403 58 238 1 289 14 565 4 078 104 339 1 500 30 406 - 4 855 600 14 453 624 - 644 3 348 ( 1) 1 821 1 367 289 1 363 070 (4 219) 1 432 468 119 516 1 418 058 ( 106 333) 1 311 724 As at 31 December 2020, the Group's total exposure to securities associated with the assignment operations amounted to Euro 498.8 thousand (31 December 2019: Euro 839.9 million). With the adoption of IFRS 9, these securities were transferred from the fair value portfolio through other comprehensive income to the mandatorily measured at fair value through profit or loss, therefore, the balance sheet value presented below already corresponds to the respective fair value, not requiring register an impairment. The detail is as follows: Securities 31.12.2020 Shareholder loans or supplementary capital Participation units subscribed (no.) Book value Gross amount Impairment Net amount Fundo Recuperação Turismo, FCR 260 683 86 316 34 824 ( 34 824) FLIT SICAV 281 191 157 084 14 900 ( 14 900) Discovery Portugal Real Estate Fund 258 440 116 479 Fundo Vallis Construction Sector Fundo Recuperação, FCR Fundo Reestruturação Empresarial Fundo Aquarius - 206 805 117 051 160 586 - 44 873 22 436 71 631 - - - - - - - - - - 1 284 756 498 819 49 724 ( 49 724) (in thousands of Euros) Securities 31.12.2019 Shareholder loans or supplementary capital Participation units subscribed (no.) Book value Gross amount Impairment Net amount 259 646 180 646 34 824 ( 34 824) 279 515 197 744 14 900 ( 14 900) 256 847 213 217 - - 206 805 74 296 117 051 48 148 159 274 125 875 - - - - - - - - - - 1 279 138 839 926 49 724 ( 49 724) Unrealised Subscribed Capital 14 807 15 309 7 193 - 19 063 8 237 22 800 87 409 - - - - - - - - Unrealised Subscribed Capital - - - - - - - - 13 769 13 826 5 232 - 18 543 6 113 19 519 77 002 The Group also maintains an indirect exposure to the financial assets assigned, within the scope of a minority interest in the pool of all assets assigned by other financial institutions, through the shares of the subscribed parent companies. However, there was an operation with the company FLITPTREL VIII in which, due to the fact that the acquiring company substantially holds assets assigned by the Group and considering the holding of junior securities, the variability test resulted in a substantial exposure to all risks and benefits. In this circumstance, the operation, in the initial amount of Euro 60 million, remained recognized in the balance sheet under the heading of loans to customers. NOTE 42 – RISK MANAGEMENT 314 NOVO BANCO, S.A., (www.novobanco.pt) “institutional” area in the website presents the information directed to investors which complements the available information presented in this document, namely, NOVO BANCO, S.A., Market Discipline Report 2020 which addresses the public disclosure obligations as defined in Part VIII of the Regulation n.º 575/2013 of the European Parliament and the Council at 26 of July, 2013 (CRR) and EBA guidelines transposed to the Portuguese legislation through the Instruction n.º 5/2018 the Bank of Portugal. In the case where the information of the present annual report supports the information in the Market Discipline report it is identified through references to this report as systematized in the Annex VI of the Market Discipline Report. Additionally, by the nature of the information presented in the Market Discipline report, it complements the information related with some risks management, namely, those related with the policies and procedures adopted and the quantitative information related with risk exposures. The Group is exposed to the following risks arising from the use of financial instruments:  Credit risk;  Market risk;  Liquidity risk;  Operational risk. Credit Risk Credit risk results from the possibility of financial losses arising from the default of the client or counterparty in relation to the contractual obligations established with the Group within the scope of its credit activity. Credit risk is essentially present in traditional banking products - loans, guarantees and other contingent liabilities and derivatives. In credit default swaps (CDS), the net exposure between protection seller and buyer positions on each entity underlying the transactions, constitutes credit risk for NOVO BANCO Group. CDS are recorded at their fair value in accordance with the accounting policy described in Note 2.4. A permanent management of the credit portfolios is carried out, which favors interaction between the various teams involved in risk management throughout the successive stages of the life of the credit process. This approach is complemented by the introduction of continuous improvements both in terms of methodologies and tools for risk assessment and control, as well as in terms of procedures and decision circuits. The monitoring of the Group's credit risk profile, namely the evolution of credit exposures and monitoring of credit losses, is carried out regularly by the Risk Committee. The compliance with approved credit limits and the correct functioning of the mechanisms associated with the approval of credit lines within the scope of the current activity of the commercial areas are also subject to regular analysis. NOVO BANCO Group’s maximum credit risk exposure is analyzed as follows: 31 December 2020 Notes to the Consolidated Financial Statements 101 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED The Group also maintains an indirect exposure to the financial assets assigned, within the scope of a minority interest in the pool of all assets assigned by other financial institutions, through the shares of the subscribed parent companies. However, there was an operation with the company FLITPTREL VIII in which, due to the fact that the acquiring compa- ny substantially holds assets assigned by the Group and considering the holding of junior securities, the variability test resulted in a substantial exposure to all risks and benefits. In this circumstance, the operation, in the initial amount of Euro 60 million, remained recognized in the balance sheet under the heading of loans to customers. NOTE 42 – Risk management NOVO BANCO, S.A., (www.novobanco.pt) “institutional” area in the website presents the information directed to inves- tors which complements the available information presented in this document, namely, NOVO BANCO, S.A., Market Discipline Report 2020 which addresses the public disclosure obligations as defined in Part VIII of the Regulation n.º 575/2013 of the European Parliament and the Council at 26 of July, 2013 (CRR) and EBA guidelines transposed to the Portuguese legislation through the Instruction n.º 5/2018 the Bank of Portugal. In the case where the information of the present annual report supports the information in the Market Discipline report it is identified through references to this report as systematized in the Annex VI of the Market Discipline Report. Additionally, by the nature of the information presented in the Market Discipline report, it complements the information related with some risks management, namely, those related with the policies and procedures adopted and the quanti- tative information related with risk exposures. The Group is exposed to the following risks arising from the use of financial instruments: • Credit risk; • Market risk; • Liquidity risk; • Operational risk. Credit Risk Credit risk results from the possibility of financial losses arising from the default of the client or counterparty in relation to the contractual obligations established with the Group within the scope of its credit activity. Credit risk is essentially present in traditional banking products - loans, guarantees and other contingent liabilities and derivatives. In credit default swaps (CDS), the net exposure between protection seller and buyer positions on each entity underlying the transactions, constitutes credit risk for NOVO BANCO Group. CDS are recorded at their fair value in accordance with the accounting policy described in Note 2.4. A permanent management of the credit portfolios is carried out, which favors interaction between the various teams involved in risk management throughout the successive stages of the life of the credit process. This approach is complemented by the introduction of continuous improvements both in terms of methodologies and tools for risk assessment and control, as well as in terms of procedures and decision circuits. The monitoring of the Group's credit risk profile, namely the evolution of credit exposures and monitoring of credit losses, is carried out regularly by the Risk Committee. The compliance with approved credit limits and the correct functioning of the mechanisms associated with the approval of credit lines within the scope of the current activity of the commercial areas are also subject to regular analysis. NOVO BANCO Group’s maximum credit risk exposure is analyzed as follows: 315 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESNOVO BANCO The Group also maintains an indirect exposure to the financial assets assigned, within the scope of a minority interest in the pool of all assets assigned by other financial institutions, through the shares of the subscribed parent companies. However, there was an operation with the company FLITPTREL VIII in which, due to the fact that the acquiring company substantially holds assets assigned by the Group and considering the holding of junior securities, the variability test resulted in a substantial exposure to all risks and benefits. In this circumstance, the operation, in the initial amount of Euro 60 million, remained recognized in the balance sheet under the heading of loans to customers. NOTE 42 – RISK MANAGEMENT NOVO BANCO, S.A., (www.novobanco.pt) “institutional” area in the website presents the information directed to investors which complements the available information presented in this document, namely, NOVO BANCO, S.A., Market Discipline Report 2020 which addresses the public disclosure obligations as defined in Part VIII of the Regulation n.º 575/2013 of the European Parliament and the Council at 26 of July, 2013 (CRR) and EBA guidelines transposed to the Portuguese legislation through the Instruction n.º 5/2018 the Bank of Portugal. In the case where the information of the present annual report supports the information in the Market Discipline report it is identified through references to this report as systematized in the Annex VI of the Market Discipline Report. Additionally, by the nature of the information presented in the Market Discipline report, it complements the information related with some risks management, namely, those related with the policies and procedures adopted and the quantitative information related with risk exposures. The Group is exposed to the following risks arising from the use of financial instruments: • Credit risk; • Market risk; • Liquidity risk; • Operational risk. Credit Risk Credit risk results from the possibility of financial losses arising from the default of the client or counterparty in relation to the contractual obligations established with the Group within the scope of its credit activity. Credit risk is essentially present in traditional banking products - loans, guarantees and other contingent liabilities and derivatives. In credit default swaps (CDS), the net exposure between protection seller and buyer positions on each entity underlying the transactions, constitutes credit risk for NOVO BANCO Group. CDS are recorded at their fair value in accordance with the accounting policy described in Note 2.4. A permanent management of the credit portfolios is carried out, which favors interaction between the various teams involved in risk management throughout the successive stages of the life of the credit process. This approach is complemented by the introduction of continuous improvements both in terms of methodologies and tools for risk assessment and control, as well as in terms of procedures and decision circuits. The monitoring of the Group's credit risk profile, namely the evolution of credit exposures and monitoring of credit losses, is carried out regularly by the Risk Committee. The compliance with approved credit limits and the correct functioning of the mechanisms associated with the approval of credit lines within the scope of the current activity of the commercial areas are also subject to regular analysis. NOVO BANCO Group’s maximum credit risk exposure is analyzed as follows: Deposits with and loans and advances to banks Derivatives for trading and fair value option derivatives Securities held for trading Securities at fair value through profit/loss - mandatory Securities at fair value through other comprehensive income Securities at amortised cost Loans and advances to customers Derivatives - hedge accounting Other assets Guarantees and standby letters provided Documentary credits Irrevocable commitments Credit risk associated with the credit derivatives' reference entities (in thousands of Euros) 31.12.2020 31.12.2019 367 252 388 257 267 016 160 184 7 839 145 2 231 076 23 617 034 12 972 758 252 2 734 027 410 292 7 011 112 4 798 635 181 493 884 254 848 57 590 8 764 004 1 622 545 25 202 227 7 452 802 530 2 899 851 516 162 7 253 656 2 883 45 801 417 48 512 813 For financial assets in the balance sheet, the maximum exposure to credit risk is represented by the accounting net book value. For the off-balance sheet elements, the maximum exposure of the guarantees is the maximum amount that the Group would have to pay if the guarantees were executed. For loan commitments and other credit-related commitments of an irrevocable nature, the maximum For financial assets in the balance sheet, the maximum exposure to credit risk is represented by the accounting net exposure is the total amount of the commitments assumed. book value. For the off-balance sheet elements, the maximum exposure of the guarantees is the maximum amount that the Group would have to pay if the guarantees were executed. For loan commitments and other credit-related 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES commitments of an irrevocable nature, the maximum exposure is the total amount of the commitments assumed. - 261- The Group calculates impairment, on a collective or individual basis in accordance with the accounting policy as described in Note 2.5. In the cases where the value of the collateral, net of haircuts (taking into account the type of collateral), equals or exceeds the exposure, the individual impairment may be nil. Hence, NOVO BANCO Group does not have any overdue financial assets for which it has not performed a review regarding their recoverability and the subsequent impairment recognition, when necessary. The exercise of build the base and alternative macroeconomic scenarios for the Portuguese economy is based on a combination of econometric forecasts, information on forecasts from other external institutions and application of subjective expert judgment. In the first component, GDP growth is estimated through estimates for the growth of expenditure components, obtaining GDP through the formula GDP = Consumption + Investment + Exports - Imports. The econometric specifications chosen are those that, after testing different alternatives, generate the best result. The econometric estimates thus obtained are then weighted with forecasts from external institutions, according to the principle that the combination of different projections tends to be more accurate than just a forecast (the risk of errors and bias associated with specific methods and variables is minimized). The forecasts for prices (consume and real estate) and unemployment follow a similar methodology: own forecasts based on an estimated model, weighted with forecasts from external institutions, if available. In a base scenario, the projections for interest rates start from market expectations (provided by Bloomberg), with possible adjustments in accordance with the principles defined above, if considered appropriate (weighting by expert judgment and forecasts from external institutions). The alternative scenarios are based on the historical observation of deviations from the trend in GDP behavior (cost and contraction cycles), the reference of EBA recommendations for extreme adverse scenarios, the stylized facts of economic cycles, with respect to the components of expenditure, prices, unemployment, etc. and estimates. Thus, when revising / updating the scenarios, the respective probabilities of execution are also reviewed. Once the scenarios are updated, the values of the risk parameters are updated for later consideration in the scope of the Impairment calculation. The final impairment calculated will thus result from the sum of the impairment value of each scenario, weighted by the respective probability of execution. Currently, 3 scenarios are considered for the calculation of impairment on a collective basis: base case , downside case and an upside case. 316 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED The base case scenario envisages a trend recovery in the form of a “swoosh”. After the abrupt decline in activity in the 1st and 2nd quarters of 2020, there was an initially rapid recovery with the first reopen, followed by a recovery that tended to be more gradual. The recovery in this scenario leaves economic activity at a lower level than pre-Covid for a relatively prolonged period, until 2022. Thus, it is assumed some loss of productive potential in the economy. This scenario assumes negative impacts of a second and third waves of Covid-19 in the 4th quarter of 2020 and between the 1st and 2nd quarters of 2021, in line with pandemic projection scenarios. These waves restrict economic activity, but in a progressively less pronounced way than in the first wave. Even so, relatively moderate quarterly GDP declines are admitted in the 4th quarter of 2020 and in the 2nd quarter of 2021. This scenario assumes the gradual distribution of anti-Covid-19 vaccines throughout 2021 and in 2022, allowing for a more visible normalization of eco- nomic activity as of the 3rd quarter of 2021. The base case scenario, to which a 60% probability is attributed, points to an annual drop in GDP of around 8.3% in 2020, followed by an annual growth of around 5.2% in 2021, which benefits from a favourable base effect. The following years assume a gradual evolution towards trend / potential growth, with annual growth of 3.4% in 2022 and 2% in 2023. For the construction of the scenario, the information available on the initial economic impacts of the Covid-19 crisis was used. In the base case scenario, the increase in unemployment is strongly mitigated by measures to protect income and employment, which are assumed to be prolonged until 2021. House prices prevent a fall, due to stabilization measures, such as default and credit guarantees. The gradual withdrawal of these measures, however, causes a sharp deceleration in these prices in 2021. The base case scenario is marked by disinflationary pressures and the maintenance of strong monetary incentives. The downside case scenario, with a probability of 30%, predicts more severe impacts on the economy of a second and third wave of Covid-19, which force intermittent lockdowns, leading to stronger QoQ contractions in GDP in the 4th quarter of 2020 and in the 2nd quarter of 2021. The recovery of activity takes place more slowly than in the base case scenario, which translates into more persistent negative economic effects and a severe loss of productive capacity. Activity is still significantly below pre-Covid levels in 2023, which translates into a significant rise in unemployment and a more depressed evolution of prices. GDP declines 9.6% in 2020 and grows 0.9% in 2021, which is explained, in this case, by a favorable base effect. GDP grows 2.8% in 2022, still benefiting from a favorable base effect, assuming a trend towards tendencial / potential growth in 2023. The normalization of activity with the introduction of vaccines is assumed in a more time-consuming and gradual way. The updside case scenario, with a 10% probability, foresees a “V” shaped recovery. The second wave of the pandemic has a less pronounced and shorter impact on economic activity and the absence of any third wave is assumed. This allows for a normalization of activity and a faster recovery of growth. Above all, this allows the recovery of pre-Covid activity levels as early as 2021, which translates into a more benign trend in unemployment. Without a significant or persistent loss of capacity, prices have grown more noticeably. In this scenario, a rise in market interest rates is assumed, albeit at historically low levels. Four macroeconomic models are used for the segments of Corporate (excluding Real Estate), Real Estate Companies, Mortgage Loans and Other Loans to Individuals. The Corporate segment (excluding Real Estate) is particularly sensitive to the rate of GDP growth and the unemployment rate. In all scenarios, there is a drop in GDP, followed by a recovery in the following years, reaching in 2021 the levels verified before the pandemic, with the exception of the downside case scenario, in which the pre-pandemic levels are not reached in the horizon of 3 years. Unemployment registers a significant increase in the year 2020, followed by a recovery that is not enough to reach the levels of unemployment before the pandemic, with the exception of the upside case scenario that in the year 2022 is slightly lower than that registered before the pandemic. The Real Estate Companies segment is particularly sensitive to changes in real estate prices and to the GDP growth rate. It is the segment most affected in the time horizon in question. The price of real estate registered a significant fall in the year 2020 in all scenarios, followed by a more or less rapid recovery, depending on the scenario in question. 317 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe Mortgage Loans segment is mainly affected by the reduction in GDP and the fall in real estate prices, across all scenarios in the year 2020. The Other Loans to Individuals segment is substantially affected by the increase in Unemployment and the reduction in GDP, verified in 2020 in any of the scenarios. Collective analysis adjustments to the automatic result of the model After processing the automatic impairment calculation and validating the consistency of the results obtained, all situations that may need an adjustment to the calculated impairment value are assessed. These adjustments are reflected, whenever possible, directly in the exposures. When this is not possible, the calculated impairment value is recorded without being allocated to specific exposures and, for that purpose, the stage and the type of credit to which it refers are associated. Having the prerogative to ensure that all impairment is allocated to specific exposures, these impairment amounts initially constituted in the unallocated form will, once conditions exist, be fully distributed over the exposures in which their allocation is determined. In terms of the governance model, both adjustments to specific exposures and impairment amounts constituted in the unallocated form must be validated and supported by an approval by a competent body, which, as a rule, will be the Extended Impairment Committee. Individual impairment analysis process The Individual Credit Analysis comprises a staging analysis and an individual impairment quantification analysis. The staging analysis is performed for debtors previously classified as stage 1 and stage 2, with the purpose of evaluating the adequacy of the assigned stage with additional information obtained on an individual basis. The individual impairment quantification analysis aims to determine the most appropriate impairment rate for each credit customer, regardless of the amount resulting from the Collective Impairment Model. Clients that have been subject to Individual Analysis, but for which an objective impairment loss was not considered, are again included in the Collective Impairment Model. The Individual Analysis of the selected clients is carried out based on the information provided by the Commercial Structures regarding the client / Group's framework, historical and forecast cash flows (when available) and existing collateral. The scheme below is illustrative of the individual credit analysis to be carried out for the purpose of concluding on the classification in terms of staging of debtors. Individual Analysis Yes No The debt holder is classiﬁed in stage 1 or stage 2? Quantiﬁcation of individual impairment (stage 3) Credit analysis to quantify impairment on an individual basis using one of the following methodologies (or combination of both. (i) going concern and (ii) gone concern Staging Analysis Individual analysis of credit classified in stage 1 and stage 2 withthe purpose of assessing the adequacy of the stage from the model taking into account qualitative information available, the results os the analysis of staging questionnaires and specific information on the debtor’s ability to generate enough cash flow to service debt service. Are the expected future cash ﬂows for the debtor materially impacted and insufficient to cover the debt service? Yes No Collective Impairment 318 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDSelection Criteria Individual Analysis (staging analysis and, when applicable, quantification of individual impairment) should be carried out for the borrowers who:: • Register Stage 3 exposure equal to or greater than € 1,000,000; • Register Stage 2 exposure equal to or greater than € 5,000,000; • Register Stage 2 exposure equal to or greater than 1,000,000 € and have no rating assigned; • Register Stage 1 exposure equal to or greater than 5,000,000 € and have no rating assigned; • Register Stage 1 exposure equal or greater than € 25,000,000 (individually significant exposure); • Fit into the Financial Holding risk segment and register exposure equal to or greater than € 5,000,000; • Fit into the Real Estate risk segment and register exposure equal to or greater than € 5,000,000; • Are identified by the Committee itself based on another criteria that justify (e.g.; sector of activity); • In the past, specific impairment has been attributed to them; • In the face of any new element that may have an impact on the calculation of impairment, be proposed for analysis by one of the stakeholders of the Impairment Committee or by another Body. The identification of the target customers for Individual Analysis will be updated monthly, in order to contemplate any changes that may occur throughout the year. The Committee analysis of the customers identified in the previous paragraph will be carried out in the month in which: • The client registers, for the first time, one of the selection criteria for Individual Impairment Analysis, mentioned in the previous paragraph; • Expiry of the Analysis expiration date; • Its analysis is requested by one of the participants of the Impairment Committee or by another Body. The Individual Impairment Analysis can be carried out for individual customers, but should whenever possible consider the Economic Group view of the selected customers. Decision Chain The Board of Directors is the highest body for determining the amount of impairment to be attributed to each client. Due to its determination, the execution of this function is delegated to the structures mentioned below: the commer- cial area and, above all, the Rating Department and the Impairment Committee. The individual Impairment Analysis decision chain is made up of three progressive levels of competence: The approval of the final values of Impairment is carried out by the EBD in the approval of accounts. Scope and Stakeholder Impairment Committee The Impairment Committee has permanent members: • DRT - Rating Department; • DRG - Global Risk Department; • DC - Credit Department; • DCCF - Accounting, Consolidation and Taxation Department; • DRCE - Corporate Credit Recovery Department; • DRCR - Retail Credit Recovery Department; • DAI - Internal Audit Department. 319 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESAlso participating are the Commercial Units, clients' managers, who will be assessed at these meetings, and other specialized Entities or Departments whose presence is necessary for a better assessment of the impairment to be constituted. The Commercial Units vote exclusively in the cases related to the customers they accompany. The invited Entities or Departments do not have the right to vote. Decisions resulting from the intervention of the Impairment Committee are taken by majority, with the DRT having the veto power. They are considered binding, unless otherwise determined by the Executive Board of Directors. Extended Imparment Committee, meets with the presence of the Directors responsible for the areas involved. Proposals are deemed to have been approved by obtaining the agreement of all Directors present. Rules of Operation The Individual Analysis of the selected clients is carried out based on the information provided by the Commercial Units regarding the client / Group's framework, historical and forecast cash flows (when available) and existing collateral. For the analysis of the impairment quantification on an individual basis, a scenario is established that is expected to recover credit: through the continuity of the client's business or through the execution of the collateral. If this analysis results in no impairment being necessary, the impairment will be determined by collective analysis, that is, by the collective impairment model (except for cases with objective evidence of loss / Default, in which the final rate will have to be defined). The Individual Impairment quantification analysis determines, for each period, the best recovery scenario, aligning the commercial strategies defined for the client, with the different recovery possibilities. When, due to lack of information, it is not possible to identify or update the recovery scenario, the previous rate is maintained, and a new date is set for the client's review. Main events that took place in 2020 The most relevant events in 2020 and with an impact on credit risk management policies and procedures consisted of: 1. implementation of the new definition of Default; 2. incorporation into the collective impairment model of the impact of the pandemic; 3. definition and development of specific risk mitigation initiatives emerging from the current context. 1) Implementation of the new definition of Default; The internal and regulatory framework for the definition of Default is described in default, it was implemented in internal regulations and is implemented in accordance to Article 178 of EU Regulation No. 575/2013, CRR. The concept of Default was first determined by the criteria defined in section 2.1. of Part 4 of Annex IV of Notice 5/2007 and the additional clarifications agreed with Bank of Portugal at the meeting held on 17/03/2008 on this topic. In this sense, a default situation was considered, with respect to a given borrower or contract, when one or more of the following events occurred: a) the borrower has a delay of more than 90 days , with respect to any significant credit obligation to the banking group; or b) the bank considers that there is a reduced probability that the borrower will fully comply with its obligations to the bank, without resorting to specific mitigation actions, such as the activation of any guarantees held. Since then, the definition of Default has undergone adaptations in accordance with the new regulatory requirements provided for by the CRR and also by subsequent guidelines issued by EBA and provided for in this regulation. In 2016, with the publication of the final guidelines on the application of the definition of default under the terms of article 178 of the CRR (EBA / GL / 2016/07 and EBA / RTS / 2016/06), EBA established the objective of harmonizing the application the definition of Default in all entities covered by the SSM, leading to consistency and comparability in the calculation of capital requirements, both in the Standard (SA) and IRB approaches. These issued guidelines introduce changes in the entire perimeter of the definition in force in GNB until 2020, namely in the frequency of the process, the criteria of days in arrears, materiality of the default and also in the indicators of reduced probability of payment. 320 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThis new definition of Default (nDoD) is in effect in GNB through a daily process created specifically for this purpose since 31 May 2020. In addition to the daily process, an effort has been made to recover historical information since 2009 (from a monthly perspective), in order to apply these rules for marking and deselecting Default, on which the ongoing process of reviewing the risk parameters is based. The output of the recovery process of the historical default markings served as input to the daily rules engine, in order to reduce the gap between the default dates. The close relationship between the definition of Default and other regulatory definitions, such as Non Performing Loans (NPL) and / or Non Performing Exposures (NPE), Credit Impaired Stage 3 and even Credit Forborne, led to the determination of an alignment of the concepts. In practical terms, the criteria for marking and deselecting Default will be as demanding as the applicability, not only of its specific regulatory requirements, but also of the requirements of these other regulatory definitions. The definition of Default in effect since May 2020 considers a set of concepts that were not evaluated by the previous definition, namely the concepts of debtor and joint materiality in the default trigger. However and in general lines, in view of the guidelines EBA / GL / 2016/07 and the alignment with other regulatory definitions, the definition of Default is based on the following pillars, determined on a daily basis, summarized in the following figure: • Days in Default; • Unlikely to pay deterministic situations; • Pulling effect; • Probation period; • Default exit condition; Whether by measuring the specific triggers of Default, or by the Stage 3 determination indicators, the result will be the determination of Default and Stage 3 in a consistent manner, starting with the default setting. The Default setting for a given credit position is carried out automatically in cases where at least one of the specific triggers for that purpose is positive, encompassing, described in a non-exhaustive manner, the following situations: • Existence of credit amounts in default with more than 90 calendar days above the materiality threshold; this thresh- old is checked daily and consists of an absolute and a relative component; material non-compliance is considered to exist when it cumulatively exceeds the absolute and relative thresholds; the amounts of overdue credit and exposure considered are determined at the level of the credit position typology (i.e. at the level of the credit facility or at the level of the debtor); • Application of insolvency measures and / or other special protection measures; • Sale of credit portfolios with material economic losses; • Recognition of credit losses; • Application of restructuring measures due to the existence of indicators of financial difficulties. This definition of Default incorporates competing procedures (automatic and manual), for the evaluation and determi- nation of the objective improvement of the quality of a debtor. This assessment will be automatic, during any probation period, through the application of a criteria that automatically cancels and resets those probative periods (restart of probation period). The probation period is a period of time during which the default marking of the contract, the client or the debtor remains active, even when the situation that originated the marking is regularized. Depending on the trigger and disregarding restarts, the minimum probation periods can range from 3 to 12 months. Only after the full and uninterrupted counting of the probation period can the trigger to which the period is applied be deselected. Although this automatic criteria guarantees an extensive evaluation of all exposures and debtors, the improvement in the quality of the debtor will be supplemented in all processes of deactivating manual triggers (when active) and in the process of assigning credit ratings (when applicable). In the context of the application of the International Financial Reporting Standard 9 (IFRS 9), exposures of customers and impaired credits (in Credit Impaired Stage 3) will be identified. These situations may arise within the scope of the individual impairment analysis process, which, determining the existence of specific impairment, will promote the 321 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESclassification as Default. The determination of specific impairment through individual analysis includes the evaluation of the following indicators of possible occurrences of unlikely-to-pay (UTP): a. A borrower's sources of recurring income are no longer available to meet the payment of installments; b. There are justified concerns about a borrower's future ability to generate stable and sufficient cash flows; c. The institution has executed collateral, including a guarantee; d. The level of indebtedness of the debtor has increased significantly or there are reasons to believe that it will increase in the near future; e. Absence of an active market for the debtor's financial instruments; f. When there is a default of a company wholly owned by a single person, who has provided the institution with a personal guarantee for all the obligations of a company; g. Fraud; h. Postponement or extension of loans beyond the economic life duration; i. Borrower's license is withdrawn; j. The debtor used the contractual possibility to unilaterally change the payment plan established. This process also considers the customer's assessment and exposures at the level of the interconnected client group, when applicable, namely if some of the relevant exposures or players in that group are in a default situation. 2) Incorporation into the collective impairment model of the COVID impact Given the general guidelines received from the supervisory entities throughout 2020 for the measurement and incorporation of impacts resulting from the Covid-19 pandemic and given the level of uncertainty surrounding the extent of this impact, Novo Banco adopted until the end of the third quarter of 2020 a strategy for the constitution of impairments through the accounting of an additional amount to the original result of the model in force. In any case, this additional amount accounted for - and updated - for the 3rd quarter financial statements, was deter- mined through simulations of alternative conditions on the model in force. While it is true that an additional amount of impairments was booked not allocated to specific portfolios or exposures, this amount was determined using the rules of the model in force, but with alternative conditions. In other words, this additional amount of impairment was calculated based on parallel simulations where, for the purposes of these simulations only, the risk and / or stage levels of some portfolios were generally deteriorated, in order to reflect the expected impact resulting from the pandemic. During the 4th quarter and for the purposes of December 2020 financial statements, this additional amount of im- pairment was reversed since the impacts resulting from the COVID pandemic started to be directly reflected in the impairment result of the collective model in force. So after: i. definition and updating of the macroeconomic scenarios underlying the calculation of collective impairment in line with different expectations of the extent of the pandemic's impact; ii. update of the IFRS 9 risk parameters - probability of default (PD) and severity (LGD) - in line with the new definition of default, either through the starting points or through the incorporation of forward looking information; iii. cross-sectional review of corporate ratings, particularly in sectors identified as severely affected and / or affected by the COVID pandemic; the result of the collective impairment calculation started to directly reflect the expected impact of this pandemic, with no need for additional adjustments or, consequently, for the accounting of additional amounts of impairment, not allocated to specific exposures. 322 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDConsequently, the estimated credit risk deterioration resulting from the pandemic is thus directly reflected in the exposures / portfolios where there was a downgrade of the associated rating and / or a worsening of the applicable risk parameters (forward looking effect). 3) Definition and development of specific risk mitigation initiatives emerging from the current context The Covid-19 pandemic event significantly impacted the normal development of economic activity, both due to limitations in exercise and the pattern of consumption and investment, as well as significant restrictions on the way of operating for almost all sectors and agents of the economy as a result of movement restrictions, the growing demands for social distance, as well as the gradual deterioration of the confidence indices of individuals and companies. This context changed the debtors' risk profile and their perspective of future evolution, which is why the Bank has timely adopted a series of articulated initiatives to ensure an adequate management of credit risk: • Quarterly review of risk appetite rules - as of March, and on a quarterly basis, the risk appetite rules applicable to the different customer segments for the following quarter began to be evaluated, discussed and decided by the Executive Board of Directors. This review has led to different policy adaptations, initially focusing the Bank's credit activity on its customer base and placing greater restrictions on the risk to be assumed by new customers, and at the same time created levels of risk appetite differentiation based on the impacts of the pandemic: i. In individual customers, the historical level of probability of default (PD's) observed and the expected level of PD's in the face of a macroeconomic deterioration suggested an adjustment in the cut-off points for the admission credit scoring and consumer credit for both new and existing customers; ii. For customers in the corporate segments, in view of the different impacts of the pandemic restrictions on eco- nomic activity, the Bank decided to group the sectors of activity into three risk appetite clusters. The first called “Covid sectors” is composed of the activities directly most affected by the pandemic and mobility restrictions and for this it defined a very limited risk appetite, recommending to operate only with well-known clients, in very low risk operations and with special care in the knowledge of the destination of the funds in new clients. The second cluster “Macro affected sectors” is composed of the sectors of economic activity that are impacted by a macroeconomic deterioration due to changes in consumption and investment patterns, having defined a limited risk appetite for the worst rating levels at which it is recommended to operate with low risk profile exposures. The third cluster “Other sectors” is composed of companies from other sectors of activities not materially impacted by the Covid-19 pandemic, or that are assessed as more resilient to this impact. These risk appetite rules continue to be monitored and reviewed on a permanent basis, in order to ensure that at all times the Bank maintains updated policies that are appropriate to the context and risk profile of each client. • Monitoring of the credit contracting profile under the new risk appetite rules - to ensure sufficient knowledge about new production within or outside risk appetite, weekly and monthly management information was created for periodic sharing with the different bodies Bank's management; • Periodic monitoring of rating review activity and rating migration flows - to allow timely knowledge and identifica- tion of rating upgrade or downgrade movements in each segment of corporate, new weekly and monthly manage- ment information was created with matrices of rating pre- and post-Covid migration for sharing with management bodies, which allow for the identification of individual cases that have been reassessed by the Rating Department, as well as changes justified by changes in the sector “Industry Anchors”; • Review of portfolio limits: the use of this internal risk appetite measurement and monitoring instrument has been intensified, which has been widely used by the Bank in recent years, as well as its metrics have been updated in the new post-Covid context. The definition of annual objectives and the monthly monitoring of the most relevant business lines allow the definition of mandates in the company segments for the worst rating levels, for the weight of exposures without an assigned rating, and for default exposures. In the case of private portfolios, these metrics are not defined based on the portfolio, but on the new contract, and are divided between the worst rating levels, the highest debt repayment ratios and the highest LTV bands. In the new context of revised risk appetite rules, this monitoring process has proven to be up-to-date and useful and continues to be shared periodically with the Bank's management bodies; 323 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES• Delegation of credit powers: concurrently with the quarterly review of risk appetite, adjustments were included in the form of delegation of credit powers with the dual objective of limiting the admission of risk in off-appetite segments and simultaneously maintaining agility in the process of admission to ensure good support to the econ- omy with borrowers in the best segments and in the best guaranteed exposures (e.g. Covid credit lines with SGM guarantee); • Covid credit lines with SGM guarantee - in view of Novo Banco's natural market share and the strong commitment of the government and the banking sector to support the economy, guaranteeing the lack of interruption in access to credit by small and medium-sized companies, were created specific credit lines with SGM guarantee with coverage between 80% to 90%. This type of credit facility has grown continuously throughout the year, reaching a total port- folio volume of approximately € 1,000 m. This growing materiality justified the preparation of a set of management information that allowed the Bank's different management bodies to monitor which risk was approved, the volume of new production contracted, and to know the profile of corporate clients in which these lines were granted; • Operationalization and monitoring of legal and private initiative moratorium regimes: After an initial phase in which the priority was to create an operational context of great agility in the way the Bank confirmed the borrowers' eligi- bility and ensured the registration of the moratorium conditions in each contract covered, the dimension reached of the portfolios of corporate and individuals that remained under this regime has justified the immediate creation of management information that characterizes the evolution of this component of the portfolio and allowed to deepen the knowledge about its profile, which has been permanently monitored by the Bank's management bodies. In addition to this global monitoring of the portfolio, in the following months Novo Banco undertook different initiatives in order to monitor the profile of customers who adhered to these regimes, and their standard of compliance and solvency, in order to identify in advance those who have not capacity to cpmply with future debt service after the end of the moratorium period, they may need other forms of support or restructuring, preventing their entry into default, notably: i. Creation of a company evaluation questionnaire - initially having only historical economic and financial elements and in view of the need to reassess the companies’ rating based on updated information that reflected the impact of the pandemic, Novo Banco created a questionnaire for evaluating companies with a significant set of questions that will allow them to collect information on the impact that the pandemic has had to date on these debtors, on the level of impact estimated by them in the full year 2020, as well as an estimate of impact on the activity in 2021. From its launch, the information in this questionnaire is now integrated into the recurring credit risk admission and follow-up process, so that all new decisions and policies marked are already informed with these data. Additionally, using the results obtained with this questionnaire, and after relying on the responses collected, Novo Banco has information that allows it to individualize the impacts of the pandemic at the level of each debtor, and simulate the effects on a change in the rating level and on an eventual migration of the Stage in which it is integrated; ii. Indicators of financial deterioration of individuals - for individual customers, in addition to the current procedures for the prevention of default (PARI) and the management of default (PERSI), Novo Banco explored new sources of behavioral and transactional information for its customers, that allow it to identify internal or external signs of finan- cial degradation. This set of enriched information will allow its customer base to be segmented by different levels of propensity to enter into default, and to implement a screening action and different support strategies adapted to the situation of each customer, preventing early entry in delinquency in view of the end date of the moratorium. With priority for debtors under moratorium regime, for whom the Bank failed to observe data of compliance of debt service, but in which it is crucial to avoid the “cliff effect” that could originate with the end of the moratoriums through an identification and offering support in advance to those who are in financial difficulties, a wide range of variables from the behavioural scoring models, the Default model, the PARI regime, transactional data and different sources of internal and external information were analyzed. The exercise carried out based on analytical support and a multidisciplinary expert judgment, allowed to choose the variables understood as the most predictive for the situation of financial difficulty and to define the materiality triggers that will better identify those debtors. The choice of these indicators will allow the Bank to segment its portfolio of individuals into homogeneous groups of customers with a similar probability of future entry into default, in order to prioritize its performance: with immediate priority for the group of debtors who already exhibit financial difficulties, with a secondary priority for those who have 324 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDa high propensity to default, and with low priority for those who do not register warning signs or have indicators of resilience. In order to reinforce the set of operational measures now initiated to deal with the impacts of the pandemic on credit risk management, by the end of 2020 and in the course of 2021, Novo Banco will continue to develop different initiatives to ensure correct identification and early offer of support to debtors who may be experiencing difficulties at the end of the moratorium period. Internal rating models for Corporates, Institutions and stocks portfolios Regarding the rating models for corporate portfolios, different approaches are adopted depending on the size and sector of activity of the clients. Specific models are also used, adapted to loan operations of project finance, acquisition finance, object finance, commodity finance and real estate development finance. Below is a summary table on the types of risk models adopted in the internal assignment of credit ratings: Segmentation criteria Model Type Description Expert Judgement Sector, Size, Product • Large entreprises • Finantial institutions • Municipalities • Institutional • Local and regional administrations • Realestate (Investment/Promotion) • Acquisition Finance • Project Finance • Object Finance • Commodity Finance Template Ratings atributed by teams of analyst, using speciﬁc models by sector (templates) and ﬁnancial and qualitative information. Medium entreprises Semi-automatic Small entreprises Start-Up’s and individual entrepreneurs Statistical Automatic Rating model based in ﬁnancial, qualitative and behavioral information, validated by analysts. Rating model based in ﬁnancial, qualitative and behavioral information. Rating model based in qualitative and behavioral information. The Bank's Rating Department has a Rating Model for the following segments: Start-ups; Individual Entrepreneurs (ENIs); Small business; Medium-sized companies; Big companies; Real Estate and Real Estate Income; Holding Large Company; Financial Institution; Municipalities and Institutional; Sovereign; Project Finance; Object, Commodity and Acquisition Finance; Financial Holding. The segments for which rating models are not available are: • Insurance and Pension Funds; • Churches, political parties and non-profit associations with a turnover of less than Euro 500 thousand. 325 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESRegarding the credit portfolios of Large Companies, Financial Institutions, Institutional, Local and Regional Adminis- trations and Specialized Loans - namely Project Finance, Object Finance, Commodity Finance and Acquisition Finance - the credit ratings are assigned by the Bank's Rating representation. This structure is made up of 7 multisectoral teams that comprise a team leader and several specialized technical analysts. The attribution of internal risk ratings by this team to these risk segments, classified as low default portfolios, is based on the use of “expert-based” rating models (templates) that are based on qualitative and quantitative variables, strongly correlated with the sector or sectors of activity in which the clients under analysis operate. With the exception of assigning a rating to specialized loans, the methodology used by the Rating representation is also governed by a risk analysis at the level of the maximum con- solidation perimeter and by the identification of the status of each company in the respective economic group. The internal credit ratings are validated daily in a Rating Committee composed of members of the Rating Department's Management and the various specialized teams. For the medium-sized companies segment, statistical rating models are used, which combine financial data with qualitative and behavioral information. However, the publication of credit ratings requires the execution of a previous validation process that is carried out by a technical team of risk analysts, who also take into account behavioral vari- ables. In addition to rating, these teams also monitor the customers’ loan portfolio of the Bank through the preparation of risk analysis reports, as provided for in internal regulations, in accordance with the current responsibilities / customer rating binomial, which may include specific recommendations on the credit relationship with a given customer, as well as technical advice on investment support operations, restructuring, or other operations subject to credit risk. For the business segment, statistical scoring models are also used which have, in addition to financial and qualitative information, the behavioral variables of the companies and the partner(s) in the calculation of credit ratings. There are also implemented scoring models specifically aimed at quantifying the risk of start-ups (companies established less than 2 years ago) and individual entrepreneurs (ENI). These customers together with the small companies, depending on the exposure value, are included in the regulatory retail portfolios. Finally, for companies in the real estate sector (companies dedicated to the activity of real estate promotion and investment, especially small and medium-sized companies), taking into account their specificities, the respective ratings are assigned by a specialized central team, based on use of specific models that combine the use of quantitative and technical variables (real estate appraisals carried out by specialized offices), as well as qualitative and behavioral variables. With regard to exposures equated to shares held by the Bank, directly or indirectly through the holding of investment funds, as well as shareholders loans and supplementary capital contributions, all included in the risk class of shares for the purposes of calculating credit risk weighted assets, they are classified in the various risk segments according to the characteristics of their issuers or borrowers, following the segmentation criteria presented above. These segmentation criteria determine the type of rating model to be applied to the issuers of the shares (or borrowers of the shareholders loans / supplementary capital contributions) and, therefore, to them. Relationships between internal and external ratings The assignment of an internal rating to entities with an external rating is made through the Markets Template available in the Rating Calculation application. The Markets Template gathers the external ratings that were assigned to a specific entity by the rating agencies Standard & Poor’s (S&P), Moody’s and Fitch. Specifically, the functionality of providing external ratings from S&P - XpressFeed feeds the application of External Ratings on a daily basis, which allows the external ratings published by these agencies for a given entity to be filled in the Markets Template. The external ratings assigned by Moody’s and Fitch are not obtained automatically, having to be entered manually in the Markets Template, after consulting the websites www.moodys.com and www.fitchratings.com. The internal rating results, in the majority of situations, from the S&P equivalent external rating and, in exceptional situations, from the S&P equivalent external rating plus an internal adjustment, which must always be accompanied by justifying comments prepared by the analyst. 326 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDIt should be noted that the S&P equivalent external rating is obtained by making a correspondence between the available external ratings and the rating scale of the referred financial rating agencies. The internal ratings produced by the Markets Template and which have had adjustments must be mandatorily approved and validated by the Rating Committee The table below shows the correspondence between the external ratings S&P, Moody's and Fitch and the equivalent external rating S&P: S&P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC SD D Moody's Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C Equivalent external rating S&P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC Lower than CCC Fitch AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC C RD/D Internal scoring models for Individual portfolios With regard to scoring models for individual portfolios, NB has origination / concession and behavioral scoring models (applied to operations older than 6 months). These models are automatic, based on statistical models developed with internal information, considering socio-de- mographic information, loan characteristics, behavioral information and automatic penalties (if there are warning signs). In the case of behavioral models, information on the remaining loans of the contract holders is also considered. NB is authorized by Bank of Portugal to use internal models in the calculation of regulatory capital requirements for the main portfolios of individuals: Mortgage Loans and Individual Loans. In addition, it has origination and behavioral scorings for the Credit Card, Overdraft and Loan Accounts products, which it uses for the purposes of designing and monitoring credit quality, however, not being IRB portfolios. 327 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES The table below displays the assets impaired, or overdue by not impaired: Neither overdue nor impaired Overdue but not impaired Impaired Total exposure Impairment Net exposure 31.12.2020 (in thousands of Euros) Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Securities at amortised cost Bonds issued by government and other public entities Bonds issued by other entities Loans and advances to customers 303 252 267 016 267 016 160 184 160 184 7 820 072 6 490 076 1 329 996 2 312 708 421 249 1 891 459 23 026 101 - - - - - - - - - - - 7 276 314 138 - - - - 22 770 - 22 770 119 605 - 119 605 2 183 432 617 390 267 016 267 016 160 184 160 184 7 842 842 6 490 076 1 352 766 2 432 313 421 249 2 011 064 25 216 809 ( 250 138) - - - - ( 3 697) ( 3 132) ( 565) ( 201 237) ( 579) ( 200 658) (1 599 775) 367 252 267 016 267 016 160 184 160 184 7 839 145 6 486 944 1 352 201 2 231 076 420 670 1 810 406 23 617 034 31.12.2019 (in thousands of Euros) Neither overdue nor impaired Overdue but not impaired Impaired Total exposure Impairment Net exposure Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Securities at amortised cost Bonds issued by government and other public entities Bonds issued by other entities Loans and advances to customers 330 768 254 848 254 848 57 590 57 590 8 724 040 7 108 022 1 616 018 1 676 844 459 260 1 217 584 24 080 163 - - - - - - - - - - - 15 645 381 501 - - - - 45 520 - 45 520 104 475 - 104 475 2 958 914 712 269 254 848 254 848 57 590 57 590 8 769 560 7 108 022 1 661 538 1 781 319 459 260 1 322 059 27 054 722 ( 77 088) - - - - ( 5 556) ( 4 527) ( 1 029) ( 158 774) ( 704) ( 158 070) (1 852 495) 635 181 254 848 254 848 57 590 57 590 8 764 004 7 103 495 1 660 509 1 622 545 458 556 1 163 989 25 202 227 Impaired exposures correspond to (i) exposures with objective evidence of loss (“Exposure in default”, according to the internal definition of default - which corresponds to Stage 3); and (ii) exposures classified as having specific impairment after individual impairment assessment. The exposures classified as not having impairment relate to (i) all exposures that do not show signs of significant deterioration in credit risk - exposures classified in Stage 1; (ii) exposures that, showing signs of significant deterioration in credit risk, have no objective evidence of loss or specific impairment after an individual assessment of impairment. The following table presents the assets that are impaired or overdue but not impaired, split by their respective maturity or ageing (when overdue): NOVO BANCO Overdue Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Due Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years 328 Overdue Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Due 31.12.2020 (in thousands of Euros) Securities Portfolio - debt instruments Deposits with and loans and advances to banks Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired - - - - - - - - - - - - - - - 15 126 10 330 34 444 82 475 142 375 - - - - - - 142 375 - - - - - - - - - - - - - - 34 726 - - - - 34 726 - - - - 279 412 279 412 314 138 5 194 1 133 357 290 302 7 276 - - - - - - 7 276 15 240 57 544 93 105 233 020 219 616 618 525 37 599 308 017 273 779 149 134 796 378 1 564 907 2 183 432 31.12.2019 (in thousands of Euros) Securities Portfolio - debt instruments Deposits with and loans and advances to banks Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired - - - - - - - - - - - - - - 6 770 56 070 87 155 149 995 - - - - - - - 149 995 - - - - - - - - - - - - - - - - - - - - - - - 381 501 381 501 381 501 13 090 643 1 015 742 155 15 645 - - - - - - 15 645 21 488 68 364 315 286 351 725 337 681 1 094 544 117 606 333 782 488 369 163 804 760 809 1 864 370 2 958 914 The following table shows the assets impaired or overdue but not impaired, broken down by the respective impairment Stage: Deposits with and loans and advances to banks Securities at fair value through other comprehensive income Securities at amortised cost Loans and advances to customers 31.12.2020 (in thousands of Euros) 31.12.2019 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total - - - 314 138 - 314 138 381 501 - 381 501 - - 22 770 22 770 119 605 119 605 - - 45 520 45 520 104 475 104 475 - - - 1 679 5 597 2 183 432 2 190 708 944 14 701 2 958 914 2 974 559 1 679 319 735 2 325 807 2 647 221 944 396 202 3 108 909 3 506 055 Regarding assets that are neither past due nor impaired, the distribution by rating level is presented below. For the debt instruments, the rating assigned by the Rating Agencies is taken into account, for the credit to clients and cash and deposits with credit institutions, the internal rating and scoring models are used, that assign a risk rating, which is periodically reviewed. For the purposes of presenting the information, the ratings have been aggregated into five major risk groups, with the last group including the unrated exposures. 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 272- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Overdue Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Overdue Due Up to 3 months Up to 3 months 3 months to 1 year 3 months to 1 year 1 to 3 years 1 to 3 years 3 to 5 years 3 to 5 years More than 5 years More than 5 years Due Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Securities Portfolio - debt Deposits with and loans and instruments advances to banks Overdue but not impaired Impaired Overdue but not impaired Impaired 31.12.2020 Securities Portfolio - debt instruments - - - - - Overdue but not impaired Impaired 34 444 Overdue but not impaired Impaired 31.12.2020 Deposits with and loans and 34 726 advances to banks - - - - - 5 194 15 240 Loans and advances to customers 57 544 1 133 Overdue but not impaired 357 290 302 93 105 Impaired 233 020 219 616 - - - - - 15 126 10 330 82 475 142 375 - - 15 126 - 10 330 - 34 444 - 82 475 - 142 375 - - 142 375 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 34 726 34 726 - - - - - - - - 279 412 34 726 279 412 - 314 138 - - - 279 412 279 412 NOVO BANCO (in thousands of Euros) Loans and advances to customers NOVO BANCO Overdue but not impaired Impaired (in thousands of Euros) 7 276 5 194 - 1 133 - 357 - 290 - 302 - 7 276 - - 7 276 - - - - - 618 525 15 240 37 599 57 544 308 017 93 105 273 779 233 020 149 134 219 616 796 378 618 525 1 564 907 37 599 2 183 432 308 017 273 779 149 134 (in thousands of Euros) 796 378 1 564 907 2 183 432 Loans and advances to customers 7 276 Overdue but not impaired Impaired (in thousands of Euros) Securities Portfolio - debt instruments 142 375 Deposits with and loans and advances to banks 314 138 31.12.2019 Overdue 31.12.2019 Overdue but not impaired Impaired Overdue but not impaired Impaired Due Impaired Impaired Impaired Overdue Due Securities Portfolio - debt instruments Deposits with and loans and advances to banks Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Up to 3 months Up to 3 months 3 months to 1 year 3 months to 1 year 1 to 3 years 1 to 3 years 3 to 5 years 3 to 5 years More than 5 years More than 5 years - 6 770 56 070 87 155 - 149 995 - - 6 770 - 56 070 - 87 155 - - - 149 995 - - 149 995 - - - The following table shows the assets impaired or overdue but not impaired, broken down by the respective impairment Stage: - - 21 488 Loans and advances to customers 68 364 315 286 351 725 337 681 1 094 544 21 488 117 606 68 364 333 782 315 286 488 369 351 725 163 804 337 681 760 809 1 094 544 1 864 370 117 606 2 958 914 333 782 488 369 163 804 760 809 1 864 370 (in thousands of Euros) - - - Overdue but not - impaired - - - - - - - - - - - - - - - - - - - - - - - - Overdue but not - impaired - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 381 501 - 381 501 - 381 501 - - - 381 501 381 501 13 090 643 1 015 Overdue but not 742 impaired 155 15 645 13 090 - 643 - 1 015 - 742 - 155 - 15 645 - - 15 645 - - - - - 31.12.2019 15 645 The following table shows the assets impaired or overdue but not impaired, broken down by the respective impairment Stage: 314 138 Deposits with and loans and advances to banks - The following table shows the assets impaired or overdue but not impaired, broken down by the respective impairment Stage: Securities at fair value through other comprehensive income Securities at amortised cost Loans and advances to customers Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years 381 501 - 314 138 22 770 381 501 45 520 2 958 914 Total 381 501 Stage 1 - 14 701 - 22 770 - 45 520 - 5 597 - 1 679 - 944 31.12.2020 31.12.2020 31.12.2019 149 995 Stage 2 Stage 3 Stage 2 Stage 3 Stage 1 Total - - - - - - Stage 1 1 679 Stage 2 319 735 Stage 1 944 Stage 2 396 202 119 605 2 183 432 Stage 3 2 325 807 119 605 2 190 708 Total 2 647 221 104 475 2 958 914 Stage 3 3 108 909 104 475 (in thousands of Euros) 2 974 559 Total 3 506 055 Deposits with and loans and advances to banks 314 138 - - 45 520 Securities at fair value through other comprehensive income 104 475 - Securities at amortised cost Regarding assets that are neither past due nor impaired, the distribution by rating level is presented below. For the debt 2 958 914 5 597 Loans and advances to customers instruments, the rating assigned by the Rating Agencies is taken into account, for the credit to clients and cash and deposits with credit institutions, the internal rating and scoring models are used, that assign a risk rating, which is periodically reviewed. For the purposes of presenting the information, the ratings have been aggregated into five major risk groups, with the last group including the unrated exposures. - 22 770 119 605 2 183 432 314 138 22 770 119 605 2 190 708 381 501 - - 14 701 381 501 45 520 104 475 2 974 559 - - - 1 679 - - - 944 2 325 807 2 647 221 3 108 909 3 506 055 319 735 396 202 1 679 944 Regarding assets that are neither past due nor impaired, the distribution by rating level is presented below. For the debt instruments, the rating assigned by the Rating Agencies is taken into account, for the credit to clients and cash and deposits with Regarding assets that are neither past due nor impaired, the distribution by rating level is presented below. For the credit institutions, the internal rating and scoring models are used, that assign a risk rating, which is periodically reviewed. For the debt instruments, the rating assigned by the Rating Agencies is taken into account, for the credit to clients and cash purposes of presenting the information, the ratings have been aggregated into five major risk groups, with the last group including and deposits with credit institutions, the internal rating and scoring models are used, that assign a risk rating, which is the unrated exposures. periodically reviewed. For the purposes of presenting the information, the ratings have been aggregated into five major risk groups, with the last group including the unrated exposures. NOVO BANCO 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES 31.12.2020 Prime +High grade Upper Medium Grade Lower Medium grade Non Investment Grade Speculative + Highly speculative 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Títulos ao custo amortizado Bonds issued by government and other public entities Bonds issued by other entities Loans and advances to customers 1 096 - - - - 1 415 572 966 035 449 537 - - - 3 734 056 139 859 - - 32 670 32 670 2 335 007 2 322 904 12 103 51 608 - 51 608 8 854 914 48 121 267 016 267 016 - - 3 330 418 2 946 842 383 576 140 510 - 140 510 2 469 068 38 073 - - - - - - - 37 958 - 37 958 6 855 355 - 272- (in thousands of Euros) Others Total - 272- 76 103 - - 127 514 127 514 739 075 254 295 484 780 2 082 632 421 249 1 661 383 1 112 709 303 252 267 016 267 016 160 184 160 184 7 820 072 6 490 076 1 329 996 2 312 708 421 249 1 891 459 23 026 101 Deposits with and loans and advances to banks Securities held for trading 329 Bonds issued by government and other public entities Bonds issued by other entities Securities at fair value through profit/loss Bonds issued by other entities Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Títulos ao custo amortizado Bonds issued by other entities Loans and advances to customers Bonds issued by government and other public entities 31.12.2019 (in thousands of Euros) Non Investment Grade Speculative + Highly speculative 41 607 - - - - - - - - - - - 35 479 35 479 7 493 726 Prime +High grade Upper Medium Grade Lower Medium grade 45 - - - - - - - - - - 1 615 203 1 169 578 445 625 13 411 249 778 249 778 - - - - - 3 935 197 3 537 275 397 922 101 711 - 101 711 2 657 812 5 004 5 070 5 070 - - - 47 340 47 340 2 407 116 2 400 889 6 227 - - - 31.12.2020 3 031 066 9 323 234 Others Total 270 701 - - - - - 10 250 10 250 766 524 280 766 244 1 539 654 459 260 1 080 394 1 574 325 330 768 254 848 254 848 - - - 57 590 57 590 8 724 040 7 108 022 1 616 018 1 676 844 459 260 1 217 584 24 080 163 (in thousands of Euros) As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment constituted, by segment, is presented as follows: Segment Performing or with a delay < 30 days With a delay > 30 days Total Days of delay Total <= 90 days > 90 days Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Perfoming Non-Perfoming Total Credit Corporate Mortgage loans Consumer and other loans 1 116 057 9 723 675 17 526 21 113 7 200 65 067 12 129 12 109 249 328 589 645 12 116 449 329 234 940 235 471 147 816 374 544 639 1 756 609 1 015 786 13 873 058 1 345 020 1 706 2 391 9 788 742 1 128 186 19 232 23 504 110 577 17 312 111 134 29 301 221 711 46 613 10 010 453 65 845 147 730 122 182 57 382 43 224 205 112 165 406 1 333 298 188 910 Total 22 948 981 367 228 84 396 4 742 23 033 377 371 970 1 198 542 610 641 984 890 617 164 2 183 432 1 227 805 25 216 809 1 599 775 Segment Performing or with a delay < 30 days With a delay > 30 days Total Days of delay Total <= 90 days > 90 days Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Perfoming Non-Perfoming Total Credit Corporate Mortgage loans 12 583 643 154 399 3 154 12 643 435 157 553 1 089 904 504 311 1 498 692 983 700 2 588 596 1 488 011 15 232 031 1 645 564 10 034 807 615 10 074 292 17 264 70 000 19 745 119 983 29 985 189 983 49 730 10 264 275 66 994 Consumer and other loans 1 280 872 389 1 288 089 3 490 149 700 54 426 120 627 82 021 270 327 136 447 1 558 416 139 937 16 649 3 101 59 792 39 485 7 217 Total 23 899 322 174 149 106 494 4 158 24 005 816 178 307 1 309 604 578 482 1 739 302 1 095 706 3 048 906 1 674 188 27 054 722 1 852 495 31.12.2019 (in thousands of Euros) As at 31 December 2020 and 2019, the analysis of the Loans and advances to customers’ portfolio, by segment and by year of reference was as follows: 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 273- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Títulos ao custo amortizado Bonds issued by government and other public entities Bonds issued by other entities Loans and advances to customers 1 096 - - - - 1 415 572 966 035 449 537 - - - 3 734 056 139 859 - - 32 670 32 670 2 335 007 2 322 904 12 103 51 608 - 51 608 8 854 914 Prime +High grade Upper Medium Grade Prime +High Upper Medium Lower Medium grade Grade grade Speculative + Others Total 31.12.2020 Non Investment Grade Highly speculative 48 121 267 016 267 016 - - 3 330 418 2 946 842 383 576 140 510 - 140 510 2 469 068 31.12.2019 38 073 - - - - - - - 37 958 - 37 958 6 855 355 Lower Medium grade 31.12.2019 Non Investment Grade Speculative + Highly Non Investment speculative Grade Speculative + Highly speculative 41 607 - - NOVO BANCO (in thousands of Euros) 76 103 - - 127 514 127 514 739 075 254 295 484 780 2 082 632 421 249 1 661 383 1 112 709 303 252 267 016 267 016 160 184 160 184 7 820 072 6 490 076 1 329 996 2 312 708 421 249 1 891 459 23 026 101 (in thousands of Euros) Others (in thousands of Euros) Total Others 270 701 - - Total 330 768 254 848 254 848 Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Prime +High grade 45 - - Upper Medium 5 004 Grade 5 070 5 070 Lower Medium 13 411 grade 249 778 249 778 Securities at fair value through profit/loss - mandatory Loans and advances to customers Securities at fair value through other comprehensive income Securities at fair value through profit/loss Títulos ao custo amortizado Bonds issued by government and other public entities Bonds issued by government and other public entities Bonds issued by other entities Bonds issued by other entities Bonds issued by other entities Bonds issued by government and other public entities Bonds issued by other entities Bonds issued by other entities Securities at fair value through profit/loss - mandatory Deposits with and loans and advances to banks Bonds issued by other entities Securities held for trading Securities at fair value through other comprehensive income 57 590 330 768 57 590 254 848 8 724 040 254 848 7 108 022 - 1 616 018 - 1 676 844 - 459 260 57 590 1 217 584 57 590 24 080 163 8 724 040 7 108 022 1 616 018 1 676 844 459 260 1 217 584 24 080 163 Loans and advances to customers As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment constituted, by segment, is presented as follows: As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment constituted, by segment, is presented as follows: 10 250 270 701 10 250 - 766 524 - 280 - 766 244 - 1 539 654 - 459 260 10 250 1 080 394 10 250 1 574 325 766 524 280 766 244 1 539 654 459 260 1 080 394 1 574 325 - 13 411 - 249 778 3 935 197 249 778 3 537 275 - 397 922 - 101 711 - - - 101 711 - 2 657 812 3 935 197 3 537 275 397 922 101 711 - 101 711 2 657 812 47 340 5 004 47 340 5 070 2 407 116 5 070 2 400 889 - 6 227 - - - - 47 340 - 47 340 9 323 234 2 407 116 2 400 889 6 227 - - - 9 323 234 - 45 - - 1 615 203 - 1 169 578 - 445 625 - - - - - - - 3 031 066 1 615 203 1 169 578 445 625 - - - 3 031 066 - 41 607 - - - - - - - - 35 479 - - - 35 479 - 7 493 726 - - - 35 479 - 35 479 7 493 726 Bonds issued by government and other public entities Bonds issued by other entities Bonds issued by government and other public entities Bonds issued by other entities Títulos ao custo amortizado Segment Performing or with a delay < 30 days With a delay > 30 days Total Days of delay <= 90 days > 90 days Total Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Perfoming Non-Perfoming Total Credit 31.12.2020 (in thousands of Euros) Corporate Mortgage loans Consumer and other loans 1 116 057 12 109 249 328 589 9 723 675 17 526 21 113 7 200 65 067 12 129 645 12 116 449 329 234 940 235 471 147 816 374 544 639 1 756 609 1 015 786 13 873 058 1 345 020 1 706 2 391 9 788 742 1 128 186 19 232 23 504 110 577 17 312 111 134 29 301 221 711 46 613 10 010 453 65 845 147 730 122 182 57 382 43 224 205 112 165 406 1 333 298 188 910 Total 22 948 981 367 228 84 396 4 742 23 033 377 371 970 1 198 542 610 641 984 890 617 164 2 183 432 1 227 805 25 216 809 1 599 775 Segment Performing or with a delay < 30 days With a delay > 30 days Total Days of delay <= 90 days > 90 days Total Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Perfoming Non-Perfoming Total Credit 31.12.2019 (in thousands of Euros) Corporate Mortgage loans Consumer and other loans 1 280 872 12 583 643 154 399 10 034 807 16 649 3 101 59 792 39 485 7 217 3 154 12 643 435 157 553 1 089 904 504 311 1 498 692 983 700 2 588 596 1 488 011 15 232 031 1 645 564 615 10 074 292 17 264 70 000 19 745 119 983 29 985 189 983 49 730 10 264 275 66 994 389 1 288 089 3 490 149 700 54 426 120 627 82 021 270 327 136 447 1 558 416 139 937 Total 23 899 322 174 149 106 494 4 158 24 005 816 178 307 1 309 604 578 482 1 739 302 1 095 706 3 048 906 1 674 188 27 054 722 1 852 495 As at 31 December 2020 and 2019, the analysis of the Loans and advances to customers’ portfolio, by segment and by year of reference was as follows: As at 31 December 2020 and 2019, the analysis of the Loans and advances to customers’ portfolio, by segment and by year of reference was as follows: 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 273- 330 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED NOVO BANCO (in thousands of Euros) Year of production Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment Corporate Mortgage loans Consumer and other loans Total 2004 and prior 4 508 253 737 12 541 70 884 1 525 145 15 028 732 974 54 539 16 638 808 366 1 833 421 44 207 31.12.2020 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 801 66 294 6 277 8 760 363 661 3 964 10 920 7 453 388 20 481 437 408 10 629 1 047 228 528 52 349 14 695 672 558 5 747 18 044 9 413 1 029 33 786 910 499 59 125 1 311 308 621 46 549 21 786 1 003 716 9 050 25 665 12 887 1 567 48 762 1 325 224 57 166 1 275 507 028 30 559 14 578 709 233 5 732 20 567 10 778 775 36 420 1 227 039 37 066 991 282 231 41 733 9 533 492 528 4 356 12 380 19 179 8 274 22 904 793 938 54 363 1 224 303 769 76 409 8 908 508 778 4 276 19 274 29 123 1 381 29 406 841 670 82 066 1 208 214 814 48 687 4 847 226 201 2 214 22 191 20 942 1 145 28 246 461 957 52 046 1 500 379 756 133 774 2 626 96 782 1 418 28 413 18 224 1 873 32 539 494 762 137 065 2 065 506 226 116 278 3 041 149 827 1 520 25 794 27 293 8 798 30 900 683 346 126 596 2 141 456 374 193 612 1 933 107 869 3 442 730 681 146 759 2 977 185 390 743 787 25 229 23 155 1 101 29 303 587 398 195 456 30 078 124 058 82 465 36 497 1 040 129 230 011 4 910 806 562 62 679 6 108 424 352 1 627 49 529 92 372 22 336 60 547 1 323 286 86 642 7 939 1 124 252 66 057 9 475 762 490 3 039 56 275 129 533 10 083 73 689 2 016 275 79 179 8 993 1 914 976 117 147 10 800 1 006 802 2 716 67 185 198 768 10 025 86 978 3 120 546 129 888 10 488 2 771 828 137 204 10 672 1 035 025 2 358 74 966 304 366 13 832 96 126 4 111 219 153 394 17 700 3 017 381 56 406 7 339 740 096 1 270 48 711 251 215 7 200 73 750 4 008 692 64 876 Total 71 543 13 873 058 1 345 020 208 962 10 010 453 65 845 1 268 195 1 333 298 188 910 1 548 700 25 216 809 1 599 775 31.12.2019 (in thousands of Euros) Year of production Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment Corporate Mortgage loans Consumer and other loans Total 2004 and prior 6 216 353 552 57 502 77 022 1 791 552 37 053 786 731 92 963 20 101 869 969 2 238 067 114 656 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1 296 112 000 11 771 9 502 412 770 2 494 15 980 12 119 332 26 778 536 889 14 597 1 623 288 533 36 673 15 487 746 767 3 452 20 584 18 010 1 032 37 694 1 053 310 41 157 2 035 426 192 42 231 22 824 1 100 894 5 434 29 054 23 832 1 459 53 913 1 550 918 49 124 1 792 672 225 27 953 15 330 780 754 3 328 23 428 23 398 968 40 550 1 476 377 32 249 1 409 369 324 42 067 10 095 542 438 2 266 14 421 28 184 4 717 25 925 939 946 49 050 1 885 409 205 84 735 9 630 565 222 2 866 25 617 40 828 1 842 37 132 1 015 255 89 443 1 641 349 494 54 693 5 198 254 617 1 277 25 716 26 981 1 188 32 555 631 092 57 158 2 068 645 741 301 778 2 883 113 753 3 006 718 017 194 251 3 319 172 221 3 734 669 259 199 342 2 162 130 315 5 238 970 889 136 138 3 257 213 195 7 248 1 159 554 101 604 6 607 474 544 770 882 418 603 955 34 406 31 603 3 681 39 357 791 097 306 229 30 278 48 750 13 377 36 603 938 988 208 510 30 312 37 954 2 056 36 208 837 528 201 816 38 060 142 049 37 492 46 555 1 326 133 174 233 60 776 140 138 30 690 74 631 1 774 236 133 249 10 328 1 748 742 159 893 10 163 840 918 2 788 68 816 202 931 11 014 89 307 2 792 591 173 695 11 048 2 622 431 99 052 11 420 1 078 898 1 191 79 907 272 589 5 617 102 375 3 973 918 105 860 21 838 3 716 873 95 881 10 529 1 045 417 1 217 77 853 416 087 4 371 110 220 5 178 377 101 469 Total 82 405 15 232 031 1 645 564 215 428 10 264 275 66 994 1 361 939 1 558 416 139 937 1 659 772 27 054 722 1 852 495 The figures presented include, in addition to all new operations of the reference year, renewals, interventions and restructurings of operations originated in previous years, including the period prior to the setting up of NOVO BANCO. The figures presented include, in addition to all new operations of the reference year, renewals, interventions and restructurings of operations originated in previous years, including the period prior to the setting up of NOVO BANCO. As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment assessed individually and collectively, by segment, is presented as follows: As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment assessed individually and collectively, by segment, is presented as follows: 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 274- 331 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Corporate Mortgage loans Consumer and other loans Total Corporate Individual Assessment (1) Exposure Impairment 1 667 521 951 926 4 551 220 Individual Assessment (1) Exposure Impairment 155 734 136 305 1 827 806 1 667 521 1 088 451 951 926 31.12.2020 Collective Assessment (2) Exposure Impairment 12 205 537 393 094 65 625 31.12.2020 10 005 902 Collective Assessment (2) 1 177 564 Impairment Exposure 23 389 003 12 205 537 511 324 393 094 52 605 NOVO BANCO (in thousands of Euros) NOVO BANCO Total Exposure Impairment 13 873 058 (in thousands of Euros) 1 345 020 10 010 453 65 845 Total 1 333 298 Exposure 25 216 809 13 873 058 188 910 Impairment 1 599 775 1 345 020 10 005 902 220 Mortgage loans (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model 1 177 564 Consumer and other loans 136 305 155 734 4 551 65 625 10 010 453 65 845 52 605 1 333 298 188 910 Total 1 827 806 1 088 451 23 389 003 511 324 25 216 809 1 599 775 (in thousands of Euros) (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee Individual Assessment (1) (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model Exposure Impairment 31.12.2019 Collective Assessment (2) Exposure Impairment Corporate Mortgage loans Consumer and other loans Total Corporate 2 358 394 1 391 397 12 873 637 254 167 11 065 2 395 Individual Assessment (1) Exposure Impairment 200 414 115 384 2 569 873 2 358 394 1 509 176 1 391 397 64 599 31.12.2019 10 253 210 Collective Assessment (2) 1 358 002 Exposure Impairment 24 484 849 12 873 637 343 319 254 167 24 553 Total Exposure Impairment 15 232 031 (in thousands of Euros) 1 645 564 10 264 275 66 994 Total 1 558 416 Exposure 27 054 722 15 232 031 139 937 Impairment 1 852 495 1 645 564 10 253 210 2 395 Mortgage loans (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model 1 358 002 Consumer and other loans 115 384 200 414 11 065 64 599 10 264 275 66 994 24 553 1 558 416 139 937 1 509 176 2 569 873 1 852 495 Total In the case of credits analyzed by the Impairment Committee for which the impairment determined automatically by the Impairment Model has not been changed, they are included and presented in the "Collective assessment". (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model In the case of credits analyzed by the Impairment Committee for which the impairment determined automatically by As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment assessed the Impairment Model has not been changed, they are included and presented in the "Collective assessment". In the case of credits analyzed by the Impairment Committee for which the impairment determined automatically by the Impairment individually and collectively, by geography, is presented as follows: Model has not been changed, they are included and presented in the "Collective assessment". As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment assessed individually and collectively, by geography, is presented as follows: As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment assessed Individual Assessment* individually and collectively, by geography, is presented as follows: Collective Assessment** (in thousands of Euros) 27 054 722 24 484 849 31.12.2020 343 319 Total Exposure Impairment Exposure Impairment Exposure Portugal Spain United Kingdom France Switzerland Portugal Luxembourg Spain Other United Kingdom France Total Switzerland Exposure Impairment 1 621 724 29 762 Individual Assessment* - - - 1 621 724 - 29 762 176 320 - - 1 827 806 - 938 644 17 762 - - - 938 644 - 17 762 132 045 - - 1 088 451 - 31.12.2020 Collective Assessment** Exposure 21 294 043 410 771 272 723 256 544 231 385 21 294 043 167 956 410 771 755 581 272 723 256 544 23 389 003 231 385 Impairment 471 246 13 019 6 682 3 351 1 573 471 246 20 13 019 13 415 6 682 3 351 509 306 1 573 Impairment (in thousands of Euros) Total Exposure 22 915 767 440 533 272 723 256 544 231 385 22 915 767 167 956 440 533 931 901 272 723 256 544 25 216 809 231 385 Impairment 1 409 890 30 781 6 682 3 351 1 573 1 409 890 20 30 781 145 460 6 682 3 351 1 597 757 1 573 167 956 Luxembourg * Loans and advances which the final impairment was determined and approved by the Impairment Committee ** Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model 755 581 Other - 176 320 - 132 045 20 13 415 167 956 931 901 Total 1 827 806 1 088 451 23 389 003 31.12.2019 509 306 25 216 809 20 145 460 (in thousands of Euros) 1 597 757 * Loans and advances which the final impairment was determined and approved by the Impairment Committee Individual Assessment* Collective Assessment** Total ** Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model Exposure Impairment Exposure Impairment Exposure Impairment (in thousands of Euros) Portugal Luxembourg United Kingdom Spain Cayman Island Portugal Ireland Luxembourg Other United Kingdom Spain Total Cayman Island Exposure Impairment 2 210 925 - Individual Assessment* 481 105 236 - 2 210 925 - - 253 231 481 105 236 2 569 873 - 1 291 749 - 116 49 141 - 1 291 749 - - 168 170 116 49 141 1 509 176 - 31.12.2019 Collective Assessment** Exposure 21 196 952 109 318 219 905 1 838 788 298 21 196 952 17 759 109 318 1 101 829 219 905 1 838 788 24 484 849 298 Impairment 304 530 310 1 401 28 332 6 304 530 31 310 8 709 1 401 28 332 343 319 6 Total Exposure 23 407 877 109 318 220 386 1 944 024 298 23 407 877 17 759 109 318 1 355 060 220 386 1 944 024 27 054 722 298 Impairment 1 596 279 310 1 517 77 473 6 1 596 279 31 310 176 879 1 517 77 473 1 852 495 6 Ireland * Loans and advances which the final impairment was determined and approved by the Impairment Committee ** Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model Other - 168 170 - 253 231 17 759 1 101 829 31 8 709 17 759 1 355 060 31 176 879 Total 2 569 873 1 509 176 24 484 849 343 319 27 054 722 1 852 495 * Loans and advances which the final impairment was determined and approved by the Impairment Committee ** Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES 332 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 275- - 275- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED NOVO BANCO In order to mitigate credit risk, credit operations have associated guarantees, namely mortgages or pledges. The fair value of these guarantees is determined at the date of granting the credit and is periodically reassessed. Below is the In order to mitigate credit risk, credit operations have associated guarantees, namely mortgages or pledges. The fair value of these gross value of the credits and the respective fair value of the collateral, limited to the value of the associated credit: guarantees is determined at the date of granting the credit and is periodically reassessed. Below is the gross value of the credits and the respective fair value of the collateral, limited to the value of the associated credit: Individuals - Mortgage Mortgages Pledges Not collateralized Individuals - Other Mortgages Pledges Not collateralized Corporate Mortgages Pledges Not collateralized Total 31.12.2020 (in thousands of Euros) 31.12.2019 Amount of loans Fair value of collateral Amount of loans Fair value of collateral 9 801 563 113 702 95 188 10 010 453 219 239 267 102 846 957 1 333 298 3 622 160 2 210 683 8 040 215 13 873 058 9 786 018 113 198 - 9 899 216 216 301 148 584 - 364 885 3 130 712 836 026 - 3 966 738 10 083 366 82 044 98 865 10 264 275 268 964 342 268 947 184 1 558 416 2 915 576 5 017 404 7 299 051 15 232 031 10 065 713 81 368 - 10 147 081 263 156 210 696 - 473 852 2 572 755 2 585 665 - 5 158 420 25 216 809 14 230 839 27 054 722 15 779 353 The difference between the value of the credit and the fair value of the collateral represents the total credit exposure that exceeds the value of the collateral, this value not being impacted by collaterals with a fair value higher than the credit to which they are associated. The difference between the value of the credit and the fair value of the collateral represents the total credit exposure The details of the collateral – mortgages is presented as follows: that exceeds the value of the collateral, this value not being impacted by collaterals with a fair value higher than the credit to which they are associated. (in thousands of Euros) 31.12.2020 The details of the collateral – mortgages is presented as follows: Collateral intervals a) Individuals - Mortgage loans Individuals - Other loans Corporate loans Total >= 5,0€mn and <10,0€mn a) The allocation by intervals was based on the total amount of collateral per credit agreement - - >= 10,0€mn and <20,0€mn >= 20,0€mn and <50,0€mn >=50€mn Collateral intervals a) - - - - - - Individuals - Mortgage 203 265 9 786 018 loans a) The allocation by intervals was based on the total amount of collateral per credit agreement Number Amount - - - - <0,5M€ >= 0,5M€ and <1,0M€ >= 1,0M€ and <5,0M€ >= 5,0M€ and <10,0M€ Collateral intervals a) >= 10,0M€ and <20,0M€ >= 20,0M€ and <50,0M€ <0,5€mn >=50M€ >= 0,5€mn and <1,0€mn >= 1,0€mn and <5,0€mn <0,5M€ >= 0,5M€ and <1,0M€ >= 1,0M€ and <5,0M€ >= 5,0M€ and <10,0M€ Collateral intervals a) >= 10,0M€ and <20,0M€ >= 20,0M€ and <50,0M€ <0,5€mn >=50M€ >= 0,5€mn and <1,0€mn Number Amount Number Amount Number Amount Number Amount 202 981 9 593 284 5 107 200 866 9 748 248 146 377 26 8 552 31.12.2020 2 202 505 417 264 144 217 836 10 299 567 (in thousands of Euros) 419 073 2 476 36 46 357 Individuals - Mortgage loans - - 3 6 883 Individuals - Other loans - - 7 537 Corporate loans 5 979 401 084 839 109 7 576 5 979 Total 892 349 401 084 Number - Amount - Number - Amount - Number 4 014 Amount 477 539 Number 4 014 Amount 477 539 - 202 981 - 248 203 265 36 - 9 593 284 - 146 377 9 786 018 46 357 - 5 107 - 26 5 136 3 - 200 866 - 8 552 216 301 6 883 170 9 748 1 566 2 202 31 216 7 537 5 979 4 014 170 - - - 31.12.2019 - 1 566 471 926 505 417 171 493 264 144 3 130 712 839 109 401 084 477 539 471 926 171 493 170 217 836 1 566 2 476 239 617 7 576 471 926 10 299 567 171 493 419 073 13 133 031 892 349 5 979 401 084 4 014 477 539 (in thousands of Euros) 170 471 926 1 566 171 493 Individuals - Other loans 216 301 5 136 Corporate loans 31 216 3 130 712 239 617 Total 13 133 031 Number Amount Number Amount Number Amount 210 236 9 878 305 5 398 228 186 8 605 235 138 719 45 16 666 31.12.2019 2 132 408 838 242 563 224 239 10 515 329 (in thousands of Euros) 397 948 2 412 46 48 689 Individuals - Mortgage loans - - 18 18 304 Individuals - Other loans - - 6 416 Corporate loans 692 705 489 323 224 6 480 692 Total 772 482 323 224 Number - Amount - Number - Amount - Number 3 267 Amount 303 545 Number 3 267 Amount 303 545 - 210 236 - 235 210 517 46 - 9 878 305 - 138 719 10 065 713 48 689 - 5 398 - 45 5 461 18 - - - 228 186 - 16 666 263 156 18 304 - - 222 8 605 1 2 132 21 335 6 416 692 3 267 518 961 408 838 70 135 242 563 2 572 755 705 489 323 224 303 545 222 224 239 1 2 412 237 313 6 480 692 3 267 518 961 10 515 329 70 135 397 948 12 901 624 772 482 323 224 303 545 >= 1,0€mn and <5,0€mn a) The allocation by intervals was based on the total amount of collateral per credit agreement >= 5,0€mn and <10,0€mn - - >= 10,0€mn and <20,0€mn - - >= 20,0€mn and <50,0€mn 518 961 The values of collateral - mortgages, presented above, represent the maximum coverage value of the covered assets, that is, that >=50€mn 70 135 compete up to the gross value of the individual credits covered. 518 961 70 135 222 222 1 1 - - - - - - - - 210 517 10 065 713 5 461 263 156 21 335 2 572 755 237 313 12 901 624 a) The allocation by intervals was based on the total amount of collateral per credit agreement 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 276- 333 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES The values of collateral - mortgages, presented above, represent the maximum coverage value of the covered assets, that is, that compete up to the gross value of the individual credits covered. In assessing the risk of an operation or set of operations, the elements of credit risk mitigation associated with them are taken into account, in accordance with internal rules and procedures. The relevant collaterals are essentially the following: NOVO BANCO • Real estate, where the value considered is the correspondent to the last available valuation; In assessing the risk of an operation or set of operations, the elements of credit risk mitigation associated with them are taken into • Financial pledges, where the value considered corresponds to the quotation on the last day of the month, in the account, in accordance with internal rules and procedures. case of being a listed security, or the value of the pledge, in the case of being cash. The relevant collaterals are essentially the following: The acceptance of collateral as a guarantee for credit operations refers to the need to define and implement risk miti- • Real estate, where the value considered is the correspondent to the last available valuation; Financial pledges, where the value considered corresponds to the quotation on the last day of the month, in the case of being a • gation techniques to which these collaterals are exposed. Thus, and as an approach to this matter, the Group stipulated listed security, or the value of the pledge, in the case of being cash. a set of procedures applicable to collateral (namely financial and real estate), which cover, among others, the volatility of the collateral value, its liquidity and also an indication as to the recovery rates associated with each type of collateral. The acceptance of collateral as a guarantee for credit operations refers to the need to define and implement risk mitigation techniques to which these collaterals are exposed. Thus, and as an approach to this matter, the Group stipulated a set of procedures applicable The internal rules on credit powers thus have a specific chapter on this point, "Acceptance of collateral - techniques for to collateral (namely financial and real estate), which cover, among others, the volatility of the collateral value, its liquidity and also an indication as to the recovery rates associated with each type of collateral. mitigating the risks to which collateral is exposed, namely liquidity and volatility risks". The internal rules on credit powers thus have a specific chapter on this point, "Acceptance of collateral - techniques for mitigating the The revaluation process for real estate is performed by independent valuation experts registered in CMVM, following risks to which collateral is exposed, namely liquidity and volatility risks". the methodologies as described in Note 2.11. The revaluation process for real estate is performed by independent valuation experts registered in CMVM, following the The analysis of risk exposure by sector of activity, as at 31 December 2020 and 2019, is presented as follows: methodologies as described in Note 2.11. The analysis of risk exposure by sector of activity, as at 31 December 2020 and 2019, is presented as follows: Loans and advances to customers Gross amount Impairment Financial assets held for trading Derivatives for trading and fair value option derivates Financial assets at fair value through profit or loss 31.12.2020 Financial assets at fair value through profit or loss - mandatory Derivatives - hedge accounting 333 150 Agriculture, Forestry and Fishery 74 587 Mining 535 893 Food, Beverages and Tobacco 358 937 Textiles and Clothing 72 598 Leather and Shoes 116 943 Wood and Cork 204 175 Paper and Printing Industry 9 867 Refining of Petroleum 323 798 Chemicals and Rubber 126 754 Non-metallic Minerals 361 426 Metallurgical Industries and Metallic Products Production of Machinery, Equipment and Electrical Devices 141 484 118 960 Production of Transport Material 141 682 Other Transforming Industries 337 076 Electricity, Gas and Water 1 401 976 Construction and Public Works 1 388 289 Wholesale and Retail Trade 980 980 Tourism 874 941 Transport and Communication 470 353 Financial Activities 1 776 935 Real Estate Activities 2 322 854 Services Provided to Companies 591 860 Public Administration and Services 688 940 Other activities of collective services 10 010 453 Mortgage Loans 1 333 298 Consumers Loans 118 600 Others ( 11 213) ( 18 626) ( 16 677) ( 15 812) ( 3 184) ( 3 946) ( 19 003) ( 14) ( 5 175) ( 7 884) ( 12 497) ( 9 161) ( 2 999) ( 11 021) ( 19 073) ( 166 456) ( 61 648) ( 80 486) ( 53 234) ( 61 084) ( 221 118) ( 305 367) ( 26 300) ( 143 175) ( 65 845) ( 188 910) ( 69 867) - - - - - - - - - - - - - - - - - - - - - - 267 016 - - - - 690 - 10 113 255 - 236 27 - 1 576 - 281 349 78 - 22 809 97 763 3 741 362 67 527 163 798 8 147 9 034 - 1 471 - - - TOTAL 25 216 809 ( 1 599 775) 267 016 388 257 - - - - - - - - - - - - - - - - - - - - - - - - - - - - (in thousands of Euros) Financial assets at fair value through other comprehensive income Financial assets at amortised cost Guarantees and endorsements provided Gross amount 29 227 - - - - - - - 19 597 16 483 16 533 42 692 - - 33 978 - 41 174 182 99 577 749 263 867 102 139 6 490 358 99 878 - - 165 639 Impairment Gross amount Impairment Gross amount Impairment ( 13) - - - - - - - ( 13) ( 14) ( 10) ( 26) - - ( 25) - ( 27) - ( 63) ( 249) - ( 53) ( 3 125) ( 58) - - ( 14) 19 196 18 380 73 076 1 197 - 12 512 31 483 40 135 131 643 3 441 1 498 45 059 15 039 4 987 138 950 199 316 45 435 - 11 639 369 587 100 777 705 450 421 249 42 264 - - - ( 26) ( 4) ( 2 277) - - ( 49) ( 48) ( 20) ( 67) ( 4) ( 21) ( 22) ( 8) ( 35) ( 418) ( 60 786) ( 51) - ( 16) ( 938) ( 26 181) ( 109 627) ( 579) ( 60) - - - 12 411 8 013 50 449 9 336 2 074 6 546 3 542 1 804 18 684 18 496 42 633 64 780 12 297 18 390 101 060 888 736 202 637 62 419 376 637 133 476 214 027 386 795 24 295 142 419 35 6 584 17 615 ( 6 004) ( 193) ( 295) ( 2 608) ( 107) ( 46) ( 32) - ( 122) ( 269) ( 384) ( 979) ( 638) ( 2 359) ( 194) ( 39 174) ( 2 177) ( 7 129) ( 1 794) ( 749) ( 21 151) ( 4 264) ( 191) ( 824) - - ( 480) - - - - - - - - - - - - - - - - - - - 882 971 - 75 613 - 2 378 - - - - - - - - - - - - - - - - - - - - - - 12 972 - - - - - - - 960 962 12 972 7 907 587 ( 3 690) 2 432 313 ( 201 237) 2 826 190 ( 92 163) Loans and advances to customers Gross amount Impairment Financial assets held for trading Derivatives for trading and fair value option derivates Financial assets at fair value through profit or loss 31.12.2019 Financial assets at fair value through profit or loss - mandatory Derivatives - hedge accounting 374 469 Agriculture, Forestry and Fishery 84 012 Mining 510 044 Food, Beverages and Tobacco 306 688 Textiles and Clothing 57 665 Leather and Shoes 91 620 Wood and Cork 201 151 Paper and Printing Industry 9 337 Refining of Petroleum 327 606 Chemicals and Rubber 127 028 Non-metallic Minerals Metallurgical Industries and Metallic Products 406 350 131 352 Production of Machinery, Equipment and Electrical Devices 98 639 Production of Transport Material 144 628 Other Transforming Industries 434 743 Electricity, Gas and Water 1 411 666 Construction and Public Works 1 383 933 Wholesale and Retail Trade 911 311 Tourism 1 079 857 Transport and Communication 555 298 Financial Activities 2 105 462 Real Estate Activities 2 890 012 Services Provided to Companies 663 576 Public Administration and Services 807 890 Other activities of collective services 10 264 275 Mortgage Loans 1 558 416 Consumers Loans 117 694 Others 334 ( 17 182) ( 12 676) ( 19 984) ( 13 773) ( 4 321) ( 3 405) ( 34 597) ( 56) ( 7 888) ( 16 282) ( 10 453) ( 7 118) ( 2 952) ( 8 094) ( 22 595) ( 236 081) ( 84 799) ( 37 090) ( 72 770) ( 66 979) ( 214 942) ( 411 570) ( 26 294) ( 274 143) ( 66 994) ( 139 937) ( 39 520) - - - - - - - - - - - - - - - - - - - - - - 254 848 - - - - 511 - 10 863 199 51 178 - - 958 - 750 788 87 1 31 996 94 989 1 435 520 105 644 217 480 7 898 15 910 1 391 2 235 - - - TOTAL 27 054 722 ( 1 852 495) 254 848 493 884 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 237 207 2 751 62 506 - 12 278 - - - - - - - - - - - - - - - - - - - - - - 7 452 - - - - - - - (in thousands of Euros) Financial assets at fair value through other comprehensive income Financial assets at amortised cost Guarantees and endorsements provided Gross amount 31 712 109 - 9 988 - - - - 19 305 16 664 21 142 20 643 - - 54 410 - 40 450 144 134 815 698 324 35 355 322 734 7 108 366 172 519 - - 163 216 Impairment Gross amount Impairment Gross amount Impairment ( 15) - - ( 9) - - - - ( 16) ( 16) ( 18) ( 12) - - ( 42) - ( 29) - ( 89) ( 220) ( 19) ( 77) ( 4 527) ( 447) - - ( 20) 5 968 - 22 640 3 596 1 999 996 2 498 - 2 985 3 648 6 706 492 - 4 987 195 061 183 129 13 834 - 10 227 79 083 117 986 656 224 459 260 10 000 - - - ( 15) - ( 2 218) ( 3) ( 1) ( 2) ( 5) - ( 6) ( 3) ( 17) ( 1) - ( 17) ( 1 002) ( 34 604) ( 9) - ( 11) ( 371) ( 18 163) ( 101 424) ( 704) ( 198) - - - 12 979 8 217 56 171 9 964 1 660 6 347 4 344 5 210 25 461 17 138 40 531 60 648 10 413 26 382 79 249 897 348 246 231 70 407 387 299 145 391 234 056 464 381 25 100 130 767 33 12 490 15 568 ( 517) ( 115) ( 413) ( 4 545) ( 107) ( 32) ( 30) - ( 176) ( 370) ( 326) ( 1 127) ( 106) ( 767) ( 69) ( 43 165) ( 3 961) ( 6 347) ( 9 108) ( 871) ( 15 604) ( 4 218) ( 279) ( 1 109) - ( 345) ( 227) 1 314 742 7 452 8 849 896 ( 5 556) 1 781 319 ( 158 774) 2 993 785 ( 93 934) 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 277- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED NOVO BANCO In assessing the risk of an operation or set of operations, the elements of credit risk mitigation associated with them are taken into account, in accordance with internal rules and procedures. The relevant collaterals are essentially the following: • Real estate, where the value considered is the correspondent to the last available valuation; • Financial pledges, where the value considered corresponds to the quotation on the last day of the month, in the case of being a listed security, or the value of the pledge, in the case of being cash. The acceptance of collateral as a guarantee for credit operations refers to the need to define and implement risk mitigation techniques to which these collaterals are exposed. Thus, and as an approach to this matter, the Group stipulated a set of procedures applicable to collateral (namely financial and real estate), which cover, among others, the volatility of the collateral value, its liquidity and also an indication as to the recovery rates associated with each type of collateral. The internal rules on credit powers thus have a specific chapter on this point, "Acceptance of collateral - techniques for mitigating the risks to which collateral is exposed, namely liquidity and volatility risks". The revaluation process for real estate is performed by independent valuation experts registered in CMVM, following the methodologies as described in Note 2.11. The analysis of risk exposure by sector of activity, as at 31 December 2020 and 2019, is presented as follows: Loans and advances to customers Impairment Derivatives Financial Financial for trading assets held and fair for trading value option derivates assets at Financial assets at fair value fair value through through profit or loss profit or loss - mandatory Derivatives - hedge accounting 31.12.2020 Metallurgical Industries and Metallic Products Production of Machinery, Equipment and Electrical Devices 141 484 Agriculture, Forestry and Fishery Mining Food, Beverages and Tobacco Textiles and Clothing Leather and Shoes Wood and Cork Paper and Printing Industry Refining of Petroleum Chemicals and Rubber Non-metallic Minerals Production of Transport Material Other Transforming Industries Electricity, Gas and Water Construction and Public Works Wholesale and Retail Trade Tourism Transport and Communication Financial Activities Real Estate Activities Services Provided to Companies Public Administration and Services Other activities of collective services Mortgage Loans Consumers Loans Others Gross amount 333 150 74 587 535 893 358 937 72 598 116 943 204 175 9 867 323 798 126 754 361 426 118 960 141 682 337 076 1 401 976 1 388 289 980 980 874 941 470 353 1 776 935 2 322 854 591 860 688 940 10 010 453 1 333 298 118 600 ( 11 213) ( 18 626) ( 16 677) ( 15 812) ( 3 184) ( 3 946) ( 19 003) ( 14) ( 5 175) ( 7 884) ( 12 497) ( 9 161) ( 2 999) ( 11 021) ( 19 073) ( 166 456) ( 61 648) ( 80 486) ( 53 234) ( 61 084) ( 221 118) ( 305 367) ( 26 300) ( 143 175) ( 65 845) ( 188 910) ( 69 867) - - - - - - - - - - - - - - - - - - - - - - 267 016 - - - - 690 10 113 255 236 27 1 576 - - - - 281 349 78 - 22 809 97 763 3 741 362 67 527 163 798 8 147 9 034 - 1 471 - - - TOTAL 25 216 809 ( 1 599 775) 267 016 388 257 - - - - - - - - - - - - - - - - - - - - - - - - - - - - (in thousands of Euros) Impairment Impairment Impairment Financial assets at fair value through other comprehensive income Gross amount 29 227 ( 13) - - - - - - - - - - - - - - - - - - - 12 972 - - - - - - - - - - - - - - - 19 597 16 483 16 533 42 692 - 33 978 - 41 174 182 99 577 749 263 867 102 139 6 490 358 99 878 - - 165 639 - - - - - - - ( 13) ( 14) ( 10) ( 26) - - ( 25) - ( 27) - ( 63) ( 249) - ( 53) ( 3 125) ( 58) - - ( 14) Financial assets at amortised cost Guarantees and endorsements provided Gross amount 19 196 18 380 73 076 1 197 - 12 512 31 483 40 135 131 643 3 441 1 498 45 059 15 039 4 987 138 950 199 316 45 435 - 11 639 369 587 100 777 705 450 421 249 42 264 - - - ( 26) ( 4) ( 2 277) - - ( 49) ( 48) ( 20) ( 67) ( 4) ( 21) ( 22) ( 8) ( 35) ( 418) ( 60 786) ( 51) - ( 16) ( 938) ( 26 181) ( 109 627) ( 579) ( 60) - - - Gross amount 12 411 8 013 50 449 9 336 2 074 6 546 3 542 1 804 18 684 18 496 42 633 64 780 12 297 18 390 101 060 888 736 202 637 62 419 376 637 133 476 214 027 386 795 24 295 142 419 35 6 584 17 615 ( 6 004) ( 193) ( 295) ( 2 608) ( 107) ( 46) ( 32) - ( 122) ( 269) ( 384) ( 979) ( 638) ( 2 359) ( 194) ( 39 174) ( 2 177) ( 7 129) ( 1 794) ( 749) ( 21 151) ( 4 264) ( 191) ( 824) - - ( 480) - - - - - - - - - - - - - - - - - - - 882 971 - 75 613 - 2 378 - - - 960 962 12 972 7 907 587 ( 3 690) 2 432 313 ( 201 237) 2 826 190 ( 92 163) Loans and advances to customers Gross amount Impairment Financial assets held for trading Derivatives for trading and fair value option derivates Financial assets at fair value through profit or loss 31.12.2019 Financial assets at fair value through profit or loss - mandatory Derivatives - hedge accounting 374 469 Agriculture, Forestry and Fishery 84 012 Mining 510 044 Food, Beverages and Tobacco 306 688 Textiles and Clothing 57 665 Leather and Shoes 91 620 Wood and Cork 201 151 Paper and Printing Industry 9 337 Refining of Petroleum 327 606 Chemicals and Rubber 127 028 Non-metallic Minerals 406 350 Metallurgical Industries and Metallic Products Production of Machinery, Equipment and Electrical Devices 131 352 98 639 Production of Transport Material 144 628 Other Transforming Industries 434 743 Electricity, Gas and Water 1 411 666 Construction and Public Works 1 383 933 Wholesale and Retail Trade 911 311 Tourism 1 079 857 Transport and Communication 555 298 Financial Activities 2 105 462 Real Estate Activities 2 890 012 Services Provided to Companies 663 576 Public Administration and Services 807 890 Other activities of collective services 10 264 275 Mortgage Loans 1 558 416 Consumers Loans 117 694 Others ( 17 182) ( 12 676) ( 19 984) ( 13 773) ( 4 321) ( 3 405) ( 34 597) ( 56) ( 7 888) ( 16 282) ( 10 453) ( 7 118) ( 2 952) ( 8 094) ( 22 595) ( 236 081) ( 84 799) ( 37 090) ( 72 770) ( 66 979) ( 214 942) ( 411 570) ( 26 294) ( 274 143) ( 66 994) ( 139 937) ( 39 520) - - - - - - - - - - - - - - - - - - - - - - 254 848 - - - - 511 - 10 863 199 51 178 - - 958 - 750 788 87 1 31 996 94 989 1 435 520 105 644 217 480 7 898 15 910 1 391 2 235 - - - TOTAL 27 054 722 ( 1 852 495) 254 848 493 884 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 237 207 2 751 62 506 - 12 278 - - - - - - - - - - - - - - - - - - - - - - 7 452 - - - - - - - (in thousands of Euros) Financial assets at fair value through other comprehensive income Financial assets at amortised cost Guarantees and endorsements provided Gross amount 31 712 109 - 9 988 - - - - 19 305 16 664 21 142 20 643 - - 54 410 - 40 450 144 134 815 698 324 35 355 322 734 7 108 366 172 519 - - 163 216 Impairment Gross amount Impairment Gross amount Impairment ( 15) - - ( 9) - - - - ( 16) ( 16) ( 18) ( 12) - - ( 42) - ( 29) - ( 89) ( 220) ( 19) ( 77) ( 4 527) ( 447) - - ( 20) 5 968 - 22 640 3 596 1 999 996 2 498 - 2 985 3 648 6 706 492 - 4 987 195 061 183 129 13 834 - 10 227 79 083 117 986 656 224 459 260 10 000 - - - ( 15) - ( 2 218) ( 3) ( 1) ( 2) ( 5) - ( 6) ( 3) ( 17) ( 1) - ( 17) ( 1 002) ( 34 604) ( 9) - ( 11) ( 371) ( 18 163) ( 101 424) ( 704) ( 198) - - - 12 979 8 217 56 171 9 964 1 660 6 347 4 344 5 210 25 461 17 138 40 531 60 648 10 413 26 382 79 249 897 348 246 231 70 407 387 299 145 391 234 056 464 381 25 100 130 767 33 12 490 15 568 ( 517) ( 115) ( 413) ( 4 545) ( 107) ( 32) ( 30) - ( 176) ( 370) ( 326) ( 1 127) ( 106) ( 767) ( 69) ( 43 165) ( 3 961) ( 6 347) ( 9 108) ( 871) ( 15 604) ( 4 218) ( 279) ( 1 109) - ( 345) ( 227) 1 314 742 7 452 8 849 896 ( 5 556) 1 781 319 ( 158 774) 2 993 785 ( 93 934) - 277- 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES The Group proceeds to the identification and register of restructured credit contracts due to the client's financial difficulties whenever there are changes to the terms and conditions of a contract in which the client has defaulted, that is, it is foreseeable that it will default, with a financial obligation. It is considered that there is a change to the terms and conditions of the contract when (i) there are contractual changes to the benefit of the customer, such as extending the NOVO BANCO term, introducing grace periods, reducing the rate or partial debt forgiveness; (ii) there is a contracting of a new credit operation to settle the existing debt (total or partial); or (iii) the new terms of the contract are more favorable than those The Group proceeds to the identification and register of restructured credit contracts due to the client's financial difficulties whenever applied to other customers with the same risk profile. there are changes to the terms and conditions of a contract in which the client has defaulted, that is, it is foreseeable that it will default, with a financial obligation. It is considered that there is a change to the terms and conditions of the contract when (i) there are The cancellation of a restructured credit due to the client's financial difficulties can only occur after a minimum period contractual changes to the benefit of the customer, such as extending the term, introducing grace periods, reducing the rate or partial debt forgiveness; (ii) there is a contracting of a new credit operation to settle the existing debt (total or partial); or (iii) the new terms of two years from the date of the restructuring, provided that the following conditions are cumulatively fulfilled: (i) of the contract are more favorable than those applied to other customers with the same risk profile. regular payment of capital and interest; (ii) the customer has no capital or interest due; and (iii) there were no debt restructuring mechanisms by the client in that period. The cancellation of a restructured credit due to the client's financial difficulties can only occur after a minimum period of two years from the date of the restructuring, provided that the following conditions are cumulatively fulfilled: (i) regular payment of capital and interest; (ii) the customer has no capital or interest due; and (iii) there were no debt restructuring mechanisms by the client in that The amounts of the restructured loans due to financial difficulties of the customer as at 31 December 2020 and 2019, period. are as follows The amounts of the restructured loans due to financial difficulties of the customer as at 31 December 2020 and 2019, are as follows: (in thousands of Euros) Corporate Mortgage loans Consumer and other loans Total 31.12.2020 31.12.2019 1 782 137 154 216 147 775 2 388 446 135 361 205 795 2 084 128 2 729 602 The details of the restructuring measures applied to loans restructured up to 31 December 2020 and 2019 are the following: Solution Performing 31.12.2020 Non Performing (in thousands of Euros) Total Principal or interest forgiveness Assets received in partial settlement of loan Capitalization of interest New loan in total or partial payment of existing loan Extension of repayment period Introduction of grace period of principal or interest Decrease in the interest rates Changes of the lease payment plan Changes in the interest paymen Other 335 Total No. Transaction Exposure Impairment No. Transaction Exposure Impairment No. Transaction Exposure Impairment 43 20 44 1 483 57 740 1 104 12 994 90 212 2 063 514 009 339 101 122 5 33 881 13 859 9 698 20 3 921 159 1 002 10 130 81 700 1 504 466 787 1 1 409 47 127 1 304 150 177 807 107 513 193 235 547 111 434 22 181 575 921 111 30 72 2 656 2 078 1 924 42 3 182 2 083 123 462 74 085 225 136 456 75 087 231 373 145 655 2 058 321 585 155 785 590 946 382 265 2 984 1 104 955 463 965 60 421 65 171 39 634 2 769 9 823 28 147 23 549 21 771 2 380 1 159 450 131 194 7 94 302 79 030 49 332 2 789 2 065 56 950 29 651 24 015 22 558 2 381 2 463 5 629 780 644 100 974 2 720 1 303 484 788 448 8 349 2 084 128 889 422 Solution Performing No. Transaction No. Transaction Total No. Transaction Exposure Impairment Exposure Impairment Exposure Impairment 31.12.2019 Non Performing (in thousands of Euros) New loan in total or partial payment of existing loan 1 637 141 909 Principal or interest forgiveness Assets received in partial settlement of loan Capitalization of interest Extension of repayment period Introduction of grace period of principal or interest Decrease in the interest rates Changes of the lease payment plan Changes in the interest paymen Other Total 50 181 5 330 207 239 255 135 618 245 289 436 140 948 38 10 26 974 585 124 54 6 144 49 312 61 338 57 293 16 547 3 142 3 454 6 240 1 413 1 706 862 60 26 213 824 909 219 54 46 6 2 270 97 382 1 564 1 214 3 344 2 481 36 3 488 2 484 153 804 76 982 239 203 116 77 436 420 775 292 376 2 461 562 684 298 616 174 544 99 258 36 674 13 954 59 578 88 264 33 641 10 548 12 548 20 696 804 178 100 12 235 882 156 551 53 221 17 096 3 484 156 960 89 677 35 347 11 410 12 608 22 260 415 161 26 675 636 007 375 184 1 883 1 051 168 401 859 5 724 892 409 44 307 3 718 1 837 193 1 048 338 9 442 2 729 602 1 092 645 The movement of restructured loans throughout the years 2020 and 2019 was as follows: 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 278- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO The Group proceeds to the identification and register of restructured credit contracts due to the client's financial difficulties whenever there are changes to the terms and conditions of a contract in which the client has defaulted, that is, it is foreseeable that it will default, with a financial obligation. It is considered that there is a change to the terms and conditions of the contract when (i) there are contractual changes to the benefit of the customer, such as extending the term, introducing grace periods, reducing the rate or partial debt forgiveness; (ii) there is a contracting of a new credit operation to settle the existing debt (total or partial); or (iii) the new terms of the contract are more favorable than those applied to other customers with the same risk profile. The cancellation of a restructured credit due to the client's financial difficulties can only occur after a minimum period of two years from the date of the restructuring, provided that the following conditions are cumulatively fulfilled: (i) regular payment of capital and interest; (ii) the customer has no capital or interest due; and (iii) there were no debt restructuring mechanisms by the client in that period. The amounts of the restructured loans due to financial difficulties of the customer as at 31 December 2020 and 2019, are as follows: (in thousands of Euros) Corporate Mortgage loans Consumer and other loans 31.12.2020 31.12.2019 1 782 137 154 216 147 775 2 388 446 135 361 205 795 Total The details of the restructuring measures applied to loans restructured up to 31 December 2020 and 2019 are the The details of the restructuring measures applied to loans restructured up to 31 December 2020 and 2019 are the following: following: 2 729 602 2 084 128 Solution Performing 31.12.2020 Non Performing (in thousands of Euros) Total Principal or interest forgiveness Assets received in partial settlement of loan Capitalization of interest New loan in total or partial payment of existing loan Extension of repayment period Introduction of grace period of principal or interest Decrease in the interest rates Changes of the lease payment plan Changes in the interest paymen Other Total No. Transaction Exposure Impairment No. Transaction Exposure Impairment No. Transaction Exposure Impairment 43 20 44 1 483 57 740 1 104 12 994 90 212 2 063 514 009 339 101 122 5 33 881 13 859 9 698 20 3 921 159 1 002 10 130 81 700 1 504 466 787 1 1 409 47 127 1 304 150 177 807 107 513 193 235 547 111 434 22 181 575 921 111 30 72 2 656 2 078 1 924 42 3 182 2 083 123 462 74 085 225 136 456 75 087 231 373 145 655 2 058 321 585 155 785 590 946 382 265 2 984 1 104 955 463 965 60 421 65 171 39 634 2 769 9 823 28 147 23 549 21 771 2 380 1 159 450 131 194 7 94 302 79 030 49 332 2 789 2 065 56 950 29 651 24 015 22 558 2 381 2 463 5 629 780 644 100 974 2 720 1 303 484 788 448 8 349 2 084 128 889 422 Solution Performing 31.12.2019 Non Performing (in thousands of Euros) Total No. Transaction Exposure Impairment No. Transaction Exposure Impairment No. Transaction Exposure Impairment Principal or interest forgiveness Assets received in partial settlement of loan Capitalization of interest 38 10 26 144 49 312 New loan in total or partial payment of existing loan 1 637 141 909 3 454 6 240 50 181 5 330 207 239 255 135 618 245 289 436 140 948 974 585 124 54 6 415 161 26 675 61 338 57 293 16 547 3 142 1 413 1 706 862 60 2 270 97 382 1 564 1 214 26 213 824 909 219 54 46 6 3 344 2 481 36 3 488 2 484 153 804 76 982 239 203 116 77 436 420 775 292 376 2 461 562 684 298 616 636 007 375 184 1 883 1 051 168 401 859 174 544 99 258 36 674 13 954 59 578 88 264 33 641 10 548 12 548 20 696 804 178 100 12 235 882 156 551 53 221 17 096 3 484 156 960 89 677 35 347 11 410 12 608 22 260 5 724 892 409 44 307 3 718 1 837 193 1 048 338 9 442 2 729 602 1 092 645 Extension of repayment period Introduction of grace period of principal or interest Decrease in the interest rates Changes of the lease payment plan Changes in the interest paymen Other Total The movement of restructured loans throughout the years 2020 and 2019 was as follows: The movement of restructured loans throughout the years 2020 and 2019 was as follows: NOVO BANCO Opening balance Restructured credits in the period Credits reclassified to "normal" Credits written off 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES Others Total (in thousands of Euros) 31.12.2020 31.12.2019 2 729 602 402 874 ( 101 157) ( 300 821) ( 646 370) 4 832 774 609 428 ( 229 312) - 278- (1 055 863) (1 427 425) 2 084 128 2 729 602 Market risk Market Risk represents the potential loss resulting from an adverse change in the value of a financial instrument due to fluctuations Market risk in interest rates, foreign exchange rates, equity prices, commodity prices, volatility and credit spread. Market Risk represents the potential loss resulting from an adverse change in the value of a financial instrument due Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and Liability Committee) structure, being this risk monitored by the Risk Committee. to fluctuations in interest rates, foreign exchange rates, equity prices, commodity prices, volatility and credit spread. The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which the Value at Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and Risk (VaR) methodology is used. NOVO BANCO Group’s VaR model uses the Monte Carlo simulation, based on a confidence level Liability Committee) structure, being this risk monitored by the Risk Committee. of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on an observation period of one year. As a complement to VaR, stress testing scenarios have been developed, which allow for the evaluation of the impact of losses The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which potentially higher than those considered by the VaR measurement. (in thousands of Euros) the Value at Risk (VaR) methodology is used. NOVO BANCO Group’s VaR model uses the Monte Carlo simulation, based on a confidence level of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on an observation period of one year. As a complement to VaR, stress testing scenarios have been developed, which allow 6 215 70 332 for the evaluation of the impact of losses potentially higher than those considered by the VaR measurement. 378 523 12 960 ( 14 596) December Annual average Maximum Minimum December Annual average Maximum Minimum 1 204 11 231 784 180 3 821 ( 3 742) 915 14 433 183 37 2 652 ( 2 411) 2 187 35 495 192 139 5 051 ( 5 289) 3 876 42 292 295 314 1 771 ( 4 393) 2 223 29 127 333 470 3 547 ( 5 512) 757 14 433 80 37 1 640 ( 1 138) 2 412 50 203 207 78 3 401 ( 4 383) 31.12.2020 31.12.2019 Exchange risk Interest rate risk Shares and commodities Volatility Credit spread Diversification effect 336 Total 15 809 37 775 75 812 15 809 44 155 30 188 51 918 13 478 NOVO BANCO Group has a VaR of Euro 15,809 thousand (31 December 2019: Euro 44,155 thousand) in respect of its trading positions. The increase is mainly explained by the increase in the position in derivatives to hedge interest rate risk in the banking portfolio. by re-pricing intervals. In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, NOVO BANCO Group calculates the exposure to its balance sheet interest rate risk based on the prescribed shocks, classifying all notional amounts of assets, liabilities and off-balance sheet captions which are sensitive to interest rate and are not part of the trading portfolio, Loans to and deposits with banks Loans and advances to customers Securities Other assets Deposits from banks Due to customers Debt securities issued Other liabilities Off-Balance sheet Structural GAP Accumulated GAP Balance sheet GAP (Assets - Liabilities) Eligible amounts 2 761 847 25 513 997 9 618 019 1 254 599 10 078 636 28 556 210 2 579 547 238 502 (2 304 432) 17 178 (2 287 254) Total Total (in thousands of Euros) 6 months to 1 year 1 to 5 years More than 5 years 12 088 3 159 080 702 515 - 39 456 6 930 509 4 045 230 - 2 651 443 3 169 748 - - 3 873 683 11 015 195 5 821 191 Not sensitive Up to 3 months 2 706 153 9 063 624 1 365 092 656 287 13 791 156 5 328 425 15 019 258 38 502 114 981 - - - - - - - - 31.12.2020 3 to 6 months 4 150 3 709 340 335 434 598 312 4 647 236 3 959 431 2 729 378 875 25 600 350 779 4 455 507 1 784 48 199 214 911 6 312 032 225 089 40 035 - 2 538 386 49 721 6 576 664 4 438 532 (1 807 383) 2 631 150 (3 114 655) 1 2 803 511 3 017 680 (2 190 279) 827 401 (2 287 254) 20 501 166 6 715 284 4 856 269 (6 710 010) 2 587 591 (4 122 419) (4 122 419) (2 068 048) 1 548 714 ( 519 334) (4 641 753) ( 982 586) ( 121 465) (1 104 051) (5 745 805) 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 279- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 2 729 602 402 874 ( 101 157) ( 300 821) 4 832 774 609 428 NOVO BANCO ( 229 312) (1 055 863) ( 646 370) (in thousands of Euros) (1 427 425) 31.12.2020 31.12.2019 2 084 128 2 729 602 402 874 ( 101 157) 2 729 602 4 832 774 609 428 ( 229 312) Opening balance Restructured credits in the period Credits reclassified to "normal" Credits written off Others Total Opening balance Restructured credits in the period Credits reclassified to "normal" Market risk Credits written off Market Risk represents the potential loss resulting from an adverse change in the value of a financial instrument due to fluctuations Others in interest rates, foreign exchange rates, equity prices, commodity prices, volatility and credit spread. (1 427 425) ( 646 370) (1 055 863) ( 300 821) 2 729 602 Total Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and Liability Committee) structure, being this risk monitored by the Risk Committee. 2 084 128 Market risk The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which the Value at Market Risk represents the potential loss resulting from an adverse change in the value of a financial instrument due to fluctuations Risk (VaR) methodology is used. NOVO BANCO Group’s VaR model uses the Monte Carlo simulation, based on a confidence level in interest rates, foreign exchange rates, equity prices, commodity prices, volatility and credit spread. of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on an observation period of one year. As a complement to VaR, stress testing scenarios have been developed, which allow for the evaluation of the impact of losses Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and Liability potentially higher than those considered by the VaR measurement. Committee) structure, being this risk monitored by the Risk Committee. (in thousands of Euros) 31.12.2020 31.12.2019 December Annual average Maximum Minimum December Annual average Maximum Minimum The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which the Value at Risk (VaR) methodology is used. NOVO BANCO Group’s VaR model uses the Monte Carlo simulation, based on a confidence level 6 215 of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on an observation period of one year. 70 332 As a complement to VaR, stress testing scenarios have been developed, which allow for the evaluation of the impact of losses 378 potentially higher than those considered by the VaR measurement. 523 12 960 ( 14 596) Exchange risk Interest rate risk Shares and commodities Volatility Credit spread Diversification effect 915 14 433 183 37 2 652 ( 2 411) 2 187 35 495 192 139 5 051 ( 5 289) 1 204 11 231 784 180 3 821 ( 3 742) 757 14 433 80 37 1 640 ( 1 138) 3 876 42 292 295 314 1 771 ( 4 393) 2 223 29 127 333 470 3 547 ( 5 512) 2 412 50 203 207 78 3 401 ( 4 383) (in thousands of Euros) 31.12.2020 31.12.2019 Total December Annual average Maximum Minimum December Annual average Maximum Minimum 13 478 15 809 37 775 75 812 15 809 44 155 30 188 51 918 Total 757 14 433 80 37 1 640 ( 1 138) 3 876 42 292 295 314 1 771 ( 4 393) 915 14 433 183 37 2 652 ( 2 411) 2 187 35 495 192 139 5 051 ( 5 289) Exchange risk 6 215 70 332 Interest rate risk NOVO BANCO Group has a VaR of Euro 15,809 thousand (31 December 2019: Euro 44,155 thousand) in respect of its trading 378 Shares and commodities positions. The increase is mainly explained by the increase in the position in derivatives to hedge interest rate risk in the banking Volatility 523 portfolio. Credit spread 12 960 NOVO BANCO Group has a VaR of Euro 15,809 thousand (31 December 2019: Euro 44,155 thousand) in respect of its ( 14 596) Diversification effect In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, NOVO trading positions. The decrease is mainly explained by the lower position in derivatives to hedge interest rate risk in the 75 812 BANCO Group calculates the exposure to its balance sheet interest rate risk based on the prescribed shocks, classifying all notional banking portfolio. amounts of assets, liabilities and off-balance sheet captions which are sensitive to interest rate and are not part of the trading portfolio, NOVO BANCO Group has a VaR of Euro 15,809 thousand (31 December 2019: Euro 44,155 thousand) in respect of its trading by re-pricing intervals. positions. The increase is mainly explained by the increase in the position in derivatives to hedge interest rate risk in the banking In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, portfolio. NOVO BANCO Group calculates the exposure to its balance sheet interest rate risk based on the prescribed shocks, classifying all notional amounts of assets, liabilities and off-balance sheet captions which are sensitive to interest rate In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, NOVO BANCO Group calculates the exposure to its balance sheet interest rate risk based on the prescribed shocks, classifying all notional - and are not part of the trading portfolio, by re-pricing intervals. amounts of assets, liabilities and off-balance sheet captions which are sensitive to interest rate and are not part of the trading portfolio, - - by re-pricing intervals. - Loans to and deposits with banks Loans and advances to customers Securities Other assets 1 204 11 231 784 180 3 821 ( 3 742) 2 223 29 127 333 470 3 547 ( 5 512) 2 412 50 203 207 78 3 401 ( 4 383) 2 761 847 25 513 997 9 618 019 1 254 599 31.12.2020 3 to 6 months 6 months to 1 year More than 5 years Eligible amounts Up to 3 months (in thousands of Euros) Not sensitive 1 to 5 years 15 809 13 478 44 155 37 775 15 809 30 188 51 918 12 088 3 159 080 702 515 - 3 873 683 39 456 6 930 509 4 045 230 - 11 015 195 - 2 651 443 3 169 748 - (in thousands of Euros) 5 821 191 2 706 153 9 063 624 1 365 092 656 287 13 791 156 Total Total Total Total Deposits from banks Due to customers Loans to and deposits with banks Debt securities issued Loans and advances to customers Other liabilities Securities Other assets Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Deposits from banks Accumulated GAP Due to customers Debt securities issued Other liabilities Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Accumulated GAP Not sensitive - - - - - - - - - - - - Eligible 10 078 636 amounts 28 556 210 2 761 847 2 579 547 25 513 997 238 502 9 618 019 1 254 599 (2 304 432) 17 178 (2 287 254) 10 078 636 28 556 210 2 579 547 238 502 (2 304 432) 17 178 (2 287 254) Up to 3 5 328 425 months 15 019 258 2 706 153 38 502 9 063 624 114 981 20 501 166 1 365 092 656 287 (6 710 010) 13 791 156 2 587 591 (4 122 419) 5 328 425 (4 122 419) 15 019 258 38 502 114 981 20 501 166 (6 710 010) 2 587 591 (4 122 419) (4 122 419) 4 150 3 709 340 335 434 598 312 4 647 236 31.12.2020 3 to 6 3 959 431 months 2 729 378 4 150 875 3 709 340 25 600 6 715 284 335 434 598 312 (2 068 048) 4 647 236 1 548 714 ( 519 334) 3 959 431 (4 641 753) 2 729 378 875 25 600 6 715 284 (2 068 048) 1 548 714 ( 519 334) (4 641 753) 6 months to 350 779 1 year 4 455 507 12 088 1 784 3 159 080 48 199 4 856 269 702 515 - ( 982 586) 3 873 683 ( 121 465) (1 104 051) 350 779 (5 745 805) 4 455 507 1 784 48 199 4 856 269 ( 982 586) ( 121 465) (1 104 051) (5 745 805) 1 to 5 years 214 911 6 312 032 39 456 - 6 930 509 49 721 6 576 664 4 045 230 - 4 438 532 11 015 195 (1 807 383) 2 631 150 214 911 (3 114 655) 6 312 032 - 49 721 6 576 664 4 438 532 (1 807 383) 2 631 150 (3 114 655) More than 5 225 089 years 40 035 - 2 538 386 2 651 443 1 2 803 511 3 169 748 - 3 017 680 5 821 191 (2 190 279) 827 401 225 089 (2 287 254) 40 035 2 538 386 1 2 803 511 3 017 680 (2 190 279) 827 401 (2 287 254) 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES Not sensitive Up to 3 months 31.12.2019 3 to 6 months Loans to and deposits with banks Loans and advances to customers Securities Eligible amounts 2 208 463 25 332 075 12 334 723 230 656 - 2 774 971 1 637 131 14 844 924 1 110 175 28 348 4 883 296 832 147 5 968 2 689 944 197 390 306 360 1 759 049 3 697 178 - 1 154 862 3 722 862 NOVO BANCO (in thousands of Euros) - 279- More than 5 years 1 to 5 years 6 months to 1 year 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 279- Total 17 592 230 5 743 791 2 893 302 5 762 587 4 877 724 Deposits from banks Due to customers Debt securities issued Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Accumulated GAP Total 9 846 463 28 076 547 1 068 385 (2 121 761) 871 (2 120 890) - - - 4 160 092 13 976 901 150 554 3 517 272 3 022 732 - 85 141 4 990 307 - 2 083 958 5 987 582 2 233 - 99 025 915 597 18 287 547 6 540 004 5 075 448 8 073 773 1 014 622 ( 695 317) 2 097 110 1 401 792 1 401 792 ( 796 213) 2 561 159 1 764 945 3 166 738 (2 182 146) ( 18 473) (2 200 619) 966 118 (2 311 187) (1 780 690) (4 091 877) (3 125 758) 3 863 103 (2 858 234) 1 004 869 (2 120 890) Sensitivity analyzes are carried out for the interest rate risk of the banking portfolio based on the current difference in the interest rate Sensitivity analyzes are carried out for the interest rate risk of the banking portfolio based on the current difference mismatch discounted at current rates and the discounted value of the same cash flows, through scenarios of displacement of the in the interest rate mismatch discounted at current rates and the discounted value of the same cash flows, through parallel yield curves ( displacements of +/- 200 bp) and non-parallel (short rate shock up / down, steepener / flattener shocks), according to the outliers tests defined by the EBA. scenarios of displacement of the parallel yield curves ( displacements of +/- 200 bp) and non-parallel (short rate shock up / down, steepener / flattener shocks), according to the outliers tests defined by the EBA. (in thousands of Euros) 31.12.2020 As at 31 December Exercise average 337 Exercise maximum Exercise minimum As at 31 December Exercise average Exercise maximum Exercise minimum Parallel increase of 200 pb Parallel decrease of 200 pb Short Rate Shock Up Short Rate Shock Down Steepener shock Flattener shock ( 71 576) 109 070 216 808 ( 71 576) 52 191 ( 13 786) 52 191 ( 57 778) ( 87 671) 109 047 235 284 ( 87 671) 49 728 ( 16 353) 49 728 ( 85 746) 13 859 ( 83 437) 13 859 ( 180 041) 8 430 106 919 182 690 8 430 31.12.2019 (in thousands of Euros) Parallel Parallel increase of decrease of 200 pb 200 pb Short Rate Short Rate Steepener Flattener Shock Up Shock Down shock shock ( 44 487) ( 85 848) 10 744 ( 163 540) 29 403 54 406 87 692 29 403 76 935 95 216 147 247 ( 42 071) ( 103 194) ( 16 798) 69 224 ( 317 456) ( 176 020) ( 238 745) ( 176 020) ( 301 807) 102 796 123 974 155 873 102 796 As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their positions in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original objective of risk management or discontinuation of hedging relationships will occur, the Group did not record significant impacts on retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships were subject to the same change (hedged and hedged items). The following table presents the average interest rates for the Group’s major financial asset and liability categories, as at 31 December 2020 and 2019, as well as the respective average balances and interest for the exercise: 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 280- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO (in thousands of Euros) Loans to and deposits with banks Loans and advances to customers Securities Deposits from banks Due to customers Debt securities issued Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Accumulated GAP Eligible amounts 2 208 463 25 332 075 12 334 723 9 846 463 28 076 547 1 068 385 (2 121 761) 871 (2 120 890) Total Total Not sensitive Up to 3 months 6 months to 1 year 1 to 5 years More than 5 years 31.12.2019 3 to 6 months 230 656 1 637 131 - 14 844 924 2 774 971 1 110 175 28 348 4 883 296 832 147 5 968 2 689 944 197 390 306 360 1 759 049 3 697 178 1 154 862 3 722 862 17 592 230 5 743 791 2 893 302 5 762 587 4 877 724 - - - - - 4 160 092 13 976 901 150 554 3 517 272 3 022 732 - 85 141 4 990 307 - 2 083 958 5 987 582 2 233 99 025 915 597 18 287 547 6 540 004 5 075 448 8 073 773 1 014 622 ( 695 317) 2 097 110 1 401 792 1 401 792 ( 796 213) 2 561 159 1 764 945 3 166 738 (2 182 146) ( 18 473) (2 200 619) 966 118 (2 311 187) (1 780 690) (4 091 877) (3 125 758) 3 863 103 (2 858 234) 1 004 869 (2 120 890) Sensitivity analyzes are carried out for the interest rate risk of the banking portfolio based on the current difference in the interest rate mismatch discounted at current rates and the discounted value of the same cash flows, through scenarios of displacement of the parallel yield curves ( displacements of +/- 200 bp) and non-parallel (short rate shock up / down, steepener / flattener shocks), according to the outliers tests defined by the EBA. As at 31 December Exercise average Exercise maximum Exercise minimum As at 31 December Exercise average Exercise maximum Exercise minimum 31.12.2020 (in thousands of Euros) Parallel increase of 200 pb Parallel decrease of 200 pb Short Rate Shock Up Short Rate Shock Down Steepener shock Flattener shock ( 71 576) 109 070 216 808 ( 71 576) 52 191 ( 13 786) 52 191 ( 57 778) ( 87 671) 109 047 235 284 ( 87 671) 49 728 ( 16 353) 49 728 ( 85 746) 13 859 ( 83 437) 13 859 ( 180 041) 8 430 106 919 182 690 8 430 31.12.2019 (in thousands of Euros) Parallel increase of 200 pb Parallel decrease of 200 pb Short Rate Shock Up Short Rate Shock Down Steepener shock Flattener shock ( 44 487) ( 85 848) 10 744 ( 163 540) 29 403 54 406 87 692 29 403 76 935 95 216 147 247 69 224 ( 42 071) ( 103 194) ( 16 798) ( 317 456) ( 176 020) ( 238 745) ( 176 020) ( 301 807) 102 796 123 974 155 873 102 796 As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their positions As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original interest rates, which led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change objective of risk management or discontinuation of hedging relationships will occur, the Group did not record significant impacts on the discount curve of their positions in derivative financial instruments cleared in central counterparty (CCP) from retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships were EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the principle of implementation of the subject to the same change (hedged and hedged items). aforementioned regulation, that no substantial changes to the original objective of risk management or discontinuation The following table presents the average interest rates for the Group’s major financial asset and liability categories, as at 31 December of hedging relationships will occur, the Group did not record significant impacts on retrospective and prospective 2020 and 2019, as well as the respective average balances and interest for the exercise: effectiveness, taking into account that all assets and liabilities involved in hedging relationships were subject to the same change (hedged and hedged items). The following table presents the average interest rates for the Group’s major financial asset and liability categories, as at 31 December 2020 and 2019, as well as the respective average balances and interest for the exercise: NOVO BANCO Monetary assets Loans and advances to customers Securities and other Average balance of the period 2 993 238 24 939 140 10 664 515 31.12.2020 31.12.2019 Interest of the exercise Average interest rate Average balance of the period Interest of the exercise Average interest rate (in thousands of Euros) 16 361 534 229 136 602 0,54% 2,11% 1,26% 1 441 545 28 557 937 10 344 022 19 357 592 057 124 997 Financial assets and differentials 38 596 893 687 192 1,76% 40 343 504 736 411 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES Monetary Liabilities Due to customers Differential liabilities 9 913 212 25 787 192 1 815 289 ( 23 410) 71 688 10 128 8 931 365 27 949 264 2 383 273 -0,23% 0,27% 0,00% 16 817 97 286 8 573 Financial liabilities and differentials 38 596 893 132 058 Net interest income 555 134 0,34% 1,42% 40 343 504 195 798 540 613 1,32% 2,04% 1,19% 1,80% - 280- 0,19% 0,34% 0,00% 0,48% 1,32% Regarding foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December 2020 and 2019, is analyzed as follows: Regarding foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December 2020 and (in thousands of Euros) 2019, is analyzed as follows: 31.12.2020 31.12.2019 Spot Forward Other elements Net exposure Spot Forward Other elements Net exposure USD UNITED STATES DOLLAR ( 754 078) 780 879 99 26 900 ( 965 967) 1 007 651 ( 16 381) GBP GREAT BRITISH POUND ( 66 761) 69 964 ( 2 067) PLN POLISH ZLOTY 28 281 ( 29 125) 73 444 ( 72 362) 2 127 ( 133) - - ( 8 540) 10 903 19 612 ( 19 334) 46 751 ( 46 086) ( 621) ( 35) 5 053 1 ( 3 081) ( 197) 8 781 ( 81) ( 1 545) 9 573 4 447 3 518 ( 230) ( 4 615) - - - - 2 984 373 1 766 ( 9 979) - - 2 067 - - - - - - - - - - - - - - - - - BRL BRAZILIAN REAL MOP MACAO PATACA JPY JAPANESE YEN CHF SWISS FRANC SEK SWEDISH KRONE NOK NORWEGIAN KRONE 338 CAD CANADIAN DOLLAR ZAR SOUTH AFRICAN RAND AUD AUSTRALIAN DOLLAR VEB VENEZUELAN BOLIVAR MAD MOROCCAN DIRHAN MXN MEXICAN PESO AOA ANGOLAN KWANZA CVE CAPE VERDEAN ESCUDO HKD HONG-KONG DOLLAR CZK CZECH KORUNA DZD ALGERIAN DINAR Note: assets / (liabilities) follows: 1 136 1 082 2 127 1 934 2 363 278 665 2 897 ( 265) 438 1 ( 844) ( 97) 176 8 781 ( 81) 221 ( 406) 4 447 ( 60) 3 298 3 076 6 878 103 672 ( 52 218) 4 414 ( 152) - 311 - - - ( 8 133) 12 981 ( 208) 47 140 ( 47 019) - 48 672 ( 47 344) 976 ( 20 391) 44 657 550 3 349 1 36 794 ( 2 748) ( 318) 13 053 ( 65) ( 2) 9 218 7 338 9 211 266 ( 491) 10 753 ( 5 988) 2 708 608 - - - - - 960 946 3 023 - - - - - - - - - - - - - - 25 303 13 252 51 454 4 414 159 4 640 121 2 304 24 266 59 14 102 1 30 806 ( 40) 290 13 053 ( 65) ( 2) 10 178 7 338 10 157 3 289 CNY YUAN REN-MIN-BI 9 427 ( 9 487) OTHER ( 16 072) ( 11 306) ( 27 378) ( 643 647) 667 863 99 24 315 ( 710 800) 934 614 ( 8 735) 215 079 Exposure to sovereign debt of “peripheral” Eurozone countries As at 31 December 2020 and 2019, the Group’s exposure to sovereign debt of “peripheral” Eurozone countries, is presented as 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 281- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED 31.12.2020 31.12.2019 Interest of the Average exercise interest rate Average balance of the period Interest of the Average exercise interest rate NOVO BANCO (in thousands of Euros) Average balance of the period 2 993 238 24 939 140 10 664 515 Monetary assets Loans and advances to customers Securities and other 16 361 534 229 136 602 0,54% 2,11% 1,26% 1 441 545 28 557 937 10 344 022 19 357 592 057 124 997 Financial assets and differentials 38 596 893 687 192 1,76% 40 343 504 736 411 Monetary Liabilities Due to customers Differential liabilities 9 913 212 25 787 192 1 815 289 ( 23 410) 71 688 10 128 Financial liabilities and differentials 38 596 893 132 058 Net interest income 555 134 -0,23% 0,27% 0,00% 0,34% 1,42% 8 931 365 27 949 264 2 383 273 16 817 97 286 8 573 40 343 504 195 798 540 613 1,32% 2,04% 1,19% 1,80% 0,19% 0,34% 0,00% 0,48% 1,32% Regarding foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December 2020 and 2019, is analyzed as follows: 31.12.2020 Spot Forward Other elements Net exposure Spot Forward Other elements Net exposure (in thousands of Euros) 31.12.2019 USD UNITED STATES DOLLAR ( 754 078) 780 879 99 26 900 ( 965 967) 1 007 651 ( 16 381) GBP GREAT BRITISH POUND ( 66 761) 69 964 ( 2 067) BRL BRAZILIAN REAL MOP MACAO PATACA JPY JAPANESE YEN CHF SWISS FRANC 73 444 ( 72 362) 2 127 ( 133) - - ( 8 540) 10 903 SEK SWEDISH KRONE 19 612 ( 19 334) NOK NORWEGIAN KRONE 46 751 ( 46 086) CAD CANADIAN DOLLAR ZAR SOUTH AFRICAN RAND AUD AUSTRALIAN DOLLAR VEB VENEZUELAN BOLIVAR ( 621) ( 35) 5 053 1 3 518 ( 230) ( 4 615) - PLN POLISH ZLOTY 28 281 ( 29 125) MAD MOROCCAN DIRHAN MXN MEXICAN PESO AOA ANGOLAN KWANZA CVE CAPE VERDEAN ESCUDO HKD HONG-KONG DOLLAR CZK CZECH KORUNA DZD ALGERIAN DINAR ( 3 081) ( 197) 8 781 ( 81) ( 1 545) 9 573 4 447 2 984 373 - - 1 766 ( 9 979) - CNY YUAN REN-MIN-BI 9 427 ( 9 487) OTHER ( 16 072) ( 11 306) - - 2 067 - - - - - - - - - - - - - - - - - 1 136 1 082 2 127 1 934 2 363 278 665 2 897 ( 265) 438 1 ( 844) ( 97) 176 8 781 ( 81) 221 ( 406) 4 447 ( 60) ( 27 378) 3 298 3 076 6 878 103 672 ( 52 218) 4 414 ( 152) - 311 - - - ( 8 133) 12 981 ( 208) 47 140 ( 47 019) - 48 672 ( 47 344) 976 ( 20 391) 44 657 550 3 349 1 36 794 ( 2 748) ( 318) 13 053 ( 65) ( 2) 9 218 7 338 9 211 266 ( 491) 10 753 - ( 5 988) 2 708 608 - - - 960 - 946 3 023 - - - - - - - - - - - - - - 25 303 13 252 51 454 4 414 159 4 640 121 2 304 24 266 59 14 102 1 30 806 ( 40) 290 13 053 ( 65) ( 2) 10 178 7 338 10 157 3 289 ( 643 647) 667 863 99 24 315 ( 710 800) 934 614 ( 8 735) 215 079 Note: assets / (liabilities) Exposure to sovereign debt of “peripheral” Eurozone countries As at 31 December 2020 and 2019, the Group’s exposure to sovereign debt of “peripheral” Eurozone countries, is presented as follows: Exposure to sovereign debt of “peripheral” Eurozone countries As at 31 December 2020 and 2019, the Group’s exposure to sovereign debt of “peripheral” Eurozone countries, is presented as follows: NOVO BANCO 31.12.2020 (in thousands of Euros) Loans and advances to customers Securities held for trading Derivative instruments (1) Securities at fair value through other comprehensive income Securities at amortised cost Total 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES Portugal Spain Ireland Italy 267 016 - - - 591 859 - - - ( 16) - - - 2 780 473 2 039 075 237 844 134 238 420 670 - - - - 281- 4 060 002 2 039 075 237 844 134 238 (1) Net values: receivable / (payable) 591 859 267 016 ( 16) 5 191 630 420 670 6 471 159 Loans and advances to customers Securities held for trading Derivative instruments (1) 627 469 35 924 - - 249 778 5 070 - - 663 393 254 848 ( 41) - - - ( 41) Portugal Spain Ireland Italy (1) Net values: receivable / (payable) 31.12.2019 Securities at fair value through other comprehensive income (in thousands of Euros) Securities at amortised cost Total 3 362 756 2 181 282 227 581 118 828 458 556 - - - 4 698 518 2 222 276 227 581 118 828 5 890 447 458 556 7 267 203 Except for Loans and advances to customers, all the exposures presented above, except those relating to loans and advances to customers, are recorded in the Group’s balance sheet at fair value, based on market quotations or, in the case derivatives, based on valuation techniques using observable market parameters / prices. 339 The details of the exposure regarding the securities is as follows: 31.12.2020 Nominal Amount Market quotation Accrued Carrying book interest value Impairment Fair value reserves (in thousands of Euros) Securities at fair value through other comprehensive income Portugal Maturity up to 1 year Maturity exceeding 1 year Spain Ireland Italy Maturity up to 1 year Maturity exceeding 1 year Maturity exceeding 1 year Maturidade até 1 ano Maturity exceeding 1 year Securities at amortised cost Portugal Spain Securities held for trading Portugal Maturity exceeding 1 year 2 420 973 227 455 2 193 518 2 753 428 27 045 231 102 1 760 2 522 326 25 285 2 780 473 232 862 2 547 611 1 894 750 2 012 871 26 204 2 039 075 380 000 382 512 1 060 383 572 1 514 750 1 630 359 25 144 1 655 503 193 600 193 600 236 205 236 205 129 821 133 655 80 000 49 821 81 801 51 854 1 639 1 639 583 393 190 237 844 237 844 134 238 82 194 52 044 4 639 144 5 136 159 55 471 5 191 630 213 500 264 033 2 983 267 016 - - - - 213 500 264 033 2 983 267 016 419 438 419 438 478 998 478 998 1 811 1 811 420 670 420 670 419 438 478 998 1 811 420 670 579 579 579 - - - - - - - - - - - - - - - 129 520 798 128 722 75 509 1 480 74 029 39 340 39 340 4 177 1 616 2 561 248 546 - - - - - - 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 282- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO (in thousands of Euros) Loans and advances to customers Securities held Derivative value through other Securities at for trading instruments (1) comprehensive amortised cost Total 31.12.2020 Securities at fair 591 859 267 016 ( 16) 420 670 - - - - - - - - - income 2 780 473 2 039 075 237 844 134 238 4 060 002 2 039 075 237 844 134 238 - - - 591 859 267 016 ( 16) 5 191 630 420 670 6 471 159 Loans and advances to customers Securities held for trading Derivative instruments (1) 31.12.2019 Securities at fair value through other comprehensive income (in thousands of Euros) Securities at amortised cost Total 627 469 35 924 - - 249 778 5 070 - - ( 41) - - - 3 362 756 2 181 282 227 581 118 828 458 556 - - - 4 698 518 2 222 276 227 581 118 828 (1) Net values: receivable / (payable) Portugal Spain Ireland Italy Portugal Spain Ireland Italy 663 393 254 848 ( 41) 5 890 447 458 556 7 267 203 Except for Loans and advances to customers, all the exposures presented above, except those relating to loans and (1) Net values: receivable / (payable) advances to customers, are recorded in the Group’s balance sheet at fair value, based on market quotations or, in the Except for Loans and advances to customers, all the exposures presented above, except those relating to loans and advances to case derivatives, based on valuation techniques using observable market parameters / prices. customers, are recorded in the Group’s balance sheet at fair value, based on market quotations or, in the case derivatives, based on valuation techniques using observable market parameters / prices. The details of the exposure regarding the securities is as follows: The details of the exposure regarding the securities is as follows: Securities at fair value through other comprehensive income Portugal Maturity up to 1 year Maturity exceeding 1 year Spain Maturity up to 1 year Maturity exceeding 1 year Ireland Maturity exceeding 1 year Italy Maturidade até 1 ano Maturity exceeding 1 year Securities at amortised cost Portugal Spain Securities held for trading Portugal Maturity exceeding 1 year Securities at fair value through other comprehensive income 31.12.2020 Nominal Amount Market quotation Accrued interest Carrying book value Impairment Fair value reserves (in thousands of Euros) 2 420 973 227 455 2 193 518 2 753 428 27 045 231 102 2 522 326 1 760 25 285 2 780 473 232 862 2 547 611 1 894 750 2 012 871 26 204 2 039 075 380 000 382 512 1 060 383 572 1 514 750 1 630 359 25 144 1 655 503 193 600 193 600 236 205 236 205 129 821 133 655 80 000 49 821 81 801 51 854 1 639 1 639 583 393 190 237 844 237 844 134 238 82 194 52 044 4 639 144 5 136 159 55 471 5 191 630 213 500 - 213 500 264 033 - 264 033 2 983 - 2 983 267 016 - 267 016 - - - - - - - - - - - - - - - 419 438 419 438 478 998 478 998 1 811 1 811 420 670 420 670 419 438 478 998 1 811 420 670 579 579 579 129 520 798 128 722 75 509 1 480 74 029 39 340 39 340 4 177 1 616 2 561 248 546 - - - - - - 31.12.2019 Nominal Amount Market quotation Accrued interest Carrying book value Impairment Fair value reserves NOVO BANCO (in thousands of Euros) Portugal 2 831 709 3 325 924 36 832 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES Maturity up to 1 year 377 369 10 3 362 756 387 Maturity exceeding 1 year Spain Maturity exceeding 1 year Ireland Maturity exceeding 1 year Italy Maturity exceeding 1 year Securities at amortised cost Portugal Spain Securities held for trading Portugal Maturity exceeding 1 year 2 831 340 3 325 547 36 822 3 362 369 2 007 130 2 007 130 2 154 408 2 154 408 26 874 26 874 2 181 282 2 181 282 200 000 200 000 115 606 115 606 225 855 225 855 118 261 118 261 1 726 1 726 567 567 227 581 227 581 118 828 118 828 5 154 445 5 824 448 65 999 5 890 447 202 280 5 000 207 280 245 105 5 065 250 170 4 673 5 4 678 249 778 5 070 254 848 457 230 457 230 526 916 526 916 2 030 2 030 458 556 458 556 457 230 526 916 2 030 458 556 704 704 704 - - - - - - - - - - - - - 161 516 - 282- 1 161 515 74 753 74 753 22 419 22 419 2 816 2 816 261 504 - - - - - - Liquidity risk Liquidity risk is the current or future risk that arises from an institution's inability to meet its liabilities as they mature, without incurring substantial losses. Liquidity risk can be divided into two types: • • 340 Liquidity of assets (market liquidity risk) - consists in the impossibility of selling a certain type of asset due to the lack of liquidity in the market, which translates into the widening of the bid / offer spread or the application of a haircut to the market value; Financing (funding liquidity risk) - consists of the impossibility of financing the assets in the market and / or refinancing the debt that is maturing, in the terms and in the desired currency. This impossibility can be reflected through a strong increase in the cost of financing or the requirement for collateral to obtain funds. The difficulty of (re) financing can lead to the sale of assets, even if incurring significant losses. The risk of (re) financing must be minimized through an adequate diversification of funding sources and maturity terms. Banks are subject to liquidity risk due to their maturity transformation business (long-term lenders and short-term depositors), so prudent liquidity risk management is therefore crucial. As at 31 December 2020, the value of the asset portfolio eligible as collateral for rediscounting operations with the ECB, after haircuts, amounted to Euro 16.7 billion (31 December 2019: Euro 15.3 billion). This amount includes all the exposure to Portuguese sovereign debt, in the total amount of approximately Euro 2.5 billion. During 2020, gross financing from the ECB increased by Euro 910 million to a total of Euro 7.0 billion. The liquidity of NOVO BANCO Group is managed in a centralized manner, in the Headquarters, for the prudential consolidation perimeter, and the analysis and decision making made based on the mismatch reports, which allow, not only to identify negative mismatches but also to make a dynamic hedging of those mismatches. As at 31 December 2020 and 2019, the calculation of the liquid contractual deficit and the counterbalancing capacity was performed following the ITS (Implementing Technical Standards) rules: 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 283- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Liquidity risk Liquidity risk is the current or future risk that arises from an institution's inability to meet its liabilities as they mature, without incurring substantial losses. Liquidity risk can be divided into two types: • Liquidity of assets (market liquidity risk) - consists in the impossibility of selling a certain type of asset due to the lack of liquidity in the market, which translates into the widening of the bid / offer spread or the application of a haircut to the market value; • Financing (funding liquidity risk) - consists of the impossibility of financing the assets in the market and / or refinancing the debt that is maturing, in the terms and in the desired currency. This impossibility can be reflected through a strong increase in the cost of financing or the requirement for collateral to obtain funds. The difficulty of (re) financing can lead to the sale of assets, even if incurring significant losses. The risk of (re) financing must be minimized through an adequate diversification of funding sources and maturity terms. Banks are subject to liquidity risk due to their maturity transformation business (long-term lenders and short-term depositors), so prudent liquidity risk management is therefore crucial. As at 31 December 2020, the value of the asset portfolio eligible as collateral for rediscounting operations with the ECB, after haircuts, amounted to Euro 16.7 billion (31 December 2019: Euro 15.3 billion). This amount includes all the exposure to Portuguese sovereign debt, in the total amount of approximately Euro 2.5 billion. During 2020, gross financing from the ECB increased by Euro 910 million to a total of Euro 7.0 billion. The liquidity of NOVO BANCO Group is managed in a centralized manner, in the Headquarters, for the prudential consolidation perimeter, and the analysis and decision making made based on the mismatch reports, which allow, not only to identify negative mismatches but also to make a dynamic hedging of those mismatches. As at 31 December 2020 and 2019, the calculation of the liquid contractual deficit and the counterbalancing capacity was performed NOVO BANCO following the ITS (Implementing Technical Standards) rules: Total Up to 7 days 7 days to 1 month 1 to 3 months 3 to 6 months 6 months to 1 year More than 1 year 31.12.2020 (in thousands of Euros) OUTPUT Liabilities from emited transferable securities (if they're not treated as retail deposits) 153 890 9 153 881 Liabilities from guaranteed lending operations and operations associated to financial markets Behavioral output from deposits Exchange swaps and derivatives Other output Total Output INPUT 9 161 995 68 874 106 104 53 504 150 000 264 458 8 519 055 30 328 564 625 681 550 075 302 562 110 144 116 570 144 781 147 268 283 894 140 000 174 392 423 579 29 164 193 32 623 11 515 34 865 19 374 398 560 40 820 205 481 580 367 455 624 666 368 530 722 911 38 255 063 Secured lending operations and operations associated to financial markets 203 306 60 917 142 389 Behavioral inputs from loans and advances Exchange swaps and derivatives Own portfolio securities maturing and other entries Total Input Net contractual deficit 28 076 498 897 437 12 128 378 75 788 103 389 103 580 58 182 145 071 155 916 166 741 287 285 376 999 236 943 472 123 27 066 721 48 500 71 166 242 026 835 242 898 046 9 758 595 41 305 619 343 674 359 169 831 025 1 120 685 1 441 335 37 209 731 485 417 ( 137 906) ( 8 286) 206 360 752 156 718 425 (1 045 332) Accumulated net contractual deficit ( 137 906) ( 146 192) 60 168 812 324 1 530 749 485 417 CAPACITY TO READJUSTMENT Cash Deployable reserves from the central bank Stock Inicial até 7 dias 149 205 2 030 915 (2 030 915) de 7 dias até 1 mês de 1 a 3 meses de 3 a 6 meses de 6m a 1 ano superior a 1 ano Negotiable and non-negotiable assets eligible for the central bank 8 033 197 67 249 106 994 ( 123 762) ( 91 281) ( 587 185) (7 262 493) Authorized facilities and not utilized received Net variation of capacity to adjustment ( 29 275) ( 55 212) ( 199 759) ( 350 461) ( 288 680) 923 388 (1 992 941) 51 782 ( 323 521) ( 441 742) ( 875 865) (6 339 105) Accumulated capacity to readjustment 10 213 317 8 220 376 8 272 158 7 948 637 7 506 895 6 631 030 291 925 31.12.2019 (in thousands of Euros) Total Up to 7 days 7 days to 1 month 1 to 3 months 3 to 6 months 6 months to 1 year More than 1 year 317 370 2 247 4 593 - - 8 572 412 182 428 1 064 096 1 334 720 3 210 000 - - 310 530 2 781 168 30 163 144 389 848 9 073 145 906 52 238 271 957 401 015 584 667 409 894 473 958 572 820 28 308 655 46 635 11 515 43 769 31 937 - 398 379 40 047 487 583 596 1 266 833 2 007 692 3 742 108 616 589 31 830 669 - - - - - - 26 664 085 870 310 11 843 305 65 307 8 500 70 687 24 399 48 381 73 279 39 856 404 527 58 074 79 972 123 646 26 352 803 62 781 266 149 43 601 1 254 462 203 771 10 197 505 39 377 700 144 494 146 059 487 984 1 392 508 390 198 36 816 457 ( 669 786) ( 439 103) (1 120 773) (1 519 709) (2 349 600) ( 226 391) 4 985 790 341 OUTPUT Liabilities from emited transferable securities (if they're not treated as retail deposits) Liabilities from guaranteed lending operations and operations associated to financial markets Behavioral output from deposits Exchange swaps and derivatives Other output Total Output INPUT Behavioral inputs from loans and advances Exchange swaps and derivatives Own portfolio securities maturing and other entries Total Input Net contractual deficit Cash Deployable reserves from the central bank Authorized facilities and not utilized received Net variation of capacity to adjustment Accumulated capacity to readjustment Secured lending operations and operations associated to financial markets - - - - Accumulated net contractual deficit - ( 439 103) (1 559 876) (3 079 585) (5 429 185) (5 655 576) ( 669 786) CAPACITY TO READJUSTMENT Stock Inicial Up to 7 days 1 to 3 months 3 to 6 months 7 days to 1 month 6 months to 1 More than 1 year year Negotiable and non-negotiable assets eligible for the central bank 7 749 500 1 117 471 78 479 ( 22 239) ( 201 402) (8 781 071) 179 219 1 141 351 (1 141 351) 182 063 ( 39 646) - - ( 79 970) ( 227 545) 1 655 230 ( 167 165) (1 140 903) ( 998 934) 1 037 501 ( 149 066) 1 632 991 ( 368 567) (9 921 974) 9 070 070 8 071 136 9 108 637 8 959 571 10 592 562 10 223 995 302 021 As at 31 December 2020, there was an accumulated 1-year net contractual surplus of Euro 1,700 million, having shifted at the end of 2019 to an accumulated 1-year net contractual deficit of Euro 5,656 million. This improvement is due to that, at the end of 2019, there was a Euro 6,410 million takeover to the ECB in less than 1 year. The 1-year counterbalancing capacity at the end of 2020 was Euro 6,631 million, Euro 3,593 million less than the figure recorded at the end of 2019 (Euro 10,224 million). 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 284- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Liabilities from emited transferable securities (if they're not treated as retail Liabilities from guaranteed lending operations and operations associated to 9 161 995 68 874 106 104 53 504 150 000 264 458 8 519 055 NOVO BANCO (in thousands of Euros) 9 153 881 Total Up to 7 days 1 to 3 months 3 to 6 months 7 days to 1 month 6 months to 1 More than 1 year year 31.12.2020 153 890 30 328 564 625 681 550 075 302 562 110 144 116 570 144 781 147 268 283 894 140 000 174 392 423 579 29 164 193 32 623 11 515 34 865 19 374 398 560 40 820 205 481 580 367 455 624 666 368 530 722 911 38 255 063 financial markets Behavioral output from deposits Exchange swaps and derivatives OUTPUT deposits) Other output Total Output INPUT Secured lending operations and operations associated to financial markets 203 306 60 917 142 389 Behavioral inputs from loans and advances Exchange swaps and derivatives Own portfolio securities maturing and other entries Total Input Net contractual deficit 28 076 498 897 437 12 128 378 75 788 103 389 103 580 58 182 145 071 155 916 166 741 287 285 376 999 236 943 472 123 27 066 721 48 500 71 166 242 026 835 242 898 046 9 758 595 41 305 619 343 674 359 169 831 025 1 120 685 1 441 335 37 209 731 485 417 ( 137 906) ( 8 286) 206 360 752 156 718 425 (1 045 332) Accumulated net contractual deficit ( 137 906) ( 146 192) 60 168 812 324 1 530 749 485 417 CAPACITY TO READJUSTMENT Cash Deployable reserves from the central bank Stock Inicial até 7 dias 149 205 2 030 915 (2 030 915) de 7 dias até 1 mês de 1 a 3 meses de 3 a 6 meses de 6m a 1 ano superior a 1 ano Negotiable and non-negotiable assets eligible for the central bank 8 033 197 67 249 106 994 ( 123 762) ( 91 281) ( 587 185) (7 262 493) Authorized facilities and not utilized received Net variation of capacity to adjustment ( 29 275) ( 55 212) ( 199 759) ( 350 461) ( 288 680) 923 388 (1 992 941) 51 782 ( 323 521) ( 441 742) ( 875 865) (6 339 105) Accumulated capacity to readjustment 10 213 317 8 220 376 8 272 158 7 948 637 7 506 895 6 631 030 291 925 OUTPUT Liabilities from emited transferable securities (if they're not treated as retail deposits) Liabilities from guaranteed lending operations and operations associated to financial markets Behavioral output from deposits Exchange swaps and derivatives Other output Total Output INPUT 31.12.2019 (in thousands of Euros) Total Up to 7 days 7 days to 1 month 1 to 3 months 3 to 6 months 6 months to 1 year More than 1 year 317 370 2 247 4 593 - - 8 572 412 182 428 1 064 096 1 334 720 3 210 000 - - 310 530 2 781 168 30 163 144 389 848 584 667 409 894 9 073 - 145 906 52 238 - 271 957 401 015 - 473 958 572 820 28 308 655 46 635 11 515 43 769 31 937 - 398 379 40 047 487 583 596 1 266 833 2 007 692 3 742 108 616 589 31 830 669 Secured lending operations and operations associated to financial markets - - - - - - - Behavioral inputs from loans and advances Exchange swaps and derivatives Own portfolio securities maturing and other entries Total Input Net contractual deficit 26 664 085 870 310 11 843 305 65 307 8 500 70 687 24 399 48 381 73 279 39 856 404 527 58 074 79 972 123 646 26 352 803 62 781 266 149 43 601 1 254 462 203 771 10 197 505 39 377 700 144 494 146 059 487 984 1 392 508 390 198 36 816 457 ( 669 786) ( 439 103) (1 120 773) (1 519 709) (2 349 600) ( 226 391) 4 985 790 Accumulated net contractual deficit - ( 439 103) (1 559 876) (3 079 585) (5 429 185) (5 655 576) ( 669 786) CAPACITY TO READJUSTMENT Cash Deployable reserves from the central bank Stock Inicial Up to 7 days 179 219 1 141 351 (1 141 351) 7 days to 1 month 1 to 3 months 3 to 6 months 6 months to 1 year More than 1 year Negotiable and non-negotiable assets eligible for the central bank 7 749 500 Authorized facilities and not utilized received Net variation of capacity to adjustment Accumulated capacity to readjustment 182 063 ( 39 646) 1 117 471 78 479 ( 22 239) ( 201 402) (8 781 071) ( 79 970) ( 227 545) 1 655 230 ( 167 165) (1 140 903) ( 998 934) 1 037 501 ( 149 066) 1 632 991 ( 368 567) (9 921 974) - - 9 070 070 8 071 136 9 108 637 8 959 571 10 592 562 10 223 995 302 021 As at 31 December 2020, there was an accumulated 1-year net contractual surplus of Euro 1,700 million, having shifted at the end of 2019 to an accumulated 1-year net contractual deficit of Euro 5,656 million. This improvement is due to that, at the end of 2019, there was a Euro 6,410 million takeover to the ECB in less than 1 year. The 1-year counterbalancing capacity at the end of 2020 was As at 31 December 2020, there was an accumulated 1-year net contractual surplus of Euro 1,700 million, having Euro 6,631 million, Euro 3,593 million less than the figure recorded at the end of 2019 (Euro 10,224 million). shifted at the end of 2019 to an accumulated 1-year net contractual deficit of Euro 5,656 million. This improvement is due to that, at the end of 2019, there was a Euro 6,410 million takeover to the ECB in less than 1 year. The 1-year counterbalancing capacity at the end of 2020 was Euro 6,631 million, Euro 3,593 million less than the figure recorded 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES at the end of 2019 (Euro 10,224 million). - 284- In order to anticipate possible negative impacts, internal liquidity stress scenarios representative of the types of crisis that may occur are carried out, based on idiosyncratic scenarios (characterized by a loss of confidence in the Bank), and market scenarios. In addition, and given the importance of liquidity risk management, the regulatory legislation includes a liquidity coverage ratio (Liquidity Coverage Ratio - LCR) and a stable financing ratio (Net Stable Funding Ratio - NSFR). The LCR aims to promote banks' resilience to short-term liquidity risk, ensuring that they hold high-quality liquid assets, sufficient to survive a severe stress scenario, for a period of 30 days, while the NSFR aims to ensure that Banks maintain stable financing for their assets and off-balance sheet operations, for a period of one year. In accordance with current regulatory legislation, the Group is obliged to comply with a minimum limit of 100% in the LCR. The Group continues to follow regulatory changes in order to comply with all obligations, namely the implemen- tation of the NSFR and the respective limit. The information on encumbered and unencumbered assets, as defined by Instruction no. 28/2014 of Bank of Portugal (note that this information is prepared from a prudential perspective, where the consolidation perimeter differs from that used in the financial statements presented) is shown in the table below: 342 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Assets Assets Assets of the institution Equity instruments Debt securities Other assets Assets of the institution Equity instruments Debt securities Other assets Collateral received Collateral received Equity instruments Debt securities Other collateral received Own debt securities issued other than own covered bonds or ABS 31.12.2020 (in thousands of Euros) Carrying book value of encumbered assets Fair value of encumbered assets Carrying book value of unencumbered assets Fair value of unencumbered assets 12 868 205 - 1 999 618 10 868 587 n/a - 1 999 618 n/a 31 849 466 1 866 679 8 500 364 21 482 423 n/a 1 866 679 8 500 364 n/a 31.12.2019 (in thousands of Euros) Carrying book value of encumbered assets Fair value of encumbered assets Carrying book value of unencumbered assets Fair value of unencumbered assets 13 323 907 - 2 375 384 10 948 523 n/a - 2 375 384 n/a 31.12.2020 32 236 016 2 434 131 8 329 159 21 472 726 n/a 2 434 131 8 329 159 n/a (in thousands of Euros) 31.12.2019 Fair value of encumbered collateral received or of own debt securities issued Fair value of collateral received or of own debt securities issued and encumberable Fair value of encumbered collateral received or of own debt securities issued Fair value of collateral received or of own debt securities issued and encumberable - - - - - - - - - - - - - - - - - - - - 31.12.2020 (in thousands of Euros) 31.12.2019 Encumbered assets, encumbered collateral received and associated liabilities Associated liabilities, contingent liabilities and securities loaned Assets, collateral received and own debt securities issued other than encumbered own covered bonds or ABS Associated liabilities, contingent liabilities and securities loaned Assets, collateral received and own debt securities issued other than encumbered own covered bonds or ABS Carrying book value of the selected financial liabilities 9 250 342 12 868 205 8 715 669 13 323 906 The encumbered assets are represented essentially by credits and securities used in financing operations with the ECB, in repo operations, in mortgage bond issues and in securitizations. There are also assets given in collateral to hedge the Bank's counterparty risk in derivative transactions. Operational risk Operational risk generally translates into the probability of the occurrence of events with negative impacts, in the results or in the capital, resulting from the inadequacy or deficiency of procedures and information systems, the behavior of people or motivated by external events, including legal risks. Thus, operational risk is understood as the calculation of the following risks: operational, information systems, compliance and reputation. For the management of operational risk, a system was developed and implemented to ensure the uniformity, sys- tematization and recurrence of the activities for the identification, monitoring, control and mitigation of this risk. This system is supported by an organizational structure, integrated in the Global Risk Department exclusively dedicated to this task, as well as by Operational Risk Management Representatives designated by each of the departments, branches and subsidiaries considered relevant, which are responsible for complying with the procedures. and the day-to-day management of this Risk in its areas of competence. 343 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESCapital Management and Solvency Ratio The main objective of the Group’s capital management is to ensure compliance with the Group’s strategic objectives in terms of capital adequacy, respecting and enforcing the requirements for calculating risk-weighted assets and own funds and ensuring compliance with the levels of solvency and leverage defined by the supervisory entities, in particular by the European Central Bank (ECB) – the entity directly responsible for the supervision of the Bank - and by the Bank of Portugal, and internally stipulated risk appetite for capital metrics. The definition of the strategy for capital adequacy management rests with the Executive Board of Directors and is integrated in the global definition of the Group objectives. The capital ratios of the Group are calculated based on the rules defined in Directive 2013/36/EU and Regulation (EU) no. 575/2013 (CRR) that define the criteria for the access to the credit institution and investment company activity and determine the prudential requirements to be observed by those same entities, in particular to the calculation of the ratios mentioned above. The Group is authorized to apply the Internal Ratings-Based Approach (IRB) for the calculation of risk weighted assets by credit risk. In particular, the IRB method is applied to the exposure classes of institutions, corporate and retail of NOVO BANCO Group. The equity’ risk classes, the positions taken in the form of securitization, the positions taken in the form of participation units in investment funds, and the elements that are not credit obligations are always handled by the IRB method regardless of the Bank entities in which the respective exposures are recorded. The standard method is used in the determination of risk weighted assets by market and operational risks. The regulatory capital components considered in the determination of solvency ratios are divided into own funds of level 1 (common equity Tier I or CET I), additional own funds of level 1 (additional Tier I) which combined with the CET I constitute the own funds of level I (Tier I), and own funds of level 2 (or Tier II) which added to the Tier I represent the total own funds. The total own funds of NOVO BANCO Group are composed by elements of CET I and Tier II Additional information on the evolution and composition of NOVO BANCO Group's capital ratios can be found in the Group's Market Discipline Document (point 3. Capital Adequacy). The summary of own funds, risk weighted assets and capital ratios capital of NOVO BANCO Group as at 31 December 2020 and 2019 are presented in the following table: 344 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDRealised ordinary share capital, issue premiums and own shares Reserves and Retained earnings Net income for the year attributable to shareholders of the Bank Non-controlling interests (minorities) A - Equity (prudential perspective) Non-controlling interests (minorities) Adjustments of additional valuation Transitional period to IFRS9 Goodwill and other intangibles Insufficiency of provisions given the expected losses Deferred tax assets and shareholdings in financial companies Realised ordinary share capital, issue premiums and own shares Outros Reserves and Retained earnings B - Regulatory adjustments to equity Net income for the year attributable to shareholders of the Bank C - Own principal funds level 1 - CET I (A+B) Non-controlling interests (minorities) Other eligible instruments for additional Tier 1 A - Equity (prudential perspective) D - Additional own funds Level 1 - Additional Tier 1 Non-controlling interests (minorities) E - Level 1 own funds - Tier I (C+D) Adjustments of additional valuation Transitional period to IFRS9 Subordinated liabilities elegible for Tier II Goodwill and other intangibles Other elements elegible for Tier II Insufficiency of provisions given the expected losses Regulatory adjustments for Tier II Deferred tax assets and shareholdings in financial companies Outros F - Level 2 own funds - Tier II G - Eligible own funds (E+F) B - Regulatory adjustments to equity C - Own principal funds level 1 - CET I (A+B) Credit risk Market risk Other eligible instruments for additional Tier 1 Operational risk D - Additional own funds Level 1 - Additional Tier 1 H - Risk Weighted Assets E - Level 1 own funds - Tier I (C+D) Solvability ratio Subordinated liabilities elegible for Tier II Other elements elegible for Tier II Regulatory adjustments for Tier II CET I ratio Tier I ratio Solvability ratio F - Level 2 own funds - Tier II Leverage ratio(2) G - Eligible own funds (E+F) (in million Euros) 31.12.2020 (1) 31.12.2019 5 900 ( 1 447) ( 1 329) 17 3 141 ( 10) ( 11) 356 ( 57) 31.12.2020 (1) ( 59) ( 51) 5 900 ( 280) ( 1 447) ( 113) ( 1 329) 3 029 17 1 3 141 1 3 030 ( 10) 3 030 ( 11) 356 399 ( 57) 113 ( 59) - ( 51) 512 ( 280) 3 542 ( 113) 23 848 3 029 1 279 1 1 592 1 3 030 26 718 3 030 399 11,3% 113 11,3% - 13,3% 512 (C/H) (E/H) (G/H) NOVO BANCO (in million Euros) 31.12.2019 5 900 ( 869) ( 1 058) 18 3 992 ( 11) ( 13) 225 ( 34) ( 85) ( 9) 5 900 ( 68) ( 869) 4 ( 1 058) 3 996 18 1 3 992 1 ( 11) 3 998 ( 13) 225 398 ( 34) 124 ( 85) ( 45) ( 9) 478 ( 68) 4 475 4 26 243 3 996 1 857 1 1 479 1 29 579 3 998 398 13,5% 124 13,5% ( 45) 15,1% 478 6,5% 3 542 8,4% 4 475 (1) Preliminary. The accounts contain an aggregate provision of 166 million euros in relation to the discontinuation of Spanish operations. As there is a potential for dispute between the parties and therefore potential barrier to immediate access of this amount, the Bank, as a matter of prudence, has deducted this amount from regulatory capital calculation. Credit risk Market risk Operational risk H - Risk Weighted Assets (2) The leverage ratio results from spliting Tier 1 for the exposure measure in accordance to the terms of the CRR Solvability ratio 26 243 1 857 1 479 29 579 23 848 1 279 1 592 26 718 CET I ratio Tier I ratio Solvability ratio (C/H) (E/H) (G/H) 11,3% 11,3% 13,3% 13,5% 13,5% 15,1% NOTA 43 – RELEVANT TRANSACTIONS OCCURRED IN THE FINANCIAL YEARS OF 2020 AND 2019 6,5% Financial year 2020 Leverage ratio(2) NOTE 43 – Relevant transaction occurred in the financial years of 2020 and 2019 (1) Preliminary. The accounts contain an aggregate provision of 166 million euros in relation to the discontinuation of Spanish operations. As there is a potential for dispute between Sale of a portfolio of non-performing loans (called Project Carter) the parties and therefore potential barrier to immediate access of this amount, the Bank, as a matter of prudence, has deducted this amount from regulatory capital calculation. On 23 December 2020, NOVO BANCO entered into a purchase and sale agreement for a portfolio of non-performing loans (non- performing loans) and related assets (together, the Carter Project), with a net book value of Euro 37.0 million (gross amount of Euro (2) The leverage ratio results from spliting Tier 1 for the exposure measure in accordance to the terms of the CRR 82.8 million), to a company owned by affiliated companies and advised by AGG Capital Management Limited and Christofferson, Financial year 2020 Robb & Company, LLC. The impact of this operation on the net income for the year 2020 was reflected in a gain of Euro 2.9 million. NOTA 43 – RELEVANT TRANSACTIONS OCCURRED IN THE FINANCIAL YEARS OF 2020 AND 2019 Sale of a portfolio of non-performing loans (called Project Carter) (in thousands of Euros) On 23 December 2020, NOVO BANCO entered into a purchase and sale agreement for a portfolio of non-performing Impact on Income Statement Financial year 2020 loans (non-performing loans) and related assets (together, the Carter Project), with a net book value of Euro 37.0 3 337 Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Sale of a portfolio of non-performing loans (called Project Carter) million (gross amount of Euro 82.8 million), to a company owned by affiliated companies and advised by AGG Capital -405 Impairment net of reversals of financial assets not designated at fair value through profit or loss On 23 December 2020, NOVO BANCO entered into a purchase and sale agreement for a portfolio of non-performing loans (non- Management Limited and Christofferson, Robb & Company, LLC. The impact of this operation on the net income for performing loans) and related assets (together, the Carter Project), with a net book value of Euro 37.0 million (gross amount of Euro 2 932 Impact on Net Income 82.8 million), to a company owned by affiliated companies and advised by AGG Capital Management Limited and Christofferson, the year 2020 was reflected in a gain of Euro 2.9 million. Robb & Company, LLC. The impact of this operation on the net income for the year 2020 was reflected in a gain of Euro 2.9 million. 31.12.2020 8,4% 2019 Exercise Impact on Income Statement Sale of Non-Performing Loans portfolio (Project Nata II) (in thousands of Euros) 31.12.2020 Results from the sale of financial assets and liabilities not designated at fair value through profit or loss 3 337 In the last quarter of 2019, NOVO BANCO and Fundo Arrábida signed a promissory purchase and sale Agreement with Burlington -405 Impairment net of reversals of financial assets not designated at fair value through profit or loss Loan Management DAC, a company affiliated and advised by Davidson Kempner European Partners, Llp, for the sale of a portfolio Impact on Net Income 2 932 of overdue loans and exposures related (NATA II Project). The impact of this operation on the balance sheet resulted in a reduction of net assets of Euro -83.5 million. 2019 Exercise Sale of Non-Performing Loans portfolio (Project Nata II) 31 December 2020 Notes to the Consolidated Financial Statements 127 In the last quarter of 2019, NOVO BANCO and Fundo Arrábida signed a promissory purchase and sale Agreement with Burlington Loan Management DAC, a company affiliated and advised by Davidson Kempner European Partners, Llp, for the sale of a portfolio of overdue loans and exposures related (NATA II Project). The impact of this operation on the balance sheet resulted in a reduction of net assets of Euro -83.5 million. 345 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 287- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES 2019 Exercise Sale of Non-Performing Loans portfolio (Project Nata II) In the last quarter of 2019, NOVO BANCO and Fundo Arrábida signed a promissory purchase and sale Agreement with Burlington Loan Management DAC, a company affiliated and advised by Davidson Kempner European Partners, Llp, for the sale of a portfolio of overdue loans and exposures related (NATA II Project). The impact of this operation on the balance sheet resulted in a reduction of net assets of Euro -84.0 million. Impact on Income Statement NOVO BANCO (in thousands of Euros) 31.12.2019 NOVO BANCO 31.12.2019 Net interest income 69 (in thousands of Euros) -3 734 Other operational income Impact on Income Statement 1 720 1 964 Results from the sale of financial assets and liabilities not designated at fair value through profit or loss -82 374 Impairment net of reversals of financial assets not designated at fair value through profit or loss (in thousands of Euros) 69 Net interest income 611 Provisions or reversal of provisions Impact on Income Statement -3 734 Other operational income -83 950 1 964 Results from the sale of financial assets and liabilities not designated at fair value through profit or loss -83 464 Impact on Net Income 69 Net interest income -82 374 Impairment net of reversals of financial assets not designated at fair value through profit or loss -3 734 Other operational income 611 Provisions or reversal of provisions 1 964 Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Impact on Net Income -83 464 Sale of a portfolio of real estate assets (called Project Sertorius) -82 374 Impairment net of reversals of financial assets not designated at fair value through profit or loss 611 Provisions or reversal of provisions In August 2019, the Group signed a promissory purchase and sale agreement with entities indirectly held by funds managed by Sale of a portfolio of real estate assets (called Project Sertorius) Cerberus Capital Management, LP, a New York-based company, for the sale of a portfolio of real estate assets called Project -83 464 Impact on Net Income In August 2019, the Group signed a promissory purchase and sale agreement with entities indirectly held by funds Sale of a portfolio of real estate assets (called Project Sertorius) Sertorius. The impact of this operation on the balance sheet resulted in a reduction of net assets of Euro -229,2 million. managed by Cerberus Capital Management, LP, a New York-based company, for the sale of a portfolio of real estate In August 2019, the Group signed a promissory purchase and sale agreement with entities indirectly held by funds managed by Cerberus Capital Management, LP, a New York-based company, for the sale of a portfolio of real estate assets called Project assets called Project Sertorius. The impact of this operation on the balance sheet resulted in a reduction of net assets Sale of a portfolio of real estate assets (called Project Sertorius) (in thousands of Euros) Sertorius. The impact of this operation on the balance sheet resulted in a reduction of net assets of Euro -229,2 million. of Euro -229,2 million. Impact on Income Statement In August 2019, the Group signed a promissory purchase and sale agreement with entities indirectly held by funds managed by Cerberus Capital Management, LP, a New York-based company, for the sale of a portfolio of real estate assets called Project -34 961 Other operational income Sertorius. The impact of this operation on the balance sheet resulted in a reduction of net assets of Euro -229,2 million. (in thousands of Euros) -165 703 Impairment on othe assets net of reversals Impact on Income Statement Non-controlling interests Other operational income Impact on Net Income Impact on Income Statement Impairment on othe assets net of reversals -1 875 -34 961 (in thousands of Euros) -198 789 31.12.2019 -165 703 31.12.2019 31.12.2019 31.12.2019 Non-controlling interests Other operational income -1 875 -34 961 -165 703 Impairment on othe assets net of reversals Impact on Net Income -198 789 Sale of a portfolio of non-performing loans and real estate assets (referred to as Project Albatros): In August 2019, the Group, through its Spanish Branch and Novo Banco Servicios Corporativos, S.L entered into a purchase and Non-controlling interests -1 875 sale agreement with Waterfall Asset Management LLC, an asset management company based in New York, for the sale of a portfolio -198 789 Impact on Net Income of real estate assets and non-performing loans, designated Project Albatros. The impact of this operation on the income Sale of a portfolio of non-performing loans and real estate assets (referred to as Project Albatros): statementresulted in a reduction of net assets of Euro -33.9 million. In August 2019, the Group, through its Spanish Branch and Novo Banco Servicios Corporativos, S.L entered into a purchase and Sale of a portfolio of non-performing loans and real estate assets (referred to as Project Albatros) sale agreement with Waterfall Asset Management LLC, an asset management company based in New York, for the sale of a portfolio Sale of a portfolio of non-performing loans and real estate assets (referred to as Project Albatros): of real estate assets and non-performing loans, designated Project Albatros. The impact of this operation on the income In August 2019, the Group, through its Spanish Branch and Novo Banco Servicios Corporativos, S.L entered into a (in thousands of Euros) statementresulted in a reduction of net assets of Euro -33.9 million. In August 2019, the Group, through its Spanish Branch and Novo Banco Servicios Corporativos, S.L entered into a purchase and purchase and sale agreement with Waterfall Asset Management LLC, an asset management company based in New Impact on Income Statement sale agreement with Waterfall Asset Management LLC, an asset management company based in New York, for the sale of a portfolio York, for the sale of a portfolio of real estate assets and non-performing loans, designated Project Albatros. The impact of real estate assets and non-performing loans, designated Project Albatros. The impact of this operation on the income -7 443 Results from the sale of financial assets and liabilities not designated at fair value through profit or loss statementresulted in a reduction of net assets of Euro -33.9 million. (in thousands of Euros) of this operation on the income statementresulted in a reduction of net assets of Euro -33.9 million. -53 544 Impairment net of reversals of financial assets not designated at fair value through profit or loss Impact on Income Statement Impairment on other assets net of reversals Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Provisions or reversal of provisions Impairment net of reversals of financial assets not designated at fair value through profit or loss Impact on Income Statement Impact on Net Income Impairment on other assets net of reversals Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Provisions or reversal of provisions Impairment net of reversals of financial assets not designated at fair value through profit or loss -7 543 -7 443 (in thousands of Euros) 35 200 -53 544 -33 330 -7 543 -7 443 35 200 -53 544 31.12.2019 31.12.2019 31.12.2019 Impairment on other assets net of reversals -7 543 Impact on Net Income -33 330 Sale of GNB Vida Following the contract for the purchase and sale of the entire share capital of GNB Vida, entered into with Bankers Insurance Holdings, 35 200 Provisions or reversal of provisions SA, a company of the Global Bankers Insurance Group, LLC, on September 12, 2018, the Group proceeded to derecognise this -33 330 Impact on Net Income investment in September 2019, after obtaining the necessary regulatory authorizations. The impact of this operation on the income Sale of GNB Vida statement resulted in a reduction of net income of Euro -4.1 million. Following the contract for the purchase and sale of the entire share capital of GNB Vida, entered into with Bankers Insurance Holdings, SA, a company of the Global Bankers Insurance Group, LLC, on September 12, 2018, the Group proceeded to derecognise this (in thousands of Euros) investment in September 2019, after obtaining the necessary regulatory authorizations. The impact of this operation on the income Sale of GNB Vida Impact on Income Statement statement resulted in a reduction of net income of Euro -4.1 million. Following the contract for the purchase and sale of the entire share capital of GNB Vida, entered into with Bankers Insurance Holdings, SA, a company of the Global Bankers Insurance Group, LLC, on September 12, 2018, the Group proceeded to derecognise this -4 082 Impairment on other assets net of reversals investment in September 2019, after obtaining the necessary regulatory authorizations. The impact of this operation on the income (in thousands of Euros) statement resulted in a reduction of net income of Euro -4.1 million. -4 082 Impact on Net Income Impact on Income Statement 31.12.2019 31.12.2019 Impairment on other assets net of reversals Impact on Income Statement Impact on Net Income Impairment on other assets net of reversals 346 Impact on Net Income NOTE 44 – NON-CURRENT ASSETS HELD FOR SALE - DISCONTINUED OPERATIONS NOTE 44 – NON-CURRENT ASSETS HELD FOR SALE - DISCONTINUED OPERATIONS 31 December 2020 Notes to the Consolidated Financial Statements NOTE 44 – NON-CURRENT ASSETS HELD FOR SALE - DISCONTINUED OPERATIONS 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES -4 082 (in thousands of Euros) 31.12.2019 -4 082 -4 082 -4 082 128 - 288- - 288- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED Impact on Income Statement Net interest income Other operational income Provisions or reversal of provisions Impact on Net Income Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Impairment net of reversals of financial assets not designated at fair value through profit or loss Sale of a portfolio of real estate assets (called Project Sertorius) In August 2019, the Group signed a promissory purchase and sale agreement with entities indirectly held by funds managed by Cerberus Capital Management, LP, a New York-based company, for the sale of a portfolio of real estate assets called Project Sertorius. The impact of this operation on the balance sheet resulted in a reduction of net assets of Euro -229,2 million. Impact on Income Statement Other operational income Impairment on othe assets net of reversals Non-controlling interests Impact on Net Income Sale of a portfolio of non-performing loans and real estate assets (referred to as Project Albatros): In August 2019, the Group, through its Spanish Branch and Novo Banco Servicios Corporativos, S.L entered into a purchase and sale agreement with Waterfall Asset Management LLC, an asset management company based in New York, for the sale of a portfolio of real estate assets and non-performing loans, designated Project Albatros. The impact of this operation on the income statementresulted in a reduction of net assets of Euro -33.9 million. NOVO BANCO (in thousands of Euros) 31.12.2019 69 -3 734 1 964 -82 374 611 -83 464 (in thousands of Euros) 31.12.2019 -34 961 -165 703 -1 875 -198 789 (in thousands of Euros) 31.12.2019 -7 443 -53 544 -7 543 35 200 -33 330 Impact on Income Statement Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Impairment net of reversals of financial assets not designated at fair value through profit or loss Impairment on other assets net of reversals Provisions or reversal of provisions Impact on Net Income Sale of GNB Vida Following the contract for the purchase and sale of the entire share capital of GNB Vida, entered into with Bankers Sale of GNB Vida Insurance Holdings, SA, a company of the Global Bankers Insurance Group, LLC, on September 12, 2018, the Group Following the contract for the purchase and sale of the entire share capital of GNB Vida, entered into with Bankers Insurance Holdings, proceeded to derecognise this investment in September 2019, after obtaining the necessary regulatory authorizations. SA, a company of the Global Bankers Insurance Group, LLC, on September 12, 2018, the Group proceeded to derecognise this investment in September 2019, after obtaining the necessary regulatory authorizations. The impact of this operation on the income The impact of this operation on the income statement resulted in a reduction of net income of Euro -4.1 million. statement resulted in a reduction of net income of Euro -4.1 million. Impact on Income Statement Impairment on other assets net of reversals Impact on Net Income (in thousands of Euros) 31.12.2019 -4 082 -4 082 NOTE 44 – NON-CURRENT ASSETS HELD FOR SALE - DISCONTINUED OPERATIONS NOTE 44 – Non-current assets held for sale - Discontinued operations 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES The financial statements as at 31 December 2020 and 2019 of the discontinued units, mentioned in Note 30 and when The financial statements as at 31 December 2020 and 2019 of the discontinued units, mentioned in Note 30 and when applicable, are as follows: applicable, are as follows: - 288- NOVO BANCO BALANCE SHEET AS AT 31 DECEMBER 2020 AND 2019 NOVO BANCO Sucursal de Espanha NB Servicios NOVO Vanguarda Greendraive 31.12.2020 31.12.2020 31.12.2020 31.12.2020 31.12.2019 (in thousands of Euros) 31 190 44 203 2 813 34 348 1 828 912 282 617 1 546 295 101 2 021 183 5 877 5 877 2 390 39 078 7 711 31 367 52 051 1 469 2 044 636 46 773 1 969 627 35 044 1 934 583 2 241 41 554 3 203 3 203 21 019 2 084 417 - - 842 - - ( 40 623) ( 39 781) 2 044 636 23 - - - - - - - - - - - - 3 673 27 3 646 7 085 4 162 14 943 - 18 470 18 470 - - - - - 562 19 032 1 057 - - - ( 4 665) ( 481) ( 4 089) 14 943 162 - - - - - - - - - - - - 48 23 25 - - 210 - - - - - - - - 27 27 500 - - - ( 286) ( 31) 183 210 68 - - - - - - - - - 343 343 - - - - 934 - 1 345 - - - - - - - - 3 549 3 549 60 4 530 - ( 5 906) - ( 888) ( 2 204) 1 345 114 - - - - - - - - - 309 309 - - - - 453 - 876 - - - - - - - - 1 726 1 726 60 4 190 - ( 4 424) - ( 676) ( 850) 876 ASSETS Cash, cash balances at central banks and other demand deposits Financial assets held for trading Financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortised cost Loans and advances to banks Loans and advances to customers Derivatives – Hedge accounting Fair value changes of the hedged items in portfolio hedge of interest rate risk Investments in subsidiaries, joint ventures and associates Tangible assets Tangible fixed assets Intangible assets Tax assets Current Tax Assets Deferred Tax Assets Other assets Non-current assets and disposal groups classified as held for sale TOTAL ASSETS LIABILITIES Financial liabilities held for trading Financial liabilities measured at amortised cost Deposits from banks Due to customers Derivatives – Hedge accounting Provisions Tax liabilities Deferred Tax Liabilities Other liabilities TOTAL LIABILITIES EQUITY Capital Other equity Accumulated other comprehensive income Retained earnings Other reserves Profit or loss attributable to Shareholders of the parent TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 347 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 289- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2020 AND 2019 NOVO BANCO (in thousands of Euros) Interest Income Interest Expenses Net Interest Income Dividend income Fee and comission income Fee and comission expenses Gains or losses on financial assets and liabilities held for trading Gains or losses on financial assets mandatorily at fair value through profit or loss Gains or losses from hedge accounting Exchange differences Gains or losses on derecognition of non-financial assets Other operating income Other operating expenses Operating Income Administrative expenses Staff expenses Other administrative expenses Depreciation Provisions or reversal of provisions Commitments and guarantees given Other provisions Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates Impairment or reversal of impairment on non-financial assets Profit or loss before tax from continuing operations Tax expense or income related to profit or loss from continuing operations Current tax Deferred tax Profit or loss after tax from continuing operations NOVO BANCO Sucursal de Espanha NB Servicios NOVO Vanguarda Greendraive 31.12.2020 31.12.2020 31.12.2020 31.12.2020 31.12.2019 33 028 ( 2 403) 30 625 13 13 304 ( 3 495) 439 ( 7) 107 36 275 4 939 ( 2 458) 43 778 ( 30 428) ( 15 778) ( 14 650) ( 2 748) 1 749 ( 113) 1 862 ( 43 240) ( 31) ( 5 310) - ( 265) ( 265) - 23 ( 399) - - - - ( 2 118) 2 162 ( 29) ( 626) ( 15) - ( 15) - - - - - - - - - - - - - - - - - - 393 ( 13) 380 ( 403) ( 99) ( 304) - - - - - - - - - - - - - - - - - - 1 694 ( 115) 1 579 ( 2 467) ( 489) ( 1 978) - - - - - - - - ( 65) ( 65) - - - - - - - - 3 524 ( 289) 3 170 ( 3 741) ( 1 732) ( 2 009) ( 96) - - - - - - ( 36 230) ( 641) ( 23) ( 888) ( 667) - - - 160 ( 8) - - - ( 9) - ( 36 230) ( 481) ( 31) ( 888) ( 676) 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 290- 348 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2020 AND 2019 NOVO BANCO (in thousands of Euros) NOVO BANCO Sucursal de Espanha NB Servicios NOVO Vanguarda Greendraive 31.12.2020 31.12.2020 31.12.2020 31.12.2020 31.12.2019 31 555 ( 2 802) 13 304 ( 3 645) 381 ( 30 428) 8 365 ( 1 579) 1 244 76 348 151 228 ( 74 880) ( 56 816) 52 594 ( 109 410) ( 44 687) 2 407 ( 3 559) ( 1 152) ( 31) ( 1 010) 769 ( 272) - - - ( 1 424) 32 614 31 190 ( 1 424) - 31 190 31 190 - ( 265) 23 ( 399) - ( 15) ( 656) - - 23 23 - ( 1 685) ( 1 685) - 4 003 23 - 23 - - - - - - - 23 - 23 23 - - - - - - - - - - - - 4 4 - - - - ( 4) 4 - 4 - - - - - - - 4 158 162 4 - - - - ( 65) 1 694 - - ( 2 467) ( 838) - - - - - - - - 192 ( 646) - ( 646) - ( 12) - ( 12) 612 - 612 ( 46) 114 68 ( 46) 5 63 68 - ( 53) 4 082 - - ( 4 559) ( 530) - - - - - - - - 5 ( 525) ( 117) ( 642) - ( 23) - ( 23) 2 990 ( 2 233) 757 92 22 114 92 16 98 114 Cash flows from operating activities Interest received Interest paid Fees and commissions received Fees and commissions paid Recoveries on loans previously written off Cash payments to employees and suppliers Changes in operating assets and liabilities: Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortised cost Loans and advances to banks Loans and advances to customers Financial liabilities at amortised cost Deposits from banks Due to customers Other operating assets and liabilities Net cash from operating activities before corporate income tax Corporate income taxes paid Net cash from operating activities Cash flows from investing activities Sale of investments in subsidiaries and associated companies Acquisition of tangible fixed assets Sale of intangible assets Net cash from investing activities Cash flows from financing activities Issuance of subordinated liabilities Interest on other equity instruments Net cash from financing activities Net changes in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Cash and cash equivalents include: Cash Deposits with banks Total NOTE 45 – NPL DISCLOSURES NOTE 45 – NPL Disclosures Following the recommendations of the European Banking Authority explained in document EBA/GL/2018/10, credit institutions with an NPL (Non Performing Exposures) ratio greater than 5% must publish a set of information regarding NPE, restructured loans and foreclosed assets, according to a standard format, which we present below (we emphasize that this information is prepared from a prudential perspective, whose consolidation perimeter differs from the consolidation perimeter of the financial statements presented): Following the recommendations of the European Banking Authority explained in document EBA/GL/2018/10, credit institutions with an NPL (Non Performing Exposures) ratio greater than 5% must publish a set of information regarding Credit quality of forborne exposure NPE, restructured loans and foreclosed assets, according to a standard format, which we present below (we emphasize that this information is prepared from a prudential perspective, whose consolidation perimeter differs from the consolidation perimeter of the financial statements presented): 2020 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES - 291- 349 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Credit quality of forborne exposure Gross carrying amount/nominal amount of exposures with forbearance measures Loans and advances Central banks General governments Credit institutions Loans and advances Other financial corporations Central banks Non-financial corporations General governments Households Credit institutions Debt securities Other financial corporations Loan commitments given Non-financial corporations Total Households Debt securities Gross carrying amount/nominal amount of exposures with forbearance measures Non-performing forborne Performing forborne Of which defaulted Non-performing forborne Of which subject to impairment 1 318 902 1 318 902 1 318 902 0 50 Of which defaulted 0 50 0 Of which subject 50 to impairment 0 1 318 902 137 193 0 1 016 644 50 165 014 0 0 137 193 1 132 1 016 644 1 320 034 165 014 0 1 318 902 137 193 0 1 016 644 50 165 014 0 0 137 193 1 132 1 016 644 1 320 034 165 014 0 1 318 902 137 193 0 1 016 644 50 165 014 0 0 137 193 1 132 1 016 644 1 320 034 165 014 780 644 Performing forborne 0 5 996 0 780 644 4 968 0 632 703 5 996 136 977 0 0 4 968 9 659 632 703 790 303 136 977 -100 974 On performing forborne exposures 0 -566 0 -100 974 -16 0 -98 230 -566 -2 162 0 0 -16 0 -98 230 -100 974 -2 162 Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions Accumulated impairment, On non- accumulated negative changes On performing performing in fair value due to credit risk forborne forborne and provisions exposures exposures -792 682 On non- performing forborne exposures 0 -39 (in thousands of Euros) Collateral received and financial guarantees received on forborne exposures (in thousands of Euros) Of which collateral and financial Collateral received and financial guarantees received guarantees received on forborne on nonperforming exposures exposures with forbearance Of which collateral measures and financial guarantees received on nonperforming exposures with forbearance measures 823 943 4 797 0 396 148 0 0 0 -792 682 -52 509 0 -609 893 -39 -130 240 0 0 -52 509 0 -609 893 -792 682 -130 240 0 823 943 79 795 0 588 013 4 797 151 338 0 0 79 795 0 588 013 823 943 151 338 0 0 0 396 148 76 337 0 295 905 0 23 906 0 0 76 337 0 295 905 396 148 23 906 0 0 396 148 (in thousands of Euros) 0 0 0 0 0 0 9 659 Loan commitments given Credit quality of performing and non-performing exposures by past due days 790 303 Total Credit quality of performing and non-performing exposures by past due days Gross carrying amount/nominal amount 1 320 034 1 320 034 1 320 034 -100 974 -792 682 1 132 1 132 1 132 0 0 823 943 Credit quality of performing and non-performing exposures by past due days Performing exposures Non-performing exposures Not past due or past due < =30 days Past due > 30 days <=90 days Performing exposures Unlikely to pay that are not past due or are past due <=90 days Past due > 180 days Gross carrying amount/nominal amount <=1 year Past due > 90 days <=180 days Past due > 1 year <= 2 years Past due > 2 years >=5 years Past due > 5 years >=7 years Non-performing exposures (in thousands of Euros) Past due > 7 years Of which defaulted Cash in Central Banks Loans and advances Central banks General governments Credit institutions Cash in Central Banks Other financial corporations Loans and advances Non-financial corporations Central banks Of which SMEs General governments Households Credit institutions Debt securities Other financial corporations Central banks Non-financial corporations General governments Of which SMEs Credit institutions Households Other financial corporations Debt securities Non-financial corporations Central banks Off-balance-sheet exposures General governments Central banks Credit institutions General governments Other financial corporations Credit institutions Non-financial corporations Other financial corporations Off-balance-sheet exposures Non-financial corporations Central banks Households General governments Total Credit institutions Other financial corporations Non-financial corporations Households Total 2 541 160 0 0 0 0 0 0 0 0 0 22 928 020 Not past due or past due < =30 days 404 476 0 Past due > 30 days <=90 days 84 396 2 512 984 62 612 199 673 Past due > 90 days <=180 days Past due > 180 days <=1 year 133 418 Past due > 1 0 year <= 2 years 0 334 744 Past due > 2 0 years >=5 years 414 183 612 Past due > 5 0 years >=7 years 0 0 0 0 0 1 0 1 528 094 Unlikely to pay that are not past due or are past due <=90 days 112 0 314 138 0 81 348 1 528 094 874 190 0 629 960 112 258 306 314 138 77 931 81 348 0 874 190 0 629 960 0 258 306 0 77 931 77 931 0 0 0 0 0 0 0 0 185 62 612 48 401 0 12 833 0 14 026 0 15 126 185 0 48 401 0 12 833 0 14 026 0 15 126 15 126 0 0 0 0 77 931 15 126 0 52 199 673 145 730 0 37 807 1 53 889 0 0 52 0 145 730 0 37 807 0 53 889 0 0 0 0 0 0 0 0 0 57 133 418 101 687 0 97 484 0 31 674 0 4 830 57 0 101 687 0 97 484 0 31 674 1 940 4 830 2 890 0 0 0 1 940 2 890 0 55 415 334 744 245 948 0 86 961 414 32 967 0 39 944 55 415 0 245 948 0 86 961 0 32 967 20 830 39 944 19 114 0 0 0 20 830 19 114 0 1 230 183 612 166 765 0 135 730 0 15 618 0 82 475 1 230 0 166 765 0 135 730 0 15 618 0 82 475 82 475 0 0 0 0 82 475 70 831 Past due > 7 0 years 0 0 0 10 568 70 831 39 921 0 35 727 0 20 342 0 0 10 568 0 39 921 0 35 727 0 20 342 0 0 0 0 0 0 0 0 44 943 2 541 160 277 563 22 928 020 11 417 261 0 6 556 781 404 476 10 783 776 44 943 10 217 594 277 563 0 11 417 261 6 914 457 6 556 781 701 735 10 783 776 458 726 10 217 594 2 142 676 0 6 914 457 701 735 458 726 2 142 676 2 541 160 23 012 416 0 404 477 44 943 2 541 160 277 651 23 012 416 11 424 372 0 6 561 785 404 477 10 860 972 44 943 10 217 594 277 651 0 11 424 372 6 914 457 6 561 785 701 735 10 860 972 458 726 10 217 594 2 142 676 0 9 871 398 6 914 457 0 701 735 34 983 458 726 555 283 2 142 676 59 495 9 871 398 8 208 623 0 1 013 015 34 983 45 642 568 555 283 59 495 8 208 623 1 013 015 0 0 0 0 89 84 396 7 111 0 5 005 0 77 196 0 0 89 0 7 111 0 5 005 0 77 196 0 0 0 0 0 0 0 0 0 527 314 138 0 148 854 2 512 984 1 622 643 0 1 036 502 527 426 823 314 138 220 306 148 854 0 1 622 643 0 1 036 502 0 426 823 22 770 220 306 197 536 0 386 019 0 0 0 17 22 770 8 520 197 536 7 625 386 019 367 140 0 2 718 17 3 119 309 8 520 7 625 367 140 2 718 35 686 774 84 396 1 606 025 77 738 199 673 138 248 374 688 266 087 70 831 0 2 512 984 Of which defaulted 0 527 314 138 0 148 854 2 512 984 1 622 643 0 1 036 502 527 426 823 314 138 220 306 148 854 0 1 622 643 0 1 036 502 0 426 823 22 770 220 306 197 536 0 386 019 0 0 0 17 22 770 8 520 197 536 7 625 386 019 367 140 0 2 718 17 3 119 309 8 520 7 625 367 140 2 718 45 642 568 35 686 774 84 396 3 119 309 1 606 025 77 738 199 673 138 248 374 688 266 087 70 831 3 119 309 31 December 2020 350 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 132 132 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDPerforming and non-performing exposures and related provisions Performing and non-performing exposures and related provisions Gross carrying amount/nominal amount Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions (in thousands of Euros) Collateral and financial guarantees received Performing and non-performing exposures and related provisions Performing exposures Non-performing exposures Performing exposures – accumulated impairment and provisions Cash in Central Banks 2 541 160 2 541 160 Performing exposures 0 0 0 Non-performing exposures 0 Gross carrying amount/nominal amount Of which stage 1 Of which stage 2 Of which stage 2 Of which stage 3 Loans and advances 23 012 416 18 981 637 4 030 779 2 512 984 0 0 0 Of which stage 1 380 427 Of which stage 2 24 050 0 527 Of which stage 2 0 0 0 2 512 984 0 Of which stage 3 527 Das quais, Stage 1 Das quais, Stage 2 Performing exposures – accumulated impairment and provisions 0 0 0 -62 817 -310 004 -372 821 0 0 0 Das quais, Stage 1 -556 Das quais, Stage 2 -713 Non-performing exposures – accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions Das quais, Stage 2 Non-performing exposures – accumulated 0 impairment, accumulated negative changes in fair value due to credit risk and provisions Das quais, Stage 3 -1 491 696 -1 491 696 0 0 0 0 -451 Das quais, Stage 2 Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions Central banks General governments Credit institutions Cash in Central Banks Other financial corporations Loans and advances Non-financial corporations Central banks Of which SMEs General governments Households Credit institutions Debt securities Other financial corporations Central banks Non-financial corporations General governments Of which SMEs Credit institutions Households Other financial corporations Debt securities Non-financial corporations Central banks Off-balance-sheet exposures General governments Central banks Credit institutions General governments Other financial corporations Credit institutions Non-financial corporations Other financial corporations Off-balance-sheet exposures Non-financial corporations Central banks Households General governments Total Credit institutions 404 477 44 943 2 541 160 277 651 23 012 416 11 424 372 0 6 561 785 404 477 10 860 972 44 943 10 217 594 277 651 0 11 424 372 6 914 457 6 561 785 701 735 10 860 972 458 726 10 217 594 2 142 676 0 9 871 398 6 914 457 0 701 735 34 983 458 726 555 283 2 142 676 59 495 9 871 398 8 208 623 0 1 013 015 34 983 45 642 568 555 283 44 848 2 541 160 257 036 18 981 637 8 460 936 0 4 866 462 380 427 9 838 390 44 848 9 906 693 257 036 0 8 460 936 6 914 457 4 866 462 701 735 9 838 390 455 681 9 906 693 1 834 820 0 8 484 827 6 914 457 0 701 735 25 499 455 681 544 506 1 834 820 55 233 8 484 827 6 867 362 0 992 227 25 499 39 914 317 544 506 95 0 20 615 4 030 779 2 963 437 0 1 695 323 24 050 1 022 582 95 310 901 20 615 0 2 963 437 0 1 695 323 0 1 022 582 3 045 310 901 307 856 0 1 386 571 0 0 0 9 483 3 045 10 776 307 856 4 263 1 386 571 1 341 261 0 20 788 9 483 5 728 251 10 776 314 138 0 148 854 2 512 984 1 622 643 0 1 036 502 527 426 823 314 138 220 306 148 854 0 1 622 643 0 1 036 502 0 426 823 22 770 220 306 197 536 0 386 019 0 0 0 17 22 770 8 520 197 536 7 625 386 019 367 140 0 2 718 17 3 119 309 8 520 0 0 0 0 0 0 0 0 0 0 77 931 0 0 0 0 0 0 0 0 77 931 77 931 0 0 0 0 0 0 0 0 77 931 0 0 0 0 0 0 77 931 0 0 314 138 0 148 854 2 512 984 1 622 643 0 1 036 502 527 426 823 314 138 142 375 148 854 0 1 622 643 0 1 036 502 0 426 823 22 770 142 375 119 605 0 386 019 0 0 0 17 22 770 8 520 119 605 7 625 386 019 367 140 0 2 718 17 3 041 378 8 520 7 625 367 140 2 718 -1 269 -851 0 -2 730 -372 821 -325 235 0 -144 330 -1 269 -42 735 -851 -95 274 -2 730 0 -325 235 -3 711 -144 330 -217 -42 735 -970 -95 274 -90 376 0 35 061 -3 711 0 -217 22 -970 74 -90 376 104 35 061 31 475 0 3 385 22 -433 035 74 104 31 475 3 385 -851 0 -1 256 -62 817 -47 926 0 -32 044 -556 -12 227 -851 -7 622 -1 256 0 -47 926 -3 711 -32 044 -217 -12 227 -486 -7 622 -3 208 0 6 983 -3 711 0 -217 22 -486 18 -3 208 30 6 983 3 651 0 3 263 22 -63 456 18 30 3 651 3 263 0 0 -1 474 -310 004 -277 309 0 -112 286 -713 -30 508 0 -87 652 -1 474 0 -277 309 0 -112 286 0 -30 508 -484 -87 652 -87 168 0 28 078 0 0 0 0 -484 56 -87 168 75 28 078 27 825 0 122 0 -369 579 56 -249 287 0 -58 976 -1 491 696 -970 963 0 -552 324 -451 -212 020 -249 287 -109 660 -58 976 0 -970 963 0 -552 324 0 -212 020 0 -109 660 -109 660 0 66 929 0 0 0 0 0 4 -109 660 701 66 929 66 000 0 224 0 -1 534 426 4 75 701 27 825 66 000 122 224 Other financial corporations 59 495 55 233 4 263 7 625 Non-financial corporations Quality of non-productive exhibitions by geography 8 208 623 6 867 362 1 341 261 367 140 0 Households 1 013 015 992 227 20 788 2 718 0 Total 45 642 568 39 914 317 5 728 251 3 119 309 77 931 3 041 378 -433 035 -63 456 -369 579 -1 534 426 Quality of non-productive exhibitions by geography Quality of non-productive exhibitions by geography Gross carrying amount/nominal amount Of which non-performing Gross carrying amount/nominal amount Of which defaulted 38 504 460 2 733 290 Of which non-performing 2 733 290 30 121 182 2 194 332 2 194 332 8 383 278 10 257 417 38 504 460 8 363 278 30 121 182 1 894 139 8 383 278 48 761 877 10 257 417 538 958 386 019 2 733 290 376 616 2 194 332 9 403 538 958 3 119 309 386 019 8 363 278 376 616 9 403 538 958 Of which defaulted 386 019 2 733 290 376 616 2 194 332 9 403 538 958 3 119 309 386 019 376 616 9 403 Of which subject to impairment 38 077 260 Of which subject 29 766 568 to impairment 8 310 693 38 077 260 29 766 568 8 310 693 38 077 260 Accumulated impairment Accumulated impairment -2 069 451 -1 626 811 -442 640 -2 069 451 -1 626 811 -442 640 -2 069 451 3 119 309 3 119 309 38 077 260 -2 069 451 On-balance-sheet exposures Portugal Other countries Off-balance-sheet exposures On-balance-sheet exposures Portugal Portugal Other countries Other countries Total Off-balance-sheet exposures Portugal Other countries 1 894 139 Credit quality of loans and advances by industry 48 761 877 Total Credit quality of loans and advances by industry Accumulated partial write- off Accumulated 0 partial write- -565 334 off 0 0 0 0 -164 902 -565 334 -398 988 0 -45 866 0 -1 444 0 0 -164 902 0 -398 988 0 -45 866 0 -1 444 0 0 0 0 0 0 0 0 -565 334 (in thousands of Euros) On performing exposures On non- performing Collateral and financial exposures guarantees received 0 0 13 315 570 On performing exposures 0 694 808 On non- performing exposures 0 37 681 0 0 151 379 13 315 570 3 127 336 0 2 302 265 37 681 9 999 174 0 0 151 379 0 3 127 336 0 2 302 265 0 9 999 174 0 0 0 0 162 625 0 0 0 4 617 0 1 543 0 9 096 162 625 135 436 0 11 933 4 617 13 478 195 1 543 9 096 135 436 11 933 56 0 0 78 731 694 808 430 658 0 311 587 56 185 363 0 0 78 731 0 430 658 0 311 587 0 185 363 0 0 0 0 14 837 0 0 0 0 0 59 0 0 14 837 14 598 0 179 0 709 645 59 0 14 598 179 0 Das quais, Stage 3 -451 -249 287 0 -58 976 -1 491 696 -970 963 0 -552 324 -451 -212 020 -249 287 -109 660 -58 976 0 -970 963 0 -552 324 0 -212 020 0 -109 660 -109 660 0 66 929 0 0 0 0 0 4 -109 660 701 66 929 66 000 0 224 0 -1 534 426 4 701 66 000 224 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -1 534 426 -565 334 13 478 195 709 645 (in thousands of Euros) Provisions on off- balance-sheet commitments and financial guarantees given Provisions on off- balance-sheet commitments and financial guarantees given Accumulated negative changes in fair value due to credit risk on (in thousands of Euros) non-performing exposures Accumulated negative changes in fair value 0 due to credit risk on 0 non-performing exposures 0 101 990 100 159 1 831 101 990 101 990 100 159 1 831 101 990 0 0 0 0 0 31 December 2020 Notes to the Consolidated Financial Statements 351 31 December 2020 Notes to the Consolidated Financial Statements 133 133 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESCredit quality of loans and advances by industry Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Water supply Agriculture, forestry and fishing Construction Mining and quarrying Wholesale and retail trade Manufacturing Transport and storage Electricity, gas, steam and air conditioning supply Accommodation and food service activities Water supply Information and communication Construction Financial and insurance activities Wholesale and retail trade Real estate activities Transport and storage Professional, scientific and technical activities Accommodation and food service activities Administrative and support service activities Information and communication Public administration and defence, compulsory social security Financial and insurance activities Education Real estate activities Human health services and social work activities Professional, scientific and technical activities Arts, entertainment and recreation Administrative and support service activities Other services Public administration and defence, compulsory social security Total Education Human health services and social work activities Collateral valuation – loans and advances Arts, entertainment and recreation Other services 348 666 81 033 2 571 297 301 457 139 268 348 666 1 516 554 81 033 1 469 940 2 571 297 870 282 301 457 1 029 150 139 268 179 409 1 516 554 710 795 1 469 940 1 615 048 870 282 1 070 828 1 029 150 299 120 179 409 8 696 710 795 42 703 1 615 048 233 448 1 070 828 236 077 299 120 323 245 8 696 13 047 015 42 703 233 448 236 077 323 245 Total Collateral valuation – loans and advances Gross carrying amount Of which non-performing Of which defaulted Of which loans and advances subject to impairment Accumulated impairment Gross carrying amount 15 403 15 403 348 666 -13 340 Of which non-performing 37 337 37 337 145 241 32 445 14 775 15 403 254 782 37 337 90 961 145 241 55 586 32 445 139 423 14 775 23 388 254 782 123 193 90 961 276 429 55 586 151 477 139 423 14 535 23 388 0 123 193 3 196 276 429 43 441 151 477 93 037 14 535 107 993 0 1 622 643 3 196 43 441 93 037 145 241 Of which defaulted 32 445 14 775 15 403 254 782 37 337 90 961 145 241 55 586 32 445 139 423 14 775 23 388 254 782 123 193 90 961 276 429 55 586 151 477 139 423 14 535 23 388 0 123 193 3 196 276 429 43 441 151 477 93 037 14 535 107 993 0 1 622 643 3 196 43 441 93 037 81 033 Of which loans and advances subject to impairment 2 571 297 301 457 -22 965 Accumulated impairment -117 088 -19 577 -11 240 -13 340 -201 471 -22 965 -73 478 -117 088 -62 924 -19 577 -97 281 -11 240 -19 347 -201 471 -140 273 -73 478 -187 998 -62 924 -114 977 -97 281 -15 512 -19 347 -28 -140 273 -1 619 -187 998 -23 558 -114 977 -63 604 -15 512 -109 916 -28 -1 296 198 -1 619 -23 558 -63 604 -109 916 139 268 348 666 1 516 554 81 033 1 469 940 2 571 297 870 282 301 457 1 029 150 139 268 179 409 1 516 554 710 795 1 469 940 1 615 048 870 282 1 070 828 1 029 150 299 120 179 409 8 696 710 795 42 703 1 615 048 233 448 1 070 828 236 077 299 120 323 245 8 696 13 047 015 42 703 233 448 236 077 323 245 (in thousands of Euros) Accumulated negative changes in fair value due to credit risk on non-performing exposures (in thousands of Euros) 0 Accumulated negative changes in fair value 0 due to credit risk on non-performing exposures 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (in thousands of Euros) 0 Performing 13 047 015 1 622 643 1 622 643 13 047 015 Non-performing -1 296 198 0 107 993 107 993 Loans and advances Collateral valuation – loans and advances Of which past due > 30 days <=90 days Gross carrying amount Of which secured Of which secured with immovable property 25 525 400 23 012 416 Performing 16 573 754 15 026 393 14 059 236 12 891 519 84 396 69 853 68 521 Of which instruments with LTV higher than 60% and lower or equal to 80% 5 009 815 4 836 251 Of which instruments with LTV higher than 80% and lower or equal to 100% 1 500 075 1 284 058 Of which instruments with LTV higher than 100% Accumulated impairment for secured assets Gross carrying amount Collateral Of which secured Of which value capped at the value of exposure Of which secured with immovable property 1 267 336 750 074 -996 410 25 525 400 -215 228 23 012 416 16 573 754 15 026 393 13 973 102 14 059 236 13 281 584 12 891 519 Of which immovable property Of which instruments with LTV higher than 60% and lower or equal to 80% 12 972 629 5 009 815 12 374 924 4 836 251 Of which value above the cap Of which instruments with LTV higher than 80% and lower or equal to 100% 21 628 284 1 500 075 19 539 311 1 284 058 Of which immovable property Of which instruments with LTV higher than 100% Financial guarantees received Accumulated impairment for secured assets Accumulated partial write-off Collateral Of which value capped at the value of exposure Of which immovable property Of which value above the cap Of which immovable property Financial guarantees received Accumulated partial write-off 15 754 125 1 267 336 15 043 727 750 074 37 276 -996 410 -565 334 33 986 -215 228 -26 13 973 102 13 281 584 12 972 629 12 374 924 21 628 284 19 539 311 15 754 125 15 043 727 37 276 -565 334 33 986 -26 Of which past due > 30 days <=90 days -2 112 84 396 69 853 67 610 68 521 66 397 62 882 60 361 23 -2 112 -26 67 610 66 397 62 882 60 361 23 -26 2 512 984 1 547 361 1 167 717 173 563 216 018 517 262 -781 182 2 512 984 1 547 361 691 518 1 167 717 597 706 173 563 2 088 973 216 018 710 398 517 262 3 290 -781 182 -565 308 691 518 597 706 2 088 973 710 398 3 290 -565 308 Unlikely to pay that are not past due or are past due <= 90 days 1 528 094 891 541 651 717 Unlikely to pay that are not past 86 003 due or are past 145 801 due <= 90 days Past due > 90 days Of which past due >90 days <= 180 days Loans and advances Of which: past due > 180 days <= 1 year Of which: past due > 1 years <= 2 years Of which: past due > 2 years <= 5 years Of which: past due > 5 years <=7 years Of which: past (in thousands of Euros) due > 7 years 984 890 655 819 516 000 87 561 70 217 62 612 54 555 199 673 Non-performing 138 209 133 418 100 843 27 833 84 910 Past due > 90 days 96 925 334 744 173 197 152 248 183 612 142 724 111 633 70 831 46 290 42 451 Of which past due >90 days <= 180 days Of which: past due > 180 days <= 1 year Of which: past due > 1 years <= 2 years Of which: past due > 2 years <= 5 years Of which: past due > 5 years <=7 years Of which: past due > 7 years 283 808 233 454 -434 166 1 528 094 -347 016 984 890 -32 256 62 612 891 541 395 212 651 717 358 226 86 003 748 300 145 801 368 584 283 808 2 366 -434 166 -358 395 212 358 226 748 300 368 584 2 366 -358 655 819 296 305 516 000 239 479 87 561 54 555 22 192 27 833 17 031 1 340 673 70 217 1 340 673 341 813 233 454 924 -347 016 -564 950 296 305 239 479 341 813 107 -32 256 0 22 192 17 031 1 340 673 1 340 673 341 813 341 813 924 -564 950 107 0 -49 743 199 673 138 209 80 731 84 910 52 320 0 0 -56 000 133 418 100 843 43 569 96 925 41 178 0 0 255 -49 743 549 -56 000 -1 068 80 731 52 320 0 0 255 -1 068 -9 604 43 569 41 178 0 0 549 -93 777 334 744 173 197 76 670 152 248 68 332 0 0 11 -93 777 -468 800 76 670 68 332 0 0 11 -86 570 183 612 142 724 55 777 111 633 43 523 0 0 0 -86 570 -79 756 55 777 43 523 0 0 0 -28 670 70 831 46 290 17 364 42 451 17 094 0 0 1 -28 670 -5 721 17 364 17 094 0 0 1 -9 604 -468 800 -79 756 -5 721 31 December 2020 352 Notes to the Consolidated Financial Statements 31 December 2020 Notes to the Consolidated Financial Statements 134 134 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDChanges in the stock of non-performing loans and advances Changes in the stock of non-performing loans and advances Changes in the stock of non-performing loans and advances Initial stock of non-performing loans and advances Inflows to non-performing portfolios Outflows from non-performing portfolios Changes in the stock of non-performing loans and advances Outflow to performing portfolio Initial stock of non-performing loans and advances Outflow due to loan repayment, partial or total Inflows to non-performing portfolios Outflow due to collateral liquidation Inflows to non-performing portfolios Outflows from non-performing portfolios Outflow due to taking possession of collateral Initial stock of non-performing loans and advances Outflow to performing portfolio Outflow due to sale of instruments Outflow due to loan repayment, partial or total Outflow due to risk transfer Outflows from non-performing portfolios Outflow due to collateral liquidation Outflow due to write-off Outflow to performing portfolio Outflow due to taking possession of collateral Outflow due to other situations Outflow due to loan repayment, partial or total Outflow due to sale of instruments Outflow due to reclassification as held for sale Outflow due to collateral liquidation Outflow due to risk transfer Final stock of non-performing loans and advances Outflow due to taking possession of collateral Outflow due to write-off Outflow due to sale of instruments Outflow due to other situations Outflow due to risk transfer Outflow due to reclassification as held for sale Outflow due to write-off Collateral obtained by taking possession and execution processes Final stock of non-performing loans and advances Collateral obtained by taking possession and execution processes Outflow due to other situations Outflow due to reclassification as held for sale Collateral obtained by taking possession and execution processes Final stock of non-performing loans and advances Property, plant and equipment (PP&E) Other than PP&E Collateral obtained by taking possession and execution processes Residential immovable property Commercial Immovable property Property, plant and equipment (PP&E) Movable property (auto, shipping, etc.) Other than PP&E Equity and debt instruments Residential immovable property Property, plant and equipment (PP&E) Other Commercial Immovable property Other than PP&E Total (in thousands of Euros) Gross carrying amount 3 445 821 (in thousands of Euros) 528 442 -1 461 279 Gross carrying amount Gross carrying amount -157 051 (in thousands of Euros) 3 445 821 -195 764 528 442 0 -1 461 279 -23 070 3 445 821 -157 051 -376 963 528 442 -195 764 0 -1 461 279 0 -504 225 -157 051 -23 070 -204 206 -195 764 -376 963 0 0 0 2 512 984 -23 070 -504 225 -376 963 -204 206 0 (in thousands of Euros) 0 -504 225 2 512 984 -204 206 Collateral obtained by taking possession Value at initial recognition Accumulated negative changes 0 Collateral obtained by taking possession 589 907 0 2 512 984 0 (in thousands of Euros) -277 322 141 144 Accumulated negative Value at initial recognition changes 349 959 Collateral obtained by taking possession 0 3 488 589 907 67 922 141 144 0 27 394 349 959 589 907 589 907 -38 478 (in thousands of Euros) -216 309 0 -2 285 -277 322 -9 229 -38 478 0 -11 022 -216 309 -277 322 -277 322 Accumulated negative changes Value at initial recognition Movable property (auto, shipping, etc.) Residential immovable property Equity and debt instruments Commercial Immovable property Other Movable property (auto, shipping, etc.) Collateral obtained by taking possession and execution processes – vintage breakdown Total Equity and debt instruments Other Total collateral obtained by taking possession 3 488 141 144 67 922 349 959 27 394 3 488 589 907 67 922 27 394 Total Collateral obtained by taking possession and execution processes – vintage breakdown Foreclosed <=2 years Foreclosed > 2 years <=5 years Accumulated negative changes Value at initial recognition Accumulated negative changes Value at initial recognition Accumulated negative changes Value at initial recognition Foreclosed > 5 years 589 907 Value at initial recognition Accumulated negative changes -2 285 -38 478 -9 229 -216 309 -11 022 -2 285 -277 322 -9 229 (in thousands of Euros) -11 022 Of which non-current assets held- -277 322 for-sale Accumulated negative changes Value at initial recognition Collateral obtained by taking possession classified as PP&E Collateral obtained by taking possession and execution processes – vintage breakdown Collateral obtained by taking possession and execution processes – vintage breakdown Collateral obtained by taking possession other than that classified as PP&E Total collateral obtained by taking possession -277 322 -135 674 589 907 117 878 221 000 251 029 -42 001 -99 647 0 0 (in thousands of Euros) Residential immovable property Commercial immovable property 141 144 Value at initial recognition 349 959 -38 478 Accumulated negative changes -216 309 25 195 Value at initial recognition 48 333 -4 844 Accumulated negative changes -20 039 47 660 Value at initial recognition 137 098 -12 345 Accumulated negative changes -86 598 Total collateral obtained by taking possession 68 290 Value at initial recognition 164 528 -21 289 Accumulated negative changes -109 672 Foreclosed <=2 years Foreclosed > 2 years <=5 years Foreclosed > 5 years Collateral obtained by taking possession classified as PP&E Movable property (auto, shipping, etc.) Collateral obtained by taking possession other than that classified as PP&E Equity and debt instruments Other Residential immovable property Collateral obtained by taking possession classified as PP&E 0 3 488 Value at initial recognition 589 907 67 922 0 -2 285 Accumulated negative changes -277 322 -9 229 27 394 141 144 0 -11 022 -38 478 0 Foreclosed <=2 years 1 061 -175 Accumulated negative changes -42 001 -5 922 Foreclosed > 2 years <=5 years 0 Value at initial recognition 221 000 36 243 0 Accumulated negative changes -99 647 -704 Value at initial recognition 117 878 15 896 Foreclosed > 5 years 2 427 Value at initial recognition 251 029 15 783 -2 110 Accumulated negative changes -135 674 -2 603 27 394 25 195 -11 022 -4 844 0 47 660 0 -12 345 68 290 0 -21 289 0 Total Commercial immovable property Collateral obtained by taking possession other than that classified as PP&E 589 907 349 959 589 907 -277 322 -216 309 -277 322 117 878 48 333 117 878 -42 001 -20 039 -42 001 221 000 137 098 221 000 -99 647 -86 598 -99 647 164 528 251 029 251 029 -109 672 -135 674 -135 674 Movable property (auto, shipping, etc.) Residential immovable property 3 488 141 144 -2 285 -38 478 1 061 25 195 -175 -4 844 0 47 660 0 -12 345 2 427 68 290 -2 110 -21 289 Equity and debt instruments Commercial immovable property NOTE 46 – DISCLOSURES ABOUT EXPOSURES RESULTING FROM MEASURES RELATED TO THE PANDEMIC COVID-19 -9 229 -216 309 36 243 137 098 -704 -86 598 67 922 349 959 -5 922 -20 039 15 896 48 333 -109 672 164 528 15 783 -2 603 0 0 Other Movable property (auto, shipping, etc.) 27 394 3 488 -11 022 -2 285 27 394 1 061 -11 022 -175 0 0 0 0 2 427 0 -2 110 0 0 0 Total Equity and debt instruments Following the recommendations of the European Banking Authority and according with Instruction no. 19/2020 on the reporting and disclosure of information on exposures subject to measures applied in response to the Covid-19 crisis as per EBA (EBA/GL/2020/07), we present below the following details referring to default and loans granted under the new public guarantee plans, which are fully applicable to the consolidation perimeters of Nani Holdings, SGPS; SA and LSF Nani Investments S.à.r.l: NOTE 46 – DISCLOSURES ABOUT EXPOSURES RESULTING FROM MEASURES RELATED TO THE PANDEMIC COVID-19 -277 322 -9 229 -135 674 -2 603 589 907 67 922 117 878 15 896 221 000 36 243 251 029 15 783 -42 001 -5 922 -99 647 -704 Other -277 322 -135 674 589 907 117 878 221 000 251 029 -11 022 -11 022 -42 001 -99 647 27 394 27 394 Total 0 0 0 0 0 0 0 0 0 0 0 0 Following the recommendations of the European Banking Authority and according with Instruction no. 19/2020 on the reporting and NOTE 46 – DISCLOSURES ABOUT EXPOSURES RESULTING FROM MEASURES RELATED TO THE PANDEMIC COVID-19 disclosure of information on exposures subject to measures applied in response to the Covid-19 crisis as per EBA (EBA/GL/2020/07), Information on loans and advances subject to legislative and non-legislative moratorias we present below the following details referring to default and loans granted under the new public guarantee plans, which are fully Following the recommendations of the European Banking Authority and according with Instruction no. 19/2020 on the reporting and applicable to the consolidation perimeters of Nani Holdings, SGPS; SA and LSF Nani Investments S.à.r.l: disclosure of information on exposures subject to measures applied in response to the Covid-19 crisis as per EBA (EBA/GL/2020/07), we present below the following details referring to default and loans granted under the new public guarantee plans, which are fully applicable to the consolidation perimeters of Nani Holdings, SGPS; SA and LSF Nani Investments S.à.r.l: Notes to the Consolidated Financial Statements 31 December 2020 135 353 Information on loans and advances subject to legislative and non-legislative moratorias Information on loans and advances subject to legislative and non-legislative moratorias Notes to the Consolidated Financial Statements 31 December 2020 31 December 2020 Notes to the Consolidated Financial Statements 135 135 0 0 Of which non-current assets held- for-sale 0 0 (in thousands of Euros) Accumulated negative changes 0 Of which non-current assets held- for-sale 0 Value at initial recognition 0 0 Accumulated negative changes 0 0 Value at initial recognition 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES of which: small and medium-sized enterprises Loans and advances that have been offered a moratorium of which: secured by commercial real estate Loans and advances subject to a moratorium (applied) NOTE 46 – Disclosures about exposures resulting from measures related to the pandemic covid-19 Following the recommendations of the European Banking Authority and according with Instruction no. 19/2020 on the reporting and disclosure of information on exposures subject to measures applied in response to the Covid-19 crisis as per EBA (EBA/GL/2020/07), we present below the following details referring to default and loans granted under the new public guarantee plans, which are fully applicable to the consolidation perimeters of Nani Holdings, SGPS; SA and LSF Nani Investments S.à.r.l: Information on loans and advances subject to legislative and non-legislative moratorias Gross carrying amount Accumulated impairment, accumulated negative changes in fair value resulting from credit risk Productive Non-productive Non-productive (in thousands of Euros) Gross carrying amount Of which: exposures subject to restructuring measures Of which: instruments with a significant increase in credit risk since initial recognition but without credit impairment (Stage 2) Gross carrying amount Of which: exposures subject to restructuring measures Of which: Reduced probability of payment that are not past due or past due for <= 90 days Of which: exposures subject to restructurin g measures Of which: instruments with a significant increase in credit risk since initial recognition but without credit impairment Of which: exposures subject to restructuring measures Of which: Reduced probability of payment that are not past due or past due for <= 90 days Of which: Reduced probability of payment that has not been due or has been due for a long time <= 90 dias (in thousands of Euros) Entries to non- productive exhibitions Gross carrying amount Accumulated impairment, accumulated negative changes in fair value resulting from credit risk Loans and advances subject to a moratorium 6 878 599 6 138 006 546 662 Productive 2 056 137 740 594 412 022 Non-productive 659 514 -523 884 -205 061 -80 393 -189 404 -318 823 Non-productive -183 211 -286 987 201 360 of which: private 2 251 137 2 144 377 72 183 401 600 106 760 13 804 -32 906 -16 435 -14 775 -16 471 of which: secured by residential properties of which: non-financial corporations of which: small and medium- sized enterprises of which: secured by commercial real estate Loans and advances subject to a moratorium 2 035 738 1 943 797 4 618 006 3 984 223 3 009 464 2 544 369 1 625 319 6 878 599 1 283 209 6 138 006 of which: private 2 251 137 2 144 377 68 278 Of which: exposures subject to restructuring measures 474 342 Productive 210 132 174 122 546 662 Of which: exposures subject to 72 183 restructuring measures 68 278 Of which: instruments with a 324 786 significant increase in Gross carrying amount credit risk since initial 1 653 722 recognition but without credit 958 483 impairment (Stage 2) Of which: 625 756 instruments with a 2 056 137 significant increase in credit risk since initial 401 600 recognition but without credit 324 786 impairment (Stage 2) 1 653 722 91 941 633 783 465 096 342 111 740 594 106 760 11 989 Of which: exposures subject to restructuring measures Non-productive 398 168 322 099 209 712 412 022 Of which: exposures subject to 13 804 restructuring measures 11 989 82 142 Of which: Reduced 71 973 probability of payment that are not past due or past due 447 804 for <= 90 days 577 322 Of which: 301 198 Reduced 659 514 probability of payment that 82 142 are not past due or past due 71 973 for <= 90 days 577 322 Accumulated impairment, accumulated negative changes in fair value resulting from credit risk -16 634 -490 853 -280 222 -244 170 -523 884 -32 906 Of which: -6 153 exposures subject to -188 540 restructurin g measures -84 641 -63 398 Of which: -205 061 exposures subject to -16 435 restructurin g measures -6 153 -490 853 -188 540 -636 Of which: -1 021 instruments with a significant increase in credit risk since -79 370 initial recognition but -20 122 without credit Of which: impairment instruments with -18 290 a significant -80 393 increase in credit risk since -1 021 initial recognition but -636 without credit impairment -79 370 Gross carrying amount -80 393 -20 122 -5 433 -174 590 Of which: -10 480 exposures subject to -302 313 restructuring measures -74 092 Non-productive -195 581 -58 397 -189 404 -14 775 -180 772 Of which: -318 823 exposures subject to -16 471 restructuring measures -10 480 -2 403 Of which: Reduced -1 638 probability of payment that -180 769 are not past due or past due for -139 716 <= 90 days Of which: -99 810 Reduced -183 211 probability of payment that -2 403 are not past due or past due for -1 638 <= 90 days 79 732 -12 192 121 628 120 364 Entries to non- Gross productive carrying exhibitions amount Of which: Reduced (in thousands of Euros) -8 106 71 740 probability of payment that -274 756 has not been due or has been -187 309 due for a long time <= 90 dias Of which: -160 189 Reduced -286 987 probability of payment that -12 192 has not been due or has been 71 740 -8 106 due for a long (in thousands of Euros) time <= 90 dias 121 628 -274 756 50 464 Entries to 201 360 non- productive 79 732 exhibitions -174 590 -189 404 -74 092 -302 313 -318 823 -195 581 -180 769 -183 211 -139 716 -286 987 -187 309 201 360 120 364 4 618 006 3 984 223 6 878 599 3 009 464 6 138 006 2 544 369 474 342 546 662 210 132 2 056 137 958 483 633 783 740 594 465 096 398 168 412 022 322 099 659 514 447 804 -523 884 -280 222 -205 061 -84 641 Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual term of the moratoria 2 035 738 1 943 797 -16 634 91 941 -5 433 2 251 137 1 625 319 Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual term of the moratoria Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual term of the moratoria Loans and advances that have been offered a moratorium 82 142 Of which: 301 198 legislative 71 973 moratoriums -1 638 > 9 months -180 769 <= 12 months -16 435 -63 398 Of which: -6 153 expired -188 540 -2 403 -16 471 Residual deadline for default -99 810 -180 772 -10 480 > 6 months -302 313 <= 9 months > 3 months <= 6 months Number of debtors <= 3 months 6 878 599 322 099 2 144 377 1 283 209 -32 906 -244 170 -12 192 -160 189 13 804 209 712 72 183 174 122 401 600 625 756 106 760 342 111 -1 021 -18 290 -14 775 -58 397 39 437 > 1 year 4 618 006 2 035 738 3 009 464 1 943 797 3 984 223 1 653 722 2 544 369 -174 590 -490 853 -280 222 -195 581 -139 716 -274 756 447 804 398 168 577 322 324 786 474 342 633 783 210 132 958 483 465 096 -79 370 -16 634 -84 641 -20 122 -74 092 11 989 68 278 91 941 -5 433 -8 106 -636 79 732 50 464 71 740 121 628 Loans and advances subject to a moratorium (applied) 1 625 319 1 283 209 174 122 625 756 39 437 342 111 6 878 599 209 712 2 251 137 301 198 6 123 365 -244 170 1 500 379 0 -63 398 0 592 124 -18 290 591 434 Gross carrying amount 161 249 -58 397 -180 772 6 125 226 -99 810 157 463 1 502 241 0 of which: secured by residential properties Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual term of the moratoria of which: non-financial corporations 2 035 738 1 461 827 1 461 827 4 618 006 4 613 530 4 613 530 573 911 0 0 0 Residual deadline for default 0 Of which: 0 expired -187 309 120 364 (in thousands of Euros) 0 50 464 0 -160 189 of which: secured by residential properties of which: non-financial corporations Loans and advances subject to a of which: small and medium- moratorium sized enterprises of which: secured by commercial real estate of which: secured by residential properties of which: non-financial corporations of which: private of which: small and medium- sized enterprises of which: secured by commercial real estate of which: households Number of debtors 39 437 Number of 39 437 debtors Of which: legislative moratoriums 3 004 991 1 625 319 6 123 365 Of which: legislative moratoriums 1 500 379 3 009 464 6 878 599 1 625 319 6 878 599 2 251 137 0 0 Of which: 0 expired 0 690 <= 3 months 687 3 786 > 3 months <= 6 months 3 786 Gross carrying amount 0 592 124 0 161 249 > 6 months <= 9 months 3 004 991 > 9 months <= 12 months 0 0 (in thousands of Euros) > 1 year 0 Residual deadline for default 1 625 319 6 125 226 0 0 0 0 of which: households > 1 year 0 of which: secured by residential properties Information on new loans and advances granted under new public guarantee systems introduced in response to the COVID- Loans and advances that have been offered a moratorium of which: non-financial corporations 0 19 crisis Loans and advances subject to a moratorium (applied) of which: small and medium-sized enterprises 6 123 365 3 004 991 6 878 599 3 009 464 6 125 226 3 004 991 6 878 599 4 618 006 1 461 827 4 613 530 4 613 530 2 035 738 1 461 827 592 124 687 161 249 3 786 39 437 39 437 3 786 690 0 0 0 0 0 591 434 <= 3 months 573 911 157 463 > 3 months <= 6 months 0 1 502 241 > 6 months <= 9 months > 9 months <= 12 months 0 0 of which: households of which: secured by commercial real estate 2 251 137 1 625 319 1 500 379 1 625 319 0 0 591 434 0 4 618 006 1 461 827 2 035 738 of which: non-financial corporations Gross carrying amount of which: secured by residential properties 0 Gross carrying 0 amount 0 0 of which: small and medium-sized enterprises Information on new loans and advances granted under new public guarantee systems introduced in response to the COVID- Entries 0 0 of which: secured by commercial real estate 19 crisis to non-productive (in thousands of Euros) Information on new loans and advances granted under new public guarantee systems exhibitions introduced in response to the COVID-19 crisis Information on new loans and advances granted under new public guarantee systems introduced in response to the COVID- 14 New loans and advances subject to public guarantee systems 19 crisis 0 of which: households (in thousands of Euros) 0 Entries to non-productive Gross carrying 14 exhibitions amount Maximum amount of 823 162 guarantee that can be considered Gross carrying amount 0 Public guarantees received of which: secured by residential properties Gross carrying amount of which: non-financial corporations of which: restructured of which: restructured Gross carrying amount 997 673 995 776 3 004 991 4 613 530 1 625 319 3 009 464 3 004 991 1 625 319 1 625 319 573 911 901 901 690 687 0 0 0 0 0 0 0 0 0 0 Public guarantees Maximum amount of 821 614 received guarantee that can be considered 157 463 0 1 502 241 1 625 319 Maximum amount of 1 461 827 guarantee that can be 4 613 530 3 786 considered 3 786 0 0 0 0 (in thousands of Euros) 0 0 0 0 of which: small and medium-sized enterprises New loans and advances subject to public guarantee systems of which: secured by commercial real estate of which: households 835 055 997 673 0 0 901 823 162 of which: restructured Public guarantees received 14 14 0 Entries 0 to non-productive 0 exhibitions 821 614 823 162 14 14 of which: secured by residential properties NOTE 47 – RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS 901 of which: non-financial corporations 901 New loans and advances subject to public guarantee systems 995 776 997 673 0 0 0 0 0 0 0 14 14 14 0 835 055 995 776 821 614 354 835 055 0 of which: small and medium-sized enterprises of which: households IFRS 17 – Insurance contracts of which: secured by commercial real estate of which: secured by residential properties In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts 901 of which: non-financial corporations covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance NOTE 47 – RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS of which: small and medium-sized enterprises Contracts. of which: secured by commercial real estate IFRS 17 – Insurance contracts IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of NOTE 47 – RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts scope exceptions will apply. covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance IFRS 17 – Insurance contracts Contracts. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few Contracts. scope exceptions will apply. The core of IFRS 17 is the general model, supplemented by: IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of  A specific adaptation for contracts with direct participation features (the variable fee approach) The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few A simplified approach (the premium allocation approach) mainly for short-duration contracts insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies,  scope exceptions will apply. IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The main features of the new accounting model for insurance contracts are as follows: The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for The core of IFRS 17 is the general model, supplemented by:  insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, A specific adaptation for contracts with direct participation features (the variable fee approach) IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. Notes to the Consolidated Financial Statements A simplified approach (the premium allocation approach) mainly for short-duration contracts 31 December 2020 136    The core of IFRS 17 is the general model, supplemented by: The main features of the new accounting model for insurance contracts are as follows: A specific adaptation for contracts with direct participation features (the variable fee approach) A simplified approach (the premium allocation approach) mainly for short-duration contracts 31 December 2020 Notes to the Consolidated Financial Statements The main features of the new accounting model for insurance contracts are as follows: 31 December 2020 Notes to the Consolidated Financial Statements 136 136 0 0 0 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDNOTE 47 – Recently issued accounting standards and interpretations IFRS 17 – Insurance contracts In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and con- sistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by: • A specific adaptation for contracts with direct participation features (the variable fee approach) • A simplified approach (the premium allocation approach) mainly for short-duration contracts The main features of the new accounting model for insurance contracts are as follows: • The measurement of the present value of future cash flows, incorporating an explicit risk adjustment, remeasured every reporting period (the fulfilment cash flows) • A Contractual Service Margin (CSM) that is equal and opposite to any day one gain in the fulfilment cash flows of a group of contracts, representing the unearned profit of the insurance contracts to be recognized in profit or loss over the service period (i.e., coverage period) • Certain changes in the expected present value of future cash flows are adjusted against the CSM and thereby recognized in profit or loss over the remaining contractual service period • The effect of changes in discount rates will be reported in either profit or loss or other comprehensive income, determined by an accounting policy choice • The presentation of insurance revenue and insurance service expenses in the statement of comprehensive income based on the concept of services provided during the period • Amounts that are paid to a policyholder in all circumstances, regardless of whether an insured event happens (non-distinct investment components) are not presented in the income statement, but are recognized directly on the balance sheet • Insurance services results (earned revenue less incurred claims) are presented separately from the insurance finance income or expense • Extensive disclosures to provide information on the recognized amounts from insurance contracts and the nature and extent of risks arising from these contracts Both the modified retrospective approach and the fair value approach provide transitional reliefs for determining the grouping of contracts. If an entity cannot obtain reasonable and supportable information necessary to apply the modified retrospective approach, it is required to apply the fair value approach. In June 2020, the IASB issued amendments to IFRS 17. These amendments follow from the Exposure Draft (ED) on proposed Amendments to IFRS 17 Insurance Contracts. 355 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESAs a result of its re-deliberations, the IASB has made changes to the following main areas of IFRS 17: • Deferral of the effective date of IFRS 17 and IFRS 9 for qualifying insurance entities by two years to annual reporting periods beginning on or after 1 January 2023) • Scope of the standard • Expected recovery of insurance acquisition cash flows from insurance contract renewals • CSM relating to investment activities • Applicability of the risk mitigation option for contracts with direct participation features • Reinsurance contracts held - expected recovery of losses on underlying onerous contracts • Simplified presentation of insurance contracts in the statement of financial position • Additional transition reliefs In addition to the above changes, the amendments also include several other minor and editorial changes to IFRS 17. No material impacts are expected on the Group's financial statements. Definition of business activity - Amendments to IFRS 3 The IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. Minimum requirements to be a business The amendments clarify that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. They also clarify that a business can exist without including all of the inputs and processes needed to create outputs. That is, the inputs and processes applied to those inputs must have ‘the ability to contribute to the creation of outputs’ rather than ‘the ability to create outputs’. Market participants’ ability to replace missing elements Prior to the amendments, IFRS 3 stated that a business need not include all of the inputs or processes that the seller used in operating that business, ’if market participants are capable of acquiring the business and continuing to produce outputs, for example, by integrating the business with their own inputs and processes’. The reference to such integra- tion is now deleted from IFRS 3 and the assessment must be based on what has been acquired in its current state and condition. Assessing whether an acquired process is substantive The amendments specify that if a set of activities and assets does not have outputs at the acquisition date, an acquired process must be considered substantive only if: (a) it is critical to the ability to developor convert acquired inputs into outputs; and (b) the inputs acquired include both an organised workforce with the necessary skills, knowledge, or experience to perform that process, and other inputs that the organised workforce could develop or convert into outputs. In contrast, if a set of activities and assets has outputs at that date, an acquired process must be considered substantive if: (a) it is critical to the ability to continue producing outputs and the acquired inputs include an organised workforce with the necessary skills, knowledge, or experience to perform that process; or (b) it significantly contributes to the ability to continue producing outputs and either is considered unique or scarce, or cannot be replaced without significant cost, effort or delay in the ability to continue producing outputs. 356 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDNarrowed definition of outputs The amendments narrowed the definition of outputs to focus on goods or services provided to customers, investment income (such as dividends or interest) or other income from ordinary activities. The definition of a business in Appendix A of IFRS 3 was amended accordingly. Optional concentration test The amendments introduced an optional fair value concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business. Entities may elect to apply the concentration test on a transac- tion-by-transaction basis. The test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the test is met, the set of activities and assets is determined not to be a business and no further assessment is needed. If the test is not met, or if an entity elects not to apply the test, a detailed assessment must be performed applying the normal requirements in IFRS 3. The amendments must be applied to transactions that are either business combinations or asset acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020. Consequently, entities do not have to revisit such transactions that occurred in prior periods. Earlier application is permitted and must be disclosed. The amendments could also be relevant in other areas of IFRS (e.g., they may be relevant where a parent loses control of a subsidiary and has early adopted Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)). No material impacts are expected on the Group's financial statements. Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and IFRS 7 In September 2019, the IASB issued amendments to IFRS 9, IAS 39 Financial Instruments: Recognition and Measure- ment and IFRS 7 Financial Instruments: Disclosures, which concludes phase one of its work to respond to the effects of Interbank Offered Rates (IBOR) reform on financial reporting. The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncer- tainty before the replacement of an existing interest rate benchmark with an alternative nearly risk-free interest rate (an RFR). The amendments to IFRS 9 The amendments include a number of reliefs, which apply to all hedging relationships that are directly affected by the interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument. Application of the reliefs is mandatory. The first three reliefs provide for: • The assessment of whether a forecast transaction (or component thereof) is highly probable • Assessing when to reclassify the amount in the cash flow hedge reserve to profit and loss • The assessment of the economic relationship between the hedged item and the hedging instrument For each of these reliefs, it is assumed that the benchmark on which the hedged cash flows are based (whether or not contractually specified) and/or, for relief three, the benchmark on which the cash flows of the hedging instrument are based, are not altered as a result of IBOR reform. A fourth relief provides that, for a benchmark component of interest rate risk that is affected by IBOR reform, the requirement that the risk component is separately identifiable need be met only at the inception of the hedging rela- tionship. 357 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESWhere hedging instruments and hedged items may be added to or removed from an open portfolio in a continuous hedging strategy, the separately identifiable requirement need only be met when hedged items are initially designated within the hedging relationship. To the extent that a hedging instrument is altered so that its cash flows are based on an RFR, but the hedged item is still based on IBOR (or vice versa), there is no relief from measuring and recording any ineffectiveness that arises due to differences in their changes in fair value. The reliefs continue indefinitely in the absence of any of the events described in the amendments. When an entity designates a group of items as the hedged item, the requirements for when the reliefs cease are applied separately to each individual item within the designated group of items. The amendments also introduce specific disclosure requirements for hedging relationships to which the reliefs are applied. The amendments to IAS 39 The corresponding amendments are consistent with those for IFRS 9, but with the following differences: • For the prospective assessment of hedge effectiveness, it is assumed that the benchmark on which the hedged cash flows are based (whether or not it is contractually specified) and/or the benchmark on which the cash flows • of the hedging instrument are based, are not altered as • result of IBOR reform. • For the retrospective assessment of hedge effectiveness, to allow the hedge to pass the assessment even if the actual results of the hedge are temporarily outside the 80%-125% range, during the period of uncertainty arising from IBOR reform. • For a hedge of a benchmark portion (rather than a risk component under IFRS 9) of interest rate risk that is affected by IBOR reform, the requirement that the portion is separately identifiable need be met only at the inception of the hedge. Transition The amendments must be applied retrospectively. However, any hedge relationships that have previously been de- designated cannot be reinstated upon application, nor can any hedge relationships be designated with the benefit of hindsight. Early application is permitted and must be disclosed. No material impacts are expected on the Group's financial statements. Reform of interest rate reference indices - Phase 2 - changes to IFRS 9, IAS 39 and IFRS 7 On 27 August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. With publication of the phase two amendments, the IASB has completed its work in response to IBOR reform. The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). Practical expedient for changes in the basis for determining the contractual cash flows as a result of IBOR reform The amendments include a practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest. Inherent in allowing the use of this practical expedient is the requirement that the transition from an IBOR benchmark rate to an RFR takes place on an economically equivalent basis with no value transfer having occurred. Any other changes made at the same time, such as a change in the credit spread or maturity date, are assessed. If they are 358 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDsubstantial, the instrument is derecognized. If they are not substantial, the updated effective interest rate (EIR) is used to recalculate the carrying amount of the financial instrument, with any modification gain or loss recognized in profit or loss. The practical expedient is required for entities applying IFRS 4 that are using the exemption from IFRS 9 (and, therefore, apply IAS 39) and for IFRS 16 Leases, to lease modifications required by IBOR reform. Relief from discontinuing hedging relationships The amendments permit changes required by IBOR reform to be made to hedge designations and hedge documen- tation without the hedging relationship being discontinued. Permitted changes include redefining the hedged risk to reference an RFR and redefining the description of the hedging instruments and/or the hedged items to reflect the RFR. Entities are allowed until the endof the reporting period, during which a modification required by IBOR reform is made, to complete the changes. Any gains or losses that could arise on transition are dealt with through the normal requirements of IFRS 9 and IAS 39 to measure and recognise hedge ineffectiveness. Amounts accumulated in the cash flow hedge reserve are deemed to be based on the RFR. The cash flow hedge reserve is released to profit or loss in the same period or periods in which the hedged cash flows based on the RFR affect profit or loss. For the IAS 39 assessment of retrospective hedge effectiveness, on transition to an RFR, entities may elect on a hedge-by-hedge basis, to reset the cumulative fair value changes to zero. This relief applies when the exception to the retrospective assessment ends. The amendments provide relief for items within a designated group of items (such as those forming part of a macro cash flow hedging strategy) that are amended for modifications directly required by IBOR reform. The reliefs allow the hedging strategy to remain and not be discontinued. As items within the hedged group transition at different times from IBORs to RFRs, they will be transferred to sub-groups of instruments that reference RFRs as the hedged risk. As instruments transition to RFRs, a hedging relationship may need to be modified more than once. The phase two reliefs apply each time a hedging relationship is modified as a direct result of IBOR reform. The phase two reliefs cease to apply once all changes have been made to financial instruments and hedging relationships, as required by IBOR reform. Separately identifiable risk components The amendments provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component. The relief allows entities upon designation of the hedge, to assume that the separately identifiable requirement is met, provided the entity reasonably expects the RFR risk component to become separately identifiable within the next 24 months. Changes are mandatory for annual periods beginning on or after 1 January 2021, with earlier application permitted. Hedging relationships must be re-established if the hedging relationship was discontinued only due to changes required by the IBOR reform and would not have been discontinued if the changes in phase two had been applied at that time. Although the application is retrospective, an entity is not required to restate previous periods. Definition of Material - Amendments to IAS 1 and IAS 8 In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.’ The amendments clarify that materiality will depend on the nature or magnitude of information, or both. An entity will need to assess whether the information, either individually or in combination with other information, is material in the context of the financial statements. 359 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESObscuring information The amendments explain that information is obscured if it is communicated in a way that would have a similar effect as omitting or misstating the information. Material information may, for instance, be obscured if information regarding a material item, transaction or other event is scattered throughout the financial statements or disclosed using a language that is vague or unclear. Material information can also be obscured if dissimilar items, transactions or other events are inappropriately aggregated, or conversely, if similar items are inappropriately disaggregated. New threshold The amendments replaced the threshold ‘could influence’, which suggests that any potential influence of users must be considered, with ‘could reasonably be expected to influence’ in the definition of ‘material’. In the amended defini- tion, therefore, it is clarified that the materiality assessment will need to take into account only reasonably expected influence on economic decisions of primary users. Primary users of the financial statements The current definition refers to ‘users’ but does not specify their characteristics, which can be interpreted to imply that an entity is required to consider all possible users of the financial statements when deciding what information to disclose. Consequently, the IASB decided to refer to primary users in the new definition to help respond to concerns that the term ‘users’ may be interpreted too widely. This amendment is effective for annual reporting periods beginning on or after 1 January 2020. The amendments must be applied prospectively. Early application is permitted and must be disclosed. No material impacts are expected on the Group's financial statements. Covid-19-Related Rent Concessions - Amendments to IFRS 16 In May 2020, the IASB amended IFRS 16 to provide relief to lessees from applying the IFRS 16 guidance on lease modifications to rent concessions arising as a direct consequence of the covid-19 pandemic. The amendment does not apply to lessors. As a practical expedient, a lessee may elect not to assess whether a covid-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification. The practical expedient applies only to rent concessions occurring as a direct consequence of the covid-19 pandemic and only if specific conditions are met. A lessee will apply the amendment for annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted, including in financial statements not yet authorized for issue at 28 May 2020. No material impacts are expected on the Group's financial statements. Reference to the Conceptual Framework - Amendments to IFRS 3 In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations - Reference to the Conceptual Framework. The amendments are intended to replace a reference to a previous version of the IASB’s Conceptual Framework (the 1989 Framework) with a reference to the current version issued in March 2018 (the Conceptual Framework) without significantly changing its requirements. The amendments add an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies, if incurred separately. 360 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDThe exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine whether a present obligation exists at the acquisition date. At the same time, the amendments add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date. These amendments are effective for annual reporting periods beginning on or after 1 January 2022 and must be applied prospectively. No material impacts are expected on the Group's financial statements. Property, Plant and Equipment: Proceeds before intended use - Amendments to IAS 16 The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment (PP&E), any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss. These amendments are effective for annual reporting periods beginning on or after 1 January 2022 and must be applied prospectively. No material impacts are expected on the Group's financial statements. Onerous contracts: costs of fulfilling the contract - Amendments to IAS 37 In May 2020, the IASB issued amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a ‘directly related cost approach’. The costs that relate directly to a contract to provide goods or services include both incremental costs (e.g., the costs of direct labour and materials) and an allocation of costs directly related to contract activities (e.g., deprecia- tion of equipment used to fulfil the contract as well as costs of contract management and supervision). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. These amendments are effective for annual reporting periods beginning on or after 1 January 2022 and must be applied prospectively to contracts for which an entity has not yet fulfilled all of its obligations at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application). No material impacts are expected on the Group's financial statements. The amendments clarify that a gain or loss is fully recognized when a transfer to an associate or joint venture involves a business activity as defined in IFRS 3. Any gain or loss resulting from the sale or contribution of assets that do not constitute a company, is only recognized to the extent of the interests of unrelated investors in the associate or joint venture. Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor to its associate or joint ventures The amendments address the conflict between IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves a business as defined in IFRS 3. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture. 361 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESNo material impacts are expected on the Group's financial statements. The Conceptual Framework for Financial Reporting The IASB issued the Conceptual Framework in March 2018. It establishes a comprehensive set of concepts for financial reporting, standards, guidance for preparers in the development of consistent accounting policies and assistance to others in their efforts to understand and interpret the standards. The Conceptual Framework includes some new concepts, provides updated definitions and criteria for recognizing assets and liabilities and clarifies some important concepts. It is organized into eight chapters, as follows: • Chapter 1 – The objective of financial reporting • Chapter 2 – Qualitative characteristics of useful financial • information • Chapter 3 – Financial statements and the reporting entity • Chapter 4 – The elements of financial statements • Chapter 5 – Recognition and derecognition • Chapter 6 – Measurement • Chapter 7 – Presentation and disclosure • Chapter 8 – Concepts of capital and capital maintenance The amended conceptual framework for the financial reporting is not a standard and none of its concepts prevails on the concepts set out in other standards or requirements of any standard. It is applicable to entities that develop their accounting principles based on the conceptual framework applicable to annual reporting periods beginning on or after 1 January 2020. No material impacts are expected on the Group's financial statements. Classification of Liabilities as current and non-current - Amendments to IAS 1 In January 2020, the Board issued amendments to paragraphs 69 to 76 of IAS 1 Presentation of Financial Statements to specify the requirements for classifying liabilities as current or non-current. The amendments clarify: • What is meant by a right to defer settlement • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument, would the terms of a liability not impact its classification Right to defer settlement The Board decided that if an entity’s right to defer settlement of a liability is subject to the entity complying with specified conditions, the entity has a right to defer settlement of the liability at the end of the reporting period if it complies with those conditions at that date. Existence at the end of the reporting period The amendments also clarify that the requirement for the right to exist at the end of the reporting period applies regardless of whether the lender tests for compliance at that date or at a later date. 362 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDManagement expectations IAS 1.75A has been added to clarify that the ‘classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least twelve months after the reporting period’. That is, management’s intention to settle in the short run does not impact the classification. This applies even if settlement has occurred when the financial statements are authorised for issuance. Meaning of the term ‘settlement’ The Board added two new paragraphs (paragraphs 76A and 76B) to IAS 1 to clarify what is meant by ‘settlement’ of a liability. The Board concluded that it was important to link the settlement of the liability with the outflow of resources of the entity. Settlement by way of an entity’s own equity instruments is considered settlement for the purpose of classification of liabilities as current or non-current, with one exception. In cases where a conversion option is classified as a liability or part of a liability, the transfer of equity instruments would constitute settlement of the liability for the purpose of classifying it as current or non-current. Only if the conversion option itself is classified as an equity instrument would settlement by way of own equity instruments be disregarded when determining whether the liability is current or non-current. Unchanged from the current standard, a rollover of a borrowing is considered the extension of an existing liability and is therefore not considered to represent ‘settlement’. This amendment is effective for annual reporting periods beginning on or after 1 January 2023. Improvement to IFRS - 2018-2020 cycle (issued in May 2020) IFRS 1 - First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter The amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by the parent, based on the parent’s date of transition to IFRS. This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1. An entity applies the amendment for annual reporting periods beginning on or after 1 January 2022. Earlier application is permitted. IFRS 9 - Financial Instruments - Fees in the ’10 per cent’ test for derecognition of financial liabilities The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. There is no similar amendment proposed for IAS 39. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. An entity applies the amendment for annual reporting periods beginning on or after 1 January 2022. Earlier application is permitted. IFRS 16 - Leases The amendment removes the illustration of payments from the lessor relating to leasehold improvements in Illustrative Example 13 accompanying IFRS 16. This removes potential confusion regarding the treatment of lease incentives when applying IFRS 16. IAS 41 - Agriculture The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring the fair value of assets within the scope of IAS 41. 363 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESAn entity applies the amendment to fair value measurements on or after the beginning of the first annual reporting period beginning on or after 1 January 2022. Earlier application is permitted. NOTE 48 - Subsequent events On March 5, 2021, NOVO BANCO reported that, after completing a competitive sale process, it entered into with BURLINGTON LOAN MANAGEMENT DAC, a company affiliated and advised by DAVIDSON KEMPNER EUROPEAN PARTNERS, LLP, a promissory Purchase and Sale Agreement of a portfolio of non-performing loans (NPL) and related assets (together, Project Wilkinson) with a gross balance sheet value of Euro 216.3 million, still subject to usual perimeter adjustments in operations of this nature . The sale value of the portfolio amounts to Euro 67.5 million, and the completion of the operation, under the terms agreed, should have a marginally positive direct impact on capital and in the 2021 income statement. 364 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES CONSOLIDATEDNOVO BANCO, S.A. Separate income statement for the years ended 31 NOVO BANCO, S.A. December 2020 and 2019 INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2020 AND 2019 NOVO BANCO Interest Income Interest Expenses Net Interest Income Dividend income Fees and commissions income Fee and commissions expenses Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Gains or losses on financial assets and liabilities held for trading Gains or losses on financial assets mandatorily at fair value through profit or loss Gains or losses from hedge accounting Exchange differences Gains or losses on derecognition of non-financial assets Other operating income Other operating expenses Operating Income Administrative expenses Staff expenses Other administrative expenses Contributions to resolution funds and deposit guarantee Depreciation Provisions or reversal of provisions Commitments and guarantees given Other provisions Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates Impairment or reversal of impairment on non-financial assets Profit or loss before tax from continuing operations Tax expense or income related to profit or loss from continuing operations Current tax Deferred tax Profit or loss after tax from continuing operations Profit or loss before tax from discontinued operations Profit or loss for the period Basic earnings per share (in euros) Diluted earnings per share (in euros) Basic earnings per share of continuing activities (in Euros) Diluted earnings per share of continuing activities (in Euros) Notes 31.12.2020 31.12.2019* (in thousands of Euros) 4 4 5 6 6 7 8 9 10 11 12 13 13 14 16 17 24, 25 30 21 23 27, 28 26 28 18 18 18 18 760 111 ( 192 112) 732 291 ( 214 722) 567 999 517 569 16 928 279 878 ( 41 438) 86 183 ( 91 208) ( 521 059) ( 12 053) ( 2 000) 2 272 87 599 ( 89 879) 17 270 318 119 ( 44 286) 59 376 ( 61 168) ( 372 654) ( 2 445) 38 486 14 507 56 534 ( 74 783) 283 222 466 525 ( 367 635) ( 223 604) ( 144 031) ( 34 766) ( 35 033) ( 187 839) ( 21 595) ( 166 244) ( 750 975) ( 41 285) ( 215 397) ( 376 360) ( 223 363) ( 152 997) ( 34 448) ( 33 358) ( 121 954) 56 287 ( 178 241) ( 544 187) ( 36 036) ( 284 893) (1 349 708) ( 964 711) 4 216 13 400 ( 9 184) ( 38 726) ( 2 541) ( 36 185) (1 345 492) (1 003 437) ( 28 754) ( 84 147) (1 374 246) (1 087 584) (0,14) (0,14) (0,14) (0,14) (0,11) (0,11) (0,10) (0,10) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The accompanying explanatory notes are an integral part of these separate financial statements The accompanying explanatory notes are an integral part of these separate financial statements 365 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 305- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO, S.A. Separate statement of comprehensive income for the years ended 31 December 2020 and 2019 Net profit / (loss) for the period Other comprehensive income/(loss) Notes 31.12.2020 (in thousands of Euros) 31.12.2019 ( 1 374 246) ( 1 087 584) Items that will not be reclassified to results Actuarial gains / (losses) on defined benefit plans Fair value changes of equity instruments measured at fair value through other comprehensive income Fair value changes of financial liabilities at fair value through profit or loss that is attributable to changes in their credit risk Items that may be reclassified to results Financial assets at fair value through other comprehensive income a) a) a) a) ( 125 636) ( 122 199) ( 14 320) 10 883 8 410 8 410 ( 104 596) ( 106 026) 4 301 ( 2 871) 223 579 223 579 Total other comprehensive income/(loss) for the period (1 491 472) ( 968 601) a) See Statement of Changes in Equity The accompanying explanatory notes are an integral part of these separate financial statements 366 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATENOVO BANCO, S.A. Separate balance sheet as at 31 December 2020 and 2019 NOVO BANCO NOVO BANCO, S.A. BALANCE SHEET AS AT 31 DECEMBER 2020 AND 2019 (in thousands of Euros) Notes 31.12.2020 31.12.2019 ASSETS Cash, cash balances at central banks and other demand deposits Financial assets held for trading Non-trading financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortised cost Debt securities Loans and advances to Banks (of which, Repurchase Agreement) Loans and advances to customers Derivatives – Hedge accounting Fair value changes of the hedged items in portfolio hedge of interest rate risk Investments in subsidiaries, joint ventures and associates Tangible assets Tangible fixed assets Intangible assets Tax assets Current Tax Assets Deferred Tax Assets Other assets Non-current assets and disposal groups classified as held for sale TOTAL ASSETS LIABILITIES Financial liabilities held for trading Financial liabilities measured at amortised cost Deposits from banks (of which, Repurchase Agreement) Due to customers Debt securities issued, Subordinated debt and liabilities associated to transferred assets Other financial liabilities Derivatives – Hedge accounting Provisions Tax liabilities Current Tax liabilities Other liabilities Liabilities included in disposal groups classified as held for sale TOTAL LIABILITIES EQUITY Capital Accumulated other comprehensive income Retained earnings Other reserves Profit or loss attributable to Shareholders of the parent TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 19 20 21 21 21 22 22 23 24 25 26 27 28 20 29 22 30 26 31 28 32 33 33 33 2 524 868 655 327 2 445 605 7 813 584 24 804 483 2 873 753 245 472 - 21 685 258 13 606 60 976 189 924 188 968 188 968 48 331 771 854 - 771 854 2 956 010 1 568 912 1 674 826 748 836 3 044 724 8 758 131 26 042 243 2 392 843 495 252 8 23 154 148 7 992 49 884 231 425 194 753 194 753 26 043 892 713 680 892 033 3 333 586 21 273 44 042 448 45 026 429 554 343 37 895 984 10 778 468 1 625 724 25 778 507 974 996 364 013 72 543 438 572 5 536 5 536 314 611 2 007 770 544 400 39 924 564 10 542 549 2 168 488 27 980 577 1 044 445 356 993 58 854 371 744 9 239 9 239 471 626 - 41 289 359 41 380 427 5 900 000 ( 749 259) (7 202 828) 6 179 422 (1 374 246) 5 900 000 ( 632 033) (6 115 245) 5 580 864 (1 087 584) 2 753 089 3 646 002 44 042 448 45 026 429 The accompanying explanatory notes are an integral part of these separate financial statements The accompanying explanatory notes are an integral part of these separate financial statements 367 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 307- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO, S.A. Separate statement of changes in equity for the years ended 31 December 2020 and 2019 NOVO BANCO, S.A. NOVO BANCO STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2020 AND 2019 Notes Share Capital Other Comprehen sive Income Retained earnings Other reserves (in thousands of Euros) Net profit/(loss) for the period attributable to shareholders of the Bank Total Balance as at 31 December 2018 5 900 000 ( 751 016) ( 4 682 368) 4 565 538 ( 1 432 875) 3 599 279 Other Increase / (Decrease) in Equity Appropriation to retained earnings of net profit / (loss) of the previous period* Reserve of Contingent Capital Agreement Fusion reserve BES GMBH Fusion reserve BESIL Fusion reserve ES Plc Other movements Total comprehensive income for the period Changes in fair value, net of tax Remeasurement of defined benefit plans, net of tax Credit risk changes of financial liabilites at fair value, net of tax Reserves of impairment of securities at fair value through OCI Reserves of sales of securities at fair value through OCI Net income of the period - - - - - - - - - - - - - - - - - - - - - 118 983 228 454 ( 106 026) ( 2 871) 4 301 ( 4 875) - ( 1 432 877) ( 1 432 875) - - - - ( 2) - - - - - - - 1 015 326 - 1 037 013 ( 195 267) 173 679 ( 97) ( 2) - - - - - - - 1 432 875 1 432 875 - - - - - ( 1 087 584) - - - - - ( 1 087 584) 1 015 324 - 1 037 013 ( 195 267) 173 679 ( 97) ( 4) ( 968 601) 228 454 ( 106 026) ( 2 871) 4 301 ( 4 875) ( 1 087 584) Balance as at 31 December 2019 5 900 000 ( 632 033) ( 6 115 245) 5 580 864 ( 1 087 584) 3 646 002 Other Increase / (Decrease) in Equity Appropriation to retained earnings of net profit / (loss) of the previous period Reserve of Contingent Capital Agreement Other movements Total comprehensive income for the period Changes in fair value, net of tax Remeasurement of defined benefit plans, net of tax Credit risk changes of financial liabilites at fair value, net of tax Reserves of impairment of securities at fair value through OCI Reserves of sales of securities at fair value through OCI Net profit / (loss) for the period 33 33 15 33 33 33 - - - - - - - - - - - ( 1 087 583) ( 1 087 584) - 1 - - - - - - - 598 558 - 596 315 2 243 - - - - - - - 1 087 584 1 087 584 - - ( 1 374 244) - - - - - ( 1 374 246) 598 559 - 596 315 2 244 ( 1 491 472) 12 284 ( 122 199) 10 883 ( 1 838) ( 16 356) ( 1 374 246) ( 117 226) 12 284 ( 122 199) 10 883 ( 1 838) ( 16 356) - Balance as at 31 December 2020 5 900 000 ( 749 259) ( 7 202 828) 6 179 422 ( 1 374 246) 2 753 089 The accompanying explanatory notes are an integral part of these separate financial statements The accompanying explanatory notes are an integral part of these separate financial statements 368 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 308- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO, S.A. Separate cash flow statement for the years ended on 31 December 2020 and 2019 NOVO BANCO, S.A. NOVO BANCO INTERIM CASH FLOW STATEMENT FOR THE SIX MONTH PERIODS ENDED ON 30 JUNE 2020 AND 2019 Cash flows from operatins activities Interest received Interest paid Fees and commissions received Fees and commissions paid Recoveries on loans previously written off Contributions to the pension fund Cash contributions to resolution funds and deposit guarantee schemes Cash payments to employees and suppliers Changes in operating assets and liabilities: Deposits with / from Central Banks Financial assets mandatorily at fair value through profit or loss Financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortised cost Securities Loans and advances to banks Loans and advances to customers Financial liabilities at amortised cost Deposits from banks Due to customers Derivatives - Hedge accounting Other operating assets and liabilities Net cash from operating activities before corporate income tax Corporate income taxes paid Net cash from operating activities Cash flows from investing activities Dividends received Acquisition of tangible fixed assets Sale of tangible fixed assets Acquisition of intangible assets Sale of intangible assets Net cash from investing activities Cash flows from financing activities Contingent Capital Agreement Reimbursement of bonds and other debt securities Net cash from financing activities Net changes in cash and cash equivalents Cash and cash equivalents at the beginning of the period Net changes in cash and cash equivalents Cash and cash equivalents at the end of the period Cash and cash equivalents include: Cash Deposits with Central Banks (of which, Restricted balances) Deposits with banks Total (in thousands of Euros) 31.12.2020 31.12.2019 741 134 ( 239 631) 279 878 ( 41 438) 29 596 ( 266 833) ( 34 766) ( 358 667) 109 273 915 128 ( 507 149) 191 804 356 500 648 ( 511 297) 59 217 952 728 (2 837 350) ( 671 335) (2 166 015) ( 3 017) 907 336 751 730 ( 222 520) 333 902 ( 48 049) 30 230 - ( 34 448) ( 399 539) 411 306 ( 297 651) ( 839 719) 164 896 ( 907 485) (1 172 699) ( 29 161) 63 182 (1 206 720) 1 263 360 1 716 126 ( 452 766) ( 1 880) 1 132 133 ( 110 584) ( 247 739) ( 18 356) ( 30 308) ( 128 940) ( 278 047) 16 928 ( 43 398) 2 790 ( 26 508) - 17 313 ( 17 130) 16 387 ( 26 137) - ( 50 188) ( 9 567) 1 035 016 ( 589) 1 149 295 467 1 034 427 1 149 762 855 299 862 148 1 406 347 855 299 544 199 862 148 2 261 646 1 406 347 142 325 2 292 797 ( 263 222) 89 746 174 156 1 408 908 ( 268 479) 91 762 2 261 646 1 406 347 The accompanying explanatory notes are an integral part of these separate financial statements The accompanying explanatory notes are an integral part of these interim condensed separate financial statements 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 309- 369 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Notes to the Separate Financial Statements as at 31 December 2020 (Amounts expressed in thousands of Euro, except when otherwise indicated) NOTA 1 –Activity NOVO BANCO, S.A. is the main entity of the financial Group NOVO BANCO focused on the banking activity, having been incorporated on the 3rd of August 2014 per deliberation of the Board of Directors of Bank of Portugal (the Central Bank of Portugal) dated 3rd of August 2014 (8 p.m.), under No. 5 of article 145-G of the General Law on Credit Institutions and Financial Companies (“Regime Geral das Instituições de Crédito e Sociedades Financeiras” (RGICSF))¹, approved by Decree-Law No. 298/92, of 31 December, following the resolution measure applied by Bank of Portugal to Banco Espírito Santo, S.A. (BES), under the terms of paragraphs 1 and 3-c) of article 145-C of the RGICSF, from which resulted the transfer of certain assets, liabilities and off-balance sheet elements as well as assets under management of BES from BES to NOVO BANCO (NOVO BANCO or the Bank). As a result of the resolution measure applied, Fundo de Resolução (“Resolution Fund”) became the sole owner of the share capital of NOVO BANCO, in the amount of Euro 4,900 million, with the status of a transition bank, with a limited duration, due to the commitment assumed by the Portuguese State with the European Commission to sell its shares within two years from the date of its incorporation, extendable for one year. On 31 March 2017, the Resolution Fund signed the sale agreement of NOVO BANCO. On 18 October the sale process was concluded, following the acquisition of the majority (75%) of its share capital by Nani Holdings, SGPS, SA, a com- pany belonging to the North-American Group Lone Star, through two share capital increases in the amount of Euro 750 million and Euro 250 million, in October and December, respectively. Thus, as at 30 June 2020 and 31 December 2019, the share capital of NOVO BANCO amounted to Euro 5,900 million, represented by 9,799,999,997 nominative shares, with no nominal value. Within the sale process, a Contingent Capital Agreement was created with the sale process, which in case its capital ratios decrease below the regulatory requirements defined for NOVO BANCO, and cumulatively, losses are recorded in a delimited portfolio of assets, the Resolution Fund makes a payment corresponding to the lower of the losses recorded and the amount needed to restore the capital ratios at the relevant level, up to a maximum of Euro 3,890 million. With the conclusion of the sale process, NOVO BANCO ceased to be considered a transition Bank and began to operate normally, although still being subject to certain measures restricting its activity, imposed by the European Competition Authority. Since 18 October 2017 the financial statements of NOVO BANCO are consolidated by Nani Holdings SGPS, S.A., with registered office at Avenida D. João II, no. 46, 4A, Lisbon. LSF Nani Investments S.à.r.l., headquartered in Luxembourg, is the parent company of the Group. NOVO BANCO, S.A. has its registered office in Lisbon, at Avenida da Liberdade, No. 195. As at 31 December 2020, NOVO BANCO has a retail network comprising 340 branches in Portugal and abroad (31 December 2019: 368 branches), branches in Spain and Luxembourg and 4 representative offices in Switzerland (31 December 2019: 4 representative offices). During 2019, the subsidiaries BES GMBH, BESIL and ESPLC were merged into NOVO BANCO. The branches in London and the Cayman Islands were also closed. 1. References made to RGICSF refer to the version in force at the date of the resolution measure. The current version of the RGICSF has suffered changes, namely in article 145, following the publication of Law 23-A 2015, of 26 March, that came into force on the day following its publication. 370 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATENOTE 2 – Main accounting policies 2.1. Basis of presentation In accordance with Regulation (EC) No. 1606/2002 of 19 July 2002 of the European Council and the Parliament and Notices 5/2015 of the Bank of Portugal, the consolidated financial statements from NOVO BANCO, S.A. (NOVO BANCO) were prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union effective as of 1 January 2020. The IFRS comprise accounting standards issued by International Accounting Standards Board (IASB) as well as inter- pretations issued by the International Reporting Interpretations Committee (IFRIC), and by their predecessor bodies Standing Interpretations Committee (“SIC”). The separate financial statements of NOVO BANCO are presented as at 31 December 2020. The accounting policies used by the Bank in their preparation are consistent with those used in the preparation of the financial statements as at 31 December 2019. except in what concerns with the new standards issued. These changes are presented below. The accounting standards and interpretations recently issued, but which have not yet entered into force and which the Bank has not yet applied in the preparation of its financial statements can also be analyzed in Note 41. The separate financial statements are expressed in thousands of Euros, rounded to the are expressed in thousands of Euro, rounded to the nearest thousand. They have been prepared under the assumption of continuity of operations from the accounting records and following the historical cost convention, except for the assets and liabilities accounted for at fair value, namely derivative financial instruments, financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment properties and hedged assets and liabilities, in respect of their hedged component. Changes in accounting policies The preparation of the financial statements in accordance with IFRS requires the Bank to make judgments and estimates and use assumptions that affect the application of accounting policies and the amounts of income, costs, assets and liabilities. Changes in such assumptions or differences in relation to reality may have an impact on current estimates and judgments. The areas that involve a higher level of judgment or complexity or where significant assumptions and estimates are used in the preparation of the financial statements are analyzed in Note 3. The separate financial statements and the Management Report of 31 December 2020 were approved at the Executive Board of Directors’ meeting held on 24 March 2021 and will be submitted to the General Assembly of Shareholders, which has the power to justifiably decide to change them. However, it is Executive Board of Directors conviction that these separate financial statements will be approved without changes. 2.2. Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Euro at the foreign exchange rates ruling at the balance sheet date. Foreign exchange differences arising on this translation are recognized in the income statement. Non-monetary assets and liabilities recorded at historical cost, denominated in foreign currency, are translated using the exchange rate prevailing at the transaction date. Non-monetary assets and liabilities, denominated in foreign currency, that are stated at fair value are translated into Euro at the foreign exchange rates ruling at the dates the fair value was determined. The resulting exchange differences are accounted for in the income statement, except if 371 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESrelated to equity instruments classified as financial assets at fair value through other comprehensive income, which are recorded in equity reserves. Foreign exchange differences relating to cash flow hedges and the hedging of the net investment in foreign operational units, when they exist, are recognized in other comprehensive income. 2.3. Derivative financial instruments and hedge accounting Classification The Bank classifies its derivatives portfolio into (i) hedging derivatives and (ii) trading derivatives, which include, in addition to the trading book, other derivatives contracted for the purpose of hedging certain assets and liabilities designated at fair value through profit or loss but not classified as hedging (fair value option). Recognition and measurement Derivative financial instruments are initially recognized at their fair value on the date the derivative contract is entered into (trade date). Subsequent to initial recognition, the fair value of derivative financial instruments is premeasured on a regular basis and the resulting gains or losses on remeasurement are recognized directly in the income statement, except for derivatives designated as hedging instruments. The recognition of the resulting gains or losses arising on the derivatives designated as hedging instruments depends on the nature of the risk being hedged and the hedge model used. Derivatives traded on organized markets, namely futures and some options contracts, are recorded as trading derivatives and their fair value changes are recorded against the income statement. The margin accounts are included under other assets and other liabilities (see Notes 27 and 31) and comprise the minimum collateral mandatory for open positions. The fair value of the remaining derivative financial instruments corresponds to their market value, if available, or is determined using valuation techniques, including discounted cash flow models and options pricing models, as appro- priate. Hedge accounting Classification criteria Derivative financial instruments used for hedging purposes may be classified in the accounts as hedging instruments provided the following criteria are cumulatively met: i. Hedging instruments and hedged items are eligible for the hedge relationship; ii. At the inception of the hedge, the hedge relationship is identified and documented, including identification of the hedged item and hedging instrument and evaluation of the effectiveness of the hedge; iii. There is an economic relationship between the hedged item and the hedging instrument; iv. The effect of credit risk does not dominate the changes in value that result from this economic relationship; v. The effectiveness of the hedge can be reliably measured, both at the inception of the hedge and on an ongoing basis. For the cases in which the Bank uses macro hedging, accounting is performed in accordance with IAS 39 (using the policy choice permitted under IFRS 9), with the Bank carrying out prospective tests on the hedge relationship start date, when applicable, and retrospective tests in order to confirm, on each balance sheet date, the effectiveness of hedging relationships, demonstrating that changes in the fair value of the hedging instrument are covered by changes in the fair value of the hedged item in the portion attributed to the hedged risk. Any ineffectiveness found is recognized in the income statement when it occurs in gains or losses of hedge accounting. 372 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEThe use of derivatives is framed in the Bank's risk management strategy and objectives. Fair value hedge In a fair value hedging operation, the carrying value of the hedged asset or liability, determined in accordance with the respective accounting policy, is adjusted to reflect the changes in its fair value attributable to the risk being hedged. Changes in the fair value of the derivatives that are designated as hedging instruments are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the risk hedged. In cases where the hedging instrument covers an equity instrument designated at fair value through other comprehensive income, changes in fair value are also recognized in other comprehensive income. If the hedge no longer meets the effectiveness requirement, but the objective of risk management stays the same, the Bank may adjust the hedging operation in order to meet the eligibility (rebalancing) criteria. If the hedge no longer meets the criteria for hedge accounting (if the hedging instrument expires, is sold, terminated or exercised, without having been replaced in accordance with the entity's documented risk management objective), the derivative financial instrument is transferred to the trading portfolio and hedge accounting is discontinued prospectively. The cumulative adjustment to the carrying book value of a hedged asset or liability corresponding to a fixed income instrument is amortised via the income statement over the period to its maturity, using the effective interest rate method. Cash Flow Hedge When a derivative financial instrument is designated as a hedge against the variability of highly probable future cash flows, the effective portion of the changes in the fair value of the hedging derivative is recognized in reserves, being recycled to the income statement in the periods in which the hedged item affects the income statement. The ineffective portion is recognized in the income statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss recognized in reserves at that time is recognized in the income statement when the hedged transaction also affects the income statement. When a hedged transaction is no longer expected to occur, the cumu- lative gain or loss reported in equity is recognized immediately in the income statement and the hedging instrument is reclassified to the trading portfolio. As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of reference interest rates, which led to the transition from EONIA (Euro OverNight Index Average) to € STR (Euro Short Term Rate ), in the course of 2020, the Bank changed the discount curve of its positions in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the implementation principle of the aforementioned regulation, that no substantial changes to the original objective of risk management or discontinuation of hedging relationships will occur, the Bank did not record any relevant impacts on retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships (hedged and hedged items) were subject to the same change. Embedded derivatives If a hybrid contract includes a host contract that is a financial asset under IFRS 9, the Bank classifies the entire contract in accordance with the policy outlined in Note 2.4. If a hybrid contract includes a host contract that is not an asset under IFRS 9, an embedded derivative shall be separated from the host contract and accounted for as a derivative under this Standard if, and only if: a. the economic characteristics and risks of the embedded derivative are not closely related to the economic charac- teristics and risks of the host contract; b. a separate financial instrument with the same terms as the embedded derivative satisfies the definition of a derivative; and c. the hybrid contract is not measured at fair value and changes in fair value are recognized in profit or loss (a derivative that is embedded in a financial liability at fair value through profit or loss is not separated). 373 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThese embedded derivatives are measured at fair value with the changes in fair value being recognized in the income statement. 2.4. Other financial assets: Placements with credit institutions, customer loans and securities The Bank initially classifies all of its financial assets based on the business model for managing the assets and the asset’s contractual terms. This classification determines how the asset is measured after its initial recognition: • Amortised cost: if it is held within a business model with the objective to hold financial assets in order to collect contractual cash flows that are solely payments of principal and interest (SPPI - solely payments of principal and interest) on the principal amount outstanding; • Fair value through other comprehensive income: if it is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets and the contractual cash flows fall under the scope of SPPI. In addition, upon initial recognition, the Bank may choose to classify irrevocably equity instruments in the fair value through other comprehensive income portfolio being the changes in the fair value recognized in equity; • Mandatorily measured at fair value through profit or loss: all cases not within the scope of SPPI; • Measured at fair value through profit or loss: other financial instruments not included in the business models described above. If these assets were acquired with the objective of being traded in the short term, they are classified as held for trading. Initial recognition and measurement and derecognition These financial assets are initially recognized at fair value plus transaction costs, except for financial assets at fair value through profit or loss, where transaction costs are directly recognized in the income statement. Deposits and loans and advances to banks and loans and advances to customers are recorded on the date the amount of the transaction is advanced to the counterparty. Acquisitions and disposals of securities are recognized on the trade date, that is, on the date on which the Bank undertakes to acquire or dispose of the asset. Financial assets at amortised cost or accounted at fair value through other comprehensive income In accordance with IFRS 9 - Financial Instruments, for a financial asset to be classified and measured at amortised cost or at fair value through other comprehensive income, it is necessary that: i. The contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest (SPPI - solely payments of principal and interest) on the principal amount outstanding. Principal, for the purposes of this test is defined as the fair value of the financial asset at initial recognition. The contractual terms that are SPPI are consistent with a basic lending arrangement. Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement, such as exposure to changes in stocks or commodity prices, do not give rise to contractual cash flows that are solely payments of principal and interest on the amount outstanding. In such cases, the financial asset is required to be measured at fair value through profit or loss; ii. The financial asset is held within a business model with the objective to hold financial assets to maturity to collect contractual cash flows (financial assets at amortised cost) or to collect the contractual cash flows until maturity and selling the financial asset (financial assets at fair value through other comprehensive income). The assessment of the business models of the financial asset is fundamental for its classification. The Bank determines the business models by financial asset groups according to how they are managed to achieve a particular business objective. The Bank's business models determine whether cash flows will be generated by obtaining only contractual cash flows, from selling the financial assets or both. At initial recognition of a financial asset, the Bank determines whether it is 374 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEpart of an existing business model or if it reflects a new business model. The Bank reassesses its business models in each reporting period in order to determine whether there have been changes in business models since the last reporting period. The above requirements do not apply to lease receivables, which meet the criteria defined in IFRS 16 – Leases. Financial assets that are subsequently measured at amortised cost or at fair value through other comprehensive income are subject to impairment assessment. Financial assets at fair value through other comprehensive income are initially recorded at fair value and subsequently measured at fair value with changes in the fair value recognized in reserves (other comprehensive income) until derecognition, when cumulative potential gains and losses recognized in reserves are reclassified to the caption Gains and losses on financial assets and liabilities designated at fair value through profit or loss. In the specific case of equity instruments, the cumulative gains/ (losses) previously recognized in equity is not reclassified to profit or losses being reclassified between equity accounts. However, dividends received from these equity instruments are recognized in profit or loss. At initial recognition, financial assets at amortised cost are recorded at acquisition cost, and subsequently measured at amortised cost based on the effective interest rate. Interest calculated at the effective interest rate are recognized in profit or loss. Financial assets at fair value through profit or loss Financial assets recorded at fair value through profit or loss present the following characteristics: • contractual cash flows are not SPPI (mandatorily measured at fair value through profit or loss); and/or • it is held within a business model which objective is neither to obtain only contractual cash flows or to obtain contractual cash flows and sale; or, • it is designated at fair value through profit or loss as a result of applying the fair value option. These assets are measured at fair value and the respective revaluation gains or losses are recognized in the income statement. Reclassifications If the Bank changes a business model, the financial assets included in that model are reclassified and the classification and measurement requirements for the new category are applied prospectively as from that date. Impairment The Bank records impairment allowance for expected credit losses ("ECLs") for the following debt instruments: • Loans and advances to customers; • Financial and performance guarantees; • Import documentary credits; • Confirmed export documentary credits; • Undrawn loan commitments; • Money market exposures; • Securities portfolio. Debt instruments at amortised cost or at fair value through other comprehensive income are in the scope of the impairment calculation. Impairment losses identified are recognized in the income statement and are subsequently reversed through the in- come statement if, in a subsequent period, the amount of impairment losses decreases. 375 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESStaging The impairment calculation approach distinguishes between the 12 months’ expected credit losses - Stage 1 - and the lifetime expected credit losses. To determine expected lifetime losses, the approach considers the projection of contractual cash flows - Stage 2 - or the present value of the expected recoveries - Stage 3. Thus, the model of impairment calculation by Stage is summarized as follows: • expected credit loss resulting from a potential loss event occurring within the next 12 months after the calculation date (Stage 1); or • expected credit loss, resulting from all potential loss events expected over the lifetime, applied to the projection of contractual cash flows (Stage 2); or • expected credit loss resulting from the difference between the amount outstanding and the present value of the cash flows estimated to be recovered from the exposure1 (Stage 3). Therefore, for the determination of impairment, the classification by Stage for all exposures according to their level of credit risk, as summarized in the figure below, is made beforehand: Stage 1 Stage 2 Stage 3 Signiﬁcant increase in credit risk? Objective evidence of impairment? Stage 3 The process of assigning Stage to an exposure starts by checking if the Stage 3 criteria applies. If the exposure is classified as Default - according to the current internal definition1 - this exposure is classified as Stage 3. Thus, the classification of exposures in Stage 3 is based on the occurrence of a default event, with objective evidence of loss occurring at the time from which a significant change occurs in the creditor-debtor relationship, being the creditor exposed to a monetary loss. Considering the measure of specific triggers of Default or the Stage 3 determination indicators, the result will be the determination of Default and Stage 3 accordingly, taking as a starting point the default setting. Stage 2 Exposures are classified as Stage 2 whenever there is a significant increase in credit risk, since initial recognition. If there is no objective evidence of loss associated with the exposure, criteria are analyzed to determine whether exposure has significantly increased its credit risk. The significant increase in credit risk is assessed through qualitative and quantitative evidence. Once it is verified that - at least - one of these triggers is active, the exposure is classified in Stage 2. The table below describes the criteria and respective applicable thresholds: 376 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATECriteria for Stage 2 classiﬁcation1 Low default portfolios (Risk Solutions Templates) Rated on the reporting and origination date Not rated on the origination Note rated on the reporting date3 Exposure Quantitative Triggers • PD relative and absolute change since origination Qualitative Triggers • PD Lifetime Forward Looking (LT FL) captured on origination and comparison (absolute and relative) - SICR2 • Relative Threshold of +200% • Absolute Threshold of +1.5% • Worse Rating / Worse Scoring • Credit in litigation/written off on CRC; or • Check use inhibition; or • Forborne due to ﬁnancial difficulties; or Backstop Triggers • Past due for more than 30 days, above materiality • > €100 overdue, for loans to individuals • > €500 overdue, for corporate loans 1. To some of the criteria presented, there are applicable concept of contamination and cure period. 2. SICR not applicable in the case the rating/scoring atribute to the contract/client represents a PD lower than 0.75 (3 x Investment Grade Rating) 3. For unrated exposures it is only applicable qualitative and backstop triggers, in order to assess if they classify as for Stage 2. As explained in the IFRS 9 regulation, the assessment of a significant increase in credit risk involves - also - comparing the current level of risk of an exposure against the level of risk existing in origination. The Bank assigns an internal credit risk grade to the exposure / borrower, depending on its quality and associated with the probability of default. In assessing whether the exposure credit risk has increased significantly since initial recognition, the Bank compares, at the reporting date, the lifetime probability of default with the probability of default at origination of the exposure. Depending on whether the observed variation falls above a defined threshold - relative and / or absolute - the exposure is classified in Stage 2. In addition to this event, the Bank considers other events, that if verified imply the classification in Stage 2 - e.g.: material default for more than 30 days, risk events in the financial system, internal credit risk grade above a certain threshold, among others. Stage 1 The classification of exposures in Stage 1 depends on: i. absence of active events that qualify for Stage 3 and Stage 2, which were mentioned and described above; or ii. the framing of these exposures under the low-credit risk exemption. These exposures, if not in Stage 3, are auto- matically classified in Stage 1. The outlined vision is based not only on the requirement in IFRS 9, but also on the approach defined for capital calculation, where for these exposures a 0% risk weight is considered. Thus, entities that are not classified as default and fully comply with the conditions mentioned above are classified as low credit risk, being assigned stage 1. Each month the list of entities in these conditions is reviewed, whose majority is composed of Portuguese public debt, public debt in the Euro zone, American public debt and / or equivalent. 377 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESSegmentation For purposes of the collective assessment of impairment, loans are grouped on the basis of similar credit risk characteristics, taking in consideration the Bank’s credit risk management process. For each of these homogeneous risk groups, risk factors are estimated and then applied for impairment assessment purposes. For the purpose of determining collective impairment, operations are allocated to risk sub-segments in accordance with the following definitions in the table below: 1st Segmentation 2nd Segmentation 3rd Segmentation 4th Segmentation Client Type Corporate Risk Segment Large Companies Real Estate Medium Companies Small Companies Start-ups Financial Institutions Sovereign Rating Notation Individuals Product Type Mortgage Consumer Loans Credit Cards Other Individuals Scoring Notation Collaterals - LTV Typically, Corporate segments consider the value of collateral for segmentation purposes The mortgage segment considers the value of the ﬁnanced asset for the purposes of segmentation Scenarios As required by IFRS 9, the Banks’s impairment assessment reflects different expectations of macroeconomic developments, i.e., it incorporates multiple scenarios. In order to incorporate the effects of future macroeconomic behavior on loss estimates, forward looking macroeconomic estimates are included in some of the risk parameters used to calculate impairment. In fact, different possible scenarios giving rise to the same number of impairment results are considered. In this context, the process of defining macroeconomic scenarios consider the following principles: • Representative scenarios that capture the existing non-linearities (e.g. a base scenario, an optimistic and a pessimistic scenario); • The base scenario should be consistent with the inputs used in other exercises in the Bank (e.g., Planning). This is ensured since the option used for the purpose of calculating impairment was precisely the same methodology that the Bank uses in internal and / or regulatory planning exercises; • Alternative scenarios to the base scenario should not originate extreme scenarios; • The correlation between the projected variables should be realistic with the economic reality (e.g. if GDP is increasing it is expected that unemployment is decreasing). Write-offs Write-off is defined as the derecognition of a financial asset from the Group’s balance sheet, which should only occur when cumulatively: i. the total amount of the credit has been demanded, that is, the credit must be fully recognized as overdue credit. Exemptions from this requirement are extra-judicial agreements, PER and Insolvency, where part of the credit may remain due and the remaining debt is written off by judicial/ extra-judicial decision; 378 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEii. All the recovery efforts, considered appropriate, have been developed (and the relevant evidence gathered) and additional efforts to recover the asset will not be considered economically viable. iii. The credit recovery expectations are very low, leading to an extreme scenario of total impairment– 100% impair- ment. This rule is only applicable for contracts without real estate collateral and if the whole contract is classified as overdue. In all other cases, it is necessary to ensure that the amount to be written off is fully impaired (at least in the month prior to the month of the write-off); and iv. A final agreement has been obtained as part of a restructuring process and the remaining debt can no longer be recovered. Subsequent payments received after the write-off must be recognized as subsequent write-off recoveries at other operating income. Derecognition Financial assets are derecognized from the balance sheet when (i) the Bank contractual rights relating to the respective cash flows have expired, (ii) the Bank has substantially transferred all the risks and benefits associated with its owner- ship, or (iii) despite the Bank having withholding part, but not substantially all of the risks and benefits associated with its ownership, control over the assets has been transferred. When an operation measured at fair value through other comprehensive income is derecognized, the accumulated gain or loss previously recognized in other comprehensive income is reclassified to results. In the specific case of equity instruments, the accumulated gain or loss previously recognized in other equity is not reclassified to profit or loss, being transferred between equity items. In the specific case of loans to customers, at the time of sale, the difference between the sale value and the book value must be 100% provisioned, and at the time of the sale, the credit sold will be derecognized against the funds / assets received. and consequent use of impairment on the balance sheet. 2.5. Assets sold with repurchase agreements, securities loaned and short sales Securities sold subject to repurchase agreements (repos) at a fixed price or at a price that corresponds to the sales price plus a lender’s return are not derecognized from the balance sheet. The corresponding liability is included under amounts due to banks or to customers, as appropriate. The difference between the sale and repurchase price is treated as interest and deferred over the life of the agreement, using the effective interest rate method. Securities purchased under agreements to resell (reverse repos) at a fixed price or at a price that corresponds to the purchase price plus a lender’s return are not recognized in the balance sheet, the purchase price paid being recorded as loans and advances to banks or customers, as appropriate. The difference between the purchase and resale price is treated as interest and deferred over the life of the agreement, using the effective interest rate method. Securities ceded under loan agreements are not derecognized in the balance sheet, being classified and measured in accordance with the accounting policy described in Note 2.4. Securities received under borrowing agreements are not recognized in the balance sheet. Short sales correspond to securities sold that are not included in the Bank’s assets. They are recorded as financial liabilities held for trade, at the fair value of the assets to be returned in the scope of the repurchase agreement. Gains and losses resulting from the change in their respective fair value are recognized directly in the income statement in Gains or Losses from financial assets and liabilities held for trading. 379 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES2.6. Financial liabilities An instrument is classified as a financial liability when it contains a contractual obligation to transfer cash or another financial asset, regardless of its legal form. Financial liabilities are derecognized when the underlying obligation is liquidated, expires or is cancelled. Non-derivatives financial liabilities include deposits from banks and customers, loans, debt securities, subordinated debt and short sales. These financial liabilities are recognized (i) initially, at fair value less transaction costs and (ii) subsequently, at amortised cost, using the effective interest rate method, except for short sales and financial liabilities designated at fair value through profit or loss, which are measured at fair value. The Bank designates, at inception, certain financial liabilities at fair value through profit or loss when: • It eliminates or significantly reduces, a measurement or recognition inconsistency (accounting mismatch) that would otherwise occur; • The financial liability it’s part of a portfolio of financial assets or financial liabilities or both, managed and evaluated on a fair value basis, according with the Bank’s risk management or investment strategy; or • These financial liabilities contain embedded derivatives and IFRS 9 allows designate the entire hybrid contract at fair value through profit and loss. Reclassifications between categories of liabilities are not allowed. The structured products issued by the Bank – except for the structured products for which the embedded derivatives were separated, recorded separately and revalued at fair value - are classified under the fair value through profit or loss category because they always meet one of the above-mentioned conditions. The fair value of listed financial liabilities is their current market bid prices. In the absence of a quoted price, the Bank establishes the fair value by using valuation techniques based on market information, including the Group issuer’s own credit risk. Profits or losses arising from the revaluation of liabilities at fair value are recorded in the income statement. However, the change in fair value attributable to changes in credit risk is recognized in other comprehensive income. At the time of derecognition of the liability, the amount recorded in other comprehensive income attributable to changes in credit risk is not transferred to the income statement. The Bank accounts material changes in the terms of an existing liability or part of it as an extinction of the original financial liability and recognizes of a new liability. The terms are assumed to be substantially different if the present value of the cash flows under the new terms, including any fees paid net of commissions received, and discounted using the original effective interest rate is at least 10% different from the discounted present value of the remaining cash flows from the original financial liability. The difference between the carrying amount of the original liability and the value of the new liability is recognized in the income statement. If the Bank repurchases debt securities issued, these are derecognized from the balance sheet and the difference between the carrying book value of the liability and its acquisition cost is recognized in the income statement cost is recognized in the income statement. 2.7. Financial and performance guarantees Financial guarantees Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder 380 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEfor a loss due to non-compliance with the contractual terms of a debt instrument, namely the payment of principal and/or interest. Financial guarantees are initially recognized in the financial statements at fair value. Financial guarantees are subse- quently measured at the higher of (i) the fair value recognized on initial recognition and (ii) the amount of any financial obligation arising as result of the guarantee contracts, measured at the balance sheet date. Any change in the amount of the liability relating to guarantees is taken to the income statement. Financial guarantee contracts issued by the Bank normally have a stated maturity date and a periodic fee, usually paid in advance, which varies in function of the counterpart risk, the amount and the time period of the contract. Conse- quently, the fair value of the financial guarantee contracts issued by the Bank, at the inception date, is approximately equal to the initial fee received, considering that the conditions agreed to are market conditions. Hence, the amount recognized at the contract date is equal to the amount of the commission initially received, which is recognized in the income statement over the period to which it relates. Subsequent periodic fees are recognized in the income statement in the period to which they relate. Performance guarantees Performance guarantees are contracts that result in the compensation of a party if the other does not comply with its contractual obligation. Performance guarantees are initially recognized at their fair value, which is normally evidenced by the amount of the commissions received during the contract period. When there is a breach of contract, the Bank has the right to reverse the guarantee, recognizing the amounts in Loans and advances to customers after transferring the compensation for the losses to the collateral taker. 2.8. Equity instruments An instrument is classified as an equity instrument when it does not contain a contractual obligation to deliver cash or another financial asset, regardless of its legal form, but evidences a residual interest in the assets of an entity after deducting all of its liabilities. Transaction costs directly attributable to the issuance of equity instruments are recorded against equity as a deduction from the amount issued. Amounts paid or received relating to acquisitions or sales of equity instruments are recognized in equity, net of transaction costs. Distributions to holders of an equity instrument are deducted directly from equity as dividends, when declared. 2.9. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. The legally enforceable right may not be contingent on future events and must be enforceable in the course of the normal activity of the NOVO BANCO, as well as in the event of default, bankruptcy or insolvency of the Bank or the counterparty. 2.10. Foreclosed properties and non-current assets held for sale Non-current assets or disposal groups (groups of assets to be disposed of together and the related liabilities that include at least one non-current asset) are classified as held for sale when their carrying values will be recovered mainly through a sale transaction (including those acquired exclusively with a view to their subsequent disposal), the assets or disposal groups are in condition for immediate sale and the sale is highly probable (within the period of one year). 381 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESImmediately before the initial classification as held for sale, the measurement of the non-current assets (or of all the assets and liabilities in a disposal group) is brought up to date in accordance with the applicable IFRS. Subsequently, these assets or disposal groups are remeasured at the lower of their carrying value and fair value less costs to sell. In the scope of its loan granting activity, the Bank incurs in the risk of the borrower failing to repay all the amounts due. In case of loans and advances with mortgage collateral, the Bank executes these and receives real estate properties resulting from foreclosure. Due to the provisions of the “Regime Geral das Instituições de Crédito e Sociedades Finan- ceiras” (RGICSF), banks are prevented, unless authorized by Bank of Portugal, from acquiring real estate property that is not essential to their installation and daily operations and the pursuit of their object (no. 1 of article 112 of RGICSF), being able to acquire, however, real estate property in exchange for loans granted by same. This real estate property must be sold within 2 years, period which may, based on reasonable grounds, be extended by Bank of Portugal, on the conditions to be determined by this Authority (article 114 of RGICSF). Although the Bank’s objective is to immediately dispose of all real estate property acquired as payment in kind for loans, during financial year 2016 the Bank changed the classification of this real estate properties from Non-current assets held for sale to Other assets, due to the permanence of same in the portfolio exceeding 12 months. However, the accounting method has not changed, these being initially recognized at the lower of their fair value less costs to sell and the carrying amount of the subjacent loans. Subsequently, these real estate properties are measured at the lower of its initial carrying amount and the corresponding fair value less costs to sell and it is not depreciated. Unrealized losses on these assets, so determined, are recorded in the income statement. The valuation of these real estate properties is performed in accordance with one of the following methodologies, applied in accordance with the specific situation of the asset: i. Market Method The Market Comparison Criteria takes as a reference transaction values of similar and comparable real estate prop- erties to the real estate property under valuation, obtained through market prospection carried out in the zone. ii. Income Method Under this method, the real estate property is valued based on the capitalization of its net income, discounted to the present using the discounted cash-flow method. iii. Cost Method This method aims to reflect the current amount that would be required to substitute the asset in its present con- dition, separating the value of the real estate property into its fundamental components: Urban Ground Value and Urbanity Value; Construction Value; and Indirect Costs Value. Valuations carried out are performed by independent entities specialized in these services. The valuation reports are analyzed internally, namely comparing the sales values with the revalued amounts of the assets so as to assess the parameters and process adequacy with the market evolution. Additionally, since these are assets whose level in fair value hierarchy of IFRS 13 mostly corresponds to level 3, given the subjectivity of some assumptions used in the valuations and the fact that there are external indications with alternative values, the Bank proceeds to analysis on the assumptions used, which may imply additional adjustments to their fair value supported by additional internal or external valuations. 2.11. Tangible fixed assets The Bank’s tangible fixed assets are measured at cost less accumulated depreciation and impairment losses. The cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs with tangible fixed assets are only recognized when it is probable that future economic benefits associated with them will flow to the Bank. All repair and maintenance costs are charged to the income statement during the period in which they are incurred, on the accrual basis. 382 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATELand is not depreciated. The depreciation of tangible fixed assets is calculated using the straight-line method, at the following depreciation rates that reflect their estimated useful lives: external valuations. 2.11. Tangible fixed assets Own use properties Leased building improvements Computer equipment Furniture and material Indoor facilities Safety equipment Machines and tools Transport material Other equipment The Bank’s tangible fixed assets are measured at cost less accumulated depreciation and impairment losses. The cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs with tangible fixed assets are only recognized when it is probable that future economic benefits associated with them will flow to the Bank. All repair and maintenance costs are charged to the income statement during the period in which they are incurred, on the accrual basis. Land is not depreciated. The depreciation of tangible fixed assets is calculated using the straight-line method, at the following depreciation rates that reflect their estimated useful lives: Number of years 35 a 50 10 4 a 8 4 a 10 5 a 10 4 a 10 4 a 10 4 5 The useful lives and residual values of the tangible fixed assets are reviewed at each reporting date. When there is an indication that an asset may be impaired, IAS 36 requires its recoverable amount to be estimated and an impairment loss recognized when the book value of the asset exceeds its recoverable amount. Impairment losses are recognized in the income statement, being reversed in subsequent periods, when the reasons that led to their initial recognition cease to exist. For this purpose, the new depreciated amount shall not exceed that which would be recorded had the impairment losses not been imputed to the asset but considering the normal depreciation the asset would have been subject to. The recoverable amount is determined as the lower of its net selling price and its value in use, which is based on the net present value of the estimated future cash flows arising from the continued use and ultimate disposal of the asset at the end of its useful life. On the date of the derecognition of a tangible fixed asset, the gain or loss determined as the difference between the net selling price and the net carrying book value is recognized under the caption Other operating income and expenses. 2.12. Intangible assets The costs incurred with the acquisition, production and development of software are capitalized, as are additional costs incurred by the Bank to implement said software. These costs are amortised on a straight-line basis over their expected useful lives, which usually range between 3 and 6 years. Costs that are directly associated with the development of specific software applications, that will probably generate economic benefits beyond one financial year, are recognized and recorded as intangible assets. All remaining costs associated with information technology services are recognized as an expense as incurred. 2.13. Leases IFRS 16 – Leases A. Lease Definition Determining whether an Agreement Contains a Lease. The Bank assesses whether a contract is or contains a lease based on the lease definition. In accordance with IFRS 16, a contract is or contains a lease if it has the right to control the use of an identified asset for a certain period of time, in exchange for retribution. 383 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe Bank has adopted some practical expedients provided for in the standard in applying IFRS 16: • Applies the exception, mentioned above, of non-recognition of assets under right of use and liabilities for short- term leases (i.e. with a lease term of 12 months or less); • Apply the exception, mentioned above, of non-recognition of assets under use and liabilities for low value leases (i.e. new value less than Euro 5 thousand); • For leases in which the entity is a lessee, it was decided not to separate the non-lease components and account for the lease and non-lease components as a single lease component. The option of not applying this standard to leases of intangible assets was also used. B. As Lessee In accordance with IFRS 16, the Bank recognizes leased assets and lease liabilities for some asset classes, i.e., these leases are on the entity's balance sheet. Lease contracts are recorded at the inception date, both under assets and liabilities, at the cost of the asset leased, which is equal to the present value of the outstanding lease instalments. Instalments comprise (i) an interest charge, which is recognized in the income statement and (ii) the repayment of principal, which is deducted from liabilities. Financial charges are recognized as costs over the lease period, in order to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The Bank leases various assets, including real estate, vehicles and IT equipment. As previously mentioned, the Bank has opted not to recognize assets under right of use and liabilities for short-term leases, with a lease term of 12 months or less, and low value asset leases (e.g. IT equipment) with a new value of less than Euro 5 thousand. The Bank recognizes the lease payments associated with these leases as expenses on a straight- line basis over the lease term in income statement as “Other administrative expenses – rents and rentals”. The Bank presents assets under right of use that do not fit the definition of investment property as "tangible fixed assets", in the same line as the underlying assets of the same nature that they own. Right-of-use assets that fall under the definition of investment property are presented as investment property. The Bank presents the lease liabilities under "Other liabilities" in the statement of financial position. Significant judgment in determining contract lease term The Bank has applied judgment to determine the lease term of certain agreements, in which it acts as lessee, and which include renewal and termination options. The Bank determines the lease term as the non-cancellable lease term, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if reasonably certain not to be exercised. This assessment will have an impact on the lease term, which will significantly affect the amount of the lease liabilities and recognized right-of-use assets. The Bank has the option, namely in real estate lease agreements, to lease assets for additional periods from 1 month to 20 years. The Bank applies judgment in assessing whether it is reasonably right to exercise the renewal option. That is, it considers all the relevant factors that create an economic incentive for renewal. Measurement and remeasurement of assets under right of use and lease liabilities Lease payments are discounted at the lessee's incremental financing interest rate, which incorporates the risk-free interest rate curve plus the Bank’s risk spread, applied over the weighted average term of each lease. The lease liability is initially recorded at the present value of the future cash flows from the lease and is subsequently measured (i) by increasing it’s carrying amount to reflect interest on it, (ii) by decreasing its carrying amount by to reflect lease payments. 384 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEAn asset under right of use, initially measured at cost, must take into account the present value of the future cash flows of the lease liability, being subsequently subject to depreciation / amortization according to the lease term of each contract and to tests of impairment. C. As lessor In accordance with IFRS 16, lessors will continue to classify leases as financial or operational. Financial leases Transactions in which the risks and benefits inherent in the ownership of an asset are substantially transferred to the lessee are classified as finance leases. Financial leasing contracts are recorded in the balance sheet as credits granted for an amount equivalent to the net investment made in the leased assets, together with any estimated non-guaranteed residual value. Interest included in rents charged to customers is recorded as income while capital amortizations, also included in rents, are deducted from the amount of credit granted to customers. The recognition of interest reflects a constant periodic rate of return on the lessor's remaining net investment. Operating leases All lease transactions that do not fall under the definition of finance lease are classified as operating leases. Payments made by the Bank under operating lease agreements, from the perspective of the lessee, are recorded in costs in the periods to which they relate. 2.14. Employee benefits Pensions Pursuant to the signature of the Collective Labour Agreement (“Acordo Coletivo de Trabalho” (ACT)) for the banking sector and its subsequent amendments resulting from the 3 tripartite agreements described in Note 15, pension funds and other mechanisms were set up to cover liabilities assumed with pensions on retirement, disability, survival and health-care benefits. The liabilities’ coverage is assured, for most of the Bank companies, by pension funds managed by GNB - Sociedade Gestora de Fundos de Pensões, SA, subsidiary of the NOVO BANCO Group. The pension plans of the Bank are defined benefit plans, as they establish the criteria to determine the pension benefit to be received by employees during retirement, usually dependent on one or more factors such as age, years of service and salary level. The retirement pension liabilities are calculated semi-annually, in 31 December and 30 June of each year, for each plan individually, using the Projected Unit Credit Method, being annually reviewed by qualified independent actuaries. The discount rate used in this calculation is determined with reference to market rates associated with high-quality corporate bonds, denominated in the currency in which the benefits will be paid out and with a maturity similar to the expiry date of the plan’s liabilities. The Bank determines the net interest income / expense for the period incurred with the pension plan by multiplying the plan’s net assets / liabilities (liabilities net of the fair value of the fund’s assets) by the discount rate used to measure the retirement pension liabilities referred to above. On that basis, the net interest income / expense was determined based on the interest cost on the retirement pension liabilities net of the expected return on the funds’ assets, both calculated using the discount rate applied in the determination of the retirement pension liabilities. Re-measurement gains and losses, namely (i) actuarial gains and losses arising due to differences between actuarial assumptions used and real values verified (experience adjustments) and changes in actuarial assumptions and (ii) gains and losses arising due to the difference between the expected return on the fund’s assets and the actual investment returns, are recognized in equity under the caption other comprehensive income. 385 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe Bank recognizes as a cost in the income statement a net total amount that includes (i) current service costs, (ii) net interest income / expense with the pension fund, (iii) the effect of early retirement, (iv) past service costs, and (v) the effect of settlements or curtailments occurring during the period. The net interest income / expense with the pension plan is recognized as interest income or interest expense, depending on its nature. Early retirement costs correspond to increases in liabilities due to employees retiring before turning 65 (normal retirement age foreseen in the ACT) and which forms the basis of the actuarial calculation of pension fund liabilities. Whenever the possibility of the early retirement provided for in the pension fund regulation is invoked, the responsibilities of same must be incremented by the value of the actuarial calculation of the liabilities corresponding to the period between the early retirement and the employee turning 65. The Bank makes payments to the funds in order to assure their solvency, the minimum levels set by Bank of Portugal being: (i) the liability with pensioners must be totally funded at the end of each period, and (ii) the liability relating to past service costs for active employees must be funded at a minimum level of 95%. The Bank assesses the recoverability of any excess in a fund regarding he retirement pension liabilities, based on the expectation of reductions in future contributions. Health-care benefits The Bank provides to its banking employees health-care benefits through a specific Social-Medical Assistance Service. This Social-Medical Assistance Service (SAMS) is an autonomous entity which is managed by the respective Union. SAMS provides its beneficiaries services and/or contributions with medical assistance expenses, diagnostics, medica- tion, hospitalization and surgeries, in accordance with its funding availability and internal regulations. Arising from the signature of the new Collective Labour Agreement (ACT) on 5 July 2016, published in Labour Bulletin (Boletim do Trabalho) no. 29, of 8 August 2016, the Bank’s contributions to SAMS as from 1 February 2017, correspond to a fixed amount (as per Annex VI of the new ACT) for each employee, 14 times a year, recorded on a monthly basis in personnel costs, while the component to be paid by the employee is discounted monthly in the processing of salary, against the caption Amounts payable (SAMS). The calculation and recognition of the Bank’s liability with post-retirement health-care benefits is similar to the calcu- lation and recognition of the pension liability described above. These benefits are covered by the Pension Fund, which presently covers all liabilities with pensions and health-care benefits. Career bonus The ACT provides for the payment by the Group of a career bonus, due at the time immediately prior to the employee's retirement if he retires at the Group's service, corresponding to 1.5 of his salary at the time of payment. The career bonus is accounted for by the Bank in accordance with IAS 19, as a long-term employee benefit. The amount of the Bank's liabilities with this career bonus is likewise periodically estimated based on the Projected Unit Credit Method. The actuarial assumptions used are based on expectations of future salary increases and mortality tables. The discount rate used in this calculation is determined applying the same methodology described above for retirement pensions. In each period, the increase in the liability for long-term service bonuses, including actuarial gains and losses and past service costs, was charged to the income statement, in Personnel Expenses. Employees’ variable remuneration and other obligations The Bank recognizes under costs the short-term benefits paid to employees who were at its services in the respective accounting period. • Profit-sharing and bonus plans The Bank recognizes the cost expected with profit-sharing pay-outs and bonuses when it has a present, legal or constructive, obligation to make such payments as a result of past events and can make a reliable estimate of the obligation. 386 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE• Obligations with holidays, holiday subsidy and Christmas subsidy In accordance with the legislation in force in Portugal, employees are annually entitled to one month of holidays and one month of holiday subsidy, this being a right acquired in the year prior to their payment. In addition, employees are annually entitled to one month of Christmas subsidy, which right is acquired throughout the year and settled during the month of December of each calendar year. Hence, these liabilities are recorded in the period in which the employees acquire the right to same, regardless of the date of their respective payment. 2.15. Corporate Income tax NOVO BANCO and its subsidiaries are subject to the tax regime consigned in the Código do Imposto sobre o Rendi- mento das Pessoas Coletivas (IRC Code). The total amount of corporate income tax comprises current tax and deferred tax. Corporate income tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized under deferred tax reserves (other comprehensive income). Corporate income tax recognized directly in equity relating to fair value remeasurement of financial assets at fair value through other comprehensive income and cash flow hedges is subsequently recognized in the income statement when the gains or losses giving rise to said income tax are also recognized in the income statement. Current Taxes Current tax is the tax expected to be paid on the taxable profit for the year, calculated using tax rules and tax rates enacted or substantively enacted in each jurisdiction. The tax is recognized in each financial reporting period based on management estimates as regards the average effective tax rate foreseen for the entire fiscal year. Current tax is calculated based on taxable income for the period, which differs from accounting income due to adjust- ments resulting from expenses or income not relevant for tax purposes or which will only be considered in subsequent years. Deferred taxes Deferred tax is calculated on timing differences arising between the carrying book values of assets and liabilities for financial reporting purposes and their respective tax base, and is calculated using the tax rates enacted or substantively enacted at the balance sheet date in each jurisdiction and that are expected to apply when the timing differences are reversed. Deferred tax liabilities are recognized for all taxable timing differences except for: i) goodwill non-deductible for tax purposes; ii) differences arising on the initial recognition of assets and liabilities that neither affect the accounting nor taxable profit; iii) that do not result from a business combination, and iv) differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future and the Bank does not control the timing of the reversal of the timing differences. Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the deductible timing differences can be offset. Deferred tax liabilities are always accounted for, regardless of the performance of Bank. Taxable income or tax loss reported by the Bank may be corrected by the Portuguese Tax Authorities within a period of four years, except when any deduction was made or a tax credit was used, in which case this period corresponds to the period during which this right may be exercised (5 or 12 years in the case of tax losses, depending on the financial year). The Executive Board of Directors considers that any corrections, resulting mainly from differences in interpretation of tax legislation, will not have a material effect on the financial statements. The Bank, as established in IAS 12, paragraph 74, offsets deferred tax assets and liabilities whenever (i) it has the legally enforceable right to offset current tax assets and current tax liabilities; and (ii) they relate to corporate income taxes levied by the same Taxation Authority, on the same tax entity or different taxable entities that intent to settle current tax 387 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESliabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which the deferred tax liabilities or assets are expected to be settled or recovered. The Bank complies with the guidelines of IFRIC 23 - Uncertainty on the Treatment of Income Tax with regard to the determination of taxable profit, tax bases, tax losses to be reported, tax credits to be used and tax rates in scenarios of uncertainty regarding the treatment of income tax, with no material impact on its financial statements resulting from its application. 2.16. Provisions and Contingent liabilities Provisions are recognized when: (i) the Bank has a current legal or constructive obligation, (ii) it is probable that its settlement will be required in the future and (iii) a reliable estimate of the obligation can be made. Provisions related to legal cases opposing the Bank to third parties, are constituted according to internal risk assess- ments made by Management, with the support and advice of its legal advisors, both internal and external. When the effect of the passage of time (discounting) is material, the provision corresponds to the net present value of the expected future payments, discounted at an appropriate rate considering the risk associated with the obligation. In these cases, the increase in the provision due to the passage of time is recognized in financial expenses. Restructuring provisions are recognized when the Bank has approved a formal, detailed restructuring plan and such restructuring has either commenced or has been publicly announced. A provision for onerous contracts is recognized when the benefits expected to be derived by the Bank from a contract are lower than the unavoidable costs of meeting its obligation under the contract. This provision is measured at the present value of the lower of the estimated cost of terminating the contract and the estimated net costs of continuing the contract. If a future outflow of funds is not likely, this situation reflects a contingent liability. Contingent liabilities are always disclosed, except when the likelihood of their occurrence is remote. 2.17. Recognition of interest income and expense Interest income and expense is recognized in the income statement under interest and similar income and interest expense and similar charges for all financial instruments measured at amortised cost and for all financial assets at fair value through other comprehensive income, using the effective interest rate method. Interest arising on financial assets and liabilities at fair value through profit or loss is also included under interest and similar income or interest expense and similar charges, as appropriate. The effective interest rate is the rate that discounts the estimated future cash payments or receipts throughout the expected life of the financial instrument or, when appropriate, a shorter period to the net book value of the financial asset or liability. The effective interest rate is calculated at inception and is not subsequently revised, except in respect of financial assets and liabilities with a variable interest rate. In this case, the effective interest rate is periodically revised, taking into consideration the impact of the change in the interest rate of reference on the estimated future cash flows. When calculating the effective interest rate, the Bank estimates the cash flows considering all the contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all the commissions that are an integral part of the effective interest rate, transaction costs and all other related premiums or discounts. Interest and similar income includes interest from financial assets for which were recognized impairment. The interest from financial assets classified as Stage 3 are determined based on the effective interest rate method applied to the net book value. When the asset is no longer classified as Stage 3, the interest is calculated based on the gross book value. 388 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEFor derivative financial instruments, the interest component in the change in fair value of derivative financial instru- ments classified as fair value hedge and fair value option is recognized under interest income or interest expense. For other derivatives, the interest component inherent in the fair value change will not be separated and will be classified under the income statement of assets and liabilities at fair value through profit or loss (see Note 2.3). 2.18. Recognition of fees and commissions income Fees and commissions income are recognized as revenue from customer contracts to the extent that performance obligations are met: • Fees and commissions that are earned on the execution of a significant act, such as loan syndication fees, are recognized as income when the significant act has been completed; • Fees and commissions earned over the period during which the services are provided are recognized as income in the financial year in which the services are provided; • Fees and commissions that are an integral part of the effective interest rate of a financial instrument are recognized as income using the effective interest rate method, as described in note 2.17. 2.19. Recognition of dividend income Dividend income is recognized when the right to receive the dividend payment is established. 2.20. Report by Segment In accordance with the paragraph 4 of IFRS 8 – Operational Segments, the Bank is waived to present the report by segment on an individual basis, since the separated financial statements are presented together with the consolidated financial statements. 2.21. Earnings per share Basic earnings per share are calculated by dividing the net income attributable to the shareholders of the parent com- pany by the weighted average number of ordinary shares outstanding during the period. For the calculation of diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted to reflect the impact of all potential dilutive ordinary shares, such as those resulting from convertible debt and share options granted to employees. The dilution effect translates into a decrease in earnings per share, based on the assumption that the convertible instruments will be converted or the options granted exercised. 2.22. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with a maturity of less than three months from the date of acquisition / contracting and whose risk of change in value is immaterial, including cash, deposits with Central Banks and deposits with other credit institutions. Cash and cash equivalents exclude restricted balances with Central Banks. 2.23. Provision of insurance or reinsurance mediation services NOVO BANCO is an entity authorized by the Instituto de Seguros de Portugal for the practice of insurance mediation 389 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESactivity in the category of Mediator of Linked Insurance, in accordance with Article 8, a), i), of Decree-Law no. 144/2006, of July 31, developing the activity of insurance intermediation through sale of life and non-life insurance contracts. As remuneration for the rendered services of insurance mediation, the Bank receives commissions that are defined in agreements / protocols established between the Bank and the Insurers. The commissions received by the services of insurance mediation cover the following modalities: • commissions that include a fixed and variable component. The fixed component is calculated by applying a predetermined rate on the value of the subscriptions made through the Bank and the variable component is calculated monthly according to pre-established criteria, with the total annual commission equal to the sum of the commissions calculated monthly; • other variable commissions, which are calculated and paid annually by insurer in the beginning of the following year. The commissions received by the insurance mediation services are recognized in accordance with the principle of accruals accrual, so that commissions paid at a different time than the period to which they relate are registered as an amount receivable under Other Assets. NOTE 3 – Main accounting estimates and judgements used in preparing the financial statements Considering that the current accounting framework requires applying judgements and calculating estimates involving some degree of subjectivity, the use of different parameters or judgements based on different evidence may result in different estimates. The main accounting estimates and judgments used in applying the accounting principles by the Bank are discussed in this Note in order to improve the understanding of how their application affects the reported results of the Bank and its disclosure. The Bank does not have projects or intentions for actions that could question the continuity of the operations. The COVID-19 pandemic, despite the government and regulatory response measures adopted, resulted in an additional high level of uncertainty about the Portuguese and European economy and in particular banking activity, with an impact on the judgments and estimates used in the financial statements. However, the internal control policies and standards adopted by the Bank allow us to consider that these judgments and estimates were made independently and appropriately as of 31 December 2020. The relevant judgments made by Management in the application of the Bank's accounting policies and the main sources of uncertainty in the estimates were the same as those described in the last report of the Financial Statements. 3.1. Impairment of financial assets at amortised cost and at fair value through other comprehensive income The critical judgements with greater impact on the recognized impairment values for the financial assets at amortised cost and at fair value through other comprehensive income are the following: • Assessment of the business model: the measurement and classification of financial assets depends on the results of SPPI test and on the business model setting. The Bank determines its business model based on how it manages the financial assets and its business objectives. The Bank monitors if the business model classification is appropriate based on the analysis on the anticipated derecognition of the assets at amortised cost or at fair value through other comprehensive income, assessing if it is necessary to prospectively apply any changes; • Significant increase on the credit risk: as mentioned on the Note 2.5 – Other financial assets investments in credit institutions, customer loans and securities, the determination of the transfer of an asset from stage 1 to stage 2 with 390 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEthe purpose of determining the respective impairment is made based on the judgement that, in accordance to the Bank management, constitutes a significant increase on credit risk; • Classification of default: the internal definition of exposure in default is broadly in line with the regulatory definition in Article 178 of CRR/CRD IV. This regulation defines qualitative criteria for assessing the default classification – unlikely to pay -, which are replicated in the internal definition implemented by NOVO BANCO and which result in performing judgements when assessing the high probability that the borrower does not fulfil its obligations within the conditions agreed with NOVO BANCO. This concept is covered in more detail below; • Definition of groups of financial assets with similar credit risk characteristics: when the expected credit losses are measured through collective model, the financial instruments are aggregated based on the same risk characteris- tics. The Bank monitors the credit risk characteristics in order to assure the correct reclassification of the assets, in cases of changes on the credit risk characteristics; • Models and assumptions: the Bank uses several models and assumptions on the measurement of the expected credit losses. The judgement is applied on the identification of the more appropriate model for each type of asset as well as in the determination of the assumptions used in these models, including the assumptions related with the main credit risk drivers. In addition, in compliance with the IFRS 9 regulation that clarifies the need for the impairment result to consider multiple scenarios, a methodology for incorporating different scenarios into the risk parameters was implemented. Thus, the calculation of collective impairment considers several scenarios with a specific weighting, based on the internal methodology defined about scenarios - definition of multiple perspectives of macroeconomic evolution, with probability of relevant occurrence. 3.2. Fair value of derivative financial instruments and other financial assets and liabilities at fair value Fair value is based on listed market prices when available; otherwise fair value is determined based on similar recent arm’s length transaction prices or using valuation methodologies, based on the net present value of estimated future cash flows taking into consideration market conditions, the time value, the yield curve and volatility factors, in accor- dance with IFRS 13 - Fair Value Measurement. The Bank uses several models and assumption in measuring the fair value of financial assets. Judgement is applied on the identification of the more appropriate model for each type of asset as well as in the determination of the assumptions used in these models, including the assumptions related with the main credit risk drivers. Consequently, the use of a different methodology or different assumptions or judgements in applying a particular model could have produced different financial results, summarized in Note 37. 3.3. Corporate income taxes The Bank is subject to corporate income tax in numerous jurisdictions. Certain interpretations and estimates are re- quired in determining the overall corporate income tax amount. Different interpretations and estimates could result in a different level of income tax, current and deferred, being recognized in the period and evidenced in Note 26. This aspect assumes additional relevance for effects of the analysis of the recoverability of deferred taxes, while the Bank considers forecasts of futures taxable profits based on a group of assumptions, including the estimate of income before taxes, adjustments to the taxable income and its interpretation of fiscal legislation. This way, the recoverability of deferred taxes depends on the concretization of the strategy of the Executive Board of Directors, namely in the capacity to generate the estimated taxable results and its interpretation of fiscal legislation. The Tax Authorities are entitled to review the determination of the taxable income of the Bank during a period of four years or twelve years, when there are tax loss carry forwards. Hence, it is possible that some additional taxes may be assessed, mainly as a result of differences in interpretation of tax law. However, it is the conviction of the Executive Board of Directors of the Bank, that there will be no significant corrections to the corporate income taxes recorded in the financial statements. 391 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES3.4. Pensions and other employee benefits The determination of the retirement pension liabilities presented in Note 15 requires the use of assumptions and esti- mates, including the use of actuarial tables, assumptions regarding the growth of pensions, salaries and discounts rates (which are determined based on the market rates associated with high quality corporate bond, denominated in the same currency in which the benefits will be paid and with a maturity similar to the expiry date of the plan's obligations). These assumptions are based on the expectations of the NOVO BANCO for the period during which the liabilities will be settled as well as other factors that may impact the costs and liabilities of the pension plan. Changes in these assumptions could materially affect the amounts determined. 3.5. Provisions and Contingent liabilities The recognition of provisions involves a significant degree of complex judgment, namely identifying whether there is a present obligation and estimating the probability and timing, as well as quantifying the outflows that may arise from past events. When events are at an early stage, judgments and estimates can be difficult to quantify due to the high degree of uncertainty involved. The Executive Board of Directors monitors these matters as they develop to regularly reassess whether the provisions should be recognized. However, it is often not feasible to make estimates, even when events are already at a more advanced stage, due to existing uncertainties. The complexity of such issues often requires expert professional advice in determining estimates, particularly in terms of legal and regulatory issues. The amount of recognized provisions may also be sensitive to the assumptions used, which may result in a variety of potential results that require judgment in order to determine a level of provision that is considered appropriate in view of the event in question. The Bank recognises provisions intended to cover for losses arising from commercial offers approved by the Executive Board of Directors of the Bank, when these are not opposed by Bank of Portugal. The amount of the provisions reflects NOVO BANCO’s best estimate as each reporting date. The subjectivity inherent to the determination of the probability and amount of the internal resources required for the payment of the obligations may lead to significant adjustments (i) due to variations in the assumptions used (ii) for the future recognition of provisions previously disclosed as contingent liabilities; and/or (iii) for the future write-off of provisions, when they start to classify as contingent liabilities only. The provisions are detailed in Note 30. 3.6. Assets received from credit recovery and Non-current assets held for sale and Non-current assets and disposal groups classified as held for sale Assets received from credit recovery and Non-current assets held for sale are measured at the lower of the net book value and the fair value less costs to sell. The fair value of these assets is determined based on valuations carried out by independent entities specializing in this type of service, using the market, income or cost methods defined in Note 2.10. The valuation reports are analyzed internally, namely comparing the sales values with the revalued values of the properties in order to maintain the valuation parameters and processes aligned with the market evolution. The use of alternative methodologies and different assumptions could result in a different level of fair value with an impact on the respective balance sheet amount recognized. NOTE 4 – NET INTEREST INCOME The breakdown of this caption as at 31 December 2020 and 2019 is as follows: 392 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE 7 377 1 438 732 291 Total 35 807 91 660 33 216 34 166 543 824 13 083 24 462 6 790 155 190 214 722 7 377 517 569 1 438 732 291 25 793 From assets / liabilities at - fair value - through profit or loss - - - 8 969 - - 18 939 8 969 6 854 16 824 - 25 793 Interest Expenses Interest on debt securities issued Interest on amounts due to customers Interest Income Interest on deposits from Central Banks and other banks Interest on subordinated liabilities Interest from loans and advances Interest on derivatives held for risk Interest from deposits with and loans and management purposes advances to banks Other interest and similar expenses Interest from securities Interest from derivatives held for risk management purposes Other interest and similar income NOTE 4 – NET INTEREST INCOME The breakdown of this caption as at 31 December 2020 and 2019 is as follows: NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019* Calculated by the effective interest method Other Calculated by the effective interest method Other From assets / liabilities at fair value through other comprehensive income and assets at amortised cost Income/expens es from negative interest rates From assets / liabilities at fair value through profit or loss Total From assets / liabilities at fair value through other comprehensive income and assets at amortised cost Income/expens es from negative interest rates NOVO BANCO Total From assets / liabilities at fair value through profit or loss 59 236 The breakdown of this caption as at 31 December 2020 and 2019 is as follows: 168 763 141 054 19 835 27 709 39 401 - - 521 389 - - 521 389 Interest Income NOTE 4 – NET INTEREST INCOME Interest from loans and advances Interest from deposits with and loans and advances to banks Interest from securities Interest from derivatives held for risk management purposes Other interest and similar income 543 824 21 344 136 251 - 3 118 - - - 543 824 24 462 18 939 (in thousands of Euros) 155 190 - 31.12.2020 1 669 8 545 10 214 - 31.12.2019* 523 6 854 - Other - 509 - Other - Calculated by the effective interest 509 method 682 787 From assets / liabilities at fair value through 34 206 other comprehensive 69 990 income and assets at amortised cost Income/expens es from - negative - interest rates 2 750 26 620 41 070 36 254 From assets / liabilities at - fair value - through profit or loss - 760 111 Total 34 206 69 990 29 370 Calculated by the effective interest 1 438 method 702 857 From assets / liabilities at fair value through 35 807 other comprehensive 91 660 income and assets at amortised cost Income/expens es from - negative - interest rates 1 864 31 352 3 641 34 165 521 389 - 19 835 7 463 141 054 172 444 - 510 343 509 - - 5 771 39 401 331 - 8 852 1 669 32 218 - - - 10 816 - - 27 709 10 816 8 545 25 438 - 34 165 521 389 16 587 59 236 7 794 168 763 192 112 10 214 567 999 509 682 787 41 070 36 254 760 111 34 166 543 824 - 21 344 6 643 136 251 199 628 - 503 229 1 438 702 857 - - 4 114 3 118 147 - 6 125 523 ( 2 484) - 3 641 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Interest Expenses - - - - - - - - - - 2 750 5 771 26 620 31 352 29 370 34 165 34 206 69 990 35 807 91 660 34 206 69 990 Interest on debt securities issued Interest on amounts due to customers Interest on deposits from Central Banks and other banks Interest on subordinated liabilities Interest on derivatives held for risk management purposes Other interest and similar expenses Interest on amounts due to customers and deposits from Central banks and other banks include, as at 31 December 2020, respectively, the amounts of Euro -16 thousand and Euro 822 thousand related to repurchase agreement operations (31 December 2019: Euro -2 thousand of interest from deposits with and loans and advances to banks, Euro 16 thousand in customer resources Interest on amounts due to customers and deposits from Central banks and other banks include, as at 31 December and Euro 2,166 thousand in interest on deposits from Central Banks and other banks). 2020, respectively, the amounts of Euro -16 thousand and Euro 822 thousand related to repurchase agreement As of 31 December 2020, interest from loans and advances to customers includes Euro 35,385 thousand related to finance lease 10 816 operations (31 December 2019: Euro -2 thousand of interest from deposits with and loans and advances to banks, operations (31 December 2019: Euro 40,035 thousand). Euro 16 thousand in customer resources and Euro 2,166 thousand in interest on deposits from Central Banks and other 10 816 Interest income and expense items related to derivative interest include, interest from hedging derivatives and from derivatives used 25 438 banks). to manage the economic risk of certain financial assets and liabilities designated at fair value through profit or loss, as per the * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 accounting policies described in Notes 2.3 e 2.6. As of 31 December 2020, interest from loans and advances to customers includes Euro 35,385 thousand related to Interest on amounts due to customers and deposits from Central banks and other banks include, as at 31 December 2020, respectively, the amounts of Euro -16 thousand and Euro 822 thousand related to repurchase agreement operations (31 December finance lease operations (31 December 2019: Euro 40,035 thousand). The measures adopted to reduce the cost of customer deposits justify the decrease in the interest expense related to these liabilities. 2019: Euro -2 thousand of interest from deposits with and loans and advances to banks, Euro 16 thousand in customer resources and Euro 2,166 thousand in interest on deposits from Central Banks and other banks). Interest income and expense items related to derivative interest include, interest from hedging derivatives and from NOTE 5 – DIVIDEND REVENUE derivatives used to manage the economic risk of certain financial assets and liabilities designated at fair value through As of 31 December 2020, interest from loans and advances to customers includes Euro 35,385 thousand related to finance lease operations (31 December 2019: Euro 40,035 thousand). profit or loss, as per the accounting policies described in Notes 2.3 e 2.6. The breakdown of this caption is as follows: 35 807 91 660 517 569 214 722 510 343 172 444 567 999 503 229 192 112 199 628 16 587 16 824 34 166 34 166 33 216 13 083 34 165 32 218 ( 2 484) 6 790 8 852 8 969 8 969 6 643 1 864 7 794 6 125 7 463 4 114 147 331 - - - - - - - - (in thousands of Euros) Interest income and expense items related to derivative interest include, interest from hedging derivatives and from derivatives used The measures adopted to reduce the cost of customer deposits justify the decrease in the interest expense related to 31.12.2019* to manage the economic risk of certain financial assets and liabilities designated at fair value through profit or loss, as per the these liabilities. accounting policies described in Notes 2.3 e 2.6. 31.12.2020 Financial assets mandatorily at fair value through profit or loss The measures adopted to reduce the cost of customer deposits justify the decrease in the interest expense related to these liabilities. 1 765 5 324 - 3 365 3 656 137 Shares Participation units Others NOTE 5 – Dividend income NOTE 5 – DIVIDEND REVENUE Financial assets at fair value through other comprehensive income Shares The breakdown of this caption is as follows: The breakdown of this caption is as follows: Financial assets in investments in associates and subsidiaries 7 750 2 089 31.12.2020 16 928 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 1 734 8 378 (in thousands of Euros) 31.12.2019* 17 270 Financial assets mandatorily at fair value through profit or loss In 2020, dividend income of Euro 16,928 thousand was recorded (31 December 2019: Euro 17,270 thousand), which are broken Shares down as follows: Participation units • Euro 7,089 thousand in financial assets that are mandatorily accounted for at fair value through profit or loss, which include Others dividends received from the Fundo Solução Arrendamento in the amount of Euro 3,141 thousand, from the Fundo Arrendamento Mais in the amount of Euro 1,593 thousands and from Euronext NV in the amount of Euro 1, 391 thousand (31 December 2019: Shares Euro 7,158 thousand, which include dividends received from Euronext in the amount of Euro 1,348 thousand, from Fundo Soluções Arrendamento in the amount of Euro 1,767 thousand and from Sealion Ltd of Euro 989 thousand); and Financial assets at fair value through other comprehensive income 1 765 5 324 - 3 365 3 656 137 Financial assets in investments in associates and subsidiaries 2 089 8 378 7 750 1 734 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 327- In 2020, dividend income of Euro 16,928 thousand was recorded (31 December 2019: Euro 17,270 thousand), which are broken down as follows: • Euro 7,089 thousand in financial assets that are mandatorily accounted for at fair value through profit or loss, which include dividends received from the Fundo Solução Arrendamento in the amount of Euro 3,141 thousand, from the Fundo Arrendamento Mais in the amount of Euro 1,593 thousands and from Euronext NV in the amount of Euro 1, 391 thousand (31 December 2019: Euro 7,158 thousand, which include dividends received from Euronext in the amount of Euro 1,348 thousand, from Fundo Soluções Arrendamento in the amount of Euro 1,767 thousand and from Sealion Ltd of Euro 989 thousand); and 393 16 928 17 270 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 327- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES In 2020, dividend income of Euro 16,928 thousand was recorded (31 December 2019: Euro 17,270 thousand), which are broken down as follows: • Euro 7,089 thousand in financial assets that are mandatorily accounted for at fair value through profit or loss, which include dividends received from the Fundo Solução Arrendamento in the amount of Euro 3,141 thousand, from the Fundo Arrendamento Mais in the amount of Euro 1,593 thousands and from Euronext NV in the amount of Euro 1,391 thousand (31 December 2019: Euro 7,158 thousand, which include dividends received from Euronext in the amount of Euro 1,348 thousand, from Fundo Soluções Arrendamento in the amount of Euro 1,767 thousand and from Sealion Ltd of Euro 989 thousand); and • Euro 7,750 thousand in financial assets accounted for at fair value through other comprehensive income, which include dividends received from FLITPTREL X in the amount of Euro 6,000 thousand, from SIBS SGPS in the amount of Euro 887 thousand and from ESA Energia in the Euro 657 thousand (31 December 2019: Euro 1,734 thousand, NOVO BANCO which includes dividends received and from SIBS SGPS in the Euro 887 thousand); and • Euro 2,089 thousand financial assets in investments in associates and subsidiaries, which include dividends received • Euro 7, 750 thousand in financial assets accounted for at fair value through other comprehensive income, which include dividends received from FLITPTREL X in the amount of Euro 6,000 thousand, from SIBS SGPS in the amount of Euro 887 thousand and from Locarent in the amount of Euro 958 thousand, from Edenred in the amount of Euro 583 thousand and from from ESA Energia in the Euro 657 thousand (31 December 2019: Euro 1,734 thousand, which includes dividends received and ESEGUR in the amount of Euro 548 thousand (31 December 2019: Euro 8,378 thousand, which include dividends from SIBS SGPS in the Euro 887 thousand); and received from Unicre in the amount of Euro 4,165 thousand, from GNB Seguros in the amount of Euro 1,500 • Euro 2,089 thousand financial assets in investments in associates and subsidiaries, which include dividends received from Locarent in the amount of Euro 958 thousand, from Edenred in the amount of Euro 583 thousand and from ESEGUR in the thousand and from NB Açores in the amount of Euro 1,083 thousand). amount of Euro 548 thousand (31 December 2019: Euro 8,378 thousand, which include dividends received from Unicre in the amount of Euro 4,165 thousand, from GNB Seguros in the amount of Euro 1,500 thousand and from NB Açores in the amount of Euro 1,083 thousand). NOTE 6 – Fees and commissions income and expenses NOTE 6 – FEES AND COMMISSIONS INCOME AND EXPENSES The breakdown of this caption is as follows: The breakdown of this caption is as follows: Fees and commissions income From banking services From guarantees provided From transaction of securities From commitments to third parties From transactions carried out on behalf of third parties - cross-selling Other fee and commission income Fees and commissions expenses With banking services rendered by third parties With guarantees received With transaction of securities Other fee and commission income (in thousands of Euros) 31.12.2020 31.12.2019* 198 376 34 762 3 718 8 062 32 254 2 706 279 878 31 497 1 755 2 259 5 927 41 438 215 926 42 783 4 780 7 792 36 379 10 459 318 119 35 267 1 900 2 052 5 067 44 286 238 440 273 833 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 7 – GAINS OR LOSSES ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS The breakdown of this caption is as follows: NOTE 7 – Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss From financial assets at fair value through other comprehensive income 31.12.2019* 31.12.2020 Losses Losses Gains Gains Total Total (in thousands of Euros) Securities Bonds and other fixed income securities The breakdown of this caption is as follows: Issued by government and public entities Issued by other entities From financial assets and liabilities at amortised cost Securities Bonds and other fixed income securities Issued by other entities Loans 93 160 1 010 6 529 7 482 86 631 ( 6 472) 65 735 2 442 2 021 443 63 714 1 999 94 170 14 011 80 159 68 177 2 464 65 713 6 281 154 6 127 2 050 - 2 050 8 336 8 439 ( 103) 23 610 31 997 ( 8 387) 14 617 8 593 6 024 25 660 31 997 ( 6 337) 394 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 108 787 22 604 86 183 93 837 34 461 59 376 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 328- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE • Euro 7, 750 thousand in financial assets accounted for at fair value through other comprehensive income, which include dividends received from FLITPTREL X in the amount of Euro 6,000 thousand, from SIBS SGPS in the amount of Euro 887 thousand and from ESA Energia in the Euro 657 thousand (31 December 2019: Euro 1,734 thousand, which includes dividends received and from SIBS SGPS in the Euro 887 thousand); and • Euro 2,089 thousand financial assets in investments in associates and subsidiaries, which include dividends received from Locarent in the amount of Euro 958 thousand, from Edenred in the amount of Euro 583 thousand and from ESEGUR in the amount of Euro 548 thousand (31 December 2019: Euro 8,378 thousand, which include dividends received from Unicre in the amount of Euro 4,165 thousand, from GNB Seguros in the amount of Euro 1,500 thousand and from NB Açores in the amount of Euro 1,083 thousand). NOVO BANCO NOTE 6 – FEES AND COMMISSIONS INCOME AND EXPENSES The breakdown of this caption is as follows: Fees and commissions income From banking services From guarantees provided From transaction of securities From commitments to third parties From transactions carried out on behalf of third parties - cross-selling Other fee and commission income Fees and commissions expenses With banking services rendered by third parties With guarantees received With transaction of securities Other fee and commission income (in thousands of Euros) 31.12.2020 31.12.2019* 198 376 34 762 3 718 8 062 32 254 2 706 279 878 31 497 1 755 2 259 5 927 41 438 215 926 42 783 4 780 7 792 36 379 10 459 318 119 35 267 1 900 2 052 5 067 44 286 238 440 273 833 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 7 – GAINS OR LOSSES ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS The breakdown of this caption is as follows: From financial assets at fair value through other comprehensive income Securities Bonds and other fixed income securities Issued by government and public entities Issued by other entities From financial assets and liabilities at amortised cost Securities Bonds and other fixed income securities Issued by other entities Loans 31.12.2020 31.12.2019* Gains Losses Total Gains Losses Total (in thousands of Euros) 93 160 1 010 6 529 7 482 86 631 ( 6 472) 65 735 2 442 2 021 443 63 714 1 999 94 170 14 011 80 159 68 177 2 464 65 713 6 281 154 6 127 2 050 - 2 050 8 336 8 439 ( 103) 23 610 31 997 ( 8 387) 14 617 8 593 6 024 25 660 31 997 ( 6 337) 108 787 22 604 86 183 93 837 34 461 59 376 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 8 - Gains or losses on financial assets and liabilities NOVO BANCO held for trading The breakdown of this caption is as follows: NOTE 8 - GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING The breakdown of this caption is as follows: 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 31.12.2020 Gains Losses (in thousands of Euros) 31.12.2019* Total Gains Losses - 328- Total Securities Bonds and other fixed income securities Issued by government and public entities Issued by other entities Financial Derivatives Foreign exchange rate contracts Interest rate contracts Equity / Index contracts Credit default contracts Other 13 710 5 13 121 - 589 5 26 480 - 10 963 - 15 517 - 68 245 602 631 82 551 42 488 52 681 711 014 81 243 44 777 15 564 ( 108 383) 1 308 ( 2) ( 289) 24 576 729 666 93 119 78 241 1 702 26 351 803 868 92 296 78 622 2 852 ( 1 775) ( 74 202) 823 ( 381) ( 1 150) 767 672 858 880 ( 91 208) 953 784 1 014 952 ( 61 168) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 In accordance with the accounting policies followed by the Bank, financial instruments are measured, at their initial recognition, at their fair value. The transaction value of the instrument is assumed to correspond to the best estimate of its fair value on the date of its initial recognition. However, in certain circumstances, the initial fair value of a financial instrument, determined on the basis of valuation techniques, may differ from the transaction value, especially by the existence of an intermediary margin, resulting in a day In accordance with the accounting policies followed by the Bank, financial instruments are measured, at their initial one profit. recognition, at their fair value. The transaction value of the instrument is assumed to correspond to the best estimate of its fair value on the date of its initial recognition. However, in certain circumstances, the initial fair value of a financial The Bank recognizes in profit or loss the gains arising from the day one profit generated primarily by the intermediation of derivative and foreign exchange financial products, since the fair value of these instruments, on the date of their initial recognition and instrument, determined on the basis of valuation techniques, may differ from the transaction value, especially by the subsequently, is determined only by the Bank based on observable market variables and reflects the Bank's access to the wholesale existence of an intermediary margin, resulting in a day one profit. market. The Bank recognizes in profit or loss the gains arising from the day one profit generated primarily by the intermediation As at 31 December 2020, gains recognized in the income statement arising from intermediation fees, which are essentially related to foreign exchange transactions, amounted to approximately Euro 5,100 thousand (31 December 2019: Euro 3,114 thousand). of derivative and foreign exchange financial products, since the fair value of these instruments, on the date of their initial recognition and subsequently, is determined only by the Bank based on observable market variables and reflects the Bank's access to the wholesale market. NOTE 9 - GAINS OR LOSSES ON FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFITS OR LOSS The breakdown of this caption is as follows: As at 31 December 2020, gains recognized in the income statement arising from intermediation fees, which are essen- (in thousands of Euros) tially related to foreign exchange transactions, amounted to approximately Euro 5,100 thousand (31 December 2019: Euro 3,114 thousand). 31.12.2019* 31.12.2020 Gaines Losses Total Gaines Losses Total Gains or losses in financial assets mandatority at fair value through profit or loss Securities Títulos Bonds and other fixed income securities Issued by other entities Shares Other variable income securities 395 17 920 90 440 ( 72 520) 8 337 10 625 ( 2 288) 23 229 141 374 ( 118 145) 34 575 90 862 ( 56 287) 1 709 332 103 ( 330 394) 17 482 331 561 ( 314 079) 42 858 563 917 ( 521 059) 60 394 433 048 ( 372 654) 42 858 563 917 ( 521 059) 60 394 433 048 ( 372 654) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 As at 31 December 2020, gains or losses on financial assets mandatorily at fair value through profit or loss – securities - shares and other variable income securities, include a loss of Euro 300.2 million, resulting from the completion of an independent valuation to the restructuring funds. These funds are “level 3” assets in accordance with the fair value hierarchy of IFRS 13 (quotes provided by third parties whose parameters used are not observable in the market). NOVO BANCO requested an independent assessment from an international consulting firm in conjunction with real estate consulting firms. This work resulted in a market value of Euro 498.8 million for the total investment held in these assets (see Note 21), which led to the recording of the said loss of Euro 300.2 million in 2020 (see Note 37). 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 329- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOTE 9 - Gains or losses on financial assets mandatorily at fair value through profit or loss The breakdown of this caption is as follows: Gains or losses in financial assets mandatorily at fair value through profit or loss Securities Títulos Bonds and other fixed income securities Issued by other entities Shares Other variable income securities 31.12.2020 (in thousands of Euros) 31.12.2019* Gaines Losses Total Gaines Losses Total 17 920 90 440 ( 72 520) 8 337 10 625 ( 2 288) 23 229 141 374 ( 118 145) 34 575 90 862 ( 56 287) 1 709 332 103 ( 330 394) 17 482 331 561 ( 314 079) 42 858 563 917 ( 521 059) 60 394 433 048 ( 372 654) 42 858 563 917 ( 521 059) 60 394 433 048 ( 372 654) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 As at 31 December 2020, gains or losses on financial assets mandatorily at fair value through profit or loss – securities - shares and other variable income securities, include a loss of Euro 300.2 million, resulting from the completion of an independent valuation to the restructuring funds. These funds are “level 3” assets in accordance with the fair value hierarchy of IFRS 13 (quotes provided by third parties whose parameters used are not observable in the market). NOVO BANCO requested an independent assessment from an international consulting firm in conjunction with real estate consulting firms. This work resulted in a market value of Euro 498.8 million for the total investment held in these assets (see Note 21), which led to the recording of the said loss of Euro 300.2 million in 2020 (see Note 37). NOVO BANCO NOTE 10 – Gains or losses from hedge accounting NOVO BANCO NOTE 10 – GAINS OR LOSSES FROM HEDGE ACCOUNTING The breakdown of this caption is as follows: The breakdown of this caption is as follows: NOTE 10 – GAINS OR LOSSES FROM HEDGE ACCOUNTING The breakdown of this caption is as follows: Fair value changes of hedging instruments Instrumentos financeiros derivados Interest rate contracts Fair value changes of hedging instruments Instrumentos financeiros derivados Instrumentos financeiros derivados Fair value changes of hedging item attributable to hedged risk Interest rate contracts 31.12.2020 31.12.2019* (in thousands of Euros) Gains Losses Total Gains Losses (in thousands of Euros) Total 31.12.2020 31.12.2019* 75 803 Gains 97 972 Losses ( 22 169) Total 49 993 Gains 66 301 Losses ( 16 308) Total 43 804 75 803 119 607 33 688 97 972 131 660 10 116 ( 22 169) ( 12 053) 34 904 49 993 84 897 21 041 66 301 87 342 13 863 ( 16 308) ( 2 445) Fair value changes of hedging item attributable to hedged risk Instrumentos financeiros derivados Compensations for hedging operations interruptions (see Note 13) 43 804 438 33 688 - 10 116 438 34 904 461 21 041 - 13 863 461 Amount net of compensations 119 607 120 045 131 660 131 660 ( 12 053) ( 11 615) 84 897 85 358 87 342 87 342 ( 2 445) ( 1 984) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Compensations for hedging operations interruptions (see Note 13) 438 - 438 461 - 461 Amount net of compensations 120 045 131 660 ( 11 615) 85 358 87 342 ( 1 984) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 11 – EXCHANGE DIFFERENCES NOTE 11 – Exchange differences The breakdown of this caption is as follows: NOTE 11 – EXCHANGE DIFFERENCES The breakdown of this caption is as follows: The breakdown of this caption is as follows: 31.12.2020 31.12.2019* (in thousands of Euros) Foreign exchange revaluation 1 282 775 Gains 1 282 775 31.12.2020 1 284 775 Losses 1 284 775 ( 2 000) Total ( 2 000) 1 052 463 Gains 1 052 463 31.12.2019* 1 013 977 Losses 1 013 977 38 486 Total 38 486 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Foreign exchange revaluation 1 284 775 1 282 775 ( 2 000) 1 052 463 1 013 977 38 486 Gains Losses Total Gains Losses (in thousands of Euros) Total This caption includes the results of foreign exchange revaluation of monetary assets and liabilities registered in foreign currency in * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 accordance with the accounting policy described in Note 2.2. 1 282 775 1 284 775 ( 2 000) 1 052 463 1 013 977 38 486 This caption includes the results of foreign exchange revaluation of monetary assets and liabilities registered in foreign currency in accordance with the accounting policy described in Note 2.2. NOTE 12 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS 396 The breakdown of this caption is as follows: NOTE 12 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS The breakdown of this caption is as follows: Real Estate Equipment Other Real Estate Equipment (in thousands of Euros) 31.12.2020 31.12.2019* 1 167 (in thousands of Euros) 12 954 31.12.2020 ( 520) 31.12.2019* ( 479) 1 625 1 167 2 272 ( 520) 2 272 2 033 12 954 14 507 ( 479) 2 033 14 507 (in thousands of Euros) 31.12.2020 31.12.2019* (in thousands of Euros) 31.12.2020 29 596 31.12.2019* 29 589 264 57 739 29 596 87 599 264 57 739 ( 5 175) 87 599 ( 32 193) ( 1 580) ( 5 175) ( 2 321) ( 32 193) ( 48 610) ( 1 580) ( 89 879) ( 2 321) ( 2 280) ( 48 610) ( 89 879) ( 2 280) 1 299 25 646 29 589 56 534 1 299 25 646 ( 7 757) 56 534 ( 26 647) ( 1 409) ( 7 757) ( 2 456) ( 26 647) ( 36 514) ( 1 409) ( 74 783) ( 2 456) ( 18 249) ( 36 514) ( 74 783) ( 18 249) - 330- - 330- * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Other 1 625 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 13 – OTHER OPERATING INCOME AND EXPENSES The breakdown of this caption is as follows: NOTE 13 – OTHER OPERATING INCOME AND EXPENSES The breakdown of this caption is as follows: Other operating income Gains / (losses) on recoveries of loans Non-recurring advisory services Other operating income Other income Gains / (losses) on recoveries of loans Non-recurring advisory services Other operating expenses Other income Direct and indirect taxes Contribution to the Banking Sector (see Note 26) Other operating expenses Membership subscriptions and donations Direct and indirect taxes Charges with Supervisory entities Contribution to the Banking Sector (see Note 26) Other expenses Membership subscriptions and donations Charges with Supervisory entities Other operating income / (expenses) Other expenses Other operating income / (expenses) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOTE 10 – GAINS OR LOSSES FROM HEDGE ACCOUNTING The breakdown of this caption is as follows: NOTE 10 – GAINS OR LOSSES FROM HEDGE ACCOUNTING The breakdown of this caption is as follows: Instrumentos financeiros derivados Fair value changes of hedging instruments Interest rate contracts Instrumentos financeiros derivados Fair value changes of hedging item attributable to hedged risk Instrumentos financeiros derivados Fair value changes of hedging instruments Interest rate contracts Compensations for hedging operations interruptions (see Note 13) Fair value changes of hedging item attributable to hedged risk Instrumentos financeiros derivados Amount net of compensations 119 607 75 803 438 131 660 97 972 - ( 12 053) ( 22 169) 438 43 804 120 045 33 688 131 660 10 116 ( 11 615) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 119 607 131 660 ( 12 053) NOVO BANCO NOVO BANCO (in thousands of Euros) (in thousands of Euros) 84 897 49 993 461 34 904 85 358 87 342 66 301 - 21 041 87 342 ( 2 445) ( 16 308) 461 13 863 ( 1 984) 84 897 87 342 ( 2 445) 31.12.2020 31.12.2019* Gains Losses Total Gains Losses Total 75 803 31.12.2020 97 972 ( 22 169) 49 993 31.12.2019* 66 301 ( 16 308) Gains 43 804 Losses 33 688 Total 10 116 Gains 34 904 Losses 21 041 Total 13 863 Compensations for hedging operations interruptions (see Note 13) 438 - 438 461 - 461 Amount net of compensations NOTE 11 – EXCHANGE DIFFERENCES * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 120 045 131 660 ( 11 615) The breakdown of this caption is as follows: NOTE 11 – EXCHANGE DIFFERENCES 85 358 87 342 ( 1 984) (in thousands of Euros) The breakdown of this caption is as follows: This caption includes the results of foreign exchange revaluation of monetary assets and liabilities registered in foreign Losses currency in accordance with the accounting policy described in Note 2.2. (in thousands of Euros) Losses Gains Gains Total Total 31.12.2020 31.12.2019* Foreign exchange revaluation 1 282 775 1 282 775 Gains 1 284 775 31.12.2020 1 284 775 Losses ( 2 000) 1 052 463 ( 2 000) Total 1 052 463 Gains 1 013 977 31.12.2019* 1 013 977 Losses 38 486 38 486 Total * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Foreign exchange revaluation This caption includes the results of foreign exchange revaluation of monetary assets and liabilities registered in foreign currency in accordance with the accounting policy described in Note 2.2. * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 12 – Gains or losses on derecognition of non-financial assets This caption includes the results of foreign exchange revaluation of monetary assets and liabilities registered in foreign currency in NOTE 12 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS accordance with the accounting policy described in Note 2.2. The breakdown of this caption is as follows: The breakdown of this caption is as follows: 1 282 775 1 284 775 1 052 463 1 013 977 38 486 ( 2 000) 1 282 775 1 284 775 ( 2 000) 1 052 463 1 013 977 38 486 NOTE 12 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS 31.12.2020 31.12.2019* (in thousands of Euros) The breakdown of this caption is as follows: Real Estate Equipment Other 1 167 ( 520) 1 625 31.12.2020 (in thousands of Euros) 12 954 ( 479) 2 033 31.12.2019* Real Estate * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Equipment Other 2 272 1 167 ( 520) 1 625 NOTE 13 – OTHER OPERATING INCOME AND EXPENSES * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 2 272 14 507 12 954 ( 479) 2 033 14 507 NOTE 13 – Other operating income and expenses The breakdown of this caption is as follows: NOTE 13 – OTHER OPERATING INCOME AND EXPENSES The breakdown of this caption is as follows: The breakdown of this caption is as follows: Other operating income Gains / (losses) on recoveries of loans Non-recurring advisory services Other income Other operating income Gains / (losses) on recoveries of loans Other operating expenses Non-recurring advisory services Direct and indirect taxes Other income Contribution to the Banking Sector (see Note 26) Membership subscriptions and donations Other operating expenses Charges with Supervisory entities Direct and indirect taxes Other expenses Contribution to the Banking Sector (see Note 26) Membership subscriptions and donations Charges with Supervisory entities Other expenses Other operating income / (expenses) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 (in thousands of Euros) 31.12.2020 31.12.2019* (in thousands of Euros) 31.12.2020 31.12.2019* 29 596 264 57 739 87 599 29 596 264 ( 5 175) 57 739 ( 32 193) 87 599 ( 1 580) ( 2 321) ( 5 175) ( 48 610) ( 32 193) ( 89 879) ( 1 580) ( 2 280) ( 2 321) ( 48 610) ( 89 879) 29 589 1 299 25 646 56 534 29 589 1 299 ( 7 757) 25 646 ( 26 647) 56 534 ( 1 409) ( 2 456) ( 7 757) ( 36 514) ( 26 647) ( 74 783) ( 1 409) ( 18 249) ( 2 456) ( 36 514) ( 74 783) Other operating income / (expenses) ( 2 280) ( 18 249) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 330- - 330- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES As of 31 December 2020, the amount received relating to compensation for interruption of hedging operations, NOVO BANCO included in other income, amounts to Euro 438 thousand (31 December 2019: Euro 461 thousand) (see Note 10). As of 31 December 2020, the amount received relating to compensation for interruption of hedging operations, included in other income, amounts to Euro 438 thousand (31 December 2019: Euro 461 thousand) (see Note 10). NOTE 14 – Staff expenses NOTE 14 – STAFF EXPENSES The breakdown of these captions is as follows: The breakdown of these captions is as follows: Wages and salaries Remuneration Long-term service / Career bonuses (see Note 15) Mandatory social charges Costs with post-employment benefits (see Note 15) Other costs (in thousands of Euros) 31.12.2020 31.12.2019* 167 702 166 758 944 51 170 432 4 300 223 604 167 601 166 752 849 52 161 - 3 601 223 363 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The provisions and costs related to the restructuring process are presented in Note 30. 397 As at 31 December 2020 and 2019, the number of employees of the Bank, considering the staff and the contracted term, presents the following breakdown by professional category: 31.12.2020 31.12.2019 384 485 2 036 1 351 4 256 400 541 2 169 1 318 4 428 Directive functions Management functions Specific functions Administrative and other functions NOTE 15 – EMPLOYEE BENEFITS Pension and health-care benefits In compliance with the Collective Labour Agreement (ACT) for the banking sector established with the unions, the Bank undertook the commitment to grant its employees, or their families, pensions on retirement, disability and survival. These payments consist of a percentage that increases in accordance with the years of service, applied to each year’s negotiated salary table for the active workforce. Banking employees also receive health-care benefits through a specific Social-Medical Assistance Service (SAMS) managed by the Union. As a result of the signing of the new Collective Labor Agreement (ACT) on July 5, 2016, with publication in Labor Bulletin No. 29 of August 8, 2016, the contributions to SAMS, under the responsibility of the Group, as of February 1, 2017 started to correspond to a fixed amount (according to Annex VI of the new ACT) for each employee, 14 times in a year. The calculation and recording of the Group's obligations with health benefits attributable to workers at retirement age are carried out in a similar way to pension liabilities. These benefits are covered by the Pension Fund, which integrates all liabilities with pensions and health benefits. For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions consecrated under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension fund, managed by GNB – Sociedade Gestora de Fundos de Pensões, S.A.. Protection of employees in the event of maternity, paternity and adoption, as well as old age, is covered by the General Social Security Regime, given that with the publication of Decree-Law No. 1-A/2011, of 3 January, all banking employees who were beneficiaries of “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated in the General Social Security Regime as from 1 January 2011. Employees hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. Retirement pensions of banking employees integrated in the General Social Security Regime within the scope of the 2nd tripartite agreement continue to be calculated in accordance with the provisions of the ACT and other conventions; however, banking employees are entitled to receive a pension under the General Regime that considers the number of years of contributions under that regime. The Banks are responsible for the difference between the pension determined in accordance with the provisions of the ACT and that which the banking employees are entitled to receive from the General Social Security Regime. The contribution rate is 26.6%, 23.6% paid by the employer and 3% paid by the employees on the behalf of Caixa de Abono de Família dos Empregados Bancários (CAFEB), abolished by said Decree-law. In consequence of this change, pension entitlements of active employees are to be covered on the terms defined under the General Social Security Regime, for the length of their 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 331- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES As of 31 December 2020, the amount received relating to compensation for interruption of hedging operations, included in other income, amounts to Euro 438 thousand (31 December 2019: Euro 461 thousand) (see Note 10). NOTE 14 – STAFF EXPENSES The breakdown of these captions is as follows: Wages and salaries Remuneration Long-term service / Career bonuses (see Note 15) Mandatory social charges Costs with post-employment benefits (see Note 15) Other costs NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019* 167 702 166 758 944 51 170 432 4 300 223 604 167 601 166 752 849 52 161 - 3 601 223 363 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The provisions and costs related to the restructuring process are presented in Note 30. The provisions and costs related to the restructuring process are presented in Note 30. As at 31 December 2020 and 2019, the number of employees of the Bank, considering the staff and the contracted As at 31 December 2020 and 2019, the number of employees of the Bank, considering the staff and the contracted term, presents term, presents the following breakdown by professional category: the following breakdown by professional category: Directive functions Management functions Specific functions Administrative and other functions 31.12.2020 31.12.2019 384 485 2 036 1 351 4 256 400 541 2 169 1 318 4 428 NOTE 15 – EMPLOYEE BENEFITS NOTE 15 – Employee benefits Pension and health-care benefits In compliance with the Collective Labour Agreement (ACT) for the banking sector established with the unions, the Bank undertook Pension and health-care benefits the commitment to grant its employees, or their families, pensions on retirement, disability and survival. These payments consist of a percentage that increases in accordance with the years of service, applied to each year’s negotiated salary table for the active In compliance with the Collective Labour Agreement (ACT) for the banking sector established with the unions, the Bank workforce. undertook the commitment to grant its employees, or their families, pensions on retirement, disability and survival. These payments consist of a percentage that increases in accordance with the years of service, applied to each year’s Banking employees also receive health-care benefits through a specific Social-Medical Assistance Service (SAMS) managed by the Union. As a result of the signing of the new Collective Labor Agreement (ACT) on July 5, 2016, with publication in Labor Bulletin No. negotiated salary table for the active workforce. 29 of August 8, 2016, the contributions to SAMS, under the responsibility of the Group, as of February 1, 2017 started to correspond to a fixed amount (according to Annex VI of the new ACT) for each employee, 14 times in a year. The calculation and recording of Banking employees also receive health-care benefits through a specific Social-Medical Assistance Service (SAMS) the Group's obligations with health benefits attributable to workers at retirement age are carried out in a similar way to pension managed by the Union. As a result of the signing of the new Collective Labor Agreement (ACT) on July 5, 2016, with liabilities. These benefits are covered by the Pension Fund, which integrates all liabilities with pensions and health benefits. publication in Labor Bulletin No. 29 of August 8, 2016, the contributions to SAMS, under the responsibility of the For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions consecrated Group, as of February 1, 2017 started to correspond to a fixed amount (according to Annex VI of the new ACT) for each under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension fund, managed by GNB – employee, 14 times in a year. The calculation and recording of the Group's obligations with health benefits attributable Sociedade Gestora de Fundos de Pensões, S.A.. to workers at retirement age are carried out in a similar way to pension liabilities. These benefits are covered by the Protection of employees in the event of maternity, paternity and adoption, as well as old age, is covered by the General Social Security Pension Fund, which integrates all liabilities with pensions and health benefits. Regime, given that with the publication of Decree-Law No. 1-A/2011, of 3 January, all banking employees who were beneficiaries of “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated in the General Social Security Regime as from For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions 1 January 2011. consecrated under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension Employees hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. fund, managed by GNB – Sociedade Gestora de Fundos de Pensões, S.A.. Retirement pensions of banking employees integrated in the General Social Security Regime within the scope of the 2nd tripartite Protection of employees in the event of maternity, paternity and adoption, as well as old age, is covered by the agreement continue to be calculated in accordance with the provisions of the ACT and other conventions; however, banking General Social Security Regime, given that with the publication of Decree-Law No. 1-A/2011, of 3 January, all employees are entitled to receive a pension under the General Regime that considers the number of years of contributions under that regime. The Banks are responsible for the difference between the pension determined in accordance with the provisions of the ACT banking employees who were beneficiaries of “CAFEB – Caixa de Abono de Família dos Empregados Bancários” and that which the banking employees are entitled to receive from the General Social Security Regime. were integrated in the General Social Security Regime as from 1 January 2011. The contribution rate is 26.6%, 23.6% paid by the employer and 3% paid by the employees on the behalf of Caixa de Abono de Employees hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. Família dos Empregados Bancários (CAFEB), abolished by said Decree-law. In consequence of this change, pension entitlements of active employees are to be covered on the terms defined under the General Social Security Regime, for the length of their Retirement pensions of banking employees integrated in the General Social Security Regime within the scope of the 2nd tripartite agreement continue to be calculated in accordance with the provisions of the ACT and other conven- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 331- tions; however, banking employees are entitled to receive a pension under the General Regime that considers the number of years of contributions under that regime. The Banks are responsible for the difference between the pension determined in accordance with the provisions of the ACT and that which the banking employees are entitled to receive from the General Social Security Regime. The contribution rate is 26.6%, 23.6% paid by the employer and 3% paid by the employees on the behalf of Caixa de Abono de Família dos Empregados Bancários (CAFEB), abolished by said Decree-law. In consequence of this change, pension entitlements of active employees are to be covered on the terms defined under the General Social Security Regime, for the length of their employment between 1 January 2011 and their retirement date. The differential required to make up the pension guaranteed under the ACT is paid by the Banks. At the end of financial year 2011 and pursuant to the 3rd tripartite agreement, it was decided to transfer, definitively and irreversibly, to the General Social Security Regime all the banks’ liabilities with pensions in payment to retirees and pensioners that were in that condition as at 31 December 2011 at constant values (0% discount rate) for the component 398 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE foreseen in the “Instrumento de Regulação Coletiva de Trabalho” (IRCT) applicable to banking employees, including the eventualities of death, disability and survival. The liabilities relating to the updating of pension amounts, pension benefits other than those to be borne by Social Security, health-care contributions to SAMS, death allowances and deferred survivor’s pensions will remain under the banks’ responsibility, with the corresponding funding being met through the respective pension funds. The agreement further established that the financial institutions’ pension fund assets relating to the part allocated to NOVO BANCO the satisfaction responsibilities for those pensions, be transferred to the State. According to the deliberation of the Board of Directors of Bank of Portugal of 3 August 2014 (8 p.m.), considering employment between 1 January 2011 and their retirement date. The differential required to make up the pension guaranteed under the ACT is paid by the Banks. the resolution by the same Board of Directors of 11 August 2014 (5 p.m.), and the additional clarifications contained in the deliberation of the Board of Directors of Bank of Portugal, of 11 February 2015, it was clarified that the BES At the end of financial year 2011 and pursuant to the 3rd tripartite agreement, it was decided to transfer, definitively and irreversibly, responsibilities not transferred to NOVO BANCO relate to the retirement and survival pensions and complementary to the General Social Security Regime all the banks’ liabilities with pensions in payment to retirees and pensioners that were in that condition as at 31 December 2011 at constant values (0% discount rate) for the component foreseen in the “Instrumento de Regulação retirement and survival pensions of the Directors of BES who had been members of its Executive Committee, as defined Coletiva de Trabalho” (IRCT) applicable to banking employees, including the eventualities of death, disability and survival. The in BES’s Articles of Association and BES’s General Assembly Regulations to which the Articles of Association refer, not liabilities relating to the updating of pension amounts, pension benefits other than those to be borne by Social Security, health-care having, therefore, been transferred to NOVO BANCO, without prejudice to the transfer of the responsibilities relating contributions to SAMS, death allowances and deferred survivor’s pensions will remain under the banks’ responsibility, with the corresponding funding being met through the respective pension funds. exclusively to the employment contracts with BES. The agreement further established that the financial institutions’ pension fund assets relating to the part allocated to the satisfaction Given the aforementioned, liabilities arising exclusively from the employment contracts with BES were transferred to responsibilities for those pensions, be transferred to the State. NOVO BANCO. Considering the foregoing, only the pension fund liabilities arising from the Complementary Executive According to the deliberation of the Board of Directors of Bank of Portugal of 3 August 2014 (8 p.m.), considering the resolution by Committee Plan were split, with a part (described above) remaining in BES, with the other part being transferred to the same Board of Directors of 11 August 2014 (5 p.m.), and the additional clarifications contained in the deliberation of the Board of NOVO BANCO, together with the Pension Fund’s liabilities relating to the Base Plan and the Complementary Plan. Directors of Bank of Portugal, of 11 February 2015, it was clarified that the BES responsibilities not transferred to NOVO BANCO relate to the retirement and survival pensions and complementary retirement and survival pensions of the Directors of BES who had To quantify the amounts relating to the split of the Pension Fund assets allocated to the liabilities that remained in BES, been members of its Executive Committee, as defined in BES’s Articles of Association and BES’s General Assembly Regulations to following the decision of Bank of Portugal of 11 February 2015, from those that were transferred to NOVO BANCO, the which the Articles of Association refer, not having, therefore, been transferred to NOVO BANCO, without prejudice to the transfer of the responsibilities relating exclusively to the employment contracts with BES. assets existing on 3 August 2014 were split in proportion to the liabilities calculated on the same date, allocated to each of the groups of former participants and beneficiaries allocated to each of the entities. The split performed on these Given the aforementioned, liabilities arising exclusively from the employment contracts with BES were transferred to NOVO BANCO. terms will result, on 3 August 2014, in a level of funding of the Complementary Plan of the Executive Commission that Considering the foregoing, only the pension fund liabilities arising from the Complementary Executive Committee Plan were split, with a part (described above) remaining in BES, with the other part being transferred to NOVO BANCO, together with the Pension Fund’s is equal for each of the associates of the Fund (NOVO BANCO and BES). liabilities relating to the Base Plan and the Complementary Plan. On 16 June 2020, the Insurance and Pension Funds Supervisory Authority (“ASF”) approved the extinction of the portion To quantify the amounts relating to the split of the Pension Fund assets allocated to the liabilities that remained in BES, following the that finances the Plan of the previous Executive Committee and, simultaneously, the amendment of the Constitutive decision of Bank of Portugal of 11 February 2015, from those that were transferred to NOVO BANCO, the assets existing on 3 August 2014 were split in proportion to the liabilities calculated on the same date, allocated to each of the groups of former participants and Contract of the Novo Mercado Pension Fund Bank. This approval led to the creation of three aspects of the Executive beneficiaries allocated to each of the entities. The split performed on these terms will result, on 3 August 2014, in a level of funding Committee's Pension Plan: (i) Executive Committee - BES, (ii) Executive Committee - NOVO BANCO and (iii) Undivided of the Complementary Plan of the Executive Commission that is equal for each of the associates of the Fund (NOVO BANCO and Party. The assets of the undivided party are not allocated to any liability of NOVO BANCO or BES until the final decision BES). of the court (limit of article 402), so NOVO BANCO transferred the amount of 19.2 million euros of net liabilities of the On 16 June 2020, the Insurance and Pension Funds Supervisory Authority (“ASF”) approved the extinction of the portion that finances amount of the fund's assets relating to the undivided portion for Provisions. the Plan of the previous Executive Committee and, simultaneously, the amendment of the Constitutive Contract of the Novo Mercado Pension Fund Bank. This approval led to the creation of three aspects of the Executive Committee's Pension Plan: (i) Executive On 1 June 2016, an amendment was made to Fundo de Pensões NB´s constitutive contract, where the complementary Committee - BES, (ii) Executive Committee - NOVO BANCO and (iii) Undivided Party. The assets of the undivided party are not plan became a defined contribution instead of a defined benefit plan. Considering this, and in accordance with IAS 19, allocated to any liability of NOVO BANCO or BES until the final decision of the court (limit of article 402), so NOVO BANCO transferred the amount of 19.2 million euros of net liabilities of the amount of the fund's assets relating to the undivided portion for Provisions. this plan´s responsibilities and assets are net of the amounts presented for the defined benefit plans. On 31 December 2020, the amount of Euro 535 thousand was recorded in Personnel Costs related to the defined contribution plan (31 On 1 June 2016, an amendment was made to Fundo de Pensões NB´s constitutive contract, where the complementary plan became December 2019: Euro 492 thousand). a defined contribution instead of a defined benefit plan. Considering this, and in accordance with IAS 19, this plan´s responsibilities and assets are net of the amounts presented for the defined benefit plans. On 31 December 2020, the amount of Euro 535 thousand was recorded in Personnel Costs related to the defined contribution plan (31 December 2019: Euro 492 thousand). The key actuarial assumptions used to calculate retirement pension and health-care liabilities are identical and are as follows: The key actuarial assumptions used to calculate retirement pension and health-care liabilities are identical and are as follows: Actuarial Assumptions Projected rate of return on plan assets Discount rate Pension increase rate Salary increase rate Mortality table men Mortality table women 31.12.2020 31.12.2019 Assumptions Actual Assumptions Actual 1,00% 1,00% 0,25% 0,50% 2,41% - 1,34% 3,07% 1,35% 1,35% 0,25% 0,50% 6,82% - 0,49% 1,20% TV 88/90 TV 88/90-2 years TV 88/90 TV 88/90-2 years Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as at 31 December 2020 and 31 December 2019 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. 399 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 332- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as at 31 December 2020 and 2019 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. NOVO BANCO Pension plan participants are detailed as follows: Pension plan participants are detailed as follows: Pension plan participants are detailed as follows: Employees Pensioners and survivors TOTAL 31.12.2020 NOVO BANCO 31.12.2019 4 318 6 870 4 399 6 761 31.12.2020 11 188 31.12.2019 11 160 Employees Pensioners and survivors NOVO BANCO 4 399 The application of IAS 19 in terms of liabilities and coverage levels as at 31 December 2020 and 31 December 2019 is as follows: 6 761 (in thousands of euros) 11 160 The application of IAS 19 in terms of liabilities and coverage levels as at 31 December 2020 and 2019 is as follows: Pension plan participants are detailed as follows: 31.12.2019 11 188 31.12.2020 TOTAL 6 870 4 318 11 160 705 596 ( 24 692) 1 659 246 1 867 977 31.12.2019 31.12.2020 31.12.2020 (1 892 669) (1 811 526) (1 345 899) ( 546 770) (1 892 669) 4 318 (1 345 899) 6 870 ( 546 770) 11 188 Assets / (liabilities) recognized in the balance sheet The application of IAS 19 in terms of liabilities and coverage levels as at 31 December 2020 and 31 December 2019 is as follows: (1 811 526) Total liabilities (in thousands of euros) Employees 4 399 (1 275 193) Pensioners 31.12.2019 Pensioners and survivors 6 761 Employees ( 536 333) Assets / (liabilities) recognized in the balance sheet TOTAL Coverage Fair value of plan assets Total liabilities (1 275 193) Pensioners Net assets / (liabilities) in the balance sheet (see Note 31) ( 152 280) The application of IAS 19 in terms of liabilities and coverage levels as at 31 December 2020 and 31 December 2019 is as follows: ( 536 333) Employees Accumulated actuarial deviations recognized in other comprehensive income 583 396 (in thousands of euros) Coverage Fair value of plan assets According to the policy defined in Note 2.14 - Employee Benefits, the Bank calculates liabilities for pensions and actuarial gains and Assets / (liabilities) recognized in the balance sheet losses half-yearly and evaluates at each balance sheet date and for each plan separately, the recoverability of the excess of the Net assets / (liabilities) in the balance sheet (see Note 31) respective pension liabilities. Total liabilities Accumulated actuarial deviations recognized in other comprehensive income Pensioners As at 31 December 2019, the net balance sheet value includes 30,4 million euros related to NOVO BANCO’s share of the deficit of According to the policy defined in Note 2.14 - Employee Benefits, the Bank calculates liabilities for pensions and actuarial gains and Employees the complementary plan CE. With respect to the base plan and complementary net liabilities on 31 December 2019, the Bank made losses half-yearly and evaluates at each balance sheet date and for each plan separately, the recoverability of the excess of the Coverage the necessary contribution in early 2020. respective pension liabilities. Fair value of plan assets As at 31 December 2020 and 2019, the sensitivity analysis to a 0.25% change in the assumptions rate used and one year in the As at 31 December 2019, the net balance sheet value includes 30,4 million euros related to NOVO BANCO’s share of the deficit of Net assets / (liabilities) in the balance sheet (see Note 31) According to the policy defined in Note 2.14 - Employee Benefits, the Bank calculates liabilities for pensions and mortality table results in the following changes in the current value of liabilities determined for past services: the complementary plan CE. With respect to the base plan and complementary net liabilities on 31 December 2019, the Bank made actuarial gains and losses half-yearly and evaluates at each balance sheet date and for each plan separately, the 583 396 Accumulated actuarial deviations recognized in other comprehensive income (in thousands of Euros) the necessary contribution in early 2020. recoverability of the excess of the respective pension liabilities. According to the policy defined in Note 2.14 - Employee Benefits, the Bank calculates liabilities for pensions and actuarial gains and As at 31 December 2020 and 2019, the sensitivity analysis to a 0.25% change in the assumptions rate used and one year in the losses half-yearly and evaluates at each balance sheet date and for each plan separately, the recoverability of the excess of the As at 31 December 2019, the net balance sheet value includes 30,4 million euros related to NOVO BANCO’s share of the of -0.25% in the mortality table results in the following changes in the current value of liabilities determined for past services: respective pension liabilities. rate used (in thousands of Euros) deficit of the complementary plan CE. With respect to the base plan and complementary net liabilities on 31 December Discount rate 72 833 2019, the Bank made the necessary contribution in early 2020. As at 31 December 2019, the net balance sheet value includes 30,4 million euros related to NOVO BANCO’s share of the deficit of the complementary plan CE. With respect to the base plan and complementary net liabilities on 31 December 2019, the Bank made Salary increase rate ( 18 679) the necessary contribution in early 2020. As at 31 December 2020 and 2019, the sensitivity analysis to a 0.25% change in the assumptions rate used and one ( 49 940) Pension increase rate year in the mortality table results in the following changes in the current value of liabilities determined for past services: As at 31 December 2020 and 2019, the sensitivity analysis to a 0.25% change in the assumptions rate used and one year in the Discount rate 72 833 mortality table results in the following changes in the current value of liabilities determined for past services: Salary increase rate Mortality table Change in the amount of liabilities due to the change: Change in the amount of liabilities due to the change: (1 811 526) 583 396 (1 275 193) ( 536 333) (1 892 669) 705 596 (1 345 899) ( 546 770) of +0.25% in the rate used of +0.25% in the rate used of +0.25% in the rate used of +0.25% in the rate used of -0.25% in the rate used of -0.25% in the rate used of -0.25% in the rate used Assumptions 27 028 ( 63 877) Assumptions 31.12.2019 31.12.2020 26 348 ( 69 944) 31.12.2019 31.12.2020 of +1 year of +1 year 31.12.2020 31.12.2019 ( 152 280) ( 152 280) 1 659 246 1 659 246 1 867 977 1 867 977 of -1 year of -1 year ( 24 692) ( 24 692) 705 596 ( 52 114) ( 72 395) ( 16 750) ( 68 028) ( 68 028) ( 16 750) ( 72 395) 56 848 53 868 70 931 64 542 77 186 26 348 27 028 77 186 Pension increase rate Assumptions 56 848 Change in the amount of liabilities due to the change: ( 52 114) 53 868 ( 18 679) (in thousands of Euros) ( 49 940) of -1 year The evolution of the actuarial gains and losses in the balance sheet can be analysed as follows: of -0.25% in the 70 931 Mortality table rate used of +1 year of +0.25% in the ( 69 944) rate used 31.12.2020 of +1 year of +0.25% in the ( 63 877) rate used 31.12.2019 of -1 year of -0.25% in the 64 542 (in thousands of Euros) rate used Discount rate ( 72 395) 77 186 31.12.2020 ( 68 028) 31.12.2019 72 833 26 348 56 848 of +1 year ( 16 750) Salary increase rate The evolution of the actuarial gains and losses in the balance sheet can be analysed as follows: Retirement pension liabilities at beginning of exercise ( 52 114) Pension increase rate Current service cost Interest cost Plan participants' contribution Mortality table Retirement pension liabilities at beginning of exercise Contributions from other entities Actuarial (gains) / losses in the period: Current service cost - Changes in financial assumptions Interest cost The evolution of the actuarial gains and losses in the balance sheet can be analysed as follows: - Experience adjustments (gains) / losses Plan participants' contribution Pensions paid by the fund / transfers and once-off bonuses Contributions from other entities Amount of the responsabilities transferred to defined contribution plans Actuarial (gains) / losses in the period: Early retirement - Changes in financial assumptions - Experience adjustments (gains) / losses Foreign exchange differences and other Retirement pension liabilities at beginning of exercise 400 Pensions paid by the fund / transfers and once-off bonuses Current service cost Retirement pension liabilities at end of exercise Amount of the responsabilities transferred to defined contribution plans Interest cost Early retirement Plan participants' contribution Foreign exchange differences and other Contributions from other entities of -1 year ( 69 944) 70 931 27 028 1 811 526 53 868 432 23 425 2 577 232 ( 63 877) 1 811 526 31.12.2020 of +1 year 31.12.2020 432 99 466 23 425 49 383 2 577 ( 72 200) 232 ( 54 679) 31 592 99 466 49 383 915 1 811 526 ( 72 200) 432 1 892 669 ( 54 679) 23 425 31 592 2 577 915 232 1 641 964 31.12.2019 of -1 year ( 18 679) 1 641 964 ( 49 940) (in thousands of Euros) - 31 121 2 605 64 542 281 - 122 794 31 121 63 084 2 605 (in thousands of Euros) ( 68 896) 281 - 15 670 2 903 31.12.2019 122 794 63 084 1 641 964 ( 68 896) - 1 811 526 - 31 121 15 670 2 605 2 903 281 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Actuarial (gains) / losses in the period: Retirement pension liabilities at end of exercise Pensions paid by the fund / transfers and once-off bonuses 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Amount of the responsabilities transferred to defined contribution plans - Changes in financial assumptions - Experience adjustments (gains) / losses Early retirement Foreign exchange differences and other 1 892 669 99 466 49 383 ( 72 200) ( 54 679) 31 592 915 - 333- 1 811 526 122 794 63 084 ( 68 896) - 333- - 15 670 2 903 Retirement pension liabilities at end of exercise 1 892 669 1 811 526 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 333- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Pension plan participants are detailed as follows: Employees Pensioners and survivors TOTAL Assets / (liabilities) recognized in the balance sheet Total liabilities Pensioners Employees Coverage Fair value of plan assets Net assets / (liabilities) in the balance sheet (see Note 31) Accumulated actuarial deviations recognized in other comprehensive income NOVO BANCO 31.12.2020 31.12.2019 4 318 6 870 4 399 6 761 11 188 11 160 (in thousands of euros) 31.12.2020 31.12.2019 (1 892 669) (1 345 899) ( 546 770) (1 811 526) (1 275 193) ( 536 333) 1 867 977 1 659 246 ( 24 692) 705 596 ( 152 280) 583 396 The application of IAS 19 in terms of liabilities and coverage levels as at 31 December 2020 and 31 December 2019 is as follows: According to the policy defined in Note 2.14 - Employee Benefits, the Bank calculates liabilities for pensions and actuarial gains and losses half-yearly and evaluates at each balance sheet date and for each plan separately, the recoverability of the excess of the respective pension liabilities. As at 31 December 2019, the net balance sheet value includes 30,4 million euros related to NOVO BANCO’s share of the deficit of the complementary plan CE. With respect to the base plan and complementary net liabilities on 31 December 2019, the Bank made the necessary contribution in early 2020. As at 31 December 2020 and 2019, the sensitivity analysis to a 0.25% change in the assumptions rate used and one year in the mortality table results in the following changes in the current value of liabilities determined for past services: Assumptions Discount rate Salary increase rate Pension increase rate Change in the amount of liabilities due to the change: 31.12.2020 31.12.2019 of +0.25% in the rate used of -0.25% in the rate used of +0.25% in the rate used of -0.25% in the rate used (in thousands of Euros) ( 72 395) 26 348 56 848 77 186 ( 16 750) ( 52 114) ( 68 028) 27 028 53 868 72 833 ( 18 679) ( 49 940) of +1 year of -1 year of +1 year of -1 year Mortality table ( 69 944) 70 931 ( 63 877) 64 542 The evolution of the actuarial gains and losses in the balance sheet can be analysed as follows: The evolution of the actuarial gains and losses in the balance sheet can be analysed as follows: Retirement pension liabilities at beginning of exercise Current service cost Interest cost Plan participants' contribution Contributions from other entities Actuarial (gains) / losses in the period: - Changes in financial assumptions - Experience adjustments (gains) / losses Pensions paid by the fund / transfers and once-off bonuses Amount of the responsabilities transferred to defined contribution plans Early retirement Foreign exchange differences and other (in thousands of Euros) 31.12.2020 31.12.2019 1 811 526 1 641 964 432 23 425 2 577 232 99 466 49 383 ( 72 200) ( 54 679) 31 592 915 - 31 121 2 605 281 122 794 63 084 ( 68 896) - 15 670 2 903 Retirement pension liabilities at end of exercise 1 892 669 1 811 526 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES The evolution of the value of the pension funds can be analyzed as follows: The evolution of the value of the pension funds can be analyzed as follows: The evolution of the value of the pension funds can be analyzed as follows: Fair value of fund assets at beginning of exercise 31.12.2020 1 659 246 31.12.2020 31.12.2019 (in thousands of Euros) 31.12.2020 46 131 1 659 246 19 482 26 649 46 131 266 834 19 482 2 577 26 649 1 659 246 ( 72 200) 266 834 46 131 ( 35 523) 2 577 19 482 912 ( 72 200) 26 649 ( 35 523) 1 867 977 266 834 912 2 577 1 867 977 ( 72 200) ( 35 523) 912 31.12.2019 Unquoted 31.12.2019 Unquoted 1 867 977 NOVO BANCO - 333- NOVO BANCO (in thousands of Euros) 31.12.2019 NOVO BANCO (in thousands of Euros) 1 615 249 31.12.2019 107 384 1 615 249 27 496 79 888 107 384 - 27 496 2 605 79 888 1 615 249 ( 68 896) - 107 384 - 2 605 27 496 2 904 ( 68 896) 79 888 - 1 659 246 - 2 904 2 605 1 659 246 ( 68 896) - 2 904 (in thousands of Euros) 1 659 246 Total (in thousands of Euros) (in thousands of Euros) 59 309 - 59 309 52 836 - 7 733 52 836 1 7 733 59 309 107 166 1 - 60 832 107 166 52 836 287 877 60 832 7 733 222 237 Total 1 000 530 222 237 254 763 1 000 530 13 717 Total 254 763 1 13 717 222 237 107 166 1 1 000 530 60 832 107 166 254 763 1 659 246 60 832 13 717 1 287 877 107 166 (in thousands of Euros) 60 832 1 1 659 246 107 166 60 832 - Share of the net interest on the assets - Return on assets excluding net interest - Share of the net interest on the assets - Return on assets excluding net interest Net return from the fund Fair value of fund assets at beginning of exercise The evolution of the value of the pension funds can be analyzed as follows: Net return from the fund Group contributions Plan participants’ contributions Fair value of fund assets at beginning of exercise Pensions paid by the fund / transfers and once-off bonuses Group contributions Net return from the fund Transfer to Undivided Party Plan participants’ contributions - Share of the net interest on the assets Foreign exchange differences and other Pensions paid by the fund / transfers and once-off bonuses - Return on assets excluding net interest Transfer to Undivided Party Fund balance at the end of the year Group contributions Foreign exchange differences and other Plan participants’ contributions Fund balance at the end of the year Pensions paid by the fund / transfers and once-off bonuses The assets of the pension funds can be analyzed as follows: Transfer to Undivided Party The assets of the pension funds can be analyzed as follows: Foreign exchange differences and other The assets of the pension funds can be analyzed as follows: Fund balance at the end of the year Equity instruments 39 034 The assets of the pension funds can be analyzed as follows: Debt instruments Equity instruments Investment funds Debt instruments Structured debt Investment funds Derivatives Structured debt Equity instruments Real estate properties Derivatives Debt instruments Cash and cash equivalents Real estate properties Investment funds Total Cash and cash equivalents Structured debt Derivatives Total Real estate properties Quoted Quoted Quoted 1 093 577 39 034 306 217 1 093 577 - 306 217 - - 39 034 - - 1 093 577 - - 306 217 1 438 828 - - - 1 438 828 - 31.12.2020 Unquoted 31.12.2020 Unquoted - 31.12.2020 Unquoted - - 66 761 - - 66 761 - - - 115 855 - - 246 533 115 855 66 761 429 149 246 533 - - 429 149 115 855 Total Quoted 39 034 Total 1 093 577 39 034 372 978 1 093 577 - Total 372 978 - - 39 034 115 855 - 1 093 577 246 533 115 855 372 978 1 867 977 246 533 - - 1 867 977 115 855 Quoted 162 928 1 000 530 162 928 201 927 1 000 530 5 984 201 927 - 5 984 162 928 - - 1 000 530 - - 201 927 1 371 369 - 5 984 - 1 371 369 - Quoted 31.12.2019 Unquoted The assets of the pension funds used by the Bank or representative of securities issued by the Bank are detailed as follows: Cash and cash equivalents - 246 533 246 533 - The assets of the pension funds used by the Bank or representative of securities issued by the Bank are detailed as follows: Total Real estate properties 287 877 (in thousands of Euros) The assets of the pension funds used by the Bank or representative of securities issued by the Bank are detailed as follows: Total The assets of the pension funds used by the Bank or representative of securities issued by the Bank are detailed as follows: Real estate properties 75 851 75 851 63 630 63 630 31.12.2020 31.12.2020 31.12.2019 31.12.2019 1 659 246 1 438 828 1 867 977 1 371 369 429 149 75 851 63 630 The evolution of the actuarial gains in the balance sheet can be analysed as follows: Total Real estate properties The evolution of the actuarial gains in the balance sheet can be analysed as follows: Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period Total Actuarial (gains) / losses in the period: - Changes in assumptions Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period The evolution of the actuarial gains in the balance sheet can be analysed as follows: - Financial assumptions Actuarial (gains) / losses in the period: - Plan assets return (excluding net interest) 401 - Changes in assumptions Other - Financial assumptions - Plan assets return (excluding net interest) Accumulated actuarial losses recognized in other comprehensive income at the end of the period Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period Other Actuarial (gains) / losses in the period: - Changes in assumptions Accumulated actuarial losses recognized in other comprehensive income at the end of the period - Financial assumptions 63 630 31.12.2020 (in thousands of Euros) 75 851 31.12.2019 (in thousands of Euros) 31.12.2020 63 630 31.12.2019 75 851 583 396 63 630 31.12.2020 (in thousands of Euros) 477 370 75 851 31.12.2019 31.12.2020 583 396 99 466 22 734 (in thousands of Euros) - 99 466 22 734 705 596 583 396 - 477 370 122 794 ( 16 804) 36 122 794 ( 16 804) 583 396 477 370 36 31.12.2019 The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: - Plan assets return (excluding net interest) The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: 31.12.2020 31.12.2019 Accumulated actuarial losses recognized in other comprehensive income at the end of the period 583 396 705 596 The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: Other Current service cost Net interest Current service cost Cost with post-employment benefits Net interest Cost with post-employment benefits Current service cost Net interest Cost with post-employment benefits 705 596 99 466 22 734 583 396 122 794 ( 16 804) (in thousand of Euros) 36 - (in thousand of Euros) 31.12.2020 31.12.2019 (in thousand of Euros) 3 625 31.12.2020 4 375 31.12.2019 3 625 432 3 943 432 4 375 3 943 432 3 943 4 375 - 3 625 3 625 - - 3 625 3 625 - 334- - 334- - 334- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES - - 107 166 107 166 60 832 (in thousands of Euros) 287 877 1 659 246 60 832 31.12.2019 63 630 75 851 31.12.2020 31.12.2019 63 630 31.12.2020 (in thousands of Euros) 75 851 31.12.2019 75 851 477 370 (in thousands of Euros) 31.12.2020 31.12.2019 99 466 22 734 - 583 396 705 596 99 466 22 734 - 122 794 ( 16 804) 36 477 370 583 396 122 794 ( 16 804) 36 NOVO BANCO (in thousands of Euros) NOVO BANCO 31.12.2019 1 615 249 107 384 (in thousands of Euros) 27 496 31.12.2019 79 888 - 1 615 249 2 605 107 384 ( 68 896) 27 496 - 79 888 2 904 1 659 246 2 605 ( 68 896) - - 2 904 31.12.2020 1 659 246 46 131 19 482 31.12.2020 26 649 266 834 1 659 246 2 577 46 131 ( 72 200) 19 482 ( 35 523) 26 649 912 266 834 1 867 977 2 577 ( 72 200) ( 35 523) 912 The evolution of the value of the pension funds can be analyzed as follows: Fair value of fund assets at beginning of exercise Net return from the fund The evolution of the value of the pension funds can be analyzed as follows: - Share of the net interest on the assets - Return on assets excluding net interest Group contributions Fair value of fund assets at beginning of exercise Plan participants’ contributions Net return from the fund Pensions paid by the fund / transfers and once-off bonuses Transfer to Undivided Party - Share of the net interest on the assets Foreign exchange differences and other - Return on assets excluding net interest Group contributions Fund balance at the end of the year Plan participants’ contributions Pensions paid by the fund / transfers and once-off bonuses Transfer to Undivided Party The assets of the pension funds can be analyzed as follows: Foreign exchange differences and other Fund balance at the end of the year Equity instruments The assets of the pension funds can be analyzed as follows: Debt instruments Investment funds Structured debt Derivatives Equity instruments Real estate properties Debt instruments Cash and cash equivalents Investment funds Total Structured debt Derivatives 31.12.2020 Unquoted Quoted 39 034 1 093 577 1 867 977 31.12.2019 (in thousands of Euros) 1 659 246 Total Quoted Unquoted Total 162 928 1 000 530 59 309 222 237 - (in thousands of Euros) 1 000 530 306 217 31.12.2020 66 761 201 927 31.12.2019 52 836 254 763 Quoted - Unquoted Total - Quoted 5 984 Unquoted 7 733 Total 13 717 - - - - - 115 855 - 246 533 66 761 429 149 - - 39 034 1 093 577 372 978 39 034 - 115 855 1 093 577 246 533 372 978 1 867 977 - - 39 034 - 1 093 577 - - 306 217 1 438 828 - - 162 928 - 1 000 530 - - 201 927 1 371 369 5 984 59 309 1 222 237 1 107 166 - 107 166 1 000 530 60 832 52 836 60 832 254 763 287 877 7 733 1 659 246 13 717 - 1 1 The assets of the pension funds used by the Bank or representative of securities issued by the Bank are detailed as follows: - - 115 855 246 533 115 855 246 533 1 438 828 429 149 1 867 977 1 371 369 31.12.2020 Real estate properties Cash and cash equivalents Total Real estate properties The assets of the pension funds used by the Bank or representative of securities issued by the Bank are detailed as follows: The evolution of the actuarial gains in the balance sheet can be analysed as follows: 63 630 Total (in thousands of Euros) 75 851 The evolution of the actuarial gains in the balance sheet can be analysed as follows: Real estate properties Total Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period 63 630 583 396 Actuarial (gains) / losses in the period: The evolution of the actuarial gains in the balance sheet can be analysed as follows: - Changes in assumptions - Financial assumptions - Plan assets return (excluding net interest) Other Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period Accumulated actuarial losses recognized in other comprehensive income at the end of the period Actuarial (gains) / losses in the period: - Changes in assumptions - Financial assumptions - Plan assets return (excluding net interest) The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: Other (in thousand of Euros) Accumulated actuarial losses recognized in other comprehensive income at the end of the period The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: Current service cost Net interest The costs of retirement pensions and health benefits for the years ended 31 December 2020 and 2019 can be analyzed as follows: (in thousand of Euros) 432 3 943 - 3 625 31.12.2020 31.12.2019 583 396 705 596 Cost with post-employment benefits 4 375 3 625 Current service cost Net interest Cost with post-employment benefits 31.12.2020 31.12.2019 432 3 943 4 375 - 3 625 3 625 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES The evolution of net assets/ (liabilities) on balance sheet may be analyzed as follows: The evolution of net assets/ (liabilities) on balance sheet may be analyzed as follows: 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES At the beginning of the exercise Cost for period Actuarial gains / (losses) recognized in other comprehensive income The evolution of net assets/ (liabilities) on balance sheet may be analyzed as follows: Contributions made in the period Undivided transfer and reduction of responsabilities Other 31.12.2020 ( 152 280) ( 4 375) ( 122 200) 266 834 19 156 ( 31 827) 31.12.2020 NOVO BANCO - 334- (in thousands of Euros) 31.12.2019 - 334- NOVO BANCO ( 26 715) ( 3 625) ( 106 026) - - ( 15 914) 31.12.2019 (in thousands of Euros) At the end of the exercise At the beginning of the exercise ( 24 692) ( 152 280) ( 152 280) ( 26 715) Cost for period In 2020, the value of early retirements was Euro 31.6 million (31 December 2019: Euro 15.7 million), which fall within the bank's Actuarial gains / (losses) recognized in other comprehensive income restructuring process and, as such, they were recognized against the use of the provision for restructuring (see Note 30). These Contributions made in the period amounts are considered in Others in the previous table. Undivided transfer and reduction of responsabilities In 2020, the value of early retirements was Euro 31.6 million (31 December 2019: Euro 15.7 million), which fall within the Other The summary of the last five years of the funds' liabilities and balance, as well as experience gains and losses, is analyzed as follows: bank's restructuring process and, as such, they were recognized against the use of the provision for restructuring (see At the end of the exercise (in thousands of Euros) Note 30). These amounts are considered in Others in the previous table. In 2020, the value of early retirements was Euro 31.6 million (31 December 2019: Euro 15.7 million), which fall within the bank's Retirement pension liabilities restructuring process and, as such, they were recognized against the use of the provision for restructuring (see Note 30). These The summary of the last five years of the funds' liabilities and balance, as well as experience gains and losses, is analyzed amounts are considered in Others in the previous table. Funds balance as follows: (Under) / overfunding of liabilities The summary of the last five years of the funds' liabilities and balance, as well as experience gains and losses, is analyzed as follows: (in thousands of Euros) ( 4 375) ( 122 200) 266 834 19 156 ( 31 827) ( 3 625) ( 106 026) - - ( 15 914) ( 152 280) ( 24 692) (1 542 016) (1 892 669) (1 629 305) (1 811 526) (1 641 964) 1 614 543 1 867 977 1 659 246 1 523 694 1 615 249 ( 152 280) ( 18 322) ( 24 692) ( 26 715) ( 14 762) 31.12.2017 31.12.2019 31.12.2018 31.12.2020 31.12.2016 (Gains) / losses on experience adjustments in retirement pension liabilities (Gains) / losses on experience adjustments in plan assets Retirement pension liabilities 49 383 31.12.2020 ( 26 649) (1 892 669) 63 084 31.12.2019 ( 79 888) (1 811 526) 18 400 31.12.2018 52 175 (1 641 964) 14 859 31.12.2017 ( 91 005) (1 629 305) 11 667 31.12.2016 42 118 (1 542 016) Funds balance 1 867 977 1 659 246 1 615 249 1 614 543 1 523 694 The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2019: approximately 16 years). The (Under) / overfunding of liabilities following table shows the temporal detail of the estimated benefits to be paid: (Gains) / losses on experience adjustments in retirement pension liabilities ( 152 280) ( 18 322) ( 24 692) ( 14 762) ( 26 715) 49 383 14 859 63 084 18 400 (Gains) / losses on experience adjustments in plan assets ( 26 649) ( 79 888) Up to 1 year From 1 to 2 years 52 175 From 2 to 5 years ( 91 005) 11 667 (in thousands of Euros) More than 5 42 118 years Estimated amount of benefits payable The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2019: approximately 16 years). The following table shows the temporal detail of the estimated benefits to be paid: Career bonuses (in thousands of Euros) As at 31 December 2020, the liabilities assumed by the Bank amounted to Euro 7,465 thousand, corresponding to the liabilities for More than 5 past services subjacent to the career bonuses, as described in Note 2.14 – Employee benefits (31 December 2019: Euro 6,981 years thousand) (see Note 31). Estimated amount of benefits payable As at 31 December 2020, the costs recognized with career bonuses were Euro 944 thousand (31 December 2019: Euro 849 From 2 to 5 years From 1 to 2 years Up to 1 year 1 856 158 1 856 158 219 739 219 739 73 018 73 253 73 018 73 253 402 thousand) (see Note 14). Career bonuses thousand) (see Note 31). thousand) (see Note 14). As at 31 December 2020, the liabilities assumed by the Bank amounted to Euro 7,465 thousand, corresponding to the liabilities for past services subjacent to the career bonuses, as described in Note 2.14 – Employee benefits (31 December 2019: Euro 6,981 As at 31 December 2020, the costs recognized with career bonuses were Euro 944 thousand (31 December 2019: Euro 849 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 335- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 335- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE The evolution of net assets/ (liabilities) on balance sheet may be analyzed as follows: At the beginning of the exercise Cost for period Actuarial gains / (losses) recognized in other comprehensive income Contributions made in the period Undivided transfer and reduction of responsabilities Other At the end of the exercise NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 ( 152 280) ( 4 375) ( 122 200) 266 834 19 156 ( 31 827) ( 26 715) ( 3 625) ( 106 026) - - ( 15 914) ( 24 692) ( 152 280) In 2020, the value of early retirements was Euro 31.6 million (31 December 2019: Euro 15.7 million), which fall within the bank's restructuring process and, as such, they were recognized against the use of the provision for restructuring (see Note 30). These amounts are considered in Others in the previous table. The summary of the last five years of the funds' liabilities and balance, as well as experience gains and losses, is analyzed as follows: Retirement pension liabilities Funds balance 31.12.2020 31.12.2019 31.12.2018 31.12.2017 31.12.2016 (in thousands of Euros) (1 892 669) (1 811 526) (1 641 964) (1 629 305) (1 542 016) 1 867 977 1 659 246 1 615 249 1 614 543 1 523 694 (Under) / overfunding of liabilities ( 24 692) ( 152 280) ( 26 715) ( 14 762) ( 18 322) (Gains) / losses on experience adjustments in retirement pension liabilities 49 383 63 084 (Gains) / losses on experience adjustments in plan assets ( 26 649) ( 79 888) 18 400 52 175 14 859 ( 91 005) 11 667 42 118 The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2019: approximately 16 years). The following table shows the temporal detail of the estimated benefits to be paid: The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2019: approximately 16 years). The following table shows the temporal detail of the estimated benefits to be paid: Up to 1 year From 1 to 2 years From 2 to 5 years (in thousands of Euros) More than 5 years Estimated amount of benefits payable 73 018 73 253 219 739 1 856 158 Career bonuses As at 31 December 2020, the liabilities assumed by the Bank amounted to Euro 7,465 thousand, corresponding to the liabilities for past services subjacent to the career bonuses, as described in Note 2.14 – Employee benefits (31 December 2019: Euro 6,981 Career bonuses thousand) (see Note 31). As at 31 December 2020, the liabilities assumed by the Bank amounted to Euro 7,465 thousand, corresponding to As at 31 December 2020, the costs recognized with career bonuses were Euro 944 thousand (31 December 2019: Euro 849 the liabilities for past services subjacent to the career bonuses, as described in Note 2.14 – Employee benefits (31 thousand) (see Note 14). December 2019: Euro 6,981 thousand) (see Note 31). As at 31 December 2020, the costs recognized with career bonuses were Euro 944 thousand (31 December 2019: Euro 849 thousand) (see Note 14). NOTE 16 – Other administrative expenses NOTE 16 – OTHER ADMINISTRATIVE EXPENSES The breakdown of this caption is as follows: The breakdown of this caption is as follows: NOTE 16 – OTHER ADMINISTRATIVE EXPENSES NOVO BANCO NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019* The breakdown of this caption is as follows: Rentals Advertising Communication Maintenance and repairs expenses Travelling and representation Rentals Transportation of valuables Advertising Insurance Communication IT services Maintenance and repairs expenses Independent work Travelling and representation Temporary work Transportation of valuables Electronic payment systems Insurance Legal costs IT services Consultancy and audit fees Independent work Water, energy and fuel Temporary work Consumables Electronic payment systems Other costs Legal costs Consultancy and audit fees Water, energy and fuel Consumables Other costs (in thousands of Euros) 31.12.2020 31.12.2019* 2 246 5 799 9 360 8 523 1 210 2 246 4 354 5 799 3 020 9 360 43 196 8 523 2 080 1 210 1 287 4 354 10 593 3 020 4 699 43 196 23 589 2 080 3 053 1 287 1 404 10 593 19 618 4 699 144 031 23 589 3 053 1 404 19 618 144 031 2 986 7 380 9 212 8 750 2 754 2 986 4 063 7 380 2 517 9 212 43 499 8 750 3 015 2 754 1 477 4 063 9 773 - 335- 2 517 6 874 43 499 23 625 3 015 3 543 1 477 1 468 9 773 22 061 6 874 152 997 23 625 3 543 1 468 22 061 152 997 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The Other costs item includes, among others, training costs and costs with services provided by the Complementary Groupings of Companies (CGC) in which NOVO BANCO participates. * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The Other costs item includes, among others, training costs and costs with services provided by the Complementary The rental and rental caption includes, on 31 December 2020, an amount of Euro 196 thousand related to short-term operating lease Groupings of Companies (CGC) in which NOVO BANCO participates. contracts, as described in note 2.13. The Other costs item includes, among others, training costs and costs with services provided by the Complementary Groupings of Companies (CGC) in which NOVO BANCO participates. The fees invoiced during financial years 2020 and 2019 by the Statutory Audit Firm, according to that laid down in article 508-F of the The rental and rental caption includes, on 31 December 2020, an amount of Euro 196 thousand related to short-term Portuguese Companies Code (Código das Sociedades Comerciais), have the following breakdown: operating lease contracts, as described in note 2.13. The rental and rental caption includes, on 31 December 2020, an amount of Euro 196 thousand related to short-term operating lease contracts, as described in note 2.13. The fees invoiced during financial years 2020 and 2019 by the Statutory Audit Firm, according to that laid down in The fees invoiced during financial years 2020 and 2019 by the Statutory Audit Firm, according to that laid down in article 508-F of the article 508-F of the Portuguese Companies Code (Código das Sociedades Comerciais), have the following breakdown: Portuguese Companies Code (Código das Sociedades Comerciais), have the following breakdown: (in thousands of Euros) 31.12.2019 31.12.2020 Statutory audit of annual accounts Other reliability assurance services Other services 2 176 327 411 1 471 947 - Valor total dos serviços faturados Statutory audit of annual accounts Other reliability assurance services Other services NOTE 17 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES Valor total dos serviços faturados This caption on 31 December 2020 and 2019 is analyzed as follows: 2 914 31.12.2020 (in thousands of Euros) 31.12.2019 2 418 2 176 327 411 2 914 1 471 947 - 2 418 NOTE 17 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES Contribution to the Fundo Único de Resolução 403 Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos This caption on 31 December 2020 and 2019 is analyzed as follows: 31.12.2020 22 201 12 528 37 (In thousands of Euros) 31.12.2019* 22 412 11 996 40 (In thousands of Euros) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Contribution to the Fundo Único de Resolução Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 22 201 12 528 37 34 766 22 412 11 996 40 34 448 31.12.2020 34 766 31.12.2019* 34 448 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 336- - 336- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOTE 16 – OTHER ADMINISTRATIVE EXPENSES The breakdown of this caption is as follows: Rentals Advertising Communication Maintenance and repairs expenses Travelling and representation Transportation of valuables Insurance IT services Independent work Temporary work Electronic payment systems Legal costs Consultancy and audit fees Water, energy and fuel Consumables Other costs NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019* 2 246 5 799 9 360 8 523 1 210 4 354 3 020 43 196 2 080 1 287 10 593 4 699 23 589 3 053 1 404 19 618 2 986 7 380 9 212 8 750 2 754 4 063 2 517 43 499 3 015 1 477 9 773 6 874 23 625 3 543 1 468 22 061 144 031 152 997 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 The Other costs item includes, among others, training costs and costs with services provided by the Complementary Groupings of Companies (CGC) in which NOVO BANCO participates. The rental and rental caption includes, on 31 December 2020, an amount of Euro 196 thousand related to short-term operating lease contracts, as described in note 2.13. The fees invoiced during financial years 2020 and 2019 by the Statutory Audit Firm, according to that laid down in article 508-F of the Portuguese Companies Code (Código das Sociedades Comerciais), have the following breakdown: 31.12.2020 (in thousands of Euros) 31.12.2019 Statutory audit of annual accounts Other reliability assurance services Other services NOTE 17 – Contributions to resolution funds and deposit guarantee Valor total dos serviços faturados 2 914 2 418 2 176 327 411 1 471 947 - NOTE 17 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES This caption on 31 December 2020 and 2019 is analyzed as follows: This caption on 31 December 2020 and 2019 is analyzed as follows: Contribution to the Fundo Único de Resolução Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos (In thousands of Euros) 31.12.2020 31.12.2019* 22 201 12 528 37 34 766 22 412 11 996 40 34 448 * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 NOTE 18 – Earnings per share NOTE 18 – EARNINGS PER SHARE Basic earnings per share Basic earnings per share The basic earnings per share are calculated dividing the net profit attributable to the shareholders of the Bank by the The basic earnings per share are calculated dividing the net profit attributable to the shareholders of the Bank by the weighted average weighted average number of ordinary shares in circulation during the financial year / period. number of ordinary shares in circulation during the financial year / period. NOVO BANCO Net profit / (loss) attributable to shareholder of the Bank Weighted average number of common shares outstanding (thousands) Basic earnings per share attributable to shareholders of NOVO BANCO (in Euros) 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Basic earnings per share from continuing activities attributable to shareholders of NOVO BANCO (in Euros) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 (In thousands of Euros) 31.12.2020 31.12.2019* (1 374 246) (1 087 584) 9 800 000 9 800 000 (0,14) (0,14) (0,11) - 336- (0,10) Diluted earnings per share The diluted earnings per share are calculated considering the net profit attributable to the shareholders of the Bank and the weighted average number of ordinary shares in circulation, adjusted for the effects of all potential dilutive ordinary shares. Diluted earnings per share The diluted earnings per share do not differ from the basic earnings per share, since there are no dilutive effects. The diluted earnings per share are calculated considering the net profit attributable to the shareholders of the Bank and the weighted average number of ordinary shares in circulation, adjusted for the effects of all potential dilutive ordinary shares. NOTE 19 – CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS As at 31 December 2020 and 2019, this caption is analysed as follows: The diluted earnings per share do not differ from the basic earnings per share, since there are no dilutive effects. (in thousands of Euros) 31.12.2020 31.12.2019 Cash Demand Deposits in central banks NOTE 19 – Cash, cash balances at central banks and other demand deposits Bank of Portugal Other Central Banks 2 289 339 3 458 142 325 174 156 1 387 250 21 658 As at 31 December 2020 and 2019, this caption is analysed as follows: Deposits in other credit institutions in the country Repayable on demand Uncollected checks Deposits with banks abroad Repayable on demand 2 292 797 1 408 908 13 250 50 994 64 244 25 502 25 502 11 850 50 915 62 765 28 997 28 997 2 524 868 1 674 826 The caption Demand Deposits with Bank of Portugal includes mandatory deposits to comply with the minimum legal cash reserve requirements in an amount of Euro 251.8 million (31 December 2019: Euro 237,8 million). According to the European Central Bank Regulation (EU) No. 1358/2011, of 14 December 2011, minimum cash requirements of demand deposits with Bank of Portugal are interest-bearing and correspond to 1% of the deposits and debt certificates maturing in less than 2 years, after excluding from these the deposits of institutions subject to the European System of Central Banks minimum reserve requirements. As at 31 December 2020 and 2019, the average interest rate on these deposits was null. 404 Compliance with minimum cash requirements, for a given observation period, is monitored taking into account the average amount of the deposits with Bank of Portugal over said period. The balance of the account with Bank of Portugal as at 31 December 2020 was included in the observation period running from 16 December 2020 to 26 January 2021. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 337- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO (In thousands of Euros) 31.12.2020 31.12.2019* (1 374 246) (1 087 584) 9 800 000 9 800 000 (0,14) (0,14) (0,11) (0,10) NOTE 18 – EARNINGS PER SHARE Basic earnings per share The basic earnings per share are calculated dividing the net profit attributable to the shareholders of the Bank by the weighted average number of ordinary shares in circulation during the financial year / period. Net profit / (loss) attributable to shareholder of the Bank Weighted average number of common shares outstanding (thousands) Basic earnings per share attributable to shareholders of NOVO BANCO (in Euros) Basic earnings per share from continuing activities attributable to shareholders of NOVO BANCO (in Euros) * Pro-forma considering the transfer of the Spanish Branch to discontinued operations, which occurred in the third quarter of 2020 Diluted earnings per share The diluted earnings per share are calculated considering the net profit attributable to the shareholders of the Bank and the weighted average number of ordinary shares in circulation, adjusted for the effects of all potential dilutive ordinary shares. The diluted earnings per share do not differ from the basic earnings per share, since there are no dilutive effects. NOTE 19 – CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS As at 31 December 2020 and 2019, this caption is analysed as follows: Cash Demand Deposits in central banks Bank of Portugal Other Central Banks Deposits in other credit institutions in the country Repayable on demand Uncollected checks Deposits with banks abroad Repayable on demand (in thousands of Euros) 31.12.2020 31.12.2019 142 325 174 156 2 289 339 3 458 1 387 250 21 658 2 292 797 1 408 908 13 250 50 994 64 244 25 502 25 502 11 850 50 915 62 765 28 997 28 997 2 524 868 1 674 826 The caption Demand Deposits with Bank of Portugal includes mandatory deposits to comply with the minimum legal cash reserve requirements in an amount of Euro 251.8 million (31 December 2019: Euro 237,8 million). According to the European Central Bank Regulation (EU) No. 1358/2011, of 14 December 2011, minimum cash requirements of demand deposits with Bank of Portugal are interest-bearing and correspond to 1% of the deposits and debt certificates maturing in less than 2 years, after excluding from these The caption Demand Deposits with Bank of Portugal includes mandatory deposits to comply with the minimum legal the deposits of institutions subject to the European System of Central Banks minimum reserve requirements. As at 31 December cash reserve requirements in an amount of Euro 251.8 million (31 December 2019: Euro 237,8 million). According to the 2020 and 2019, the average interest rate on these deposits was null. European Central Bank Regulation (EU) No. 1358/2011, of 14 December 2011, minimum cash requirements of demand Compliance with minimum cash requirements, for a given observation period, is monitored taking into account the average amount deposits with Bank of Portugal are interest-bearing and correspond to 1% of the deposits and debt certificates maturing of the deposits with Bank of Portugal over said period. The balance of the account with Bank of Portugal as at 31 December 2020 in less than 2 years, after excluding from these the deposits of institutions subject to the European System of Central was included in the observation period running from 16 December 2020 to 26 January 2021. Banks minimum reserve requirements. As at 31 December 2020 and 2019, the average interest rate on these deposits was null. Compliance with minimum cash requirements, for a given observation period, is monitored taking into account the average amount of the deposits with Bank of Portugal over said period. The balance of the account with Bank of Portugal as at 31 December 2020 was included in the observation period running from 16 December 2020 to 26 January 2021. NOVO BANCO NOTE 20 – Financial assets and liabilities held for trading 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES NOTE 20 – FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING - 337- As at 31 December 2020 and 2019, this caption is analysed as follows: As at 31 December 2020 and 2019, this caption is analysed as follows: Financial assets held for trading Securities Securities held for trading Bonds and other fixed income securities Issued by government and public entities Derivatives Derivatives held for trading with positive fair value Fair value option derivatives with positive fair value Financial liabilities held for trading Derivatives Derivatives held for trading with negative fair value Securities held for trading (in thousands of Euros) 31.12.2020 31.12.2019 267 016 267 016 388 311 - 388 311 655 327 254 848 254 848 419 895 74 093 493 988 748 836 554 343 554 343 544 400 544 400 In accordance with the accounting policy described in Note 2.4, securities held for trading are those acquired to be traded in the short- term regardless of their maturity. As at 31 December 2020 and 2019, the analysis of the securities held for trading, by maturity, is as follows 405 From one to five years More than five years (in thousands of Euros) 31.12.2020 31.12.2019 3 734 263 282 267 016 117 227 137 621 254 848 A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 37. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 338- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOTE 20 – FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING As at 31 December 2020 and 2019, this caption is analysed as follows: Financial assets held for trading Securities Securities held for trading Bonds and other fixed income securities Issued by government and public entities Derivatives Derivatives held for trading with positive fair value Fair value option derivatives with positive fair value Financial liabilities held for trading Derivatives Derivatives held for trading with negative fair value Securities held for trading NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 267 016 267 016 388 311 - 388 311 655 327 254 848 254 848 419 895 74 093 493 988 748 836 554 343 554 343 544 400 544 400 In accordance with the accounting policy described in Note 2.4, securities held for trading are those acquired to be Securities held for trading traded in the short-term regardless of their maturity. In accordance with the accounting policy described in Note 2.4, securities held for trading are those acquired to be traded in the short- term regardless of their maturity. As at 31 December 2020 and 2019, the analysis of the securities held for trading, by maturity, is as follows As at 31 December 2020 and 2019, the analysis of the securities held for trading, by maturity, is as follows From one to five years More than five years (in thousands of Euros) 31.12.2020 31.12.2019 3 734 263 282 267 016 117 227 137 621 254 848 A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 37. A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 37. NOVO BANCO Derivatives Derivatives As at 31 December 2020 and 2019, this caption is analysed as follows: As at 31 December 2020 and 2019, this caption is analysed as follows: 31.12.2020 (in thousands of Euros) 31.12.2019 Notional Fair value Asset Liabilities Notional Fair value Asset Liabilities 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 578 826 562 420 1 010 248 1 010 906 21 390 21 390 168 095 167 870 6 758 221 6 759 223 - - 89 767 165 221 30 467 30 467 662 425 684 421 2 399 2 399 23 668 7 893 1 499 5 488 21 363 21 363 10 743 10 706 702 690 704 147 1 060 009 1 065 566 22 951 22 947 219 866 192 493 5 307 5 574 1 230 540 21 875 21 870 6 240 5 836 57 273 45 450 34 652 33 820 318 578 499 616 - - 1 084 3 961 7 391 231 7 392 292 400 000 - 93 846 91 073 349 152 499 562 2 821 1 177 - 338- 966 893 319 662 503 577 352 939 501 632 2 337 2 204 9 039 11 376 3 096 5 300 - - 16 16 152 294 152 294 710 616 742 699 2 883 2 883 3 988 3 739 28 315 32 303 5 167 8 906 1 1 42 42 388 311 554 343 419 895 544 400 Trading derivatives Exchange rate contracts Forward - acquisition - sales Currency Swaps - acquisition - sales Currency Interest Rate Swaps - acquisition - sales Currency Options - acquisition - sales Interest rate contracts Interest Rate Swaps - acquisition - sales Swaption - Interest Rate Options - acquisition - sales Interest Rate Caps & Floors - acquisition - sales Stock / index contracts Equity / Index Swaps - acquisition - sales Equity / Index Options - acquisition - sales Default risk contracts Credit Default Swaps - acquisition - sales Economic hedge derivatives Interest rate contracts Interest Rate Swaps - acquisition - sales - - - - 171 371 171 371 - - 74 093 74 093 - - a) Derivatives traded on organized markets, the market value of which is settled daily against the margin account (see Note 31) Fair value option derivatives include instruments designed to manage the risk associated with certain financial assets and liabilities designated at fair value through profit or loss, in accordance with the accounting policy described in Notes 2.3 and 2.6, and which the Bank has not designated for hedge accounting. 406 The Bank calculates the Credit Valuation Adjustment (CVA) for derivative instruments in accordance with the following methodology: (i) Portfolio basis – the calculation of the CVA corresponds to the application, to the aggregate exposure of each counterpart, of an expected loss and a recovery rate, considering the average duration period estimated for each exposure; (ii) Individual basis – the calculation of the CVA on an individual basis is based on the determination of the exposure using stochastic methods (Expected Positive Exposure) which translates into the calculation of the expected fair value exposure that each derivative is likely to assume over its remaining life. Subsequently, are applied to the exposure determined, an expected loss and a recovery rate. In 2020, the Bank recognized a loss of Euro 289 thousand related to the CVA of derivative instruments (31 December 2019: loss of Euro 1,403 thousand). The Bank chooses not to register the Debt Valuation Adjustment (DVA), that represents the market value of Bank own credit risk of a specific negative exposure to a counterparty, reflecting a prudent perspective of application of this regulation. It should be noted that the exposure potentially subject to DVA is controlled on a monthly basis and has assumed immaterial values. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 339- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Fair value option derivatives include instruments designed to manage the risk associated with certain financial assets and liabilities designated at fair value through profit or loss, in accordance with the accounting policy described in Notes 2.3 and 2.6, and which the Bank has not designated for hedge accounting. The Bank calculates the Credit Valuation Adjustment (CVA) for derivative instruments in accordance with the following methodology: (i) Portfolio basis – the calculation of the CVA corresponds to the application, to the aggregate exposure of each counterpart, of an expected loss and a recovery rate, considering the average duration period estimated for each exposure; (ii) Individual basis – the calculation of the CVA on an individual basis is based on the determination of the exposure using stochastic methods (Expected Positive Exposure) which translates into the calculation of the expected fair value exposure that each derivative is likely to assume over its remaining life. Subsequently, are applied to the exposure determined, an expected loss and a recovery rate. In 2020, the Bank recognized a loss of Euro 289 thousand related to the CVA of derivative instruments (31 December 2019: loss of Euro 1,403 thousand). The Bank chooses not to register the Debt Valuation Adjustment (DVA), that represents the market value of Bank own credit risk of a specific negative exposure to a counterparty, reflecting a prudent perspective of application of this regulation. It should be noted that the exposure potentially subject to DVA is controlled on a monthly basis and has NOVO BANCO assumed immaterial values. As at 31 December 2020 and 2019, the analysis of the derivatives held for trading by maturity period is as follows: As at 31 December 2020 and 2019, the analysis of the derivatives held for trading by maturity period is as follows: Derivatives held for negotiation Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Fair value option derivatives More than 5 years 31.12.2020 Notional Assets Liabilities Fair Value (net) (in thousands of Euros) 31.12.2019 Notional Assets Liabilities Fair Value (net) 1 596 056 821 366 2 329 447 4 574 969 9 321 838 1 596 370 805 003 2 347 986 4 654 958 9 404 317 32 8 725 ( 23 383) ( 151 406) ( 166 032) 2 094 166 1 053 257 2 110 078 5 498 885 10 756 386 1 923 639 843 825 2 097 178 5 501 752 10 366 394 ( 647) 16 408 1 526 ( 141 792) ( 124 505) - - - - - - 171 371 171 371 171 371 171 371 74 093 74 093 Credit Support Annex (CSA) NOVO BANCO has several contracts negotiated with counterparties with which it trades derivatives on the Over-the-counter market. The CSAs take the form of collateral agreements established between two parties negotiating over-the-counter derivatives with each Credit Support Annex (CSA) other, with the main objective of providing protection against credit risk, defining for that purpose rules regarding collateral. Derivative transactions are regulated by the International Swaps and Derivatives Association (ISDA) and have minimum risk margin that may NOVO BANCO has several contracts negotiated with counterparties with which it trades derivatives on the Over-the- change according to the ratings of the parties. counter market. The CSAs take the form of collateral agreements established between two parties negotiating over- the-counter derivatives with each other, with the main objective of providing protection against credit risk, defining for NOTE 21 – FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, DESIGNATED AT FAIR that purpose rules regarding collateral. Derivative transactions are regulated by the International Swaps and Derivatives VALUE THROUGH PROFIT OR LOSS, AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME AND AT AMORTISED Association (ISDA) and have minimum risk margin that may change according to the ratings of the parties. COST As at 31 December 2020 and 2019, this caption is analysed as follows: NOTE 21 – Financial assets mandatorily at fair value through profit or loss, designated at fair value through profit or loss, at fair value through other comprehensive income and at amortised cost Fair value through other comprehensive income Mandatorily at fair value through profit and loss Loans and advances to customers Loans and advances to banks Fair value changes * Amortised cost 31.12.2020 21 685 258 Securities 2 445 605 2 873 753 7 813 584 245 472 59 847 1 129 Total 21 745 105 13 134 071 245 472 - - - - - 2 445 605 7 813 584 24 804 483 60 976 35 124 648 (in thousands of Euros) * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 22) As at 31 December 2020 and 2019, this caption is analysed as follows: 407 Securities Loans and advances to banks Loans and advances to customers Mandatorily at fair value through profit and loss Fair value through other comprehensive income Amortised cost Fair value changes * Total 31.12.2019 (in thousands of Euros) 3 044 724 8 758 131 - - - - 2 392 843 495 252 23 154 148 - - 49 884 14 195 698 495 252 23 204 032 3 044 724 8 758 131 26 042 243 49 884 37 894 982 * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 22) 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 340- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO As at 31 December 2020 and 2019, the analysis of the derivatives held for trading by maturity period is as follows: Derivatives held for negotiation Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Fair value option derivatives More than 5 years 31.12.2020 Notional 31.12.2019 Notional Assets Liabilities Assets Liabilities Fair Value (net) Fair Value (net) (in thousands of Euros) 1 596 056 821 366 2 329 447 4 574 969 9 321 838 1 596 370 805 003 2 347 986 4 654 958 9 404 317 32 8 725 ( 23 383) ( 151 406) ( 166 032) 2 094 166 1 053 257 2 110 078 5 498 885 1 923 639 843 825 2 097 178 5 501 752 10 756 386 10 366 394 ( 647) 16 408 1 526 ( 141 792) ( 124 505) - - - - - - 171 371 171 371 171 371 171 371 74 093 74 093 Credit Support Annex (CSA) NOVO BANCO has several contracts negotiated with counterparties with which it trades derivatives on the Over-the-counter market. The CSAs take the form of collateral agreements established between two parties negotiating over-the-counter derivatives with each other, with the main objective of providing protection against credit risk, defining for that purpose rules regarding collateral. Derivative transactions are regulated by the International Swaps and Derivatives Association (ISDA) and have minimum risk margin that may change according to the ratings of the parties. NOTE 21 – FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS, AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME AND AT AMORTISED COST As at 31 December 2020 and 2019, this caption is analysed as follows: Securities Loans and advances to banks Loans and advances to customers Mandatorily at fair value through profit and loss Fair value through other comprehensive income Amortised cost Fair value changes * Total 31.12.2020 (in thousands of Euros) 2 445 605 7 813 584 - - - - 2 873 753 245 472 21 685 258 1 129 - 59 847 13 134 071 245 472 21 745 105 2 445 605 7 813 584 24 804 483 60 976 35 124 648 * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 22) Securities Loans and advances to banks Loans and advances to customers Mandatorily at fair value through profit and loss Fair value through other comprehensive income Amortised cost Fair value changes * Total 31.12.2019 (in thousands of Euros) 3 044 724 8 758 131 - - - - 2 392 843 495 252 23 154 148 - - 49 884 14 195 698 495 252 23 204 032 3 044 724 8 758 131 26 042 243 49 884 37 894 982 * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 22) Securities Securities As at 31 December 2020 and 2019, the detail of securities portfolio is as follows: As at 31 December 2020 and 2019, the detail of securities portfolio is as follows: Securities mandatorily at fair value through profit or loss Bonds and other fixed income securities From other issuers Shares 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Other securities with variable income Securities at fair value through other comprehensive income Bonds and other fixed income securities From public issuers From other issuers Shares Other variable income securities Securities at amortised cost Bonds and other fixed income securities From public issuers From other issuers Impairment Value adjustments for hedging operations for interest rate risk * * See note 22 NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 647 082 403 752 1 394 771 2 445 605 6 406 465 1 352 759 54 360 - 694 667 601 613 - 340- 1 748 444 3 044 724 7 027 343 1 661 538 69 248 2 7 813 584 8 758 131 415 192 2 661 021 ( 202 460) 2 873 753 1 129 459 260 2 093 737 ( 160 154) 2 392 843 - 13 134 071 14 195 698 The securities mandatorily accounted at fair value through profit or loss include the participation units held by the Bank in Restructuring Funds, which are accounted for in accordance with the accounting policy described in Note 2.4, based on the net book value disclosed by the Management Companies, which may be adjusted according to information, analyzes or independent evaluations deemed The securities mandatorily accounted at fair value through profit or loss include the participation units held by the Bank necessary to determine its fair value, in response to guidelines from the European Central Bank. in Restructuring Funds, which are accounted for in accordance with the accounting policy described in Note 2.4, based At the end of 2020, NOVO BANCO completed the independent assessment of the restructuring funds. These funds are “level 3” on the net book value disclosed by the Management Companies, which may be adjusted according to information, assets in accordance with the fair value hierarchy of IFRS 13 (quotations provided by third parties whose parameters used are not analyzes or independent evaluations deemed necessary to determine its fair value, in response to guidelines from the observable in the market), and NOVO BANCO requested an independent evaluation from an international consulting company in articulation with real estate consultancy companies. This work resulted in a market value of 498.8 million euros for the total investment European Central Bank. held in these assets, which led to the recording of a loss of 300.2 million euros in the financial year 2020 recorded in the item gains or losses on financial assets mandatorily accounted for at fair value through profit or loss (see Note 9). This assessment included the establishment of assumptions for the valuation of assets included in the funds, a discount at the level of the fund based on parameters equivalent to quoted funds and an appreciation of the potential evolution of the fund. 408 As at 31 December 2020 and 2019, the detail of the fair value securities through other comprehensive income is as follows: Bonds and other fixed income securities From public issuers Residents Non residents From other issuers Residents Non residents Shares Residents Non residents Other securities with variable income Residents Cost (1) Fair value reserve Positive Negative Balance sheet value Impairment reserves (in thousands of Euros) 6 050 592 2 571 260 3 479 332 1 286 344 29 605 1 256 739 407 319 331 888 75 431 2 2 356 115 125 602 230 513 68 749 107 68 642 12 548 11 330 1 218 - - ( 242) ( 242) ( 2 334) ( 2 334) - - ( 365 507) ( 296 014) ( 69 493) ( 2) ( 2) 6 406 465 2 696 862 3 709 603 1 352 759 27 378 1 325 381 54 360 47 204 7 156 - - ( 3 095) ( 1 405) ( 1 690) ( 565) ( 3) ( 562) - - - - - Balance as at 31 December 2020 7 744 257 437 412 ( 368 085) 7 813 584 ( 3 660) (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 341- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Securities As at 31 December 2020 and 2019, the detail of securities portfolio is as follows: Securities mandatorily at fair value through profit or loss Bonds and other fixed income securities From other issuers Shares Other securities with variable income Securities at fair value through other comprehensive income Bonds and other fixed income securities From public issuers From other issuers Shares Other variable income securities Securities at amortised cost Bonds and other fixed income securities From public issuers From other issuers Impairment Value adjustments for hedging operations for interest rate risk * NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 647 082 403 752 1 394 771 2 445 605 6 406 465 1 352 759 54 360 - 694 667 601 613 1 748 444 3 044 724 7 027 343 1 661 538 69 248 2 7 813 584 8 758 131 415 192 2 661 021 ( 202 460) 2 873 753 1 129 459 260 2 093 737 ( 160 154) 2 392 843 - 13 134 071 14 195 698 * See note 22 At the end of 2020, NOVO BANCO completed the independent assessment of the restructuring funds. These funds are “level 3” assets in accordance with the fair value hierarchy of IFRS 13 (quotations provided by third parties whose The securities mandatorily accounted at fair value through profit or loss include the participation units held by the Bank in Restructuring parameters used are not observable in the market), and NOVO BANCO requested an independent evaluation from an Funds, which are accounted for in accordance with the accounting policy described in Note 2.4, based on the net book value disclosed by the Management Companies, which may be adjusted according to information, analyzes or independent evaluations deemed international consulting company in articulation with real estate consultancy companies. This work resulted in a market necessary to determine its fair value, in response to guidelines from the European Central Bank. value of 498.8 million euros for the total investment held in these assets, which led to the recording of a loss of 300.2 million euros in the financial year 2020 recorded in the item gains or losses on financial assets mandatorily accounted At the end of 2020, NOVO BANCO completed the independent assessment of the restructuring funds. These funds are “level 3” assets in accordance with the fair value hierarchy of IFRS 13 (quotations provided by third parties whose parameters used are not for at fair value through profit or loss (see Note 9). This assessment included the establishment of assumptions for the observable in the market), and NOVO BANCO requested an independent evaluation from an international consulting company in valuation of assets included in the funds, a discount at the level of the fund based on parameters equivalent to quoted articulation with real estate consultancy companies. This work resulted in a market value of 498.8 million euros for the total investment held in these assets, which led to the recording of a loss of 300.2 million euros in the financial year 2020 recorded in the item gains funds and an appreciation of the potential evolution of the fund. or losses on financial assets mandatorily accounted for at fair value through profit or loss (see Note 9). This assessment included the establishment of assumptions for the valuation of assets included in the funds, a discount at the level of the fund based on parameters As at 31 December 2020 and 2019, the detail of the fair value securities through other comprehensive income is as equivalent to quoted funds and an appreciation of the potential evolution of the fund. follows: As at 31 December 2020 and 2019, the detail of the fair value securities through other comprehensive income is as follows: Bonds and other fixed income securities From public issuers Residents Non residents From other issuers Residents Non residents Shares Residents Non residents Other securities with variable income Residents Cost (1) Fair value reserve Positive Negative Balance sheet value Impairment reserves (in thousands of Euros) 6 050 592 2 571 260 3 479 332 1 286 344 29 605 1 256 739 407 319 331 888 75 431 2 2 356 115 125 602 230 513 68 749 107 68 642 12 548 11 330 1 218 - - ( 242) - ( 242) ( 2 334) ( 2 334) - ( 365 507) ( 296 014) ( 69 493) ( 2) ( 2) 6 406 465 2 696 862 3 709 603 1 352 759 27 378 1 325 381 54 360 47 204 7 156 - - ( 3 095) ( 1 405) ( 1 690) ( 565) ( 3) ( 562) - - - - - Balance as at 31 December 2020 7 744 257 437 412 ( 368 085) 7 813 584 ( 3 660) (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Cost (1) Fair value reserve Positive Negative NOVO BANCO (in thousands of Euros) Balance sheet value Impairment - 341- reserves Bonds and other fixed income securities From public issuers Residents Non residents From other issuers Residents Non residents Shares Residents Non residents Other securities with variable income Residents Non residents 6 705 039 3 125 170 3 579 869 1 575 607 33 212 1 542 395 424 304 348 161 76 143 2 2 - 322 996 157 397 165 599 87 363 20 711 66 652 19 795 18 614 1 181 2 - 2 ( 692) ( 490) ( 202) ( 1 432) - ( 1 432) ( 374 851) ( 311 371) ( 63 480) ( 2) ( 2) - 7 027 343 3 282 077 3 745 266 1 661 538 53 923 1 607 615 69 248 55 404 13 844 2 - 2 ( 4 476) ( 2 107) ( 2 369) ( 1 029) ( 8) ( 1 021) - - - - - - Balance as at 31 December 2019 8 704 952 430 156 ( 376 977) 8 758 131 ( 5 505) (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. The changes in the impairment reserves in fair value securities through other comprehensive income are presented as follows: Balance as at 31 December 2018 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2019 409 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2020 Balance as at 31 December 2018 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2019 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2020 Impairment movement of securities at fair value through other comprehensive income Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) 1 182 6 188 ( 1 725) ( 137) ( 3) 5 505 3 480 ( 5 022) ( 232) ( 64) 3 667 22 - ( 18) - ( 4) - 38 - ( 44) 6 - - - - - - - - - - - - 1 204 6 188 ( 1 743) ( 137) ( 7) 5 505 3 518 ( 5 022) ( 276) ( 58) 3 667 Impairment movement of securities at amortised cost Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) 3 970 57 283 131 072 192 325 14 394 636 822 ( 14 664) ( 640 167) - 58 ( 1) 37 11 256 716 961 ( 10 094) ( 682 995) ( 36) 296 ( 2) ( 318) 6 615 ( 7 247) ( 28 019) 1 10 533 ( 3 294) - ( 1) 657 831 ( 662 078) ( 28 020) 96 738 750 ( 696 383) ( 38) ( 23) 3 758 53 974 102 422 160 154 5 180 87 620 109 660 202 460 During the financial year of 2020, the Bank sold Euro 1 295.0 million of financial instruments classified at fair value through other comprehensive income (31 December 2019: Euro 3 730.0 million), with a gain of Euro 80.2 million (31 December 2019: gain of Euro 65.7 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 16.4 million that were transferred from revaluation reserves to sales reserves (31 December 2019: loss of Euro 4.9 million). Changes in impairment losses on amortised cost securities are as follows: 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 342- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Residents Non residents Bonds and other fixed income securities From public issuers Residents Non residents From other issuers Residents Non residents Shares Bonds and other fixed income securities Other securities with variable income From public issuers Residents Non residents Residents Non residents From other issuers Residents Residents Non residents Non residents Cost (1) Fair value reserve Positive Negative 322 996 157 397 ( 692) ( 490) NOVO BANCO (in thousands of Euros) Balance Impairment sheet value reserves NOVO BANCO (in thousands of Euros) 7 027 343 3 282 077 3 745 266 1 661 538 Balance 53 923 sheet value 1 607 615 ( 4 476) ( 2 107) ( 2 369) ( 1 029) Impairment ( 8) reserves ( 1 021) 165 599 Fair value reserve 87 363 20 711 66 652 ( 202) ( 1 432) - ( 1 432) Negative Positive 19 795 18 614 322 996 1 181 157 397 165 599 2 87 363 - 20 711 2 66 652 ( 374 851) ( 311 371) ( 692) ( 63 480) ( 490) ( 202) ( 2) ( 1 432) ( 2) - - ( 1 432) 69 248 55 404 7 027 343 13 844 3 282 077 3 745 266 2 1 661 538 - 53 923 2 1 607 615 - - ( 4 476) - ( 2 107) ( 2 369) - ( 1 029) - ( 8) - ( 1 021) 6 705 039 3 125 170 3 579 869 1 575 607 Cost (1) 33 212 1 542 395 424 304 348 161 6 705 039 76 143 3 125 170 3 579 869 2 1 575 607 2 33 212 - 1 542 395 ( 5 505) Balance as at 31 December 2019 - Shares The changes in the impairment reserves in fair value securities through other comprehensive income are presented as (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. - follows: - The changes in the impairment reserves in fair value securities through other comprehensive income are presented as follows: Other securities with variable income 8 758 131 69 248 55 404 13 844 8 704 952 424 304 348 161 76 143 ( 376 977) ( 374 851) ( 311 371) ( 63 480) 430 156 19 795 18 614 1 181 Residents Non residents 2 2 - 2 - 2 2 - 2 Impairment movement of securities at fair value through other comprehensive income 8 758 131 - (in thousands of Euros) - - ( 2) ( 2) - ( 376 977) 430 156 ( 5 505) Total Balance as at 31 December 2019 8 704 952 (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. Stage 1 Stage 2 Stage 3 Balance as at 31 December 2018 The changes in the impairment reserves in fair value securities through other comprehensive income are presented as follows: 1 182 22 - 1 204 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2019 Balance as at 31 December 2018 Increases due to changes in credit risk Increases due to changes in credit risk Decreases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Utilization during the period Other movements Other movements Balance as at 31 December 2020 Balance as at 31 December 2019 6 188 ( 1 725) ( 137) ( 3) - ( 18) - ( 4) Impairment movement of securities at fair value through other comprehensive income 6 188 (in thousands of Euros) ( 1 743) ( 137) ( 7) - - - - Total Stage 1 Stage 2 Stage 3 5 505 1 182 3 480 6 188 ( 5 022) ( 1 725) ( 232) ( 137) ( 64) ( 3) 3 667 5 505 - 22 38 - - ( 18) ( 44) - 6 ( 4) - - - - - - - - - - - - - - 5 505 1 204 3 518 6 188 ( 5 022) ( 1 743) ( 276) ( 137) ( 58) ( 7) 3 667 5 505 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements During the financial year of 2020, the Bank sold Euro 1 295.0 million of financial instruments classified at fair value through other 3 518 comprehensive income (31 December 2019: Euro 3 730.0 million), with a gain of Euro 80.2 million (31 December 2019: gain of Euro ( 5 022) 65.7 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 16.4 million that were transferred ( 276) During the financial year of 2020, the Bank sold Euro 1 295.0 million of financial instruments classified at fair value from revaluation reserves to sales reserves (31 December 2019: loss of Euro 4.9 million). ( 58) through other comprehensive income (31 December 2019: Euro 3 730.0 million), with a gain of Euro 80.2 million (31 3 667 Balance as at 31 December 2020 Changes in impairment losses on amortised cost securities are as follows: December 2019: gain of Euro 65.7 million), recorded in the income statement, from the sale of debt instruments and During the financial year of 2020, the Bank sold Euro 1 295.0 million of financial instruments classified at fair value through other a loss of Euro 16.4 million that were transferred from revaluation reserves to sales reserves (31 December 2019: loss of comprehensive income (31 December 2019: Euro 3 730.0 million), with a gain of Euro 80.2 million (31 December 2019: gain of Euro Euro 4.9 million). 65.7 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 16.4 million that were transferred from revaluation reserves to sales reserves (31 December 2019: loss of Euro 4.9 million). Changes in impairment losses on amortised cost securities are as follows: Balance as at 31 December 2018 Changes in impairment losses on amortised cost securities are as follows: Impairment movement of securities at amortised cost 3 480 ( 5 022) ( 232) ( 64) 38 - ( 44) 6 (in thousands of Euros) 131 072 192 325 57 283 Stage 1 Stage 2 Stage 3 3 667 3 970 - - - - Total - - Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements Balance as at 31 December 2019 Balance as at 31 December 2018 Increases due to changes in credit risk Increases due to changes in credit risk Decreases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Utilization during the period Other movements Other movements Balance as at 31 December 2020 Balance as at 31 December 2019 3 758 3 970 11 256 14 394 ( 10 094) ( 14 664) ( 36) - 296 58 5 180 3 758 Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Balance as at 31 December 2020 5 180 14 394 ( 14 664) - 58 Stage 1 636 822 ( 640 167) ( 1) 37 Stage 2 6 615 ( 7 247) ( 28 019) 1 657 831 ( 662 078) (in thousands of Euros) ( 28 020) 96 Stage 3 Total Impairment movement of securities at amortised cost 53 974 57 283 716 961 636 822 ( 682 995) ( 640 167) ( 2) ( 1) ( 318) 37 87 620 53 974 716 961 ( 682 995) ( 2) ( 318) 102 422 131 072 10 533 6 615 ( 3 294) ( 7 247) - ( 28 019) ( 1) 1 109 660 102 422 10 533 ( 3 294) - ( 1) 87 620 109 660 160 154 192 325 738 750 657 831 ( 696 383) ( 662 078) ( 38) ( 28 020) ( 23) 96 202 460 160 154 738 750 ( 696 383) ( 38) ( 23) - 342- 202 460 11 256 ( 10 094) ( 36) 296 In accordance with the accounting policy mentioned on Note 2.4, the Bank regularly evaluate if there is any objective 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 342- evidence of impairment in its securities portfolio at a fair value through other comprehensive income based on the judgement criteria mentioned on Note 3.1. Impairments for securities reinforced during the 2020 financial year include Euro 29.0 million, reflecting the update of information in IFRS 9 models, anticipating losses related to the Covid-19 pandemic. As at 31 December 2020 and 2019, the securities portfolio, by residual maturity period, is as follows: 410 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE 31.12.2020 31.12.2019 75 553 32 670 39 966 498 893 1 798 523 75 553 2 445 605 32 670 39 966 216 825 498 893 760 409 1 798 523 3 904 755 2 445 605 2 877 235 54 360 216 825 7 813 584 760 409 3 904 755 754 292 2 877 235 113 105 54 360 267 980 7 813 584 1 940 836 3 076 213 754 292 13 335 402 113 105 267 980 1 940 836 3 076 213 - (in thousands of Euros) 7 57 535 637 126 2 350 056 - 3 044 724 7 57 535 164 095 637 126 179 917 2 350 056 4 311 899 3 044 724 4 032 970 69 250 164 095 8 758 131 179 917 4 311 899 927 397 4 032 970 131 372 69 250 48 500 8 758 131 1 445 728 2 552 997 927 397 14 355 852 131 372 48 500 1 445 728 2 552 997 13 335 402 14 355 852 (in thousands of Euros) 31.12.2020 31.12.2019 4 075 136 440 30 429 4 8 902 135 411 (in thousands of Euros) 34 013 3 31.12.2019 31.12.2020 In accordance with the accounting policy mentioned on Note 2.4, the Bank regularly evaluate if there is any objective evidence of NOVO BANCO impairment in its securities portfolio at a fair value through other comprehensive income based on the judgement criteria mentioned on Note 3.1. NOVO BANCO Impairments for securities reinforced during the 2020 financial year include Euro 29.0 million, reflecting the update of information in In accordance with the accounting policy mentioned on Note 2.4, the Bank regularly evaluate if there is any objective evidence of IFRS 9 models, anticipating losses related to the Covid-19 pandemic. impairment in its securities portfolio at a fair value through other comprehensive income based on the judgement criteria mentioned on Note 3.1. As at 31 December 2020 and 2019, the securities portfolio, by residual maturity period, is as follows: (in thousands of Euros) Impairments for securities reinforced during the 2020 financial year include Euro 29.0 million, reflecting the update of information in IFRS 9 models, anticipating losses related to the Covid-19 pandemic. 31.12.2019 31.12.2020 Securities mandatorily at fair value through profit or loss As at 31 December 2020 and 2019, the securities portfolio, by residual maturity period, is as follows: Securities mandatorily at fair value through profit or loss Securities mandatority at fair value through other comprehensive income Securities mandatority at fair value through other comprehensive income Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Undetermined (Overdue Loans) Up to 3 months From 3 months to 1 year From 1 to 5 years Up to 3 months More than 5 years From 3 months to 1 year Undetermined (Overdue Loans) From 1 to 5 years More than 5 years Undetermined (Overdue Loans) Up to 3 months From 3 months to 1 year From 1 to 5 years Up to 3 months More than 5 years From 3 months to 1 year Undetermined (Overdue Loans) From 1 to 5 years More than 5 years Securities at amortized cost (*) Securities at amortized cost (*) Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years (*) Gross Value before impairment The detail of the securities portfolio by fair value hierarchy is presented in Note 37. (*) Gross Value before impairment The portfolio securities pledged by the Bank are analysed in Note 34. The detail of the securities portfolio by fair value hierarchy is presented in Note 37. The detail of the securities portfolio by fair value hierarchy is presented in Note 37. Loans and advances to Banks The portfolio securities pledged by the Bank are analysed in Note 34. The portfolio securities pledged by the Bank are analysed in Note 34. As at 31 December 2020 and 2019, the detail of Loans and advances to banks is as follows: Loans and advances to Banks Loans and advances to Banks As at 31 December 2020 and 2019, the detail of Loans and advances to banks is as follows: As at 31 December 2020 and 2019, the detail of Loans and advances to banks is as follows: Loans and advances to banks in Portugal Very short-term placements Deposits Loans Other loans and advances Loans and advances to banks in Portugal Loans and advances to banks abroad Very short-term placements Deposits Loans Deposits Other loans and advances Loans Operations with reverse repurchase agreements Other loans and advances Loans and advances to banks abroad Deposits Loans Operations with reverse repurchase agreements Other loans and advances Outstanding applications Impairment losses Outstanding applications Loans and advances to banks are all recorded in the amortised cost portfolio. Impairment losses Loans and advances to banks are all recorded in the amortised cost portfolio. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 411 170 948 4 075 136 440 30 429 10 532 4 - - 170 948 279 419 289 951 10 532 - 34 726 - 279 419 495 625 289 951 ( 250 153) 34 726 245 472 495 625 178 329 8 902 135 411 34 013 10 851 3 1 645 8 178 329 381 553 394 057 10 851 1 645 - 8 381 553 572 386 394 057 ( 77 134) - 495 252 572 386 ( 250 153) ( 77 134) 245 472 495 252 - 343- - 343- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Loans and advances to banks are all recorded in the amortised cost portfolio. NOVO BANCO As at 31 December 2020 and 2019, the analysis of loans and advances to banks, by residual maturity is as follows: As at 31 December 2020 and 2019, the analysis of loans and advances to banks, by residual maturity is as follows: NOVO BANCO As at 31 December 2020 and 2019, the analysis of loans and advances to banks, by residual maturity is as follows: 31.12.2020 31.12.2019 (in thousands of Euros) Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Up to 3 months Undetermined (Overdue Loans) From 3 months to 1 year From 1 to 5 years More than 5 years Undetermined (Overdue Loans) (in thousands of Euros) 31.12.2020 31.12.2019 51 484 100 259 303 188 5 968 51 484 34 726 100 259 495 625 303 188 5 968 34 726 49 834 109 277 407 175 6 100 49 834 - 109 277 572 386 407 175 6 100 - Changes in impairment losses on loans and advances to banks are presented as follows: 495 625 572 386 (in thousands of Euros) Changes in impairment losses on loans and advances to banks are presented as follows: Loans and advances to banks Changes in impairment losses on loans and advances to banks are presented as follows: Stage 1 Stage 2 Stage 3 Total Balance as at 31 December 2018 Balance as at 31 December 2018 Increases due to changes in credit risk Decreases due to changes in credit risk Utilizations Other movements Increases due to changes in credit risk Decreases due to changes in credit risk Utilizations Increases due to changes in credit risk Other movements Decreases due to changes in credit risk Other movements Balance as at 31 December 2019 Balance as at 31 December 2019 177 Stage 1 416 ( 224) - 177 ( 2) 416 367 ( 224) - 556 ( 2) ( 477) ( 1) 367 Stage 2 Stage 3 75 143 424 Loans and advances to banks - - - 424 2 - 426 - - 317 540 2 ( 128 520) 60 260 426 2 837 ( 3 038) ( 22) 75 143 1 421 2 837 76 341 ( 3 038) ( 22) 2 462 1 421 ( 1 965) ( 76 836) 76 341 Balance as at 31 December 2020 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements 445 556 ( 477) ( 1) 2 2 462 ( 1 965) ( 76 836) 249 706 317 540 ( 128 520) 60 260 The reinforcement of impairment for investments in credit institutions verified in 2020 results from the deterioration of the credit risk of international exposures analyzed on an individual basis, whose situation of partial default at the end of 2020 (meanwhile regularized Balance as at 31 December 2020 during the month of January 2021), between other signs of impairment, led to the transfer of it to stage 3 and to the constitution of additional impairments of Euro 189.6 million, with the total impairment recorded on 31 December 2020 for this exposure being Euro The reinforcement of impairment for investments in credit institutions verified in 2020 results from the deterioration of the credit risk 249.3 million. of international exposures analyzed on an individual basis, whose situation of partial default at the end of 2020 (meanwhile regularized during the month of January 2021), between other signs of impairment, led to the transfer of it to stage 3 and to the constitution of additional impairments of Euro 189.6 million, with the total impairment recorded on 31 December 2020 for this exposure being Euro The reinforcement of impairment for investments in credit institutions verified in 2020 results from the deterioration 249.3 million. of the credit risk of international exposures analyzed on an individual basis, whose situation of partial default at the end of 2020 (meanwhile regularized during the month of January 2021), between other signs of impairment, led to the transfer of it to stage 3 and to the constitution of additional impairments of Euro 189.6 million, with the total impairment recorded on 31 December 2020 for this exposure being Euro 249.3 million. 250 153 249 706 445 2 (in thousands of Euros) 75 744 Total 3 253 ( 3 262) ( 22) 75 744 1 421 3 253 77 134 ( 3 262) ( 22) 320 558 1 421 ( 130 962) ( 16 577) 77 134 250 153 320 558 ( 130 962) ( 16 577) Loans and advances to customers As at 31 December 2020 and 2019, the detail of loans and advances to customers is presented as follows: 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 412 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 344- - 344- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Loans and advances to customers As at 31 December 2020 and 2019, the detail of loans and advances to customers is presented as follows: NOVO BANCO Domestic loans and advances Corporate Current account loans Loans Discounted bills Factoring Overdrafts Financial leases Other loans and advances Individuals Residential Mortgage loans Consumer credit and other loans Foreign loans and advances Corporate Current account loans Loans Discounted bills Factoring Overdrafts Financial leases Other loans and advances Individuals Residential Mortgage loans Consumer credit and other loans Overdue loans and advances and interests Under 90 days Over 90 days Impairment losses Fair value adjustaments of interest rate hedges * Corporate Loans Individuals Residential Mortgage loans * See note 22 (in thousands of Euros) 31.12.2020 31.12.2019 1 109 729 8 876 278 80 430 575 682 7 105 1 421 765 20 974 7 368 861 1 007 365 1 362 889 8 345 875 119 241 709 747 3 042 1 523 226 29 477 7 370 060 1 042 745 20 468 189 20 506 302 851 791 146 986 4 51 483 8 321 - 1 949 211 180 022 2 187 819 687 878 1 068 038 21 206 138 292 39 158 37 422 1 1 084 606 315 483 3 392 084 13 457 602 796 24 025 1 073 220 616 253 1 097 245 23 272 261 24 995 631 (1 587 003) (1 841 483) 21 685 258 23 154 148 6 774 14 390 53 073 59 847 35 494 49 884 21 745 105 23 204 032 During the year of 2020, a sale of a portfolio of non-performing loans (called “Carter”) was carried out, and the impact of this operation on the balance sheet resulted in a reduction of net credit to customers of Euro 34.1 million (Euro 79.1 million in gross value and Euro 45 million in impairment) and the impact on results translated into a gain of Euro 2.3 million (see Note 40). During the year of 2020, a sale of a portfolio of non-performing loans (called “Carter”) was carried out, and the impact During the year of 2019, a sale of a portfolio of non-performing loans (called “NATA II”) was carried out, and the impact of this of this operation on the balance sheet resulted in a reduction of net credit to customers of Euro 34.1 million (Euro 79.1 operation on the balance sheet resulted in a reduction in net loans and advances to customers of Euro 128.1 million (Euro 1,189.3 million in gross value and Euro 1 061.1 million in impairment), and the impact in the income statement was a loss of Euro 79 million million in gross value and Euro 45 million in impairment) and the impact on results translated into a gain of Euro 2.3 (see Note 40). million (see Note 40). Loans to customers are all recorded in the amortised cost portfolio. During the year of 2019, a sale of a portfolio of non-performing loans (called “NATA II”) was carried out, and the impact As at 31 December 2020, the caption Loans and advances to customers include Euro 6,104.8 million of mortgage loans related to of this operation on the balance sheet resulted in a reduction in net loans and advances to customers of Euro 128.1 the issuance of covered bonds (31 December 2019: Euro 6 076.8 million) (see Note 29). million (Euro 1,189.3 million in gross value and Euro 1,061.1 million in impairment), and the impact in the income statement was a loss of Euro -79.0 million (see Note 40). As at 31 December 2020, the amount of interest and commissions recorded in the balance sheet relating to credit operations amounts to Euro 24,765 thousand (31 December 2019: Euro 25,139 thousand). Loans to customers are all recorded in the amortised cost portfolio. As at 31 December 2020, the caption Loans and advances to customers include Euro 6,104.8 million of mortgage loans 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 345- related to the issuance of covered bonds (31 December 2019: Euro 6,076.8 million) (see Note 29). As at 31 December 2020, the amount of interest and commissions recorded in the balance sheet relating to credit operations amounts to Euro 24,765 thousand (31 December 2019: Euro 25,139 thousand). 413 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES As at 31 December 2020 and 2019, the analysis of loans and advances to customers, by residual maturity period, is as follows: As at 31 December 2020 and 2019, the analysis of loans and advances to customers, by residual maturity period, is as follows: NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 NOVO BANCO Stage 3 Stage 2 Stage 1 31.12.2020 31.12.2020 394 119 NOVO BANCO 31.12.2019 (in thousands of Euros) 971 494 1 243 984 5 112 417 15 387 960 616 253 Changes in credit impairment losses are presented as follows: Changes in credit impairment losses are presented as follows: Changes in credit impairment losses are presented as follows: Balance as at 31 December 2018 1 766 827 1 424 761 5 084 654 (in thousands of Euros) 15 672 028 1 097 245 971 494 23 332 108 1 243 984 5 112 417 15 387 960 616 253 971 494 23 332 108 1 243 984 5 112 417 15 387 960 616 253 Changes in credit impairment losses are presented as follows: Balance as at 31 December 2018 As at 31 December 2020 and 2019, the analysis of loans and advances to customers, by residual maturity period, is as follows: 31.12.2019 As at 31 December 2020 and 2019, the analysis of loans and advances to customers, by residual maturity period, is as follows: Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Unlimited duration (Overdue Loans) Up to 3 months 1 766 827 25 045 515 From 3 months to 1 year 1 424 761 From 1 to 5 years 5 084 654 (in thousands of Euros) More than 5 years 15 672 028 Unlimited duration (Overdue Loans) 1 097 245 Up to 3 months 1 766 827 Impairment movements of loans and advances to customers 25 045 515 From 3 months to 1 year 1 424 761 Total From 1 to 5 years 5 084 654 More than 5 years 15 672 028 4 071 843 Unlimited duration (Overdue Loans) 1 097 245 (in thousands of Euros) ( 1 056 533) Financial assets derecognised Impairment movements of loans and advances to customers 25 045 515 Increases due to changes in credit risk 1 471 513 Total Decreases due to changes in credit risk ( 840 658) Utilization during the period ( 1 720 923) 4 071 843 (in thousands of Euros) ( 83 759) Other movements Financial assets derecognised ( 1 056 533) Balance as at 31 December 2019 1 841 483 Increases due to changes in credit risk 1 471 513 Total Decreases due to changes in credit risk ( 840 658) ( 294 007) Financial assets derecognised Utilization during the period ( 1 720 923) 4 071 843 Balance as at 31 December 2018 Increases due to changes in credit risk 791 619 Other movements ( 83 759) Decreases due to changes in credit risk ( 271 103) ( 1 056 533) Financial assets derecognised ( 439 021) Utilization during the period Balance as at 31 December 2019 1 841 483 1 471 513 Increases due to changes in credit risk ( 41 968) Other movements ( 840 658) Decreases due to changes in credit risk Financial assets derecognised ( 294 007) ( 1 720 923) Utilization during the period 1 587 003 Balance as at 31 December 2020 Increases due to changes in credit risk 791 619 ( 83 759) Other movements ( 271 103) Decreases due to changes in credit risk (a) It includes 58 046 thousand euros of impairment of credits of the Spanish Branch transferred to discontinued operations (22 427 thousand euros in stage 1 and 35 619 thousand euros in stage 3). ( 439 021) Utilization during the period 1 841 483 ( 41 968) Other movements During the year of 2020, the credit risk impairments were additionally reinforced by Euro 218.8 million, with the updated information Financial assets derecognised ( 294 007) 1 587 003 Balance as at 31 December 2020 in the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic. 791 619 Increases due to changes in credit risk ( 271 103) Decreases due to changes in credit risk (a) It includes 58 046 thousand euros of impairment of credits of the Spanish Branch transferred to discontinued operations (22 427 thousand euros in stage 1 and 35 619 thousand euros in stage 3). ( 439 021) Utilization during the period ( 41 968) Other movements (in thousands of Euros) During the year of 2020, the credit risk impairments were additionally reinforced by Euro 218.8 million, with the updated information 1 587 003 Balance as at 31 December 2020 in the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic. ( 1 055 717) 700 362 Stage 3 ( 126 020) ( 1 720 474) 3 571 646 281 649 ( 1 055 717) 1 651 446 700 362 Stage 3 ( 126 020) ( 294 005) ( 1 720 474) 3 571 646 417 014 281 649 ( 59 624) ( 1 055 717) ( 438 892) 1 651 446 700 362 ( 55 507) ( 126 020) ( 294 005) ( 1 720 474) 1 220 432 417 014 281 649 ( 59 624) ( 438 892) 1 651 446 ( 55 507) ( 294 005) 1 220 432 417 014 ( 59 624) ( 438 892) ( 55 507) ( 13) 105 897 ( 30 025) ( 403) 106 078 ( 44 562) ( 13) 136 972 105 897 Stage 2 ( 30 025) - ( 403) 106 078 336 436 ( 44 562) ( 97 277) ( 13) ( 113) 136 972 105 897 ( 69 574) ( 30 025) - ( 403) 306 444 336 436 ( 44 562) ( 97 277) ( 113) 136 972 ( 69 574) - 306 444 336 436 ( 97 277) ( 113) ( 69 574) ( 803) 665 254 Stage 1 ( 684 613) ( 46) 394 119 ( 320 846) ( 803) 53 065 665 254 Stage 1 ( 684 613) ( 2) ( 46) 394 119 38 169 ( 320 846) ( 114 202) ( 803) ( 16) 53 065 665 254 83 113 ( 684 613) ( 2) ( 46) 60 127 38 169 ( 320 846) ( 114 202) ( 16) 53 065 83 113 ( 2) 60 127 38 169 ( 114 202) ( 16) 83 113 Credit distribution by type of rate is as follows: Impairment movements of loans and advances to customers Balance as at 31 December 2019 31.12.2019 31.12.2020 3 571 646 1 220 432 23 332 108 106 078 306 444 60 127 Stage 2 (a) It includes 58 046 thousand euros of impairment of credits of the Spanish Branch transferred to discontinued operations (22 427 thousand euros in stage 1 and 35 619 thousand euros in stage 3). During the year of 2020, the credit risk impairments were additionally reinforced by Euro 218.8 million, with the updated Fixed rate 3 583 037 Credit distribution by type of rate is as follows: Variable rate 21 462 478 information in the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic. (in thousands of Euros) During the year of 2020, the credit risk impairments were additionally reinforced by Euro 218.8 million, with the updated information in the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic. Credit distribution by type of rate is as follows: Credit distribution by type of rate is as follows: 3 883 609 19 448 499 23 332 108 25 045 515 31.12.2019 31.12.2020 Fixed rate Variable rate 3 883 609 19 448 499 3 583 037 21 462 478 (in thousands of Euros) Fixed rate Variable rate 31.12.2020 23 332 108 31.12.2019 25 045 515 3 883 609 19 448 499 3 583 037 21 462 478 23 332 108 25 045 515 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 414 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 346- - 346- - 346- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE An analysis of finance lease loans, by residual maturity period, is presented as follows: An analysis of finance lease loans, by residual maturity period, is presented as follows: Gross investment in finance leases receivable An analysis of finance lease loans, by residual maturity period, is presented as follows: Up to 1 year 1 to 5 years More than 5 years Gross investment in finance leases receivable Unrealized finance income in finance leases Up to 1 year Up to 1 year 1 to 5 years 1 to 5 years More than 5 years More than 5 years An analysis of finance lease loans, by residual maturity period, is presented as follows: NOVO BANCO 31.12.2020 (in thousands of Euros) NOVO BANCO 31.12.2019 270 188 761 487 571 105 31.12.2020 1 602 780 293 189 827 824 663 672 (in thousands of Euros) 1 784 685 31.12.2019 NOVO BANCO 270 188 44 830 761 487 67 455 571 105 32 654 1 602 780 144 939 31.12.2020 293 189 35 558 827 824 91 219 663 672 57 541 (in thousands of Euros) 1 784 685 184 318 31.12.2019 Unrealized finance income in finance leases Capital falling due Gross investment in finance leases receivable Up to 1 year Up to 1 year Up to 1 year 1 to 5 years 1 to 5 years 1 to 5 years More than 5 years More than 5 years More than 5 years Capital falling due Unrealized finance income in finance leases Impairment Up to 1 year Up to 1 year 1 to 5 years 1 to 5 years More than 5 years More than 5 years 44 830 225 358 270 188 67 455 694 032 761 487 32 654 538 451 571 105 144 939 1 457 841 1 602 780 ( 220 447) 225 358 44 830 1 237 394 694 032 67 455 538 451 32 654 1 457 841 144 939 ( 220 447) 35 558 257 631 293 189 91 219 736 605 827 824 57 541 605 996 663 672 184 318 1 600 232 1 784 685 ( 202 575) 257 631 35 558 1 397 657 736 605 91 219 605 996 57 541 1 600 232 184 318 ( 202 575) NOTE 22 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS Impairment Capital falling due At 31 December 2020 and 2019, the fair value of the hedging derivatives is analysed as follows: Up to 1 year 1 to 5 years More than 5 years NOTE 22 – Derivatives – hedge accounting and fair value changes of the hedged items 225 358 1 237 394 694 032 538 451 257 631 1 397 657 736 605 605 996 31.12.2019 1 600 232 (in thousands of Euros) 1 457 841 31.12.2020 NOTE 22 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS At 31 December 2020 and 2019, the fair value of the hedging derivatives is analysed as follows: At 31 December 2020 and 2019, the fair value of the hedging derivatives is analysed as follows: Hedging derivatives Impairment Assets Liabilities ( 220 447) 1 237 394 13 606 ( 72 543) ( 58 937) ( 202 575) 7 992 ( 58 854) 1 397 657 (in thousands of Euros) ( 50 862) Fair value component of the assets and liabilities hedged for interest rate risk NOTE 22 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS Hedging derivatives Financial assets Assets Liabilities At 31 December 2020 and 2019, the fair value of the hedging derivatives is analysed as follows: Securities (see Note 21) Loans and advances to customers (see Note 21) 13 606 1 129 ( 72 543) 59 847 ( 58 937) 60 976 7 992 - ( 58 854) 49 884 ( 50 862) 49 884 (in thousands of Euros) 31.12.2020 31.12.2019 31.12.2020 31.12.2019 1 129 13 606 59 847 ( 72 543) 60 976 ( 58 937) - 7 992 49 884 ( 58 854) 49 884 ( 50 862) Fair value component of the assets and liabilities hedged for interest rate risk Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives are Financial assets Hedging derivatives recognized in the income statement in the caption Gains and losses from hedge accounting. Securities (see Note 21) Loans and advances to customers (see Note 21) Assets Liabilities Financial assets The Bank calculates the Credit Valuation Adjustment (CVA) for derivatives according to the methodology described in Note 20 – Financial assets and liabilities held for trading. Fair value component of the assets and liabilities hedged for interest rate risk Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives are As at 31 December 2020 and 2019, fair value hedging operations may be analysed as follows: recognized in the income statement in the caption Gains and losses from hedge accounting. Securities (see Note 21) Loans and advances to customers (see Note 21) - 49 884 31.12.2020 The Bank calculates the Credit Valuation Adjustment (CVA) for derivatives according to the methodology described in Note 20 – Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives 49 884 Change in fair Financial assets and liabilities held for trading. value are recognized in the income statement in the caption Gains and losses from hedge accounting. Fair value of component of Hedged risk derivatives (1) item hedged Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives are As at 31 December 2020 and 2019, fair value hedging operations may be analysed as follows: in period (2) The Bank calculates the Credit Valuation Adjustment (CVA) for derivatives according to the methodology described in recognized in the income statement in the caption Gains and losses from hedge accounting. (in thousands of Euros) Note 20 – Financial assets and liabilities held for trading. 31.12.2020 Interest rate and The Bank calculates the Credit Valuation Adjustment (CVA) for derivatives according to the methodology described in Note 20 – exchange rate Change in Interest rate Financial assets and liabilities held for trading. fair value of Hedged risk As at 31 December 2020 and 2019, fair value hedging operations may be analysed as follows: derivative in period 1 129 59 847 60 976 Fair value component of item hedged(2) Change in fair value of derivative in period Interest Rate Swap/CIRS Interest Rate Swap Fair value component of item hedged(2) Fair value of derivatives (1) Loans and advances to customers Securities at amortized cost 3 347 176 378 000 ( 59 602) 665 (in thousands of Euros) 11 189 1 130 59 847 1 129 ( 8 981) 801 Hedged item Hedged item 3 725 176 Derivative Derivative ( 58 937) Notional Notional 12 319 60 976 ( 8 180) As at 31 December 2020 and 2019, fair value hedging operations may be analysed as follows: Change in fair value component of item hedged in period (2) (1) Includes accrued interest (2) Attributable to the hedged risk Interest Rate Swap/CIRS Interest Rate Swap Derivative (1) Includes accrued interest Derivative (2) Attributable to the hedged risk Loans and advances to customers Securities at amortized cost Hedged item Hedged item Interest Rate Swap/CIRS Interest Rate Swap/CIRS Interest Rate Swap Loans and advances to customers Loans and advances to customers Securities at amortized cost Interest rate and 31.12.2020 exchange rate Interest rate 31.12.2019 Hedged risk 3 347 176 378 000 Notional 3 725 176 Hedged risk Notional ( 59 602) 665 Fair value of ( 58 937) derivatives (1) Fair value of derivatives (1) ( 8 981) 801 ( 8 180) Change in fair value of Change in derivative in fair value of period derivative in period 59 847 1 129 Fair value component of 60 976 Fair value item hedged(2) component of item hedged(2) Interest rate and exchange rate Interest and exchange 31.12.2019 rates Interest rate 3 347 176 3 312 380 378 000 3 312 380 3 725 176 ( 59 602) ( 50 862) 665 ( 8 981) ( 16 124) 801 59 847 49 884 1 129 ( 50 862) ( 58 937) Fair value of derivatives (1) ( 16 124) ( 8 180) Change in fair value of derivative in period 49 884 60 976 Fair value component of item hedged(2) (in thousands of Euros) 11 189 1 130 (in thousands of Euros) Change in fair value Change in fair component of 12 319 value item hedged component of in period (2) item hedged in period (2) (in thousands of Euros) 11 189 18 311 1 130 18 311 12 319 Change in fair value component of item hedged in period (2) 49 884 49 884 (in thousands of Euros) 18 311 - 347- 18 311 Change in fair value component of item hedged in period (2) (1) Includes accrued interest (1) Includes accrued interest (2) Attributable to the hedged risk (2) Attributable to the hedged risk Derivative Hedged item Hedged risk Notional Interest Rate Swap/CIRS 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Loans and advances to customers 3 312 380 Interest and exchange rates 31.12.2019 ( 50 862) ( 16 124) 415 (1) Includes accrued interest (2) Attributable to the hedged risk Derivative Hedged item Hedged risk Notional Fair value of derivatives (1) 3 312 380 ( 50 862) ( 16 124) Change in fair value of derivative in period Fair value component of item hedged(2) Interest Rate Swap/CIRS 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Loans and advances to customers 3 312 380 rates ( 50 862) ( 16 124) Interest and exchange 3 312 380 ( 50 862) ( 16 124) 49 884 49 884 - 347- 18 311 18 311 (1) Includes accrued interest (2) Attributable to the hedged risk 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 347- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES An analysis of finance lease loans, by residual maturity period, is presented as follows: NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 270 188 761 487 571 105 1 602 780 44 830 67 455 32 654 144 939 225 358 694 032 538 451 1 457 841 ( 220 447) 1 237 394 293 189 827 824 663 672 1 784 685 35 558 91 219 57 541 184 318 257 631 736 605 605 996 1 600 232 ( 202 575) 1 397 657 (in thousands of Euros) 31.12.2020 31.12.2019 13 606 ( 72 543) ( 58 937) 7 992 ( 58 854) ( 50 862) 1 129 59 847 60 976 - 49 884 49 884 Gross investment in finance leases receivable Unrealized finance income in finance leases Up to 1 year 1 to 5 years More than 5 years Up to 1 year 1 to 5 years More than 5 years Capital falling due Up to 1 year 1 to 5 years More than 5 years Impairment Hedging derivatives Assets Liabilities NOTE 22 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS At 31 December 2020 and 2019, the fair value of the hedging derivatives is analysed as follows: Fair value component of the assets and liabilities hedged for interest rate risk Financial assets Securities (see Note 21) Loans and advances to customers (see Note 21) Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives are recognized in the income statement in the caption Gains and losses from hedge accounting. The Bank calculates the Credit Valuation Adjustment (CVA) for derivatives according to the methodology described in Note 20 – Financial assets and liabilities held for trading. As at 31 December 2020 and 2019, fair value hedging operations may be analysed as follows: 31.12.2020 Derivative Hedged item Hedged risk Notional Fair value of derivatives (1) Change in fair value of derivative in period Fair value component of item hedged(2) (in thousands of Euros) Change in fair value component of item hedged in period (2) Interest Rate Swap/CIRS Interest Rate Swap Loans and advances to customers Securities at amortized cost Interest rate and exchange rate Interest rate 3 347 176 378 000 ( 59 602) 665 ( 8 981) 801 59 847 1 129 3 725 176 ( 58 937) ( 8 180) 60 976 11 189 1 130 12 319 (1) Includes accrued interest (2) Attributable to the hedged risk Derivative Hedged item Hedged risk Notional 31.12.2019 Fair value of derivatives (1) Change in fair value of derivative in period Fair value component of item hedged(2) (in thousands of Euros) Change in fair value component of item hedged in period (2) Interest Rate Swap/CIRS Loans and advances to customers Interest and exchange rates 3 312 380 ( 50 862) ( 16 124) 3 312 380 ( 50 862) ( 16 124) 49 884 49 884 18 311 18 311 (1) Includes accrued interest (2) Attributable to the hedged risk - 347- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO As at 31 December 2020, the ineffective portion of the fair value hedging operations resulted in a gain of Euro 4.1 million that was recognized in the income statement (31 December 2019: cost of Euro 2.2 million). The Bank periodically evaluates the effectiveness of the hedges. As at 31 December 2020, the ineffective portion of the fair value hedging operations resulted in a gain of Euro 4.1 million that was As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference recognized in the income statement (31 December 2019: cost of Euro 2.2 million). The Bank periodically evaluates the effectiveness interest rates, which led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change of the hedges. NOVO BANCO the discount curve of their positions in derivative financial instruments cleared in central counterparty (CCP) from As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the principle of implementation of the ions led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their posit aforementioned regulation, that no substantial changes to the original objective of risk management or discontinuation in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD As at 31 December 2020, the ineffective portion of the fair value hedging operations resulted in a gain of Euro 4.1 million that was SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original of hedging relationships will occur, the Bank did not record any relevant impacts on retrospective and prospective recognized in the income statement (31 December 2019: cost of Euro 2.2 million). The Bank periodically evaluates the effectiveness objective of risk management or discontinuation of hedging relationships will occur, the Bank did not record any relevant impacts on of the hedges. effectiveness, taking into account that all assets and liabilities involved in hedging relationships (hedged and hedged retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships items) were subject to the same change. (hedged and hedged items) were subject to the same change. As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which ions led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their posit As at 31 December 2020 and 2019, the analysis of derivatives held for risk management and hedging purposes, by in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD As at 31 December 2020 and 2019, the analysis of derivatives held for risk management and hedging purposes, by maturity, may be SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original maturity, may be analyzed as follows: analyzed as follows: objective of risk management or discontinuation of hedging relationships will occur, the Bank did not record any relevant impacts on retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships (hedged and hedged items) were subject to the same change. (in thousands of Euros) 31.12.2020 31.12.2019 Notional Buy Sell Fair value (net) Notional Buy Sell Fair value (net) As at 31 December 2020 and 2019, the analysis of derivatives held for risk management and hedging purposes, by maturity, may be 3 months to 1 year 173 866 analyzed as follows: 1 to 5 years 811 060 More than 5 years 877 662 31.12.2020 1 862 588 - 781 374 874 816 - 781 374 874 816 173 866 811 060 877 662 - ( 13 873) ( 36 989) ( 862) ( 8 163) ( 49 912) (in thousands of Euros) 31.12.2019 1 862 588 1 656 190 1 656 190 ( 58 937) ( 50 862) Notional Buy Sell Fair value (net) Fair value (net) Notional Buy Sell 3 months to 1 year 1 to 5 years More than 5 years NOTE 23 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES 173 866 811 060 877 662 173 866 811 060 877 662 ( 862) ( 8 163) ( 49 912) - 781 374 874 816 - 781 374 874 816 - ( 13 873) ( 36 989) 31.12.2019 31.12.2020 ( 50 862) ( 58 937) 1 656 190 1 656 190 1 862 588 1 862 588 Nº of shares (in thousands of Euros) Cost of participation Nominal value (euros) Nominal value (euros) Direct participation in capital 57,53% 100,00% 100,00% 100,00% 100,00% Direct 98,97% participation 99,99% in capital 50,00% Investments in subsidiaries, joint ventures and associate companies are presented as follows: NOTE 23 – Investments in subsidiaries, joint ventures and associates Direct participation Nº of in capital shares NOTE 23 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Investments in subsidiaries, joint ventures and associate companies are presented as follows: NB AÇORES 2 144 404 2 144 404 NB FINANCE 100 000 100 000 Investments in subsidiaries, joint ventures and associate companies are presented as follows: BEST 62 999 700 62 999 700 ES TECH VENTURES 71 500 000 71 500 000 GNB GA 2 350 000 2 350 000 942 306 942 306 GNB CONCESSÕES Nº of Nº of E.S. REPRESENTAÇÕES 49 995 49 995 shares shares 525 000 525 000 LOCARENT NOVO BANCO SERVICIOS - 2 676 665 2 144 404 2 144 404 NB AÇORES 500 000 - NOVO VANGUARDA 100 000 100 000 NB FINANCE 13 300 000 13 300 000 NB ÁFRICA 62 999 700 62 999 700 BEST 350 029 350 029 UNICRE 71 500 000 71 500 000 ES TECH VENTURES 122 499 122 499 IJAR LEASING ALGERIE 2 350 000 2 350 000 GNB GA 101 477 601 101 477 601 EDENRED PORTUGAL 942 306 942 306 GNB CONCESSÕES 5 280 000 - HERDADE DO PINHEIRINHO I 49 995 49 995 E.S. REPRESENTAÇÕES 17 200 000 - HERDADE DO PINHEIRINHO II 525 000 525 000 LOCARENT 2 676 665 - NOVO BANCO SERVICIOS 500 000 - NOVO VANGUARDA Impairment 13 300 000 13 300 000 NB ÁFRICA 350 029 350 029 UNICRE 122 499 122 499 IJAR LEASING ALGERIE 101 477 601 101 477 601 EDENRED PORTUGAL During the year of 2020, the subsidiaries Herdade do Pinheirinho I and Herdade do Pinheirinho II were sold. Novo Banco Servicios 5 280 000 - HERDADE DO PINHEIRINHO I e Novo Vanguarda were transferred to non-current assets and disposal groups classified as held for sale (see Note 28). 17 200 000 - HERDADE DO PINHEIRINHO II 10 308 5,00 1 700 1,00 1,00 100 418 (in thousands of Euros) 71 500 1,00 86 722 5,00 20 602 5,00 Cost of 12 0,22 participation 2 967 5,00 1 057 0,40 10 308 5,00 500 1,00 1 700 1,00 66 500 5,00 100 418 1,00 11 497 5,00 71 500 1,00 12 362 74,94 86 722 5,00 4 984 0,01 20 602 5,00 5 280 1,00 12 0,22 1,00 17 200 2 967 5,00 413 609 0,40 1 057 1,00 500 ( 182 184) 5,00 66 500 231 425 11 497 5,00 12 362 74,94 4 984 0,01 5 280 1,00 17 200 1,00 10 308 1 700 100 418 71 500 86 722 20 602 Cost of 8 participation 2 967 - 10 308 - 1 700 66 500 100 418 11 497 71 500 12 361 86 722 4 984 20 602 - 8 - 2 967 389 567 - - ( 199 643) 66 500 189 924 11 497 12 361 4 984 - - 57,53% 100,00% 100,00% 100,00% 100,00% Direct 98,97% participation 99,99% in capital 50,00% 100,00% 57,53% 100,00% 100,00% 100,00% 100,00% 17,50% 100,00% 35,00% 100,00% 50,00% 98,97% 100,00% 99,99% 100,00% 50,00% 100,00% 100,00% 100,00% 17,50% 35,00% 50,00% 100,00% 100,00% 57,53% 100,00% 100,00% 100,00% 17,50% 100,00% 18,85% 100,00% 50,00% 98,97% 99,99% 50,00% 5,00 1,00 5,00 1,00 5,00 1,00 61,94 5,00 0,01 5,00 0,16 5,00 5,00 1,00 1,00 1,00 5,00 5,00 0,16 5,00 100,00% 17,50% 18,85% 50,00% 5,00 5,00 61,94 0,01 Nominal value (euros) Nominal value (euros) Cost of participation 31.12.2020 31.12.2019 During 2019, ES PLC and BES GMBH were merged into NOVO BANCO. The associated companies GNB Seguros, ESEGUR and Impairment Multipessoal were transferred to Non-current assets held for sale because they are in active sale processes (see Note 28). ( 182 184) ( 199 643) 189 924 231 425 389 567 413 609 During the year of 2020, the subsidiaries Herdade do Pinheirinho I and Herdade do Pinheirinho II were sold. Novo Banco Servicios e Novo Vanguarda were transferred to non-current assets and disposal groups classified as held for sale (see Note 28). 416 During 2019, ES PLC and BES GMBH were merged into NOVO BANCO. The associated companies GNB Seguros, ESEGUR and Multipessoal were transferred to Non-current assets held for sale because they are in active sale processes (see Note 28). 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 348- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 348- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE During the year of 2020, the subsidiaries Herdade do Pinheirinho I and Herdade do Pinheirinho II were sold. Novo Banco Servicios e Novo Vanguarda were transferred to non-current assets and disposal groups classified as held for sale (see Note 28). During 2019, ES PLC and BES GMBH were merged into NOVO BANCO. The associated companies GNB Seguros, ESEGUR and Multipessoal were transferred to Non-current assets held for sale because they are in active sale processes (see Note 28). NOVO BANCO The changes in impairment losses for investments in subsidiaries, joint ventures and associates are presented as follows: NOVO BANCO The changes in impairment losses for investments in subsidiaries, joint ventures and associates are presented as follows: (in thousands of Euros) The changes in impairment losses for investments in subsidiaries, joint ventures and associates are presented as follows: 31.12.2020 31.12.2019 Balance at the beginning of the exercise Balance at the beginning of the exercise Charges Utilizations Reversals Charges Foreign exchange differences Utilizations Reversals Foreign exchange differences Balance at the end of the exercise Balance at the end of the exercise NOTE 24 – TANGIBLE FIXED ASSETS This caption as at 31 December 2020 and 2019 is analyzed as follows: NOTE 24 – TANGIBLE FIXED ASSETS NOTE 24 – Tangible fixed assets This caption as at 31 December 2020 and 2019 is analyzed as follows: This caption as at 31 December 2020 and 2019 is analyzed as follows: Real estate properties Equipment Real estate properties For own use Improvements in leasehold properties Assets under right-of-use For own use Improvements in leasehold properties Assets under right-of-use Computer equipment Fixtures Equipment Furniture Computer equipment Security equipment Fixtures Office equipment Furniture Transport equipment Security equipment Assets under right-of-use Office equipment Other Transport equipment Assets under right-of-use Other Work in progress Work in progress Improvements in leasehold properties Real estate properties Others Improvements in leasehold properties Real estate properties Others Accumulated impairment Accumulated depreciation Accumulated impairment Accumulated depreciation 417 182 184 (in thousands of Euros) 146 281 31.12.2020 48 388 ( 22 480) 182 184 ( 7 103) 48 388 ( 1 346) ( 22 480) 199 643 ( 7 103) ( 1 346) 31.12.2019 36 040 ( 38) 146 281 - 36 040 ( 99) ( 38) 182 184 - ( 99) 199 643 182 184 (in thousands of Euros) 31.12.2020 31.12.2019 (in thousands of Euros) 31.12.2020 220 386 132 844 69 375 220 386 422 605 132 844 69 375 101 230 422 605 54 828 48 803 101 230 23 697 54 828 7 488 48 803 562 23 697 8 889 7 488 160 562 245 657 8 889 160 - 245 657 1 1 417 - 1 418 1 1 417 669 680 1 418 ( 13 385) ( 467 327) 669 680 188 968 ( 13 385) ( 467 327) 31.12.2019 202 485 136 307 77 574 202 485 416 366 136 307 77 574 105 322 416 366 56 208 67 528 105 322 24 284 56 208 7 739 67 528 586 24 284 5 076 7 739 167 586 266 910 5 076 167 22 266 910 65 - 22 87 65 - 683 363 87 ( 10 609) ( 478 001) 683 363 194 753 ( 10 609) ( 478 001) 188 968 194 753 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 349- - 349- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES The changes in this caption were as follows: The changes in this caption were as follows: Acquisition cost Balance at 31 December 2018 Acquisitions Disposals / write-offs Transfers (a) IFRS 16 transition impact Exchange variation and other movements Balance at 31 December 2019 Acquisitions Disposals / write-offs Transfers (b) Foreign exchange differences and other (c) Balance at 31 December 2020 Depreciation Balance at 31 December 2018 Depreciation Disposals / write-offs Transfers (a) Foreign exchange differences and other Balance at 31 December 2019 Depreciation Disposals / write-offs Transfers (b) Foreign exchange differences and other ( d) Balance at 31 December 2020 Impairment Balance at 31 December 2018 Balance at 31 December 2019 Perdas por imparidade Balance at 31 December 2020 NOVO BANCO Real estate properties Equipment Work in progress Total (in thousands of Euros) 339 664 6 076 ( 20 089) 438 90 280 ( 3) 416 366 27 192 ( 10 195) ( 1 665) ( 9 093) 273 008 10 704 ( 21 511) 950 3 755 4 266 910 14 759 ( 9 509) ( 153) ( 26 350) 422 605 245 657 222 994 24 434 ( 5 927) ( 210) 91 241 382 20 968 ( 8 387) ( 903) ( 316) 245 227 11 076 ( 20 176) ( 74) 566 236 619 11 465 ( 9 108) ( 143) ( 24 250) 252 744 214 583 10 609 10 609 2 776 13 385 - - - - 1 889 350 - ( 2 152) - - 87 1 446 - ( 115) - 1 418 - - - - - - - - - - - - - - - 614 561 17 130 ( 41 600) ( 764) 94 035 1 683 363 43 398 ( 19 704) ( 1 934) ( 35 443) 669 680 468 221 35 510 ( 26 103) ( 284) 657 478 001 32 433 ( 17 495) ( 1 046) ( 24 566) 467 327 10 609 10 609 2 776 13 385 Net book value at 31 December 2020 156 476 31 074 1 418 188 968 Net book value at 31 December 2019 164 375 30 291 87 194 753 (a) Includes 764 thousand euros of fixed assets (property and equipment) and 284 thousands of euros of accumulated depreciation related to discontinued branches that w ere transferred at net value to the appropriate balance sheet items. Includes 1,951 thousand euros of fixed assets (property and equipment) and 1,064 thousands of euros of accumulated depreciation related to discontinued branches that w ere transferred at net (b) value to the appropriate balance sheet items (c) Includes 9,005 and 27,118 thousand euros of property and equipment from the Spanish Branch transferred to discontinued activities during the year 2020 (d) It includes 2,034 and 24,274 thousand euros of depreciation related to the properties and equipment of the Spanish Branch transferred to discontinued activities during the year 2020. NOTE 25 – Intangible assets NOTE 25 – INTANGIBLE ASSETS This caption as at 31 December 2020 and 2019 is analyzed as follows: This caption as at 31 December 2020 and 2019 is analyzed as follows: Internally developed Software - Automatic data processing system Acquired from third parties Software - Automatic data processing system Work in progress Accumulated amortization NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 65 373 65 270 346 389 364 062 411 762 429 332 21 420 17 446 433 182 446 778 ( 384 851) ( 420 735) 48 331 26 043 The caption Intangible assets developed internally includes costs incurred by the Bank units specialized in the development and 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 350- implementation of software applications that will generate economic benefits in the future (see Note 2.12). The changes in this caption were as follows: 418 Automatic data processing system Work in progress Total (in thousands of Euros) Acquisition cost Balance as at 31 December 2018 Acquisitions Acquired from third parties Disposals / write-offs Transfers Foreign exchange differences and other Balance as at 31 December 2018 Acquisitions Acquired from third parties Disposals / write-offs Transfers Foreign exchange differences and other (a) Balance as at 31 December 2020 Amortizations Balance as at 31 December 2018 Amortization for the period Disposals / write-offs Balance as at 31 December 2019 Amortization for the period Disposals / write-offs Transfers Balance as at 31 December 2020 Net balance at 31 December 2020 Net balance at 31 December 2019 Foreign exchange differences and other (b) NOTE 26 – INCOME TAXES 429 187 3 137 ( 7 460) 4 467 1 429 332 2 373 ( 20) 20 161 ( 40 084) 411 762 427 024 1 171 ( 7 460) 420 735 2 600 ( 20) - ( 38 464) 384 851 26 911 8 597 2 618 23 000 ( 8 172) 17 446 24 134 ( 20 161) 1 21 420 - - - - - - - - - - - - 21 420 17 446 431 805 26 137 ( 7 460) ( 3 705) 1 446 778 26 507 ( 20) - ( 40 083) 433 182 427 024 1 171 ( 7 460) 420 735 2 600 ( 20) - ( 38 464) 384 851 48 331 26 043 (a) It includes 40 083 thousand Euros of investment projects assigned to the Spanish Branch transferred to discontinued operations during the year 2020. (b) It includes 38 463 thousand euros of investment projects related to the Spanish Branch that were transferred to discontinued operations during the year 2020. NOVO BANCO is subject to taxation in accordance with the Corporate Income Tax (IRC) Code. As a result, deferred taxes are recorded depending on the temporary differences between accounting and tax income relevant for IRC purposes, whenever such temporary differences are to be reverted in the future. The income taxes correspond to the value of taxable income (if applicable) of the period, using the overall Corporate Income Tax rate in force at the balance sheet date (21%) and autonomous taxation. Corporate income taxes (current or deferred) are recognized in the income statement for the year, except when the underlying transactions or items to which they are related have been reflected under other equity captions (e.g. revaluation of financial assets at fair value through other comprehensive income). In these situations, the corresponding tax is also charged to equity, not affecting the net profit / (loss) for the year. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 351- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE The caption Intangible assets developed internally includes costs incurred by the Bank units specialized in the develop- ment and implementation of software applications that will generate economic benefits in the future (see Note 2.12). The changes in this caption were as follows: Automatic data processing system Work in progress Total (in thousands of Euros) Acquisition cost Balance as at 31 December 2018 Acquisitions Acquired from third parties Disposals / write-offs Transfers Foreign exchange differences and other Balance as at 31 December 2018 Acquisitions Acquired from third parties Disposals / write-offs Transfers Foreign exchange differences and other (a) Balance as at 31 December 2020 Amortizations Balance as at 31 December 2018 Amortization for the period Disposals / write-offs Balance as at 31 December 2019 Amortization for the period Disposals / write-offs Foreign exchange differences and other (b) Balance as at 31 December 2020 Net balance at 31 December 2020 Net balance at 31 December 2019 429 187 3 137 ( 7 460) 4 467 1 429 332 2 373 ( 20) 20 161 ( 40 084) 411 762 427 024 1 171 ( 7 460) 420 735 2 600 ( 20) ( 38 464) 384 851 26 911 8 597 2 618 23 000 - ( 8 172) - 17 446 24 134 - ( 20 161) 1 21 420 - - - - - - - - 21 420 17 446 431 805 26 137 ( 7 460) ( 3 705) 1 446 778 26 507 ( 20) - ( 40 083) 433 182 427 024 1 171 ( 7 460) 420 735 2 600 ( 20) ( 38 464) 384 851 48 331 26 043 (a) It includes 40 083 thousand Euros of investment projects assigned to the Spanish Branch transferred to discontinued operations during the year 2020. (b) It includes 38 463 thousand euros of investment projects related to the Spanish Branch that were transferred to discontinued operations during the year 2020. NOTE 26 – Income taxes NOVO BANCO is subject to taxation in accordance with the Corporate Income Tax (IRC) Code. As a result, deferred taxes are recorded depending on the temporary differences between accounting and tax income relevant for IRC purposes, whenever such temporary differences are to be reverted in the future. The income taxes correspond to the value of taxable income (if applicable) of the period, using the overall Corporate Income Tax rate in force at the balance sheet date (21%) and autonomous taxation. Corporate income taxes (current or deferred) are recognized in the income statement for the year, except when the underlying transactions or items to which they are related have been reflected under other equity captions (e.g. revaluation of financial assets at fair value through other comprehensive income). In these situations, the corresponding tax is also charged to equity, not affecting the net profit / (loss) for the year. Deferred taxes are calculated based on the anticipated tax rates to be effective at the date of reversal of temporary differences, which correspond to rates approved or substantially approved at the balance sheet date. Thus, at 31 December 2020 the deferred tax related to temporary differences was determined based on an aggregate rate of 31%, resulting from the sum of the general IRC rate (21%), the Municipal Surcharge of 1.5% and an average rate of State Surcharge of 8.5%. On 4th September 2019, Law No. 98/2019 was published, which amended the IRC Code on the tax treatment of credit institutions' impairments, creating rules applicable to impairment losses recorded in the tax periods beginning before 1st January 2019, not yet accepted for tax purposes. This Law established a transition period for the aforementioned tax regime, which allows taxpayers in the five tax periods beginning on or after January 1, 2019, to continue to apply the tax regime in force before publication of this law, except if they perform the exercise of opt in until the end of October 419 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES of each tax period of the adaptation regime. NOVO BANCO Thus, on 31 December 2020, the Bank continued to apply Regulatory Decree nº 13/2018, of December 28, which aims to extend, for tax purposes, the tax framework resulting from Notice Noº 3/95 of Bank of Portugal. Deferred taxes are calculated based on the anticipated tax rates to be effective at the date of reversal of temporary differences, which The IRC payment declarations are subject to inspection and possible adjustment by the Tax Authorities for a period of correspond to rates approved or substantially approved at the balance sheet date. four years or during the period in which it is possible to deduct tax losses or tax credits (up to a maximum of twelve Thus, at 31 December 2020 the deferred tax related to temporary differences was determined based on an aggregate rate of 31%, years, depending on the year of determination). Thus, possible additional tax assessments may take place due essen- resulting from the sum of the general IRC rate (21%), the Municipal Surcharge of 1.5% and an average rate of State Surcharge of tially to different interpretations of tax legislation. However, Management believes that, in the context of the separate 8.5%. financial statements, there will be no additional charges of significant value. On 4th September 2019, Law No. 98/2019 was published, which amended the IRC Code on the tax treatment of credit institutions' impairments, creating rules applicable to impairment losses recorded in the tax periods beginning before 1st January 2019, not yet In 31 December 2020 and 2019, NOVO BANCO recorded deferred tax assets associated with impairments not accepted for tax purposes. This Law established a transition period for the aforementioned tax regime, which allows taxpayers in the accepted for tax purposes for credit operations, which have already been written off, considering the expectation that five tax periods beginning on or after January 1, 2019, to continue to apply the tax regime in force before publication of this law, except if they perform the exercise of opt in until the end of October of each tax period of the adaptation regime. these will contribute to a taxable profit in the periods taxation in which the conditions required for tax deductibility are met. Thus, on 31 December 2020, the Bank continued to apply Regulatory Decree nº 13/2018, of December 28, which aims to extend, for tax purposes, the tax framework resulting from Notice Noº 3/95 of Bank of Portugal. Pursuant to Law No. 55-A/2010, of 31 December, a Bank Levy was established, which is levied on the average annual The IRC payment declarations are subject to inspection and possible adjustment by the Tax Authorities for a period of four years or liabilities recorded on the balance sheet net of own funds and of deposits covered by the guarantee of the Deposit during the period in which it is possible to deduct tax losses or tax credits (up to a maximum of twelve years, depending on the year Guarantee Fund and on the notional amount of derivative financial instruments. The Bank Levy is not eligible as a tax of determination). Thus, possible additional tax assessments may take place due essentially to different interpretations of tax cost, and the respective regime has been extended. As at 31 December 2020, NOVO BANCO recognized Banking legislation. However, Management believes that, in the context of the separate financial statements, there will be no additional charges Levy charges as a cost in the amount of Euro 26,981 thousand (31 December 2019: Euro 26,647 thousand). The cost of significant value. In 31 December 2020 and 2019, NOVO BANCO recorded deferred tax assets associated with impairments not accepted for tax recognized as at 31 December 2020 has been calculated and paid based on the maximum rate of 0.110% levied on the purposes for credit operations, which have already been written off, considering the expectation that these will contribute to a taxable average annual liabilities recorded on the balance sheet, net of own funds and deposits covered by the guarantee of the profit in the periods taxation in which the conditions required for tax deductibility are met. Deposit Guarantee Fund, approved by Law No. 7-A/2016, of 30 March and by Ordinance No. 165-A/2016, of 14 June. Pursuant to Law No. 55-A/2010, of 31 December, a Bank Levy was established, which is levied on the average annual liabilities recorded on the balance sheet net of own funds and of deposits covered by the guarantee of the Deposit Guarantee Fund and on the In 2020, following one of the measures foreseen in the Economic and Social Stabilization Program (PEES) and following notional amount of derivative financial instruments. The Bank Levy is not eligible as a tax cost, and the respective regime has been art. 18 of Law No. 27 -A / 2020, of 24 July, the Solidarity Additional on the Banking Sector was created, which, similarly extended. As at 31 December 2020, NOVO BANCO recognized Banking Levy charges as a cost in the amount of Euro 26,981 to what happens with the Contribution on the Banking Sector, is levied on the average annual liability calculated in thousand (31 December 2019: Euro 26,647 thousand). The cost recognized as at 31 December 2020 has been calculated and paid based on the maximum rate of 0.110% levied on the average annual liabilities recorded on the balance sheet, net of own funds and Balance sheet deducted from own funds and deposits covered by the Deposit Guarantee Fund guarantee and on the deposits covered by the guarantee of the Deposit Guarantee Fund, approved by Law No. 7-A/2016, of 30 March and by Ordinance notional value of derivative financial instruments. Its settlement is carried out until the end of June of the year following No. 165-A/2016, of 14 June. the year to which the surcharge relates. A transitional regime was established for the financial year 2020 and 2021, the In 2020, following one of the measures foreseen in the Economic and Social Stabilization Program (PEES) and following art. 18 of settlement of which was carried out in accordance with the following rules: Law No. 27 -A / 2020, of 24 July, the Solidarity Additional on the Banking Sector was created, which, similarly to what happens with the Contribution on the Banking Sector, is levied on the average annual liability calculated in Balance sheet deducted from own funds • The reserve base is calculated by reference to the half-yearly average of the final balances of each month, which and deposits covered by the Deposit Guarantee Fund guarantee and on the notional value of derivative financial instruments. Its correspond in the accounts for the first half of 2020, in the case of the solidarity surcharge due in 2020, and in the settlement is carried out until the end of June of the year following the year to which the surcharge relates. A transitional regime was established for the financial year 2020 and 2021, the settlement of which was carried out in accordance with the following rules: accounts for the second half of 2020 , in the case of the solidarity surcharge due in 2021, published in compliance with the obligation established in Banco de Portugal Notice No. 1/2019; The reserve base is calculated by reference to the half-yearly average of the final balances of each month, which correspond in the accounts for the first half of 2020, in the case of the solidarity surcharge due in 2020, and in the accounts for the second half • Settlement is carried out by the taxable person through the declaration to be sent until 15 December 2020 and of 2020 , in the case of the solidarity surcharge due in 2021, published in compliance with the obligation established in Banco de 2021, respectively, with payment due on the same dates. Portugal Notice No. 1/2019; • The Solidarity Additional on the Banking Sector is not eligible as a tax cost. • Settlement is carried out by the taxable person through the declaration to be sent until 15 December 2020 and 2021, respectively, with payment due on the same dates. As at 31 December 2020, the Bank recognized as an expense in relation to the Solidarity Additional on the Banking The Solidarity Additional on the Banking Sector is not eligible as a tax cost. Sector the amount of Euro 5,212 thousand. The recognized expense was calculated and paid based on the maximum rate of 0.02% which is levied on the average annual liability calculated on the balance sheet less the own funds and As at 31 December 2020, the Bank recognized as an expense in relation to the Solidarity Additional on the Banking Sector the amount of Euro 5,212 thousand. The recognized expense was calculated and paid based on the maximum rate of 0.02% which is levied on deposits covered by the Deposit Guarantee Fund guarantee. the average annual liability calculated on the balance sheet less the own funds and deposits covered by the Deposit Guarantee Fund guarantee. The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2020 and 2019 may be analyzed as follows: The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2020 and 2019 may be analyzed as follows: Current tax Corporate tax recoverable Other Deferred tax (in thousands of Euros) 31.12.2020 31.12.2019 Ativo Passivo Ativo Passivo - - - 5 536 5 462 74 680 - 680 771 854 - 892 033 9 239 5 278 3 961 - 771 854 5 536 892 713 9 239 The deferred tax assets and liabilities recognized in the balance sheet in this period are as follows: 420 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 352- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE The deferred tax assets and liabilities recognized in the balance sheet in this period are as follows: NOVO BANCO (in thousands of Euros) Assets Liabilities 31.12.2020 31.12.2019 31.12.2020 31.12.2019 Net 31.12.2020 NOVO BANCO 31.12.2019 Financial instruments Impairment losses on loans and advances to customers Other tangible assets Provisions Pensions Debt securities issued Other Financial instruments Impairment losses on loans and advances to customers Deferred tax asset / (liability) Other tangible assets Provisions Asset / liability set-off for deferred tax purposes Pensions Net Deferred tax asset / (liability) Debt securities issued Other 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 Assets 64 012 788 341 - 38 975 31 185 - - 64 012 788 341 922 513 - 38 975 ( 150 659) 31 185 Assets 771 854 - - 55 247 903 759 - 48 375 26 938 - 745 55 247 903 759 1 035 064 - 48 375 ( 143 031) 26 938 892 033 - 745 (136 845) - ( 8 203) - - (5 611) - (136 845) - ( 150 659) ( 8 203) - 150 659 - - (5 611) - Liabilities Liabilities ( 134 654) - ( 8 377) - - - - ( 134 654) - ( 143 031) ( 8 377) - 143 031 - - - - Net (in thousands of Euros) ( 72 833) 788 341 ( 8 203) 38 975 31 185 31.12.2019 ( 5 611) NOVO BANCO - ( 72 833) 788 341 771 854 ( 8 203) 38 975 - 31 185 771 854 ( 5 611) - ( 79 407) 903 759 ( 8 377) 48 375 26 938 - 745 ( 79 407) 903 759 892 033 ( 8 377) 48 375 - 26 938 892 033 - 745 (in thousands of Euros) 31.12.2019 Net 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 922 513 64 012 788 341 ( 150 659) - 38 975 771 854 31 185 - - Deferred tax asset / (liability) The changes occurred in the deferred tax captions are as follows: Financial instruments Impairment losses on loans and advances to customers Asset / liability set-off for deferred tax purposes Other tangible assets Provisions Net Deferred tax asset / (liability) The changes occurred in the deferred tax captions are as follows: Pensions Debt securities issued Other The changes occurred in the deferred tax captions are as follows: Deferred tax asset / (liability) 892 033 ( 79 407) 903 759 - ( 8 377) 48 375 892 033 26 938 - 1 179 272 745 ( 36 185) 892 033 ( 105 153) ( 145 899) - ( 2) 892 033 1 179 272 892 033 ( 36 185) ( 105 153) ( 145 899) The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the following origins: ( 2) Balance at the beginning of the exercise Recognised in Results for the exercise Recognised in Fair value reserves Conversion of Deferred taxes into Tax credits Asset / liability set-off for deferred tax purposes Foreign exchange differences and other Balance at the beginning of the exercise Balance at the end of the exercise (Assets / (Liabilities)) Recognised in Results for the exercise Recognised in Fair value reserves Conversion of Deferred taxes into Tax credits Foreign exchange differences and other ( 143 031) ( 134 654) - 143 031 ( 8 377) - 31.12.2020 - - - 892 033 - ( 9 184) ( 2 814) ( 107 705) ( 476) 892 033 771 854 ( 9 184) ( 2 814) ( 107 705) ( 476) 771 854 ( 72 833) 788 341 - ( 8 203) 38 975 31.12.2019 771 854 31 185 ( 5 611) - The changes occurred in the deferred tax captions are as follows: 1 035 064 55 247 903 759 ( 143 031) - 48 375 892 033 26 938 - 745 ( 150 659) (136 845) - 150 659 ( 8 203) - - - (5 611) - Net Deferred tax asset / (liability) 31.12.2019 - 31.12.2020 143 031 1 035 064 ( 143 031) ( 150 659) ( 143 031) ( 150 659) 922 513 771 854 771 854 892 033 771 854 150 659 - - (in thousands of Euros) (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2019 (in thousands of Euros) 31.12.2020 31.12.2020 31.12.2019 Recognised in reserves Recognised in the income statement Balance at the end of the exercise (Assets / (Liabilities)) Balance at the end of the exercise (Assets / (Liabilities)) Balance at the beginning of the exercise Recognised in Results for the exercise Recognised in Fair value reserves Conversion of Deferred taxes into Tax credits Foreign exchange differences and other 892 033 1 179 272 ( 36 185) Recognised in ( 105 153) reserves The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the following origins: ( 145 899) (in thousands of Euros) ( 2) 105 153 Financial instruments The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the - Impairment losses on loans and advances to customers 892 033 following origins: Other tangible assets - Recognised in reserves Provisions - Pensions - The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the following origins: Financial instruments 105 153 Other - Impairment losses on loans and advances to customers - Tax losses carried forward - Other tangible assets - Deferred taxes 105 153 Recognised in Provisions - reserves Pensions - Current taxes - Other - 105 153 Total tax recognised (income) / (expense) 105 153 Financial instruments Tax losses carried forward - - Impairment losses on loans and advances to customers 105 153 Deferred taxes - Other tangible assets The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: - Provisions Current taxes - (in thousands of Euros) - Pensions 105 153 Total tax recognised (income) / (expense) - Other Valor - Tax losses carried forward (1 048 858) Income before tax Tax rate of NOVO BANCO The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: 105 153 Deferred taxes Tax rate of NOVO BANCO 21,0 (in thousands of Euros) ( 220 260) Income tax calculated based on the tax rate of NOVO BANCO - Current taxes 771 854 892 033 Recognised in ( 9 184) the income ( 2 814) statement ( 107 705) ( 476) 1 751 ( 136 523) 771 854 Recognised in ( 175) the income 33 208 statement 885 1 751 ( 991) ( 136 523) 138 030 ( 175) Recognised in 36 185 33 208 the income 885 2 541 statement ( 991) 38 726 1 751 138 030 ( 136 523) 36 185 ( 175) 33 208 2 541 885 38 726 ( 991) 138 030 ( 11 363) 13 324 Recognised in ( 174) the income 9 401 statement ( 2 004) ( 11 363) - 13 324 - ( 174) Recognised in 9 184 9 401 the income ( 2 004) ( 13 400) statement - ( 4 216) ( 11 363) - 13 324 9 184 ( 174) 9 401 ( 13 400) ( 2 004) ( 4 216) - - 5 057 - - Recognised in reserves - ( 2 243) 5 057 - - - - 2 814 Recognised in - reserves ( 2 243) - - 2 814 5 057 - - 2 814 - - - ( 2 243) 2 814 - % - (in thousands of Euros) (1 378 462) 31.12.2019 31.12.2020 31.12.2019 31.12.2019 31.12.2020 ( 289 477) ( 13 400) 2 814 21,0 36 185 2 541 9 184 Valor % - 31.12.2020 31.12.2019 % Valor ( 4 216) 38 726 Valor ( 1 759) Tax-exempt dividends 0,2 105 153 Total tax recognised (income) / (expense) Impairment on investments in subsidiaries or associated companies not subject to Participation Exemption 22 788 (2,2) Income before tax (1 048 858) Tax rate of NOVO BANCO Branch Tax and Tax Withheld Abroad 3 391 (0,3) Tax rate of NOVO BANCO 21,0 The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: (3,7) Rate differential in the generation / reversal of temporary differences 38 344 Income tax calculated based on the tax rate of NOVO BANCO ( 220 260) (in thousands of Euros) Annulment of tax losses carried forward 138 030 (13,2) ( 225 299) Impairments and provisions for credit 21,5 31.12.2019 0,2 Tax-exempt dividends ( 1 759) Impairments and fair value adjustments of securities 922 (0,1) Valor Impairment on investments in subsidiaries or associated companies not subject to Participation Exemption 22 788 (2,2) Provisions for other risks and charges and contingencies ( 6 264) 0,6 Branch Tax and Tax Withheld Abroad 3 391 (0,3) (1 048 858) Income before tax Tax rate of NOVO BANCO (24,2) Deferred tax asset not recognized on tax loss for the year 254 300 Rate differential in the generation / reversal of temporary differences 38 344 (3,7) 21,0 Tax rate of NOVO BANCO - Pension Fund - Annulment of tax losses carried forward 138 030 (13,2) ( 220 260) Income tax calculated based on the tax rate of NOVO BANCO Extraordinary Contribution and Additional Solidarity over the Banking Sector 5 689 (0,5) Impairments and provisions for credit ( 225 299) 21,5 28 844 (2,8) Others Impairments and fair value adjustments of securities 922 (0,1) ( 1 759) 0,2 Tax-exempt dividends Provisions for other risks and charges and contingencies ( 6 264) 0,6 38 726 (3,7) 22 788 (2,2) Impairment on investments in subsidiaries or associated companies not subject to Participation Exemption 254 300 (24,2) Deferred tax asset not recognized on tax loss for the year 3 391 (0,3) Branch Tax and Tax Withheld Abroad - - Pension Fund 38 344 (3,7) Rate differential in the generation / reversal of temporary differences 5 689 (0,5) Extraordinary Contribution and Additional Solidarity over the Banking Sector 138 030 (13,2) Annulment of tax losses carried forward 28 844 (2,8) Others ( 225 299) 21,5 Impairments and provisions for credit 922 (0,1) Impairments and fair value adjustments of securities (3,7) 38 726 Total tax recognized 421 ( 6 264) 0,6 Provisions for other risks and charges and contingencies 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 353- 254 300 (24,2) Deferred tax asset not recognized on tax loss for the year - - Pension Fund 5 689 (0,5) Extraordinary Contribution and Additional Solidarity over the Banking Sector 28 844 (2,8) Others % 0,0 2 814 (2,9) (0,2) 21,0 3,4 - (10,7) 31.12.2020 0,0 (7,6) % (2,9) (1,6) (0,2) (1,2) 3,4 21,0 0,0 - (0,5) (10,7) 0,5 (7,6) 0,0 (1,6) 0,3 (2,9) (1,2) (0,2) 0,0 3,4 (0,5) - 0,5 (10,7) (7,6) 0,3 (1,6) (1,2) 0,0 (0,5) 0,5 ( 482) 40 166 (1 378 462) 2 902 ( 46 706) ( 289 477) - 147 255 ( 482) 104 665 40 166 21 988 2 902 (1 378 462) 15 913 ( 46 706) ( 324) - ( 289 477) 6 760 147 255 ( 6 876) 104 665 ( 482) 21 988 ( 4 216) 40 166 15 913 2 902 ( 324) ( 46 706) 6 760 - ( 6 876) 147 255 104 665 ( 4 216) 21 988 15 913 ( 324) 6 760 ( 6 876) Total tax recognized Valor % Total tax recognized 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 0,3 ( 4 216) (3,7) 38 726 - 353- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 353- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO (in thousands of Euros) Impairment losses on loans and advances to customers Financial instruments Other tangible assets Provisions Pensions Other Debt securities issued Assets Liabilities Net 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2019 (136 845) ( 134 654) ( 8 203) ( 8 377) 64 012 788 341 38 975 31 185 - - - 55 247 903 759 48 375 26 938 - - 745 ( 79 407) 903 759 ( 8 377) 48 375 26 938 - 745 - - - - - ( 72 833) 788 341 ( 8 203) 38 975 31 185 ( 5 611) - - (5 611) - - - - - Deferred tax asset / (liability) 922 513 1 035 064 ( 150 659) ( 143 031) 771 854 892 033 Asset / liability set-off for deferred tax purposes ( 150 659) ( 143 031) 150 659 143 031 - Net Deferred tax asset / (liability) 771 854 892 033 - 771 854 892 033 The changes occurred in the deferred tax captions are as follows: Balance at the beginning of the exercise Recognised in Results for the exercise Recognised in Fair value reserves Conversion of Deferred taxes into Tax credits Foreign exchange differences and other Balance at the end of the exercise (Assets / (Liabilities)) (in thousands of Euros) 31.12.2020 31.12.2019 892 033 ( 9 184) ( 2 814) ( 107 705) ( 476) 771 854 1 179 272 ( 36 185) ( 105 153) ( 145 899) ( 2) 892 033 The current and deferred taxes recognized in the income statement and in reserves, in 2020 and 2019, had the following origins: Financial instruments Impairment losses on loans and advances to customers Other tangible assets Provisions Pensions Other Tax losses carried forward Deferred taxes 31.12.2020 31.12.2019 Recognised in the income statement Recognised in reserves Recognised in the income statement Recognised in reserves (in thousands of Euros) ( 11 363) 13 324 ( 174) 9 401 ( 2 004) - - 9 184 5 057 - - - ( 2 243) - - 2 814 1 751 ( 136 523) ( 175) 33 208 885 ( 991) 138 030 105 153 - - - - - - 36 185 105 153 Current taxes The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be Total tax recognised (income) / (expense) analyzed as follows: 105 153 ( 13 400) 38 726 ( 4 216) 2 541 2 814 - - The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: Income before tax Tax rate of NOVO BANCO Tax rate of NOVO BANCO Income tax calculated based on the tax rate of NOVO BANCO Tax-exempt dividends Impairment on investments in subsidiaries or associated companies not subject to Participation Exemption Branch Tax and Tax Withheld Abroad Rate differential in the generation / reversal of temporary differences Annulment of tax losses carried forward Impairments and provisions for credit Impairments and fair value adjustments of securities Provisions for other risks and charges and contingencies Deferred tax asset not recognized on tax loss for the year Pension Fund Extraordinary Contribution and Additional Solidarity over the Banking Sector Others Total tax recognized 31.12.2020 31.12.2019 % Valor % Valor (in thousands of Euros) 21,0 0,0 (2,9) (0,2) 3,4 - (10,7) (7,6) (1,6) (1,2) 0,0 (0,5) 0,5 0,3 (1 378 462) (1 048 858) ( 289 477) ( 220 260) 21,0 ( 482) 40 166 2 902 ( 46 706) - 147 255 104 665 21 988 15 913 ( 324) 6 760 ( 6 876) ( 4 216) 0,2 (2,2) (0,3) (3,7) (13,2) 21,5 (0,1) 0,6 (24,2) - (0,5) (2,8) (3,7) ( 1 759) 22 788 3 391 38 344 138 030 ( 225 299) 922 ( 6 264) 254 300 - 5 689 28 844 38 726 Deferred tax assets are recognized to the extent it is probable that taxable profits will be available allowing for the 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 353- utilization of the deductible temporary differences. The Bank has evaluated the recoverability of the deferred tax assets considering its expectations of future taxable profits until 2028. The recoverable deferred tax assets covered by the Special Regime applicable to Deferred Tax Assets is not dependent on the generation of future taxable income. Following the analyses of recoverability of deferred tax assets, the Bank on 31 December 2019 delisted deferred taxes related to tax losses amounting to Euro 251,000 thousand. As of 31 December 2020, NOVO BANCO has not registered deferred tax assets associated with tax losses. The assessment of the recoverability of the deferred tax assets is made annually. With reference to 31 December 2020, this exercise was made based on the latest business plan (“MTP”) for the period 2021-2023, submitted to the European Central Bank in the end of February 2021. In the evaluation of the expectation of future taxable income generation in Portugal for the purposes of the above recovery exercise, the following assumptions were also considered: • In addition to the detailed estimates up to 2023, it is assumed, thereafter an increase in pre-tax results at a rate of 2.64% from 2023; • Financial results moderate growth (average of 4%), with the expected cost of debt issuing to meet MREL requirements offset by the development of new lines of activity and the resumption of economic activity, which is strongly affected by the current pandemic situation. The growth in economic activity should also provide a return to commission levels to values similar to previous years; • Operating costs reduction, based on specific cost reduction plans and the implementation of a new distribution model, reflecting the favourable effect of the decrease in the number of employees and branches and, generally, the simplification and increase in the efficiency of processes; and • Credit impairment charges in line with the evolution of the Bank's activity and supported by macroeconomic pro- jections, bearing in mind, in particular, the significant effort made in the last few years in the provisioning of the loan portfolio and the progressive convergence towards gradually normalized risk costs. The evolution of the business plan used for this exercise is strongly conditioned by the evolution of the Covid-19 pandemic situation, whose evolution is difficult to predict. 422 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Depending on the analysis mentioned above, the amount of deferred taxes not recognized for tax losses, per year of expiry, is as follows: reflecting the favourable effect of the decrease in the number of employees and branches and, generally, the simplification and increase in the efficiency of processes; and Credit impairment charges in line with the evolution of the Bank's activity and supported by macroeconomic projections, bearing in mind, in particular, the significant effort made in the last few years in the provisioning of the loan portfolio a 468 903 progressive convergence towards gradually normalized risk costs. 1 124 790 1 593 693 2024-2026 2028 and following 482 974 1 124 790 1 607 764 (in thousands of Euros) 2019 2020 The evolution of the business plan used for this exercise is strongly conditioned by the evolution of the Covid whose evolution is difficult to predict. In addition, during the financial year 2020, the Bank became aware of the position of the tax authority with regard to adjustments resulting from the application of fair value to units in real estate investment funds and venture capital. These adjustments resulting from the application of the fair value model to units of real estate investment funds and venture capital funds do not contribute to the formation of the taxable profit of the tax period in which they are recognized in the accounting, having only tax relevance at the moment of the respective realization, namely in the onerous transfer of the units of participation or liquidation of the funds. The Bank is investigating the impacts related to temporary differences resulting from this understanding. Special Regime applicable to Deferred Tax Assets During 2014, NOVO BANCO adhered to the Special Regime applicable to deferred tax assets, after a favourable decision of the Shareholders General Meeting. The Special Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, covers deferred tax assets resulting from non-deduction of expenses and negative equity changes related to impairment losses on credit and with post-employment or long-term employee benefits. The changes to the mentioned above regime, introduced by Law No. 23/2016, of 19 August, limited the temporal appli- cation of the above mentioned negative expenses and equity variations, accounted for in the tax periods beginning on or after 1 January 2016, as well as the associated deferred taxes. Thus, the deferred taxes covered by this special regime correspond only to expenses and negative equity variations calculated up to 31 December 2015. Deferred tax assets covered by the above mentioned regime are convertible into tax credits when the taxpayer records a negative net result in the respective tax period, or in case of liquidation by voluntary dissolution or insolvency decreed by court decision. To convert to a tax credit (other than by liquidation or insolvency), a special reserve should be created for the amount of the respective tax credit increased by 10%. The exercise of conversion rights results in the capital increase of the taxable person by incorporation of the special reserve and issuance of new common shares. This special reserve may not be distributed. NOVO BANCO Deferred tax assets recorded by NOVO BANCO and considered eligible the special regime at 31 December 2020 and 2019, are as follows: Deferred tax assets recorded by NOVO BANCO and considered eligible the special regime at 31 December 2020 and 2019, are as follows: Credit impairment (in thousands of Euros) 31.12.2020 31.12.2019 400 414 400 414 516 072 516 072 Following the determination of a negative net income for the years between 2015 and 2019, the deferred tax assets converted or estimated to be converted by reference to the deferred tax assets eligible at the balance sheet date are as follows: 2019 2018 2017 2016 2015 (in thousands of Euros) Tax credit 110 922 161 974 127 575 99 474 153 555 As a result of Law No. 61/2014, the amount of deferred tax assets to be converted into a tax credit and the constitution of the special reserve shall be subject to certification by a statutory auditor, as well as to confirmation by the Tax and Customs Authority, within the scope of the review procedures for the assessment of the taxable income for the relevant tax periods. 423 NOTE 27 – OTHER ASSETS As at 31 December 2020 and 2019, the caption Other assets is analyzed as follows: Collateral deposits placed Derivative products Collateral CLEARNET and VISA Collateral deposits relating to reinsurance operations Other collateral deposits Recoverable government subsidies on mortgage loans Precious metals, numismatics, medal collection and other liquid assets Stock exchange transactions pending settlement Other assets Public sector Contingent Capital Agreement Other debtors Income receivable Deferred costs Real estate properties a) Equipment a) Impairment losses Real estate properties a) Equipment a) Other Other debtors - Shareholder loans, supplementary capital contributions (in thousands of Euros) 31.12.2020 31.12.2019 806 215 655 952 33 092 117 127 45 6 527 683 882 598 312 553 668 61 212 51 569 9 677 500 917 3 488 60 917 54 689 3 391 073 ( 267 438) ( 2 285) ( 109 538) ( 55 802) ( 435 063) 2 956 010 807 810 631 994 33 175 141 697 944 4 441 437 249 1 037 013 730 419 31 061 55 317 9 510 562 532 3 130 - 135 150 3 813 632 ( 267 656) ( 2 404) ( 111 051) ( 98 935) ( 480 046) 3 333 586 a) Real estate properties and equipment received in settlement of loans and discontinued The caption Other debtors includes, amongst others: • Euro 111.6 million of shareholder loans and supplementary capital contributions resulting from the assignment of loans and advances which are entirely provisioned (31 December 2019: Euro 111.6 million, entirely provisioned), and • Euro 67.0 million receivable in relation to the sale operation of non-performing loans (Project NATA II) (31 December 2019: Euro 126.5 million relating to NATA I and Euro 110.8 million relating to NATA II) (see Note 40); • Euro 21.8 million receivable in relation to the sale operation of real estate assets in 2019 (denominated “Sertorius Project”) (31 December 2019: Euro 21.0 million); and • Euro 37.9 million receivable in relation to the sale operation of real estate assets and non-performing loans in the Spanish Branch in 2019 (denominated “Albatros Project”) (31 December 2019: Euro 37.7 million); and • Euro 27.4 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”). As at 31 December 2020, the caption Deferred costs includes the amount of Euro 40,800 thousand (31 December 2019: Euro 43,372 thousand) related to the difference between the nominal amount of the loans and advances granted to Bank employees under the Collective Labour Agreement (ACT) for the banking sector and their respective fair value at grant date, calculated in accordance with 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 355- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Deferred tax assets recorded by NOVO BANCO and considered eligible the special regime at 31 December 2020 and 2019, are as follows: Credit impairment (in thousands of Euros) 31.12.2020 400 414 400 414 31.12.2019 NOVO BANCO 516 072 516 072 NOVO BANCO Following the determination of a negative net income for the years between 2015 and 2019, the deferred tax assets Deferred tax assets recorded by NOVO BANCO and considered eligible the special regime at 31 December 2020 and 2019, are as converted or estimated to be converted by reference to the deferred tax assets eligible at the balance sheet date are follows: as follows: Following the determination of a negative net income for the years between 2015 and 2019, the deferred tax assets converted or estimated to be converted by reference to the deferred tax assets eligible at the balance sheet date are as follows: (in thousands of Euros) 31.12.2019 31.12.2020 Credit impairment 2019 2018 2017 400 414 2016 400 414 (in thousands of Euros) 516 072 2015 516 072 Tax credit 110 922 161 974 127 575 99 474 153 555 As a result of Law No. 61/2014, the amount of deferred tax assets to be converted into a tax credit and the constitution of the special Following the determination of a negative net income for the years between 2015 and 2019, the deferred tax assets converted or reserve shall be subject to certification by a statutory auditor, as well as to confirmation by the Tax and Customs Authority, within the estimated to be converted by reference to the deferred tax assets eligible at the balance sheet date are as follows: scope of the review procedures for the assessment of the taxable income for the relevant tax periods. As a result of Law No. 61/2014, the amount of deferred tax assets to be converted into a tax credit and the constitution of the special reserve shall be subject to certification by a statutory auditor, as well as to confirmation by the Tax and NOTE 27 – OTHER ASSETS Customs Authority, within the scope of the review procedures for the assessment of the taxable income for the relevant As at 31 December 2020 and 2019, the caption Other assets is analyzed as follows: tax periods. As a result of Law No. 61/2014, the amount of deferred tax assets to be converted into a tax credit and the constitution of the special reserve shall be subject to certification by a statutory auditor, as well as to confirmation by the Tax and Customs Authority, within the (in thousands of Euros) scope of the review procedures for the assessment of the taxable income for the relevant tax periods. (in thousands of Euros) Tax credit 153 555 127 575 161 974 110 922 99 474 2016 2018 2015 2017 2019 NOTE 27 – Other assets Collateral deposits placed Derivative products NOTE 27 – OTHER ASSETS Collateral CLEARNET and VISA Collateral deposits relating to reinsurance operations Other collateral deposits As at 31 December 2020 and 2019, the caption Other assets is analyzed as follows: As at 31 December 2020 and 2019, the caption Other assets is analyzed as follows: Recoverable government subsidies on mortgage loans Public sector Contingent Capital Agreement Collateral deposits placed Other debtors Derivative products Income receivable Collateral CLEARNET and VISA Deferred costs Collateral deposits relating to reinsurance operations Precious metals, numismatics, medal collection and other liquid assets Other collateral deposits Real estate properties a) Recoverable government subsidies on mortgage loans Equipment a) Public sector Stock exchange transactions pending settlement Contingent Capital Agreement Other assets Other debtors Income receivable Deferred costs Impairment losses Real estate properties a) Precious metals, numismatics, medal collection and other liquid assets Equipment a) Real estate properties a) Other debtors - Shareholder loans, supplementary capital contributions Equipment a) Other Stock exchange transactions pending settlement Other assets a) Real estate properties and equipment received in settlement of loans and discontinued Impairment losses 31.12.2020 31.12.2019 31.12.2020 31.12.2019 806 215 655 952 33 092 117 127 45 6 527 683 882 598 312 806 215 553 668 655 952 61 212 33 092 51 569 117 127 9 677 45 500 917 6 527 3 488 683 882 60 917 598 312 54 689 553 668 3 391 073 61 212 51 569 9 677 ( 267 438) ( 2 285) 500 917 ( 109 538) 3 488 ( 55 802) 60 917 ( 435 063) 54 689 2 956 010 3 391 073 807 810 631 994 33 175 141 697 944 4 441 (in thousands of Euros) 437 249 1 037 013 807 810 730 419 631 994 31 061 33 175 55 317 141 697 9 510 944 562 532 4 441 3 130 437 249 - 1 037 013 135 150 730 419 3 813 632 31 061 55 317 9 510 ( 267 656) ( 2 404) 562 532 ( 111 051) 3 130 ( 98 935) - ( 480 046) 135 150 3 333 586 3 813 632 ( 267 656) ( 2 404) ( 111 051) ( 98 935) ( 480 046) ( 267 438) ( 2 285) ( 109 538) ( 55 802) ( 435 063) The caption Other debtors includes, amongst others: • Euro 111.6 million of shareholder loans and supplementary capital contributions resulting from the assignment of loans and Real estate properties a) Equipment a) Other debtors - Shareholder loans, supplementary capital contributions Other advances which are entirely provisioned (31 December 2019: Euro 111.6 million, entirely provisioned), and • Euro 67.0 million receivable in relation to the sale operation of non-performing loans (Project NATA II) (31 December 2019: Euro 126.5 million relating to NATA I and Euro 110.8 million relating to NATA II) (see Note 40); 2 956 010 3 333 586 • Euro 21.8 million receivable in relation to the sale operation of real estate assets in 2019 (denominated “Sertorius Project”) (31 a) Real estate properties and equipment received in settlement of loans and discontinued December 2019: Euro 21.0 million); and 126.5 million relating to NATA I and Euro 110.8 million relating to NATA II) (see Note 40); • Euro 37.9 million receivable in relation to the sale operation of real estate assets and non-performing loans in the Spanish Branch The caption Other debtors includes, amongst others: in 2019 (denominated “Albatros Project”) (31 December 2019: Euro 37.7 million); and • Euro 111.6 million of shareholder loans and supplementary capital contributions resulting from the assignment of loans and • Euro 27.4 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”). advances which are entirely provisioned (31 December 2019: Euro 111.6 million, entirely provisioned), and The caption Other debtors includes, amongst others: • Euro 67.0 million receivable in relation to the sale operation of non-performing loans (Project NATA II) (31 December 2019: Euro As at 31 December 2020, the caption Deferred costs includes the amount of Euro 40,800 thousand (31 December 2019: Euro 43,372 thousand) related to the difference between the nominal amount of the loans and advances granted to Bank employees under the • Euro 21.8 million receivable in relation to the sale operation of real estate assets in 2019 (denominated “Sertorius Project”) (31 • Euro 111.6 million of shareholder loans and supplementary capital contributions resulting from the assignment of Collective Labour Agreement (ACT) for the banking sector and their respective fair value at grant date, calculated in accordance with December 2019: Euro 21.0 million); and loans and advances which are entirely provisioned (31 December 2019: Euro 111.6 million, entirely provisioned), • Euro 37.9 million receivable in relation to the sale operation of real estate assets and non-performing loans in the Spanish Branch in 2019 (denominated “Albatros Project”) (31 December 2019: Euro 37.7 million); and • Euro 67.0 million receivable in relation to the sale operation of non-performing loans (Project NATA II) (31 December 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 355- Euro 27.4 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”). • 2019: Euro 126.5 million relating to NATA I and Euro 110.8 million relating to NATA II) (see Note 40); As at 31 December 2020, the caption Deferred costs includes the amount of Euro 40,800 thousand (31 December 2019: Euro 43,372 Euro 21.8 million receivable in relation to the sale operation of real estate assets in 2019 (denominated “Sertorius • thousand) related to the difference between the nominal amount of the loans and advances granted to Bank employees under the Project”) (31 December 2019: Euro 21.0 million); Collective Labour Agreement (ACT) for the banking sector and their respective fair value at grant date, calculated in accordance with 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 355- 424 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE • Euro 37.9 million receivable in relation to the sale operation of real estate assets and non-performing loans in the Spanish Branch in 2019 (denominated “Albatros Project”) (31 December 2019: Euro 37.7 million); and • Euro 27.4 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”). As at 31 December 2020, the caption Deferred costs includes the amount of Euro 40,800 thousand (31 December 2019: Euro 43,372 thousand) related to the difference between the nominal amount of the loans and advances granted to Bank employees under the Collective Labour Agreement (ACT) for the banking sector and their respective fair value at grant date, calculated in accordance with IFRS 9. This amount is charged to the income statement under staff costs over the lower of the remaining period to the maturity of the loan granted and the estimated remaining years of service life of the employee. The captions of Real estate properties and Equipment relate to foreclosed assets through the recovery of loans and advances and to discontinued facilities, for which the Bank has the objective of immediate sale. NOVO BANCO The Bank implemented a plan aimed at the immediate sale of all real estate property recorded in Other assets, continu- ing its efforts to meet the sales program established, of which we highlight the following (i) the existence of a web site IFRS 9. This amount is charged to the income statement under staff costs over the lower of the remaining period to the maturity of specifically aimed at the sale of real estate properties; (ii) the development and participation in real estate events both in the loan granted and the estimated remaining years of service life of the employee. Portugal and abroad; (iii) the establishment of protocols with several real estate agents; and (iv) the regular sponsorship The captions of Real estate properties and Equipment relate to foreclosed assets through the recovery of loans and advances and to of auctions. Despite its intention to sell these assets, the Bank regularly requests the Bank of Portugal’s authorization, discontinued facilities, for which the Bank has the objective of immediate sale. under article 114 of RGICSF, to extend the period the Bank has to hold foreclosed assets. The Bank implemented a plan aimed at the immediate sale of all real estate property recorded in Other assets, continuing its efforts The caption Collateral deposits placed includes, amongst others, deposits made by the Bank as collateral in order to to meet the sales program established, of which we highlight the following (i) the existence of a web site specifically aimed at the sale of real estate properties; (ii) the development and participation in real estate events both in Portugal and abroad; (iii) the establishment celebrate certain derivative contracts on organized markets (margin accounts) and on over the counter markets (Credit of protocols with several real estate agents; and (iv) the regular sponsorship of auctions. Despite its intention to sell these assets, the Support Annex – CSA). Bank regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the period the Bank has to hold foreclosed assets. Stock exchange transactions pending settlement refer to transactions of securities, recorded at the trade date and The caption Collateral deposits placed includes, amongst others, deposits made by the Bank as collateral in order to celebrate certain pending settlement, in accordance with the accounting policy described in Note 2.4. derivative contracts on organized markets (margin accounts) and on over the counter markets (Credit Support Annex – CSA). In the financial year of 2020, NOVO BANCO recorded impacts related to the sale of a portfolio of real estate assets Stock exchange transactions pending settlement refer to transactions of securities, recorded at the trade date and pending settlement, (Project Anibal). In the financial year of 2019, the Bank recorded impacts related to the sale of a portfolio of real estate in accordance with the accounting policy described in Note 2.4. assets (Project Sertorius) and to a sale of a portfolio of non-performing loans and real estate assets (Project Albatros). In the financial year of 2020, NOVO BANCO recorded impacts related to the sale of a portfolio of real estate assets (Project Anibal). The details of these operations can be found in Note 40. In the financial year of 2019, the Bank recorded impacts related to the sale of a portfolio of real estate assets (Project Sertorius) and to a sale of a portfolio of non-performing loans and real estate assets (Project Albatros). The details of these operations can be found During the financial year of 2020, a net impairment amount of Euro 41.3 million was booked (31 December 2019: Euro in Note 40. 198.2 million). Given the uncertainty related to this estimate, the Bank will continue to monitor this area as the impact During the financial year of 2020, a net impairment amount of Euro 41.3 million was booked (31 December 2019: Euro 198.2 million). of the Covid-19 pandemic on the Portuguese economy becomes clearer. Given the uncertainty related to this estimate, the Bank will continue to monitor this area as the impact of the Covid-19 pandemic on the Portuguese economy becomes clearer. The changes occurred in impairment losses are presented as follows: The changes occurred in impairment losses are presented as follows: Balance at the beginning of the exercise Allocation for the exercise Utilisation during the exercise Write-back for the exercise Foreign exchange differences and other Balance at the end of the exercise The changes occurred in the real estate properties were as follows: Balance at the beginning of the exercise Additions Sales Other movements Balance at the end of the exercise (in thousands of Euros) 31.12.2020 31.12.2019 480 046 53 588 ( 64 754) ( 11 427) ( 22 390) 435 063 553 947 263 227 ( 318 985) ( 20 578) 2 435 480 046 (in thousands of Euros) 31.12.2020 31.12.2019 562 532 25 971 ( 69 901) ( 17 685) 500 917 974 179 85 678 ( 497 263) ( 62) 562 532 As at 31 December 2020 and 2019, the detail of the real estate properties included in Other assets, by type, is as follows: 425 Land Urban Rural Buildings constructed Commercial Residential Others Others 31.12.2020 (in thousands of Euros) Number of properties Gross value Impairment Net book value Fair value of assets (a) 257 192 449 813 1 408 - - 32 033 189 977 222 010 145 717 133 048 - 11 451 142 038 153 489 71 766 35 853 - 20 582 47 939 68 521 73 951 97 195 - 21 613 48 860 70 473 75 800 107 511 - 2 221 278 765 107 619 171 146 183 311 142 6 330 ( 6 188) ( 6 188) 2 670 500 917 267 438 233 479 247 596 (a) Determined in accordance with accounting policy mentioned in Note 2.11 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 356- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO NOVO BANCO IFRS 9. This amount is charged to the income statement under staff costs over the lower of the remaining period to the maturity of the loan granted and the estimated remaining years of service life of the employee. The captions of Real estate properties and Equipment relate to foreclosed assets through the recovery of loans and advances and to IFRS 9. This amount is charged to the income statement under staff costs over the lower of the remaining period to the maturity of discontinued facilities, for which the Bank has the objective of immediate sale. the loan granted and the estimated remaining years of service life of the employee. The Bank implemented a plan aimed at the immediate sale of all real estate property recorded in Other assets, continuing its efforts The captions of Real estate properties and Equipment relate to foreclosed assets through the recovery of loans and advances and to to meet the sales program established, of which we highlight the following (i) the existence of a web site specifically aimed at the sale discontinued facilities, for which the Bank has the objective of immediate sale. of real estate properties; (ii) the development and participation in real estate events both in Portugal and abroad; (iii) the establishment of protocols with several real estate agents; and (iv) the regular sponsorship of auctions. Despite its intention to sell these assets, the The Bank implemented a plan aimed at the immediate sale of all real estate property recorded in Other assets, continuing its efforts Bank regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the period the Bank has to hold to meet the sales program established, of which we highlight the following (i) the existence of a web site specifically aimed at the sale of real estate properties; (ii) the development and participation in real estate events both in Portugal and abroad; (iii) the establishment foreclosed assets. of protocols with several real estate agents; and (iv) the regular sponsorship of auctions. Despite its intention to sell these assets, the The caption Collateral deposits placed includes, amongst others, deposits made by the Bank as collateral in order to celebrate certain Bank regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the period the Bank has to hold derivative contracts on organized markets (margin accounts) and on over the counter markets (Credit Support Annex – CSA). foreclosed assets. Stock exchange transactions pending settlement refer to transactions of securities, recorded at the trade date and pending settlement, The caption Collateral deposits placed includes, amongst others, deposits made by the Bank as collateral in order to celebrate certain in accordance with the accounting policy described in Note 2.4. derivative contracts on organized markets (margin accounts) and on over the counter markets (Credit Support Annex – CSA). In the financial year of 2020, NOVO BANCO recorded impacts related to the sale of a portfolio of real estate assets (Project Anibal). Stock exchange transactions pending settlement refer to transactions of securities, recorded at the trade date and pending settlement, In the financial year of 2019, the Bank recorded impacts related to the sale of a portfolio of real estate assets (Project Sertorius) and in accordance with the accounting policy described in Note 2.4. to a sale of a portfolio of non-performing loans and real estate assets (Project Albatros). The details of these operations can be found in Note 40. In the financial year of 2020, NOVO BANCO recorded impacts related to the sale of a portfolio of real estate assets (Project Anibal). In the financial year of 2019, the Bank recorded impacts related to the sale of a portfolio of real estate assets (Project Sertorius) and During the financial year of 2020, a net impairment amount of Euro 41.3 million was booked (31 December 2019: Euro 198.2 million). to a sale of a portfolio of non-performing loans and real estate assets (Project Albatros). The details of these operations can be found Given the uncertainty related to this estimate, the Bank will continue to monitor this area as the impact of the Covid-19 pandemic on in Note 40. the Portuguese economy becomes clearer. During the financial year of 2020, a net impairment amount of Euro 41.3 million was booked (31 December 2019: Euro 198.2 million). The changes occurred in impairment losses are presented as follows: Given the uncertainty related to this estimate, the Bank will continue to monitor this area as the impact of the Covid-19 pandemic on the Portuguese economy becomes clearer. (in thousands of Euros) 31.12.2020 31.12.2019 The changes occurred in impairment losses are presented as follows: Balance at the beginning of the exercise Allocation for the exercise Utilisation during the exercise Write-back for the exercise Balance at the beginning of the exercise Foreign exchange differences and other Allocation for the exercise Utilisation during the exercise Write-back for the exercise Foreign exchange differences and other Balance at the end of the exercise The changes occurred in the real estate properties were as follows: The changes occurred in the real estate properties were as follows: 480 046 31.12.2020 53 588 ( 64 754) ( 11 427) 480 046 ( 22 390) 53 588 435 063 ( 64 754) ( 11 427) ( 22 390) (in thousands of Euros) 31.12.2019 553 947 263 227 ( 318 985) ( 20 578) 553 947 2 435 263 227 480 046 ( 318 985) ( 20 578) 2 435 Balance at the end of the exercise 435 063 (in thousands of Euros) 480 046 31.12.2020 31.12.2019 The changes occurred in the real estate properties were as follows: Balance at the beginning of the exercise Additions Sales Other movements Balance at the beginning of the exercise 562 532 31.12.2020 25 971 ( 69 901) ( 17 685) 562 532 974 179 (in thousands of Euros) 85 678 ( 497 263) ( 62) 974 179 31.12.2019 Balance at the end of the exercise Additions Sales Other movements 500 917 25 971 ( 69 901) ( 17 685) 562 532 85 678 ( 497 263) ( 62) As at 31 December 2020 and 2019, the detail of the real estate properties included in Other assets, by type, is as follows: Balance at the end of the exercise 562 532 (in thousands of Euros) As at 31 December 2020 and 2019, the detail of the real estate properties included in Other assets, by type, is as follows: As at 31 December 2020 and 2019, the detail of the real estate properties included in Other assets, by type, is as follows: Number of properties Fair value of assets (a) (in thousands of Euros) Net book value Gross value Impairment 31.12.2020 500 917 Land Urban Rural Land Buildings constructed Urban Commercial Rural Residential Others Buildings constructed Others Commercial Residential Others (a) Determined in accordance with accounting policy mentioned in Note 2.11 Others 31.12.2020 Number of properties 257 192 449 Gross value 32 033 189 977 222 010 Impairment 11 451 142 038 153 489 20 582 Net book value 47 939 68 521 Fair value of assets (a) 21 613 48 860 70 473 257 813 192 1 408 449 - 2 221 813 - 1 408 - 2 670 2 221 - 32 033 145 717 189 977 133 048 222 010 - 278 765 145 717 142 133 048 - 500 917 278 765 142 11 451 71 766 142 038 35 853 153 489 - 107 619 71 766 6 330 35 853 - 267 438 107 619 6 330 20 582 73 951 47 939 97 195 68 521 - 171 146 73 951 ( 6 188) 97 195 - 233 479 171 146 ( 6 188) 267 438 233 479 21 613 75 800 48 860 107 511 70 473 - 183 311 75 800 ( 6 188) 107 511 - 247 596 183 311 ( 6 188) NOVO BANCO - 356- 247 596 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES (a) Determined in accordance with accounting policy mentioned in Note 2.11 500 917 2 670 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 356- Land Urban Rural Buildings under construction Commercial Residential Other Buildings constructed Commercial Residential Other Others 31.12.2019 (in thousands of Euros) Number of properties Gross value Impairment Net book value Fair value of assets (a) 315 225 540 2 2 1 5 335 2 081 227 2 643 5 52 309 190 678 242 987 36 271 1 577 1 884 58 269 169 596 83 289 311 154 6 507 24 496 127 859 152 355 4 187 752 943 23 215 47 733 36 109 107 057 7 301 27 813 62 819 90 632 32 84 825 941 35 054 121 863 47 180 204 097 ( 794) 94 931 63 771 158 702 59 646 825 1 530 44 622 144 225 50 769 239 616 ( 794) 3 193 562 532 267 656 294 876 399 054 (a) Determined in accordance with accounting policy mentioned in Note 2.11 The detail of the real estate properties included in Other assets, by ageing, is as follows: Land Urban Rural Buildings constructed 426 Commercial Residential Other Others Edifícios em desenvolvimento Land Urban Rural Comerciais Habitação Outros Commercial Residential Other Others Buildings constructed 31.12.2020 (in thousands of Euros) Up to 1 year 1 to 2.5 years 2.5 to 5 years More than 5 years Total net book value 76 139 215 10 934 7 273 - 18 207 ( 6 188) 2 110 2 730 4 840 19 978 15 558 - 35 536 - 10 565 15 370 25 935 23 163 26 024 - 49 187 - 7 831 29 700 37 531 19 876 48 340 - 68 216 - 20 582 47 939 68 521 73 951 97 195 - 171 146 ( 6 188) 12 234 40 376 75 122 105 747 233 479 31.12.2019 (in thousands of Euros) Up to 1 year 1 to 2.5 years 2.5 to 5 years More than 5 Total net book years value 2 225 7 698 9 923 68 - - 68 1 836 7 587 8 887 18 310 ( 794) 3 272 13 459 16 731 - - - - - 5 484 31 735 10 332 47 551 11 890 1 977 13 867 29 - 825 854 9 659 31 132 10 364 51 155 - 10 426 39 685 50 111 3 16 - 19 18 075 51 409 17 597 87 081 - 27 813 62 819 90 632 32 84 825 941 35 054 121 863 47 180 204 097 ( 794) 27 507 64 282 65 876 137 211 294 876 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 357- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO Number of properties Gross value Impairment Net book value 31.12.2019 (in thousands of Euros) Fair value of assets (a) 315 225 540 2 2 1 5 335 2 081 227 2 643 5 52 309 190 678 242 987 36 271 1 577 1 884 58 269 169 596 83 289 311 154 6 507 24 496 127 859 152 355 4 187 752 943 23 215 47 733 36 109 107 057 7 301 27 813 62 819 90 632 32 84 825 941 35 054 121 863 47 180 204 097 ( 794) 94 931 63 771 158 702 59 646 825 1 530 44 622 144 225 50 769 239 616 ( 794) 3 193 562 532 267 656 294 876 399 054 Buildings under construction Land Urban Rural Commercial Residential Other Buildings constructed Commercial Residential Other Others (a) Determined in accordance with accounting policy mentioned in Note 2.11 The detail of the real estate properties included in Other assets, by ageing, is as follows: The detail of the real estate properties included in Other assets, by ageing, is as follows: Land Urban Rural Buildings constructed Commercial Residential Other Others Land Urban Rural Edifícios em desenvolvimento Comerciais Habitação Outros Buildings constructed Commercial Residential Other Others 31.12.2020 (in thousands of Euros) Up to 1 year 1 to 2.5 years 2.5 to 5 years More than 5 years Total net book value 76 139 215 10 934 7 273 - 18 207 ( 6 188) 2 110 2 730 4 840 19 978 15 558 - 35 536 - 10 565 15 370 25 935 23 163 26 024 - 49 187 - 7 831 29 700 37 531 19 876 48 340 - 68 216 - 20 582 47 939 68 521 73 951 97 195 - 171 146 ( 6 188) 12 234 40 376 75 122 105 747 233 479 31.12.2019 (in thousands of Euros) Up to 1 year 1 to 2.5 years 2.5 to 5 years More than 5 years Total net book value 2 225 7 698 9 923 - 68 - 68 1 836 7 587 8 887 18 310 ( 794) 3 272 13 459 16 731 - - - - 5 484 31 735 10 332 47 551 - 11 890 1 977 13 867 29 - 825 854 9 659 31 132 10 364 51 155 - 10 426 39 685 50 111 3 16 - 19 18 075 51 409 17 597 87 081 - 27 813 62 819 90 632 32 84 825 941 35 054 121 863 47 180 204 097 ( 794) 27 507 64 282 65 876 137 211 294 876 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 357- As at 31 December 2020, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 35,535 thousand (31 December 2019: Euro 16,569 thousand), having the Bank recorded impairment losses for these assets in the total amount of Euro 28,661 thousand (31 December 2018: Euro 8,079 thousand). NOTE 28 –Non-current assets and disposal groups for sale classified as held for sale and liabilities included in disposal groups classified as held for sale This caption as at 31 December 2020 and 2019 is analyzed as follows: 427 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO As at 31 December 2020, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 35,535 thousand (31 December 2019: Euro 16,569 thousand), having the Bank recorded impairment losses for these assets in the total amount of Euro 28,661 thousand (31 December 2018: Euro 8,079 thousand). NOVO BANCO Ativo Ativo Ativo Passivo Passivo 31.12.2020 31.12.2020 Assets of discontinued operations Assets of discontinued operations This caption as at 31 December 2020 and 2019 is analyzed as follows: NOVO BANCO NOTE 28 –NON-CURRENT ASSETS AND DISPOSAL GROUPS FOR SALE CLASSIFIED AS HELD FOR SALE AND LIABILITIES As at 31 December 2020, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE 35,535 thousand (31 December 2019: Euro 16,569 thousand), having the Bank recorded impairment losses for these assets in the total amount of Euro 28,661 thousand (31 December 2018: Euro 8,079 thousand). This caption as at 31 December 2020 and 2019 is analyzed as follows: As at 31 December 2020, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro NOTE 28 –NON-CURRENT ASSETS AND DISPOSAL GROUPS FOR SALE CLASSIFIED AS HELD FOR SALE AND LIABILITIES (in thousands of Euros) 35,535 thousand (31 December 2019: Euro 16,569 thousand), having the Bank recorded impairment losses for these assets in the 31.12.2019 INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE total amount of Euro 28,661 thousand (31 December 2018: Euro 8,079 thousand). This caption as at 31 December 2020 and 2019 is analyzed as follows: NOTE 28 –NON-CURRENT ASSETS AND DISPOSAL GROUPS FOR SALE CLASSIFIED AS HELD FOR SALE AND LIABILITIES (in thousands of Euros) INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE 31.12.2019 Banco Well Link (previous NB Ásia) Banco Delle Tre Venezie ESEGUR GNB - Companhia de Seguros, S.A. Novo Banco Suc. en España, S.A. Banco Well Link (previous NB Ásia) Others Banco Delle Tre Venezie ESEGUR Impairment losses GNB - Companhia de Seguros, S.A. Assets of discontinued operations Banco Delle Tre Venezie Novo Banco Suc. en España, S.A. Banco Well Link (previous NB Ásia) ESEGUR Others Banco Delle Tre Venezie Novo Banco Suc. en España, S.A. ESEGUR Others Impairment losses GNB - Companhia de Seguros, S.A. Banco Delle Tre Venezie Novo Banco Suc. en España, S.A. Others ESEGUR Novo Banco Suc. en España, S.A. Others 4 121 8 926 9 634 3 749 - 4 121 3 619 8 926 30 049 9 634 Ativo 3 749 ( 6 626) - 4 121 - 3 619 8 926 - 30 049 9 634 ( 2 150) 3 749 ( 8 776) ( 6 626) - 21 273 3 619 - 30 049 - ( 2 150) ( 8 776) ( 6 626) Banco Delle Tre Venezie 21 273 - ESEGUR Other non-current assets held for sale include shareholdings and respective shareholder loans, which were reclassified Novo Banco Suc. en España, S.A. - As at 31 December 2019 and 2018, the results from discontinued operations is as follows: ( 2 150) Others to this caption under IFRS 5. Other non-current assets held for sale include shareholdings and respective shareholder loans, which were reclassified to this caption (in thousands of Euros) ( 8 776) under IFRS 5. As at 31 December 2020 and 2019, the results from discontinued operations is as follows: As at 31 December 2019 and 2018, the results from discontinued operations is as follows: Other non-current assets held for sale include shareholdings and respective shareholder loans, which were reclassified to this caption (in thousands of Euros) Transfers under IFRS 5. Sales Other movements Other non-current assets held for sale include shareholdings and respective shareholder loans, which were reclassified to this caption under IFRS 5. 1 883 8 926 9 634 - 1 725 555 1 883 2 150 8 926 1 748 148 9 634 Ativo - ( 6 626) 1 725 555 1 883 ( 4 460) 2 150 8 926 ( 166 000) 1 748 148 9 634 ( 2 150) - ( 179 236) ( 6 626) 1 725 555 1 568 912 2 150 ( 4 460) 1 748 148 ( 166 000) ( 2 150) ( 179 236) ( 6 626) 1 568 912 ( 4 460) ( 166 000) ( 2 150) ( 179 236) - - - - 2 007 770 - - - 2 007 770 - - - 2 007 770 - - - - - 2 007 770 - - - - - 2 007 770 2 007 770 - - 2 007 770 - - - - 2 007 770 - - - - Balance at the beginning of the exercise (in thousands of Euros) 31.12.2019 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 634 881 31.12.2020 2 007 770 Impairment losses 31.12.2019 31.12.2020 31.12.2019 31.12.2020 1 568 912 30 049 Passivo Passivo Passivo Passivo 21 273 Ativo As at 31 December 2019 and 2018, the results from discontinued operations is as follows: Balance at the beginning of the exercise Balance at the end of the exercise 31.12.2020 31.12.2019 (in thousands of Euros) ( 283 684) ( 5 987) - 30 049 ( 259 622) ( 283 684) ( 5 987) - 30 049 (in thousands of Euros) ( 259 622) 31.12.2020 ( 283 684) ( 5 987) - 11 869 (in thousands of Euros) ( 40 623) 15 532 ( 620 472) 108 634 881 30 049 15 532 ( 620 472) 108 634 881 30 049 15 532 ( 620 472) 108 - ( 84 147) 30 049 ( 84 147) ( 259 622) 31.12.2020 31.12.2019* 31.12.2019* ( 28 754) 11 869 ( 40 623) (in thousands of Euros) - ( 84 147) 11 869 ( 40 623) - ( 84 147) Transfers Sales Other movements Transfers Sales Other movements The results of operations discontinued as of 31 December 2020 and 2019 is as follows: Balance at the beginning of the exercise Balance at the end of the exercise Results from discontinued operations The results of operations discontinued as of 31 December 2020 and 2019 is as follows: GNB - Companhia de Seguros, S.A. Novo Banco Suc. en España, S.A. Balance at the end of the exercise The results of operations discontinued as of 31 December 2020 and 2019 is as follows: Results from discontinued operations The results of operations discontinued as of 31 December 2020 and 2019 is as follows: * Values restated to reflect the reclassification of the Spanish Branch for discontinued operation, which occurred in the third quarter of 2020 GNB - Companhia de Seguros, S.A. Novo Banco Suc. en España, S.A. During the 2020 fiscal year, GNB – Companhia de Seguros, S.A. was sold and in 2019 the Bank completed the sale process of Gama Life (GNB Vida) (see Note 40). In 2020 the Spanish branch was also transferred to the non-current assets and disposal groups Results from discontinued operations classified as held for sale. * Values restated to reflect the reclassification of the Spanish Branch for discontinued operation, which occurred in the third quarter of 2020 31.12.2019* 31.12.2020 ( 28 754) ( 84 147) GNB - Companhia de Seguros, S.A. Novo Banco Suc. en España, S.A. ( 84 147) ( 28 754) Gama Life (previous GNB Vida) During the 2020 fiscal year, GNB – Companhia de Seguros, S.A. was sold and in 2019 the Bank completed the sale process of Gama As a result of the commitments assumed between the Portuguese State and the European Competition Commission and Life (GNB Vida) (see Note 40). In 2020 the Spanish branch was also transferred to the non-current assets and disposal groups communicated to the Group at the end of 2017, after the completion of the Bank's sale process, the NOVO BANCO began in 2017 classified as held for sale. * Values restated to reflect the reclassification of the Spanish Branch for discontinued operation, which occurred in the third quarter of 2020 an organized process of selling a 100% stake. of the share capital of Gama Life (previous GNB Vida). In this sense, this company During the 2020 fiscal year, GNB – Companhia de Seguros, S.A. was sold and in 2019 the Bank completed the sale process of Gama started to be considered as a discontinued operation on 31 December 2017. On 12 September 2018, a company belonging to the Gama Life (previous GNB Vida) Life (GNB Vida) (see Note 40). In 2020 the Spanish branch was also transferred to the non-current assets and disposal groups Global Bankers Insurance Group, LLC, was entered into with Bankers Insurance Holdings, S.A., a purchase and sale agreement for As a result of the commitments assumed between the Portuguese State and the European Competition Commission and classified as held for sale. the entire share capital of Gama Life (previous GNB Vida). The derecognition of this participation occurred in September 2019, after communicated to the Group at the end of 2017, after the completion of the Bank's sale process, the NOVO BANCO began in 2017 During the 2020 fiscal year, GNB – Companhia de Seguros, S.A. was sold and in 2019 the Bank completed the sale obtaining the necessary regulatory authorizations (see Note 40). an organized process of selling a 100% stake. of the share capital of Gama Life (previous GNB Vida). In this sense, this company process of Gama Life (GNB Vida) (see Note 40). In 2020 the Spanish branch was also transferred to the non-current Gama Life (previous GNB Vida) started to be considered as a discontinued operation on 31 December 2017. On 12 September 2018, a company belonging to the As a result of the commitments assumed between the Portuguese State and the European Competition Commission and Global Bankers Insurance Group, LLC, was entered into with Bankers Insurance Holdings, S.A., a purchase and sale agreement for assets and disposal groups classified as held for sale. GNB Seguros communicated to the Group at the end of 2017, after the completion of the Bank's sale process, the NOVO BANCO began in 2017 the entire share capital of Gama Life (previous GNB Vida). The derecognition of this participation occurred in September 2019, after an organized process of selling a 100% stake. of the share capital of Gama Life (previous GNB Vida). In this sense, this company Also due to the commitments assumed between the Portuguese State and the European Competition Commission, during financial obtaining the necessary regulatory authorizations (see Note 40). started to be considered as a discontinued operation on 31 December 2017. On 12 September 2018, a company belonging to the year 2020 NOVO BANCO concluded the process of divesting its stake in GNB Insurance (25%), having recorded a gain of 11.9 Gama Life (previous GNB Vida) Global Bankers Insurance Group, LLC, was entered into with Bankers Insurance Holdings, S.A., a purchase and sale agreement for million euros. GNB Seguros the entire share capital of Gama Life (previous GNB Vida). The derecognition of this participation occurred in September 2019, after As a result of the commitments assumed between the Portuguese State and the European Competition Commission obtaining the necessary regulatory authorizations (see Note 40). Also due to the commitments assumed between the Portuguese State and the European Competition Commission, during financial and communicated to the Group at the end of 2017, after the completion of the Bank's sale process, the NOVO BANCO year 2020 NOVO BANCO concluded the process of divesting its stake in GNB Insurance (25%), having recorded a gain of 11.9 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 358- million euros. began in 2017 an organized process of selling a 100% stake. of the share capital of Gama Life (previous GNB Vida). In GNB Seguros this sense, this company started to be considered as a discontinued operation on 31 December 2017. On 12 September Also due to the commitments assumed between the Portuguese State and the European Competition Commission, during financial 2018, a company belonging to the Global Bankers Insurance Group, LLC, was entered into with Bankers Insurance year 2020 NOVO BANCO concluded the process of divesting its stake in GNB Insurance (25%), having recorded a gain of 11.9 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 358- million euros. Holdings, S.A., a purchase and sale agreement for the entire share capital of Gama Life (previous GNB Vida). The derecognition of this participation occurred in September 2019, after obtaining the necessary regulatory authorizations (see Note 40). 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 358- 428 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE GNB Seguros Also due to the commitments assumed between the Portuguese State and the European Competition Commission, during financial year 2020 NOVO BANCO concluded the process of divesting its stake in GNB Insurance (25%), having recorded a gain of 11.9 million euros. Spanish Branch NOVO BANCO Following the accounting policy followed by the NOVO BANCO, and in accordance with IFRS5 - Non-current assets NOVO BANCO held for sale and discontinued operations, during the year 2020 the Bank proceeded to transfer its activity in Spain Spanish Branch to the heading of Non-current assets and divestiture groups classified as held for sale, as their value is expected Following the accounting policy followed by the NOVO BANCO, and in accordance with IFRS5 5 - Non-current assets held for sale to be recovered through a sale transaction and it is highly probable, with the respective assets in immediate sale and discontinued operations, during the year 2020 the Bank proceeded to transfer its activity in Spain to the heading of Non-current conditions. The determination of fair value less costs to sell, which took into account the amounts received from assets and divestiture groups classified as held for sale, as their value is expected to be recovered through a sale transaction and it Spanish Branch is highly probable, with the respective assets in immediate sale conditions. The determination of fair value less costs to sell, which potential interested in partial sales of this activity, the cost of selling a selected loan portfolio, and the cost of took into account the amounts received from potential interested in partial sales of this activity, the cost of selling a selected loan Following the accounting policy followed by the NOVO BANCO, and in accordance with IFRS5 5 - Non-current assets held for sale discontinuing the remaining residual activity, resulted in a need to establish an impairment of 166.0 million euros. portfolio, and the cost of discontinuing the remaining residual activity, resulted in a need to establish an impairment of 166.0 million and discontinued operations, during the year 2020 the Bank proceeded to transfer its activity in Spain to the heading of Non-current euros. assets and divestiture groups classified as held for sale, as their value is expected to be recovered through a sale transaction and it The impairment movement for non-current Assets for disposal classified as held for sale is as follow: is highly probable, with the respective assets in immediate sale conditions. The determination of fair value less costs to sell, which The impairment movement for non-current Assets for disposal classified as held for sale is as follow: took into account the amounts received from potential interested in partial sales of this activity, the cost of selling a selected loan portfolio, and the cost of discontinuing the remaining residual activity, resulted in a need to establish an impairment of 166.0 million (in thousands of Euros) euros. 31.12.2020 31.12.2019 The impairment movement for non-current Assets for disposal classified as held for sale is as follow: Balance at the beginning of the exercise 8 776 Allocation / (reversals) for the exercise Utilizations Exchange differences and other Balance at the beginning of the exercise Balance at the end of the exercise Allocation / (reversals) for the exercise Utilizations Exchange differences and other Balance at the end of the exercise a) As of 31 December 2017 it refers to the impairment of the participation in GNB Vida transferred from investments in associates and subsidiaries NOTE 29 – FINANCIAL LIABILITIES MEASURED AT AMORTISED COST This caption as at 31 December 2020 and 2019 is analyzed as follows: NOTE 29 – Financial liabilities measured at amortised cost a) As of 31 December 2017 it refers to the impairment of the participation in GNB Vida transferred from investments in associates and subsidiaries NOTE 29 – FINANCIAL LIABILITIES MEASURED AT AMORTISED COST (in tousands of Euros) This caption as at 31 December 2020 and 2019 is analyzed as follows: This caption as at 31 December 2020 and 2019 is analyzed as follows: Deposits from banks Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities Deposits from banks Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Deposits from Banks Other financial liabilities The balance of Deposits from banks is composed, as to its nature, as follows: Deposits from Banks The balance of Deposits from banks is composed, as to its nature, as follows: Deposits from Central Banks From the European System of Central Banks Deposits Other funds Deposits from Central Banks From the European System of Central Banks Deposits from credit institutions Domestic Deposits Other funds Deposits Other funds Deposits from credit institutions Foreign Domestic Deposits Deposits Loans Other funds Operations with repurchase agreements Other resources Foreign Deposits Loans Operations with repurchase agreements Other resources (in thousands of Euros) 448 373 31.12.2020 170 460 - - 8 776 170 460 179 236 - - 31.12.2019 55 775 ( 497 472) 2 100 448 373 55 775 8 776 ( 497 472) 2 100 179 236 8 776 31.12.2020 31.12.2019 10 778 468 25 778 507 974 996 364 013 10 542 549 27 980 577 (in tousands of Euros) 1 044 445 356 993 31.12.2019 31.12.2020 10 778 468 37 895 984 25 778 507 974 996 364 013 10 542 549 39 924 564 27 980 577 1 044 445 356 993 37 895 984 39 924 564 (in thousands of Euros) 31.12.2020 31.12.2019 (in thousands of Euros) 31.12.2020 29 030 7 004 000 7 033 030 31.12.2019 36 176 6 087 000 6 123 176 29 030 7 004 000 889 876 7 033 030 4 792 894 668 624 873 889 876 596 534 4 792 1 625 724 894 668 3 639 2 850 770 624 873 596 534 3 745 438 1 625 724 3 639 10 778 468 2 850 770 36 176 6 087 000 681 478 6 123 176 12 674 694 152 914 414 681 478 634 557 12 674 2 168 488 694 152 7 762 3 725 221 914 414 634 557 4 419 373 2 168 488 7 762 10 542 549 3 725 221 429 As at 31 December 2020, the caption Other funds from the European System of Central Banks includes Euro 7,004 million covered 4 419 373 by Bank financial assets pledged as collateral, as part of the third series of longer-term refinancing operations of the European 10 542 549 Central Bank (TLTRO III). The bonus introduced by the ECB in the interest rate of these transactions, in accordance with the provisions of IAS 20, is being deducted from financing costs on a linear basis for accounting purposes, taking into account the Bank's 10 778 468 3 745 438 expectation of complying with the eligibility requirements set by the ECB. As at 31 December 2020, the caption Other funds from the European System of Central Banks includes Euro 7,004 million covered by Bank financial assets pledged as collateral, as part of the third series of longer-term refinancing operations of the European Central Bank (TLTRO III). The bonus introduced by the ECB in the interest rate of these transactions, in accordance with the 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES provisions of IAS 20, is being deducted from financing costs on a linear basis for accounting purposes, taking into account the Bank's - 359- expectation of complying with the eligibility requirements set by the ECB. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 359- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Spanish Branch Following the accounting policy followed by the NOVO BANCO, and in accordance with IFRS5 5 - Non-current assets held for sale and discontinued operations, during the year 2020 the Bank proceeded to transfer its activity in Spain to the heading of Non-current assets and divestiture groups classified as held for sale, as their value is expected to be recovered through a sale transaction and it is highly probable, with the respective assets in immediate sale conditions. The determination of fair value less costs to sell, which took into account the amounts received from potential interested in partial sales of this activity, the cost of selling a selected loan portfolio, and the cost of discontinuing the remaining residual activity, resulted in a need to establish an impairment of 166.0 million euros. The impairment movement for non-current Assets for disposal classified as held for sale is as follow: Balance at the beginning of the exercise Allocation / (reversals) for the exercise Utilizations Exchange differences and other Balance at the end of the exercise a) As of 31 December 2017 it refers to the impairment of the participation in GNB Vida transferred from investments in associates and subsidiaries NOTE 29 – FINANCIAL LIABILITIES MEASURED AT AMORTISED COST This caption as at 31 December 2020 and 2019 is analyzed as follows: NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 8 776 170 460 - - 179 236 448 373 55 775 ( 497 472) 2 100 8 776 Deposits from banks Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities Deposits from Banks Deposits from Banks The balance of Deposits from banks is composed, as to its nature, as follows: The balance of Deposits from banks is composed, as to its nature, as follows: Deposits from Central Banks From the European System of Central Banks Deposits Other funds Deposits from credit institutions Domestic Deposits Other funds Foreign Deposits Loans Operations with repurchase agreements Other resources (in tousands of Euros) 31.12.2020 31.12.2019 10 778 468 25 778 507 974 996 364 013 10 542 549 27 980 577 1 044 445 356 993 37 895 984 39 924 564 (in thousands of Euros) 31.12.2020 31.12.2019 29 030 7 004 000 7 033 030 36 176 6 087 000 6 123 176 889 876 4 792 894 668 624 873 596 534 1 625 724 3 639 2 850 770 681 478 12 674 694 152 914 414 634 557 2 168 488 7 762 3 725 221 3 745 438 4 419 373 10 778 468 10 542 549 As at 31 December 2020, the caption Other funds from the European System of Central Banks includes Euro 7,004 million covered by Bank financial assets pledged as collateral, as part of the third series of longer-term refinancing operations of the European Central Bank (TLTRO III). The bonus introduced by the ECB in the interest rate of these transactions, in accordance with the provisions of IAS 20, is being deducted from financing costs on a linear basis for accounting purposes, taking into account the Bank's As at 31 December 2020, the caption Other funds from the European System of Central Banks includes Euro 7,004 expectation of complying with the eligibility requirements set by the ECB. million covered by Bank financial assets pledged as collateral, as part of the third series of longer-term refinancing operations of the European Central Bank (TLTRO III). The bonus introduced by the ECB in the interest rate of these 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 359- transactions, in accordance with the provisions of IAS 20, is being deducted from financing costs on a linear basis for accounting purposes, taking into account the Bank's expectation of complying with the eligibility requirements set by NOVO BANCO the ECB. The balance of the caption Repurchase agreements operations corresponds to the sale of securities with purchasing agreement (repos), recorded in accordance with the accounting policy mentioned in Note 2.5. The balance of the caption Repurchase agreements operations corresponds to the sale of securities with purchasing agreement (repos), recorded in accordance with the accounting policy mentioned in Note 2.5. As at 31 December 2020 and 2019, the analysis of Deposits from banks, by maturity, is as follows: As at 31 December 2020 and 2019, the analysis of Deposits from banks, by maturity, is as follows: Deposits from Central Banks Up to 3 months From 3 months to 1 year From 1 to 5 years Deposits from Banks Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years The analysis of Repurchase agreements operations, by residual maturity, is as follows: The balance of Deposits due to costumers is composed, as follows: Foreign Up to 3 months From 3 months to 1 year From 1 to 5 years 430 Due to customers Repayable on demand Demand deposits Time deposits Time deposits Other Savings accounts Retirement saving accounts Other Other funds Other (in thousands of Euros) 31.12.2020 31.12.2019 29 030 - 7 004 000 7 033 030 1 420 031 666 868 1 087 233 571 306 3 745 438 1 286 176 3 210 000 1 627 000 6 123 176 2 421 436 361 732 1 091 606 544 599 4 419 373 10 778 468 10 542 549 (milhares de euros) 31.12.2020 31.12.2019 225 507 350 014 1 050 203 1 306 243 199 972 662 273 1 625 724 2 168 488 (in thousands of Euros) 31.12.2020 31.12.2019 11 475 826 11 877 766 9 187 317 241 9 187 558 232 741 4 673 474 4 906 215 208 908 208 908 11 228 519 253 11 228 772 243 507 4 439 813 4 683 320 190 719 190 719 25 778 507 27 980 577 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 360- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE The balance of the caption Repurchase agreements operations corresponds to the sale of securities with purchasing agreement NOVO BANCO (repos), recorded in accordance with the accounting policy mentioned in Note 2.5. As at 31 December 2020 and 2019, the analysis of Deposits from banks, by maturity, is as follows: The balance of the caption Repurchase agreements operations corresponds to the sale of securities with purchasing agreement (in thousands of Euros) (repos), recorded in accordance with the accounting policy mentioned in Note 2.5. 31.12.2020 31.12.2019 As at 31 December 2020 and 2019, the analysis of Deposits from banks, by maturity, is as follows: Deposits from Central Banks Up to 3 months From 3 months to 1 year From 1 to 5 years Deposits from Central Banks Up to 3 months Deposits from Banks From 3 months to 1 year Up to 3 months From 1 to 5 years From 3 months to 1 year From 1 to 5 years Deposits from Banks More than 5 years Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years The analysis of Repurchase agreements operations, by residual maturity, is as follows: The analysis of Repurchase agreements operations, by residual maturity, is as follows: The analysis of Repurchase agreements operations, by residual maturity, is as follows: Foreign Up to 3 months From 3 months to 1 year From 1 to 5 years Foreign Up to 3 months From 3 months to 1 year From 1 to 5 years Due to customers The balance of Deposits due to costumers is composed, as follows: Due to customers Due to customers The balance of Deposits due to costumers is composed, as follows: The balance of Deposits due to costumers is composed, as follows: Repayable on demand Demand deposits Time deposits Repayable on demand Time deposits Demand deposits Other Time deposits Savings accounts Time deposits Retirement saving accounts Other Other Savings accounts Other funds Retirement saving accounts Other Other Other funds Other NOVO BANCO 29 030 (in thousands of Euros) 1 286 176 31.12.2020 - 3 210 000 31.12.2019 7 004 000 7 033 030 29 030 - 1 420 031 7 004 000 666 868 7 033 030 1 087 233 571 306 3 745 438 1 420 031 666 868 10 778 468 1 087 233 571 306 3 745 438 1 627 000 6 123 176 1 286 176 3 210 000 2 421 436 1 627 000 361 732 6 123 176 1 091 606 544 599 4 419 373 2 421 436 361 732 10 542 549 1 091 606 544 599 4 419 373 10 778 468 10 542 549 (milhares de euros) 31.12.2020 31.12.2019 31.12.2020 225 507 350 014 1 050 203 31.12.2019 (milhares de euros) 1 306 243 199 972 662 273 1 625 724 225 507 350 014 1 050 203 2 168 488 1 306 243 199 972 662 273 1 625 724 2 168 488 (in thousands of Euros) 31.12.2020 31.12.2019 11 475 826 (in thousands of Euros) 11 877 766 31.12.2020 31.12.2019 9 187 317 11 475 826 241 9 187 558 9 187 317 232 741 241 4 673 474 9 187 558 4 906 215 232 741 208 908 4 673 474 208 908 4 906 215 25 778 507 208 908 208 908 11 228 519 11 877 766 253 11 228 772 11 228 519 243 507 253 4 439 813 11 228 772 4 683 320 243 507 190 719 4 439 813 190 719 4 683 320 27 980 577 190 719 190 719 25 778 507 27 980 577 NOVO BANCO As at 31 December 2020 and 2019, the caption Due to customers, by residual maturity periods, is as follows: As at 31 December 2020 and 2019, the caption Due to customers, by residual maturity periods, is as follows: (in thousands of Euros) 31.12.2020 31.12.2019 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Repayable on demand 11 475 826 11 877 766 - 360- Term deposits 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Up to 3 months 3 months to 1 year 1 to 5 years More than 5 years 7 124 178 5 561 554 1 576 564 40 385 7 204 511 5 866 566 2 572 125 459 609 - 360- 14 302 681 16 102 811 25 778 507 27 980 577 Debt Securities issued, subordinated debt and financial liabilities associated to transferred assets This caption breaks down as follows: Debt securities issued Euro Medium Term Notes (EMTN) Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations 431 (in thousands of Euros) 31.12.2020 31.12.2019 515 311 495 989 415 234 415 069 44 451 133 387 974 996 1 044 445 Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum amount of Euro 10,000 million, the Bank issued covered bonds which amount to Euro 5,500 million (31 December 2019: Euro 5,500 million), being these covered bonds totally repurchased by the Bank. The main characteristics of the outstanding issues as at 31 December 2020 and 2019 are as follows: Designation Issue date Maturity date Interest Rate Market Nominal value (in thousands of Euros) Carrying book value (in thousands of Euros) NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 NB 2019 SR.6 NB 2019 SR.7 NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 NB 2019 SR.6 NB 2019 SR.7 1 000 000 1 000 000 1 000 000 700 000 500 000 750 000 550 000 5 500 000 1 000 000 1 000 000 1 000 000 700 000 500 000 750 000 550 000 5 500 000 Nominal value (in thousands of Euros) Carrying book value (in thousands of Euros) - - - - - - - - - - - - - - - - 31.12.2020 31.12.2019 Interest payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Interest payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 10/12/2019 10/12/2019 07/10/2021 07/10/2024 07/10/2020 07/10/2022 22/12/2023 10/06/2023 10/12/2024 Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 10/12/2019 10/12/2019 07/10/2021 07/10/2024 07/10/2020 07/10/2022 22/12/2023 10/06/2023 10/12/2024 Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Designation Issue date Maturity date Interest Rate Market (in thousands of Euros) Rating Moody's DBRS XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A A A A A A A A A A A A A A (in thousands of Euros) Rating Moody's DBRS These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in NOVO BANCO Bank’s accounts as autonomous patrimony and over which the holders of the relevant covered debt securities have a special creditor privilege. The conditions of the covered debt securities issues are framed in Decree-Law No. 59/2006, and in Notices No. 5, 6, 7 and 8/2006 and Instruction No. 13/2006 of Bank of Portugal. As at 31 December 2020, the assets that collateralize these covered debt securities amount to Euro 6,104.8 million (31 December 2019: Euro 6,076.8 million) (see Note 21). 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 361- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES As at 31 December 2020 and 2019, the caption Due to customers, by residual maturity periods, is as follows: NOVO BANCO 31.12.2020 (in thousands of Euros) NOVO BANCO 31.12.2019 Repayable on demand 11 475 826 As at 31 December 2020 and 2019, the caption Due to customers, by residual maturity periods, is as follows: 11 877 766 31.12.2020 7 124 178 5 561 554 1 576 564 11 475 826 40 385 31.12.2019 (in thousands of Euros) 7 204 511 5 866 566 2 572 125 11 877 766 459 609 Term deposits Up to 3 months 3 months to 1 year 1 to 5 years Repayable on demand More than 5 years Term deposits 14 302 681 7 124 178 25 778 507 5 561 554 1 576 564 40 385 16 102 811 7 204 511 27 980 577 5 866 566 2 572 125 459 609 Debt Securities issued, subordinated debt and financial liabilities associated to transferred assets Debt Securities issued, subordinated debt and financial liabilities associated to transferred assets This caption breaks down as follows: Up to 3 months 3 months to 1 year 1 to 5 years More than 5 years This caption breaks down as follows: 14 302 681 16 102 811 25 778 507 (in thousands of Euros) 27 980 577 31.12.2020 31.12.2019 Debt Securities issued, subordinated debt and financial liabilities associated to transferred assets Debt securities issued Euro Medium Term Notes (EMTN) This caption breaks down as follows: Subordinated debt Bonds Financial liabilities associated to transferred assets Debt securities issued Asset lending operations Euro Medium Term Notes (EMTN) Subordinated debt 515 311 495 989 (in thousands of Euros) 415 234 31.12.2020 415 069 31.12.2019 44 451 515 311 974 996 133 387 495 989 1 044 445 Bonds Financial liabilities associated to transferred assets 415 069 Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum amount of Euro 10,000 million, the Bank issued covered bonds which amount to Euro 5,500 million (31 December 2019: Euro 5,500 million), being 133 387 Asset lending operations these covered bonds totally repurchased by the Bank. The main characteristics of the outstanding issues as at 31 December 2020 Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum and 2019 are as follows: 1 044 445 (in thousands of Euros) amount of Euro 10,000 million, the Bank issued covered bonds which amount to Euro 5,500 million (31 December 31.12.2020 2019: Euro 5,500 million), being these covered bonds totally repurchased by the Bank. The main characteristics of the Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum amount of Euro 10,000 million, the Bank issued covered bonds which amount to Euro 5,500 million (31 December 2019: Euro 5,500 million), being outstanding issues as at 31 December 2020 and 2019 are as follows: Interest these covered bonds totally repurchased by the Bank. The main characteristics of the outstanding issues as at 31 December 2020 payment and 2019 are as follows: Carrying book value (in thousands of Euros) Nominal value (in thousands of Euros) 974 996 415 234 Maturity date Interest Rate Designation 44 451 Issue date Moody's Market Rating DBRS NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 Designation NB 2019 SR.6 NB 2019 SR.7 NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 NB 2019 SR.6 NB 2019 SR.7 Designation 1 000 000 1 000 000 1 000 000 700 000 Nominal value 500 000 (in thousands 750 000 of Euros) 550 000 1 000 000 5 500 000 1 000 000 1 000 000 700 000 500 000 750 000 Nominal value 550 000 (in thousands of Euros) 5 500 000 - - - Carrying book - value (in - thousands of - Euros) - - - - - - - Carrying book - value (in - thousands of - Euros) 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 Issue date 10/12/2019 10/12/2019 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 10/12/2019 10/12/2019 Issue date NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 Designation NB 2019 SR.6 NB 2019 SR.7 NB 2015 SR.1 NB 2015 SR.2 NB 2015 SR.3 NB 2015 SR.4 NB 2015 SR.5 NB 2019 SR.6 NB 2019 SR.7 1 000 000 1 000 000 1 000 000 Nominal value 700 000 500 000 (in thousands 750 000 of Euros) 550 000 1 000 000 5 500 000 1 000 000 1 000 000 700 000 500 000 750 000 550 000 - - - Carrying book - value (in - thousands of - Euros) - - - - - - - - - 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 Issue date 10/12/2019 10/12/2019 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 10/12/2019 10/12/2019 31.12.2020 31.12.2019 31.12.2019 07/10/2021 07/10/2024 07/10/2020 07/10/2022 22/12/2023 Maturity date 10/06/2023 10/12/2024 07/10/2021 07/10/2024 07/10/2020 07/10/2022 22/12/2023 10/06/2023 10/12/2024 Maturity date 07/10/2021 07/10/2024 07/10/2020 07/10/2022 22/12/2023 Maturity date 10/06/2023 10/12/2024 07/10/2021 07/10/2024 07/10/2020 07/10/2022 22/12/2023 10/06/2023 10/12/2024 Quarterly Quarterly Quarterly Quarterly Interest Quarterly payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Interest Quarterly payment Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Interest Rate Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Interest Rate XDUB XDUB XDUB XDUB XDUB Market XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB Market Quarterly Quarterly Quarterly Quarterly Interest Quarterly payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Interest Rate Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% Euribor 3 Months + 0,25% XDUB XDUB XDUB XDUB XDUB Market XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB (in thousands of Euros) (in thousands of Euros) Rating Rating Rating A2 A2 A2 A2 A2 A2 Moody's A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 Moody's A2 A2 A2 A2 A2 A2 A2 A2 A A A A A A DBRS A A A A A A A A A A A A A A DBRS A A A A A A A A Moody's DBRS (in thousands of Euros) These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in NOVO BANCO Bank’s accounts as autonomous patrimony and over which the holders of the relevant covered debt securities have a special creditor privilege. The conditions of the covered debt securities issues are framed in Decree-Law No. 59/2006, and in Notices No. 5, 6, 7 and 8/2006 and Instruction No. 13/2006 of Bank of Portugal. 5 500 000 - As at 31 December 2020, the assets that collateralize these covered debt securities amount to Euro 6,104.8 million (31 December These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in NOVO BANCO 2019: Euro 6,076.8 million) (see Note 21). Bank’s accounts as autonomous patrimony and over which the holders of the relevant covered debt securities have a special creditor privilege. The conditions of the covered debt securities issues are framed in Decree-Law No. 59/2006, and in Notices No. 5, 6, 7 and 8/2006 and Instruction No. 13/2006 of Bank of Portugal. These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated As at 31 December 2020, the assets that collateralize these covered debt securities amount to Euro 6,104.8 million (31 December in Bank’s accounts as autonomous patrimony and over which the holders of the relevant covered debt securities 2019: Euro 6,076.8 million) (see Note 21). 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 361- have a special creditor privilege. The conditions of the covered debt securities issues are framed in Decree-Law No. 59/2006, and in Notices No. 5, 6, 7 and 8/2006 and Instruction No. 13/2006 of Bank of Portugal. As at 31 December 2020, the assets that collateralize these covered debt securities amount to Euro 6,104.8 million (31 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 361- December 2019: Euro 6,076.8 million) (see Note 21). 432 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO The changes in the financial years of 2020 and 2019 in Debt securities issued, subordinated debt and financial liabilities associated to transferred assets was as follows: The changes in the financial years of 2020 and 2019 in Debt securities issued, subordinated debt and financial liabilities associated to transferred assets was as follows: Balance as at 31.12.2019 Issues Redemptions b) Net purchases (in thousands of Euros) NOVO BANCO Balance as at 31.12.2020 Other movements a) Debt securities issued Euro Medium Term Notes (EMTN) The changes in the financial years of 2020 and 2019 in Debt securities issued, subordinated debt and financial liabilities associated to transferred assets was as follows: 515 311 495 989 19 892 ( 570) - - Subordinated debt Bonds Financial liabilities associated to transferred assets Debt securities issued Asset lending operations Euro Medium Term Notes (EMTN) 415 069 Balance as at 31.12.2019 Issues 133 387 495 989 1 044 445 - - - - - Redemptions b) - Net purchases 165 (in thousands of Euros) 415 234 Balance as at 31.12.2020 Other movements a) ( 88 251) - ( 88 251) - ( 570) ( 570) ( 685) 19 892 19 372 44 451 515 311 974 996 Subordinated debt a) The other movements include accrued interest on the balance sheet, corrections for hedging operations, corrections of fair value and exchange rate variations. b) During the year of 2020, the Lusitano SME issue no. 3, on balance in 2019, was fully repaid (Classes D, E and S). 415 069 Bonds - - Financial liabilities associated to transferred assets Asset lending operations Balance as at 133 387 31.12.2018 1 044 445 Issues - - Redemptions ( 88 251) b) ( 88 251) - - Net purchases ( 570) Debt securities issued a) The other movements include accrued interest on the balance sheet, corrections for hedging operations, corrections of fair value and exchange rate variations. Euro Medium Term Notes (EMTN) 507 236 b) During the year of 2020, the Lusitano SME issue no. 3, on balance in 2019, was fully repaid (Classes D, E and S). - Covered bonds c) 507 236 - 1 300 000 1 300 000 - - - - (1 300 000) (1 300 000) 165 415 234 (in thousands of Euros) Balance as at 44 451 31.12.2019 Other ( 685) movements a) 19 372 974 996 ( 11 247) - ( 11 247) 495 989 - 495 989 (in thousands of Euros) Balance as at 31.12.2019 415 069 Other movements a) 166 Subordinated debt Bonds Debt securities issued Financial liabilities associated to transferred assets Euro Medium Term Notes (EMTN) Asset lending operations Covered bonds c) Balance as at 31.12.2018 414 903 Issues Redemptions b) - - Net purchases - 507 236 242 438 - 507 236 1 164 577 - - 1 300 000 1 300 000 1 300 000 - ( 107 660) - - ( 107 660) - - (1 300 000) (1 300 000) (1 300 000) ( 11 247) ( 1 391) - ( 11 247) ( 11 081) 495 989 133 387 - 495 989 1 044 445 Subordinated debt a) Other movements include accrued interest on the balance sheet, corrections for hedging operations, corrections of fair value and exchange rate variations. b) During 2019, all Classes B and C issued by Lusitano SME No. 3 issued 12.6 thousand euros of Class D were repaid in advance. Bonds c) During the financial year of 2019, two mortgage bonds were issued in the amount of 750 million euros and 550 million euros. 414 903 - - - 166 415 069 Financial liabilities associated to transferred assets As at 31 December 2020 and 2019, the analysis of Debt securities issued and subordinated debt, by maturity, is as follows: Asset lending operations 242 438 - ( 107 660) - 1 164 577 1 300 000 ( 107 660) (1 300 000) ( 1 391) 133 387 (in thousands of Euros) 1 044 445 ( 11 081) 31.12.2019 31.12.2020 a) Other movements include accrued interest on the balance sheet, corrections for hedging operations, corrections of fair value and exchange rate variations. b) During 2019, all Classes B and C issued by Lusitano SME No. 3 issued 12.6 thousand euros of Class D were repaid in advance. As at 31 December 2020 and 2019, the analysis of Debt securities issued and subordinated debt, by maturity, is as follows: c) During the financial year of 2019, two mortgage bonds were issued in the amount of 750 million euros and 550 million euros. Debt securities issued More than 5 years 515 311 515 311 495 989 495 989 As at 31 December 2020 and 2019, the analysis of Debt securities issued and subordinated debt, by maturity, is as follows: Subordinated debt 1 to 5 years Debt securities issued More than 5 years Financial liabilities associated to transferred assets Subordinated debt More than 5 years Undertimined maturity 1 to 5 years Financial liabilities associated to transferred assets More than 5 years Undertimined maturity (in thousands of Euros) 31.12.2020 415 234 415 234 515 311 515 311 - 44 451 44 451 415 234 415 234 974 996 31.12.2019 415 069 415 069 495 989 495 989 88 937 44 450 133 387 415 069 415 069 1 044 445 - 44 451 44 451 88 937 44 450 133 387 974 996 1 044 445 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 433 - 362- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 362- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES The main characteristics of these liabilities, as at 31 December 2020 and 2019, are as follows: The main characteristics of these liabilities, as at 31 December 2020 and 2019, are as follows: 31.12.2020 (in thousands of Euros) NOVO BANCO NOVO BANCO Entity ISIN Description Moeda Maturity Interest rate Market Data de emissão Unit price (€) Carrying Book value The main characteristics of these liabilities, as at 31 December 2020 and 2019, are as follows: Euro Medium Term Notes (in thousands of Euros) Entity NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) Euro Medium Term Notes NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NOVO BANCO NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) a) Date of the next call option NB (Luxembourg Branch) NB (Luxembourg Branch) Subordinated debt ISIN XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 XS1038896426 XS0869315241 XS1042343308 XS0877741479 XS1053939978 XS0888530911 XS1055501974 XS0897950878 XS1058257905 XS0972653132 XS1031115014 XS1034421419 PTNOBFOM0017 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 BES Luxembourg 3.5% 02/01/43 BES Luxembourg 3.5% 23/01/43 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg 3.5% 18/03/2043 Description BES Luxembourg ZC Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 19/02/49 Banco Esp San Lux ZC 27/02/51 BES Luxembourg 3.5% 02/01/43 BES Luxembourg ZC 06/03/2051 BES Luxembourg 3.5% 23/01/43 BES Luxembourg ZC 03/04/48 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg ZC 09/04/52 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg ZC 16/04/46 BES Luxembourg ZC Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 19/02/49 NB 06/07/2028 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 06/03/2051 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 16/04/46 Subordinated debt NOVO BANCO PTNOBFOM0017 NB 06/07/2028 Entity ISIN Description a) Date of the next call option Euro Medium Term Notes Entity NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) Euro Medium Term Notes NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) NOVO BANCO NB (Luxembourg Branch) NB (Luxembourg Branch) NB (Luxembourg Branch) a) Date of the next call option NB (Luxembourg Branch) NB (Luxembourg Branch) Subordinated debt ISIN XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 XS1038896426 XS0869315241 XS1042343308 XS0877741479 XS1053939978 XS0888530911 XS1055501974 XS0897950878 XS1058257905 XS0972653132 XS1031115014 XS1034421419 PTNOBFOM0017 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 BES Luxembourg 3.5% 02/01/43 BES Luxembourg 3.5% 23/01/43 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg 3.5% 18/03/2043 Description BES Luxembourg ZC Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 19/02/49 Banco Esp San Lux ZC 27/02/51 BES Luxembourg 3.5% 02/01/43 BES Luxembourg ZC 06/03/2051 BES Luxembourg 3.5% 23/01/43 BES Luxembourg ZC 03/04/48 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg ZC 09/04/52 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg ZC 16/04/46 BES Luxembourg ZC Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 19/02/49 NB 06/07/2028 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 06/03/2051 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 16/04/46 EUR EUR EUR EUR Moeda EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR Moeda EUR EUR EUR EUR Moeda EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2013 2013 2013 Data de 2013 emissão 2013 2014 2014 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2014 2018 2014 2014 2014 2014 2014 2018 Data de emissão 2013 2013 2013 Data de 2013 emissão 2013 2014 2014 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2014 2018 2014 2014 2014 2014 2014 1,00 1,00 1,00 Unit price 1,00 (€) 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 100,00 1,00 1,00 1,00 1,00 1,00 Carrying Book value 42 287 31.12.2020 97 153 63 183 46 521 36 398 45 717 40 220 34 848 42 287 15 212 97 153 43 649 63 183 38 646 46 521 11 477 36 398 45 717 40 220 415 234 34 848 930 545 15 212 43 649 38 646 11 477 2043 2043 2043 2043 Maturity 2048 2049 2049 2051 2043 2051 2043 2048 2043 2052 2043 2046 2048 2049 2049 2023 a) 2051 2051 2048 2052 2046 Fixed rate 3,5% Fixed rate 3,5% Fixed rate 3,5% Fixed rate 3,5% Interest rate Zero cuppon Zero cuppon Zero cuppon Zero cuppon Fixed rate 3,5% Zero cuppon Fixed rate 3,5% Zero cuppon Fixed rate 3,5% Zero cuppon Fixed rate 3,5% Zero cuppon Zero cuppon Zero cuppon Zero cuppon 8,50% Zero cuppon Zero cuppon Zero cuppon Zero cuppon Zero cuppon 100,00 31.12.2019 415 234 Unit price (€) 930 545 Carrying Book value 2023 a) 8,50% XDUB Maturity Interest rate Market (in thousands of Euros) (in thousands of Euros) 1,00 1,00 1,00 Unit price 1,00 (€) 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 100,00 1,00 1,00 1,00 1,00 1,00 31.12.2019 Carrying Book value 41 798 96 270 62 461 46 011 34 344 42 861 37 674 32 615 41 798 14 236 96 270 40 699 62 461 36 317 46 011 10 703 34 344 42 861 37 674 415 069 32 615 911 058 14 236 40 699 36 317 10 703 2043 2043 2043 2043 Maturity 2048 2049 2049 2051 2043 2051 2043 2048 2043 2052 2043 2046 2048 2049 2049 2023 a) 2051 2051 2048 2052 2046 Fixed rate 3,5% Fixed rate 3,5% Fixed rate 3,5% Fixed rate 3,5% Interest rate Zero cuppon Zero cuppon Zero cuppon Zero cuppon Fixed rate 3,5% Zero cuppon Fixed rate 3,5% Zero cuppon Fixed rate 3,5% Zero cuppon Fixed rate 3,5% Zero cuppon Zero cuppon Zero cuppon Zero cuppon 8,50% Zero cuppon Zero cuppon Zero cuppon Zero cuppon Zero cuppon XLUX XLUX XLUX XLUX Market XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XDUB XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX Market XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XDUB XLUX XLUX XLUX XLUX XLUX NOVO BANCO The Bank did not present any capital or interest defaults regarding debt issued during the first half of 2020 and 2019. Subordinated debt 8,50% EUR The securitization operations not derecognized above, implied the registration of financial liabilities associated with transferred assets, The Bank did not present any capital or interest defaults regarding debt issued during the first half of 2020 and 2019. which are detailed as follows: a) Date of the next call option (in thousands Euros) PTNOBFOM0017 NB 06/07/2028 415 069 911 058 2023 a) 100,00 XDUB 2018 The securitization operations not derecognized above, implied the registration of financial liabilities associated with The Bank did not present any capital or interest defaults regarding debt issued during the first half of 2020 and 2019. transferred assets, which are detailed as follows: The securitization operations not derecognized above, implied the registration of financial liabilities associated with transferred assets, which are detailed as follows: Lusitano SME No. 3 FLITPTREL (1) - 44 451 88 937 44 450 31.12.2020 31.12.2019 (1) asset transfer operation, with the Bank in the securities portfolio vehicle equity instruments Lusitano SME No. 3 FLITPTREL (1) (1) asset transfer operation, with the Bank in the securities portfolio vehicle equity instruments 44 451 31.12.2020 - 44 451 44 451 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 434 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES (in thousands Euros) 133 387 31.12.2019 88 937 44 450 133 387 - 363- - 363- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOTE 30 – Provisions NOTE 30 – PROVISIONS As at 31 December 2020 and 2019, the caption Provisions presents the following changes: As at 31 December 2020 and 2019, the caption Provisions presents the following changes: NOTE 30 – PROVISIONS As at 31 December 2020 and 2019, the caption Provisions presents the following changes: Restructuring NOTE 30 – PROVISIONS provision Commercial Offers Provision for guarantees and commitments As at 31 December 2020 and 2019, the caption Provisions presents the following changes: Balance as at 31 December 2018 9 781 Restructuring provision Commercial Offers 72 877 Allocation / (write-backs) for the period Utilization during the period Foreign exchange differences and other Balance as at 31 December 2018 Balance as at 31 December 2019 Balance as at 31 December 2018 Balance as at 31 December 2019 Allocation / (write-backs) for the period Utilization during the period Allocation / (write-backs) for the period Foreign exchange differences and other Utilization during the period Foreign exchange differences and other (a) Allocation / (write-backs) for the period Utilization during the period Allocation / (write-backs) for the period Foreign exchange differences and other Utilization during the period Foreign exchange differences and other (a) Balance as at 31 December 2020 Allocation / (write-backs) for the period Balance as at 31 December 2020 Utilization during the period Foreign exchange differences and other (a) 47 291 ( 33 052) Restructuring 24 9 781 provision 24 044 47 291 ( 33 052) 123 915 9 781 24 ( 42 188) ( 8 798) 47 291 24 044 ( 33 052) 96 973 123 915 24 ( 42 188) 24 044 ( 8 798) 123 915 96 973 ( 42 188) ( 8 798) Provision for 189 369 guarantees and ( 60 467) commitments - Provision for ( 31 799) 189 369 guarantees and 97 103 commitments ( 60 467) - 21 595 189 369 ( 31 799) ( 2 188) ( 15 026) ( 60 467) 97 103 - 101 484 21 595 ( 31 799) ( 2 188) 97 103 ( 15 026) 21 595 101 484 ( 2 188) ( 15 026) Commercial Offers ( 1 366) ( 29 937) ( 240) 72 877 41 334 ( 1 366) ( 29 937) ( 629) 72 877 ( 240) ( 29 506) - ( 1 366) 41 334 ( 29 937) 11 199 ( 629) ( 240) ( 29 506) 41 334 - ( 629) 11 199 ( 29 506) - Programme of antecipated repayment of liabilities Programme of 38 865 antecipated repayment of ( 1 172) liabilities ( 37 694) Programme of antecipated 1 38 865 repayment of - ( 1 172) liabilities ( 37 694) - 38 865 1 - - ( 1 172) - ( 37 694) - - 1 - - - - - - - Balance as at 31 December 2019 ( a ) Includes 8,798 tho usand euro s o f restructuring pro visio ns and 14,420 tho usand euro s o f pro visio ns fo r guarantees pro vided by the Spanish B ranch transferred to disco ntinued o peratio ns. NOVO BANCO NOVO BANCO NOVO BANCO (in thousands of Euros) Other provisions Total (in thousands of Euros) 112 991 Other provisions Other provisions 423 883 Total 101 844 (in thousands of Euros) ( 122 250) ( 31 733) 423 883 Total 371 744 101 844 ( 122 250) 187 839 423 883 ( 31 733) ( 88 451) ( 32 560) 101 844 371 744 ( 122 250) 438 572 187 839 ( 31 733) ( 88 451) 371 744 ( 32 560) 187 839 438 572 ( 88 451) ( 32 560) 117 558 ( 21 567) 281 112 991 209 263 117 558 ( 21 567) 42 958 112 991 281 ( 14 569) ( 8 736) 117 558 209 263 ( 21 567) 228 916 42 958 281 ( 14 569) 209 263 ( 8 736) 42 958 228 916 ( 14 569) ( 8 736) The changes in the caption Provisions for guarantees, are detailed as follows: ( a ) Includes 8,798 tho usand euro s o f restructuring pro visio ns and 14,420 tho usand euro s o f pro visio ns fo r guarantees pro vided by the Spanish B ranch transferred to disco ntinued o peratio ns. 11 199 Balance as at 31 December 2020 The changes in the caption Provisions for guarantees, are detailed as follows: Stage 1 101 484 96 973 Stage 2 The changes in the caption Provisions for guarantees, are detailed as follows: ( a ) Includes 8,798 tho usand euro s o f restructuring pro visio ns and 14,420 tho usand euro s o f pro visio ns fo r guarantees pro vided by the Spanish B ranch transferred to disco ntinued o peratio ns. Balance as at 31 December 2018 16 788 26 789 - 228 916 438 572 (in thousands of Euros) Stage 3 Total 143 498 187 075 (in thousands of Euros) Stage 3 Stage 2 Stage 1 6 724 ( 7 701) 16 788 ( 1 750) 307 ( 2 191) 26 789 ( 21 330) Balance as at 31 December 2018 Balance as at 31 December 2019 Balance as at 31 December 2019 Balance as at 31 December 2018 The changes in the caption Provisions for guarantees, are detailed as follows: Increases due to changes in credit risk Decreases due to changes in credit risk Other movements 44 990 Total ( 106 242) 187 075 (in thousands of Euros) ( 31 800) Total Increases due to changes in credit risk 44 990 94 023 Decreases due to changes in credit risk ( 106 242) 44 572 Increases due to changes in credit risk 187 075 Other movements ( 31 800) ( 29 479) Decreases due to changes in credit risk 44 990 Increases due to changes in credit risk 94 023 ( 2 188) Uses ( 106 242) Decreases due to changes in credit risk Other moviments (a) ( 15 023) Increases due to changes in credit risk 44 572 ( 31 800) Other movements Decreases due to changes in credit risk ( 29 479) 91 905 Balance as at 31 December 2020 94 023 Balance as at 31 December 2019 ( 2 188) Uses (a) Includes 14,420 thousand euros of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (2,360 thousand euros on stage 1 and 12,060 44 572 Increases due to changes in credit risk Other moviments (a) ( 15 023) thousand euros on stage 3). Decreases due to changes in credit risk ( 29 479) 91 905 ( 2 188) Uses (a) Includes 14,420 thousand euros of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (2,360 thousand euros on stage 1 and 12,060 Other moviments (a) ( 15 023) The changes in the caption Provisions for commitments are detailed as follows: thousand euros on stage 3). 6 724 14 061 ( 7 701) 20 441 16 788 ( 1 750) ( 12 790) 6 724 14 061 - ( 7 701) 2 293 20 441 ( 1 750) ( 12 790) 24 005 14 061 - 20 441 2 293 ( 12 790) 24 005 - 2 293 37 959 76 387 ( 96 350) 23 301 143 498 ( 8 720) ( 15 991) 37 959 76 387 ( 2 188) ( 96 350) ( 14 923) 23 301 ( 8 720) ( 15 991) 66 586 76 387 ( 2 188) 23 301 ( 14 923) ( 15 991) 66 586 ( 2 188) ( 14 923) 307 3 575 ( 2 191) 830 26 789 ( 21 330) ( 698) 307 3 575 - ( 2 191) ( 2 393) 830 ( 21 330) ( 698) 1 314 3 575 - 830 ( 2 393) ( 698) 1 314 - ( 2 393) 37 959 ( 96 350) 143 498 ( 8 720) Balance as at 31 December 2020 Stage 2 Stage 1 Stage 3 Balance as at 31 December 2020 1 314 24 005 66 586 (in thousands of Euros) 91 905 (a) Includes 14,420 thousand euros of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (2,360 thousand euros on stage 1 and 12,060 The changes in the caption Provisions for commitments are detailed as follows: thousand euros on stage 3). Balance as at 31 December 2018 1 870 The changes in the caption Provisions for commitments are detailed as follows: 504 The changes in the caption Provisions for commitments are detailed as follows: ( 468) 1 870 29 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements 210 1 632 ( 215) ( 847) 2 294 - (in thousands of Euros) 5 1 Balance as at 31 December 2018 918 ( 164) 424 ( 33) 2 294 (in thousands of Euros) Stage 2 Stage 3 Stage 1 424 Total Stage 2 Stage 1 Stage 3 Total - Balance as at 31 December 2018 Balance as at 31 December 2019 Balance as at 31 December 2019 Balance as at 31 December 2020 Increases due to changes in credit risk Decreases due to changes in credit risk Increases due to changes in credit risk Other movements Decreases due to changes in credit risk Increases due to changes in credit risk Other movements Decreases due to changes in credit risk Increases due to changes in credit risk Other movements Decreases due to changes in credit risk Other movements Increases due to changes in credit risk Decreases due to changes in credit risk Other movements Balance as at 31 December 2019 Stage 1 Stage 2 Stage 3 504 1 935 ( 468) 6 325 1 870 29 ( 3 708) 504 1 935 1 071 ( 468) 6 325 5 623 29 ( 3 708) 1 935 1 071 6 325 5 623 ( 3 708) 1 071 918 1 145 ( 164) 5 488 424 ( 33) ( 1 570) 918 1 145 ( 1 107) ( 164) 5 488 3 956 ( 33) ( 1 570) 1 145 ( 1 107) 5 488 3 956 ( 1 570) ( 1 107) 210 - ( 215) - - 5 ( 33) 210 - 33 ( 215) - - 5 ( 33) - 33 - - ( 33) 33 Total 1 632 3 080 ( 847) 11 813 2 294 1 ( 5 311) 1 632 3 080 ( 3) ( 847) 11 813 9 579 1 ( 5 311) 3 080 ( 3) 11 813 9 579 ( 5 311) ( 3) The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising Balance as at 31 December 2020 from the Bank's sale and restructuring process. 5 623 During the financial year of 2020, a provision of Euro 127.4 million was set up, and there was also a reversal of the provisions set up The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising Balance as at 31 December 2020 in 2016 and 2017 in the amount of Euro 3.4 million. As at 31 December 2020, the amount of restructuring provisions on the balance from the Bank's sale and restructuring process. sheet is 97.0 million euros. During the financial year of 2020, a provision of Euro 127.4 million was set up, and there was also a reversal of the provisions set up The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising Other provisions amounting to Euro 228.9 million (31 December 2019: Euro 209.3 million) are intended to cover certain identified in 2016 and 2017 in the amount of Euro 3.4 million. As at 31 December 2020, the amount of restructuring provisions on the balance from the Bank's sale and restructuring process. contingencies related to the Bank’s activities, the most relevant being: sheet is 97.0 million euros. • Contingencies associated with ongoing tax processes. To cover for these contingencies, the Bank maintains provisions of Euro 20.4 During the financial year of 2020, a provision of Euro 127.4 million was set up, and there was also a reversal of the provisions set up Other provisions amounting to Euro 228.9 million (31 December 2019: Euro 209.3 million) are intended to cover certain identified in 2016 and 2017 in the amount of Euro 3.4 million. As at 31 December 2020, the amount of restructuring provisions on the balance contingencies related to the Bank’s activities, the most relevant being: sheet is 97.0 million euros. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 364- • Contingencies associated with ongoing tax processes. To cover for these contingencies, the Bank maintains provisions of Euro 20.4 Other provisions amounting to Euro 228.9 million (31 December 2019: Euro 209.3 million) are intended to cover certain identified contingencies related to the Bank’s activities, the most relevant being: • Contingencies associated with ongoing tax processes. To cover for these contingencies, the Bank maintains provisions of Euro 20.4 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES million (31 December 2019: Euro 27.3 million); 435 million (31 December 2019: Euro 27.3 million); - 364- 3 956 9 579 - million (31 December 2019: Euro 27.3 million); 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 364- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising from the Bank's sale and restructuring process. During the financial year of 2020, a provision of Euro 127.4 million was set up, and there was also a reversal of the pro- visions set up in 2016 and 2017 in the amount of Euro 3.4 million. As at 31 December 2020, the amount of restructuring provisions on the balance sheet is 97.0 million euros. Other provisions amounting to Euro 228.9 million (31 December 2019: Euro 209.3 million) are intended to cover certain identified contingencies related to the Bank’s activities, the most relevant being: • Contingencies associated with ongoing tax processes. To cover for these contingencies, the Bank maintains provisions of Euro 20.4 million (31 December 2019: Euro 27.3 million); • Contingencies associated with legal proceedings in the amount of Euro 6.6 million (31 December 2019: Euro 5.8 million); • Contingencies associated with sales processes in the amount of Euro 41.1 million (31 December 2019: Euro 35.5 million); NOVO BANCO • Contingencies relating to the undivided part of the Executive Board's Pension Plan, in the amount of Euro 19.2 million, transferred from the net liability items of the value of the assets of the pension fund (see Note 15); • The remaining amount, of Euro 141.6 million (31 December 2019: Euro 140.7 million), is intended to cover for losses • Contingencies associated with legal proceedings in the amount of Euro 6.6 million (31 December 2019: Euro 5.8 million); NOVO BANCO • Contingencies associated with sales processes in the amount of Euro 41.1 million (31 December 2019: Euro 35.5 million); in connection to the Bank’s normal activities, such as fraud, theft and robbery, and ongoing legal lawsuits, among • Contingencies relating to the undivided part of the Executive Board's Pension Plan, in the amount of Euro 19.2 million, transferred others. from the net liability items of the value of the assets of the pension fund (see Note 15); to the Bank’s normal activities, such as fraud, theft and robbery, and ongoing legal lawsuits, among others. • The remaining amount, of Euro 141.6 million (31 December 2019: Euro 140.7 million), is intended to cover for losses in connection • Contingencies associated with legal proceedings in the amount of Euro 6.6 million (31 December 2019: Euro 5.8 million); NOTE 31 – Other liabilities • Contingencies associated with sales processes in the amount of Euro 41.1 million (31 December 2019: Euro 35.5 million); • Contingencies relating to the undivided part of the Executive Board's Pension Plan, in the amount of Euro 19.2 million, transferred NOTE 31 – OTHER LIABILITIES from the net liability items of the value of the assets of the pension fund (see Note 15); As at 31 December 2020 and 2019, the caption Other liabilities is analyzed as follows: • The remaining amount, of Euro 141.6 million (31 December 2019: Euro 140.7 million), is intended to cover for losses in connection As at 31 December 2020 and 31 December 2019, the caption Other liabilities is analyzed as follows: to the Bank’s normal activities, such as fraud, theft and robbery, and ongoing legal lawsuits, among others. NOTE 31 – OTHER LIABILITIES (in thousands of Euros) 31.12.2020 31.12.2019 As at 31 December 2020 and 31 December 2019, the caption Other liabilities is analyzed as follows: 32 532 31 047 65 586 88 315 62 119 70 197 7 465 6 981 24 692 152 280 67 642 76 989 32 532 31 047 955 983 65 586 88 315 - 6 577 62 119 70 197 53 620 38 257 7 465 6 981 24 692 152 280 314 611 471 626 67 642 76 989 983 955 As at 31 December 2020, the caption Creditors for supply of goods includes Euro 47,973 thousand related to creditors of assets for 6 577 - right of use (31 December 2019: Euro 59,565 thousand), whose maturity dates are present the following detail: 38 257 53 620 Public sector Creditors for supply of goods Other creditors Career bonuses (see Note 15) Retirement pensions and health-care benefits (see Note 15) Other accrued expenses Public sector Deferred income Creditors for supply of goods Foreign exchange transactions pending settlement Other creditors Other transactions pending settlement Career bonuses (see Note 15) Retirement pensions and health-care benefits (see Note 15) Other accrued expenses Deferred income Foreign exchange transactions pending settlement Other transactions pending settlement 31.12.2020 31.12.2019 (in thousands of Euros) As at 31 December 2020, the caption Creditors for supply of goods includes Euro 47,973 thousand related to creditors 471 626 of assets for right of use (31 December 2019: Euro 59,565 thousand), whose maturity dates are present the following detail: As at 31 December 2020, the caption Creditors for supply of goods includes Euro 47,973 thousand related to creditors of assets for right of use (31 December 2019: Euro 59,565 thousand), whose maturity dates are present the following detail: 31.12.2020 314 611 (in thousands of Euros) Up to 3 months From 3 months to one year From one to five years More than five years 78 438 (in thousands of Euros) 26 118 21 339 31.12.2020 Up to 3 months From 3 months to one year From one to five years NOTE 32 – SHARE CAPITAL More than five years 47 973 78 438 26 118 21 339 Ordinary shares In 2017 and following the acquisition of 75% of NOVO BANCO by Lone Star, two capital increases in the amounts of Euro 750 million and Euro 250 million, in October and December, respectively, were realised. Thus, as at 31 December 2020 and 31 December 2019, the share capital of the Bank amounts to Euro 5 900 000 000, represented by 9,799,999,997 registered shares, with no nominal NOTE 32 – SHARE CAPITAL value, fully subscribed and realised by the following shareholders: 47 973 436 Ordinary shares In 2017 and following the acquisition of 75% of NOVO BANCO by Lone Star, two capital increases in the amounts of Euro 750 million and Euro 250 million, in October and December, respectively, were realised. Thus, as at 31 December 2020 and 31 December 2019, % Share Capital 31.12.2019 31.12.2020 the share capital of the Bank amounts to Euro 5 900 000 000, represented by 9,799,999,997 registered shares, with no nominal Nani Holdings, SGPS, SA value, fully subscribed and realised by the following shareholders: Resolution Fund (1) 75,00% 25,00% 75,00% 25,00% % Share Capital 100,00% 100,00% 31.12.2020 31.12.2019 (1) In view of the commitments assumed by the Portuguese Republic before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. Nani Holdings, SGPS, SA Resolution Fund (1) As mentioned in Note 26, NOVO BANCO adhered to the Special Regime applicable to Deferred Tax Assets (DTA) approved by Law No. 61/2014, of 26 August. Said regime applies to deferred tax assets related to the non-deduction, for corporate income tax purposes, of costs and negative equity changes recorded up to 31 December 2015 for impairment losses on loans and advances 100,00% 100,00% to customers and with employee post-employment or long-term benefits. Said regime foresees that those assets can be converted (1) In view of the commitments assumed by the Portuguese Republic before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. into tax credits when the taxable entity reports an annual net loss. 75,00% 25,00% 75,00% 25,00% As mentioned in Note 26, NOVO BANCO adhered to the Special Regime applicable to Deferred Tax Assets (DTA) approved by The conversion of the eligible deferred tax assets into tax credits was made according to the proportion of the amount of said net Law No. 61/2014, of 26 August. Said regime applies to deferred tax assets related to the non-deduction, for corporate income tax loss to total equity at the individual company level. purposes, of costs and negative equity changes recorded up to 31 December 2015 for impairment losses on loans and advances to customers and with employee post-employment or long-term benefits. Said regime foresees that those assets can be converted into tax credits when the taxable entity reports an annual net loss. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES The conversion of the eligible deferred tax assets into tax credits was made according to the proportion of the amount of said net - 365- loss to total equity at the individual company level. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 365- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE • Contingencies associated with legal proceedings in the amount of Euro 6.6 million (31 December 2019: Euro 5.8 million); • Contingencies associated with sales processes in the amount of Euro 41.1 million (31 December 2019: Euro 35.5 million); • Contingencies relating to the undivided part of the Executive Board's Pension Plan, in the amount of Euro 19.2 million, transferred from the net liability items of the value of the assets of the pension fund (see Note 15); • The remaining amount, of Euro 141.6 million (31 December 2019: Euro 140.7 million), is intended to cover for losses in connection to the Bank’s normal activities, such as fraud, theft and robbery, and ongoing legal lawsuits, among others. NOTE 31 – OTHER LIABILITIES As at 31 December 2020 and 31 December 2019, the caption Other liabilities is analyzed as follows: Public sector Creditors for supply of goods Other creditors Career bonuses (see Note 15) Other accrued expenses Deferred income Foreign exchange transactions pending settlement Other transactions pending settlement Retirement pensions and health-care benefits (see Note 15) NOVO BANCO (in thousands of Euros) 31.12.2020 31.12.2019 32 532 65 586 62 119 7 465 24 692 67 642 955 - 53 620 31 047 88 315 70 197 6 981 152 280 76 989 983 6 577 38 257 314 611 471 626 As at 31 December 2020, the caption Creditors for supply of goods includes Euro 47,973 thousand related to creditors of assets for right of use (31 December 2019: Euro 59,565 thousand), whose maturity dates are present the following detail: Up to 3 months From 3 months to one year From one to five years More than five years NOTE 32 – Share capital (in thousands of Euros) 31.12.2020 78 438 26 118 21 339 47 973 Ordinary shares NOTE 32 – SHARE CAPITAL In 2017 and following the acquisition of 75% of NOVO BANCO by Lone Star, two capital increases in the amounts of Euro Ordinary shares 750 million and Euro 250 million, in October and December, respectively, were realised. Thus, as at 31 December 2020 In 2017 and following the acquisition of 75% of NOVO BANCO by Lone Star, two capital increases in the amounts of Euro 750 million and 31 December 2019, the share capital of the Bank amounts to Euro 5 900 000 000, represented by 9,799,999,997 and Euro 250 million, in October and December, respectively, were realised. Thus, as at 31 December 2020 and 31 December 2019, the share capital of the Bank amounts to Euro 5 900 000 000, represented by 9,799,999,997 registered shares, with no nominal registered shares, with no nominal value, fully subscribed and realised by the following shareholders: value, fully subscribed and realised by the following shareholders: Nani Holdings, SGPS, SA Resolution Fund (1) % Share Capital 31.12.2020 31.12.2019 75,00% 25,00% 75,00% 25,00% 100,00% 100,00% (1) In view of the commitments assumed by the Portuguese Republic before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. As mentioned in Note 26, NOVO BANCO adhered to the Special Regime applicable to Deferred Tax Assets (DTA) approved by Law No. 61/2014, of 26 August. Said regime applies to deferred tax assets related to the non-deduction, for corporate income tax As mentioned in Note 26, NOVO BANCO adhered to the Special Regime applicable to Deferred Tax Assets (DTA) purposes, of costs and negative equity changes recorded up to 31 December 2015 for impairment losses on loans and advances to customers and with employee post-employment or long-term benefits. Said regime foresees that those assets can be converted approved by Law No. 61/2014, of 26 August. Said regime applies to deferred tax assets related to the non-deduction, into tax credits when the taxable entity reports an annual net loss. for corporate income tax purposes, of costs and negative equity changes recorded up to 31 December 2015 for im- pairment losses on loans and advances to customers and with employee post-employment or long-term benefits. Said The conversion of the eligible deferred tax assets into tax credits was made according to the proportion of the amount of said net loss to total equity at the individual company level. regime foresees that those assets can be converted into tax credits when the taxable entity reports an annual net loss. The conversion of the eligible deferred tax assets into tax credits was made according to the proportion of the amount of said net loss to total equity at the individual company level. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 365- A special reserve was established with an amount identical to the tax credit approved, increased by 10%. This special reserve was established using the originating reserve and is to be incorporated in the share capital. The conversion rights are securities that grant the State the right to demand of NOVO BANCO the respective share capital increase, through the incorporation of the amount of the special reserve and the consequent issue and delivery NOVO BANCO of ordinary shares at no cost. A special reserve was established with an amount identical to the tax credit approved, increased by 10%. This special reserve was It is estimated that the conversion rights to be issued and allocated to the State following the net loss of years 2015 and established using the originating reserve and is to be incorporated in the share capital. 2019 will confer a shareholding of up to approximately 12.82% of the share capital of NOVO BANCO, which will dilute the Resolution Fund, according to the sale contract. The conversion rights are securities that grant the State the right to demand of NOVO BANCO the respective share capital increase, through the incorporation of the amount of the special reserve and the consequent issue and delivery of ordinary shares at no cost. It is estimated that the conversion rights to be issued and allocated to the State following the net loss of years 2015 and 2019 will confer a shareholding of up to approximately 12.82% of the share capital of NOVO BANCO, which will dilute the Resolution Fund, according to the sale contract. NOTE 33 – Accumulated other comprehensive income, retained earnings, other reserves NOTE 33 – ACCUMULATED OTHER COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES As at 31 December 2020 and 2019, the accumulated other comprehensive income, retained earnings and other As at 31 December 2020 and 2019, the accumulated other comprehensive income, retained earnings and other reserves present the following detail: reserves present the following detail: Other accumulated comprehensive income Retained earnings Other reserves Originating reserve Special reserve Other reserves and Retained earnings (in thousands of Euros) 31.12.2020 31.12.2019 ( 749 259) ( 632 033) ( 7 202 828) ( 6 115 245) 6 179 422 1 976 173 728 561 5 580 864 2 098 187 606 547 3 474 688 2 876 130 ( 1 772 665) ( 1 166 414) Other accumulated comprehensive income 437 The movements in Other accumulated comprehensive income were as follows: Other accumulated comprehensive income (in thousands of Euros) Impairment Credit risk reserves reserves Sales reserves Fair value reserves Actuarial deviations (net of taxes) Total Balance as at 31 December 2018 1 204 1 202 ( 3 557) ( 272 495) ( 477 370) ( 751 016) Balance as at 31 December 2019 5 505 ( 1 669) ( 8 432) ( 44 041) ( 583 396) ( 632 033) Actuarial deviations Fair value changes, net of taxes Changes in credit risk of financial liabilities at fair value, net of taxes comprehensive income comprehensive income Impairment reserves of securities at fair value through other Reserves of sales of securities at fair value through other Actuarial deviations Fair value changes, net of taxes Changes in credit risk of financial liabilities at fair value, net Impairment reserves of securities at fair value through other Reserves of sales of securities at fair value through other of taxes comprehensive income comprehensive income ( 2 871) 4 301 10 883 ( 1 838) - - - - - - - - - - - - - - - - ( 4 875) ( 16 356) - - - - - - - - ( 106 026) 228 454 ( 122 199) 12 284 - - - - - - - - - - - - - - - - ( 106 026) 228 454 ( 2 871) 4 301 ( 4 875) ( 122 199) 12 284 10 883 ( 1 838) ( 16 356) ( 749 259) Balance as at 31 December 2020 3 667 9 214 ( 24 788) ( 31 757) ( 705 595) Fair value reserve taxes. The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferred 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 366- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO A special reserve was established with an amount identical to the tax credit approved, increased by 10%. This special reserve was established using the originating reserve and is to be incorporated in the share capital. The conversion rights are securities that grant the State the right to demand of NOVO BANCO the respective share capital increase, through the incorporation of the amount of the special reserve and the consequent issue and delivery of ordinary shares at no cost. It is estimated that the conversion rights to be issued and allocated to the State following the net loss of years 2015 and 2019 will confer a shareholding of up to approximately 12.82% of the share capital of NOVO BANCO, which will dilute the Resolution Fund, according to the sale contract. NOTE 33 – ACCUMULATED OTHER COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES As at 31 December 2020 and 2019, the accumulated other comprehensive income, retained earnings and other reserves present the following detail: Other accumulated comprehensive income Retained earnings Other reserves Originating reserve Special reserve Other reserves and Retained earnings Other accumulated comprehensive income Other accumulated comprehensive income The movements in Other accumulated comprehensive income were as follows: The movements in Other accumulated comprehensive income were as follows: (in thousands of Euros) 31.12.2020 31.12.2019 ( 749 259) ( 632 033) ( 7 202 828) ( 6 115 245) 6 179 422 1 976 173 728 561 5 580 864 2 098 187 606 547 3 474 688 2 876 130 ( 1 772 665) ( 1 166 414) Other accumulated comprehensive income (in thousands of Euros) Impairment reserves Credit risk reserves Sales reserves Fair value reserves Actuarial deviations (net of taxes) Total Balance as at 31 December 2018 1 204 1 202 ( 3 557) ( 272 495) ( 477 370) ( 751 016) Actuarial deviations Fair value changes, net of taxes Changes in credit risk of financial liabilities at fair value, net of taxes Impairment reserves of securities at fair value through other comprehensive income Reserves of sales of securities at fair value through other comprehensive income - - - 4 301 - - - ( 2 871) - - - - - - ( 4 875) - ( 106 026) 228 454 - - - - - - - ( 106 026) 228 454 ( 2 871) 4 301 ( 4 875) Balance as at 31 December 2019 5 505 ( 1 669) ( 8 432) ( 44 041) ( 583 396) ( 632 033) Actuarial deviations Fair value changes, net of taxes Changes in credit risk of financial liabilities at fair value, net of taxes Impairment reserves of securities at fair value through other comprehensive income Reserves of sales of securities at fair value through other comprehensive income - - - ( 1 838) - - - 10 883 - - - - - - ( 16 356) - ( 122 199) 12 284 - - - - - - - Balance as at 31 December 2020 3 667 9 214 ( 24 788) ( 31 757) ( 705 595) ( 122 199) 12 284 10 883 ( 1 838) ( 16 356) ( 749 259) Fair value reserve The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferred Fair value reserve taxes. The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferred taxes. NOVO BANCO The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as follows: The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as follows: 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 366- (in thousands of Euros) 31.12.2020 Fair value reserves 31.12.2019 Fair value reserves Financial assets at fair value through other comprehensive income Deferred tax reserves Total fair value reserves Financial assets at fair value through other comprehensive Deferred tax reserves Total fair value reserves Opening balance Changes in fair value Foreign exchange differences Sales in the exercise Deferred taxes 53 179 ( 97 220) ( 44 041) ( 280 428) 7 933 ( 272 495) 87 060 ( 4 372) ( 66 540) - - - - ( 5 057) 87 060 ( 4 372) ( 66 540) ( 5 057) 408 804 ( 6 678) ( 68 519) - - - 408 804 ( 6 678) ( 68 519) - ( 105 153) ( 105 153) Balance at the end of the exercise 69 327 ( 102 277) ( 32 950) 53 179 ( 97 220) ( 44 041) The fair value reserves are analyzed as follows: Amortised cost of financial assets at fair value through other comprehensive income Market value of financial assets at fair value through other comprehensive income Unrealised gains / (losses) recognized in fair value reserve Fair value reserves for discontinuing activities Deferred Taxes Fair value reserve attributable to shareholders of the Bank 31.12.2020 31.12.2019 (in thousands of Euros) 7 744 257 7 813 584 69 327 1 193 ( 102 277) ( 31 757) 8 704 952 8 758 131 53 179 - ( 97 220) ( 44 041) 438 Originating reserve The originating reserve results from the difference between the assets and liabilities transferred from BES to NOVO BANCO, on the terms defined in the resolution measure applied by Bank of Portugal to BES. The amount of the reserve includes the effects of Bank of Portugal’s Resolution Measure (“Medida de Resolução”) and those of the conclusions reached through the audit conducted by the independent auditor nominated by Bank of Portugal. Special reserve As mentioned in Note 26, the special reserve was created as a result of the adhesion of NOVO BANCO to the Special Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, which implied the conversion of eligible deferred tax assets into tax credits and the simultaneous establishment of a special reserve. Following the clearance of a negative net result in the years 2015-2019, with reference to deferred tax assets eligible at the date of closures of those financial years, the application of that special regime applicable to deferred tax assets, NOVO BANCO recorded a special reserve, in the same amount of the tax credit calculated, increased by 10% , which has the following decomposition: 2016 (net loss of 2015) 2017 (net loss of 2016) 2018 (net loss of 2017) 2019 (net loss of 2018) 2020 (net loss of 2019) (in thousands of Euros) 31.12.2020 31.12.2019 168 911 109 421 150 044 178 171 122 014 728 561 168 911 109 421 150 044 178 171 - 606 547 Other reserves and retained earnings Following the conditions agreed in the NOVO BANCO’S sale process, a Contingent Capital Agreement was created. In this context, if the capital ratios fall below a certain threshold and, cumulatively, losses are recorded in a delimited asset portfolio, the Resolution Fund makes a payment corresponding to the lower of the losses recorded and the amount necessary to restore the ratios to the defined threshold, of up to a maximum of Euro 3 890 million (see Note 34 – Contingent liabilities and commitments). The capital corresponds to a previously defined asset perimeter, with an initial net book value (June 2016) of around Euro 7.9 billion. As at 31 December 2020 these assets had a net value of Euro 2.0 billion, mainly as a result of losses recorded as well as payments and recoveries (31 December 2019: net value of Euro 3.1 billion). 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 367- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as follows: 31.12.2020 Fair value reserves (in thousands of Euros) 31.12.2019 Fair value reserves NOVO BANCO NOVO BANCO Deferred tax reserves The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as follows: Total fair value reserves Deferred tax reserves Total fair value reserves Financial assets at fair value through other comprehensive Opening balance Changes in fair value Foreign exchange differences Sales in the exercise Deferred taxes Balance at the end of the exercise ( 97 220) ( 44 041) ( 280 428) 7 933 ( 272 495) (in thousands of Euros) ( 4 372) ( 66 540) Financial assets at - fair value through other comprehensive 69 327 income 31.12.2020 - - Fair value reserves - 87 060 ( 4 372) ( 66 540) ( 5 057) Deferred tax reserves ( 102 277) ( 5 057) Total fair value reserves ( 32 950) ( 6 678) ( 68 519) Financial assets at - fair value through other comprehensive 53 179 408 804 31.12.2019 - - Fair value reserves - 408 804 ( 6 678) ( 68 519) ( 105 153) Deferred tax reserves ( 97 220) ( 105 153) Total fair value reserves ( 44 041) Financial assets at fair value through other comprehensive income 53 179 87 060 ( 97 220) ( 44 041) ( 280 428) 7 933 ( 272 495) The fair value reserves are analyzed as follows: 53 179 Opening balance The fair value reserves are analyzed as follows: Changes in fair value Foreign exchange differences Sales in the exercise ( 4 372) ( 66 540) 87 060 - - - Deferred taxes Amortised cost of financial assets at fair value through other comprehensive income Balance at the end of the exercise Market value of financial assets at fair value through other comprehensive income 69 327 - ( 102 277) ( 5 057) Unrealised gains / (losses) recognized in fair value reserve Fair value reserves for discontinuing activities The fair value reserves are analyzed as follows: Deferred Taxes Fair value reserve attributable to shareholders of the Bank 87 060 ( 4 372) ( 66 540) ( 5 057) ( 32 950) 408 804 ( 6 678) 31.12.2020 ( 68 519) 408 804 - (in thousands of Euros) - - ( 6 678) ( 68 519) 31.12.2019 - 7 744 257 ( 105 153) 53 179 7 813 584 ( 97 220) 69 327 1 193 ( 105 153) 8 704 952 ( 44 041) 8 758 131 53 179 - ( 102 277) (in thousands of Euros) ( 97 220) 31.12.2020 ( 31 757) 31.12.2019 ( 44 041) Amortised cost of financial assets at fair value through other comprehensive income 7 744 257 8 704 952 1 193 69 327 53 179 ( 102 277) 7 813 584 8 758 131 Market value of financial assets at fair value through other comprehensive income Originating reserve The originating reserve results from the difference between the assets and liabilities transferred from BES to NOVO BANCO, on the Unrealised gains / (losses) recognized in fair value reserve terms defined in the resolution measure applied by Bank of Portugal to BES. The amount of the reserve includes the effects of Bank Originating reserve Fair value reserves for discontinuing activities of Portugal’s Resolution Measure (“Medida de Resolução”) and those of the conclusions reached through the audit conducted by the Deferred Taxes independent auditor nominated by Bank of Portugal. The originating reserve results from the difference between the assets and liabilities transferred from BES to NOVO Fair value reserve attributable to shareholders of the Bank BANCO, on the terms defined in the resolution measure applied by Bank of Portugal to BES. The amount of the reserve Special reserve includes the effects of Bank of Portugal’s Resolution Measure (“Medida de Resolução”) and those of the conclusions As mentioned in Note 26, the special reserve was created as a result of the adhesion of NOVO BANCO to the Special Regime Originating reserve applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, which implied the conversion of eligible deferred tax reached through the audit conducted by the independent auditor nominated by Bank of Portugal. The originating reserve results from the difference between the assets and liabilities transferred from BES to NOVO BANCO, on the assets into tax credits and the simultaneous establishment of a special reserve. terms defined in the resolution measure applied by Bank of Portugal to BES. The amount of the reserve includes the effects of Bank Special reserve of Portugal’s Resolution Measure (“Medida de Resolução”) and those of the conclusions reached through the audit conducted by the Following the clearance of a negative net result in the years 2015-2019, with reference to deferred tax assets eligible at the date of independent auditor nominated by Bank of Portugal. As mentioned in Note 26, the special reserve was created as a result of the adhesion of NOVO BANCO to the Special closures of those financial years, the application of that special regime applicable to deferred tax assets, NOVO BANCO recorded a Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, which implied the conversion of special reserve, in the same amount of the tax credit calculated, increased by 10% , which has the following decomposition: Special reserve eligible deferred tax assets into tax credits and the simultaneous establishment of a special reserve. As mentioned in Note 26, the special reserve was created as a result of the adhesion of NOVO BANCO to the Special Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, which implied the conversion of eligible deferred tax assets into tax credits and the simultaneous establishment of a special reserve. Following the clearance of a negative net result in the years 2015-2019, with reference to deferred tax assets eligible at the date of closures of those financial years, the application of that special regime applicable to deferred tax assets, Following the clearance of a negative net result in the years 2015-2019, with reference to deferred tax assets eligible at the date of NOVO BANCO recorded a special reserve, in the same amount of the tax credit calculated, increased by 10%, which closures of those financial years, the application of that special regime applicable to deferred tax assets, NOVO BANCO recorded a has the following decomposition: special reserve, in the same amount of the tax credit calculated, increased by 10% , which has the following decomposition: (in thousands of Euros) 31.12.2020 31.12.2019 ( 44 041) ( 97 220) ( 31 757) - 2016 (net loss of 2015) 2017 (net loss of 2016) 2018 (net loss of 2017) 2019 (net loss of 2018) 2020 (net loss of 2019) 2016 (net loss of 2015) 2017 (net loss of 2016) 2018 (net loss of 2017) 2019 (net loss of 2018) 2020 (net loss of 2019) (in thousands of Euros) 31.12.2020 31.12.2019 168 911 109 421 150 044 178 171 122 014 728 561 168 911 109 421 150 044 178 171 122 014 168 911 109 421 150 044 178 171 - 606 547 168 911 109 421 150 044 178 171 - 728 561 Other reserves and retained earnings Following the conditions agreed in the NOVO BANCO’S sale process, a Contingent Capital Agreement was created. In this context, if the capital ratios fall below a certain threshold and, cumulatively, losses are recorded in a delimited asset portfolio, the Resolution Fund makes a payment corresponding to the lower of the losses recorded and the amount necessary to restore the ratios to the defined threshold, of up to a maximum of Euro 3 890 million (see Note 34 – Contingent liabilities and commitments). The capital corresponds to a previously defined asset perimeter, with an initial net book value (June 2016) of around Euro 7.9 billion. As at 31 December 2020 these assets had a net value of Euro 2.0 billion, mainly as a result of losses recorded as well as payments and recoveries (31 December 2019: net value of Euro 3.1 billion). Other reserves and retained earnings Following the conditions agreed in the NOVO BANCO’S sale process, a Contingent Capital Agreement was created. In this context, Other reserves and retained earnings if the capital ratios fall below a certain threshold and, cumulatively, losses are recorded in a delimited asset portfolio, the Resolution 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 367- Fund makes a payment corresponding to the lower of the losses recorded and the amount necessary to restore the ratios to the Following the conditions agreed in the NOVO BANCO’S sale process, a Contingent Capital Agreement was created. defined threshold, of up to a maximum of Euro 3 890 million (see Note 34 – Contingent liabilities and commitments). The capital In this context, if the capital ratios fall below a certain threshold and, cumulatively, losses are recorded in a delimited corresponds to a previously defined asset perimeter, with an initial net book value (June 2016) of around Euro 7.9 billion. As at 31 December 2020 these assets had a net value of Euro 2.0 billion, mainly as a result of losses recorded as well as payments and asset portfolio, the Resolution Fund makes a payment corresponding to the lower of the losses recorded and the recoveries (31 December 2019: net value of Euro 3.1 billion). amount necessary to restore the ratios to the defined threshold, of up to a maximum of Euro 3,890 million (see Note 34 – Contingent liabilities and commitments). The capital corresponds to a previously defined asset perimeter, with an initial net book value (June 2016) of around Euro 7.9 billion. As at 31 December 2020 these assets had a net value of 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 367- Euro 2.0 billion, mainly as a result of losses recorded as well as payments and recoveries (31 December 2019: net value of Euro 3.1 billion). 606 547 As a result of the losses recorded by NOVO BANCO on 31 December 2019, 2018 and 2017, the conditions determining the payment by Resolution Fund of Euro 1,035,016 thousand, Euro 1,149,295 thousand and Euro 791,695 thousand were meet and the payments occurred in May 2020, 2019 and 2018, respectively. In the financial year of 2020, the 439 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO caption Reserves registered the responsibility of the Resolution Fund amounting to Euro 598,312 thousand relating to As a result of the losses recorded by NOVO BANCO on 31 December 2019, 2018 and 2017, the conditions determining the payment the Contingent Capital Agreement. The amount is accounted for under Other reserves and it results at each Balance by Resolution Fund of Euro 1,035,016 thousand, Euro 1,149,295 thousand and Euro 791,695 thousand were meet and the payments Sheet date of the incurred losses and of the regulatory ratios in force at the moment of its determination. occurred in May 2020, 2019 and 2018, respectively. In the financial year of 2020, the caption Reserves registered the responsibility of the Resolution Fund amounting to Euro 598,312 thousand relating to the Contingent Capital Agreement. The amount is accounted for under Other reserves and it results at each Balance Sheet date of the incurred losses and of the regulatory ratios in force at the moment of its determination. NOTE 34 – Contingent liabilities and commitments NOTE 34 – CONTINGENT LIABILITIES AND COMMITMENTS In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 31 December 2020 and 2019 are the following: In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 31 December 2020 and 31 December 2019 are the following: Contingent liabilities Guarantees and standby letters Financial assets pledged as collateral Open documentary credits Commitments Revocable commitments Irrevocable commitments (in thousands of Euros) 31.12.2020 31.12.2019 2 815 920 14 194 624 410 292 17 420 836 6 419 991 629 454 7 049 445 3 148 216 11 930 201 516 162 15 594 579 6 897 501 409 215 7 306 716 Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Bank. Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the As at 31 December 2020, the caption financial assets pledged as collateral includes: Bank. • The market value of financial assets pledged as collateral to the European Central Bank in the scope of a liquidity facility, in the amount of Euro 13.1 billion (31 December 2019: Euro 11.5 billion); • Securities pledged as collateral to the Portuguese Securities and Exchange Commission (“Comissão do Mercado de Valores As at 31 December 2020, the caption financial assets pledged as collateral includes: Mobiliários” (CMVM)) in the scope of the Investors Indemnity System (“Sistema de Indemnização aos Investidores”), in the amount of Euro 8.1 million (31 December 2019: Euro 8.1 million); • The market value of financial assets pledged as collateral to the European Central Bank in the scope of a liquidity • Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), in the amount of Euro 69.5 facility, in the amount of Euro 13.1 billion (31 December 2019: Euro 11.5 billion); million (31 December 2019: Euro 71.8 million); • Securities pledged as collateral to the European Investment Bank, in the amount of Euro 769.7 million (31 December 2019: Euro • Securities pledged as collateral to the Portuguese Securities and Exchange Commission (“Comissão do Mercado 98.6 million); de Valores Mobiliários” (CMVM)) in the scope of the Investors Indemnity System (“Sistema de Indemnização aos • Securities delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 107.0 million (31 December 2019: Euro 113.0 million). Investidores”), in the amount of Euro 8.1 million (31 December 2019: Euro 8.1 million); The above mentioned financial assets pledged as collateral are recorded in the various asset categories of the Group’s balance sheet • Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), in the amount and may be executed in the event the Group does not fulfil its obligations under the terms and conditions of the contracts celebrated. The increase in the value of securities pledged as collateral to the European Investment Bank is related to the reinforcement of the collateral due to changes in the minimum required amounts. • Securities pledged as collateral to the European Investment Bank, in the amount of Euro 769.7 million (31 December of Euro 69.5 million (31 December 2019: Euro 71.8 million); 2019: Euro 98.6 million); Documentary credits are irrevocable commitments made by the Bank, on behalf of its customers, to pay or order to pay a certain amount to a supplier of goods or services, within a determined period, upon the presentation of documentation of the expedition of • Securities delivered as collateral in connection with derivatives trading with a central counterparty in the amount of the goods or rendering of the services. The condition of “irrevocable” derives from the fact that they may not be cancelled neither changed without the agreement of all involved parties. Euro 107.0 million (31 December 2019: Euro 113.0 million). Revocable and irrevocable commitments represent contractual agreements to extend credit to customers of the Bank (e.g. undrawn The above mentioned financial assets pledged as collateral are recorded in the various asset categories of the Group’s credit lines), which are, generally, contracted for fixed periods of time or with other expiration conditions and, usually, require the balance sheet and may be executed in the event the Group does not fulfil its obligations under the terms and conditions payment of a fee. Almost all credit commitments in force require that customers continue meeting certain conditions that were verified of the contracts celebrated. The increase in the value of securities pledged as collateral to the European Investment at the time the credit was contracted. Bank is related to the reinforcement of the collateral due to changes in the minimum required amounts. Despite the characteristics of these contingent liabilities and commitments, these operations require a previous rigorous risk assessment of the solvency of the customer and of its business, similarly to any other commercial operation. When necessary, the Documentary credits are irrevocable commitments made by the Bank, on behalf of its customers, to pay or order Bank requires the collateralisation of these transactions. Since it is expected that the majority of these operations will mature without to pay a certain amount to a supplier of goods or services, within a determined period, upon the presentation of any funds having been drawn, these amounts do not necessarily represent future cash out-flows. documentation of the expedition of the goods or rendering of the services. The condition of “irrevocable” derives from the fact that they may not be cancelled neither changed without the agreement of all involved parties. Revocable and irrevocable commitments represent contractual agreements to extend credit to customers of the Bank (e.g. undrawn credit lines), which are, generally, contracted for fixed periods of time or with other expiration conditions and, usually, require the payment of a fee. Almost all credit commitments in force require that customers continue meeting certain conditions that were verified at the time the credit was contracted. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 368- 440 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Despite the characteristics of these contingent liabilities and commitments, these operations require a previous rigorous risk assessment of the solvency of the customer and of its business, similarly to any other commercial operation. When necessary, the Bank requires the collateralisation of these transactions. Since it is expected that the majority of these operations will mature without any funds having been drawn, these amounts do not necessarily represent future cash out-flows. NOVO BANCO Additionally, liabilities recorded in off-balance sheet items related to banking services provided are as follows: Additionally, liabilities recorded in off-balance sheet items related to banking services provided are as follows: Deposit and custody of securities and other items Amounts received for subsequent collection Securitized loans under management (servicing) Other responsibilities related with banking services (in thousands of Euros) 31.12.2020 31.12.2019 35 774 785 233 938 2 118 806 1 838 050 36 782 430 283 674 3 660 539 871 399 39 965 579 41 598 042 Under the resolution measure applied to BES by deliberation of Bank of Portugal of 3 August 2014, (point 1., paragraph b), subparagraph (vii) of Appendix 2), as altered by the deliberation of Bank of Portugal of 11 August 2014, the “Excluded Liabilities” from the transfer to NOVO BANCO include “any obligations, guarantees, liabilities or contingencies assumed in the trading, financial Under the resolution measure applied to BES by deliberation of Bank of Portugal of 3 August 2014, (point 1., paragraph intermediation and distribution of debt instruments issued by entities integrating Espírito Santo Group (…)”. b), subparagraph (vii) of Appendix 2), as altered by the deliberation of Bank of Portugal of 11 August 2014, the “Excluded Under the terms of the point and paragraph referred to above and sub point (v), the excluded liabilities also include “any liabilities or Liabilities” from the transfer to NOVO BANCO include “any obligations, guarantees, liabilities or contingencies assumed contingencies, namely those resulting from fraud or the violation of regulatory, penal or administrative offense provisions or in the trading, financial intermediation and distribution of debt instruments issued by entities integrating Espírito Santo regulations”. Group (…)”. On 29 December 2015, Bank of Portugal adopted a new deliberation for the “Clarification and retransmission of liabilities and contingencies defined as excluded liabilities in subparagraphs (v) through (vii) of paragraph (b) of No. 1 of Appendix 2 of the Under the terms of the point and paragraph referred to above and sub point (v), the excluded liabilities also include Deliberation of Bank of Portugal of 3 August 2014 (8 p.m.), with the wording given it by the Deliberation of Bank of Portugal of 11 “any liabilities or contingencies, namely those resulting from fraud or the violation of regulatory, penal or administrative August 2014 (5 p.m.)”. Through this deliberation, Bank of Portugal: offense provisions or regulations”. (i) Clarified the treatment as excluded liabilities of the contingent and unknown liabilities of BES (including litigation liabilities related to pending litigation and liabilities or contingencies arising from fraud or violation of rules or regulatory, criminal or On 29 December 2015, Bank of Portugal adopted a new deliberation for the “Clarification and retransmission of liabilities administrative offence decisions), regardless of their nature (tax, labour, civil or other) and whether or not these are recorded and contingencies defined as excluded liabilities in subparagraphs (v) through (vii) of paragraph (b) of No. 1 of Appendix in the accounts of BES, in accordance with subparagraph (v) of paragraph (b) of No. 1 of Appendix 2 of the Deliberation of 3 August; and 2 of the Deliberation of Bank of Portugal of 3 August 2014 (8 p.m.), with the wording given it by the Deliberation of Bank of Portugal of 11 August 2014 (5 p.m.)”. Through this deliberation, Bank of Portugal: (ii) Clarified that the following liabilities had not been transferred from BES to NOVO BANCO: a. All the liabilities relating to Preference Shares issued by vehicle companies established by BES and sold by BES; b. All liabilities, damages and expenses related to real estate assets that were transferred to NOVO BANCO; i. Clarified the treatment as excluded liabilities of the contingent and unknown liabilities of BES (including litigation c. All indemnities related to breach of contracts (purchase and sale of real estate assets and others) signed and liabilities related to pending litigation and liabilities or contingencies arising from fraud or violation of rules or d. All indemnities related to life insurance contracts, in which the insurer was BES - Companhia de Seguros de Vida, regulatory, criminal or administrative offence decisions), regardless of their nature (tax, labour, civil or other) and whether or not these are recorded in the accounts of BES, in accordance with subparagraph (v) of paragraph (b) of e. All liabilities and indemnities related to the alleged annulment of certain clauses in loan agreements in which BES No. 1 of Appendix 2 of the Deliberation of 3 August; and celebrated before 8 p.m. on 3 August 2014; was the lender; S.A.; f. All the indemnities and liabilities arising from the cancellation of operations carried out by BES whilst financial and ii. Clarified that the following liabilities had not been transferred from BES to NOVO BANCO: g. Any liability that is the object of any of the processes described in Appendix I of said deliberation. investment service provider; and (iii) To the extent that, despite the clarifications made above, it is found that there has been an effective transfer of any liabilities a. All the liabilities relating to Preference Shares issued by vehicle companies established by BES and sold by BES; from BES to NOVO BANCO which, in terms of any of those paragraphs and the Deliberation of 3 August, should have remained in BES’s legal sphere, said liabilities will be retransmitted from NOVO BANCO to BES, with effect as at 8 p.m. of 3 August 2014. b. All liabilities, damages and expenses related to real estate assets that were transferred to NOVO BANCO; celebrated before 8 p.m. on 3 August 2014; c. All indemnities related to breach of contracts (purchase and sale of real estate assets and others) signed and In the preparation of its consolidated financial statements as at 31 December 2020 (as well as in the previous financial statements), NOVO BANCO incorporated the decisions resulting from the referred resolution measure regarding the transfer of the assets, liabilities, off-balance sheet items and assets under management of BES, as well as from the deliberation of 29 December 2015 of d. All indemnities related to life insurance contracts, in which the insurer was BES - Companhia de Seguros de Vida, Bank of Portugal, in particular, with regards to the clarification of the non-transmission to NOVO BANCO of contingent and unknown liabilities as well as the clarifications relating to the liabilities listed in paragraph (ii) above, herein also including the lawsuits listed in S.A.; said deliberation. was the lender; e. All liabilities and indemnities related to the alleged annulment of certain clauses in loan agreements in which BES In addition, also by the deliberation of Bank of Portugal of 29 December 2015, it was decided that it is the responsibility of Resolution Fund to neutralize, at the Bank level, the effects of decisions that are legally binding, beyond the control of NOVO BANCO and to which it did not contribute and that, simultaneously, translate into the materialization of liabilities and contingencies which, according f. All the indemnities and liabilities arising from the cancellation of operations carried out by BES whilst financial to the perimeter of the transfer to NOVO BANCO as defined by Bank of Portugal, should remain in BES’s scope or give rise to the setting of indemnities in the scope of the implementation of court sentences annulling decisions adopted by Bank of Portugal. and investment service provider; and g. Any liability that is the object of any of the processes described in Appendix I of said deliberation. Considering that the establishment of the Bank results from the application of a resolution measure to BES, which had a significant impact on the net worth of third parties, and notwithstanding the deliberations of Bank of Portugal of 29 December 2015, there are still relevant litigation risks, albeit mitigated, namely regarding the various disputes relating to the loan made by Oak Finance to BES and regarding the senior bond issues retransmitted to BES, as well as the risk of the non-recognition and/or non-implementation of the various decisions of Bank of Portugal by Portuguese or foreign courts (as it is the case of the courts in Spain) in disputes related to the perimeter of the assets, liabilities, off-balance sheet items and assets under management transferred to NOVO BANCO. These disputes include the two lawsuits of late January 2016, with the Supreme Court of Justice of Venezuela, Banco de Desarrollo Económico y Social de Venezuela and the Fondo de Desarrollo Nacional against BES and NOVO BANCO, relating to the sale of debt instruments issued by entities belonging to the Espírito Santo Group, in the amount of 37 million dollars and 335 million dollars, respectively, and which requests the reimbursement of the amount invested, plus interest, compensation for the value of inflation and 441 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 369- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES iii. To the extent that, despite the clarifications made above, it is found that there has been an effective transfer of any liabilities from BES to NOVO BANCO which, in terms of any of those paragraphs and the Deliberation of 3 August, should have remained in BES’s legal sphere, said liabilities will be retransmitted from NOVO BANCO to BES, with effect as at 8 p.m. of 3 August 2014. In the preparation of its consolidated financial statements as at 31 December 2020 (as well as in the previous financial statements), NOVO BANCO incorporated the decisions resulting from the referred resolution measure regarding the transfer of the assets, liabilities, off-balance sheet items and assets under management of BES, as well as from the deliberation of 29 December 2015 of Bank of Portugal, in particular, with regards to the clarification of the non-trans- mission to NOVO BANCO of contingent and unknown liabilities as well as the clarifications relating to the liabilities listed in paragraph (ii) above, herein also including the lawsuits listed in said deliberation. In addition, also by the deliberation of Bank of Portugal of 29 December 2015, it was decided that it is the responsibility of Resolution Fund to neutralize, at the Bank level, the effects of decisions that are legally binding, beyond the control of NOVO BANCO and to which it did not contribute and that, simultaneously, translate into the materialization of liabilities and contingencies which, according to the perimeter of the transfer to NOVO BANCO as defined by Bank of Portugal, should remain in BES’s scope or give rise to the setting of indemnities in the scope of the implementation of court sentences annulling decisions adopted by Bank of Portugal. Considering that the establishment of the Bank results from the application of a resolution measure to BES, which had a significant impact on the net worth of third parties, and notwithstanding the deliberations of Bank of Portugal of 29 December 2015, there are still relevant litigation risks, albeit mitigated, namely regarding the various disputes relating to the loan made by Oak Finance to BES and regarding the senior bond issues retransmitted to BES, as well as the risk of the non-recognition and/or non-implementation of the various decisions of Bank of Portugal by Portuguese or foreign courts (as it is the case of the courts in Spain) in disputes related to the perimeter of the assets, liabilities, off-balance sheet items and assets under management transferred to NOVO BANCO. These disputes include the two lawsuits of late January 2016, with the Supreme Court of Justice of Venezuela, Banco de Desarrollo Económico y Social de Venezuela and the Fondo de Desarrollo Nacional against BES and NOVO BANCO, relating to the sale of debt instruments issued by entities belonging to the Espírito Santo Group, in the amount of 37 million dollars and 335 million dollars, respectively, and which requests the reimbursement of the amount invested, plus interest, compensation for the value of inflation and costs (in a total estimated amount by the claimants of 96 and 871 million dollars, respectively). In accordance with resolution measure, these responsibilities were not transferred to NOVO BANCO and the main actions and precautionary seizure procedures are still pending before the Supreme Court of Venezuela. In the preparation of the individual and consolidated financial statements of the Bank as at 31 December 2020, the Executive Board of Directors reflected the Resolution Deliberation and related decisions made by Bank of Portugal, in particular the decisions of 29 December 2015. In this context, the present financial statements, namely in what regards the provisions for contingencies arising from lawsuits, reflect the exact perimeter of the assets, liabilities, off-balance sheet elements and assets under management and liabilities transferred from BES to NOVO BANCO, as determined by Bank of Portugal and taking as reference the current legal bases and the information available at the present date. As part of the sale of NOVO BANCO, completed on 18 October 2017, the respective contractual documents include specific provisions that produce effects equivalent to the aforementioned resolution of the Board of Directors of the Bank of Portugal, dated 29 December 2015, concerning the neutralisation, at the level of NOVO BANCO, of the effects of unfavourable decisions that are legally binding, although it is now contractual in nature, thus maintaining the con- tingent liabilities of the Resolution Fund. Relevant lawsuits For the purpose of determining the contingent liabilities, and without prejudice to the information contained in these notes to the accounts, namely regarding the conformity of the policy for the constitution of provisions with the reso- lution measure and subsequent decisions of Bank of Portugal (and the criteria for the allocation of responsibilities and contingencies arising therefrom), it is also necessary to identify the following disputes whose effects or impacts on the financial statements of NOVO BANCO are, on this date, not susceptible of determination or quantification: 442 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEi. Lawsuit brought by Partran, SGPS, S.A., Massa Insolvente da Espírito Santo Financial Group, S.A. and Massa Insol- vente da Espírito Santo Financial (Portugal), S.A. against NOVO BANCO and Calm Eagle Holdings, S.A.R.L. through which it is intended that the pledge of the shares of Companhia de Seguros Tranquilidade, S.A. be declared invalid and, secondarily, that said pledge be annulled or declared ineffective; ii. Lawsuit brought by NOVO BANCO, challenging the resolution decided in favour of the insolvent estate in respect of the acts of the constitution and subsequent execution of the pledge on the shares of the company Companhia de Seguros Tranquilidade, S.A., declared by the insolvency administrator of Partran, SGPS, S.A., due to considering that there are no grounds for the resolution of these acts, as well as demanding the reimbursement of the amount received by way of price (Euro 25 million, subject to possible positive adjustment) on the sale of the shares of Companhia de Seguros Tranquilidade, S.A.. NOVO BANCO challenged judicially the resolution act, with this process running its course attached to the insolvency proceedings of Partran, SGPS, S.A.; iii. Following the conclusion of the sale agreement of NOVO BANCO's share capital, signed between the Resolution Fund and Lone Star on 31 March 2017, certain legal suits have been lodged, related to the conditions of the sale, namely the administrative action brought by Banco Comercial Português, SA (BCP) against the Resolution Fund, of which NOVO BANCO is not a party, and according to the public disclosure of inside information made by BCP on the website of the CMVM on 1 September 2017, it requested the legal assessment of the contingent capitalization obligation assumed by the Resolution Fund within the CCA; iv. NOVO BANCO was notified of an order by the Central Court of Criminal Investigation (“TCIC”) that determines the provision of a guarantee by the NB in the approximate amount of EUR 51 million due to an alleged failure to comply with an arrest order bank accounts, having used the respective means of reaction to oppose the application of the aforementioned asset guarantee measure due to the absence of a legal basis.. Resolution Fund Resolution Fund is a public legal entity with administrative and financial autonomy, created by Decree-Law No. 31- A/2012, of 10 February, which is governed by the RGICSF and by its internal regulation, having as its mission to provide financial support for the resolution measures implemented by Bank of Portugal, whilst national resolution authority, and to carry out all the other functions conferred by law in the scope of the execution of such measures. The Bank, as with the generality of the financial institutions operating in Portugal, is one of the institutions participating in Resolution Fund, making contributions that result from the application of a rate defined annually by Bank of Portugal, based, essentially, on the amount of its liabilities. As at 31 December 2020 the periodic contribution made by the Bank amounted to Euro 12,528 thousand (31 December 2019: Euro 11,996 thousand). As part of its responsibility as the supervisory and resolution authority, Bank of Portugal decided to apply, on 3 August 2014, a resolution measure to BES, under No. 5 of article 145-G of the RGICSF, which consisted on the transfer of most of its activity to NOVO BANCO, created specifically for this purpose and the capital was assured by the Resolution Fund. To realise the share capital of NOVO BANCO, Resolution Fund made available Euro 4,900 million, of which Euro 365 million corresponded to own funds. A loan was also granted by a banking syndicate to Resolution Fund, amounting to Euro 635 million, with the participation of each credit institution being weighted by various factors, including their respective size. The remaining amount (Euro 3,900 million) had its origin in a reimbursable loan granted by the Portu- guese State. In December 2015, national authorities decided to sell most of the assets and liabilities associated with the activity of Banif - Banco Internacional do Funchal, SA (BANIF) to Banco Santander Totta, S.A. (Santander Totta), for Euro 150 million, also in the scope of the application of a resolution measure. This operation involved an estimated Euro 2,255 million of public funding, aimed at covering future contingencies, financed in Euro 489 million by Resolution Fund and Euro 1,766 million directly by the Portuguese State. In the context of this resolution measure, the assets of Banif identified as problematic were transferred to an asset management vehicle, created for the purpose – Oitante, S.A.. This operation involved public support estimated at Euro 2,255 million, which aimed to cover future contingencies, financed at Euro 489 million by the Resolution Fund and Euro 1,766 million directly by the Portuguese State. 443 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe serious financial imbalance of BES in 2014 and BANIF in 2015, which justified the application of resolution mea- sures, created uncertainties related to the risk of litigation involving Resolution Fund, which is significant, as well as to the risk of an insufficiency of funds to ensure its compliance with its responsibilities, namely the short-term repayment of the loans contracted. It was in this context that, in the second half of 2016, the Portuguese Government reached an agreement with the European Commission to change the terms of the financing granted by the Portuguese State and by the banks participating in Resolution Fund in order to preserve its financial stability, through the promotion of conditions that endow predictability and stability of the contributory efforts to Resolution Fund. To this end, an addendum to the financing agreements with Resolution Fund was formalised, which introduced a number of changes to the repayment schedule, remuneration rates and other terms and conditions associated with said loans such that these are adjusted to Resolution Fund’s ability to fully meet its obligations based on its regular revenues, that is, without the need to charge the banks participating in Resolution Fund for special contributions or any other extraordinary contribution. As announced by the Resolution Fund in 21 March 2017, issued following an earlier statement of 28 September 2016 and the statement of the Ministry of Finance issued on the same date the review of the conditions of the funding granted by the Portuguese State and the participating banks aimed to ensure the sustainability and the financial balance of the Resolution Fund, with the basis of a stable, predictable and affordable charge to the banking sector. Based on this review, the assumed Resolution Fund is assured the full payment of their responsibilities, and the respective remuneration, without need for recourse to special contributions or any other type of contributions extraordinary by the banking industry. Also on 31 March 2017, Bank of Portugal announced that it had selected Lone Star Funds for the acquisition of NOVO BANCO, which was completed on 18 October 2017, through the injection, by the new shareholder, of Euro 750 million, followed by another capital injection of Euro 250 million, made on 21 December 2017. Lone Star Funds came to hold 75% of the share capital of NOVO BANCO and Resolution Fund the remaining 25%. In addition, the approved conditions include: • A Contingent Capital Agreement, under which the Resolution Fund, whilst shareholder, may be called upon to make payments in the event of certain cumulative conditions related to: i) the performance of a restricted set of assets of NOVO BANCO and ii) the evolution of the Bank’s capitalization levels. The possible payments needed, in the agreed terms of this Contingent Capital Agreement are of an absolute maximum of Euro 3,890 million; • A Compensation Mechanism to NOVO BANCO if in the event that some conditions are met, and it is convicted to make payments of any responsibilities, due to a final court judicial decision not recognising or that is opposed to the resolution measure applied by Bank of Portugal, or to NOVO BANCO’s perimeter of assets and liabilities. Notwithstanding the possibility under the applicable legislation for the collection of special contributions, in light of the renegotiation of the conditions of the loans granted to Resolution Fund by the Portuguese State and by a syndicate of banks, and of the public press releases made by the Resolution Fund and the Office of the Finance Minister stating that this possibility is not to be used, the present financial statements reflect the expectation of the Board of Directors that the Bank will not be required to make special contributions or any other type of extraordinary contributions to finance the resolution measures applied to BES and BANIF, as well as the Contingent Capital Agreement and the Compensation Mechanism referred to in the previous paragraphs. Any changes in this regard and the application of these mechanisms may have relevant implications in the Bank’s financial statements. NOTE 35 – Related parties transactions The group of entities considered to be related parties by NOVO BANCO in accordance with the IAS 24 definitions, are (i) key management personnel (members of the Executive Board of Directors and members of the General Supervisory Board of NOVO BANCO); (ii) people or entities with a family, legal or business relationship with key management personnel; (iii) people or entities with a family, legal or business relationship with shareholders; (iv) shareholders holding 444 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEdirect or indirect stakes equal to or exceeding 2% of the share capital or voting rights of NOVO BANCO; (v) subsidiaries consolidated for accounting purposes under the full consolidation method; (vi) associated companies, that is, compa- nies over which NOVO BANCO has significantly influence on the company’s financial and operational polices, despite not having control; and (vii) entities under joint control of NOVO BANCO (joint ventures). During 2020, the following transactions with Related Parties (credit and other types) were carried out: NOVO BANCO 1) Credit Operations 1) Credit Operations Entities / Individuals ACH Brito S.A. Category Associate AGA - Alcool e Géneros Alimentares S.A. Director / Manager / Family APB - Associação Portuguesa Bancos AVIZMED Unipessoal Lda Carlos Jorge Ferreira Brandão Cristalmax - Indústria Vidros S.A. EDENRED - Portugal S.A. Enkroot - Gestão e Tratamento de Águas S.A. Entidades GNB (BEST, NB dos Açores, NBSE, NB Lux e NB Finance) EPEDAL Indústria de Componentes Metálicos S.A. GERMEN - Moagens Cereais SA GNB Companhia de Seguros S.A. Greendraive - Gestão e Exporação de Campos de Golf e Complexos Turísticos S.A. Grupo Esegur (Esegur - Soluções de Segurança S.A.) Grupo Multipessoal (Multipessoal - Recursos Humanos SGPS S.A.) Director / Manager / Family Director / Manager / Family Director / Manager / Family Associate Associate Associate Subsidiary Associate Director / Manager / Family Associate Subsidiary Associate Associate Jorge Cabrañes Azcona Director / Manager / Family Associate Locarent- Coompanhia Portuguesa Aluguer Viaturas S.A. Logi C Logística Integrada S.A. M N Ramos Ferreira Engenharia S.A. Nacional Conta – Contabilidade, Consultadoria e Administração, Lda. Nexxpro - Fábrica de Capacetes S.A. Novo Banco Servicios Corporativos SL Righthour S.A. SIBS SGPS S.A. Sofia Moraes Sarmento TRADISA Logicauto S.L. TRADISA Operador Turístico S.A. Unicre - Cartão Internacional de Crédito S.A. Associate Associate Director / Manager / Family Associate Subsidiary Subsidiary Director / Manager / Family Director / Manager / Family Director / Manager / Family Director / Manager / Family Associate 445 Operation Amount (Euro) Credit Limit - NB Express Bill Credit Card Limits Medium / Long Term Financing Credit Limit - NB Express Bill Loan Account Checking Account Medium / Long Term Financing Individual Loan Credit Limit - NB Express Bill Direct Debit Limits Import Documentary Credit Bank Guarantee - System Installation Bank Guarantee - Advance Authorized Discovery Medium / Long Term Financing Limits for Bank Guarantees Factoring Interbank Limits (Markets Room Operations) Commercial Limits Credit Card Limits Credit Limit - NB Express Bill Self- Confirming Direct Debit Limits Medium / Long Term Financing Supplies Credit Card Limits Leasing Limits for Bank Guarantees Credit Card Limits Credit Limit - NB Express Bill Grouped Line Guarantees Medium / Long Term Financing Authorized Discovery Factoring Individual Loan Credit Card Limits Loan Account Checking Account Market Room Operations (RCE) Direct Debit Limits Credit ceiling - Leasing Credit ceiling - Leasing Commercial Paper Program Credit Card Limits Loan Account Checking Account Credit Card Limits Credit Limit - NB Express Bill Credit Limit - NB Express Bill Exclusive Medium / Long Term Financing Credit Card Limits Loan Account Checking Account Medium / Long Term Financing Promissory Discount - Treasury Support Factoring Medium / Long Term Financing Supplies Loan Account Checking Account Issuance of Distrate Loan Account Checking Account Authorized Discovery Medium / Long Term Financing Loan Account Checking Account Medium / Long Term Financing 75 000 10 000 400 000 650 000 1 100 000 500 000 31 615 100 000 410 000 17 901 66 210 66 210 500 000 500 000 500 000 650 000 1 420 990 000 10 000 1 250 000 5 000 000 80 600 000 125 000 700 000 200 000 200 000 1 000 000 112 500 500 000 1 750 000 3 000 000 6 500 000 9 200 000 35 000 10 000 2 500 000 3 000 000 4 000 000 32 150 000 45 000 000 50 000 000 10 000 200 000 3 750 100 000 200 000 250 000 1 000 100 000 200 000 200 000 750 000 1 000 000 4 750 000 25 000 000 181 237 50 000 000 1 496 300 000 400 000 10 000 000 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 372- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES 2) Services rendered and other signed contracts 2) Services rendered and other signed contracts NOVO BANCO Entities / Individuals BEST - Banco Electrónico de Serviço Total S.A. EDENRED - Portugal S.A. ENKROOT - Gestão e Tratamento de Águas S.A. GNB Companhia de Seguros S.A. GNB-GP Gestão de Patrimónios S.A. GNB REAL ESTATE – Soc. Gestora de Organismo de Investimento Coletivo S.A. LINEAS - Concessões de Transportes SGPS S.A. NANI Holdings SGPS SA / LSF NANI Investments Sarl NANI Holdings SGPS SA / HUDSON Advisors Portugal Unipessoal Lda Novo Banco Pensiones EGFP S.A. Pharol SGPS S.A. Category Subsidiary Associate Associate Associate Operation Intra Group Service Delivery Agreement Alteration of the Distribution Agreement Exemption from filing requirements for debtors Factoring 4th Addendum to the Contract New Product: Personal Accidents 5th Addendum to the Contract New Product: Health Insurance • • • Internal Campaigns: Business Protection Insurance Subsidiary Amendment to the Discretionary Management Agreement Subsidiary Associate Associate Associate Subsidiary Associate • Harmonization of the calculation base of the Management Fee of 4 Funds under Company Management • Management Committee Review 2 Funds [FUNGEPI and FUNGEPI II] Consent to sell 50% of the concessionaire: Rodovias do Tietê S.A. Amendment and Restatement Agreement to the Intragroup Financial Reporting and Information Sharing Agreement Change to the Services Agreement and to the Real Estate Services Agreement - 3rd Amendment Amendment to the Asset Management Contract Account Escrow Contract for services (3D Secure implementation: Version 2.1 and 2.2) SWIFT GPI Project (Global Payments Innovation) • • SIBS (Grupo) Director / Manager / Family • MBWay Interbank Solution (Scheme Marketing Fee) • Project Consolidation - Target 2 (Follow Up) • Acquisition of POS's / 2020 (Laptops, Desktop and others) 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 373- 446 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE The Bank Balance Sheet balances with related parties as at 31 December 2020 and 2019, as well as the respective profit and losses, can be summarized as follows: Shareholders NANI HOLDINGS FUNDO DE RESOLUÇÃO Subsidiary companies GNB RECUPERAÇÃO DE CRÉDITO GNB CONCESSÕES GNB ACE GNB GA NOVO BANCO SERVICIOS BESIL ES Plc ES TECH VENTURES BEST NB AÇORES FCR PME GNB SISTEMAS DE INFORMAÇÃO SPE-LM6 SPE-LM7 FCR NB GROWTH NB ÁFRICA NOVO VANGUARDA FUNGEPI FUNGEPI_II FUNGERE IMOINVESTIMENTO PREDILOC IMOGESTÃO ARRABIDA INVESFUNDO VII NB LOGÍSTICA NB PATRIMÓNIO FUNDES AMOREIRAS FIMES ORIENTE NB ARRENDAMENTO NB FINANCE ASAS INVEST FEBAGRI AUTODRIL JCN PORTUCALE GREENWOODS QUINTA D. MANUEL I QUINTA DA AREIA VÁRZEA DA LAGOA PROMOTUR HERDADE DA BOINA RIBAGOLFE BENAGIL IMOASCAY HERDADE PINHEIRINHO HERDADE PINHEIRINHO II QUINTA DA RIBEIRA PROMOFUNDO OREY REABILITAÇÃO URBANA R INVEST GREENDRAIVE Associated Companies LINEAS LOCARENT GNB SEGUROS ESEGUR UNICRE MULTIPESSOAL OUTRAS Other related entities HUDSON ADVISORS PORTUGAL NACIONAL CONTA LDA INFRAMOURA ESMALGLASS MARINA VILAMOURA Other Assets Liabilities Guarantees Income Expenses Assets Liabilities Guarantees Income Expenses 31.12.2020 31.12.2019 (in thousands of Euros) - 761 938 - 83 473 - 1 723 18 511 - - 48 738 973 139 435 - - 286 687 869 975 15 414 - - - - - - - - - - - - - - 18 - - - - - - - - - - - - - - - - - - - - - - 4 923 2 231 808 64 933 115 832 - 2 955 22 597 2 030 2 208 349 - 295 114 - - 409 153 - 257 39 339 - 73 536 23 - - 69 809 577 185 159 509 1 007 - 2 902 5 490 3 562 7 185 162 60 942 81 394 41 699 922 2 649 36 427 3 633 1 216 28 707 35 911 12 625 31 824 13 753 1 025 8 770 571 925 89 - - 1 761 - - - - 5 10 312 624 - - 187 230 - - 58 1 306 388 6 505 633 - 1 650 49 31 64 816 73 684 - 52 16 107 1 176 - - 332 - - 12 528 - 1 037 013 153 - - - 332 - - - - 6 - - - - 37 102 458 - - - - - - - - - - - - - - - - - - - - - 3 566 - - - - - - - - - - - - - - - - - - - - 106 106 173 - - - 915 - 273 - 1 188 - - - 2 - 2 13 - - 5 977 496 - - - 1 892 960 - - 397 1 068 - - - 29 34 31 39 - - - 4 - - - - - - 43 - - - - - - - - - - - - - - - - - - - - - 11 315 2 871 1 081 - - 289 31 1 982 6 254 - - - - - - 1 761 - 1 479 - 12 - - - 4 368 1 873 - - - - - - 261 7 7 4 - - 6 1 - 1 4 447 1 - 2 - 4 625 - - - - - - - - - - - - - - - - - - - - - 31 383 - 3 800 - - - - 291 4 091 4 685 - - - - 4 685 - 83 473 - 2 698 4 777 - - 46 732 1 858 139 165 - - 322 437 827 787 15 414 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 24 713 73 734 - - - - 4 165 2 583 966 97 656 122 802 - 4 157 28 360 3 520 1 336 257 831 - 117 - - - 117 156 39 382 309 44 507 2 - - 64 791 432 110 145 384 121 - 2 902 5 414 3 147 7 229 158 58 666 62 244 41 422 1 393 2 162 36 925 1 308 1 180 4 415 31 071 14 598 36 100 14 766 3 193 72 911 660 - 13 - 66 132 1 79 - 745 21 - 6 631 - 33 - 531 - 1 709 20 1 132 766 29 556 376 14 390 1 510 2 500 35 57 312 105 679 - 8 - - - 8 - - - 6 - - - - 37 1 295 - - - - - - - - - - - - 409 - - - - - - - - 168 578 - - - - - - - - - - - - - - - - - - - - 106 170 431 - - - 69 - 273 53 395 - - - - - - - - - 6 009 438 128 41 043 - 1 855 857 - - 439 1 177 - - - 29 27 32 47 - 42 - - - - - - - - 268 - - - - - - - - - - - - - - - - - - - - 1 52 724 2 609 1 176 2 - 180 22 2 102 6 091 - - - - - - - 11 996 2 319 - 1 728 1 1 316 551 52 409 10 5 895 1 860 - - - - - - 627 15 13 7 - - 6 - - - 4 791 3 - 43 - 4 323 - - - - - - - - - - - - - - - - - - 1 - - 87 914 - 4 215 1 - - - 1 499 5 715 3 912 - - - - 3 912 The amount of assets receivable from the Resolution Fund corresponds to the amount of the triggering of the Con- tingent Capital Agreement regarding the financial years 2020 and 2019. The amount indicated in 2019 was adjusted to Euro 1,035,016 thousand during the financial year 2020, having been paid in full by the Resolution Fund. In June 2018 a contract was entered into between NANI HOLDINGS, SGPS, S.A., LSF NANI INVESTMENTS S.a.r.l. and NOVO BANCO, to provide support services for the preparation of consolidated information and regulatory reports. The assets on the balance sheet related to associated companies included in the table above refer mainly to loans and advances, and shareholder loans granted or debt securities acquired in the scope of the Bank’s activity. The liabilities relate mainly to bank deposits taken. 447 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe guarantees relating to associated undertakings included in the table above mainly refer to guarantees provided. Related party transactions were carried out at arm's length, under similar terms and conditions, when compared with others carried out with unrelated parties, and when these conditions were not verified, those exceptions were substan- tiated in accordance with the Bank’s Related Party Transactions Policy. NOVO BANCO All the loans granted to related parties are included in the impairment model, being subject to the determination of impairment in the same manner as the commercial loans and advances granted by the Bank in the scope of its activity. All assets placed with related parties earn interest between 0% and 8,00% (the rates correspond to the rates applied All the loans granted to related parties are included in the impairment model, being subject to the determination of impairment in the according to the original currency of the asset). same manner as the commercial loans and advances granted by the Bank in the scope of its activity. All assets placed with related parties earn interest between 0% and 8,00% (the rates correspond to the rates applied according to the original currency of the asset). The costs with remunerations and other benefits granted to Key Management Personnel of NOVO BANCO in 2020 and 2019, are as follows: The costs with remunerations and other benefits granted to Key Management Personnel of NOVO BANCO in 2020 and 2019, are as follows: Executive Board of Directors 31.12.2020 General and Supervisory Board Total Executive Board of Directors 31.12.2019 General and Supervisory Board Total (in thousands of Euros) NOVO BANCO Short-term employment benefits All the loans granted to related parties are included in the impairment model, being subject to the determination of impairment in the 993 same manner as the commercial loans and advances granted by the Bank in the scope of its activity. All assets placed with related parties earn interest between 0% and 8,00% (the rates correspond to the rates applied according to the original currency of the asset). Post-employment benefits 2 812 3 669 2 676 3 792 980 3 3 3 3 - - Other long-term benefits 8 The costs with remunerations and other benefits granted to Key Management Personnel of NOVO BANCO in 2020 and 2019, are as 1 001 follows: 41 3 713 21 1 001 33 2 712 43 2 858 64 3 859 (in thousands of Euros) 3 Total 3 669 Other long-term benefits Post-employment benefits Short-term employment benefits Executive Board of Directors Executive Board of Directors 31.12.2019 General and Supervisory Board 31.12.2020 General and Supervisory Board Additionally, in financial year 2020, costs of Euro 320 thousand were recorded as a sign-on bonus resulting from the entry into office of a new Executive Director, and compensation for the termination of the mandate of three Executive Directors was recorded in the amount of Euro 206 thousand. In 2020, the amount with variable remuneration in relation to the Board of Directors amounted to Euro 1,860 thousand, which respects the remuneration that does not constitute acquired rights of the respective members until after the Additionally, in financial year 2020, costs of Euro 320 thousand were recorded as a sign-on bonus resulting from the end of the restructuring period (currently, 31 December 2021), and its payment is subject to approval and verification of certain entry into office of a new Executive Director, and compensation for the termination of the mandate of three Executive conditions (31 December 2019: Euro 1,997 thousand). 993 2 676 Directors was recorded in the amount of Euro 206 thousand. In 2020, the amount with variable remuneration in relation As at 31 December 2020, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: to the Board of Directors amounted to Euro 1,860 thousand, which respects the remuneration that does not constitute 8 (i) to members of the Executive Board of Directors and their immediate relatives was Euro 331 thousand; and (ii) members of the 1 001 acquired rights of the respective members until after the end of the restructuring period (currently, 31 December 2021), General and Supervisory Board and their immediate relatives did not had credit granted. and its payment is subject to approval and verification of certain conditions (31 December 2019: Euro 1,997 thousand). As at 31 December 2019, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: Additionally, in financial year 2020, costs of Euro 320 thousand were recorded as a sign-on bonus resulting from the entry into office (i) to members of the Executive Board of Directors and their immediate relatives was Euro 447 thousand; and (ii) members of the of a new Executive Director, and compensation for the termination of the mandate of three Executive Directors was recorded in the As at 31 December 2020, the amount of credit granted to members of Key Management Personnel of NOVO BANCO General and Supervisory Board and their immediate relatives did not had credit granted. amount of Euro 206 thousand. In 2020, the amount with variable remuneration in relation to the Board of Directors amounted to Euro was as follows: (i) to members of the Executive Board of Directors and their immediate relatives was Euro 331 thousand; 1,860 thousand, which respects the remuneration that does not constitute acquired rights of the respective members until after the and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted. end of the restructuring period (currently, 31 December 2021), and its payment is subject to approval and verification of certain NOTE 36 – SECURITISATION OF ASSETS conditions (31 December 2019: Euro 1,997 thousand). As at 31 December 2019, the amount of credit granted to members of Key Management Personnel of NOVO BANCO As at 31 December 2020 e 2019, the outstanding securitization transactions made by the Bank were as follows: As at 31 December 2020, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: was as follows: (i) to members of the Executive Board of Directors and their immediate relatives was Euro 447 thou- (i) to members of the Executive Board of Directors and their immediate relatives was Euro 331 thousand; and (ii) members of the (in thousands of Euros) sand; and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted. General and Supervisory Board and their immediate relatives did not had credit granted. 41 3 713 21 1 001 43 2 858 33 2 712 64 3 859 Current amount 3 792 2 812 980 Total 3 3 3 - - Issue Start date Original amount Asset securitized 31.12.2020 31.12.2019 As at 31 December 2019, the amount of credit granted to members of Key Management Personnel of NOVO BANCO was as follows: Lusitano Mortgages No.4 plc (i) to members of the Executive Board of Directors and their immediate relatives was Euro 447 thousand; and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted. Lusitano Mortgages No.5 plc NOTE 36 – Securitisation of assets 463 413 Mortgage loans (general scheme) 312 836 Mortgage loans (general scheme) September 2005 September 2006 1 200 000 1 400 000 280 051 417 854 Lusitano Mortgages No.6 plc As at 31 December 2020 e 2019, the outstanding securitization transactions made by the Bank were as follows: Lusitano Mortgages No.7 plc NOTE 36 – SECURITISATION OF ASSETS Lusitano SME No.3 1 090 124 Mortgage loans (general scheme) 434 463 Mortgage loans (general scheme) 88 937 Loans to small and medium-sized enterprises September 2008 November 2016 1 900 000 1 100 000 1 003 303 630 385 July 2007 396 083 - As at 31 December 2020 e 2019, the outstanding securitization transactions made by the Bank were as follows: (in thousands of Euros) The loans and advances to customers covered by the securitization operation Lusitano SME No. 3 were not derecognized from the balance sheet since the Bank substantially retained all the risks and rewards of ownership associated with the securitized assets. During the year of 2020, the Lusitano SME securitization operation No. 3 was settled. The remaining securitization operations were derecognized as the Bank substantially transferred all the risks and rewards of ownership. During 2019 the Bank repurchased Lusitano Mortgages No.4 plc securitization operations credits Lusitano Mortgages No. 1 plc, Lusitano Mortgages No. 2 plc and Lusitano Mortgages No. 3 plc. Lusitano Mortgages No.5 plc 312 836 Mortgage loans (general scheme) 463 413 Mortgage loans (general scheme) Asset securitized Original amount Current amount September 2005 September 2006 1 200 000 1 400 000 31.12.2019 31.12.2020 Start date 280 051 417 854 Issue Lusitano Mortgages No.6 plc July 2007 1 100 000 396 083 434 463 Mortgage loans (general scheme) Lusitano Mortgages No.7 plc September 2008 1 900 000 1 003 303 1 090 124 Mortgage loans (general scheme) Lusitano SME No.3 November 2016 630 385 - 88 937 Loans to small and medium-sized enterprises The loans and advances to customers covered by the securitization operation Lusitano SME No. 3 were not derecognized from the balance sheet since the Bank substantially retained all the risks and rewards of ownership associated with the securitized assets. During the year of 2020, the Lusitano SME securitization operation No. 3 was settled. The remaining securitization operations were derecognized as the Bank substantially transferred all the risks and rewards of ownership. During 2019 the Bank repurchased securitization operations credits Lusitano Mortgages No. 1 plc, Lusitano Mortgages No. 2 plc and Lusitano Mortgages No. 3 plc. 448 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 375- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 375- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE The loans and advances to customers covered by the securitization operation Lusitano SME No. 3 were not derecog- nized from the balance sheet since the Bank substantially retained all the risks and rewards of ownership associated with the securitized assets. During the year of 2020, the Lusitano SME securitization operation No. 3 was settled. The remaining securitization operations were derecognized as the Bank substantially transferred all the risks and rewards of ownership. During 2019 the Bank repurchased securitization operations credits Lusitano Mortgages No. 1 plc, Lusitano Mortgages No. 2 plc and Lusitano Mortgages No. 3 plc. NOVO BANCO The main characteristics of these operations, as at 31 December 2020 and 2019, may be analyzed as follows: The main characteristics of these operations, as at 31 December 2020 and 2019, may be analyzed as follows: Issue Bonds issued Initial nominal value Current nominal value Interest held by Group (Nominal value) 31.12.2020 Interest held by Group (Book value) Maturity date Initial rating of the bonds Current rating of the bonds Fitch Moody's S&P DBRS Fitch Moody's S&P DBRS (in thousands of Euros) Lusitano Mortgages No.4 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.7 plc Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class F Class A Class B Class C Class D 1 134 000 22 800 19 200 24 000 10 200 1 323 000 26 600 22 400 28 000 11 900 943 250 65 450 41 800 17 600 31 900 22 000 1 425 000 294 500 180 500 57 000 214 891 14 224 11 978 14 973 5 100 311 465 25 494 21 469 26 836 11 900 235 906 65 450 41 800 17 600 31 900 22 000 528 003 294 500 180 500 57 000 - - - - - - - - - - - - - - - - - - - - December 2048 AAA December 2048 AA December 2048 A+ December 2048 BBB+ December 2048 NA December 2059 AAA December 2059 AA December 2059 A December 2059 BBB+ December 2059 N/A 188 337 63 950 41 800 17 600 31 900 - 528 003 294 500 180 500 - 180 754 52 775 32 562 11 906 8 458 - 488 778 265 146 116 051 - March 2060 AAA March 2060 AA March 2060 A March 2060 BBB March 2060 BB March 2060 - October 2064 - October 2064 - October 2064 - October 2064 - Aaa Aa2 A1 Baa1 - Aaa Aa2 A1 Baa2 - Aaa Aa3 A3 Baa3 - - - - - - AAA AA A+ BBB- NA AAA AA A BBB N/A AAA AA A BBB BB - AAA BBB- - - - - - - - - - - - - - - - - - - BB BB BB CCC - BB BB B CC - A BBB- B CCC CC - AAA - - - - - - - Aa3 Baa1 Ba3 Caa3 - A1 Baa3 B3 Ca - Aa3 Baa1 Ba3 Caa3 - - - - - - AA BB+ B+ B- - AA A BBB B - A- A- BBB+ CCC D - AA BBB - - - - - - - - - - - - - - - - - - AAA - - - Issue Bonds issued Initial nominal value Current nominal value Interest held by Group (Nominal value) 31.12.2019 Interest held by Group (Book value) Maturity date Initial rating of the bonds Current rating of the bonds Fitch Moody's S&P DBRS Fitch Moody's S&P DBRS (in thousands of Euros) Lusitano Mortgages No.4 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.7 plc Lusitano SME No.3 Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class A Class B Class C Class D Class E Class F Class A Class B Class C Class D Class A Class B Class C Class D Class E Class S 1 134 000 22 800 19 200 24 000 10 200 1 323 000 26 600 22 400 28 000 11 900 943 250 65 450 41 800 17 600 31 900 22 000 1 425 000 294 500 180 500 57 000 385 600 62 700 62 700 116 000 9 500 88 771 241 493 15 985 13 461 16 827 5 100 355 021 25 494 21 469 26 836 11 900 264 905 65 450 41 800 17 600 31 900 22 000 616 503 294 500 180 500 57 000 - - - 103 316 3 135 5 214 - - - - - - - - - - 220 548 63 950 41 800 17 600 31 900 - 616 503 294 500 180 500 - - - - 103 316 3 135 5 214 - - - - - - - - - - December 2048 AAA December 2048 AA December 2048 A+ December 2048 BBB+ December 2048 NA December 2059 AAA December 2059 AA December 2059 A December 2059 BBB+ December 2059 N/A 210 489 57 981 32 227 11 906 9 371 - 563 186 264 601 154 463 - - - - 100 534 2 776 3 218 March 2060 AAA March 2060 AA March 2060 A March 2060 BBB March 2060 BB March 2060 - October 2064 - October 2064 - October 2064 - October 2064 - December 2037 - December 2037 - December 2037 - December 2037 - December 2037 - December 2037 - Aaa Aa2 A1 Baa1 - Aaa Aa2 A1 Baa2 - Aaa Aa3 A3 Baa3 - - - - - - A3 Baa3 B1 - - - AAA AA A+ BBB- NA AAA AA A BBB N/A AAA AA A BBB BB - AAA BBB- - - - - - - - - - - - - - - - - - - - - - - - - AAA - - - AA BBB B - - - BB BB BB CCC - AAA AA A BBB+ - A BBB- B CCC CC - - - - - - - - - - - Aa3 Baa1 Ba3 Caa3 - Aaa Aa2 A1 Baa2 - Aa3 Baa1 Ba3 Caa3 - - - - - - WR WR A3 - - - AA BBB- BB- B- - AAA AA A BBB - A- A- BBB+ CCC D - AA BBB - - - - - - - - - - - - - - - - - - - - - - - - AAA - - - - - AAA - - - NOTE 37 – FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The governance model of the valuation of the Bank's financial instruments is defined in internal regulations, which establish the policies and procedures to be followed in the identification and valuation of financial instruments, the control procedures and the definition of the responsibilities of the parties involved in this process. The fair value of listed financial assets is determined based on the closing price (bid-price), the price of the last transaction made or the value of the last known price (bid). In the absence of a quotation, the Bank estimates fair value using (i) valuation methodologies, such as the use of recent transaction prices, similar and carried out under market conditions, discounted cash flow techniques and customized option valuation models. in order to reflect the particularities and circumstances of the instrument and (ii) valuation assumptions based on market information. 449 For assets included in the fair value hierarchy 3, whose quotation is provided by a third party using parameters that are not observable in the market, the Bank proceeds, when applicable, to a detailed analysis of the historical and liquidity performance of these assets, which may imply a additional adjustment to its fair value, as well as as a result of additional internal or external valuations. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 376- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOTE 37 – Fair value of financial assets and liabilities The governance model of the valuation of the Bank's financial instruments is defined in internal regulations, which establish the policies and procedures to be followed in the identification and valuation of financial instruments, the control procedures and the definition of the responsibilities of the parties involved in this process. The fair value of listed financial assets is determined based on the closing price (bid-price), the price of the last transac- tion made or the value of the last known price (bid). In the absence of a quotation, the Bank estimates fair value using (i) valuation methodologies, such as the use of recent transaction prices, similar and carried out under market conditions, discounted cash flow techniques and customized option valuation models. in order to reflect the particularities and circumstances of the instrument and (ii) valuation assumptions based on market information. For assets included in the fair value hierarchy 3, whose quotation is provided by a third party using parameters that are not observable in the market, the Bank proceeds, when applicable, to a detailed analysis of the historical and liquidity performance of these assets, which may imply a additional adjustment to its fair value, as well as as a result of additional internal or external valuations. In accordance with the fair value valuation methodology of assets and liabilities followed, these are classified in the corresponding hierarchy of fair value defined in IFRS 13 - Fair Value. The following is a brief description of the type of assets and liabilities included in each level of the hierarchy and the corresponding valuation method: Quoted market prices (level 1) This category includes financial instruments with market prices quoted on official markets and those with dealer price quotations provided by entities that usually disclose transaction prices for these instruments traded on active markets. The priority in terms of which price is used is given to those observed on official markets; where there is more than one official market the choice falls on the main market on which those instruments are traded. The Bank considers market prices those disclosed by independent entities, assuming that these act for their own eco- nomic benefit and that such prices are representative of the active market, using, whenever possible, prices supplied by more than one entity (for a specific asset and/or liability). For the process of re-evaluating financial instruments, the Bank analyses the various prices in order to select the one it considers most representative for the instrument under analysis. Additionally, when they exist, prices relating to recent transactions with similar financial instruments are used as inputs, being subsequently compared to those supplied by said entities to better justify the option taken by the Bank in favour of a specific price. This category includes, amongst others, the following financial instruments: i. Derivatives traded on an organized market; ii. Shares quoted on a stock exchange; iii. Open investment funds quoted on a stock exchange; iv. Closed investment funds whose subjacent assets are solely financial instruments listed on a stock exchange; v. Bonds with observable market quotes; vi. Financial instruments with market offers even if these are not available at the normal information sources (e.g. securities traded based on recovery rate). Valuation models based on observable market parameters / prices (level 2) In this category, the financial instruments are valued using internal valuation techniques, namely discounted cash flow models and option pricing models which imply the use of estimates and require judgments that vary in accordance with the complexity of the financial instruments. Notwithstanding, the Bank uses as inputs in its models, observable market data such as interest rate curves, credit spreads, volatility and market indexes. This category also includes 450 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEinstruments with dealer price quotations but which markets have a lower liquidity. Additionally, the Bank also uses as observable market variables, those that result from transactions with similar instruments and that are observed with a certain regularity on the market. This category includes, amongst others, the following financial instruments: i. Bonds without observable market valuations valued using observable market inputs; and ii. Derivatives (OTC) over-the-counter valued using observable market inputs; and iii. Unlisted shares valued using internal models using observable market inputs. Valuation models based on unobservable market parameters (level 3) This level uses models relying on internal valuation techniques or quotations provided by third parties but which imply the use of non-observable market information. The bases and assumptions for the calculation of fair value are in accordance with IFRS 13. This category includes, amongst others, the following financial instruments: i. Debt securities valued using non-observable market inputs; ii. Unquoted shares; iii. Closed real estate funds; iv. Hedge funds; v. Private equities; vi. Restructuring funds; and vii. Over the counter (OTC) derivatives with prices provided by third parties. The valuation models used by type of instrument are as follows: Money market operations and loans and advances to customers: fair value is determined by the discounted cash flows method, with future cash flow being discounted considering the currency yield curve plus the credit risk of the entity contractually liquidating that flow. Commercial paper: its fair value is determined by discounting future cash flows considering the currency yield curve plus the credit risk of the issuer determined in the issuance program. Debt instruments (bonds) with liquidity: the selective independent valuation methodology is used based on obser- vations available on Bloomberg, designated as 'Best Price', where all the valuations available are requested, but only previously validated sources considered as input, with the model excluding prices due to seniority and outlier prices. In the specific case of the Portuguese sovereign debt, and due to the market making activity and the materiality of the Bank's positions, the CBBT source valuations are always considered (the CBBT is a composite of valuations prepared by Bloomberg, which considers the average of executable prices with high liquidity). Debt instruments (bonds) with reduced liquidity: the models considered for the valuation of low liquidity bonds without observable market valuations are determined taking into account the information available on the issuer and the instrument, with the following models being considered: (i) discounted cash flows - cash flows are discounted considering the interest rate risk, credit risk of the issuer and any other risks subjacent to the instrument; or (ii) valuations made available by external counterparties, when it is impossible to determine the fair value of the instrument, with the selection always falling on reliable sources with reputed credibility in the market and impartiality in the valuation of the instruments being analyzed. 451 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESConvertible bonds: the cash flows are discounted considering the interest rate risk, the issuer's credit risk and any other risks that may be associated with the instrument, increased by the net present value (NPV) of the convertibility options embedded in the instrument. Shares and quoted funds: for quoted market products, the quotation on the respective stock exchange is considered. Unquoted Shares: the valuation is carried out using external valuations made of the companies in which the shareholding is held. In the event the request for an external valuation is not justified due to the immateriality of this position in the balance sheet, the position is revalued considering the book value of the entity. Unquoted funds: the valuation considered is that provided by the fund's management company. In the event there are calls for capital after the reference date of the last available valuation, the valuation is recalculated considering the capital calls subsequent to the reference date at the amount at which these were made, until a new valuation is made available by the management company, already considering the capital calls realized. It should be noted that, although it accepts the valuations provided by the management companies, when applicable in accordance with the funds' regulations, the Bank requests the legal certification of accounts issued by independent auditors in order to obtain additional assurance about the information provided by the management company. In the specific case of the Restructuring Funds (“Assessed Assets”), their assessment was carried out by an independent external international entity (“Appraiser”), which engaged renowned real estate appraisal companies to determine the fair value of real estate assets, which represent a significant part of the funds' portfolio. The fair vale estimation Assessed Assets requires a multi-step approach, taking into account the following (i) The fair value of the assets invested by each fund (the “Underlying Assets”); (ii) The nature of the participation of the respective Fund in each of the Underlying Assets; (iii) The other assets and liabilities on the Fund's balance; (iv) The nature of Novo Banco's investment in each of the funds; and (v) Consideration of any applicable discounts or premiums. The fair value of the Underlying Assets was estimated using three valuation approaches (market, income and cost) depending, among other things, on the specific nature of each asset, its state of development, the information available and the date of the initial investment. The other assets and liabilities in the fund's balances would normally be valued using the cost approach, with potential adjustments based on the market, and the consideration of discounts and premiums, normally assessed using market data and benchmarks. Underlying assets are mainly divided into Non-Real Estate assets and Real Estate assets (which can be subdivided into Hotels and Other Real Estate assets). For Non-Real Estate Assets, the Appraiser considered the Market approach based essentially on Market Multiples for comparable assets and considering the historical performance of each asset. For Real Estate Assets, the appraiser considered either the market approach or the income approach, depending on the state of each asset. In the case of hotels, the main value-based assumptions considered were the average room rate, the occupancy rate, the GOP margin, the EBITDA margin, the Capex needs and the discount rate. In relation to Other Real Estate Assets, the main assumptions of value were sales prices, construction costs, timeline (both to development and sale) and Discount Rates. Each of the assumptions described above considered in the valuation of real estate assets was determined from asset to asset (total of 149 major assets subdivided into a total of more than 1,000 assets), depending on the status of the asset, the asset's historical performance, location and market competitors. Derivative instruments: if these are traded on organized markets, the valuations are observable in the market, otherwise these are valued using standard models and relying on observable variables in the market, namely: • Foreign currency options: are valued through the front office system, which considers models such as Garman- Kohlhagen, Binomial, Black & Scholes, Levy or Vanna-Volga; • Interest rate swaps and foreign currency swaps: the valuation of these instruments is done through the front office system, where the fixed leg cash flows of the instrument are discounted based on the yield curve of the respective currency, and the cash flows of the variable leg are projected considering the forward curve and discounted, also considering discount factors and forward rates based on the yield curve of the respective currency; • Credit Default Swaps (CDS): both legs of the CDS are composed of cash flows contingent on the credit risk of the underlying asset and are therefore valued using market credit spreads; 452 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE• Futures and Options: the Bank trades these products on an organized market, but also has the possibility to trade them on the OTC market. For futures and options traded on an organized market, the valuations are observable in the market, with the valuation being received daily through the broker selected for these products. For futures and options traded on the OTC market, and depending on the type of product and the underlying asset type, discrete NOVO BANCO time (binominal) or continuous time (Black & Scholes) models may be used. The fair value of the financial assets and liabilities of the Bank measured at fair value is as follows: The fair value of the financial assets and liabilities of the Bank measured at fair value is as follows: 31 December 2020 Financial assets held for trading Securities held for trading Bonds issued by public entities Derivatives held for trading Exchange rate contracts Interest rate contracts Other Financial assets mandatorily at fair value through profit or loss Bonds issued by other entities Shares Other variable income securities Financial assets at fair value through other comprehensive income Bonds issued by public entities Bonds issued by other entities Shares Derivatives - Hedge Accounting Interest rate contracts (in thousands of Euros) Quoted market prices At Fair Value Valuation models based on observable market parameters (Stage 1) (Stage 2) Valuation models based on unobservable market parameters (Stage 3) Total Fair Value 267 016 267 016 267 016 - - - - 212 392 82 203 130 189 - 7 770 720 6 406 465 1 352 759 11 496 - - 388 311 - - 388 311 57 273 319 662 11 376 44 694 50 - 44 644 7 131 - - 7 131 13 606 13 606 - - - - - - - 2 188 519 564 829 273 563 1 350 127 35 733 - - 35 733 - - 655 327 267 016 267 016 388 311 57 273 319 662 11 376 2 445 605 647 082 403 752 1 394 771 7 813 584 6 406 465 1 352 759 54 360 13 606 13 606 Assets at fair value 8 250 128 453 742 2 224 252 10 928 122 Financial liabilities held for trading Derivatives held for trading Exchange rate contracts Interest rate contracts Credit default contracts Other Derivatives - Hedge Accounting Interest rate contracts Liabilities at fair value - - - - - - - - - 552 185 552 185 45 450 501 419 16 5 300 72 543 72 543 624 728 2 158 2 158 - 2 158 - - - - 554 343 554 343 45 450 503 577 16 5 300 72 543 72 543 2 158 626 886 453 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 379- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO (in thousands of Euros) NOVO BANCO Total Fair Value (in thousands of Euros) Valuation models based on unobservable market parameters (Stage 3) Valuation models based on unobservable market parameters (Stage 3) 74 284 - - 191 Total Fair Value 748 836 254 848 254 848 419 895 34 652 352 939 1 748 836 32 303 254 848 74 093 254 848 74 093 419 895 3 044 724 34 652 694 667 352 939 601 613 1 1 748 444 32 303 8 758 131 74 093 7 027 343 74 093 1 661 538 3 044 724 69 248 694 667 2 601 613 7 992 1 748 444 7 992 8 758 131 7 027 343 12 559 683 1 661 538 69 248 544 400 2 544 400 7 992 33 820 7 992 501 632 12 559 683 42 8 906 58 854 544 400 58 854 544 400 33 820 603 254 501 632 42 8 906 58 854 58 854 191 74 284 - 74 093 - 74 093 191 2 875 070 637 084 191 489 542 1 748 444 34 600 74 093 - 74 093 - 2 875 070 34 598 637 084 2 489 542 - 1 748 444 - 34 600 - 2 983 954 - 34 598 1 837 2 1 837 - - - 1 837 2 983 954 - - - 1 837 - 1 837 - 1 837 1 837 - - - - Quoted market prices At Fair Value Valuation models based on observable market parameters (Stage 1) At Fair Value (Stage 2) (Stage 1) Quoted market 254 848 prices 254 848 254 848 - - - - 254 848 - 254 848 - 254 848 - - 169 606 - 57 535 - 112 071 - - - 8 703 046 - 7 027 343 - 1 661 538 169 606 14 165 57 535 - 112 071 - - - 8 703 046 7 027 343 9 127 500 1 661 538 14 165 - - - - - - - 9 127 500 - - - - - - - - - - - - - (Stage 2) Valuation models based on 419 704 observable market - parameters - 419 704 34 652 352 748 1 419 704 32 303 - - - - 419 704 48 34 652 48 352 748 - 1 - 32 303 20 485 - - - - 48 20 485 48 - - 7 992 - 7 992 20 485 - 448 229 - 20 485 542 563 - 542 563 7 992 33 820 7 992 499 795 448 229 42 8 906 58 854 542 563 58 854 542 563 33 820 601 417 499 795 42 8 906 58 854 58 854 Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income 31 December 2019 Financial assets held for trading Securities held for trading Bonds issued by public entities Derivatives held for trading 31 December 2019 Financial assets held for trading Exchange rate contracts Interest rate contracts Credit default contracts Other Bonds issued by public entities Securities held for trading Economic hedging derivatives Interest rate contracts Derivatives held for trading Exchange rate contracts Bonds issued by other entities Interest rate contracts Shares Credit default contracts Other variable income securities Other Economic hedging derivatives Bonds issued by public entities Interest rate contracts Bonds issued by other entities Shares Bonds issued by other entities Other variable income securities Shares Other variable income securities Interest rate contracts Derivatives - Hedge Accounting Assets at fair value Bonds issued by public entities Bonds issued by other entities Shares Financial liabilities held for trading Other variable income securities Derivatives held for trading Exchange rate contracts Interest rate contracts Interest rate contracts Assets at fair value Credit default contracts Other Derivatives - Hedge Accounting Liabilities at fair value Derivatives - Hedge Accounting Financial liabilities held for trading Interest rate contracts Derivatives held for trading Exchange rate contracts Interest rate contracts Credit default contracts Other The changes occurred in financial assets and liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2020 and 2019, may be analyzed as follows: Derivatives - Hedge Accounting Interest rate contracts (in thousands of Euros) Liabilities at fair value The changes occurred in financial assets and liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2020 and 2019, may be analyzed as follows: The changes occurred in financial assets and liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2020 and 2019, may be analyzed as follows: Financial assets held for trading Financial liabilities held for trading Total assets 31.12.2020 Total liabilities 601 417 603 254 1 837 - Derivatives held for trading Economic hedging derivatives Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income 31.12.2020 Derivatives held for trading (in thousands of Euros) Balance as at 31 December 2019 Acquisitions Attainment of maturity Liquidation Transfers in Transfers out Changes in value Balance as at 31 December 2019 Balance as at 31 December 2020 Acquisitions Attainment of maturity Liquidation Transfers in Transfers out Changes in value Balance as at 31 December 2020 191 74 093 Financial assets held for trading - - Derivatives - held for - trading - 191 ( 191) - - ( 80 489) - - 74 093 6 396 Economic hedging derivatives 2 875 070 Financial assets 31 393 mandatorily at fair ( 162 380) value through ( 1 583) profit or loss - ( 35 386) 2 875 070 ( 518 595) - Financial - assets at fair - value through - profit or loss - - - - 34 600 Financial assets at 5 048 fair value through other - comprehensive ( 21 317) income 9 738 ( 1 250) 34 600 8 914 2 983 954 36 441 Total assets ( 162 380) ( 103 389) 9 738 ( 36 636) 2 983 954 ( 503 476) 1 837 Financial liabilities held for trading - - Derivatives held for - trading - - 1 837 321 1 837 Total liabilities - - - - - 1 837 321 - - - - - - ( 191) - - - - ( 80 489) - - 6 396 31 393 2 188 519 ( 162 380) ( 1 583) - ( 35 386) ( 518 595) - 2 188 519 - - - - - - - - 5 048 35 733 - ( 21 317) 9 738 ( 1 250) 8 914 36 441 2 224 252 ( 162 380) ( 103 389) 9 738 ( 36 636) ( 503 476) 35 733 2 224 252 - 2 158 - - - - 321 2 158 - 2 158 - - - - 321 2 158 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 380- 454 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 380- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO (in thousands of Euros) 31.12.2019 Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Total assets Financial liabilities held for trading NOVO BANCO Derivatives held for trading NOVO BANCO (in thousands of Euros) Total liabilities Financial assets held for trading Derivatives held for trading Economic hedging derivatives 31.12.2019 - 396 148 139 3 053 507 2 862 796 Total liabilities Balance as at 31 December 2018 Balance as at 31 December 2018 Financial assets held for trading Balance as at 31 December 2019 Balance as at 31 December 2018 42 176 Financial assets at 14 140 fair value through - other Financial assets at ( 14 569) comprehensive fair value through - income other - 42 176 comprehensive ( 7 147) income 14 140 34 600 - 42 176 ( 14 569) 14 140 - - - ( 14 569) ( 7 147) - 34 600 - ( 7 147) Acquisitions Attainment of maturity Liquidation Transfers in Transfers out Changes in value Acquisitions Attainment of maturity Liquidation Acquisitions Transfers in Attainment of maturity Transfers out Liquidation Changes in value Transfers in Transfers out Changes in value Financial 100 31.12.2019 assets at fair - value through - Financial profit or loss - assets at fair ( 16) value through - ( 84) profit or loss 100 - - - - 100 - - ( 16) - ( 84) - - ( 16) ( 84) - - - - Economic Derivatives ( 77 963) ( 396) Financial assets held for held for hedging - - trading derivatives trading - - Economic Derivatives 148 139 396 191 3 917 hedging held for - - derivatives trading 74 093 191 - - 148 139 396 ( 77 963) ( 396) - - - - - - - - ( 77 963) ( 396) 3 917 191 - - 74 093 191 - - 3 917 191 2 724 2 724 Financial liabilities (in thousands of Euros) Financial assets 831 491 - - held for trading mandatorily at fair ( 317 114) - - value through ( 93 656) ( 347) ( 347) Financial liabilities Derivatives held for Financial assets profit or loss 16 - - held for trading trading mandatorily at fair - - - value through Derivatives held for 2 862 796 2 724 2 724 ( 408 463) ( 540) ( 540) profit or loss trading 831 491 - - 1 837 1 837 2 875 070 ( 317 114) - - 2 724 2 724 2 862 796 ( 93 656) ( 347) ( 347) - - 831 491 Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value hierarchy are recorded - 16 - - - ( 317 114) in profit or loss or revaluation reserves in accordance with the respective asset accounting policy. The amounts calculated at 31 - - - ( 347) ( 347) ( 93 656) December 2020 and 2019 were as follows: ( 540) ( 408 463) ( 540) - - 16 Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value Balance as at 31 December 2019 (in thousands of Euros) 1 837 1 837 2 875 070 - - - ( 540) ( 540) ( 408 463) 31.12.2020 hierarchy are recorded in profit or loss or revaluation reserves in accordance with the respective asset accounting Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value hierarchy are recorded Balance as at 31 December 2019 1 837 34 600 Recognised in policy. The amounts calculated at 31 December 2020 and 2019 were as follows: in profit or loss or revaluation reserves in accordance with the respective asset accounting policy. The amounts calculated at 31 the income December 2020 and 2019 were as follows: statement Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value hierarchy are recorded in profit or loss or revaluation reserves in accordance with the respective asset accounting policy. The amounts calculated at 31 Derivatives held for trading December 2020 and 2019 were as follows: Securities held for trading Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Derivatives held for trading 845 731 ( 317 114) Total assets ( 186 584) 16 Total assets ( 16) 3 053 507 ( 411 586) 845 731 2 983 954 ( 317 114) 3 053 507 ( 186 584) 845 731 16 ( 317 114) ( 16) ( 186 584) ( 411 586) 16 2 983 954 ( 16) ( 411 586) ( 71 759) (in thousands of Euros) ( 405 766) Total Recognised in the income statement 2 983 954 Recognised in reserves (in thousands of Euros) 682 Recognised in - reserves Recognised in - reserves Recognised in reserves Total liabilities ( 514 186) Total 31.12.2020 31.12.2019 31.12.2019 2 875 070 ( 68 722) 23 605 23 605 74 093 1 837 682 Total Total Total Total 191 - - - - - ( 68 722) Recognised in ( 514 186) 31.12.2020 the income statement Recognised in - the income 23 605 statement ( 559 303) ( 68 722) 9 632 Recognised in - reserves 9 632 - Securities held for trading Financial assets mandatorily at fair value through profit or Derivatives held for trading loss Securities held for trading Financial assets at fair value through other The following table presents, for financial assets included in level 3 of the fair value hierarchy, the main valuation methods used and Financial assets mandatorily at fair value through profit or comprehensive income the impact of changing the main variables used in their valuation, when applicable: loss Financial assets at fair value through other comprehensive income 682 ( 405 766) ( 71 759) 1 015 ( 405 766) 682 ( 405 766) ( 71 759) - ( 405 766) 23 605 ( 514 186) ( 68 722) 9 632 ( 514 186) 23 605 ( 514 186) ( 68 722) - ( 514 186) - - - 1 015 - - - - 9 632 - ( 475 828) 1 015 ( 476 843) - ( 549 671) 9 632 ( 559 303) - 1 015 1 015 9 632 9 632 ( 71 759) Recognised in ( 405 766) 31.12.2019 the income statement Recognised in - the income 682 statement ( 476 843) ( 71 759) 9 632 23 605 ( 549 671) ( 68 722) 1 015 Recognised in - reserves 1 015 - 1 015 682 ( 475 828) ( 71 759) Assets classified under level 3 The following table presents, for financial assets included in level 3 of the fair value hierarchy, the main valuation methods used and the impact of changing the main variables used in their valuation, when applicable: The following table presents, for financial assets included in level 3 of the fair value hierarchy, the main valuation Financial assets mandatorily at fair value through The following table presents, for financial assets included in level 3 of the fair value hierarchy, the main valuation methods used and profit or loss methods used and the impact of changing the main variables used in their valuation, when applicable: the impact of changing the main variables used in their valuation, when applicable: Carrying book value Variable analysed (in millions of Euros) Valuation Model Obligations of other issuers Change Change Impact Impact 2 188,5 Favorable scenario 9 632 ( 559 303) 31.12.2020 ( 549 671) 1 015 Unfavorable scenario ( 476 843) (in millions of Euros) ( 475 828) Assets classified under level 3 Shares Financial assets mandatorily at fair value through profit or loss Assets classified under level 3 Other variable income securities Obligations of other issuers Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Obligations of other issuers Shares Shares Other variable income securities Shares Total Other variable income securities Discounted cash flow model Discounted cash flow model Valuation Model Specific Impairment Discount rate Variable analysed Valuation of the management company (adjusted) (b) Valuation Model Valuation of the management company (adjusted) Valuation of the management company Discounted cash flow model Discounted cash flow model Variable analysed (b) (c) Specific Impairment Discount rate Discounted cash flow model Valuation of the management company (adjusted) Discounted cash flow model Discounted cash flows Valuation of the management company Other (adjusted) Valuation of the management company (adjusted) Valuation of the management company Specific Impairment (b) Discount rate Tarifa de energia renovável (a) (b) (b) (c) 31.12.2020 564,8 77,9 486,9 (-) 100 bps -50% 31.12.2020 Carrying book value 273,6 1 350,1 Carrying book 2 188,5 value Unfavorable scenario Change Impact Unfavorable scenario Change Impact -50% 225,3 564,8 1 124,9 77,9 2 188,5 486,9 (-) 100 bps 564,8 77,9 273,6 35,7 486,9 (-) 100 bps 1 350,1 9,6 26,1 225,3 273,6 2 224,2 1 124,9 1 350,1 -50% ( 22,2) ( 34,3) +50% (+) 100 bps Favorable scenario 12,2 56,7 (in millions of Euros) Change Impact - - Favorable scenario Change Impact - - ( 22,2) ( 34,3) +50% (+) 100 bps +50% (+) 100 bps ( 22,2) - ( 34,3) ( 1,7) - - - - 12,2 56,7 12,2 - 56,7 0,1 - - - - Shares Shares 225,3 1 124,9 35,7 9,6 26,1 35,7 2 224,2 9,6 26,1 (a) No sensitivity analysis w as carried out for these categories as these include securities of an individually immaterial value. Valuation of the management company Financial assets at fair value through other (b) For the sensitivity analysis carried out on the valuation of the Restructuring Funds, taking into account the valuation methodologies applied and considering that real estate assets represent more than 95% of the underlying assets of the Funds, a variation - (adjusted) comprehensive income of + 10% w as considered and -10% in the fair value of the main real estate assets of each Fund, w hich leads to an impact of + 6.15% and -5.8% in the fair value of the restructuring funds. Valuation of the management company - (b) (c) (c) In the specific case of participation units valued in accordance w ith quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the 0,1 Financial assets at fair value through other quotation by the entity comprehensive income - Tarifa de energia renovável (a) Discounted cash flows Other ( 1,7) - Total (a) No sensitivity analysis w as carried out for these categories as these include securities of an individually immaterial value. - 0,1 - (b) For the sensitivity analysis carried out on the valuation of the Restructuring Funds, taking into account the valuation methodologies applied and considering that real estate assets represent more than 95% of the underlying assets of the Funds, a variation - Total of + 10% w as considered and -10% in the fair value of the main real estate assets of each Fund, w hich leads to an impact of + 6.15% and -5.8% in the fair value of the restructuring funds. Tarifa de energia renovável (a) Discounted cash flows Other - ( 1,7) - 2 224,2 - (c) In the specific case of participation units valued in accordance w ith quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the (a) No sensitivity analysis w as carried out for these categories as these include securities of an individually immaterial value. quotation by the entity (b) For the sensitivity analysis carried out on the valuation of the Restructuring Funds, taking into account the valuation methodologies applied and considering that real estate assets represent more than 95% of the underlying assets of the Funds, a variation of + 10% w as considered and -10% in the fair value of the main real estate assets of each Fund, w hich leads to an impact of + 6.15% and -5.8% in the fair value of the restructuring funds. (c) In the specific case of participation units valued in accordance w ith quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the quotation by the entity 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 381- 455 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 381- - 381- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES +50% (+) 100 bps +50% ( 77,7) ( 48,3) ( 29,3) - ( 29,3) - - - - - - - ( 77,7) - ( 48,3) ( 29,3) ( 29,3) - - - ( 77,7) - - - - - - - - 96,3 65,3 31,0 - 31,0 - - - - - - - 96,3 - 65,3 31,0 31,0 - - - 96,3 - - - - - - - - Assets classified under level 3 Valuation Model Variable analysed 31.12.2019 Carrying book value Unfavorable scenario Change Impact NOVO BANCO (in millions of Euros) Favorable scenario NOVO BANCO Change Impact Other c) (a) c) 31.12.2019 74,3 0,2 74,1 - - - - - - (in millions of Euros) 2 875,1 Carrying book value Unfavorable scenario Impact Favorable scenario (+) 100 bps Impact Change Financial assets held for trading Derivatives held for trading Economic hedging derivatives Financial assets mandatorily at fair value through profit or loss Assets classified under level 3 Obligations of other issuers Shares Financial assets held for trading Derivatives held for trading Economic hedging derivatives Other variable income securities Financial assets mandatorily at fair value through profit or loss Obligations of other issuers Shares Financial assets at fair value through other comprehensive income Shares Other variable income securities Total Valuation Model Discounted cash flow model Variable analysed Discount rate Discounted cash flow model Other Valuation of the management company Other c) Specific Impairment (a) Net assets value (b) (a) c) Other Valuation of the management company Discounted cash flow model (a) Specific Impairment Discount rate Discounted cash flow model Other Valuation of the management company Other Other Specific Impairment (a) Net assets value (b) (a) Specific Impairment Other Valuation of the management company (a) Specific Impairment -50% 74,3 0,2 74,1 637,1 (-) 100 bps Change 489,5 74,7 2,8 412,1 1 748,4 0,2 1 748,2 2 875,1 34,6 -50% 637,1 (-) 100 bps 489,5 74,7 2,8 412,1 1 748,4 2 983,9 0,2 1 748,2 34,6 0,3 34,3 (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value (b) In the specific case of participation units valued in accordance with quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to Financial assets at fair value through other the determination of the quotation by the entity comprehensive income 34,6 - - (c) In the specific case of derivatives valued according to information provided by external entities, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the quotation Shares by the entity Other Other (a) Specific Impairment 34,6 0,3 34,3 Total The main parameters used, at 30 December 2020 and 2019, in the valuation models were as follows: 2 983,9 ( 77,7) 96,3 (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value (b) In the specific case of participation units valued in accordance with quotations provided by the respective management company, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to Interest rate curves the determination of the quotation by the entity The main parameters used, at 30 December 2020 and 2019, in the valuation models were as follows: The short-term rates presented reflect benchmark interest rates for the money market, whilst those presented for the long-term represent the interest rate swap quotations for the respective periods: (c) In the specific case of derivatives valued according to information provided by external entities, it is not reasonable to carry out an analysis of the impact of changes of the variables subjacent to the determination of the quotation by the entity The main parameters used, at 30 December 2020 and 2019, in the valuation models were as follows: Interest rate curves (%) Interest rate curves The short-term rates presented reflect benchmark interest rates for the money market, whilst those presented for the long-term represent the interest rate swap quotations for the respective periods: The short-term rates presented reflect benchmark interest rates for the money market, whilst those presented for the long-term represent the interest rate swap quotations for the respective periods: GBP GBP EUR USD USD EUR 31.12.2019 31.12.2020 Overnight 1 month 3 months 6 months 9 months Overnight 1 year 1 month 3 years 3 months 5 years 6 months 7 years 9 months 10 years 1 year 15 years 3 years 20 years 5 years 25 years 7 years 30 years 10 years 15 years 20 years 25 years 30 years 31.12.2020 31.12.2019 EUR -0,5780 -0,5540 -0,5450 -0,5260 -0,5125 -0,4990 -0,5080 -0,4575 -0,3845 -0,2650 -0,0720 0,0090 0,0090 -0,0250 -0,5780 -0,5540 -0,5450 -0,5260 -0,5125 -0,4990 -0,5080 -0,4575 -0,3845 -0,2650 -0,0720 0,0090 0,0090 -0,0250 USD 0,0776 0,1439 0,2384 0,2576 0,2995 0,3419 0,2370 0,4275 0,6478 0,9170 1,1835 1,3033 1,3680 1,3998 0,0776 0,1439 0,2384 0,2576 0,2995 0,3419 0,2370 0,4275 0,6478 0,9170 1,1835 1,3033 1,3680 1,3998 GBP 0,1000 0,0900 0,0900 0,1450 0,1950 -0,0125 0,0913 0,1926 0,2799 0,3966 0,5200 0,5730 0,5805 0,5741 0,1000 0,0900 0,0900 0,1450 0,1950 -0,0125 0,0913 0,1926 0,2799 0,3966 0,5200 0,5730 0,5805 0,5741 EUR -0,4560 -0,4380 -0,3830 -0,3240 -0,3174 -0,3161 -0,2380 -0,1205 0,0160 0,2110 0,4670 0,5990 0,6370 0,6310 -0,4560 -0,4380 -0,3830 -0,3240 -0,3174 -0,3161 -0,2380 -0,1205 0,0160 0,2110 0,4670 0,5990 0,6370 0,6310 USD 1,6000 1,7900 1,9200 1,9300 1,9100 1,7490 1,6556 1,6990 1,7630 1,8470 1,9650 2,0160 2,0350 2,0420 1,6000 1,7900 1,9200 1,9300 1,9100 1,7490 1,6556 1,6990 1,7630 1,8470 1,9650 2,0160 2,0350 2,0420 GBP 0,7500 (%) 0,7650 0,8650 0,9000 0,9450 0,7419 0,8243 0,8844 0,9406 1,0172 1,0968 1,1206 1,1130 1,1082 0,7500 0,7650 0,8650 0,9000 0,9450 0,7419 0,8243 0,8844 0,9406 1,0172 1,0968 1,1206 1,1130 1,1082 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 382- 456 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 382- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Credit Spreads NOVO BANCO The credit spreads used by the Group in the valuation of credit derivatives are those disclosed on a daily basis by Markit, representing observations pertaining to around 85 renowned international financial entities. The evolution of the main indexes, understood as being representative of the credit spread behaviour in the market during the year, is presented as follows: Credit Spreads NOVO BANCO The credit spreads used by the Group in the valuation of credit derivatives are those disclosed on a daily basis by Markit, representing observations pertaining to around 85 renowned international financial entities. The evolution of the main indexes, understood as being NOVO BANCO representative of the credit spread behaviour in the market during the year, is presented as follows: Credit Spreads The credit spreads used by the Group in the valuation of credit derivatives are those disclosed on a daily basis by Markit, representing observations pertaining to around 85 renowned international financial entities. The evolution of the main indexes, understood as being Credit Spreads representative of the credit spread behaviour in the market during the year, is presented as follows: The credit spreads used by the Group in the valuation of credit derivatives are those disclosed on a daily basis by Markit, representing observations pertaining to around 85 renowned international financial entities. The evolution of the main indexes, understood as being representative of the credit spread behaviour in the market during the year, is presented as follows: (basis points) 10 years 7 years 3 years 5 years Series 1 year Index Index 31 December 2020 CDX USD Main iTraxx Eur Main iTraxx Eur Senior Financial 31 December 2020 Index CDX USD Main 31 December 2019 iTraxx Eur Main 31 December 2020 CDX USD Main iTraxx Eur Senior Financial CDX USD Main iTraxx Eur Main iTraxx Eur Main iTraxx Eur Senior Financial 31 December 2019 iTraxx Eur Senior Financial CDX USD Main iTraxx Eur Main 31 December 2019 iTraxx Eur Senior Financial CDX USD Main Interest rate volatility iTraxx Eur Main iTraxx Eur Senior Financial 18,95 35 1 year Series 0,00 34 0,00 34 1 year Series 18,95 35 0,00 34 9,09 33 0,00 34 18,95 35 - 32 0,00 34 - 32 0,00 34 9,09 33 - 32 - 32 9,09 33 32 - - 32 31.12.2020 30,35 3 years 27,66 0,00 3 years 30,35 27,66 23,31 0,00 30,35 23,32 27,66 - 0,00 23,31 23,32 - 23,31 23,32 - 49,98 5 years 47,95 59,06 5 years 49,98 47,95 45,30 59,06 49,98 44,22 47,95 51,59 59,06 45,30 44,22 51,59 45,30 44,22 51,59 70,70 7 years 66,24 0,00 7 years 70,70 66,24 67,47 0,00 70,70 64,99 66,24 - 0,00 67,47 64,99 - 67,47 64,99 - 31.12.2019 (basis points) 90,52 10 years 86,37 (basis points) 89,30 10 years 90,52 86,37 90,08 89,30 90,52 85,26 86,37 83,45 89,30 90,08 85,26 83,45 90,08 85,26 (%) 83,45 Interest rate volatility The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: Interest rate volatility The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: Interest rate volatility The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: GBP GBP USD USD EUR EUR (%) 1 year 3 years 5 years 1 year 7 years 3 years 10 years 1 year 5 years 15 years 3 years 7 years 5 years 10 years 7 years 15 years 10 years 15 years 15,39 21,33 EUR 28,38 15,39 34,60 EUR 21,33 41,18 15,39 28,38 46,54 21,33 34,60 28,38 41,18 34,60 46,54 41,18 46,54 118,44 31.12.2020 91,12 USD 31.12.2020 84,06 118,44 65,41 USD 91,12 62,77 118,44 84,06 - 91,12 65,41 84,06 62,77 65,41 - 62,77 - - - GBP - - - GBP - - - - - - - - - - - - - (%) 12,71 22,74 EUR 33,51 12,71 40,12 EUR 22,74 46,46 12,71 33,51 51,03 22,74 40,12 33,51 46,46 40,12 51,03 46,46 51,03 18,87 31.12.2019 39,23 USD 31.12.2019 36,57 18,87 39,25 USD 39,23 34,71 18,87 36,57 - 39,23 39,25 36,57 34,71 39,25 - 34,71 - 48,83 57,73 GBP 64,04 48,83 67,79 GBP 57,73 70,87 48,83 64,04 - 57,73 67,79 64,04 70,87 67,79 - 70,87 - Foreign exchange rates and volatility Presented below, are the foreign exchange rates (European Central Bank) at the balance sheet date and the implicit volatilities (at the money) for the main currencies used in the derivatives’ valuation: Volatility (%) Volatility (%) 1 month 3 months 6 months 9 months Foreign exchange rates and volatility Presented below, are the foreign exchange rates (European Central Bank) at the balance sheet date and the implicit 31.12.2019 volatilities (at the money) for the main currencies used in the derivatives’ valuation: Foreign exchange rates and volatility Presented below, are the foreign exchange rates (European Central Bank) at the balance sheet date and the implicit volatilities (at the money) for the main currencies used in the derivatives’ valuation: Foreign Foreign exchange rates and volatility 31.12.2020 exchange Presented below, are the foreign exchange rates (European Central Bank) at the balance sheet date and the implicit volatilities (at rate the money) for the main currencies used in the derivatives’ valuation: Foreign EUR/USD exchange EUR/GBP rate Foreign EUR/CHF exchange EUR/USD EUR/NOK rate EUR/GBP EUR/PLN EUR/CHF EUR/RUB EUR/USD EUR/NOK USD/BRL a) EUR/GBP EUR/PLN USD/TRY b) EUR/CHF EUR/RUB EUR/NOK a) Calculated based on EUR / USD and EUR / BRL exchange rates. USD/BRL a) EUR/PLN b) Calculated based on EUR / USD and EUR / TRY exchange rates. USD/TRY b) EUR/RUB USD/BRL a) a) Calculated based on EUR / USD and EUR / BRL exchange rates. USD/TRY b) b) Calculated based on EUR / USD and EUR / TRY exchange rates. 6,81 7,96 4,41 6,81 8,99 7,96 7,85 4,41 7,51 6,81 8,99 20,76 7,96 7,85 4,41 18,31 7,51 8,99 20,76 7,85 18,31 7,51 Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the valuation. 6,45 Volatility (%) 7,24 4,85 6,45 8,78 7,24 6,38 4,85 8,71 6,45 8,78 18,30 7,24 6,38 4,85 17,83 8,71 8,78 18,30 6,38 17,83 8,71 1,2271 31.12.2020 0,8990 1,0802 31.12.2020 1,2271 10,4703 0,8990 4,5597 1,0802 91,4671 1,2271 10,4703 5,1940 0,8990 4,5597 1,0802 7,4265 91,4671 10,4703 5,1940 4,5597 7,4265 91,4671 1,1234 31.12.2019 0,8508 1,0854 31.12.2019 1,1234 9,8638 0,8508 4,2568 1,0854 69,9563 1,1234 9,8638 4,0197 0,8508 4,2568 1,0854 5,9501 69,9563 9,8638 4,0197 4,2568 5,9501 69,9563 6,37 1 year 6,98 5,16 1 year 6,37 8,48 6,98 5,75 5,16 9,58 6,37 8,48 17,56 6,98 5,75 5,16 17,75 9,58 8,48 17,56 5,75 17,75 9,58 6,59 7,63 4,68 6,59 8,91 7,63 6,98 4,68 8,07 6,59 8,91 19,24 7,63 6,98 4,68 18,18 8,07 8,91 19,24 6,98 18,18 8,07 6,43 7,10 5,00 6,43 8,63 7,10 6,05 5,00 9,29 6,43 8,63 17,93 7,10 6,05 5,00 17,80 9,29 8,63 17,93 6,05 17,80 9,29 1 month 3 months 6 months 9 months 1 month 3 months 6 months 9 months 7,4265 4,0197 5,1940 5,9501 1 year 18,30 17,83 20,76 17,80 19,24 17,75 17,56 18,18 18,31 17,93 Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the valuation. a) Calculated based on EUR / USD and EUR / BRL exchange rates. b) Calculated based on EUR / USD and EUR / TRY exchange rates. Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the valuation. 457 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 383- - 383- - 383- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the valuation. NOVO BANCO Equity indexes The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the NOVO BANCO Equity indexes valuation of equity derivatives: The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the valuation of equity derivatives: Equity indexes The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the valuation of equity derivatives: Quotation 31.12.2019 Implied Volatility Historical volatility 31.12.2020 % Change 3 months 1 month DJ Euro Stoxx 50 PSI 20 IBEX 35 DJ Euro Stoxx 50 FTSE 100 PSI 20 DAX IBEX 35 S&P 500 FTSE 100 BOVESPA DAX S&P 500 BOVESPA 31.12.2020 % Change 3 553 4 898 8 074 3 553 6 461 4 898 13 719 8 074 3 756 6 461 119 017 13 719 3 756 119 017 Quotation 31.12.2019 3 745 5 214 9 549 3 745 7 542 5 214 13 249 9 549 3 231 7 542 115 645 13 249 3 231 115 645 5,42% 6,45% 18,28% 5,42% 16,75% 6,45% -3,42% 18,28% -13,99% 16,75% -2,83% -3,42% -13,99% -2,83% 21,62 13,27 Historical volatility 20,33 17,03 3 months 1 month 24,88 18,26 13,27 21,62 19,00 14,68 20,33 17,03 22,50 14,97 24,88 18,26 18,74 9,45 19,00 14,68 22,72 16,43 14,97 22,50 9,45 18,74 16,43 22,72 Implied Volatility - - - - 20,72 - 20,88 - 17,34 20,72 25,72 20,88 17,34 25,72 The fair value of financial assets and liabilities recorded in the balance sheet at amortised cost is analysed as follows, having been estimated based on the main methodologies and assumptions described below: The fair value of financial assets and liabilities recorded in the balance sheet at amortised cost is analysed as follows, (in thousands of Euros) The fair value of financial assets and liabilities recorded in the balance sheet at amortised cost is analysed as follows, having been having been estimated based on the main methodologies and assumptions described below: estimated based on the main methodologies and assumptions described below: Fair Value 31 December 2020 Cash, cash balances at central bank and other demand deposits Financial assets at amortised cost Debt securities Loans and advances to banks 31 December 2020 Loans and advances to customers Cash, cash balances at central bank and other demand deposits Financial assets at amortised cost Financial assets Financial liabilities measured at amortised cost Debt securities Loans and advances to banks Loans and advances to customers Deposits from banks Due to customers Financial assets Debt securities issued, subordinated debt and liabilities associated to transferred assets Financial liabilities measured at amortised cost Other financial liabilities Deposits from banks Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities Financial liabilities Financial liabilities 31 December 2019 Cash, cash balances at central bank and other demand deposits Financial assets at amortised cost Debt securities 31 December 2019 Loans and advances to banks Cash, cash balances at central bank and other demand deposits Loans and advances to customers Financial assets at amortised cost Financial assets Debt securities Loans and advances to banks Loans and advances to customers Financial liabilities measured at amortised cost Deposits from banks Financial assets Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred Financial liabilities measured at amortised cost assets Deposits from banks Other financial liabilities Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities Financial liabilities Assets / liabilities recorded at amortised cost Quoted market prices Valuation models based on observable market parameters Valuation models based on unobservable market parameters Fair Value (in thousands of Euros) Total fair value Assets / liabilities recorded at amortised cost 2 524 868 (Stage 1) Quoted market prices (Stage 2) Valuation models based on observable market parameters - 2 524 868 (Stage 3) Valuation models based on unobservable market parameters Total fair value - 2 524 868 2 873 753 245 472 21 685 258 2 524 868 27 329 351 2 873 753 245 472 21 685 258 10 778 468 25 778 507 27 329 351 974 996 364 013 10 778 468 37 895 984 25 778 507 974 996 364 013 37 895 984 Assets / liabilities recorded at amortised cost Assets / liabilities recorded at amortised cost 1 674 826 2 392 843 495 252 1 674 826 23 154 148 27 717 069 2 392 843 495 252 23 154 148 10 542 549 27 717 069 27 980 577 1 044 445 10 542 549 356 993 27 980 577 39 924 564 1 044 445 356 993 (Stage 1) 839 673 - - - (Stage 2) 378 588 245 472 - 2 524 868 (Stage 3) 1 887 104 - 21 930 569 - 23 817 673 1 887 104 - 21 930 569 - 25 778 507 23 817 673 3 105 365 245 472 21 930 569 2 524 868 27 806 274 3 105 365 245 472 21 930 569 10 819 077 25 778 507 27 806 274 44 451 1 188 446 364 013 - 25 778 507 26 186 971 364 013 10 819 077 25 778 507 38 150 043 3 148 928 378 588 245 472 - 10 819 077 - 3 148 928 - - 10 819 077 10 819 077 - - - Fair Value 44 451 364 013 1 188 446 (in thousands of Euros) 364 013 38 150 043 10 819 077 Valuation models based on observable market parameters Fair Value 26 186 971 Valuation models based on unobservable market parameters (in thousands of Euros) Total fair value 839 673 839 673 - - - - 839 673 1 143 995 - - 1 143 995 - 1 143 995 - 1 143 995 Quoted market prices (Stage 1) Quoted market prices (Stage 2) Valuation models based on observable market parameters Valuation models (Stage 3) based on unobservable market parameters Total fair value (Stage 1) - 1 674 826 (Stage 2) (Stage 3) - 1 674 826 84 535 - - - 84 535 84 535 - - - 84 535 - 1 271 541 - - - 1 271 541 1 271 541 - 636 336 495 252 1 674 826 - 2 806 414 636 336 495 252 - 10 568 776 2 806 414 - - 10 568 776 - - 10 568 776 - 1 859 016 - 23 482 498 - 25 341 514 1 859 016 - 23 482 498 - 27 980 577 25 341 514 106 529 356 993 - 27 980 577 28 444 099 106 529 2 579 887 495 252 1 674 826 23 482 498 28 232 463 2 579 887 495 252 23 482 498 10 568 776 27 980 577 28 232 463 1 378 070 10 568 776 27 980 577 356 993 40 284 416 1 378 070 - 356 993 356 993 Financial liabilities 39 924 564 Cash and deposits with Central Banks, Deposits with banks and Loans and advances to credit institutions and Deposits from Central Banks. Considering the short-term nature of these financial instruments, their carrying book value is a reasonable estimate of their fair value. Cash and deposits with Central Banks, Deposits with banks and Loans and advances to credit institutions and Deposits from Central Banks. 458 Securities at amortised cost Considering the short-term nature of these financial instruments, their carrying book value is a reasonable estimate of their fair value. The fair value of securities recorded at fair value is estimated according to the methodologies used for the valuation of securities recorded at fair value, as described at the beginning of the current Note. Securities at amortised cost The fair value of securities recorded at fair value is estimated according to the methodologies used for the valuation of securities 10 568 776 28 444 099 40 284 416 1 271 541 recorded at fair value, as described at the beginning of the current Note. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 384- - 384- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Cash and deposits with Central Banks, Deposits with banks and Loans and advances to credit institutions and Deposits from Central Banks. Considering the short-term nature of these financial instruments, their carrying book value is a reasonable estimate of their fair value. Securities at amortised cost The fair value of securities recorded at fair value is estimated according to the methodologies used for the valuation of securities recorded at fair value, as described at the beginning of the current Note. Loans and advances to customers The fair value of loans and advances to customers is estimated based on the discounted expected future cash flows of principal and interest, assuming that the instalments are paid on the dates contractually defined. The expected future cash flows from portfolios of loans with similar credit risk characteristics, such as residential mortgage loans, are estimated collectively on a portfolio basis. The discount rates used by the Group are the current interest rates used for loans with similar characteristics. Deposits from credit institutions The fair value of deposits from Central Banks and Deposits from credit institutions is estimated based on the discounted expected future cash flows of principal and interest. Due to customers The fair value of these financial instruments is estimated based on the discounted expected future cash flows of principal and interest. The discount rate used by the Group is that which reflects the current interest rates applicable to deposits with similar characteristics at the balance sheet date. Given that the interest rates applicable to these instruments are renewed for periods under one year, there are no material relevant differences in their fair value. Other financial liabilities These liabilities are short-term and therefore the book value is a reasonable estimate of their fair value. NOTE 38 – Risk management NOVO BANCO, S.A., (www.novobanco.pt) “institutional” area in the website presents the information directed to inves- tors which complements the available information presented in this document, namely, NOVO BANCO, S.A., Market Discipline Report 2020 which addresses the public disclosure obligations as defined in Part VIII of the Regulation n.º 575/2013 of the European Parliament and the Council at 26 of July, 2013 (CRR) and EBA guidelines transposed to the Portuguese legislation through the Instruction n.º 5/2018 the Bank of Portugal. In the case where the information of the present annual report supports the information in the Market Discipline report it is identified through references to this report as systematized in the Annex VI of the Market Discipline Report. Additionally, by the nature of the information presented in the Market Discipline report, it complements the information related with some risks management, namely, those related with the policies and procedures adopted and the quanti- tative information related with risk exposures. The Group is exposed to the following risks arising from the use of financial instruments: • Credit risk; • Market risk; • Liquidity risk; • Operational risk. 459 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESCredit Risk Credit risk results from the possibility of financial losses arising from the default of the client or counterparty in relation to the contractual obligations established with the Group within the scope of its credit activity. Credit risk is essentially present in traditional banking products - loans, guarantees and other contingent liabilities and derivatives. In credit default swaps (CDS), the net exposure between protection seller and buyer positions on each entity underlying the transactions, constitutes credit risk for NOVO BANCO. CDS are recorded at their fair value in accordance with the accounting policy described in Note 2.4. A permanent management of the credit portfolios is carried out, which favors interaction between the various teams involved in risk management throughout the successive stages of the life of the credit process. This approach is complemented by the introduction of continuous improvements both in terms of methodologies and tools for risk assessment and control, as well as in terms of procedures and decision circuits. The monitoring of the Group's credit risk profile, namely the evolution of credit exposures and monitoring of credit losses, is carried out regularly by the Risk Committee. The compliance with approved credit limits and the correct functioning of the mechanisms associated with the approval of credit lines within the scope of the current activity of the commercial areas are also subject to regular analysis. NOVO BANCO NOVO BANCO maximum credit risk exposure is analyzed as follows: NOVO BANCO maximum credit risk exposure is analyzed as follows: Deposits with and loans and advances to banks Derivatives for trading and fair value option derivatives Securities held for trading Securities at fair value through profit/loss - mandatory Securities at fair value through other comprehensive income Securities at amortised cost m a ines Loans and advances to customers Derivatives - hedge accounting Other assets Guarantees and standby letters provided Documentary credits Revocable and irrevocable commitments Credit risk associated with the credit derivatives' reference entities (in thousands of Euros) 31.12.2020 31.12.2019 335 218 388 311 267 016 647 082 7 755 564 2 874 882 21 745 105 13 606 456 067 2 714 436 410 292 7 039 866 4 798 587 014 493 988 254 848 694 667 8 683 376 2 392 843 23 204 032 7 992 555 935 3 054 193 516 162 7 303 636 2 883 44 652 243 47 751 569 For financial assets in the balance sheet, the maximum exposure to credit risk is represented by the accounting net book value. For the off-balance sheet elements, the maximum exposure of the guarantees is the maximum amount that the Group would have to pay if the guarantees were executed. For loan commitments and other credit-related commitments of an irrevocable nature, the maximum For financial assets in the balance sheet, the maximum exposure to credit risk is represented by the accounting net exposure is the total amount of the commitments assumed. book value. For the off-balance sheet elements, the maximum exposure of the guarantees is the maximum amount The Bank calculates impairment, on a collective or individual basis in accordance with the accounting policy described in Note 2.4. that the Group would have to pay if the guarantees were executed. For loan commitments and other credit-related Whenever the value of the collateral, net of haircuts (taking into account the type of collateral), equals or exceeds the exposure, the commitments of an irrevocable nature, the maximum exposure is the total amount of the commitments assumed. individual impairment may be nil. Hence, NOVO BANCO Bank does not have any overdue financial assets for which it has not performed a review regarding their recoverability and the subsequent impairment recognition, when necessary. The Bank calculates impairment, on a collective or individual basis in accordance with the accounting policy described The exercise of build the base and alternative macroeconomic scenarios for the Portuguese economy is based on a combination of in Note 2.4. Whenever the value of the collateral, net of haircuts (taking into account the type of collateral), equals or econometric forecasts, information on forecasts from other external institutions and application of subjective expert judgment. exceeds the exposure, the individual impairment may be nil. Hence, NOVO BANCO Bank does not have any overdue In the first component, GDP growth is estimated through estimates for the growth of expenditure components, obtaining GDP through financial assets for which it has not performed a review regarding their recoverability and the subsequent impairment the formula GDP = Consumption + Investment + Exports - Imports. The econometric specifications chosen are those that, after testing recognition, when necessary. different alternatives, generate the best result. The exercise of build the base and alternative macroeconomic scenarios for the Portuguese economy is based on a The econometric estimates thus obtained are then weighted with forecasts from external institutions, according to the principle that the combination of different projections tends to be more accurate than just a forecast (the risk of errors and bias associated with combination of econometric forecasts, information on forecasts from other external institutions and application of specific methods and variables is minimized). subjective expert judgment. The forecasts for prices (consume and real estate) and unemployment follow a similar methodology: own forecasts based on an In the first component, GDP growth is estimated through estimates for the growth of expenditure components, estimated model, weighted with forecasts from external institutions, if available. In a base scenario, the projections for interest rates start from market expectations (provided by Bloomberg), with possible adjustments in accordance with the principles defined above, obtaining GDP through the formula GDP = Consumption + Investment + Exports - Imports. The econometric if considered appropriate (weighting by expert judgment and forecasts from external institutions). The alternative scenarios are based specifications chosen are those that, after testing different alternatives, generate the best result. on the historical observation of deviations from the trend in GDP behavior (cost and contraction cycles), the reference of EBA recommendations for extreme adverse scenarios, the stylized facts of economic cycles, with respect to the components of expenditure, prices, unemployment, etc. and estimates. 460 Thus, when revising / updating the scenarios, the respective probabilities of execution are also reviewed. Once the scenarios are updated, the values of the risk parameters are updated for later consideration in the scope of the Impairment calculation. The final impairment calculated will thus result from the sum of the impairment value of each scenario, weighted by the respective probability of execution. Currently, 3 scenarios are considered for the calculation of impairment on a collective basis: base case, downside case and an upside case. The base case scenario envisages a trend recovery in the form of a “swoosh”. After the abrupt decline in activity in the 1st and 2nd quarters of 2020, there was an initially rapid recovery with the first reopen, followed by a recovery that tended to be more gradual. The recovery in this scenario leaves economic activity at a lower level than pre-Covid for a relatively prolonged period, until 2022. Thus, it is assumed some loss of productive potential in the economy. This scenario assumes negative impacts of a second and third waves of Covid-19 in the 4th quarter of 2020 and between the 1st and 2nd quarters of 2021, in line with pandemic projection scenarios. These waves restrict economic activity, but in a progressively less pronounced way than in the first wave. Even so, relatively moderate quarterly GDP declines are admitted in the 4th quarter of 2020 and in the 2nd quarter of 2021. This scenario assumes the gradual distribution of anti-Covid-19 vaccines throughout 2021 and in 2022, allowing for a more visible normalization of economic activity as of the 3rd quarter of 2021. The base case scenario, to which a 60% probability is attributed, points to an annual drop in GDP of around 8.3% in 2020, followed by an annual growth of around 5.2% in 2021, which benefits from a favourable base effect. The following years assume a gradual 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 386- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE The econometric estimates thus obtained are then weighted with forecasts from external institutions, according to the principle that the combination of different projections tends to be more accurate than just a forecast (the risk of errors and bias associated with specific methods and variables is minimized). The forecasts for prices (consume and real estate) and unemployment follow a similar methodology: own forecasts based on an estimated model, weighted with forecasts from external institutions, if available. In a base scenario, the projections for interest rates start from market expectations (provided by Bloomberg), with possible adjustments in accordance with the principles defined above, if considered appropriate (weighting by expert judgment and forecasts from external institutions). The alternative scenarios are based on the historical observation of deviations from the trend in GDP behavior (cost and contraction cycles), the reference of EBA recommendations for extreme adverse scenarios, the stylized facts of economic cycles, with respect to the components of expenditure, prices, unemployment, etc. and estimates. Thus, when revising / updating the scenarios, the respective probabilities of execution are also reviewed. Once the sce- narios are updated, the values of the risk parameters are updated for later consideration in the scope of the Impairment calculation. The final impairment calculated will thus result from the sum of the impairment value of each scenario, weighted by the respective probability of execution. Currently, 3 scenarios are considered for the calculation of impairment on a collective basis: base case, downside case and an upside case. The base case scenario envisages a trend recovery in the form of a “swoosh”. After the abrupt decline in activity in the 1st and 2nd quarters of 2020, there was an initially rapid recovery with the first reopen, followed by a recovery that tended to be more gradual. The recovery in this scenario leaves economic activity at a lower level than pre-Covid for a relatively prolonged period, until 2022. Thus, it is assumed some loss of productive potential in the economy. This scenario assumes negative impacts of a second and third waves of Covid-19 in the 4th quarter of 2020 and between the 1st and 2nd quarters of 2021, in line with pandemic projection scenarios. These waves restrict economic activity, but in a progressively less pronounced way than in the first wave. Even so, relatively moderate quarterly GDP declines are admitted in the 4th quarter of 2020 and in the 2nd quarter of 2021. This scenario assumes the gradual distribution of anti-Covid-19 vaccines throughout 2021 and in 2022, allowing for a more visible normalization of economic activity as of the 3rd quarter of 2021. The base case scenario, to which a 60% probability is attributed, points to an annual drop in GDP of around 8.3% in 2020, followed by an annual growth of around 5.2% in 2021, which benefits from a favourable base effect. The following years assume a gradual evolution towards trend / potential growth, with annual growth of 3.4% in 2022 and 2% in 2023. For the construction of the scenario, the information available on the initial economic impacts of the Covid-19 crisis was used. In the base case scenario, the increase in unemployment is strongly mitigated by measures to protect income and employment, which are assumed to be prolonged until 2021. House prices prevent a fall, due to stabilization measures, such as default and credit guarantees. The gradual withdrawal of these measures, however, causes a sharp deceleration in these prices in 2021. The base case scenario is marked by disinflationary pressures and the maintenance of strong monetary incentives. The downside case scenario, with a probability of 30%, predicts more severe impacts on the economy of a second and third wave of Covid-19, which force intermittent lockdowns, leading to stronger QoQ contractions in GDP in the 4th quarter of 2020 and in the 2nd quarter of 2021. The recovery of activity takes place more slowly than in the base case scenario, which translates into more persistent negative economic effects and a severe loss of productive capacity. Activity is still significantly below pre-Covid levels in 2023, which translates into a significant rise in unemployment and a more depressed evolution of prices. GDP declines 9.6% in 2020 and grows 0.9% in 2021, which is explained, in this case, by a favourable base effect. GDP grows 2.8% in 2022, still benefiting from a favourable base effect, assuming a trend towards tendential / potential growth in 2023. The normalization of activity with the introduction of vaccines is assumed in a more time-consuming and gradual way. The upside case scenario, with a 10% probability, foresees a “V” shaped recovery. The second wave of the pandemic has a less pronounced and shorter impact on economic activity and the absence of any third wave is assumed. This allows 461 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESfor a normalization of activity and a faster recovery of growth. Above all, this allows the recovery of pre-Covid activity levels as early as 2021, which translates into a more benign trend in unemployment. Without a significant or persistent loss of capacity, prices have grown more noticeably. In this scenario, a rise in market interest rates is assumed, albeit at historically low levels. Four macroeconomic models are used for the segments of Corporate (excluding Real Estate), Real Estate Companies, Mortgage Loans and Other Loans to Individuals. The Corporate segment (excluding Real Estate) is particularly sensitive to the rate of GDP growth and the unemployment rate. In all scenarios, there is a drop in GDP, followed by a recovery in the following years, reaching in 2021 the levels verified before the pandemic, with the exception of the downside case scenario, in which the pre-pandemic levels are not reached in the horizon of 3 years. Unemployment registers a significant increase in the year 2020, followed by a recovery that is not enough to reach the levels of unemployment before the pandemic, with the exception of the upside case scenario that in the year 2022 is slightly lower than that registered before the pandemic. The Real Estate Companies segment is particularly sensitive to changes in real estate prices and to the GDP growth rate. It is the segment most affected in the time horizon in question. The price of real estate registered a significant fall in the year 2020 in all scenarios, followed by a more or less rapid recovery, depending on the scenario in question. The Mortgage Loans segment is mainly affected by the reduction in GDP and the fall in real estate prices, across all scenarios in the year 2020. The Other Loans to Individuals segment is substantially affected by the increase in Unemployment and the reduction in GDP, verified in 2020 in any of the scenarios. Collective analysis adjustments to the automatic result of the model After processing the automatic impairment calculation and validating the consistency of the results obtained, all situations that may need an adjustment to the calculated impairment value are assessed. These adjustments are reflected, whenever possible, directly in the exposures. When this is not possible, the calculated impairment value is recorded without being allocated to specific exposures and, for that purpose, the stage and the type of credit to which it refers are associated. Having the prerogative to ensure that all impairment is allocated to specific exposures, these impairment amounts initially constituted in the unallocated form will, once conditions exist, be fully distributed over the exposures in which their allocation is determined. In terms of the governance model, both adjustments to specific exposures and impairment amounts constituted in the unallocated form must be validated and supported by an approval by a competent body, which, as a rule, will be the Extended Impairment Committee. Individual impairment analysis process The Individual Credit Analysis comprises a staging analysis and an individual impairment quantification analysis. The staging analysis is performed for debtors previously classified as stage 1 and stage 2, with the purpose of evaluating the adequacy of the assigned stage with additional information obtained on an individual basis. The individual impairment quantification analysis aims to determine the most appropriate impairment rate for each credit customer, regardless of the amount resulting from the Collective Impairment Model. Clients that have been subject to Individual Analysis, but for which an objective impairment loss was not considered, are again included in the Collective Impairment Model. The Individual Analysis of the selected clients is carried out based on the information provided by the Commercial Structures regarding the client / Group's framework, historical and forecast cash flows (when available) and existing collateral. 462 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEThe scheme below is illustrative of the individual credit analysis to be carried out for the purpose of concluding on the classification in terms of staging of debtors. Individual Analysis Yes No The debt holder is classiﬁed in stage 1 or stage 2? Staging Analysis Individual analysis of credit classified in stage 1 and stage 2 withthe purpose of assessing the adequacy of the stage from the model taking into account qualitative information available, the results os the analysis of staging questionnaires and specific information on the debtor’s ability to generate enough cash flow to service debt service. Are the expected future cash ﬂows for the debtor materially impacted and insufficient to cover the debt service? Yes No Collective Impairment Quantiﬁcation of individual impairment (stage 3) Credit analysis to quantify impairment on an individual basis using one of the following methodologies (or combination of both. (i) going concern and (ii) gone concern Selection Criteria Individual Analysis (staging analysis and, when applicable, quantification of individual impairment) should be carried out for the borrowers who: • Register Stage 3 exposure equal to or greater than € 1,000,000; • Register Stage 2 exposure equal to or greater than € 5,000,000; • Register Stage 2 exposure equal to or greater than 1,000,000 € and have no rating assigned; • Register Stage 1 exposure equal to or greater than 5,000,000 € and have no rating assigned; • Register Stage 1 exposure equal or greater than € 25,000,000 (individually significant exposure); • Fit into the Financial Holding risk segment and register exposure equal to or greater than € 5,000,000; • Fit into the Real Estate risk segment and register exposure equal to or greater than € 5,000,000; • Are identified by the Committee itself based on other criteria that justify (e.g.; sector of activity); • In the past, specific impairment has been attributed to them; • In the face of any new element that may have an impact on the calculation of impairment, be proposed for analysis by one of the stakeholders of the Impairment Committee or by another Body. The identification of the target customers for Individual Analysis will be updated monthly, in order to contemplate any changes that may occur throughout the year. The Committee analysis of the customers identified in the previous paragraph will be carried out in the month in which: • The client registers, for the first time, one of the selection criteria for Individual Impairment Analysis, mentioned in the previous paragraph; • Expiry of the Analysis expiration date; • Its analysis is requested by one of the participants of the Impairment Committee or by another Body. The Individual Impairment Analysis can be carried out for individual customers but should whenever be possible con- sider the Economic Group view of the selected customers. 463 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESDecision Chain The Board of Directors is the highest body for determining the amount of impairment to be attributed to each client. Due to its determination, the execution of this function is delegated to the structures mentioned below: the commer- cial area and, above all, the Rating Department and the Impairment Committee. The individual Impairment Analysis decision chain is made up of three progressive levels of competence: The approval of the final values of Impairment is carried out by the EBD in the approval of accounts. Scope and Stakeholder Impairment Committee The Impairment Committee has permanent members: • DRT - Rating Department; • DRG - Global Risk Department; • DC - Credit Department; • DCCF - Accounting, Consolidation and Tax Department; • DRCE - Corporate Credit Recovery Department; • DRCR ¬ Retail Credit Recovery Department; • DAI - Internal Audit Department. Also participating are the Commercial Units, clients' managers, who will be assessed at these meetings, and other specialized Entities or Departments whose presence is necessary for a better assessment of the impairment to be constituted. The Commercial Units vote exclusively in the cases related to the customers they accompany. The invited Entities or Departments do not have the right to vote. Decisions resulting from the intervention of the Impairment Committee are taken by majority, with the DRT having the veto power. They are considered binding, unless otherwise determined by the Executive Board of Directors. Extended Impairment Committee, meets with the presence of the Directors responsible for the areas involved. Proposals are deemed to have been approved by obtaining the agreement of all Directors present. Rules of Operation The Individual Analysis of the selected clients is carried out based on the information provided by the Commercial Units regarding the client / Group's framework, historical and forecast cash flows (when available) and existing collateral. For the analysis of the impairment quantification on an individual basis, a scenario is established that is expected to recover credit: through the continuity of the client's business or through the execution of the collateral. If this analysis results in no impairment being necessary, the impairment will be determined by collective analysis, that is, by the collective impairment model (except for cases with objective evidence of loss / Default, in which the final rate will have to be defined). The Individual Impairment quantification analysis determines, for each period, the best recovery scenario, aligning the commercial strategies defined for the client, with the different recovery possibilities. When, due to lack of information, it is not possible to identify or update the recovery scenario, the previous rate is maintained, and a new date is set for the client's review. Main events that took place in 2020 The most relevant events of 2020 and with an impact on credit risk management policies and procedures consisted of: 1. implementation of the new Default definition; 2. incorporation into the collective unevenness model of the impact of the pandemic; 3. definition and development of specific risk mitigation initiatives emerging from the current context. 464 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE1. Implementation of the new Default definition The internal and regulatory framework for the definition of Default is described in internal regulations and is imple- mented in accordance with article 178 of EU Regulation No. 575/2013, CRR. The concept of Default was first determined by the criteria defined in section 2.1. of Part 4 of Annex IV of Notice no. 5/2007 and the additional clarifications agreed with Bank of Portugal at the meeting held on 17 March 2008 on this topic. In this sense, a default situation was considered with respect to a given borrower or contract, when one or more of the following events occurred: a) the borrower has delayed by more than 90 days, regarding any significant credit obligation to the banking group; or b) the Bank considers that there is a reduced probability that the borrower will fully comply with its obligations to the Bank, without resorting to specific mitigation actions, such as the activation of any guarantees held. Since then, the definition of Default has been subject to adaptations in accordance with the new regulatory require- ments provided for by the CRR and also by subsequent guidelines issued by EBA and included in this regulation. In 2016, with the publication of the final guidelines on the application of the definition of default under the terms of article 178 of the CRR (EBA/GL/2016/07 and EBA/RTS/2016/06), EBA established the objective of harmonizing the application the definition of Default in all entities covered by the SSM, leading to consistency and comparability in the calculation of capital requirements, both in Standard (SA) and IRB approaches. These issued guidelines introduce changes in the entire scope of the definition in force at the Bank until 2020, namely in the frequency of the process, in the criteria of days in arrears, materiality of the default and also in the indicators of reduced probability of payment. This new definition of Default (nDoD) is in effect at the Bank through a daily process created specifically for this purpose since 31 May 2020⁴. In addition to the daily process, an effort has been made to recover historical information since 2009 (on a monthly basis), to apply these rules for marking and deselecting Default, on which the ongoing process of reviewing the risk parameters is based. The output of the recovery process of the historical default markings served as input to the daily rules engine, in order to reduce the gap between the default dates. The close relationship between the definition of Default and other regulatory definitions, such as Non Performing Loans (NPL) and/or Non Performing Exposures (NPE), Credit Impaired Stage 3 and even Credit Forborne, led to the determination of an alignment of the concepts. In practical terms, the criteria for marking and deselecting Default will be as demanding as the applicability, not only of its specific regulatory requirements, but also of the requirements of these other regulatory definitions. The definition of Default in effect since May 2020 considers a set of concepts that were not evaluated by the previous definition, namely the concepts of debtor and joint materiality in the default trigger. However, and in general lines, in view of the guidelines EBA / GL / 2016/07 and the alignment with other regulatory definitions, the definition of Default is based on the following pillars, determined on a daily basis, summarized in the following figure: • Days in Default; • Unlikely to pay deterministic situations; • Pulling effect; • Probation period; • Default exit condition; Considering the measure of specific triggers of Default or the Stage 3 determination indicators, the result will be the determination of Default and Stage 3 accordingly, taking as a starting point the default setting. The Default setting for a given credit position is made automatically in cases where at least one of the specific triggers for the purpose is positive, encompassing the following situations, described in a non-exhaustive manner: • Existence of credit amounts in default with more than 90 calendar days above the materiality threshold; this threshold is checked daily and it consists of an absolute and a relative component; material non-compliance is 4. Definition in force according to JST approval. 465 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESconsidered to exist when it cumulatively exceeds the absolute and relative thresholds; the amounts of overdue credit and exposure considered are determined at the level of the credit position typology (i.e. at the level of the credit facility or at the level of the debtor); • Application of insolvency measures and / or other special protection measures; • Sale of loan portfolios with material economic losses; • Recognition of credit losses; • Application of restructuring measures due to the existence of indicators of financial difficulties. This definition of Default incorporates competing procedures (automatic and manual), for the evaluation and de- termination of the objective improvement of the quality of a debtor. This assessment will be automatic, during any probation period, through the application of a criteria that automatically cancels and resets those probative periods (restart of probation period). The probation period is a period of time during which the default marking of the contract, the client or the debtor remains active, even when the situation that originated the marking is regularized. Depending on the trigger and disregarding restarts, the minimum probation periods can range from 3 to 12 months. Only after the full and uninterrupted counting of the probation period can the trigger to which the period is applied be deselected. Although these automatic criteria guarantees an extensive evaluation of all exposures and debtors, the improvement in the quality of the debtor will be supplemented in all processes of deactivating manual triggers (when active) and in the process of assigning credit ratings (when applicable). In the context of the application of the International Financial Reporting Standard 9 (IFRS 9), exposures of customers and impaired credits (in Credit Impaired Stage 3) will be identified. These situations may arise within the scope of the individual impairment analysis process, which, determining the existence of specific impairment, will promote the classification as Default. The determination of specific impairment through individual analysis includes the evaluation of the following indicators of possible occurrences of unlikely-to-pay (UTP): a. A borrower's sources of recurring income are no longer available to meet the payment of installments; b. There are justified concerns about a borrower's future ability to generate stable and sufficient cash flows; c. The institution has executed collateral, including a guarantee; d. The level of indebtedness of the debtor has increased significantly or there are reasons to believe that it will increase in the near future; e. Absence of an active market for the debtor's financial instruments; f. When there is a default of a company wholly owned by a single person, who has provided the institution with a personal guarantee for all the obligations of a company; g. Fraud; h. Postponement or extension of loans beyond the economic life duration; i. Borrower's license is withdrawn; j. The debtor used the contractual possibility to unilaterally change the payment plan established. This process also considers the customer's assessment and exposures at the level of the interconnected client group, when applicable, namely if some of the relevant exposures or players in that group are in a default situation. 2) Incorporation into the covid impact collective impairment model Given the general guidance received from supervisors throughout 2020 for the measurement and incorporation of impacts arising from the Covid-19 pandemic and given the level of uncertainty surrounding the extent of this impact, Novo Banco adopted by the end of the 3rd quarter of 2020 a strategy for the constitution of unevenness by accounting for an additional amount to the original result of the current model. 466 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEIn any case, this additional amount accounted for – and updated – for the financial statements for the 3rd quarter was calculated through simulations of alternative conditions on the current model. Being certain that an additional amount of oddages not allocated to specific portfolios or exhibitions was recorded, this amount was calculated using the rules of the current model, but with alternative conditions. That is, this additional amount of parsing was calculated based on parallel simulations where, only for the purposes of these simulations, the risk and/or stage levels of some portfolios were deteriorated in a generalized way, in order to reflect the expected impact resulting from the pandemic. During the 4th quarter and for the purposes of the December 2020 financial statements, this additional amount of parity was reversed since the impacts arising from the COVID pandemic were directly reflected in the result of the unevenness of the collective model in force. So after: i. definition and updating of the macroeconomic scenarios underlying the calculation of collective impairment in line with different expectations of the extent of the pandemic's impact; ii. update of the IFRS 9 risk parameters - probability of default (PD) and severity (LGD) - in line with the new definition of default, either through the starting points or through the incorporation of forward-looking information; iii. cross-sectional review of corporate ratings, particularly in sectors identified as severely affected and / or affected by the COVID pandemic. The result of calculating collective impairment began to directly reflect the expected impact of this pandemic, and it is not necessary to resort to additional adjustments or, consequently, to the accounting of additional amounts of parity, not allocated to specific exposures. Consequently, the estimated credit risk deterioration resulting from the pandemic is thus directly reflected in the exposures / portfolios where there was a downgrade of the associated rating and/or worsening in the applicable risk parameters (forward looking effect). 3) Definition and development of specific risk mitigation initiatives emerging from the current context The Covid-19 pandemic event significantly impacted the normal development of economic activity, both due to limita- tions in the exercise and in the pattern of consumption and investment, as well as by significant restrictions on the way of operating of almost all sectors and agents of the economy, as a result of movement restrictions, increasing demands for social distancing, as well as the gradual deterioration of the confidence indices of individuals and companies. This context has changed the risk profile of debtors and their prospect of future developments, and the Bank has timely adopted a set of joint initiatives to ensure adequate credit risk management: • Quarterly review of risk appetite rules – from March, and quarterly, risk appetite rules applicable to different cus- tomer segments for the following quarter were evaluated, discussed and decided on the Executive Board. This review has led to different policy adjustments, initially focusing the Bank's credit activity on its customer base and placing greater restrictions on the risk to be taken on new customers, and at the same time created levels of risk appetite differentiation based on the impacts of the pandemic: i. In individual customers, the historical level of probability of default (PD's) observed and the expected level of PD's in the face of a macroeconomic deterioration suggested an adjustment in the cut-off points for the admission credit scoring and consumer credit for both new and existing customers; ii. For customers in the corporate segments, in view of the different impacts of the pandemic restrictions on economic activity, the Bank decided to group the sectors of activity into three risk appetite clusters. The first called “Covid sectors” is composed of the activities directly most affected by the pandemic and mobility restrictions and for this it defined a very limited risk appetite, recommending to operate only with well-known clients, in very low risk operations and with special care in the knowledge of the destination of the funds in new clients. The second cluster “Macro affected sectors” is composed of the sectors of economic activity that are impacted by a macroeconomic deterioration due to changes in consumption and investment patterns, having defined a limited 467 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESrisk appetite for the worst rating levels at which it is recommended to operate with low risk profile exposures. The third cluster “Other sectors” is composed of companies from other sectors of activities not materially impacted by the Covid-19 pandemic, or that are assessed as more resilient to this impact. These risk appetite rules continue to be monitored and reviewed on a permanent basis to ensure that at every moment the Bank maintains up-to-date policies appropriate to each client's context and risk profile. • Monitoring of the credit contracting profile under the new risk appetite rules – to ensure enough knowledge of new production within or outside risk appetite, weekly and monthly management information has been created for periodic sharing with the bank's different management bodies. • Periodic follow-up of rating review activity and rating migration flows – to allow timely knowledge and identification of rating upgrade or downgrade movements in each segment of corporate, a new weekly and monthly manage- ment information was created with pre- and post-event Covid migration matrices for sharing with management bodies, which allow an identification of individual cases that have been reassessed by the Rating Department , as well as changes justified by changes in sectoral industry anchors. • Portfolio limits review - the use of this internal risk appetite measurement and monitoring instrument that has been widely used by the Bank in recent years has intensified, as well as its metrics in relation to the new post-Covid context have been updated. The definition of annual objectives and the monthly monitoring of the most relevant business lines allow defining mandates in the company segments for the worst levels of ratings, for the weight of exposures without assigned rating, and for default exposures. In the case of private portfolios, these metrics are not defined according to the portfolio, but rather the new hire, and are among the worst rating levels, the highest debt repayment ratios and the highest LTV bands. In the new context of revised risk appetite rules, this monitoring process has proved to be topical and useful and continues to be shared periodically with the Bank's management bodies. • Delegation of credit powers - at the same time as the quarterly risk appetite review, adjustments were included in the form of delegation of credit powers with the dual objective of limiting risk admission in out-of-appetite seg- ments while maintaining agility in the admission process to ensure good support to the economy with borrowers in the best segments and best guaranteed exposures (e.g. Covid credit lines with SGM guarantee). • Covid credit lines with SGM guarantee – given Novo Banco's natural market share and the strong government and banking sector's commitment to support the economy, ensuring the absence of interruption in access to credit by small and medium-sized enterprises, specific credit lines with SGM guarantee with coverage between 80% to 90% were created. This type of credit facility had a continuous growth throughout the year, reaching a total portfolio volume of approximately 1,000 million euros. This growing materiality justified the preparation of a set of management information that allowed the monitoring by the different management bodies of the Bank which the risk approved, the volume of new contracted production, and to know the profile of business customers in which these lines were granted; • Operationalization and monitoring of legal and private initiative moratorium regimes: After an initial phase in which the priority was to create an operational context of great agility in the way the Bank confirmed the borrowers' eligi- bility and ensured the registration of the moratorium conditions in each contract covered, the dimension reached of the portfolios of corporate and individuals that remained under this regime has justified the immediate creation of management information that characterizes the evolution of this component of the portfolio and allowed to deepen the knowledge about its profile, which has been permanently monitored by the Bank's management bodies. In addition to this global monitoring of the portfolio, in the following months Novo Banco undertook different initiatives in order to monitor the profile of customers who adhered to these regimes, and their standard of compliance and solvency, in order to identify in advance those who have not capacity to comply with future debt service after the end of the moratorium period, they may need other forms of support or restructuring, preventing their entry into default, notably: 468 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEi. Creation of a company evaluation questionnaire - initially having only historical economic and financial elements and in view of the need to reassess the companies’ rating based on updated information that reflected the impact of the pandemic, Novo Banco created a questionnaire for evaluating companies with a significant set of questions that will allow them to collect information on the impact that the pandemic has had to date on these debtors, on the level of impact estimated by them in the full year 2020, as well as an estimate of impact on the activity in 2021. From its launch, the information in this questionnaire is now integrated into the recurring credit risk admission and follow-up process, so that all new decisions and policies marked are already informed with these data. Additionally, using the results obtained with this questionnaire, and after relying on the responses collected, Novo Banco has information that allows it to individualize the impacts of the pandemic at the level of each debtor, and simulate the effects on a change in the rating level and on an eventual migration of the Stage in which it is integrated; ii. Indicators of financial deterioration of individuals - for individual customers, in addition to the current procedures for the prevention of default (PARI) and the management of default (PERSI), NOVO BANCO explored new sources of behavioral and transactional information for its customers, that allow it to identify internal or external signs of finan- cial degradation. This set of enriched information will allow its customer base to be segmented by different levels of propensity to enter into default, and to implement a screening action and different support strategies adapted to the situation of each customer, preventing early entry in delinquency in view of the end date of the moratorium. With priority for debtors under moratorium regime, for whom the Bank failed to observe data of compliance of debt service, but in which it is crucial to avoid the “cliff effect” that could originate with the end of the moratoriums through an identification and offering support in advance to those who are in financial difficulties, a wide range of variables from the behavioural scoring models, the Default model, the PARI regime, transactional data and different sources of internal and external information were analysed. The exercise carried out based on analytical support and a multidisciplinary expert judgment, allowed to choose the variables understood as the most predictive for the situation of financial difficulty and to define the materiality triggers that will better identify those debtors. The choice of these indicators will allow the Bank to segment its portfolio of individuals into homogeneous groups of customers with a similar probability of future entry into default, in order to prioritize its performance: with immediate priority for the group of debtors who already exhibit financial difficulties, with a secondary priority for those who have a high propensity to default, and with low priority for those who do not register warning signs or have indicators of resilience. In order to reinforce the set of operational measures now initiated to deal with the impacts of the pandemic on credit risk management, by the end of 2020 and in the course of 2021, Novo Banco will continue to develop different initiatives to ensure correct identification and early offer of support to debtors who may be experiencing difficulties at the end of the moratorium period. Internal rating models for tCorporates, Institutions and stocks portfolios Regarding the rating models for corporate portfolios, different approaches are adopted depending on the size and sector of activity of the clients. Specific models are also used, adapted to loan operations of project finance, acquisition finance, object finance, commodity finance and real estate development finance. 469 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESBelow is a summary table on the types of risk models adopted in the internal assignment of credit ratings: Segmentation criteria Model Type Description Expert Judgement Sector, Size, Product • Large entreprises • Finantial institutions • Municipalities • Institutional • Local and regional administrations • Realestate (Investment/Promotion) • Acquisition Finance • Project Finance • Object Finance • Commodity Finance Template Ratings atributed by teams of analyst, using speciﬁc models by sector (templates) and ﬁnancial and qualitative information. Medium entreprises Semi-automatic Small entreprises Start-Up’s and individual entrepreneurs Statistical Automatic Rating model based in ﬁnancial, qualitative and behavioral information, validated by analysts. Rating model based in ﬁnancial, qualitative and behavioral information. Rating model based in qualitative and behavioral information. The Bank's Rating Department has a Rating Model for the following segments: Start-ups; Individual Entrepreneurs (ENIs); Small business; Medium-sized companies; Big companies; Real Estate and Real Estate Income; Holding Large Company; Financial Institution; Municipalities and Institutional; Sovereign; Project Finance; Object, Commodity and Acquisition Finance; Financial Holding. The segments for which rating models are not available are: • Insurance and Pension Funds; • Churches, political parties and non-profit associations with a turnover of less than Euro 500 thousand. Regarding the credit portfolios of Large Companies, Financial Institutions, Institutional, Local and Regional Adminis- trations and Specialized Loans - namely Project Finance, Object Finance, Commodity Finance and Acquisition Finance - the credit ratings are assigned by the Bank's Rating representation. This structure is made up of 7 multisectoral teams that comprise a team leader and several specialized technical analysts. The attribution of internal risk ratings by this team to these risk segments, classified as low default portfolios, is based on the use of “expert-based” rating models (templates) that are based on qualitative and quantitative variables, strongly correlated with the sector or sectors of activity in which the clients under analysis operate. With the exception of assigning a rating to specialized loans, the methodology used by the Rating representation is also governed by a risk analysis at the level of the maximum con- solidation perimeter and by the identification of the status of each company in the respective economic group. The internal credit ratings are validated daily in a Rating Committee composed of members of the Rating Department's Management and the various specialized teams. 470 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEFor the medium-sized corporate segment, statistical rating models are used, which combine financial data with qualitative and behavioral information. However, the publication of credit ratings requires the execution of a previous validation process that is carried out by a technical team of risk analysts, who also take into account behavioral variables. In addition to rating, these teams also monitor the customers’ loan portfolio of the Bank through the preparation of risk analysis reports, as provided for in internal regulations, in accordance with the current responsibilities / customer rating binomial, which may include specific recommendations on the credit relationship with a given customer, as well as technical advice on investment support operations, restructuring, or other operations subject to credit risk. For the business segment, statistical scoring models are also used which have, in addition to financial and qualitative information, the behavioral variables of the companies and the partner(s) in the calculation of credit ratings. There are also implemented scoring models specifically aimed at quantifying the risk of start-ups (companies established less than 2 years ago) and individual entrepreneurs (ENI). These customers together with the small companies, depending on the exposure value, are included in the regulatory retail portfolios. Finally, for companies in the real estate sector (companies dedicated to the activity of real estate promotion and investment, especially small and medium-sized companies), taking into account their specificities, the respective ratings are assigned by a specialized central team, based on use of specific models that combine the use of quantitative and technical variables (real estate appraisals carried out by specialized offices), as well as qualitative and behavioral variables. With regard to exposures equated to shares held by the Bank, directly or indirectly through the holding of investment funds, as well as shareholders loans and supplementary capital contributions, all included in the risk class of shares for the purposes of calculating credit risk weighted assets, they are classified in the various risk segments according to the characteristics of their issuers or borrowers, following the segmentation criteria presented above. These segmentation criteria determine the type of rating model to be applied to the issuers of the shares (or borrowers of the shareholders loans / supplementary capital contributions) and, therefore, to them. Relationships between internal and external ratings The assignment of an internal rating to entities with an external rating is made through the Markets Template available in the Rating Calculation application. The Markets Template gathers the external ratings that were assigned to a specific entity by the rating agencies Standard & Poor’s (S&P), Moody’s and Fitch. Specifically, the functionality of providing external ratings from S&P - XpressFeed feeds the application of External Ratings on a daily basis, which allows the external ratings published by these agencies for a given entity to be filled in the Markets Template. The external ratings assigned by Moody’s and Fitch are not obtained automatically, having to be entered manually in the Markets Template, after consulting the websites www.moodys.com and www.fitchratings.com. The internal rating results, in the majority of situations, from the S&P equivalent external rating and, in exceptional situations, from the S&P equivalent external rating plus an internal adjustment, which must always be accompanied by justifying comments prepared by the analyst. It should be noted that the S&P equivalent external rating is obtained by making a correspondence between the available external ratings and the rating scale of the referred financial rating agencies. The internal ratings produced by the Markets Template and which have had adjustments must be mandatorily approved and validated by the Rating Committee. The table below shows the correspondence between the external ratings S&P, Moody's and Fitch and the equivalent external rating S&P: 471 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESS&P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC SD D Moody's Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C Equivalent external rating S&P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC Lower than CCC Fitch AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC C RD/D Internal scoring models for Individual portfolios With regard to scoring models for individual portfolios, NB has origination / concession and behavioral scoring models (applied to operations older than 6 months). These models are automatic, based on statistical models developed with internal information, considering socio- demographic information, loan characteristics, behavioral information and automatic penalties (if there are warning signs). In the case of behavioral models, information on the remaining loans of the contract holders is also considered. NOVO BANCO NB is authorized by Bank of Portugal to use internal models in the calculation of regulatory capital requirements for the main portfolios of individuals: Mortgage Loans and Individual Loans. In addition, it has origination and behavioral NB is authorized by Bank of Portugal to use internal models in the calculation of regulatory capital requirements for the main portfolios scorings for the Credit Card, Overdraft and Loan Accounts products, which it uses for the purposes of designing and of individuals: Mortgage Loans and Individual Loans. In addition, it has origination and behavioral scorings for the Credit Card, Overdraft and Loan Accounts products, which it uses for the purposes of designing and monitoring credit quality, however, not being monitoring credit quality, however, not being IRB portfolios. IRB portfolios. The table below displays the assets impaired, or overdue by not impaired: The table below displays the assets impaired, or overdue by not impaired: Neither overdue nor impaired Overdue but not impaired Impaired Total exposure Impairment Net exposure 31.12.2020 (in thousands of Euros) Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Securities at amortised cost Bonds issued by government and other public entities Bonds issued by other entities Loans and advances to customers 271 233 267 016 267 016 647 082 647 082 7 736 454 6 406 465 1 329 989 2 957 737 415 192 2 542 545 21 195 090 - - - - - - - - - - - 6 364 314 138 - - - - 22 770 - 22 770 119 605 - 119 605 2 130 652 585 371 267 016 267 016 647 082 647 082 7 759 224 6 406 465 1 352 759 3 077 342 415 192 2 662 150 23 332 108 ( 250 153) - - - - ( 3 660) ( 3 095) ( 565) ( 202 460) ( 576) ( 201 884) (1 587 003) 335 218 267 016 267 016 647 082 647 082 7 755 564 6 403 370 1 352 194 2 874 882 414 616 2 460 266 21 745 105 Neither overdue nor impaired Overdue but not impaired Impaired Total exposure Impairment Net exposure 31.12.2019 (in thousands of Euros) Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Instrumentos de dívida- outros emissores 472 Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Securities at amortised cost Bonds issued by other entities Loans and advances to customers Bonds issued by government and other public entities 282 647 254 848 254 848 - 694 667 694 667 8 643 361 7 027 343 1 616 018 2 448 522 459 260 1 989 262 - - - - - - - - - - - - 381 501 - - - - - 45 520 - 45 520 104 475 - 104 475 2 914 987 664 148 254 848 254 848 - 694 667 694 667 8 688 881 7 027 343 1 661 538 2 552 997 459 260 2 093 737 25 045 515 ( 77 134) - - - - - ( 5 505) ( 4 476) ( 1 029) ( 160 154) ( 704) ( 159 450) (1 841 483) 587 014 254 848 254 848 - 694 667 694 667 8 683 376 7 022 867 1 660 509 2 392 843 458 556 1 934 287 23 204 032 22 115 138 15 390 Impaired exposures correspond to (i) exposures with objective evidence of loss (“Exposure in default”, according to the internal definition of default - which corresponds to Stage 3); and (ii) exposures classified as having specific impairment after individual impairment assessment. The exposures classified as not having impairment relate to (i) all exposures that do not show signs of significant deterioration in credit risk - exposures classified in Stage 1; (ii) exposures that, showing signs of significant deterioration in credit risk, have no objective evidence of loss or specific impairment after an individual assessment of impairment. The following table presents the assets that are impaired or overdue but not impaired, split by their respective maturity or ageing (when overdue): 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 395- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Neither overdue nor impaired Overdue but not impaired Impaired Total exposure Impairment Net exposure 31.12.2019 (in thousands of Euros) Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Securities at amortised cost Bonds issued by government and other public entities Bonds issued by other entities Loans and advances to customers 282 647 254 848 254 848 694 667 694 667 8 643 361 7 027 343 1 616 018 2 448 522 459 260 1 989 262 22 115 138 - - - - - - - - - - - 15 390 381 501 - - - - 45 520 - 45 520 104 475 - 104 475 2 914 987 664 148 254 848 254 848 694 667 694 667 8 688 881 7 027 343 1 661 538 2 552 997 459 260 2 093 737 25 045 515 ( 77 134) - - - - ( 5 505) ( 4 476) ( 1 029) ( 160 154) ( 704) ( 159 450) (1 841 483) 587 014 254 848 254 848 694 667 694 667 8 683 376 7 022 867 1 660 509 2 392 843 458 556 1 934 287 23 204 032 Impaired exposures correspond to (i) exposures with objective evidence of loss (“Exposure in default”, according to the internal definition of default - which corresponds to Stage 3); and (ii) exposures classified as having specific impairment after individual impairment assessment. The exposures classified as not having impairment relate to (i) all exposures that do not show signs of significant deterioration in credit risk - exposures classified in Stage 1; (ii) exposures that, showing signs of significant deterioration in credit risk, have no objective evidence of loss or specific impairment after an individual assessment of impairment. The following table presents the assets that are impaired or overdue but not impaired, split by their respective maturity NOVO BANCO or ageing (when overdue): Overdue Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Due Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Overdue Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Due Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years 31.12.2020 (in thousands of Euros) Securities Portfolio - debt instruments Deposits with and loans and advances to banks Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired - - - - - - - - - - - - - - 15 126 10 330 34 444 82 475 142 375 - - - - - - 142 375 - - - - - - - - - - - - - 34 726 - - - - 34 726 - - - - 279 412 279 412 314 138 5 148 912 153 23 130 6 366 - - - - - - 6 366 15 179 56 905 91 301 231 222 215 280 609 887 37 231 312 428 266 246 146 644 758 216 1 520 765 2 130 652 31.12.2019 (in thousands of Euros) Securities Portfolio - debt instruments Deposits with and loans and advances to banks Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired - - - - - - - - - - - - - - 6 770 56 070 87 155 - 149 995 - - - - - - 149 995 - - - - - - - - - - - - - - - - - - - - - - - 381 501 381 501 381 501 12 938 629 999 740 84 15 390 - - - - - - 15 390 21 436 67 617 312 133 348 588 332 081 1 081 855 117 387 320 262 495 393 161 206 738 884 1 833 132 2 914 987 The following table shows the assets that are impaired or overdue but not impaired, broken down by the respective impairment stage: 473 31.12.2020 (in thousands of Euros) 31.12.2019 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Deposits with and loans and advances to banks Securities at fair value through other comprehensive income Securities at amortised cost Loans and advances to customers - - - 314 138 - 314 138 381 501 - 381 501 - - 22 770 22 770 119 605 119 605 - - 45 520 45 520 104 475 104 475 - - - 1 671 4 691 2 130 656 2 137 018 934 14 456 2 914 987 2 930 377 1 671 318 829 2 273 031 2 593 531 934 395 957 3 064 982 3 461 873 Regarding assets that are neither past due nor impaired, the distribution by rating level is presented below. For the debt instruments, the rating assigned by the Rating Agencies is taken into account, for the credit to clients and cash and deposits with credit institutions, the internal rating and scoring models are used, that assign a risk rating, which is periodically reviewed. For the purposes of presenting the information, the ratings have been aggregated into five major risk groups, with the last group including the unrated exposures. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 396- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Securities Portfolio - debt Deposits with and loans and instruments advances to banks Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired 31.12.2020 Overdue Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Due Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Overdue Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years Due Up to 3 months 3 months to 1 year 1 to 3 years 3 to 5 years More than 5 years - - - - - - - - - - - - - - - - - - - - - - - - - - 15 126 10 330 34 444 82 475 142 375 - - - - - - 142 375 - 6 770 56 070 87 155 - 149 995 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 34 726 34 726 279 412 279 412 314 138 - - - - - - - - - - - - - - - - - - 381 501 381 501 NOVO BANCO (in thousands of Euros) 5 148 912 153 23 130 6 366 - - - - - - 6 366 12 938 629 999 740 84 15 390 - - - - - - 15 179 56 905 91 301 231 222 215 280 609 887 37 231 312 428 266 246 146 644 758 216 1 520 765 2 130 652 21 436 67 617 312 133 348 588 332 081 1 081 855 117 387 320 262 495 393 161 206 738 884 1 833 132 31.12.2019 (in thousands of Euros) Securities Portfolio - debt Deposits with and loans and instruments advances to banks Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired 2 914 987 The following table shows the assets that are impaired or overdue but not impaired, broken down by the respective impairment stage: The following table shows the assets that are impaired or overdue but not impaired, broken down by the respective impairment stage: 381 501 149 995 15 390 - - 31.12.2020 (in thousands of Euros) 31.12.2019 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Deposits with and loans and advances to banks Securities at fair value through other comprehensive income Securities at amortised cost Loans and advances to customers - - - 314 138 - 314 138 - - 22 770 22 770 119 605 119 605 - - - 381 501 - 381 501 - - 45 520 45 520 104 475 104 475 1 671 4 691 2 130 656 2 137 018 934 14 456 2 914 987 2 930 377 1 671 318 829 2 273 031 2 593 531 934 395 957 3 064 982 3 461 873 Regarding assets that are neither past due nor impaired, the distribution by rating level is presented below. For the debt instruments, the rating assigned by the Rating Agencies is taken into account, for the credit to clients and cash and deposits with credit institutions, the internal rating and scoring models are used, that assign a risk rating, which is periodically reviewed. For the purposes of presenting the information, the ratings have been aggregated into five major risk groups, with the last group including the unrated exposures. Regarding assets that are neither past due nor impaired, the distribution by rating level is presented below. For the debt instruments, the rating assigned by the Rating Agencies is taken into account, for the credit to clients and cash and deposits with credit institutions, the internal rating and scoring models are used, that assign a risk rating, which is periodically reviewed. For the purposes of presenting the information, the ratings have been aggregated into five major risk groups, with the last group including the unrated exposures. 31.12.2020 (in thousands of Euros) Prime +High grade Upper Medium Grade Lower Medium grade Non Investment Grade Speculative + Highly speculative Others Total Bonds issued by other entities Securities at fair value through profit/loss - mandatory Bonds issued by government and other public entities Securities at fair value through other comprehensive income Deposits with and loans and advances to banks 9 153 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Securities held for trading 267 016 267 016 - - 3 247 135 2 863 559 383 576 140 510 - 140 510 2 375 213 4 997 - - 32 670 32 670 2 335 007 2 322 904 12 103 51 608 - 51 608 7 689 385 - - - - - 1 415 572 966 035 449 537 - - - 3 312 685 Bonds issued by government and other public entities Bonds issued by other entities Bonds issued by government and other public entities Bonds issued by other entities Loans and advances to customers Securities at amortised cost 29 657 - - - - - - - 37 958 - 37 958 6 757 902 227 426 - - 614 412 614 412 738 740 253 967 484 773 2 727 661 415 192 2 312 469 1 059 906 271 233 - 396- 267 016 267 016 647 082 647 082 7 736 454 6 406 465 1 329 989 2 957 737 415 192 2 542 545 21 195 090 31.12.2019 (in thousands of Euros) Prime +High grade Upper Medium Grade Lower Medium grade Non Investment Grade Speculative + Highly speculative Others Total Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Securities at amortised cost Bonds issued by government and other public entities Bonds issued by other entities Loans and advances to customers 45 - - - - 1 615 203 1 169 578 445 625 - - - 2 742 396 5 004 5 070 5 070 47 340 47 340 2 407 116 2 400 889 6 227 - - - 7 937 525 13 411 249 778 249 778 - - 3 854 798 3 456 876 397 922 101 711 - 101 711 2 541 376 33 961 - - - - - - - 35 479 - 35 479 7 373 023 230 226 - - 647 327 647 327 766 244 - 766 244 2 311 332 459 260 1 852 072 1 520 819 282 647 254 848 254 848 694 667 694 667 8 643 361 7 027 343 1 616 018 2 448 522 459 260 1 989 262 22 115 138 474 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO (in thousands of Euros) Prime +High Upper Medium Lower Medium grade Grade grade Speculative + Others Total 31.12.2020 Non Investment Grade Highly speculative Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Securities at fair value through profit/loss - mandatory Bonds issued by other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by other entities Securities at amortised cost Bonds issued by other entities Loans and advances to customers Bonds issued by government and other public entities - - - - - - - - 1 415 572 966 035 449 537 3 312 685 4 997 - - 32 670 32 670 2 335 007 2 322 904 12 103 51 608 - 51 608 7 689 385 9 153 267 016 267 016 - - 3 247 135 2 863 559 383 576 140 510 - 140 510 2 375 213 29 657 227 426 - - - - - - - - 37 958 37 958 6 757 902 - - 614 412 614 412 738 740 253 967 484 773 2 727 661 415 192 2 312 469 1 059 906 271 233 267 016 267 016 647 082 647 082 7 736 454 6 406 465 1 329 989 2 957 737 415 192 2 542 545 21 195 090 Prime +High Upper Medium Lower Medium grade Grade grade Speculative + Others Total (in thousands of Euros) 31.12.2019 Non Investment Grade Highly speculative Bonds issued by other entities Securities at fair value through profit/loss - mandatory Bonds issued by government and other public entities Securities at fair value through other comprehensive income Deposits with and loans and advances to banks Securities held for trading 282 647 254 848 254 848 694 667 694 667 8 643 361 7 027 343 1 616 018 2 448 522 459 260 1 989 262 22 115 138 Loans and advances to customers As of 31 December 2020 and 2019, the breakdown of gross credit exposure and impairment by segment was as follows: 13 411 249 778 249 778 - - 3 854 798 3 456 876 397 922 101 711 - 101 711 2 541 376 5 004 5 070 5 070 47 340 47 340 2 407 116 2 400 889 6 227 - - - 7 937 525 45 - - - - 1 615 203 1 169 578 445 625 - - - 2 742 396 230 226 - - 647 327 647 327 766 244 - 766 244 2 311 332 459 260 1 852 072 1 520 819 33 961 - - - - - - - 35 479 - 35 479 7 373 023 Bonds issued by government and other public entities Bonds issued by other entities Bonds issued by government and other public entities Bonds issued by other entities Securities at amortised cost As of 31 December 2020 and 2019, the breakdown of gross credit exposure and impairment by segment was as follows: 31.12.2020 (in thousands of Euros) Segment Performing or with a delay < 30 days With a delay > 30 days Total Days of delay <= 90 days > 90 days Total Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Perfoming Non-Perfoming Total Credit Corporate Mortgage loans Consumer and other loans 1 001 602 11 964 412 326 906 8 164 517 13 813 21 940 7 196 51 700 12 026 645 11 971 608 327 551 942 985 478 871 808 614 541 270 1 751 599 1 020 141 13 723 207 1 347 692 1 408 2 374 8 216 217 1 013 628 15 221 24 314 89 546 13 967 147 553 122 358 88 783 53 174 23 673 39 778 178 329 200 727 37 640 162 136 8 394 546 52 861 1 214 355 186 450 Total 21 130 531 362 659 70 922 4 427 21 201 453 367 086 1 180 084 615 196 950 571 604 721 2 130 655 1 219 917 23 332 108 1 587 003 Segment Performing or with a delay < 30 days With a delay > 30 days Total Days of delay <= 90 days > 90 days Total Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Perfoming Non-Perfoming Total Credit 31.12.2019 (in thousands of Euros) Corporate Mortgage loans Consumer and other loans 1 143 292 12 470 938 153 664 8 341 812 13 667 3 738 59 316 32 833 7 160 3 144 12 530 254 156 808 1 150 070 522 725 1 425 941 966 163 2 576 011 1 488 888 15 106 265 1 645 696 504 387 8 374 645 1 150 452 14 171 4 125 55 171 149 401 18 616 54 750 94 242 115 339 25 543 78 582 149 413 264 740 44 159 133 332 8 524 058 58 330 1 415 192 137 457 Total 21 956 042 171 069 99 309 4 035 22 055 351 175 104 1 354 642 596 091 1 635 522 1 070 288 2 990 164 1 666 379 25 045 515 1 841 483 As of 31 December 2020 and 2019, the details of the loan portfolio by segment and by reference year were as follows: As of 31 December 2020 and 2019, the details of the loan portfolio by segment and by reference year were as follows: NOVO BANCO Year of production 2004 and earlier 2005 Corporate Mortgage loans Consumer and other loans Total Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment 4 416 252 369 29 047 63 963 1 297 344 12 791 686 895 53 142 - 755 274 1 602 855 41 838 31.12.2020 (in thousands of Euros) 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 1 024 227 895 7 592 319 853 52 135 17 328 2 651 2006 8 929 1 016 25 944 556 677 790 66 092 6 232 5 189 201 280 2 323 10 356 7 100 405 16 335 274 472 8 960 - 397- 55 802 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1 266 307 258 46 033 11 598 486 328 5 232 24 909 11 885 1 485 37 773 805 471 52 750 1 243 504 523 29 945 11 071 521 485 4 318 19 736 10 131 749 32 050 1 036 139 35 012 958 281 183 40 351 8 830 450 829 4 066 11 761 17 890 8 860 21 549 749 902 53 277 1 179 311 365 88 463 8 374 474 219 3 934 18 110 26 777 1 211 27 663 812 361 93 608 1 178 214 435 48 528 4 671 216 298 2 138 20 701 16 279 1 099 26 550 447 012 51 765 1 451 376 177 133 141 2 562 94 255 1 409 27 270 15 358 2 008 31 283 485 790 136 558 1 980 504 129 116 773 2 969 147 105 1 513 24 607 21 864 9 555 29 556 673 098 127 841 2 008 450 375 192 967 1 880 105 331 3 301 717 339 134 254 2 888 180 326 739 786 24 178 15 969 944 28 066 571 675 194 650 29 146 115 587 90 414 35 335 1 013 252 225 454 4 756 798 567 60 273 5 990 415 630 1 624 48 507 80 968 24 397 59 253 1 295 165 86 294 7 737 1 104 321 64 773 9 280 748 225 3 022 55 051 113 733 10 949 100 343 1 966 279 78 744 8 758 1 897 622 113 881 10 539 988 329 2 700 65 830 187 836 10 847 85 127 3 073 787 127 428 10 234 2 737 975 135 476 10 483 1 021 066 2 348 73 340 287 740 14 862 94 057 4 046 781 152 686 17 021 2 971 582 55 420 7 136 726 643 1 267 46 926 223 167 7 649 71 083 3 921 392 64 336 Total 69 300 13 723 207 1 347 692 175 015 8 394 546 52 861 1 204 651 1 214 355 186 450 1 477 241 23 332 108 1 587 003 Corporate Mortgage loans Consumer and other loans Total Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment 31.12.2019 (in thousands of Euros) 5 944 323 531 50 349 69 815 1 498 793 35 252 738 795 91 401 - 814 554 1 913 725 85 601 1 191 106 870 11 686 5 827 240 418 1 396 15 293 11 597 311 22 311 358 885 13 393 1 418 278 837 36 363 8 204 374 449 1 552 19 804 17 362 1 078 29 426 670 648 38 993 1 688 416 957 43 036 12 417 554 961 3 225 28 209 22 104 1 346 42 314 994 022 47 607 1 658 663 195 27 284 11 751 584 123 2 361 22 463 22 534 976 35 872 1 269 852 30 621 1 355 366 741 40 680 9 375 498 041 2 059 13 686 26 484 5 137 24 416 891 266 47 876 1 806 414 791 95 760 9 080 529 007 2 583 24 196 38 142 1 851 35 082 981 940 100 194 1 599 348 886 54 549 5 017 244 291 1 150 24 077 21 520 1 225 30 693 614 697 56 924 2 006 641 597 300 890 2 813 110 965 2 889 727 339 198 367 3 243 169 289 3 545 660 642 198 803 2 102 127 272 5 061 952 786 129 660 3 165 207 902 7 046 1 147 180 100 319 6 481 464 941 762 861 415 599 953 33 038 26 048 4 271 37 857 778 610 305 923 28 930 42 707 15 564 35 062 939 335 214 792 29 000 26 631 2 147 34 647 814 545 201 365 36 827 129 491 43 687 45 053 1 290 179 173 946 59 469 120 473 35 678 72 996 1 732 594 136 950 10 094 1 720 989 159 221 9 964 826 096 2 776 67 303 172 043 12 722 100 343 2 719 128 174 719 10 784 2 632 707 101 621 11 152 1 059 847 1 178 78 299 257 016 6 473 100 235 3 949 570 109 272 21 379 3 703 217 97 108 10 355 1 033 663 1 208 76 142 389 639 4 991 107 876 5 126 519 103 307 79 463 15 106 265 1 645 696 180 761 8 524 058 58 330 1 295 531 1 415 192 137 457 1 568 737 25 045 515 1 841 483 Year of production 2004 and earlier 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 475 2017 2018 2019 Total The figures presented include, in addition to all new operations of the reference year, renewals, interventions and restructurings of operations originated in previous years, including the period prior to the setting up of NOVO BANCO. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 398- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO (in thousands of Euros) As of 31 December 2020 and 2019, the details of the loan portfolio by segment and by reference year were as follows: Corporate Mortgage loans Consumer and other loans Total Number of operations Number of operations Number of operations Number of operations Amount Impairment Amount Impairment Amount Impairment Amount Impairment 31.12.2020 4 416 252 369 29 047 63 963 1 297 344 12 791 686 895 53 142 - 755 274 1 602 855 41 838 790 66 092 6 232 5 189 201 280 2 323 10 356 7 100 405 16 335 274 472 8 960 1 024 227 895 52 135 7 592 319 853 2 651 17 328 8 929 1 016 25 944 556 677 55 802 1 266 307 258 46 033 11 598 486 328 5 232 24 909 11 885 1 485 37 773 805 471 52 750 1 243 504 523 29 945 11 071 521 485 4 318 19 736 10 131 749 32 050 1 036 139 35 012 958 281 183 40 351 8 830 450 829 4 066 11 761 17 890 8 860 21 549 749 902 53 277 1 179 311 365 88 463 8 374 474 219 3 934 18 110 26 777 1 211 27 663 812 361 93 608 1 178 214 435 48 528 4 671 216 298 2 138 20 701 16 279 1 099 26 550 447 012 51 765 1 451 376 177 133 141 2 562 94 255 1 409 27 270 15 358 2 008 31 283 485 790 136 558 1 980 504 129 116 773 2 969 147 105 1 513 24 607 21 864 9 555 29 556 673 098 127 841 2 008 450 375 192 967 1 880 105 331 3 301 717 339 134 254 2 888 180 326 739 786 24 178 15 969 944 28 066 571 675 194 650 29 146 115 587 90 414 35 335 1 013 252 225 454 4 756 798 567 60 273 5 990 415 630 1 624 48 507 80 968 24 397 59 253 1 295 165 86 294 7 737 1 104 321 64 773 9 280 748 225 3 022 55 051 113 733 10 949 100 343 1 966 279 78 744 8 758 1 897 622 113 881 10 539 988 329 2 700 65 830 187 836 10 847 85 127 3 073 787 127 428 10 234 2 737 975 135 476 10 483 1 021 066 2 348 73 340 287 740 14 862 94 057 4 046 781 152 686 17 021 2 971 582 55 420 7 136 726 643 1 267 46 926 223 167 7 649 71 083 3 921 392 64 336 Year of production 2004 and earlier 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 69 300 13 723 207 1 347 692 175 015 8 394 546 52 861 1 204 651 1 214 355 186 450 1 477 241 23 332 108 1 587 003 Corporate Mortgage loans Consumer and other loans Total Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment 31.12.2019 (in thousands of Euros) 5 944 323 531 50 349 69 815 1 498 793 35 252 738 795 91 401 - 814 554 1 913 725 85 601 1 191 106 870 11 686 5 827 240 418 1 396 15 293 11 597 311 22 311 358 885 13 393 1 418 278 837 36 363 8 204 374 449 1 552 19 804 17 362 1 078 29 426 670 648 38 993 1 688 416 957 43 036 12 417 554 961 3 225 28 209 22 104 1 346 42 314 994 022 47 607 1 658 663 195 27 284 11 751 584 123 2 361 22 463 22 534 976 35 872 1 269 852 30 621 1 355 366 741 40 680 9 375 498 041 2 059 13 686 26 484 5 137 24 416 891 266 47 876 1 806 414 791 95 760 9 080 529 007 2 583 24 196 38 142 1 851 35 082 981 940 100 194 1 599 348 886 54 549 5 017 244 291 1 150 24 077 21 520 1 225 30 693 614 697 56 924 2 006 641 597 300 890 2 813 110 965 2 889 727 339 198 367 3 243 169 289 3 545 660 642 198 803 2 102 127 272 5 061 952 786 129 660 3 165 207 902 7 046 1 147 180 100 319 6 481 464 941 762 861 415 599 953 33 038 26 048 4 271 37 857 778 610 305 923 28 930 42 707 15 564 35 062 939 335 214 792 29 000 26 631 2 147 34 647 814 545 201 365 36 827 129 491 43 687 45 053 1 290 179 173 946 59 469 120 473 35 678 72 996 1 732 594 136 950 10 094 1 720 989 159 221 9 964 826 096 2 776 67 303 172 043 12 722 100 343 2 719 128 174 719 10 784 2 632 707 101 621 11 152 1 059 847 1 178 78 299 257 016 6 473 100 235 3 949 570 109 272 21 379 3 703 217 97 108 10 355 1 033 663 1 208 76 142 389 639 4 991 107 876 5 126 519 103 307 Year of production 2004 and earlier 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 79 463 15 106 265 1 645 696 180 761 8 524 058 58 330 1 295 531 1 415 192 137 457 1 568 737 25 045 515 1 841 483 The figures presented include, in addition to all new operations of the reference year, renewals, interventions and restructurings of operations originated in previous years, including the period prior to the setting up of NOVO BANCO. The figures presented include, in addition to all new operations of the reference year, renewals, interventions and restructurings of operations originated in previous years, including the period prior to the setting up of NOVO BANCO. NOVO BANCO As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment assessed individually and collectively, by segment, is presented as follows: As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment assessed individually and collectively, by segment, is presented as follows: Individual Assessment (1) 31.12.2020 Collective Assessment (2) Total Exposure Impairment Exposure Impairment Exposure Impairment (in thousands of Euros) Corporate 12 057 069 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 8 390 178 Mortgage loans 1 666 138 958 934 4 368 212 388 758 13 723 207 52 649 8 394 546 1 347 692 - 398- 52 861 Consumer and other loans 155 734 136 305 1 058 621 50 145 1 214 355 186 450 Total 1 826 240 1 095 451 21 505 868 491 552 23 332 108 1 587 003 (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model Individual Assessment (1) 31.12.2019 Collective Assessment (2) Total Exposure Impairment Exposure Impairment Exposure Impairment (in thousands of Euros) Corporate Mortgage loans 2 416 692 1 407 752 12 689 573 237 944 15 106 265 1 645 696 10 883 2 386 8 513 175 55 944 8 524 058 58 330 Consumer and other loans 200 414 115 384 1 214 778 22 073 1 415 192 137 457 Total 2 627 989 1 525 522 22 417 526 315 961 25 045 515 1 841 483 (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model In the case of credits analyzed by the Impairment Committee for which the impairment determined automatically by the Impairment Model has not been changed, they are included and presented in the "Collective assessment". In order to mitigate credit risk, credit operations have associated guarantees, namely mortgages or pledges. The fair value of these guarantees is determined at the date of granting the credit and is periodically reassessed. Below is the gross value of the credits and the respective fair value of the collateral, limited to the value of the associated credit: 31.12.2020 (in thousands of Euros) 31.12.2019 Amount of loans Fair value of collateral Amount of loans Fair value of collateral 8 202 521 108 122 83 903 8 394 546 212 611 224 402 777 344 1 214 357 3 574 775 2 189 282 7 959 148 13 723 205 8 189 574 107 653 - 8 297 227 210 025 108 797 318 822 3 093 988 816 102 3 910 090 - - 8 361 300 77 307 85 451 8 524 058 261 974 295 965 857 253 1 415 192 2 868 316 5 002 788 7 235 161 15 106 265 8 347 345 76 667 - 8 424 012 256 489 165 438 421 927 2 535 429 2 568 332 5 103 761 - - 23 332 108 12 526 139 25 045 515 13 949 700 476 Individuals - Mortgage Mortgages Pledges Not collateralized Individuals - Other Mortgages Pledges Not collateralized Corporate Mortgages Pledges Not collateralized Total associated. The difference between the value of the credit and the fair value of the collateral represents the total credit exposure that exceeds the value of the collateral, this value not being impacted by collaterals with a fair value higher than the credit to which they are 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 399- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO As at 31 December 2020 and 2019, the analysis of the gross loans and advances to customers’ exposure and impairment assessed individually and collectively, by segment, is presented as follows: 31.12.2020 (in thousands of Euros) Individual Assessment (1) Collective Assessment (2) Total Exposure Impairment Exposure Impairment Exposure Impairment Corporate Mortgage loans 1 666 138 958 934 12 057 069 388 758 13 723 207 1 347 692 4 368 212 8 390 178 52 649 8 394 546 52 861 Consumer and other loans 155 734 136 305 1 058 621 50 145 1 214 355 186 450 Total 1 826 240 1 095 451 21 505 868 491 552 23 332 108 1 587 003 (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model Individual Assessment (1) 31.12.2019 Collective Assessment (2) Total Exposure Impairment Exposure Impairment Exposure Impairment (in thousands of Euros) Corporate Mortgage loans 2 416 692 1 407 752 12 689 573 237 944 15 106 265 1 645 696 10 883 2 386 8 513 175 55 944 8 524 058 58 330 Consumer and other loans 200 414 115 384 1 214 778 22 073 1 415 192 137 457 Total 2 627 989 1 525 522 22 417 526 315 961 25 045 515 1 841 483 (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee In the case of credits analyzed by the Impairment Committee for which the impairment determined automatically by (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model the Impairment Model has not been changed, they are included and presented in the "Collective assessment". In the case of credits analyzed by the Impairment Committee for which the impairment determined automatically by the Impairment In order to mitigate credit risk, credit operations have associated guarantees, namely mortgages or pledges. The fair Model has not been changed, they are included and presented in the "Collective assessment". value of these guarantees is determined at the date of granting the credit and is periodically reassessed. Below is the In order to mitigate credit risk, credit operations have associated guarantees, namely mortgages or pledges. The fair value of these gross value of the credits and the respective fair value of the collateral, limited to the value of the associated credit: guarantees is determined at the date of granting the credit and is periodically reassessed. Below is the gross value of the credits and the respective fair value of the collateral, limited to the value of the associated credit: Individuals - Mortgage Mortgages Pledges Not collateralized Individuals - Other Mortgages Pledges Not collateralized Corporate Mortgages Pledges Not collateralized Total 31.12.2020 (in thousands of Euros) 31.12.2019 Amount of loans Fair value of collateral Amount of loans Fair value of collateral 8 202 521 108 122 83 903 8 394 546 212 611 224 402 777 344 1 214 357 3 574 775 2 189 282 7 959 148 13 723 205 8 189 574 107 653 - 8 297 227 210 025 108 797 - 318 822 3 093 988 816 102 - 3 910 090 8 361 300 77 307 85 451 8 524 058 261 974 295 965 857 253 1 415 192 2 868 316 5 002 788 7 235 161 15 106 265 8 347 345 76 667 - 8 424 012 256 489 165 438 - 421 927 2 535 429 2 568 332 - 5 103 761 23 332 108 12 526 139 25 045 515 13 949 700 The difference between the value of the credit and the fair value of the collateral represents the total credit exposure that exceeds the value of the collateral, this value not being impacted by collaterals with a fair value higher than the credit to which they are associated. The difference between the value of the credit and the fair value of the collateral represents the total credit exposure that exceeds the value of the collateral, this value not being impacted by collaterals with a fair value higher than the credit to which they are associated. The details of the collateral – mortgages are presented as follows: 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 31.12.2020 Individuals - Mortgage loans Individuals - Other loans Corporate loans Total (in thousands of Euros) - 399- Number Amount Number Amount Number Amount Number Amount <0,5€mn 169 495 7 996 840 4 920 194 590 >= 0,5€mn e <1,0€mn >= 1,0€mn e <5,0€mn >= 5,0€mn e <10,0€mn >= 10,0€mn e <20,0€mn >= 20,0€mn e <50,0€mn >=50€mn 248 36 146 377 46 357 - - - - - - - - 26 3 - - - - 8 552 6 883 - - - - 8 919 2 173 7 509 5 979 4 014 170 1 566 481 531 183 334 8 672 961 259 748 830 667 401 084 477 539 471 926 171 493 2 447 7 548 5 979 4 014 170 1 566 414 677 883 907 401 084 477 539 471 926 171 493 169 779 8 189 574 4 949 210 025 30 330 3 093 988 205 058 11 493 587 Individuals - Mortgage loans Individuals - Other loans Corporate loans Total Number Amount Number Amount Number Amount Number Amount 31.12.2019 (in thousands of Euros) <0,5€mn 175 277 8 160 435 5 205 221 517 >= 0,5€mn e <1,0€mn >= 1,0€mn e <5,0€mn >= 5,0€mn e <10,0€mn >= 10,0€mn e <20,0€mn >= 20,0€mn e <50,0€mn 477 >=50€mn 234 46 138 221 48 689 44 18 16 666 18 306 - - - - - - - - - - - - - - - - 5 299 2 100 6 365 651 3 267 222 1 384 020 185 781 8 765 972 238 306 697 100 323 305 303 602 518 961 70 135 2 378 6 429 651 3 267 222 1 393 193 764 095 323 305 303 602 518 961 70 135 175 557 8 347 345 5 267 256 489 17 905 2 535 429 198 729 11 139 263 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Individuals - Mortgage loans Individuals - Other loans Corporate loans Total Number Amount Number Amount Number Amount Number Amount 31.12.2020 (in thousands of Euros) <0,5€mn 169 495 7 996 840 4 920 194 590 481 531 183 334 8 672 961 >= 0,5€mn e <1,0€mn >= 1,0€mn e <5,0€mn >= 5,0€mn e <10,0€mn >= 10,0€mn e <20,0€mn >= 20,0€mn e <50,0€mn >=50€mn 248 36 146 377 46 357 - - - - - - - - 26 3 - - - - 8 552 6 883 - - - - 8 919 2 173 7 509 5 979 4 014 170 1 566 259 748 830 667 401 084 477 539 471 926 171 493 2 447 7 548 5 979 4 014 170 1 566 414 677 883 907 401 084 477 539 471 926 171 493 169 779 8 189 574 4 949 210 025 30 330 3 093 988 205 058 11 493 587 Individuals - Mortgage loans Individuals - Other loans Corporate loans Total Number Amount Number Amount Number Amount Number Amount 31.12.2019 (in thousands of Euros) <0,5€mn 175 277 8 160 435 5 205 221 517 >= 0,5€mn e <1,0€mn >= 1,0€mn e <5,0€mn >= 5,0€mn e <10,0€mn >= 10,0€mn e <20,0€mn >= 20,0€mn e <50,0€mn >=50€mn 234 46 138 221 48 689 44 18 16 666 18 306 - - - - - - - - - - - - - - - - 5 299 2 100 6 365 651 3 267 222 1 384 020 185 781 8 765 972 238 306 697 100 323 305 303 602 518 961 70 135 2 378 6 429 651 3 267 222 1 393 193 764 095 323 305 303 602 518 961 70 135 175 557 8 347 345 5 267 256 489 17 905 2 535 429 198 729 11 139 263 The values of collateral - mortgages, presented above, represent the maximum coverage value of the covered assets, that is, that compete up to the gross value of the individual credits covered. In assessing the risk of an operation or set of operations, the elements of credit risk mitigation associated with them are taken into account, in accordance with internal rules and procedures. The relevant collaterals are essentially the following: i. Real estate, where the value considered is the correspondent to the last available valuation; ii. Financial pledges, where the value considered corresponds to the quotation on the last day of the month, in the case of being a listed security, or the value of the pledge, in the case of being cash. The acceptance of collateral as a guarantee for credit operations refers to the need to define and implement risk miti- gation techniques to which these collaterals are exposed. Thus, and as an approach to this matter, the Group stipulated a set of procedures applicable to collateral (namely financial and real estate), which cover, among others, the volatility of the collateral value, its liquidity and also an indication as to the recovery rates associated with each type of collateral. The internal rules on credit powers thus have a specific chapter on this point, "Acceptance of collateral - techniques for mitigating the risks to which collateral is exposed, namely liquidity and volatility risks". The revaluation process for real estate is performed by independent valuation experts registered in CMVM, following NOVO BANCO the methodologies as described in Note 2.10. The analysis of risk exposure by sector of activity, as at 31 December 2020 and 2019, is presented as follows: The analysis of risk exposure by sector of activity, as at 31 December 2020 and 2019, is presented as follows: 31.12.2020 (in thousands of Euros) Loans and advances to customers Gross amount 312 351 74 466 529 565 355 642 72 598 116 210 203 317 9 867 322 420 125 466 359 607 140 719 118 807 140 305 335 699 1 385 292 1 351 020 958 614 866 433 485 232 1 767 550 2 315 390 582 452 675 917 8 394 546 1 214 355 118 268 Impairment ( 10 816) ( 18 596) ( 16 540) ( 15 805) ( 3 184) ( 3 847) ( 18 887) ( 14) ( 5 174) ( 7 753) ( 12 454) ( 9 055) ( 2 996) ( 11 021) ( 19 027) ( 165 139) ( 53 925) ( 80 109) ( 53 225) ( 61 084) ( 220 722) ( 319 495) ( 26 260) ( 142 699) ( 52 861) ( 186 450) ( 69 865) Financial assets held for trading Derivatives for trading Financial assets at fair value through profit or loss -mandatory Derivatives held for risk management purposes - - - - - - - - - - - - - - - - - - - - - - 267 016 - - - - 690 - 10 113 255 - 236 27 - 1 576 - 281 349 78 - 22 809 97 763 3 741 362 67 527 163 852 8 147 9 034 - 1 471 - - - - - - - - - - - - - - - - - - - - - - 2 261 955 - 181 272 - 2 378 - - - - - - - - - - - - - - - - - - - - - - 13 606 - - - - - - - Financial assets at fair value through other comprehensive income Financial assets at amortised cost Guarantees and endorsements provided Gross amount 29 227 - - - - - - - 19 597 16 483 16 533 42 692 - - 33 978 - 41 174 182 99 577 745 465 867 95 545 6 406 747 99 878 - - 165 639 Impairment ( 13) - - - - - - - ( 13) ( 14) ( 10) ( 26) - - ( 25) - ( 27) - ( 63) ( 249) - ( 53) ( 3 095) ( 58) - - ( 14) Gross amount 19 196 18 380 73 076 1 197 - 12 512 31 483 40 135 131 643 3 441 1 498 45 059 15 039 4 987 138 950 182 619 43 686 - 11 639 1 039 119 100 777 705 450 415 192 42 264 - - - Impairment Gross amount Impairment ( 26) ( 4) ( 2 277) - - ( 49) ( 48) ( 20) ( 67) ( 4) ( 21) ( 22) ( 8) ( 35) ( 418) ( 60 754) ( 43) - ( 16) ( 2 204) ( 26 181) ( 109 627) ( 576) ( 60) - - - 12 375 7 878 50 423 9 336 2 074 6 546 3 542 1 804 18 684 18 441 42 634 64 734 12 254 18 390 100 480 884 307 199 766 61 959 376 299 133 904 213 583 386 470 23 746 142 323 35 6 584 17 349 ( 517) ( 101) ( 413) ( 4 545) ( 107) ( 32) ( 30) - ( 176) ( 365) ( 326) ( 1 126) ( 106) ( 767) ( 69) ( 41 058) ( 3 933) ( 6 338) ( 9 104) ( 1 231) ( 15 437) ( 4 216) ( 279) ( 1 109) - ( 345) ( 175) Agriculture, Forestry and Fishery Mining Food, Beverages and Tobacco Textiles and Clothing Leather and Shoes Wood and Cork Paper and Printing Industry Refining of Petroleum Chemicals and Rubber Non-metallic Minerals Metallurgical Industries and Metallic Products Production of Machinery, Equipment and Electrical De. Production of Transport Material Other Transforming Industries Electricity, Gas and Water Construction and Public Works Wholesale and Retail Trade Tourism Transport and Communication Financial Activities Real Estate Activities Services Provided to Companies Public Administration and Services Other activities of collective services Mortgage Loans Consumers Loans Others TOTAL 23 332 108 ( 1 587 003) 267 016 388 311 2 445 605 13 606 7 813 584 ( 3 660) 3 077 342 ( 202 460) 2 815 920 ( 91 905) 478 31.12.2019 (in thousands of Euros) Loans and advances to customers Impairment Financial assets held for trading Derivatives for trading Financial assets at fair value through profit or loss -mandatory Derivatives held for risk management purposes Financial assets at fair value through other comprehensive income Financial assets at amortised cost Guarantees and endorsements provided Impairment Impairment Impairment Metallurgical Industries and Metallic Products Production of Machinery, Equipment and Electrical De. Agriculture, Forestry and Fishery Mining Food, Beverages and Tobacco Textiles and Clothing Leather and Shoes Wood and Cork Paper and Printing Industry Refining of Petroleum Chemicals and Rubber Non-metallic Minerals Production of Transport Material Other Transforming Industries Electricity, Gas and Water Construction and Public Works Wholesale and Retail Trade Tourism Transport and Communication Financial Activities Real Estate Activities Services Provided to Companies Public Administration and Services Other activities of collective services Mortgage Loans Consumers Loans Others TOTAL Gross amount 359 216 83 884 505 630 301 433 57 665 91 188 200 165 9 337 326 185 125 689 405 106 130 167 98 499 140 900 433 935 1 403 603 1 344 491 892 265 1 069 908 569 697 2 090 730 2 901 234 654 481 793 487 8 524 058 1 415 192 117 370 ( 16 846) ( 12 644) ( 19 921) ( 13 746) ( 4 321) ( 3 307) ( 34 492) ( 56) ( 7 887) ( 16 239) ( 10 418) ( 6 998) ( 2 951) ( 8 094) ( 22 594) ( 233 728) ( 76 997) ( 36 761) ( 72 748) ( 66 966) ( 214 247) ( 424 259) ( 273 696) ( 58 330) ( 137 457) ( 39 516) - - - - - - - - - - - - - - - - - - - - - - - - - - 511 - 10 863 199 51 178 - - - 958 750 788 87 1 31 996 94 989 1 435 520 105 644 217 584 7 898 15 910 1 391 2 235 - - - Gross amount 31 712 109 ( 15) 5 968 9 988 ( 9) 22 640 ( 2 218) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 19 305 16 664 21 142 20 643 ( 16) ( 16) ( 18) ( 12) 54 410 ( 42) 40 450 144 134 815 695 745 35 355 314 227 7 027 687 172 519 ( 29) ( 89) ( 220) ( 19) ( 77) ( 4 476) ( 447) 163 216 ( 20) - - - - - - - - - - - - Gross amount 3 596 1 999 996 2 498 2 985 3 648 6 706 492 4 987 195 061 183 129 13 834 10 227 852 758 115 989 656 224 459 260 10 000 - - - - - - - ( 15) - ( 3) ( 1) ( 2) ( 5) - ( 6) ( 3) ( 17) ( 1) - ( 17) ( 1 002) ( 34 604) ( 9) - ( 11) ( 1 833) ( 18 081) ( 101 424) ( 704) ( 198) - - - Gross amount 12 960 8 082 56 162 9 964 1 660 6 347 4 344 5 210 25 461 17 083 40 531 60 622 10 370 26 357 78 669 891 976 243 430 70 066 386 904 310 877 233 628 464 190 24 920 130 625 33 12 490 15 255 ( 517) ( 101) ( 413) ( 4 545) ( 107) ( 32) ( 30) - ( 176) ( 365) ( 326) ( 1 126) ( 106) ( 767) ( 69) ( 43 175) ( 3 933) ( 6 338) ( 9 104) ( 1 231) ( 15 437) ( 4 216) ( 279) ( 1 110) - ( 345) ( 175) - - - - - - - - - - - - - - - - - - - - - - - ( 26 264) 254 848 7 992 2 853 130 2 751 176 565 12 278 25 045 515 ( 1 841 483) 254 848 493 988 3 044 724 7 992 8 758 131 ( 5 505) 2 552 997 ( 160 154) 3 148 216 ( 94 023) The Bank proceeds to the identification and register of restructured credit contracts due to the client's financial difficulties whenever there are changes to the terms and conditions of a contract in which the client has defaulted, that is, it is foreseeable that it will default, with a financial obligation. It is considered that there is a change to the terms and conditions of the contract when (i) there are contractual changes to the benefit of the customer, such as extending the term, introducing grace periods, reducing the rate or partial debt forgiveness; (ii) there is a contracting of a new credit operation to settle the existing debt (total or partial); or (iii) the new terms of the contract are more favourable than those applied to other customers with the same risk profile. The cancellation of a restructured credit due to the client's financial difficulties can only occur after a minimum period of two years from the date of the restructuring, provided that the following conditions are cumulatively fulfilled: (i) regular payment of capital and interest; (ii) the customer has no capital or interest due; and (iii) there were no debt restructuring mechanisms by the client in that period. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 401- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO (in thousands of Euros) The analysis of risk exposure by sector of activity, as at 31 December 2020 and 2019, is presented as follows: Loans and advances to customers Impairment Financial assets held for trading Financial assets Derivatives Derivatives at fair value held for risk for trading through profit or management loss -mandatory purposes 31.12.2020 Financial assets at fair value through other comprehensive income Gross amount 29 227 ( 13) Gross amount 312 351 74 466 529 565 355 642 72 598 116 210 203 317 9 867 322 420 125 466 359 607 140 719 118 807 140 305 335 699 1 385 292 1 351 020 958 614 866 433 485 232 1 767 550 2 315 390 582 452 675 917 8 394 546 1 214 355 118 268 ( 10 816) ( 18 596) ( 16 540) ( 15 805) ( 3 184) ( 3 847) ( 18 887) ( 14) ( 5 174) ( 7 753) ( 12 454) ( 9 055) ( 2 996) ( 11 021) ( 19 027) ( 165 139) ( 53 925) ( 80 109) ( 53 225) ( 61 084) ( 220 722) ( 319 495) ( 26 260) ( 142 699) ( 52 861) ( 186 450) ( 69 865) - - - - - - - - - - - - - - - - - - - - - - 267 016 - - - - 690 10 113 255 - - - - - 236 27 1 576 281 349 78 22 809 97 763 3 741 362 67 527 163 852 8 147 9 034 - 1 471 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2 261 955 - 181 272 - 2 378 - - - - - - - 13 606 - - - - - - - Financial assets at Guarantees and amortised cost endorsements provided Impairment Impairment Impairment Gross amount 19 196 18 380 73 076 1 197 - 12 512 31 483 40 135 131 643 3 441 1 498 45 059 15 039 4 987 138 950 182 619 43 686 - 11 639 1 039 119 100 777 705 450 415 192 42 264 - - - ( 26) ( 4) ( 2 277) - - ( 49) ( 48) ( 20) ( 67) ( 4) ( 21) ( 22) ( 8) ( 35) ( 418) ( 60 754) ( 43) - ( 16) ( 2 204) ( 26 181) ( 109 627) ( 576) ( 60) - - - Gross amount 12 375 7 878 50 423 9 336 2 074 6 546 3 542 1 804 18 684 18 441 42 634 64 734 12 254 18 390 100 480 884 307 199 766 61 959 376 299 133 904 213 583 386 470 23 746 142 323 35 6 584 17 349 - - - - - - - - - ( 13) ( 14) ( 10) ( 26) ( 25) - ( 27) - ( 63) ( 249) - ( 53) ( 3 095) ( 58) - - ( 14) ( 517) ( 101) ( 413) ( 4 545) ( 107) ( 32) ( 30) - ( 176) ( 365) ( 326) ( 1 126) ( 106) ( 767) ( 69) ( 41 058) ( 3 933) ( 6 338) ( 9 104) ( 1 231) ( 15 437) ( 4 216) ( 279) ( 1 109) - ( 345) ( 175) - - - - - - - - - 19 597 16 483 16 533 42 692 33 978 - 41 174 182 99 577 745 465 867 95 545 6 406 747 99 878 - - 165 639 Metallurgical Industries and Metallic Products Production of Machinery, Equipment and Electrical De. Agriculture, Forestry and Fishery Mining Food, Beverages and Tobacco Textiles and Clothing Leather and Shoes Wood and Cork Paper and Printing Industry Refining of Petroleum Chemicals and Rubber Non-metallic Minerals Production of Transport Material Other Transforming Industries Electricity, Gas and Water Construction and Public Works Wholesale and Retail Trade Tourism Transport and Communication Financial Activities Real Estate Activities Services Provided to Companies Public Administration and Services Other activities of collective services Mortgage Loans Consumers Loans Others TOTAL 23 332 108 ( 1 587 003) 267 016 388 311 2 445 605 13 606 7 813 584 ( 3 660) 3 077 342 ( 202 460) 2 815 920 ( 91 905) 31.12.2019 (in thousands of Euros) Loans and advances to customers Gross amount 359 216 83 884 505 630 301 433 57 665 91 188 200 165 9 337 326 185 125 689 405 106 130 167 98 499 140 900 433 935 1 403 603 1 344 491 892 265 1 069 908 569 697 2 090 730 2 901 234 654 481 793 487 8 524 058 1 415 192 117 370 Impairment ( 16 846) ( 12 644) ( 19 921) ( 13 746) ( 4 321) ( 3 307) ( 34 492) ( 56) ( 7 887) ( 16 239) ( 10 418) ( 6 998) ( 2 951) ( 8 094) ( 22 594) ( 233 728) ( 76 997) ( 36 761) ( 72 748) ( 66 966) ( 214 247) ( 424 259) ( 26 264) ( 273 696) ( 58 330) ( 137 457) ( 39 516) Financial assets held for trading Derivatives for trading Financial assets at fair value through profit or loss -mandatory Derivatives held for risk management purposes - - - - - - - - - - - - - - - - - - - - - - 254 848 - - - - 511 - 10 863 199 51 178 - - 958 - 750 788 87 1 31 996 94 989 1 435 520 105 644 217 584 7 898 15 910 1 391 2 235 - - - - - - - - - - - - - - - - - - - - - - 2 853 130 2 751 176 565 - 12 278 - - - - - - - - - - - - - - - - - - - - - - 7 992 - - - - - - - Financial assets at fair value through other comprehensive income Financial assets at amortised cost Guarantees and endorsements provided Gross amount 31 712 109 - 9 988 - - - - 19 305 16 664 21 142 20 643 - - 54 410 - 40 450 144 134 815 695 745 35 355 314 227 7 027 687 172 519 - - 163 216 Impairment Gross amount Impairment Gross amount Impairment ( 15) - - ( 9) - - - - ( 16) ( 16) ( 18) ( 12) - - ( 42) - ( 29) - ( 89) ( 220) ( 19) ( 77) ( 4 476) ( 447) - - ( 20) 5 968 - 22 640 3 596 1 999 996 2 498 - 2 985 3 648 6 706 492 - 4 987 195 061 183 129 13 834 - 10 227 852 758 115 989 656 224 459 260 10 000 - - - ( 15) - ( 2 218) ( 3) ( 1) ( 2) ( 5) - ( 6) ( 3) ( 17) ( 1) - ( 17) ( 1 002) ( 34 604) ( 9) - ( 11) ( 1 833) ( 18 081) ( 101 424) ( 704) ( 198) - - - 12 960 8 082 56 162 9 964 1 660 6 347 4 344 5 210 25 461 17 083 40 531 60 622 10 370 26 357 78 669 891 976 243 430 70 066 386 904 310 877 233 628 464 190 24 920 130 625 33 12 490 15 255 ( 517) ( 101) ( 413) ( 4 545) ( 107) ( 32) ( 30) - ( 176) ( 365) ( 326) ( 1 126) ( 106) ( 767) ( 69) ( 43 175) ( 3 933) ( 6 338) ( 9 104) ( 1 231) ( 15 437) ( 4 216) ( 279) ( 1 110) - ( 345) ( 175) Agriculture, Forestry and Fishery Mining Food, Beverages and Tobacco Textiles and Clothing Leather and Shoes Wood and Cork Paper and Printing Industry Refining of Petroleum Chemicals and Rubber Non-metallic Minerals Metallurgical Industries and Metallic Products Production of Machinery, Equipment and Electrical De. Production of Transport Material Other Transforming Industries Electricity, Gas and Water Construction and Public Works Wholesale and Retail Trade Tourism Transport and Communication Financial Activities Real Estate Activities Services Provided to Companies Public Administration and Services Other activities of collective services Mortgage Loans Consumers Loans Others TOTAL 25 045 515 ( 1 841 483) 254 848 493 988 3 044 724 7 992 8 758 131 ( 5 505) 2 552 997 ( 160 154) 3 148 216 ( 94 023) The Bank proceeds to the identification and register of restructured credit contracts due to the client's financial difficulties whenever there are changes to the terms and conditions of a contract in which the client has defaulted, that is, it is foreseeable that it will default, with a financial obligation. It is considered that there is a change to the terms and conditions of the contract when (i) there are The Bank proceeds to the identification and register of restructured credit contracts due to the client's financial diffi- contractual changes to the benefit of the customer, such as extending the term, introducing grace periods, reducing the rate or partial debt forgiveness; (ii) there is a contracting of a new credit operation to settle the existing debt (total or partial); or (iii) the new terms culties whenever there are changes to the terms and conditions of a contract in which the client has defaulted, that is, of the contract are more favourable than those applied to other customers with the same risk profile. it is foreseeable that it will default, with a financial obligation. It is considered that there is a change to the terms and conditions of the contract when (i) there are contractual changes to the benefit of the customer, such as extending the The cancellation of a restructured credit due to the client's financial difficulties can only occur after a minimum period of two years from the date of the restructuring, provided that the following conditions are cumulatively fulfilled: (i) regular payment of capital and term, introducing grace periods, reducing the rate or partial debt forgiveness; (ii) there is a contracting of a new credit interest; (ii) the customer has no capital or interest due; and (iii) there were no debt restructuring mechanisms by the client in that operation to settle the existing debt (total or partial); or (iii) the new terms of the contract are more favourable than period. those applied to other customers with the same risk profile. The cancellation of a restructured credit due to the client's financial difficulties can only occur after a minimum period of two years from the date of the restructuring, provided that the following conditions are cumulatively fulfilled: (i) regular payment of capital and interest; (ii) the customer has no capital or interest due; and (iii) there were no debt restructuring mechanisms by the client in that period. The amounts of the restructured loans due to financial difficulties of the customer as at 31 December 2020 and 2019, 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 401- are as follows: The amounts of the restructured loans due to financial difficulties of the customer as at 31 December 2020 and 2019, are as follows: NOVO BANCO Corporate Mortgage loans Consumer and other loans Total 31.12.2020 31.12.2019 (in thousands of Euros) 1 778 103 129 041 146 359 2 380 724 110 173 203 163 2 053 503 2 694 060 The details of the restructuring measures applied to restructured loans up to 31 December 2020 and 2019 are shown below: Solution Performing 31.12.2020 Non - Performing (in thousands of Euros) Total Principal or interest forgiveness Assets received in partial settlement of loan Capitalization of interest New loan in total or partial payment of existing loan Extension of repayment period Introduction of grace period of principal or interest Decrease in the interest rates Changes of the lease payment plan Changes in the interest paymen Other 479 Total No. Transaction Exposure Impairment No. Transaction Exposure Impairment No. Transaction Exposure Impairment 43 20 43 1 453 57 740 1 104 12 951 87 691 2 052 513 686 332 100 118 4 33 497 13 795 9 574 15 3 922 159 995 10 024 81 688 1 504 466 783 1 147 171 857 103 632 190 229 597 107 554 21 181 549 908 106 30 71 2 2 043 1 893 41 3 147 2 052 123 462 74 085 224 136 413 75 080 228 736 145 098 2 002 316 427 155 122 585 153 379 784 2 960 1 098 839 461 472 60 007 65 171 39 596 2 769 28 009 23 549 21 771 2 380 438 130 189 6 93 504 78 966 49 170 2 784 29 513 24 015 22 554 2 381 1 381 25 256 1 108 640 19 400 13 865 2 021 44 656 14 973 5 546 755 309 100 650 2 655 1 298 194 794 066 8 201 2 053 503 894 716 Solution Performing No. Transaction No. Transaction Total No. Transaction Exposure Impairment Exposure Impairment Exposure Impairment 31.12.2019 Non - Performing (in thousands of Euros) New loan in total or partial payment of existing loan 1 596 141 014 Principal or interest forgiveness Assets received in partial settlement of loan Capitalization of interest Extension of repayment period Introduction of grace period of principal or interest Decrease in the interest rates Changes of the lease payment plan Changes in the interest paymen Other Total Market risk 48 655 5 293 188 227 103 130 871 208 275 758 136 164 20 10 26 964 585 122 52 6 144 49 312 61 338 57 174 16 473 3 142 3 454 6 228 1 413 1 706 861 60 24 213 802 892 219 53 45 6 2 232 76 314 1 431 1 188 3 308 2 449 34 3 452 2 452 153 804 76 982 239 203 116 77 436 419 195 291 095 2 398 560 209 297 323 174 544 99 222 36 631 13 954 62 348 88 264 33 640 10 535 12 548 30 353 804 175 97 12 235 882 156 396 53 104 17 096 3 420 138 662 89 677 35 346 11 396 12 608 31 784 414 509 26 658 635 876 375 121 1 856 1 050 385 401 779 5 613 868 075 44 107 3 630 1 825 985 1 051 858 9 243 2 694 060 1 095 965 Market Risk represents the potential loss resulting from an adverse change in the value of a financial instrument due to fluctuations in interest rates, foreign exchange rates, equity prices, commodity prices, volatility and credit spread. Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and Liability Committee) structure, being this risk monitored by the Risk Committee. The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which the Value at Risk (VaR) methodology is used. NOVO BANCO Group’s VaR model uses the Monte Carlo simulation, based on a confidence level of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on an observation period of one year. As a complement to VaR, stress testing scenarios have been developed, which allow for the evaluation of the impact of losses potentially higher than those considered by the VaR measurement. Exchange risk Interest rate risk Shares and commodities Volatility Credit spread Diversification effect Total December Annual average Maximum Minimum December Annual average Maximum Minimum 31.12.2020 31.12.2019 896 14 433 183 37 2 652 ( 2 420) 15 781 2 138 35 495 192 139 5 051 ( 5 290) 6 154 70 332 378 523 12 960 ( 14 746) 735 14 433 80 37 1 640 ( 1 144) 3 688 42 292 295 314 1 771 ( 4 257) 2 173 29 133 285 470 3 537 ( 5 436) 2 315 50 203 207 78 3 401 ( 4 136) 1 141 11 305 209 189 3 705 ( 3 138) 37 725 75 601 15 781 44 103 30 162 52 068 13 411 (in thousands of Euros) 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 402- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES The amounts of the restructured loans due to financial difficulties of the customer as at 31 December 2020 and 2019, are as follows: 31.12.2020 31.12.2019 (in thousands of Euros) NOVO BANCO 1 778 103 129 041 146 359 NOVO BANCO 2 380 724 110 173 203 163 Corporate Mortgage loans Consumer and other loans Corporate Mortgage loans Consumer and other loans The amounts of the restructured loans due to financial difficulties of the customer as at 31 December 2020 and 2019, are as follows: Total The details of the restructuring measures applied to restructured loans up to 31 December 2020 and 2019 are shown below: 31.12.2020 31.12.2019 2 053 503 (in thousands of Euros) 2 694 060 The details of the restructuring measures applied to restructured loans up to 31 December 2020 and 2019 are shown below: Total Solution Performing Non - Performing No. Transaction Exposure Impairment No. Transaction Exposure 2 053 503 Impairment No. Transaction Principal or interest forgiveness 43 57 740 3 922 147 171 857 103 632 190 229 597 107 554 Assets received in partial settlement of loan The details of the restructuring measures applied to restructured loans up to 31 December 2020 and 2019 are shown below: Capitalization of interest 123 462 136 413 74 085 12 951 224 181 995 43 2 043 1 893 3 147 1 104 159 41 20 21 2 052 1 778 103 129 041 146 359 31.12.2020 (in thousands of Euros) 2 380 724 110 173 203 163 Total 2 694 060 Exposure Impairment New loan in total or partial payment of existing loan Extension of repayment period Introduction of grace period of principal or interest Solution Decrease in the interest rates Changes of the lease payment plan Principal or interest forgiveness Changes in the interest paymen Assets received in partial settlement of loan Other Capitalization of interest Total New loan in total or partial payment of existing loan Extension of repayment period Introduction of grace period of principal or interest Decrease in the interest rates Changes of the lease payment plan Changes in the interest paymen Solution Other Total Principal or interest forgiveness Assets received in partial settlement of loan Capitalization of interest 1 453 2 052 332 No. 100 Transaction 118 43 4 20 1 381 43 5 546 1 453 87 691 513 686 Performing 33 497 10 024 81 688 1 504 Exposure 13 795 466 Impairment 9 574 57 740 15 1 104 25 256 12 951 755 309 87 691 783 3 922 1 159 1 108 995 100 650 10 024 2 052 513 686 81 688 549 908 106 228 736 31.12.2020 585 153 Non - Performing 60 007 145 098 379 784 28 009 Exposure 65 171 23 549 Impairment 39 596 171 857 2 769 2 043 19 400 123 462 1 298 194 228 736 21 771 103 632 2 380 1 893 13 865 74 085 794 066 145 098 No. 30 Transaction 71 147 2 21 640 181 2 655 549 908 106 2 002 2 960 438 No. 130 Transaction 189 190 6 41 2 021 224 8 201 2 002 75 080 (in thousands of Euros) 155 122 316 427 1 098 839 Total 93 504 461 472 29 513 Exposure 78 966 24 015 Impairment 49 170 229 597 2 784 3 147 44 656 136 413 2 053 503 316 427 22 554 107 554 2 381 2 052 14 973 75 080 894 716 155 122 585 153 379 784 2 960 1 098 839 461 472 60 007 30 71 65 171 31.12.2019 39 596 2 Non - Performing 2 769 28 009 23 549 21 771 2 380 438 130 189 6 93 504 29 513 78 966 24 015 (in thousands of Euros) 49 170 Total 2 784 22 554 2 381 1 108 Impairment 100 650 5 293 640 No. Transaction 2 655 188 19 400 Exposure 1 298 194 227 103 13 865 Impairment 794 066 130 871 2 021 No. Transaction 8 201 208 44 656 Exposure 2 053 503 275 758 14 973 Impairment 894 716 136 164 332 100 118 4 1 381 No. Transaction 5 546 20 10 26 33 497 13 795 9 574 Performing 15 25 256 Exposure 755 309 48 655 144 49 312 414 509 Performing 61 338 1 504 466 783 1 3 454 6 228 26 658 1 413 New loan in total or partial payment of existing loan 1 596 141 014 Extension of repayment period Introduction of grace period of principal or interest Solution Decrease in the interest rates Changes of the lease payment plan Principal or interest forgiveness Changes in the interest paymen Assets received in partial settlement of loan Other Capitalization of interest Total New loan in total or partial payment of existing loan 964 585 No. 122 Transaction 52 20 6 10 2 232 26 5 613 1 596 Exposure 57 174 1 706 Impairment 16 473 48 655 3 142 144 76 314 49 312 868 075 141 014 861 5 293 60 3 1 431 454 44 107 6 228 No. 53 Transaction 45 188 6 24 1 188 213 3 630 802 Exposure 99 222 33 640 Impairment 36 631 227 103 13 954 3 308 62 348 153 804 1 825 985 419 195 10 535 130 871 12 548 2 449 30 353 76 982 1 051 858 291 095 24 213 802 892 3 308 2 449 153 804 76 982 419 195 31.12.2019 635 876 Non - Performing 174 544 219 291 095 375 121 88 264 34 239 2 398 1 856 804 No. 175 Transaction 97 208 12 34 3 420 239 9 243 2 398 3 452 2 452 203 116 77 436 (in thousands of Euros) 297 323 560 209 1 050 385 Total 235 882 401 779 89 677 Exposure 156 396 35 346 Impairment 53 104 275 758 17 096 3 452 138 662 203 116 2 694 060 560 209 11 396 136 164 12 608 2 452 31 784 77 436 1 095 965 297 323 964 892 26 658 414 509 375 121 635 876 1 856 1 050 385 401 779 6 97 60 53 45 12 585 861 175 219 804 3 630 1 413 1 431 3 142 1 706 1 188 2 232 5 613 99 222 13 954 61 338 57 174 76 314 62 348 30 353 16 473 53 104 36 631 88 264 156 396 235 882 174 544 868 075 Extension of repayment period Market risk 89 677 Introduction of grace period of principal or interest Market Risk represents the potential loss resulting from an adverse change in the value of a financial instrument due to fluctuations 35 346 33 640 122 Decrease in the interest rates 11 396 10 535 52 in interest rates, foreign exchange rates, equity prices, commodity prices, volatility and credit spread. Changes of the lease payment plan 12 548 6 Changes in the interest paymen Market risk 31 784 Other Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and Liability Market Risk represents the potential loss resulting from an adverse change in the value of a financial instrument due Committee) structure, being this risk monitored by the Risk Committee. 1 095 965 44 107 Total to fluctuations in interest rates, foreign exchange rates, equity prices, commodity prices, volatility and credit spread. The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which the Value at Market risk Risk (VaR) methodology is used. NOVO BANCO Group’s VaR model uses the Monte Carlo simulation, based on a confidence level Market Risk represents the potential loss resulting from an adverse change in the value of a financial instrument due to fluctuations Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on an observation period of one year. in interest rates, foreign exchange rates, equity prices, commodity prices, volatility and credit spread. Liability Committee) structure, being this risk monitored by the Risk Committee. As a complement to VaR, stress testing scenarios have been developed, which allow for the evaluation of the impact of losses potentially higher than those considered by the VaR measurement. Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and Liability The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which Committee) structure, being this risk monitored by the Risk Committee. (in thousands of Euros) the Value at Risk (VaR) methodology is used. NOVO BANCO Group’s VaR model uses the Monte Carlo simulation, based The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which the Value at on a confidence level of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on Risk (VaR) methodology is used. NOVO BANCO Group’s VaR model uses the Monte Carlo simulation, based on a confidence level of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on an observation period of one year. an observation period of one year. As a complement to VaR, stress testing scenarios have been developed, which allow 6 154 As a complement to VaR, stress testing scenarios have been developed, which allow for the evaluation of the impact of losses 70 332 for the evaluation of the impact of losses potentially higher than those considered by the VaR measurement. 378 potentially higher than those considered by the VaR measurement. 523 12 960 ( 14 746) Exchange risk Interest rate risk Shares and commodities Volatility Credit spread Diversification effect December Annual average Maximum Minimum December Annual average Maximum Minimum 1 141 11 305 209 189 3 705 ( 3 138) 896 14 433 183 37 2 652 ( 2 420) 3 688 42 292 295 314 1 771 ( 4 257) 2 173 29 133 285 470 3 537 ( 5 436) 2 138 35 495 192 139 5 051 ( 5 290) 735 14 433 80 37 1 640 ( 1 144) 2 315 50 203 207 78 3 401 ( 4 136) (in thousands of Euros) 31.12.2019 31.12.2020 1 825 985 1 051 858 2 694 060 138 662 12 608 17 096 9 243 3 420 31.12.2020 31.12.2019 Total 13 411 December Annual average Maximum Minimum December Annual average Maximum Minimum 15 781 44 103 37 725 75 601 15 781 30 162 52 068 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Exchange risk Interest rate risk Shares and commodities Volatility Credit spread Diversification effect 896 14 433 183 37 2 652 ( 2 420) 2 138 35 495 192 139 5 051 ( 5 290) 6 154 70 332 378 523 12 960 ( 14 746) 735 14 433 80 37 1 640 ( 1 144) 3 688 42 292 295 314 1 771 ( 4 257) 2 173 29 133 285 470 3 537 ( 5 436) 2 315 50 203 207 78 3 401 ( 4 136) 1 141 11 305 209 - 402- 189 3 705 ( 3 138) Total 15 781 37 725 75 601 15 781 44 103 30 162 52 068 13 411 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 402- 480 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO NOVO BANCO NOVO BANCO has a value at risk (VaR) of approximately Euro 15,781 thousand (31 December 2019: Euro 44,103 thousand) for its trading positions. The decrease is mainly explained by the lower position in derivatives to hedge NOVO BANCO has a value at risk (VaR) of approximately Euro 15,781 thousand (31 December 2019: Euro 44,103 thousand) for its interest rate risk in the banking portfolio. trading positions. The decrease is mainly explained by the increase in the position in derivatives to hedge interest rate risk in the banking portfolio. NOVO BANCO has a value at risk (VaR) of approximately Euro 15,781 thousand (31 December 2019: Euro 44,103 thousand) for its In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, trading positions. The decrease is mainly explained by the increase in the position in derivatives to hedge interest rate risk in the In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, NOVO BANCO NOVO BANCO calculates the exposure to its balance sheet interest rate risk based on the prescribed shocks, classifying banking portfolio. calculates the exposure to its balance sheet interest rate risk based on the prescribed shocks, classifying all notional amounts of all notional amounts of assets, liabilities and off-balance sheet captions which are sensitive to interest rate and are not assets, liabilities and off-balance sheet captions which are sensitive to interest rate and are not part of the trading portfolio, by re- In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, NOVO BANCO pricing intervals. part of the trading portfolio, by re-pricing intervals. calculates the exposure to its balance sheet interest rate risk based on the prescribed shocks, classifying all notional amounts of assets, liabilities and off-balance sheet captions which are sensitive to interest rate and are not part of the trading portfolio, by re- (in thousands of Euros) pricing intervals. 31.12.2020 3 to 6 months 31.12.2020 3 to 6 104 150 months 3 260 488 313 277 104 150 598 312 3 260 488 4 276 227 313 277 598 312 4 004 466 4 276 227 2 663 097 - 4 004 466 25 299 - 2 663 097 6 692 862 - 25 299 (2 416 634) - 1 543 874 6 692 862 ( 872 760) (2 416 634) (5 848 368) 1 543 874 ( 872 760) (5 848 368) 31.12.2019 3 to 6 months 31.12.2019 3 to 6 128 348 months 4 276 069 831 792 128 348 5 236 209 4 276 069 831 792 3 574 498 5 236 209 2 944 059 - - 3 574 498 6 518 557 2 944 059 - (1 282 348) - 2 558 318 6 518 557 1 275 970 (1 282 348) 2 945 451 2 558 318 1 275 970 2 945 451 Total Total Loans to and deposits with banks Loans and advances to customers Securities Loans to and deposits with banks Other assets Loans and advances to customers Securities Other assets Deposits from banks Due to customers Debt securities issued Deposits from banks Other liabilities Due to customers Debt securities issued Other liabilities Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Balance sheet GAP (Assets - Liabilities) Accumulated GAP Off-Balance sheet Structural GAP Accumulated GAP Total Total Eligible amounts Eligible 2 693 914 amounts 23 657 850 10 866 377 2 693 914 1 254 599 23 657 850 10 866 377 1 254 599 10 776 491 27 658 208 2 529 491 10 776 491 236 632 - 27 658 208 2 529 491 236 632 (2 728 081) - 17 178 (2 710 903) (2 728 081) 17 178 (2 710 903) Not sensitive Not sensitive - - - - - - - - - - - - - - - - - - Up to 3 months Up to 3 2 538 219 months 7 953 658 1 682 592 2 538 219 656 287 7 953 658 12 830 756 1 682 592 656 287 5 852 971 12 830 756 14 420 502 - 5 852 971 114 681 - 14 420 502 20 388 154 - 114 681 (7 557 399) - 2 581 791 20 388 154 (4 975 608) (7 557 399) (4 975 608) 2 581 791 (4 975 608) (4 975 608) Eligible amounts Not sensitive Up to 3 months 6 months to 1 year 1 to 5 years More than 5 (in thousands of Euros) years 6 months to 12 089 1 year 3 081 189 708 929 12 089 - 3 081 189 3 802 207 708 929 - 475 822 3 802 207 4 343 730 - 475 822 47 614 - 4 343 730 4 867 166 - 47 614 (1 064 960) - ( 118 153) 4 867 166 (1 183 113) (1 064 960) (7 031 481) ( 118 153) (1 183 113) (7 031 481) 39 456 1 to 5 years 6 809 586 4 464 016 39 456 - 6 809 586 11 313 058 4 464 016 - 217 151 11 313 058 6 190 846 - 217 151 49 037 - 6 190 846 6 457 034 - 49 037 4 856 024 - (1 800 054) 6 457 034 3 055 969 4 856 024 (3 975 512) (1 800 054) 3 055 969 (3 975 512) More than 5 - years 2 552 929 3 697 564 - - 2 552 929 6 250 493 3 697 564 - 226 081 6 250 493 40 032 2 529 491 226 081 1 - 40 032 2 795 605 2 529 491 1 3 454 888 - (2 190 279) 2 795 605 1 264 608 3 454 888 (2 710 903) (2 190 279) 1 264 608 (2 710 903) (in thousands of Euros) 6 months to 1 year 1 to 5 years More than 5 (in thousands of Euros) years Total Total Total Not 225 071 sensitive - 2 905 580 225 071 - 2 905 580 - - - - - - - - Eligible 2 167 174 amounts 23 335 801 13 971 377 2 167 174 23 335 801 13 971 377 10 537 319 27 340 955 853 987 - 10 537 319 27 340 955 853 987 (2 388 561) - 871 (2 387 690) (2 388 561) 871 (2 387 690) Loans to and deposits with banks Loans and advances to customers Securities Loans to and deposits with banks Loans and advances to customers Securities Deposits from banks Due to customers Debt securities issued Deposits from banks Due to customers Debt securities issued Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Balance sheet GAP (Assets - Liabilities) Accumulated GAP Off-Balance sheet Structural GAP Accumulated GAP More than 5 - years 1 138 669 3 693 711 - 4 832 380 1 138 669 3 693 711 56 771 4 832 380 99 014 853 987 - 56 771 1 009 772 99 014 853 987 3 822 609 - (2 858 234) 1 009 772 964 375 3 822 609 (2 387 690) (2 858 234) 964 375 (2 387 690) Sensitivity analyzes are carried out for the interest rate risk of the banking portfolio based on the current difference in the interest rate mismatch discounted at current rates and the discounted value of the same cash flows, through scenarios of displacement of the Sensitivity analyzes are carried out for the interest rate risk of the banking portfolio based on the current difference parallel yield curves ( displacements of +/- 200 bp) and non-parallel (short rate shock up / down, steepener / flattener shocks), Sensitivity analyzes are carried out for the interest rate risk of the banking portfolio based on the current difference in the interest rate in the interest rate mismatch discounted at current rates and the discounted value of the same cash flows, through according to the outliers tests defined by the EBA. mismatch discounted at current rates and the discounted value of the same cash flows, through scenarios of displacement of the scenarios of displacement of the parallel yield curves ( displacements of +/- 200 bp) and non-parallel (short rate shock parallel yield curves ( displacements of +/- 200 bp) and non-parallel (short rate shock up / down, steepener / flattener shocks), (in thousands of Euros) according to the outliers tests defined by the EBA. up / down, steepener / flattener shocks), according to the outliers tests defined by the EBA. 6 months to 5 968 1 year 2 627 939 197 390 5 968 2 831 297 2 627 939 197 390 257 221 2 831 297 4 873 671 - - 257 221 5 130 892 4 873 671 - (2 299 595) - ( 18 154) 5 130 892 (2 317 749) (2 299 595) 627 702 ( 18 154) (2 317 749) 627 702 306 702 1 to 5 years 1 740 037 3 665 492 306 702 5 712 231 1 740 037 3 665 492 2 085 803 5 712 231 5 833 381 - - 2 085 803 7 919 184 5 833 381 - (2 206 953) - (1 772 813) 7 919 184 (3 979 767) (2 206 953) (3 352 064) (1 772 813) (3 979 767) (3 352 064) Up to 3 1 501 085 months 13 553 087 2 677 412 1 501 085 17 731 584 13 553 087 2 677 412 4 563 027 17 731 584 13 590 830 - - 4 563 027 18 153 857 13 590 830 - ( 422 273) - 2 091 755 18 153 857 1 669 482 ( 422 273) 1 669 482 2 091 755 1 669 482 1 669 482 Total 31.12.2020 As at 31 December Exercise average Exercise maximum As at 31 December Exercise minimum Exercise average Exercise maximum Exercise minimum Parallel increase of 200 pb Parallel ( 119 060) increase of 101 005 200 pb 222 085 ( 119 060) ( 119 060) 101 005 222 085 ( 119 060) Parallel decrease of 200 pb Parallel 58 714 decrease of ( 14 077) 200 pb 58 714 58 714 ( 61 170) ( 14 077) 58 714 ( 61 170) Short Rate Shock Up Short Rate Shock Down 31.12.2020 Steepener shock (in thousands of Euros) Flattener shock Short Rate ( 79 332) Shock Up 112 856 237 860 ( 79 332) ( 79 332) 112 856 237 860 ( 79 332) Short Rate 51 919 Shock Down ( 17 148) 51 919 51 919 ( 87 651) ( 17 148) 51 919 ( 87 651) Steepener ( 5 075) shock ( 86 325) ( 5 075) ( 5 075) ( 177 904) ( 86 325) ( 5 075) ( 177 904) Flattener 19 167 shock 110 212 183 559 19 167 19 167 110 212 183 559 19 167 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES 481 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 403- - 403- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO (in thousands of Euros) Parallel increase of 200 pb Parallel decrease of 200 pb Short Rate Shock Up Short Rate Shock Down Steepener shock Flattener shock 31.12.2019 As at 31 December Exercise average Exercise maximum Exercise minimum ( 38 150) ( 78 271) 12 378 ( 154 349) 28 195 51 999 87 906 28 195 79 168 97 337 148 907 71 900 ( 43 701) ( 105 932) ( 18 861) ( 320 758) ( 174 784) ( 237 513) ( 174 784) ( 303 674) NOVO BANCO 103 919 124 597 157 128 103 919 (in thousands of Euros) 31.12.2019 Flattener shock Steepener shock Short Rate Shock Up Short Rate Shock Down Parallel increase of 200 pb Parallel decrease of 200 pb As at 31 December Exercise average Exercise maximum Exercise minimum As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their positions in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference ( 38 150) objective of risk management or discontinuation of hedging relationships will occur, the Bank did not record significant impacts on interest rates, which led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change ( 78 271) retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships were 12 378 the discount curve of their positions in derivative financial instruments cleared in central counterparty (CCP) from subject to the same change (hedged and hedged items). ( 154 349) EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the principle of implementation of the The following table presents the average interest rates for the Bank major financial asset and liability categories, as at 31 December aforementioned regulation, that no substantial changes to the original objective of risk management or discontinuation As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which 2020 and 2019, as well as the respective average balances and interest for the exercise: led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their positions of hedging relationships will occur, the Bank did not record significant impacts on retrospective and prospective (in thousands of Euros) in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD effectiveness, taking into account that all assets and liabilities involved in hedging relationships were subject to the SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original Average same change (hedged and hedged items). objective of risk management or discontinuation of hedging relationships will occur, the Bank did not record significant impacts on balance of the retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships were period The following table presents the average interest rates for the Bank major financial asset and liability categories, as at 31 subject to the same change (hedged and hedged items). 2 964 259 Monetary assets December 2020 and 2019, as well as the respective average balances and interest for the exercise: 23 007 206 Loans and advances to customers The following table presents the average interest rates for the Bank major financial asset and liability categories, as at 31 December 11 859 535 Securities and other 2020 and 2019, as well as the respective average balances and interest for the exercise: 37 831 000 Financial assets and differentials Average balance of the period ( 174 784) ( 237 513) ( 174 784) ( 303 674) ( 43 701) ( 105 932) ( 18 861) ( 320 758) 103 919 124 597 157 128 103 919 79 168 97 337 148 907 71 900 28 195 51 999 87 906 28 195 856 696 26 425 189 11 701 853 Interest of the period Interest of the period 16 385 567 688 155 270 17 085 517 579 168 766 Average interest rate Average interest rate 0,57% 2,22% 1,40% 1,89% 2,12% 1,31% 38 983 738 31.12.2020 31.12.2019 703 430 739 343 1,83% 1,87% (in thousands of Euros) Monetary Liabilities Due to customers Differential liabilities Financial liabilities and differentials Monetary assets Net interest income Loans and advances to customers Securities and other 10 739 033 Average 25 233 793 balance of the 965 587 period 37 831 000 2 964 259 - 23 007 206 11 859 535 31.12.2020 ( 12 781) 69 990 Interest of the 9 851 period -0,12% 0,27% 1,01% Average interest rate 135 431 17 085 567 999 517 579 168 766 0,35% 0,57% 1,48% 2,22% 1,40% 9 839 928 Average 28 489 942 balance of the 653 868 period 38 983 738 856 696 - 26 425 189 11 701 853 31.12.2019 33 056 160 138 Interest of the - period 0,33% 0,55% - Average interest rate 193 194 16 385 546 149 567 688 155 270 0,49% 1,89% 1,38% 2,12% 1,31% Financial assets and differentials With regard to exchange rate risk, the breakdown of assets and liabilities, as of December 31, 2020 and 2019, by currency, is analyzed Monetary Liabilities as follows: Due to customers Differential liabilities 0,33% 0,55% (in thousands of Euros) - 9 839 928 28 489 942 653 868 10 739 033 25 233 793 965 587 33 056 160 138 - ( 12 781) 69 990 9 851 -0,12% 0,27% 1,01% 38 983 738 37 831 000 739 343 703 430 1,83% 1,87% 31.12.2019 31.12.2020 Financial liabilities and differentials Spot Positions 37 831 000 Term positions Other elements 135 431 Net Position 0,35% Spot Positions 38 983 738 Term positions Other elements 193 194 Net interest income USD UNITED STATES DOLLAR GBP GREAT BRITISH POUND ( 752 913) ( 67 061) - 779 774 69 964 567 999 99 1,48% 26 960 ( 969 129) - 1 007 152 546 149 ( 16 381) ( 2 067) 836 3 111 3 076 6 878 Net Position 0,49% 1,38% 21 642 13 065 BRL BRAZILIAN REAL With regard to exchange rate risk, the breakdown of assets and liabilities, as of December 31, 2020 and 2019, by currency, is analyzed DKK DANISH KRONE as follows: JPY JAPANESE YEN 103 672 ( 52 218) ( 72 362) 73 444 51 454 ( 9 612) ( 1 324) 9 804 1 082 1 919 2 067 1 407 ( 148) ( 167) 192 311 83 - - - - - CHF SWISS FRANC SEK SWEDISH KRONE NOK NORWEGIAN KRONE ( 8 657) 19 523 Spot Positions 46 723 10 903 31.12.2020 - ( 19 334) - Term positions Other elements - ( 46 086) 2 246 189 Net Position 637 ( 8 182) 47 022 Spot Positions 48 444 12 981 31.12.2019 ( 47 019) - Term positions Other elements 976 ( 47 344) - (in thousands of Euros) 144 4 591 ( 208) CAD CANADIAN DOLLAR USD UNITED STATES DOLLAR ZAR SOUTH AFRICAN RAND GBP GREAT BRITISH POUND AUD AUSTRALIAN DOLLAR BRL BRAZILIAN REAL VEB VENEZUELAN BOLIVAR DKK DANISH KRONE MOP MACAO PATACA JPY JAPANESE YEN MAD MOROCCAN DIRHAN CHF SWISS FRANC MXN MEXICAN PESO SEK SWEDISH KRONE AOA ANGOLAN KWANZA NOK NORWEGIAN KRONE PLN POLISH ZLOTY CAD CANADIAN DOLLAR CZK CZECH KORUNA ZAR SOUTH AFRICAN RAND DZD ALGERIAN DINAR AUD AUSTRALIAN DOLLAR CNY YUAN REN-MIN-BI VEB VENEZUELAN BOLIVAR OTHERS MOP MACAO PATACA MAD MOROCCAN DIRHAN Note: assets / (liabilities) MXN MEXICAN PESO AOA ANGOLAN KWANZA ( 1 285) ( 752 913) ( 40) ( 67 061) 5 002 73 444 1 ( 9 612) 2 124 ( 148) ( 3 081) ( 8 657) ( 198) 19 523 8 781 46 723 28 270 ( 1 285) 9 573 ( 40) 4 447 5 002 9 419 1 ( 8 216) 2 124 ( 643 904) ( 3 081) ( 198) 8 781 3 518 779 774 ( 230) 69 964 ( 4 615) ( 72 362) - 9 804 - - 2 984 10 903 373 ( 19 334) - ( 46 086) ( 29 125) 3 518 ( 9 979) ( 230) - ( 4 615) ( 9 487) - ( 19 344) - 666 758 2 984 373 - - 99 - ( 2 067) - - - - - 2 067 - - - - - - - - - - - - - - - - 99 - - - - 2 233 26 960 ( 270) 836 387 1 082 1 192 2 124 1 919 ( 97) 2 246 175 189 8 781 637 ( 855) 2 233 ( 406) ( 270) 4 447 387 ( 68) 1 ( 27 560) 2 124 22 953 ( 97) 175 8 781 ( 855) ( 21 734) ( 969 129) 544 3 111 3 326 103 672 1 ( 1 324) 4 413 ( 167) ( 2 748) ( 8 182) ( 319) 47 022 13 053 48 444 36 782 ( 21 734) 9 218 544 7 338 3 326 9 204 1 1 305 4 413 ( 716 170) ( 2 748) ( 319) 13 053 36 782 PLN POLISH ZLOTY 28 270 ( 29 125) CZK CZECH KORUNA 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES DZD ALGERIAN DINAR ( 9 979) 4 447 4 447 9 573 ( 406) - - - 9 218 7 338 CNY YUAN REN-MIN-BI 9 419 ( 9 487) ( 8 216) ( 19 344) - - ( 68) ( 27 560) 9 204 1 305 OTHERS 482 Note: assets / (liabilities) 44 657 1 007 152 ( 491) 3 076 10 753 ( 52 218) - 1 407 - 311 2 708 12 981 608 ( 47 019) - ( 47 344) ( 5 988) 44 657 960 ( 491) - 10 753 946 - 1 616 - 934 115 2 708 608 - ( 5 988) 960 - 946 1 616 - ( 16 381) - 6 878 - - - - - - - ( 208) - - - 976 - - - - - - - - - - ( 8 735) - - - - - - - - 3 Net Position 2 076 22 923 21 642 53 13 065 14 079 51 454 1 83 4 413 144 ( 40) 4 591 289 3 13 053 2 076 30 794 22 923 10 178 53 7 338 14 079 10 150 1 2 921 4 413 209 210 ( 40) 289 13 053 30 794 10 178 - 404- 7 338 10 150 2 921 ( 643 904) 666 758 99 22 953 ( 716 170) 934 115 ( 8 735) 209 210 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 404- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOVO BANCO (in thousands of Euros) 31.12.2019 Parallel Parallel increase of decrease of 200 pb 200 pb Short Rate Short Rate Steepener Flattener Shock Up Shock Down shock shock ( 38 150) ( 78 271) 12 378 ( 154 349) 28 195 51 999 87 906 28 195 79 168 97 337 148 907 ( 43 701) ( 105 932) ( 18 861) 71 900 ( 320 758) ( 174 784) ( 237 513) ( 174 784) ( 303 674) 103 919 124 597 157 128 103 919 As at 31 December Exercise average Exercise maximum Exercise minimum As part of the application of Commission Regulation (EU) 2021/25, of 13 January 2021 - Reform of the reference interest rates, which led to the transition from EONIA to € STR, in the course of 2020, the Group proceeded to change the discount curve of their positions in derivative financial instruments cleared in central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD SOFR. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original objective of risk management or discontinuation of hedging relationships will occur, the Bank did not record significant impacts on retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in hedging relationships were subject to the same change (hedged and hedged items). The following table presents the average interest rates for the Bank major financial asset and liability categories, as at 31 December 2020 and 2019, as well as the respective average balances and interest for the exercise: 31.12.2020 31.12.2019 Interest of the period Average interest rate Average balance of the period Interest of the period Average interest rate (in thousands of Euros) Monetary assets Loans and advances to customers Securities and other Average balance of the period 2 964 259 23 007 206 11 859 535 17 085 517 579 168 766 0,57% 2,22% 1,40% 856 696 26 425 189 11 701 853 16 385 567 688 155 270 Financial assets and differentials 37 831 000 703 430 1,83% 38 983 738 739 343 Monetary Liabilities Due to customers Differential liabilities 10 739 033 25 233 793 965 587 ( 12 781) 69 990 9 851 Financial liabilities and differentials 37 831 000 135 431 Net interest income - 567 999 -0,12% 0,27% 1,01% 0,35% 1,48% 9 839 928 28 489 942 653 868 33 056 160 138 - 38 983 738 193 194 - 546 149 1,89% 2,12% 1,31% 1,87% 0,33% 0,55% - 0,49% 1,38% With regard to exchange rate risk, the breakdown of assets and liabilities, as of 31 December 2020 and 2019, by currency, is analyzed as follows: With regard to exchange rate risk, the breakdown of assets and liabilities, as of December 31, 2020 and 2019, by currency, is analyzed as follows: 31.12.2020 31.12.2019 (in thousands of Euros) Spot Positions Term positions Other elements Net Position Spot Positions Term positions Other elements Net Position 779 774 69 964 ( 72 362) 9 804 99 ( 2 067) - - - 2 067 USD UNITED STATES DOLLAR GBP GREAT BRITISH POUND ( 752 913) ( 67 061) BRL BRAZILIAN REAL DKK DANISH KRONE JPY JAPANESE YEN CHF SWISS FRANC SEK SWEDISH KRONE NOK NORWEGIAN KRONE CAD CANADIAN DOLLAR ZAR SOUTH AFRICAN RAND AUD AUSTRALIAN DOLLAR VEB VENEZUELAN BOLIVAR MOP MACAO PATACA MAD MOROCCAN DIRHAN MXN MEXICAN PESO AOA ANGOLAN KWANZA 73 444 ( 9 612) ( 148) ( 8 657) 19 523 46 723 ( 1 285) ( 40) 5 002 1 2 124 ( 3 081) ( 198) 8 781 PLN POLISH ZLOTY 28 270 CZK CZECH KORUNA DZD ALGERIAN DINAR 9 573 4 447 10 903 ( 19 334) ( 46 086) 3 518 ( 230) ( 4 615) - - 2 984 373 - ( 29 125) ( 9 979) - CNY YUAN REN-MIN-BI 9 419 ( 9 487) OTHERS ( 8 216) ( 19 344) 26 960 ( 969 129) 1 007 152 ( 16 381) 836 1 082 192 1 919 2 246 189 637 2 233 ( 270) 387 1 2 124 ( 97) 175 8 781 ( 855) ( 406) 4 447 ( 68) ( 27 560) 3 111 3 076 6 878 103 672 ( 52 218) ( 1 324) ( 167) ( 8 182) 47 022 48 444 ( 21 734) 544 3 326 1 4 413 ( 2 748) ( 319) 13 053 36 782 9 218 7 338 9 204 1 305 1 407 311 12 981 ( 47 019) ( 47 344) 44 657 ( 491) 10 753 - - 2 708 608 - ( 5 988) 960 - 946 1 616 - - - ( 208) - 976 - - - - - - - - - - - - - 21 642 13 065 51 454 83 144 4 591 3 2 076 22 923 53 14 079 1 4 413 ( 40) 289 13 053 30 794 10 178 7 338 10 150 2 921 - - - - - - - - - - - - - - - - Note: assets / (liabilities) ( 643 904) 666 758 99 22 953 ( 716 170) 934 115 ( 8 735) 209 210 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Exposure to public debt in peripheral Eurozone countries - 404- NOVO BANCO As of 31 December 2020 and 2019, the Bank's exposure to the public debt of “peripheral” countries in the Eurozone is Exposure to public debt in peripheral Eurozone countries as follows: As of 31 December 2020 and 2019, the Bank's exposure to the public debt of “peripheral” countries in the Eurozone is as follows: (in thousands of Euros) Portugal Spain Ireland Italy 31.12.2020 Loans to customers Securities held for trading Derivative Instruments (1) Securities at fair value through other comprehensive income Securities at amortized cost Total 582 452 267 016 ( 16) - - - - - - - - - 2 696 862 2 039 075 237 844 52 044 458 556 - - - 4 004 870 2 039 075 237 844 52 044 582 452 267 016 ( 16) 5 025 825 458 556 6 333 833 (1) Amounts presented by net: receivable / (payable) (in thousands of Euros) 31.12.2019 Loans to customers Securities held for trading Derivative Instruments (1) Securities at fair value through other comprehensive income Securities at amortized cost Total 618 374 35 924 - - 249 778 5 070 - - 654 298 254 848 ( 41) - - - ( 41) 3 282 077 2 181 282 227 581 118 828 458 556 - - - 4 608 744 2 222 276 227 581 118 828 5 809 768 458 556 7 177 429 Portugal Spain Ireland Italy (1) Amounts presented by net: receivable / (payable) Except for Loans and advances to customers, all the exposures presented above, except those relating to loans and advances to customers, are recorded in the Bank balance sheet at fair value, based on market quotations or, in the case derivatives, based on valuation techniques using observable market parameters / prices. 483 The detail on the exposure to securities is as follows: Securities at fair value through other comprehensive income Portugal Maturity up to 1 year Maturity over 1 year Spain Ireland Italy Maturity over 1 year Maturity over 1 year Maturity over 1 year Securities at amortized cost Portugal Maturity over 1 year Securities held for trading Portugal 31.12.2020 Nominal Quotation value Value Accrued interest Book value Impairment Fair Value Reserves (in thousands of Euros) 2 346 882 2 671 267 196 679 199 933 2 150 203 2 471 334 1 894 750 2 012 871 1 514 750 1 630 359 193 600 193 600 236 205 236 205 49 821 49 821 51 854 51 854 25 595 913 24 682 26 204 25 144 1 639 1 639 190 190 2 696 862 200 846 2 496 016 2 039 075 1 655 503 237 844 237 844 52 044 52 044 413 438 472 552 413 438 472 552 413 438 472 552 1 754 1 754 1 754 458 556 458 556 458 556 213 500 264 033 213 500 264 033 2 983 2 983 267 016 267 016 - - - - - - - - - 576 576 576 - - 125 602 600 125 002 75 509 74 029 39 340 39 340 2 561 2 561 - - - - - 4 485 053 4 972 197 53 628 5 025 825 - 243 012 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 405- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Exposure to public debt in peripheral Eurozone countries As of 31 December 2020 and 2019, the Bank's exposure to the public debt of “peripheral” countries in the Eurozone is as follows: NOVO BANCO (in thousands of Euros) 4 004 870 2 039 075 237 844 52 044 - - - (in thousands of Euros) 31.12.2020 Securities at fair Loans to Securities held Derivative value through other Securities at customers for trading Instruments (1) comprehensive amortized cost Total 582 452 267 016 ( 16) 458 556 - - - - - - - - - income 2 696 862 2 039 075 237 844 52 044 582 452 267 016 ( 16) 5 025 825 458 556 6 333 833 31.12.2019 Loans to customers Securities held for trading Derivative Instruments (1) Securities at fair value through other comprehensive income Securities at amortized cost Total 618 374 35 924 - - 249 778 5 070 - - ( 41) - - - 3 282 077 2 181 282 227 581 118 828 458 556 - - - 4 608 744 2 222 276 227 581 118 828 Portugal Spain Ireland Italy Portugal Spain Ireland Italy (1) Amounts presented by net: receivable / (payable) 654 298 7 177 429 Except for Loans and advances to customers, all the exposures presented above, except those relating to loans and (1) Amounts presented by net: receivable / (payable) advances to customers, are recorded in the Bank balance sheet at fair value, based on market quotations or, in the case Except for Loans and advances to customers, all the exposures presented above, except those relating to loans and advances to derivatives, based on valuation techniques using observable market parameters / prices. customers, are recorded in the Bank balance sheet at fair value, based on market quotations or, in the case derivatives, based on valuation techniques using observable market parameters / prices. The detail on the exposure to securities is as follows: 5 809 768 458 556 254 848 ( 41) The detail on the exposure to securities is as follows: Securities at fair value through other comprehensive income 31.12.2020 Nominal value Quotation Value Accrued interest Book value Impairment Fair Value Reserves (in thousands of Euros) Portugal Maturity up to 1 year Maturity over 1 year Spain Maturity over 1 year Ireland Maturity over 1 year Italy Maturity over 1 year Securities at amortized cost Portugal Maturity over 1 year Securities held for trading Portugal 2 346 882 196 679 2 150 203 2 671 267 199 933 2 471 334 1 894 750 1 514 750 2 012 871 1 630 359 193 600 193 600 236 205 236 205 49 821 49 821 51 854 51 854 25 595 913 24 682 26 204 25 144 1 639 1 639 190 190 2 696 862 200 846 2 496 016 2 039 075 1 655 503 237 844 237 844 52 044 52 044 - - - - - - - - - 125 602 600 125 002 75 509 74 029 39 340 39 340 2 561 2 561 4 485 053 4 972 197 53 628 5 025 825 - 243 012 413 438 413 438 472 552 472 552 413 438 472 552 1 754 1 754 1 754 458 556 458 556 458 556 213 500 264 033 213 500 264 033 2 983 2 983 267 016 267 016 576 576 576 - - - - - - NOVO BANCO - 31.12.2019 Nominal value Quotation Value Accrued interest Book value Impairment Fair Value Reserves (in thousands of Euros) 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES Securities at fair value through other comprehensive income Portugal Maturity up to 1 year Maturity over 1 year Spain Maturidade até 1 ano Maturity over 1 year Ireland Maturity over 1 year Italy Maturity over 1 year Securities at amortized cost Portugal Maturity over 1 year Securities held for trading Portugal Spain 2 762 168 369 2 761 799 1 894 750 380 000 1 514 750 200 000 200 000 115 606 115 606 3 246 711 377 3 246 334 2 012 871 382 512 1 630 359 225 855 225 855 118 261 118 261 35 366 10 35 356 26 204 1 060 25 144 1 726 1 726 567 567 3 282 077 387 3 281 690 2 039 075 383 572 1 655 503 227 581 227 581 118 828 118 828 - 405- 156 907 1 156 906 75 509 1 480 74 029 22 419 22 419 2 816 2 816 - - - - - - - - - - 4 972 524 5 603 698 63 863 5 667 561 - 257 651 457 230 457 230 526 916 526 916 457 230 526 916 202 280 5 000 245 105 5 065 207 280 250 170 2 030 2 030 2 030 4 673 5 4 678 458 556 458 556 458 556 249 778 5 070 254 848 704 704 704 - - - - - - - - - Liquidity risk Liquidity risk is the current or future risk that arises from an institution's inability to meet its liabilities as they mature, without incurring substantial losses. Liquidity risk can be divided into two types: • 484 • Liquidity of assets (market liquidity risk) - consists in the impossibility of selling a certain type of asset due to the lack of liquidity in the market, which translates into the widening of the bid / offer spread or the application of a haircut to the market value; Financing (funding liquidity risk) - consists of the impossibility of financing the assets in the market and / or refinancing the debt that is maturing, in the terms and in the desired currency. This impossibility can be reflected through a strong increase in the cost of financing or the requirement for collateral to obtain funds. The difficulty of (re) financing can lead to the sale of assets, even if incurring significant losses. The risk of (re) financing must be minimized through an adequate diversification of funding sources and maturity terms. Banks are subject to liquidity risk due to their maturity transformation business (long-term lenders and short-term depositors), so prudent liquidity risk management is therefore crucial. As at 31 December 2020, the value of the asset portfolio eligible as collateral for rediscounting operations with the ECB, after haircuts, amounted to Euro 16.6 billion (31 December 2019: Euro 15.2 billion). This amount includes all the exposure to Portuguese sovereign debt, in the total amount of approximately Euro 2.4 billion. During 2020, gross financing from the ECB increased by 910 million euros to a total of 7.0 billion euros. 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 406- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE Liquidity risk Liquidity risk is the current or future risk that arises from an institution's inability to meet its liabilities as they mature, without incurring substantial losses. Liquidity risk can be divided into two types: • Liquidity of assets (market liquidity risk) - consists in the impossibility of selling a certain type of asset due to the lack of liquidity in the market, which translates into the widening of the bid / offer spread or the application of a haircut to the market value; • Financing (funding liquidity risk) - consists of the impossibility of financing the assets in the market and / or refinancing the debt that is maturing, in the terms and in the desired currency. This impossibility can be reflected through a strong increase in the cost of financing or the requirement for collateral to obtain funds. The difficulty of (re) financing can lead to the sale of assets, even if incurring significant losses. The risk of (re) financing must be minimized through an adequate diversification of funding sources and maturity terms. Banks are subject to liquidity risk due to their maturity transformation business (long-term lenders and short-term depositors), so prudent liquidity risk management is therefore crucial. As at 31 December 2020, the value of the asset portfolio eligible as collateral for rediscounting operations with the ECB, after haircuts, amounted to Euro 16.6 billion (31 December 2019: Euro 15.2 billion). This amount includes all the exposure to Portuguese sovereign debt, in the total amount of approximately Euro 2.4 billion. During 2020, gross financing from the ECB increased by 910 million euros to a total of 7.0 billion euros. NOVO BANCO The liquidity of NOVO BANCO is managed in a centralized manner, in the Headquarters, for the prudential consolida- tion perimeter, and the analysis and decision making made based on the mismatch reports, which allow, not only to The liquidity of NOVO BANCO is managed in a centralized manner, in the Headquarters, for the prudential consolidation perimeter, identify negative mismatches but also to make a dynamic hedging of those mismatches. As at 31 December 2020 and and the analysis and decision making made based on the mismatch reports, which allow, not only to identify negative mismatches but also to make a dynamic hedging of those mismatches. As at 31 December 2020 and 2019, the calculation of the liquid contractual 2019, the calculation of the liquid contractual deficit and the counterbalancing capacity was performed following the deficit and the counterbalancing capacity was performed following the ITS (Implementing Technical Standards) rules: ITS (Implementing Technical Standards) rules: 31.12.2020 (in thousands of Euros) Total until 7 days from 7 days to 1 month from 1 to 3 months from 3 to 6 months from 6m to 1 year higher than1 year OUTPUTS Liabilities arising from securities issued (if not treated as retail deposits) 105 505 - - - - - 105 505 Liabilities arising from secured loan operations and capital market operations 9 161 995 68 874 106 104 53 504 150 000 264 458 8 519 055 Behavioral exits resulting from deposits 30 099 947 417 595 353 268 311 225 236 880 583 946 28 197 033 Foreign exchange swaps and derivatives 581 986 110 144 144 781 240 424 32 623 34 865 19 149 Other outputs Total Exits Entries 550 075 - - 140 000 11 515 - 398 560 40 499 508 596 613 604 153 745 153 431 018 883 269 37 239 302 Guaranteed loan operations and operations associated with the capital market 203 306 60 917 - - - - 142 389 Behavioral inflows resulting from loans and advances 26 224 556 73 798 54 002 190 749 320 731 438 685 25 146 591 Foreign exchange swaps and derivatives 854 599 103 393 145 076 243 899 48 523 71 288 242 420 Own portfolio securities to mature and Other entries 13 514 774 103 580 154 527 376 513 966 521 898 664 11 014 969 Total Entries Net contractual deficit 40 797 235 341 688 353 605 811 161 1 335 775 1 408 637 36 546 369 297 727 ( 254 925) ( 250 548) 66 009 904 756 525 368 ( 692 933) Accumulated net contractual deficit - ( 254 925) ( 505 473) ( 439 464) 465 292 990 660 297 727 REBALANCE CAPACITY Coins and banknotes Central bank mobilisable reserves Initial stock until 7 days from 7 days to 1 month from 1 to 3 months from 3 to 6 months from 6m to 1 year higher than1 year 142 325 2 030 915 (2 030 915) Marketable and non-marketable assets eligible for central banks 7 945 203 67 249 106 994 ( 123 762) ( 60 112) ( 587 185) (7 208 003) Authorized and unused facilities received Net change in rebalancing capacity Accumulated rebalancing capacity - - ( 29 275) ( 55 212) ( 199 759) ( 350 461) ( 288 680) 923 388 (1 992 941) 51 782 ( 323 521) ( 410 573) ( 875 865) (6 284 615) 10 118 443 8 125 502 8 177 284 7 853 763 7 443 190 6 567 325 282 710 485 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 407- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO (in thousands of Euros) Total until 7 days from 7 days to 1 month from 1 to 3 months from 3 to 6 months from 6m to 1 year higher than1 year 31.12.2019 OUTPUTS Liabilities arising from securities issued (if not treated as retail deposits) 105 205 2 247 4 593 - - Liabilities arising from secured loan operations and capital market operations 8 572 412 182 428 1 064 096 1 334 720 3 210 000 - - 98 365 2 781 168 Behavioral exits resulting from deposits 30 111 569 428 386 270 729 400 119 537 653 757 841 27 716 841 Foreign exchange swaps and derivatives 543 939 9 073 52 238 360 513 46 635 43 769 31 711 Other outputs Total Exits Entries 409 894 - - - 11 515 - 398 379 39 743 019 622 134 1 391 656 2 095 352 3 805 803 801 610 31 026 464 Guaranteed loan operations and operations associated with the capital market - - - - - - - Behavioral inflows resulting from loans and advances 24 623 962 63 027 19 154 60 921 137 110 81 718 24 262 032 Foreign exchange swaps and derivatives 830 346 8 506 48 384 364 078 79 998 62 890 266 490 Own portfolio securities to mature and Other entries 13 171 465 70 687 73 279 43 601 1 254 462 203 771 11 525 665 Total Entries Net contractual deficit 38 625 773 142 220 140 817 468 600 1 471 570 348 379 36 054 187 (1 117 245) ( 479 914) (1 250 839) (1 626 752) (2 334 233) ( 453 231) 5 027 724 Accumulated net contractual deficit - ( 479 914) (1 730 753) (3 357 505) (5 691 738) (6 144 969) (1 117 245) REBALANCE CAPACITY Coins and banknotes Central bank mobilisable reserves Initial stock until 7 days from 7 days to 1 month from 1 to 3 months from 3 to 6 months from 6m to 1 year higher than1 year 174 156 1 141 351 (1 141 351) Marketable and non-marketable assets eligible for central banks 7 670 900 182 063 1 117 471 78 479 ( 22 239) ( 201 402) (8 704 695) Authorized and unused facilities received Net change in rebalancing capacity Accumulated rebalancing capacity - - ( 39 646) ( 79 970) ( 227 545) 1 655 230 ( 167 165) (1 140 903) ( 998 934) 1 037 501 ( 149 066) 1 632 991 ( 368 567) (9 845 598) 8 986 407 7 987 473 9 024 974 8 875 908 10 508 899 10 140 332 294 734 In order to anticipate possible negative impacts, internal liquidity stress scenarios representative of the types of crisis that may occur are carried out, based on idiosyncratic scenarios (characterized by a loss of confidence in the Bank), and market scenarios. In order to anticipate possible negative impacts, internal liquidity stress scenarios representative of the types of crisis In addition, and given the importance of liquidity risk management, the regulatory legislation includes a liquidity coverage ratio that may occur are carried out, based on idiosyncratic scenarios (characterized by a loss of confidence in the Bank), (Liquidity Coverage Ratio - LCR) and a stable financing ratio (Net Stable Funding Ratio - NSFR). The LCR aims to promote banks' and market scenarios. resilience to short-term liquidity risk, ensuring that they hold high-quality liquid assets, sufficient to survive a severe stress scenario, for a period of 30 days, while the NSFR aims to ensure that Banks maintain stable financing for their assets and off-balance sheet In addition, and given the importance of liquidity risk management, the regulatory legislation includes a liquidity cover- operations, for a period of one year. age ratio (Liquidity Coverage Ratio - LCR) and a stable financing ratio (Net Stable Funding Ratio - NSFR). The LCR aims In accordance with current regulatory legislation, the Bank is obliged to comply with a minimum limit of 100% in the LCR. The Bank to promote banks' resilience to short-term liquidity risk, ensuring that they hold high-quality liquid assets, sufficient continues to follow regulatory changes in order to comply with all obligations, namely the implementation of the NSFR and the to survive a severe stress scenario, for a period of 30 days, while the NSFR aims to ensure that Banks maintain stable respective limit. financing for their assets and off-balance sheet operations, for a period of one year. Operational risk In accordance with current regulatory legislation, the Bank is obliged to comply with a minimum limit of 100% in the Operational risk generally translates into the probability of the occurrence of events with negative impacts, in the results or in the LCR. The Bank continues to follow regulatory changes in order to comply with all obligations, namely the implemen- capital, resulting from the inadequacy or deficiency of procedures and information systems, the behavior of people or motivated by external events, including legal risks. Thus, operational risk is understood as the calculation of the following risks: operational, tation of the NSFR and the respective limit. information systems, compliance and reputation. For the management of operational risk, a system was developed and implemented to ensure the uniformity, systematization and Operational risk recurrence of the activities for the identification, monitoring, control and mitigation of this risk. This system is supported by an organizational structure, integrated in the Global Risk Department exclusively dedicated to this task, as well as by Operational Risk Operational risk generally translates into the probability of the occurrence of events with negative impacts, in the results Management Representatives designated by each of the departments, branches and subsidiaries considered relevant, which are or in the capital, resulting from the inadequacy or deficiency of procedures and information systems, the behavior of responsible for complying with the procedures. and the day-to-day management of this Risk in its areas of competence. people or motivated by external events, including legal risks. Thus, operational risk is understood as the calculation of Capital Management and Solvency Ratio the following risks: operational, information systems, compliance and reputation. The main objective of the Bank’s capital management is to ensure compliance with the Bank’s strategic objectives in terms of capital adequacy, respecting and enforcing the requirements for calculating risk-weighted assets and own funds and ensuring compliance For the management of operational risk, a system was developed and implemented to ensure the uniformity, sys- with the levels of solvency and leverage defined by the supervisory entities, in particular by the European Central Bank (ECB) – the entity directly responsible for the supervision of the Bank - and by the Bank of Portugal, and internally stipulated risk appetite for tematization and recurrence of the activities for the identification, monitoring, control and mitigation of this risk. This capital metrics. system is supported by an organizational structure, integrated in the Global Risk Department exclusively dedicated to this task, as well as by Operational Risk Management Representatives designated by each of the departments, branches 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 408- 486 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE and subsidiaries considered relevant, which are responsible for complying with the procedures. and the day-to-day management of this Risk in its areas of competence. Capital Management and Solvency Ratio The main objective of the Bank’s capital management is to ensure compliance with the Bank’s strategic objectives in terms of capital adequacy, respecting and enforcing the requirements for calculating risk-weighted assets and own funds and ensuring compliance with the levels of solvency and leverage defined by the supervisory entities, in particular by the European Central Bank (ECB) – the entity directly responsible for the supervision of the Bank - and by the Bank of Portugal, and internally stipulated risk appetite for capital metrics. The definition of the strategy for capital adequacy management rests with the Executive Board of Directors and is integrated in the global definition of the Bank objectives. The capital ratios of NOVO BANCO are calculated based on the rules defined in Directive 2013/36/EU and Regulation (EU) no. 575/2013 (CRR) that define the criteria for the access to the credit institution and investment company activity and determine the prudential requirements to be observed by those same entities, in particular to the calculation of the ratios mentioned above. The Bank is authorised to apply the Internal Ratings-Based Approach (IRB) for the calculation of risk weighted assets by credit risk. In particular, the IRB method is applied to the exposure classes of institutions, corporate and retail of NOVO BANCO. The equity’ risk classes, the positions taken in the form of securitization, the positions taken in the form of participation units in investment funds, and the elements that are not credit obligations are always handled by the IRB method regardless of the Bank entities in which the respective exposures are recorded. The standard method is used in the determination of risk weighted assets by market and operational risks. The regulatory capital components considered in the determination of solvency ratios are divided into own funds of level 1 (common equity Tier I or CET I), additional own funds of level 1 (additional Tier I) which combined with the CET I constitute the own funds of level I (Tier I), and own funds of level 2 (or Tier II) which added to the Tier I represent the total own funds. The total own funds of NOVO BANCO are composed by elements of CET I and Tier II. The following table presents a summary of NOVO BANCO's own funds, risk-weighted assets and capital ratios for 31 December 2020 and 2019: 487 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESNOVO BANCO The definition of the strategy for capital adequacy management rests with the Executive Board of Directors and is integrated in the global definition of the Bank objectives. The capital ratios of NOVO BANCO are calculated based on the rules defined in Directive 2013/36/EU and Regulation (EU) no. 575/2013 (CRR) that define the criteria for the access to the credit institution and investment company activity and determine the prudential requirements to be observed by those same entities, in particular to the calculation of the ratios mentioned above. The Bank is authorised to apply the Internal Ratings-Based Approach (IRB) for the calculation of risk weighted assets by credit risk. In particular, the IRB method is applied to the exposure classes of institutions, corporate and retail of NOVO BANCO. The equity’ risk classes, the positions taken in the form of securitization, the positions taken in the form of participation units in investment funds, and the elements that are not credit obligations are always handled by the IRB method regardless of the Bank entities in which the respective exposures are recorded. The standard method is used in the determination of risk weighted assets by market and operational risks. The regulatory capital components considered in the determination of solvency ratios are divided into own funds of level 1 (common equity Tier I or CET I), additional own funds of level 1 (additional Tier I) which combined with the CET I constitute the own funds of level I (Tier I), and own funds of level 2 (or Tier II) which added to the Tier I represent the total own funds. The total own funds of NOVO BANCO are composed by elements of CET I and Tier II. The following table presents a summary of NOVO BANCO's own funds, risk-weighted assets and capital ratios for 31 December 2020 and 2019: 31.12.2020 (1) 31.12.2019 (million euros) Realised ordinary share capital, issue premiums and own shares Reserves and Retained earnings Net income for the year attributable to shareholders of the Bank A - Equity (prudential perspective) Adjustments of additional valuation Transitional period to IFRS9 Goodwill and other intangibles Insufficiency of provisions given the expected losses Deferred tax assets and shareholdings in financial companies Others B - Regulatory adjustments to equity C - Own principal funds level 1 - CET I (A+B) D - Additional own funds Level 1 - Additional Tier 1 E - Level 1 own funds - Tier I (C+D) Subordinated liabilities elegeible for Tier II Other elements elegible for Tier II Regulatory adjustments for Tier II F - Level 2 own funds - Tier II G - Eligible own funds (E+F) Credit risk Market risk Operational risk H - Risk Weighted Assets Solvability ratio CET I ratio Tier I ratio Solvability ratio Leverage ratio(2) 5 900 ( 1 773) ( 1 374) 2 753 ( 12) 349 ( 48) ( 60) ( 87) ( 279) ( 138) 5 900 ( 1 166) ( 1 088) 3 646 ( 13) 220 ( 26) ( 88) ( 12) ( 67) 13 2 616 3 659 - - 2 616 3 659 399 115 - 514 398 127 ( 70) 455 3 129 4 115 24 246 1 277 1 539 27 063 9,7% 9,7% 11,6% 5,6% 26 738 1 851 1 341 29 930 12,2% 12,2% 13,7% 7,7% (C/H) (E/H) (G/H) (1) Preliminary. The accounts contain an aggregate provision of 166 million euros in relation to the discontinuation of Spanish operations. As there is a potential for dispute between the parties and therefore potential barrier to immediate access of this amount, the Bank, as a matter of prudence, has deducted this amount from regulatory capital calculation. (2) The leverage ratio results from dividing Tier 1 for the exposure measure in accordance to the terms of the CRR NOTE 39 – Rendering of insurance and re-insurance brokering services 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES NOVO BANCO - 409- At 31 December 2020 and 2019, services provided with insurance and re-insurance brokerage have the following NOTE 39 – RENDERING OF INSURANCE AND RE-INSURANCE BROKERING SERVICES composition: At 31 December 2020 and 2019, services provided with insurance and re-insurance brokerage have the following composition: Life Branch Unit Link and other life commissions Credit protection insurance (life insurance) Traditional products Non-Life Branch Private insurance Corporate Insurance Credit protection insurance (non-life part) Note: the yields shown are net of periodization (thousands of euros) 31.12.2020 31.12.2019 1 832 655 15 176 17 663 6 677 193 905 7 775 25 438 707 1 241 17 936 19 884 7 459 ( 38) 1 639 9 060 28 944 The Bank does not collect insurance premiums on behalf of the Insurance companies, nor does it undertake the movement of funds relating to insurance contracts. In this manner, there are no other assets, liabilities, income or expenses to report, relating to the insurance brokering activity carried out by the Bank, other than those already disclosed. 488 NOTE 40 – RELEVANT TRANSACTIONS OCCURRED IN THE FINANCIAL YEARS OF 2020 AND 2019 Sale of a portfolio of non-performing loans (called the Carter Project) On 23 December 2020, NOVO BANCO entered into a purchase and sale agreement for a portfolio of non-performing loans (non- performing loans) and related assets (together, the Carter Project), with a net book value of 37.0 million euros (gross amount of 82.8 million euros), to a company owned by affiliated companies and advised by AGG Capital Management Limited and Christofferson, Robb & Company, LLC. The impact of this operation on the net income for the year 2020 was reflected in a gain of 2.3 million euros. Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Impairment net of reversals of financial assets not designated at fair value through profit or loss Sale of Non-Performing Loans portfolio (Project Nata II) In the last quarter of 2019, NOVO BANCO and Fundo Arrábida signed a Purchase and Sale Agreement with Burlington Loan Management DAC, a company affiliated and advised by Davidson Kempner European Partners, Llp, for the sale of a portfolio of overdue loans and exposures related (NATA II Project). The impact of this operation on the balance sheet resulted in a reduction of Financial year 2020 Impact on Income Statement Impact on Net Income 2019 Exercise net assets of -83.5 million euros. Impact on Income Statement Net interest income Other operational income Provisions or reversal of provisions Impact on Net Income Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Impairment net of reversals of financial assets not designated at fair value through profit or loss Sale of a portfolio of real estate assets (called Project Sertorius) In August 2019, the Bank signed a promissory purchase and sale agreement with entities indirectly held by funds managed by Cerberus Capital Management, LP, a New York-based company, for the sale of a portfolio of real estate assets called Project Sertorius. The impact of this operation on the net profit for the financial year 2019 resulted in a loss of Euro -137.4 million. (in thousands of Euros) 31.12.2020 3 310 -983 2 327 (in thousands of Euros) 31.12.2019 69 -3 734 1 964 -82 374 611 -83 464 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 410- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE NOTE 39 – RENDERING OF INSURANCE AND RE-INSURANCE BROKERING SERVICES At 31 December 2020 and 2019, services provided with insurance and re-insurance brokerage have the following composition: (thousands of euros) 31.12.2020 31.12.2019 Life Branch NOVO BANCO Unit Link and other life commissions Credit protection insurance (life insurance) Traditional products 707 1 241 The Bank does not collect insurance premiums on behalf of the Insurance companies, nor does it undertake the move- 17 936 ment of funds relating to insurance contracts. In this manner, there are no other assets, liabilities, income or expenses 19 884 to report, relating to the insurance brokering activity carried out by the Bank, other than those already disclosed. 1 832 655 15 176 17 663 Non-Life Branch Private insurance Corporate Insurance Credit protection insurance (non-life part) 6 677 193 905 7 775 7 459 ( 38) 1 639 9 060 NOTE 40 – Relevant transactions occurred in the financial years of 2020 and 2019 Note: the yields shown are net of periodization 25 438 28 944 The Bank does not collect insurance premiums on behalf of the Insurance companies, nor does it undertake the movement of funds relating to insurance contracts. In this manner, there are no other assets, liabilities, income or expenses to report, relating to the Financial year 2020 insurance brokering activity carried out by the Bank, other than those already disclosed. Sale of a portfolio of non-performing loans (called the Carter Project) NOTE 40 – RELEVANT TRANSACTIONS OCCURRED IN THE FINANCIAL YEARS OF 2020 AND 2019 On 23 December 2020, NOVO BANCO entered into a purchase and sale agreement for a portfolio of non-performing Financial year 2020 loans (non-performing loans) and related assets (together, the Carter Project), with a net book value of 37.0 million euros (gross amount of 82.8 million euros), to a company owned by affiliated companies and advised by AGG Capital Sale of a portfolio of non-performing loans (called the Carter Project) On 23 December 2020, NOVO BANCO entered into a purchase and sale agreement for a portfolio of non-performing loans (non- Management Limited and Christofferson, Robb & Company, LLC. The impact of this operation on the net income for performing loans) and related assets (together, the Carter Project), with a net book value of 37.0 million euros (gross amount of 82.8 the year 2020 was reflected in a gain of 2.3 million euros. million euros), to a company owned by affiliated companies and advised by AGG Capital Management Limited and Christofferson, Robb & Company, LLC. The impact of this operation on the net income for the year 2020 was reflected in a gain of 2.3 million euros. Impact on Income Statement Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Impairment net of reversals of financial assets not designated at fair value through profit or loss Impact on Net Income 2019 Exercise (in thousands of Euros) 31.12.2020 3 310 -983 2 327 Sale of Non-Performing Loans portfolio (Project Nata II) Financial year 2019 In the last quarter of 2019, NOVO BANCO and Fundo Arrábida signed a Purchase and Sale Agreement with Burlington Loan Management DAC, a company affiliated and advised by Davidson Kempner European Partners, Llp, for the sale of a portfolio of Sale of Non-Performing Loans portfolio (Project Nata II) overdue loans and exposures related (NATA II Project). The impact of this operation on the balance sheet resulted in a reduction of In the last quarter of 2019, NOVO BANCO and Fundo Arrábida signed a Purchase and Sale Agreement with Burlington net assets of -83.5 million euros. Loan Management DAC, a company affiliated and advised by Davidson Kempner European Partners, Llp, for the sale (in thousands of Euros) Impact on Income Statement of a portfolio of overdue loans and exposures related (NATA II Project). The impact of this operation on the net profit resulted in a loss of -84.0 million euros. Net interest income 31.12.2019 69 Other operational income Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Impairment net of reversals of financial assets not designated at fair value through profit or loss Impact on Income Statement Provisions or reversal of provisions Net interest income Impact on Net Income Other operational income Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Sale of a portfolio of real estate assets (called Project Sertorius) Impairment net of reversals of financial assets not designated at fair value through profit or loss Provisions or reversal of provisions In August 2019, the Bank signed a promissory purchase and sale agreement with entities indirectly held by funds managed by Cerberus Capital Management, LP, a New York-based company, for the sale of a portfolio of real estate assets called Project Impact on Net Income Sertorius. The impact of this operation on the net profit for the financial year 2019 resulted in a loss of Euro -137.4 million. -3 734 (in thousands of Euros) 1 964 -82 374 611 69 -83 464 -3 734 1 720 -82 374 611 31.12.2019 -83 950 Sale of a portfolio of real estate assets (called Project Sertorius) 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 410- In August 2019, the Bank signed a promissory purchase and sale agreement with entities indirectly held by funds managed by Cerberus Capital Management, LP, a New York-based company, for the sale of a portfolio of real estate assets called Project Sertorius. The impact of this operation on the net profit for the financial year 2019 resulted in a loss of Euro -137.4 million. 489 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES Impacto na Demonstração dos resultados Imparidades ou reversão de imparidades de ativos não financeiros NOVO BANCO (milhares de euros) 31.12.2019 NOVO BANCO -137 434 Impacto no Resultado líquido -137 434 (milhares de euros) NOVO BANCO 31.12.2019 Impacto na Demonstração dos resultados Sale of a portfolio of non-performing loans and real estate assets (referred to as Project Albatros): In August 2019, the Bank, through its Spanish Branch and Novo Banco Servicios Corporativos, S.L entered into a purchase and sale -137 434 Imparidades ou reversão de imparidades de ativos não financeiros agreement with Waterfall Asset Management LLC, an asset management company based in New York, for the sale of a portfolio of (milhares de euros) real estate assets and non-performing loans, designated Project Albatros. The impact of this operation on the income statement -137 434 Impacto no Resultado líquido Sale of a portfolio of non-performing loans and real estate assets (referred to as Project Albatros): resulted in a reduction of net assets of -33.3 million euros. Impacto na Demonstração dos resultados In August 2019, the Bank, through its Spanish Branch and Novo Banco Servicios Corporativos, S.L entered into a pur- Sale of a portfolio of non-performing loans and real estate assets (referred to as Project Albatros): Imparidades ou reversão de imparidades de ativos não financeiros -137 434 chase and sale agreement with Waterfall Asset Management LLC, an asset management company based in New York, (in thousands of Euros) In August 2019, the Bank, through its Spanish Branch and Novo Banco Servicios Corporativos, S.L entered into a purchase and sale Impact on Income Statement agreement with Waterfall Asset Management LLC, an asset management company based in New York, for the sale of a portfolio of Impacto no Resultado líquido -137 434 for the sale of a portfolio of real estate assets and non-performing loans, designated Project Albatros. The impact of real estate assets and non-performing loans, designated Project Albatros. The impact of this operation on the income statement this operation on the income statement resulted in a loss of -33.3 million euros. Results from the sale of financial assets and liabilities not designated at fair value through profit or loss -7 443 resulted in a reduction of net assets of -33.3 million euros. Sale of a portfolio of non-performing loans and real estate assets (referred to as Project Albatros): Impairment net of reversals of financial assets not designated at fair value through profit or loss In August 2019, the Bank, through its Spanish Branch and Novo Banco Servicios Corporativos, S.L entered into a purchase and sale (in thousands of Euros) -7 543 Impairment on other assets net of reversals agreement with Waterfall Asset Management LLC, an asset management company based in New York, for the sale of a portfolio of Impact on Income Statement real estate assets and non-performing loans, designated Project Albatros. The impact of this operation on the income statement 35 200 Provisions or reversal of provisions resulted in a reduction of net assets of -33.3 million euros. Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Impact on Net Income Impairment net of reversals of financial assets not designated at fair value through profit or loss 31.12.2019 31.12.2019 31.12.2019 -53 544 -7 443 -33 330 -53 544 (in thousands of Euros) -7 543 -7 543 35 200 -52 000 35 200 -7 443 -53 544 -33 330 31.12.2019 31.12.2019 31.12.2019 (in thousands of Euros) -52 000 Impairment on other assets net of reversals Impact on Income Statement Sale of GNB Vida Provisions or reversal of provisions Results from the sale of financial assets and liabilities not designated at fair value through profit or loss Following the contract for the purchase and sale of the entire share capital of GNB Vida, entered into with Bankers Insurance Holdings, Impairment net of reversals of financial assets not designated at fair value through profit or loss SA, a company of the Global Bankers Insurance Group, LLC, on September 12, 2018, the Bank proceeded to derecognize this Impact on Net Income investment in September 2019, after obtaining the necessary regulatory authorizations. The impact of this operation on the income Impairment on other assets net of reversals statement resulted in a reduction of net income of -52.0 million euros. Provisions or reversal of provisions Sale of GNB Vida (in thousands of Euros) Following the contract for the purchase and sale of the entire share capital of GNB Vida, entered into with Bankers Insurance Holdings, Impact on Net Income -33 330 SA, a company of the Global Bankers Insurance Group, LLC, on September 12, 2018, the Bank proceeded to derecognize this Impact on Income Statement Sale of GNB Vida investment in September 2019, after obtaining the necessary regulatory authorizations. The impact of this operation on the income Following the contract for the purchase and sale of the entire share capital of GNB Vida, entered into with Bankers statement resulted in a reduction of net income of -52.0 million euros. -52 000 Impairment on other assets net of reversals Sale of GNB Vida Insurance Holdings, SA, a company of the Global Bankers Insurance Group, LLC, on September 12, 2018, the Bank Following the contract for the purchase and sale of the entire share capital of GNB Vida, entered into with Bankers Insurance Holdings, -52 000 Impact on Net Income (in thousands of Euros) SA, a company of the Global Bankers Insurance Group, LLC, on September 12, 2018, the Bank proceeded to derecognize this proceeded to derecognize this investment in September 2019, after obtaining the necessary regulatory authorizations. Impact on Income Statement investment in September 2019, after obtaining the necessary regulatory authorizations. The impact of this operation on the income The impact of this operation on the income statement resulted in a reduction of net income of -52.0 million euros. statement resulted in a reduction of net income of -52.0 million euros. Impairment on other assets net of reversals NOTE 41 – RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS IFRS 17 – Insurance contracts Impact on Net Income Impact on Income Statement In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts Impairment on other assets net of reversals -52 000 covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance NOTE 41 – RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS Contracts. Impact on Net Income -52 000 IFRS 17 – Insurance contracts IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts scope exceptions will apply. covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance NOTE 41 – RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS Contracts. IFRS 17 – Insurance contracts The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance scope exceptions will apply. Contracts. The core of IFRS 17 is the general model, supplemented by: • A specific adaptation for contracts with direct participation features (the variable fee approach) The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of • A simplified approach (the premium allocation approach) mainly for short-duration contracts insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 – Insurance contracts entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. scope exceptions will apply. The main features of the new accounting model for insurance contracts are as follows: In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance The measurement of the present value of future cash flows, incorporating an explicit risk adjustment, remeasured every reporting • The core of IFRS 17 is the general model, supplemented by: The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS period (the fulfilment cash flows) • A specific adaptation for contracts with direct participation features (the variable fee approach) insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, 4 Insurance Contracts. • A Contractual Service Margin (CSM) that is equal and opposite to any day one gain in the fulfilment cash flows of a group of • A simplified approach (the premium allocation approach) mainly for short-duration contracts IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. contracts, representing the unearned profit of the insurance contracts to be recognized in profit or loss over the service period IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless (i.e., coverage period) The main features of the new accounting model for insurance contracts are as follows: The core of IFRS 17 is the general model, supplemented by: • Certain changes in the expected present value of future cash flows are adjusted against the CSM and thereby recognized in The measurement of the present value of future cash flows, incorporating an explicit risk adjustment, remeasured every reporting • of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary • A specific adaptation for contracts with direct participation features (the variable fee approach) profit or loss over the remaining contractual service period period (the fulfilment cash flows) • A simplified approach (the premium allocation approach) mainly for short-duration contracts participation features. A few scope exceptions will apply. The effect of changes in discount rates will be reported in either profit or loss or other comprehensive income, determined by an • • A Contractual Service Margin (CSM) that is equal and opposite to any day one gain in the fulfilment cash flows of a group of accounting policy choice contracts, representing the unearned profit of the insurance contracts to be recognized in profit or loss over the service period The main features of the new accounting model for insurance contracts are as follows: The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and con- (i.e., coverage period) • The measurement of the present value of future cash flows, incorporating an explicit risk adjustment, remeasured every reporting sistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local • Certain changes in the expected present value of future cash flows are adjusted against the CSM and thereby recognized in period (the fulfilment cash flows) profit or loss over the remaining contractual service period • A Contractual Service Margin (CSM) that is equal and opposite to any day one gain in the fulfilment cash flows of a group of - 411- 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES The effect of changes in discount rates will be reported in either profit or loss or other comprehensive income, determined by an • contracts, representing the unearned profit of the insurance contracts to be recognized in profit or loss over the service period accounting policy choice (i.e., coverage period) NOTE 41 – Recently issued accounting standards and interpretations 31.12.2019 490 • Certain changes in the expected present value of future cash flows are adjusted against the CSM and thereby recognized in • 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES profit or loss over the remaining contractual service period The effect of changes in discount rates will be reported in either profit or loss or other comprehensive income, determined by an - 411- accounting policy choice 2020 ANNUAL REPORT | SEPARATE FINANCIAL STATEMENTS AND FINAL NOTES - 411- NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATE accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by: • A specific adaptation for contracts with direct participation features (the variable fee approach) • A simplified approach (the premium allocation approach) mainly for short-duration contracts The main features of the new accounting model for insurance contracts are as follows: • The measurement of the present value of future cash flows, incorporating an explicit risk adjustment, remeasured every reporting period (the fulfilment cash flows) • A Contractual Service Margin (CSM) that is equal and opposite to any day one gain in the fulfilment cash flows of a group of contracts, representing the unearned profit of the insurance contracts to be recognized in profit or loss over the service period (i.e., coverage period) • Certain changes in the expected present value of future cash flows are adjusted against the CSM and thereby recognized in profit or loss over the remaining contractual service period • The effect of changes in discount rates will be reported in either profit or loss or other comprehensive income, determined by an accounting policy choice • The presentation of insurance revenue and insurance service expenses in the statement of comprehensive income based on the concept of services provided during the period • Amounts that are paid to a policyholder in all circumstances, regardless of whether an insured event happens (non-distinct investment components) are not presented in the income statement, but are recognized directly on the balance sheet • Insurance services results (earned revenue less incurred claims) are presented separately from the insurance finance income or expense • Extensive disclosures to provide information on the recognized amounts from insurance contracts and the nature and extent of risks arising from these contracts Both the modified retrospective approach and the fair value approach provide transitional reliefs for determining the grouping of contracts. If an entity cannot obtain reasonable and supportable information necessary to apply the modified retrospective approach, it is required to apply the fair value approach. In June 2020, the IASB issued amendments to IFRS 17. These amendments follow from the Exposure Draft (ED) on proposed Amendments to IFRS 17 Insurance Contracts. As a result of its re-deliberations, the IASB has made changes to the following main areas of IFRS 17: • Deferral of the effective date of IFRS 17 and IFRS 9 for qualifying insurance entities by two years to annual reporting periods beginning on or after 1 January 2023) • Scope of the standard • Expected recovery of insurance acquisition cash flows from insurance contract renewals • CSM relating to investment activities • Applicability of the risk mitigation option for contracts with direct participation features • Reinsurance contracts held - expected recovery of losses on underlying onerous contracts • Simplified presentation of insurance contracts in the statement of financial position • Additional transition reliefs In addition to the above changes, the amendments also include several other minor and editorial changes to IFRS 17. No material impacts are expected on the Bank’s financial statements. 491 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESDefinition of business activity - Amendments to IFRS 3 The IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. Minimum requirements to be a business The amendments clarify that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. They also clarify that a business can exist without including all of the inputs and processes needed to create outputs. That is, the inputs and processes applied to those inputs must have ‘the ability to contribute to the creation of outputs’ rather than ‘the ability to create outputs’. Market participants’ ability to replace missing elements Prior to the amendments, IFRS 3 stated that a business need not include all of the inputs or processes that the seller used in operating that business, ’if market participants are capable of acquiring the business and continuing to produce outputs, for example, by integrating the business with their own inputs and processes’. The reference to such integration is now deleted from IFRS 3 and the assessment must be based on what has been acquired in its current state and condition. Assessing whether an acquired process is substantive The amendments specify that if a set of activities and assets does not have outputs at the acquisition date, an acquired process must be considered substantive only if: (a) it is critical to the ability to developor convert acquired inputs into outputs; and (b) the inputs acquired include both an organised workforce with the necessary skills, knowledge, or experience to perform that process, and other inputs that the organised workforce could develop or convert into outputs. In contrast, if a set of activities and assets has outputs at that date, an acquired process must be considered substantive if: (a) it is critical to the ability to continue producing outputs and the acquired inputs include an organised workforce with the necessary skills, knowledge, or experience to perform that process; or (b) it significantly contributes to the ability to continue producing outputs and either is considered unique or scarce, or cannot be replaced without significant cost, effort or delay in the ability to continue producing outputs. Narrowed definition of outputs The amendments narrowed the definition of outputs to focus on goods or services provided to customers, investment income (such as dividends or interest) or other income from ordinary activities. The definition of a business in Appendix A of IFRS 3 was amended accordingly. Optional concentration test The amendments introduced an optional fair value concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business. Entities may elect to apply the concentration test on a transac- tion-by-transaction basis. The test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the test is met, the set of activities and assets is determined not to be a business and no further assessment is needed. If the test is not met, or if an entity elects not to apply the test, a detailed assessment must be performed applying the normal requirements in IFRS 3. 492 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEThe amendments must be applied to transactions that are either business combinations or asset acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020. Consequently, entities do not have to revisit such transactions that occurred in prior periods. Earlier application is permitted and must be disclosed. The amendments could also be relevant in other areas of IFRS (e.g., they may be relevant where a parent loses control of a subsidiary and has early adopted Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)). No material impacts are expected on the Bank’s financial statements. Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and IFRS 7 In September 2019, the IASB issued amendments to IFRS 9, IAS 39 Financial Instruments: Recognition and Measure- ment and IFRS 7 Financial Instruments: Disclosures, which concludes phase one of its work to respond to the effects of Interbank Offered Rates (IBOR) reform on financial reporting. The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncer- tainty before the replacement of an existing interest rate benchmark with an alternative nearly risk-free interest rate (an RFR). The amendments to IFRS 9 The amendments include a number of reliefs, which apply to all hedging relationships that are directly affected by the interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument. Application of the reliefs is mandatory. The first three reliefs provide for: • The assessment of whether a forecast transaction (or component thereof) is highly probable • Assessing when to reclassify the amount in the cash flow hedge reserve to profit and loss • The assessment of the economic relationship between the hedged item and the hedging instrument For each of these reliefs, it is assumed that the benchmark on which the hedged cash flows are based (whether or not contractually specified) and/or, for relief three, the benchmark on which the cash flows of the hedging instrument are based, are not altered as a result of IBOR reform. A fourth relief provides that, for a benchmark component of interest rate risk that is affected by IBOR reform, the requirement that the risk component is separately identifiable need be met only at the inception of the hedging rela- tionship. Where hedging instruments and hedged items may be added to or removed from an open portfolio in a continuous hedging strategy, the separately identifiable requirement need only be met when hedged items are initially designated within the hedging relationship. To the extent that a hedging instrument is altered so that its cash flows are based on an RFR, but the hedged item is still based on IBOR (or vice versa), there is no relief from measuring and recording any ineffectiveness that arises due to differences in their changes in fair value. The reliefs continue indefinitely in the absence of any of the events described in the amendments. When an entity designates a group of items as the hedged item, the requirements for when the reliefs cease are applied separately to each individual item within the designated group of items. The amendments also introduce specific disclosure requirements for hedging relationships to which the reliefs are applied. 493 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe amendments to IAS 39 The corresponding amendments are consistent with those for IFRS 9, but with the following differences: • For the prospective assessment of hedge effectiveness, it is assumed that the benchmark on which the hedged cash flows are based (whether or not it is contractually specified) and/or the benchmark on which the cash flows of the hedging instrument are based, are not altered as a result of IBOR reform. • For the retrospective assessment of hedge effectiveness, to allow the hedge to pass the assessment even if the actual results of the hedge are temporarily outside the 80%-125% range, during the period of uncertainty arising from IBOR reform. • For a hedge of a benchmark portion (rather than a risk component under IFRS 9) of interest rate risk that is affected by IBOR reform, the requirement that the portion is separately identifiable need be met only at the inception of the hedge. Transition The amendments must be applied retrospectively. However, any hedge relationships that have previously been de- designated cannot be reinstated upon application, nor can any hedge relationships be designated with the benefit of hindsight. Early application is permitted and must be disclosed. No material impacts are expected on the Group's financial statements. Reform of interest rate reference indices - Phase 2 - changes to IFRS 9, IAS 39 and IFRS 7 On 27 August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. With publication of the phase two amendments, the IASB has completed its work in response to IBOR reform. The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). Practical expedient for changes in the basis for determining the contractual cash flows as a result of IBOR reform The amendments include a practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest. Inherent in allowing the use of this practical expedient is the requirement that the transition from an IBOR benchmark rate to an RFR takes place on an economically equivalent basis with no value transfer having occurred. Any other changes made at the same time, such as a change in the credit spread or maturity date, are assessed. If they are substantial, the instrument is derecognized. If they are not substantial, the updated effective interest rate (EIR) is used to recalculate the carrying amount of the financial instrument, with any modification gain or loss recognized in profit or loss. The practical expedient is required for entities applying IFRS 4 that are using the exemption from IFRS 9 (and, therefore, apply IAS 39) and for IFRS 16 Leases, to lease modifications required by IBOR reform. Relief from discontinuing hedging relationships The amendments permit changes required by IBOR reform to be made to hedge designations and hedge documen- tation without the hedging relationship being discontinued. Permitted changes include redefining the hedged risk to reference an RFR and redefining the description of the hedging instruments and/or the hedged items to reflect the RFR. Entities are allowed until the endof the reporting period, during which a modification required by IBOR reform is made, to complete the changes. Any gains or losses that could arise on transition are dealt with through the normal requirements of IFRS 9 and IAS 39 to measure and recognise hedge ineffectiveness. Amounts accumulated in the cash flow hedge reserve are deemed to be based on the RFR. The cash flow hedge reserve is released to profit or loss in the same period or periods in which the hedged cash flows based on the RFR 494 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEaffect profit or loss. For the IAS 39 assessment of retrospective hedge effectiveness, on transition to an RFR, entities may elect on a hedge-by-hedge basis, to reset the cumulative fair value changes to zero. This relief applies when the exception to the retrospective assessment ends. The amendments provide relief for items within a designated group of items (such as those forming part of a macro cash flow hedging strategy) that are amended for modifications directly required by IBOR reform. The reliefs allow the hedging strategy to remain and not be discontinued. As items within the hedged group transition at different times from IBORs to RFRs, they will be transferred to sub-groups of instruments that reference RFRs as the hedged risk. As instruments transition to RFRs, a hedging relationship may need to be modified more than once. The phase two reliefs apply each time a hedging relationship is modified as a direct result of IBOR reform. The phase two reliefs cease to apply once all changes have been made to financial instruments and hedging relationships, as required by IBOR reform. Separately identifiable risk components The amendments provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component. The relief allows entities upon designation of the hedge, to assume that the separately identifiable requirement is met, provided the entity reasonably expects the RFR risk component to become separately identifiable within the next 24 months. Changes are mandatory for annual periods beginning on or after 1 January 2021, with earlier application permitted. Hedging relationships must be re-established if the hedging relationship was discontinued only due to changes required by the IBOR reform and would not have been discontinued if the changes in phase two had been applied at that time. Although the application is retrospective, an entity is not required to restate previous periods. Definition of Material - Amendments to IAS 1 and IAS 8 In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.’ The amendments clarify that materiality will depend on the nature or magnitude of information, or both. An entity will need to assess whether the information, either individually or in combination with other information, is material in the context of the financial statements. Obscuring information The amendments explain that information is obscured if it is communicated in a way that would have a similar effect as omitting or misstating the information. Material information may, for instance, be obscured if information regarding a material item, transaction or other event is scattered throughout the financial statements or disclosed using a language that is vague or unclear. Material information can also be obscured if dissimilar items, transactions or other events are inappropriately aggregated, or conversely, if similar items are inappropriately disaggregated. New threshold The amendments replaced the threshold ‘could influence’, which suggests that any potential influence of users must be considered, with ‘could reasonably be expected to influence’ in the definition of ‘material’. In the amended defini- tion, therefore, it is clarified that the materiality assessment will need to take into account only reasonably expected influence on economic decisions of primary users. Primary users of the financial statements The current definition refers to ‘users’ but does not specify their characteristics, which can be interpreted to imply that an entity is required to consider all possible users of the financial statements when deciding what information to disclose. Consequently, the IASB decided to refer to primary users in the new definition to help respond to concerns that the term ‘users’ may be interpreted too widely. 495 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThis amendment is effective for annual reporting periods beginning on or after 1 January 2020. The amendments must be applied prospectively. Early application is permitted and must be disclosed. No material impacts are expected on the Bank’s financial statements. Covid-19-Related Rent Concessions - Amendments to IFRS 16 In May 2020, the IASB amended IFRS 16 to provide relief to lessees from applying the IFRS 16 guidance on lease modifications to rent concessions arising as a direct consequence of the covid-19 pandemic. The amendment does not apply to lessors. As a practical expedient, a lessee may elect not to assess whether a covid-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification. The practical expedient applies only to rent concessions occurring as a direct consequence of the covid-19 pandemic and only if specific conditions are met. A lessee will apply the amendment for annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted, including in financial statements not yet authorized for issue at 28 May 2020. No material impacts are expected on the Bank’s financial statements. Reference to the Conceptual Framework - Amendments to IFRS 3 In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations - Reference to the Conceptual Framework. The amendments are intended to replace a reference to a previous version of the IASB’s Conceptual Framework (the 1989 Framework) with a reference to the current version issued in March 2018 (the Conceptual Framework) without significantly changing its requirements. The amendments add an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies, if incurred separately. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine whether a present obligation exists at the acquisition date. At the same time, the amendments add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date. These amendments are effective for annual reporting periods beginning on or after 1 January 2022 and must be applied prospectively. No material impacts are expected on the Bank’s financial statements. Property, Plant and Equipment: Proceeds before intended use - Amendments to IAS 16 The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment (PP&E), any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss. These amendments are effective for annual reporting periods beginning on or after 1 January 2022 and must be applied prospectively. No material impacts are expected on the Bank’s financial statements. 496 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEOnerous contracts: costs of fulfilling the contract - Amendments to IAS 37 In May 2020, the IASB issued amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a ‘directly related cost approach’. The costs that relate directly to a contract to provide goods or services include both incremental costs (e.g., the costs of direct labour and materials) and an allocation of costs directly related to contract activities (e.g., deprecia- tion of equipment used to fulfil the contract as well as costs of contract management and supervision). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. These amendments are effective for annual reporting periods beginning on or after 1 January 2022 and must be applied prospectively to contracts for which an entity has not yet fulfilled all of its obligations at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application). No material impacts are expected on the Bank’s financial statements. The amendments clarify that a gain or loss is fully recognized when a transfer to an associate or joint venture involves a business activity as defined in IFRS 3. Any gain or loss resulting from the sale or contribution of assets that do not constitute a company, is only recognized to the extent of the interests of unrelated investors in the associate or joint venture. Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor to its associate or joint ventures The amendments address the conflict between IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognised when a transfer to an associate or joint venture involves a business as defined in IFRS 3. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. No material impacts are expected on the Bank’s financial statements. The Conceptual Framework for Financial Reporting The IASB issued the Conceptual Framework in March 2018. It establishes a comprehensive set of concepts for financial reporting, standards, guidance for preparers in the development of consistent accounting policies and assistance to others in their efforts to understand and interpret the standards. The Conceptual Framework includes some new concepts, provides updated definitions and criteria for recognizing assets and liabilities and clarifies some important concepts. It is organized into eight chapters, as follows: • Chapter 1 – The objective of financial reporting • Chapter 2 – Qualitative characteristics of useful financial information • Chapter 3 – Financial statements and the reporting entity • Chapter 4 – The elements of financial statements • Chapter 5 – Recognition and derecognition • Chapter 6 – Measurement • Chapter 7 – Presentation and disclosure • Chapter 8 – Concepts of capital and capital maintenance 497 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESThe amended conceptual framework for the financial reporting is not a standard and none of its concepts prevails on the concepts set out in other standards or requirements of any standard. It is applicable to entities that develop their accounting principles based on the conceptual framework applicable to annual reporting periods beginning on or after 1 January 2020. No material impacts are expected on the Bank’s financial statements. Classification of Liabilities as current and non-current - Amendments to IAS 1 In January 2020, the Board issued amendments to paragraphs 69 to 76 of IAS 1 Presentation of Financial Statements to specify the requirements for classifying liabilities as current or non-current. The amendments clarify: • What is meant by a right to defer settlement • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument, would the terms of a liability not impact its classification Right to defer settlement The Board decided that if an entity’s right to defer settlement of a liability is subject to the entity complying with specified conditions, the entity has a right to defer settlement of the liability at the end of the reporting period if it complies with those conditions at that date. Existence at the end of the reporting period The amendments also clarify that the requirement for the right to exist at the end of the reporting period applies regardless of whether the lender tests for compliance at that date or at a later date. Management expectations IAS 1.75A has been added to clarify that the ‘classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least twelve months after the reporting period’. That is, management’s intention to settle in the short run does not impact the classification. This applies even if settlement has occurred when the financial statements are authorised for issuance. Meaning of the term ‘settlement’ The Board added two new paragraphs (paragraphs 76A and 76B) to IAS 1 to clarify what is meant by ‘settlement’ of a liability. The Board concluded that it was important to link the settlement of the liability with the outflow of resources of the entity. Settlement by way of an entity’s own equity instruments is considered settlement for the purpose of classification of liabilities as current or non-current, with one exception. In cases where a conversion option is classified as a liability or part of a liability, the transfer of equity instruments would constitute settlement of the liability for the purpose of classifying it as current or non-current. Only if the conversion option itself is classified as an equity instrument would settlement by way of own equity instruments be disregarded when determining whether the liability is current or non-current. Unchanged from the current standard, a rollover of a borrowing is considered the extension of an existing liability and is therefore not considered to represent ‘settlement’. This amendment is effective for annual reporting periods beginning on or after 1 January 2023. 498 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTES1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES SEPARATEImprovement to IFRS - 2018-2020 cycle (issued in May 2020) IFRS 1 - First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter The amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by the parent, based on the parent’s date of transition to IFRS. This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1. An entity applies the amendment for annual reporting periods beginning on or after 1 January 2022. Earlier application is permitted. IFRS 9 - Financial Instruments - Fees in the ’10 per cent’ test for derecognition of financial liabilities The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. There is no similar amendment proposed for IAS 39. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. An entity applies the amendment for annual reporting periods beginning on or after 1 January 2022. Earlier application is permitted. IFRS 16 - Leases The amendment removes the illustration of payments from the lessor relating to leasehold improvements in Illustrative Example 13 accompanying IFRS 16. This removes potential confusion regarding the treatment of lease incentives when applying IFRS 16. IAS 41 - Agriculture The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring the fair value of assets within the scope of IAS 41. An entity applies the amendment to fair value measurements on or after the beginning of the first annual reporting period beginning on or after 1 January 2022. Earlier application is permitted. NOTE 42 - Subsequent events On March 5, 2021, NOVO BANCO reported that, after completing a competitive sale process, it entered into with BURLINGTON LOAN MANAGEMENT DAC, a company affiliated and advised by DAVIDSON KEMPNER EUROPEAN PARTNERS, LLP, a Purchase and Sale Agreement of a portfolio of non-performing loans (non-performing loans) and related assets (together, Wilkinson Project) with a gross balance sheet value of 216.3 million euros, still subject to usual perimeter adjustments in operations of this nature . The sale value of the portfolio amounts to 67.5 million euros, and the completion of the operation, under the terms agreed, should have a marginally positive direct impact on capital and in the 2021 income statement. 499 NOVO BANCO FINANCIAL STATEMENTS AND FINAL NOTESErnst & Young Audit & Associados - SROC, S.A. Avenida da República, 90-6º 1600-206 Lisboa Portugal Tel: +351 217 912 000 Fax: +351 217 957 586 www.ey.com (Translation from the original document in the Portuguese language. In case of doubt, the Portuguese version prevails) Statutory and Auditor’s Report REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Opinion We have audited the accompanying consolidated financial statements of Novo Banco S.A. (the Group), which comprise the Consolidated Balance Sheet as at 31 December 2020 (showing a total of 44,395,586 thousand euros and a total equity of 3,146,635 thousand euros, including a net loss for the year of 1,329,317 thousand euros), and the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity and the Consolidated Cash Flow Statement for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements give a true and fair view, in all material respects, of the consolidated financial position of Novo Banco, S.A. as at 31 December 2020, and of its financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as endorsed by the European Union. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and other technical and ethical standards and guidelines as issued by the Institute of Statutory Auditors. Our responsibilities under those standards are further described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section below. We are independent of the entities comprising the Group in accordance with the law and we have fulfilled other ethical requirements in accordance with the Institute of Statutory Auditors´ code of ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters in the current year audit are the following: 1. Impairment for loans and advances to customers Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement The caption Loans and advances to customers includes an accumulated impairment amount of 1,599,775 thousand of euros ("K€"), with a negative impact of 524,442 K€ recorded in the period on Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss. The details of the impairment for loans and advances to customers, the related accounting policies, methodologies, definitions and assumptions are disclosed in the notes to the Our approach to audit the impairment for loans and advances to customers included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining the understanding, evaluating the design and testing the operational effectiveness of the existing internal control procedures in the process of quantification of impairment losses for loans and advances to customers; 1/10 500 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement consolidated financial statements (Note 2.5, note 3.1, note 22 and note 42). The Impairment for Loans and advances to customers represents management best estimate for the expected loss on the loan portfolio to customers. For this estimate, management made judgments such as the business model assessment, the evaluation of significant increase in credit risk, the classification as default, the definition of groups of financial assets with similar credit risk characteristics and the use of models and assumptions. For relevant exposures on an individual approach, the impairment is determined based on the judgment from Group specialists on the evaluation of credit risk. In addition to the complexity of the models described, there is a significant volume of data that is not always available, such as the credit risk information at the time of origination, date and loan value at the first default and the amount of historical recoveries since the default. To overcome those limitations, management resorts to practical expedients which increase the judgements applied. As a response to the Covid-19 pandemic, the Decree Law 10-J/2020 of 26 march, complemented by the Associação Portuguesa de Bancos (Portuguese Banking Association) Protocol and amended by the Decree Law 26/2020 of 16 June, introduced a wide range of moratoria on mortgage and non-mortgage retail and corporate loans, which enabled the debtors to postpone the payment of capital and interest without being considered defaulted. The moratoria inhibit the counting of days past due, which increase the judgements inherent to the identification of loans with significant increase in credit risk. Additionally, the pandemic decreased the predictability on the evolution of the economy. Therefore, the determination of the scenarios and weights used to measure the forward-looking credit loss is more uncertain. Given the degree of subjectivity and complexity involved, the use of alternative approaches, models or assumptions may have a material impact on the value of the estimated impairment, which together with the materiality of its value, makes we consider this topic as key auditing matter. ► performing analytical procedures on the evolution of the balance of the impairment for loans and advances to customers, comparing it with last year and with the expectations, which include the understanding of changes in the loan portfolio and changes in the assumptions and methodologies for impairment; ► selecting a sample of customers individually assessed for impairment to evaluate the assumptions used by management in quantifying impairment. This analysis included the information containing business models, the financial situation of the debtors and the collateral appraisal reports. Inquiring of Group experts in order to obtain an understanding of the recovery strategy defined and the assumptions used. ► assessing the impacts estimated by the Group to reflect the Covid-19 pandemic at individual and portfolio level; ► analyzing the documents formalizing the relevant sale operations of loans and advances to customers and assessed the impact in the financial statements; ► obtaining the understanding and evaluating the design of the model used to calculate the expected loss, testing the calculation, comparing the information used in the model with the source information, through the reconciliations prepared by the Group staff, evaluating the assumptions used to fill gaps in data, comparing the parameters used with the results of the estimation models and comparing the results with the values in the financial statements; ► evaluating the reasonableness of the parameters used in the calculation of impairment by: i) understanding the methodology formalized and adopted by management and comparing with the one effectively used; ii) evaluating the changes to models to determine the parameters to reflect the expected loss; iii) analysis of changes made during the financial year 2020 to risk parameters (PD, LGD, EAD, CCF, PFR and BM); iv) on a sample basis, comparing the data used in the calculation of the risk parameters with source information; v) inquiries to management’s experts responsible for models and inspection of reports from internal audit and regulators; and vi) inspection of the reports with the results of the operational assessment of the model (back-testing); ► assessing the reasonableness of the overlays, in particular the ones to respond to the additional judgmental areas resulting from the moratoria and assessing the governance associated with these overlays; 2/10 501 NOVO BANCOStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement ► reading the minutes of the Credit Impairment Committees and of the correspondence with the Resolution Fund; and ► analyzing the disclosures included in the explanatory notes to the consolidated financial statements, based on the requirements of international financial reporting standards and accounting records. 2. Financial instruments measured at fair value and classified as level 3 under IFRS 13 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement As disclosed in the Note 22 to the consolidated financial statements, on 31 December 2020, the Group held financial assets mandatorily at fair value through profit or loss in the amount of 960,962 K€, of which €406,104 K€ and 394,674 K€ refer to, respectively, to shares and other securities with variable income. Part of these financial assets, in the amount of 709,231 K€, is measured at fair value using measurement methodologies that include parameters not observable in the market (level 3) and includes the participation of the Group in restructuring funds (note 40). The valuation of these financial instruments classified as level 3 in accordance with IFRS 13 is a matter of judgement of the management, given that these financial instruments are valued under an estimation process which is based on internal models that include parameters not observable in the market, for which assumptions have to be made. During 2020, the management, with the assistance of external experts, performed a bottom-up valuation of these financial instruments, which included the definition of assumptions to value the assets held by the funds, a fund level discount and and assessment of the potential evolution of the fund value. As a result of this exercise, the Group determined a fair value of 498,800K € for these assets and a loss amount of 300,200 K€ was recorded in the caption “Gains or losses on financial assets mandatorily at fair value through profit or loss”. Our approach to audit the measurement of financial instruments included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining the understanding of the existing internal control procedures on the valuation of financial instruments process; ► performing analytical procedures on the evolution of the value of these financial instruments, comparing the values with last year and with the expectations formed, which included understanding the variations occurred. Comparing with the valuation of other market participants as disclosed in public available information. Assessing the reasons for the change in valuation method by the Group; ► examination of the engagement letter with the specialists in order to obtain the understanding of the nature and scope of the work performed, as well as to evaluate the competency, capacity and objectivity of the specialists; ► examination of the valuation report prepared by the management expert and the appraisal reports for a representative sample of individual assets included in the bottom-up valuation. With the assistance of EY experts, identification of the assumptions used and assessment of their reasonableness, or comparison with market data, when available. Comparison of the assumptions with the ones from previous years and inquiries to the managers of the Group and the management experts on the reasons for the difference; ► testing the mathematical accuracy of the calculations performed; Management considers that this valuation corresponds to the best estimate of fair value at 31 December 2020. ► testing the discount used to reflect the lack of liquidity and control, and compared the information used with the data available in the market; The consideration of this issue as a key audit matter was based on its materiality for the financial statements and the fact that the use of different ► developing a range of values and compared with the amounts booked in the financial statements, taking into consideration the adjustments estimated by management to reflect the evolution from the reference date to the date 3/10 502 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement valuation techniques or assumptions could lead to different estimates of fair value. of the financial statements, including the estimated effects of the Covid-19 pandemic in the assets included in fund’s portfolio; ► inquiries to the auditors of the Funds held by the Group and included in the valuation exercise; ► assessing the existence of events after the date of the financial statements that may provide additional information on the value of the funds; and ► analyzing the disclosures included in the explanatory notes to the consolidated financial statements based on the requirements of international financial reporting standards and in the accounting records. 3. Restructuring Provisions Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement During 2020, the Group registered an amount of 186,423 K€ in the profit and loss caption ‘Provisions or reversals of provisions’ of which 123,915 K€ refer to restructuring provisions, as disclosed in the notes to the consolidated financial statements (note 32). As disclosed in the accounting policies in note 2.17, restructuring provisions are recognized when the Group has approved a formal, detailed restructuring plan and such restructuring has either commenced or has been publicly announced. The determination of whether an organizational reorganization is fundamental, material or just part of a process of continuous improvement is a subjective judgement. It is also a matter of judgement the consideration if the actions taken before December 31, 2020 were enough to have raised a valid expectation in those affected that the reorganization will be carried out. Additionally, the amount recognized as a provision is an estimate by management that includes the expected direct expenditures arising from the restructuring but should not include future operating losses. The consideration this issue as a key audit issue was based on its materiality for the consolidated financial statements and the judgement exercised by Management on the necessary conditions to recognize a restructuring provision. Our approach to audit the recognition of the restructuring provisions included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining the understanding of the existing internal control procedures in the process of recognition and quantification of provisions; ► reading the minutes of Novo Banco's management bodies, the correspondence with regulators and with the Resolution Fund; ► inquiring managers of the Group with the responsibility to implement the restructuring plan and obtaining evidence of meetings held with worker´s representatives; ► analyzing the documentation that supports the recognition of the restructuring provision, in particular, minutes of the meetings of the executive board, restructuring plans and the updated to the medium term plan of the Group, which was shared with the joint supervisory team of European Central Bank; ► testing the quantification of the restructuring provision; and ► analyzing the disclosures contained in the consolidated financial statements, based on the requirements of international financial reporting standards and in the accounting records. 503 4/10 NOVO BANCOStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 4. Measurement of real estate obtained through credit foreclosure Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement The captions Investment properties and Other assets, include real estate assets of 592,605 K€ and 288,696 K€, respectively. The detail of these assets and the accounting policies are disclosed in the notes to the financial statements (note 2.11, note 2.23 and note 3.6). As disclosed in note 2.11 to the consolidated financial statements, the Other assets include real estate for which management implemented a plan pursuant to its sale that were essentially obtained by credit foreclosure. These real estate assets are valued at the lower of net book value and the fair value less cost to sell. The fair value is based on appraisals prepared by management experts. The notes to the consolidated financial statements (note 26) disclose the detail and the movement of investment properties, which are held by real estate companies or investment funds which are rented to third parties for obtaining income or held to generate capital gains. The real estate assets in this category are valued at fair value which is calculated by experts registered at CMVM contracted by the management. The fair value results from an estimation process by the management that relies on judgments and assumptions and is embodied in an evaluation carried out by contracted independent experts. The assumptions considered include the best use that can be given to the asset, what could be considered as a comparable transaction or the potential yield that can be obtained. Due to the Covid-19 pandemic, the uncertainty on the estimate of fair value increased due to variables such as (i) the reference transactions of similar and comparable assets, (ii) the timings to conclude the real estate assets under construction, (iii) the cash flows arising from rented assets, (iv) the discount rates considered, (v) the capacity to rent vacant assets and (vi) the risk premium required by potential investors. The consideration of this topic as a key audit matter is based on its materiality to the financial statements and the fact that the use of different valuation techniques or assumptions could lead to different estimates of fair value. Our approach to audit the measurement of the real estate obtained through credit foreclosure included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining the understanding of the existing internal control procedures in the process of valuation of the real estate assets received by credit recovery; ► performing analytical procedures on the value of the assets included in the Investment properties and Other assets, compared with last year and with the expectation formed, which include the understanding of the variations that have occurred and identification of changes in the assumptions and methodologies; ► assessing the reasonableness of the assumptions and of the methodologies used in a sample of the appraisals carried out by management’s external experts registered in CMVM. For these assets, inspection of the eventual promissory sale contracts and the certificate of land register; ► inspecting the real estate sale contracts and assessing the derecognition requirements and the calculation of gains and losses recorded; ► analyzing the counterparties of the most significant sales in order to assess eventual constraints to an arm’s length transaction; ► obtaining the Resolution Fund approvals to the most significant transactions with real estate assets in the scope of the contingent capital agreement; ► discussing with the management experts the assumptions used for a sample of assets and read the minutes of the executive board. ► Inquiring the management about potential sale operations and, when applicable, examining the offers received on the assets and comparing with the fair value calculated by the management; and ► analyzing the disclosures included in the explanatory notes to the consolidated financial statements, based on the requirements of international financial reporting standards and accounting records. 504 5/10 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 5. Disclosure of contingent liabilities Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement The notes to the consolidated financial statements disclose the contingent liabilities (Note 36) that may represent a possible obligation to the Group resulting from past events. The occurrence of these obligations is dependent on one or more future events that are not entirely under the control of the Group. The accounting policies for the recognition of provision or disclosure of contingent liabilities are described in note 2.17 and the main estimates and assumptions in note 3.5. The main contingent liabilities arise from various situations, most notably: ► notwithstanding the clarifications and existing neutralization guarantees, potential adjustments that may occur to "excluded liabilities” payable by Banco Espírito Santo, S.A. ("BES") and that have not been transferred to the Group; ► the existence of litigation resulting from the resolution measure applied to BES, which, in spite of existing guarantees, may lead to effects or impacts in the Group which not possible to determine or quantify; ► existing lawsuits following the closing of the sale and purchase agreement of the Group and the setting up of the contingent capital mechanism, signed between the Resolution Fund and Lone Sta; ► the Group includes participating institutions in the Resolution Fund, which, as a result of the measures implemented in the past, presents uncertainties related to ongoing litigation and the risk of a possible insufficiency of resources to ensure compliance with its responsibilities. Management expects that the Group will not be required to make special contributions or any other kind of extraordinary contributions to fund resolution measures applied to the BES and Banif, as well as the contingent capital mechanism and the indemnities mechanism. In spite of the management consideration that it is not likely that the situations described above materialize in impact on the Group's financial statements, the magnitude of these impacts would be quite significant. The risk assessment and the assumptions are matters of judgement by the management which requires complex analysis using internal and external legal experts by the Group. Given the relevance of these contingencies for the Group, we consider this topic as a key audit matter. 505 Our approach to audit the disclosure of contingent liabilities included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining an understanding of the existing internal control procedures in the process of disclosure of contingent liabilities; ► reading the minutes of Novo Banco's management bodies, the correspondence with regulators and with the Resolution Fund; ► analyzing the responses to external confirmations from external legal experts of the Group and inquiries to the managers of the legal department and in-house lawyers of the Group; ► inspecting the documentation of the Resolution Fund, in particular the annual report of 2019 and the public communications from the Resolution Fund; and ► analyzing the disclosures contained in the consolidated financial statements, based on the requirements of international financial reporting standards and in the accounting records. 6/10 NOVO BANCOStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 6. Classification and measurement of the Spanish Branch as a non-current asset held for sale Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement Our approach to audit the classification and measurement of the Spanish Branch included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining an understanding of the existing internal control procedures in the process of measurement of non-current assets held for sale; ► reading the minutes of Novo Banco's management bodies, including the presentations of this topic during those meetings, the correspondence with regulators and with the Resolution Fund; ► analyzing the reports prepared by external entities evolved in the sale process, including their assessment of the potential sale value; ► reading the offers received and analyzing the documentation supporting the determination of the fair value less cost to sell; and ► analyzing the disclosures contained in the consolidated financial statements, based on the requirements of international financial reporting standards and in the accounting records. During 2020, the Group classified the assets and liabilities of its Branch in Spain in the captions non- current assets and disposal groups classified as held for sale and liabilities included in disposal groups classified as held for sale, respectively, as it is expected that the value of this branch will be realized on a sale transaction, being its assets available for immediate sale, which is highly probable and expected to occur within one year. Thus, the notes to the consolidated financial statements (note 30 and note 44) disclose the balances of the non-current assets held for sale, including assets of 1,696,245 K€ and liabilities of 1,993,851 K€. The accounting policies to classify non-current assets held for sale are disclosed in Note 2.11 and the assumptions and estimates in Note 3.7. The assessment of the fair value less cost to sell of the Branch in Spain is a management estimate with the support of an independent expert which considered the offers of potential acquirers on the whole branch or for some of its assets. From this assessment, the Group booked an impairment of 166,000 K€. As this is a management estimate on a matter requiring judgment and because different valuation methods or assumptions could lead to different estimates of fair value, we consider this topic as a key audit matter. 7. Contingent capital mechanism Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement In line with the conditions agreed in the sale process of the majority of the share capital of the Novo Banco, S.A., between Nani Holdings, SGPS, SA (Lone Star) and the Resolution Fund, a mechanism of contingent capital ("CCA") was established, which requires the Group to be compensated, up to a limit of 3,890,000 K€, for losses incurred in a set of defined assets, which had an initial net value of approximately 7,836,823 K€ (with reference to 30 June 2016), for certain costs associated with the financing structure of the Group, and for the lower profitability associated to assets covered by the CCA. According to the agreement, the payments from the Resolution Fund under the CCA will be made, each Our approach to audit the amount booked under the contingent capital mechanism included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining the understanding and evaluated the design of the existing internal control procedures in the process to quantify the CCA; ► analyzing the movements for the year and inspecting the support documentation to these movements, including the reports from the verification agent; 7/10 506 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement ► reading the minutes of the monitoring commission and correspondence with the Resolution Fund to identify any matters susceptible of judgement; ► evaluating the methodology used and comparing the values used for the calculation with the source information in accounting and prudential reporting; ► inquiring the management on the impact of the approval of the legislative proposal on the recognition of the CCA amount, examining the legal opinions obtained and consulting with accounting subject-matter experts; and ► analyzing the disclosures contained in the consolidated financial statements based on the requirements of international financial reporting standards and in the accounting records. year, up to the amount required to meet the minimum level of Common Equity Tier 1 ratio ("CET1"), as defined in the conditions for the operation of the CCA. Throughout 2020, the decrease of equity and consequently to the CET 1, which led to a claim under the CCA of 598,312 K€ that will be subject to validation by the verification agent. This value is presented on the caption reserves, retained earnings and other comprehensive income of the balance sheet and on the line reserve of contingent capital facility of the statement of changes in equity and more fully disclosed in the notes to the financial statements (note 35). The Portuguese Parliament approved, on November 26, 2020, a legislative proposal to withdraw from the 2021 State Budget the authorization for the Resolution Fund to transfer the CCA amount to the Group. Calculating the CCA requires the computation of the regulatory capital requirements that follow the prudential rules in conjunction with the determination of the accounting results of a defined set of assets. Additionally, the CCA is significant in the Group's performance and is relevant for its solvency. For this reason, we consider this topic as a key audit matter. Responsibilities of management and the supervisory board for the consolidated financial statements Management is responsible for: ► the preparation of consolidated financial statements that presents a true and fair view of the Group´s financial position, financial performance and cash flows in accordance with International Financial Reporting Standards as endorsed by the European Union; ► the preparation of the Management Report, Corporate Governance Report and the Non-financial statement in accordance with the laws and regulations; ► designing and maintaining an appropriate internal control system to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; ► the adoption of accounting policies and principles appropriate in the circumstances; and ► assessing the Group’s ability to continue as a going concern, and disclosing, as applicable, matters related to going concern that may cast significant doubt on the Group´s ability to continue as a going concern. The supervisory body is responsible for overseeing the Group’s financial reporting process. 507 8/10 NOVO BANCOStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; ► obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control; ► evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management; ► conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group ’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern; ► evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation; ► obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion; and ► communicate with those charged with governance, including the supervisory body, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit; ► from the matters communicated with those charged with governance, including the supervisory body, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter; and ► we also provide the supervisory body with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the measures we took to eliminate those matters or the related safeguards we applied. Our responsibility additionally includes the verification of the consistency of the Management Report with the consolidated financial statements, and the verifications under nr. 4 and nr. 5 of article 451 of the Commercial Companies Code regarding corporate governance, as well as verifying that the Non-financial statement was presented. 508 9/10 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS On the Management Report Pursuant to article 451, nr. 3, paragraph e) of the Commercial Companies Code, it is our opinion that the Management Report was prepared in accordance with the applicable legal and regulatory requirements and the information contained therein is consistent with the audited consolidated financial statements and, having regard to our knowledge and assessment over the Group, we have not identified any material misstatement. As mentioned in article 451. Nr. 7 of the Commercial Companies Code, this opinion is not applicable to the Non- financial statement included in the Management Report. On the Corporate Governance Report Pursuant to article 451, nr. 4 of the Commercial Companies Code, in our opinion, the Chapter 6. Corporate Governance included in the Management Report includes the information required to the Group to provide as per article 245-A of the Securities Code, and we have not identified material misstatements on the information provided therein in compliance with paragraphs c), d), f), h), i) and m) of nr.1 of the said article. On the Non-financial statement Pursuant to article 451, nr. 6 of the Commercial Companies Code, we inform that the Group prepared the Sustainability Report separated from the Management Report, which includes the Non-financial statement, as required in article 508-G of the Commercial Companies Code, being the same disclosed together with Management Report. On additional items set out in article 10 of the Regulation (EU) nr. 537/2014 Pursuant to article 10 of the Regulation (EU) nr. 537/2014 of the European Parliament and of the Council, of 16 April 2014, and in addition to the key audit matters mentioned above, we also report the following: ► We were appointed as auditors of Novo Banco, S.A. (Group´s Parent Entity) for the first time in the shareholders' general meeting held on 21 December 2017 for a mandate from 2018 to 2020. We were reappointed in the shareholders' general meeting held on 22 October 2020 for a second mandate from 2021 to 2024; ► Management has confirmed that they are not aware of any fraud or suspicion of fraud having occurred that has a material effect on the financial statements. In planning and executing our audit in accordance with ISAs we maintained professional skepticism and we designed audit procedures to respond to the possibility of material misstatement in the consolidated financial statements due to fraud. As a result of our work we have not identified any material misstatement to the consolidated financial statements due to fraud; ► We confirm that our audit opinion is consistent with the additional report that we have prepared and delivered to the supervisory body of the Group on this date; and ► We declare that we have not provided any prohibited services as described in article 77, nr. 8, of the Statute of the Institute of Statutory Auditors, and we have remained independent of the Group in conducting the audit. Lisbon, March 26, 2021 Ernst & Young Audit & Associados – SROC, S.A. Sociedade de Revisores Oficiais de Contas Represented by: (Signed) António Filipe Dias da Fonseca Brás - ROC nr. 1661 Registered with the Portuguese Securities Market Commission under license nr. 20161271 10/10 509 NOVO BANCOErnst & Young Audit & Associados - SROC, S.A. Avenida da República, 90-6º 1600-206 Lisboa Portugal Tel: +351 217 912 000 Fax: +351 217 957 586 www.ey.com (Translation from the original document in the Portuguese language. In case of doubt, the Portuguese version prevails) Statutory and Auditor’s Report REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the accompanying financial statements of Novo Banco, S.A. (the Bank), which comprise the Balance Sheet as at 31 December 2020 (showing a total of 44,042,448 thousand euros and a total equity of 2,753,089 thousand euros, including a net loss for the year of 1,374,246 thousand euros), and the Income Statement, the Statement of Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements give a true and fair view, in all material respects, of the financial position of Novo Banco, S.A. as at 31 December 2020, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as endorsed by the European Union. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and other technical and ethical standards and guidelines as issued by the Institute of Statutory Auditors. Our responsibilities under those standards are further described in the “Auditor’s responsibilities for the audit of the financial statements” section below. We are independent of the Bank in accordance with the law and we have fulfilled other ethical requirements in accordance with the Institute of Statutory Auditors´ code of ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters in the current year audit are the following: 1. Impairment for loans and advances to customers Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement The balance sheet caption loans and advances to customers includes an accumulated impairment amount of 1,587,003 thousands of euros ("K€"), with a negative impact of 520,516 K€ recorded in the period on Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss. The details of the impairment for loans and advances to customers, the related accounting policies, methodologies, definitions and assumptions are disclosed in the notes to the financial statements (Note 2.4, note 3.1, note 21 and note 38) Our approach to audit the impairment for loans and advances to customers included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining the understanding, evaluating the design and testing the operational effectiveness of the existing internal control procedures in the process of quantification of impairment losses for loans and advances to customers; ► performing analytical procedures on the evolution of the balance of the impairment for loans and advances to Sociedade Anónima - Capital Social 1.335.000 euros - Inscrição n.º 178 na Ordem dos Revisores Oficiais de Contas - Inscrição N.º 20161480 na Comissão do Mercado de Valores Mobiliários Contribuinte N.º 505 988 283 - C. R. Comercial de Lisboa sob o mesmo número A member firm of Ernst & Young Global Limited 510 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement The Impairment for loans and advances to customers represents management best estimate for the expected loss on the loan portfolio to customers. For this estimate, management made judgments such as the business model assessment, the evaluation of significant increase in credit risk, the classification as default, the definition of groups of financial assets with similar credit risk characteristics and the use of models and assumptions. For relevant exposures on an individual approach, the impairment is determined based on the judgment from Bank specialists on the evaluation of credit risk. In addition to the complexity of the models described, there is a significant volume of data that is not always available, such as the credit risk information at the time of origination, date and loan value at the first default and the amount of historical recoveries since the default. To overcome those limitations, management resorts to practical expedients which increase the judgements applied. As a response to the Covid-19 pandemic, the Decree Law 10-J/2020 of 26 march, complemented by the Associação Portuguesa de Bancos (Portuguese Banking Association) Protocol and amended by the Decree Law 26/2020 of 16 June, introduced a wide range of moratoria on mortgage and non-mortgage retail and corporate loans, which enabled the debtors to postpone the payment of capital and interest without being considered defaulted. The moratoria inhibit the counting of days past due, which increase the judgements inherent to the identification of loans with significant increase in credit risk. Additionally, the pandemic decreased the predictability on the evolution of the economy. Therefore, the determination of the scenarios and weights used to measure the forward-looking credit loss is more uncertain. Given the degree of subjectivity and complexity involved, the use of alternative approaches, models or assumptions may have a material impact on the value of the estimated impairment, which together with the materiality of its value, makes we consider this topic as key auditing matter. customers, comparing it with last year and with the expectations, which include the understanding of changes in the loan portfolio and changes in the assumptions and methodologies for impairment; ► selecting a sample of customers individually assessed for impairment to evaluate the assumptions used by management in quantifying impairment. This analysis included the information containing business models, the financial situation of the debtors and the collateral appraisal reports. Inquiring of Bank experts in order to obtain an understanding of the recovery strategy defined and the assumptions used. ► assessing the impacts estimated by the Bank to reflect the Covid-19 pandemic at individual and portfolio level; ► analyzing the documents formalizing the relevant sale operations of loans and advances to customers and assessed the impact in the financial statements; ► obtaining the understanding and evaluating the design of the model used to calculate the expected loss, testing the calculation, comparing the information used in the model with the source information, through the reconciliations prepared by the Bank staff, evaluating the assumptions used to fill gaps in data, comparing the parameters used with the results of the estimation models and comparing the results with the values in the financial statements; ► evaluating the reasonableness of the parameters used in the calculation of impairment by: i) understanding the methodology formalized and adopted by management and comparing with the one effectively used; ii) evaluating the changes to models to determine the parameters to reflect the expected loss; iii) analysis of changes made during the financial year 2020 to risk parameters (PD, LGD, EAD, CCF, PFR and BM); iv) on a sample basis, comparing the data used in the calculation of the risk parameters with source information; v) inquiries to management’s experts responsible for models and inspection of reports from internal audit and regulators; and vi) inspection of the reports with the results of the operational assessment of the model (back-testing); ► assessing the reasonableness of the overlays, in particular the ones to respond to the additional judgmental areas resulting from the moratoria and assessing the governance associated with these overlays; ► reading the minutes of the Credit Impairment Committees and of the correspondence with the Resolution Fund; and ► analyzing the disclosures included in the explanatory notes to the financial statements, based on the requirements of 2/10 511 NOVO BANCOStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement international financial reporting standards and accounting records. 2. Financial instruments measured at fair value and classified as level 3 under IFRS 13 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement As disclosed in the note 21 to the financial statements, on 31 December 2020, the Bank held financial assets mandatorily at fair value through profit or loss in the amount of 2,445,605 K€, of which €403,752 K€ and 1,394,771 K€ refer to, respectively, to shares and other securities with variable income. Part of these financial assets, in the amount of 2,188,519 K€, is measured at fair value using measurement methodologies that include parameters not observable in the market (level 3) and includes the participation of the Bank in restructuring funds (note 37). The valuation of these financial instruments classified as level 3 in accordance with IFRS 13 is a matter of judgement of the management, given that these financial instruments are valued under an estimation process which is based on internal models that include parameters not observable in the market, for which assumptions have to be made. During 2020, the management, with the assistance of external experts, performed a bottom-up valuation of these financial instruments, which included the definition of assumptions to value the assets held by the funds, a fund level discount and assessment of the potential evolution of the fund value. As a result of this exercise, the Bank determined a fair value of 498,800K € for these assets and a loss amount of 300,200 K€ was recorded in the caption “Gains or losses on financial assets mandatorily at fair value through profit or loss”. Management considers that this valuation corresponds to the best estimate of fair value at 31 December 2020. The consideration of this issue as a key audit matter was based on its materiality for the financial statements and the fact that the use of different valuation techniques or assumptions could lead to different estimates of fair value. Our approach to audit the measurement of financial instruments included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining the understanding of the existing internal control procedures on the valuation of financial instruments process; ► performing analytical procedures on the evolution of the value of these financial instruments, comparing the values with last year and with the expectations formed, which included understanding the variations occurred. Comparing with the valuation of other market participants as disclosed in public available information. Assessing the reasons for the change in valuation method by the Bank; ► examination of the engagement letter with the specialists in order to obtain the understanding of the nature and scope of the work performed, as well as to evaluate the competency, capacity and objectivity of the specialists; ► examination of the valuation report prepared by the management expert and the appraisal reports for a representative sample of individual assets included in the bottom-up valuation. With the assistance of EY experts, identification of the assumptions used and assessment of their reasonableness, or comparison with market data, when available. Comparison of the assumptions with the ones from previous years and inquiries to the managers of the Bank and the management experts on the reasons for the difference; ► testing the mathematical accuracy of the calculations performed; ► testing the discount used to reflect the lack of liquidity and control, and compared the information used with the data available in the market; ► developing a range of values and compared with the amounts booked in the financial statements, taking into consideration the adjustments estimated by management to reflect the evolution from the reference date to the date of the financial statements, including the estimated effects of the Covid-19 pandemic in the assets included in fund’s portfolio; ► inquiries to the auditors of the Funds held by the Bank and included in the valuation exercise; 3/10 512 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement ► assessing the existence of events after the date of the financial statements that may provide additional information on the value of the funds; and ► analyzing the disclosures included in the explanatory notes to the financial statements based on the requirements of international financial reporting standards and in the accounting records. 3. Restructuring Provisions Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement During 2020, the Bank registered an amount of 187,839 K€ in the profit and loss caption ‘Provisions or reversals of provisions’ of which 123,915 K€ refer to restructuring provisions, as disclosed in the notes to the financial statements (note 30). As disclosed in the accounting policies in Note 2.16, restructuring provisions are recognized when the Bank has approved a formal, detailed restructuring plan and such restructuring has either commenced or has been publicly announced. The determination of whether an organizational reorganization is fundamental, material or just part of a process of continuous improvement is a subjective judgement. It is also a matter of judgement the consideration if the actions taken before December 31, 2020 were enough to have raised a valid expectation in those affected that the reorganization will be carried out. Additionally, the amount recognized as a provision is an estimate by management that includes the expected direct expenditures arising from the restructuring but should not include future operating losses. The consideration this issue as a key audit issue was based on its materiality for the financial statements and the judgement exercised by Management on the necessary conditions to recognize a restructuring provision. Our approach to audit the recognition of the restructuring provisions included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining the understanding of the existing internal control procedures in the process of recognition and quantification of provisions; ► reading the minutes of Novo Banco's management bodies, the correspondence with regulators and with the Resolution Fund; ► inquiring managers of the Bank with the responsibility to implement the restructuring plan and obtaining evidence of meetings held with worker´s representatives; ► analyzing the documentation that supports the recognition of the restructuring provision, in particular, minutes of the meetings of the executive board, restructuring plans and the updated to the medium term plan of the Bank, which was shared with the joint supervisory team of European Central Bank; ► testing the quantification of the restructuring provision; ► analyzing the disclosures contained in the financial statements, based on the requirements of international financial reporting standards and in the accounting records. 513 4/10 NOVO BANCOStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 4. Measurement of real estate obtained through credit foreclosure Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement The balance sheet account Other assets includes real estate assets of 233,479 €. The detail of these assets and the accounting policies are disclosed in the notes to the financial statements (note 2.10 and note 3.6). Our approach to audit the measurement of the real estate obtained through credit foreclosure included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: As disclosed in note 2.10 to the financial statements, the Other assets include real estate for which management implemented a plan pursuant to its sale that were essentially obtained by credit foreclosure. These real estate assets are valued at the lower of net book value and the fair value less cost to sell. The fair value is based on appraisals prepared by management experts. The caption Financial assets mandatorily at fair value through profit or present the amount of 1,394,771 K€, which include participation units in investment funds whose asset is mostly composed of real estate which are rented to third parties for obtaining income or held to generate capital gains. The real estate assets of these funds are valued at fair value which is calculated by experts registered at CMVM contracted by the management. The management of the Bank reviews the valuation of these real estate assets. The fair value results from an estimation process by the management that relies on judgments and assumptions and is embodied in an evaluation carried out by contracted independent experts. The assumptions considered include the best use that can be given to the asset, what could be considered as a comparable transaction or the potential yield that can be obtained. Due to the Covid-19 pandemic, the uncertainty on the estimate of fair value increased due to variables such as (i) the reference transactions of similar and comparable assets, (ii) the timings to conclude the real estate assets under construction, (iii) the cash flows arising from rented assets, (iv) the discount rates considered, (v) the capacity to rent vacant assets and (vi) the risk premium required by potential investors. The consideration of this topic as a key audit matter is based on its materiality to the financial statements and the fact that the use of different valuation techniques or assumptions could lead to different estimates of fair value. ► obtaining the understanding of the existing internal control procedures in the process of valuation of the real estate assets received by credit recovery; ► performing analytical procedures on the value of the assets included in the investment properties and other assets, compared with last year and with the expectation formed, which include the understanding of the variations that have occurred and identification of changes in the assumptions and methodologies; ► assessing the reasonableness of the assumptions and of the methodologies used in a sample of the appraisals carried out by management’s external experts registered in CMVM. For these assets, inspection of the eventual promissory sale contracts and the certificate of land register; ► inspecting the real estate sale contracts and assessing the derecognition requirements and the calculation of gains and losses recorded; ► analyzing the counterparties of the most significant sales in order to assess eventual constraints to an arm’s length transaction; ► obtaining the Resolution Fund approvals to the most significant transactions with real estate assets in the scope of the contingent capital agreement; ► discussing with the management experts the assumptions used for a sample of assets and read the minutes of the executive board. ► Inquiring the management about potential sale operations and, when applicable, examining the offers received on the assets and comparing with the fair value calculated by the management; and ► analyzing the disclosures included in the explanatory notes to the financial statements, based on the requirements of international financial reporting standards and accounting records. 514 5/10 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 5. Disclosure of contingent liabilities Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement The notes to the financial statements disclose the contingent liabilities (note 34) that may represent a possible obligation to the Bank resulting from past events. The occurrence of these obligations is dependent on one or more future events that are not entirely under the control of the Bank. The accounting policies for the recognition of provision or disclosure of contingent liabilities are described in note 2.16 and the main estimates and assumptions in note 3.5. The main contingent liabilities arise from various situations, most notably: ► notwithstanding the clarifications and existing neutralization guarantees, potential adjustments that may occur to "excluded liabilities” payable by Banco Espírito Santo, S.A. ("BES") and that have not been transferred to the Bank; ► the existence of litigation resulting from the resolution measure applied to BES, which, in spite of existing guarantees, may lead to effects or impacts in the Bank which not possible to determine or quantify; Our approach to audit the disclosure of contingent liabilities included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining an understanding of the existing internal control procedures in the process of disclosure of contingent liabilities; ► reading the minutes of Novo Banco's management bodies, the correspondence with regulators and with the Resolution Fund; ► analyzing the responses to external confirmations from external legal experts of the Bank and inquiries to the managers of the legal department and in-house lawyers of the Bank; ► inspecting the documentation of the Resolution Fund, in particular the annual report of 2019 and the public communications from the Resolution Fund; and ► analyzing the disclosures contained in the financial statements, based on the requirements of international financial reporting standards and in the accounting records. ► existing lawsuits following the closing of the sale and purchase agreement of the Bank and the setting up of the contingent capital mechanism, signed between the Resolution Fund and Lone Sta; ► the Bank includes participating institutions in the Resolution Fund, which, as a result of the measures implemented in the past, presents uncertainties related to ongoing litigation and the risk of a possible insufficiency of resources to ensure compliance with its responsibilities. Management expects that the Bank will not be required to make special contributions or any other kind of extraordinary contributions to fund resolution measures applied to the BES and Banif, as well as the contingent capital mechanism and the indemnities mechanism. In spite of the management consideration that it is not likely that the situations described above materialize in impact on the Bank's financial statements, the magnitude of these impacts would be quite significant. The risk assessment and the assumptions are matters of judgement by the management which requires complex analysis using internal and external legal experts by the Bank. Given the relevance of these contingencies for the Bank, we consider this topic as a key audit matter. 515 6/10 NOVO BANCOStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 6. Classification and measurement of the Spanish Branch as a non-current asset held for sale Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement Our approach to audit the classification and measurement of the Spanish Branch included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining an understanding of the existing internal control procedures in the process of measurement of non-current assets held for sale; ► reading the minutes of Novo Banco's management bodies, including the presentations of this topic during those meetings, the correspondence with regulators and with the Resolution Fund; ► analyzing the reports prepared by external entities evolved in the sale process, including their assessment of the potential sale value; ► reading the offers received and analyzing the documentation supporting the determination of the fair value less cost to sell; and ► analyzing the disclosures contained in the financial statements, based on the requirements of international financial reporting standards and in the accounting records. During 2020, the Bank classified the assets and liabilities of its Branch in Spain in the captions non- current assets and disposal groups classified as held for sale and liabilities included in disposal groups classified as held for sale, respectively, as it is expected that the value of this branch will be realized on a sale transaction, being its assets available for immediate sale, which is highly probable and expected to occur within one year. Thus, the notes to the financial statements (Note 28) disclose the balances of the non-current assets held for sale, including assets of 1,725,555 K€ and liabilities of 2,007,770 K€. The accounting policies to classify non-current assets held for sale are disclosed in Note 2.10 and the assumptions and estimates in Note 3.6. The assessment of the fair value less cost to sell of the Branch in Spain is a management estimate with the support of an independent expert which considered the offers of potential acquirers on the whole branch or for some of its assets. From this assessment, the Bank booked additional impairment of 166,000 K€. As this is a management estimate on a matter requiring judgment and because different valuation methods or assumptions could lead to different estimates of fair value, we consider this topic as a key audit matter. 7. Contingent capital mechanism Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement In line with the conditions agreed in the sale process of the majority of the share capital of the Novo Banco, S.A., between Nani Holdings, SGPS, SA (Lone Star) and the Resolution Fund, a mechanism of contingent capital ("CCA") was established, which requires the Bank to be compensated, up to a limit of 3,890,000 K€, for losses incurred in a set of defined assets, which had an initial net value of approximately 7,836,823 K€ (with reference to 30 June 2016), for certain costs associated with the financing structure of the Bank, and for the lower profitability associated to assets covered by the CCA. Our approach to audit the amount booked under the contingent capital mechanism included (i) a global response with effect on how the audit was conducted and (ii) a specific response which resulted in the design, and subsequent implementation, of audit procedures, which included, namely: ► obtaining the understanding and evaluated the design of the existing internal control procedures in the process to quantify the CCA; ► analyzing the movements for the year and inspecting the support documentation to these movements, including the reports from the verification agent; 7/10 516 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement ► reading the minutes of the monitoring commission and correspondence with the Resolution Fund to identify any matters susceptible of judgement; ► evaluating the methodology used and comparing the values used for the calculation with the source information in accounting and prudential reporting; ► inquiring the management on the impact of the approval of the legislative proposal on the recognition of the CCA amount, examining the legal opinions obtained and consulting with accounting subject-matter experts; and ► analyzing the disclosures contained in the financial statements based on the requirements of international financial reporting standards and in the accounting records. The payments from the Resolution Fund under the CCA will be made, each year, up to the amount required to meet the minimum level of Common Equity Tier 1 ratio ("CET1"), as defined in the conditions for the operation of the CCA. Throughout 2020, the decrease of equity and consequently to the CET 1, which led to a claim under the CCA of 598,312 K€ that will be subject to validation by the verification agent. This value is presented on the caption reserves, retained earnings and other comprehensive income of the balance sheet and on the line reserve of contingent capital facility of the statement of changes in equity and more fully disclosed in the notes to the financial statements (Note 35). The Portuguese Parliament approved, on November 26, 2020, a legislative proposal to withdraw from the 2021 State Budget the authorization for the Resolution Fund to transfer the CCA amount to the Bank. Calculating the CCA requires the computation of the regulatory capital requirements that follow the prudential rules in conjunction with the determination of the accounting results of a defined set of assets. Additionally, the CCA is significant in the Bank's performance and is relevant for its solvency. For this reason, we consider this topic as a key audit matter. Responsibilities of management and the supervisory board for the financial statements Management is responsible for: ► the preparation of financial statements that presents a true and fair view of the Bank´s financial position, financial performance and cash flows in accordance with International Financial Reporting Standards as endorsed by the European Union; ► the preparation of the Management Report, the Corporate Governance Report and the Non-financial statement in accordance with the laws and regulations; ► designing and maintaining an appropriate internal control system to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; ► the adoption of accounting policies and principles appropriate in the circumstances; and ► assessing the Bank’s ability to continue as a going concern, and disclosing, as applicable, matters related to going concern that may cast significant doubt on the Bank´s ability to continue as a going concern. The supervisory body is responsible for overseeing the Bank’s financial reporting process. 517 8/10 NOVO BANCOStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; ► obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control; ► evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management; ► conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern; ► evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation; ► communicate with those charged with governance, including the supervisory body, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit; ► from the matters communicated with those charged with governance, including the supervisory body, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter; and ► we also provide the supervisory body with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the measures we took to eliminate those matters or the related safeguards we applied. Our responsibility includes the verification of the consistency of the Management Report with the financial statements, and the verifications under nr. 4 and nr. 5 of article 451 of the Commercial Companies Code regarding corporate governance, as well as verifying that the Non-financial statement was presented. 518 9/10 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2020 REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS On the Management Report Pursuant to article 451, nr. 3, paragraph e) of the Commercial Companies Code, it is our opinion that the Management Report was prepared in accordance with the applicable legal and regulatory requirements and the information contained therein is consistent with the audited financial statements and, having regard to our knowledge and assessment over the Bank, we have not identified any material misstatement. As mentioned in article 451. Nr. 7 of the Commercial Companies Code, this opinion is not applicable to the Non- financial statement included in the Management Report. On the Corporate Governance Report Pursuant to article 451, nr. 4 of the Commercial Companies Code, in our opinion, the Chapter 6. Corporate Governance included in the Management Report includes the information required to the Bank to provide as per article 245-A of the Securities Code, and we have not identified material misstatements on the information provided therein in compliance with paragraphs c), d), f), h), i) and m) of nr.1 of the said article. On the Non-financial statement Pursuant to article 451, nr. 6 of the Commercial Companies Code, we inform that the Bank prepared the Sustainability Report separated from the Management Report, which includes the Non-financial statement, as required in article 508-G of the Commercial Companies Code, being the same disclosed together with Management Report. On additional items set out in article 10 of the Regulation (EU) nr. 537/2014 Pursuant to article 10 of the Regulation (EU) nr. 537/2014 of the European Parliament and of the Council, of 16 April 2014, and in addition to the key audit matters mentioned above, we also report the following: ► We were appointed as auditors of the Bank for the first time in the shareholders' general meeting held on 21 December 2017 for a mandate from 2018 to 2020. We were reappointed in the shareholders' general meeting held on 22 October 2020 for a second mandate from 2021 to 2024; ► Management has confirmed that they are not aware of any fraud or suspicion of fraud having occurred that has a material effect on the financial statements. In planning and executing our audit in accordance with ISAs we maintained professional skepticism and we designed audit procedures to respond to the possibility of material misstatement in the financial statements due to fraud. As a result of our work we have not identified any material misstatement to the financial statements due to fraud; ► We confirm that our audit opinion is consistent with the additional report that we have prepared and delivered to the supervisory body of the Bank on this date; and ► We declare that we have not provided any prohibited services as described in article 77, nr. 8, of the Statute of the Institute of Statutory Auditors, and we have remained independent of the Bank in conducting the audit. Lisbon, March 26, 2021 Ernst & Young Audit & Associados – SROC, S.A. Sociedade de Revisores Oficiais de Contas Represented by: (Signed) António Filipe Dias da Fonseca Brás - ROC nr. 1661 Registered with the Portuguese Securities Market Commission under license nr. 20161271 10/10 519 NOVO BANCONOVO BANCO Evaluation Report as defined in Article 60th of the Notice from Bank of Portugal nº 3/2020 Introduction 1. This evaluation report is presented to comply with b) of Article 58th of the Notice from Bank of Portugal nº 3/2020 (the “Notice”) and belongs to the annual report on the evaluation of the adequacy and effectiveness of the organizational culture in place in Group Novo Banco, S.A. (the “Group”) and the governance and internal control frameworks with reference to the period from May 1, 2020 to November 30, 2020. Responsabilities 2. The management and the supervisory bodies are responsible, under their respective competencies, for promoting the existence in the Group of an organizational culture supported in high ethical standards which, ► promotes an integral risk culture which encompasses all activity areas of the Group and ensures the identifications, assessment, monitoring and control of the risks that the Group is or can become exposed; ► promotes a professional conduct prudent and responsible to be observed by all employees and members of the management and supervisory boards under their roles and aligned with high ethical standards documented in a code of conduct specific for the Group; ► reinforces the reputation and levels of confidence on the Group, both internally as in the relations with customers, investors, supervisory bodies and other third parties It is also the responsibility of the management and supervisory bodies to ensure that: the organizations culture of the Group and the governance and internal control frameworks, including the remuneration actions and policies and other matters included in the Notice, are adequate and effective and promote a sound and prudent management; the Group evaluates the adequacy and effectiveness of the organizational culture in place and the governance and internal control frameworks and issues an yearly report on the results of that evaluation (the “Report”). 3. It is our responsibility to issue this report as described in Article 56th of the Notice in order to include in the Report. Activities performed 4. In order to comply with our responsibilities regarding the organizational culture and the governance and internal control frameworks, we performed the following activities, for which we present a summary: ► Maintained regular interactions with the Executive Board of Directors. For that purpose, we met with members of the Executive Board of Directors to clarify issues, we read the minutes of the meetings of the Executive Board of Directors; ► The General Supervisory Board monitors the activity of the Banco through its Special Committees: (i) Financial Affairs Committee; (ii) Risk Committee; (iii) Remuneration Committee; (iv) Nomination Committee and (v) Compliance Committee; ► We met with the managers responsible by the Risk Management, Compliance and Internal Audit functions; ► We assessed the audit plan for 2020 and the results of the internal audit actions; ► We analyzed the gap assessment on the implementation of the Notice in the Group prepared by the Internal control department and met with the managers responsible for this assessment; ► We have regular meetings with the external auditor and analyzed the contents of the Audit report, including the interim limited review reports and the Additional Report to the Supervisory Board, Impairment Reports and Reports from the auditor on internal control matters including the Asset Safekeeping assessment, Anti-money laundry and internal control over financial reporting reports; and ► We read the Group Report and the individual reports of the relevant subsidiaries, including the deficiencies and planned measures to correct them and assessed the status of those measures; ► We assessed the coherence between the internal control systems of the subsidiaries, having analyzed the content of the evaluation reports of the supervisory boards of the relevant subsidiaries. Inherent limitations 5. The General and Supervisory Board is aware of the inherent limitations of any internal control framework which, irrespectively its adequacy and effectiveness, may only provide reasonable assurance to the management and supervisory bodies on the purposes related to organizational culture, governance and internal control systems, as well as other matters described in the Notice. Additionally, an appropriate internal control in place regarding the ANNUAL REPORT 2020 | EVALUATION REPORT - 438 - 520 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEX NOVO BANCO financial and prudential reporting is not on itself sufficient to ensure the reliability of the disclosed financial and prudential information. In fact, there are prior processes in the different operational and support areas of the Group, where it is critical to have an adequate internal control in place to ensure the reliability of the information provided to the areas responsible for the prudential and financial reporting. Therefore, given the inherent limitations on any control system, deficiencies, fraud or errors may occur without being detected. Given the usual dynamic in any internal control system, any conclusion on the adequacy or effectiveness of that system cannot be projected for future periods, as there is the risk that the controls and procedures in place may become inappropriate due to changes in the context or deterioration in the compliance with the policies, procedures and controls. The evaluation of the impacts of the deficiencies is an estimate of the Executive Board of Directors and follows the criteria defined by the Group and the process to classify the deficiencies according to the criteria and assumptions. Given the judgment associated with the definition of the criteria, the assumptions and in the evaluation of the impacts, different classification could be given to the deficiencies in case different criteria or assumptions were defined. Equally, an evaluation performed in other date on the same deficiency could reach different conclusions, and the impact of a deficiency can materialize differently from what was estimated. Conclusion 6. 7. 8. 9. As described in the Report, there are deficiencies classified as F3 – High risk, and no deficiencies classified as F4 – Severe. The assessment identifies several matters of the Notice for which the Group is still in the process to implement the measures to adequately comply with the Notice. According to our plan, we intend to obtain a detailed assessment on the compliance with the Notice, including the effectiveness of the design and operation of the controls defined to address the requirements of the Notice, which is expected to occur during 2021, eventually with the assistance of the external auditor. Limited to the activities we performed which are described in paragraph 4 above and except on the eventual impact of the matters described in paragraphs 6 to 8, notwithstanding the ongoing implementation the new requirements of the Notice and with reasonable assurance in respect to the material aspects: ► In our opinion, the organizational culture and the governance and internal control frameworks of Novo Banco, S.A. were adequate and effective on November 30, 2020. ► We appreciated favorably the completeness status of the defined measures on November 30, 2020 to correct the deficiencies identified in the Report. ► We declare that the classification given to the deficiencies classified as level F3 “High” or level F4 “Severe” is adequate. ► In our opinion, the internal control functions, including the outsourced operational procedures, are performed with adequate quality and independence. ► The financial and prudential reporting processes were, insofar as we could appreciate due to our procedures inherent to our responsibilities, reliable from May 1, 2020 to November 30, 2020. ► The processes to produce information disclosed to the public by the Group due to legal or regulatory requirements, including the financial and prudential disclosures were, insofar as we could appreciate due to our procedures inherent to our responsibilities, reliable from May 1, 2020 to November 30, 2020. ► The requirements to disclose information to the public resulting from applicable law or regulation and related with the matters described in the Notice were, insofar as we could appreciate due to our procedures inherent to our responsibilities, adequately complied with from May 1, 2020 to November 30, 2020. ► The internal control systems of the subsidiaries were, insofar as we could appreciate due to our procedures inherent to our responsibilities, coherent with the internal control system of the parent. This report was approved by the Financial Affairs (Audit) Committee at a meeting held on February 25, 2021. The Financial Affairs (Audit) Committee ANNUAL REPORT 2020 | EVALUATION REPORT - 439 - 521 NOVO BANCO Report of the General and Supervisory Board and the Opinion of the Committee for Financial Matters on the Management Report and on the Separate and Consolidated Financial Statements of Novo Banco, S.A. for the year ended 31 December 2020 Pursuant to the mandate we have been given and in compliance with the provisions of h) and q) of paragraph 1 of article 441° and article 444.º of the Commercial Companies Code and the bylaws of Novo Banco, S.A. ("Novo Banco"), the General and Supervisory Board (“GSB”) is required to issue the Annual Report on the activity developed and the Committee for Financial Matters is required to issue an opinion on the Management Report and the separate and consolidated financial statements of Novo Banco, which comprise the separate and consolidated income statement and separate and consolidated statement of comprehensive income, separate and consolidated balance sheet, sepa- rate and consolidated statement of changes in equity and separate and consolidated statement of cash flows and the respective Annexes, as well as on the proposed application of Results, presented by the Executive Board of Directors (“EBD”) of Novo Banco, for the year ended on 31 December 2020. 1. Report of the General and Supervisory Board for the year 2020 1.1. Composition and scope In accordance with the applicable law, Novo Banco’s bylaws and best practices at the date of this Annual Report, five of the nine members who comprise the GSB, including the Chairman, are independent. A new independent member was approved at the Shareholders meeting on the 22nd October 2020 for mandate 2021-2024. 2021-2024 GSB mandates are subject to Fit and Proper approval. The GSB has the powers given by law, by the Bylaws and by own regulation, including the supervision of all matters related to risk management, compliance and internal audit. During 2020, we have monitored the activity of the Bank and its more significant subsidiaries. The activity of the GSB is directly supported by 5 (five) committees, in which were delegated some of its powers, namely the Financial Matters Committee, the Risk Committee, the Compliance Committee, the Nomination Committee and the Remuneration Committee, as provided for in articles 6 and 16 of the Bylaws of Novo Banco and the Regulation of the GSB. These Committees are chaired and composed by members of the GSB and can also have the presence of the EBD members or other managers responsible for the areas covered by the activities of these Committees. The GSB meets monthly and additionally when required, performing the duties assigned to it by law, by the Bylaws of the Bank and by own regulation. The EBD informs the GSB on all relevant matters, timely and on a comprehensive written or verbally manner. 1.2. Activity undertaken in 2020 General and Supervisory Board During the year 2020, the GSB held 13 meetings, were several issues were discussed, analyzed and approved, including: • The separate and consolidated financial statements of Novo Banco for the year ended 31 December 2020 and the Half Year 2020 consolidated financial statements as well as the financial results for the first and third quarters of 2020; • 2020-2022 Strategic and Medium Term-Plans; 522 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEX• NPA Plan (Non-Performing Loans & Reos) 2020-2022; • The strategy and risk appetite for 2020; • The main sale of assets of Novo Banco, in particular, the sale of GNB - Companhia de Seguros, S.A., the Spain Branch (Project Toro and Duero) and NAFE, the sale of non-performing loans-NPLs portfolios and related assets (Carter and Wilkinson); • Compliance Department activity, including, the ratification of transactions with related parties, approved by the Compliance Committee of the GSB, further to favorable opinion of the compliance department; • Internal Audit Department activity; • Most relevant lawsuits against the Group; • Evolution of Auditoria Especial 2018 Results and the plan to deal with those results; • Evolution of independent valuation of the Projects Sertorius and Viriato sales; • Evolution of Amoreiras Project (new head quarter); • Evolution of compliance with the commitments assumed before DGComp, through the analysis of the various updates and Monitoring Trustee reports; • Evolution of CCA calls and analysis of reports issued by the Verification Agent; • Review of the GSB own regulation and the regulation of the Nomination Committee; • Changes to the Policy for Selection and Evaluation of Novo Banco’ Statutory Auditor; • Group Impairment report; • Group Internal Control report; • Approval of the Internal Audit Plan May 2020 - April 2021; • LME transaction on the NB Finance bonds; • Approval of new member of the EBD, on recommendation of the Nomination Committee, with the resignation of 3 members of the EBD at the end of their respective mandate terms (2017 to 2020); • Approval of the appointment and constitution of the EBD, on the recommendation of the Nomination Committee for the 2021 to 2024 term of office; • Review and approval of the new organization structure and EBD responsibilities from December 2020; • Throughout the year the GSB were updated with respect to the operating results, evolution of the commercial businesses, capital and liquidity position of Novo Banco as well regular forecasts for the full year 2020; • Regular updates and notifications of regulatory changes and correspondence with the key regulators of Novo Banco; and • Novo Banco´s response, actions and initiatives with respect to COVID19 and the global health pandemic. Additionally, in all meetings, the GSB, in addition to the analysis of the evolution of the business, monitored, as well: • the evolution of the legal aspects and specific regulation of the financial sector, in particular the “Regime Geral das Instituições de Crédito e Sociedades Financeiras” ("RGICSF"), the regulations of the European Union and the notice and further instructions of the Bank of Portugal; • the evolution of the main prudential ratios analyzed in the EBD meetings and presentation of the measures arising from European banking regulation and the specific requirements set by the European Central Bank (SREP); and • the liquidity position and respective regulatory ratios of the Bank, through information presented to the EBD. Under and for the purposes of analyses and verifications performed, the General and Supervisory Board requested, and obtained, documentation and clarification of several issues raised. 523 NOVO BANCOFinancial Matters Committee The Financial Matters Committee held 18 meetings during 2020 and concentrated its activity in the assessment of the Bank's financial statements, and reports of the statutory auditor for the financial year 2020, discussing and analyzing also the updated reports submitted by the Internal Audit. Throughout 2020, the main Non-Performing Assets sales operations were monitored by the Financial Matters Committee, namely, Project Carter and Wilkinson and sale of GNB Seguros. During 2020, the Committee also followed the evolution of several relevant projects, including the RWA - Risk Weighted Assets review process, the MREL requirements management process - Minimum Requirements for Own Funds and Eligible Liabilities, and the RaRoc & MIS Project (with a view, among other things, to the separation of legacy and non-legacy activity). The Financial Matters Committee also monitored during 2020 the valuation of Novo Banco´s equity investments, including restructuring funds as well as the calculations and details of the restructuring costs. The Financial Matters Committee monitored on a continued form, the independence and the work of the external auditor, including the supervision and approval of the provision for this of other additional services to Novo Banco Bank Group. The annual audit process for 2020 was discussed at meetings of the Committee. The meeting agenda included an update on the regulatory aspects of the Bank's activity, the implementation of IFRS 9 and the conclusions of the analysis and evaluation process for supervisory purposes (SREP). The statutory auditor, as well as the person responsible for internal audit and the Chief Financial Officer (CFO) participated in the meetings as guests, where necessary. In addition, Committee members met separately with the statutory auditor and the person responsible for internal audit, without the presence of the members of the CAE. Risk Committee The risk Committee held 17 meetings during the year of 2020. In addition to the approval of loans to individual clients or groups of clients associated with, according to the own Regulation, appreciated and discussed the strategy and risk appetite and limits of 2020, according to the Medium-Term Plan for 2020-2022, Covid-19 Key Initiatives and Actions 2020, including credit moratoria. Other topics discussed by the Risk Committee included the major monthly indicators of risk (credit risk, market risk and operation risk) and the provisions and impairments of credit in the financial statements for the financial year of 2020. Non-performing loans of the Bank were also reviewed and compared with the institutions used as reference and with the indicators of the European Banking Authority (EBA). The governance model of risk was also subject to review in the year. The meeting agenda included a report about the regulatory aspects relating to the risks faced by the Bank, particularly in the context of the exercise TRIM (Targeted Review of Internal Models) and of the conclusions of the SREP. The calculation of risk-bearing capacity of the Bank is a frequent subject in the meetings of the Committee. Other risk regulatory topics were discussed and reviewed throughout the year, including the results of on-site regulatory reviews. Responsible for the risk function and the Chief Risk Officer (CRO) participated in meetings as guests, where necessary. Compliance Committee The Compliance Committee held 6 meetings during 2020 and deliberated on issues of Government, regulatory and legal in which the Bank operates, having examined and discussed the issues of regulatory compliance of the Bank, including the DMIF2 implementation and of the law on the prevention of money laundering, the legislation on data protection, whistleblowing procedures and other legal and regulatory affairs and relevant ongoing projects. The Com- mittee reviewed and discussed issues on related-party transactions and conflicts of interest, as well as more relevant lawsuits regularly accompanied by the Bank. Nomination Committee The Nomination Committee held 5 meetings during the year 2020. Following the measures implemented in 2018, through the creation of an independent Office of evaluation of the adequacy and suitability (Fit & Proper), an annual assessment was performed (at individual and collective level) of adequacy and suitability - “Annual Fit & Proper As- sessment - Individual Members and Collective” of the members of the Executive Board of Directors of Novo Banco and members of the Board of Directors of the subsidiaries Novo Banco dos Açores, Banco BEST and GNB Gestão de Ativos. The evaluation and promotion policy for the Bank's essential functions (“Succession Plan Matrix - Key Function 524 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXHolders”) was also analyzed. During 2020, the internal Fit & Proper processes were completed for the EBD and the GSB members new mandates 2021 to 2024, and individual and collective suitability documentation and questionnaires were submitted to Bank of Portugal for approval. The Nomination Committee also reviewed and approved and recommend- ed to the GSB changes in the organization structure of Novo Banco, EBD respective responsibilities and alignment of statutory committees from December 2020. Remuneration Committee The Remuneration Committee held 7 meetings during the year 2020. At these meetings, the Committee monitored the implementation of policies relating to the remuneration of the management and supervisory bodies and staff and adopted a set of decisions related to the variable component of remuneration for the EBD and identified staff for year 2020. The Remuneration Committee also set and approved the main individual and collective performance indicators for the EBD members for the year 2020, based on the approved budget for this year. The Remuneration Committee approved the Identified Staff for year 2020 following recommendation of the EBD. During the year of 2020, the GSB and their Committees have issued several opinions arising from requests made by the EBD, under article 15, paragraph 5 of the Bylaws. The GSB and the Committee for Financial Matters held meetings throughout the year with the audit firm Ernst & Young Audit & Associados - SROC, S.A., both in the context of the audit of the separate and consolidated financial statements for the year ended 31 December 2020, and regular monitoring and discussion of the most relevant aspects resulting from the assessment of the internal control. Under the existing articulation with the audit firm, the GSB obtained the necessary and sufficient explanations to the questions within the scope of its functions and, in particular: • The completeness of the accounting records and documents that support them; • The existence of goods or values belonging to the group Novo Banco or received in guarantee, deposit or other title; and • If the accounting policies and valuation criteria adopted lead to an adequate representation of the assets and of the results of Novo Banco. The GSB reviewed all matters contained in the Legal Certification of accounts and Audit Report on the consolidated and individual financial statements issued by the statutory auditors for the year ended 31 December 2020, having obtained from the auditors all the necessary clarifications, in particular on the relevant matters included under the same audit: • Impairment for loans and advances to customers; • Financial instruments measured at fair value and classified as level 3 under IFRS 13; • Restructuring provisions; • Measurement of real estate obtained through credit foreclosure; • Disclosure of contingent liabilities; • Classification and measurement of the Spanish Branch as a non-current asset held for sale; and • Contingent Capital mechanism. All these matters were monitored by the GSB and their committees, which, on these matters, kept updated by the EBD, by the relevant Directions and by the external auditors. In preparing the accounts of the financial year, the GSB analyzed the management report as well as other documents submitted by the EBD, having proceeded to verifications and obtain the clarifications deemed necessary, which comply with the applicable legal requirements. The accounts were audited by the audit firm Ernst & Young Audit & Associados SROC, S.A., which issued the Audit Report on the financial information for the year ended 31 December 2020 in 26 March 2021, without qualifications nor emphasis of matter, on which the GSB expresses its agreement. 525 NOVO BANCOThe GSB reviewed the Additional Report to the Supervisory Board issued by the statutory auditors on the same date, which corresponds in substance to the issues that have been discussed along the year, and for which we have obtained all the necessary clarifications. 2. Opinion of the Committee for Financial Matters on the Management Report and the separate and consolidated financial statements Within the scope of our work, and in accordance with article 444, number 2, of the Code of Commercial Companies, we verified that: a. the separate and consolidated balance sheet, the separate and consolidated income statement and separate and consolidated statement of comprehensive income, the demonstration of changes in individual and consolidated equity, the separate and consolidated cash flow statement and the corresponding Annex, allow a proper under- standing of the asset, liabilities and the separate and consolidated financial position of Novo Banco, their separate and consolidated results of changes in equity and the separate and consolidated cash flows; b. the accounting policies and valuation criteria adopted are appropriate; c. the management report is sufficiently clear as to the evolution of the business and the situation of the Bank and all the subsidiaries included in the consolidation, highlighting the most significant aspects, as well as a description of the principal risks and uncertainties that face; d. the proposed application of results does not contradict the legal and statutory provisions applicable; and e. in accordance with paragraph 5 of article 420 of the Code of commercial companies, (applicable for remission of article 441, number 2), the information about the corporate governance includes the elements required under article 245-A of the Securities Code and other applicable legislation. Therefore, we are of the opinion of the: a. Approval of the management report as well as other documents of account, for the year of 2020, presented by the Executive Board of Directors, considering the aspects highlighted in the Audit report on the consolidated and separate financial statements of the Bank of that year issued by the audit firm; and b. Approval of the proposed application of results submitted by the EBD in Executive Management report. Finally, the General and Supervisory Board would like to express its appreciation to the Executive Board, to the Execu- tives in charge for the several areas of the Bank and to other employees, as well as the auditors, the cooperation and the support for the completion of your work. Lisbon, 31 March 2021 526 NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEXGeneral and Supervisory Board and the Financial Matters Committee Byron James Macbean Haynes Chairman of the General and Supervisory Board and member of the Committee for Financial matters Karl-Gerhard Eick Vice-Chairman of the General and Supervisory Board and member of the Committee for Financial matters Kambiz Nourbakhsh Member of the General and Supervisory Board and member of the Committee for Financial matters Mark Andrew Coker Member of the General and Supervisory Board Benjamin Friedrich Dickgiesser Member of the General and Supervisory Board John Herbert Member of the General and Supervisory Board Donald John Quintin Member of the General and Supervisory Board Robert A. Sherman Member of the General and Supervisory Board Carla Antunes da Silva Member of the General and Supervisory Board 527 NOVO BANCO528 NOVO BANCO, S.A. Head Office: Av. da Liberdade, n. 195, 1250-142 Lisbon NOVO BANCO1.0 MESSAGE 2.0 ANNUAL REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTES ANNEX

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