NOVO BANCO Annual Report 2021

Plain-text annual report

Annual Report 2021 1 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESContent ADDITIONAL NOTES TO THIS REPORT This document is the PDF/printed version of the Annual Report 2021 of Novo Banco S.A.. This version has been prepared for ease of use and does not contain ESEF information as specified in the Regulatory Technical Standards on ESEF (Delegated Regulation (EU) 2019/815). The official ESEF reporting package is available on our website at www.novobanco.pt/investidores. In case of discrepancies between this version and the official ESEF package, the latter prevails. Message from the Chairman of the General and Supervisory Board Interview with the Chief Executive Officer I. MANAGEMENT REPORT II. SUSTAINABILITY REPORT III. FINANCIAL STATEMENTS AND FINAL NOTES IV. ANNEX Auditor’s Report on the Consolidated Financial Statements Auditor’s Report on the Separate Financial Statements 3 5 7 92 160 449 Novo Banco, S.A. | Head Office: Av. da Liberdade, n. 195, 1250-142 Lisbon. Commercial and Tax identification number: 513 204 016 Share Capital: €6 054 907 314 Report of the General and Supervisory Board Evaluation Report 2 Annual Report 2021Message from the Chairman of the General and Supervisory Board Dear Stakeholders, Year 2021 is the year that Novo Banco S.A. (“novobanco”) completed the de-risking of the balance sheet through the clean-up of the past legacy issues, including disposal of non-core assets and delivered its first ever profitable annual financial results, helping secure its long-term viability. The de-risking process of the past legacy issues including the disposal of non-core assets was first launched immediately following the acquisition of 75% of novobanco by Nani Holdings SGPS S.A. in October 2017 and has been executed throughout this period to year-end 2021 in accordance with the agreed Restructuring Plans and commitments by the Republic of Portugal to the European Commission, State Aid Directorate General for Competition (“DGComp”). The bank considers that all the 33 DG Comp commitments (Structural, Behavioural & Viability) have been fulfilled by novobanco based on the key assumptions that underpinned the agreed business plans 2017 to 2021. novobanco remains under the Restructuring Period until DG Comp completes the assessment of the fulfilment of these 33 commitments. During the year the bank reduced its balance sheet by €0.7bn relating to disposals of non-performing loans and related exposures as well as through the normal year-end impairment and revaluation processes. novobanco signed two separate portfolio asset sales of non-performing loans and related exposures (“Wilkinson and Orion”), taking advantage of the continued investor appetite for these type of assets in Portugal, being capital accretive and demonstrating adequacy of NPL coverage. novobanco reduced the non-performing loan (“NPL”) ratio to 5.7% year-end 2021 and the NPL stock is now less than €2.0bn. The bank will continue to target a further reduction in the NPL ratio in 2022 to well below 5%, in line with the European average. On 30th November 2021, novobanco completed the sale of the non-core asset Spanish Branch business which strengthened the capital position of the bank in line with the strategy to redeploy resources to support its core banking businesses in Portugal. Year 2021 also saw significant investment in and support of our commercial businesses. Corporate Banking continued to provide financial support to its customers, particularly given the impacts of COVID-19 on their business activities as well as promoting and participating in various initiatives (e.g., “Portugal que Faz” focusing on business associations or “Soluções novobanco Agricultura” presence at Agroglobal) helping provide solutions that best fit the challenges faced by companies, at regional and sectoral level across Portugal. In end of 2021, novobanco successfully secured from the European Investment Bank (EIB) group funding guarantees of €887.5mn which will allow novobanco to provide novobanco has delivered the key objective of sustainable profitable growth supporting our corporate and retail banking customers. BYRON HAYNES Chairman of the General and Supervisory Board further financing to Portuguese companies up to €1.545bn, supporting job creation and economic growth. Retail Banking has continued to successfully roll out its unique new distribution model (“omni- channel”) to its over 1.0mn customers. To date 116 branches across the country have been re-designed and refurbished supported by a number of digital initiatives and developments throughout the year. novobanco´s omni-channel distribution model is providing an integrated customer experience levering on the new branch model and self-service channels, backed by digital transformation and innovative products and services. During the last quarter of 2021, the bank launched its new brand “novobanco” a cornerstone in shaping our future reflecting its viability, sustainability and through the tireless dedication of its people to continue to serve our customers with the banking products and services they need now and going forward. 3 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESAnnual Report 2021Throughout year 2021, the General and Supervisory Board (“GSB”) and the respective GSB committees supervised and supported the Executive Board of Directors (“EBD”) in the monitoring and execution of the bank’s strategic goals and financial targets as set out and agreed in the medium-term plan. For year 2021 novobanco has delivered the key objective of sustainable profitable growth supporting our corporate and retail banking customers. Positive net income of €185m is driven by growth in commercial banking income and a reduction in operating and risk costs supported by maintaining a strong capital and liquidity position during the year. For year 2022, realistic strategic goals and financial targets for novobanco have been set and agreed, building further sustainable positive net income reflecting the continued investing in and support of our commercial businesses. On behalf of the GSB, I would like to thank our customers and our other stakeholders for their continued support, trust and loyalty to novobanco throughout the clean-up of the past legacy issues over the last four years. Finally, the GSB and myself would like to thank António Ramalho, the rest of the EBD and the employees of novobanco for all their tremendous hard work, dedication and commitment over these last four years and in particular in achieving sustainable profitability and growth in 2021. Byron Haynes Chairman of the General and Supervisory Board 4 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESAnnual Report 2021Perspectives by António Ramalho António Ramalho, Chairman of Executive Board of Directors, gives an interview highlighting the achievements of 2021 and the prospects for the future of novobanco. After seven years of cleaning up the balance sheet and with the restructuring cycle completed, novobanco is embarking on a phase of consolidation of profitability and sustainable business growth. 1: The year 2021 was the turning point in terms of the bank’s profitability, with a net profit of €185mn. What do you point out as the determining factor in this restructuring cycle? The results achieved this year are the culmination of several events which, despite the adversities, enabled novobanco to execute the restructuring plan approved by the DG COMP when the bank was sold to Lone Star in 2017. Prominent among these are the dedication and resilience of all novobanco’s employees and the trust placed in us by our clients. During this cycle, it was the conviction that together we make the future that made it possible to normalise the balance sheet, with a substantial reduction of legacy assets through sales and revaluations, alongside the optimisation of the operational model, including the simplification of the organisation and the closure of the international operations, allowing novobanco to reposition its activity in the domestic market. The 2021 financial results represent the beginning of a new cycle and the transition to sustainable profitability with improved operating income (i.e.: Cost to Income of 75% in 2017 vs 48% in 2021) and asset quality (i.e.: NPL ratio of 28% in 2017 vs 5.7% in 2021; Real Estate exposure of 4.8% in 2017 vs 1.8% in 2021). 2: Regarding the operational and financial results achieved in 2021, what would you underline? In terms of operating results, two indicators stand out: i) €3bn of new credit origination, of which 60% of corporate loans, and; ii) the unique and integrated experience provided to the client, namely with more than 100 branches reshaped according to the new distribution model and the new brand, and the increase in the penetration rate of active digital clients to 54% (vs 50% in 2020). In 2021 we entered the route of profitability and growth, and we are prepared to grow in a sustainable manner and to support companies and the Portuguese economy. ANTÓNIO RAMALHO Chairman of Executive Board of Directors Finally, I would like to stress the debut issue of €300mn senior preferred notes that took place in July and which marked novobanco’s return to the capital markets. In short, novobanco achieved in 2021 a net profit of €185mn, demonstrating its capacity to generate capital and to grow by supporting the Portuguese economy. 3: You mention novobanco’s capacity to generate capital, operating with Capital Ratios above the requirements. However, the recomposition of regulatory capital is one of the challenges faced by novobanco. How will you address this challenge? For all regulatory indicators in force, novobanco surpassed the requirements, namely with a CET 1 ratio of 11.1%, a solvency ratio of 13.1%, and a MREL ratio above the requirement. In the case of Capital ratios, the bank operates above the transitional ratios defined in the pandemic context. The restructuring carried out in recent years and consequent normalisation of its activity, as shown in 2021, should allow novobanco to create value, generate capital, and recompose the capital by its own means. The operational performance underpinned the positive performance of financial results: i) net interest income and fees and commissions grew by 3.5%, (to €856mn), with the former reflecting the reduction in average deposit rates, the lower cost of long-term funding and the maintenance of the pricing policy; ii) the simplification of the organisation and processes that allowed novobanco to boost efficiency and achieve a commercial banking income per employee of €195k (vs €175k in 2020); and iii) the normalisation of the cost of risk, at 60 bps (including Covid 19 related impairments). 4: In the new strategic plan novobanco presents itself as a customer-centric domestic bank. Which key features would you highlight in the strategic plan? The new strategic plan was developed in light of the macroeconomic challenges, the increasingly competitive environment and the pace of change and disruption, to deliver an innovative quality service to the clients. The client is the core of the strategy. Omnicality, the new distribution and 5 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESAnnual Report 2021customer interaction model, together with innovative digital functionalities, will allow novobanco to offer a differentiating experience and quality of service. In this context, novobanco also sees itself as a partner bank, promoting an ecosystem of partnerships compatible with everyone’s needs and ensuring convenience to clients when addressing their financial needs. The second pillar of the strategic plan is simplification, with an efficiency plan based on levers such as the robotic automation of processes, rationalisation and reorganisation, the new distribution model, and digitisation. Profitability and the appropriate risk profile, as the third pillar, seek to achieve the continuous improvement of risk and governance models, improving asset quality, and the implementation of capital allocation and risk optimisation models. Last but not least, talent and innovation, and notably the implementation of a talent development programme. This programme aims to make novobanco more agile, to leverage internal knowledge and to implement disruptive initiatives aligned with the strategic objectives, simultaneously motivating and recognising the qualities of its human capital. 5: Just as novobanco is starting a new cycle, the national economy, through the Recovery and Resilience Plan (RRP), is also starting a set of reforms and investments aimed at restoring sustained economic growth. What is the role of novobanco in this process? After the successful implementation of the restructuring and legacy clean-up process, novobanco is now in a stronger financial and capital position to support businesses and families. On the other hand, the self-financing capacity and own funds level of Portuguese companies are today also more solid, the result of the growth in exports and the deleveraging carried out over the last decade. Unlike in the past, the banking sector, including novobanco, is not seeking to act in terms of the capitalisation of companies, but rather to contribute to the development of borrowed capital, i.e., to have a role in companies’ high standards and risk management policy, helping businessmen to take decisions that enable the efficient and speedy application of funds. Acting as a partner, novobanco has implemented measures such as support to ensure the effectiveness of the application process (including rules, deadlines, forms to be submitted, alerts, etc.), and the development of guarantee and complementary financing products, offering customised financing solutions. 6: In light of the growing importance of the transition to a more sustainable economy, namely involving the ECB’s climate stress tests in 2022, what is novobanco’s approach and outlook? How can novobanco contribute to a more sustainable society? As part of novobanco’s strategic plan, a new sustainability strategy is being defined for the three ESG areas - Environment, Social and Governance. In this context, the framework of the ESG strategy is developed in 3 phases. The first, mainly focused on the climate and the characteristics of the credit portfolio and implementation of a portfolio strategy, aims to identify the exposures whose behaviour is more geared to mitigating the associated risks, including climate risks. The next phase is to understand how these analyses and conclusions can influence the risk management policy, access to capital markets and the cost of funding and capital. Finally, the third phase concerns the contribution that financial institutions, including novobanco, can set in motion with imagination and creativity, for example to develop financing structures that better address the challenges of a sustainable society. One of the examples is the circular economy - how can the banking system contribute to avoid surpluses, i.e., what financing instruments can it develop to promote more sustainable practices such as reusing the components of any product, making it more dependent on the use of goods and less on amortisation. A new culture and a new customer relationship rationale is needed, of which an example can be found in the car industry where long-term rentals have more and more relevance versus the purchase of cars. ESG is a new challenge that is reflected in the financial system, being prepared to adjust to these needs and find appropriate solutions is a critical challenge for sustainable business growth. 7: The environment has clearly been the dimension under stronger focus in recent years. However, the social dimension is progressively, and often due to climate action, deserving special attention. What would you highlight in the Group’s performance in this area? The results of our 2021 impact assessment show that the social issue is important for our various stakeholders, and therefore it is a topic that deserves our best attention, and we will soon have news in this regard. This year, the pandemic has once again had a negative effect on the health and safety not only of our employees, but also of clients and the community in general, with sometimes serious consequences on the labour market, and the Group never ceased to find solutions to deal with these adversities. In the case of employees, we have maintained the home office system and added a new support package for employees which includes the possibility of receiving in advance 50% of the Christmas allowance, access to credit under special conditions to meet the needs for IT equipment and training, and also free access to family coaching sessions and psychological support. As regards our clients, we were once again present, being a partner in the most difficult moments, avoiding bankruptcies and consequently more unemployment. At community level, we maintained our support to various entities that voluntarily help their neighbour, having taken part in two major campaigns to tackle the problems resulting from the pandemic. Let me just add one more fact that I would like to highlight. To go through this ESG journey in 2021 we have redefined our sustainability governance model, a model implemented in two phases that will allow an assessment and a structured approach to sustainability across the whole Group and which has the full involvement of the Executive Board of Directors and the General and Supervisory Board. 8: To conclude this interview, would you like to leave a final message? In 2021 we entered the route of profitability and growth, and we are prepared to grow in a sustainable manner and to support companies and the Portuguese economy. We are entering a new cycle, also based on a new brand image. We have shown that it was worthwhile and that together we make the future, and so I would like to end by thanking all employees, clients and all the governing bodies of the bank, with special emphasis to the General and Supervisory Board for their commitment and trust in novobanco. 6 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESAnnual Report 2021Management Report 2021 7 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESIndex 1. WHO WE ARE 2. OUR STRATEGY 3. OUR PERFORMANCE 4. CAPITAL, LIQUIDITY & RISK 5. CORPORATE GOVERNANCE 6. CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES 7. ALTERNATIVE PERFORMANCE MEASURES 9 24 32 52 64 80 86 8 Annual Report 2021 1.0 WHO WE ARE 1.1 Novo Banco Group 1.2 Organisation Ricardo Manuel Santos Freire Retail South Department - Customers Assistant Maria Inês Ferreira Retail North Department - Senior Customer Assistant 9 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES1.1 Novo Banco Group Novo Banco, S.A. (“novobanco” or “the bank”) together with the subsidiaries and equity holdings that make up the Novo Banco Group (“Group” or “novobanco Group”) is mainly active in the Portuguese banking sector, in both corporate and retail segments, also developing activity in asset management. In addition, the bank has equity stakes in companies operating in venture capital, real estate, renting and corporate services. novobanco was born in 2014 upon the resolution of Banco Espírito Santo S.A. (“BES”). From the outset, novobanco 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.. The first years of novobanco’s life laid the foundation for its renaissance in 2021: 2014 CREATION OF NOVO BANCO 2017 2020 END OF 2021 LONE STAR ACQUIRES 75% SHARE CAPITAL OF NOVO BANCO THE RESTRUCTURING CYCLE Creation of NOVO BANCO following the Resolution applied to BES by Banco de Portugal In the context of the sale, 33 new commitments were imposed by the European Commission, to be fulﬁlled by the bank The bank managed to reduce the legacy exposure and delivering the commitments at the same time, demonstrating its resilience and performance capacity At the time the shareholders were as follows:  75% Lone Star Funds (through Nani Holdings, S.G.P.S., S.A.)  25% Fundo de Resolução1 NEW PHASE OF RENOVATION AND TRANSFORMATION In the ﬁnal stage of the restructuring cycle, the bank enters a new phase as a commercial bank with a strong presence in the corporate segment and a close relationship with the customer. Shareholders at the signature of the present report:  75% Lone Star Funds (through Nani Holdings, S.G.P.S., S.A.)  23.44% Fundo de Resolução  1.56% Direcção-Geral do Tesouro e Finanças 1. On December 15, 2021, novobanco approved a capital increase from the conversion of conversion rights related to fiscal year 2015 through the issue of 154,907,314 new common shares, representing 1.56% of the share capital, attributed to Portuguese State. Thus, at the date of this report, novobanco is held 75% by Lone Star Funds (through Nani Holdings, S.G.P.S., S.A.), 23.44% by the Resolution Fund and 1.56% by the Portuguese State. See topic 6.1 Shareholder Structure for further information 2. Pending to be verified by the Monitoring Trustee 10 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESLegacy divestment carried out simultaneously with operational model optimization Outstanding execution of balance sheet clean-up despite the challenging environment REAL ESTATE EXPOSURE (%) 4.7% NPL AND COVERAGE RATIO NPA AND COVERAGE RATIO 28.1% 56% 1.8% 2017 2021 2017 71% 5.7% 2021 23.0% 53% 2017 68% 6.7% 2021 NPL Ratio Coverage NPA Ratio Coverage Business recalibration, leading a smaller balance sheet, while maintaining the core business3: INTERNATIONAL BRANCHES (#) OPTIMIZATION OF DOMESTIC BRANCH NETWORK (#) 448 COST TO INCOME (%) 75% 25 2017 1 2021 3. Cost-to-Income defined has Operational Costs divided by Commercial Banking Income 310 48% 2017 2021 2017 2021 11 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESSignificant profitability turnaround and a successful transition to capital-accretive performance NET INTEREST MARGIN (%) 1.42% COST TO RISK (%) 3.91% 0.89% 2017 2021 2017 0.60% 2021 NET INCOME (€mn) 2017 -2 298 184.5 2021 In this new phase, novobanco’s vision leverages its knowledge and strong presence in the corporate segment, defining its identity, principles and values. A Portuguese, Professional, Partner and Proximate bank... PORTUGUESE A leading bank in Portugal, focused on national economic priorities, supporting families and businesses to thrive. PROFISSIONAL A relentless focus on products, services and capabilities devised to serve all-sized businesses, including professional retail customers and households. PERSONALITY PARTNER Leveraging partnership ecosystems to support customers holistic needs to successfully face opportunities and challenges. PROXIMATE Prioritizing omnichannel operating models to deliver convenience and easy-to-bank experience as the pillar of our customer relationships. … and is intrinsically anchored in the principles and values that guide the way to do business: COLLABORATION Collaborating with all stakeholders to reach better outcomes for customers and society. DYNAMISM Assuming continuous transformation, as expectations are evolving at exponential rates, and reinvention to remain relevant. PRINCIPLES AND VALUES DIVERSITY Reﬂecting the different needs of customers and employees in solutions and plans. TRANSPARENCY Remaining authentic and open exchanges of information across all stakeholders. EMPATHY Incorporating the voice of customers and society into the way we do business. 12 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESPEOPLE BUSINESS A team of professionals committed … 4 193 employees of Grupo novobanco €754k investment in training and development 44 training hours (average) per employee ...to supporting families, and driving Portuguese companies to innovate, reinvent, export… 1.4 million clients 96.0% satisﬁed and very satisﬁed clients – Retail 97.9% satisﬁed and very satisﬁed clients – Medium Enterprises FINANCIAL RESOURCES €24.9bn Loans granted €3.0bn Loans origination in 2021 €27.3bn Deposits ...and to turning great difﬁculties into great opportunities… ... using an omnichanel approach based on agile methodology, TECHNOLOGY & EXPERIENCE 13 multidisciplinary agile teams working on digital transformation 722 thousand active clients in the digital channels 35.7% of total sales are digital to give back to community the support it has received. SOCIETY €1.6mn in donations (42% Health Patronage; 33% Social Patronage; 16% Cultural Patronage; 9% Training & Research) 16 paintings loaned in 2021, increasing to 93 the works on permanent exhibition in 36 Museums around the country 790 suppliers registered (of which 99% domestic) Supplier portal promotion program (suppliers with turnover >10k to the group in 2020 13 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES1.1.1 Business Model novobanco is a Portuguese universal bank that provides the full spectrum of financial products to individuals, corporate and institutional clients, serving the entire national territory, with a strong focus on servicing and supporting the Portuguese business community. novobanco business model is based on two main commercial banking segments: i) corporate; and ii) retail. In both segments, novobanco 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. CORPORATE: A HISTORICAL KNOW-HOW IN THE SECTOR RETAIL: A PARTNER FOR HOUSEHOLDS, WITH A WIDE RANGE OF PRODUCTS Highlights: Main Product and Services Offering CASH MANAGEMENT LENDING ACCOUNTS, CARDS & PAYMENTS HOUSING LOANS  Special Accounts and Cards  Drafts, Factoring and Collection solutions  Payment Management  Working Capital ﬁnancing and revenue  Accounts bundled for different needs; anticipation solutions  Lending and guarantees  Leasing and Renting services fully online opening  Strong authentication system; functionalities incl: contactless, virtual cards, MB Way (…)  Acquisition & maintenance works  Online loan submission  Special conditions for young and non-resident INSURANCE HUMAN CAPITAL SOLUTIONS SAVINGS AND INVESTMENT INSURANCE  Property & Casualty insurance  Credit insurance  Small Business insurance  Euroticket and payment cards  Auto lending and renting  Individual insurance  Deposits & retirement accounts  Investment Funds, Unit linked, structured deposits  Discretionary mgmt & advisory  Life Protection  Health and Property & Casualty  Special solutions for self employed workers HELPING CLIENTS TO GO GLOBAL ADVISORY SERVICE SMALL BUSINESS CONSUMER FINANCE  International Trade  Trade Finance  Support to export  RRP and Portugal 2030 ﬁnance partner  Sector speciﬁc solutions  Special Initiatives and fairs  Special small business accounts  Cash and payments management solutions  Multi-risk business insurance  Online simulation and submission  Credit insurance option with unemployment and life coverage  POS lending partnership “Heypay” 14 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESCorporate segment includes SMEs and Large companies, being suppported by 2 corporate and 20 business centre ~1.4 MILLION CLIENTS1 CORPORATE BANKING 55% Weight of corporate credit in overall novobanco portfolio (2021 YE) 58% SMEs in Portugal that are novobanco clients (~12.3k; 2020 YE) 70% Large corporates in Portugal that are novobanco clients (~1.3k; 2020 YE) RETAIL BANKING2    Specialised, diversiﬁed and distinct product offering to meet client needs In addition to the 311 branches, novobanco has an omnichannel approach through helpdesk services, internet, phone and mobile banking Universal product offering including life/non-life insurance and asset management (through GNB Gestão de Ativos) Deposits (€bn) Gross Loans (€bn) Small business ~20% Afﬂuent ~60% Mass Market ~20% ~20% ~30% ~50% MARKET SHARE3 20.2% TRADE FINANCE 15.6% POS 14.4% CORPORATE LOANS 13.0% ASSET MGMT 9.5% MORTGAGE LOANS 9.5% DEPOSITS 5.4% CONSUMER LOANS (1) novobanco group clients, including Novobanco Açores and BEST ; (2) December 31th 2021, End of Period; Affluent includes upper affluent (Singular); % calculated as a proxy of management data; (3) December 2021 data; sources: Banco de Portugal, APS, APFIPP; 15 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESIn addition to novobanco’s branches and corporate and business centres, the novobanco business model is also supported by: novobanco dos Açores is the result of a strategic alliance between novobanco (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 units from all the Azores islands (2.5%). novobanco dos Açores has as its mission to serve its clients (individuals, companies and institutions) and the Azorean regional economy. Its strategy relies on key 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 market and a strong tradition of close relationships with the Clients. Detailed information on the activity of novobanco dos Açores available here: www.novobancodosacores.pt Banco Best - Banco Eletrónico de Serviço Total, S.A. is a digital platform that provides the whole range of products and services of a universal bank, standing out for its strong technological nature and open architecture business model, based on national and international partnerships in the areas of Savings, Asset Management and Trading. Banco Best operates in all segments of retail banking, providing a wide array of services ranging from banking solutions, savings, investments, credit, and day-to-day financial management. Banco Best’s business strategy is especially competitive when it comes to meeting the investment needs of a segment of innovative financial services, not restricted to the domestic market, more independent, diversified and sophisticated. individual clients who seek and value more Banco Best’s strong bet on innovation and dynamic management of a wide network of national and international partners has been key to assert its position as a digital Marketplace of investment solutions: the bank distributes around 6,000 products - Investment Funds, ETFs, Retirement Solutions, Capitalisation Insurance, Discretionary Management, Robot Advisor, etc. - managed by the most prestigious national and international financial entities. Technology is part of Banco Best’s DNA. The bank’s digital channels - App and Website - give clients total autonomy in their relationship with the bank and a pleasant and effortless experience. Through the App and Website - which in 2021 had a major upgrade - clients can, among others: open their account, access information on the entire offer and use the various support tools, monitor market indicators and manage their portfolio - buy and sell, monitor returns -, perform the various operations and fulfil general duties, such as updating data. Detailed information on the activity of Banco Best available here: www.bancobest.pt GNB Gestão de Ativos is one of the national management companies with the largest track record, and the quality of the management of its products and services has been recognised over the years both nationally and internationally. GNB Gestão de Ativos offers financial products and services, including several types of funds – mutual funds, real estate funds and pension funds - besides providing discretionary and portfolio management services. As at December 2021, GNB Gestão de Ativos had €9.9bn in assets under management in Portugal and the Luxembourg. Detailed information on the activity of GNB Gestão de Ativos available here: www.gnbga.pt 16 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES1.1.2 Awards in 2021 novobanco elected Best Trade Finance Bank in Portugal novobanco was, for the third consecutive year, the best Trade Finance Provider in Portugal, by the international magazine "Global Finance". novobanco remains the only Portuguese bank in the Republic's debt issue consortium novobanco remains the only Portuguese bank to be part of the international consortium that will prepare the launch of the Republic's ﬁrst issue of the year. novobanco thus maintains its benchmark position in the international debt market. novobanco elected "Best Distributor Portugal" at the SRP European Awards 2021 novobanco was awarded the "Best Distributor Portugal" prize by Euromoney Group's Structured Retail Products (SRP). The solidity and consistency of its offer in the area of Structured Products and the work that has been developed in this area over recent years are thus recognised at international level. NB Euro Bond was awarded by the Reﬁnitiv Lipper Fund Awards 2021 The NB Euro Bond was awarded by the Reﬁnitiv Lipper Fund Awards 2021, being considered the best Euro bond fund marketed in Europe for the last 3, 5 and 10 years. JAN FEB MAR APR NB Euro Bond, NB PPR and PPR Vintage from GNB Gestão de Ativos won APFIPP awards GNB Gestão de Ativos funds, NB Euro Bond, NB PPR/UCITS and PPR Vintage were awarded in the category of Best Other Bond Fund, in the category of Best Retirement Savings Fund with Risk 4 and in the category of Best Retirement Savings Fund with Risk 3, respectively. novobanco shortlisted for Finovate Awards 2021 novobanco has qualiﬁed for the ﬁnal phase of the innovation awards in the ﬁntech industry, the Finovate Awards 2021, with a solution under the Phygital initiative, the Remote Signature with Unique Signature Number, which is running for the prize for Solution with Best Consumer Experience. novobanco elected by Global Finance "Best Sub-custodian Bank 2021" in Portugal novobanco was ranked the best bank in the provision of Securities Custody Services in Portugal for the 16th time (2021) by the international magazine Global Finance, in nineteen years of this distinction. SEP AUG JUN The novobanco app is a ﬁnalist in the Portugal Digital Awards 2021 novobanco announces that the new App of novobanco (former NB smarter) is a ﬁnalist in the Portugal Digital Awards 2021, among more than 300 candidates. NOV GNBGA wins Best Bond Fund Manager Award (Portugal) by CFI.co GNB Gestão de Ativos was awarded by CFI.co - Capital Finance International the prize for Best Bond Fund Manager (Portugal) 2021, which once again recognizes the performance of the management company in the asset management industry. novobanco elected Best Trade Finance Bank in Portugal novobanco was, for the fourth consecutive year, the best Trade Finance Provider in Portugal, by the international magazine "Global Finance". novobanco App wins Best UX/UI in Finance Initiative at Banking Tech Awards 2021 DEC 17 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES1.1.3 Main Events in 2021 26 MARCH Novo Banco Group Activity and Results - 2020 5 APRIL Novo Banco, S.A. informs on the sale of the Spanish branch business novobanco delivered €189.0mn of adjusted recurrent income before taxes, generated from a recurrent commercial banking income of €787.8mn and operating costs of €418.6mn. novobanco announced that has signed an agreement with ABANCA for the sale of its Spanish branch business. With this agreement, novobanco divests its retail, private banking and SME operations in Spain, including all 10 branches and employees. 29 MAY Novo Banco, S.A. informs about assumptions used to measure the fair value of its stakes in the Restructuring Funds novobanco disclosed further information on underlying quantitative indicators of fair value measurements of novobanco stakes in the Restructuring Funds, classiﬁed at “level 3” (IFRS 13). This information complements the information previously disclosed in the previous Annual Report. 31 MAY Novo Banco, S.A. informs about 1Q21 consolidated results novobanco announced net proﬁt of €70.7mn in the ﬁrst quarter of 2021 with the conclusion of the restructuring plan in 2020 leading to a turn-around in proﬁtability, despite the current pandemic. 7 JUNE Novo Banco, S.A. informs about the Contingent Capital Agreement novobanco noted that it received on 4 June 2021 an amount of €317.0 million under the Contingent Capital Agreement (“CCA”) with relation to 2020 accounts. 23 JUNE Novo Banco, S.A. informs about MREL requirements novobanco informed that it has been notiﬁed by the Bank of Portugal of its Minimum Requirement for own funds and Eligible Liabilities requirements, on a consolidated basis, as determined by the Single Resolution Board, required from 1 January 2022 and from 1 January 2026. MAR APR MAY JUN 25 OCTOBER Novo Banco announces its new image created with the voice of employees 2 AUGUST Novo Banco, S.A. informs about 1H21 consolidated results 13 JULY Novo Banco, S.A. informs about launch of senior preferred debt 28 OCTOBER Novo Banco, S.A. informs about 9M21 consolidated results and Capital Markets Day novobanco announced third consecutive proﬁtable quarter with net proﬁt of €154.1mn in the 9M21. This performance includes one-off negative effect of -€73.5mn (in 3Q21) from the liability management exercise (“LME”), which will generate future savings. novobanco announced second consecutive proﬁtable quarter with net proﬁt of €137.7mn in the 1H21. This signiﬁcant turn-around in proﬁtability demonstrates the capacity of the business to consequently generate capital. novobanco informed that it has launched a senior preferred note in the amount of € 300 million, with a 3 year tenor and the option of early redemption by the bank at the end of year 2. The notes were subscribed at 100% price and have an annual interest rate of 3.5% in the ﬁrst 2 years, and 3-month Euribor plus a margin thereafter. OCT AUG JUL 3 NOVEMBER Novo Banco, S.A. informs about a decision of the Arbitration Court 7 DECEMBER Novo Banco, S.A. informs about prudential treatment of CCA claims from year-end 2021 onwards 15 DECEMBER Novo Banco, S.A. informs about capital increase by conversion of conversion rights 23 DECEMBER Novo Banco, S.A. informs about payment made by Fundo de Resolução under the CCA novobanco informed that the dispute between the Resolution Fund and novobanco regarding the decision to fully implement IFRS 9 was decided by the Arbitral Tribunal to its disadvantage. 30 NOVEMBER Novo Banco, S.A. informs about the conclusion of the sale of the Spanish branch business novobanco informed that it has concluded the sale of its Spanish branch business, announced on April 5th 2021, to ABANCA. novobanco informed that it has received a letter from the Joint Supervisory Team noting that the claims under the CCA should only be recognised as Common Equity Tier 1 item, for the purpose of the own funds’ calculation, once such payment occurs. 13 DECEMBER Novo Banco, S.A. informs about issuance of senior preferred debt novobanco informed that it has issued a senior preferred note in the amount of € 275 million, with maturity on September 15th 2023 and an early redemption option by the bank on September 15th 2022. The notes have an annual interest rate of 4.25%. NOV DEC novobanco informed that following General Shareholders Meeting, the capital increase arising from the conversion of conversion rights relating to the 2015 ﬁscal year was approved. The conversion rights were issued under the special regime applicable to deferred tax assets approved by Law No. 61/2014, of 26 August, as amended. The share capital of novobanco increases to €6,054,907,314. 23 DECEMBER Novo Banco, S.A. informs on Sale and Purchase Agreement of NPL and related exposures novobanco informed on a Sale and Purchase Agreement, with a consortium of funds managed by West Invest UK Limited Partnership and LX Investment Partners III S.À.R.L. respectively, for the sale of its Project Orion (sale price €64.7mn). novobanco informed that it has received from Fundo de Resolução a payment in the amount of €112mn related to the 2020 Contingent Capital Agreement (“CCA”) call, which was pending. 27 DECEMBER Novo Banco, S.A. informs on Sale and Purchase Agreement of NPL and related exposures novobanco informed on a Sale and Purchase Agreement, with an entity owned by companies afﬁliated with and advised by AGG Capital Management Limited and Deva Capital Management Company S.L.U., for the sale of its Project Harvey (sale price €52.3mn). At the date of signature of this report, the transaction was not materialized given that the authorization condition from Fundo de Resolução was not met. 18 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES1.2 ORGANISATION 1.2.1 Governance Model novobanco ‘s management relies on a governance model that is unique and distinct if compared with 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 changed its governance model, having 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 EBD activities 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 Financial Affairs (Audit) Committee, the Risk Committee, the Compliance Committee, the Nomination Committee and the Remuneration Committee. The Financial Affairs (Audit) Committee also has competencies under the terms of the Commercial Companies Code. These committees are chaired by independent members of the GSB and its composition complies with the applicable legislation regarding the chairmanship and 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 novobanco, which are detailed in the Articles of Association. The EBD 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: GENERAL SHAREHOLDERS MEETING Statutory Auditor Company Secretary GENERAL AND SUPERVISORY BOARD EXECUTIVE BOARD OF DIRECTORS MONITORING COMMITTEE Risk Committee Capital, Assets and Liabilities Committee (CALCO) Risk Committee Compliance and Product Committee Internal Control System Committee Digital Transformation Committee Financial and Credit Committee Investment and Costs Committee Impairment Committee Financial Affairs (Audit) Committee Non-Performing Assets (NPA) Sub-committee Sub Committe Risk Model Remuneration Committee Nomination Committee Compliance Committee Sub Committe Operational Risk Further information is provided in the Corporate Governance Report, namely points 5.2.3 General Supervisory Board and 5.2.4 Executive Board of Directors. 19 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES 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 Chairman: Fernando Augusto de Sousa Ferreira Vice-Chairwoman: Magdalena Ivanova Ilieva Secretary: Mário Nuno de Almeida Martins Adegas General and Supervisory Board (GSB) Chairman Vice-Chairman Member M/F Independent Date of 1st appointment Expiry date GSB Seniority Financial Affairs Risk Compliance Nomination Remuneration • Byron James Macbean Haynes • Karl-Gerhard Eick Donald John Quintin Kambiz Nourbakhsh Mark Andrew Coker Benjamin Friedrich Dickgiesser John Ryan Herbert Robert Alan Sherman Carla Antunes da Silva William Henry Newton • • • • • • • • M M M M M M M M F M • • • • • • 18-10-2017 31-12-2024 18-10-2017 31-12-2024 18-10-2017 31-12-2024 18-10-2017 31-12-2024 18-10-2017 31-12-2024 18-10-2017 31-12-2024 18-10-2017 31-12-2024 18-10-2017 31-12-2024 06-06-2018 31-12-2024 01-01-2021 31-12-2024 4 4 4 4 4 4 4 4 3 1 • C • • • • • C C • • • • C • • C • • GSB COMMITTES C - Chairman Board diversity in several dimensions: age6, geo provenance, education & professional background7 GENDER & AGE GEOGRAPHICAL PROVENANCE EDUCATIONAL BACKGROUND PROFESSIONAL BACKGROUND Female 10 1 Male 9 10 4 2 3 1 >60 ]50-60] ]40-50] ≤40 Portugal 10% Austria 10% Germany 20% Gender Age 6. As of December 31st 2021 7. STEM: science, technology, engineering and mathematics Political Sc 10% USA 30% Consultancy 8% Telcos 8% STEM 20% Law 20% UK 30% Business/ Economics 50% Banking 42% Investment Banking 25% Law 17% 20 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESEXECUTIVE BOARD OF DIRECTORS (EBD) ANDRÉS BALTAR GARCIA LUIS RIBEIRO LUISA SOARES DA SILVA ANTÓNIO RAMALHO MARK BOURKE RUI FONTES 21 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESChairman M/F Date of 1st appointment • António Manuel Palma Ramalho Chief Executive Officer Mark George Bourke Chief Financial Officer Rui Miguel Dias Ribeiro Fontes Chief Risk Officer Luísa Marta Santos Soares da Silva Amaro de Matos Chief Legal & Compliance Officer Luís Miguel Alves Ribeiro Chief Commercial Officer (Retail) Andrés Baltar Garcia Chief Commercial Officer Corporate) M M M F M M 18-10-2017* 04-03-2019 18-10-2017* 18-10-2017* 18-09-2018 01-12-2020 Expiry date 31-12-2024 31-12-2024 31-12-2024 31-12-2024 31-12-2024 31-12-2024 * Members of the board in the governance model previous to the sale of 75% stake to LoneStar. EBD Seniority Chairman of EBD Committes Financial and Credit; Digital Transformation; Capital, Assets & Liabilities (CALCO); Costs and Investments; Risk; Internal Control System; Impairment; Compliance & Product; 4 3 4 4 3 1 Board diversity in several dimensions: age8, geo provenance, education & professional background GENDER & AGE GEOGRAPHICAL PROVENANCE EDUCATIONAL BACKGROUND PROFESSIONAL BACKGROUND Spain 17% Ireland 16% Portugal 67% Engineering 17% Law 33% Public Sector 14% Law 14% Business/ Economics 50% Banking 72% 6 1 5 Female Male 6 1 3 >60 ]50-60] 2 ]40-50] Gender Age MONITORING COMMITTEE Chairman: José Bracinha Vieira Member: Carlos Miguel de Paula Martins Roballo Member: Pedro Miguel Marques e Pereira STATUTORY AUDITOR Ernst & Young, Audit & Associados – SROC, S.A., registered in the Portuguese Securities Market Commission (“CMVM”) 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 CMVM under number 20161271 and in the OROC under 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. COMPANY SECRETARY Mário Nuno de Almeida Martins Adegas Ana Rita Amaral Tabuada Fidalgo (Alternate Secretary) 8. A 31 de dezembro de 2021 22 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES1.2.3 Human Capital novobanco 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 and maintain their motivation. EVOLUTION OF NUMBER OF EMPLOYEES (#) BREAKDOWN BY GENDER (%) -389 4 582 4 193 2020 2021 53% Women 54% 47% Men 46% 2020 2021 AVERAGE AGE OF EMPLOYEES (# years) AVERAGE SENIORITY OF EMPLOYEES (# years) +0.7 44.9 45.6 18.0 +0.7 18.7 2020 2021 2020 2021 23 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES2.0 OUR STRATEGY 2.1 Overview 2.2 DGCOMP Commitments Hernâni Oliveira Rating Department - Senior Risk Analyst 24 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES2.1 OVERVIEW With the beginning of a new phase, and with a new image, in October 2021, novobanco disclosed its new strategic plan to the capital market and the general public ( link: https://youtu.be/OuoVeFCSZy8 ). The new brand started with a challenge: “Be the voice of change”. A challenge for all employees to take part in the creation of a more modern, more dynamic, more ours, visual identity, making it closer to a world that is also in permanent transformation. The collective voice of novobanco was self-created from the individual voice of each employee and graphically expressed in sound waves. The new strategic plan factors in the macroeconomic conditions brought about by the pandemic, such as economic growth that benefits from the Recovery and Resilience Plan (RRP), in a low interest rate environment and with a challenging economic outlook. The initiatives implemented under the new strategic plan also aim to address the increasingly competitive environment in banking and financial services, and the growing pace of change and disruption. Successfully implementing disruptive initiatives and adopting ecosystem business models is critical for novobanco to keep exceeding customer experience expectations and maximising customer value, while maintaining profitable operations and ensuring capital efficiency. novobanco’s strategic plan comprises 4 pillars ... A universal customer-centric bank Simple & efﬁcient Proﬁtable and safe risk proﬁle Talent & innovation Focus on customers needs offering a disruptive value proposition Leverage on simpliﬁcation, process reengineering and technology Enhance risk decisioning models and governance, improving asset quality Develop our people & transform our workforce, to foster an innovation culture Omnichannel distribution of simple and innovative products and services Streamline organizational structure to maximize effectiveness & ﬂexibility Disciplined risk-management, optimize capital allocation and RWAs Motivate & reward performance aligning individual objectives to strategic goals 25 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES A universal customer-centric bank A historical know-how in the Corporate sector aligned with development of enhanced and value-added products and services: novobanco online empresas Corporate digital transition Investment Support Programs EU funding Trade Finance Helping Clients to go Global  A new online service to simplify and support company's  Support clients to pursuit and implement opportunities  Strong presence in the Corporate Market, with particular ﬁnancial management on a daily basis, by being analytical and predictive.  Designed to provide better user experience and enabling a more intuitive navigation (eg: new main page, menus, search, documentation and support).  Option to include a ﬁnancial aggregator (including external accounts), ensuring ﬁnancial control and management of payments. driven by EU funding (RRP of €16.6bn; PT 2030 of €33.6bn), enabling solutions towards a more digitalized, innovative, sustainable and export-oriented economy.  Partnering with specialists to provide a wide range of solutions: i) effectiveness of the application process; ii) guarantees and complementing EU-funding by offering tailored solutions; iii) bridge ﬁnancing focus on the exporting SMEs Trade Finance market share1: >20% (+0.9pp YoY)  Supported by dedicated and specialized teams  E2E supply chain ﬁnance Allowing customers to have integrated ﬁnancing solutions tailored to their end-to-end needs (1) 11/2021 data; novobanco analysis; sources: Banco de Portugal, APS, APFIPP A partner for households, providing within the Retail sector a wide range of products and focused on margin and value-add service, together with a new strategic approach to consumer loans set to accelerate growth: Home Buying  Complete omnichannel: simulation to deed  Simpler, quicker & more transparent  Ecologically sustainable MAIN FEATURES 1. “Approval in principle” & eligibility 2. Proposals: Save & manage 3. Online submission with documents upload 4. Documents: Dynamic checklist Small Business Finance Fully Digital E2E credit for small businesses within novobanco online Focusing on fast onboarding, time-to-decision and cash, increasing customer satisfaction and internal efﬁciency Time to cash under 48 hours Safe, intuitive, paperless, w/ efﬁciency gains >70,000 frequent users ~50% ~50% of deeds with processes originated through mobile of the proposals submitted online are new customers - 40,000 liters of water with the elimination of paper 50% at decision level efﬁciency gains >80% 100% front ofﬁce efﬁciency gains back-ofﬁce efﬁciency gains Consumer Finance Joint-venture with Credibom, allowing the bank to enter the segment of POS (point of sale) credit;  novobanco brings to the JV an extensive base of Medium and Small B2C companies, targeting consumer electronic, home & garden, consumer appliances, medical treatment, eyewear (…);  Credibom brings its POS credit expertise and operational model from origination, to transformation, to recovery 5.9mM€ Portuguese consumer ﬁnance origination in 2020 (source: BdP) +300 +600 corporate relationship managers with deep industry experience companies w/ B2C operations interested in POS credit facility Investment Advice Dedicated platform w/ wide product range: a personalised investment advice tool to understand customer needs, product knowledge and experience, risk appetite, investment horizon and goals Proposals submitted since inception (#) ~13 300 ~8 900 ~6 400 ~2 800 ~490 2020 1Q21 1H21 9M21 2021 Execution ratio (%) >60% 26 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESServing customers with a full spectrum of channels with complementary roles: OMNICHANNEL PoS A/VTMs Web and Mobile Contact Hub E L O R Collect payments and expand functionalities to enable value-added services Increase speed, convenience & cost-effectiveness in cash & equivalent transactions at the branch Speed and convenience for simple servicing and sales, capture trafﬁc and cross-fertilize other channels Simple servicing, client remote support to self-served channels and inside sales/redirection to other channels Remote RM & Mobile AC Increase remote servicing to mass to industrialize relationship and to afﬂuent to steer to lower cost-to-serve channels Branches & corporate centers Smaller network of multi-format and modular branches; Promote retail and commercial collaboration via shared spaces Partners Network of partners to promote and expand client acquisition capabilities DIGITAL HUMAN REMOTE FACE TO FACE Providing an integrated customer experience leveraging on a new distribution/branch model and a best-in-class digital experience: I L E D O M N O T U B R T S D W E N I I  An innovative functional layout focused on customer relationship, including a distinctive self-service, employee mobility and digital communication  >100 branches already refurbished  3-yr nationwide investment program of ~€120mn  Promote customer relationship and business innovation with permanent digital & back-ofﬁce support  Act as a driving force for a thriving economy by being a focal point for individuals and companies Objective fulﬁllment in New branches Evolution of Consumer touchpoints 5% 4% 4% 3% 2% 1% 1% 55% 51% 46% 32% 33% 7% 13% 2015 27% 23% 2017 41% 39% 15% 22% 34% 44% 29% 27% 15% 12% 55% 60% 2019 2021 I E C N E R E P X E L A T G D I I +5pp vs old branches +20% of mobile interactions YoY, leading to “mobile digital ﬁrst” strategy 54% active digital clients (+7% YoY; +4pp YoY) Branch ATM Online Mobile 27 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES New channels, services and personalised customer experience allowed a rapid rise of digital, leading to +165% YoY increase in the share of digital sales (retail sales excluding term-deposits) and unlocking its potential going forward. ONLINE CREDIT FOR BUSINESS FINANCIAL AGREEGATOR HOMEBUYING LIFE INSURANCE  1st E2E integrated digital  Business Financial advisor  From simulation to deed  Simulation and credit solution for business  Analytic & predictive  Simpler, quicker & more transparent  Ecologically sustainable subscription of life insurance on digital channels is made available, offering an omni-channel experience PHYGITAL  Available across the retail network, with ~40% operations coverage, saving +13 tons of paper in 2021 APR 19 JUL 20 SEP 20 OCT 20 NOV 20 DEC 20 MAR 21 JUL 21 DEC 21 DIGITAL ACCOUNT OPENING DIGITAL ACCOUNT OPENING APP: SMARTER INVESTMENT FUNDS NEW WEBSITE NOVOBANCO ONLINE EMPRESAS  Launch of the account  Launch of the video call opening using Digital Key Mobile solution account opening solution  Adaptable, customizable, inclusive & predictive (based on data science)  Subscription of third-party funds through digital channels extended;  Morningstar app solution made available to customers  More customization, SEO and new features;  Launch of online store for non-ﬁnancial products  New version of NBnetwork  Increased user experience, more intuitive navigation and new functionalities Simple & efficient Implementation of accretive commercial operations leveraged by highly efficient operations, through a cost efficiency plan based on 4 levers that play a key role in novobanco distinctive value-proposition. ROBOTIC PROCESS AUTOMATION  Reduce of human error  Reduce time needed to execute tasks / SLAs  Flexibility: execution at non-critical hours  Implementation of extra-controls  Extra time for high-valued activities E2E: RATIONALIZATION & REORGANIZATION Rationalization initiatives (examples):  Replace physical mail by digital communication;  Contracts renegotiation (ie: archive & feeds) Reorganization of processes (examples):  Classiﬁcation of IT projects by nature; ~50 RPAs implemented Bankcard: Activation >550 processes per day  Prioritization of projects based on impact in revenues and costs; Corporate: upload of ﬁnancial statements >50 processes per day  Towards a leaner organization, more efﬁcient and customer-centric. NEW DISTRIBUTION MODEL DIGITALIZATION 28 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES Profitable and safe risk profile Implementing enhanced risk decisioning models improving profitability and asset quality: ENHANCED RISK DECISIONING MODELS DISCIPLINED RISK-MANAGEMENT AND CAPITAL ALLOCATION  Maximize the obtainment of real credit guarantees ensuring the complete characterization in the  New Capital allocation model to determine each segment proﬁtability (with strategic implications) system  Dynamic allocation of balance sheet growth between different segments and its capital impact  Ensure the periodic update of the characteristics of the guarantees received (ie: valuations, real estate insurance policies)  Pricing of new loans is subject to RAROC hurdles  Reduce capital consumption by guaranteeing on-time availability of corporate client’s most recent Leading to: ﬁnancial statements and other qualitative information  Disposal of Spanish operations (YE21)  Disposal of stakes with high RWA density Talent & innovation Implementing a new employee value proposition and talent development program for a renewed workforce: NEW TRAINING PROGRAM NEW LEADERSHIP MODEL TALENT LAB CHALLENGE – 2021 EDITION  To upgrade knowledge of Regulatory, Functional, Leadership and Digital  Complement the new distribution models and the omni-channel approach  Aiming a more agile organization  Talent & Innovation program – from ideation, MVP and delivery; developing employees disruptive ideas aligned with strategy goals; MORE FUNCTIONAL OFFICES TALENT MANAGEMENT PLAN  Aiming to increased productivity  New forms of organization and working models adapted to new spaces (ie: new headquarters; new branches, business centers)  Developing a new career journey, to attract talent and promotes diversity  Technical vs management career with deﬁned requirement/skills Internal challenge to innovate while leveraging on employees' insights and diversity the perspectives that executives are exposed to.  > 30 ideas selected and evaluated after each pitch  > 10 ideas integrated into an intrapreneurship program and the remaining integrated into ongoing initiatives 1 2 3 Promote Circular Economy Opportunities to be captured from the migration of the current business models to the “product as a service” model? Supporting clients in ESG transition How to support corporate clients in their business transition strategy to become compliant with ESG principles? Customized services and products How to customized the offer and predict the best moment to offer solutions to satisfy its customers' needs? 29 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES… with clear financial objectives and targets: A UNIVERSAL CUSTOMER-CENTRIC BANK SIMPLE AND EFFICIENT PROFITABLE AND SAFE RISK PROFILE TALENT & INNOVATION COMMERCIAL LOAN BOOK (PERFORMING) €23bn €23.2bn 2-3% per year LEVERAGING ON EXPERTISE & DIFFERENTIATION 2020 2021 MEDIUM-TERM TARGETS NET INTEREST MARGIN 1.41% 1.42% [1.30 – 1.50%] SAFEGUARD INCOME COST-TO-INCOME 53% 48% < 45% EFFICIENT OPERATIONS CoR 208pbs 60pbs < 50 bps ACHIEVE MODERATE RISK PROFILE NPL RATIO 8.9% 5.7% < 5% CONVERGING TOWARDS EU AVERAGE ROTE (PRE-TAX)1 6% 8.8% ≥ 10% DELIVER ATTRACTIVE RETURNS CET1 10.9% 11.1% > 12% ENHANCE CAPITAL POSITION (1) 2020 RoTE considers recurrent activity only; Considers Underlying profitability pre-tax deducted by special tax on Banks and contributions to resolution funds 30 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES2.2 DGCOMP9 COMMITMENTS TARGETS FULLY ACHIEVED10 In the letter of commitment entered into in October 2017 by the Portuguese State and the European Commission in connection to the process of state aid to novobanco in the context of the sale of 75% of the bank’s share capital to Lone Star, 2021 was set as the year of the end of the restructuring period. These commitments are divided into three categories, and compliance therewith was being closely monitored and confirmed by the Monitoring Trustee appointed by the European Commission: Structural commitments Behavioural commitments Viability 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. 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 bodies11. 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. In the commitment letter and in the business plan submitted by the buyer - which served as the basis for the viability commitments established by the European Commission - it is made clear that the CCA assets on the balance sheet would be cleaned by the end of 2020, with 2021 as the year from which the viability of the bank would have to be proven. Faithful to the commitments’ basic business plan intrinsic, and despite real market conditions being much worse than projected in Lone Star’s business plan - both in terms of the evolution of Euribor rates, and because it did not consider the result of the very negative economic repercussions of the pandemic crisis - novobanco demonstrated, in 2021, its viability, both by systematically posting positive results in all quarters of the year and through the success of the MREL issues made to meet the interim targets imposed by the Single Resolution Board for 1 January 2022. Although at the closing date of this Report confirmation has not yet been obtained from the Monitoring Trustee, whose report for 2021 will only be delivered in the second quarter of 2022, the bank considers that the objectives imposed for 2021 should be considered fulfilled, including the objective of the Pre-Provision Income, which value fixed in 2017 for the year 2021 had been established based on market assumptions much more favourable than those that actually prevailed. 9. Directorate-General Competition – European Commission 10. Pending the Monitoring Trustee’s certification 11. In view of the fulfilment of the commitments for 2019, this latter restriction ceased to be effective in July 2020. 31 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES3.0 OUR PERFORMANCE 3.1 Economic Context 3.2 Highlights 3.3 Novo Banco Group 3.4 Business Segments 3.5 Novo Banco Separate 3.6 Relevant Facts from the Activity and Subsequent Events 3.7 Main Risks and Uncertainties Maria da Conceição Lopes Xavier Operations Departament - Technician Assistant Alexandre Fachada Operations Departament - Operations Assistant 32 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES3.1 ECONOMIC CONTEXT The year 2021 was marked by a recovery in global economic activity. After a 3.5% contraction in 2020, global GDP grew by 5.9% in 2021 as a whole. With the cumulative number of Covid-19 cases rising from 84 million to close to 288 million, especially with the spread of the new delta and omicron variants, the pandemic continued to subdue the behaviour of economic players. Even so, consumers and businesses showed an increasing capacity to adapt to the “Covid economy”. Progress in vaccination, the gradual easing of restrictions on mobility and activity and aggressive monetary and fiscal policy stimuli supported growth, albeit unevenly across economies and with signs of deceleration in the second half of the year. The US economy grew by 5.7% in 2021 (-3.4% in 2020), with the expansion in demand supported by the release of savings accumulated during the lock-down and by fiscal support to households. The household savings rate retreated from a high of 26% of disposable income in April 2021 to 6.9% at year- end. In China, economic activity expanded by 8.1% in 2021 (2.3% in 2020), slowing down throughout the year due to Covid-19 restrictions, problems with global supply chains and constraints caused by the scarcity and the cost of energy. Activity was also restrained by increased regulatory pressure from the authorities, with particularly acute effects on the real estate sector. In the Euro Zone, GDP grew by 5.2% in 2021 (-6.4% in 2020), underpinned by the normalisation trend in activity and the recovery in demand. However, growth was conditioned by delays in vaccination and the reopening of activity at the start of the year, with some economies being more exposed to the sectors most penalised by the pandemic, such as tourism and hospitality. In the Eurozone, the household savings rate retreated from a high of 25% of disposable income in the 2Q 2020 to 15% in the 3Q 2021. ANNUAL RATE OF CHANGE OF GDP (%; Source: IMF, INE) 5.9 5.7 3.5 8.1 2.3 INFLATION RATE (%; Source: Bloomberg, Eurostat) 7.0 5.2 4.9 -3.4 1.4 -6.4 -8.4 Global US China Euro Area Portugal US 2020 2021 2020 2021 5.0 -0.3 Euro Area 33 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES2021 was also marked by an increase in inflationary pressures, with the strong expansion of demand meeting with constraints in global supply chains and production activity, including shortages of labour, raw materials and intermediate consumption, logistical disruptions caused by delays in the transport of goods, a significant increase in energy costs, and forced production stoppages. The price of oil (Brent) rose by 50.2% in the year, to $77.8/barrel. In Europe, the price of natural gas spiked by 268%, driven by a strong increase in global demand in a context of unfavourable weather conditions and lower-than- expected wind power production. Supply was lower than normal, reflecting the fall in the supply of gas from Russia, the reduction in stocks and the effects of under-investment in production capacity. The imbalance between supply and demand and the increase in energy costs drove up inflation. The year- on-year change in producer prices accelerated from 1.6% to 9.6% in the US and from 0.4% to 23.7% in the Eurozone (with the rise in energy costs weighing more in Europe). Businesses partly passed on the increase in production costs to final prices, pushing up consumer price inflation from 1.4% to 7% in the US and from -0.3% to 5% in the Eurozone. The main Central Banks perceived these developments as an essentially transitory phenomenon. However, recognising the risk of persisting higher inflation, several institutions initiated or signalled an easing of monetary stimuli. In the Euro Zone, the ECB kept benchmark interest rates unchanged (deposit facility rate at -0.5%). Yet, in September, it recalibrated downwards the monthly pace of purchases of debt securities under the pandemic emergency programme (PEPP) and, in December, confirmed the end of its net purchases of assets in March 2022. At the end of the year, the American Federal Reserve stopped classifying inflation as transitory and, as a result, stepped up the reduction of the monthly pace of asset purchases and signalled three 25 bps hikes in the fed funds target rate for 2022. Other central banks moderated their purchases of assets and/or initiated cycles of rising key rates. Although with some intra-annual oscillations, the 3-month Euribor closed the year slightly below its level at the beginning of 2020, at -0.572%. This decline reflected the ECB’s relatively more dovish stance compared with other central banks. But the recovery in growth, the rise in inflation expectations and the expected tapering of monetary stimuli have translated into a rise in long-term market interest rates, especially as from August. The 10-year Treasury yield rose from 0.91% to 1.51% (with a spike of over 1.74% in March). In the Eurozone, the Bund yield for the same maturity increased from -0.569% to -0.177%. In this context, the year-end was marked by a flattening of the yield curve (10Y-2Y) in the US and the Eurozone. The euro lost 6.9% against the dollar in 2021, to €/$1.137, with the US currency benefiting from the more dynamic US economy and the Fed’s relatively more hawkish stance. EVOLUTION OF PUBLIC DEBT YIELDS 10YR (%; Source: Bloomberg) EVOLUTION OF STOCK MARKET INDEX (January 2019 = 100; Source: Bloomberg) 3.4 3.0 2.6 2.2 1.8 1.4 1.0 0.6 0.2 -0.2 -0.6 -1.0 2014 2016 2018 2020 US 1.51 190 170 150 130 Germany -0.18 110 Shanghai Composite S&P 500 Dow Jones Euro Stoxx 600 90 70 2019 DAX 2020 2021 2022 34 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESThe upturn in growth and the environment of ample liquidity provided by expansionary monetary policies supported a value increase in risk assets in 2021. On the equity market, the main indices registered significant gains, notwithstanding an increase in volatility at the end of the year, due to rising inflation and market interest rates. In the US, the S&P 500 and the Nasdaq advanced by 26.9% and 21.4%, respectively. In Europe, the Euro Stoxx and DAX gained 22.3% and 15.8%. In Portugal, the PSI-20 was up by 13.7%. Favourable financing conditions and risk propensity also benefited other asset classes. The credit market saw a narrowing of spreads, despite a sharp increase in corporate debt issues. The context of low yields also favoured investment in alternative assets, including commodities, private debt, digital assets and real estate, among others. Housing prices extended the growth trend already observed in 2020, with the most recent records pointing to year-on-year increases of 18.4% in the US, 4.7% in China and 6.8% in the Eurozone. In Portugal, the economy remained constrained by Covid-19, suffering the effects of a new lock-down in Q1 that led to a contraction of GDP. Activity visibly recovered in the following quarters, though remaining below pre-Covid levels. In the full year, GDP grew by 4.9% in real terms (-8.4% in 2020), with contributions of 3.1 p.p. from domestic demand and 1.6 p.p. from net external demand. Private consumption grew by 5.1%, driven by the rise in disposable income and the reduction in the household savings rate, which allowed making expenses that had been postponed by the confinement. The household savings rate retreated from 12.8% to 10.6% of disposable income, still above its level in 2019 (7.2%). Gross fixed capital formation grew by 4.9% in 2021, in line with the recovery in demand and benefiting, in the second half of the year, from the inflow of European funds. Corporate capital expenditure was, however, restricted by disruptions in the supply chains, which penalised industrial production. Industrial production grew by 2.4% in the year, though remaining below pre-Covid levels. The same disruptions affected the growth of exports, which nevertheless grew by 9.5% in 2021. Foreign sales of goods bounced back to the levels observed before the pandemic, but the same cannot be said for exports of services, still penalised by the impacts of Covid-19 on tourism. In this sector, progress in vaccination and the reopening of the economy allowed a relatively strong recovery in domestic demand. Overnight stays by residents in tourist establishments rose by 36% year-on-year, which is around 10% below 2019 levels. Overnight stays by non-residents increased by 45% compared to 2020, but remained 63% below 2019 levels. Temporary business and labour market support measures, including the simplified layoff scheme, gradual support for business recovery and loan moratoria (ending in September), mitigated the economic impacts of the pandemic. The unemployment rate retreated from 7% to 6.6% of the labour force. The real estate sector proved resilient, with house prices rising by 8.3% in average annual terms, which is close to their growth in 2020. Average annual inflation rose from 0% to 1.3% (1.7% in goods and 0.6% in services), with the year-on-year change in prices reaching 2.7% in December. This movement was mainly driven by the increases in energy and food prices, which rose year-on-year by 11.2% and 3.2%, respectively. The yield on the Portuguese 10-year treasury bonds rose from 0.03% to 0.465%, with the spread vs. the Bund widening by 4 bps only, to 64 bps. EVOLUTION OF THE HOUSING PRICE INDEX IN PORTUGAL (% of average annual change rate; Source: INE) EVOLUTION OF UNEMPLOYMENT RATE IN PORTUGAL (% of active population; Source: INE) 7.1 4.2 3.1 9.2 10.3 9.6 8.4 8.3 -1.9 -4.9 -7.1 18 16 14 12 10 8 6 4 2 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2012 2014 2016 2018 2020 6.6 35 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES2022 should be marked by continued global economic growth above pre-Covid records, but decelerating compared to 2021. Base effects will tend to be less favourable and monetary and fiscal policy stimuli less intense, with the main central banks raising benchmark interest rates (US) or reducing asset purchases (Eurozone). Growth should stem from a gradual normalisation of economic activity, with Covid-19 evolving from pandemic to endemic and activity in services recovering more visibly. The moderation of demand and some improvement in supply constraints should allow for moderation in inflation, especially in the second half of the year. In any case, some increase in market interest rates is expected. For Portugal, a slight acceleration of activity is expected in 2022, with GDP growing by around 5.6%. This is explained by the recovery profile of the tourism activity, benefiting exports, and by the first impacts of the Recovery and Resilience Plan on domestic demand, supporting investment. Overall, the main negative risks include a longer persistence of inflation, forcing more aggressive interest rate hikes than expected by central banks. Tighter monetary and financial conditions could lead to a revaluation of assets in the financial and real estate markets, penalising investor confidence. New and more disruptive waves of the pandemic could delay the normalisation of supply chains. Higher than expected energy price increases could penalise production and consumption. Confidence and spending propensity may be constrained by uncertainty and instability generated by political events. The evolution of economic activity will also be conditioned by some structural trends, including, among others, digitisation and automation, the energy transition, and new consumption habits and demands. 3.2 HIGHLIGHTS HIGHLIGHTS FIRST YEAR-END WITH POSITIVE PROFITABILITY • Commercial banking income, comprising Net interest income (+3.3% YoY) plus Fees and commissions (+3.9% YoY), increased 3.5% YoY to €855.9mn in 2021 (1Q21: €208.5mn; 2Q21: €216.3mn; 3Q21: €213.2mn; 4Q21: €217.9mn). The improvement in net interest income reflects the reduction in average deposit rates, the lower cost of long-term financing and the maintenance of the pricing discipline. • The Bank’s core operating income (commercial banking income minus operating costs) increased to €447.6mn (+13.3%; +€52.4mn YoY), driven both by improved commercial banking income and reduced operating costs (-5.4%; -€23.5mn YoY), as a result of continued digital investment and operational optimisation. • Further improvement of Cost to Income ratio, excluding markets and other operating results, reaching 47.7% (vs 52.2% in 2020); • Credit impairments for credit totalled €149.4mn, including €71.8mn impairments for Covid-19 related risks, a YoY reduction of -71.5% or -€375.1mn. The cost of risk was 60bp, or 31 bps excluding impairments for Covid-19 related risks, demonstrating the successful ongoing de-risking strategy of the portfolio. SOLID BUSINESS MODEL WITH RESILIENT LENDING AND DEPOSITS GROWTH • Net customer loans at €23.7bn, broadly stable across corporate, mortgage and consumer loan portfolio, also taking into account NPL disposals during the year; • Total customer funds increased by +6.6% YTD, with customer deposits increasing by 4.7% (+€1,222mn), reflecting the continued confidence of clients in novobanco; • The continuous investment in digitalisation, set to provide a unique omnichannel customer experience based on the new distribution model and digital transformation, led to an increase by 7% YoY in active digital customers to 54.4% of total customer as of December 2021 and to a significant increase in the number of products sold through the digital channels (+165% YoY; excluding deposits, which traditionally have high digital penetration). The increased importance of digital in sales was particularly visible in Consumer loans (+238% YoY to 1.1k loans granted digitally; 6% of total sales vs 2% in 2020) and Investment Funds (+231% YoY to 28.2k units; 27% of total sales vs 14.7% in 2020); • Continued reduction of the non-performing loans (NPL) ratio to 5.7% (Dec/20: 8.9%), with a coverage ratio of 71.4%, demonstrating the continued de-risking of the balance sheet and reflecting progress towards achieving an NPL ratio in line with European average. • novobanco announces an annual net profit of €184.5mn (vs -€1,329.3mn in 2020). This achievement represents the first annual positive net income of the Group since its creation, an important milestone for the end of the restructuring process initiated in 2017. In 2021, underlying net income (pre-tax) would be €282.7mn, equivalent to 8.8% RoTE (Return on Tangible Equity; pre-tax). STABLE CAPITAL RATIOS AND LIQUIDITY RATIO The Bank is well positioned to continue to support households and corporate customers, with a CET 1 ratio of 11.1% (total capital ratio of 13.1%), liquidity ratio (LCR) of 182% and NSFR of 117%, as of 31 December 2021. 36 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESMAIN HIGHLIGHTS 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 (3) Leverage Ratio 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) Net Stable Funding Ratio (NSFR) 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 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) Operating Costs / Commercial Banking Income Staff Costs / Banking Income (1) EMPLOYEES (No.) Total -Domestic -International BRANCH NETWORK (No.) Total -Domestic -International (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 (4) Updated values 31-Dec-21 31-Dec-20 44 619 24 932 27 315 3 149 11.1% 11.1% 13.1% 6.0% 2 742 16 476 86% 182% 117% 1.2% 5.7% 430.2% 5.0% 0.60% 184.5 0.5% 2.9% 7.1% 42.0% 47.7% 24.0% 4 193 4 165 28 311 310 1 44 396 25 217 26 093 3 147 10.9%(4) 10.9%(4) 12.8%(4) 6.2%(4) 4 740 16 684 90% 140%(4) 112%(4) 2.4% 8.9% 262.2% 6.3% 2.08% -1329.3 -2.9% 1.4% -32.0% 69.9% 52.2% 52.2% 4 582 4 560 22 359 358 1 37 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES3.3 NOVO BANCO GROUP (CONSOLIDATED) 3.3.1 Results At the end of 2021, novobanco reported a profit of €184.5mn (+€1,513.8mn YoY). The change in profit is driven by (i) the improvement in the Bank’s operating income (+€377.7mn), (ii) the lower level of impairments and provisions (-70.4%; -€838.7mn) and (iii) the recognition in 2020 of the loss of €300.2m in the revaluation of the Restructuring Funds. In 2021 the underlying net income (pre-tax) would be €282.7mn, equivalent to a RoTE (Return on Tangible Equity; pre-tax) of 8.8%. The underlying net income (pre-tax) is net of special tax on Banks, and excludes market results and the extraordinary effects of the debt buyback (LME), the change in the pension fund actuarial calculation methodology, Covid provisions and other provisions, including a contingent liability resulting from the change to the real estate tax introduced by the 2021 State budget. 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 Special Tax on Banks Income after Taxes Non-Controlling Interests Net Income for the period 31-Dec-21 31-Dec-20 absolute Change 573.4 282.5 855.9 75.9 40.4 972.2 408.4 563.8 - 352.7 149.4 47.8 155.6 211.1 -15.2 34.1 192.2 7.7 184.5 555.1 271.9 827.0 -72.5 -136.6 617.9 431.8 186.1 -300.2 1 191.5 524.4 41.0 626.0 -1 305.6 1.1 32.8 -1 339.4 -10.1 -1 329.3 18.3 10.6 28.9 148.4 177.0 354.3 -23.5 377.7 300.2 -838.7 -375.1 6.8 -470.4 1 516.8 -16.3 1.3 1 531.6 17.8 1 513.8 mn€ % 3.3% 3.9% 3.5% ... ... 57.3% -5.4% ... 100.0% -70.4% -71.5% 16.5% -75.1% ... ... 4.1% ... ... ... 38 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESINCOME STATEMENT Net Interest Income Fees and Commissions Commercial Banking Income Market 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 Taxes Special Tax on Banks Income after Taxes Non-controlling Interests Net Income Income before Taxes Special tax on Banks Market Results LME one-off Pension Fund Covid Provisions Other one-off provisions Underlying Income Before Tax QoQ Change absolute 2.3 2.3 4.6 101.9 8.9 115.4 1.1 114.3 0.0 122.7 4.1 29.0 89.6 -8.4 -20.1 -0.1 11.9 -2.2 14.1 mn€ % 1.6% 3.2% 2.2% ... 29.3% 62.8% 1.0% ... ... ... 13.5% ... ... -70.4% ... ... 59.4% -61.4% 86.0% 1Q21 145.7 62.8 208.5 52.8 12.2 273.5 102.7 170.8 0.0 61.8 54.9 0.9 6.0 109.0 4.2 32.8 72.0 1.3 70.7 109.0 -32.8 -52.5 0.0 0.0 21.8 10.0 55.5 2Q21 72.8 216.3 40.5 -41.3 215.5 101.4 114.1 0.0 27.4 29.8 15.1 -17.5 86.7 16.9 1.5 68.4 1.4 67.0 86.7 -1.5 -35.4 0.0 0.0 13.4 0.0 63.3 3Q21 140.9 72.3 213.2 -59.7 30.3 183.9 101.6 82.3 0.0 70.4 30.3 1.4 38.7 11.9 -8.1 0.0 20.0 3.6 16.4 11.9 0.0 -11.1 73.5 0.0 5.0 0.0 79.3 4Q21 143.2 74.6 217.9 42.2 39.2 299.3 102.6 196.6 0.0 193.1 34.4 30.4 128.4 3.5 -28.2 -0.1 31.8 1.4 30.4 3.5 0.1 -39.2 0.0 -37.2 31.6 125.9 84.8 In 2021, novobanco Group generated positive net income in all quarters, with quarter-on-quarter progress when excluding the extraordinary charges. Key features of the activity in the year are the following: • Increase in commercial banking income, which amounted to €855.9mn (+3.5%; +€28.9mn YoY), driven by higher net interest income (+3.3%; +€18.3mn YoY), and an improvement in fees and commissions (+3.9%; +€10.6mn YoY); • Capital markets results of +€75.9mn in 2021 mostly due to gains from the hedging of interest rate risk, which offset the negative impact (-€73.5mn) of the LME performed in Q3; • Operating costs are lower YoY (-5.4%; -€23.5mn), standing at €408.4mn (1Q21: €102.7mn; 2Q21: €101.4mn; 3Q21: €101.6mn; 4Q21: €102.6mn), which reflects on the one hand the focus on cost efficiency achieved with processes simplification and optimisation, and on the other hand the investment in the business and in digital transformation, with both contributing to an improvement of the Bank’s efficiency ratios; • In 2021, net impairments and provisions amounted to €352.7mn (including €71.8mn impairment for Covid-19 related risks), representing a YoY reduction of -€838.7mn (-70.4%). NET INTEREST INCOME Net interest margin is stable in 2021 when compared with 2020 (2020: 1.41%; 2021: 1.42%), with a 17bp reduction in the average liability rate, which offset the decrease in the average asset rate as a result of the lower loans rates. 39 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESNET INTEREST INCOME (NII) AND NET INTEREST MARGIN (NIM) Average Balance Average Rate Income / Costs Average Balance Average Rate Income / Costs 31-Dec-21 31-Dec-20 mn€ INTEREST EARNING ASSETS Customer Loans Mortgage Loans Consumer Loans and Others Corporate Lending Money Market Placements Securities and Other Assets INTEREST EARNING ASSETS AND OTHER INTEREST BEARING LIABILITIES 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 24 995 9 905 1 380 13 710 4 602 10 241 39 838 38 148 26 580 10 497 1 070 1 690 39 838 2.01% 1.04% 5.86% 2.33% 0.07% 1.28% 1.60% 0.18% 0.19% -0.51% 6.53% - 0.17% 1.43% 1.42% 509 104 82 323 3 133 645 68 51 -54 71 - 68 577 -4 573 24 939 9 987 1 328 13 624 2 993 10 665 38 597 36 782 25 787 9 913 1 081 1 815 38 597 2.13% 1.20% 6.24% 2.42% 0.54% 1.26% 1.77% 0.35% 0.27% -0.13% 6.70% - 0.34% 1.43% 1.41% 541 122 84 335 16 137 694 132 72 - 13 74 - 132 562 - 6 555 The average rate on customer loans was 2.01%, lower YoY (-12bps) given the different business mix (+1bps) and the lower interest rate environment (-13bps). The average customer loans balance slightly increased YoY despite impact by the loan portfolio sales (Projects Wilkinson and Orion). The average balance of deposits was €26.6bn, with an average interest rate of 0.19% (-8bps YoY), and Money Market Funding was €10.5bn, with -0.51% average interest rate, benefiting from the conditions of the ECB long-term refinancing operations. The Group therefore was able to increase the spread between the rate on interest earning assets (1.60%; 2020: 1.77%) and the cost of liabilities (0.17%; 2020: 0.34%) with a positive impact on overall net interest margin (1.42%; 2020: 1.41%). FEES AND COMMISSIONS Fees and commissions amounted to €282.5mn in 2021, representing a 3.9% YoY increase (+€10.6mn). This positive development is driven mainly by (i) a strong performance in Payments Management (+5.3%; +€5.7mn YoY) due to higher volume of transactions and pricing, and (ii) volume increase in the Asset Management & Bancassurance (+10.6%; +€6.5mn), reflecting more robust commercial activity and increased customer appetite. FEES AND COMMISSIONS Payments Management Commissions on Loans, Guarantees and Similar Asset Management and Bancassurance Advising, Servicing and Other TOTAL 31-Dec-21 31-Dec-20 absolute Change 114.2 85.5 68.0 14.8 282.5 108.5 86.3 61.5 15.6 271.9 5.7 -0.8 6.5 -0.8 10.6 mn€ % 5.3% -1.0% 10.6% -5.0% 3.9% 40 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESCAPITAL MARKETS AND OTHER OPERATING RESULTS The results of financial operations were positive by €75.9mn mostly due to hedging of interest rate risk which more than offset the negative impact of LME concluded in the 3rd quarter (-€73.5mn). The LME consisted in the buy-back of expensive senior zero-coupon bonds (~7% yield) with long maturity and will generate future savings of ~€475mn (until maturity). Other operating results amounted +€40.4mn, including gains in investment properties (+€35.4mn), the change in the pension fund actuarial calculation methodology (+€37.2mn), the costs related with contributions to the Single Resolution Fund (-€25.3mn) and to the Portuguese Resolution Fund (-€15.2mn). NET IMPAIRMENTS AND PROVISIONS 31-Dec-21 31-Dec-20 absolute Customer Loans Securities Other Assets and Contingencies TOTAL 149.4 47.8 155.6 352.7 524.4 41.0 626.0 1 191.5 -375.1 6.8 - 470.4 -838.7 Variação mn€ % -71.5% 16.5% -75.1% -70.4% OPERATING COSTS 3.3.2 Balance Sheet and Activity Operating costs decreased 5.4% YoY, reflecting the continued optimisation and simplification of the organisation and its processes. CUSTOMER LOANS OPERATING COSTS 31-Dec-21 31-Dec-20 absolute Staff Costs General and Administrative Costs Depreciation TOTAL 233.3 141.1 34.0 408.4 245.6 153.2 33.1 431.8 - 12.3 - 12.1 0.9 - 23.5 Change mn€ % -5.0% -7.9% 2.8% -5.4% Staff costs totalled €233.3mn (-5.0% YoY), maintaining the downward trend of recent years, and as a result of increased efficiency. As of 31 December 2021, novobanco Group had 4,193 employees (Dec/20: 4,582; -389 YoY). General administrative costs decreased 7.9% YoY, to €141.1mn, benefiting from the implementation of efficiency measures related to reorganisation and rationalisation of processes. The total number of branches as of 31 December 2021 was 311 (Dec/20: 359; -48 branches YoY). NET IMPAIRMENTS AND PROVISIONS In 2021, novobanco Group recorded net impairments and provisions amounting to €352.7mn (including additional impairment for Covid-19 related risks and a provision for a contingency liability for aggravated taxes introduced by the 2021 State budget), a reduction compared to 2020 (-70.4%; -€838.7mn). The cost of risk reached 60bps (or 31bps without the impairment for Covid-19 related risk). novobanco’s strategy is one of supporting the domestic business community combined with a robust and disciplined 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-21 31-Dec-20 absolute YTD Change Loans to corporate customers Loans to Individuals Residential Mortgage Other Loans Customer Loans (gross) Provisions Customer Loans (net) 13 714 11 218 9 812 1 406 24 932 1 248 23 685 13 873 11 344 10 010 1 333 25 217 1 600 23 617 - 159 - 125 - 198 73 - 284 - 352 68 mn€ % -1.1% -1.1% -2.0% 5.5% -1.1% -22.0% 0.3% 41 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESLoans to customers (gross) totalled €24,932mn with the YoY evolution (-1.1%) impacted by the continuing reduction of NPL stock. During 2021, novobanco sold portfolios of non-performing loans and related assets with a gross book value of €373.3mn. The risk indicators of 2021, and comparison with previous year, are presented below: FUNDING Total customer funds amounted to €33.8bn at the end of 2021, showing an increase of 6.6% YTD, being noteworthy the increase on deposits (+4.7% YTD), which represent 80.9% of total customer funds. TOTAL FUNDS Deposits Other Customer Funds (1) Debt Securities (2) Subordinated Debt Sub -Total Off-Balance Sheet Funds Total Funds 31-Dec-21 31-Dec-20 absolute YTD Change 27 315 267 1 054 415 29 052 4 711 33 762 26 093 229 558 415 27 296 4 376 31 672 1 222 38 496 0 1 756 335 2 091 mn€ % 4.7% 16.5% 88.9% 0.0% 6.4% 7.6% 6.6% (1) Includes checks and pending payment instructions, Repos and other funds. (2) Includes funds associated to consolidated securitisation operations. ASSET QUALITY AND COVERAGE RATIOS 31-Dec-21 31-Dec-20 absolute YTD Change 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) Credit Provisions / Customer Loans Coverage of Overdue Loans > 90 days Coverage of Non-Performing Loans 1 1. Includes Deposits and Loans and advances to Banks and Customer Loans 290 1 749 1.2% 5.7% 5.0% 430.2% 71.4% 610 2 498 2.4% 8.9% 6.3% 262.2% 74.1% -320 -749 -1.3 -3.2 -1.3 168.1 -2.6 mn€ % -52.5% -30.0% p.p. p.p. p.p. p.p. p.p. The reduction in loans overdue by more than 90 days and non-performing loans (including deposits with Banks and loans and advances to Banks), led to an improvement in the respective asset quality ratios to 1.2% and 5.7%, respectively (Dec/20: 2.4% and 8.9%). As at 31 December 2021, the provision coverage of NPL by impairments (including deposits with Banks and loans and advances to Banks) was 71.4%. SECURITIES The securities portfolio, which is the main source of assets eligible for funding operations with the European Central Bank (ECB), amounted to around €10.5bn on 31 December 2021, representing 23.5% of assets. net of impairment SECURITIES PORTFOLIO 31-Dec-21 31-Dec-20 absolute YTD Change Portuguese sovereign debt Other sovereign debt Bonds Other Total 3 056 3 197 3 413 805 10 471 3 468 3 710 3 323 866 11 367 - 412 - 512 89 - 61 - 896 mn€ % -11.9% -13.8% 2.7% -7.0% -7.9% 42 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES3.4 BUSINESS SEGMENTS 3.4.1 Corporate In 2021 novobanco maintained its long-standing close involvement with the Portuguese business sector, providing financial support and helping companies to adjust their strategies to the new reality. To serve its corporate clients, as at December 2021 novobanco had two hubs for Large Companies (in Lisbon and Oporto) and 20 Business Centres throughout the country, with teams dedicated to the medium-sized segment. This strong presence in the Portuguese business community has resulted in Bank market shares of 14.5% in loans and 13.1% in deposits in Corporates and SMEs. In 2021, novobanco continued to support its corporate customer base, through three key pillars: • financial support to small and medium-sized companies, with loans to the medium-sized companies posting a significant increase of 4.6%; • management of requests for moratoria and adjustment of repayment schedules to the clients’ financial capacity; On the digital transformation front, the highlight was the launch of the new version of novobanco online for companies. The service has been rethought from the standpoint of user experience, featuring new menus, a new homepage with improved functionality and widgets for quick action and information, easier access to documentation made available by the Bank to the Client, and new help solutions. The new concept was developed incorporating feedback from clients and the commercial and technical teams, the key purpose being to solve the main difficulties experienced on a daily basis, thus allowing a substantial increase in users’ levels of satisfaction and involvement, raising the penetration rate to around 78%. Within novobanco online Empresas, it is worth to highlight the financial aggregator, a digital financial management solution, supported by a strong analytical and predictive component, which aims to improve the operational efficiency of companies. With regard to the assessment made by the corporate clients, the NPS (Net Promoter Score) rose to 32.7, an increase of 4.5 pp compared to the previous year. The main reason for promoters to recommend novobanco is related to the Quality of Service. Hence, the weight of Very Satisfied Customers with the Customer Service reached 89.9%, which represents a YoY increase of 1.2%. • continued focus on the digital transformation, developing remote relationship and signature tools to address the social distancing requirements, and launching a new version of the internet banking service with relevant improvements in terms of functionality and user experience. 3.4.2 Retail A major feature of 2021 was the launch of the new investment support programmes, including the RRP and Portugal 2030, which aim to support the development of the economy by fostering innovation, digital transformation, and clean / renewable energy transition. In this context, a multidisciplinary team was created being focused on the following main areas: i) provision of permanently updated information on the existing programmes, facilitating clients’ access to the available support; ii) partnership with consultants specialising in the preparation of applications to investment programmes; iii) information and clarification addressed to clients, associations and other relevant entities; iv) launch of a specific offer of financial products to cover investment needs under these programmes (e.g.: advances on funds, financing of equity and working capital and issuance of guarantees). In Trade Finance, novobanco provides a wide range of products and specialised advice in support of international trade. The Bank’s know-how in this segment is recognised by its clients, resulting in a market share of around 20.2% (+0.9pp YoY), as well as the market, as seen by the award for best Trade Finance Bank in Portugal by the Global Finance international magazine. novobanco’s positioning relies on building long-term relationships with its clients, as reflected in the continuous optimisation of the commercial network in order to meet clients’ expectations and needs. Considering the ongoing behavioural changes in all age brackets, largely induced by consumption habits created by other industries, it has become essential to be seamlessly available to the clients through their preferred channels, and to be aware of the journey made by each client to adopt the Bank’s solutions - a concept known as Omnicanality. The omnichannel approach maintains the key support of the branch network. novobanco continues to revamp the branch network, redesigning the face-to-face service experience, with greater focus on customised service and space for relaxed and meaningful engagement with the clients. This experience has required a total redesign of the branches’ layout and architecture, creating a transparent ecosystem – main branches have areas for social use in line with trends. There are currently more than 100 branches with the new format (69 of which were redesigned in 2021), and the process for rest is underway. 43 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESWithin the scope of omnicanality, and besides the physical branch network, novobanco has 65 Virtual Teller Machines (VTMs) featuring advanced physical currency management solutions (for cash withdrawal and deposit), which are a key basis for the development of new virtual value-added services, such as product simulation or access to specialists. In terms of customer loans, the main highlight was the origination of €905mn in mortgage loans, with growth more pronounced in the last four months of the year. This growth was underpinned by novobanco’s partnerships strategy, with credit intermediaries increasing by 30% and standing as the Bank’s largest loan origination channel. The universe of clients subscribing to the 360º Link service also continues to expand. 360º Link is a remote manager service with monitoring capabilities for high-value clients who prefer remote contact. The digital channel is central to the customer experience, and novobanco invests much in its digital tools, particularly in journey management tools (physical and digital), following the widespread trend of online search and telephone or in-branch execution. The following main implementations/innovations stand out in 2021: • Account opening remote solutions, using the Digital Mobile Key or by Video Call, offering a complete, fast, smart, more efficient, and entirely digital onboarding experience. This has permitted a reduction of 50% to 100% in front-office time and of more than 100kg in paper sheets consumption; • The new app for individual clients with a fully renewed design and customer experience, adaptable and customisable, inclusive and predictive (data-science-based), and offering a wide range of services and solutions (e.g., aggregation of accounts with other banks, underwriting of investment funds, life insurance, and validation of transactions by push notifications) to improve user experience and security; Consumer Lending (gross stock; consumer lending & other) increased by 5.3% vs 2020. Production through the Digital Channels (4-fold YoY increase) deserves a note, as well as production in the Non- Financial Offer, with continued launches of new products and joint promotion with partners of various events for employees and clients, which yielded an 18% increase vs. 2020. With regard to the investment offer, novobanco, based on a proprietary model, selects and sells the Mutual Funds of independent management companies that best reflect and capture market trends. In 2021, thematic funds were included in the offer, which, together with the structured funds, permit to invest in these market trends, and in particular in Technology, Health and Climate Action. The digital solution available improved the customer experience when subscribing Investment Funds, leading to an increase of 231% in digital sales vs 2020. To support Clients in their investment decisions, novobanco offers an Investment Advisory Service. According to the client’s investor profile and initial portfolio, the advisory service submits the most suitable investment proposals based, among others, on a strategic analysis of different asset classes and sectors, the macroeconomic environment and the definition of the asset allocation. • Homebuying: Reinvention of the home buying experience, from simulation to title deed, providing a comprehensive omnichannel experience. In 2021, 50% of title deeds were mobile sourced, and 50% of online-sourced title deeds correspond to new clients. This allowed for a 40% reduction in the average time per deed and the elimination of paper documents equivalent to 8,000 sheets; The Small Businesses segment (loan portfolio) grew by 7.8% YoY in 2021, based on its ability to closely monitor its clients and recurrently assess the pandemic impact on individuals, as well as whether the clients are prepared for the end of the loan moratoria. Customer funds in this segment grew by 15.2%, denoting a propensity to save in a period of uncertainty. • Phygital: implementation of mobility and information sharing solutions (in person and remote), cementing the Bank’s relationship of transparency and proximity with the clients and its omnichannel strategy, speeding up and simplifying processes through different types of digital signatures, and fostering a paperless culture based on more secure and efficient practices. More than 85% of the eligible transactions are carried out through the new solutions, which permits to save more than 13 tonnes of paper. Reflecting the strategy implemented by novobanco, in 2021 customer acquisition in the Retail segment increased by 7% YoY, with approximately 30% of the new clients being under 25 years (which compares with a 10% stock of clients in this age group) - a relevant trend of rejuvenation of the Bank’s customer base. In this context, the Cross-Segment Programme, which gives employees of companies with which the Bank has relationships access to more favourable conditions in several of the Bank’s products and services, accounted for 22% of all individual clients onboarded in 2021. In both the Corporate and the Retail segments, the purpose of digital transformation involves i) accelerating front-to-back digitisation, improving experience and efficiency by addressing the customer journeys and transforming the operating model, and ii) transforming the digital channels to ensure a fully omnichannel experience and greater customisation, leveraging best-in-class data science. This strategy drove an increase in the number of active digital clients, to 54.4% of the total in December 2021 (the number of digital clients increased by 7% YoY) as well as a 12% annual rise in the number of active mobile clients (40% of clients are mobile). In turn, this underpinned an annual increase of > 165% in the number of product units sold through the digital channels (excluding deposits, which are already traditionally high). 44 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESIn 2021, 72% of novobanco contacts with individual clients were made through the digital channels (+3 pp vs. 2020). Reflecting a reinforced focus on a “mobile digital first” strategy, mobile continues to be the main means of contact of individual clients, with interactions (as measured by the number of logins) growing by 20% vs. 2020. CUSTOMER LOANS EVOLUTION (€mn) -1.7% 356.5 350.4 ACTIVE DIGITAL CLIENTS PENETRATION RATE 39.5% 41.9% 44.8% 46.6% 48.0% 49.0% 50.3% 52.6% 53.5% 54.4% 26.8% 29.4% 32.2% 33.4% 35.6% 37.7% 39.3% 40.3% 19.3% 22.6% 5% 55% 4% 51% NET PROFIT EVOLUTION (€mn) 32% 33% Dec.17 Jun.18 Dec.18 Jun.19 Dec.19 Jun.20 Dec.20 Jun.21 Sep.21 Dec.21 Total Mobile 7% 2015 13% Branch 4% 2020 46% 27% 23% 2017 ATM 2.8 3% 41% 22% +71% 34% 2% 2021 39% 15% 44% 4.8 2019 Online 1% 29% 15% 55% 1% 27% 12% 60% 2021 Mobile 39.5% 41.9% 44.8% 46.6% 48.0% 49.0% 50.3% 52.6% 53.5% 54.4% 26.8% 29.4% 32.2% 33.4% 35.6% 37.7% 39.3% 40.3% 19.3% 22.6% CUSTOMER TOUCHPOINTS 5% 55% 33% 7% 4% 51% 32% 13% Dec.17 Jun.18 Dec.18 Jun.19 Dec.19 Jun.20 Dec.20 Jun.21 Sep.21 Dec.21 2015 4% 46% 27% 23% 2017 3% 41% 22% 34% 1% 29% 15% 55% 2% 39% 15% 44% 2019 1% 27% 12% 60% 2021 2020 2021 CUSTOMER DEPOSITS EVOLUTION (€mn) 392.7 +8.8% 427.2 Total Mobile Branch ATM Online Mobile 2020 2021 novobanco dos Açores The strategy of novobanco dos Açores is particularly focused on supporting the Azorean regional business fabric, namely SMEs and companies that incorporate innovation in their products, services or production systems. In 2021, novobanco dos Açores continued its wide-ranging outreach activity to its Clients, supporting the pressing and growing needs of the Azorean society, to which contributed the opening of the first of its branches designed in accordance with the new distribution model implemented at novobanco Group level. As a result of the activity developed and the proximity maintained with the market, novobanco dos Açores managed to gain more than 1,200 new clients in 2021. novobanco dos Açores, posted a net profit of €4.8mn, a YoY increase of 71.4%. This increase, which occurred despite the reduction in net interest income, is mainly due to the lower level of impairments and provisions, mainly for non-financial assets (real estate), and to the reduction in operating costs. In 2021 novobanco dos Açores’s assets increased by €42.1mn (+7.2%), to €627mn, notwithstanding the annual reduction in net customer loans (-1.7%; -€6.1mn), to €350.4mn. In December 2021, customer loans totalled €7.3mn, which corresponds to an overdue loans ratio of 2.0% only. As to customer funds, in December 2021 the total amount of customer deposits was €427.2mn, which represents an increase of 8.8% compared to December 2020. 45 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESBanco Best - Banco Electrónico de Serviço Total, S.A. In 2021, Banco Best reached an all-time high in terms of assets under management, which, at €2.7bn, rose by €529mn compared with 2020 (+24%). The main drivers of this result were growth in the Asset Management segment (+ €421mn; +33%) and in Trading (+ €62mn; +25%). Customer loans increased by 20% in the year. New clients acquisition performed very well, with a 41% increase. The clients favoured the digital media, with 40% of accounts opened by videoconference or digital mobile key. 2021 HIGHLIGHTS Banco Best closed 2021 with a net profit of €3.3mn, which represents a YoY increase of 83%. This performance benefited from the increase in fee and commission income (€3.2mn; +22%), underpinned by the excellent performance of the main Asset Management and Trading commercial indicators, as well as by operating costs control (-3.3% vs 2020). Digital Channels Offer & Innovation Processes & Structural The channels (App and Website) had a crucial boost from the modernisation of the image, the integration of new products, services and functionalities, and the transformation of processes, with signiﬁcant impacts on UX/UI, including the following:  All investment solutions and products (e.g., ETFs, Equities) as well as other tools and functionalities (e.g., dashboard, Smart search) made available on the App;  Account opening on the App, Website and internal channels; process redesign, passport identiﬁcation and automatic PEP validation;  Website redesign – including the clients’ transactional website Consolidation of leadership in the management of a digital open platform of investment and trading, with the introduction of new partnerships and solutions: The investment in activity support generated additional value for the client, and improved the efﬁciency of processes and the management of operational risk:  Alternative investment offer - Investment in Collaborative  App - Certiﬁcation of equipment for security alerts, device Finance through a partnership with RAIZE; management and cards – Best Guardian;  New insurance partnership, providing access to an extensive offer of Protection Insurance through the MDS platform;  Strengthening of the active-active systems infrastructure through the introduction of a smart arbitration mechanism;  New investment partners: Sixty Degrees, Natixis, Bluebay  Digital transformation of the Account opening process; and Nomura;  PSD2 - review of ﬂows and API on the website and App. Rankia 2021 Awards: Best Funds Platform for the second consecutive year and Best ETF Broker. 46 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESGNB Gestão de Ativos GNB Gestão de Ativos maintained its management focus on the offer of products and services that create financial value for its clients. The quality of management and consistency of performance were recognised with 10 awards during the year, both domestic and international, including Morningstar Fund Awards Portugal 2021, Refinitiv Lipper Awards and the Best Funds Awards - Jornal de Negócios/ APFIPP with the NB Obrigações Europa, NB Euro Bond, NB PPR and FP PPR Vintage funds earning awards for their performance in 2020. GNB Gestão de Ativos also earned the award for Best Bond Fund Manager (Portugal) 2021 from CFI.co – Capital Finance International. In 2021 income from asset management activities increased by 26%, to €10.3mn, driven by positive impacts from both the side of revenues - with net fees and commissions growing by more than 4% -, and from the side of costs, which fell by around 8%. In 2021 the cost-to-income was 46%, a sharp reduction from 54% in 2020. Highlights in 2021: ASSETS UNDER MANAGEMENT (December 2021) 13% 12% €9.9bn 48% 27% 8.2 +26% 10.3 Gestão de Patrimónios Fundos de Pensões Real Estate Fundos Mobiliários 2020 2021 • Assets under management of all mutual funds domiciled in Portugal and Luxembourg increase by 16%, to €1.3 billion. With the aim of increasing the focus on the most suitable products for its clients, while maintaining considerable diversification of products and services, in 2021 the offering was restructured and two funds on the Luxembourg platform were liquidated. NET PROFIT EVOLUTION (€mn) • GNB Real Estate’s management remained faithful to its mission of creating financial value, pursuing its main objective of reducing exposure to non-strategic real estate and reorganising the portfolio of real estate funds under its management. At 31 December 2021 the volume under management of real estate investment funds totalled approximately €1 083mn (+1.54% vs 2020). GNB Real Estate closed 2021 with a market share of 9.9% (vs 9.8% in 2020). €9.9bn 48% 12% 13% 8.2 +26% 10.3 • In the Pension Funds segment, assets under management grew by 7%, to €2.63bn, with four more corporate pension plans, two of which closed-end, contributing to this growth. 27% Gestão de Patrimónios Fundos de Pensões Real Estate Fundos Mobiliários 2020 2021 47 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES3.5 NOVO BANCO SEPARATE Results novobanco reported a net profit of €225.9mn in 2021, which compares with a net loss of €1 374.2mn in 2020. Operating costs totalled €380.8mn, a YoY reduction of 5.4% that reflects the improvements achieved in recent years in terms of simplifying processes and optimising costs and structures. Commercial banking income reached €832.0mn (+2.4% YoY), driven by the increase in net interest income (+2.3%) and in fees and commissions (+2.8%). Net operating income was positive, at €505.7mn. Impairments and provisions registered a notable reduction of 77.4% relative to the previous year, to €270.4mn. Capital market results were positive, at €78.0 million, which compares with -€224.2mn in 2020 (negative impact of €300.2mn in Dec-20 from the independent valuation of novobanco’s restructuring funds). 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 Taxes Special Tax on Banks Net Income for the year 31/Dec/21 31/Dec/20 % Change mn€ 581.1 251.0 832.0 78.0 -23.6 886.4 380.8 505.7 0.0 270.4 147.1 47.3 76.0 235.3 -24.0 33.4 225.9 568.0 244.2 812.2 -224.2 -35.9 552.1 402.7 149.4 -300.2 1 195.5 520.5 40.9 634.1 -1 346.3 -4.2 32.2 -1 374.2 2.3% 2.8% 2.4% ... 34.3% 60.6% -5.4% ... 100.0% -77.4% -71.7% 15.8% -88.0% ... ... 3.8% ... 48 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESActivity novobanco’s activity in 2021 was developed under the same guidelines already referred for novobanco Group. ACTIVITY EVOLUTION 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 (1) Includes checks and pending payment instructions, Repos and other funds. 31/Dec/21 31/Dec/20 absolute Change 44 341 23 165 9 599 8 334 1 265 13 566 28 432 26 739 259 1 019 415 44 042 23 332 9 609 8 395 1 214 13 723 26 709 25 557 222 515 415 299 - 167 - 10 - 61 51 - 157 1 723 1 182 37 504 0 mn€ % 0.7% -0.7% -0.1% -0.7% 4.2% -1.1% 6.5% 4.6% 16.7% 97.8% 0.0% At 31 December 2021, deposits totalled €26.7bn, an increase of €1.2mn compared to December 2020 (€25.6bn). Gross customer loans totalled €23,165 million (-0.7% vs. Dec-2020), such decrease being influenced by the strategy of reducing non-performing loans (NPL). In 2021, sales of non-performing loan portfolios and related assets amounted to €367.1mn (gross). The quality of the loan portfolio at the end of the period shows a cross-cutting improvement in novobanco’s asset quality. The overdue loans > 90 days / gross loans ratio improved to 1.2% (from 2.6% in Dec-20), with the NPL coverage ratio rising to 72.3% (64.9% in Dec-20). ASSET QUALITY DATA BASIS (Euro millions) Customer Loans (gross) 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* * includes Credit Institutions 31/Dec/21 31/Dec/20 absolute Change 23 165 301 283 1 537 1 708 1 236 1.3% 1.2% 6.6% 5.9% 5.3% 409.9% 437.3% 72.3% 23 332 616 603 2 054 2 445 1 587 2.6% 2.6% 8.8% 9.3% 6.8% 257.5% 263.3% 64.9% - 167 - 315 - 320 - 516 - 736 - 351 -1.3 -1.4 -2.2 -3.4 -1.5 152.4 174.1 7.4 mn€ % -0.7% -51.1% -53.1% -25.1% -30.1% -22.1% p.p. p.p. p.p. p.p. p.p. p.p. p.p. p.p. 49 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES3.6 RELEVANT FACTS FROM THE ACTIVITY AND SUBSEQUENT EVENTS Relevant Facts of 2021 are mentioned in point 1.1.3 Main Events of the Management Report. SUBSEQUENT EVENTS Following the sale agreement between the Resolution Fund and the shareholder Lone Star, on February 24, 2022, the Resolution Fund transferred the ownership of shares to Nani Holdings as a result of the capital increase through conversion of conversion rights. The participation of Nani Holdings in novobanco remains at 75%, with the participation of the Resolution Fund being diluted to 23.44%. 3.7 MAIN RISKS AND UNCERTAINTIES 2022 will continue to be marked by consequences of 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 restrictions, with potential impacts in terms of Credit and Liquidity Risk. The main risks and uncertainties for novobanco are the following: 1. Credit Risk relating to the adverse consequences of the Covid 19 pandemic The impact of Covid-19 on global markets has been wide-ranging, with increasing short-term volatility and a contraction in activity in the main economies worldwide. The pandemic has led various countries, including Portugal, to declare a state of emergency and to adopt different restrictive measures (including constitutional exception measures), such as the imposition of travel restrictions, the establishment of quarantines and the temporary shutdown of various institutions and businesses. Although the full implications of the Covid-19 outbreak cannot be entirely determined yet, the pandemic has had a material adverse impact on the Portuguese economy and on the Portuguese market. The risk of a new wave it’s not completely out of expectations until pandemic comes to an end. 2. The bank still have a significant credit risk novobanco is exposed to credit risk, meaning, by definition, the risk that the Group’s borrowers and other counterparties are unable to fulfil their payment obligations and that the collateral securing payments of these obligations is insufficient. Adverse changes in the credit quality of the Group’s borrowers and counterparties, a general deterioration in Portuguese or global economic conditions or increased systemic risks in financial systems could affect the recovery and value of the Group’s assets and require an increase in provisions for bad and doubtful debts and other credit losses. As of 31 December 2021 the ratio of overdue loans greater than 90 days to gross loans was 1.1% with a coverage ratio of 438.8% and the ratio of non-performing loans was 5.2%, compared to 8.9%. as at 31 December 2020, with a coverage ratio of 72.0% (74.1% as at 31 December 2020). 3. Exposure to Real Estate The Group is exposed to fluctuations in the value of Portuguese real estate, both directly through assets related to its operations or obtained in lieu of payment, or indirectly, through real estate that secures loans or by financing real estate projects. As of December 2021, the Group’s real estate exposure totalled €0.8 billion, which represented 1.8% of total assets (vs 2.0% in December 2020). Assets registered as investment properties amounted to €0.6 billion at 31 December 2021 (vs €0.6 billion in 31 December 2020), and the real estate assets registered as other assets amounted to €0.2 billion as at 31 December 2021 (including €170 million net repossessed real estate). 4. Changes in interest rates may adversely affect the bank’s net interest margin and results of operations novobanco is subject to interest rate risk. As is the case with other banks in Portugal, the Group is particularly exposed to differentials between the interest rates payable by it on deposits and the interest rates that it is able to charge on loans to customers and other banks. This exposure is increased by the fact that, in the Portuguese market, loans typically have floating interest rates, whereas the interest rates applicable to deposits are usually fixed for periods that may vary between three months and three years. As a result, Portuguese banks, including novobanco, frequently experience difficulties in adjusting the interest rates that they pay for deposits in line with market interest rate changes. This trend is reinforced by the current historically low interest rates that put pressure on the bank’s interest margin, which is crucial for its profitability. 5. Concentration risk in credit exposures The bank is subject to a concentration of credit risk in particular industries, countries, counterparties, borrowers, issuers and customers. novobanco’s loans and advances to customers, which comprised a net amount of 53% of the Group’s assets as at 30 December 2021 (53% as at 31 December 2020), had significant exposure with respect to the services sector and real estate activities, which represented 50 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES12.2% and 6.7%, respectively, of its loans and advances to customers as at 31 December 2021 (11.9% and 7.0%, respectively, as at 31 December 2020). Macroeconomic downturn or deterioration in real estate values, adverse business conditions, market disruptions or greater volatility in those industries as a result of lower prices in such industries or other factors could result in significant credit losses for the Group. Additionally, the Group is exposed to risks arising from the high concentration of individual exposures in its loan portfolio, with the 10 largest loan exposures of the Group as at 31 December 2020 representing 10.1% of the total loan portfolio (gross) (10.2% as at 31 December 2020). With the geopolitical uncertainty and the slowdown of the world’s main economies, the financial markets sustained large and widespread losses, foreshadowing a severe deterioration of the global macroeconomic scenario. This environment generates risks for all Financial Institutions, namely: i) stock of non-performing assets and their potential growth; ii) cybercrime and disruption in Information Technology (IT); iii) low interest rates; and iv) growing competition from non-banking entities. 6. The bank’s business is subject to operational and cybercrime risks The bank is subject to certain operational risks, including interruption of service, errors, fraud by third parties (including large-scale organised fraud, as a result of the Group’s financial operations), fraud by the bank’s own employees, breach or delays in the provision of services, breach of confidentiality obligations with regards to customer information and compliance with risk management requirements. Despite the mechanisms in place today, novobanco may be unable to successfully monitor or prevent all or part of these risks in the future. Any failure to successfully execute the bank’s operational risk management and control policies could result in reputational damage and/or have a material adverse effect on the Group’s financial condition and results of operations. 7. The bank’s activity is subject to reputational risks The bank is exposed to reputational risks understood as the probability of negative impacts resulting from an unfavourable perception of its public image, whether proven or not, among customers, suppliers, shareholders, analysts, employees, investors, media and any other bodies with which the bank may be related, or even public opinion in general. novobanco is subject to continuous political and public scrutiny (including, but not limited to) in relation to its incorporation and the Lone Star sale, in particular the existence of the CCA and its funcioning, which have led to a number of political initiatives such audits from the Court of Auditors (Tribunal de Contas) at the request of the Portuguese Parliament, and the creation of a Parliament Inquiry (Comissão Eventual de Inquérito Parlamentar às perdas registadas pelo novobanco e imputadas ao Fundo de Resolução). In addition, as a result of the rules introduced by Law No. 15/2019 of 12 February, on transparency of information concerning granting of credits of significant value, some independent audits have and may continue to be performed in the future. 8. Military operation on the territory of Ukraine On 24 February 2022, the Russian Federation began a military operation on Ukrainian territory, triggering a war that currently involves three countries (Russia, Ukraine and Belarus). In response, a group of countries, including the NATO and European Union countries, and others, approved several sanctions with the aim of impacting Russia’s economy, and also the economy of Belarus. There is the possibility that novobanco will be impacted by losses on assets exposed to those countries as a result of the said sanctions, as well as the destruction caused by the war in Ukraine. novobanco’s exposure - Customer loans and securities - to the Russian Federation, Belarus and Ukraine as at 31 December 2021 totalled 49.3 million euros. Note 47 - Subsequent Events in novobanco Group’s Consolidated Financial Statements and Notes includes additional detail, including the breakdown by asset type and country. 51 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES4.0 CAPITAL, LIQUIDITY & RISK 4.1 Capital Ratios 4.2 Liquidity and Funding 4.3 Risk Management Vânia Elias South Retail Department - 360 Senior Client Manager Nelson Soças South Retail Department - Branch manager 52 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES4.1 CAPITAL RATIOS As of 31 December 2021, the CET1 ratio was 11.1% and total capital ratio was 13.1% (preliminary values). 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. 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, in force since June 2020, regarding the calculation of capital ratios, aimed at mitigating the impacts of the Covid-19 pandemic. In these circumstances, novobanco adhered to the dynamic option of the transitional regime of IFRS 9. novobanco’s Common Equity Tier 1 (CET1) ratio is protected up to a predetermined threshold for the amounts of losses verified in a perimeter of assets as outlined by the Contingent Capital Agreement. The amount of compensation to be requested with reference to 2021 is €209.2mn (with this amount not included in the calculation of regulatory capital with reference to 31 December 2021), took into account the losses incurred in the assets covered by the Contingent Capital Agreement, as well as the minimum capital condition applicable at the end of the same year under the Contingent Capital Agreement. Regarding the amount requested from the Resolution Fund for the year 2020, there are two divergences between novobanco and the Resolution Fund, i.e. (i) the provision for discontinued operations in Spain and (ii) valuation of participation units, which are subject to an arbitration decision. novobanco considers these amounts (in aggregate equal to €165mn) as due from the Resolution Fund under the Contingent Capital Agreement, and has triggered the legal and contractual mechanisms at its disposal. Additionally, novobanco and the Resolution Fund have a divergence, subject to arbitration, concerning the application by novobanco, at the end of 2020, of the dynamic option of the transitional regime of IFRS 9. 11.1% 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 (1) Updated values (2) Preliminar CET 1 (phased-in1; Preliminary; %) TOTAL CAPITAL (phased-in1; Preliminary; %) 2.4pp 4.9pp P E R S f e i l e R 8.7% 2.5% 1.7% CCyB CCB P2R 4.5% P1 Required CET 1 31-Dec-20 (1) (Phased-in) 31-Dec-20 (1) (Fully loaded) 31-Dec-21 (2) (Phased-in) 31-Dec-21 (2) (Fully loaded) 26 689 26 392 24 929 24 689 mn€ (B) (C) (D) 2 902 2 903 3 415 10.9% 10.9% 12.8% 6.2% 2 511 2 512 3 023 9.5% 9.5% 11.5% 5.4% 2 768 2 769 3 276 11.1% 11.1% 13.1% 6.0% 2 507 2 509 3 016 10.1% 10.1% 12.2% 5.4% P E R S f e i l e R 8.7% 2.5% 1.7% CCyB CCB P2R 4.5% P1 Required CET 1 13.5% 2.5% 3.0% CCyB CCB P2R 8.0% P1 P E R S f e i l e R 11.1% 2.4pp 4.9pp Dec-21 CET 1 13.1% 2.0% 2.1pp 11.1% 13.5% 2.5% 3.0% CCyB CCB P2R 8.0% P1 P E R S f e i l e R 13.1% 2.0% 2.1pp 11.1% Required Total Capital Dec-21 Total Capital Dec-21 CET 1 Required Total Capital Dec-21 Total Capital (1) On 12-Mar-20 the European Central Bank disclosed several measures that allow Banks to operate temporarily below the required capital level; P2G not included. 53 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES4.2 LIQUIDITY AND FUNDING HIGHLIGHTS • 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. • 2021 marked the return to the capital markets, driven by the bank’s MREL requirements. Issuances in the coming years are expected to ensure compliance with the MREL ratios and improve the bank’s funding profile. LIQUIDITY MANAGEMENT novobanco 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 guidelines 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 daily reported to the Joint Supervisory Team. In terms of the structural liquidity, novobanco 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. novobanco 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, novobanco’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 novobanco 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. FUNDING STRUCTURE AND LIQUIDITY IN 2021 novobanco maintained a comfortable liquidity position throughout 2021, with deposits at the ECB as at 30 December 2021 having increased to €5.3bn (vs. €2.4bn in Dec.2020). During the year, liquidity management continued to involve the rationalization of funding sources and improvement of profitability. At the end of 2021 novobanco’s customer deposits totalled €27.3bn (€26.1bn in 2020), having increased €1.2bn YoY, with a strong contribution from both the retail and corporate segments, despite a continuous cost reduction. The positive performance in customer deposits was particularly relevant in the retail segment, which increased €1.0bn YoY. 54 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESCUSTOMER DEPOSITS (€bn) FUNDING STRUCTURE (€bn) 26.1 27.3 2020 2021 44.4 44.6 Deposits 59% 26.1 27.3 Deposits 61% ECB and Interbank Funding 23% Debt Securities 2% Other Liabilities 9% Equity 7% 10.1 1.0 4.1 3.1 2020 ECB and Interbank Funding 24% Debt Securities 3% Other Liabilities 4% Equity 7% 10.7 1.5 2.0 3.1 2021 At the end of 2021, customer deposits remained the bank’s main funding source, accounting for 61% of its funding structure (59% at the end of 2020), of which 72% were deposits from the retail segment. In terms of loan portfolio, the bank’s core business was stable, as at 31 December 2021 total net loans amounted to €23.7bn (vs. €23.6bn FY20). Despite the NPL’s sales, novobanco managed to maintain a strong loan origination, with the corporate segment remaining at the core of its business model. NET LOAN BOOK EVOLUTION (€bn) SECURITIES PORTFOLIO (€bn) 23.6 23.7 2020 2021 Other 11.4 0.9 Bonds 3.3 Other Sovereign Debt Portuguese Sovereign Debt 3.7 3.5 2020 10.5 0.8 3.4 3.2 3.1 2021 55 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESOn the other hand, the securities portfolio reduced by around €0.9bn vis-à-vis 2020, largely due to the de-risking strategy and the reimbursements of the Sovereign debt portfolio. novobanco’s security portfolio remained substantially (more than 70%) composed of high-quality liquid assets (“HQLAs”), and among these more than 60% are sovereign or supranational debt securities. Throughout the year of 2021, due to the historically low level of sovereign and supra yields, the reinvestment of matured securities did not prove to be more profitable than the maintenance of this liquidity at the ECB. In terms of medium- and long-term funding, driven by the bank’s MREL requirements, in 2021 novobanco successfully concluded two senior preferred bond issues amounting in aggregate to €575mn, a milestone for the bank’s return to the capital markets: I. in July the bank issued €300mn bonds maturing in 2024, with an early redemption option in 2023. This bond issue was executed together with a liability management exercise consisting of a tender offer and consent solicitation on its long-dated bond, in which novobanco acquired approximately 32% of the outstanding amount of its zero-coupon bonds for €161mn, corresponding approximately to €88mn of book value. The replacement of these zero-coupon bonds by the new bonds will improve the funding structure, as the new bonds are fully compliant with the MREL requirements and will allow for relevant interest savings in the coming years. II. in December novobanco returned to the markets with another senior preferred bond issue amounting €275mn and with maturity in 2023 (early redemption in September 2022). These two market transactions allowed the bank to comply with the MREL regulatory requirement, in force since 1 January 2022. MREL REQUIREMENTS (%) MREL RATIO (% RWA; Preliminary) TREA1 Combined Buffer Total O-SII (LSF Nani) Total + O-SII LRE4 Jan-22 14.64% 2.51% 17.15% 0.50%2 17.65% 5.91% Jan-26 22.78% n.a.3 22.78% + CBR 22.78% + CBR 5.91% (1) TREA - Total Risk Exposure Amount; (2) O-SII deﬁned as LSF Nani Investments; as communicated by Banco de Portugal on its website on 30 Nov 2021, the O-SII increased from 0.375% to 0.5%: O-SII requirement at novobanco is under analysis by the regulator; (3) As of Jan-26 appicable combined buffer requirement; (4) LRE - Total Leverage Exposure; Other eligible ≥ 1 ano Senior Unsecured ≥ 1 ano Own Funds - Tier 2 18.0% 0.8% 4.1% 2.0% Own Funds - Tier 1 11.1% 31-Dec-21 Additionally, in 2021: (i) the increase in the amount and maturity of the medium-term financing under the TLTRO III by €950mn at YE to mitigate the negative impact of the reimbursement/maturity shortening of outstanding TLTRO III amount on NSFR; and (ii) the Resolution’s Fund €429mn capital injection in June and December, under the Contingent Capital Agreement, allowed a significant reinforcement of the bank’s liquidity, as well as maintaining the stability of its funding structure. In this context, novobanco maintained its liquidity buffer at very comfortable level. In December 2021, the portfolio of eligible securities for rediscount with the ECB totalled €16.5bn (net of haircuts), a slight €0.2bn reduction YoY. In addition to the abovementioned assets, novobanco has HQLA assets non-eligible with the ECB and deposits at ECB, which makes-up to a total liquidity buffer of €12.5bn composed by highly liquid assets (90%) at 31 December 2021, an increase of €1.2bn YoY. 56 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES16.7 16.5 2020 2021 EVOLUTION OF ELIGIBLE ASSETS AT THE ECB (€bn) 16.7 16.5 2020 2021 EVOLUTION OF FUNDING FROM THE ECB (€bn) 7.0 4.7 8.0 2.7 2020 2021 Gross Funding Net Funding novobanco thus maintained a comfortable liquidity position in 2021, reflected in the level of the regulatory liquidity ratios: i) Liquidity Coverage Ratio (LCR) at 182% (vs. 140% in 2020) and ii) Net Stable Funding Ratio (NSFR) 117% (vs. 112% in 2020) both above the regulatory requirements, and showing an upward trend vis-à-vis 2020. Overall, novobanco believes it has a well-balanced funding structure, which does not present significant short-term liquidity or refinancing risks. The bank’s major funding concentration is the ECB funding, €8bn on TLTRO III as of Dec 2021, which will start to mature in December 2022 (€1.6bn). Nevertheless, taking into account the substantial cash deposits held with the ECB (more than €5bn as of the end of 2021), the absence of significant wholesale redemptions and the availability of diversified sources of funding, currently also including market funding, the bank has a comfortable liquidity position and do not expect major refinancing risks. 4.3 RISK MANAGEMENT 7.0 4.7 8.0 2.7 The definition of a risk management framework with standards, patterns, objectives and responsibilities established for all areas of novobanco Group, permits to implement the strategy in compliance of the established risk appetite. 2020 2021 Supporting top management in effective risk management and in the development of a strong risk culture, this framework defines the following: Gross Funding Net Funding • the main risks faced by the novobanco Group, as well as those to which it may be exposed • the risk appetite requirements and their monitoring; • the responsibility functions in risk management; • the governance structures and risk management and control committees. THE RISK CULTURE AT NOVO BANCO GROUP Risk in implicit in the banking business. Consequently, the novobanco Group is naturally exposed to the various classes of risk arising from external and internal factors according to the markets where the bank operates and the activities it develops. The novobanco Group considers that Risk Management is a key pillar for sustained value creation over time. The novobanco Group’s Risk management and control is therefore grounded on the following assumptions: • Independence from the Group’s other units, and in particular risk-taking units; • Universality, through application of the risk culture across the entire novobanco Group, through a holistic and preemptive approach to risk; • Three lines of defence model, viewing the adequate detection, measurement, monitoring and control of all material risks to which the novobanco Group is exposed. This Model implies that all employees, in their sphere of activity, are responsible for the management and control of risks. 57 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESRISK MANAGEMENT FRAMEWORK 1 2 3 4 5 6 1. GOVERNANCE Risk management and control committees. Deﬁnition of Policies and 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 CATEGORIES Shared holistic vision of the Credit, Market, Liquidity and Operational Risk classes as well as of emerging risks (e.g., ESG risk). 5. RISK TOOLS Stress testing, limits policy, model validation, quantiﬁcation and evaluation methodologies. 6. 3 LINES OF DEFENCE The pillar for effective and seamless risk management at the various levels of the Group. 3 LINES OF DEFENCE PRINCIPLE 1ST LINE OF DEFENCE 2ND LINE OF DEFENCE 3ND LINE OF DEFENCE NOVO BANCO GROUP Business Areas  Global Risk Department  Compliance Department; Internal Audit Department FUNCTION LIMITATION MISSION Maximise return Control Takes risk according to Risk Appetite Does not take risk  Accurate and timely identiﬁcation of risks  Make sure that risk remains within deﬁned limits  Measure, monitor, report  Independent review  Ensures adequacy of policies and processes  Ensures correct implementation of policies and processes 58 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESA strong risk culture in the organisation is revealed by diligent, proactive and consistent compliance with regulations, the code of conduct, values and risk appetite defined for all activities and risk exposures. To this end, the timely identification of risk sources and risk-based mitigation and control actions are fundamental. 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 the novobanco Group - those to which top management pays special attention and which may impact the achievement of the objectives defined by the bank -, as well as risks 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, among others, ESG risks. In particular, with regard to ESG risks, novobanco is finalising a specific risk assessment exercise, aimed at a) understanding the (complex) transmission channels that link this category to the other risk categories; b) assessing their likely impacts, taking into account different climate transition scenarios; and c) strengthening the existing risk management and control practices. ESG RISK MANAGEMENT Approach to ESG risks ESG risk management is integrated in the global sustainability framework of the novobanco Group, which comprises the following elements: • The group-wide sustainability strategy, which sets the objectives, targets, actions and respective timings for the business areas; the internal governance, internal control and risk management strategy; the internal activities (i.e., own operations) strategy; and the internal and external reporting strategy. • novobanco’s disclosure approach regarding its sustainability objectives, such as: a) reduction of direct GHG emissions, in line with the global objectives of the Paris agreement; b) increased use of ‘sustainable finance’ instruments, namely through the commercial offer and investment policies, channelling direct financial support to the transition of the Portuguese economy; and c) adequate management of climate transition risks, systematically identifying and controlling its main factors; • A governance and operational structure specifically adapted to this strategy, ensuring the existence in the first and second lines of internal organisation, of expertise and approaches/work plans directed at ensuring the fulfilment of novobanco’s objectives. This framework is directly led by the EBD, supervised by the GSB, with the participation of the EBD and the departmental heads more closely involved in the definition and implementation of the sustainability strategy. At operational level, this framework is executed by dedicated work groups, which follow detailed action plans to ensure the timely achievement of the established objectives, in alignment with the defined strategy. The developments at the level of the ESG risk component of the risk management system take place within these organisational structures and have three primary objectives: • Compliance with the new regulatory requirements, namely those concerning the disclosure of non- financial information on the sustainability strategy and ESG risk management; • Effective alignment with regulatory and supervisory expectations, with emphasis on a) implementation of the European Central Bank (ECB) Guide on climate-related and environmental risks (C&E) management; and b) participation in the ECB stress test exercises focused on C&E risks, starting in 2022; • Implementation of enhanced procedures for ESG risk management, adjusted to the activity of the novobanco Group, with emphasis on a) routines for global monitoring of ESG risk exposure; b) integration in the business (commercial and financial) of specific controls for ESG risk factors, conducting the origination and monitoring of risk exposures - including the necessary procedures to implement the European Taxonomy for sustainable activities; and c) implementation of risk assessment practices, considering sensitivity analysis or scenario methodologies. ESG risk profile The definition of ESG risks focuses on the potential negative impacts deriving from the current or future effects of risk factors in clients and counterparties or in the bank’s assets and liabilities, that are included in the current internal taxonomy of the novobanco Group, and in particular of climate change impacts. The group is currently in the process of reviewing and updating its risk taxonomy - as part of the internal risk identification and assessment exercise - with the objective of recognising and reassessing the materiality of the impacts of the climate and environmental, and social and governance risk components. 59 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESImplementation of the European Taxonomy for sustainable activities Qualitative disclosures under Regulation (EU) 2020/852 Regulation (EU) 2020/852 (i.e., European Taxonomy Regulation) and Delegated Regulation (EU) 2021/2178, establish i) a regime for the promotion of sustainable finance, defining the criteria to classify economic activities as sustainable from an environmental point of view and, ii) the content and methodology for information disclosure by the institutions covered by the application of the European Taxonomy. novobanco has been taking the necessary steps towards alignment with the taxonomy criteria, namely by a) assessing and controlling the eligibility of its operations; and b) determining the operational requirements in terms of collection, confirmation and analysis of information - with its clients. In line with the applicable requirements, and in particular with article 10 of the European Taxonomy Regulation, the novobanco Group complies with the following mandatory disclosures12: • The proportion in its total assets of exposures to Taxonomy non-eligible and Taxonomy-eligible economic activities; • The proportion in its total assets of the exposures referred to in Article 7 (1 and 2) of the Regulation; • The proportion in its total assets of the exposures referred to in Article 7(3) of the Regulation; • The qualitative information referred to in Annex XI of the Regulation. Quantitative disclosures under Regulation (EU) 2020/852 Requirements of Article 10 of the European Taxonomy Regulation, paragraph 2: Euros Total assets13 Of which the proportion of the trading portfolio and on demand inter-bank loans in total assets. Exposures to central governments, central banks and supranational issuers Exposures to derivatives Exposures to companies not subject to the Non- financial Reporting Directive14 Eligible Non-eligible Total % of total assets --- --- --- --- 100% 44 943 252 450 0.95% 427 460 000 14.76% 6 632 101 922 0.59% 263 199 000 15.77% 7 085 810 507 Contextual information in support of the quantitative indicators The data reported in the previous section relate to consolidated financial information, collected directly from the systems of the novobanco Group with reference to 31 December 2021. Taking into consideration the European Commission guidelines (FAQs), the reporting of information based on estimates is only provided on a voluntary basis. The sector-specific information used, even if collected directly from the Bank’s clients and maintained in its information system, is considered an estimate. Thus, and considering the timetable for application of the European Taxonomy Regulation to the non-financial sectors, factual information that would allow compliance with the eligibility requirements is not yet available. With regard to the scope of application of the Non-Financial Reporting Directive (NFRD), the novobanco Group does not yet have complete information, collected from its clients, that would allow it to classify its positions in terms of the application of the NFRD. Therefore, the NFRD coverage analysis resorted to external databases to obtain: a) a list of companies classified as Public Interest Entities (PIE) and, therefore, obliged to apply the NFRD; and b) number of employees. In addition, the transparency reports of the main national audit firms were also analysed to confirm this information. Description of the compliance with Regulation (EU) 2020/852 in the financial undertaking’s business strategy, product design processes and engagement with clients and counterparties As described in the previous chapters, the novobanco Group has been implementing a group-wide sustainability strategy, which comprises the operational implementation of the European Taxonomy, focusing on the following elements: • Adoption of the Taxonomy, based on estimates, to ensure regular monitoring of new production and balance sheet exposures; • Definition of operational requirements for the implementation of the Taxonomy in lending and investment processes, including: a) establishment of principles of segmentation of clients and operations, to enhance the definition of the information to be collected; b) controls to be carried out on the information provided by the clients; and c) adaptation of the information system for the collection and maintenance of the Taxonomy indicators; • Establishment of monitoring and dissemination practices of legal and regulatory changes, with a view to the timely adoption of the developments still expected in the field of the European Taxonomy. 12. According to the European Commission’s clarifications (December 2021 FAQ), eligibility estimates may only be reported on a voluntary basis. Bearing in mind the timetable for implementation of the European Taxonomy, particularly with regard to the non-financial business sector, no information is yet available (e.g., prepared by novobanco’s clients) to enable eligibility reporting on a factual basis. 13. O total de ativos refere-se ao valor do balanço do Grupo novobanco, segundo consolidação prudencial e não ao total de ativos enquadráveis no rácio de ativos ecológicos (i.e., GAR%, na definição inglesa). 14. Considers companies that, due to their size, are not covered by the NFRD (i.e., SMEs). The eventual exemption of companies outside the Eurozone was not considered. 60 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESRISK MANAGEMENT IS CONSIDERED VITAL FOR THE GROUP Risk Management, being vital for the development of NBG’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 remaining 2nd line units of novobanco Group, and with the Internal Audit Department. Moreover, the Risk Management Function continuously monitors and assesses ESG Risks in close coordination with the Sustainability area (DDAE- Strategy Development and Implementation Department), which contributes specific knowledge to the understanding of climate and environmental risk factors and social risk factors. EBD, GSB, Risk Committees and specialised committees), which are responsible for supervising, monitoring, assessing and defining the Risk Appetite and control principles implemented. At operational level, the GRD centralises novobanco Group’s Risk Management Function, namely in terms of the responsibilities inherent to the function, supervising the Group’s various materially relevant financial institutions and ensuring independence vis-à-vis the business areas. The Head of novobanco Group’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 has been appointed in each relevant entity of the novobanco Group. The GRD acts either directly or as coordinator, in articulation with the units in charge of the local Risk Management Function. All materially relevant risks are reported to the Management and Supervisory bodies (as applicable, The Risk Appetite framework defines: The material risks to which NBG is exposed The risk appetite statements The roles and responsibilities in risk management The organisation and function in risk management Governance and risk decision-taking and monitoring committees This framework aims to ensure compliance with the strategy of maximising value for the Client - one of the relevant stakeholders along with employees, shareholders and the community -, protecting the strength of the organisation through rational and solid risk management. Risks Concept Management Risk Appetite Focus in 2022 Credit The risk of ﬁnancial loss arising from the failure of a borrower or counterparty to honour the contractual obligations established with novobanco 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, as well as on internal processes for assigning ratings and scorings to portfolios and their continuous monitoring in speciﬁc decision forums. Conservative risk appetite. Reinforcement of the bank's operational capacity to manage credit exposures in the post-moratoria context, identifying early signs of ﬁnancial deterioration and deﬁning strategies for timely action on viable debtors in need of support measures to ensure their adequate debt service. Reinforcement of remote service models and creation and development of automated credit assessment and decision tools. Reinforcement of the continuous monitoring processes of the various loan portfolios. 61 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESRisks Concept Management Risk Appetite Focus in 2022 Liquidity The current or future risk deriving from an institution’s inability to satisfy its commitments as they mature, without incurring excessive losses. 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. Solid liquidity position. Funding of medium- and long-term assets through stable liabilities. Withstanding liquidity stresses for a minimum of 12 months. Compliance at all times with the limits imposed by the legislation in force. Maintenance of risk control monitoring and management processes, ensuring the timely detection of changes in the risk proﬁle, and the bank’s aligned compliance with the established risk appetite. To be continuously updated on the regulatory framework. 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. A GRD expert team centralises the management and control of NBG’s market risk and interest rate risk on the banking book (IRRBB), in line with the regulations and risk good practices. Monitoring of net interest income, market Investments as well as balance sheet interest rate risk through predeﬁned risk appetite rules. Processes for continuous monitoring of market risks allowing to assess the impact of changes in market factors, namely volatility and interest rate levels. Development and maintenance of internal models and stress testing exercises to measure and control market risk and IRRBB, as well as calculation of economic capital under ICAAP and regulatory capital under the Fundamental Review of the Trading Book. To be continuously updated on the regulatory framework. 62 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESRisks Concept Management Risk Appetite Focus in 2022 Operational 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. 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 effectiveness of operational risk identiﬁcation and control methodologies is ensured though the activity of the operational risk management Representatives appointed for each organisational Unit, who promote the risk culture in the ﬁrst line of defence in continuous collaboration with the GRD. The operational risk appetite deﬁned for the novobanco Group covers the various categories under this risk. This appetite reﬂects the infeasibility of eliminating operational risk from a cost-beneﬁt perspective as well as novobanco Group’s high ethical and conduct standards, thus implying zero tolerance for breaches of conduct. ESG Risk Risks of occurrence of ﬁnancial losses arising from current or future impacts of ESG factors on novobanco's clients, counterparties or assets. ESG factors are climate and environmental, social or governance issues that may have a positive or negative impact on the ﬁnancial performance or solvency of an entity, institution or person. The management of ESG risk results from the joint approach of specialised teams from the GRD, RTD, and DDAE, which deﬁne the guidelines to be followed for any new business and for monitoring existing positions, in order to minimise novobanco’s exposure, in particular to transition risks and physical risks. In addition, it is supported by methodologies to assess and monitor the risk factors, which, consistently with the applicable regulations, allow novobanco to monitor the evolution of the risk proﬁle of its balance sheet positions. Application of speciﬁc exclusion and safeguard policies, namely for activities with higher ESG risk (in the environmental, social and governance dimensions). Deﬁnition of global goals and guidelines to steer new credit production according to ESG assessment criteria; Implementation of global risk assessment methodologies, at the level of the credit portfolio, to identify and monitor the main ESG risks on the balance sheet. Reinforcement of compliance with the established risk appetite; Strengthening of the risk culture, particularly in the ﬁrst line of defence, as support for action and decisions aligned with the risk strategy and appetite across the various levels of the organisation, promoting a more robust control of risk. Strengthening of the Fraud Risk framework in light of the increased sophistication of fraud typologies, in particular cyber risk, by enhancing the prevention and control mechanisms. Updating of the identiﬁcation and assessment methodologies for non-ﬁnancial risks, to include ESG risk. Participation in the ECB's climate risk stress test exercise, which will strengthen the understanding and anticipation of the impacts of these risks; Application of the criteria established by the EU Taxonomy (and applicable in 2022), allowing the ﬁrst characterisation of the bank's portfolios; Reinforcement of the integration between ESG risk methodologies and business planning and execution, namely regarding the implementation of risk classiﬁcation methodologies (Ratings & Taxonomy) and respective guidance on credit decision and monitoring. 63 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES5.0 CORPORATE GOVERNANCE 5.1 Shareholder Structure 5.2 Corporate Bodies: Composition and Functioning 5.3 Internal Control 5.4 Main Policies 5.5 Credit to Members of the Corporate Bodies 5.6 Remuneration of the Members of the Corporate Bodies And Identified Staff 5.7 Securities Held by Members of the Management and Supervisory Bodies 5.8 Non-Material Indirect Investment in Novo Banco Rui Duarte South Retail Department - Senior Business Client Manager 64 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES5.1 SHAREHOLDER STRUCTURE 5.1.1 Qualified holdings in Novo Banco’s share capital The share capital of Novo Banco totals €6,054,907,314 (six billion, fifty-four million, nine hundred and seven thousand, three hundred and fourteen euros), divided into 9,954,907,311 (nine billion, nine hundred fifty-four million, nine hundred and seven thousand, three hundred eleven) nominative dematerialised shares with no nominal value, fully subscribed and paid up. Qualified holdings in Novo Banco’s share capital on the date of signature of this Report: SHAREHOLDER NUMBER OF SHARES % OF SHARE CAPITAL Nani Holdings S.G.P.S., S.A. 7 466 180 483 75.00% Fundo de Resolução 2 333 819 514 23.44% Direcção-Geral do Tesouro e Finanças 154 907 314 1.56% 5.1.2 Equity holders with special rights There are no shareholders with special rights. 5.1.3 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. 5.2 CORPORATE BODIES: COMPOSITION AND FUNCTIONING 5.2.1 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 novobanco 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. 5.2.2 Amendments to the Articles of Association Changes to novobanco’s Articles of Association are the responsibility of the Shareholder’s General Meeting. In December 2021, an amendment was made to the Articles of Association of Novo Banco with regard to Article 4 (Share Capital and Shares), which has the following wording: “1. The share capital of Novo Banco totals €6,054,907,314 (six billion, fifty-four million, nine hundred and seven thousand, three hundred and fourteen euros), divided into 9,954,907,311 (nine billion, nine hundred fifty-four million, nine hundred and seven thousand, three hundred eleven) nominative dematerialised shares with no nominal value, fully subscribed and paid up.” 65 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES5.2.3 General and Supervisory Board The GSB is the supervisory body of novobanco and its members are elected by the Shareholder’s General Meeting. In October 2020, the General Meeting of novobanco appointed the following members of the General and Supervisory Board for the 2021-2024 mandate: Byron James Macbean Haynes – Chairman Benjamin Friedrich Dickgiesser Karl-Gerhard Eick – Vice-Chairman John Ryan Herbert Donald Quintin Kambiz Nourbakhsh Mark Andrew Coker Robert Alan Sherman Carla Antunes da Silva William Henry Newton All members of the previous term were reappointed for the new term, adding a 10th member to the CGS with the appointment of William Henry Newton, for his first term (2021/2024). Thus, the CGS is now composed of 10 (ten) members. 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 performance 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: At the date of this Report, 6 (six) of the 10 (ten) members of the General and Supervisory Board, including its Chairman, are independent. Chairman: Karl-Gerhard Eick 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 novobanco 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, the Financial Affairs (Audit) Committee, the Risk Committee, the Compliance Committee, the Nomination Committee and the Remuneration Committee, these holding the legal required powers and other powers delegated to the General and Supervisory Board. Byron James Macbean Haynes Kambiz Nourbakhsh > Risk 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: William Henry Newton15 Byron James Macbean Haynes Karl-Gerhard Eick Kambiz Nourbakhsh Benjamin Friedrich Dickgiesser 15. Became Chairman of Risk Committee in April 2021, after F&P approval by the regulatory authorities 66 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES> 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, novobanco Açores and GNB Gestão de Ativos. At the signature date of this Report the members of the Compliance Committee are the following: Chairman: Robert Alan Sherman John Ryan Herbert Mark Andrew 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, novobanco 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 Ryan Herbert Robert Alan Sherman Donald John Quintin Mark Andrew Coker Carla Antunes da Silva > Remuneration 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, novobanco Açores and GNB Gestão de Ativos companies. This Committee also has several delegated powers, including with regard to the remuneration of the members of the CAE and identified employees, as well as 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 James Macbean Haynes Karl-Gerhard Eick Benjamin Friedrich Dickgiesser The company documents and main regulations can be accessed at www.novobanco.pt > Institutional > Governance > Company Documents 5.2.4 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 Rui Miguel Dias Ribeiro Fontes Chief Risk Officer Luís Miguel Alves Ribeiro Chief Commercial Officer (Retail) Andrés Baltar Garcia Chief Commercial Officer (Corporate) In 2021, there were no changes to the composition of the Executive Board of Directors. 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. > Risk Committee Responsible for issuing an opinion on, approving, under the powers delegated by the Executive Board of Directors, and monitoring novobanco 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 67 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES> Financial and Credit Committee > Impairment Committee Responsible for deciding the main credit operations in which the novobanco Group participates, in line with the risk policies defined for novobanco Group. Responsible for defining the amount of impairment to be allocated to each client, when novobanco has an exposure above €100 million to that client or group of clients. Chairman: António Ramalho Chairman: Rui Fontes > 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 novobanco 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 novobanco 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 novobanco 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’ sign-off 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 novobanco. 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 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 7 (seven) steering groups for the areas of (i) Retail, (ii) Corporate Clients, (iii) Human Capital, (iv) Management Information System (MIS), (v) Investment, (vi) Business Monitoring and (vii) ESG. 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. 5.2.5 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 Chairman. 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. 5.2.6 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, on a proposal from the Financial Affairs (Audit) Committee, and have the powers and responsibilities provided for in the law. 5.2.7 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. 68 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESThe 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, it requires the prior opinion of the GSB. 5.3 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. 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. novobanco 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, novobanco Group’s Internal Control System is based on the following principles: • Adequate control environment reflecting the importance recognized by novobanco 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 novobanco Group (as detailed in section 4.3 – Risk Management); • 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 novobanco 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. Each employee has a role to play as well as duties and responsibilities, which contribute to ensure the efficiency and effectiveness of Internal Control. 3 LINES OF DEFENCE MODEL 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 The Internal Control System is grounded on the 3 lines of defence model, which clearly defines the levels of intervention 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. 69 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESGeneral and Supervisory Board EXECUTIVE BOARD OF DIRECTORS Internal Control System 3RD LINE OF DEFENCE Assessment of the adequacy and effectivness of control Audit function 2ND LINE OF DEFENCE Risk and Control Monitoring 1ST LINE OF DEFENCE Risk Management Control function (Risk and Compliance) Other functions Businesse function E x t e r n a l A u d i t e r s l R e g u 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). 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 administratively (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 Financial Affairs (Audit) Committee and acknowledged 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 intervenient 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 70 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES the activities which they supervise and control, nor does it compromise, in any other way, their objectivity; • 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. 5.4 MAIN POLICIES For novobanco 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 novobanco 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 novobanco attributes to the compliance culture dimension. The commitment assumed by novobanco 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, competence, transparency and fairness. > CODE OF CONDUCT The novobanco Group Code of Conduct came into force in 2015 and was revised and updated in 2021. The code applies to all the members of the management and supervisory bodies of the novobanco Group companies, to the employees of Novobanco and the novobanco Group companies, and also to providers of goods and services when such is contractually provided for, or mandatorily in the case of some outsourced services. 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 novobanco’s website, in Portuguese and English, at www. novobanco.pt > Institutional > Governance > Compliance > here. Monitoring the application of the Code of Conduct and clarifying employees’ doubts about its content and application is the responsibility of the Compliance Department. In 2021, in novobanco, as a result of non-compliance with internal regulations in the performance of their duties, 9 employees received sanctions, namely: 4 dismissal without any indemnity or compensation; 2 cases of days of suspension without pay and with loss of seniority; and 3 registered reprimands. > POLICY OF CONFLICTS OF INTEREST The Policy of Conflicts of Interest establishes rules on the identification, management and monitoring of potential conflicts of interest in the various activities of novobanco and the novobanco Group, but also with respect to their corporate bodies, employees, and ultimately, their suppliers. It enables compliance with the applicable legal and regulatory provisions, namely Aviso nº3/2020 of Bank of Portugal, as well as with the recommendations of the European Central Bank, the European Banking Authority (EBA), and the Securities and Exchange Commission (CMVM), and seeks to 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, revised in 2021, is available at novobanco ‘s website, in Portuguese and English, at www.novobanco.pt > Institutional > Governance > Compliance > RELATED-PARTY TRANSACTIONS POLICY Novobanco’s Related-Party Transactions Policy sets down rules aimed at identifying transactions concluded between novobanco and its Related Parties and at ensuring that the bank complies with several provisions and regulations, namely the Bank of Portugal’s Notice no. 3/2020, the European Banking Authority (EBA) Guidelines on Internal Governance (EBA/GL/2017/11), and Articles 85 and 109 of the General Law on Credit Institutions and Financial Companies. In this context, the control system implemented identifies those involved in transactions contracted with the bank, in strict compliance with the applicable legislation. The process of identification, analysis and validation is described in Internal Regulations. Certain assessments and approvals are mandatory prior to the conclusion of transactions (loan granting, placement or subscription of securities, real estate operations, acquisition or disposal of equity holdings or other contractual relationships). Specifically, proposed transactions with Related Parties must be submitted for analysis and opinion to the Compliance Department and the Risk Management function, for subsequent submission to the opinion of the Compliance Committee of the General and Supervisory Board (with subsequent ratification by the General and Supervisory Board), and for approval by the Executive Board of Directors. 71 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESThe Related-Party Transactions Policy is available at novobanco ‘s website, in Portuguese and English, at www.novobanco.pt > Institutional > Governance > Compliance 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, with persons and entities that as at 31.12.2021 were Related Parties of novobanco, reached a total amount of €1,709 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 supervisory 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 18 credit transactions allowed under said paragraph 8 of Article 85, which subsequently received a favourable opinion and 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, subject to certain limits. During 2021 novobanco did not conclude any credit transactions with qualifying shareholders, under said legal rule. > WHISTLEBLOWING POLICY novobanco 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, through specific, independent and autonomous means, the reporting of irregularities by the bank’s employees, as well as by service providers 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. 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 www.novobanco.pt; or via the intranet if the participant is an employee of novobanco; or • By e-mail to the address: irregularidades@novobanco.pt In 2021, five reports of irregularities were received which, following enquiries, proved to be unjustified. The General and Supervisory Board is responsible for managing the irregularities communication system, ensuring the confidentiality of communications. The Whistleblowing Policy is available at novobanco’s website, in Portuguese and English, at www. novobanco.pt > Institutional > Governance > Compliance > 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 novobanco’s commitment to building up integrity in society. The Anti-Bribery and Anti-Corruption Policy is available at novobanco’s website, in Portuguese and English, at www.novobanco.pt > Institutional > Governance > Compliance > 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 novobanco 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 novobanco 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; • Monitoring contracts’ transactions - KYT (Know Your Transactions), spotting unusual situations, either beforehand or by contacting the client after the situation was detected. 72 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES• Analysis of counterparties risk in investment and divestment transactions, and of transaction and source of funds circuits, under the terms of the Law. changes in the rules for marketing financial instruments, novobanco 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. To that end, novobanco 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. In compliance with the legal framework, novobanco 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. novobanco Group, complying with its regulatory obligations, develops training exercises in preventing money laundering 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 2021, novobanco maintained the training on money laundering and terrorism financing prevention, having provided 14 150 hours of online training (including 1 542 hours for senior management) and 88 hours of face-to-face training (of which 20 hours for senior management), making a total of 14 238 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 crucial for the purpose of the adequate fulfilment of the legal and regulatory duties to which the bank is subject. The prevention of money laundering and terrorist financing is one of the foundations of confidence in the financial system and as such will continue to deserve permanent operational and strategic attention by the novobanco Group. In 2021 the novobanco Group examined 5 851 new contracts, of which 75 were rejected. In addition, 2 391 other contracts were analysed, upon which their ownership was changed. It also analysed 13 161 transactions under existing contracts, of which 663 were reported to the competent authorities. The bank’s Policies on the Management of the Risk of money laundering and terrorist financing are available at novobanco’s website, in Portuguese and English, at www.novobanco.pt > Institutional > Governance > Compliance > 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 markets 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 novobanco 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 The most salient aspects of these standards and policies are summarised below: Recording and register of communications. novobanco is obliged to keep recordings and registers of all communications with Customers and potential Customers, with regard to all services, activities and operations carried out. Customer classification. novobanco 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 implications 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, novobanco 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 maintain 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. novobanco has in place procedures that ensure compliance with these rules. Offer screening process. novobanco 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 Bank of Portugal Notice no. 3/2020, and for compliance with the disclosure 73 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESduties 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 to, 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 novobanco. Prior to the closing of the 2021 accounts, an assessment and review has been made by several novobanco departments (Human Capital, Legal, Compliance and Risk) with respect to the remuneration policies for the Management and Supervisory Bodies and for Staff of novobanco and the group entities, to ensure full alignment of procedures and practices. The amendments made mainly concerned the following: i. Update in line with current regulatory framework: a. EBA Guidelines on sound remuneration policies; b. Commission Delegated Regulation (EU) 2021/923; c. Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial services sector (SRD); d. Other applicable legislation. ii. A more detailed description of the specific skills of each unit of the structure involved in the remuneration decision process and increased centralisation of the implementation of remuneration policies at group level, giving greater responsibility to the novobanco Remuneration Committee and the centralised structures of novobanco; iii. Introduction of the possibility of setting up a talent retention programme for key employees. These Policies have been prepared in accordance with the legislation in force on that date, and in particular with the RGICSF, Notice no. 3/2020, the EBA Guidelines 2021/04 relating to sound remuneration policies, and related legislation and reflect the objectives, strategy, structure and culture of the Bank, steered by principles of meritocracy and transparency. The Remuneration Committee considers that the Remuneration Policies are adequate to the current situation of novobanco and that 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 aligned to 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 structures, namely the Remuneration Committee, the Risk Committee of the GSB, 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 novobanco Following the sale process of novobanco, 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, whose termination is currently being reviewed by the European Commission and is pending confirmation (hereinafter the “Restructuring Period”). This situation entails the following limitations to the Remuneration of the Management and Supervisory Bodies and the Employees of novobanco: • 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 novobanco. In the period comprised between 30 June 2020 and the end of the Restructuring Period, this limit could be exceeded providing all the established viability commitments had 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. • 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 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 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 define and approve the budget for the total variable remuneration of employees, based, among other factors, on 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); General and Supervisory Board. Only the independent members of the General and Supervisory Board shall receive remuneration from novobanco, 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 1) 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 74 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESand collective performance assessment that takes into account quantitative 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. 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 The following criteria are also considered in the process of attribution of variable remuneration financial and non-financial variables; • • • It may only be attributed if it does not jeopardise the Bank’s ability to maintain a solid own funds 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, or as otherwise approved by the General Meeting; 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 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 “Remuneration Unit” is determined by the Remuneration Committee, according to financial indicators of the Bank, prior to settlement of any deferred amount. Besides any commitment agreed in the hiring process under the form of a sign-on bonus or possible compensation for retention, 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 novobanco). In what concerns other benefits, such as Health Insurance or Mobile Phone, the internal policies defined for the purpose shall apply. Identified Staff Policy Approval Powers. The approval of the Remuneration Policy for Employees is the responsibility of the Executive Board of Directors, upon a proposal of the Remuneration Committee. Selection of employees. The Bank’s Employee Remuneration Policy includes specific chapters applicable to employees who have or may have a significant impact on novobanco’s risk profile - classified as Identified Staff, as set forth in the Policy. The list of Identified Staff is shared every year with the Bank of Portugal, under Bank of Portugal instruction no.18/2020. Components of Remuneration. The Fixed Remuneration shall reflect the skills, experience and responsibility inherent to the function performed, and shall not depend on performance. The attribution of Variable Remuneration to the Identified Staff, as well as its annual amount, depends on the decision • 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 Staff; • 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 or as otherwise approved by the General Meeting; • 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 “Remuneration Unit” is determined by the Remuneration Committee, according to financial indicators of the Bank, prior to settlement of any deferred amount. • Variable remuneration can only be guaranteed in the first year after hiring and then in the form of a sign-on bonus. • The remuneration limits defined in point i) above also apply to these employees. iii) Disclosure of Remuneration Refer to point 5.6 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 novobanco has in place 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, branch general managers and other managers identified by the Bank as having risk-taking functions, currently the heads of Treasury and Marketing) 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; Independence; iv) Availability; and v) Collective Suitability. 75 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESIn 2021, this Policy had two main changes, namely the inclusion of the heads of Treasury and Marketing as key function holders, and also the integration of a gender diversity objective. > POLICY FOR THE SELECTION AND EVALUATION OF NOVO BANCO’ STATUTORY AUDITOR AND THE CONTRACTING OF NON-PROHIBITED NON-AUDIT SERVICES. O novobanco aprovou em 2018 reviu em 2021, a Política de Seleção e Avaliação do Revisor Oficial novobanco revised in 2021 its Policy for the Selection and Evaluation of novobanco’ Statutory Auditor and for the contracting of non-prohibited non-audit services, in compliance of the applicable regulations. This Policy was approved by the Financial Affairs (Audit) Committee of the General and Supervisory Board, by the General and Supervisory Board and by novobanco’s General Shareholders’ Meeting. This Policy applies to the selection, designation 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 novobanco’ activity and the responsibilities inherent to the specific tasks to be performed. To achieve its purpose, the Policy defines the evaluation criteria, stipulates an obligation to monitor the Statutory Auditor’s activity and establishes 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. 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 Member of the Executive Board of Directors €184 201.46 Closely related persons General and Supervisory Board Carla Alexandra Severino Antunes da Silva Member of the General and Supervisory Board Closely related persons Entity where a member of the Executive Board of Directors holds a management position LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. novobanco dos AÇORES SIBS - SGPS SA UNICRE - Instituição Financeira de Crédito SA €132 464.25 €373 913.02 €121 947 176.56 €6 294 560.00 €11 955 335.73 €38 050 000.00 The amounts shown in the tables above concern Residential Mortgage Loans, except for those related to entities where a member of the Executive Board of Directors holds a management position, and to the person related to the member of the General and Supervisory Board, where they concern corporate loans and guarantees. These amounts also include the subscription of senior debt securities (non- preferential) issued by novobanco dos Açores. For the disclosure purposes of Art. 109 (7) of the RGICSF, in 2021 there were no outstanding loans to direct or indirect holders of qualified holdings. For the purposes of the same article, outstanding loans to persons related therewith were as follows: 5.5 CREDIT TO MEMBERS OF THE CORPORATE BODIES 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 Cerâmicos, S.A. Garantia Bancária 1 500.00 € At 31 December 2021 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: 76 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES 5.6 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, novobanco 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 Rui Miguel Dias Ribeiro Fontes Luis Miguel Alves Ribeiro Luisa Marta Santos Soares da Silva Amaro de Matos Mark Georges Bourke * Andres Baltar Garcia General and Supervisory Board Byron James Macbean Haynes Karl - Gerhard Eick Benjamin Friedrich Dickgiesser Kambiz Nourbakhsh Donald John Quintin John Ryan Herbert Robert Alan Sherman Mark Andrew Coker Carla Alexandra Severino Antunes da Silva Willian Henry Newton** Total 2021 Fixed Remuneration Role Total Paid and Deferred CEO Member Member Member Member Member Chairman Vice-Chairman Member Member Member Member Member Member Member Member 2 039 865 410 000 298 683 298 683 297 500 385 000 350 000 1 100 000 425 000 300 000 0 0 0 95 000 95 000 0 75 000 110 000 Paid 1 988 581 371 858 298 683 298 683 297 500 371 858 350 000 1 046 858 371 858 300 000 0 0 0 95 000 95 000 0 75 000 110 000 Salary Other post-EBD benefits 1 986 216 371 858 297 500 297 500 297 500 371 858 350 000 1 046 858 371 858 300 000 0 0 0 95 000 95 000 0 75 000 110 000 2 365 0 1 183 1 183 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (*) In addition, a rental allowance of €51,000 was paid during the year. After consultation with the Monitoring Trustee, who has liaised with DGCOMP, they confirmed a rent allowance of a reasonable amount would not be considered as a component of the “total annual remuneration” under Remuneration Limits imposed by DGCOMP. (**) GSB member since May 1,st 2021. In the period from January to April, he received €55,000 under a consultancy agreement. Deferred 51 284 38 142 0 0 0 13 142 0 53 142 53 142 0 0 0 0 0 0 0 0 0 77 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESIn 2021, there were no amounts paid to the members of the Corporate Bodies of novobanco by other group companies. For Year 2021 regarding Variable Remuneration, there was a conditional award, subject to the verification of several conditions, of 1.600 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, no payment to the members was made and is subject to verification of condition defined in the Remuneration Policy. According to the Remuneration Policy, Variable Remuneration award is subject to the maximum limit of 100% of the annual Fixed Remuneration 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 award. Additionally, this award was fully deferred and there shall be no payments until after the end of the Restructuring Period. 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 2021 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. > 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 Nothing to report. > Plans for the attribution of shares or stock options Nothing to report. ii) Identified Staff Following its annual self-assessment procedure as stated in the Remuneration Policy, the Identified Staff was updated by the Executive Board of Directors and reviewed and approved by the Remuneration Committee. A group of 47 employees was classified as Identified Staff and the table below show their Fixed and Variable Award Remuneration for 2021. Identified Staff Commercial Control Functions Suport Total 2021 (**) Fixed Remuneration # Employees Total Paid and awarded 47 8 5 34 9 205 431 1 983 268 932 809 6 289 354 Paid 6 255 431 1 218 751 612 602 4 424 078 Salary Other post-employment benefits 6 224 442 1 211 809 611 494 4 401 139 30 989 6 942 1 108 22 939 “Variable Remuneration awarded 2021 (*) 2 950 000 764 517 320 207 1 865 276 (*) The 2021 award will be deferred and paid out in subsequent years in accordance with Remuneration Policy. Includes sign-on bonus of 170.000€ paid to two new signings. (**) In 2021 1/3 of the Identified Staff Bonus award of 2018 and 1/3 of Bonus award 2019 and 1/3 of the award of 2020 have been paid (1.604.467€). 78 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES5.7 SECURITIES HELD BY MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES As at 31 December 2021, and with regard to fiscal year of 2021, the members of the management and supervisory bodies of novobanco did not hold any securities issued by novobanco or by companies in a control or group relationship with novobanco. Additionally, no acquisitions, disposals or transmissions of securities issued by novobanco or by companies in a control or group relationship with novobanco were carried out in this period by the members of the management and supervisory bodies of novobanco. 5.8 NON-MATERIAL INDIRECT INVESTMENT IN NOVO BANCO All current members of the Executive Board of Directors and certain members of the General and Supervisory Board acquired, using their own resources, holdings in an indirect investment structure in novobanco, which had been set up (and is controlled) by LSF Nani GP, LLP, which owns indirectly a 75% interest in novobanco. This indirect investment represents a shareholding of substantially less than 1% in novobanco 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 the investment on the share capital’s percentage, and also for each individual. Non-material indirect investments in novobanco have been disclosed in previous novobanco’s annual financial statements and were notified to the relevant supervisory authorities and internal control bodies. In addition, certain staff members also had the opportunity to make a non-material indirect investment in novobanco using their own resources, under the same terms as the above. 79 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES6.0 CONSOLIDATED FINANCIAL STATEMENTS AND FINAL NOTES 6.1 Consolidated Financial Statements 6.2 Separate Financial Statements 6.3 Final Notes 6.4 Note of Recognition Sandra Catarino Risk Department - Area Manager 80 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES6.1 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT AS AT 31 DECEMBER 2021 AND 2020 Interest Income Interest Expenses Net Interest Income Dividend income Fees and commissions income Fees 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 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 The Certificated Accountant Executive Board of Directors thousands of euros 31.12.2021 31.12.2020 740 459 (167 065) 573 394 11 096 325 511 (47 357) (5 123) 50 896 46 697 21 14 195 10 805 7 551 163 875 (181 604) 969 957 (374 359) (233 261) (141 098) (40 535) (34 004) (127 835) 9 840 (137 675) (198 903) 315 (26 314) 3 794 172 116 15 186 (12 737) 27 923 187 302 4 887 192 189 184 504 7 685 192 189 743 707 (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) 343 958 (398 769) (245 606) (153 163) (35 048) (33 072) (186 423) (22 116) (164 307) (755 070) (4 192) (245 778) 9 430 (1 304 964) (1 082) 8 639 (9 721) (1 306 046) (33 345) (1 339 391) (1 329 317) (10 074) (1 339 391) 81 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESCONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2021 AND 2020 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 (of which: Operations with 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 The Certificated Accountant Executive Board of Directors thousands of euros 31.12.2021 31.12.2020 5 871 538 377 664 799 592 7 220 996 26 039 902 2 338 697 50 466 23 650 739 19 639 30 661 94 590 864 132 238 945 625 187 67 986 779 892 35 653 744 239 2 442 550 9 373 44 618 515 306 054 - 40 215 994 10 745 155 27 582 093 1 514 153 374 593 44 460 442 834 15 297 12 262 3 035 443 437 968 41 469 044 6 054 907 (1 045 489) (8 576 860) 6 501 374 184 504 31 035 3 149 471 44 618 515 2 695 459 655 273 960 962 7 907 587 25 898 046 2 229 947 113 795 23 554 304 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 44 395 586 554 791 - 37 808 767 10 102 896 26 322 060 1 017 928 365 883 72 543 384 382 14 324 9 203 5 121 417 762 1 996 382 41 248 951 5 900 000 (823 420) (7 202 828) 6 570 154 (1 329 317) 32 046 3 146 635 44 395 586 82 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES6.2 SEPARATE FINANCIAL STATEMENTS INCOME STATEMENT AS AT 31 DECEMBER 2021 AND 2020 Interest Income Interest Expenses Net Interest Income Dividend income Fees and commissions income Fees 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 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 Outras despesas operacionais 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 Attributable to Shareholders of the parent The Certificated Accountant Executive Board of Directors thousands of euros 31.12.2021 31.12.2020 748 592 (167 508) 581 084 18 400 287 013 (40 296) (7 234) 51 222 42 734 - 14 896 10 653 (4 582) 79 753 (141 545) 892 098 (346 975) (214 994) (131 981) (40 172) (33 799) (111 770) 9 900 (121 670) (196 230) 49 691 (12 069) 200 774 24 043 (4 249) 28 292 224 817 1 091 225 908 760 111 (192 112) 567 999 16 928 279 878 (41 438) 86 183 (91 208) (521 059) - (12 053) (2 000) 2 272 87 599 (89 879) 283 222 (367 635) (223 604) (144 031) (34 766) (35 033) (187 839) (21 595) (166 244) (750 975) (41 285) (215 397) (1 349 708) 4 216 13 400 (9 184) (1 345 492) (28 754) (1 374 246) 83 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESBALANCE SHEET AS AT 31 DECEMBER 2021 AND 2020 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 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 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 DO PASSIVO 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 thousands of euros 31.12.2021 31.12.2020 5 674 461 377 709 2 250 308 7 133 508 24 977 300 2 893 829 186 089 21 897 382 20 150 28 787 241 066 231 419 231 419 67 515 776 769 35 448 741 321 2 555 852 6 601 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 44 341 445 44 042 448 305 512 40 346 362 11 497 829 1 529 847 26 997 858 1 479 066 371 609 44 460 478 170 4 703 4 703 362 836 - 41 542 043 6 054 907 (968 987) (8 576 860) 6 064 434 225 908 2 799 402 44 341 445 554 343 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 41 289 359 5 900 000 (749 259) (7 202 828) 6 179 422 (1 374 246) 2 753 089 44 042 448 84 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES6.3 FINAL NOTES 6.4 NOTE OF RECOGNITION 6.3.1 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 novobanco, for the year ended on 31 December 2021 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 novobanco and of novobanco 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 novobanco and of novobanco Group in 2021 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 2 March 2022. 6.3.2 Proposal for the distribution of novobanco 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 novobanco proposes, for approval by the General Meeting, that the net profit reported in the separate accounts for financial year 2021, in the amount of €225 908 388.79 be allocated €22 590 838.87 to the Legal Reserve, pursuant to article 97 of the General Regime for Credit Institutions and Financial Companies, and €203 317 549.92 to the “Other Reserves and Retained Earnings” on the Balance Sheet, to cover losses incurred in previous years. 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, 8 March 2021 The Executive Board of Directors António Manuel Palma Ramalho Luísa M. S. Soares da Silva Amaro de Matos Mark George Bourke Luís Miguel Alves Ribeiro Rui Miguel Dias Ribeiro Fontes Andrés Baltar 85 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURES7.0 ALTERNATIVE PERFORMANCE MEASURES Daniela Almeida North Corporate Department - Business Client Manager 86 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESThe 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 novobanco 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 novobanco’s management as a work tool in the analysis of the Group’s performance: 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 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 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 740 459 (167 065) 573 394 11 096 325 511 (47 357) (5 123) 50 896 46 697 21 14 195 10 805 7 551 163 875 (181 604) 969 957 (233 261) (141 098) (40 535) (34 004) 9 840 (137 675) (198 903) 315 (26 314) 3 794 172 116 (12 737) 27 923 187 302 4 887 192 189 184 504 7 685 192 189 Net Interest Income Fees and Commissions Market Results Other Operating Results Staff Costs General and Administrative Costs Depreciation Restructuring funds - independent valuation Credit Impairment Securities Impaiment Other Assets and Contingencies Provisions 282 525 75 874 40 397 (233 261) (141 098) (34 004) - (149 375) (47 779) (155 583) 573 394 740 459 ( 167 065) euro thousands Taxes 15 186 Special Tax on Banks ( 34 087) 325 511 ( 47 357) 11 096 14 246 50 896 46 697 21 14 195 10 805 4 371 2 738 ( 74 820) ( 19 369) 7 551 156 766 ( 72 697) (40 535) 3 794 4 887 (233 261) (141 098) (34 004) 9 840 ( 137 675) (149 375) (47 779) ( 1 749) 315 ( 26 314) ( 12 737) 27 923 ( 34 087) 87 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESII – Alternative performance measures Information on the Alternative Performance Measures (definition, calculation method and scope). ALTERNATIVE PERFORMANCE INDICATORS 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 Fee and commission income less fee and commission expenses (DR): Fee and commission income and Fee and commission expenses Indicator of the results of commercial activity most directly related to customers Historical financial performance indicator Financial margin + Customer services Capital markets results Indicator of results of activity in the financial markets Historical financial performance indicator indicator Results from trading 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 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 histoncal 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 88 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESBALANCE SHEET/LIQUIDITY Designation Definition/Utility Calculation Basis Conciliation with the Financial Statements Assets eligible for rediscount transactions with the ECB 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 n.a. n.a. Securities portfolio 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 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 Off-balance funds Total customer funds Commercial gap Liquidity gap 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 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 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 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 Difference between customer deposits and net credit (BAL): Net customer loans and customer deposits Difference between [(Net assets - volatile liabilities)] Loans to Deposit Ratio Instruction No 16/2004 of Banco de Portugal Indicator of the relationship between the financing of the activity and the funds raised from customers Historical financial performance indicator Ratio between [(total credit - accumulated impairment for credit) and deposits customer] (BAL): Net customer loans and customer deposits 89 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESASSET QUALITY AND COVERAGE RATIOS Designation Definition/Utility Calculation Basis Conciliation with the Financial Statements Overdue loans ratio Loans quality indicator, showing the proportion of the gross loan portfolio that is in default Historical financial performance indicator Ratio between overdue loans and total loans (BAL): Overdue loans, that is, loans with installments of capital and interest in default and loans to customers, gross Ratio of loans overdue for more than 90 days 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. Ratio between loans overdue for more than 90 days and total loans (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 Non-performing loans ratio Loans portfolio quality indicator, reflects the proportion of the gross loans portfolio including cash and deposits with credit institutions that are in a non-performing situation. Historical financial performance indicator. Ratio between the total balance of loans agreements with customers and cash equivalents and investments in credit 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 (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 Indicator of the ability to absorb potential losses related to loans default Historical financial performance indicator. Ratio between balance sheet impairments for loans to customers and the amount of overdue loans (BAL): Provisions for loans and overdue loans to customers Coverage of loans overdue for more than 90 days Indicator of the ability to absorb potential losses related to loans default for more than 90 days. Historical financial performance indicator. 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 Non-performing loans coverage Coverage of loans to customers Cost of Risk Indicator of the capacity to absorb potential losses related to non- performing loans default. Historical financial performance indicator. Ratio between balance sheet impairments for loans to customers and non-performing loans (BAL): Provisions for loans and non-performing loans Indicator of the ability to absorb potential losses related to the customer loan portfolio. Historical financial performance indicator. Ratio between balance sheet loan impairments and gross loans to customers (BAL): Provisions for loans and gross loans to customers Measure of the cost recognised in the year to cover the risk defaultin the customer loans book -historical financial performance measure 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 90 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESEFFICIENCY AND PROFITABILITY RATIO Designation Definition/Utility Calculation Basis Conciliation with the Financial Statements Efficiency I Instruction No 16/2004 of Banco de Portugal Efficiency II Instruction No 16/2004 of Banco de Portugal Cost to Income 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 income 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. 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 Profitability Instrucao n°16/2004 do Banco de Portugal 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 banking income and average net assets 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. (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. 91 Annual Report 20211.0 WHO WE ARE 2.0 OUR STRATEGY 3.0 OUR PERFORMANCE 4.0 CAPITAL, LIQUIDITY & RISK 5.0 CORPORATE GOVERNANCE 6.0 STATEMENTS 7.0 ALTERNATIVE PERFORMANCE MEASURESSustainability Report 2021 92 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Contents Sustainability Report 2021 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 ESG PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORT 94 96 104 108 131 140 93 Annual Report 20211.0 HIGHLIGHTS 1.1 ESG Performance in 2021 Ricardo Manuel Santos Freire Retail South Department - Customers Assistant Maria Inês Ferreira Retail North Department - Senior Customer Assistant 94 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20211.1 ESG PERFORMANCE IN 2021 2021 was, worldwide and once again, a more challenging year than anticipated. In this context, the group was especially aware and committed to making a positive impact on the communities it serves and to supporting its clients to overcome their challenges and thrive, contributing to lessen the adverse socio-economic impacts of the Covid-19 pandemic that carried over into 2021, and to promote long- term sustainable and just economic and social development. But 2021 was also the year in which we redesigned our medium and long-term ESG strategy, integrating even more deeply sustainability and environmental, social and governance issues in the way we work and do business, with the ambition of reducing the direct environmental impact of our business and supporting our clients in their sustainability journeys and in the transition to a low-carbon economy. This report aims to share novobanco Group’s vision and agenda regarding the main sustainability challenges in the financial sector. ENVIRONMENT 18.5% REDUCTION OF CO2 EMISSIONS - SCOPES 1, 2 AND 3 SOCIAL AND FINANCIAL WELL-BEING RESPONSIBLE BANKING €1.5 mn IN LOANS TO SMALL AND MEDIUM-SIZED COMPANIES 10,9 thousand MINIMUM BANKING SERVICE ACCOUNTS 36.2% OF WOMEN IN MANAGEMENT POSITIONS 58.6 thousand hours OF ESG TRAINING 26.5% REDUCTION OF PHOTOCOPY PAPER CONSUMPTION 11.6% REDUCTION OF WATER CONSUMPTION 70% OF EMPLOYEES MOTIVATED AND AVAILABLE TO EXCEED WHAT IS EXPECTED OF THEM 1,6 mn INVESTED IN THE COMMUNITY 156.8 thousand CARBON NEUTRAL ACCOUNTS 722.2 thousand ACTIVE DIGITAL CLIENTS 311 branches OF WHICH 51 IN LOW POPULATION DENSITY MUNICIPALITIES €388.7mn IN ECONOMIC VALUE DISTRIBUTED 52% OF SUPPLIERS WITH ESG SCORING 14.2 thousand hours OF TRAINING IN PREVENTION OF MONEY LAUNDERING AND TERRORIST FINANCING 95 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20212.0 SUSTAINABILITY STRATEGY 2.1 Our material issues 2.2 Risks and opportunities arising from climate change 2.3 Our ESG strategy 2.4 Our commitments 2.5 Our partners Hernâni Oliveira Rating Department - Senior Risk Analyst 96 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021We are aware of the important role of the financial sector in the current context where combating climate change is an imperative and sustainability issues dominate the world agenda. This is a defining moment, and one that implies the adoption of a structured, ambitious and effective approach to the environmental and social challenges of the transition to a sustainable and low carbon economy. Our strategy and approach tackle environmental and social issues not only as risks but also as opportunities that we want to see intrinsically embedded into the business strategy, ensuring the evolution of the governance and risk management model and a culture of transparency in the disclosure of information. We listen to our stakeholders and define our priorities with them. Shaping the future together. 2.1 OUR MATERIAL ISSUES The definition of our business strategy is intrinsically linked to a collaborative and proactive approach to all our stakeholders. To build and nurture a continuous relationship with our stakeholders and integrate their concerns and expectations, novobanco has in place a wide range of communication channels. EMPLOYEES CLIENTS REGULATORS SUPPLIERS MEDIA COMMUNITY  Request for in-person feedback via questionnaires and  Request for by phone, online and in  Provision of mandatory and voluntary meetings; person; information  Intranet (Somos novobanco, Yammer 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 thematic meetings, workshops, clariﬁcation sessions and webinars  Workers Committee, Union Secretariat and Information and Consultation Procedure  Formal system for ﬁling complaints;  Branch Network, Corporate Centres and Regional Divisions;  Social networks (novobanco Cultura, novobanco Facebook and Linkedin)  Events, such as novobanco Summit  Request for feedback by phone, online and in person.  Investor Relations team  Regular meetings with investors  Quarterly results presentation Investors website Contacts established through a speciﬁc website (Grupo novobanco Supplier Portal), coordinating the exchange of information via e-mail, telephone and in person.  Information provided in-person, by phone and online;  Press conferences  Quarterly results presentation  Sharing of specialized knowledge through social networks and media (radio, newspapers, televisions).  Continuous in-person, telephone and online dialogue with Associations, Private Social Solidarity Institutions, social and environmental NGOs;  Corporate Social Responsibility Initiatives  Participation in conferences  Social networks (novobanco Cultura, novobanco Facebook and Linkedin) 97 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021In addition to recurring interactions, we also regularly assess the materiality of ESG (environment, social and governance) issues by means of a questionnaire, relying on the strong involvement of our various stakeholders to identify ESG opportunities, risks and challenges in the management of our business. Through this consultation, we sought to analyse the main concerns and define the topics with the greatest potential impact for successful management and consequent creation of value, not only in the short but also in the long term. The 2021 sustainability materiality assessment was carried out based on a consultation to our stakeholders, with contributions from our clients, employees, investors, suppliers, non-governmental organisations and novobanco Group’s decision-making bodies that allowed us to define the material issues and Sustainable Development Goals (SDGs) for the novobanco Group: LISTENING TO OUR STAKEHOLDERS AND IDENTIFYING OUR MATERIAL ISSUES I S E D O B T N E M E G A N A M  The Bank's Financial Performance  To incorporate ESG risks and criteria in the supply of products and services  Customer experience  Innovation and digitisation  Financial and digital literacy  Governance, remuneration policies and ethics  Human Resources Management  Gender Equity and Equality STAKEHOLDERS 98 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 To define our ESG strategy, commitments and goals, we structured our approach along 3 axes that reflect how we address the material issues and sustainable development goals identified by our stakeholders. Our ESG P SUSTAINABLE BUSINESS Robust Financial Performance Generating value for all our stakeholders Sustainable operations Minimizing the negative environmental impact from our operations, promoting innovation and digitization Responsible Investment Incorporating ESG risks and opportunities in our business model and commercial offer SOCIAL AND FINANCIAL WELL-BEING Well-being, Diversity and Inclusion Recognizing the value of our people, promoting their well-being and growth in a diverse and inclusive corporate culture RESPONSIBLE BANKING Role Model for Positive Impact Acting transparently and ethically, within a robust governance model. Promoting equity and gender equality Customer Experience Serving our customers with convenience, proximity and transparency, ensuring a fair value exchange Community Fostering Portuguese economic growth and promoting ﬁnancial and digital inclusion in the communities we serve 99 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20212.2 RISKS AND OPPORTUNITIES ARISING FROM CLIMATE CHANGE Concerns about environmental degradation and climate change take a prominent place on the global political agenda and consequently in businesses and the financial sector. The transition to a low carbon economy with strong emphasis on circularity involves risks and opportunities for the banking sector, while giving rise to new ways of doing business: • Redirecting financial flows towards sustainable investments; • Shifting the investment in the most polluting sectors by supporting companies’ transition efforts; • Integrating environmental, social and governance risks into the risk analysis; • Managing under a medium and long-term perspective. We recognise that assessing, quantifying and managing these risks and opportunities is still a rapidly evolving challenge that will require us to revisit and evolve our options, models and approaches over the coming years. This does not prevent us, however, from taking immediate action, building a robust but flexible and evolving transition strategy, progressively incorporating environmental and climate risks into our business model, adopting measures to combat global warming and reducing and mitigating the negative impact arising from our activity. To address the opportunities and mitigate the risks arising from climate change, ESG risk management is included in the group’s overall sustainability framework and business plan. In this context, the ongoing developments in the ESG risk management system are crucial, focusing on the disclosure of non-financial information on the sustainability strategy and ESG risk management, the effective alignment with regulatory and supervisory expectations in this matter, and the implementation of ESG risk monitoring routines and assessment practices, involving the integration of specific controls in the business that guide origination. For more information on ESG Risk Management at the novobanco Group, see chapter 4.3 Risk Management, in the Management Report. Main Risks Main Opportunities  Physical risks from climate change that derive from the increasing severity and frequency of extreme weather events.  Investment and ﬁnancing needed for the transition to a decarbonised economy and the mitigation of climate change impacts.  Transition risks arising from gradual and  Sale of new products and services, long-term changes in the Earth's climate or from regulatory and legislative changes that may directly or indirectly affect companies, forcing them to alter their operations and business model or making their activities unviable. including:  Green investment funds  Social investment funds  Green and/or sustainable ﬁnancing 2.3 OUR ESG STRATEGY The group has set itself the important goal of becoming a reference ESG entity in Portugal, contributing to the promotion of sustainable investment practices and to accelerating the process of transition to a carbon-neutral economy. We are therefore developing our sustainability strategy, with special focus and priority given to the integration of climate risk into the business and risk management model, responding not only to the European Union’s initiatives under its action plan on sustainable finance and the expectations and recommendations of regulators, supervisors and sector associations, but also taking into account the needs and expectations of our clients and the market. CLIMATE CHANGE IS ONE OF OUR MAIN PRIORITIES 100 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Our approach to address climate and social risks and to promote a positive social and economic impact in the communities we serve is structured around 3 pillars: 1. Business strategy Adaptation: • Integrating ESG risks into risk management models, developing and adapting assessment, quantification, decision-making and monitoring models that guarantee alignment with the business strategy. • At internal management level: minimising ESG risks to people and the planet and reinforcing the sustainability principles on the basis of which we interact with our suppliers; 3. Disclosure and Reporting • At banking activity level: supporting, on the one hand, investment and financing of clients in their sustainability journeys and in the orderly and just transition to a low carbon economy and, on the other, providing a response to clients who seek to incorporate responsible investment principles and environmental concerns in their financial assets’ management; • Pursuing an approach based on knowledge-sharing partnerships that maximise the impact of our initiatives, and consistently joining national and international initiatives to promote sustainability. In this context, we are reviewing and adapting our financing and investment strategy, risk appetite and product and service offering to ensure a gradual alignment of the portfolio to meet COP26 goals, the EU Action Plan and national climate commitments. 2. Risk Governance and Management • Implementing a governance and management model for material ESG issues at all levels of the business to promote a culture and actions that foster the transition to a sustainable socioeconomic development model, leading to responsible growth, job creation, people advancement and respect for the environment; • Committing ourselves to disclosing accurate and transparent activity reports from a sustainability perspective, informing on the group’s position to internal and external stakeholders. 2.4 OUR COMMITMENTS Having embraced the important goal of becoming an ESG reference entity in Portugal, integrating sustainability into its business model, the novobanco Group defined a set of commitments and ambitions that embody the ESG issues that are essential for the group and underpin its Sustainability Strategy. Carbon Footprint To reduce the Greenhouse Gas emissions in our own operations (scopes 1 and 2) by 50% by 2030 To increase the weight of low emission vehicles (electric and hybrid) in the group's ﬂeet to 50% by 2024 and 100% by 2030 To consume 100% of electricity from renewable sources by 2024**. ** In all locations where this is possible and the contract is signed by the group Gender Equality To increase the representation of women in senior leadership positions by 4.5 p.p. by 2024 101 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021The commitments of Novo Banco, SA: The Social Dividend Programme, whose 1st edition ran from 2017 to 2021, has been reformulated and is now running its 2nd edition, focused on the strategic priorities for the 2022 - 2024 triennium and structured into 3 distinct but complementary programmes: #Environment; #Social & Well-being; #Responsible Banking. ENVIRONMENT SOCIAL AND FINANCIAL WELL-BEING + €600 mn of Green Investment1 (vs. 2021) €0 mn of ﬁnancing to excluded sectors2 30% of investment products with ESG3 characteristics - 30% of Paper consumption4 (tonnes, vs. 2021) -28% Of CO2 emissions from own operations5 (tonnes. vs. 2020) 40% of the employees beneﬁting from the social Well-being programme6 + 3 p.p. of employees with psychosocial risk assessment of “Healthy”7 + 8 p.p. in employee engagement level 8 (vs. 2021) + 11.8 points in clients NPS indicator9 (vs. 2021) + 9.594 hours of employees’ voluntary service hours 10 (vs. 2021) RESPONSIBLE BANKING + 2.5 p.p. of Women in senior leadership positions11 - 0.9 p.p. in gender pay gap12 + 3 Partnerships with organisations to promote the employment of people with disabilities13 90% of suppliers with sustainability score14 + 39.160 ESG training hours to the employees 1. Origination of financing or own portfolio investments in companies whose main economic activity is eligible to the EU Taxonomy and origination of financing or own portfolio investments where the use of funds by the borrower or the projects are directed to economic activities eligible to the EU Taxonomy or are aimed at investments in energy transition or the transition of the company’s business model towards green activities; 2. Economic sectors not financed by novobanco: Weapons, Prostitution, Pornography, Coal (mining and energy production) and Illegal trade of exotic or endangered species; 3. Investment Funds, Financial Insurance and Structured Products; 4. Reduction of photocopy paper consumption thanks to the implementation of the Phygital programme in the commercial network (started in 2019) and the dematerialisation of processes in the central services; 5. Scope 1 and 2 GHG emissions; 6. Percentage of employees who benefited from at least 2 programme initiatives per year. Programme of initiatives to promote balance between personal and professional life, mental and physical health, healthy living, etc.; 7. Annual psychosocial risk assessment study of novobanco’s employee base; 8. Assessment of the level of employee engagement carried through the Pulse survey (average % of employee engagement); 9. Net Promoter Score calculated for Individual Clients - BASEF; 10. Promotion of volunteering actions in strategic areas of social impact of the bank. Each employee can take 1 day leave per year for volunteer work; 11. First line managers and Executive Board of Directors; 12. “Gender pay gap weighted by the representativeness of each Performance Function” 13. Number of organisations with active partnerships being promoted by the Bank; 14. Recurrent suppliers to novobanco Group with annual turnover above 10 thousand euros. 102 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20212.5 OUR PARTNERS The path to sustainability cannot be trodden alone. Therefore, on this journey we have joined a group of relevant partners for the execution of our strategy: 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. Member Global Compact accelerator programme, which supports companies in setting ambitious targets for women's representation and leadership in senior management. 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. Member The Inclusive Community Forum (ICF) is a Nova SBE initiative dedicated to the lives of people with disabilities and aiming to promote a more inclusive community. 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. Member Non-proﬁt business association, which work in Social Responsibility and Sustainability. It is part of the European network of CSR Europe, a leader in sustainability and corporate responsibility, supporting several sectors at a global level, in the transformation and search for solutions for sustainable growth. Subscriber Letter of Commitment to Sustainable Finance in Portugal, which aims to contribute to the promotion of sustainable investment practices. 103 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20213.0 SUSTAINABILITY GOVERNANCE 3.1 Main ESG Policies Maria da Conceição Lopes Xavier Operations Departament - Technician Assistant Alexandre Fachada Operations Departament - Operations Assistant 104 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021To the novobanco Group it is essential to conduct its activity with the firm resolve to make a positive contribution to the entire ecosystem within which it operates. This course of action requires a robust governance model, sustained by policies and principles of ethics and transparency that ensure effective and prudent management. Shaping the future together. novobanco recognises that progress in terms of sustainability requires solid governance and an organisational model that guarantees the success of its implementation, ensuring accountability, mobilisation and alignment at all levels of the organisation. Under this premise, and to ensure adequate coordination of this issue, the bank revised its sustainability governance structure, under the following principles: • To ensure that the Executive Board of Directors (EBD) and remaining management team have ESG expertise, through the implementation of specific training paths adapted to novobanco’s strategic priorities, and also ensure that this knowledge is spread among all employees, for growing sustainability literacy; • To ensure the creation of a specific forum that leads sustainability discussions and initiatives, supported by a specialised team responsible for coordinating novobanco Group’s ESG approach and by the assignment of specific competences and responsibilities to relevant departments that will ensure the integration of ESG in the various activities of novobanco. Given the high pace of transformation occurring in all sustainability matters and the stage of maturity of the integration of ESG issues into the institution’s business model, in 2021, the novobanco Group set up a Sustainability Steering Committee, with the participation of members of the EBD and multidisciplinary teams from the bank and subsidiaries, which meets monthly in order to accelerate the implementation of priority ESG initiatives. This monthly forum allows a structured assessment and approach to sustainability, enabling its implementation across the entire organisation, and adding the environmental, social and governance dimensions to the economic dimension, to ensure: • The definition of the strategy, positioning and action plans related to sustainability issues and their alignment with the action plans of the group’s different operations and business areas; • Monitoring the development and implementation of the established action plan and initiatives, and coordinating the teams appointed to support the implementation of the plan; • Monitoring the impact of initiatives and the performance of the main indicators against the defined ambition; • Liaising and coordinating with all relevant stakeholders and reporting on performance through the different internal and external communication channels. 3.1 MAIN ESG POLICIES Our commitments are present in our policies and other relevant documents available on our institutional website. EQUALITY AND NON-DISCRIMINATION POLICY Establishes the principles of non-discrimination and promotes equality: 1st) Prohibition of discriminatory practices on the grounds of gender, race, colour, creed, socio-economic conditions or sexual orientation; 2nd) Promotion of adequate work conditions for employees with disabilities; 3rd) Prevention and control of practices which may give rise to discriminatory situations of any type. HUMAN RIGHTS POLICY Advocates respect for human rights and deﬁnes procedures to deal with any transgression of these rights. novobanco acts in full compliance with the law. It promotes respect for human rights and decent work practices within its sphere of inﬂuence, namely among its employees, clients, partners, suppliers and remaining stakeholders. 105 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021CODE OF CONDUCT The Code of Conduct aims to disseminate the principles that should steer the companies and activities of novobanco Group, promote an ethical conduct, aligned with the group's values, and foster respect for and compliance with all applicable laws and regulations and a transparent system of relations with the outside world. SUPPLIER RELATIONSHIP PRINCIPLES Establishes the minimum requirements, set not only to suppliers but also to the group, with regard to business practices, health and safety at work, ethics and environmental management. REMUNERATION POLICY OF NOVOBANCO EMPLOYEES Remuneration principles and rules for novobanco employees established under the terms of article 115-C of the General Law on Credit Institutions and Financial Companies (Regime Geral das Instituições de Crédito e Sociedades Financeiras). REMUNERATION POLICY FOR THE MANAGEMENT AND SUPERVISORY BODIES Remuneration principles and rules for the members of novobanco’s Management and Supervisory Bodies established under the terms of article 115-C of the General Law on Credit Institutions and Financial Companies. RISK APPETITE Establishes, among others, the exclusion from ﬁnancing and investment of sectors that may negatively impact Sustainable Development, namely: mining sector associated to coal, pornography and prostitution, weapons (except if associated to national defence), and illegal trade of endangered or exotic species. POLICY ON THE PREVENTION OF MONEY LAUNDERING AND TERRORIST FINANCING Establishes the rules, procedures and key elements for the bank's counterparties and respective transactions that allow the bank to detect and prevent potential money laundering and terrorist ﬁnancing activities. 106 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021POLICY ON CONFLICTS OF INTEREST Establishes the set of principles to be observed by novobanco and the novobanco Group to identify, prevent, and mitigate conﬂicts of interest in the development of their activities, and provides the speciﬁc procedures to be adopted within novobanco to manage, remedy and log situations of conﬂict of interest that may arise. WHISTLEBLOWING POLICY Regulates the reporting of irregularities by the bank's employees, as well as by service providers 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. RELATED-PARTY TRANSACTIONS POLICY Determines the procedures to be adopted to ensure that novobanco has, at all times, a comprehensive and updated list of its related parties, establishes the internal rules and responsibilities relating to the identiﬁcation of transactions proposed or planned by novobanco that fall into the category of Related-Party Transactions, and establishes the internal procedures and responsibilities for the review and prior approval of Related-Party Transactions. SUSTAINABILITY POLICY Deﬁnes the sustainability positioning of the novobanco group and identiﬁes its commitments and guiding principles with respect to its material issues at environmental, social and governance (ESG) level. More information on novobanco group’s governance model is provided in chapter 5 CORPORATE GOVERNANCE of the Management Report. 107 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20214.0 OUR PERFORMANCE 4.1 Our clients 4.2 Our employees 4.3 Our suppliers 4.4 The reduction in our direct environmental impact 4.5 Community Vânia Elias South Retail Department - 360 Senior Client Manager Nelson Soças South Retail Department - Branch manager 108 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Based on our Sustainability Policy we have assumed a clear position and defined priorities for action during the next three years, through which we want to develop a sustainable business based on the following goals and guiding principles: 4.1 OUR CLIENTS • Contribute to the transition to a low carbon economy; • Support and promote financial and social well-being; • Continuously strengthen our performance according to the highest standards of ethics, responsibility and transparency. In order to offer the best experience to our clients, the group seeks to gather as much information as possible about what they want, when, where and how. Knowing our clients’ expectations and needs throughout their life cycle allows us to identify opportunities for improvement, using a robust model for monitoring the customer experience based on several action pillars. Our performance is based on five values that define our positioning: COLLABORATION We collaborate with all stakeholders in order to achieve the best results for our clients and for society DYNAMISM We embrace continuous transformation and reinvention in order to remain relevant Customer Experience Monitoring Model DIVERSITY We reﬂect customer and employee diverse needs onto the solutions and plans we devise and deliver SERVICE QUALITY MOMENTS OF TRUTH DIGITAL CHANNELS QUALITY INDICATOR AD HOC SURVEYS EXTERNAL SURVEYS TRANSPARENCY we maintain authentic and open exchanges of information among all stakeholders EMPATHY we incorporate the voice of clients and society into the way we do business These principles and values guide our actions and the way we: • Aspire to continuously respond to the ever-changing expectations and needs of our clients, • Are committed to strengthening the relationship with our employees, promoting and valuing diversity in the bank’s employee base as a strategic lever, and fostering an inclusive culture that allows employees to fully realise their potential; • Incorporate ESG criteria in our supplier selection models; • Give back and generate positive impact through our activity, in the communities we serve. Shaping the future together. SERVICE QUALITY MOMENTS OF TRUTH DIGITAL CHANNELS QUALITY INDICATOR AD HOC SURVEYS EXTERNAL SURVEYS Monitoring the customer experience 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 customers’ experience immediately after the main moments of their relationship with the bank, in order to identify improvements that will allow us 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 peer comparison. Development of a Quality Indicator for the commercial network 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 topics of the moment. Monitoring of external benchmark market surveys such as the ECSI (developed by APQ and NOVA IMS), BASEF Banca (developed by Marktest), and the Financial Services Barometer (developed DATA E). 109 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021The 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 the customers’ experience with the bank in its various dimensions. In order to correct the reasons for dissatisfaction conveyed by clients through satisfaction surveys, the Restart programme sends a lead to the account manager’s workstation, thus allowing the commercial network to assess the grounds for dissatisfaction and mitigate them whenever possible. In 2021 we collected approximately 69.9 thousand replies to the satisfaction questionnaires made to our individual and commercial clients. Retail Banking Our purpose is to create a value proposition that enables us to give an adequate response to our clients. To this end we constantly seek to learn about the needs of our clients at every step of their lives, actively listening to what they have to say through the various channels available, so as to keep developing and implementing the product and service offerings that best suit their needs and expectations. In 2021, we collected approximately 65.2 thousand replies to the satisfaction questionnaires, covering four segments of Retail: Individuals, 360º, Small Businesses and Singular. 87% of novobanco clients and 92.5% of novobanco Açores clients are very satisﬁed with the quality of the service provided to them. We also collected the opinion of around 17.5 thousand clients about their experience in the key moments of truth in their relationship with the bank, and in particular with regard to the account opening, mortgage loans, and personal loans. The conﬁdence index [1] of novobanco's clients stood at 77.5% in 2021 vs. 74.7% in 2020. The Net Promoter Score (which calculates the intention to recommend the Bank) was 29 in 2021. SERVICE QUALITY RETAIL NOVOBANCO (%) Singular 92.2% 4.9% 2.9% Mass market and Micro Business 86.2% 9.7% 4.1% 360º 90.3% 6.5% 3.2% Small Business 86.8% 8.8% 4.4% Retail (total) 87.0% 9.0% 4.0% Very satisﬁed Satisﬁed Not satisﬁed MOMENTS OF TRUTH VERY SATISFIED COSTUMERS (%) 93% 88% 94% 92% 83% 81% SERVICE QUALITY RETAIL NOVOBANCO DOS AÇORES (%) Mass market and Micro Business 92.3% 6.0% 1.6% 360º 92.5% 7.1% 0.4% Small Business 93.2% 4.4% 2.4% Retail (total) 92.5% 5.9% 1.6% Account Opening Mortage Loans Personal Loans 2020 2021 Very satisﬁed Satisﬁed Not satisﬁed 110 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Commercial Banking Creating a value proposition for the Commercial segment that is innovative, competitive and proﬁtable, and bolsters novobanco's role as the reference bank for companies in Portugal, remains a key priority, and the customers’ voice gives a crucial contribution to attaining this goal. In 2021, commercial banking collected approximately 2.4 thousand replies to customer service satisfaction surveys. The results show that 89.9% of the SME commercial clients and 84.4% of the Large corporate clients are very satisﬁed with the bank's service, which demonstrates that the bank's activity matches the needs of its clients. In 2021 the SME clients’ conﬁdence index was 77%. The Net Promoter Score stood at 32.2 in 2021, which compares with 24.4 in 2020. In the Commercial Clients segment, the bank also assessed the experience of 958 clients after taking out a loan, and then shared the results not only with the commercial areas, but also with the marketing areas, which used these data to support the introduction of innovations and the launch of new products and services. In the Large Corporates segment, the conﬁdence index improved to 76.1% in 2021, from 74.2% in 2020. The Net Promoter Score also increased in 2021, reaching 20. SERVICE QUALITY Commercial Banking (%) Corporate 84.4% 14.8% 0.8% Medium-sized 89.9% 8.0% 2.1% Very satisﬁed Satisﬁed Unsatisﬁed Clients may lodge complaints through several channels, and an effort is made to solve problems at the first contact with the client. The establishment of honest, transparent and continuous contact with the clients requires fast and efficient replies to their comments or complaints, which helps develop a relationship of trust. At novobanco and Banco Best, the rate of complaints was 0.30 per thousand active clients in 2021, a significant reduction compared to 2020 that reflects the customer satisfaction with the service provided. In recent years clients have shown increasing preference for using the digital channel to submit their complaints, especially at Banco Best where all clients have online access. At novobanco dos Açores this rate was 0.26. CANAIS PARA APRESENTAÇÃO DE RECLAMAÇÕES COMPLAINTS RATE/ACTIVE CLIENTS ONLINE DIRECT LINE BRANCHES CORPORATE CENTERS 0.35 0.30 0.32 0.30 0.26 0.19 E-MAIL ON LINE FORM LETTER novobanco Banco Best novobanco dos Açores 2020 2021 111 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20214.1.1 Our ESG products Adjusting products and services to customer needs, new market trends and regulatory requirements has been the basis for the redefinition of novobanco group’s offer, which is increasingly more attuned to environmental, social and ethical concerns. Supporting our clients towards a sustainable and carbon-neutral economy Loans ECO residential mortgage loans With a clear environmental focus, the client can benefit from a bonus on the spread when choosing to acquire a property with energy certification A+, A and B. With the firm resolve of contributing to the promotion of sustainable investment practices and accelerating the process of evolving towards a carbon-neutral economy in 2050, in 2021 we made several ESG products available to our clients, assuming an active role in supporting this transition to a low carbon economy. Individual Clients Efficient Home 2020 Line Specifically in terms of support to companies, during 2021, novobanco positioned itself from the very first moment as a strategic partner, providing financial support to small and medium-sized companies (Capitalizar 2018-COVID-19 Credit Line, and Sectoral Lines of Support to the Economy) through loans and the renewal of loan moratoria. There was also a strong focus on the digital transformation of processes, investing in remote relationship and signature tools. As regards the Recovery and Resilience Plan and EU funds, novobanco intends to be a prominent partner of companies, supporting them in the execution of their structural projects, either with complementary financing or with other ancillary banking services, thus responding to this pressing challenge and helping Portuguese companies to benefit from this opportunity. The bank supports its customers in their journey towards sustainability, financing and supporting investment projects aimed at energy transition, as well as projects with social concerns. The bank also addresses the needs of clients that want financial products with ESG features for their investment portfolio. New disclosure requirements relating to sustainability have behavioural effects on companies’ business models as well as on their need for banking support and in this context, we aim to consistently incorporate ESG factors into our financial products and services in order to offer and differentiate products tailored to the expectations of our clients and investors. We have signed up to the "Business Ambition for 1.5ºC” initiative, undertaking to set science-based targets to reduce the group's greenhouse gas emissions with a special focus on Scope 3. We signed the “Letter of Commitment for Sustainable Finance in Portugal”, which aims to contribute to the promotion of sustain- able investment practices in the country, with the purpose of accelerating the process of transition to a carbon neutral economy by 2050. Personal Loan - Hybrid and Electric Vehicles Companies Credit Line for Decarbonisation and Circular Economy These lines provide favourable terms on loans intended to promote the improvement of the environmental performance of private housing buildings. In October 2021, we introduced in the pricing strategy of the Car Personal Loan (for new and used vehicles) a 1% bonus for Vehicles eligible for green mobility (plug-in, hybrid electric and non- electric hybrids). The purpose is to facilitate access to financing for the implementation of sustainable projects. This credit line is available for, among many others, investment in the replacement of existing equipment for more innovative, modern and efficient equipment, investment in renewable energy sources for self-consumption in the production process or in circular strategies for any stage of the product/service life cycle, and for the implementation of monitoring, control and action devices that optimise the conditions of use, energy consumption and raw material consumption. AT BANCO BEST WE RECORDED 48% YOY GROWTH IN THE VOLUME OF FUNDS/ETFS INCORPORATING ESG FACTORS Performance 2021 €17.18 mn 106 Clients 1.7% of total mortgage loans production in the year €0.236th 9 contracts 112 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Products whose remuneration is linked to the share performance of companies that stand out for their capacity to lead social and governance change subject to environmental and social criteria. The selection of companies to integrate these products is subject to a rigorous assessment process and criteria, which was further strengthened in 2021 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 that breach 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 environmental and social performance, and will not include companies with: • Air pollutant activity: > 50% of turnover, or • Reduction in the weight of their air polluting activity in the last 5 years by: < 5%, or • No defined environmental objectives. Performance 2021 novobanco €88.3mn subscribed in 2021 Cumulative investment of €457.7mn in ESG/ ECO product subscriptions 63.2% weight in the total portfolio of structured products novobanco dos Açores €1.3mn subscribed in 2021 Cumulative investment of €2.7mn in ESG/ ECO product subscriptions 55.3% weight in the total portfolio of structured products Investment ESG and novobanco Structured Products Investment Funds that invest in companies committed to the environment and society, and to high standards of governance. The group classifies these funds into two categories: ESG Funds • Category I - Article 8 SFRD (Sustainable Finance Disclosure Regulation) - funds that invest in companies that have environmental, social and governance concerns. • Category II - Article 9 - funds that have sustainable investment as their objective. Performance 2021 More than 1,100 ESG funds with investment made by our clients novobanco Category I 28 funds with an investment of €162mn 46% weight in the total portfolio of distributed funds Category II 3 funds with an investment of €188mn 54% weight in the total portfolio of distributed funds Banco Best Category I 1,003 funds with an investment of €244mn 27.3% weight in the total portfolio Category II 129 funds with an investment of €26mn 3.0% weight in the total portfolio 34 ESG ETFs invested by our clients Category I 32 ETFs with an investment of €2mn Category II 2 ETFs with an investment of €52mn Asset Management NB Momentum Sustentável Fund It offers holders access to a diversified portfolio of assets of companies that adopt the best practices in terms of ESG criteria with the purpose of achieving a consistent long-term valuation based on the three pillars of Sustainability. A minimum of 75% of the direct investment component of the Fund is invested in companies with an ESG rating from Eikon above 50 points. The Fund will invest at least 85% of its net asset value in shares and other securities which are convertible into shares or give the right to subscribe shares. Performance 2021 €181.32mn Weight of 20.2% in national funds under management and 1.8% in total funds under management. 113 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Accounts 18.25 Account 26.31 Account 18.31 Account Fully carbon-neutral accounts, with a lower environmental impact due to their low carbon footprint, because they are online accounts with a large part of the day-to-day services free of charge when used online, and because the bank neutralises the resulting emissions by supporting sustainable projects. The emissions produced are calculated according to the PAS 2050:2008 methodology, which takes into account the entire life cycle of products and services. To neutralise these emissions novobanco supports Soil & More, 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 also the Kamuthi project to install a solar photovoltaic plant to replace power generation from coal- fired power stations. NB 18.31 Accounts. The NB18.25 and NB26.31 accounts have an estimated carbon impact of around 944g CO2eq/year. Performance 2021 106 076 18.31 Accounts – €209.8mn 39 948 18.25 accounts €52.1mn 10 773 26.31 Accounts – €28.6mn 14% weight in the bank’s total service accounts (individuals and small businesses). All accounts have their CO2 emissions neutralised, corresponding to 1,700 tonnes of CO2 neutralised, of which 202 tonnes in 2021. These accounts have already permitted to neutralise the equivalent of emissions from 308 single return flights between Lisbon and London. Financial well-being / financial health The adaptation of products to the needs of customers also involves the progressive integration of social concerns. novobanco intends to increasingly adapt its products to the new and diverse realities of its clients. Accordingly, its saving products allow for building up a nest according to each family’s budget. In line with this positioning, the Bank offers a package of Micro Saving solutions comprising three products, namely Planned Savings, Micro Savings and the Targeted Savings Smart app. WE HAVE NEUTRALISED THE CO2 EMISSIONS OF THE 18.31, 18.25 AND 26.31 SERVICE ACCOUNTS, EVEN THOSE NOT RESULTING FROM OUR CLIENTS, NAMELY FROM COMPUTER USE, ATM ENQUIRIES AND CARDS, AMONG OTHERS Savings Planned Savings Micro Saving novobanco App_ (Targeted savings) Allows clients 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 their family budget €672.36mn in savings 122.5 thousand subscriber clients 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. €8.12mn 40.84 thousand subscriber clients Exclusive product for Clients who have installed the novobanco App: once the client has defined his/her/their saving objectives (how much and for how long he/she/they want to save) the novobanco app traces the path to reach this objective. €8.12mn 40.84 thousand subscriber clients Performance 2021 These savings products make up a total of €701.7 million and represent 7% of the total in term deposits and savings accounts (excluding savings accounts linked to service accounts). Best Bank App (Targeted Saving) Minimum Banking Services Minimum Banking Services Account Exclusive product for users of the bank’s App, where each client defines one or more objectives, setting a date and an amount and choosing a name and an icon, and the bank calculates a savings plan for short-term goals. The client can stop saving at any time or withdraw part of the amount. The bank sends e-mails with the status of the savings, recommending reinforcements, if necessary, as well as sending incentive messages. For long-term objectives, Banco Best’s robot proposes an active management portfolio - an insurance-based investment advisory service that is unique in Portugal and one of the first in Europe. In addition to the initial recommendation each time the client checks his/her objectives the robot validates the performance of the investments and if necessary, recommends changing portfolios, and near the end date it also proposes a gradual reduction of the portfolio risk to avoid market volatility. 220 thousand euros 250 clients This account provides a wider coverage of financial services provision and therefore wider social inclusion. It gives clients a current account and a debit card and the possibility to use the account through ATMs in the European Union, direct channels and bank branches. Its annual maintenance fee that cannot exceed the equivalent of 1% of the social support reference rate at any given time. This product is designed 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. Individuals who hold other current accounts, but wish to open a minimum banking services account where one of the holders is over 65 years old or is dependent on others. • Performance 2021 10.8 thousand Accounts 114 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021The service accounts of novobanco and novobanco dos Açores are associated with social responsibility causes (social, cultural and environmental). When opening an account, customers can choose which of the projects supported by Novobanco they wish to support: Accounts Performance 2021 BEST/RAIZE IN THE FINTECH REPORT PORTUGAL 2021 PROMOTED BY ASSOCIAÇÃO FINTECH PORTUGAL, AS A CASE STUDY OF PARTNERSHIPS BETWEEN FINTECHS AND BANKS 100% and 360º Accounts Semear Project (Sow Project) - Social inclusion programme for young people and adults with intellectual and developmental difficulties, organised by BIPP, Associação Inclusão para a Deficiência. 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) - promoted by the Photographic Expression Movement (MEF) in 5 Educational Centres hosting young people in compulsory internment, using 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. Novobanco supports these three projects with a total amount of €270.8 thousand. 4.1.2 Our digital transformation Digital transformation is one of our strategic pillars. We want to bring innovation, agility and greater efficiency to our processes, to our internal talent and above all to our clients, improving their experience and leveraging on new information systems and data science solutions to better meet their needs and expectations. Shaping the future together. We are an innovative bank with customer-centric solutions, focusing on convenience and offering a unique personalised and omni-channel banking experience. We aim to accelerate the full digitisation of processes to improve the customer experience and internal efficiency, addressing customer journeys and transforming the operating model, while reducing the ecologic footprint associated with our activity. Still with regard to financing products, the group, through Banco Best, provides a collaborative financing solution (crowdfunding) that allows individual clients to support micro and small businesses’ growth. Collaborative Financing Performance 2021 Collaborative Financing – Banco Best / Raize Crowdfunding is an innovative and revolutionary solution, 100% digital, that brings investors and companies together to grow their businesses through loans. €0.2mn 133 Accounts FINANCIAL AGGREGATOR OF NOVOBANCO CORPORATE ONLINE WINS BEST BANKING PROJECT AT THE PORTUGAL DIGITAL AWARDS The digital offer covers all the different segments of the bank: 115 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Individual Clients Corporate Clients The group offers the following solutions: novobanco • The novobanco App (launched at the end of 2020 and since then featuring constant improvements and The group provides: novobanco • novobanco online homebanking service for companies, renewed in 2021, which includes the award-winning novelties) has 436.1 thousand active clients, a 11.7% increase compared to 2020. • The novobanco online homebanking service has 278.1 thousand active clients in 2021, a year-on-year reduction of 0.5% that was driven by the migration to mobile and shows the preference of active digital clients for the new app. novobanco dos Açores • The novobanco dos Açores App has 10.8 thousand active clients, an increase of 19.0% compared to 2020. • The online homebanking service has 278.1 thousand active clients in 2021, a year-on-year reduction of 5.7% that was driven by the migration to mobile, with the app being preferentially used for financial transactions. Banco Best All the clients have access to the web and app digital channels, with 75% of active clients having accessed them in the last 3 months of 2021. The number of app accesses increased by 31% compared to 2021. Financial Aggregator. This is a digital financial management solution, pioneer in Portugal, that allows an aggregated view of all bank accounts and the initiation of payments and includes features such as a financial calendar, the categorisation of movements, and alerts and notifications, which contribute to improving the operational efficiency of novobanco’s clients as well as to their digital transformation. novobanco dos Açores • Homebanking service for companies, which in 2021 recorded a 19.2% year-on-year increase in the number of corporate customers with an active service. The clients’ preference for the homebanking for companies was due to the set of solutions and services available to them, as well as the improvements and new func- tionalities introduced in the service during 2021, which contributed to direct companies towards an environ- ment of greater digitalisation, with benefits in terms of efficiency, management, lower financial costs and negative environmental impacts. As part of novobanco’s digital transformation strategy, and with a view to widening the scope of this strategy, improving efficiency, and addressing environmental and social impacts, the following solutions, deriving from the revision of the customer journeys, stand out: NOVOBANCO APP WINS BEST UX/UI IN FINANCE INITIATIVE IN THE BANKING TECH AWARDS 2021 Journey of the individual client Corporate Clients’ Journeys The novobanco App, with a completely renewed design and customer experience, is adaptable and customisable, inclusive and predictive (based on data science) and offers a wide range of services and solutions, including the aggregation of accounts with other banks. While reducing the ecological footprint of the bank and its clients and increasing internal efﬁciency, it also contributes to improving digital literacy levels. In 2021:  We made new functionalities available: new options to subscribe to investment funds and life insurance, improved online account opening by digital mobile key and video call, management of c ategories of current account movements from any bank account, new digital portfolio functionalities, among others;  We improved the customisation model with regard to behavioural aspects in the prediction of the 4 most probable transactions at each moment of the day, and also the user experience and security, the latter through the replacement of SMS validation code by push notiﬁcations for the conﬁrmation of transactions; The novobanco online for companies, now renewed with the Financial Aggregator, where all accounts can be combined in a single solution, makes the ﬁnancial management of the business easier and more comfortable. In 2021:  We revamped online banking for companies to improve the customer experience in using the channel (browsing and searches, help templates, document area);  We introduced a functionality to securely send documents/ﬁles through the digital channel, replacing the need to print paper (example: support documents to Factoring and Conﬁrming operations)  We introduced a budget management functionality in the ﬁnancial aggregator (budgeting)  We extended access to the loans to small businesses digital solution to cover a larger customer base. 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.  We made the Life Insurance simulation and subscription process available in authenticated channels;  We enabled credit card applications for company representatives through the digital channels.  We made it possible to view and change personal data in the digital channels (for individual clients). 116 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Digital channels – website In 2021:  We launched the new content platform for the novobanco website (www.novobanco.pt), now in Full SaaS, with personalisation integration via Data Science. Fully integrated with the authenticated channels, it enables a more efﬁcient content management and contributes to digital customer activation and digital sales, thus fostering a paperless culture.  We launched the Non-Financial Offer (NFO) area on the bank's public website; In the adverse scenario created by the consequences of the COVID-19 pandemic, novobanco used digital transformation to support its clients, namely using Artificial Intelligence to predict and model the impacts of COVID-19 on the national economy. Throughout 2021, the bank continued to promote new data science capabilities: • We enhanced the customer journeys through the development of customisation and personalisation models and functionalities in the channels; • We applied Machine Learning models in money laundering prevention methods; • We provided support to businesses using propensity models, to activate or deactivate clients, or  We made available consultation and simulation functionalities for Home Insurance; identify best offers; • We built indicators to identify signs of risk in and support clients with moratoria; • We developed the capability for timely assessment of the impact of the Covid-19 pandemic on the economy (on families, businesses and activity sectors). VERY SATISFIED CLIENTS Digital Channels (novobanco) ACTIVE DIGITAL CLIENTS (novobanco Group) 88.9% 88.0% 89.2% 87.5% 82.0% 80.8% 656.4 701.4 419.5 467.9 novobanco Online novobanco app novobanco Online for companies Active Digital Clients (thousand) Active App Clientes (thousand) 2020 2021 2020 2021 117 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021In order to measure the impact of technological innovations on the customer experience, around 42,900 surveys were conducted throughout 2021, which permitted to assess the overall satisfaction with the channels (app, novobanco Online and novobanco Online Companies) and the intention to recommend them. In the specific case of the app, an in-depth survey was conducted to assess the experience of using it and to identify opportunities for improvement, to which 880 responses were obtained. 4.1.3 Data privacy and security The protection of customers can only be properly safeguarded if the activity of novobanco Group is adequately protected. Therefore, and in accordance with best market practices and legal and regulatory requirements, the group ensures the confidentiality, integrity and availability of information. In 2021, we highlight the improvement of 1.2 percentage points in the assessment of novobanco Online Companies, with the percentage of very satisfied clients rising to 82%, leading to an increase of 3.7 points in the NPS. The app, the preferred customer interaction channel, shows the highest Net Promoter Score, of 54.7. Banco Best Best's public website was revamped with the inclusion of new product comparators and micro-questionnaires on investments. In account opening, already available by video call and Digital Mobile Key, in 2021 the process was redesigned to improve the experience, and the possibility of opening an account with a foreign passport was introduced (restricted to some European countries). A further set of improvements was also introduced which included: In the app:  Improvements in the user experience (e.g., introduction of the modular and omnichannel Investor Proﬁle Questionnaire) and introduction of more investment and trading options, both in terms of products and of the information available (e.g., information on Indexes and Corporate Events and whishlist)  Innovative tools such as the ﬁnancial dashboard and the intelligent search for products, contents and functionalities.  Capability to update customer data in real time and interactively.  Greater personalisation with the possibility of deﬁning appointments and favourites, sharing documents and operations or personalising background colours and photos and changing account names, choosing the name by which you want to be addressed.  Introduction of a traveller area with geolocation, to subscribe to Travel Insurance. On the website:  Redesign of the transactional website for clients with renovated menus and introduction of icons.  Improvements in the integrated wealth enquiries, with real price updates, information on capital gains and losses and a sales simulator. 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 group 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. Our relentless efforts to prevent, detect and react to the new cyber threats arising from digitisation led 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 attempts, issuing security advice for safe Internet browsing and safeguarding the security of transactions and personal data, in the various channels (namely e-mail, direct channels, PC, smartphone and tablet). With the objective of ensuring global security in cyberspace, novobanco develops regular training and awareness-raising activities on information security for all its employees. These contents are applicable in a professional or personal context, and reinforce the fundamental role that all employees play in the prevention of cyber risks. The bank maintains the security contents in the digital channels, so that they can be viewed in a very quick and practical way, at any time and from anywhere. This is essential to ensure confidence in the ecosystem in the context of teleworking. During 2021, the novobanco Group received no complaints originating from the National Data Protection Commission (CNPD). 118 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20214.2 OUR EMPLOYEES Our employees are at the core of our business strategy. We are aware that they are our most valuable asset. That is why developing a robust talent and merit programme is one of our priorities, as a means of retaining and attracting the best and fostering an inclusive culture that allows employees to realise their full potential. Shaping the future together. The novobanco Group is aware that good results come from an organisational culture that promotes and values diversity as a strategic lever for transformation, innovation and growth, and that encourages an inclusive environment that allows its employees to fully realise their potential. The Human Capital Agenda is therefore one of the fundamental pillars of the bank’s strategic plan which, based on solid governance policies and guiding principles, aims to respond to five major challenges: Attracting and retaining talent Caring for safety, health and well-being at work Addressing internal social responsibility needs Promoting gender equality, equal opportunities and respect for diversity Promoting the conciliation of professional, personal and family life 53.6% 46.4% Women Men 4 193 EMPLOYEES 2 249 WOMEN 1 944 MEN To implement our human capital strategy, we seek to follow the best fair-process practices in decision- making, focusing not only on results, but also deploying a fair and reasoned process with strong engagement of the employees, in order to deliver results. We thus endeavour 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 a context where remote working assumes a prominent role in the day-to-day life of the organisation, listening to and maintaining regular communication with the employees is essential. novobanco therefore developed a regular, open, transparent and two-way communication from the beginning and throughout the pandemic period based on internal communication platforms that are agile, modern, efficient and collaborative. In addition to the Somos novobanco intranet, a privileged channel to provide news, documents, forms and links to other internal platforms, we also highlight the Yammer internal social network, which has the role of promoter of a digital community where all employees, regardless of their function or geographical location, share their interests, doubts, projects, achievements, challenges and mutual help. Throughout 2021, 30 events on strategic topics for the organisation were also organised, with live broadcast. The new distribution model, innovative digital solutions and the bank’s medium-term strategy were some of the topics addressed. These events were well attended and provided an opportunity not only to inform about the activity and strategy of the bank, but also to generate open exchanges of information throughout the organization with Q&A sessions. In the context of the Covid-19 pandemic, and in order to bring together the teams that were in hybrid working mode, the bank organised a 100% digital meeting in which, for the first time in its history, all employees were called to participate. The meeting brought together more than 3,000 employees and had a very positive assessment, with a satisfaction rate of 84%. ENGAGEMENT SURVEY 20% 19% 35% 29% 10% 33% 14% 27% 13% 31% 45% 52% 57% 59% 56% 8% 22% 70% 14% 30% 57% Would I stay at novobanco even if I were offered the same salary and/or beneﬁts in any other company? Would I recommend novobanco as a good company to work for? I am proud to work at novobanco Globally, at the moment, how would you rate your level of satisfaction with novobanco? Every day I feel motivated to come to work I am motivated and available to go beyond what is expected of me, to help drive novobanco's success Engagement % Favourable % Neutral % Unfavourable 119 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Every six months we conduct an Engagement Survey, one of the main tools to sound the organisational climate of the bank, - which had a participation rate of around 82% -, as well as an Internal Customer Satisfaction Survey and a Psychosocial Risk Questionnaire. WE CREATED OUR BRAND WITH THE VOICE OF OUR EMPLOYEES At novobanco dos Açores, the employee engagement favourability rate stood at 53% in 2021, up by 10 p.p. on the results of the survey conducted in October 2020. As regards the Net Promoter Score, there was also an improvement of around 8 p.p. in the number of promoters. Notwithstanding the large investment still to be made in this area, the evolution already reflects the results of the various initiatives that have been developed in various dimensions and that have allowed employees to feel novobanco dos Açores as their second home. At Banco Best, the employee engagement favourability rate was 77%, up by 4 p.p. compared to the results of the survey conducted in February 2021 and by 19 p.p. when compared to the results of the first survey, carried out in 2018. In the Net Promoter Score, the number of promoters is now 20, having increased by 12 since February, which places Banco Best at the level of finetuning. The positive evolution in 2021 was due to a strong involvement with employees, namely through: • Collection of ideas from all employees; • Creation of 4 working groups for the translation and implementation of feasible initiatives; • Improved cooperation between divisions; • Greater clarity in division communication with the teams (regular meetings instituted); • Regular meetings of Management with the entire Bank to present results and clarify the strategy, with the possibility of questions being asked. • Better dissemination of initiatives and measures aimed at the employees on the website (Best ON) 2021 will be marked as a turning point and the year of the rebranding of novobanco, a rebranding process in which the employees actively participated both in its construction and in its internal and external promotion, by playing as actors in brand campaigns. The process of creating the novobanco brand was centred on the employees. The new image of the novobanco Group was born from a collaborative process, unheard of worldwide. The creation of the brand’s visual identity involved the development of an app in which the employees recorded their voice. The graphic representation of the individual voice waves was put through a mathematical and digital model, resulting in a collective voice wave that represents the voices of those who, on a daily basis, are the most important component of the group’s relationship with its clients. The brand was thus born with a purpose of unity and collaboration. The brand, born from the voice of the employees, was unveiled first-hand at a live event that brought together all the employees for the first time, for which the bank set up the conditions for everyone to watch it as a team. So that employees who were unable to travel to Lisbon could also experience this moment live and as a team, “audiences” were created in 7 branches throughout the country, as well as in the branches abroad. 4.2.1 Attracting talent and merit Attracting and retaining talent continues to be one of our major objectives. To this end we have in place a set of means and initiatives not only to capture new talent but also to retain existing talent from within the personal and professional development of all its employees, which are deployed under a 4-stage model: 1 CAPTURE OF TALENT Responding to the recruitment and rejuvenation needs of the bank's staff while at the same time enabling young students to acquire new skills that will enrich their curriculum and expand their contact network.  Talent Attracts Talent Programme - the third edition of this programme hosted 50 young graduates, who were distributed by 22 departments (front-ofﬁce and central), in a professional internship model with a duration of 6 and 12 months respectively. At the end of the programme, 13 young people were integrated into the bank's staff.  novobanco UP Programme - a programme for young university students with the duration of one month. In the 2021 edition, between July and September, a total of 92 participants attended this programme, taking the opportunity to have an approach to active life and paid professional experience during the summer. 120 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20212 INTERNAL MOBILITY Internal mobility encourages the career development of each employee throughout their professional career. To this end one of the group's instruments is a programme that enhances its human capital and enables its employees to embrace new challenges and opportunities for individual development and progress. In 2020, 113 employees decided to take their professional path in hand, and of these 18 were given the opportunity to change their jobs. This contributed to the development of a more motivating work environment as well as to retain talent. Assessment covering all the employees is carried out through the Employee Portal (called “My Portal”), which includes a personal development programme where each employee can deﬁne their objectives in terms of continuous improvement in the performance of their functions. Performance Assessment, carried out annually, focuses on two aspects: 1. fulﬁlment of objectives; 2. 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. “My Portal" is also available on the AppRH (human resources App), a new intuitive mobile tool that facilitates and speeds up the access to employees through their smartphone. Being attentive to the knowledge and competencies that employees need at any given moment and promoting their continuous development, in order to guarantee the skills that are essential for the achievement of the objectives that the Group has set to reach. Providing training solutions that enhance the contribution of the employees, continuing to invest consistently in the design and adoption of distinctive and motivating training, enabling the improvement of performances, and the development and evolution of novobanco's employees. 3 PERFORMANCE ASSESSMENT 4 TRAINING Training In order to guarantee adequate training, in 2021 we invested around €754.2 thousand and provided a total of 179.3 thousand hours of training, focusing in particular on five areas of knowledge: WE PROVIDED 14 ESG TRAINING HOURS PER EMPLOYEE • Training on the New Distribution Model • Training on Sustainability novobanco decided to transform its attention model, not only the visual aspect of its branch spaces, but above all in the new way our employees receive and treat our clients. In 2021, 859 employees from 105 branches received 23,500 hours of on-site training on the new customer service choreography, the new spaces, the new applications and the new equipment adopted. • Legally Mandatory Training This is the indispensable knowledge that all our professionals, each in their different jobs, must have in order to perform their functions correctly. We provided 136,762 hours of e-learning training, involving 4,100 employees. These training initiatives mainly focused on the Markets and Financial Instruments Directive (MiFID II), the IDD - New Insurance and Reinsurance Distribution Law, the Mortgage Credit Marketing Directive, the Prevention of Money Laundering and Terrorist Financing, the General Data Protection Regulation, and Information Security. In 2021, due to the strategic importance of the topic, it was decided to invest in training on Sustainability in the financial sector, which covered 2.5 thousand employees, who completed a total of 58.6 thousand hours of training. • Training provided by the network of 17 School Branches and by the Human Capital Department Team that coordinates the School Branch At novobanco, on-the-job training is also provided by the network of 17 school branches distributed throughout the country. Based on the concept of learning by doing, this is a pioneering project in banking in Portugal, which over the course of 16 years has maintained its scope of action, and is today responsible for the initial training of new employees who go into the retail commercial area, for strengthening the skills of current employees, for the development of appropriate skills to sustain 121 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021functional mobility and for monitoring current employees returning from prolonged absences; 69 training programmes were carried out, totalling 2 thousand hours of training. In 2021, the representation of the female gender in the management staff of Novobanco was 37.2%, a slight decrease compared with 2020 that resulted from intra-group reorganisation moves. As part of the project to implement novobanco’s New Distribution Model, the School Branch team of the Human Capital Department, which coordinates the network of 17 branches mentioned above, was responsible for training all our professionals who started using the Novobanco Automatic Tellers (VTM) installed in the new branches. One thousand hours of on-site training were provided to 301 employees. • Technological Training IT and digital contents are increasingly relevant for organisations, requiring continuous skills updating on the use of the organisation’s main IT tools and in the technological solutions adopted by the entire business. In 2021 we provided 2.5 thousand hours of technological training to 114 employees. In 2021 we provided an average of 42.8 hours of training per employee. 4.2.2 Gender equality, equal opportunities and inclusion Gender equality, equal opportunities and inclusion are all topics that remain on the novobanco Group agenda. We continue to consolidate the bases for long-term sustainability, and therefore measures to promote inclusion and equality remain strategic, with greater attention being paid to decision-making and management positions. In 2021, the following initiatives stand out: • Subscription of the Target Gender Equality programme – with the aim of strengthening and accelerating our journey towards gender equality in leadership. • #Equal Gender Programme - quarterly monitoring of 3 gender equality indicators with a quarterly report to the bank’s CEO. • Internal Report on Gender Equality - gender-sensitive monitoring of several human capital management processes (admissions, departures, performance assessment, distribution of each functional group, professional training, use of benefits to conciliate personal and professional life, among others). • Active participation in the iGen Forum for Gender Equality – with the objective of promoting gender balance, this is a forum for sharing successful practices that catalyse performance in order to achieve the established goals. • Participation in NOVA SBE’s Inclusive Community Forum - signature of a commitment to Inclusion, addressing the lives of people with disabilities and aiming to promote a more inclusive community. novobanco Gender Equality - (under-represented gender %) First-line management Management staff Pay gap 2021 29.4% 37.2% 9.4% 2020 31.3% 38.2% 10.2% 21 vs20 -1.9.p.p. -1.0 p.p. - 1.3.p.p. Given the importance of this topic, gender equality is part of the novobanco Social Dividend model, a model of commitment to give back value to the community and the employees. The model comprises four programmes, one of which, # Equal Gender, measures and sets targets for three indicators: percentage of women in first-line positions, percentage of women in management positions and gender pay gap. Inclusion is one of the basic principles of human resources management at novobanco. SOCIAL DIVIDEND - EQUAL GENDER 36.2% 36.1% 24.2% 9.4% 31.3% 9.6% 38.2% 31.3% 10.2% 37.2% 29.4% 9.4% 2018 2019 2020 2021 %Woman in leadership roles rate %Woman in senior leadership roles rate Pay Gap 2.5% of the bank’s staff are people with a certified disability or impairment, which is more than provided for in Law No. 4/2019, which establishes the system of employment quotas for people with disabilities. 122 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021To address issues such as equality of gender and opportunities, diversity and respect for freedom of association, as well as to repudiate forced and child labour, discrimination, any form of harassment and, in general, to ensure respect for the employee as a person, the relationship of novobanco Group with all its employees is based on two fundamental policies:  Human Rights Policy  Equality and Non-discrimination Policy; Both policies were 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. PROFESSIONAL CATEGORY BY GENDER (%) Management 63.8% Heads of Department 55.7% Speciﬁc 45.2% Administrative 38.1% 36.2% 44.3% 54.8% 61.9% Auxiliary 100.0% Total 46.4% 53.6% Men Women 4.2.3 Work-life balance and Internal Social Responsibility At novobanco we believe that the balance between employees’ professional, personal and family life is crucial to foster motivation, productivity, satisfaction, responsibility and a relationship of commitment to the bank. On this basis, the management of our human capital is supported by instruments that aim to enhance the employees’ well-being at all levels. Integrated in the Social Dividend Model, the #Work & Life programme consists of a set of five measures that, by promoting flexibility at work, improve the conciliation of work with the personal and family life of our employees. This programme is also an instrument to attract and retain talent. Although the Social Dividend Model was implemented within novobanco, gradually the measures of the Work&life programme were extended to the companies of the novobanco group. This support aims to strengthen the employees’ sense of belonging and pride in the group, their personal satisfaction, as well as enabling savings in their monthly budget. These benefits, attributed within the scope of the internal social responsibility programme, take the form of several initiatives. Education support for children of active employees Special conditions on the commercial offer Christmas presents for employees and their children and dependent stepchildren Speciﬁc pandemic-related support These measures are the following: By the end of 2021 we had allocated 830.7 thousand euros in support to 781 employees. • Leave on special dates (Employee’s birthday; children’s birthday; 1st day of school of children in compulsory school years). • Purchase of holidays • Home Office • Early Friday or Late Monday • TakeAway In 2021, due to the lingering pandemic context, novobanco relaunched the package of special benefits to tackle possible financial needs felt by families, in addition to access to loan moratoria that had already been guaranteed. The bank also rewarded the employees who were on the front line in the response to the pandemic emergency in 2020, granting 2 days of additional leave that they could take during the year. 123 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021The employees, both active and retired, also have three canteens at their disposal where they can have lunch and order take-away meals. These canteens serve low-cost nutritionally balanced meals, with 3 to 4 options to choose from each day, each coming with a nutrient information sheet (nutrition traffic light). In addition to providing free lunch, the aim is also to encourage the employees to make responsible choices in terms of healthy eating. Awareness-raising initiatives sometimes also take place in the canteen areas. 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. A home delivery service was also made available for employees teleworking who lived close to two of the canteens. 4.2.4 Looking after the Safety, Health and Well- being of our employees The holistic well-being (physical, psychological and social, ...) of its employees is essential for the development and success of the group’s activity, which to this end has in place a health and well-being policy based on five lines of action: 1 2 3 4 5 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. Diagnose and prevent: risk situations in a timely manner, so as to act preventively. Foster and promote: moments of focus on certain topics to increase employee involvement and accelerate positive results. Offer and provide: beneﬁts aligned with best practices in healthy habits that contribute positively to the holistic well-being of employees. Reconcile and ﬂexibilise: practices for a balance between professional, personal and family life. We are always attentive As a result of the pandemic context, we created a new employee support package, with the following beneﬁts:  Possibility to bring forward the payment of 50% of the Christmas bonus,  Loans with special conditions to meet the needs for computer equipment and training,  Family coaching sessions and psychological support (free of charge). During 2021, an attempt was always made to establish normality despite the pandemic context. The activities that had been suspended were resumed and adjusted to this situation. The employees’ General and Family Medicine, Psychology, Psychiatry and Nutrition consultations alternated between face-to-face and remote, according to the evolution of the pandemic and the employees’ preference. The same occurred with occupational health consultations. The clinical posts that offer a set of services in privileged conditions to the employees, both preventive and curative, were always in operation. In terms of Occupational Medicine, there was a great additional focus on catching up the regular medical examinations that had been suspended between April and August 2020 on the recommendation of the General Health Directorate (DGS). The well-being programme called “My B Side” (B for Bem-estar, or Well-being in Portuguese) remained active in virtual format. This programme aims to provide holistic well-being to employees, based on a set of initiatives that we call “well- being experiences”, which address 8 dimensions: health, food, physical exercise, emotional management, family and home, Interpersonal Relations, Personal Image, and culture and leisure. A series of workshops, ateliers, conversations with experts, and lectures on these themes were provided in virtual format. In order to ensure an adequate response to the real needs of the employees, in early 2021 an evaluation of Psychosocial Risks was carried out, which allowed identifying the impact of the pandemic at this level, by comparison with the results obtained in the evaluation carried out in early 2020 (pre-pandemic). There was a concern to align the topics covered in the “My Side B” Programme with that feedback and with the pandemic context experienced, as well as to maintain the dynamics and periodicity of the experiences, bringing the teleworking employees closer to the bank and thus offsetting the decrease in personal interaction. In the area of occupational safety, and considering the specific context of the pandemic, the group conducted audits of its central buildings, which concentrate most of its employees, the canteens and some branches, in order to check that the procedures and practices put in place in the context of the Covid-19 pandemic were being followed. At the same time, the assessment of risks related to the working condition and the functions performed was continued. In this context, at the end of 2021, the employees were also consulted about the Health and Safety at Work. 124 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20214.3 OUR SUPPLIERS We select our suppliers with a responsible attitude and based on ESG criteria. The start of the selection process is marked by our full availability to receive all presentations and proposals from the most varied entities that wish to provide services or supply goods. Shaping the future together. The management of a sustainable business covers the entire value chain of novobanco Group, including its suppliers. As a relevant buyer of products and services in the market, novobanco has set up a supplier relationship model (around €188 million invoiced to novobanco in 2021)11, which is based on a commitment to follow good practices and internationally agreed 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: 1. 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; 2. The Supplier Relationship Principles are 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. novobanco Group’s suppliers are invited to subscribe to these principles, which imply the adoption of consistent conduct, namely with regard to the environment, employment conditions and ethics. The quality of the information collected through novobanco Group’s supplier portal permits to select the best propositions, i.e., those from the suppliers best able to satisfy the needs and requirements associated with the acquisition of goods/services. In 2021 the degree 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 91%. For a more rigorous selection of this group of Stakeholders and based on the information provided, novobanco calculates the “sustainability scoring”, which takes into account ethical, labour, hygiene and safety at work, and environmental aspects. Around 22% of novobanco’s suppliers registered in the Portal have a score of excellent and 84% have a positive score cumulatively, which is better than in 2020. Maintaining a professional relationship with suppliers also implies responsible action, namely guaranteeing and practising payment periods of 30 days, in line with good market practices. This includes giving suppliers access to their current account, free of charge and at all times, simply 11 Recurrent suppliers to novobanco Group with annual turnover above 10 thousand euros. Supplier Relationship Principles Govern the selection of suppliers with:  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. novobanco Group Supplier Portal This is our privileged channel for the presentation and logging of current and potential suppliers. 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. SUSTAINABILITY SCORE (%) 2.4% 13.4% 22.3% 28.7% ; 33.2% Excellent Good Acceptable Improving Bad 125 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021by logging into the supplier’s account on the Supplier Portal. In 2021, given the persistence of the Covid-19 context, the bank reduced its the payment period to suppliers to 20 days, from 22 days in 2020. Focusing on the national economy, the bank maintained its preference, whenever possible, for national and local suppliers, and in 2021, 91% of our purchases were made from Portuguese suppliers In 2021, the bank started to roll out its New Distribution Model, in which our aim was to change and innovate, offering our current and new customers a totally differentiating and unique experience in the financial sector, and transforming our branch network into spaces where the financial experience is not limited to a simple visit to the bank. 85% OF THE NEW DISTRIBUTION MODEL SUPPLIERS ARE PORTUGUESE 4.4 THE REDUCTION IN OUR DIRECT ENVIRONMENTAL IMPACT We are reducing our environmental impact. The Covid-19 pandemic had a strong impact, with the remote working of our central departments’ employees contributing significantly to this result. But we want to maintain this trajectory, and therefore we are developing new measures that will contribute to keep us on this path. Shaping the future together. The novobanco Group’s operations directly impact the environment. Therefore, one of the strategic concerns for the group’s management is to find tools that enable the rational and adequate use of the resources necessary for the development of its activity. We recognise that employees working from home create waste and consume electricity, water and paper that were previously consumed in the offices, and that this helped us to reduce our indirect impact on the environment in 2021. But we are also aware that this situation will change, and despite the fact that many employees of the central departments’ are still working remotely (home office), we are assessing the various scenarios for a normal, or at least partial, return to the group’s central buildings, considering initiatives to prevent negative impacts on the environment, and seeking to maintain or improve our consumption, mainly of electricity and paper. We have redefined our objectives for 2022-2024 and we will develop the necessary initiatives to successfully achieve our goals. We ended the year with 107 totally revamped branches, in which: • We clearly promoted national products, and executed this project with national suppliers - 85% of the suppliers were Portuguese companies with 100% national capital; • We selected suppliers that could attest that they developed their business based on sustainability criteria, proven by environmental certifications, and presenting a sustainability score of around 82%. CONSUMPTIONS PER EMPLOYEE 60 45.0 10.1 4.6 2020 58 37.0 9.9 3.9 2021 Electricity consumption (thousand kwh) Paper (Kg) Water (m3) CO2 Emissions (ton) 126 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021SCOPE 1 AND 2 EMISSIONS DECREASED 18.5% WE EMITTED 2 599 TONNES LESS OF CO2 ELECTRICITY CONSUMPTION DECREASED 23.1% WE CONSUMED 4.9 TONNES KWH LESS OF ELECTRICITY  Reduced electricity consumption  Green electricity consumption (free of CO2 emissions) at novobanco since November 2021  Fewer emissions from traveling on business trips by plane and company ﬂeet.  The equipment and lighting used in the New Distribution Model are energy efﬁcient.  Use of led lighting in practically all installations PHOTOCOPY PAPER CONSUMPTION DECREASED 25.5% WE CONSUMED 53 TONNES LESS PHOTOCOPY PAPER  We fostered a "paperless" culture by reinforcing dematerialisation processes, namely formalisation with digital signatures (Phygital project), and by reducing printing in the various back-ofﬁce activities.  90% of the obligatory communications to clients are digital. novobanco sends most other banking documents to its clients in digital format (account and credit card statements, deposit certiﬁcates, account entry notices, statements of securities and investment funds’ portfolio movements and positions, entry notices, integrated billing notices, and sundry notices). WATER CONSUMPTION DECREASED 11.6% WE CONSUMED 5.4 THOUSAND M3 LESS WATER  Use of timer taps  Installation of water-ﬂow reduction ﬁlters WE SENT MORE PAPER AND CARDBOARD FOR RECYCLING 9.7%  We recycled around 117.4 tonnes of paper and 66.3 tonnes of cardboard  We sent 5.948 toners for recycling (programme in partnership with Lexmark) Since November 2021, novobanco is consuming green electricity, from renewable sources, in all its buildings and branches where this option is available (more than 95% of its facilities), and this measure has been certified by its electricity supplier. This is one of the initiatives under the commitment to reduce scope 2 CO2, which proves the bank’s real commitment in the transition to a low carbon economy and full alignment with its material SDG - SDG13. IN NOVEMBER 2021, NOVOBANCO STARTED CONSUMING GREEN ELECTRICITY, FREE OF CO2 EMISSIONS 127 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021In 2020, novobanco started its Phygital project, whereby some of the business processes are being dematerialised and formalised through a digital signature, thus contributing to a paperless organisation with a paperless culture. In 2019 and 2020, the pilot years of the project, the bank saved 0.21 tonnes of paper. In 2021, the first year of the phygital rollout, this project allowed the bank to avoid the consumption of 13.5 tonnes of paper and 14 million litres of water otherwise used in its production. It is the Bank’s expectation that by 2024 the Phygital project will have avoided a cumulative consumption of around 147.4 tonnes of paper (minus 154.2 million litres of water per year). 4.5 COMMUNITY WE AVOIDED THE CONSUMPTION OF 13.5 TONNES OF PAPER WITH THE PHYIGITAL PROJECT Concerns with social, cultural and financial literacy initiatives on behalf of the community have always marked the group’s actions. Over the years we have taken an active role in the community, which we want to be help thrive in a sustainable and just way. Under the slogan “The economy is all of us”, the bank once again put its experience and knowledge at the service of the key 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. Shaping the future together. novobanco is an active agent in the ecosystem to which it belongs, with a particular focus on “reviving the economy” and supporting the communities it serves. This support to the business fabric, and in particular to exporting companies, was evident in the promotion of events such as “Portugal Exportador”, a meeting for sharing best exporting practices, and also with the “Export and Internationalisation Awards”, which aim to recognise the best exporting companies as well as the best internationalisation experiences of Portuguese companies. Also noteworthy is the “Portugal que Faz” initiative which, in a partnership with Dinheiro Vivo (JN/ DN/ TSF), promoted 8 events throughout the year, in several regions of the country, with the representative associations of each region and/or sector and local entrepreneurs, with the aim of discussing and finding joint answers to the needs, challenges and opportunities of the different regions and of companies and entrepreneurs in the post-pandemic. WE ACHIEVED 210 POINTS OUT OF THE 200 POINTS SET AS A TARGET IN 2017 4.5.1 Social Dividend In 2017 the bank designed a new Corporate Social Responsibility (CSR) programme and concept, creating the Social Dividend assessment model, a reciprocity commitment assumed before society and its employees. This model is a reference in the field, comprising four programmes with specific objectives. NB EQUAL GENDER NB WORK & LIFE NB ENVIRONMENT NB SOCIAL RESPONSIBILITY Aims to ensure a better gender balance, in line with the customer base, the available talent and a global meritocracy principle. Currently, novobanco has already achieved gender parity in the total number of employees. Aims to reinforce practices that facilitate conciliation between the demands of professional life and the needs of personal/family life, promoting employees' well-being. Aims to minimise the environmental impacts resulting from its activity. Aims to support the community through a range of solutions to important issues in the communities it serves. 128 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021In the 5 years of monitoring of this model, several initiatives of the 4 programmes were very successful, having exceeded their objectives. Positive highlights include: employee leaves on special days, half- day leave - early Friday/late Monday, takeaway meals in the NB Work&Life programme, the growth of digital communication with the clients, and the reduction of electricity and paper consumption under the NB Environment programme. DONATIONS/AREA OF INTERVENTION (%) 6% 10% WE GAVE BACK MORE THAN €1.6 MILLION IN DONATIONS TO THE COMMUNITY In 2021 and taking into account the current context, novobanco’s social responsibility programme was developed in 4 pillars. Solidarity actions directly related to health were added, which once again sought to make the best contribution to society in the current adverse pandemic context, and to cooperate through various initiatives, with the highest sense of social responsibility. 4.5.2 Social and health patronage Helping organisations that are active in social support in diverse areas such as fighting poverty, social exclusion and health, among others, is the tagline of the novobanco Solidarity Programme. novobanco assumes its responsibility in supporting the most destitute communities, whether the needs are social, emotional or cultural, and regardless of their cause. The bank works in partnership with social solidarity institutions with the aim of mitigating these inequalities through various initiatives, among which the following stand out: Social Patronage Cultural Patronage Educational and research Patronage Patronage for health 84% Solidarity Cultural patronage Education and Investigation Global Response to Covid-19 novobanco joined the initiative “Global Response to Covid-19”, with a donation of 500 thousand euros to accelerate the development, production and equitable access to vaccines, diagnostics and treatments for Covid-19. novobanco directed its donation to the WHO Foundation, an independent global health foundation that collaborates directly with the World Health Organization. The bank’s donations went towards the distribution of vaccines in developing countries. All Together (“Todos Juntos”) This initiative brought together 10 banks from the Portuguese financial system and more than 30 companies to support families in need. Under the motto #TodosJuntos (All Together), the initiative raised more than 2.5 million euros to provide immediate help to the most vulnerable people and families in the context of the crisis caused by the pandemic. The total amount raised allowed the purchase of basic foodstuffs (milk, cereals, rice, olive oil, beans, pasta, tuna, etc.), with 20% going towards supporting families’ medicine needs. The distribution of goods was carried out by the Food Emergency Network, an initiative launched by ENTRAJUDA, coordinated by the Food Banks and involving around 2,700 institutions and entities throughout the country, ensuring a desirable diversity of beneficiaries and national distribution (mainland and autonomous regions). Collection of goods in the auditoriums of novobanco’s Masters Branches For Christmas 2021, novobanco wanted to be closer to the community where it develops its activity. Bringing together the solidarity of employees and clients in a single initiative, novobanco made its Master branches from north to south of the country available to collect food, clothing and toys for 10 local Private Social Solidarity Institutions (IPSS) that are customers of novobanco. novobanco employees’ Christmas Constellation The Christmas festivities at novobanco Group start with the usual internal solidarity action. After a selection process open to all employees, the initiative promoted by Make-a-Wish was selected. Under the motto “let’s build the biggest Christmas constellation”, in six hours the employees donated the 129 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021necessary amount to fulfil the wish of a sick child or young person. The wave of internal solidarity, which the Bank joined, made three wishes come true. Quality of Life Action novobanco was once again present in the Quality-of-Life Action of the Associação Salvador, an IPSS that operates in the area of motor disability, which already has 14 editions. In 2021, 43 people with reduced mobility (from a total of 75 applications received) were supported with a total amount of approximately 130 thousand euros, in three categories - home works, training and employment, and adapted sports equipment. novobanco is a patron of Associação Salvador and has been associated with this project since its first edition, which over 14 years has supported more than 500 people with reduced mobility with more than 1.5 million euros. Acreditar Novobanco annually finances one of the 12 rooms of the Acreditar Association’s home in Lisbon. The Acreditar Association is an IPSS whose mission is to “treat children and young people with cancer and not only the cancer in children and young people”, promoting their quality of life and that of their families. By financing one of the rooms of the Lisbon home, referenced by the hospital Social Service, we annually enable several children who have to leave their area of residence for oncological treatment in Lisbon to live with their family. The novobanco Photography Collection with about 1,000 emblematic works from all over the world, by more than 300 artists from 38 nationalities, is one of the most important photography collections in the world and the only corporate collection representing Portugal. In 2021, the photography collection in partnership with the Faro Museum launched the exhibition catalogue “Território Solar” (Solar Territory) with works from the collection. The Collection is represented at the Nova SBE University campus in Carcavelos with an exhibition of works the artist Vik Muniz, who portrays national personalities of international dimension such as José Saramago, Amália Rodrigues and Cristiano Ronaldo. In order to innovate and foster engagement with society and proximity with the clients and the local communities all over the country, the bank developed a project in partnership with Valter Vinagre, a renowned Portuguese artist included in the photography collection, to decorate 17 branches of the commercial network with 31 reproductions of his photographic works, thus taking to its branch network another dimension, the art of contemporary photography. In 2021, as a founding member of the IACCCA International Association of Corporate Collections of Contemporary Art, which brings together curators of more than 50 corporate collections from around the world and represents more than 150,000 works of art, the bank’s photography collection joins the project to develop the catalogue “Art in Time of Ecological Disruption”. Once again novobanco’s photography collection stands out, ranking second in the number of works and texts selected to integrate this catalogue, to be published in 2022. 4.5.3 Cultural Patronage Even in the context of a pandemic, novobanco pursued its strategy of cultural patronage, namely focusing on its novobanco Cultura programme, under which it lent works from its paintings collection to various Museums. In 2021, the bank lent 16 works, increasing to 93 the number of its works now on permanent exhibition in 36 Museums around the country. The bank also publishes in its platform a road map to various regions and museums in the country, where the works of the novobanco Painting Collection can be visited. 4.5.4 Educational Patronage With the creation of the Financial Literacy Programme, novobanco assumes its role as an institution that bases its positioning and management on principles of sustainability and corporate citizenship, contributing to train a new generation of consumers of financial services that is increasingly informed and has greater power of analysis and decision. In this context, the bank’s financial literacy intervention is based on 4 pillars: FINANCIAL LITERACY PROGRAMME DIGITAL LITERACY PROGRAMME WITH THE APB (PORTUGUESE BANKING ASSOCIATION) PEDAGOGICAL PROCESS PORTUGUESE MATHEMATICS OLYMPIADS COMMERCIAL OFFER PERSONAL FINANCE AND FAMILY BUDGET Digital Financial Education Project of the Portuguese Banking Association (APB) and its members that promotes clariﬁcation sessions on the basics of using the banks' digital channels to carry out essential day‐to‐day operations, aimed at the general public and senior citizens. Pedagogical project that appeals to the quality of students’ reasoning, creativity and imagination. One of the competition's objectives is the early detection of scientiﬁc vocations and, in particular, for Mathematics. Adaptation of savings products to customers' realities, with emphasis on savings products tailored to each person’s unique family budget. Application that makes it easy to monitor and manage the monthly budget at the touch of a ﬁnger. 130 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20215.0 ESG PERFORMANCE INDICATORS 5.1 Environment 5.2 Social 5.3 Governance Rui Duarte South Retail Department - Senior Business Client Manager 131 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20215.1 ENVIRONMENT Environmental Indicators - Materials consumed White paper Internal use (tonnes) Paper for Internal use (Kg/employee) Forms - printing and finishing area (tonnes) 1 IT and electronic consumables Toner cartridges (units)2 Ink cartridges (units)2 Bands (units)2 DVD/CDRom (units)2 Batteries Environmental Indicators - Energy Electricity consumption (kWh) Total electricity consumption (GJ) Electricity consumption (kWh/employee) Diesel3 Generator diesel consumption (litres) 4 Generator diesel consumption (GJ)4 Vehicles diesel consumption (litres) Vehicles diesel consumption (GJ) Gasoline Vehicles gasoline consumption (litres) Vehicles gasoline consumption (GJ) Total energy consumption (GJ) Total energy consumption per employee (GJ) Trips Number of vehicles Number of flights 1) novobanco 2) novobanco and novobanco dos Açores 3) Diesel consumption is an estimate based on the number of hours generators were operating 4) novobanco, Banco Best and GNBGA 2020 21 vs 20 2021 155.2 37.0 100.1 25 16 22.0 820 2 144 208.3 45.0 112.9 25 42 1 073.0 1 630 2 496 16 296 473.1 21 181 218.0 58 667.3 3 886.6 504.2 18.2 76 252.4 4 622.7 400.0 14.4 1 620 056.6 1 680 495.6 58 244.3 60 417.2 840.0 27.5 840.0 27.5 116 957.3 136 711.5 27.9 957 517 29.8 987 463 -25.5% -18.6% 12.8% 0.0% -61.9% -97.9% -49.7% -14.1% -23.1% -23.1% -15.9% 26.1% 26.1% -3.6% -3.6% 0.0% 0.0% -14.4% -6.5% -3.0% 11.7% 132 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 Environmental Indicators - Emissions (tCO2e)* Direct emissions (Scope 1) Emissions from trips in company cars Emissions from emergency generators Emissions from leaks of fluorinated gases ** Indirect emissions (Scope 2)*** 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) Emissions from Employees’ business trips, including flights Emissions from employees’ home/ work daily trips Emissions from wastewater treatment Emissions over the life cycle of the paper consumed Emissions from the paper recycling process Emissions from water consumption Total (Scopes 1, 2 and 3) *See methodological notes in GRI table. ** 2021 value not yet determined ***Scope 2 calculation by location-based method since 2018 only. The Total (A1+A2) was calculated using the Market-Based approach. Environmental Indicators - Water consumption Water consumption from public supply network (m3) Water consumption per employee (m3/employee) Environmental Indicators - Waste management Paper sent for recycling (tonnes) Cardboard sent for recycling (tonnes) Total Paper and Cardboard Toner cartridges sent for recycling (units) Ink cartridges (units) Bands (units) DVD/CDRom (units) Batteries 2021 4 313.1 4311.8 1.3 0 2 937.5 2 937.5 2 386.5 7 250.6 4 184.2 149.4 3 909.8 33.5 76.6 3.9 11.0 2020 4 888.3 4 472.6 1.1 406.6 4 490.3 4 490.3 3 757.9 9 370.5 4 663.2 186.6 4 323.1 41.2 96.4 3.6 12.4 11 434.8 14 033.8 2021 41 355.1 9.9 2020 46 772.6 10.2 2021 117.4 66.3 183.7 5 944 na na na na 2020 106.1 61.3 167.4 8 322 na na na na 21 vs 20 -11.6% -3.6% 18.2% - -34.6% -43.6% -36.5% -22.6% -10.3% -19.9% -9.6% -18.7% -20.5% -9.3% -11.3% -18.5 % 21 vs 20 -11.6% -3.4% 21 vs 20 10.7% 8.1% 9.7% -28.6% - - - - Total IT and electronic consumables collected (units) 5 944 8 322 -28.6% 133 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20215.2 SOCIAL Employees Total Men Women Employee distribution by gender and professional category Total Men Women Management Total Men Weight in total male employees Women Weight in total female employees < 30 years old 30 to 50 years old > 50 years old Heads of Department Total Men Peso no total de colaboradores masculinos Women Weight in total female employees < 30 years old 30 to 50 years old > 50 years old Specific Total Men Peso no total de colaboradores masculinos Women Weight in total female employees < 30 years old 30 to 50 years old > 50 years old 2021 4 193 1 944 46.4% 2 249 53.6% 2021 4 193 1 944 2 249 472 301 7.2% 171 4.1% 2 292 178 461 257 6.1% 204 4.9% 0 346 115 1 973 891 21.2% 1 082 25.8% 111 1 459 403 2020 4 582 2 159 47.1% 2 423 52.9% 2020 4 582 2 159 2 423 472 299 6.5% 173 3.8% 2 322 148 513 291 6.4% 222 4.8% 0 387 126 2 176 985 21.5% 1 191 26.0% 122 1 658 396 21 vs 20 -8.5% -10.0% -0.7 p.p. -7.2% -0.7 p.p. 21 vs 20 -8.5% -10.0% -7.2% 0.0% 0.7% 0.7 p.p. -1.2% 0.3 p.p. 0.0% -9.3% 20.3% -10.1% -11.7% -0.3 p.p. -8.1% 0.1 p.p. - -10.6% -8.7% 90.7% -9.5% -0.3 p.p. -9.2% -0.2 p.p. -9.0% -12.0% 1.8% 134 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 Employee distribution by gender and professional category 2021 2020 21 vs 20 Administrative Total Men Peso no total de colaboradores masculinos Women Weight in total female employees < 30 years old 30 to 50 years old > 50 years old Auxiliary Total Men Peso no total de colaboradores masculinos Women Weight in total female employees < 30 years old 30 to 50 years old > 50 years old Employment contract Total permanent workforce Men Women Total Fixed-term Employees Men Women Total Men Women Staff Turnover (%) Total Men Women Age bracket < 30 years old 30 to 50 years old > 50 years old 1 279 487 11.6% 792 18.9% 61 831 387 8 8 0.2% 0 - 0 4 4 2021 4 153 1 929 2 224 40 15 25 4 193 1 944 2 249 2021 6.2% 3.5% 2.7% 1.1% 2.3% 2.8% 1 413 576 12.6% 837 18.3% 115 865 433 8 8 0.2% 0 - 0 4 4 2020 4 417 2 088 2 329 165 71 94 4 582 2 159 2 423 2020 7.3% 4.1% 3.2% 1.8% 3.2% 2.8% -9.5% -15.5% -1.0 p.p. -5.4% 0.6 p.p -47.0% -3.9% -10.6% 0.0% 0.0% 0.0 p.p. - - - 0.0% 0.0% 21 vs 20 -6.0% -7.6% -4.5% -75.8% -78.9% -73.4% -8.5% -10.0% -7.2% 21 vs 20 -0.9 p.p. -0.6 p.p. -0.5 p.p. -0.7 .p.p. -0.9 p.p. 0,0% 135 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 Admissions and resignations Admissions Departures Admissions Departures Admissions Departures 2021 2020 20 vs 21 Total Gender Men Women Age bracket < 30 years old 30 to 50 years old > 50 years old Training hours / employee Total Gender Men Women Professional Category Management Men Women Heads of Department Men Women Specific Men Women Administrative Men Women Auxiliary Parental Leave Employees who took parental leave Employees who returned to work after parental leave ended Employees who returned to work after parental leave ended and remained in service after 12 months. Return to work rate Retention rate after 12 months of work 66 39 27 27 34 5 455 254 201 68 156 231 192 98 94 135 53 4 479 276 203 28 202 249 -65.6% -5.0% -60.2% -71.3% -80.0% -35.8% 25.0% -8.0% -1.0% 142.9% -22.8% -7.2% 2021 2020 20 vs 21 Total Average per employee Total Average per employee Total Average per employee -8.6% -0.2% 179 294 79 999 99 295 9 372 5 838 3 534 9 914 5 436 4 478 94 958 43 078 51 880 65 049 25 647 39 403 0 42.8 41.2 44.2 19.9 19.4 20.7 21.5 21.2 22.0 48.1 48.3 47.9 50.9 52.7 49.8 0 196 958 89 359 107 600 9 297 5 690 3 607 8 217 4 758 3 460 99 218 46 210 53 008 80 226 32 701 47 525 0 2021 Men 39 39 Women 88 50 100.0% 56.8% 43.0 41.4 44.4 19.7 19.0 20.8 16.0 16.4 15.6 45.6 46.9 44.5 56.8 56.8 56.8 0 -10.5% -7.7% 0.8% 2.6% -2.0% 20.7% 14.2% 29.4% -4.3% -7% -2.1% -18.9% -21.6% -17.1% - -0.6% -0.6% 0.8% 1.9% -0.9% 34.3% 29.4% 40.8% 5.6% 3.1% 7.7% -10.4% -7.2% -12.4% - Women -32.3% -41.2% - 2020 20 vs 21 Men 82 82 74 100% 90.2% Women 130 85 116 65.4% 89.3% Men -52.4% -52.4% - 0.0 p.p. -8.6 p.p. - - 136 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 Health Services Occupational Health - Occupational Medicine Medical Exams General Practice Consultations Curative Medicine consultations and prescriptions Consultations in other medical specialities Mental health consultations (psychology and psychiatry) Nutrition Consultations Nursing Total procedures (treatments, vaccination, medication, ECG) Risk Prevention and Control Programmes Cardiovascular screening Cancer screening Vision screening Executive Check-up (for senior executives) Health and Safety Indicators 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 2021 2020 21 vs 20 3 007 7 597 11 952 928 383 1 508 8 345 9 444 751 348 99.4% -9.0% 26.6% 23.6% 10.1% 6 772 5 760 17.6% 2 408 724 2 674 186 1 100 354 1 212 86 118.9% 104.5% 120.6% 116.3% 2021 2020 21 vs 20 27 10 17 - - - 0 0 0 3.8% 3.0% 4.6% 0.05% 0.04% 0.04% 3.2% 2.3% 3.9% 29 11 18 - - - 0 0 0 2.8% 2.8% 4.3% 0.05% 0.03% 0.07% 4.5% 2.7% 6.1% -6.9% -9.1% -5.6% - - - - - - 1.0 p.p. 0.2 p.p. 0.3 p.p. 0.0 p.p. 0.01 p.p. -0.03 p.p. -1.3 p.p. -0.4 p.p. -2.2 p.p. 137 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 Health and Safety Indicators Training in occupational health and safety No. health training hours No. safety training hours No. of hours of health awareness promotion Number of safety audits to the premises Number of ergonomic assessments No. of expert identifications and risk assessment of activities (IPAR) No. of thermal environment assessments No. of indoor air quality assessments No. of lighting assessments Other (Work Accident Analysis) Employee Benefits Education support Early childhood benefits School grants Support to children and youths with special needs Christmas present Support to retired employees Expenses with senior residences, day-care centres, home support, medicines and other basic necessities. Under the ACT (Collective wage agreement) Residential mortgage loans Acquisition of consumer goods In portfolio: Residential mortgage loans Individual Loans 2021 2020 21 vs 20 29 520.5 2 938.0 107 2 150 1 0 0 6 50.0 1 292.1 1 085.0 155 2 110 1 1 6 13 -42.0% -59.7% 170.8% -31.0% 0.0% 36.4% 0.0% -100.0% -100.0% -53.8% 2021 2020 21 vs 20 398 436 €454 382.08 €511 639.91 224 262 €164 119.40 €192 834.66 91 81 €87 440.00 €79 940.00 3 171 2 324 €126 840.00 €120 960.00 €124 720.00 €108 640.00 68 60 €15 799 862.00 €15 811 993.00 €2 033 351.04 €2 597 801.00 €260 419 116.70 €276 094 383.00 €11 436 868.20 €13 538 205.00 -8.7% -11.2% -14.5% -14.9% 12.3% 9.4% 36.4% 4.9% 14.8% 13.3% -0.1% -21.7% -5.7% -15.5% 138 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 5.3 GOVERNANCE Gender Equality - (under-represented gender %) Board of Directors and 1st line managers (under-represented gender) Management staff Pay gap Ratio of women's total remuneration to men's total remuneration per employee category Management Heads of Department Specific Administrative Auxiliary Total Sustainability scoring (%) Suppliers that endorsed novobanco Group’s relationship principles and have a sustainability scoring (%) 2021 25.6% 36.2% 10.1% 0.88 0.97 0.90 0.90 0 0.78 2021 52% 2020 26.5% 36.7% 9.4% 0.87 0.95 0.89 0.89 0 0.76 21 vs 20 -0.9 p.p -0.5 p.p. -0.7 p.p. 1 p.p. 2 p.p. 1 p.p. 1 p.p. - 2 p.p. 2020 41% 21 vs 20 11 p.p. 139 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 6.0 ABOUT THIS REPORT 6.1 Methodological notes 6.2 GRI Table 6.3 Independent Limited Assurance Report Sandra Catarino Risk Department - Area Manager 140 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021This report describes the manner in which the novobanco Group 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 Group’s sustainability performance in the last two years. 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 the novobanco Group, is also drawn up for compliance with the legal requirements introduced by Decree-Law no. 89/2017, of 28 July. performance, considering that the relevant indicators were reported in accordance with the GRI sustainability reporting standards and with Decree-Law no. 89/2017, as can be seen on pages XX and XX. The 2021 Sustainability Report complements and details the information contained in the 2021 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: Ernst & Young, Audit & Associados, SROC, SA has provided independent assurance to this sustainability sustentabilidade@novobanco. 6.1 METHODOLOGICAL NOTES SOCIAL INDICATORS Staff Turnover New hires rate Accident Rate Absenteeism Rate Return to Work Rate ((Number of admissions + departures/ 2) total employees)2 New hires in 2021/total number of employees in 2021 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 2021 Average training hours per gender Total number of training hours per gender/Total number of employees in each gender Average training hours per professional category Total number of training hours per professional category/Total number of employees in each category Remuneration ratio Ratio of average base remuneration and average total remuneration of women to men by employee category - (women remuneration / men remuneration)*100 Social Dividend #NB Equal Gender and #NB Work & Life Amount reached in December 2021 - 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 20199. 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. Branches located in low density areas. Number of branches located in the 165 low-density municipalities identified by Deliberation 55/2015 of the Interministerial Commission for Coordination, Portugal 2020 Economic value distributed ENVIRONMENTAL INDICATORS Electricity Generators diesel Water General and administrative expenses + Staff Costs+ Taxes + donations Amount calculated directly from EDP records and billing Diesel consumption in 2021 is an estimate based on the number of hours generators were operating. Estimate based on real water consumption in 100% of the central buildings and 48% of the branches. Social Dividend | NB Environment Amount reached in December 2021 - baseline value 2016/target set for 2020 - baseline value 2016 141 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 Energy PCI diesel (road) Density of diesel (generators) PCI Propane gas (LPG) and Natural gas Electricity CO2 Emissions Scope 1 CO2 Emissions Scope 2 CO2 Emissions Scope 3 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: 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) It also takes into account the following emission factors and parameters used to calculate Greenhouse Gases (GHG) emissions: 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 (generators) - 43.07 GJ/ (Source: APA - Fuel density values to be used under the EU ETS) • Density of diesel (generators) - 0.837 kg/l Source: APA - Fuel density values to be used under the EU ETS) • • Light vehicle, petrol, engine cubic capacity < 1 400 cm3 0.173 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) • Light vehicle, petrol, engine cubic capacity 1 400 and < 2000 cm3 - 0.215 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) • Light vehicle, petrol, engine cubic capacity ≥ 2000 cm3 - 0.299 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) • Light vehicle, diesel, engine cubic capacity < 2 000 cm3 - 0.181 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) • Light vehicle, diesel, engine cubic capacity ≥ 2 000 cm3 - 0.245 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools, 2017) • Hybrid vehicle - 0.144 kg CO2e/km (Source: APA - NIR 2020) • Electric vehicle - 0.018 kg kg CO2e/km (consumption - 13.3 kW/100 km) (Source: APREN, 2020) The following conversion factor was used to convert indirect electricity consumption to GJ: 1 kWh = 0.0036 GJ Electricity consumption was calculated using the following formula: Emission = Consumption X * Emission factor (EF)X It also takes into account the following emission factors and parameters used to calculate GHG emissions: • Electricity production mainland - market based method - 0.134 kg CO2e/kWh (Source: EDP 2019 Sustainability Report) • Electricity production mainland - location based method - 0.457 kg CO2e/kWh (Source: APREN, 2020 energy mix) • Electricity production in Madeira - location and market-based methods - 0.487 kg CO2e/kWh (Source: EE Madeira 2019) The calculation includes the emissions resulting from employees’ business trips and home/work/home (HWH) trips, using the following formula: Emission = Trip (km) X * EFX It also takes into account the following emission factors and parameters used to calculate GHG emissions: • Diesel vehicle - 0.210 kg CO2e/km (Source: APA - NIR 2020) • Petrol vehicle - 0.209 kg CO2e/km (Source: APA - NIR 2020) • LPG vehicle - 0.193 kg CO2e/km (Source: APA - NIR 2020) • Hybrid vehicle - 0.144 kg CO2e/km (Source: APA - NIR 2020) • Electric vehicle - 0.018 kg CO2e/km (consumption - 13.3 kW/100 km) (Source: APREN 2020) • Bus - 0.102 kg CO2e/km (Source: DEFRA 2020; 1.420 kg CO2e/km (Source: STCP 2011) and 0.115 kg CO2e/km (Source: Carris 2019) • Subway - 0.0467kg CO2e (Source: Metro Lisboa 2016) and km, 0.040 kg CO2e/km (Source: Metro do Porto 2018) • 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) • Motorcycle (petrol) - 0.133 kg CO2e/km (Source: APA - NIR 2020) • Motorcycle (electric) - 0.012 kg kg CO2e/km (consumption - 9 kW/100 km) (Source: APREN 2020) • Plane emission = Trip (Km) X * EFX * Takeoff factor * RFI2 • • Plane, Domestic flight FE CO2 - 0.17147 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools 2017) • Plane, short-distance flight FE CO2 - 0.09700 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools 2017) • Plane, long-distance flight FE CO2 - 0.11319 kg CO2e/km (Source: GHG Protocol: Emission Factors from Cross-Sector Tools 2017) • Plane, domestic flight FE CH4 - 0.0001 kg CO2e/km (Source: DEFRA 2020) • Plane, short-distance flight FE CH4 - 0.00001 kg CO2e/km (Source: DEFRA 2020) • Plane, long-distance flight FE CH4 - 0.00001 kg CO2e/km (Source: DEFRA 2020) • Plane, domestic flight FE N2O - 0.00002 kg CO2e/km (Source: DEFRA 2020) • Plane, short-distance flight FE N2O - 0.00076 kg CO2e/km (Source: DEFRA 2020) • Plane, long-distance flight FE N2O - 0.00095 kg CO2e/km (Source: DEFRA 2020) • Takeoff factor - 109% (Source: DEFRA/IPCC 1999) • RFI - 1.9% (Source: DEFRA/IPCC 1999) • The calculation of GHG emissions from wastewater treatment also takes into account the following emission factors and parameters: 0.0019 kgCH4/per day (8-hour working day; employees in-office It also takes into account the following emission factors and parameters used to calculate GHG emissions: workdays in 2020), with the following factors: • Global Warming Potential (GWP) CO2 – 1 • GWP CH4 – 28 • GWP N2O- 265 • The calculation of emissions associated with paper consumption, treatment of paper sent for recycling and water consumption also considers the following emission factors: • Paper life cycle - 0.3 t CO2e/t paper consumed (Source: CEPI - Key Statistics 2019) • Paper recycling: - 0.0213 kg CO2e/ kg of paper sent for recycling (Source: DEFRA 2020) • Water consumption - 0.265 kg CO2e/m3 of water collected (Source: EPAL 2017) 142 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021CLIENT INDICATORS Customer service Global satisfaction Confidence Net Promoter Score Very Satisfied Clients 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 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. 6.2 GRI TABLE GENERAL DISCLOSURES ORGANISATIONAL PROFILE Page in the Report SDG GC Principles Omissions Scope 102-1 Name of the organisation AR- page 2 102-2 Main brands, products, and services SR – pages 112-118 MR - pages 14-16; 25-29; 43-47. 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. SR – page 94 The 2021 Sustainability Report covers the novobanco Group – novobanco, novobanco dos Açores, Banco Best and GNBGA. MR – pages 43-47. FS – page 167. 102-5 Ownership and legal form FS - page 167 102-6 Markets served: • geographic locations where products and services are offered; • sectors served; • types of customers and beneficiaries SR – pages 112-118 MR - pages 14-16; 25-29; 43-47. Institutional website, product and company The 2021 Sustainability Report covers the novobanco Group scope (novobanco, novobanco dos Açores, Banco Best and novobanco Gestão de Ativos Group), and the figures for the 2020 Sustainability Report were recalculated based on this scope. The information on employees reported in this report has the same scope as the Annual Report, i.e., it covers permanent employees, fixed-term contracts and employees on loan. The employees with the remaining employment contracts - interns, temporary workers and service providers - totalling 48 in 2021 - represent 0.01% of the group’s total workforce. 143 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021 GENERAL DISCLOSURES OMRANISATIONAL PROFILE Page in the Report SDG GC Principles Omissions Scope 102-7 102-8 102-9 total number of employees; total number of operations; Scale of the oMRanisation: • • • net sales; • • total capitalisation broken down in terms of debt and equity; quantity of products or services provided SR –pages 94; 112-118; 119;134. MR – pages - 13 and 22. FS - page 162-163. Total number of employees by employment contract (permanent and temporary), by gender and region SR - pages 119-122; 134-135. MR - pages 13 and 23. A description of the oMRanisation’s supply chain, including its main elements as they relate to the oMRanisation’s activities, primary brands, products, and services SR - page 125. Bank institutional website. 8 6 102-10 Significant changes to the oMRanisation’s size, structure, owneSRhip, or supply chain during reporting period 102-11 Precautionary Principle or approach Increase in the Bank’s share capital to the amount of 6,054,907,314.00 Euros. Increase of the Bank’s share capital to 6,054,907,314.00 euros. Shareholder Structure Nani Holdings S.G.P.S., S.A - 73.83% Fundo de Resolução (Resolution Fund) - 24.61% Directorate General for the Treasury and Finance - 1.56% MR- page 65. SR – pages 100-101. MR – pages 14-16; 25-29; 43-47. 102-12 102-13 STRATEGY 102-14 A list of externally-developed economic, environmental and social charteSR, principles, or other initiatives to which the oMRanisation subscribes, or which it endoSRes. SR – pages 103; 128-130. Bank institutional website. A list of the main membeSRhips of industry or other associations, and national or international advocacy oMRanizations SR - pages 103;128-130. Bank institutional website. A statement from the most senior decision-maker of the oMRanisation (such as CEO, chair, or equivalent senior position) about the relevance of sustainability to the oMRanisation and its strategy for addressing sustainability. AR - pages 5-6. 102-15 A description of key impacts, risks, and opportunities ETHICS AND INTEGRITY 102-16 Values, principles, standards, and norms of behaviour. 102-17 A description of internal and external mechanisms for: seeking advice about ethical and lawful behaviour, and oMRanisational integrity; reporting concerns about unethical or unlawful behaviour, and oMRanisational integrity. CORPORATE GOVERNANCE SR – pages 100-102. MR – pages 14-16; 25-29; 43-47; 57-63. SR – pages 105-107. MR – pages 12; 20-23; 65-79. SR – pages 96-97; 107-123. MR – pages 12; 20-23; 65-79. Bank institutional website. 102-18 102-19 Governance structure of the oMRanization, including committees of the highest governance body. Committees responsible for decision making on economic, environmental, and social topics. SR – pages 105-107. MR – pages 12; 20-23; 65-79. Bank institutional website. Process for delegating authority for economic, environmental, and social topics from the highest governance body to senior executives and other employees. SR – 105-107. 102-20 Executive-level responsibility for economic, environmental, and social topics. 102-21 Consulting stakeholdeSR on economic, environmental, and social topics 102-22 Composition of the highest governance body and its committees 102-23 Whether the chair of the highest governance body is also an executive officer in the oMRanisation. If the chair is also an executive officer, describe his or her function within the oMRanisation’s management and the reasons for this arrangement. Chairman of the Executive Board of Directors SR – pages 105-107. MR- pages 12; 20-23; 65-79. Bank institutional website. SR – pages 97-101. Bank institutional website. SR – pages 105-107. MR- pages 12; 20-23; 65-79. Bank institutional website. SR – pages 105-107. MR- pages 12; 20-23; 65-79. Bank institutional website. 16 16 10 10 16 5, 16 16 144 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GC Principles Omissions Scope GENERAL DISCLOSURES Page in the Report 102-24 102-25 Nomination and selection processes for the highest governance body and its committees and criteria used for nominating and selecting highest governance body membeSR- MR- pages 12; 20-23; 65-79. Institutional website. Processes for the highest governance body to ensure conflicts of interest are avoided and managed. SR – page 107. MR- pages 12; 20-22; 71. Institutional website, Conflicts of Interest Polic. 102-26 Highest governance body’s and senior executives’ roles in the development, approval, and updating of the oMRanisation’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 The Chairman of the Executive Board of Directors and remaining members of the Executive Board of Directors and General and Supervisory Board who are part of the Sustainability Steering Committee, control and approve sustainability management on a monthly basis, based on the objectives defined for 2024. These objectives are monitored through an action plan and the coordination of teams appointed to implement both the E - pillar (ESG pillar) of the bank’s strategy, and the Social Dividend model, with objectives defined for 2021, quarterly assessed. The social dividend aims to give back to the bank’s employees and the community in general what the bank generates with its activity. These models and respective procedures ensure the alignment of sustainability performance across the Bank’s various operations, through coordination of the initiatives with the officers appointed in each operation. SR – pages 105-107. MR- pages 12; 20-23; 65-79. Institutional website, Conflicts of Interest Policy. Sustainability issues are submitted to the Chairman of the Executive Board of Directors and the members of the Executive Board of Directors who are part of the Sustainability Steering Committee on a monthly basis and whenever justified. SR – capítulo 3 Governance da sustentabilidade MR - pages 12; 20-23; 65-79. Institutional website, Conflicts of Interest Policy. 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, Departments and subsequently submitted to the highest governance body and to the Chairman of the Executive Board of Directors. For more information see SR – pages 105-107. MR - pages 12; 20-23; 65-79. Institutional website. 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. SR – pages 105-107. MR – pages 65-79. Highest governance body’s role in reviewing the effectiveness of the oMRanisation’s risk management processes for economic, environmental, and social topics SR – pages 105-107. MR –pages 58-64; 65-79. Frequency of the highest governance body’s review of economic, environmental, and social topics and their impacts, risks, and opportunities The Chairman of the Executive Board of Directors and the members of the Executive Board of Directors who are part of the Sustainability Steering Committee review the bank’s sustainability performance on a montgly basis, including the key risks and opportunities. SR – pages 105-107. MR – pages 65-79. The highest committee or position that formally reviews and approves the oMRanisation’s sustainability report and ensures that all material aspects are covered 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. SR – pages 105-107. MR – pages 65-79. 102-34 Total number and nature of critical concerns that were communicated to the highest governance body. SR – pages 105-107. MR – page 72. Institutional website - supervision committees and Irregularities Reporting policy Institutional website - supervision committees and Whistle-blowing Policy. SDG 5, 16 16 4 16 145 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 102-35 a. Remuneration policies for the highest governance body and senior executives for the following types of remuneration: - Fixed pay and variable pay, including: • Performance-based pay • Equity-based pay (shares or share options) • Bonus • 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. 102-36 Process for determining remuneration. StakeholdeSR’ opinions with regard to remuneration are requested and taken into account, including through voting on remuneration policies and proposals, when applicable. SR – pages 105-107. MR – pages 74-79. Institutional website, Remuneration Policies. SR – pages 105-107. MR – pages 74-79. Institutional website, Remuneration Policies. SR – pages 98-100; 103-105. MR – pages 74-79. Institutional website, Remuneration Policies. 102-37 102-38 102-39 Ratio of the annual total compensation for the oMRanisation’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 Median annual total compensation for all employees (excluding the highest-paid individual); €34 634.5. CEO total annual remuneration: €371 858.0 Change in CEO remuneration: 1.2% Ratio of the CEO total annual compensation to the median annual total compensation for all employees (excluding the highest-paid individual) 10.7% Ratio of the peARentage increase in annual total compensation for the oMRanization’s highest-paid individual in each country of significant operations to the median peARentage increase in annual total compensation for all employees (excluding the highest-paid individual) in the same country The wage increase in 2021, as per the Collective wage agreement, was 0.2%. Average remuneration: 3.7% STAKEHOLDER INVOLVEMENT 102-40 102-41 102-42 102-43 102-44 List of stakeholder groups SR – pages 97;103; 108-126; 129-130. PeARentage of total employees covered by collective baMRaining agreements SR – pages 97;103; 108-126; 129-130. 8 3 Identifying and selecting stakeholdeSR Approach to stakeholder engagement SR – pages 97;103; 108-126; 129-130. SR – pages 97;103; 108-126; 129-130. Key topics and concerns that have been raised through stakeholder engagement, including how the oMRanization has responded to those key topics and concerns SR – pages 97;103; 108-126; 129-130. REPORTING PRACTICE 102-45 102-46 102-47 Entities included in the consolidated financial statements Defining report content and topic boundaries List of material topics 102-48 Restatements of information and reasons therefor 102-49 Changes in reporting FS- pages 168-169. SR - pages 97-99. SR - pages 97-99. The 2021 Sustainability Report details the performance over the last two years for the novobanco Group scope, therefore the data presented in this report for 2020 were recalculated for this scope. The 2021 Sustainability Report details the performance over the last two years for the novobanco Group scope, therefore the data presented in this report for 2020 were recalculated for this scope. Increase of the Bank’s share capital to 6,054,907,314.00 euros. Shareholder Structure Nani Holdings S.G.P.S., S.A - 73.83% Fundo de Resolução (Resolution Fund) - 24.61% Directorate General for the Treasury and Finance - 1.56% MR- page 66. 146 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES Reporting period Date of most recent report Reporting cycle 102-50 102-51 102-52 102-53 102-54 102-55 102-56 Page in the Report 1 January to 31 December 2021 2020 Annual SDG GC Principles Omissions Scope Contact point for questions regarding the report sustentabilidade@novobanco.pt Claims of reporting in accordance with the GRI Standards 5 GRI content index “Core option” SR – pages 143-158. A description of the oMRanisation’s policy and current practice with regard to seeking external assurance for the report. SR – pages 159. 8 3 ECONOMIC INDICATOSR TOPIC: ECONOMIC PERFORMANCE 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 201-1 Direct economic value generated and distributed 201-2 Financial implications and other risks and opportunities due to climate change The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. This matrix forms the basis of the novobanco Group’s sustainability strategy and its overall strategy, alongside the commitments and objectives undertaken. 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 the novobanco Group 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 novobanco Group has over the years promoted several initiatives with economic impacts. The group’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: €: 855.9. million MR – page 39. Banking Income: €: 855.9 million MR – page 39. General and administrative expenses: €141.1 million MR – page 87. Staff Costs: €233.3 million MR – page 87. Payments to providers of Capital - Shareholders - There was no distribution of dividends. Taxes: €12,7M million MR – page 87. Community Investments: €1.6 million in donations SR – pages 129-130. Economic Value Distributed: €388.7M million Economic Value Retained €467.2M million With regard to climate change, the novobanco Group offers its clients a number of environmental products, namely the 18.31, NB 18.25 and NB 26.31 accounts, as well as ECO and ESG structured products, ECO mortgage loans and ESG funds. 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 100-101; 112-118. AR- pages 59-60. 2, 5, 8, 9 13 201-3 201-4 Defined benefit plan obligations and other retirement plans SR – pages 119-124; 136-138. Financial assistance received from governance FS - pages 165 e 166. TOPIC: MARKET PRESENCE 103-1 Explanation of the material topic and its Boundary The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The novobanco Group has defined its sustainability policy and strategy based on this matrix, the SDGs, the commitments undertaken and the national and international regulatory framework. 147 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 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 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 203-1 Infrastructure investments and services supported 203-2 Significant identified indirect economic impacts of the oMRanisation, 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 103-3 Evaluation of the management approach 204-1 PeARentage of the procurement budget used for significant locations of operation that is spent on supplieSR local to that operation TOPIC: ANTI-CORRUPTION 103-1 Explanation of the material topic and its Boundary The Strategic Plan 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 the novobanco Group to transition from a restructuring bank into a growth bank prepared for the future. This plan has now been restructured under the new title of “Making the Future”. Based on 9 pillars/ priorities, of which one is the ESG pillar, this plan will steer the group’s activity in a competitive market until 2024. To this end, the Group is streamlining its technological infrastructure and processes, rejuvenating and enhancing its human capital and adjusting its risk model, selecting optimisation, digitisation and innovation as cross-cutting priorities. The novobanco Group has over the years promoted several initiatives with economic impacts. The group’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 group monitors the indicators defined for this topic on a monthly basis. For the professional categories that are representative of its workforce, novobanco pays a minimum salary that is higher than the national minimum wage (the lowest salary paid by novobanco is 1.33 times higher than the national minimum wage). The group develops most of 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. The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The novobanco Group has defined its sustainability policy and strategy based on this matrix, the SDGs, the commitments undertaken and the national and international regulatory framework. The novobanco Group has over the years promoted several initiatives with indirect economic impacts. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Annual Report, institutional website and Sustainability Report. 5, 7, 8 8 6 6 SR - pages 109-118. MR – pages 43-47. SR - pages 109-118. MR – pages 43-47. 2, 5, 7, 9, 11 1, 2, 3, 8, 10, 17 The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The novobanco Group has defined its sustainability policy and strategy based on this matrix, the SDGs, the commitments undertaken and the national and international regulatory framework. Purchasing practices are considered material. The novobanco Group has over the years promoted several initiatives in this area, having namely implemented a sustainability scoring for the process of registration of suppliers in its Supplier Portal. SR – page 125-126. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Annual Report, institutional website and Sustainability Report. The novobanco Group acquires its regular consumption products, such as stationery, equipment and specialised services for mainland Portugal and the Islands, from national companies. Around 90.8% of the expenses refer to national suppliers vs 9.2% of international suppliers. SR – page 125-126. 12 The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The novobanco Group has defined its sustainability policy and strategy based on this matrix, the SDGs, the commitments undertaken and the national and international regulatory framework, and anti-corruption is considered material. 148 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 103-2 The management approach and its components 103-3 Evaluation of the management approach 205-1 Total number and peARentage of operations assessed for risks related to corruption Communication and training about anti-corruption policies and procedures 205-2 205-3 The novobanco 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, competence, transparency and fairness. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Annual Report, institutional website and Sustainability Report. SR – pages 109-118. MR – pages 43-47. SR - page 95. MR - page 73. 16 16 16 10 10 10 Confirmed incidents of corruption and actions taken The novobanco Group was not aware of any cases of corruption in 2021. TOPIC: ANTI-COMPETITIVE BEHAVIOUR 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 novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The novobanco Group has defined its sustainability policy and strategy based on this matrix, the SDGs, the commitments undertaken and the national and international regulatory framework. Unfair competition is considered material. novobanco 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. Within its new strategic plan, one of the priorities is the partnerships pillar, which seeks to find added value and new relevant partners for the development of value proposals in the financial sector. Thus, by finding value in partners the Bank seeks to provide a global ecosystem response to its clients. The Bank monitors indicators pertaining to this topic and reports the results in its Annual Report, institutional website and Sustainability Report. 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 oMRanisation has been identified as a participant. There is no record of any legal action regarding anti-competitive behaviour and violations of anti-trust and monopoly legislation involving the Bank in 2021. 16 ENVIRONMENTAL INDICATOSR TOPIC: MATERIALS ENEMRY 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 301-1 Evaluation of the management approach The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The novobanco Group has defined its sustainability policy and strategy based on this matrix, the SDGs, the commitments undertaken and the national and international regulatory framework. The environment and considered a material topic novobanco has over the years promoted several initiatives aimed at reducing its direct environmental impact. Some of these measures are included it is NB Environment programme, which is integrated in its Social Dividend model. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. Materials used by weight or volume SR – pages 126-128; 132-133. 8,12 7,8 TOPIC: ENEMRY WATER AND CO2 EMISSIONS 103-1 Explanation of the material topic and its Boundary The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. Issues such as the eco-efficiency of the Bank’s branches, buildings and operations, paper consumption and other consumables, emissions and all items that impact the bank’s environmental footprint are considered to be important. Energy consumption is the bank’s largest resource consumption, along with paper and consequent CO2 emissions, and as such has been given special attention by the group. 149 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope The novobanco Group has over the years promoted several initiatives aimed at reducing its direct environmental impact. Some of these measures are included it is NB Environment programme, which is integrated in its Social Dividend model. novobanco has promoted several initiatives that allow for the reduction of energy consumption, and in particular electricity consumption. Every year it compiles a CO2 emissions inventory, which in 2021 covered for the first time the novobanco group. 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. Given the scarcity of this resource, the group has over the years promoted several initiatives aimed at reducing its direct environmental in terms of water consumption. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. SR – pages 126-128; 132-133. SR – pages 126-128; 132-133. SR – pages 126-128; 132-133. 103-2 The management approach and its components Evaluation of the management approach EneMRy consumption within the oMRanisation EneMRy intensity Reduction of eneMRy consumption 103-3 302-1 302-3 302-4 302-5 305-1 305-2 305-3 305-4 305-5 Reductions in eneMRy requirements of products and services SR – pages 114, 126-128; 132-133. Direct (Scope 1) GHG emissions EneMRy indirect (Scope 2) GHG emissions EneMRy indirect (Scope 3) GHG emissions GHG emissions intensity Reduction of GHG emissions SR – pages 126-127; 133. SR – pages 126-127; 133. SR – pages 126-127; 133. SR – pages 126-127; 133. SR – pages 126-127; 133. 305-6 Emissions of ozone-depleting substances (ODS) 305-7 Nitrogen oxides (NOx), sulphur oxides (SOx), and other significant air emissions TOPIC: ENVIRONMENTAL COMPLIANCE 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 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, novobanco had been gradually replacing equipment that emit ozone-depleting gases, when such still exist. SOx and NOx emissions linked to the group’s activity result from combustion associated with transportation, emergency generators and boilers. However, due to the reduced expression of these activities within the group’s typical activity, these emissions are immaterial and therefore are not accounted for. The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The novobanco Group has defined its sustainability policy and strategy based on this matrix, the SDGs, the commitments undertaken and the national and international regulatory framework. Environmental compliance is a material issue. The novobanco Group has over the years promoted several initiatives aimed at reducing its environmental impact. Some of these measures are included in its # NB Environment programme, which is integrated in its Social Dividend model. The Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 7,8,12,13 7,8,12,13 7,8,12,13 7,8,12,13 3,12,13,14,15 3,12,13,14,15 3,12,13,14,15 13,14,15 13,14,15 3,12 7,8 8 8,9 8,9 7, 8 7, 8 7, 8 8 8, 9 7, 8 3,12,14,15 7, 8 307-1 Significant fines and non-monetary sanctions for non-compliance with environmental laws and/or regulations In 2021 there were no instances of non-compliance with environmental laws and/or regulations, nor were any fines paid in connection therewith. 16 8 150 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope TOPIC: SUPPLIESR ENVIRONMENTAL ASSESSMENT 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components Evaluation of the management approach 103-3 308-1 308-2 The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments undertaken and the goals established. The novobanco Group has over the years promoted several initiatives to ensure a judicious selection of its suppliers, based on the information provided. The group calculates the suppliers’ ‘sustainability scoring’, which takes into account environmental, ethical, labour, hygiene and safety in the workplace aspects of its suppliers. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. New supplieSR that were screened using environmental criteria Negative environmental impacts in the supply chain and actions taken SR – pages 125-126. SR – pages 125-126. TOPIC: EMPLOYMENT 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 novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The novobanco Group has defined its sustainability policy and strategy based on this matrix, the SDGs, the commitments undertaken and the national and international regulatory framework. Employment is considered a material topic. The novobanco Group 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. The information on employees reported in this report has the same scope as the Annual Report, i.e., it covers permanent employees, fixed-term contracts and employees on loan. The employees with the remaining types of employment contracts, totalling 48 in 2021, represent 0.01 of the group’s total workforce. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. 401-1 401-2 401-3 Total number and rate of new employee hires during the reporting period, by age group, gender and region. SR – pages 135-136. Benefits provided to full-time employees that are not provided to temporary or part-time employees The novobanco Group 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 group’s employees and subsidies are attributed based on the employee’s income. Trainees and temporary workers are not entitled to these benefits and are not covered by the scope of this report. Their representativeness within the group is very small: 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 SR – page 136. 5, 8 8 8 8 8 6 6 TOPIC: 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 402-1 Minimum notice periods regarding operational changes and whether the notice period and provisions for consultation and negotiation are specified in collective agreements The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The novobanco Group has defined its sustainability policy and strategy based on this matrix, the SDGs, the commitments undertaken and the national and international regulatory framework. Labour relations are considered a material issue. The novobanco Group 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. The Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. The novobanco Group 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 advance notice of at least 30 days. 5 3 151 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES TOPIC: OCCUPATIONAL 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 Page in the Report SDG GC Principles Omissions Scope The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. Occupational health and safety are by the group as a material issue. The physical, psychological and social wellbeing of its employees is essential for the group, which to this end has in place a health and wellbeing 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. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. novobanco group has no formal safety committees, 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. The group 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. 403-1 403-2 PeARentage of workeSR whose work, or workplace, is controlled by the oMRanisation, that are represented by formal joint management-worker health and safety committees. Types of injury and rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities by gender SR – page 137. 403-3 WorkeSR 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 The novobanco Group is not aware of a high incidence or high risk of work-related diseases amongst its employees. novobanco 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 123-124; 135-138. The novobanco group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the Capture and development of talent as a material topic, and 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. The group has over the years promoted several initiatives and programmes to ensure that human capital management is focused on talent attraction and retention. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 8 8 8 8 404-1 404-2 Average houSR of training that the oMRanisation’s employees have undertaken during the reporting period, by gender and employee category SR – pages 120-122;136. Programmes for upgrading employee skills and transition assistance programmes SR – pages 120-122;136. 404-3 PeARentage of employees receiving regular performance and career development reviews The 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 2022 performance assessment had not been concluded. 4, 5, 8 8 5, 8 6 6 152 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES TOPIC: DIVESRITY 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 Page in the Report SDG GC Principles Omissions Scope The novobanco group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the group’s dialogue with its stakeholders. The Group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the issue of Diversity and gender equality as important. novobanco 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 2021. The group monitors indicators pertaining to this topic and annually reports the results in its website and Sustainability Report. 405-1 PeARentage of individuals within the oMRanisation’s governance bodies in each of the following diveSRity categories: Gender, Age group, Other indicatoSR of diveSRity where relevant (such as minority or vulnerable groups). MR– pages 20-22. 405-2 Ratio of basic salary and remuneration of women to men for each employee category 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 SR – pages 122, 139. The novobanco Group calculates the ratio based on total rather than base remuneration as the latter is linked to a level defined by the collective labour agreement (ACT). The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the issue Gender Equality and Human Rights as important. novobanco 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. novobanco 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 2021. 5, 8 5, 8, 10 6 6 406-1 Total number of incidents of discrimination and corrective actions taken In 2021 no incidents or lawsuits came to the attention of the novobanco Group concerning discrimination on grounds of race, colour, gender, religion, public opinion or social background. 5, 8, 16 6 TOPIC: FREEDOM OF ASSOCIATION AND COLLECTIVE BAMRAINING 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 supplieSR in which the right to freedom of association and collective baMRaining may be at risk TOPIC: CHILD LABOUR AND FOARED OR COMPULSORY LABOUR 103-1 Explanation of the material topic and its Boundary At the novobanco Group, the majority of the employees is covered by collective bargaining agreements and perform their activity in accordance with the obligations established therein. The group has over the years promoted several initiatives viewing non-discrimination, and in this context often meets with the Workers’ Committee and the Trade Unions. The Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report. In 2021, the group was not aware of any instances of non-compliance with laws or regulations for breaches of the right to freedom of association and collective bargaining, or of the payment of fines in connection thereof, within its value chain. The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the issue Gender Equality and Human Rights as important. 3 153 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope Operations and supplieSR at significant risk for incidents of child labour During 2021 no instances came to the attention of novobanco Group concerning operations and suppliers where the risk of child labour or forced or compulsory labour had been identified. 8, 16 5 103-2 The management approach and its components Evaluation of the management approach TOPIC: SECURITY PRACTICES 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components Evaluation of the management approach TOPIC: RIGHTS OF INDIGENOUS PEOPLES 103-1 Explanation of the material topic and its Boundary The management approach and its components 103-3 408-1 409-1 103-3 410-1 103-2 103-3 411-1 The novobanco group 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 Guidelines of the Organization for Economic Cooperation and Development (OECD) for the United Nations Global Compact Principles; the Universal Declaration of Human Rights; Multinational Enterprises; the Core Conventions of the International Labour Organization (ILO). • novobanco’s Human Rights Policy reflects its endorsement of 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 Group’s operations and in connection to its employees. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional. The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the issue of Security as important. The group has over the years promoted several initiatives in this area for compliance with the legislation in force. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report. The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the issue of Human Rights as important. The group does not promote initiatives in this regard as its activity is developed in urban or urbanised areas. Security peSRonnel trained in human rights policies or procedures In 2021 the group did not provide training in human rights to its security personnel. 16 Evaluation of the management approach Not applicable Total number of identified incidents of violations involving the rights of indigenous peoples during the reporting period and remediation action taken The group’s operations are located in urban or urbanised areas, therefore there are no instances of violation of the rights of indigenous people. 2 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 The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the issue of Human Rights as important. The Group 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 novobanco Group’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 group operates. The group has a Human Rights policy that can be consulted on its institutional website. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. 412-1 Total number and peARentage of operations that have been subject to human rights reviews or impact assessments Not applicable 1 1 1 154 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 412-2 Employee training on human rights policies or procedures In 2021 novobanco Group did not provide any type of training on this topic. 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 All novobanco 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 2021 the group found no instance of non- compliance with these principles by its material Suppliers, namely through its regular visits to their facilities. Should any cases of violation of human rights occur, the group 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. The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the issue of investment in the community as important. novobanco Group 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. Some of the initiatives under these pillars are an integral part of the NB Social Responsibility programme, included within novobanco’s Social Dividend Model. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. 413-1 Operations with local community engagement, impact assessments, and development programmes SR – pages 103; 128-130. 413-2 Operations with significant actual and potential negative impacts on local communities The novobanco Group is not aware of any operations having negative impacts on local communities. 1, 2 TOPIC: SUPPLIESR SOCIAL ASSESSMENT 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components Evaluation of the management approach 103-3 414-1 414-2 The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The issues related to suppliers are considered as material. novobanco Group 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. The Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. New supplieSR that were screened using social criteria SR – pages 125-126. Negative social impacts in the supply chain and actions taken In 2021 novobanco was not aware of any negative impacts at this level. 5, 16 5, 16 TOPIC: PUBLIC POLICY 103-1 Explanation of the material topic and its Boundary The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The Group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the issues Business Ethics and relations with stakeholders as important. 103-2 103-3 The management approach and its components The novobanco Group manages its activity in full compliance with the legislation in force. Evaluation of the management approach Novobanco monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 1 2 1 1 2 2 155 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES 415-1 Political contributions 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 Page in the Report SDG GC Principles Omissions Scope Political contributions by companies are not permitted under Decree Law No. 19/2003, of 20 June, and novobanco Group complies with these provisions. 16 10 The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers the topic Security of the financial assets, and physical and digital security of the client as material. The group 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. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report. The group’s facilities comply with all existing rules for secure and private customer service. The group 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 2021, there were no sanctions and/or fines imposed on novobanco Group in connection to the General Data Protection Regulation (GDPR). 16 TOPIC: LABELLING OF PRODUCTS AND SERVICES 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 novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The group considers customer satisfaction and service quality, and financial products and services as a material topic. novobanco Group has over the years promoted several initiatives aimed at providing clear and transparent information about the products and services it provides to its clients. Products disclosure is subject to prior approval by the competent supervision authority. The Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. The group 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. 417-1 417-2 417-3 Requirements for product and service information and labelling and peARentage of significant product or service categories covered by and assessed for compliance with such procedures. Total number of incidents of non-compliance with regulations and/or voluntary codes concerning product and service information and labelling, by type of result In 2021 no incidents of non-compliance with voluntary procedures and voluntary codes concerning product and service information or labelling of novobanco Group were identified. Total number of incidents of non-compliance with regulations and/or voluntary codes concerning marketing communications, including advertising, promotion, and sponsoSRhip, by type of result In 2021 no incidents of non-compliance with voluntary procedures and voluntary codes on marketing communications, including advertising, promotion, and sponsorship by novobanco Group, were identified. 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 The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The topic of customer privacy is considered material. novobanco Group 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. The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 12, 16 16 156 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES Page in the Report SDG GC Principles Omissions Scope 418-1 Total number of substantiated complaints received concerning breaches of customer privacy In 2021, there were no sanctions and/or fines imposed on the group in connection to the General Data Protection Regulation (GDPR). 12 TOPIC: SOCIOECONOMIC COMPLIANCE 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 novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The topic Business ethics and stakeholder relations is considered as material. novobanco Group 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 novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 419-1 Significant fines and non-monetary sanctions for non-compliance with laws and/or regulations in the social and economic area The novobanco Group monitors indicators pertaining to this topic and reports the results in its Sustainability Report. 16 FINANCIAL SUPPLEMENT INDICATOSR 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 The novobanco Group’s materiality matrix and the SDGs endorsed comprise the sustainability issues considered material in the development of its business, identified as a result of the Group’s dialogue with its stakeholders. The group is finalising its sustainability policy and consequent sustainability strategy based on this matrix, the SDGs, the commitments, the objectives undertaken and the national and international regulatory framework. The themes of Customer Satisfaction and Quality of Service, as well as Social and Environmental Products are considered to be material. The novobanco Group 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. The group monitors indicators pertaining to this topic and reports the results in its Sustainability Report and institutional website. 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 106-107. MR- pages 59-60. SR – pages 99-102. MR- pages 59-60. Management Approach Processes for monitoring clients’ implementation of and compliance with environmental and social requirements included in agreements or transactions. The novobanco Group 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 The novobanco Group provides adequate training to its employees on the marketing of products with environmental and social concerns. Interactions with clients/investees/business partneSR regarding environmental and social risks and opportunities SR – pages 109-126;128-130. PeARentage of the portfolio for business lines by specific region, size (e.g., micro/SME/ laMRe) and by sector SR – pages 110-112. MR – pages 25-30; 43-47. Monetary value of products and services designed to deliver a specific social benefit for each business line broken down by purpose SR – pages 112-118. Monetary value of products and services designed to deliver a specific environmental benefit for each business line broken down by purpose SR – pages 112-118. FS6 FS7 FS8 TOPIC: AUDIT 10 10 10 10 1, 8, 9 1, 8, 9, 10, 11 FS9 Coverage and frequency of audits to assess implementation of environmental and social policies and risk assessment procedures No audits strictly dedicated to the implementation of environmental and social policies are carried out. The group annually assesses the practices implemented and the quantitative data through an external independent verification of its AR and Sustainability Report. 10 157 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021GENERAL DISCLOSURES TOPIC: ACTIVE OWNESRHIP Page in the Report SDG GC Principles Omissions Scope FS10 FS11 FS12 PeARentage and number of companies held in the institution’s portfolio with which the reporting organisation has interacted on environmental or social issues AR- paginas 59-60 PeARentage of assets subject to positive and negative environmental or social screening AR- paginas 59-60 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 novobanco Group’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. 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 TOPIC: LABELLING OF PRODUCTS AND SERVICES FS15 Policies for the fair design and sale of financial products and services SR – page 95. Despite the downsizing carried out, the group still has a large network of branches across the country. The group has been investing in the digitisation of its services, which has permitted greater coverage and easier contact with its clients, wherever they may be. Under its new distribution model, the group has been increasing the number of access ramps and lifting platforms in its branch network. 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 novobanco’s branches and services. SR – pages 114-115. All the financial products and services are designed in compliance with the legal requirements, the regulators’ guidelines and the policies of the institution. novobanco Group 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 group’s procedures verify whether its procedures comply with the requirements issued by the Bank of Portugal and the Portuguese Insurance Institute. FS16 Initiatives to enhance financial literacy by type of beneficiary SR – pages 114-115; 130. Bank institutional website. 10 10 1, 10 1, 10 10 1, 8, 10 AR MR SR FS Annual Report Management Report Sustainability Report Financial Statements and Final Notes novobanco Group novobanco Group (novobanco, novobanco dos Açores, Banco Best and GNBGA) novobanco 158 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 20216.3 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 (Translation from the original document in the Portuguese language. In case of doubt, the Portuguese version prevails) Independent Limited Assurance Report of the Sustainability Report To the Board of Directors of Novo Banco, S.A. Introduction 1. We have been engaged by the Board of Directors of Novo Banco, S.A. (the Group) to proceed with the independent review of the “Sustainability Report 2021”, hereinafter the “Sustainability Report”, included in the “Annual Report 2021” relating to the sustainability performance from 1 January to 31 December 2021. 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 2021; ► Analytical review, on a sample basis, of the data calculated by Management, and verification 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; and ► 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 508-G 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 Novo Banco, S.A. Independent Limited Assurance Report of the Sustainability Report (Translation from the original document in Portuguese language. In case of doubt, the Portuguese version prevails) 1 of January 2021 to 31 of December 2021 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 and evidence obtained, nothing has come to our attention that causes us to believe that the information disclosed in the Sustainability Report, for the year ended 31 December 2021, is not free from relevant material misstatements. Additionally, nothing has come to our attention that causes us to believe that the Sustainability Report does not include the required data and information for a “In accordance – Core” option as defined by the GRI Standards and by the Article 508-G of the Portuguese Companies Act. Lisbon, 09 March 2022 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 2/2 159 1.0 HIGHLIGHTS 2.0 SUSTAINABILITY STRATEGY 3.0 SUSTAINABILITY GOVERNANCE 4.0 OUR PERFORMANCE 5.0 PERFORMANCE INDICATORS 6.0 ABOUT THIS REPORTSustainability Report 2021Financial Statements and Final Notes 160 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesConsolidated Financial Statements 161 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 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 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 before tax from discontinued operations Profit or loss for the year 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) * 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 consolidated financial statements. Notes 31.12.2021 31.12.2020 (in thousands of Euros) 10 10 11 12 12 13 13 13 13 13 13 14 15 15 16 18 19 27.29 34 20 20 20 26 32 37 21 21 21 21 740 459 (167 065) 573 394 11 096 325 511 (47 357) (5 123) 50 896 46 697 21 14 195 10 805 7 551 163 875 (181 604) 969 957 (374 359) (233 261) (141 098) (40 535) (34 004) (127 835) 9 840 (137 675) (198 903) 315 (26 314) 3 794 172 116 15 186 (12 737) 27 923 187 302 4 887 192 189 184 504 7 685 192 189 0.02 0.02 0.02 0.02 743 707 (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) 343 958 (398 769) (245 606) (153 163) (35 048) (33 072) (186 423) (22 116) (164 307) (755 070) (4 192) (245 778) 9 430 (1 304 964) (1 082) 8 639 (9 721) (1 306 046) (33 345) (1 339 391) (1 329 317) (10 074) (1 339 391) (0.14) (0.14) (0.13) (0.13) 162 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 Net profit / (loss) for the year 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 year Attributable to non-controlling interest Attributable to Shareholders of the Bank a) See Statement of Changes in the Consolidated Equity The accompanying explanatory notes are an integral part of these consolidated financial statements. (in thousands of Euros) Notes 31.12.2021 31.12.2020 192 189 (1 339 391) a) a) a) a) a) a) (82 878) (75 584) (252) (7 042) - (139 191) 95 (139 286) (29 880) 7 685 (127 689) (124 331) (2 048) (12 193) 10 883 6 580 (1 518) 8 098 (1 460 500) (10 074) (37 565) (1 450 426) 163 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesCONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2021 AND 2020 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 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 Liabilies 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 The accompanying explanatory notes are an integral part of these consolidated financial statements. Notes 31.12.2021 31.12.2020 (in thousands of Euros) 22 23 24 24 24 25 25 27 28 29 30 31 32 23 33 25 34 30 35 32 36 37 37 37 37 5 871 538 377 664 799 592 7 220 996 26 039 902 2 338 697 50 466 23 650 739 19 639 30 661 94 590 864 132 238 945 625 187 67 986 779 892 35 653 744 239 2 442 550 9 373 44 618 515 306 054 40 215 994 10 745 155 1 529 847 27 582 093 1 514 153 374 593 44 460 442 834 15 297 12 262 3 035 443 437 968 41 469 044 6 054 907 (1 045 489) (8 576 860) 6 501 374 184 504 31 035 3 149 471 44 618 515 2 695 459 655 273 960 962 7 907 587 25 898 046 2 229 947 113 795 23 554 304 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 44 395 586 554 791 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 41 248 951 5 900 000 (823 420) (7 202 828) 6 570 154 (1 329 317) 32 046 3 146 635 44 395 586 164 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesCONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 Capital increase by incorporation of special reserve for deferred taxes 34 154 907 5 900 000 (823 420) (7 202 828) 6 570 154 (1 329 317) 5 900 000 (823 420) (7 202 828) 6 570 154 (1 329 317) Balance as at 31 December 2019 Other Increase / Decrease in Equity Appropriation to retained earnings of net profit / (loss) of the previous year Reserve of Contingent Capital Agreement Other movements Total comprehensive income for the year 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 year Balance as at 31 December 2020 Balance as at 31 December 2020 Other Increase / (Decrease) in Equity Appropriation to retained earnings of net profit / (loss) of the previous year Reserve of Contingent Capital Agreement Other movements Total comprehensive income for the year 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 Reserves of impairment of securities at fair value through OCI Reserves of sales of securities at fair value through OCI Net profit/(loss) of the year Balance as at 31 December 2021 Notes Share Capital Other Comprehensive Income Retained earnings Other reserves Net profit/ (loss) of the year attributable to equity holders of the parent Non-controlling interests Other Comprehensive Income 5 900 000 (702 311) (6 115 245) 5 942 501 ( 1 058 812) (32 912) 627 653 28 772 596 315 2 566 1 058 812 1 058 812 - - - - - - (1 329 317) (10 074) - - - - - - - - - - - - - - - - - (121 109) 12 729 (1 518) (124 331) (2 048) 10 883 (1 852) (14 972) - (1 087 583) (1 087 584) - 1 - - - - - - - - - - - - - - - - - - 35 35 16 35 35 - - - - - - - - - - - - - - - - - (222 069) (125 801) 95 (75 584) (252) 12 (20 539) - - (154 907) (1 374 032) (1 374 246) - 214 - - - - - - - - 86 127 44 929 39 920 1 278 - - - - - - - - 6 054 907 (1 045 489) (8 576 860) 6 501 374 (in thousands of Euros) Total 4 002 757 604 378 - 596 315 8 063 (1 460 500) 12 729 (1 518) (124 331) (2 048) 10 883 (1 852) (14 972) (1 339 391) 3 146 635 3 146 635 - 32 716 - 39 920 (7 204) (29 880) (125 801) 95 (75 584) (252) 12 (20 539) 192 189 Other 69 536 5 496 - - 5 496 - - - - - - - - - 75 032 75 032 - (8 696) - - (8 696) - - - - - - - - 66 336 3 149 471 165 - - - - - - - (1 329 317) - 1 329 317 1 329 317 - - - - - - - - - (10 074) (42 986) (42 986) - - - - - 184 504 7 685 - - - - - - - - - - - - 184 504 184 504 7 685 (35 301) The accompanying explanatory notes are an integral part of these consolidated financial statements. 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesCONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 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 Net cash from operating activities before corporate income tax 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 Capital Agreement Emissão de obrigações e outros passivos titulados 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 year Net changes in cash and cash equivalents Cash and cash equivalents at the end of the year Cash and cash equivalents include: Cash Deposits with Central Banks (of which, Restricted balances) Deposits with banks Total The accompanying explanatory notes are an integral part of these consolidated financial statements. Notes 31.12.2021 31.12.2020 (in thousands of Euros) 678 735 (160 704) 325 537 (47 357) 27 293 (86 708) (40 535) (330 884) 365 777 972 363 290 095 93 984 479 439 (344 041) (129 026) 59 242 (274 257) 927 928 (331 734) 1 259 662 (1 552) (565 133) 2 218 460 (35 560) 2 182 900 (4) 365 11 096 (4 973) 100 028 (81 973) 424 (25 696) - (733) 429 013 575 000 (11 834) 992 179 3 174 346 2 432 237 3 174 346 5 606 583 151 699 5 264 629 (264 955) 455 210 5 606 583 727 929 (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) 830 403 (38 708) (22 645) (61 353) (2 919) 58 283 16 478 (11 966) 67 581 (48 285) 4 566 (26 866) 6 013 62 885 1 035 016 - (189 913) 845 103 846 635 1 585 602 846 635 2 432 237 149 205 2 292 797 (263 222) 253 457 2 432 237 166 22 22 22 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2021 (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 novobanco Group 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)) , 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 novobanco (novobanco or Bank). As a result of the resolution measure applied, Fundo de Resolução (“Resolution Fund”) became the sole owner of the share capital of novobanco, 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 novobanco. 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. With the conclusion of the sale process, novobanco 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 novobanco 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. novobanco Group (hereinafter also designated as Group or novobanco Group) has a retail network comprising 311 branches in Portugal and abroad (31 December 2020: 359 branches), including branches in Spain and Luxembourg, and 4 representative offices in Switzerland (31 December 2020: 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. 167 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe entities directly consolidated into novobanco are the following: The entities directly consolidated into novobanco are the following: Year of incorporation Year acquired Registered office Activity Share-holding % Consolidation method NOVO BANCO, SA Novo Banco dos Açores, SA (novobanco 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 Concessões, SGPS, SA (GNB CONCESSÕES) Espírito Santo Representações, Ltda. (ESREP) Aroleri, SLU 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 Novimove - Fundo de Investimento Imobiliario Fechado Five Stars - Fundo Especial de Investimento Imobiliário 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 Sociedade Agrícola Turística e Imobiliária da Várzea da Lagoa, SA Imalgarve - Sociedade de Investimentos Imobiliários, SA Herdade da Boina - Sociedade Imobiliária Ribagolfe - Empreendimentos de Golfe, SA Benagil - 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 Edenred Portugal, SA ESEGUR - Empresa de Segurança, SA (ESEGUR) Multipessoal Recursos Humanos - SGPS, S.A 2014 2002 2001 2009 1992 2000 2015 2002 1996 2021 2009 1997 1997 2011 1997 2012 2006 2006 2006 2008 2007 1992 2008 2009 2004 2006 2004 2006 2006 1998 1995 2012 2012 2012 1986 1999 1995 1970 2006 2008 1997 2003 1974 1984 1994 1993 - 2002 2001 2009 1992 2000 2015 2003 1996 2021 2009 1997 2012 2012 2012 2012 2012 2013 2013 2013 2012 2014 2015 2012 2012 2015 2019 2019 2012 2012 2012 2012 2012 2012 2014 2012 2012 2012 2017 2018 2012 2003 2010 2013 2004 1993 Portugal Portugal Portugal Portugal Portugal Portugal Commercial Banking Commercial Banking 57,53% Full consolidation Electronic banking 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 Brazil Spain 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 Holding 100.00% Full consolidation Representation services 99,99% Full consolidation Real estate development 100.00% Full consolidation Venture capital fund 100.00% Full consolidation Venture capital fund 56.78% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 95.28% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 92.49% Full consolidation Real Estate Fund 56.33% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 95.24% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate development 100.00% Full consolidation Real Estate development 100.00% Full consolidation Real Estate development 95.28% Full consolidation Real Estate development 100.00% Full consolidation Real Estate development 100.00% Full consolidation Real Estate development 100.00% Full consolidation Real Estate development 100.00% Full consolidation Real Estate development 100.00% Full consolidation Golf course operations 100.00% Full consolidation Real Estate development 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Real Estate Fund 100.00% Full consolidation Catering Renting Non banking financing Services provider 95.28% Full consolidation 50.00% 17.50% 50.00% b) a) b) Equity method Equity method Equity method Private security services 44.00% Equity method Management of shareholdings 22.52% Equity method a) The percentage presented above reflects the Group's economic interest. These entities were included in the consolidated balance sheet through 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 9 - 168 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Subgroups: Subgroups: Subgroups: Year of Year of incorporation incorporation Year Year acquired acquired Registered office Registered office Activity Activity Share-holding % Share-holding % Consolidation method Consolidation method GNB - Gestão de Ativos, SGPS, SA (GNB GA) GNB - Gestão de Ativos, SGPS, SA (GNB GA) GNB Fundos Mobiliários - Sociedade Gestora de Organismos de Investimento Coletivo, SA GNB Fundos Mobiliários - Sociedade Gestora de Organismos de Investimento Coletivo, SA GNB Real Estate - Sociedade Gestora de Organismos de Investimento Coletivo, SA GNB Real Estate - Sociedade Gestora de Organismos de Investimento Coletivo, SA GNB - Sociedade Gestora de Fundos de Pensões, SA GNB - Sociedade Gestora de Fundos de Pensões, SA Espírito Santo International Asset Management, Ltd. Espírito Santo International Asset Management, Ltd. GNB - Sociedade Gestora de Patrimónios, SA GNB - Sociedade Gestora de Patrimónios, SA GNB - International Management, SA GNB - International Management, SA ES Tech Ventures, S.G.P.S., SA (ESTV) ES Tech Ventures, S.G.P.S., SA (ESTV) Yunit Serviços, SA Yunit Serviços, SA Fundo de Capital de Risco NOVO BANCO PME Capital Growth Fundo de Capital de Risco NOVO BANCO PME Capital Growth Righthour, SA Righthour, SA Fundo FCR PME / NOVO BANCO Fundo FCR PME / NOVO BANCO Epedal - Indústria de Componentes Metálicos, S.A. Epedal - Indústria de Componentes Metálicos, S.A. Nexxpro - Fábrica de Capacetes, S.A. Nexxpro - Fábrica de Capacetes, S.A. Cristalmax – Indústria de Vidros, S.A. Cristalmax – Indústria de Vidros, S.A. Ach Brito & Ca, SA Ach Brito & Ca, SA M. N. Ramos Ferreira, Engenharia, SA M. N. Ramos Ferreira, Engenharia, SA GNB Concessões, SGPS, SA (GNB CONCESSÕES) GNB Concessões, SGPS, SA (GNB CONCESSÕES) Lineas – Concessões de Transportes, SGPS, SA Lineas – Concessões de Transportes, SGPS, SA 1992 1992 1987 1987 1992 1992 1989 1989 1998 1998 1987 1987 1995 1995 2000 2000 2000 2000 2009 2009 2013 2013 1997 1997 1981 1981 2001 2001 1994 1994 1918 1918 1983 1983 2002 2002 2008 2008 1992 1992 1987 1987 1992 1992 1989 1989 1998 1998 1987 1987 1995 1995 2000 2000 2000 2000 2009 2009 2013 2013 1997 1997 2015 2015 2015 2015 2017 2017 2015 2015 2013 2013 2003 2003 2010 2010 Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal British Virgin Islands British Virgin Islands Portugal Portugal Luxembourg Luxembourg Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Portugal Holding Holding Investment Funds management Investment Funds management Investment Funds management Investment Funds management Investment Funds management Investment Funds management Investment Funds management Investment Funds management Wealth management Wealth management Investment Funds management Investment Funds management Holding Holding Internet portal management Internet portal management Venture capital fund Venture capital fund Services Services Venture capital fund Venture capital fund Holding Holding Helmet manufacturing Helmet manufacturing Glass manufacturing Glass manufacturing Soap manufacturing Soap manufacturing Engeneering Engeneering Holding Holding Holding Holding a) The percentage presented above reflects the Group's economic interest. These entities were included in the consolidated balance sheet through 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 a) The percentage presented above reflects the Group's economic interest. These entities were included in the consolidated balance sheet through 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 b) b) 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 50,00% 50,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 33,33% 33,33% 100,00% 100,00% 100,00% 100,00% 56,78% 56,78% 12,22% 12,22% 38,99% 38,99% 18,96% 18,96% 8,77% 8,77% 8,11% 8,11% 100,00% 100,00% 40,00% 40,00% a) a) a) a) a) a) a) a) a) a) a) a) Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Equity method Equity method Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Equity method Equity method Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Equity method Equity method Equity method Equity method Equity method Equity method Equity method Equity method Equity method Equity method Full consolidation Full consolidation Equity method Equity method Additionally, and considering the requirements of IFRS 10, the Group’s consolidation perimeter includes the following structured entities: Additionally, and considering the requirements of IFRS 10, the Group’s consolidation perimeter includes the following structured Additionally, and considering the requirements of IFRS 10, the Group’s consolidation perimeter includes the following structured entities: entities: Year of incorporation Year of incorporation Year acquired Year acquired Registered Registered office office Share-holding % Share-holding % Consolidation method Consolidation method Lusitano Mortgages No.6 plc (*) Lusitano Mortgages No.6 plc (*) Lusitano Mortgages No.7 plc (*) Lusitano Mortgages No.7 plc (*) 2007 2007 2008 2008 (*) - 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 (*) - 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 41) operations, determined based on the percentage of the equity pieces held of the respective vehicles (see Note 41) Full consolidation Full consolidation Full consolidation Full consolidation Ireland Ireland Ireland Ireland 100% 100% 100% 100% 2007 2007 2008 2008 During 2021, the main changes in novobanco Group’s structure were as follows: During 2021, the main changes in novobanco Group’s structure were as follows: During 2021, the main changes in novobanco Group’s structure were as follows: - Subsidiaries and branches - Subsidiaries and branches Subsidiaries and branches • • In February 2021, Imoinvestimento Fund granted additional supplementary payments to the real estate companies Quinta D. Manuel I, Várzea da Lagoa and Promotur in the amounts of Euro 50 thousand, Euro 110 thousand and Euro 260 thousand, respectively; In March 2021, GNB - Serviços de Suporte Operacional, ACE was dissolved, with no impact on the income statement; • In July 2021, GNB – Recuperação de Crédito, ACE was dissolved, with no impact on the income statement; In February 2021, Imoinvestimento Fund granted additional supplementary payments to the real estate companies Quinta In February 2021, Imoinvestimento Fund granted additional supplementary payments to the real estate companies Quinta D. Manuel I, Várzea da Lagoa and Promotur in the amounts of Euro 50 thousand, Euro 110 thousand and Euro 260 D. Manuel I, Várzea da Lagoa and Promotur in the amounts of Euro 50 thousand, Euro 110 thousand and Euro 260 thousand, respectively; • thousand, respectively; In March 2021, GNB - Serviços de Suporte Operacional, ACE was dissolved, with no impact on the income statement; In March 2021, GNB - Serviços de Suporte Operacional, ACE was dissolved, with no impact on the income statement; In July 2021, GNB – Recuperação de Crédito, ACE was dissolved, with no impact on the income statement; In July 2021, GNB – Recuperação de Crédito, ACE was dissolved, with no impact on the income statement; In July 2021, the real estate company Imoascay was liquidated, with no impact on the income statement; In July 2021, the real estate company Imoascay was liquidated, with no impact on the income statement; In September 2021, the real estate fund ASAS Invest was liquidated, with no impact on the income statement; In September 2021, the real estate fund ASAS Invest was liquidated, with no impact on the income statement; In September 2021, FCR PME NB Fund partially redeemed participation units in the total amount of Euro 1,550 thousand, In September 2021, FCR PME NB Fund partially redeemed participation units in the total amount of Euro 1,550 thousand, • with novobanco receiving Euro 941 thousand; with novobanco receiving Euro 941 thousand; In October 2021, the redemption of Fungepi's participation units in the amount of Euro 45,000 thousand was carried out; In October 2021, the redemption of Fungepi's participation units in the amount of Euro 45,000 thousand was carried out; In October 2021, the redemption of NB Arrendamento participation units in the amount of Euro 500 thousand was carried In October 2021, the redemption of NB Arrendamento participation units in the amount of Euro 500 thousand was carried out; out; In November 2021, a capital increase of Euro 9,216 thousand in NB Logística was carried out, fully subscribed by In November 2021, a capital increase of Euro 9,216 thousand in NB Logística was carried out, fully subscribed by novobanco and Fungepi, through the delivery of real estate properties; novobanco and Fungepi, through the delivery of real estate properties; n November 2021, a redemption of participation units of Novimove in the amount of Euro 1,250 thousand was carried out; n November 2021, a redemption of participation units of Novimove in the amount of Euro 1,250 thousand was carried out; In November 2021, the real estate company Promotur was liquidated, with no impact on the income statement; In November 2021, the real estate company Promotur was liquidated, with no impact on the income statement; In November 2021, a 100% equity stake in Aroleri, SLU was acquired for Euro 4 thousand; In November 2021, a 100% equity stake in Aroleri, SLU was acquired for Euro 4 thousand; In December 2021, the real estate company Quinta da Areia was liquidated, with no impact on the income statement; • In July 2021, the real estate company Imoascay was liquidated, with no impact on the income statement; In September 2021, the real estate fund ASAS Invest was liquidated, with no impact on the income statement; In September 2021, FCR PME NB Fund partially redeemed participation units in the total amount of Euro 1,550 thousand, with novobanco receiving Euro 941 thousand; 169                             In December 2021, the real estate company Quinta da Areia was liquidated, with no impact on the income statement; In December 2021, there were two capital increases of Fungepi II in the amount of Euro 24,090 thousand and Euro 11,696 In December 2021, there were two capital increases of Fungepi II in the amount of Euro 24,090 thousand and Euro 11,696 thousand, fully subscribed by novobanco and through the delivery of real estate properties, and a capital reduction of Euro thousand, fully subscribed by novobanco and through the delivery of real estate properties, and a capital reduction of Euro 70,932 thousand; 70,932 thousand; NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 10 - - 10 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In October 2021, the redemption of Fungepi’s participation units in the amount of Euro 45,000 thousand was carried out; During the financial year of 2020, the main changes in novobanco Group’s structure were as follows: In October 2021, the redemption of NB Arrendamento participation units in the amount of Euro 500 thousand was carried out; Subsidiaries and branches • • • • • • • • • In November 2021, a capital increase of Euro 9,216 thousand in NB Logística was carried out, fully subscribed by novobanco and Fungepi, through the delivery of real estate properties; In November 2021, a redemption of participation units of Novimove in the amount of Euro 1,250 thousand was carried out; In November 2021, the real estate company Promotur was liquidated, with no impact on the income statement; In November 2021, a 100% equity stake in Aroleri, SLU was acquired for Euro 4 thousand; In December 2021, the real estate company Quinta da Areia was liquidated, with no impact on the income statement; In December 2021, there were two capital increases of Fungepi II in the amount of Euro 24,090 thousand and Euro 11,696 thousand, fully subscribed by novobanco and through the delivery of real estate properties, and a capital reduction of Euro 70,932 thousand; In December 2021, the capital of Five Stars was increased in the amount of Euro 26,006 thousand, fully subscribed and paid up by novobanco. novobanco holds in its balance sheet mandatorily convertible securities (VMOC) from two entities obtained through foreclosed credit, measured at the fair value which was estimated to be zero. The extension of the conversion period of these VMOC into shares ended during the month of December 2021. The Group contests this conversion, having addressed to these securities issuers, letters of formal notice for payment of the amounts. The amounts of assets to be recognized in the consolidated financial statements resulting from a possible consolidation process could amount to Euro 2.4 million, however, on this date, novobanco does not have information that allows the accurate determination of the value of goodwill to be recognized in the financial statements. For this reason, the Group is within the measurement period and continues to provisionally record the fair value of the VMOC in the balance sheet. The measurement period will end when the Group has clarified all the facts and circumstances related to the eventual conversion of the VMOC, on the possible need to recognize assets and liabilities and to be able to measure goodwill, and this measurement period must not exceed the period of one year. Associated companies In September 2021, FCR PME NB Fund sold its stake in LOGI C - Logística Integrada, SA, recording a capital gain of Euro 84 thousand. • • • • • • • In April 2020, novobanco sold the entire participation and supplementary contributions of Herdade do Pinheirinho and Herdade do Pinheirinho II, recording a gain of Euro 209 thousand. 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 December 2020, Solid and R Invest Funds, as well as Sociedade Portucale, were liquidated and the holding held in Sociedade Herdade da Vargem Fresca VI is now held directly by Fungere Fund; 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 properties; 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 thousand, respectively) with in-kind entry of real estate properties. 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 novobanco 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. 170 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesDuring 2021 and 2020, the movements relating to acquisitions, sales and other investments and repayments in subsidiary and associated companies are detailed as follows: During 2021 and 2020, the movements relating to acquisitions, sales and other investments and repayments in subsidiary and associated companies are detailed as follows: Subsidiary companies Quinta D. Manuel I Várzea da Lagoa Promotur FCR PME NB Fungepi II Fungepi NB Logística NB Arrendamento Novimove Aroleri Five Stars Associated companies LOGI C - Logística Integrada Acquisition Value Acquisitions Other Investments (a) 31.12.2021 Sales (in thousands of Euros) Total Sale price Other reimbursements (a) Total Gains/ Losses in sales/settlements - - - - - - - - - 4 - 4 - - 50 110 260 - 41 493 - 9 216 - - 600 26 006 77 735 50 110 260 - 41 493 - 9 216 - - 604 26 006 77 739 - - - - 4 77 735 77 739 - - - - - - - - - - - - - - - ( 4 427) ( 70 932) ( 45 000) - ( 500) ( 1 250) - - ( 122 109) - - - ( 4 427) ( 70 932) ( 45 000) - ( 500) ( 1 250) - - ( 122 109) 365 365 365 - - 365 365 ( 122 109) ( 121 744) - - - - - - - - - - - - 84 84 84 (a) Capital increases/ decreases, supplementary capital, supplies, transactions involving the exchange of financial instruments and incorporation of companies Subsidiary companies Herdade do Pinheirinho Herdade do Pinheirinho II NB Arrendamento NB Logística Fungepi Fungepi II Benagil Ribagolfe Associated companies Nexxpro Enkrott Acquisition Value Acquisitions Other Investments (a) 31.12.2020 Total Sale price Sales Total Other reimburseme nts (a) (in thousands of Euros) 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 The subsidiaries classified under IFRS 5 as non-current assets held for sale and discontinued operations, are detailed in Note 32. NOTE 2 – BASIS OF PRESENTATION The consolidated financial statements of novobanco are presented as at 31 December 2021, expressed in thousands of euros, rounded to the nearest thousand. The accounting policies used by the Group in the preparation are consistent with those used in the preparation of the financial statements as of December 31, 2020. The changes to the most relevant accounting policies are described in Note 5. The consolidated financial statements of novobanco 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. The consolidated financial statements and the Management Report of 31 December 2021 were approved at the Executive Board of Directors’ meeting held on March 2, 2022 and will be submitted to the General Assembly of Shareholders, which has the power to NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 12 - 171 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The subsidiaries classified under IFRS 5 as non-current assets held for sale and discontinued operations, are detailed in Note 32. IFRS comprise accounting standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and its predecessor body the Standing Interpretations Committee (SIC). NOTE 2 – BASIS OF PRESENTATION The consolidated financial statements of novobanco are presented as at 31 December 2021, expressed in thousands of euros, rounded to the nearest thousand. The accounting policies used by the Group in the preparation are consistent with those used in the preparation of the financial statements as of December 31, 2020. The changes to the most relevant accounting policies are described in Note 5. The consolidated financial statements of novobanco 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. The consolidated financial statements and the Management Report of 31 December 2021 were approved at the Executive Board of Directors’ meeting held on March 2, 2022 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. NOTE 3 –STATEMENT OF COMPLIANCE The consolidated financial statements of novobanco have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted in the European Union in force on January 1, 2021, under Regulation (EC) nº 1606/2002 of the European Parliament and of the Council, of July 19, 2002, and Notice nº 5/2015 of Bank of Portugal. Standard / Interpretation Description NOTE 4 – PRESENTATION OF FINANCIAL STATEMENTS The Group presents its statement of financial position in order of liquidity based on the Group’s intention and perceived ability to recover/settle the majority of assets/liabilities of the corresponding financial statement line item. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (noncurrent) is presented throughout the different balance sheet notes. NOTE 5 – CHANGES IN ACCOUNTING POLICIES In the preparation of its financial statements with reference to December 31, 2021, the Group did not early adopt any new standard, interpretation or amendment issued, but not yet in force. The changes to the standards adopted by the Group are as follows: Norms, interpretations, amendments, and revisions that came into force in the fiscal year The following norms, interpretations, amendments, and revisions adopted (“endorsed”) by the European Union have mandatory application for the first time in the fiscal year beginning January 1, 2021: Amendments to IFRS 16 - Leases - COVID-19 Related Concessions for Rentals Beyond June 30, 2021 On May 28, 2020, the amendment to IFRS 16 entitled ‘Covid-19 Related Concessions’ was issued and introduced the following practical expedient: a lessee may elect not to assess whether a Covid-19 related concession of rent is a lease modification. Lessees that choose to apply this expedient, account for the change to rental payments resulting from a Covid-19 related concession in the same way as they account for a change that is not a lease modification under IFRS 16. Initially, the practical expedient applied to payments originally due by June 30, 2021, however, due to the extended impact of the pandemic, on March 31, 2021, it was extended to payments originally due by June 30, 2022. The change applies to annual reporting periods beginning on or after April 1, 2021. In short, the practical expedient can be applied provided the following criteria are met: • • any reduction in lease payments only affects payments due on or before June 30, 2022; and • the change in lease payments results in a revised consideration for the lease that is substantially equal to, or less than, the consideration immediately prior to the change; there are no significant changes to other terms and conditions of the lease. Amendments to IFRS 4 - Insurance Contracts Deferral of IFRS 9 This amendment refers to the temporary accounting consequences that result from the difference between the effective date of IFRS 9 - Financial Instruments and the future IFRS 17 - Insurance Contracts. Specifically, the amendment made to IFRS 4 postpones until January 1, 2023 the expiry date of the temporary exemption from the application of IFRS 9 in order to align the effective date of the latter with that of the new IFRS 17. This temporary exemption is optional to apply and is only available to entities whose activities are predominantly insurance related. Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Reform of benchmark interest rates - phase 2 These amendments are part of the second phase of the IASB’s “IBOR reform” project and allow for exemptions related to reforming the benchmark for benchmark interest rates by an alternative interest rate (Risk Free Rate (RFR)). The amendments include the following practical expedients: • A practical expedient that requires contractual changes, or changes in cash flows that are directly required by the reform, to be treated the same as a floating interest rate change, equivalent to a movement in the market interest rate; • Allow changes required by the reform to be made to hedge designations and hedge documentation without discontinuing the hedging relationship; • Provide temporary operational relief to entities that must comply with the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component. 172 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThese standards and changes had no material impact on the Group’s financial statements. NOTE 6 – BASIS OF CONSOLIDATION These consolidated financial statements comprise the assets, liabilities, income, expenses, other comprehensive income, and cash flows of novobanco and of its subsidiaries (Group or novobanco 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. Subsidiaries Subsidiaries are entities (including investment funds and securitization vehicles) over which the Group exercises control. 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 or the limited duration that requires the delivery of values to the remaining participants. 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. Gains or losses arising from the dilution or sale of a portion of the financial interest in a subsidiary, with loss of control, are recognized by the Group in the income statement. When 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 hold- ers of the participation 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. 173 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesGoodwill 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 acquisition 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, 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. For business combinations that are not completed at the end of the reporting period, the Group estimates the provisional amounts of assets and liabilities to be included in the consolidated financial statements, including the related goodwill. During the measurement period, which does not exceed one year from the acquisition date, the provisional amounts recognized will be retrospectively adjusted to reflect new information obtained, including the recognition of additional assets or liabilities. Goodwill is tested for impairment annually and whenever circumstances indicate that its book value may be impaired. Any impairment losses determined are recognized in the income statement. The recoverable amount reduction is determined by assessing the recoverable amount of each cash- generating unit (or group of cash-generating units) to which the goodwill refers. When the recoverable amount of the cash-generating unit is less than it’s carrying amount, an impairment loss is recognized. Impairment losses related to goodwill cannot be reversed in future periods. 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. Non-controlling interests for open investment funds are presented in the caption Other liabilities. 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. 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 transactions; • 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 applicable 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. NOTE 7 – MAIN ACCOUNTING POLICIES 7.1. Foreign currency operations 7.1.1 Functional and presentational currency The financial statements of each of the Group’s subsidiaries and associated companies are prepared using their functional currency, which is defined as the currency of the primary economic environment 174 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesin which that entity operates. The Group’s consolidated financial statements are prepared in Euro, which is novobanco functional currency. 7.1.2 Transactions and balances 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. 7.2. Recognition of interest income/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 include 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 instruments 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 held for trading (see note 7.5). 7.3. 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; • 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 7.2. 7.4. Recognition of dividend income Dividend income is recognized when the right to receive the dividend payment is established. 7.5. Net trading income Net income from financial assets and liabilities held for trading includes changes in fair value, interest or expenses and dividends, as well as income from derivatives held for economic hedging that do not qualify as hedging derivatives. 7.6. Net gain/ (loss) on financial assets and liabilities designated at fair value through profit or loss Net gain or loss on financial assets and liabilities designated at fair value through profit or loss includes the net gain or loss from financial assets and financial liabilities designated as at fair value through profit or loss and also from non-trading assets measured at fair value through profit or loss, as required by or elected under IFRS 9. The line item includes fair value changes, interest, dividends and foreign exchange differences. 175 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes7.7. Net gain/ (loss) on derecognition of financial assets measured at amortized cost 7.8.4. Measurement categories for financial assets and liabilities The Group classifies all of its financial assets based on the business model for managing the assets and the asset’s contractual terms, measured at either: Net loss on derecognition of financial assets measured at amortized cost includes loss (or income) recognized on sale or derecognition of financial assets measured at amortized cost calculated as the difference between the net book value (including impairment until the recoverable amount) and the proceeds received. 7.8. Financial Instruments – Initial recognition 7.8.1. Date of Recognition Financial assets and liabilities, with the exception of loans and advances to customers and balances due to customers, are initially recognised on the trade date, i.e., the date on which the Group becomes a party to the contractual provisions of the instrument. This includes regular way trades, i.e., purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace. Loans and advances to customers are recognized when funds are transferred to the customers’ accounts. The Group recognizes balances due to customers when funds are transferred to the Group. 7.8.2. Initial measurement of financial instruments The classification of financial instruments at initial recognition depends on their contractual terms and the business model for managing the instruments, as described in note 7.10 Financial instruments are initially measured at their fair value (as defined in note 7.9), except in the case of financial assets and financial liabilities recorded at fair value through profit or loss, transaction costs are added to, or subtracted from, this amount. Trade receivables are measured at the transaction price. When the fair value of financial instruments at initial recognition differs from the transaction price, the Group accounts for the Day 1 profit or loss, as described below. 7.8.3. Day one profit When the transaction price of the instrument differs from the fair value at origination and the fair value is based on a valuation technique using only inputs observable in market transactions, the Group recognizes the difference between the transaction price and fair value in net trading income. In those cases where fair value is based on models for which some of the inputs are not observable, the difference between the transaction price and the fair value is deferred and is only recognized in profit or loss when the inputs become observable, or when the instrument is derecognized The Group recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is generated, 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 market). • Amortized cost, as explained in note 7.10.1; • Fair Value Through Other Comprehensive Income, as explained in notes 7.10.1, 7.10.2 and 7.10.3; • Fair Value Through Profit or Loss, as set out in note 7.10.4. • Mandatorily measured at fair value through profit or loss, as set out in note 7.10.4. The Group classifies and measures its derivative and trading portfolio at fair value through profit or loss, as explained in note 7.10.5. The Group may designate financial instruments at fair value through profit or loss, if so doing eliminates or significantly reduces measurement or recognition inconsistencies, as explained in note 7.10.6. Financial liabilities, other than loan commitments and financial guarantees, are measured at amortized cost or at fair value through profit or loss when they are held for trading and derivative. 7.9. Fair value of financial assets and liabilities 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. 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. 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 economic benefit and that such prices are representative of the active market, using, 176 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Noteswhenever possible, prices supplied by more than one entity (for a specific asset and/or liability). For the process of re-evaluating financial instruments, the Group 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 Group 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; i. Debt securities valued using non-observable market inputs; i. Unquoted shares; i. Closed real estate funds; i. Hedge funds; i. Private equities; i. Restructuring funds; and i. Over the counter (OTC) derivatives with prices provided by third parties iv. Closed investment funds whose subjacent assets are solely financial instruments listed on a stock 710. Financial Assets and Liabilities 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 Group 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 Group 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; i. Derivatives (OTC) over-the-counter valued using observable market inputs; and i. 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: 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: • Amortized 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 Group 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 are acquired for the purpose of trading in the short term, they are classified as held for trading. 7.10.1 Financial assets at amortized 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 177 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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; The expected credit loss calculation for debt instruments at fair value through other comprehensive income is explained in Note 7.16. Where the Group holds more than one investment in the same security, they are deemed to be disposed of on a first–in first–out basis. 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. 7.10.3. Equity instruments at fair value through other comprehensive income Upon initial recognition, the Group occasionally elects to classify irrevocably some of its equity investments as equity instruments at fair value through other comprehensive income when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. Such classification is determined on an instrument-by-instrument basis. Gains and losses on these equity instruments are never recycled to profit. Dividends are recognized in profit or loss as other operating income when the right of the payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the instrument, in which case, such gains are recorded in other comprehensive income. Equity instruments measured at fair value through other comprehensive income are not subject to an impairment assessment. Financial assets that are subsequently measured at amortised cost or at fair value through other comprehensive income are subject to impairment. 7.10.4. Financial assets measured at fair value through 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, and dividends are recognized in profit or loss. 7.10.2 Debt instruments at fair value through other comprehensive income The Group classifies debt instruments at fair value through other comprehensive income when both of the following conditions are met: • The financial asset is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets; • The contractual terms of the financial asset give rise to, on specific dates, cash flows that are solely payments of principal and interests on the principal amount outstanding. Debt instruments classified as at fair value through other comprehensive income are subsequently measured at fair value with gains and losses arising due to changes in fair value being recognized in Other Comprehensive Income, at which point the accumulated value of potential gains and losses recorded in reserves is transferred to income statement under the caption of gains or losses with financial assets and liabilities accounted for at fair value through profit or loss. Interest income and foreign exchange gains and losses are recognised in profit or loss in the same manner as for financial assets measured at amortized cost as explained in Note 7.2. 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, except for gains and losses arising from changes in the Group’s own credit risk, the Debt Valuation Adjustment (DVA), which are recognized in other comprehensive income. novobanco Group does not records any gain arising from own credit risk. 7.10.5. Assets and liabilities held for trading The Group classifies financial assets or financial liabilities as held for trading when they have been purchased or issued primarily for short-term profit-making through trading activities or form part of a portfolio of financial instruments that are managed together, for which there is evidence of a recent pattern of short-term profit taking. Held-for-trading assets and liabilities are recorded and measured in the statement of financial position at fair value. Changes in fair value are recognized in net trading income. Interest and dividend income or expense is recorded in net trading income according to the terms of the contract, or when the right to payment has been established. 178 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesIncluded in this classification are debt securities, equities, short positions and customer loans that have been acquired principally for the purpose of selling or repurchasing in the near term. 7.10.6. 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. Derivatives 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 31 and 35) 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 appropriate. Hedge accounting 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 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. 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 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 cumulative gain or loss reported in equity is recognized immediately in the income statement and the hedging instrument is reclassified to the trading portfolio. relationship; v. The effectiveness of the hedge can be reliably measured, both at the inception of the hedge and on an ongoing basis. 179 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesEmbedded 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 7.9. 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. 7.10.7. 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 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. Gains 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 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. 7.10.8. 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 subsequently 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. Consequently, 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. 180 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesPerformance 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. 7.11. Reclassifications of financial assets and financial liabilities 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. 7.13. 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. 7.12. Modification of financial assets and financial liabilities When the contractual cash flows of a financial asset are renegotiated or otherwise modified as a result of commercial restructuring activity rather than due to credit risk and impairment considerations, the Group performs an assessment to determine whether the modifications result in the derecognition of that financial asset. For financial assets, this assessment is based on qualitative factors. When assessing whether or not to derecognise a loan to a customer, amongst others, the Group considers the following factors: • Change in loan currency; • Introduction of an equity feature; • Change in counterparty; • Whether the modification is such that the instrument would no longer meet the SPPI criterion. If the modification does not result in cash flows that are substantially different, as set out below, then it does not result in derecognition. Based on the change in cash flows discounted at the original effective interest rate, the Group records a modification gain or loss, to the extent that an impairment loss has not already been recorded. The Group’s accounting policy in respect of forborne loans is set out in note 7.13. When the modification of the terms of an existing financial liability is not judged to be substantial and, consequently, does not result in derecognition, the amortised cost of the financial liability is recalculated by computing the present value of estimated future contractual cash flows that are discounted at the financial liability’s original EIR. Any resulting difference is recognized immediately as profit or loss. For financial liabilities, the Group considers a modification to be substantial based on qualitative factors and if it results in a difference between the adjusted discounted present value and the original carrying amount of the financial liability of. 7.14. Forborne modified loans The Group sometimes makes concessions or modifications to the original terms of loans as a response to the borrower’s financial difficulties, rather than taking possession or to otherwise enforce collection of collateral. The Group considers a loan forborne when such concessions or modifications are provided as a result of the borrower’s present or expected financial difficulties and the Group would not have agreed to them if the borrower had been financially healthy. Indicators of financial difficulties include defaults on covenants, or significant concerns raised by the Global Risk Department. Forbearance may involve extending the payment arrangements and/or the agreement of new loan conditions. If modifications are substantial, the loan is derecognied, as explained in Note 7.12. Once the terms have been renegotiated without this resulting in the derecognition of the loan, any impairment is measured using the original effective interest rate as calculated before the modification of terms. The Group also reassesses whether there has been a significant increase in credit risk, as set out in Note 44 and whether the assets should be classified as Stage 3. Derecognition decisions and classification between Stage 2 and Stage 3 are determined on a case- by-case basis. If these procedures identify a loss in relation to a loan, it is disclosed and managed as an impaired Stage 3 forborne asset. Once an asset has been classified as forborne, it will remain forborne for a minimum 24-month probation period. In order for the loan to be reclassified out of the forborne category, the customer has to meet all of the following criteria: • TAll of its facilities have to be considered performing; • The probation period of two years has passed from the date the forborne contract was considered performing; • Regular payments of more than an insignificant amount of principal or interest have been made during at least half of the probation period; 181 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes• The customer does not have any contracts that are more than 30 days past due. 7.15. Offsetting of 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 novobanco Group, as well as in the event of default, bankruptcy or insolvency of the Group or the counterparty. 7.16. Impairment of Financial Assets Impairment principles The Group 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. Equity instruments are not subject to impairment under IFRS 9. 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. Impairment is based on the credit losses expected to arise over the life of the asset (LTECL), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ expected credit losses. The 12mECL is the portion of LTECL that represent the ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Both LTECL and 12mECL are calculated on either an individual basis or a collective basis, depending on the nature of the underlying portfolio of financial instruments. The Group has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. Based on the above process, the Group groups its loans into Stage 1, Stage 2, Stage 3 and POCI, as described below: • Stage 1: When loans are first recognised, the Bank recognises an allowance based on 12mECL. Stage 1 loans also include facilities where the credit risk has improved, and the loan has been reclassified from Stage 2. • Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the LTECL. Stage 2 loans also include facilities, where the credit risk has improved, and the loan has been reclassified from Stage 3. • Stage 3: Loans considered credit-impaired (as default definition described below). The Group records an allowance for the LTECL. • POCI: Purchased or originated credit impaired (POCI) assets are financial assets that are credit impaired on initial recognition. POCI assets are recorded at fair value at original recognition and interest income is subsequently recognised based on a credit adjusted EIR. The ECL allowance is only recognised or released to the extent that there is a subsequent change in the expected credit losses. The calculation of ECL The Group calculates ECL based on four probability-weighted scenarios to measure the expected cash shortfalls, discounted at an approximation to the EIR. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The mechanics of the ECL calculations are outlined below and the key elements are, as follows: • PD Probability of Default- is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio. • EAD Exposure at Default - is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. • LGD The Loss Given Default - is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral or credit enhancements that are integral to the loan and not required to be recognised separately. 182 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial 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 pessimistic 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). 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 mechanics of the ECL method are summarised below: • Stage 1: The 12mECL is calculated as the portion of LTECL that represent the ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. The Bank calculates the 12mECL allowance based on the expectation of a default occurring in the 12 months following the reporting date. These expected 12-month default probabilities are applied to a forecast EAD and multiplied by the expected LGD and discounted by an approximation to the original EIR. This calculation is made for each of the four scenarios, as explained above. • Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the LTECL. The mechanics are similar to those explained above, including the use of multiple scenarios, but PDs and LGDs are estimated over the lifetime of the instrument. The expected cash shortfalls are discounted by an approximation to the original EIR. • Stage 3: For loans considered credit-impaired, the Bank recognises the lifetime expected credit losses for these loans. The method is similar to that for Stage 2 assets, with the PD set at 100%. 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. • POCI assets are financial assets that are credit impaired on initial recognition. The Bank only recognises the cumulative changes in lifetime ECL since initial recognition, based on a probability- weighting of the four scenarios, discounted by the credit-adjusted EIR. 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. • When estimating LTECL for undrawn loan commitments, the Bank estimates the expected portion of the loan commitment that will be drawn down over its expected life. The ECL is then based on the present value of the expected shortfalls in cash flows if the loan is drawn down, based on a probability-weighting of the four scenarios. The expected cash shortfalls are discounted at an approximation to the expected EIR on the loan. • For credit cards and revolving facilities that include both a loan and an undrawn commitment, ECL is calculated and presented together with the loan. For loan commitments and letters of credit, the ECL is recognised within Provisions. The ECL for debt instruments measured at fair value through other comprehensive income do not reduce the carrying amount of these financial assets in the statement of financial position, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in OCI as an accumulated impairment amount, with a corresponding charge to profit or loss. The accumulated loss recognised in OCI is recycled to the profit and loss upon derecognition of the assets. For POCI financial assets, the Group only recognises the cumulative changes in LTECL since initial recognition in the loss allowance. 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 ongoing assessment of whether a significant increase in credit risk has occurred for revolving facilities is similar to other lending products. This is based on shifts in the customer’s internal credit 183 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesgrade, but greater emphasis is also given to qualitative factors such as changes in usage. The interest rate used to discount the ECL for credit cards is based on the average effective interest rate that is expected to be charged over the expected period of exposure to the facilities. This estimation takes into account that many facilities are repaid in full each month and are consequently not charged interest. The calculation of ECL, including the estimation of the expected period of exposure and discount rate is made, on an individual basis for corporate and on a collective basis for retail products. The collective assessments are made separately for portfolios of facilities with similar credit risk characteristics. 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. 7.17. Collateral and financial guarantees valuation To mitigate its credit risks on financial assets, the Group seeks to use collateral, where possible. The collateral comes in various forms, such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. Collateral, unless repossessed, is not recorded on the Bank’s statement of financial position. Collateral is generally assessed, at a minimum, at inception and re-assessed on a quarterly basis. However, some collateral, for example, cash or securities relating to margining requirements, is valued daily. To the extent possible, the Bank uses active market data for valuing financial assets held as collateral. Other financial assets which do not have readily determinable market values are valued using models. Non-financial collateral, such as real estate, is valued based on data provided by third parties such as mortgage brokers or based on housing price indices. 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 novobanco 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 properties 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 7.18. Foreclosed properties and non-current assets held for sale 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 This method aims to reflect the current amount that would be required to substitute the asset in its present condition, 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 analysed 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. 184 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesAdditionally, 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. For assets of greater relevance, the challenge of the appraisals that serve as a basis for the valuation of the real estate assets is carried out by a specialized area of the Group that is independent of this valuation process, in accordance with an annual work plan previously approved by the Executive Board of Directors. 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. Where the carrying value of non-current assets corresponds to fair value less costs to sell, the fair value level of the IFRS 13 hierarchy corresponds mostly to Level 3. 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: no caso de subsidiárias cujos ativos são formados predominantemente por bens imobiliários, o seu justo valor é determinado por referência ao valor desses ativos com base em avaliações efetuadas por peritos independentes; • 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. 7.19. 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 185 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesproperties 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 or Other operating expenses. Investment properties recorded relate solely to non-banking activities (Investment Funds and Real Estate Companies). 7.20. 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 (totally or partially) as overdue credit. Exemptions from this requirement are (i) debt restructuring/ pardon carried out within the scope of extra-judicial, PER and Insolvency agreements, in which part of the credit may remain performing and the remainder of the debt will be written off by judicial/ extra-judicial decision and (ii) situations in which that despite the contract not having expired in its entirety, the Group understands that it is facing a scenario of total or partial loss; ii. All the recovery efforts, considered appropriate, have been developed (and the relevant evidence gathered); iii. The credit recovery expectations are very low, being necessary that the amount to be written off (whether total or partial write-off of the debt) to be fully covered by impairment and under management by the central credit recovery application. It is necessary to ensure that the amount to be written off from the asset is 100% impaired (constituted at least in the month prior to 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. 7.21. 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. 7.22. 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 7.10. 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. 7.23. Property, plant and equipment The Group’s property, plant and equipment 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 property, plant and equipment 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 property, plant and equipment is calculated using the straight-line method, at the following depreciation rates that reflect their estimated useful lives: Self-Service buildings Leasehold improvements IT equipment Furniture and fixtures Interior installations Security equipment Machines and tools Transport equipment 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 5 186 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe useful lives and residual values of property, plant and equipment 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 or Other operating expenses. 7.24. Leases Lease Definition The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. As lessee As a lessee, the Group leases various assets, including real estate, vehicles and IT equipment. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. 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. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and less any lease incentives received. The Group presents the lease liabilities under “Other liabilities” in the statement of financial position. The lease liability corresponds to the present value of the future cash flows to be paid during the lease contract. The lease rents include fixed amounts, variable amounts that depend on an interest rate, amounts to be payable relating to guarantees on the residual value of the asset. Any options are also included if they are reasonably expected to be exercised. Variable amounts that do not depend on interest rate are recognized as cost in the period to which they relate. During the lease period, the lease liability increases by the interest accrual and decreases by the lease rents payment. The value of the lease liability changes if the terms of the lease (such as the term or the value of the index) change or if the valuation of the exercise of the option to acquire the asset changes. As Lessor 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. Receipts relating to these contracts are recognized on a straight-line basis over the lease term and recorded in “Other operating income”. 7.25. 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. 187 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes7.26. Impairment of non-financial assets 7.27. Employee Benefits The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asse or cash generating unit fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or cash generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Group bases its impairment calculation on most recent budgets and forecast calculations, which are prepared separately for each of the Group’s cash generating units to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year (perpetuity). Impairment losses of continuing operations are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset, except for properties previously revalued with the revaluation taken to OCI. For such properties, the impairment is recognised in other comprehensive income up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or cash generating unit recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. Intangible assets with indefinite useful lives are tested for impairment annually at the cash generating unit level, as appropriate, and when circumstances indicate that the carrying value may be impaired. 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 17, 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, a 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 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. 188 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe 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%. • 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. 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 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, medication, 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 calculation 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. • 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. 7.28. 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. Provisions 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 internal or external 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. 7.29. Income taxes novobanco and its subsidiaries are subject to the tax regime consigned in the Código do Imposto sobre o Rendimento das Pessoas Coletivas (IRC Code). 189 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesCorporate 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 equity. 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 and any adjustments to prior period taxes. 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. The taxable profit or tax loss determined by the Group can be adjusted by the Portuguese Tax Authorities within a period of four years, except in the case of any deduction or use of tax credit, in which the expiry period is the exercise of that right (5 or 12 years in the case of tax losses, depending on the year). The Executive Board of Directors considers that any corrections, resulting mainly from differences in the interpretation of tax legislation, will not have a materially relevant effect on the financial statements. 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. 7.30. Treasury shares Own equity instruments of the Bank which are acquired by it or by any of its subsidiaries (treasury shares) are deducted from equity. Consideration paid or received on the purchase, sale, issue or cancellation of the Bank’s own equity instruments is recognised directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of own equity instruments. As at 31 December 2021, the Bank or the Group does not hold own equity instruments. 7.31. Disintermediation The Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity, unless recognition criteria are met, are not reported in the financial statements, as they are not assets of the Group. 7.32. Dividends on ordinary shares Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Bank’s shareholders. Interim dividends are deducted from equity when they are declared and are no longer at the discretion of the Bank. Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date. 7.33. Equity Reserves The reserves recorded in equity on the Group’s statement of financial position include: • Other Comprehensive Income: – Fair value reserves which comprises: (i) The cumulative net change in the fair value of debt instruments classified at fair value through other comprehensive income, less the allowance for expected credit loss, when applicable; (ii) The cumulative net change in fair value of equity instruments at fair value through other comprehensive income; – o Impairment reserves of debt instruments classified at fair value through other comprehensive income; 190 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes – o Reserves associated with sales of equity instruments classified as fair value through other comprehensive income, which include the proceeds from sales of these securities; 7.34. Earnings per share – o Actuarial deviation reserves that correspond to actuarial gains and losses, resulting from differences between the actuarial assumptions used and the values actually verified (experience gains and losses) and from changes in actuarial assumptions and the gains and losses arising from the difference between the income expected from the fund’s assets and the values obtained; – o Own credit revaluation reserve, which comprises the cumulative changes in the fair value of the financial liabilities designated at fair value through profit or loss attributable to changes in the Group’s own credit risk – o Cash flow hedge reserve, which comprises the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge – o Foreign currency translation reserve, which is used to record exchange differences arising from the translation of the net investment in foreign operations, net of the effects of hedging – o Other capital reserve, which includes the portion of compound financial liabilities that qualify Basic earnings per share are calculated by dividing the net income attributable to the shareholders of the parent company 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. 7.35. The accounting standards and interpretations The accounting standards and interpretations recently issued but not yet effective and that the Group has not yet applied in the preparation of its financial statements may be analysed as follows: for treatment as equity Standards, interpretations, amendments and revisions that become effective in future years: • Retained earnings, which corresponds to earnings of the Group carried over from previous years; • Other reserves (originary reserve, special reserve and other reserves). The following standards, interpretations, amendments and revisions, with mandatory application in future financial years, have not been, until the date of approval of these financial statements, adopted (“endorsed”) by the European Union: Norm / Interpretation Applicable in the European Union for fiscal years beginning on or after Description Amendments to IFRS 3 - References to the Framework for Financial Reporting 1-jan-2022 This amendment updates the references to the Framework in the text of IFRS 3, with no changes being made to the accounting requirements for business combinations. It also clarifies the accounting treatment to be adopted in respect of liabilities and contingent liabilities under IAS 37 and IFRIC 21, incurred separately versus those included in a business combination. The amendment is of prospective application. Amendments to IAS 16 - Income Earned Before Start-Up 1-jan-2022 Clarifies the accounting treatment given to the consideration obtained with the sale of products that result from the production in test phase of tangible fixed assets, prohibiting their deduction from the acquisition cost of the assets. The entity recognizes the income obtained from the sale of such products and the costs of their production in results. Amendments to IAS 37 - Onerous Contracts - costs of fulfilling a contract 1-jan-2022 Amendments to IFRS 1 - Subsidiary as a first-time adopter of IFRS (included in the annual improvements for the 2018-2020 cycle) 1-jan-2022 Amendments to IFRS 9 - Derecognition of financial liabilities - Fees to be included in the ‘10 per cent’ change test (included in the annual improvements for the 2018 2020 cycle) 1-jan-2022 This amendment specifies that in assessing whether or not a contract is onerous, only expenses directly related to the performance of the contract can be considered, such as incremental costs related to direct labor and materials and the allocation of other directly related expenses such as the allocation of depreciation expenses for tangible assets used to perform the contract. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly charged to the counterparty in accordance with the contract. This amendment should be applied to contracts that, at the beginning of the first annual reporting period to which the amendment is applied, still include unfulfilled contractual obligations, without restating the comparative. This improvement clarifies which fees an entity should include when assessing whether the terms of a financial liability are substantially different from the terms of the original financial liability. This improvement clarifies that, when performing derecognition tests on renegotiated liabilities, only fees paid or received between the debtor and the creditor should be included, including fees paid or received by the debtor or the creditor on behalf of the other. This improvement eliminates the requirement to exclude tax cash flows in the fair value measurement of biological assets, ensuring consistency with the principles of IFRS 13 - Fair Value. This improvement clarifies which fees an entity should include when assessing whether the terms of a financial liability are substantially different from the terms of the original financial liability. This improvement clarifies that, when performing derecognition tests on renegotiated liabilities, only fees paid or received between the debtor and the creditor should be included, including fees paid or received by the debtor or the creditor on behalf of the other. Amendments to IAS 41 - Taxation and fair value measurement (included in the annual improvements for the 2018-2020 cycle) 1-jan-2022 This improvement eliminates the requirement to exclude tax cash flows in the fair value measurement of biological assets, ensuring consistency with the principles of IFRS 13 - Fair Value. IFRS 17 - Insurance Contracts 1-jan-2023 IFRS 17 applies to all insurance contracts (i.e. life, non-life, direct insurance and reinsurance), regardless of the type of entity that issues them, as well as some guarantees and some financial instruments with discretionary participation features. In general terms, IFRS 17 provides an accounting model for insurance contracts that is more useful and more consistent for issuers. In contrast to the requirements of IFRS 4, which are based on previously adopted local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. 191 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThese standards have not yet been endorsed by the European Union and, as such, have not been applied by the Bank for the year ended December 31, 2021. No significant impacts on the financial statements are expected as a result of their adoption. Standards, interpretations, amendments and revisions not yet adopted by the European Union Norm / Interpretation Description Amendments to IAS 1 – Presentation of financial statements - Classification of current and non-current liabilities This amendment aims to clarify the classification of liabilities as current or non-current balances depending on the rights that an entity has to defer its payment, at the end of each reporting period. The classification of liabilities is not affected by the entity’s expectations (the assessment should determine whether a right exists, but should not consider whether the entity will or will not exercise that right), or by events occurring after the reporting date, such as the breach of a “covenant”. However, if the right to defer settlement for at least twelve months is subject to certain conditions being met after the reporting date, those criteria do not affect the right to defer settlement for the purpose of classifying a liability as current or noncurrent. This amendment also includes a new definition of “settlement” of a liability and is retrospective. Amendments to IAS 8 – Definition of accounting estimates The amendment clarifies the distinction between change in accounting estimate, change in accounting policy and correction of errors. In addition, it clarifies how an entity uses measurement techniques and inputs to develop accounting estimates. Amendments to IAS 1 – Disclosure of accounting policies These amendments are intended to assist the entity in disclosing ‘material’ accounting policies, previously referred to as ‘significant’ policies. However, due to the absence of this concept in IFRS, it was decided to replace it by the concept “materiality”, a concept already known to users of financial statements. In assessing the materiality of accounting policies, the entity has to consider not only the size of the transactions but also other events or conditions and the nature of these. Amendments to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction The amendments clarify that payments that settle a liability are tax deductible, however it is a matter of professional judgment whether such deductions are attributable to the liability that is recognized in the financial statements or the related asset. This is important in determining whether there are temporary differences in the initial recognition of the asset or liability. According to these amendments, the initial recognition exception is not applicable to transactions that have given rise to equal taxable and deductible temporary differences. It only applies if the recognition of a leasing asset and a leasing liability gives rise to taxable and deductible temporary differences that are not equal. Amendments to IFRS 17 – Insurance Contracts - Initial application of IFRS 17 and IFRS 9 - Comparative Information This amendment to IFRS 17 relates to the presentation of comparative information for financial assets in the initial application of IFRS 17. The amendment adds a transition option that allows an entity to apply an ‘overlay’ to the classification of a financial asset in the comparative period(s) presented in initially applying IFRS 17. The overlay allows all financial assets, including those held in relation to non-contractual activities within the scope of IFRS 17 to be classified, instrument by instrument, in the comparative period(s) in a manner aligned with how the entity expects those assets to be classified on initial application of IFRS 9. NOTE 8 - MAIN ACCOUNTING ESTIMATES AND JUDGEMENTS USED IN THE PREPARATION OF 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 Group and its disclosure. 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 Group allow us to consider that these judgments and estimates were made independently and appropriately as of 31 December 2021. 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 Statements. 8.1 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 7.16 – 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: Grupo novobanco’s 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 192 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesdefinition implemented by Grupo novobanco and which result in performing judgements when assessing the high probability that the borrower does not fulfil its obligations within the conditions agreed with Grupo novobanco. 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 characteristics. 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. 8.2. Fair value of derivative financial instruments and other financial assets and financial 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 accordance 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 42. 8.3. 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 30. 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. 8.4. Pensions and other employee benefits The determination of the retirement pension liabilities presented in Note 16 requires the use of assumptions and estimates, 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 novobanco 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. 8.5. 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. 193 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes8.6. Investment properties, Foreclosed assets and Non-current assets held for sale NOTE 9 – SEGMENT REPORTING Investment properties are initially recognized at cost, including directly related transaction costs and subsequently at fair value. Foreclosed assets 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. novobanco Group activities are centered on the financial sector targeting corporate, institutional and private individual customers. Its decision center is in Portugal, making the domestic territory its main market. 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 7.18 and 7.19. The valuation reports are analysed 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 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. The use of alternative methodologies and different assumptions may result in a different level of fair value with respective impact on the recognized balance sheet value. 8.7. 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 Group 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. For this purpose, as at 31 December 2021, the Group has novobanco as its main operating unit - with 291 branches in Portugal (31 December 2020: 339 branches) and branches in Luxembourg and Spain and 4 representation offices – with novobanco Açores (13 branches), Banco BEST (6 branches), GNB GA, 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) Markets; and (5) Corporate Centre. Each segment integrates the novobanco 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 Executive Board of Directors of novobanco level, by the definition of specific strategies and commercial programs for each unit. During 2020, novobanco started the sale process of the Spanish Branch, which was reclassified to a discontinued operation. With the completion of the Branch’s asset and liability sale transaction in November 2021, the remaining assets and liabilities of the Branch are no longer integrated as a discontinued operation. 8.8 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. 9.1. 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 private 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, 194 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesto 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; 9.2. Criteria for the allocation of activities and results to the operating segments 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: In accordance with the commitments made to the Directorate General for Competition of the European Commission, the Bank discontinued the provision of private banking services and therefore this segment is no longer reported. International 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 novobanco’s branches in Luxembourg and Spain. 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 management 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. 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 transversal 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 2021 and 2020, the deferred taxes recognized were fully allocated to this segment. The financial information presented for each segment was prepared in accordance with the criteria followed in the preparation of the internal information that is analysed 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 7, 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. Autonomous 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 characteristics 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. novobanco’s structures dedicated to the Segment novobanco’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 products, 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 novobanco ‘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 analysed on a case- by-case basis, with the income and/or costs being generally allocated to the Markets segment. 195 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe interest rate risk, currency risk, liquidity risk and others, excluding credit risk, are included in the Financial Department, which mission it is to undertake the Group’s financial management, and which activity and results are included in the Markets segment. 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 Operating 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. 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 segment 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”. Corporate income tax Corporate income tax is part of the Group’s net income that, for purposes of monitoring the performance of the Operating Segm ents, by the Executive Board of Directors, does not affect the evaluation of most of the Operating Segments. In the tables presente d 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. 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 novobanco’s associated companies. For other associated companies of the Group, these entities are included in the segment to which they relate. Domestic and International Areas In presenting the financial information by geographical areas, the operating units that make up the International Area are th e branches of novobanco in Spain and Luxembourg, the subsidiaries NB Servicios and Novo Vanguarda (both settled during 2021), the u nits located outside GNB GA, and also Banco Delle Tre Venezie (no longer part of the Group's perimeter during 2021) and Ijar Leasi ng Algérie as discontinued operations. Non-current assets The financial and economic elements related to the international area are those consistent with the financial statements of s uch units, Non-current assets, according to IFRS 8, include Tangible fixed assets, Intangible assets and Non- with the respective consolidation adjustments and eliminations. current assets held for sale. novobanco includes these assets in the Markets segment, with the The segment reporting is presented as follows: Domestic and International Areas In presenting the financial information by geographical areas, the operating units that make up the International Area are the branches of novobanco in Spain and Luxembourg, the subsidiaries NB Servicios and Novo Vanguarda (both settled during 2021), the units located outside GNB GA, and also Banco Delle Tre Venezie (no longer part of the Group’s perimeter during 2021) and Ijar Leasing Algérie as discontinued operations. 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. The segment reporting is presented as follows: Net interest income Net fees and comissions Other operating income Total operating income Operating 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 Profit / (loss) from continued operations before taxes and non-controlling interests Taxes Profit / (loss) of discontinued operations Net Profit / (loss) for the year attributable to non-controlling interests Net Profit / (loss) for the year 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) Intersegment operating income refers essentially to interest (net interest income) Net interest income Net fees and comissions Other operating income Total operating income Operating Costs Of which: Provisions / Impairment losses Depreciation and amortization registered by the equity method Taxes Profit / (loss) of discontinued operations Net Profit / (loss) for the year attributable to non-controlling interests Net Profit / (loss) for the year 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 other assets - real estate properties (1) Intersegment operating income refers essentially to interest (net interest income) 31.12.2021 (in thousands of Euros) Asset Management Life Insurance Markets Corporate centre Total Retail Corporate and Institutional 184 453 177 343 ( 9 690) 196 875 85 548 15 640 352 106 298 063 International Commercial Banking 30 391 10 053 22 162 62 606 ( 4) 27 303 ( 643) 26 656 257 673 208 273 21 064 12 620 16 167 14 979 178 816 13 418 915 576 - - - 94 433 - - 2 053 92 380 2 018 89 790 - - - 41 542 1 734 8 796 - 89 790 48 604 6 486 122 553 20 912 255 10 131 250 2 347 139 20 605 900 9 983 157 2 262 731 - 859 288 - 449 - - - - - - - - - 2 511 330 715 - 14 036 4 102 - - 9 934 9 97 837 11 127 - 78 27 - - Retail Corporate and Institutional International Commercial Banking Asset Management Life Insurance 31.12.2020 200 736 165 851 19 288 385 875 221 839 98 403 24 873 19 687 10 022 ( 28 727) ( 11) 26 023 170 345 115 982 26 182 354 653 515 379 29 252 14 755 100 195 12 355 477 820 20 996 920 668 1 624 640 ( 170 264) ( 69 155) 5 977 78 170 20 626 864 10 704 403 4 474 776 20 372 193 10 862 412 4 470 127 - - - - - - - - - - 305 - - 1 941 - - 9 821 189 88 507 11 554 825 18 - - - - - 1 134 30 088 4 164 - 3 718 340 624 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 161 679 ( 22 093) 90 940 230 526 - - - - 196 775 105 230 144 006 - 1 097 15 722 3 794 37 545 - ( 3 909) 5 632 - ( 105 230) ( 21 022) - - 28 004 ( 84 208) ( 126 289) 11 130 034 8 606 129 94 590 81 030 25 381 4 973 41 702 - - - - 6 - - - 573 394 278 154 118 409 969 957 801 635 352 737 34 004 3 794 172 116 ( 15 186) 4 887 7 685 184 504 4 777 44 618 515 41 469 044 94 590 81 973 25 696 4 973 44 662 (in thousands of Euros) Markets Corporate centre Total 112 883 ( 33 781) ( 493 298) ( 414 196) - - - - 639 600 104 713 590 828 - 1 215 17 274 9 430 11 617 ( 2 070) ( 11 208) ( 80 342) 8 501 036 5 532 665 93 630 43 093 26 508 28 126 - - - - - - - - - 344 555 134 266 518 ( 477 694) 343 958 1 658 352 1 191 463 33 072 9 430 (1 304 964) 1 082 ( 33 345) ( 10 074) (1 329 317) 8 158 44 395 586 41 248 951 93 630 48 285 26 866 30 691 196 Net gains / (losses) from investments in subsidiaries, joint ventures and associated companies Profit / (loss) from continued operations before taxes and non-controlling interests 31 222 ( 170 264) ( 28 270) 11 427 (1 044 366) ( 104 713) 55 ( 40 830) 3 104 1 498 8 057 ( 13 694) 8 057 (1 046 845) ( 91 019) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 41 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Corporate income tax Corporate income tax is part of the Group’s net income that, for purposes of monitoring the performance of the Operating Segm ents, by the Executive Board of Directors, does not affect the evaluation of most of the Operating Segments. In the tables presente d 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 presenting the financial information by geographical areas, the operating units that make up the International Area are th e branches of novobanco in Spain and Luxembourg, the subsidiaries NB Servicios and Novo Vanguarda (both settled during 2021), the u nits located outside GNB GA, and also Banco Delle Tre Venezie (no longer part of the Group's perimeter during 2021) and Ijar Leasi ng Algérie as discontinued operations. The financial and economic elements related to the international area are those consistent with the financial statements of s uch units, with the respective consolidation adjustments and eliminations. The segment reporting is presented as follows: Retail Corporate and Institutional Asset Life Management Insurance Markets Corporate centre Total 31.12.2021 (in thousands of Euros) Net gains / (losses) from investments in subsidiaries, joint ventures and associated companies Profit / (loss) from continued operations before taxes and non-controlling interests 94 433 89 790 41 542 257 673 208 273 21 064 12 620 196 775 105 230 16 167 14 979 178 816 13 418 915 576 330 715 Net interest income Net fees and comissions Other operating income Total operating income Operating expenses Of which: Provisions / Impairment losses Depreciation and amortization registered by the equity method Taxes Profit / (loss) of discontinued operations Total Net Assets Total Liabilities Investments in associated companies Investments in tangible fixed assets Investments in intangible assets Investments in investment properties Net Profit / (loss) for the year attributable to non-controlling interests Net Profit / (loss) for the year attributable to Shareholders of the parent Intersegment operating income (1) Investments in other assets - real estate properties (1) Intersegment operating income refers essentially to interest (net interest income) Net interest income Net fees and comissions Other operating income Total operating income Operating Costs 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 Profit / (loss) from continued operations before taxes and non-controlling interests Taxes Profit / (loss) of discontinued operations Net Profit / (loss) for the year attributable to non-controlling interests Net Profit / (loss) for the year 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 other assets - real estate properties (1) Intersegment operating income refers essentially to interest (net interest income) International Commercial Banking 30 391 10 053 22 162 62 606 184 453 177 343 ( 9 690) 196 875 85 548 15 640 352 106 298 063 - - - 2 053 92 380 2 018 - - - - - - 1 734 8 796 89 790 48 604 6 486 122 553 20 912 255 10 131 250 2 347 139 20 605 900 9 983 157 2 262 731 - 859 288 - 449 - - - - - - - - - 2 511 ( 4) 27 303 ( 643) 26 656 14 036 4 102 - - - 9 934 9 97 837 11 127 - 78 27 - - Retail Corporate and Institutional International Commercial Banking Asset Management Life Insurance 31.12.2020 200 736 165 851 19 288 385 875 221 839 98 403 24 873 19 687 10 022 ( 28 727) ( 11) 26 023 170 345 115 982 26 182 354 653 515 379 29 252 14 755 100 195 12 355 477 820 20 996 920 668 1 624 640 - - - - 31 222 ( 170 264) ( 28 270) 11 427 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 097 15 722 37 545 ( 105 230) - ( 21 022) 28 004 ( 84 208) 161 679 ( 22 093) 90 940 230 526 144 006 3 794 ( 3 909) 5 632 ( 126 289) 11 130 034 8 606 129 94 590 81 030 25 381 4 973 41 702 - - - - - - - - - - - - 6 - - - 573 394 278 154 118 409 969 957 801 635 352 737 34 004 3 794 172 116 ( 15 186) 4 887 7 685 184 504 4 777 44 618 515 41 469 044 94 590 81 973 25 696 4 973 44 662 (in thousands of Euros) Markets Corporate centre Total 112 883 ( 33 781) ( 493 298) ( 414 196) - - - - 639 600 104 713 590 828 - 1 215 17 274 9 430 - (1 044 366) ( 104 713) - - 1 134 30 088 4 164 - - - 55 ( 40 830) 3 104 1 498 8 057 11 617 ( 2 070) - - - ( 11 208) ( 13 694) - - ( 170 264) ( 69 155) 5 977 78 170 20 626 864 10 704 403 4 474 776 20 372 193 10 862 412 4 470 127 - 3 718 340 624 - - - - - 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 28 126 - - - - 344 - - 555 134 266 518 ( 477 694) 343 958 1 658 352 1 191 463 33 072 9 430 (1 304 964) 1 082 ( 33 345) ( 10 074) (1 329 317) 8 158 44 395 586 41 248 951 93 630 48 285 26 866 30 691 The geographical information of the different business units of the Group is as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The geographical information of the different business units of the Group is as follows: - 41 - 31.12.2021 (in thousands of Euros) Portugal Spain Luxembourg Brazil Angola Other Total 151 404 2 436 31 016 ( 352) - - 184 504 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 Investments in other assets - real estate properties 87 4 609 947 ( 110 374) 42 650 983 3 339 94 590 81 973 25 696 4 973 42 151 5 171 8 890 - 56 346 - - - - - 2 511 - 243 098 115 151 1 902 794 - - - - - - ( 371) - - 1 006 1 006 - - - - - Profits / (losses) of continuing operating units before taxes and non-controlling interests Turnover (a) (b) Number of employees (a) 126 120 4 898 41 450 ( 352) 1 196 888 4 165 94 10 172 529 11 - - - - - 3 060 702 - - - - - - - - - - - 4 887 4 861 935 4 777 4 326 44 618 515 4 326 9 373 94 590 - 81 973 - 25 696 - - 4 973 44 662 - - 172 116 - 7 1 369 511 4 193 (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 carried 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 31.12.2020 (in thousands of Euros) 197 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 ** 7 861 1 545 138 1 299 1 883 2 300 1 559 518 4 693 042 ( 41 855) 244 271 50 013 1 054 40 323 724 2 062 005 1 998 432 1 740 - - - - - - - - - - - - 305 93 630 47 980 26 866 11 966 28 750 - - - - - - - - 3 060 1 037 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (1 329 317) ( 33 345) - 4 938 367 8 158 6 625 44 395 586 93 630 48 285 26 866 11 966 30 691 - (1 304 964) - 7 803 893 4 582 Investments in other assets - real estate properties ** 1 941 Profits / (losses) of continuing operating units before taxes and non-controlling interests (a) Turnover (a) (b) Number of employees (a) (1 315 492) ( 817) 11 187 695 966 4 560 - - 107 489 10 158 438 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 carried 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 41 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The geographical information of the different business units of the Group is as follows: Net profit / (loss) for the period attributable to Shareholders of 151 404 2 436 31 016 ( 352) (of which: rel. to discontinued units) 87 5 171 - ( 371) 31.12.2021 (in thousands of Euros) Portugal Spain Luxembourg Brazil Angola Other Total 1 006 1 006 3 060 702 4 326 44 618 515 4 326 4 609 947 ( 110 374) 8 890 243 098 115 151 42 650 983 56 346 1 902 794 3 339 94 590 81 973 25 696 4 973 42 151 - - - - - - - - - - - - 1 196 888 4 165 94 10 172 529 11 - - - - - - - - - - - - - - - - - - - - - 184 504 4 887 4 861 935 4 777 9 373 94 590 81 973 25 696 4 973 44 662 - - - - - - - - - - - 172 116 1 369 511 7 4 193 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 and non-controlling interests Turnover (a) (b) Number of employees (a) Investments in other assets - real estate properties 2 511 Profits / (losses) of continuing operating units before taxes 126 120 4 898 41 450 ( 352) (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 carried 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 31.12.2020 (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 other assets - real estate properties 6 466 4 693 042 ( 41 855) 40 323 724 7 861 93 630 47 980 26 866 28 750 ( 39 811) - - - 244 271 50 013 2 062 005 1 998 432 - 1 545 138 - - 305 - - - - 1 941 Profits / (losses) of continuing operating units before taxes and non-controlling interests (a) Turnover (a) (b) Number of employees (a) (1 315 492) ( 817) 11 187 695 966 4 560 - - 107 489 10 - 1 054 - 1 740 - - - - - 158 438 5 - - - 3 060 1 037 - - - - - - - - - - - 1 299 - - - - - - - - - - - 1 883 - - - - - - - ( 33 345) - - 4 938 367 8 158 - 6 625 44 395 586 2 300 1 559 518 93 630 48 285 26 866 30 691 - - - - - (1 304 964) - 7 803 893 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 carried 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. NOTE 10 – NET INTEREST INCOME NOTE 10 – NET INTEREST INCOME The breakdown of this caption as at 31 December 2021 and 2020 is as follows: The breakdown of this caption as at 31 December 2021 and 2020 is as follows: Calculated by the effective interest method Other Calculated by the effective interest method Other 31.12.2021 31.12.2020 (in thousands of Euros) Assets / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS liabilities at amortized cost Income/expens es from negative interest rates From assets / liabilities at fair value through profit or loss From assets / liabilities at fair value through other comprehensive income Total Assets / liabilities at amortized cost From assets / liabilities at fair value through other comprehensive income Income/expens es from negative interest rates From assets / liabilities at fair value through profit or loss - 42 - Total 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 13 528 51 973 - 1 048 565 516 36 732 51 328 7 026 34 168 - 7 024 136 278 429 238 498 967 12 965 - - 75 062 - - 511 932 524 695 13 388 - 88 590 19 111 - 39 401 - - 538 083 58 512 71 585 - 9 211 132 769 43 713 82 093 - 10 793 136 599 - - 1 544 4 576 - - 6 120 1 048 - 530 - - 1 630 8 353 - - 9 983 530 84 550 76 606 13 787 740 459 588 049 95 481 41 031 19 146 743 707 - - - - - - - 84 550 - - 11 380 - 6 991 1 105 19 476 57 130 - - - - 36 732 51 328 39 487 71 688 18 406 15 991 34 168 34 165 11 311 18 302 - - 8 129 11 311 167 065 2 476 573 394 7 549 168 880 419 169 - - - - - - - - - 2 750 - 5 771 356 8 877 - - - - 39 487 71 688 18 741 34 165 10 816 16 587 - 7 905 10 816 188 573 95 481 32 154 8 330 555 134 On December 31, 2021, the item interest on loans and advances includes Euro 31,037 thousand related to finance lease operations (December 31, 2020: Euro 35,385 thousand). In relation to repurchase agreement operations, interest from deposits from Other banks includes, as of December 31, 2021, the amount of Euro 2,301 thousand (December 31, 2020: Euro 16 thousand in customer deposits and Euro 822 thousand in interest from deposits of other banks). 198 Interest income and expense items related to derivative interest include, according to the accounting policy described in Notes 7.10.6 and 7.2, 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 7.10.6 and 7.10.7. NOTE 11 – DIVIDEND INCOME The breakdown of this caption is as follows: Financial assets mandatorily at fair value through profit or loss Shares Euronext NV Visa Inc CL C Others Participation units Explorer III B Fundo Solução Arrendamento Fundo Arrendamento Mais Others Shares Financial assets measured at fair value through other comprehensive income (in thousands of Euros) 31.12.2021 31.12.2020 2 162 1 801 226 135 7 604 7 604 - - - 1 781 1 391 261 129 6 407 634 3 141 1 593 1 039 1 330 11 096 8 290 16 478 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 42 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 10 – NET INTEREST INCOME The breakdown of this caption as at 31 December 2021 and 2020 is as follows: Calculated by the effective interest method Other Calculated by the effective interest method Other 31.12.2021 31.12.2020 Assets / From assets / liabilities at fair liabilities at value through other amortized cost comprehensive income Income/expens From assets / es from negative liabilities at fair value through interest rates profit or loss Total Assets / From assets / liabilities at fair liabilities at value through other amortized cost comprehensive income Income/expens From assets / es from negative liabilities at fair value through interest rates profit or loss Total (in thousands of Euros) 498 967 12 965 - 511 932 524 695 13 388 - 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 13 528 51 973 - 1 048 565 516 36 732 51 328 - 75 062 - - 88 590 19 111 - 39 401 - - 538 083 58 512 71 585 - 9 211 132 769 43 713 82 093 - 10 793 136 599 - - 1 544 4 576 - - 6 120 1 048 - 530 - - 1 630 8 353 - - 9 983 530 84 550 76 606 13 787 740 459 588 049 95 481 41 031 19 146 743 707 - - - - - - - - 36 732 51 328 39 487 71 688 18 406 15 991 34 168 34 165 11 311 18 302 - - 8 129 11 311 167 065 2 476 573 394 7 549 168 880 419 169 - - - - - - - - - 2 750 - 5 771 356 8 877 - - - - 39 487 71 688 18 741 34 165 10 816 16 587 - 7 905 10 816 188 573 95 481 32 154 8 330 555 134 Interest on deposits from Central Banks and other banks On December 31, 2021, the item interest on loans and advances includes Euro 31,037 thousand related Interest on subordinated liabilities to finance lease operations (December 31, 2020: Euro 35,385 thousand). Interest on derivatives held for risk management purposes Other interest and similar expenses In relation to repurchase agreement operations, interest from deposits from Other banks includes, as of December 31, 2021, the amount of Euro 2,301 thousand (December 31, 2020: Euro 16 thousand in customer deposits and Euro 822 thousand in interest from deposits of other banks). 136 278 429 238 34 168 19 476 84 550 57 130 7 024 6 991 1 105 - - - - - - 7 026 - 11 380 Interest income and expense items related to derivative interest include, according to the accounting policy described in Notes 7.10.6 and 7.2, 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 7.10.6 and 7.10.7. In relation to repurchase agreement operations, interest from deposits from Other banks includes, as of December 31, 2021, the amount of Euro 2,301 thousand (December 31, 2020: Euro 16 thousand in customer deposits and Euro 822 thousand in interest from deposits of other banks). On December 31, 2021, the item interest on loans and advances includes Euro 31,037 thousand related to finance lease operations (December 31, 2020: Euro 35,385 thousand). NOTE 11 – DIVIDEND INCOME The breakdown of this caption is as follows: Interest income and expense items related to derivative interest include, according to the accounting policy described in Notes 7.10.6 and 7.2, 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 7.10.6 and 7.10.7. NOTE 11 – DIVIDEND INCOME The breakdown of this caption is as follows: Financial assets mandatorily at fair value through profit or loss Shares Euronext NV Visa Inc CL C Others Participation units Explorer III B Fundo Solução Arrendamento Fundo Arrendamento Mais Others Financial assets measured at fair value through other comprehensive income Shares FLITPTREL X SIBS SGPS ESA Energia Others (in thousands of Euros) 31.12.2021 31.12.2020 2 162 1 801 226 135 7 604 7 604 - - - 1 330 - 785 275 270 1 781 1 391 261 129 6 407 634 3 141 1 593 1 039 8 290 6 000 978 1 106 206 11 096 16 478 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 43 - 199 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 12 – FEE AND COMMISSION INCOME AND FEE AND COMISSION EXPENSES NOTE 12 – 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 (in thousands of Euros) 31.12.2021 31.12.2020 243 938 32 917 7 108 7 998 32 320 1 230 325 511 32 842 1 564 2 455 10 496 47 357 278 154 233 059 35 096 5 241 8 065 30 882 1 480 313 823 32 525 1 755 2 527 10 498 47 305 266 518 NOTE 13 – NET TRADING INCOME The breakdown of this caption is as follows: 200 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 43 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 13 – NET TRADING INCOME The breakdown of this caption is as follows: Gains or losses on financial assets and liabilities not measured at fair value through profit or loss From financial assets at fair value through other comprehensive income De ativos financeiros pelo justo valor através de outro rendimento integral Títulos Securities Bonds and other fixed income securities Bonds and other fixed income securities De emissores públicos Issued by government and public entities Issued by other entities De outros emissores From financial assets and liabilities at amortised cost De ativos e passivos financeiros pelo custo amortizado Securities Títulos Bonds and other fixed income securities Obrigações e outros títulos de rendimento fixo Issued by other entities De outros emissores Loans Crédito Gains or losses on financial assets and liabilities held for trading Securities Títulos Bonds and other fixed income securities Issued by government and public entities Issued by other entities Financial Derivatives Instrumentos financeiros derivados Foreign exchange rate contracts Interest rate contracts Equity / Index contracts Credit default contracts Other Gains or losses on financial assets mandatorily measured at fair value through profit or loss Securities Bonds and other fixed income securities Issued by other entities 31.12.2021 31.12.2020 Gains Losses Total Gains Losses Total (in thousands of Euros) 17 198 11 021 12 758 1 073 4 440 9 948 95 449 1 010 6 529 7 482 88 920 ( 6 472) 28 219 13 831 14 388 96 459 14 011 82 448 - 142 ( 142) 6 281 154 6 127 12 639 32 008 ( 19 369) 8 336 8 439 ( 103) 12 639 32 150 ( 19 511) 14 617 8 593 6 024 40 858 45 981 ( 5 213) 111 076 22 604 88 472 3 252 43 14 507 20 ( 11 255) 23 13 710 5 13 121 - 589 5 59 421 424 716 31 491 16 4 179 62 678 360 721 30 678 18 3 600 ( 3 257) 63 995 813 ( 2) 579 68 313 604 219 82 587 42 488 52 606 713 130 81 270 71 777 15 707 ( 108 911) 1 317 ( 29) ( 289) 523 118 472 222 50 896 769 364 860 975 ( 91 611) 15 796 5 497 10 299 12 877 36 600 ( 23 723) Shares 25 726 471 25 255 23 557 141 372 ( 117 815) Other variable income securities 24 956 13 813 11 143 746 223 208 ( 222 462) Gains or losses on financial assets and liabilities designated at fair value through profit and loss Securities Other variable income securities Gains or losses from hedge accounting Fair value changes of hedging instruments Fair value changes of hedging instruments Foreign exchange rate contracts 66 478 19 781 46 697 37 180 401 180 ( 364 000) 34 34 13 13 21 21 - - - - - - 89 079 41 684 47 395 76 026 98 036 ( 22 010) Instrumentos financeiros derivados Fair value changes of hedging item attributable to hedged risk 9 778 42 978 ( 33 200) 50 369 40 000 10 369 Foreign exchange revaluation 98 857 84 662 14 195 126 395 138 036 ( 11 641) 1 134 393 1 123 588 10 805 1 305 708 1 308 122 ( 2 414) 1 863 738 1 746 247 117 491 2 349 723 2 730 917 ( 381 194) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 45 - 201 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Gains or losses on financial assets and financial liabilities held for trading Gains or losses on financial assets and financial liabilities held for trading In accordance with the accounting policy described in Note 7.5, financial instruments are initially recorded at fair value. It is deemed In accordance with the accounting policy described in Note 7.5, 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 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, 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. namely due to the existence of an intermediation fee, originating a day one profit. The Group recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is generated, The Group recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is generated, primarily, through currency and derivative financial product intermediation, given that the fair value of these instruments, both at 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 inception and subsequently, is determined based solely on observable market data and reflects the Group’s access to the (wholesale market). market). As at 31 December 2021, the gains recognized in the income statement arising from intermediation fees, which are essentially related As at 31 December 2021, the gains recognized in the income statement arising from intermediation fees, which are essentially related to foreign exchange transactions, amounted to approximately Euro 1,867 thousand (31 December 2020: Euro 5,100 thousand). to foreign exchange transactions, amounted to approximately Euro 1,867 thousand (31 December 2020: Euro 5,100 thousand). Gains or losses on financial assets mandatorily at fair value through profit or loss Gains or losses on financial assets mandatorily at fair value through profit or loss As at December 31, 2020, gains or losses on financial assets that are mandatorily accounted for at fair value through profit or loss - 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 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 novobanco 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 24), which led to the recording of the said loss of Euro -300.2 million in 2020 (see Note 42). 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 novobanco 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 24), which led to the recording of the said loss of Euro -300.2 million in 2020 (see Note 42). Gains or losses on financial assets and financial liabilities held for trading In accordance with the accounting policy described in Note 7.5, 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. The Group recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is generated, 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 market). Gains or losses on hedge accounting Gains or losses on hedge accounting include the fair value variations of the hedging instrument (derivative) and the fair value variations of the hedged item attributable to the hedged risk. In the case where the hedge operations are interrupted early, there may occur the payment/receipt of compensation, which is recorded in Other operating expenses/ Other operating income. As of December 31, 2021, the amount of compensation received amounted to Euro 1,726 thousand (December 31, 2020: Euro 10,181 thousand). Gains or losses on hedge accounting Gains or losses on hedge accounting include the fair value variations of the hedging instrument (derivative) and the fair value variations of the hedged item attributable to the hedged risk. In the case where the hedge operations are interrupted early, there may Foreign exchange differences occur the payment/receipt of compensation, which is recorded in Other operating expenses/ Other operating income. As of December 31, 2021, the amount of compensation received amounted to Euro 1,726 thousand (December 31, 2020: Euro 10,181 thousand). 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 7.1. Foreign exchange differences Foreign exchange differences This caption includes the results arising from the foreign currency revaluation of monetary assets and liabilities denominated in foreign 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 7.1. currency in accordance with the accounting policy described in Note 7.1. NOTE 14 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS NOTE 14 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS NOTE 14 – 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: The breakdown of this caption is as follows: 31.12.2021 31.12.2020 31.12.2021 31.12.2020 (in thousands of Euros) (in thousands of Euros) 6 761 294 495 7 551 ( 3 069) ( 307) ( 40) 6 761 294 495 ( 3 416) 7 551 ( 3 069) ( 307) ( 40) ( 3 416) As at 31 December 2021, the gains recognized in the income statement arising from intermediation fees, which are essentially related to foreign exchange transactions, amounted to approximately Euro 1,867 thousand (31 December 2020: Euro 5,100 thousand). Real Estate Equipment Other Real Estate Equipment Other Gains or losses on financial assets mandatorily at fair value through profit or loss 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 novobanco 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 24), which led to the recording of the said loss of Euro -300.2 million in 2020 (see Note 42). Gains or losses on hedge accounting NOTE 15 – OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES The breakdown of these captions is as follows: Gains or losses on hedge accounting include the fair value variations of the hedging instrument (derivative) and the fair value variations of the hedged item attributable to the hedged risk. In the case where the hedge operations are interrupted early, there may occur the payment/receipt of compensation, which is recorded in Other operating expenses/ Other operating income. As of December 31, 2021, the amount of compensation received amounted to Euro 1,726 thousand (December 31, 2020: Euro 10,181 thousand). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 45 - - 45 - 202 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 15 – OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES The breakdown of these captions is as follows: Other operating income IT Services Gains / (losses) on recoveries of loans Non-current advisory services Income of Funds and real estate companies Gains on the acquisition of debt issued by the Group (see Note 33) Gains on investment properties revaluation (see Note 28) Other income Other operating expenses Losses on repurchase of Group debt securities (see Note 33) Direct and indirect taxes Revaluation of liabilities Contribution on the banking sector and solidarity additional Membership fees and donations Expenses of Funds and real estate companies Charges with Supervisory entities Contractual Indemnities (SPE) Losses on investments properties revaluation (see Note 28) Other expenses Other operating income / (expenses) (in thousands of Euros) 31.12.2021 31.12.2020 - 27 293 355 13 537 - 49 935 72 755 163 875 ( 73 522) ( 6 588) - ( 34 087) ( 2 430) ( 6 458) ( 1 849) ( 1 723) ( 18 753) ( 36 194) ( 181 604) ( 17 729) - 30 181 264 29 955 - 3 590 56 742 120 732 ( 26 998) ( 8 476) - ( 32 752) ( 1 666) ( 11 647) ( 2 321) ( 86) ( 107 900) ( 38 448) ( 230 294) ( 109 562) As at 31 December 2021, the amount received as compensation for discontinued hedging operations, included in other income, amounts to Euro 1,726 thousand (31 December 2020: Euro 10,181 thousand) (see Note 13). As at 31 December 2021, the amount received as compensation for discontinued hedging operations, included in other income, amounts to Euro 1,726 thousand (31 December 2020: Euro 10,181 thousand) (see Note 13). 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 national amount of derivative financial instruments, and whose regime has been extended. As at 31 December 2021, novobanco Group recognized Banking Levy charges as a cost in the amount of Euro 28,893 thousand Pursuant to Law No. 55-A/2010, of 31 December, a Bank Levy was established, which is levied on the (31 December 2020: Euro 27,439 thousand). The cost recognized as at 31 December 2021 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 average annual liabilities recorded on the balance sheet net of own funds and of deposits covered covered by the guarantee of the Deposit Guarantee Fund, approved by Law No. 7-A/2016, of 30 March and by Ordinance No. 165- by the guarantee of the Deposit Guarantee Fund and on the national amount of derivative financial A/2016, of 14 June. instruments, and whose regime has been extended. 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: (i)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 Bank of Portugal Notice No. 1/2019; (ii) 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 2021, novobanco Group recognized Banking Levy charges as a cost in the amount of Euro 28,893 thousand (31 December 2020: Euro 27,439 thousand). The cost recognized as at 31 December 2021 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 calculated 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: (i)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 Bank of Portugal Notice No. 1/2019; (ii) 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. NOTE 16 – STAFF EXPENSES As at 31 December 2021, the Bank recognized as an expense in relation to the Solidarity Additional on the Banking Sector the amount The breakdown of these captions is as follows: of Euro 5,194 thousand (31 December 2020: Euro 5,313 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. 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 calculated 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 As at 31 December 2021, the Bank recognized as an expense in relation to the Solidarity Additional on the Banking Sector the amount of Euro 5,194 thousand (31 December 2020: Euro 5,313 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 46 - 203 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 16 – STAFF EXPENSES The breakdown of these captions is as follows: NOTE 16 – STAFF EXPENSES The breakdown of these captions is as follows: NOTE 16 – STAFF EXPENSES Wages and salaries Remuneration The breakdown of these captions is as follows: Long-term service / Career bonuses (see Note 17) Mandatory social charges Wages and salaries Costs with post-employment benefits (see Note 17) Other costs Wages and salaries Remuneration Long-term service / Career bonuses (see Note 17) Remuneration Mandatory social charges Long-term service / Career bonuses (see Note 17) Costs with post-employment benefits (see Note 17) Mandatory social charges Other costs Costs with post-employment benefits (see Note 17) Other costs (in thousands of Euros) 31.12.2021 31.12.2020 31.12.2021 (in thousands of Euros) 31.12.2020 (in thousands of Euros) 31.12.2021 31.12.2020 179 007 178 468 539 49 365 179 007 946 178 468 3 943 179 007 539 233 261 178 468 49 365 539 946 49 365 3 943 946 233 261 3 943 183 818 182 867 951 55 250 183 818 1 735 182 867 4 803 183 818 951 245 606 182 867 55 250 951 1 735 55 250 4 803 1 735 245 606 4 803 The provisions and costs related to the restructuring process are presented in Note 34. The provisions and costs related to the restructuring process are presented in Note 34. As at 31 December 2021 and 2020, the number of employees of novobanco Group has the following breakdown: As at 31 December 2021 and 2020, the number of employees of novobanco Group has the following breakdown: The provisions and costs related to the restructuring process are presented in Note 34. 233 261 31.12.2021 245 606 31.12.2020 Novo Banco employees Employees of the Group's subsidiaries As at 31 December 2021 and 2020, the number of employees of novobanco Group has the following breakdown: The provisions and costs related to the restructuring process are presented in Note 34. 3 918 275 As at 31 December 2021 and 2020, the number of employees of novobanco Group has the following breakdown: 4 193 Total employees of the Group 31.12.2021 Novo Banco employees Employees of the Group's subsidiaries Novo Banco employees Total employees of the Group Employees of the Group's subsidiaries By professional category, the number of employees at novobanco Group is analyzed as follows: 31.12.2021 3 918 275 3 918 4 193 275 4 256 326 31.12.2020 4 582 31.12.2020 4 256 326 4 256 4 582 326 Total employees of the Group 31.12.2021 4 193 31.12.2020 4 582 By professional category, the number of employees at novobanco Group is analysed as follows: By professional category, the number of employees at novobanco Group is analysed as follows: By professional category, the number of employees at novobanco Group is analyzed as follows: Senior management functions Middle management positions Specific positions Administrative and other functions Senior management functions Middle management positions Specific positions Senior management functions Administrative and other functions Middle management positions Specific positions Administrative and other functions NOTE 17 – EMPLOYEE BENEFITS 31.12.2021 31.12.2020 31.12.2021 31.12.2020 469 456 1 980 1 288 469 4 193 456 1 980 469 1 288 456 1 980 4 193 1 288 472 513 2 175 1 422 472 4 582 513 2 175 472 1 422 513 2 175 4 582 1 422 Pension and health-care benefits 4 193 4 582 NOTE 17 – EMPLOYEE BENEFITS As mentioned in accounting policy 7.27, the Group has undertaken to provide its employees, or their families, with cash benefits for old-age retirement, disability and survivors' pensions and other liabilities such as a Serviço de Assistência Médico-Social (SAMS), NOTE 17 – EMPLOYEE BENEFITS Pension and health-care benefits managed by the Union. NOTE 17 – EMPLOYEE BENEFITS As mentioned in accounting policy 7.27, the Group has undertaken to provide its employees, or their families, with cash benefits for Pension and health-care benefits For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions consecrated old-age retirement, disability and survivors' pensions and other liabilities such as a Serviço de Assistência Médico-Social (SAMS), under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension fund, managed by GNB – managed by the Union. As mentioned in accounting policy 7.27, the Group has undertaken to provide its employees, or their families, with cash benefits for Sociedade Gestora de Fundos de Pensões, S.A. old-age retirement, disability and survivors' pensions and other liabilities such as a Serviço de Assistência Méd ico-Social (SAMS), Pension and health-care benefits For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions consecrated managed by the Union. Protection of employees in the event of maternity, paternity and adoption, as well as old age, is covered by the General Social Security As mentioned in accounting policy 7.27, the Group has undertaken to provide its employees, or their under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension fund, managed by GNB – Regime, given that with the publication of Decree-Law No. 1-A/2011, of 3 January, all banking employees who were beneficiaries of families, with cash benefits for old-age retirement, disability and survivors’ pensions and other liabilities Sociedade Gestora de Fundos de Pensões, S.A. For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions consecrate d “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated in the General Social Security Regime as from under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension fund, managed by GNB – such as a Serviço de Assistência Médico-Social (SAMS), managed by the Union. 1 January 2011. Protection of employees in the event of maternity, paternity and adoption, as well as old age, is covered by the General Social Security Sociedade Gestora de Fundos de Pensões, S.A. Regime, given that with the publication of Decree-Law No. 1-A/2011, of 3 January, all banking employees who were beneficiaries of Employees hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated in the General Social Security Regime as from Protection of employees in the event of maternity, paternity and adoption, as well as old age, is covered by the General Soci al Security 1 January 2011. Regime, given that with the publication of Decree-Law No. 1-A/2011, of 3 January, all banking employees who were beneficiaries of Retirement pensions of banking employees integrated in the General Social Security Regime within the scope of the 2nd tripartite “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated in the General Social Security Regime as from agreement continue to be calculated in accordance with the provisions of the ACT and other conventions; however, banking Employees hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. 1 January 2011. 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 Retirement pensions of banking employees integrated in the General Social Security Regime within the scope of the 2nd tripartite Employees hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. and that which the banking employees are entitled to receive from the General Social Security Regime. 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 Retirement pensions of banking employees integrated in the General Social Security Regime within the scope of the 2nd tripart ite 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 regime. The Banks are responsible for the difference between the pension determined in accordance with the provisions of the ACT agreement continue to be calculated in accordance with the provisions of the ACT and other conventions; however, banking Família dos Empregados Bancários (CAFEB), abolished by said Decree-law. In consequence of this change, pension entitlements and that which the banking employees are entitled to receive from the General Social Security Regime. employees are entitled to receive a pension under the General Regime that considers the number of years of contri butions under that of active employees are to be covered on the terms defined under the General Social Security Regime, for the length of their 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. regime. The Banks are responsible for the difference between the pension determined in accordance with the provisions of the ACT 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 and that which the banking employees are entitled to receive from the 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 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Família dos Empregados Bancários (CAFEB), abolished by said Decree-law. In consequence of this change, pension entitlements - 47 - of active employees are to be covered on the terms defined under the General Social Security Regime, for the length of their NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 47 - - 48 - 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 204 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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. 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 novobanco, 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 beneficiaries allocated to each of the entities. The split performed on these terms will result, on 3 August 2014, in a level of funding of the Complementary Plan of the Executive Commission that is equal for each of the associates of the Fund (novobanco and BES). On June 16, 2020, the Insurance and Pension Funds Supervisory Authority (“ASF”) approved the extinction of the portion that finances the Plan of the former Executive Committee and, simultaneously, the amendment of the Constitutive Contract of the novobanco Pension Fund. This approval led to the creation of three aspects of the Executive Committee’s Pension Plan: (i) Executive Committee - BES, (ii) Executive Committee - novobanco and (iii) Undivided Party. The assets of the undivided party are not allocated to any liability of novobanco or BES until the final decision of the court (limit of article 402º), so novobanco transferred the amount of Euro 19.2 million of net liabilities of the amount of the fund’s assets relating to the undivided portion for Provisions. On 1 June 2016, an amendment was made to Fundo de Pensões NB´s constitutive contract, where the complementary plan became 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. 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. On 31 December 2021, the amount of Euro 553 thousand was recorded in Personnel Costs related to the defined contribution plan (31 December 2020: Euro 535 thousand). 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 novobanco 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 novobanco, 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 novobanco. 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 novobanco, together with the Pension Fund’s liabilities relating to the Base Plan and the Complementary Plan. During 2021, two changes were made to the Pension Fund: • Inclusion of Social Security Pension – Pensioners Until 2020, the methodology applied considered pensions in payment by the Pension Fund for the calculation of liabilities with pensioners. In 2021, this methodology was changed for pensioners who started a pension after 2011, and do not have a Social Security pension. For this group of pensioners with age below the normal retirement age of the General Social Security Regime (RGSS), the liability arising from a Social Security pension, to be paid from the normal retirement age of the RGSS, was deducted. As for pensioners over the normal retirement age of the RGSS, the liability arising from a Social Security pension, to be paid from the moment of assessment, was deducted. • Inclusion of acquired rights (Clause 98 ACT) In 2021, liabilities with former employees who left novobanco Group after 2011, and who can claim rights to the Pension Fund under Clause 98 of the ACT, were included. Pension plan participants are detailed as follows: Pension plan participants are detailed as follows: 205 Employees Pensioners and survivors Participants under clause 98 TOTAL 31.12.2021 31.12.2020 4 095 6 997 990 4 417 6 949 - 12 082 11 366 The Group's liabilities and coverage levels, calculated in accordance with the accounting policy defined in Note 7.27 - Employee benefits, reportable as of December 31, 2021 and 2020 are analyzed as follows: 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 Notes 29 and 33) Accumulated actuarial deviations recognized in other comprehensive income According to the policy defined in Note 7.27 - Employee Benefits, the Group 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. The evolution of the actuarial gains and losses in the balance sheet can be analysed as follows: Retirement pension liabilities at beginning of the exercise 1 934 668 1 848 930 (in thousand Euros) 31.12.2021 31.12.2020 (1 929 188) (1 334 872) ( 594 316) (1 934 668) (1 368 021) ( 566 647) 1 907 928 1 907 616 ( 21 260) 799 052 ( 27 052) 723 723 (in thousands of Euros) 31.12.2021 31.12.2020 434 18 836 2 656 219 10 612 46 984 ( 76 269) - 38 562 ( 37 187) ( 10 327) 425 23 870 2 617 238 101 787 50 737 ( 73 073) ( 54 679) 32 902 - 914 Current service cost Interest cost Plan participants' contribution Contributions from other entities Actuarial (gains) / losses in the exercise: - Changes in financial assumptions - Experience adjustments (gains) / losses Transfer to private party Early retirement Social Security and clause 98 Foreign exchange differences and other (1) Pensions paid by the fund / transfers and once-off bonuses Retirement pension liabilities at end of the exercise 1 929 188 1 934 668 (1) Includes Euro 13,019 thousand resulting from the conclusion of the sale of assets and liabilities of the Spanish branch NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 49 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Pension plan participants are detailed as follows: Pension plan participants are detailed as follows: Employees Pensioners and survivors Participants under clause 98 Employees TOTAL Pensioners and survivors Participants under clause 98 31.12.2021 31.12.2020 31.12.2021 4 095 6 997 990 4 095 12 082 6 997 990 31.12.2020 4 417 6 949 - 4 417 11 366 6 949 - The Group’s liabilities and coverage levels, calculated in accordance with the accounting policy defined in Note 7.27 - Employee benefits, reportable as of December 31, 2021 and 2020 are analysed as follows: The Group's liabilities and coverage levels, calculated in accordance with the accounting policy defined in Note 7.27 - Employee benefits, reportable as of December 31, 2021 and 2020 are analysed as follows: 11 366 12 082 TOTAL (in thousand Euros) The Group's liabilities and coverage levels, calculated in accordance with the accounting policy defined in Note 7.27 - Employee benefits, reportable as of December 31, 2021 and 2020 are analyzed as follows: 31.12.2020 31.12.2021 Assets / (liabilities) recognized in the balance sheet Total liabilities Pensioners Assets / (liabilities) recognized in the balance sheet Employees Total liabilities Coverage Pensioners Fair value of plan assets Employees Net assets / (liabilities) in the balance sheet (See Notes 29 and 33) Coverage Fair value of plan assets Accumulated actuarial deviations recognized in other comprehensive income Net assets / (liabilities) in the balance sheet (See Notes 29 and 33) (in thousand Euros) 31.12.2021 (1 929 188) 31.12.2020 (1 934 668) (1 334 872) ( 594 316) (1 929 188) (1 334 872) 1 907 928 ( 594 316) ( 21 260) 1 907 928 799 052 ( 21 260) (1 368 021) ( 566 647) (1 934 668) (1 368 021) 1 907 616 ( 566 647) ( 27 052) 1 907 616 723 723 ( 27 052) According to the policy defined in Note 7.27 - Employee Benefits, the Group 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. According to the policy defined in Note 7.27 - Employee Benefits, the Group calculates liabilities for pensions and actuarial gains and Accumulated actuarial deviations recognized in other comprehensive income 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. According to the policy defined in Note 7.27 - Employee Benefits, the Group 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 The evolution of the actuarial gains and losses in the balance sheet can be analysed as follows: respective pension liabilities. 799 052 723 723 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 the exercise Current service cost Interest cost Retirement pension liabilities at beginning of the exercise Plan participants' contribution Current service cost Contributions from other entities Interest cost Actuarial (gains) / losses in the exercise: Plan participants' contribution - Changes in financial assumptions Contributions from other entities - Experience adjustments (gains) / losses Actuarial (gains) / losses in the exercise: Pensions paid by the fund / transfers and once-off bonuses - Changes in financial assumptions Transfer to private party - Experience adjustments (gains) / losses Early retirement Pensions paid by the fund / transfers and once-off bonuses Social Security and clause 98 Transfer to private party Foreign exchange differences and other (1) Early retirement Social Security and clause 98 Retirement pension liabilities at end of the exercise Foreign exchange differences and other (1) (1) Includes Euro 13,019 thousand resulting from the conclusion of the sale of assets and liabilities of the Spanish branch (in thousands of Euros) 31.12.2021 31.12.2020 (in thousands of Euros) 1 934 668 31.12.2021 1 848 930 31.12.2020 434 18 836 1 934 668 2 656 434 219 18 836 2 656 10 612 219 46 984 ( 76 269) 10 612 - 46 984 38 562 ( 76 269) ( 37 187) - ( 10 327) 38 562 ( 37 187) 1 929 188 ( 10 327) 425 23 870 1 848 930 2 617 425 238 23 870 2 617 101 787 238 50 737 ( 73 073) 101 787 ( 54 679) 50 737 32 902 ( 73 073) - ( 54 679) 914 32 902 - 1 934 668 914 Retirement pension liabilities at end of the exercise 1 929 188 1 934 668 (1) Includes Euro 13,019 thousand resulting from the conclusion of the sale of assets and liabilities of the Spanish branch NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 50 - - 49 - 206 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analysed as follows: The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analysed as follows: (in thousands of Euros) The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analysed as follows: Fair value of fund assets at beginning of exercise 1 907 616 31.12.2021 31.12.2020 The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analyzed as follows: Net return from the fund - Share of the net interest on the assets Fair value of fund assets at beginning of exercise - Return on assets excluding net interest Net return from the fund Net return from the fund Fair value of fund assets at beginning of exercise - 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 Plan participants’ contributions Pensions paid by the fund / transfers and once-off bonuses Transfer to Undivided Party Foreign exchange differences and other (1) Group contributions Plan participants’ contributions Pensions paid by the fund / transfers and once-off bonuses Group contributions Transfer to Undivided Party Plan participants’ contributions Foreign exchange differences and other (1) Pensions paid by the fund / transfers and once-off bonuses Transfer to Undivided Party Pension fund assets can be analysed as follows: Foreign exchange differences and other (1) Fund balance at the end of the year (1) Includes Euros 13,019 thousand from the assets and liabilities sale of the Spanish branch . Fund balance at the end of the year (1) Includes Euros 13,019 thousand from the assets and liabilities sale of the Spanish branch . Pension fund assets can be analyzed as follows: Fund balance at the end of the year Total (1) Includes Euros 13,019 thousand from the assets and liabilities sale of the Spanish branch . Quoted Pension fund assets can be analysed as follows: 31.12.2021 Unquoted Equity instruments Debt instruments Pension fund assets can be analyzed as follows: 238 31.12.2021 15 928 1 907 616 ( 15 690) 31.12.2021 86 708 238 1 907 616 2 656 15 928 ( 76 269) ( 15 690) 238 - 86 708 15 928 2 656 ( 15 690) ( 76 269) 86 708 - 2 656 ( 76 269) - 1 907 928 ( 13 021) ( 13 021) 1 907 928 ( 13 021) (in thousands of Euros) 1 695 857 1 695 857 (in thousands of Euros) 47 403 31.12.2020 19 891 1 695 857 27 512 31.12.2020 269 419 47 403 2 617 19 891 ( 73 073) 27 512 ( 35 523) 269 419 916 2 617 ( 73 073) ( 35 523) 47 403 19 891 27 512 269 419 2 617 ( 73 073) 916 ( 35 523) 1 907 616 1 907 616 916 914 1 187 975 Quoted 279 949 51 215 31.12.2021 - Unquoted 103 278 52 129 1 187 975 Total 383 227 914 63 Quoted 1 187 975 - 279 949 914 - 1 187 975 63 - 279 949 - 31.12.2021 51 215 15 Unquoted - 74 51 215 103 278 150 344 52 129 78 Total 1 187 975 74 383 227 150 344 52 129 134 101 - 15 103 278 74 134 101 1 187 975 78 383 227 74 (in thousands of Euros) Quoted 39 710 1 907 928 31.12.2020 Unquoted Total 1 907 616 (in thousands of Euros) 39 710 - 1 105 727 Quoted 324 480 31.12.2020 Unquoted - 1 105 727 Total 395 969 (in thousands of Euros) 39 710 66 Quoted 1 105 727 - 39 710 - 1 105 727 66 - 324 480 - 324 480 71 489 31.12.2020 - 31 Unquoted - 75 71 489 115 855 250 183 31 71 489 75 39 710 97 Total 1 105 727 - 115 855 - 250 183 75 395 969 1 105 727 97 395 969 75 39 710 1 468 901 63 - 439 027 150 344 15 1 907 928 150 344 78 1 469 983 66 - 437 633 115 855 31 1 907 616 115 855 97 - - 134 101 74 134 101 74 - - 250 183 75 250 183 75 The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as fol lows: 1 468 901 1 907 928 1 469 983 1 907 616 439 027 437 633 Total - - 150 344 134 101 150 344 134 101 - - 115 855 115 855 250 183 250 183 Cash and cash equivalents Total 1 907 616 The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as fol lows: 1 469 983 31.12.2021 437 633 31.12.2020 1 468 901 1 907 928 439 027 (in thousands of Euros) The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as follows: The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as follows: (in thousands of Euros) Investment funds Equity instruments Structured debt Debt instruments Derivatives Equity instruments Investment funds Real estate properties Debt instruments Cash and cash equivalents Investment funds Structured debt Derivatives Total Structured debt Real estate properties Derivatives Cash and cash equivalents Real estate properties Cash and cash equivalents Participation units Real estate properties Total Cash and cash equivalents Participation units Cash and cash equivalents Real estate properties Participation units Real estate properties Total 41 827 86 684 31.12.2021 43 032 63 627 131 265 31.12.2020 63 630 (in thousands of Euros) 171 543 41 827 31.12.2021 86 684 43 032 41 827 86 684 43 032 258 522 63 627 31.12.2020 131 265 63 630 63 627 131 265 63 630 The key actuarial assumptions used to calculate retirement pension and health-care liabilities are identical and are as follows: 171 543 258 522 Total 258 522 The key actuarial assumptions used to calculate retirement pension and health-care liabilities are identical and are as follows: 171 543 31.12.2021 31.12.2020 Assumptions The key actuarial assumptions used to calculate retirement pension and health-care liabilities are identical and are as follows: Assumptions Actual Actual Actuarial Assumptions 31.12.2021 31.12.2020 Assumptions 1.00% 1.00% 0.25% 0.50% Assumptions 1.00% 1.00% TV 88/90 Actual 2.41% - 31.12.2020 1.34% 3.07% 2.41% - Actual Projected rate of return on plan assets Discount rate Actuarial Assumptions Pension increase rate Salary increase rate Projected rate of return on plan assets Mortality table men Discount rate Actuarial Assumptions Mortality table women Pension increase rate Projected rate of return on plan assets Salary increase rate Discount rate Mortality table men Pension increase rate Mortality table women Salary increase rate of the liabilities. Mortality table men Mortality table women Assumptions 1.35% 1.35% 0.50% 0.75% Assumptions 1.35% 1.35% TV 88/90 Actual -0.24% - 31.12.2021 0.36% 2.05% -0.24% - Actual Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as at 3 1 December 2021 and 31 December 2020 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration 0.50% TV 88/90-3 years 1.35% 0.36% -0.24% 0.75% 1.35% 2.05% - 0.50% TV 88/90 0.75% TV 88/90-3 years 0.36% 2.05% TV 88/90 TV 88/90-2 years 0.25% TV 88/90-2 years 1.00% 1.34% 2.41% 0.50% 1.00% 3.07% - 0.25% TV 88/90 0.50% TV 88/90-2 years 1.34% 3.07% 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 3 1 December 2021 and 31 December 2020 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as at 31 December 2021 and 31 December 2020 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 51 - of the liabilities. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 51 - - 50 - 207 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analysed as follows: Fair value of fund assets at beginning of exercise Net return from the fund - Share of the net interest on the assets - Return on assets excluding net interest Group contributions Plan participants’ contributions Transfer to Undivided Party Foreign exchange differences and other (1) Fund balance at the end of the year Pensions paid by the fund / transfers and once-off bonuses (1) Includes Euros 13,019 thousand from the assets and liabilities sale of the Spanish branch . Pension fund assets can be analysed as follows: (in thousands of Euros) 31.12.2021 31.12.2020 1 907 616 1 695 857 238 15 928 ( 15 690) 86 708 2 656 ( 76 269) - ( 13 021) 47 403 19 891 27 512 269 419 2 617 ( 73 073) ( 35 523) 916 1 907 928 1 907 616 Quoted Total Quoted 31.12.2021 Unquoted 31.12.2020 Unquoted 914 51 215 52 129 1 187 975 - 1 187 975 279 949 103 278 383 227 39 710 1 105 727 324 480 63 - - - 15 74 150 344 134 101 78 74 150 344 134 101 66 - - - (in thousands of Euros) Total - - 39 710 1 105 727 71 489 395 969 31 75 97 75 115 855 115 855 250 183 250 183 Total 1 468 901 439 027 1 907 928 1 469 983 437 633 1 907 616 The pension fund assets used by the Group or representative of securities issued by entities of the Group are detailed as fol lows: Equity instruments Debt instruments Investment funds Structured debt Derivatives Real estate properties Cash and cash equivalents Cash and cash equivalents Participation units Real estate properties Total (in thousands of Euros) 31.12.2021 31.12.2020 41 827 86 684 43 032 63 627 131 265 63 630 171 543 258 522 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 31.12.2021 31.12.2020 Assumptions Actual Assumptions Actual 1.35% 1.35% 0.50% 0.75% -0.24% - 0.36% 2.05% 1.00% 1.00% 0.25% 0.50% 2.41% - 1.34% 3.07% TV 88/90 TV 88/90-3 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 3 1 December 2021 and 31 December 2020 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as at 31 December 2021 and 31 December 2020 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. As at 31 December 2021 and 2020, 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: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2021 and 2020, 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: - 51 - As at 31 December 2021 and 2020, 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: Change in the amount of liabilities due to the change: (in thousands of Euros) Assumptions 31.12.2021 31.12.2020 Assumptions Discount rate Salary increase rate Pension increase rate Discount rate Salary increase rate Pension increase rate Mortality table of +0.25% in the rate used Change in the amount of liabilities due to the change: of -0.25% in the rate used of +0.25% in the rate used (in thousands of Euros) of -0.25% in the rate used 31.12.2021 31.12.2020 ( 73 171) of +0.25% in the 13 507 rate used 77 795 of -0.25% in the ( 13 009) rate used ( 73 282) of +0.25% in the 26 643 rate used 78 127 of -0.25% in the ( 16 935) rate used 68 855 ( 73 171) ( 64 469) 77 795 57 714 ( 73 282) ( 52 943) 78 127 in +1 year 13 507 in -1 year ( 13 009) in +1 year 26 643 in -1 year ( 16 935) 68 855 ( 68 096) ( 64 469) 68 413 57 714 ( 70 811) ( 52 943) 71 808 in +1 year in -1 year in +1 year in -1 year The evolution of actuarial deviations on the balance sheet can be analyzed as follows: Mortality table ( 68 096) 68 413 ( 70 811) 71 808 The evolution of actuarial deviations on the balance sheet can be analyzed as follows: The evolution of actuarial deviations on the balance sheet can be analysed as follows: Accumulated actuarial losses recognized in other comprehensive income at the beginning of the exercise Actuarial (gains) / losses in the exercise: - Changes in assumptions Accumulated actuarial losses recognized in other comprehensive income at the beginning of the exercise - Financial assumptions (in thousands of Euros) 31.12.2021 31.12.2020 723 723 (in thousands of Euros) 599 454 31.12.2021 31.12.2020 723 723 10 612 62 674 2 043 599 454 101 787 23 225 ( 743) - Plan assets return (excluding net of interests) Other Actuarial (gains) / losses in the exercise: - Changes in assumptions - Financial assumptions Accumulated actuarial losses recognized in other comprehensive income at the end of the exercise - Plan assets return (excluding net of interests) Other 101 787 23 225 ( 743) The costs of retirement pensions and health benefits for the years ended 31 December 2021 and 2020 can be analyzed as follows: 723 723 (in thousand of Euros) Accumulated actuarial losses recognized in other comprehensive income at the end of the exercise 10 612 62 674 2 043 799 052 799 052 723 723 208 31.12.2021 30.06.2020 425 434 31.12.2021 31.12.2020 The costs of retirement pensions and health benefits for the years ended 31 December 2021 and 2020 can be analysed as follows: Current service cost (in thousand of Euros) Net interest Early retirements Current service cost 425 3 979 1 310 434 2 908 512 The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2021 and 2020 as The evolution of net assets / (liabilities) on the balance sheet can be analysed in the years ended 31 December 2021 and 2020 as (in thousands of Euros) Post-employment benefits costs Net interest Early retirements Post-employment benefits costs follows: follows: At the beginning of the exercise Cost for exercise Contributions made in the exercise At the beginning of the exercise Undivided transfer and reduction of liabilities Cost for exercise Other Contributions made in the exercise Undivided transfer and reduction of liabilities At the end of the exercise Social Security and clause 98 Other Actuarial gains / (losses) recognized in other comprehensive income Social Security and clause 98 Actuarial gains / (losses) recognized in other comprehensive income 3 854 2 908 512 3 854 5 714 3 979 1 310 5 714 31.12.2021 31.12.2020 ( 27 052) ( 153 073) (in thousands of Euros) ( 3 854) 31.12.2021 ( 75 329) ( 5 714) 31.12.2020 ( 124 269) ( 27 052) 86 708 ( 3 854) - 37 187 ( 75 329) ( 38 920) 86 708 - ( 21 260) 37 187 ( 38 920) ( 153 073) 269 419 19 156 ( 5 714) - ( 124 269) ( 32 571) 269 419 19 156 ( 27 052) - ( 32 571) In 2021, the value of early retirements amounted to Euro 39.1 million (31 December 2020: Euro 32.9 million), of which Euro 38.6 million are part of the Group's restructuring process (31 December 2020: Euro 31.6 million) and as such, they were recognized against At the end of the exercise ( 21 260) ( 27 052) the use of the provision for restructuring (see Note 34). These amounts are considered in Other in the previous table. In 2021, the value of early retirements amounted to Euro 39.1 million (31 December 2020: Euro 32.9 million), of which Euro 38.6 million are part of the Group's restructuring process (31 December 2020: Euro 31.6 million) and as such, they were recognized against the use of the provision for restructuring (see Note 34). These amounts are considered in Other in the previous table. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 51 - - 52 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, the sensitivity analysis to a 0.25% change in the assumptions rate used and one year in the As at 31 December 2021 and 2020, 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: mortality table results in the following changes in the current value of liabilities determined for past services: Assumptions Assumptions Discount rate Discount rate Salary increase rate Salary increase rate Pension increase rate Pension increase rate Mortality table Mortality table (in thousands of Euros) (in thousands of Euros) Change in the amount of liabilities due to the change: Change in the amount of liabilities due to the change: 31.12.2021 31.12.2021 31.12.2020 31.12.2020 of +0.25% in the of +0.25% in the rate used rate used of -0.25% in the of -0.25% in the rate used rate used of +0.25% in the of +0.25% in the rate used rate used of -0.25% in the of -0.25% in the rate used rate used ( 73 171) ( 73 171) 13 507 13 507 68 855 68 855 77 795 77 795 ( 13 009) ( 13 009) ( 64 469) ( 64 469) ( 73 282) ( 73 282) 26 643 26 643 57 714 57 714 78 127 78 127 ( 16 935) ( 16 935) ( 52 943) ( 52 943) in +1 year in +1 year in -1 year in -1 year in +1 year in +1 year in -1 year in -1 year ( 68 096) ( 68 096) 68 413 68 413 ( 70 811) ( 70 811) 71 808 71 808 The evolution of actuarial deviations on the balance sheet can be analysed as follows: The evolution of actuarial deviations on the balance sheet can be analysed as follows: Accumulated actuarial losses recognized in other comprehensive income at the beginning of the exercise Accumulated actuarial losses recognized in other comprehensive income at the beginning of the exercise Actuarial (gains) / losses in the exercise: Actuarial (gains) / losses in the exercise: - Changes in assumptions - Changes in assumptions - Financial assumptions - Financial assumptions - Plan assets return (excluding net of interests) - Plan assets return (excluding net of interests) Other Other Accumulated actuarial losses recognized in other comprehensive income at the end of the exercise Accumulated actuarial losses recognized in other comprehensive income at the end of the exercise (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2021 31.12.2020 31.12.2020 723 723 723 723 599 454 599 454 10 612 10 612 62 674 62 674 2 043 2 043 799 052 799 052 101 787 101 787 23 225 23 225 ( 743) ( 743) 723 723 723 723 The costs of retirement pensions and health benefits for the years ended 31 December 2021 and 2020 can be analyzed as follows: The costs of retirement pensions and health benefits for the years ended 31 December 2021 and 2020 can be analysed as follows: The costs of retirement pensions and health benefits for the years ended 31 December 2021 and 2020 can be analysed as follows: (in thousand of Euros) (in thousand of Euros) 31.12.2020 31.12.2020 31.12.2021 31.12.2021 Current service cost Current service cost Net interest Net interest Early retirements Early retirements Post-employment benefits costs Post-employment benefits costs 434 434 2 908 2 908 512 512 3 854 3 854 425 425 3 979 3 979 1 310 1 310 5 714 5 714 The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2021 and 2020 as follows: The evolution of net assets / (liabilities) on the balance sheet can be analysed in the years ended 31 December 2021 and 2020 as The evolution of net assets / (liabilities) on the balance sheet can be analysed in the years ended 31 December 2021 and 2020 as follows: follows: At the beginning of the exercise At the beginning of the exercise Cost for exercise Cost for exercise Actuarial gains / (losses) recognized in other comprehensive income Actuarial gains / (losses) recognized in other comprehensive income Contributions made in the exercise Contributions made in the exercise Undivided transfer and reduction of liabilities Undivided transfer and reduction of liabilities Social Security and clause 98 Social Security and clause 98 Other Other At the end of the exercise At the end of the exercise (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2021 31.12.2020 31.12.2020 ( 27 052) ( 27 052) ( 3 854) ( 3 854) ( 75 329) ( 75 329) 86 708 86 708 - - 37 187 37 187 ( 38 920) ( 38 920) ( 21 260) ( 21 260) ( 153 073) ( 153 073) ( 5 714) ( 5 714) ( 124 269) ( 124 269) 269 419 269 419 19 156 19 156 - - ( 32 571) ( 32 571) ( 27 052) ( 27 052) In 2021, the value of early retirements amounted to Euro 39.1 million (31 December 2020: Euro 32.9 million), of which Euro 38.6 In 2021, the value of early retirements amounted to Euro 39.1 million (31 December 2020: Euro 32.9 million), of which Euro 38.6 million are part of the Group's restructuring process (31 December 2020: Euro 31.6 million) and as such, they were recognized against million are part of the Group's restructuring process (31 December 2020: Euro 31.6 million) and as such, they were recognized against the use of the provision for restructuring (see Note 34). These amounts are considered in Other in the previous table. the use of the provision for restructuring (see Note 34). These amounts are considered in Other in the previous table. In 2021, the value of early retirements amounted to Euro 39.1 million (31 December 2020: Euro 32.9 million), of which Euro 38.6 million are part of the Group’s restructuring process (31 December 2020: Euro 31.6 million) and as such, they were recognized against the use of the provision for restructuring (see Note 34). These amounts are considered in Other in the previous table. The summary of the last five years of the fund’s liabilities and the funds balances, as well as experience gains and losses, is analyzed as follows: The summary of the last five years of the fund’s liabilities and the funds balances, as well as experience gains and losses, is analysed as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31.12.2021 31.12.2020 31.12.2019 31.12.2018 (in thousands of Euros) - 52 - 31.12.2017 - 52 - Retirement pension liabilities Funds balance (1 929 188) (1 934 668) (1 848 930) (1 675 608) (1 663 489) 1 907 928 1 907 616 1 695 857 1 648 168 1 648 405 (Under) / overfunding of liabilities ( 21 260) ( 27 052) ( 153 073) ( 27 440) ( 15 084) (Gains) / losses on experience adjustments in retirement pension liabilities (Gains) / losses on experience adjustments in plan assets 46 984 15 690 50 737 64 098 ( 27 512) ( 82 287) 17 839 53 917 15 263 ( 91 900) The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2020: approximately 16 years). The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2020: approximately 16 years). Career bonuses As at 31 December 2021, the liabilities assumed by the Group amounted to Euro 7,467 thousand, corresponding to the liabilities for past services subjacent to the career bonuses, as described in Note 7.27 – Employee benefits (31 December 2020: Euro 7 591 thousand) (see Note 33). As at 31 December 2021, the costs recognized with career bonuses were Euro 539 thousand (31 December 2020: Euro 951 thousand) (see Note 17). NOTE 18 – 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 Statutory audit of annual accounts Other reliability assurance services Total value of billable services 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 2021, rental costs includes an amount of Euro 582 thousand related to short-term operating lease contracts (31 December 2020: Euro 196 thousand), as described in note 7.24. The fees invoiced during the years 2021 and 2020 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: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 53 - (in thousands of Euros) 31.12.2021 31.12.2020 3 886 6 345 10 954 8 311 1 531 3 323 5 362 39 381 1 735 915 11 023 3 533 22 284 2 988 1 409 18 118 2 800 6 739 12 113 8 766 1 386 4 584 3 123 45 610 2 569 1 322 11 625 4 938 24 688 3 185 1 487 18 228 141 098 153 163 (in thousands of Euros) 31.12.2021 31.12.2020 1 962 1 392 3 354 2 307 802 3 109 209 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The summary of the last five years of the fund’s liabilities and the funds balances, as well as experience gains and losses, is analyzed as follows: (in thousands of Euros) The summary of the last five years of the fund’s liabilities and the funds balances, as well as experience gains and losses, is analyzed as follows: Retirement pension liabilities (1 663 489) (1 929 188) (1 848 930) (1 934 668) (1 675 608) 31.12.2021 31.12.2020 31.12.2019 31.12.2018 31.12.2017 (in thousands of Euros) Funds balance (Under) / overfunding of liabilities Retirement pension liabilities 1 907 928 31.12.2021 1 907 616 31.12.2020 1 695 857 31.12.2019 1 648 168 31.12.2018 1 648 405 31.12.2017 ( 21 260) (1 929 188) ( 27 052) (1 934 668) ( 153 073) (1 848 930) ( 27 440) (1 675 608) ( 15 084) (1 663 489) Funds balance (Gains) / losses on experience adjustments in retirement pension liabilities 1 907 928 46 984 1 907 616 50 737 1 695 857 64 098 1 648 168 17 839 1 648 405 15 263 (Under) / overfunding of liabilities (Gains) / losses on experience adjustments in plan assets ( 21 260) 15 690 ( 27 052) ( 27 512) ( 153 073) ( 82 287) ( 27 440) 53 917 ( 15 084) ( 91 900) Career bonuses As at 31 December 2021, the liabilities assumed by the Group amounted to Euro 7,467 thousand, corresponding to the liabilities for past services subjacent to the career bonuses, as described in Note 7.27 – Employee benefits (31 December 2020: Euro 7 591 thousand) (see Note 33). (Gains) / losses on experience adjustments in retirement pension liabilities The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2020: approximately 16 years). (Gains) / losses on experience adjustments in plan assets ( 82 287) ( 27 512) 46 984 53 917 50 737 17 839 64 098 15 690 ( 91 900) 15 263 As at 31 December 2021, the costs recognized with career bonuses were Euro 539 thousand (31 December 2020: Euro 951 thousand) (see Note 17). Career bonuses As at 31 December 2021, the liabilities assumed by the Group amounted to Euro 7,467 thousand, corresponding to the liabilities for The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2020: approximately 16 years). past services subjacent to the career bonuses, as described in Note 7.27 – Employee benefits (31 December 2020: Euro 7 591 thousand) (see Note 33). Career bonuses As at 31 December 2021, the liabilities assumed by the Group amounted to Euro 7,467 thousand, corresponding to the liabilities for As at 31 December 2021, the costs recognized with career bonuses were Euro 539 thousand (31 December 2020: Euro 951 past services subjacent to the career bonuses, as described in Note 7.27 – Employee benefits (31 December 2020: Euro 7 591 thousand) (see Note 17). thousand) (see Note 33). NOTE 18 – OTHER ADMINISTRATIVE EXPENSES As at 31 December 2021, the costs recognized with career bonuses were Euro 539 thousand (31 December 2020: Euro 951 NOTE 18 – OTHER ADMINISTRATIVE EXPENSES thousand) (see Note 17). The breakdown of this caption is as follows: The breakdown of this caption is as follows: NOTE 18 – OTHER ADMINISTRATIVE EXPENSES The breakdown of this caption is as follows: (in thousands of Euros) 31.12.2021 31.12.2020 Rentals Advertising Communication Maintenance and repairs expenses Rentals Travelling and representation Advertising Transportation of valuables Communication Insurance Maintenance and repairs expenses IT services Travelling and representation Independent work Transportation of valuables Temporary work Insurance Electronic payment systems IT services Legal costs Independent work Consultancy and audit fees Temporary work Water, energy and fuel Electronic payment systems Consumables Legal costs Other costs Consultancy and audit fees Water, energy and fuel Consumables Other costs (in thousands of Euros) 31.12.2021 31.12.2020 3 886 6 345 10 954 8 311 3 886 1 531 6 345 3 323 10 954 5 362 8 311 39 381 1 531 1 735 3 323 915 5 362 11 023 39 381 3 533 1 735 22 284 915 2 988 11 023 1 409 3 533 18 118 22 284 2 988 141 098 1 409 18 118 2 800 6 739 12 113 8 766 2 800 1 386 6 739 4 584 12 113 3 123 8 766 45 610 1 386 2 569 4 584 1 322 3 123 11 625 45 610 4 938 2 569 24 688 1 322 3 185 11 625 1 487 4 938 18 228 24 688 3 185 153 163 1 487 18 228 The caption Other costs includes, amongst others, specialised service costs incurred with security and surveillance, information services, training and sundry external supplies. 153 163 141 098 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 2021, rental costs includes an amount of Euro 582 thousand related to short-term operating lease contracts (31 The caption Other costs includes, amongst others, specialised service costs incurred with security and surveillance, information December 2020: Euro 196 thousand), as described in note 7.24. services, training and sundry external supplies. As at 31 December 2021, rental costs includes an amount of Euro 582 thousand related to short-term operating lease contracts (31 December 2020: Euro 196 thousand), as described in note 7.24. The fees invoiced during the years 2021 and 2020 by the Statutory Audit Firm, according to that laid down in article 508-F of the As at 31 December 2021, rental costs includes an amount of Euro 582 thousand related to short-term operating lease contracts (31 Portuguese Companies Code (Código das Sociedades Comerciais), have the following: December 2020: Euro 196 thousand), as described in note 7.24. The fees invoiced during the years 2021 and 2020 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: (in thousands of Euros) The fees invoiced during the years 2021 and 2020 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: 31.12.2020 31.12.2021 Statutory audit of annual accounts Other reliability assurance services Total value of billable services Statutory audit of annual accounts Other reliability assurance services Total value of billable services NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 962 1 392 2 307 802 (in thousands of Euros) 31.12.2021 3 354 31.12.2020 3 109 1 962 1 392 3 354 2 307 802 3 109 - 52 - - 52 - 210 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 19 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES NOTE 19 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES NOTE 19 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES This caption on 31 December 2021 and 2020 is analyzed as follows: This caption on 31 December 2021 and 2020 is analysed as follows: This caption on 31 December 2021 and 2020 is analysed as follows: Contribution to the Fundo Único de Resolução Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos Contribution to the Fundo Único de Resolução Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos 31.12.2021 31.12.2021 25 341 15 150 44 25 341 15 150 44 40 535 40 535 NOTE 20 – IMPAIRMENT NOTE 20 – IMPAIRMENT NOTE 20 – IMPAIRMENT (In thousands of Euros) (In thousands of Euros) 31.12.2020 31.12.2020 22 266 12 743 39 22 266 12 743 39 35 048 35 048 Provisions or reversal of provisions (see Note 34) Provisions or reversal of provisions (see Note 34) Provisions for guarantees Provisions for commitments Other provisions Provisions for guarantees Provisions for commitments Other provisions Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss (see Note 24) Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss (see Note 24) Securities at fair value through equity Securities at amortised cost Loans and advances to banks Loans and advances to customers Securities at fair value through equity Securities at amortised cost Loans and advances to banks Loans and advances to customers Charges Charges 31.12.2021 31.12.2021 Reversals Reversals Total Total Charges Charges (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 Reversals Reversals Total Total 18 764 18 764 10 768 10 768 159 400 159 400 188 932 188 932 ( 31 517) ( 31 517) ( 7 855) ( 7 855) ( 21 725) ( 21 725) ( 61 097) ( 61 097) ( 12 753) ( 12 753) 2 913 2 913 137 675 137 675 127 835 127 835 44 897 44 897 12 189 12 189 213 441 213 441 270 527 270 527 ( 29 457) ( 29 457) ( 5 513) ( 5 513) ( 49 134) ( 49 134) ( 84 104) ( 84 104) 15 440 15 440 6 676 6 676 164 307 164 307 186 423 186 423 1 302 1 302 1 215 760 1 215 760 135 814 135 814 301 426 301 426 1 654 302 1 654 302 ( 928) ( 928) ( 1 168 355) ( 1 168 355) ( 134 065) ( 134 065) ( 152 051) ( 152 051) ( 1 455 399) ( 1 455 399) 374 374 47 405 47 405 1 749 1 749 149 375 149 375 198 903 198 903 3 554 3 554 738 568 738 568 320 533 320 533 808 179 808 179 1 870 834 1 870 834 ( 5 080) ( 5 080) ( 696 043) ( 696 043) ( 130 904) ( 130 904) ( 283 737) ( 283 737) ( 1 115 764) ( 1 115 764) ( 1 526) ( 1 526) 42 525 42 525 189 629 189 629 524 442 524 442 755 070 755 070 Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates (see Note 26) Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates (see Note 26) 678 678 ( 993) ( 993) ( 315) ( 315) 5 142 5 142 ( 950) ( 950) 4 192 4 192 Impairment or reversal of impairment on non-financial assets Impairment or reversal of impairment on non-financial assets Non-current assets and disposal groups classified as held for sale (see Note 32) Tangible fixed assets (see Note 27) Intangible fixed assets (see Note 29) Other assets (see Note 31) Non-current assets and disposal groups classified as held for sale (see Note 32) Tangible fixed assets (see Note 27) Intangible fixed assets (see Note 29) Other assets (see Note 31) NOTE 21 – EARNINGS PER SHARE NOTE 21 – EARNINGS PER SHARE 10 182 3 484 - 34 694 48 360 10 182 3 484 - 34 694 48 360 ( 520) ( 520) ( 5 167) ( 5 167) - - ( 16 359) ( 16 359) ( 22 046) ( 22 046) 9 662 9 662 ( 1 683) ( 1 683) - - 18 335 18 335 26 314 26 314 177 769 177 769 3 334 3 334 - - 78 613 78 613 259 716 259 716 - - - ( 13 938) ( 13 938) - - - ( 13 938) ( 13 938) 177 769 177 769 3 334 3 334 - - 64 675 64 675 245 778 245 778 1 892 272 1 892 272 ( 1 539 535) ( 1 539 535) 352 737 352 737 2 406 219 2 406 219 ( 1 214 756) ( 1 214 756) 1 191 463 1 191 463 NOTE 21 – 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 weighted average 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. number of ordinary shares in circulation during the financial year. 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. Net consolidated profit / (loss) attributable to shareholder of the Bank Net consolidated profit / (loss) attributable to shareholder of the Bank (In thousands of Euros) (In thousands of Euros) 31.12.2021 31.12.2021 31.12.2020 31.12.2020 184 504 184 504 (1 329 317) (1 329 317) 9 800 000 9 800 000 9 800 000 9 800 000 0.02 0.02 0.02 0.02 (0.14) (0.14) (0.13) (0.13) Weighted average number of common shares outstanding (thousands) Weighted average number of common shares outstanding (thousands) Basic earnings per share attributable to shareholders of NOVO BANCO (in Euros) 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) Basic earnings per share from continuing activities attributable to shareholders of NOVO BANCO (in Euros) Diluted earnings per share 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 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. 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 . The diluted earnings per share do not differ from the basic earnings per share, since there are no dilutive effects . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 54 - - 54 - 211 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 19 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES This caption on 31 December 2021 and 2020 is analyzed as follows: Contribution to the Resolution Fund Contribution to the National Resolution Fund Contribution to the Deposit Guarantee Fund NOTE 20 – IMPAIRMENT Provisions or reversal of provisions (see Note 34) Provisions for guarantees Provisions for commitments Other provisions or loss (see Note 24) Securities at fair value through equity Securities at amortised cost Loans and advances to banks Loans and advances to customers Impairment or reversal of impairment on non-financial assets Non-current assets and disposal groups classified as held for sale Tangible fixed assets (see Note 29) Intangible fixed assets (see Note 31) Other assets (see Note 32) NOTE 21 – EARNINGS PER SHARE Impairment or reversal of impairment on financial assets not measured at fair value through profit (in thousands of Euros) 31.12.2021 31.12.2020 25 276 14 854 42 40 172 22 201 12 528 37 34 766 31.12.2021 31.12.2020 Charges Reversals Total Charges Reversals Total (in thousands of Euros) 18 764 10 768 159 400 188 932 ( 31 517) ( 7 855) ( 21 725) ( 61 097) 1 302 1 215 760 135 814 301 426 1 654 302 ( 928) ( 1 168 355) ( 134 065) ( 152 051) ( 1 455 399) ( 12 753) 2 913 137 675 127 835 374 47 405 1 749 149 375 198 903 44 897 12 189 213 441 270 527 3 554 738 568 320 533 808 179 ( 29 457) ( 5 513) ( 49 134) ( 84 104) ( 5 080) ( 696 043) ( 130 904) ( 283 737) 1 870 834 ( 1 115 764) 15 440 6 676 164 307 186 423 ( 1 526) 42 525 189 629 524 442 755 070 10 182 3 484 - 34 694 48 360 ( 520) ( 5 167) - ( 16 359) ( 22 046) 9 662 ( 1 683) - 18 335 26 314 177 769 3 334 - 78 613 259 716 - - - ( 13 938) ( 13 938) 177 769 3 334 - 64 675 245 778 1 892 272 ( 1 539 535) 352 737 2 406 219 ( 1 214 756) 1 191 463 Impairment or reversal of impairment of investment in subsidiaries, joint ventures and associates (see Note 26) 678 ( 993) ( 315) 5 142 ( 950) 4 192 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. Net consolidated 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) (In thousands of Euros) 31.12.2021 31.12.2020 184 504 (1 329 317) 9 800 000 9 800 000 0.02 0.02 (0.14) (0.13) 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 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. The diluted earnings per share do not differ from the basic earnings per share, since there are no dilutive effects. NOTE 22 – CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 – CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS As at 31 December 2021 and 31 December 2020, this caption is analysed as follows: As at 31 December 2021 and 31 December 2020, this caption is analysed 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 - 53 - (in thousands of Euros) 31.12.2021 31.12.2020 151 699 149 205 5 261 912 2 717 2 289 339 3 458 5 264 629 2 292 797 85 433 163 138 248 571 19 565 51 590 71 155 162 632 44 007 143 614 38 688 206 639 182 302 5 871 538 2 695 459 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 264.3 million (31 December 2020: Euro 262.2 million), which aim to satisfy the legal requirements regarding the constitution of minimum cash balances. 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 2021 and 2020, 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 2021 was included in the observation period running from 22 December 2021 to 08 February 20202. Checks to be collected on credit institutions at home and abroad were sent for collection within the first business days following the reference dates. 212 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 54 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 264.3 million (31 December 2020: Euro 262.2 million), which aim to satisfy the legal requirements regarding the constitution of minimum cash balances. 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 2021 and 2020, 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 2021 was included in the observation period running from 22 December 2021 to 08 February 2022. 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 23 – FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING As at 31 December 2021 and 2020, this caption is analysed as follows: NOTE 23 – FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING NOTE 23 – FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING As at 31 December 2021 and 2020, this caption is analysed as follows: As at 31 December 2021 and 2020, this caption is analysed as follows: Financial assets held for trading Financial assets held for trading Securities Securities Bonds and other fixed income securities Bonds and other fixed income securities Issued by government and public entities Issued by government and public entities Derivatives Derivatives Derivatives held for trading with positive fair value Derivatives held for trading with positive fair value Financial liabilities held for trading Financial liabilities held for trading Derivatives Derivatives Derivatives held for trading with negative fair value Derivatives held for trading with negative fair value 31.12.2021 31.12.2021 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 114 465 114 465 114 465 114 465 263 199 263 199 263 199 263 199 377 664 377 664 306 054 306 054 306 054 306 054 267 016 267 016 267 016 267 016 388 257 388 257 388 257 388 257 655 273 655 273 554 791 554 791 554 791 554 791 Securities held for trading In accordance with the accounting policy described in Note 7.10.5, securities held for trading are those acquired to be traded in the short-term regardless of their maturity. Securities held for trading Securities held for trading In accordance with the accounting policy described in Note 7.10.5, securities held for trading are those acquired to be traded in the In accordance with the accounting policy described in Note 7.10.5, securities held for trading are those acquired to be traded in the short-term regardless of their maturity. short-term regardless of their maturity. As of 31 December 2021, and 2020, the schedule of securities held for trading by maturity is as follows: As of 31 December 2021, and 2020, the schedule of securities held for trading by maturity is as follows: As of 31 December 2021, and 2020, the schedule of securities held for trading by maturity is as follows: 1 to 5 years 1 to 5 years More than 5 years More than 5 years A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 42. A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 42. 31.12.2021 31.12.2021 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 - - 114 465 114 465 114 465 114 465 3 734 3 734 263 282 263 282 267 016 267 016 213 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 55 - - 55 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 42. Derivatives Derivatives As at 31 December 2021 and 31 December 2020, this caption is analysed as follows: As at 31 December 2021 and 31 December 2020, this caption is analysed as follows: 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 Equity / Index contracts Equity / Index Swaps - buy - sell Equity / Index Options - buy - sell Credit default contracts Credit Default Swaps - buy - sell Commodities Contracts Commodities Swaps - buy - sell Notional 31.12.2021 Fair Value Assets Liabilities Notional (in thousands of Euros) 31.12.2020 Fair Value Assets Liabilities 587 774 591 858 451 112 452 353 21 083 21 083 304 349 304 349 5 988 949 5 988 949 86 436 166 554 - - 526 502 526 498 - - 29 633 29 633 2 704 7 107 633 1 934 20 024 20 103 5 766 5 766 622 307 605 890 967 872 968 543 21 390 21 390 168 095 167 870 23 668 7 956 1 431 5 468 21 363 21 363 10 743 10 706 29 127 34 910 57 205 45 493 224 317 265 143 869 2 819 7 138 184 7 139 186 89 767 165 221 318 578 499 782 1 084 3 961 225 186 267 962 319 662 503 743 - - 8 190 8 190 - - 696 696 2 608 2 608 - - 574 574 30 467 30 467 663 491 685 480 2 399 2 399 - - 2 337 2 204 9 053 11 390 3 335 5 539 - - - - 16 16 - - 263 199 306 054 388 257 554 791 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 7.10.6 and 7.10.7, and which the Group has not designated for hedge accounting. 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 7.10.6 and 7.10.7, and which the Group has not designated for hedge accounting. In the financial year of 2021, the Group recognized a loss of Euro 454 thousand related to the CVA of derivative instruments (31 December 2020: loss of Euro 291 thousand). The way of determining the CVA is explained in Note 42. In the financial year of 2021, the Group recognized a loss of Euro 454 thousand related to the CVA of derivative instruments (31 December 2020: loss of Euro 291 thousand). The way of determining the CVA is explained in Note 42. As at 31 December 2021 and 2020, the analysis of the derivatives held for trading by maturity period is as follows: As at 31 December 2021 and 2020, the analysis of the derivatives held for trading by maturity period is as follows: Trading Derivatives Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years 31.12.2021 Notional Assets Liabilities Fair Value (net) 31.12.2020 Notional Assets Liabilities (in thousands of Euros) Fair Value (net) 1 137 915 654 256 1 633 635 4 570 032 7 995 838 1 142 432 654 868 1 640 297 4 643 680 8 081 277 ( 6 380) 5 224 2 778 ( 44 477) ( 42 855) 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 ( 81) 8 725 ( 23 606) ( 151 572) ( 166 534) 214 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 56 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Derivatives As at 31 December 2021 and 31 December 2020, this caption is analysed as follows: Trading derivatives Exchange rate contracts Forward Currency Swaps Currency Interest Rate Swaps Currency Options Interest rate contracts Interest Rate Swaps Swaption - Interest Rate Options Equity / Index contracts Equity / Index Swaps Equity / Index Options Credit default contracts Credit Default Swaps Commodities Contracts Commodities Swaps - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell - buy - sell 31.12.2021 Fair Value (in thousands of Euros) 31.12.2020 Fair Value Notional Notional Assets Liabilities Assets Liabilities 587 774 591 858 451 112 452 353 21 083 21 083 304 349 304 349 5 988 949 5 988 949 86 436 166 554 526 502 526 498 - - - - 29 633 29 633 2 704 7 107 23 668 7 956 633 1 934 1 431 5 468 20 024 20 103 21 363 21 363 5 766 5 766 10 743 10 706 29 127 34 910 57 205 45 493 224 317 265 143 318 578 499 782 869 2 819 1 084 3 961 225 186 267 962 319 662 503 743 8 190 8 190 2 608 2 608 - - - - - - 696 696 574 574 2 337 2 204 9 053 11 390 3 335 5 539 - - - - 16 16 - - 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 - - 263 199 306 054 388 257 554 791 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 7.10.6 and 7.10.7, and which the Group has not designated for hedge accounting. In the financial year of 2021, the Group recognized a loss of Euro 454 thousand related to the CVA of derivative instruments (31 December 2020: loss of Euro 291 thousand). The way of determining the CVA is explained in Note 42. As at 31 December 2021 and 2020, the analysis of the derivatives held for trading by maturity period is as follows: Trading Derivatives Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years 31.12.2021 Notional Assets Liabilities Fair Value (net) 31.12.2020 Notional Assets Liabilities (in thousands of Euros) Fair Value (net) 1 137 915 654 256 1 633 635 4 570 032 7 995 838 1 142 432 654 868 1 640 297 4 643 680 8 081 277 ( 6 380) 5 224 2 778 ( 44 477) ( 42 855) 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 ( 81) 8 725 ( 23 606) ( 151 572) ( 166 534) NOTE 24 – FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME AND AT AMORTISED COST NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 56 - As at 31 December 2021 and 2020, these captions are analysed as follows: NOTE 24 – FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME AND AT AMORTISED COST As at 31 December 2021 and 2020, these captions are analysed as follows: 31.12.2021 (in thousands of Euros) 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 799 592 7 220 996 2 338 697 ( 3 136) 10 356 149 - - - - 50 466 23 650 739 - 50 466 33 797 23 684 536 799 592 7 220 996 26 039 902 30 661 34 091 151 * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 25) 31.12.2020 (in thousands of Euros) 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 1 129 - 62 730 11 099 625 113 795 23 617 034 960 962 7 907 587 25 898 046 63 859 34 830 454 * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 25) 215 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 57 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Securities As at 31 December 2021 and 2020, the detail of securities portfolio is as follows: As at 31 December 2021 and 2020, the detail of securities portfolio is as follows: Securities Securities mandatorily at fair value through profit or loss Bonds and other fixed income securities From other issuers Shares Other variable income securities Securities at fair value through other comprehensive income Bonds and other fixed income securities From public issuers From other issuers Shares Securities at amortised cost Bonds and other fixed income securities From public issuers From other issuers Impairment Value adjustments for interest rate risk hedging (see Note 25) (in thousands of Euros) 31.12.2021 31.12.2020 54 960 427 886 316 746 799 592 160 184 406 104 394 674 960 962 5 761 717 1 398 899 60 380 6 490 076 1 352 759 64 752 7 220 996 7 907 587 377 335 2 208 359 421 249 2 009 935 ( 246 997) ( 201 237) 2 338 697 2 229 947 ( 3 136) 1 129 10 356 149 11 099 625 Other variable income 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 7.10.4, based on the net book 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. Other variable income 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 7.10.4, based on the net book 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. By the end of 2020, novobanco 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 observable in the market), and novobanco 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 13). 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. (see Note 42) 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 13). 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. (see Note 42) As at 31 December 2021 and 2020, the detail of the fair value securities through other comprehensive income is as follows: By the end of 2020, novobanco 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 observable in the market), and novobanco requested an independent evaluation from an international consulting company in articulation with As at 31 December 2021 and 2020, 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 Book value Impairment reserves (in thousands of Euros) 5 560 962 2 478 402 3 082 560 1 374 554 29 609 1 344 945 442 843 344 174 98 669 3 3 205 567 87 103 118 464 30 008 63 29 945 15 963 14 633 1 330 - - ( 4 812) ( 918) ( 3 894) ( 5 663) ( 2 335) ( 3 328) ( 398 426) ( 310 732) ( 87 694) ( 3) ( 3) 5 761 717 2 564 587 3 197 130 1 398 899 27 337 1 371 562 60 380 48 075 12 305 - - ( 3 043) ( 1 511) ( 1 532) ( 673) ( 3) ( 670) - - - - - Balance as at 31 December 2021 7 378 362 251 538 ( 408 904) 7 220 996 ( 3 716) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 58 - 216 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Securities As at 31 December 2021 and 2020, 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 variable income securities Securities at fair value through other comprehensive income Bonds and other fixed income securities From public issuers From other issuers Shares Securities at amortised cost Bonds and other fixed income securities From public issuers From other issuers Impairment Value adjustments for interest rate risk hedging (see Note 25) (in thousands of Euros) 31.12.2021 31.12.2020 54 960 427 886 316 746 799 592 160 184 406 104 394 674 960 962 5 761 717 1 398 899 60 380 6 490 076 1 352 759 64 752 7 220 996 7 907 587 377 335 2 208 359 421 249 2 009 935 ( 246 997) ( 201 237) 2 338 697 2 229 947 ( 3 136) 1 129 10 356 149 11 099 625 Other variable income 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 7.10.4, based on the net book 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. By the end of 2020, novobanco 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 observable in the market), and novobanco 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 13). 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. (see Note 42) As at 31 December 2021 and 2020, 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 Book value Impairment reserves (in thousands of Euros) 5 560 962 2 478 402 3 082 560 1 374 554 29 609 1 344 945 442 843 344 174 98 669 3 3 205 567 87 103 118 464 30 008 63 29 945 15 963 14 633 1 330 - - ( 4 812) ( 918) ( 3 894) ( 5 663) ( 2 335) ( 3 328) ( 398 426) ( 310 732) ( 87 694) ( 3) ( 3) 5 761 717 2 564 587 3 197 130 1 398 899 27 337 1 371 562 60 380 48 075 12 305 - - ( 3 043) ( 1 511) ( 1 532) ( 673) ( 3) ( 670) - - - - - Balance as at 31 December 2021 7 378 362 251 538 ( 408 904) 7 220 996 ( 3 716) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 (in thousands of Euros) - 58 - Book value Impairment reserves 6 130 285 2 650 953 3 479 332 1 286 344 29 605 1 256 739 463 232 359 127 104 105 2 2 360 033 129 520 230 513 68 749 107 68 642 18 163 15 396 2 767 - - ( 242) - ( 242) ( 2 334) ( 2 334) - ( 416 643) ( 319 824) ( 96 819) ( 2) ( 2) 6 490 076 2 780 473 3 709 603 1 352 759 27 378 1 325 381 64 752 54 699 10 053 - - ( 3 125) ( 1 435) ( 1 690) ( 565) ( 3) ( 562) - - - - - Saldo a 31 de dezembro de 2020 (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. 7 879 863 446 945 ( 419 221) 7 907 587 ( 3 690) During the year 2021, the Group sold Euro 956.1 million of financial instruments classified at fair value through other comprehensive income (31 December 2020: Euro 1,323.9 million), with a gain of Euro 14.4 million (31 December 2020: gain of Euro 82.4 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 20.5 million that were transferred from revaluation reserves to sales-related reserves (31 December 2020: loss of Euro 15.0 million), from the sale of equity instruments. During the year 2021, the Group sold Euro 956.1 million of financial instruments classified at fair value through other comprehensive income (31 December 2020: Euro 1,323.9 million), with a gain of Euro 14.4 million (31 December 2020: gain of Euro 82.4 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 20.5 million that were transferred from revaluation reserves to sales-related reserves (31 December 2020: loss of Euro 15.0 million), from the sale of equity instruments. The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: 217 Impairment movement of securities at fair value through other comprehensive income Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) 5 556 3 516 ( 5 080) ( 232) ( 70) 3 690 1 302 ( 928) ( 384) 36 3 716 - 38 - ( 44) 6 - - - - - - - - - - - - - - - - - 5 556 3 554 ( 5 080) ( 276) ( 64) 3 690 1 302 ( 928) ( 384) 36 3 716 (in thousands of Euros) Impairment movement of securities at amortised cost Stage 1 Stage 2 Stage 3 Total 2 296 54 056 102 422 158 774 717 848 ( 683 933) ( 2) ( 317) 10 533 ( 3 294) - ( 1) 738 568 ( 696 043) ( 38) ( 24) 3 925 87 652 109 660 201 237 1 058 301 ( 1 107 621) ( 1) ( 48) 148 112 ( 53 046) ( 1 640) 157 1 215 760 ( 1 168 355) ( 1 653) 8 38 283 203 243 246 997 10 187 ( 8 816) ( 36) 294 9 347 ( 7 688) ( 12) ( 101) 5 471 Changes in impairment losses on amortised cost securities are as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 59 - 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 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 2021 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 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 2021 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Bonds and other fixed income securities Bonds and other fixed income securities Non residents From public issuers Residents From other issuers From public issuers Residents Residents Non residents Non residents From other issuers Shares Residents Residents Non residents Non residents Shares Other securities with variable income Residents Residents Non residents Saldo a 31 de dezembro de 2020 Other securities with variable income (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. Residents Cost (1) Cost (1) 6 130 285 2 650 953 3 479 332 1 286 344 6 130 285 29 605 2 650 953 1 256 739 3 479 332 1 286 344 463 232 29 605 359 127 1 256 739 104 105 463 232 359 127 2 2 104 105 2 2 Fair value reserve Positive Negative Fair value reserve 360 033 Positive 129 520 230 513 68 749 360 033 129 520 107 68 642 230 513 68 749 18 163 107 15 396 68 642 2 767 18 163 15 396 2 767 - - - - Negative ( 242) - ( 242) ( 2 334) ( 242) ( 2 334) - ( 242) - ( 2 334) ( 416 643) ( 2 334) ( 319 824) ( 96 819) - ( 416 643) ( 2) ( 319 824) ( 2) ( 96 819) ( 419 221) ( 2) ( 2) (in thousands of Euros) Book value Impairment (in thousands of Euros) reserves Book value 6 490 076 Impairment reserves ( 3 125) 2 780 473 3 709 603 1 352 759 6 490 076 27 378 2 780 473 1 325 381 3 709 603 1 352 759 64 752 27 378 54 699 1 325 381 10 053 64 752 54 699 10 053 - - - - ( 1 435) ( 1 690) ( 565) ( 3 125) ( 1 435) ( 3) ( 562) ( 1 690) ( 565) ( 3) ( 562) - - - - - - - - - - 7 879 863 446 945 7 907 587 ( 3 690) ( 3 690) Saldo a 31 de dezembro de 2020 During the year 2021, the Group sold Euro 956.1 million of financial instruments classified at fair value through other comprehensive (1) Aquisition cost referring to shares and other equity instruments and amortized cost for debt securities. income (31 December 2020: Euro 1,323.9 million), with a gain of Euro 14.4 million (31 December 2020: gain of Euro 82.4 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 20.5 million that were transferred from During the year 2021, the Group sold Euro 956.1 million of financial instruments classified at fair value through other comprehensive revaluation reserves to sales-related reserves (31 December 2020: loss of Euro 15.0 million), from the sale of equity instruments. income (31 December 2020: Euro 1,323.9 million), with a gain of Euro 14.4 million (31 December 2020: gain of Euro 82.4 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 20.5 million that were transferred from The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: revaluation reserves to sales-related reserves (31 December 2020: loss of Euro 15.0 million), from the sale of equity instruments. 7 879 863 7 907 587 ( 419 221) 446 945 (in thousands of Euros) The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: Impairment movement of securities at fair value through other comprehensive income Stage 1 Stage 2 Impairment movement of securities at fair value through other comprehensive income - - 5 556 Stage 3 (in thousands of Euros) Total Balance as at 31 December 2019 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 Increases due to changes in credit risk Other movements 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 Utilization during the period Other movements Balance as at 31 December 2020 Balance as at 31 December 2021 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 Utilization during the period Increases due to changes in credit risk Other movements 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 Utilization during the period Other movements Balance as at 31 December 2021 Balance as at 31 December 2020 Stage 1 3 516 ( 5 080) 5 556 ( 232) 3 516 ( 70) ( 5 080) 3 690 ( 232) ( 70) 1 302 ( 928) 3 690 ( 384) 1 302 36 ( 928) 3 716 ( 384) 36 Stage 2 38 - - ( 44) 38 6 - - ( 44) 6 - - - - - - - - - - Stage 3 - - - - - - - - - - - - - - - - - - - - - Impairment movement of securities at amortised cost 54 056 102 422 2 296 Stage 1 10 187 ( 8 816) 2 296 ( 36) 10 187 294 ( 8 816) 3 925 ( 36) 294 9 347 ( 7 688) 3 925 ( 12) 9 347 ( 101) ( 7 688) 5 471 ( 12) ( 101) Stage 2 717 848 ( 683 933) 54 056 ( 2) 717 848 ( 317) ( 683 933) 87 652 ( 2) ( 317) 1 058 301 ( 1 107 621) 87 652 ( 1) 1 058 301 ( 48) ( 1 107 621) 38 283 ( 1) ( 48) Stage 3 10 533 ( 3 294) 102 422 - 10 533 ( 1) ( 3 294) 109 660 - ( 1) 148 112 ( 53 046) 109 660 ( 1 640) 148 112 157 ( 53 046) 203 243 ( 1 640) 157 5 556 Total 3 554 ( 5 080) 5 556 ( 276) 3 554 ( 64) ( 5 080) 3 690 ( 276) ( 64) 1 302 ( 928) 3 690 ( 384) 1 302 36 ( 928) 3 716 ( 384) 36 3 716 158 774 Total 738 568 ( 696 043) 158 774 ( 38) 738 568 ( 24) ( 696 043) 201 237 ( 38) ( 24) 1 215 760 ( 1 168 355) 201 237 ( 1 653) 1 215 760 8 ( 1 168 355) 246 997 ( 1 653) 8 Changes in impairment losses on amortised cost securities are as follows: Balance as at 31 December 2021 3 716 - Changes in impairment losses on amortised cost securities are as follows: Changes in impairment losses on amortised cost securities are as follows: Impairment movement of securities at amortised cost (in thousands of Euros) Stage 1 Stage 2 Stage 3 (in thousands of Euros) Total Balance as at 31 December 2021 5 471 38 283 203 243 246 997 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 59 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In accordance with the accounting policy mentioned on Note 7.16, 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 8.1. 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. - 59 - As at 31 December 2021 and 2020, the securities portfolio, by residual maturity period, is as follows: 218 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In accordance with the accounting policy mentioned on Note 7.16, 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 8.1. In accordance with the accounting policy mentioned on Note 7.16, 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 The dotation for impairment for securities during 2020 financial year include Euro 29.0 million, reflecting the update of information in on Note 8.1. IFRS 9 models, anticipating losses related to the Covid-19 pandemic. The dotation for impairment for securities during 2020 financial year include Euro 29.0 million, reflecting the update of information in As at 31 December 2021 and 2020, the securities portfolio, by residual maturity period, is as follows: IFRS 9 models, anticipating losses related to the Covid-19 pandemic. As at 31 December 2021 and 2020, the securities portfolio, by residual maturity period, is as follows: Securities at fair value through profit or loss - mandatory Securities at fair value through profit or loss - mandatory Securities at fair value through other comprehensive income Securities at fair value through other comprehensive income 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 duration From 1 to 5 years More than 5 years Undetermined duration 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 duration From 1 to 5 years More than 5 years Undetermined duration 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 duration From 1 to 5 years More than 5 years Undetermined duration Securities at amortised cost (*) Securities at amortised cost (*) (in thousands of Euros) 31.12.2021 31.12.2020 (in thousands of Euros) 31.12.2021 41 741 - 2 443 41 741 10 776 - 744 632 2 443 799 592 10 776 744 632 799 592 451 416 989 621 3 033 249 451 416 2 686 330 989 621 60 380 3 033 249 7 220 996 2 686 330 60 380 7 220 996 710 014 139 547 478 503 710 014 1 257 630 139 547 - 478 503 2 585 694 1 257 630 - 10 606 282 2 585 694 31.12.2020 75 553 32 670 39 966 75 553 11 995 32 670 800 778 39 966 960 962 11 995 800 778 960 962 218 275 791 578 3 906 220 218 275 2 926 762 791 578 64 752 3 906 220 7 907 587 2 926 762 64 752 7 907 587 772 795 113 105 267 980 772 795 1 277 304 113 105 - 267 980 2 431 184 1 277 304 - 11 299 733 2 431 184 10 606 282 11 299 733 The detail of the securities portfolio by fair value hierarchy is presented in Note 42. (*) Gross value before impairment The detail of the securities portfolio by fair value hierarchy is presented in Note 42. (*) Gross value before impairment The portfolio securities pledged by the Group are analysed in Note 38. The portfolio securities pledged by the Group are analysed in Note 38. The detail of the securities portfolio by fair value hierarchy is presented in Note 42. Loans and advances to Banks The portfolio securities pledged by the Group are analysed in Note 38. Loans and advances to Banks As at 31 December 2021 and 31 December 2020, the detail of Loans and advances to Banks is as follows: As at 31 December 2021 and 31 December 2020, the detail of Loans and advances to Banks is as follows: Loans and advances to Banks (in thousands of Euros) As at 31 December 2021 and 31 December 2020, the detail of Loans and advances to Banks is as follows: 31.12.2021 31.12.2020 Loans and advances to banks in Portugal Loans and advances to banks in Portugal Very short-term placements Deposits Loans Very short-term placements Other loans and advances Deposits Loans Other loans and advances Loans and advances to banks abroad 31.12.2021 31.12.2020 (in thousands of Euros) - 715 44 770 - 3 715 45 488 44 770 3 4 075 4 897 30 280 4 075 4 4 897 39 256 30 280 4 Deposits Other loans and advances Loans and advances to banks abroad Deposits Other loans and advances Outstanding applications Outstanding applications Impairment losses 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6 089 45 488 2 6 089 6 091 2 - 6 091 51 579 - ( 1 113) 51 579 50 466 ( 1 113) 10 532 39 256 279 419 10 532 289 951 279 419 34 726 289 951 363 933 34 726 ( 250 138) 363 933 113 795 ( 250 138) 50 466 113 795 - 60 - - 60 - 219 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Investments in credit institutions are all recorded in the amortised cost portfolio. As at 31 December 2021 and 2020, the analysis of loans and advances to banks, by residual maturity is as follows: As at 31 December 2021 and 2020, the analysis of loans and advances to banks, by residual maturity is as follows: (in thousands of Euros) As at 31 December 2021 and 2020, the analysis of loans and advances to banks, by residual maturity is as follows: 31.12.2021 31.12.2020 Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Up to 3 months Undetermined duration (Overdue) From 3 months to 1 year From 1 to 5 years More than 5 years Undetermined duration (Overdue) 31.12.2021 861 6 558 38 193 5 967 861 - 6 558 38 193 51 579 5 967 - (in thousands of Euros) 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 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: 51 579 363 933 (in thousands of Euros) Changes in impairment losses on loans and advances to banks are presented as follows: Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) 77 088 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 2019 318 Stage 1 536 ( 436) 318 12 Loans and advances to Banks 76 341 429 Stage 2 2 457 ( 1 948) 76 341 ( 76 848) 317 540 Stage 3 ( 128 520) 429 60 257 320 533 Total ( 130 904) 77 088 ( 16 579) Balance as at 31 December 2021 Balance as at 31 December 2020 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 Utilization during the period Other movements Increases due to changes in credit risk Decreases due to changes in credit risk Utilization during the period Other movements 320 533 250 138 ( 130 904) 135 814 ( 16 579) ( 134 065) 250 138 ( 269 010) 18 236 135 814 ( 134 065) 1 113 ( 269 010) 18 236 The increase of impairment for investments in credit institutions verified in 2020 results from the degradation of the credit risk of 1 113 Balance as at 31 December 2021 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. During 2021 part of this exposure was settled, with the remaining exposure being restructured and subsequently derecognised, in line with The increase of impairment for investments in credit institutions verified in 2020 results from the degradation of the credit risk of the amendment made in May 2021 to the Contingent Capital Mechanism contract, which extinguished novobanco’s rights and risks international exposures analysed on an individual basis, whose partial default situation at the end of 2020, among other signs of on this asset. impairment, led to the transfer of the same to stage 3 and the constitution of additional impairments of Euro 189.6 million . During 2021 part of this exposure was settled, with the remaining exposure being restructured and subsequently derecognised, in line with the amendment made in May 2021 to the Contingent Capital Mechanism contract, which extinguished novobanco’s rights and risks on this asset. 317 540 249 706 ( 128 520) 134 063 60 257 ( 132 564) 249 706 ( 167 728) ( 83 055) 134 063 ( 132 564) 422 ( 167 728) ( 83 055) 536 430 ( 436) 1 210 12 ( 1 399) 430 ( 101 282) 101 258 1 210 ( 1 399) 217 ( 101 282) 101 258 2 457 2 ( 1 948) 541 ( 76 848) ( 102) 2 - 33 541 ( 102) 474 - 33 422 474 217 The increase of impairment for investments in credit institutions verified in 2020 results from the degradation of the credit risk of international exposures analysed 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. During 2021 part of this exposure was settled, with the remaining exposure being restructured and subsequently derecognised, in line with the amendment made in May 2021 to the Contingent Capital Mechanism contract, which extinguished novobanco’s rights and risks on this asset. Loans and advances to customers As at 31 December 2021 and 31 December 2020, the detail of loans and advances to customers is presented as follows: 220 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 61 - - 62 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Loans and advances to customers As at 31 December 2021 and 31 December 2020, 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 Descobertos 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 (see Note 25) Corporate Loans Individuals Residential Mortgage loans Loans to customers are all recorded in the amortised cost portfolio. (milhares de euros) 31.12.2021 31.12.2020 1 139 614 8 917 738 76 741 595 334 13 457 1 245 885 17 814 8 733 283 1 193 500 1 147 959 8 980 908 81 843 576 766 7 109 1 421 599 21 077 8 977 196 1 118 813 21 933 366 22 333 270 66 348 1 319 819 2 40 519 54 1 1 038 286 190 201 2 655 230 20 010 290 050 310 060 851 881 146 986 4 51 483 8 321 1 950 312 186 020 2 195 008 15 632 610 169 625 801 24 898 656 25 154 079 (1 247 917) (1 599 775) 23 650 739 23 554 304 4 035 6 774 29 762 33 797 55 956 62 730 23 684 536 23 617 034 Loans to customers are all recorded in the amortised cost portfolio. As at 31 December 2021, the amount of loans and advances to customers (net of impairment) includes the amount of Euro 1,255.1 million (31 December 2020: Euro 1,390.3 million), related to securitization operations in which, according to the accounting policy referred to in Note 6, structured entities are consolidated by the Group (see Notes 1 and 41). The liabilities associated with these securitization operations were recognized as Debt Securities (see Note 33). As at 31 December 2021, the amount of loans and advances to customers (net of impairment) includes the amount of Euro 1,255.1 million (31 December 2020: Euro 1,390.3 million), related to securitization operations in which, according to the accounting policy referred to in Note 6, structured entities are consolidated by the Group (see Notes 1 and 41). The liabilities associated with these securitization operations were recognized as Debt Securities (see Note 33). As at 31 December 2021, the caption Loans and advances to customers include Euro 6,075.1 million of mortgage loans related to the issuance of mortgage bonds (31 December 2020: Euro 6,104.8 million) (see Note 33). As at 31 December 2021, the caption Loans and advances to customers include Euro 6,075.1 million of mortgage loans related to the issuance of mortgage bonds (31 December 2020: Euro 6,104.8 million) (see Note 33). As at 31 December 2021, the amount of interest and commissions recorded in the balance sheet relating to credit operations amounts to Euro 18,614 thousand (31 December 2020: Euro 25,256 thousand). As at 31 December 2021, the amount of interest and commissions recorded in the balance sheet relating to credit operations amounts to Euro 18,614 thousand (31 December 2020: Euro 25,256 thousand). As at 31 December 2021 and 2020, the analysis of loans and advances to customers, by residual maturity, is as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 62 - 221 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, the analysis of loans and advances to customers, by residual maturity, is as follows: As at 31 December 2021 and 2020, the analysis of loans and advances to customers, by residual maturity, is as follows: (in thousands of Euros) 31.12.2021 31.12.2020 (in thousands of Euros) As at 31 December 2021 and 2020, the analysis of loans and advances to customers, by residual maturity, is as follows: Up to 3 months From 3 months to 1 year Up to 3 months From 1 to 5 years From 3 months to 1 year More than 5 years From 1 to 5 years Undetermined duration (Overdue) More than 5 years Undetermined duration (Overdue) Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Undetermined duration (Overdue) 31.12.2021 31.12.2021 1 211 004 1 303 386 1 211 004 5 825 536 1 303 386 16 282 467 5 825 536 310 060 16 282 467 24 932 453 310 060 1 211 004 1 303 386 24 932 453 5 825 536 16 282 467 310 060 31.12.2020 31.12.2020 1 049 929 1 299 816 1 049 929 5 157 298 1 299 816 (in thousands of Euros) 17 083 965 5 157 298 625 801 17 083 965 25 216 809 625 801 1 049 929 1 299 816 25 216 809 5 157 298 17 083 965 (in thousands of Euros) 625 801 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: Changes in credit impairment losses are presented as follows: Balance as at 31 December 2019 Stage 1 53 945 Stage 2 139 775 Stage 3 1 658 775 1 852 495 Total Credit impairment changes 24 932 453 (in thousands of Euros) 25 216 809 Stage 1 Credit impairment changes Stage 2 Stage 3 Total Credit impairment changes Balance as at 31 December 2019 Balance as at 31 December 2019 Financial assets derecognised Increases due to changes in credit risk Financial assets derecognised 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 Financial assets derecognised Increases due to changes in credit risk Balance as at 31 December 2020 Financial assets derecognised Decreases due to changes in credit risk Increases due to changes in credit risk Financial assets derecognised Utilization during the period Decreases due to changes in credit risk Increases due to changes in credit risk Other movements Utilization during the period Decreases due to changes in credit risk Other movements (a) Utilization during the period Other movements (a) Balance as at 31 December 2021 Financial assets derecognised Increases due to changes in credit risk (a) It includes Euro 58,046 thousand of impairment of credits of the Spanish Branch transferred to discontinued operations (Euro 22,427 thousand in stage 1 and Euro 35,619 thousand in stage 3). Decreases due to changes in credit risk (a) It includes Euro 58,046 thousand of impairment of credits of the Spanish Branch transferred to discontinued operations (Euro 22,427 thousand in stage 1 and Euro 35,619 thousand in Utilization during the period stage 3). Other movements (a) 1 852 495 ( 294 007) (in thousands of Euros) 808 179 ( 294 007) ( 283 737) 808 179 Total ( 441 450) ( 283 737) ( 41 705) 1 852 495 ( 441 450) ( 41 705) 1 599 775 ( 294 007) 808 179 1 599 775 ( 244 059) ( 283 737) 301 426 ( 244 059) ( 441 450) ( 152 051) 301 426 ( 41 705) ( 267 202) ( 152 051) 10 028 1 599 775 ( 267 202) 1 658 775 ( 294 005) 428 745 ( 294 005) ( 68 607) 428 745 Stage 3 ( 441 321) ( 68 607) ( 55 246) 1 658 775 ( 441 321) ( 55 246) 1 228 341 ( 294 005) 428 745 1 228 341 ( 239 704) ( 68 607) 155 547 ( 239 704) ( 441 321) ( 46 713) 155 547 ( 55 246) ( 267 008) ( 46 713) 31 685 1 228 341 ( 267 008) 53 945 ( 2) 40 289 ( 2) ( 116 192) 40 289 Stage 1 ( 16) ( 116 192) 83 405 53 945 ( 16) 83 405 61 429 ( 2) 40 289 61 429 ( 1 282) ( 116 192) 22 683 ( 1 282) ( 16) ( 47 899) 22 683 83 405 - ( 47 899) 28 644 61 429 - 139 775 - 339 145 - ( 98 938) 339 145 Stage 2 ( 113) ( 98 938) ( 69 864) 139 775 ( 113) ( 69 864) 310 005 - 339 145 310 005 ( 3 073) ( 98 938) 123 196 ( 3 073) ( 113) ( 57 439) 123 196 ( 69 864) ( 194) ( 57 439) ( 50 301) 310 005 ( 194) The increase of impairment for credit risk during the year 2021 include Euro 71.8 million, reflecting the updating of the information in 10 028 the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic (31 December 2020: Euro 218.8 million). The increase of impairment for credit risk during the year 2021 include Euro 71.8 million, reflecting the updating of the information in 1 247 917 Balance as at 31 December 2021 the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic (31 December 2020: Euro 218.8 million). Credit distribution by type of rate is as follows: (a) It includes Euro 58,046 thousand of impairment of credits of the Spanish Branch transferred to discontinued operations (Euro 22,427 thousand in stage 1 and Euro 35,619 thousand in stage 3). 10 028 1 247 917 ( 244 059) 301 426 1 247 917 ( 152 051) ( 267 202) 31 685 862 148 ( 239 704) 155 547 862 148 ( 46 713) ( 267 008) ( 50 301) 322 194 ( 3 073) 123 196 322 194 ( 57 439) ( 194) 28 644 63 575 ( 1 282) 22 683 63 575 ( 47 899) - Balance as at 31 December 2021 Balance as at 31 December 2020 862 148 322 194 ( 50 301) 28 644 31 685 63 575 The increase of impairment for credit risk during the year 2021 include Euro 71.8 million, reflecting the updating of the information in the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic (31 December 2020: Euro 218.8 million). Credit distribution by type of rate is as follows: 31.12.2020 The increase of impairment for credit risk during the year 2021 include Euro 71.8 million, reflecting the updating of the information in (in thousands of Euros) the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic (31 December 2020: Euro 218.8 million). 31.12.2021 (in thousands of Euros) Credit distribution by type of rate is as follows: Credit distribution by type of rate is as follows: Fixed rate Variable rate Fixed rate Variable rate 31.12.2021 4 075 515 20 856 938 4 075 515 20 856 938 24 932 453 31.12.2021 24 932 453 31.12.2020 3 982 917 21 233 892 3 982 917 21 233 892 25 216 809 31.12.2020 25 216 809 (in thousands of Euros) Fixed rate Variable rate 4 075 515 20 856 938 3 982 917 21 233 892 24 932 453 25 216 809 222 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 63 - - 63 - - 63 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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: 31.12.2021 31.12.2020 (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 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 Unrealized finance income in finance leases 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 More than 5 years Present value of minimum lease payments receivable Impairment Up to 1 year 1 to 5 years More than 5 years Sales of credit portfolios Impairment 2021 278 587 693 762 533 443 31.12.2021 1 505 792 (in thousands of Euros) 270 188 761 487 571 105 31.12.2020 1 602 780 278 587 43 611 693 762 94 599 533 443 91 120 1 505 792 229 330 43 611 234 976 94 599 599 163 91 120 442 323 229 330 1 276 462 ( 226 204) 234 976 599 163 1 050 258 442 323 1 276 462 ( 226 204) 270 188 44 830 761 487 67 455 571 105 32 654 1 602 780 144 939 44 830 225 358 67 455 694 032 32 654 538 285 144 939 1 457 675 ( 220 447) 225 358 694 032 1 237 228 538 285 1 457 675 ( 220 447) Sales of credit portfolios 2021 Sale of a non-performing loans portfolio (Project Orion) novobanco entered into sale and purchase agreements with a consortium of funds managed by WEST INVEST UK LIMITED Sales of credit portfolios PARTNERSHIP and LX INVESTMENT PARTNERS III S.À.R.L. for the sale of a non-performing loans and related assets portfolio (Project Orion). The net book value of the receivables at the date of derecognition amounted to Euro 76.1 million (gross book value 2021 of Euro 162.9 million), with an impact on net income for the year 2021 of approximately Euro 1.8 million: Sale of a non-performing loans portfolio (Project Orion) novobanco entered into sale and purchase agreements with a consortium of funds managed by WEST INVEST UK LIMITED PARTNERSHIP and LX INVESTMENT PARTNERS III S.À.R.L. for the sale of a non- performing loans and related assets portfolio (Project Orion). The net book value of the receivables at the date of derecognition amounted to Euro 76.1 million (gross book value of Euro 162.9 million), with an impact on net income for the year 2021 of approximately Euro 1.8 million: Sale of a non-performing loans portfolio (Project Orion) (in thousands of Euros) novobanco entered into sale and purchase agreements with a consortium of funds managed by WEST INVEST UK LIMITED Impact on the Income Statement PARTNERSHIP and LX INVESTMENT PARTNERS III S.À.R.L. for the sale of a non-performing loans and related assets portfolio (Project Orion). The net book value of the receivables at the date of derecognition amounted to Euro 76.1 million (gross book value Gains or losses from derecognition of financial assets and liabilities not measured at fair value through profit or loss -10 159 of Euro 162.9 million), with an impact on net income for the year 2021 of approximately Euro 1.8 million: 31.12.2021 1 050 258 1 237 228 Impairments or reversal of impairments of financial assets not measured at fair value through profit or loss Provisions or reversal of provisions Impact on the Income Statement Impact on Net income Gains or losses from derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversal of impairments of financial assets not measured at fair value through profit or loss 19 295 (in thousands of Euros) -7 310 31.12.2021 1 826 -10 159 19 295 Sale of a non-performing loans portfolio (Project Wilkinson) -7 310 Provisions or reversal of provisions On March 5, 2021, novobanco entered into a sale and purchase agreement to sell a non-performing loans and related assets portfolio (Project Wilkinson), with a net book value of Euro 62.3 million (gross book value of Euro 210.4 million), with Burlington Loan 1 826 Impact on Net income Management, a company owned by companies affiliated to and advised by Davidson Kempner European Partners, LLP. The impact of this operation on net income for 2021 resulted in a loss of Euro 4.5 million. Sale of a non-performing loans portfolio (Project Wilkinson) (in thousands of Euros) On March 5, 2021, novobanco entered into a sale and purchase agreement to sell a non-performing loans and related assets portfolio Impact on the Income Statement 31.12.2021 (Project Wilkinson), with a net book value of Euro 62.3 million (gross book value of Euro 210.4 million), with Burlington Loan Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss -1 363 Management, a company owned by companies affiliated to and advised by Davidson Kempner European Partners, LLP. The impact -3 175 Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss of this operation on net income for 2021 resulted in a loss of Euro 4.5 million. Impact on Net Income Impact on the Income Statement Impact on Net Income Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -4 538 (in thousands of Euros) 31.12.2021 -1 363 -3 175 -4 538 - 64 - - 64 - 223 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes An analysis of finance lease loans, by residual maturity period, is presented as follows: 31.12.2021 31.12.2020 (in thousands of Euros) 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 Up to 1 year 1 to 5 years More than 5 years Impairment Present value of minimum lease payments receivable Sales of credit portfolios 2021 278 587 693 762 533 443 1 505 792 43 611 94 599 91 120 229 330 234 976 599 163 442 323 1 276 462 ( 226 204) 1 050 258 270 188 761 487 571 105 1 602 780 44 830 67 455 32 654 144 939 225 358 694 032 538 285 1 457 675 ( 220 447) 1 237 228 Sale of a non-performing loans portfolio (Project Orion) novobanco entered into sale and purchase agreements with a consortium of funds managed by WEST INVEST UK LIMITED PARTNERSHIP and LX INVESTMENT PARTNERS III S.À.R.L. for the sale of a non-performing loans and related assets portfolio (Project Orion). The net book value of the receivables at the date of derecognition amounted to Euro 76.1 million (gross book value of Euro 162.9 million), with an impact on net income for the year 2021 of approximately Euro 1.8 million: Impact on the Income Statement Gains or losses from derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversal of impairments of financial assets not measured at fair value through profit or loss Provisions or reversal of provisions Impact on Net income (in thousands of Euros) 31.12.2021 -10 159 19 295 -7 310 1 826 Sale of a non-performing loans portfolio (Project Wilkinson) On March 5, 2021, novobanco entered into a sale and purchase agreement to sell a non-performing loans and related assets portfolio (Project Wilkinson), with a net book value of Euro 62.3 million (gross book value of Euro 210.4 million), with Burlington Loan Management, a company owned by companies affiliated to and advised by Davidson Kempner European Partners, LLP. The impact of this operation on net income for 2021 resulted in a loss of Euro 4.5 million. Sale of a non-performing loans portfolio (Project Wilkinson) On March 5, 2021, novobanco entered into a sale and purchase agreement to sell a non-performing loans and related assets portfolio (Project Wilkinson), with a net book value of Euro 62.3 million (gross book value of Euro 210.4 million), with Burlington Loan Management, a company owned by companies affiliated to and advised by Davidson Kempner European Partners, LLP. The impact of this operation on net income for 2021 resulted in a loss of Euro 4.5 million. Impact on the Income Statement Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Impact on Net Income 2020 Sale of a non-performing loans portfolio (Project Carter) On December 23, 2020, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related assets (together, the Carter Project), with a net book value of Euro 37.0 million (gross book value of Euro 82.8 million), 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 resulted in a gain of Euro 2.9 million. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2020 Sale of a non-performing loans portfolio (Project Carter) On December 23, 2020, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related assets (together, the Carter Project), with a net book value of Euro 37.0 million (gross book value of Euro 82.8 million), 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 resulted in a gain of Euro 2.9 million. (in thousands of Euros) 31.12.2021 -1 363 -3 175 -4 538 - 64 - 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 (in thousands of Euros) 31.12.2020 3 337 -405 2 932 NOTE 25 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS At 31 December 2021 and 31 December 2020, the fair value of the hedging derivatives is analysed as follows: Hedging derivatives Assets Liabilities Fair value component of the assets and liabilities hedged for interest rate risk Financial assets Securities (see Note 24) Loans to customers (see Note 24) (in thousands of Euros) 31.12.2021 31.12.2020 19 639 ( 44 460) ( 24 821) 12 972 ( 72 543) ( 59 571) ( 3 136) 33 797 30 661 1 129 62 730 63 859 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. (see Note 13). The Group calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology described in Note 42 - financial assets and liabilities held for trading. As at 31 December 2021 and 2020, fair value hedging operations may be analyzed as follows: Derivative Hedged item Hedged risk Notional Interest Rate Swap Securities at amortized cost Interest Rate Swap/ CIRS Loans to customers Interest rate 378 000 Interest and exchange rates 2 473 019 4 184 ( 29 005) 3 675 31 118 ( 3 136) 33 797 ( 4 265) ( 28 935) 2 851 019 ( 24 821) 34 793 30 661 ( 33 200) 31.12.2021 31.12.2020 (in thousands of Euros) Fair value of derivatives (2) Change in fair value of derivative in period Change in fair Fair value value component of component of item hedged (2) item hedged in exercise (2) (in thousands of Euros) Fair value of derivatives (2) Change in fair value of derivative in period Change in fair Fair value value component of component of item hedged (2) item hedged in exercise (2) Derivative Hedged item Hedged risk Notional Interest Rate Swap Securities at amortized cost Interest Rate Swap/ CIRS Loans to customers Interest rate 378 000 Interest and exchange rates 3 325 224 665 ( 60 236) 801 ( 9 045) 1 129 62 730 1 130 11 416 3 703 224 ( 59 571) ( 8 244) 63 859 12 546 (1) Attributable to hedged risk (2) Includes accrued interest (1) Attributable to hedged risk (2) Includes accrued interest NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 65 - 224 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 2020 2020 Sale of a non-performing loans portfolio (Project Carter) Sale of a non-performing loans portfolio (Project Carter) On December 23, 2020, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related On December 23, 2020, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related assets (together, the Carter Project), with a net book value of Euro 37.0 million (gross book value of Euro 82.8 million), to a company assets (together, the Carter Project), with a net book value of Euro 37.0 million (gross book value of Euro 82.8 million), to a company owned by affiliated companies and advised by AGG Capital Management Limited and Christofferson, Robb & Company, LLC. The 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 resulted in a gain of Euro 2.9 million. impact of this operation on the net income for the year 2020 resulted in a gain of Euro 2.9 million. (in thousands of Euros) (in thousands of Euros) NOTE 25 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS Impact on Income Statement Impact on Income Statement Results from the sale of financial assets and liabilities not designated at fair value through profit or loss 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 net of reversals of financial assets not designated at fair value through profit or loss Impact on Net Income Impact on Net Income At 31 December 2021 and 31 December 2020, the fair value of the hedging derivatives is analysed as follows: NOTE 25 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS NOTE 25 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS At 31 December 2021 and 31 December 2020, the fair value of the hedging derivatives is analysed as follows: At 31 December 2021 and 31 December 2020, the fair value of the hedging derivatives is analysed as follows: 31.12.2020 31.12.2020 3 337 3 337 -405 -405 2 932 2 932 Hedging derivatives Hedging derivatives Assets Assets Liabilities Liabilities Fair value component of the assets and liabilities hedged for interest rate risk Fair value component of the assets and liabilities hedged for interest rate risk Financial assets Financial assets Securities (see Note 24) Securities (see Note 24) Loans to customers (see Note 24) Loans to customers (see Note 24) 31.12.2021 31.12.2021 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 19 639 19 639 ( 44 460) ( 44 460) ( 24 821) ( 24 821) ( 3 136) ( 3 136) 33 797 33 797 30 661 30 661 12 972 12 972 ( 72 543) ( 72 543) ( 59 571) ( 59 571) 1 129 1 129 62 730 62 730 63 859 63 859 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. (see Note 13). Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives are 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. (see Note 13). recognized in the income statement in the caption Gains and losses from hedge accounting. (see Note 13). The Group calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology The Group calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology described in Note 42 - financial assets and liabilities held for trading. described in Note 42 - financial assets and liabilities held for trading. As at 31 December 2021 and 2020, fair value hedging operations may be analyzed as follows: As at 31 December 2021 and 2020, fair value hedging operations may be analysed as follows: The Group calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology described in Note 42 - financial assets and liabilities held for trading. As at 31 December 2021 and 2020, fair value hedging operations may be analysed as follows: Derivative Derivative Hedged item Hedged item Hedged risk Hedged risk Notional Notional 31.12.2021 31.12.2021 (in thousands of Euros) (in thousands of Euros) Fair value of derivatives (2) Fair value of derivatives (2) Change in fair value of Change in derivative in fair value of period derivative in period Fair value component of Fair value item hedged (2) component of item hedged (2) Change in fair value Change in fair component of value item hedged in component of exercise (2) item hedged in exercise (2) Interest Rate Swap Interest Rate Swap/ CIRS Interest Rate Swap Interest Rate Swap/ CIRS Securities at amortized cost Loans to customers Securities at amortized cost Loans to customers (1) Attributable to hedged risk (1) Attributable to hedged risk (2) Includes accrued interest (2) Includes accrued interest Interest rate Interest and exchange rates Interest rate Interest and exchange rates 378 000 2 473 019 378 000 2 473 019 2 851 019 2 851 019 4 184 ( 29 005) 4 184 ( 29 005) ( 24 821) ( 24 821) 3 675 31 118 3 675 31 118 34 793 34 793 ( 3 136) 33 797 ( 3 136) 33 797 30 661 30 661 ( 4 265) ( 28 935) ( 4 265) ( 28 935) ( 33 200) ( 33 200) Derivative Derivative Hedged item Hedged item Hedged risk Hedged risk Notional Notional 31.12.2020 31.12.2020 (in thousands of Euros) (in thousands of Euros) Fair value of derivatives (2) Fair value of derivatives (2) Change in fair value of Change in derivative in fair value of period derivative in period Fair value component of Fair value item hedged (2) component of item hedged (2) Change in fair value Change in fair component of value item hedged in component of exercise (2) item hedged in exercise (2) Interest Rate Swap Interest Rate Swap/ CIRS Interest Rate Swap Interest Rate Swap/ CIRS Securities at amortized cost Loans to customers Securities at amortized cost Loans to customers (1) Attributable to hedged risk (1) Attributable to hedged risk (2) Includes accrued interest (2) Includes accrued interest Interest rate Interest and exchange rates Interest rate Interest and exchange rates 378 000 3 325 224 378 000 3 325 224 3 703 224 3 703 224 665 ( 60 236) 665 ( 60 236) ( 59 571) ( 59 571) 801 ( 9 045) 801 ( 9 045) ( 8 244) ( 8 244) 1 129 62 730 1 129 62 730 63 859 63 859 1 130 11 416 1 130 11 416 12 546 12 546 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 65 - - 66 - 225 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes On 31 December 2021, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 1.6 million, was recorded in the income statement (31 December 2020: profit of Euro 4.3 million). The Group periodically conducts tests of the effectiveness of existing hedging relationships. On 31 December 2021, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 1.6 million, was recorded in the income statement (31 December 2020: profit of Euro 4.3 million). The Group periodically conducts tests of the effectiveness of existing hedging relationships. Transactions with risk management and hedge derivatives as of 31 December 2021 and 2020, by maturity, can be analysed as follows: On 31 December 2021, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 1.6 million, was Transactions with risk management and hedge derivatives as of 31 December 2021 and 2020, by maturity, can be analysed as recorded in the income statement (31 December 2020: profit of Euro 4.3 million). The Group periodically conducts tests of the follows: effectiveness of existing hedging relationships. (in thousands of Euros) Transactions with risk management and hedge derivatives as of 31 December 2021 and 2020, by maturity, can be analyzed as follows: On 31 December 2021, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 1.6 million, was recorded in the income statement (31 December 2020: profit of Euro 4.3 million). The Group periodically conducts tests of the 65 000 effectiveness of existing hedging relationships. 31.12.2021 76 070 418 161 Transactions with risk management and hedge derivatives as of 31 December 2021 and 2020, by maturity, can be analyzed as Sell 866 279 follows: Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Fair Value (net) (in thousands of Euros) ( 705) ( 1 212) Fair Value 1 171 (net) ( 24 075) 65 000 76 070 418 161 Buy 866 278 - 170 866 803 084 877 662 - 170 866 803 084 877 662 - ( 912) ( 8 747) ( 49 912) Fair Value (net) Fair Value (net) 31.12.2020 Notional Notional Notional Notional Buy Sell Buy Buy Sell Sell 31.12.2021 31.12.2020 ( 705) ( 1 212) 1 171 NOTE 26 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES ( 24 075) Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years 65 000 76 070 418 161 866 279 65 000 76 070 418 161 866 278 1 425 510 31.12.2021 Fair Value (net) 1 425 509 ( 24 821) Notional Buy Sell 1 851 612 ( 59 571) (in thousands of Euros) 1 851 612 - 170 866 31.12.2020 803 084 Notional 877 662 - 170 866 803 084 877 662 Sell Fair Value (net) - ( 912) ( 8 747) ( 49 912) NOTE 26 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years 65 000 1 425 509 76 070 418 161 866 278 Economic interest (b) Cost of participation 65 000 1 425 510 76 070 418 161 866 279 ( 705) ( 1 212) 1 171 ( 24 075) Investments in subsidiaries, joint ventures and associates are presented as follows: NOTE 26 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Gross Book Value Impairment Net Book Value - 170 866 803 084 877 662 (in thousands of Euros) Profit / (losses) attributable to the Group - ( 59 571) ( 912) ( 8 747) ( 49 912) ( 24 821) 1 851 612 1 851 612 31.12.2021 31.12.2020 1 425 509 31.12.2021 31.12.2020 1 425 510 31.12.2021 31.12.2020 ( 24 821) 31.12.2021 31.12.2020 1 851 612 31.12.2021 31.12.2020 1 851 612 31.12.2021 31.12.2020 ( 59 571) Buy - 170 866 803 084 877 662 Investments in subsidiaries, joint ventures and associates are presented as follows: Investments in subsidiaries, joint ventures and associates are presented as follows: LOCARENT 21 349 20 607 2 967 2 967 50.00% 50.00% - LINEAS - CONCESSÕES DE TRANSPORTES 146 769 146 769 40.00% 40.00% 59 737 60 200 ( 26 361) ( 26 570) EDENRED 4 984 4 984 50.00% 50.00% 2 692 2 102 - UNICRE a) NOTE 26 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES 11 497 11 497 27 242 28 983 17.50% 17.50% - ESEGUR b) Others - 9 634 Cost of participation 14 445 28 572 44.00% - 13 847 - Economic interest (b) 11 474 Gross Book Value 19 701 ( 8 673) ( 6 717) Impairment ( 11 393) Investments in subsidiaries, joint ventures and associates are presented as follows: 94 590 31.12.2021 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. 194 789 31.12.2020 190 296 31.12.2021 31.12.2020 31.12.2020 31.12.2020 31.12.2021 31.12.2021 136 341 131 593 ( 41 751) ( 37 963) - - - - 21 349 33 376 2 692 20 607 33 630 2 102 27 242 28 983 1 054 ( 1 908) 904 3 120 1 021 4 526 469 (in thousands of Euros) 4 242 5 174 4 757 - Net Book Value 8 308 98 526 - Profit / (losses) attributable ( 828) to the Group 31.12.2021 93 630 31.12.2020 3 794 9 430 31.12.2021 31.12.2020 The financial information of the most relevant associated companies is presented in the following table: 31.12.2021 LOCARENT b) Reclassified during 2021 from discontinued operations (see Note 32) 2 967 2 967 LINEAS - CONCESSÕES DE TRANSPORTES 146 769 146 769 50.00% 40.00% 50.00% 40.00% 21 349 59 737 20 607 60 200 - - ( 26 361) ( 26 570) 21 349 33 376 50.00% EDENRED Economic interest (b) The financial information of the most relevant associated companies is presented in the following table: UNICRE a) 17.50% ESEGUR b) 44.00% - 31.12.2021 - Cost of participation Gross Book Value 31.12.2020 ( 8 673) 31.12.2021 - Impairment 31.12.2020 31.12.2021 31.12.2021 31.12.2020 31.12.2020 31.12.2021 11 497 11 497 27 242 28 983 13 847 - Net Book Value 4 984 9 634 4 984 2 102 2 692 50.00% 17.50% 27 242 31.12.2020 5 174 2 692 - - - - 20 607 1 054 (in thousands of Euros) ( 1 908) 33 630 Profit / (losses) attributable 904 to the Group 2 102 3 120 28 983 31.12.2021 - 1 021 4 526 469 4 242 Others LOCARENT 2 967 14 445 50.00% 50.00% 21 349 11 474 20 607 19 701 - ( 6 717) - ( 11 393) 21 349 4 757 20 607 8 308 1 054 EDENRED LINEAS - CONCESSÕES DE TRANSPORTES 33 630 94 590 31.12.2020 2 102 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. 28 983 190 296 31.12.2021 4 984 11 497 b) Reclassified during 2021 from discontinued operations (see Note 32) 9 634 59 737 31.12.2020 2 692 27 242 238 299 13 847 40.00% 31.12.2021 50.00% 17.50% 229 358 42 082 - ( 8 673) 40 593 - UNICRE a) LOCARENT ESEGUR b) 131 593 31.12.2021 2 102 ( 41 751) 31.12.2020 27 242 28 253 5 174 ( 37 963) 31.12.2021 278 892 - 44.00% 194 789 4 984 271 440 31.12.2020 136 341 146 769 ( 26 570) ( 26 361) 28 983 33 376 11 497 60 200 2 692 40.00% 17.50% 50.00% - - - - - Liabilities Equity Income 28 572 2 967 Assets 146 769 31.12.2020 98 (in thousands of Euros) 526 1 021 ( 828) - Profit / (loss) for the period 93 630 ( 1 908) 31.12.2021 3 120 904 4 526 3 794 469 4 242 9 430 31.12.2020 33 115 - 2 108 98 2 042 - Others LINEAS - CONCESSÕES DE TRANSPORTES 8 308 19 769 7 083 The financial information of the most relevant associated companies is presented in the following table: 148 490 EDENRED 11 175 94 590 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. UNICRE a) 142 625 b) Reclassified during 2021 from discontinued operations (see Note 32) ESEGUR b) 11 474 154 744 138 557 226 769 376 148 220 481 155 667 210 647 165 619 239 341 376 266 88 212 84 597 78 399 72 897 67 973 11 605 10 426 84 502 4 757 1 503 136 341 131 593 194 789 190 296 ( 11 393) ( 41 751) ( 37 963) 28 572 14 445 19 701 93 630 ( 6 717) 13 007 15 916 39 947 28 923 - - - Assets Liabilities Equity 526 ( 4 770) ( 828) 3 794 1 807 9 430 12 333 938 17 827 24 239 (in thousands of Euros) 220 - Profit / (loss) for the period - Income Note: Data adjusted for consolidation purposes The financial information of the most relevant associated companies is presented in the following table: 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. LOCARENT (in thousands of Euros) 238 299 271 440 278 892 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2021 31.12.2020 40 593 28 253 2 108 31.12.2020 LINEAS - CONCESSÕES DE TRANSPORTES b) Reclassified during 2021 from discontinued operations (see Note 32) 226 769 239 341 Assets EDENRED 33 115 LOCARENT UNICRE a) The changes in this caption for the years ended as at 31 December 2021 and 2020, are analysed as follows: LINEAS - CONCESSÕES DE TRANSPORTES 19 769 ESEGUR b) EDENRED - 11 175 376 148 155 667 220 481 210 647 165 619 142 625 376 266 72 897 67 973 11 605 10 426 11 175 13 007 15 916 39 947 78 399 28 923 84 502 226 769 138 557 239 341 154 744 271 440 229 358 278 892 238 299 84 502 28 253 88 212 84 597 72 897 11 605 67 973 78 399 10 426 42 082 40 593 1 503 7 083 - - 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 Note: Data adjusted for consolidation purposes UNICRE a) 376 148 376 266 220 481 210 647 155 667 165 619 142 625 31.12.2021 148 490 229 358 Liabilities 138 557 154 744 84 597 42 082 Equity 88 212 Income 1 503 31.12.2020 33 115 Profit / (loss) for the period 19 769 ( 4 770) 31.12.2020 1 807 31.12.2021 7 083 2 042 12 333 938 148 490 2 108 17 827 2 042 24 239 (in thousands of Euros) 12 333 220 ( 4 770) - 1 807 31.12.2020 220 17 827 938 24 239 - (in thousands of Euros) (a) In the year 2021 includes EUR 4,326 thousand related to the reclassification of Ijar Leasing to discontinued operations and EUR 5,232 thousand and EUR 669 thousand ESEGUR b) 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. 13 007 15 916 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. - - 39 947 28 923 Note: Data adjusted for consolidation purposes b) Reclassified during 2021 from discontinued operations (see Note 32) b) Reclassified during 2021 from discontinued operations (see Note 32) Balance at the beginning of the exercise The changes in this caption for the years ended as at 31 December 2021 and 2020, are analysed as follows: - 93 630 ( 153) - 3 794 315 The changes in this caption for the years ended as at 31 December 2021 and 2020, are analysed as follows: ( 774) 31.12.2021 ( 7 499) 5 277 Disposals and other reimbursements (see Note 1) 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 Balance at the beginning of the exercise Foreign exchange differences and other (a) Disposals and other reimbursements (see Note 1) Additional acquisitions and investments (see Note 1) Disposals and other reimbursements (see Note 1) Share of profits / (losses) of associated companies Additional acquisitions and investments (see Note 1) Balance at the end of the exercise Balance at the beginning of the exercise 93 630 ( 153) - 3 794 94 590 93 630 ( 153) - 31.12.2021 - 92 628 - 2 919 9 430 ( 4 192) 691 31.12.2020 ( 1 541) ( 6 305) 92 628 - 2 919 9 430 93 630 92 628 - 2 919 related to the reclassification of ESEGUR and Multipessoal, respectively, from discontinued operations (see Note 32) Impairment in associated companies Share of profits / (losses) of associated companies Fair value reserves of investments in associated companies Impairment in associated companies Dividends received Fair value reserves of investments in associated companies Foreign exchange differences and other (a) Dividends received Foreign exchange differences and other (a) Balance at the end of the exercise NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 794 315 315 ( 774) ( 774) ( 7 499) ( 7 499) 5 277 5 277 94 590 9 430 ( 4 192) 691 ( 1 541) ( 6 305) ( 4 192) 691 ( 1 541) ( 6 305) 93 630 - 67 - 93 630 Balance at the end of the exercise (a) In the year 2021 includes EUR 4,326 thousand related to the reclassification of Ijar Leasing to discontinued operations and EUR 5,232 thousand and EUR 669 thousand 94 590 related to the reclassification of ESEGUR and Multipessoal, respectively, from discontinued operations (see Note 32) (a) In the year 2021 includes EUR 4,326 thousand related to the reclassification of Ijar Leasing to discontinued operations and EUR 5,232 thousand and EUR 669 thousand related to the reclassification of ESEGUR and Multipessoal, respectively, from discontinued operations (see Note 32) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 66 - - 66 - (in thousands of Euros) 31.12.2020 226 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes On 31 December 2021, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 1.6 million, was recorded in the income statement (31 December 2020: profit of Euro 4.3 million). The Group periodically conducts tests of the effectiveness of existing hedging relationships. Transactions with risk management and hedge derivatives as of 31 December 2021 and 2020, by maturity, can be analysed as follows: Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years (in thousands of Euros) 31.12.2021 31.12.2020 Notional Buy Sell Fair Value (net) Notional Buy Sell Fair Value (net) 65 000 76 070 418 161 866 278 65 000 76 070 418 161 866 279 ( 705) ( 1 212) 1 171 ( 24 075) - 170 866 803 084 877 662 - 170 866 803 084 877 662 1 425 509 1 425 510 ( 24 821) 1 851 612 1 851 612 - ( 912) ( 8 747) ( 49 912) ( 59 571) NOTE 26 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Investments in subsidiaries, joint ventures and associates are presented as follows: LINEAS - CONCESSÕES DE TRANSPORTES 146 769 146 769 ( 26 361) ( 26 570) Cost of participation Economic interest (b) Gross Book Value Impairment Net Book Value 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 2 967 2 967 4 984 4 984 11 497 11 497 9 634 - 14 445 28 572 190 296 194 789 50.00% 40.00% 50.00% 17.50% 44.00% 50.00% 40.00% 50.00% 17.50% - 21 349 59 737 2 692 27 242 13 847 11 474 20 607 60 200 2 102 28 983 - 19 701 - - - - - - - 21 349 33 376 2 692 20 607 33 630 2 102 27 242 28 983 5 174 4 757 - 8 308 1 054 ( 1 908) 904 3 120 98 526 1 021 4 526 469 4 242 - ( 828) ( 8 673) ( 6 717) ( 11 393) 136 341 131 593 ( 41 751) ( 37 963) 94 590 93 630 3 794 9 430 (in thousands of Euros) Profit / (losses) attributable to the Group LOCARENT EDENRED UNICRE a) ESEGUR b) Others 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. b) Reclassified during 2021 from discontinued operations (see Note 32) The financial information of the most relevant associated companies is presented in the following table: Assets Liabilities Equity Income Profit / (loss) for the period 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 (in thousands of Euros) LOCARENT 271 440 278 892 229 358 238 299 LINEAS - CONCESSÕES DE TRANSPORTES 226 769 239 341 138 557 154 744 84 502 78 399 72 897 67 973 42 082 88 212 11 605 40 593 84 597 10 426 28 253 1 503 11 175 33 115 19 769 7 083 2 108 ( 4 770) 1 807 2 042 12 333 938 376 148 376 266 220 481 210 647 155 667 165 619 142 625 148 490 17 827 24 239 28 923 - 13 007 - 15 916 - 39 947 - 220 - EDENRED UNICRE a) ESEGUR b) Note: Data adjusted for consolidation purposes 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. b) Reclassified during 2021 from discontinued operations (see Note 32) The changes in this caption for the years ended as at 31 December 2021 and 2020, are analysed as follows: The changes in this caption for the years ended as at 31 December 2021 and 2020, are analysed as follows: (in thousands of Euros) Balance at the beginning of the exercise Disposals and other reimbursements (see Note 1) 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) Balance at the end of the exercise 31.12.2021 31.12.2020 93 630 ( 153) - 3 794 315 ( 774) ( 7 499) 5 277 94 590 92 628 - 2 919 9 430 ( 4 192) 691 ( 1 541) ( 6 305) 93 630 (a) In the year 2021 includes EUR 4,326 thousand related to the reclassification of Ijar Leasing to discontinued operations and EUR 5,232 thousand and EUR 669 thousand related to the reclassification of ESEGUR and Multipessoal, respectively, from discontinued operations (see Note 32) In 2021, dividend income of Euro 7,499 thousand was recorded in financial assets in investments in associates and subsidiaries, which include dividends received from Unicre in the amount of Euro 6,321 thousand, from Edenred in the amount of Euro 660 thousand (31 December 2020: Euro 1,541 thousand, which include dividends received from Locarent in the amount of Euro 958 In 2021, dividend income of Euro 7,499 thousand was recorded in financial assets in investments in thousand and Edenred in the amount of Euro 583 thousand). associates and subsidiaries, which include dividends received from Unicre in the amount of Euro 6,321 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS thousand, from Edenred in the amount of Euro 660 thousand (31 December 2020: Euro 1,541 thousand, - 67 - which include dividends received from Locarent in the amount of Euro 958 thousand and Edenred in the amount of Euro 583 thousand). The changes in impairment losses for investments in associates are presented as follows: The changes in impairment losses for investments in associates are presented as follows: (in thousands of Euros) 31.12.2021 31.12.2020 Balance at the beginning of the year Charges Uses Reversals Foreign exchange differences (a) 37 963 678 - ( 993) 4 103 Balance at the end of the year (a) For 2021 it includes Euro 4,725 thousand impairment for Ijar Leasing transferred during the first half of 2021 to discontinued operations (see Note 32). 41 751 NOTE 27 – PROPERTY, PLANT AND EQUIPMENT This caption as at 31 December 2021 and 31 December 2020 is analysed as follows: 36 317 5 142 ( 2 680) ( 950) 134 37 963 NOTE 27 – PROPERTY, PLANT AND EQUIPMENT Real estate properties This caption as at 31 December 2021 and 31 December 2020 is analysed as follows: For own use Improvement in leasehold properties Equipment Computer equipment Fixtures Furniture Security equipment Transport equipment Right of use assets Other Assets under right of use Real estate properties Equipment Work in progress Improvements in leasehold properties Real estate properties Equipment Others Accumulated impairment Accumulated depreciation (in thousands of Euros) 31.12.2021 31.12.2020 245 988 120 800 225 571 135 909 366 788 361 480 114 847 49 276 54 728 21 775 8 407 583 146 106 337 56 936 52 296 24 248 7 993 583 189 249 762 248 582 55 993 9 819 53 082 10 228 65 812 63 310 952 9 891 6 336 11 185 - 148 1 1 417 1 566 693 547 674 938 ( 13 221) ( 441 381) ( 13 943) ( 473 943) 238 945 187 052 227 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 67 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In 2021, dividend income of Euro 7,499 thousand was recorded in financial assets in investments in associates and subsidiaries, which include dividends received from Unicre in the amount of Euro 6,321 thousand, from Edenred in the amount of Euro 660 thousand (31 December 2020: Euro 1,541 thousand, which include dividends received from Locarent in the amount of Euro 958 thousand and Edenred in the amount of Euro 583 thousand). The changes in impairment losses for investments in associates are presented as follows: (in thousands of Euros) 31.12.2021 31.12.2020 Balance at the beginning of the year Charges Uses Reversals Foreign exchange differences (a) 37 963 678 - ( 993) 4 103 Balance at the end of the year (a) For 2021 it includes Euro 4,725 thousand impairment for Ijar Leasing transferred during the first half of 2021 to discontinued operations (see Note 32). 41 751 NOTE 27 – PROPERTY, PLANT AND EQUIPMENT This caption as at 31 December 2021 and 31 December 2020 is analysed as follows: 36 317 5 142 ( 2 680) ( 950) 134 37 963 Real estate properties For own use Improvement in leasehold properties Equipment Computer equipment Fixtures Furniture Security equipment Transport equipment Right of use assets Other Assets under right of use Real estate properties Equipment Work in progress Improvements in leasehold properties Real estate properties Equipment Others Accumulated impairment Accumulated depreciation (in thousands of Euros) 31.12.2021 31.12.2020 245 988 120 800 225 571 135 909 366 788 361 480 114 847 49 276 54 728 21 775 8 407 583 146 106 337 56 936 52 296 24 248 7 993 583 189 249 762 248 582 55 993 9 819 53 082 10 228 65 812 63 310 952 9 891 6 336 11 185 - 148 1 1 417 1 566 693 547 674 938 ( 13 221) ( 441 381) ( 13 943) ( 473 943) 238 945 187 052 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 67 - 228 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The changes in this caption were as follows: The changes in this caption were as follows: - - - - (in thousand of Euros) Real Estate Properties Equipment Right of Use Assets Work in Progress Total Acquisition Cost Balance at 31 December 2019 Acquisitions Disposals/write-offs Transfers Foreign exchange differences and other (a) Balance at 31 December 2020 Acquisitions Disposals/write-offs Transfers (d) Foreign exchange differences and other 346 810 31 178 ( 5 090) ( 1 665) ( 9 753) 361 480 37 989 ( 37 561) 4 881 ( 1) 274 569 11 238 ( 10 360) ( 147) ( 26 718) 248 582 24 853 ( 23 835) 160 2 66 483 4 276 ( 7 449) - - 63 310 2 502 - - - Balance at 31 December 2021 366 788 249 762 65 812 Depreciation Balance at 31 December 2019 Depreciation Disposals/write-offs Transfers (b) Foreign exchange differences and other (c) Balance at 31 December 2020 Depreciation Disposals/write-offs Transfers (d) Foreign exchange differences and other 228 222 4 881 ( 3 103) ( 805) ( 995) 228 200 5 391 ( 31 068) ( 1 512) 3 101 245 967 9 624 ( 9 980) ( 143) ( 24 431) 221 037 10 668 ( 23 200) ( 284) 171 14 751 15 780 ( 5 825) - - 24 706 11 400 ( 7 229) - Balance at 31 December 2021 204 112 208 392 28 877 Impairment Balance at 31 December 2019 Impairment loss Balance at 31 December 2020 Impairment losses Reversal of impairment losses Transfers Exchange variation and other movements Balance at 31 December 2021 Net book value at 31 December 2021 10 609 3 334 13 943 3 484 ( 5 167) 303 658 13 221 149 455 - - - - - - - - - - - - - - - - 95 1 593 - ( 121) ( 1) 1 566 16 629 - ( 7 010) - 11 185 - - - - - - - - - - - - - - - - - - - 687 957 48 285 ( 22 899) ( 1 933) ( 36 472) 674 938 81 973 ( 61 396) ( 1 969) 1 693 547 488 940 30 285 ( 18 908) ( 948) ( 25 426) 473 943 27 459 ( 61 497) ( 1 796) 3 272 441 381 10 609 3 334 13 943 3 484 ( 5 167) 303 658 13 221 238 945 41 370 36 935 11 185 Net book value at 31 December 2020 119 337 27 545 38 604 1 566 187 052 (a) Includes Euro 9,005 and Euro 27,118 thousand of real estate and equipment of the Spain branch transferred for discontinued activities during 2020. (b) Includes Euro 1,951 thousand of fixed assets (property and equipment) and Euro 1,064 thousand of accumulated depreciation relating to discontinued branches that were transferred at net value to the appropriate balance sheet items. (c) Includes Euro 2,034 and Euro 24,274 thousand of depreciation relating to real estate and equipment of the Spanish Branch transferred for discontinued activities during 2020. (d) Includes Euro 3,471 thousand of fixed assets (property and equipment) and Euro 1,650 thousand of accumulated depreciation related to discontinued branches that were transferred at net value to the appropriate balance sheet items. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 69 - 229 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 28 – INVESTMENT PROPERTIES NOTE 28 – INVESTMENT PROPERTIES The changes in Investment properties is presented as follows: NOTE 28 – INVESTMENT PROPERTIES The changes in Investment properties is presented as follows: The changes in Investment properties is presented as follows: Balance at the beginning of the exercise Acquisitions Disposals Changes in fair value Other (a) Balance at the beginning of the exercise Acquisitions Balance at the end of the exercise Disposals (a) Includes EUR 37,609 thousand in 2021 and EUR 52,915 thousand in 2020 of real estate assets, previously classified in Other Assets, transferred under the Real Estate Funds reorganization process Changes in fair value (see Note 31) Other (a) 700 744 11 966 ( 67 581) ( 101 827) 49 303 700 744 11 966 592 605 ( 67 581) ( 101 827) 49 303 592 605 4 973 ( 49 727) 31 179 46 157 592 605 4 973 625 187 ( 49 727) 31 179 46 157 (in thousands of Euros) 31.12.2020 31.12.2021 (in thousands of Euros) 31.12.2021 31.12.2020 Balance at the end of the exercise According to the accounting policy described in Note 7.19, the book value of investment properties is the fair value of the properties, 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, corresponding to level 3 of the fair value hierarchy (see Note 42). In view of the uncertainty associated with the estimated value of these assets, novobanco Group considers the impacts of the current context of the Covid-19 pandemic as the assets are subject to revaluation. According to the accounting policy described in Note 7.19, the book value of investment properties is the fair value of the properties, as determined by a registered and independent appraiser with a recognized professional qualification and experience in the (a) Includes EUR 37,609 thousand in 2021 and EUR 52,915 thousand in 2020 of real estate assets, previously classified in Other Assets, transferred under the Real Estate Funds reorganization process geographical location and category of the property being valued. For the purposes of determining the fair value of these assets, (see Note 31) generally accepted criteria and methodologies are used, which integrate analyses by the income method and the market method, corresponding to level 3 of the fair value hierarchy (see Note 42). In view of the uncertainty associated with the estimated value of According to the accounting policy described in Note 7.19, the book value of investment properties is the fair value of the properties, these assets, novobanco Group considers the impacts of the current context of the Covid-19 pandemic as the assets are subject to as determined by a registered and independent appraiser with a recognized professional qualification and experience in the revaluation. 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 leased for corresponding to level 3 of the fair value hierarchy (see Note 42). In view of the uncertainty associated with the estimated value of revenue and properties held for valuation. Most of the lease contracts have no specific tenor, enabling the lessee to cancel it at any these assets, novobanco Group considers the impacts of the current context of the Covid-19 pandemic as the assets are subject to time. However, for a small number of these commercial properties leased to third parties there is a non-cancelling clause for revaluation. 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 During 2021, the increase in the fair value of investment properties in the amount of Euro 31.2 million (31 December 2020: reduction revenue and properties held for valuation. Most of the lease contracts have no specific tenor, enabling the lessee to cancel it at any of Euro 101.8 million) (see Note 15), and the rental income from investment properties in the amount of Euro 19.2 million (31 time. However, for a small number of these commercial properties leased to third parties there is a non-cancelling clause for December 2020: Euro 19.3 million), are recognized under Other operating income and expenses. approximately 10 years. Subsequent leases are negotiated with the lessee. NOTE 29 – INTANGIBLE ASSETS 592 605 625 187 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 time. However, for a small number of these commercial properties leased to third parties there is a non-cancelling clause for approximately 10 years. Subsequent leases are negotiated with the lessee. During 2021, the increase in the fair value of investment properties in the amount of Euro 31.2 million (31 December 2020: reduction NOTE 29 – INTANGIBLE ASSETS of Euro 101.8 million) (see Note 15), and the rental income from investment properties in the amount of Euro 19.2 million (31 December 2020: Euro 19.3 million), are recognized under Other operating income and expenses. This caption as at 31 December 2021 and 31 December 2020, is analysed as follows: NOTE 29 – INTANGIBLE ASSETS During 2021, the increase in the fair value of investment properties in the amount of Euro 31.2 million (31 December 2020: reduction of Euro 101.8 million) (see Note 15), and the rental income from investment properties in the amount of Euro 19.2 million (31 December 2020: Euro 19.3 million), are recognized under Other operating income and expenses. This caption as at 31 December 2021 and 31 December 2020, is analysed as follows: This caption as at 31 December 2021 and 31 December 2020, is analysed as follows: Goodwill Impairment losses Internally developed Goodwill Software - Automatic data processing system Other Impairment losses Acquired from third parties Internally developed Software - Automatic data processing system Software - Automatic data processing system Other Work in progress Acquired from third parties Software - Automatic data processing system Accumulated amortization Work in progress Accumulated amortization (in thousands of Euros) 31.12.2021 31.12.2020 13 907 13 907 (in thousands of Euros) ( 13 907) 31.12.2021 - ( 13 907) 31.12.2020 - 13 907 69 511 ( 13 907) 1 - 387 358 69 511 456 870 1 13 455 13 907 69 511 ( 13 907) 1 - 353 678 69 511 423 190 1 21 439 470 325 387 358 444 629 353 678 ( 402 339) 456 870 67 986 13 455 ( 395 796) 423 190 48 833 21 439 470 325 444 629 ( 402 339) ( 395 796) 67 986 48 833 230 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 70 - - 70 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The changes in this caption were as follows: The changes in this caption were as follows: Acquisition cost Balance as at 31 December 2019 Acquisitions Acquired from third parties Disposals / write-offs Transfers Foreign exchange differences and other (a) Saldo a 31 de dezembro de 2020 Acquisitions Acquired from third parties Transfers Balance as at 31 December 2021 Amortizations Balance as at 31 December 2019 Amortization for the period Disposals / write-offs Foreign exchange differences and other Balance as at 31 December 2020 Amortization for the period Foreign exchange differences and other (b) Balance as at 31 December 2021 Impairment Balance as at 31 December 2019 Foreign exchange differences and other Balance as at 31 December 2020 Balance as at 31 December 2021 Net balance at 31 December 2021 Net balance at 31 December 2020 Goodwill Software Work in progress Total (in thousands of Euros) 13 908 440 946 17 464 472 318 - - - ( 1) 13 907 - - 13 907 - - - - - - - - 13 908 ( 1) 13 907 13 907 - - 2 730 ( 24) 20 161 ( 40 623) 423 190 3 499 30 181 456 870 432 032 2 787 ( 20) ( 39 003) 395 796 6 545 ( 2) 402 339 - - - - 24 136 - ( 20 161) - 21 439 22 197 ( 30 181) 13 455 - - - - - - - - - - - - 54 531 27 394 13 455 21 439 26 866 ( 24) - ( 40 624) 458 536 25 696 - 484 232 432 032 2 787 ( 20) ( 39 003) 395 796 6 545 ( 2) 402 339 13 908 ( 1) 13 907 13 907 67 986 48 833 (a) Includes Euro 40,083 thousand of projects assigned to the Spain branch transferred to Discontinued Entities during the financial year 2020. (b) Includes Euro 38,463 thousand 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 6and can be analyzed as follows: Subsidiaries Imbassaí GNB Concessões Impairment losses Imbassaí GNB Concessões (in thousands of Euros) 31.12.2021 31.12.2020 13 526 381 13 907 (13 526) ( 381) (13 907) - 13 526 381 13 907 (13 526) ( 381) (13 907) - 231 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 70 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The changes in this caption were as follows: Foreign exchange differences and other (a) Acquisition cost Balance as at 31 December 2019 Acquisitions Acquired from third parties Disposals / write-offs Transfers Saldo a 31 de dezembro de 2020 Acquisitions Transfers Acquired from third parties Balance as at 31 December 2021 Amortizations Balance as at 31 December 2019 Amortization for the period Disposals / write-offs Foreign exchange differences and other Balance as at 31 December 2020 Amortization for the period Foreign exchange differences and other (b) Balance as at 31 December 2021 Impairment Balance as at 31 December 2019 Foreign exchange differences and other Balance as at 31 December 2020 Balance as at 31 December 2021 Net balance at 31 December 2021 Net balance at 31 December 2020 Goodwill Software Work in progress Total (in thousands of Euros) 13 908 440 946 ( 1) 13 907 13 907 - - - - - - - - - - - - - 13 908 ( 1) 13 907 13 907 - - 2 730 ( 24) 20 161 ( 40 623) 423 190 3 499 30 181 456 870 432 032 2 787 ( 20) ( 39 003) 395 796 6 545 ( 2) 402 339 - - - - 17 464 24 136 ( 20 161) 21 439 22 197 ( 30 181) 13 455 - - - - - - - - - - - - - - 54 531 27 394 13 455 21 439 472 318 26 866 ( 24) ( 40 624) 458 536 25 696 - - 484 232 432 032 2 787 ( 20) ( 39 003) 395 796 6 545 ( 2) 402 339 13 908 ( 1) 13 907 13 907 67 986 48 833 (a) Includes Euro 40,083 thousand of projects assigned to the Spain branch transferred to Discontinued Entities during the financial year 2020. (b) Includes Euro 38,463 thousand 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 6and can be analyzed as follows: Goodwill is recognized in accordance with the accounting policy described in Note 6and can be analyzed as follows: Subsidiaries Imbassaí GNB Concessões Impairment losses Imbassaí GNB Concessões (in thousands of Euros) 31.12.2021 31.12.2020 13 526 381 13 907 (13 526) ( 381) (13 907) - 13 526 381 13 907 (13 526) ( 381) (13 907) - NOTE 30 – INCOME TAXES NOTE 30 – INCOME TAXES Tax assets and liabilities recognized in the balance sheet as at 31 December 2021 and 2020 can be analysed as follows: Tax assets and liabilities recognized in the balance sheet as at 31 December 2021 and 2020 can be analysed as follows: NOTE 30 – INCOME TAXES (in thousands of Euros) 31.12.2020 Tax assets and liabilities recognized in the balance sheet as at 31 December 2021 and 2020 can be analysed as follows: 31.12.2021 Liabilities Assets Assets Liabilities The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2021 and 2020 are as follows: Current tax Corporate Tax recoverable / (payable) Other Deferred tax Current tax NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Corporate Tax recoverable / (payable) Other Deferred tax 31.12.2021 Liabilities 35 653 142 35 511 Assets 744 239 35 653 779 892 142 35 511 744 239 12 262 12 162 100 3 035 12 262 15 297 12 162 100 3 035 610 144 466 Assets 774 888 610 775 498 144 466 774 888 775 498 (in thousands of Euros) 31.12.2020 Liabilities - 70 - 9 203 9 129 74 5 121 9 203 14 324 9 129 74 5 121 14 324 Assets 779 892 15 297 Liabilities (in thousands of Euros) Net 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2021 and 2020 are as follows: The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2021 and 2020 are as follows: Financial instruments Impairment losses on loans (not covered) Impairment losses on loans (covered) Other tangible assets Provisions Financial instruments Pensions Impairment losses on loans (not covered) Long-term service bonuses Impairment losses on loans (covered) Other Other tangible assets Tax losses carried forward Provisions Deferred tax asset / (liability) Pensions Asset / liability set-off for deferred tax purposes Long-term service bonuses Other Net Deferred tax asset / (liability) Tax losses carried forward 92 300 339 022 267 341 Assets - 31.12.2021 82 240 92 300 48 995 339 022 21 267 341 124 - 751 82 240 830 794 48 995 ( 86 555) 21 124 744 239 751 ( 138 855) - - ( 8 203) 31.12.2020 - ( 138 855) - - - - ( 9 989) ( 8 203) - - ( 157 047) - 151 926 - ( 9 989) ( 5 121) - ( 78 526) - - ( 8 029) 31.12.2021 - ( 78 526) - - - - ( 3 035) ( 8 029) - - ( 89 590) - 86 555 - ( 3 035) ( 3 035) - 64 322 790 784 - - 31.12.2020 39 136 64 322 31 676 790 784 22 - 123 - 751 39 136 926 814 31 676 ( 151 926) 22 123 774 888 751 13 774 339 022 267 341 ( 8 029) 31.12.2021 82 240 13 774 48 995 339 022 21 267 341 ( 2 911) ( 8 029) 751 82 240 741 204 48 995 - 21 ( 2 911) 741 204 751 Liabilities Net ( 74 533) 790 784 - ( 8 203) 31.12.2020 39 136 ( 74 533) 31 676 790 784 22 - ( 9 866) ( 8 203) 751 39 136 769 767 31 676 - 22 ( 9 866) 769 767 751 (in thousands of Euros) Deferred tax asset / (liability) As of 31 December 2021 the deferred tax related to temporary differences was determined based on an aggregate rate of 31%, Asset / liability set-off for deferred tax purposes resulting from the sum of the general IRC rate (21%), the Municipal Surcharge of 1.5% and an average rate of State Surcharge of Net Deferred tax asset / (liability) 8.5%. ( 151 926) ( 157 047) 830 794 926 814 741 204 769 767 744 239 151 926 741 204 774 888 769 767 ( 86 555) ( 89 590) 86 555 ( 3 035) ( 5 121) - - 232 On 4th September 2019, Law No. 98/2019 was published, which amended the IRC Code on the tax treatment of credit institutions' As of 31 December 2021, the deferred tax related to temporary differences was determined based on an aggregate rate of 31%, impairments, creating rules applicable to impairment losses recorded in the tax periods beginning before 1st January 2019, not yet resulting from the sum of the general IRC rate (21%), the Municipal Surcharge of 1.5% and an average rate of State Surcharge of accepted for tax purposes. This Law established a transition period for the aforementioned tax regime, which allows taxpayers in the 8.5%. five tax periods beginning on or after January 1, 2019, to continue to apply the tax regime in force before publication of this law, On 4th September 2019, Law No. 98/2019 was published, which amended the IRC Code on the tax treatment of credit institutions' except if they perform the exercise of opt in until the end of October of each tax period of the adaptation regime. Therefore, on impairments, creating rules applicable to impairment losses recorded in the tax periods beginning before 1 st January 2019, not yet December 31, 2021, the Group continued to apply Regulatory Decree no. 13/2018, of December 28, which aims to extend, for tax purposes, the tax framework that derives from Notice no. 3/95 of the Bank of Portugal. accepted for tax purposes. This Law established a transition period for the aforementioned tax regime, which allows taxpayers in t he five tax periods beginning on or after January 1, 2019, to continue to apply the tax regime in force before the publication of this law, The IRC payment declarations are subject to inspection and possible adjustment by the Tax Authorities for a period of four years or except if they perform the exercise of opt in until the end of October of each tax period of the adaptation regime. Therefore, on 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 December 31, 2021, the Group continued to apply Regulatory Decree no. 13/2018, of December 28, which aims to extend, for tax of determination). Thus, possible additional tax assessments may take place due essentially to different interpretations of tax purposes, the tax framework that derives from Notice no. 3/95 of the Bank of Portugal. legislation. However, Management believes that, in the context of the consolidated financial statements, there will be no additional charges of significant value. The IRC payment declarations are subject to inspection and possible adjustment by the Tax Authorities for a period of four ye ars 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 t ax As at 31 December 2021 and 2020, the 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 legislation. However, Management believes that, in the context of the consolidated financial statements, there will be no additional profit in the periods taxation in which the conditions required for tax deductibility are met. As of December 31, 2021, the amounts held charges of significant value. by the novobanco Group referring to these realities amount to approximately Euro 37 million. As at 31 December 2021 and 2020, the 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 t o a taxable The changes occurred in the deferred tax captions are as follows: profit in the periods taxation in which the conditions required for tax deductibility are met. As of December 31, 2021, the amounts held by the novobanco Group referring to these realities amount to approximately Euro 37 million. (in thousands of Euros) 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 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 Conversion of Deferred taxes into Tax credits Foreign exchange differences and other Balance at the end of the exercise (Assets / (Liabilities)) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31.12.2021 31.12.2020 769 767 27 923 892 360 (in thousands of Euros) ( 9 721) 31.12.2021 60 294 31.12.2020 ( 4 699) ( 74) 769 767 ( 124 721) 27 923 8 015 60 294 741 204 ( 74) ( 124 721) 8 015 741 204 2 169 892 360 ( 107 705) ( 9 721) ( 2 637) ( 4 699) 769 767 2 169 ( 107 705) ( 2 637) 769 767 - 71 - - 72 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 30 – INCOME TAXES Tax assets and liabilities recognized in the balance sheet as at 31 December 2021 and 2020 can be analysed as follows: The deferred tax assets and liabilities recognized in the balance sheet as at 31 December 2021 and 2020 are as follows: Corporate Tax recoverable / (payable) Current tax Other Deferred tax Financial instruments Impairment losses on loans (not covered) Impairment losses on loans (covered) Other tangible assets Provisions Pensions Other Long-term service bonuses Tax losses carried forward Deferred tax asset / (liability) Asset / liability set-off for deferred tax purposes Net Deferred tax asset / (liability) 31.12.2021 (in thousands of Euros) 31.12.2020 Assets Liabilities Assets Liabilities 35 653 142 35 511 744 239 779 892 12 262 12 162 100 3 035 15 297 610 144 466 774 888 775 498 9 203 9 129 74 5 121 14 324 (in thousands of Euros) Assets Liabilities Net 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 92 300 339 022 267 341 - 82 240 48 995 21 124 751 64 322 790 784 - - 39 136 31 676 22 123 751 ( 78 526) ( 138 855) ( 8 029) ( 8 203) ( 3 035) ( 9 989) 13 774 339 022 267 341 ( 8 029) 82 240 48 995 21 ( 2 911) 751 - - - - - - ( 74 533) 790 784 - ( 8 203) 39 136 31 676 22 ( 9 866) 751 - - - - - - 830 794 926 814 ( 89 590) ( 157 047) 741 204 769 767 ( 86 555) ( 151 926) 744 239 774 888 86 555 ( 3 035) 151 926 - - ( 5 121) 741 204 769 767 As of 31 December 2021 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%. As of 31 December 2021, 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. Therefore, on December 31, 2021, the Group continued to apply Regulatory Decree no. 13/2018, of December 28, which aims to extend, for tax purposes, the tax framework that derives from Notice no. 3/95 of the Bank of Portugal. 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 the 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. Therefore, on December 31, 2021, the Group continued to apply Regulatory Decree no. 13/2018, of December 28, which aims to extend, for tax purposes, the tax framework that derives from Notice no. 3/95 of the Bank of Portugal. 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. As at 31 December 2021 and 2020, the 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. As of December 31, 2021, the amounts held by the novobanco Group referring to these realities amount to approximately Euro 37 million. As at 31 December 2021 and 2020, the 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. As of December 31, 2021, the amounts held by the novobanco Group referring to these realities amount to approximately Euro 37 million. 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. 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 Balance at the end of the exercise (Assets / (Liabilities)) The changes occurred in the deferred tax captions are as follows: (in thousands of Euros) 31.12.2021 31.12.2020 769 767 27 923 60 294 ( 74) ( 124 721) 8 015 741 204 892 360 ( 9 721) ( 4 699) 2 169 ( 107 705) ( 2 637) 769 767 - 71 - The current and deferred taxes recognized in the income statement and in reserves, in 2021 and 2020, had the following origins: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The current and deferred taxes recognized in the income statement and in reserves, in 2021 and 2020, had the following origins: (in thousands of Euros) 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 31.12.2021 31.12.2020 Recognised in the income statement Recognised in reserves Recognised in the income statement Recognised in reserves ( 28 322) 59 699 ( 174) ( 43 105) ( 17 393) 1 1 371 - ( 27 923) 12 737 ( 15 186) ( 60 294) - - - 74 - - - ( 60 220) - ( 60 220) ( 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 The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: Impairment on investments in subsidiaries or associated companies subject to Participation Exemption Income before tax Tax rate of novobanco Tax-exempt dividends Income tax calculated based on the tax rate of NOVO BANCO 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 Impairment and fair value adjustments on securities Provisions for other risks, costs and contingencies Share of profits / (losses) of associated companies Employees' long term benefits Deffered tax assets not recognized under tax losses for the exercise Contribution and Solidarity additional contribution over the Banking Sector Other Total income recognised Deferred tax assets recoverability analysis (in thousands of Euros) 31.12.2021 31.12.2020 % Amount % Amount 177 003 (1 338 309) 21.0 (0.9) (23.3) 17.9 0.2 1.2 (30.1) (21.3) (8.9) - (5.7) 36.8 4.0 0.4 (8.6) 37 171 ( 1 593) ( 41 203) 31 650 326 2 138 ( 53 201) ( 37 715) ( 15 830) - ( 10 044) 65 183 7 158 774 ( 15 186) (11.0) 21.0 0.0 (3.0) 3.5 (0.2) (0.2) (7.8) (1.6) (0.0) (0.0) (1.2) (0.5) 0.9 (0.1) ( 281 045) ( 482) 40 166 ( 46 706) 2 107 2 902 147 255 104 665 21 988 61 ( 324) 15 913 6 860 ( 12 278) 1 082 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 applicable to Deferred Tax Assets is not dependent on the generation of future taxable income. The assessment of the recoverability of the deferred tax assets is made annually. With reference to 31 December 2021, this exercise was made based on the latest draft version of the business plan (“MTP”) for the period 2022-2024, preliminarily considered by the General Supervisory Board in December 2021 and which, upon final approval, will be submitted to the European Central Bank in the end of March 2022. 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 2024, it is assumed, thereafter an increase in pre-tax results at a rate of 2.60% from 2024;  Commercial financial results moderate growth, offsetting the expected cost of debt issuing to meet MREL requirements, as well as the continuing 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; NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 72 - 233 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The current and deferred taxes recognized in the income statement and in reserves, in 2021 and 2020, had the following origins: Impairment losses on loans and advances to customers Financial instruments Other tangible assets Provisions Pensions Long-term service bonuses Other Tax losses carried forward Deferred taxes Current taxes Total tax recognised (income) / expense 31.12.2021 31.12.2020 Recognised in the Recognised in Recognised in the Recognised in income statement reserves income statement reserves (in thousands of Euros) ( 60 294) 4 699 ( 28 322) 59 699 ( 174) ( 43 105) ( 17 393) 1 1 371 - 74 - - - - - - ( 27 923) ( 60 220) 12 737 ( 15 186) - ( 60 220) ( 11 350) 14 041 ( 174) 9 424 ( 2 100) 1 ( 132) 11 9 721 ( 8 639) 1 082 ( 2 169) - - - - - - 2 530 - 2 530 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: Income before tax Tax rate of novobanco 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 Impairment and fair value adjustments on securities Provisions for other risks, costs and contingencies Share of profits / (losses) of associated companies Employees' long term benefits Deffered tax assets not recognized under tax losses for the exercise Contribution and Solidarity additional contribution over the Banking Sector Other Total income recognised Deferred tax assets recoverability analysis (in thousands of Euros) 31.12.2021 31.12.2020 % Amount % Amount 177 003 (1 338 309) 21.0 (0.9) (23.3) 17.9 0.2 1.2 (30.1) (21.3) (8.9) - (5.7) 36.8 4.0 0.4 (8.6) 37 171 ( 1 593) ( 41 203) 31 650 326 2 138 ( 53 201) ( 37 715) ( 15 830) - ( 10 044) 65 183 7 158 774 ( 15 186) 21.0 0.0 (3.0) 3.5 (0.2) (0.2) (11.0) (7.8) (1.6) (0.0) (0.0) (1.2) (0.5) 0.9 (0.1) ( 281 045) ( 482) 40 166 ( 46 706) 2 107 2 902 147 255 104 665 21 988 61 ( 324) 15 913 6 860 ( 12 278) 1 082 Deferred tax assets recoverability analysis 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 applicable to Deferred Tax Assets is not dependent on the generation of future taxable income. growth in economic activity should also provide a return to commission levels to values similar to previous years; Deferred tax assets are recognized to the extent they are expected to be recovered with future The assessment of the recoverability of the deferred tax assets is made annually. With reference to 31 December 2021, this exercise was made based on the latest draft version of the business plan (“MTP”) for the period 2022-2024, preliminarily considered by the taxable income. The Group has evaluated the recoverability of the deferred tax assets considering its General Supervisory Board in December 2021 and which, upon final approval, will be submitted to the European Central Bank in the expectations of future taxable profits until 2028. The recoverability of deferred tax assets covered by end of March 2022. the Special Regime applicable to Deferred Tax Assets is not dependent on the generation of future taxable income. 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: • 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, focusing on the digital component; and • Progressive recovery of interest rate benchmarks to positive levels; The assessment of the recoverability of the deferred tax assets is made annually. With reference to 31 December 2021, this exercise was made based on the latest draft version of the business plan (“MTP”) for the period 2022-2024, preliminarily considered by the General Supervisory Board in December 2021 and which, upon final approval, will be submitted to the European Central Bank in the end of March 2022.  In addition to the detailed estimates up to 2024, it is assumed, thereafter an increase in pre-tax results at a rate of 2.60% from 2024;  Commercial financial results moderate growth, offsetting the expected cost of debt issuing to meet MREL requirements, as well as the continuing 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; • Credit impairment charges in line with the evolution of the Group’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. 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: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS • In addition to the detailed estimates up to 2024, it is assumed, thereafter an increase in pre-tax results at a rate of 2.60% from 2024; • Commercial financial results moderate growth, offsetting the expected cost of debt issuing to meet MREL requirements, as well as the continuing development of new lines of activity and the resumption of economic activity, which is strongly affected by the current pandemic situation. The The evolution of the business plan used for this exercise is strongly conditioned by the evolution of the - 72 - 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: 234 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes  Progressive recovery of interest rate benchmarks to positive levels;  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, focusing on the digital component; and  Credit impairment charges in line with the evolution of the Group'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. 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.  Progressive recovery of interest rate benchmarks to positive levels; Depending on the analysis mentioned above, the amount of deferred taxes not recognized for tax losses, per year of expiry, is as  Operating costs reduction, based on specific cost reduction plans and the implementation of a new distribution model, follows: 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, focusing on the digital component; and  Credit impairment charges in line with the evolution of the Group's activity and supported by macroeconomic projections, (in thousands of Euros) bearing in mind, in particular, the significant effort made in the last few years in the provisioning of the loan portfolio and the 31.12.2021 31.12.2020 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. 2024-2026 2026 and following 313 192 1 163 678 1 476 870 468 903 1 124 790 1 593 693 Depending on the analysis mentioned above, the amount of deferred taxes not recognized for tax losses, per year of expiry, is as follows: In addition, during the financial year 2020, the Group 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. The total amount of deferred tax assets related to these temporary differences, not recognized in the balance sheet, at December 31, 2021 amounts to Euro 333.5 million. (in thousands of Euros) 31.12.2021 31.12.2020 2024-2026 2026 and following 313 192 1 163 678 468 903 1 124 790 Special Regime applicable to Deferred Tax Assets 1 476 870 1 593 693 During 2014, novobanco adhered to the Special Regime applicable to deferred tax assets, after a favourable decision of the In addition, during the financial year 2020, the Group became aware of the Tax Authority’s position with regards to adjustments Shareholders General Meeting. resulting from the application of fair value to units in real estate investment funds and private equity funds. Such position implies that In addition, during the financial year 2020, the Group became aware of the Tax Authority’s position with fair value adjustments to units of real estate investment funds and private equity funds do not contribute to the taxable profit in the The Special Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, covers deferred tax assets respective year of booking. For the purpose of taxable income, such adjustments will only be accounted for at the moment of the regards to adjustments resulting from the application of fair value to units in real estate investment resulting from non-deduction of expenses and negative equity changes related to impairment losses on credit and with post- respective realization, namely upon sale of the participation units or liquidation of the funds. The total amount of deferred tax assets funds and private equity funds. Such position implies that fair value adjustments to units of real estate employment or long-term employee benefits. related to these temporary differences, not recognized in the balance sheet, at December 31, 2021 amounts to Euro 333.5 million. 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. The total amount of deferred tax assets related to these temporary differences, not recognized in the balance sheet, at December 31, 2021 amounts to Euro 333.5 million. The changes to the mentioned above regime, introduced by Law No. 23/2016, of August 19, limited the temporal application of the 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 negative equity variations calculated up to December 31 2015. The changes to the mentioned above regime, introduced by Law No. 23/2016, of August 19, limited the temporal application of the above-mentioned negative expenses and equity variations, accounted for in the tax periods beginning on or after 1January 2016, as Special Regime applicable to Deferred Tax Assets 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. During 2014, novobanco adhered to the Special Regime applicable to deferred tax assets, after a favourable decision of the Shareholders General Meeting. 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. 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- To convert to a tax credit (other than by liquidation or insolvency), a special reserve should be created for the amount of the respective employment or long-term employee benefits. 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. The changes to the mentioned above regime, introduced by Law No. 23/2016, of August 19, limited the temporal application of the Following the determination of a negative net income for the years between 2016 and 2020, the above-mentioned negative expenses and equity variations, accounted for in the tax periods beginning on or after 1January 2016, as deferred tax assets converted or estimated to be converted by reference to the deferred tax assets Following the determination of a negative net income for the years between 2016 and 2020, the deferred tax assets converted or well as the associated deferred taxes. Thus, the deferred taxes covered by this special regime correspond only to expenses and eligible at the balance sheet date are as follows: estimated to be converted by reference to the deferred tax assets eligible at the balance sheet date are as follows: negative equity variations calculated up to 31 December 2015. 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. 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. The Special Regime applicable to Deferred Tax Assets approved by Law No. 61/2014, of August 26, 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, novobanco adhered to the Special Regime applicable to deferred tax assets, after a favourable decision of the Shareholders General Meeting. Special Regime applicable to Deferred Tax Assets Deferred tax assets covered by the above-mentioned regime are convertible into tax credits when the taxpayer records a negative (in thousands of Euros) net result in the respective tax period, or in case of liquidation by voluntary dissolution or insolvency decreed by court decision. 2020 2019 2018 2017 2016 Tax credit 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. 124 721 110 922 161 974 127 575 99 474 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 2016 and 2020, 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 Customs Authority, within the scope of the review procedures for the assessment of the taxable income for the relevant tax periods. (in thousands of Euros) NOTE 31 – OTHER ASSETS Tax credit 2020 2019 2018 2017 2016 124 721 110 922 161 974 127 575 99 474 As at 31 December 2021 and 2020, the caption Other assets is analyzed as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. - 73 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 73 - 235 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 31 – OTHER ASSETS As at 31 December 2021 and 2020, 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 Retirement pensions and health benefits (see Note 16) 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 (in thousands of Euros) 31.12.2021 31.12.2020 525 229 399 631 33 092 92 457 49 12 300 956 130 209 220 498 681 138 703 48 430 1 684 10 034 589 390 3 189 - 25 001 3 017 991 ( 390 762) ( 2 180) ( 110 528) ( 71 971) ( 575 441) 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) 2 442 550 2 944 292 a) Real estate properties and equipment received in settlement of loans and discontinued The caption Collateral deposits placed includes, amongst others, deposits made by the Group as collateral in order to celebra te 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 celebrate certain derivative contracts on organised markets (margin accounts) and on over the counter markets (Credit Support Annex – CSA). 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 collate ral. Derivative transactions are regulated by the International Swaps and Derivatives Association (ISDA) and have minimum risk margin that ma y change according to the ratings of the parties. (31 December 2020: Euro 67.0 million); • Euro 1.3 million of receivables related to the property sale operation carried out in 2019 (called • Euro 61.3 million receivable relation to the sale operation of non-performing loans (Project NATA II) 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. At 31 December 2021, the caption Other debtors includes, amongst others:  Euro 2.3 million in shareholder loans and supplementary capital contributions granted to entities within the scope of the Group’s • Euro 4.4 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”). (December 31, 2020: Euro 27.4 million) (see Note 24); venture capital business which are entirely provisioned (31 December 2020: Euro 14.7 million, entirely provisioned);  Euro 111.6 million of shareholder loans and supplementary capital contributions resulting from the assignment of loans and • Euro 29.7 million of amounts receivable related to the transaction of sale of non-productive credits advances which are entirely provisioned (31 December 2020: Euro 111.6 million, entirely provisioned), “Project Sertorius”) (31 December 2020: Euro 28.8 million);  Euro 61.3 million receivable relation to the sale operation of non-performing loans (Project NATA II) (31 December 2020: Euro carried out in 2021 (denominated “Wilkinson Project”) (see Note 24); At 31 December 2021, the caption Other debtors includes, amongst others: 67.0 million); • Euro 50.3 million of receivables related to the sale of non-performing loans in 2021 (the “Orion • Euro 2.3 million in shareholder loans and supplementary capital contributions granted to entities within the scope of the Group’s venture capital business which are entirely provisioned (31 December 2020: Euro 14.7 million, entirely provisioned); (December 31, 2020: Euro 27.4 million) (see Note 24); 2020: Euro 28.8 million); • 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 2020: Euro 111.6 million, entirely provisioned), (denominated "Wilkinson Project") (see Note 24);  Euro 1.3 million of receivables related to the property sale operation carried out in 2019 (called “Project Sertorius”) (31 December Project”) (see Note 24).  Euro 4.4 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”).  Euro 29.7 million of amounts receivable related to the transaction of sale of non-productive credits carried out in 2021  Euro 50.3 million of receivables related to the sale of non-performing loans in 2021 (the "Orion Project") (see Note 24). As at 31 December 2021, the caption Deferred costs includes the amount of Euro 37,440 thousand (31 December 2020: Euro 41,346 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 maturi ty of the loan granted and the estimated remaining years of service life of the employee. Securities transactions pending settlement reflect the transactions with securities, recorded on the trade date, in accordance with the accounting policy described in Note 7.10, pending settlement. 236 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 75 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes article 114 of RGICSF, to extend the period the Group has to hold foreclosed assets. During 2021, an impairment charge of Euro 16.2 million was recorded for the properties in the portfolio (31 December 2020: Euro 64.4 million). Given the uncertainty associated with the estimated value of these assets, novobanco Group considers the impacts of the current context of the Covid-19 pandemic as the assets are revalued. As at 31 December 2021, the caption Deferred costs includes the amount of Euro 37,440 thousand (31 December 2020: Euro 41,346 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. 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 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, 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 The Group implemented a plan aimed at the immediate sale of all real estate property recorded in Other assets, continuing its efforts of real estate properties; (ii) the development and participation in real estate events both in Portugal and abroad; (iii) the establishment 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 protocols with several real estate agents; and (iv) the regular sponsorship of auctions. Despite its intention to sell these assets, the of real estate properties; (ii) the development and participation in real estate events both in Portugal and abroad; (iii) the establishment Group regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the period the Group ha s to of protocols with several real estate agents; and (iv) the regular sponsorship of auctions. Despite its intention to sell these assets, the Securities transactions pending settlement reflect the transactions with securities, recorded on the hold foreclosed assets. Group regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the period the Group ha s to trade date, in accordance with the accounting policy described in Note 7.10, pending settlement. hold foreclosed assets. During 2021, an impairment charge of Euro 16.2 million was recorded for the properties in the portfolio (31 December 2020: Euro 64.4 million). Given the uncertainty associated with the estimated value of these assets, novobanco Group considers the impacts of During 2021, an impairment charge of Euro 16.2 million was recorded for the properties in the portfolio (31 December 2020: Euro the current context of the Covid-19 pandemic as the assets are revalued. 64.4 million). Given the uncertainty associated with the estimated value of these assets, novobanco Group considers the impacts of the current context of the Covid-19 pandemic as the assets are revalued. 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 During 2020, the Group started a process of reorganization of the real estate funds that are the object of consolidation, which implied the transferred properties amounted to Euro 118,987 thousand and the respective impairment to Euro 66,072 thousand. Since the the transfer of properties from Other assets to Investment properties according to the strategy defined for them. The gross value of valuation method for these properties is different, as indicated in the accounting policies (Notes 7.18 and 7.19), the change resulted the transferred properties amounted to Euro 118,987 thousand and the respective impairment to Euro 66,072 thousand. Since the in the recognition of a gain of Euro 1,805 thousand recorded in Other operating income. valuation method for these properties is different, as indicated in the accounting policies (Notes 7.18 and 7.19), the change resulted in the recognition of a gain of Euro 1,805 thousand recorded in Other operating income. As described in accounting policy 7.27, the Group evaluates at each reporting date, the recoverability of these assets and assesses for signs of impairment, with impairment losses being recognized in the income statement. As described in accounting policy 7.27, the Group evaluates at each reporting date, the recoverability of these assets and assesses for signs of impairment, with impairment losses being recognized in the income statement. The changes occurred in impairment losses are presented as follows: 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 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 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. 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 7.18 and 7.19), the change resulted in the recognition of a gain of Euro 1,805 thousand recorded in Other operating income. As described in accounting policy 7.27, the Group evaluates at each reporting date, the recoverability of these assets and assesses for signs of impairment, with impairment losses being recognized in the income statement. 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 Balance at the beginning of the exercise Dotation for the exercise Utilisation during the exercise Dotation for the exercise Write-back for the exercise Utilisation during the exercise Foreign exchange differences and other (a) Write-back for the exercise Foreign exchange differences and other (a) Balance at the end of the exercise (in thousands of Euros) 31.12.2021 31.12.2020 (in thousands of Euros) 31.12.2021 686 099 31.12.2020 764 808 34 694 686 099 ( 134 726) 34 694 ( 16 359) ( 134 726) 5 733 ( 16 359) 575 441 5 733 78 613 764 808 ( 34 848) 78 613 ( 13 938) ( 34 848) ( 108 536) ( 13 938) 686 099 ( 108 536) (a) In 2020 includes Euro 66,072 thousand of impairment of assets transferred to Investment Properties during the financial year 2020 (see Note 28) and Euro 19,854 Balance at the end of the exercise thousand of impairment of assets of the Spanish Branch transferred to discontinued operations. (a) In 2020 includes Euro 66,072 thousand of impairment of assets transferred to Investment Properties during the financial year 2020 (see Note 28) and Euro 19,854 thousand of impairment of assets of the Spanish Branch transferred to discontinued operations. 686 099 575 441 The changes occurred in the real estate properties were as follows: 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 Balance at the beginning of the exercise Additions Disposals Additions Other movements (a) Disposals Other movements (a) Balance at the end of the exercise 31.12.2021 (in thousands of Euros) 31.12.2020 (in thousands of Euros) 31.12.2021 770 054 31.12.2020 977 465 44 662 770 054 ( 170 501) 44 662 ( 54 825) ( 170 501) 589 390 ( 54 825) 30 691 977 465 ( 93 936) 30 691 ( 144 166) ( 93 936) 770 054 ( 144 166) (a) Includes Euro 118,987 thousand of assets transferred to Investment Properties during the financial year 2020 and Euro 50,208 thousand transferred in 2021 (see Note 28). It also Balance at the end of the exercise includes Euro 31,732 thousand of assets of the Spanish Branch transferred to discontinued operations in 2020. 589 390 770 054 (a) Includes Euro 118,987 thousand of assets transferred to Investment Properties during the financial year 2020 and Euro 50,208 thousand transferred in 2021 (see Note 28). It also includes Euro 31,732 thousand of assets of the Spanish Branch transferred to discontinued operations in 2020. 237 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 76 - - 76 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, the detail of the real estate properties included in Other assets, by type of property, is as follows: As at 31 December 2021 and 2020, the detail of the real estate properties included in Other assets, by type of property, is as follows: 31.12.2021 (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 Others Others (a) 341 91 432 496 1 187 151 1 834 83 965 190 648 274 613 179 579 104 084 4 277 287 940 - 26 837 589 390 (a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties 2 266 (b) Determined in accordance with accounting policy mentioned in Note 7.18 42 853 149 359 192 212 134 729 29 341 1 184 165 254 33 296 390 762 41 112 41 289 82 401 44 850 74 743 3 093 122 686 ( 6 459) 198 628 38 955 44 214 83 169 47 210 84 378 3 129 134 717 ( 6 459) 211 427 Land Urban Rural Buildings under construction Commercial Residential Other Other (a) 31.12.2020 (in thousands of Euros) Number of properties Gross value Impairment Net book value 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 - 499 235 34 055 145 732 179 787 255 203 38 721 - 293 924 141 7 647 3 253 770 054 481 358 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 (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 7.18 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) 31.12.2021 (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 15 945 13 15 958 1 309 3 883 6 5 198 5 145 95 240 2 562 5 528 2 509 10 599 ( 3 959) 201 14 526 14 727 9 483 21 647 309 31 439 - 24 821 26 655 51 476 31 496 43 685 269 75 450 ( 2 505) 41 112 41 289 82 401 44 850 74 743 3 093 122 686 ( 6 459) 21 161 6 880 46 166 124 421 198 628 238 (a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 77 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, the detail of the real estate properties included in Other assets, by type of property, is as follows: Buildings under construction Land Urban Rural Commercial Residential Other Other (a) Land Urban Rural Commercial Residential Other Other (a) Buildings under construction Number of properties Gross value Impairment Net book value 31.12.2021 (in thousands of Euros) Fair value of assets (b) 341 91 432 496 1 187 151 1 834 83 965 190 648 274 613 179 579 104 084 4 277 287 940 42 853 149 359 192 212 134 729 29 341 1 184 165 254 41 112 41 289 82 401 44 850 74 743 3 093 122 686 38 955 44 214 83 169 47 210 84 378 3 129 134 717 - 26 837 33 296 ( 6 459) ( 6 459) 2 266 589 390 390 762 198 628 211 427 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 - 499 235 293 924 205 311 253 609 141 7 647 ( 7 506) ( 7 506) 3 253 770 054 481 359 288 696 350 785 (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 7.18 (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 7.18 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) 31.12.2021 (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 15 945 13 15 958 1 309 3 883 6 5 198 5 145 95 240 2 562 5 528 2 509 10 599 ( 3 959) 201 14 526 14 727 9 483 21 647 309 31 439 - 24 821 26 655 51 476 31 496 43 685 269 75 450 ( 2 505) 41 112 41 289 82 401 44 850 74 743 3 093 122 686 ( 6 459) 21 161 6 880 46 166 124 421 198 628 (a) The net book value of this caption is negative due to the imputation of costs incurred with the sale of real estate properties 31.12.2020 (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 Land Urban Rural NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Buildings under construction Commercial Residential Other (a) 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) - 76 - 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 As at 31 December 2021, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 9,848 thousand (31 December 2020: Euro 15,917 thousand), having the Group recorded impairment losses for these assets in the total amount of Euro 4,863 thousand (31 December 2020: Euro 8,273 thousand). As at 31 December 2021, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 9,848 thousand (31 December 2020: Euro 15,917 thousand), having the Group recorded impairment losses for these assets in the total amount of Euro 4,863 thousand (31 December 2020: Euro 8,273 thousand). NOTE 32 – NON-CURRENT ASSETS AND DISPOSAL GROUPS FOR SALE CLASSIFIED AS HELD FOR SALE AND LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE 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. 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. 239 The breakdown of Non-current assets and liabilities held for sale and discontinued operations on 31 December 2021 and 2020, net of consolidation adjustments, is as follows: Ativos/Passivos de operações descontinuadas Non-current assets and liabilities disposal groups classified as held for sale International Investment Bank, S.A. (previous BICV) Banco Well Link (anterior NB Ásia) Banco Delle Tre Venezie Económico FI Greendraive ESEGUR Multipessoal NB Servicios Novo Vanguarda Ijar Leasing Imbassaí novobanco - Spain Branch Perdas por imparidade Impairment losses novobanco - Spain Branch Banco Delle Tre Venezie Económico FI Greendraive ESEGUR Ijar Leasing 31.12.2021 31.12.2020 Assets Liabilities Assets Liabilities (in thousand of Euros) 1 300 2 039 3 060 1 392 - - - - - - - - - 9 051 1 006 17 848 ( 2 358) ( 1 392) ( 4 725) ( 8 475) 9 373 563 1 969 1 696 245 1 993 851 535 27 405 968 1 745 590 1 996 382 - - - - - - - - - - - - - - - - - 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) - - - - - - - - - - - - - - - 968 1 559 518 1 996 382 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 77 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Buildings under construction Land Urban Rural Commercial Residential 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 Total net book years 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 As at 31 December 2021, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 9,848 thousand (31 December 2020: Euro 15,917 thousand), having the Group recorded impairment losses for these assets in the total amount of Euro 4,863 thousand (31 December 2020: Euro 8,273 thousand). NOTE 32 – NON-CURRENT ASSETS AND DISPOSAL GROUPS FOR SALE CLASSIFIED AS HELD FOR SALE AND LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE NOTE 32 – NON-CURRENT ASSETS AND Under IFRS 5 - Non-current assets held for sale and discontinued operations, a group of directly associated assets and liabilities are DISPOSAL GROUPS FOR SALE CLASSIFIED AS reclassified for discontinued operations if their balance sheet value is recoverable through a sale transaction, which must b e ready for immediate sale. HELD FOR SALE AND LIABILITIES INCLUDED IN This category includes the subsidiaries and associated companies in the Group's consolidation perimeter, but which the Bank in tends DISPOSAL GROUPS CLASSIFIED AS HELD FOR 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. SALE 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. 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 2021 and 2020, net of consolidation adjustments, is as follows: The breakdown of Non-current assets and liabilities held for sale and discontinued operations on 31 December 2021 and 2020, net of consolidation adjustments, is as follows: Non-current assets and liabilities disposal groups classified as held for sale International Investment Bank, S.A. (previous BICV) Banco Well Link (previous NB Ásia) Banco Delle Tre Venezie Económico FI Greendraive ESEGUR Multipessoal novobanco - Spain Branch NB Servicios Novo Vanguarda Ijar Leasing Imbassaí Impairment losses Perdas por imparidade novobanco - Spain Branch Banco Delle Tre Venezie Económico FI Greendraive ESEGUR Ijar Leasing 31.12.2021 31.12.2020 Assets Liabilities Assets Liabilities (in thousand of Euros) 1 300 2 039 - 3 060 1 392 - - - - - 9 051 1 006 17 848 - - ( 2 358) ( 1 392) - ( 4 725) ( 8 475) 9 373 - - - - 563 - - - - - - 405 968 - - - - - - - 1 299 1 883 9 633 3 060 1 887 14 003 2 687 1 696 245 14 845 48 - - - - - - 1 969 - - 1 993 851 535 27 - - 1 745 590 1 996 382 ( 166 000) ( 7 333) ( 2 023) ( 1 887) ( 8 829) - ( 186 072) - - - - - - - 968 1 559 518 1 996 382 As at 31 December 2021 and 2020, the results from discontinued operations are as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 78 - 240 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, the results from discontinued operations are as follows: As at 31 December 2021 and 2020, the results from discontinued operations are as follows: Profit / (loss) generated by discontinued operations (in thousand of Euros) 31.12.2021 31.12.2020 (in thousand of Euros) Profit / (loss) generated by discontinued operations Greendraive NOVO AF GNB Seguros Greendraive ESEGUR NOVO AF Multipessoal GNB Seguros novobanco - Spain Branch ESEGUR NB Servicios Multipessoal Novo Vanguarda novobanco - Spain Branch Imbassaí NB Servicios Novo Vanguarda Imbassaí 87 31.12.2021 - - 87 - - - - 8 796 - ( 3 588) - ( 37) 8 796 ( 371) ( 3 588) 4 887 ( 37) ( 371) ( 1 694) 31.12.2020 1 498 8 057 ( 1 694) 52 1 498 51 8 057 ( 40 830) 52 ( 479) 51 - ( 40 830) - ( 479) ( 33 345) - - 4 887 ( 33 345) (in thousands of Euros) 31.12.2020 8 303 (in thousands of Euros) 31.12.2020 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 The impairment movement for non-current Assets and Liabilities for disposal classified as held for sale is as follows: 31.12.2021 186 072 Balance at the beginning of the exercise Charges / (Write-backs) Utilizations 177 769 - 8 303 - Exchange differences and other (a) 177 769 Charges / (Write-backs) 186 072 - Utilizations Foreign exchange differences and other (a) (a) Includes Euro 4,725 thousand of impairment of Ijar Leasing transferred from investments in associates in the first half of 2021 (see Note 24) and Euro 8,829 thousand of - impairment of ESEGUR reclassified to associates (see Note 24). Balance at the end of the exercise 9 662 ( 164 954) 186 072 ( 22 305) 9 662 8 475 ( 164 954) Balance at the end of the exercise 31.12.2021 186 072 ( 22 305) 8 475 During 2021, the associates ESEGUR and Multipessoal were transferred from discontinued operations to investments in associates (a) Includes Euro 4,725 thousand of impairment of Ijar Leasing transferred from investments in associates and Euro 8,829 thousand of impairment of ESEGUR reclassified to and the stake in Banco Delle Tre Venezie was transferred to financial assets at fair value through other comprehensive income, associates (see Note 26). following the sale processes were not active at year end. During 2021, the associates ESEGUR and Multipessoal were transferred from discontinued operations to investments in associate s Ijar Leasing and the stake in Banco Delle Tre Venezie was transferred to financial assets at fair value through other comprehensive income, During 2021 the associated company Ijar Leasing was transferred to non-current assets held for sale as it is in the process of selling following the sale processes were not active at year end. assets with the objective of their sale in the short term. During 2021, the associates ESEGUR and Multipessoal were transferred from discontinued operations to investments in associates and the stake in Banco Delle Tre Venezie was transferred to financial assets at fair value through other comprehensive income, following the sale processes were not active at year end. Ijar Leasing During 2021 the associated company Ijar Leasing was transferred to non-current assets held for sale as it is in the process of selling NOVO AF assets with the objective of their sale in the short term. At the end of 2020 the sale process of this subsidiary in Spain was concluded, and a capital gain of Euro 2.7 million was recognized. GNB Seguros Also, as a result of the commitments assumed between the Portuguese State and the European Commission of Competition, during the 2020 financial year the Group concluded the process of disposal of its stake in GNB Seguros (25%) to Crédit Agricole Assurances, S.A. (Crédit Agricole Group), having registered a gain of Euro 6.4 million. Ijar Leasing During 2021 the associated company Ijar Leasing was transferred to non-current assets held for sale as it is in the process of selling assets with the objective of their sale in the short term. NOVO AF At the end of 2020 the sale process of this subsidiary in Spain was concluded, and a capital gain of Euro 2.7 million was recognized. NOVO AF GNB Seguros At the end of 2020 the sale process of this subsidiary in Spain was concluded, and a capital gain of Euro 2.7 million was recognized. Also, as a result of the commitments assumed between the Portuguese State and the European Commission of Competition, during the 2020 financial year the Group concluded the process of disposal of its stake in GNB Seguros (25%) to Crédit Agricole Assurances, S.A. (Crédit Agricole Group), having registered a gain of Euro 6.4 million. GNB Seguros Also, as a result of the commitments assumed between the Portuguese State and the European Commission of Competition, during the 2020 financial year the Group concluded the process of disposal of its stake in GNB Seguros (25%) to Crédit Agricole Assurances, Spanish Branch S.A. (Crédit Agricole Group), having registered a gain of Euro 6.4 million. 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 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 Spanish Branch the respective assets in immediate sale conditions. The determination of fair value less costs to sell, which took into account the Following the accounting policy followed by the Group, and in accordance with IFRS5 5 - Non-current assets held for sale and amounts received from potential interested in partial sales of this activity, the cost of selling a selected loan portfolio, and the cost of discontinued operations, during the 2020 the Group transferred its activity in Spain to the caption of Non-current assets and divestiture discontinuing the remaining residual activity, resulted in a need to establish an impairment of Euro 166.0 million. 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 On April 2, 2021, novobanco entered into an agreement with ABANCA CORPORACIÓN BANCARIA, S.A to sell a set of assets and amounts received from potential interested in partial sales of this activity, the cost of selling a selected loan portfolio, and the cost of liabilities of the Spanish Branch, which took place on 30 November 2021 with the derecognition of the assets and liabilities sold. The discontinuing the remaining residual activity, resulted in a need to establish an impairm ent of Euro 166.0 million. assets and liabilities excluded from this transaction, of residual value, remained in the branch's balance sheet, having integrated the 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 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 241 consolidation perimeter of novobanco, as presented below: On April 2, 2021, novobanco entered into an agreement with ABANCA CORPORACIÓN BANCARIA, S.A to sell a set of assets and liabilities of the Spanish Branch, which took place on 30 November 2021 with the derecognition of the assets and liabilities sold. The assets and liabilities excluded from this transaction, of residual value, remained in the branch's balance sheet, having inte grated the consolidation perimeter of novobanco, as presented below: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 78 - - 79 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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. On April 2, 2021, novobanco entered into an agreement with ABANCA CORPORACIÓN BANCARIA, S.A to sell a set of assets and liabilities of the Spanish Branch, which took place on 30 November 2021 with the derecognition of the assets and liabilities sold. The assets and liabilities excluded from this transaction, of residual value, remained in the branch’s balance sheet, having integrated the consolidation perimeter of novobanco, as presented below: Assets Cash, cash balances at central banks and other demand deposits Financial assets at fair value through other comprehensive income Financial assets at amortised cost Loans and advances to banks Investments in subsidiaries, joint ventures and associates Tax assets Current Tax Assets Deferred Tax Assets Other assets Non-current assets and disposal groups classified as held for sale Total Assets Liabilities Deposits from banks Provisions Other liabilities Passivos incluídos em grupos para alienação classificados como detidos para venda Total Liabilities Equity Other equity Profit or loss attributable to Shareholders of the parent Total Equity Total Liabilities and Equity (in thousands of Euros) Disposed assets/liabilities Assets/liabilities remaining in the Branch - - ( 462 796) ( 462 796) - - - - - ( 1 294 344) ( 1 757 140) - - - ( 1 757 140) ( 1 757 140) - - - ( 1 757 140) 5 000 2 751 33 794 33 794 604 37 910 11 929 25 981 9 591 - 89 650 33 885 6 611 28 259 - 68 755 19 804 1 091 20 895 89 650 The conclusion of this transaction had no impact on the income statement at the date of derecognition, since there was a provision recorded in the balance sheet for Euro 176 million (of which Euro 10 million reinforced already during 2021), which was partially used. The remaining amount of Euro 15.2 million was transferred to Provisions for other contingencies related to this transaction (advisory costs, tax contingencies and other possible claims). The conclusion of this transaction had no impact on the income statement at the date of derecognition, since there was a provision recorded in the balance sheet for Euro 176 million (of which Euro 10 million reinforced already during 2021), which was partially used. The remaining amount of Euro 15.2 million was transferred to Provisions for other contingencies related to this transaction (advisory costs, tax contingencies and other possible claims). As part of the aforementioned operation, the subsidiaries Novo Vanguarda and NB Servicios were liquidated, with no impact on the operating account. As part of the aforementioned operation, the subsidiaries Novo Vanguarda and NB Servicios were liquidated, with no impact on the operating account. NOTE 33 – FINANCIAL LIABILITIES MEASURED AT AMORTISED COST This caption as at 31 December 2021 and 2020 is analysed as follows: 242 Deposits from banks Due to customers assets Other financial liabilities Debt securities issued, subordinated debt and liabilities associated to transferred (in thousands of Euros) 31.12.2021 31.12.2020 Total Total 10 745 155 27 582 093 10 102 896 26 322 060 1 514 153 1 017 928 374 593 365 883 40 215 994 37 808 767 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 80 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Assets Cash, cash balances at central banks and other demand deposits Financial assets at fair value through other comprehensive income Financial assets at amortised cost Loans and advances to banks Investments in subsidiaries, joint ventures and associates Non-current assets and disposal groups classified as held for sale Tax assets Current Tax Assets Deferred Tax Assets Other assets Total Assets Liabilities Deposits from banks Provisions Other liabilities Total Liabilities Equity Other equity Total Equity Total Liabilities and Equity Passivos incluídos em grupos para alienação classificados como detidos para venda Profit or loss attributable to Shareholders of the parent (in thousands of Euros) Disposed assets/liabilities Assets/liabilities remaining in the Branch - - - - - - - - - - - - - ( 462 796) ( 462 796) ( 1 294 344) ( 1 757 140) ( 1 757 140) ( 1 757 140) ( 1 757 140) 5 000 2 751 33 794 33 794 604 37 910 11 929 25 981 9 591 89 650 33 885 6 611 28 259 - - 68 755 19 804 1 091 20 895 89 650 The conclusion of this transaction had no impact on the income statement at the date of derecognition, since there was a provision recorded in the balance sheet for Euro 176 million (of which Euro 10 million reinforced already during 2021), which was partially used. The remaining amount of Euro 15.2 million was transferred to Provisions for other contingencies related to this transaction (advisory costs, tax contingencies and other possible claims). As part of the aforementioned operation, the subsidiaries Novo Vanguarda and NB Servicios were liquidated, with no impact on the operating account. NOTE 33 – FINANCIAL LIABILITIES MEASURED AT AMORTISED COST NOTE 33 – FINANCIAL LIABILITIES MEASURED AT AMORTISED COST This caption as at 31 December 2021 and 2020 is analysed as follows: This caption as at 31 December 2021 and 2020 is analysed as follows: Deposits from banks Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities 31.12.2021 (in thousands of Euros) 31.12.2020 Total Total 10 745 155 27 582 093 10 102 896 26 322 060 1 514 153 1 017 928 374 593 365 883 40 215 994 37 808 767 Deposits 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: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of Euros) - 80 - 31.12.2021 31.12.2020 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 53 126 7 954 000 8 007 126 29 030 7 004 000 7 033 030 158 366 24 523 182 889 455 484 531 973 1 529 847 37 836 2 555 140 155 313 4 788 160 101 651 656 596 534 1 625 724 35 851 2 909 765 2 738 029 3 069 866 10 745 155 10 102 896 As at 31 December 2021, the balance of the European Resources System of Central Banks caption includes Euro 7,954 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 - Accounting for Government Grants and Disclosure of Government Assistance, 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 criteria defined by the ECB. Repurchase agreements operations corresponds to the sale of securities with purchasing agreement (repos), recorded in accordance with the accounting policy mentioned in Note 7.22. The breakdown of Deposits from Central Banks and other credit institutions, by residual maturity, as of December 31, 2021 and 2020, is as follows: 243 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 From 1 to 5 years More than 5 years (in thousands of Euros) 31.12.2021 31.12.2020 53 126 1 627 000 6 327 000 8 007 126 1 061 398 963 050 181 609 531 972 2 738 029 29 030 - 7 004 000 7 033 030 918 156 496 630 1 085 594 569 486 3 069 866 10 745 155 10 102 896 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 81 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 from credit institutions Deposits Other funds Domestic Deposits Other funds Foreign Deposits Loans Operations with repurchase agreements Other resources (in thousands of Euros) 31.12.2021 31.12.2020 53 126 7 954 000 8 007 126 29 030 7 004 000 7 033 030 158 366 24 523 182 889 455 484 531 973 1 529 847 37 836 2 555 140 155 313 4 788 160 101 651 656 596 534 1 625 724 35 851 2 909 765 2 738 029 3 069 866 10 745 155 10 102 896 As at 31 December 2021, the balance of the European Resources System of Central Banks caption includes Euro 7 954 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 - Accounting for Government Grants and Disclosure of Government Assistance, 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 criteria defined by the ECB. As at 31 December 2021, the balance of the European Resources System of Central Banks caption includes Euro 7,954 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 Repurchase agreements operations corresponds to the sale of securities with purchasing agreement (repos), recorded in accordance with the accounting policy mentioned in Note 7.22. 20 - Accounting for Government Grants and Disclosure of Government Assistance, 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 criteria defined by the ECB. The breakdown of Deposits from Central Banks and other credit institutions, by residual maturity, as of December 31, 2021 and 2020, is as follows: Repurchase agreements operations corresponds to the sale of securities with purchasing agreement (repos), recorded in accordance with the accounting policy mentioned in Note 7.22. The breakdown of Deposits from Central Banks and other credit institutions, by residual maturity, as of December 31, 2021 and 2020, is as follows: 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 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: International NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 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 Repayable on demand Term deposits Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years (in thousands of Euros) 31.12.2021 31.12.2020 53 126 1 627 000 6 327 000 8 007 126 1 061 398 963 050 181 609 531 972 2 738 029 29 030 - 7 004 000 7 033 030 918 156 496 630 1 085 594 569 486 3 069 866 10 745 155 10 102 896 (in thousands of Euros) 31.12.2021 31.12.2020 679 782 850 065 - 225 507 - 80 - 350 014 1 050 203 1 529 847 1 625 724 (in thousands of Euros) 31.12.2021 31.12.2020 12 858 988 11 883 026 9 028 713 191 9 028 904 226 362 5 200 726 5 427 088 9 234 116 251 9 234 367 233 160 4 742 284 4 975 444 254 062 254 062 216 598 216 598 27 582 093 26 322 060 (in thousands of Euros) 31.12.2021 31.12.2020 12 858 988 11 883 026 7 641 456 5 722 112 1 319 466 40 071 7 128 529 5 678 797 1 591 570 40 138 14 723 105 14 439 034 27 582 093 26 322 060 244 As at 31 December 2021 and 2020, the caption Due to customers, by residual maturity periods, is as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 82 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The analysis of Repurchase agreements operations, by residual maturity, is as follows: The analysis of Repurchase agreements operations, by residual maturity, is as follows: International International Up to 3 months Up to 3 months From 3 months to 1 year From 3 months to 1 year From 1 to 5 years From 1 to 5 years 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 Repayable on demand Demand deposits Demand deposits Time deposits Time deposits Time deposits Time deposits Other Other Savings accounts Savings accounts Retirement saving accounts Retirement saving accounts Other Other Other funds Other funds Other Other (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2021 31.12.2020 31.12.2020 679 782 679 782 850 065 850 065 - - 1 529 847 1 529 847 225 507 225 507 350 014 350 014 1 050 203 1 050 203 1 625 724 1 625 724 31.12.2021 31.12.2021 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 12 858 988 12 858 988 11 883 026 11 883 026 9 028 713 9 028 713 191 191 9 028 904 9 028 904 226 362 226 362 5 200 726 5 200 726 5 427 088 5 427 088 254 062 254 062 254 062 254 062 9 234 116 9 234 116 251 251 9 234 367 9 234 367 233 160 233 160 4 742 284 4 742 284 4 975 444 4 975 444 216 598 216 598 216 598 216 598 27 582 093 27 582 093 26 322 060 26 322 060 As at 31 December 2021 and 2020, the caption Due to customers, by residual maturity periods, is as follows: As at 31 December 2021 and 2020, the caption Due to customers, by residual maturity periods, is as follows: As at 31 December 2021 and 2020, the caption Due to customers, by residual maturity periods, is as follows: Repayable on demand Repayable on demand Term deposits Term deposits Up to 3 months Up to 3 months From 3 months to 1 year From 3 months to 1 year From 1 to 5 years From 1 to 5 years More than 5 years More than 5 years 31.12.2021 31.12.2021 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 12 858 988 12 858 988 11 883 026 11 883 026 7 641 456 7 641 456 5 722 112 5 722 112 1 319 466 1 319 466 40 071 40 071 14 723 105 14 723 105 27 582 093 27 582 093 7 128 529 7 128 529 5 678 797 5 678 797 1 591 570 1 591 570 40 138 40 138 14 439 034 14 439 034 26 322 060 26 322 060 Debt Securities issued, subordinated debt and financial liabilities associated to transferred assets This caption has the following breakdown: 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 Subordinated debt Bonds NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial liabilities associated to transferred assets Asset lending operations (in thousands of Euros) 31.12.2021 31.12.2020 447 453 606 855 1 054 308 518 866 39 377 558 243 415 394 415 234 - 81 - - 81 - 44 451 44 451 1 514 153 1 017 928 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 2021, amount to Euro 5,500 million (31 December 2020: Euro 5,500 million), being these covered bonds totally repurchased by the Group. The main characteristics of the outstanding issues as at 31 December 2021 and 2020 are as follows: 245 Designation Issue date Maturity date Interest Rate Market 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% XDUB XDUB XDUB XDUB XDUB XMSM XMSM 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) - - - - - - - - - - - - - - - - 31.12.2021 31.12.2020 Interest payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Interest payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Designation Issue date Maturity date Interest Rate Market 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% XDUB XDUB XDUB XDUB XDUB XMSM XMSM (in thousands of Euros) Rating Moody's DBRS 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 novobanco 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 13/2006 of Bank of Portugal. As at 31 December 2021, the assets that collateralize these covered debt securities amount to Euro 6,075.1 million (31 December 2020: Euro 6,104.8 million) (see Note 24). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 82 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations (in thousands of Euros) 31.12.2021 31.12.2020 447 453 606 855 1 054 308 518 866 39 377 558 243 415 394 415 234 44 451 44 451 1 514 153 1 017 928 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 2021, amount to Euro 5,500 million (31 December 2020: Euro 5,500 million), being these covered 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 2021, amount to Euro 5,500 million (31 December 2020: Euro 5,500 million), being these covered bonds totally repurchased by the Group. The main characteristics of the outstanding issues as at 31 December 2021 and 2020 are as follows: bonds totally repurchased by the Group. The main characteristics of the outstanding issues as at 31 December 2021 and 2020 are as follows: 31.12.2021 Designation Nominal value (in thousands of Euros) Carrying book value (in thousands of Euros) Issue date Maturity date 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 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 - - - - - - - - Designation Nominal value (in thousands of Euros) Carrying book value (in thousands of Euros) Issue date Maturity date 31.12.2020 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 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 Rate Market (in thousands of Euros) Rating Moody's DBRS 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 XMSM XMSM 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 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 XMSM XMSM A2 A2 A2 A2 A2 A2 A2 A A A A A A A Interest payment Trimestral Trimestral Trimestral Trimestral Trimestral Trimestral Trimestral Interest payment Trimestral Trimestral Trimestral Trimestral Trimestral Trimestral Trimestral These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in novobanco 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 These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in novobanco 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 13/2006 of Bank of Portugal. As at 31 December 2021, the assets that collateralize these covered debt securities amount to Euro 6,075.1 million (31 December 2020: Euro 6,104.8 million) (see Note 24). nº 13/2006 of Bank of Portugal. As at 31 December 2021, the assets that collateralize these covered debt securities amount to Euro 6,075.1 million (31 December 2020: Euro 6,104.8 million) (see Note 24). The changes in the financial years of 2021 and 2020 in debt securities issued, subordinated debt and financial liabilities associated to transferred assets was as follows: The changes in the financial years of 2021 and 2020 in debt securities issued, subordinated debt and financial liabilities associated to transferred assets was as follows: Balance as at 31.12.2020 Issues Redemptions b) LME Net purchases Other movements a) Balance as at 31.12.2021 (milhares de euros) Debt securities issued Euro Medium Term Notes (EMTN) Certificates of Deposit Bonds Mortgage Bonds Other responsibilities Subordinated debt Bonds 518 866 - 39 377 - - 558 243 415 234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial liabilities associated to transferred assets Asset lending operations 44 451 - - 580 000 - - 580 000 - - ( 1 623) - ( 6 110) - - ( 7 733) - - ( 81 124) - - ( 81 124) ( 4 097) - ( 5 000) - - ( 9 097) 15 431 - ( 1 412) - - 14 019 447 453 - 606 855 - - 1 054 308 - - - - 160 415 394 - 83 - - 44 451 a) Other movements include accrued interest, corrections for hedging operations, corrections of fair value and exchange rate changes. b) During 2021, the total EMTN 114 issue of NB Finance in the amount of EUR 1,623m and the Class A issue of Lusitano Mortgage nr 6 in the amount of EUR 6,110m were repaid in advance. 1 017 928 580 000 ( 7 733) ( 81 124) ( 9 097) 14 179 1 514 153 Balance as at 31.12.2019 Issues Redemptions LME (in thousands of Euros) Net purchases Other movements a) Balance as at 31.12.2020 246 661 849 45 855 707 704 415 069 44 450 1 167 223 - - - - - - - ( 155 869) ( 570) ( 6 476) ( 6 476) ( 155 869) ( 570) 13 456 ( 2) 13 454 518 866 39 377 558 243 - - - - - - - - 165 415 234 1 44 451 a) Other movements include accrued interest, corrections for hedging operations, corrections of fair value and exchange rate changes. ( 6 476) ( 155 869) ( 570) 13 619 1 017 928 Debt securities issued Euro Medium Term Notes (EMTN) Bonds Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations Liability Management Exercise (LME) On July 30, 2021, following a voluntary tender offer (Tender Offer and Solicitation Memorandum), EMTN (i) issued by the Luxem bourg branch, with a total nominal value of Euro 84.3 million (representing 31.9% of the total nominal amount issued), and (ii) issued by the subsidiary NB Finance with a total nominal value of Euro 0.1 million (representing 4.8% of the total nominal amount issued). This operation resulted in a loss of Euro 73,480 thousand. As at 10 December 2020, following an early redemption offer, the EMTN issued by the subsidiary NB Finance with a total nominal 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 o f Euro 26,980 thousand. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 84 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The changes in the financial years of 2021 and 2020 in debt securities issued, subordinated debt and financial liabilities associated to transferred assets was as follows: Debt securities issued Euro Medium Term Notes (EMTN) Certificates of Deposit Bonds Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations Balance as at 31.12.2020 Issues Redemptions LME (milhares de euros) Net Other Balance as at purchases movements a) 31.12.2021 ( 1 623) ( 81 124) ( 4 097) 15 431 447 453 580 000 580 000 ( 6 110) ( 7 733) ( 81 124) ( 5 000) ( 9 097) 518 866 - 39 377 558 243 415 234 44 451 - - - - - - - - - - - - - - ( 1 412) 14 019 - 606 855 1 054 308 160 415 394 - 44 451 a) Other movements include accrued interest, corrections for hedging operations, corrections of fair value and exchange rate changes. b) During 2021, the total EMTN 114 issue of NB Finance in the amount of EUR 1,623m and the Class A issue of Lusitano Mortgage nr 6 in the amount of EUR 6,110m were repaid in advance. 1 017 928 580 000 ( 7 733) ( 81 124) ( 9 097) 14 179 1 514 153 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 (in thousands of Euros) Net purchases Other movements a) Balance as at 31.12.2020 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) 13 619 1 017 928 a) Other movements include accrued interest, corrections for hedging operations, corrections of fair value and exchange rate changes. Liability Management Exercise (LME) Liability Management Exercise (LME) On July 30, 2021, following a voluntary tender offer (Tender Offer and Solicitation Memorandum), EMTN (i) issued by the Luxembourg branch, with a total nominal value of Euro 84.3 million (representing 31.9% of the total nominal amount issued), and (ii) issued by the subsidiary NB Finance with a total nominal value of Euro 0.1 million (representing 4.8% of the total nominal amount issued). This operation resulted in a loss of Euro 73,480 thousand. On July 30, 2021, following a voluntary tender offer (Tender Offer and Solicitation Memorandum), EMTN (i) issued by the Luxembourg branch, with a total nominal value of Euro 84.3 million (representing 31.9% of the total nominal amount issued), and (ii) issued by the subsidiary NB Finance with a total nominal value of Euro 0.1 million (representing 4.8% of the total nominal amount issued). This operation resulted in a loss of Euro 73,480 thousand. As at 10 December 2020, following an early redemption offer, the EMTN issued by the subsidiary NB Finance with a total nominal 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 26,980 thousand. As at 10 December 2020, following an early redemption offer, the EMTN issued by the subsidiary NB Finance with a total nominal 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 The main characteristics of these liabilities, as at 31 December 2021 and 2020, are as follows: 26,980 thousand. The main characteristics of these liabilities, as at 31 December 2021 and 2020, are as follows: Entity ISIN Description Currency Issue date 31.12.2021 Unit Price (€) Carrying Book value Maturity Interest rate Market (in thousands of Euros) Bonds Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 novobanco novobanco Euro Medium Term Notes novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo NB Finance Subordinated debt NOVO BANCO a) Date of the next call option XS0312981649 XS0312982290 PTNOBIOM0014 PTNOBJOM0005 NB 4.25% 09/23 OBRG. Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nr 6- Classe B NB 3.5% 23/07/24 OBRG. XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 XS0439764191 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 EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2007 2007 2021 2021 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2009 0.20 1.00 100.00 100.00 31 767 1 500 303 571 270 017 2025 a) 2035 a) 2024 2022 a) Euribor 3M + 0.40% Euribor 3M + 0.60% Fixed rate 3.5% Euribor 3M + 4.25% 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 42 807 98 081 63 952 47 063 33 649 40 947 11 375 15 602 10 974 37 479 36 512 7 192 1 820 2043 2043 2043 2043 2048 2049 2049 2051 2051 2048 2052 2046 2044 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 XDUB XDUB XDUB XDUB XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX PTNOBFOM0017 NB 06/07/2028 EUR 2018 100.00 415 394 2023 a) 8.50% XDUB 1 469 702 Entity ISIN Description Currency Issue date NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Bonds 31.12.2020 Unit Price (€) Carrying Book value Maturity Interest rate Market - 83 - (in thousands of Euros) Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 XS0312981649 XS0312982290 Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nr 6- Classe B 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 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 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 0.23 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 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 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 NOVO BANCO PTNOBFOM0017 NB 06/07/2028 EUR 2018 100.00 415 234 2023 a) 8.5% XDUB The residual duration of debt securities issued and subordinated liabilities, as at 31 December 2021 and 2020, is as follows: 247 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 85 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The main characteristics of these liabilities, as at 31 December 2021 and 2020, are as follows: The main characteristics of these liabilities, as at 31 December 2021 and 2020, are as follows: Entity Entity ISIN ISIN Description Description Currency Currency Issue date Issue date Maturity Maturity Interest rate Interest rate Market Market 31.12.2021 31.12.2021 Unit Price Carrying Unit Price (€) Book value Carrying (€) Book value (in thousands of Euros) (in thousands of Euros) Bonds Bonds Lusitano Mortgage nº 6 XS0312981649 Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 XS0312981649 XS0312982290 Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nr 6- Classe B Lusitano Mortgage nº 6 novobanco XS0312982290 PTNOBIOM0014 Lusitano Mortgage nr 6- Classe B NB 3.5% 23/07/24 OBRG. novobanco novobanco novobanco Euro Medium Term Notes Euro Medium Term Notes novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2007 2007 2007 2021 2007 2021 2021 2021 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2013 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2009 2014 2009 2018 2018 0.20 1.00 0,20 100.00 1,00 100.00 100,00 100,00 31 767 1 500 31 767 303 571 1 500 270 017 303 571 270 017 2025 a) Euribor 3M + 0.40% 2035 a) 2025 a) Euribor 3M + 0.60% Euribor 3M + 0.40% 2024 2035 a) Fixed rate 3.5% Euribor 3M + 0.60% 2022 a) 2024 Euribor 3M + 4.25% Fixed rate 3.5% 2022 a) Euribor 3M + 4.25% 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 1.00 1,00 1.00 1,00 1,00 42 807 98 081 42 807 63 952 98 081 47 063 63 952 33 649 47 063 40 947 33 649 11 375 40 947 15 602 11 375 10 974 15 602 37 479 10 974 36 512 37 479 7 192 36 512 1 820 7 192 1 820 2043 2043 2043 2043 2043 2043 2043 2048 2043 2049 2048 2049 2049 2051 2049 2051 2048 2052 2046 2044 2051 2051 2048 2052 2046 2044 100.00 100,00 415 394 2023 a) 415 394 1 469 702 1 469 702 2023 a) Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Zero Coupon 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 Zero Coupon Zero Coupon Zero Coupon 8.50% 8,50% XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XDUB XDUB PTNOBIOM0014 PTNOBJOM0005 NB 4.25% 09/23 OBRG. NB 3,5% 23/07/24 OBRG. PTNOBJOM0005 NB 4,25% 09/23 OBRG. XS0869315241 BES Luxembourg 3.5% 02/01/43 XS0869315241 XS0877741479 BES Luxembourg 3.5% 02/01/43 BES Luxembourg 3.5% 23/01/43 XS0877741479 XS0888530911 XS0888530911 XS0897950878 XS0897950878 XS0972653132 XS0972653132 XS1031115014 XS1031115014 XS1034421419 XS1034421419 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 XS0439764191 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 XS0439764191 BES Luxembourg 3.5% 23/01/43 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg ZC BES Luxembourg ZC Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 19/02/49 Banco Esp San Lux ZC 19/02/49 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 06/03/2051 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 06/03/2051 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 16/04/46 BES Luxembourg ZC 09/04/52 EMTN 57 BES Luxembourg ZC 16/04/46 EMTN 57 novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo NB Finance novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo NB Finance Subordinated debt NOVO BANCO NOVO BANCO PTNOBFOM0017 NB 06/07/2028 PTNOBFOM0017 NB 06/07/2028 a) Date of the next call option a) Date of the next call option Subordinated debt Entity Entity Bonds ISIN ISIN Description Description Currency Issue date Currency Issue date 31.12.2020 Unit Price (€) Unit Price (€) 31.12.2020 Carrying Book value Carrying Book value (in thousands of Euros) (in thousands of Euros) Maturity Interest rate Market Maturity Interest rate Market Bonds Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 Lusitano Mortgage nº 6 Euro Medium Term Notes 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 (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 XS0312981649 XS0312982290 XS0312981649 XS0312982290 Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nr 6- Classe B Lusitano Mortgage nr 6- Classe A Lusitano Mortgage nr 6- Classe B XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 XS1038896426 XS1042343308 XS1053939978 XS1055501974 XS1058257905 XS0439764191 XS0723597398 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% 02/01/43 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg 3.5% 23/01/43 BES Luxembourg ZC BES Luxembourg 3.5% 19/02/2043 Banco Esp San Lux ZC 12/02/49 BES Luxembourg 3.5% 18/03/2043 Banco Esp San Lux ZC 19/02/49 BES Luxembourg ZC Banco Esp San Lux ZC 27/02/51 Banco Esp San Lux ZC 12/02/49 BES Luxembourg ZC 06/03/2051 Banco Esp San Lux ZC 19/02/49 BES Luxembourg ZC 03/04/48 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 06/03/2051 BES Luxembourg ZC 16/04/46 BES Luxembourg ZC 03/04/48 EMTN 57 BES Luxembourg ZC 09/04/52 EMTN 114 BES Luxembourg ZC 16/04/46 EMTN 57 EMTN 114 NOVO BANCO Subordinated debt PTNOBFOM0017 NB 06/07/2028 NOVO BANCO PTNOBFOM0017 NB 06/07/2028 a) Date of the next call option a) Data da próxima call option EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2007 2007 2007 2007 2013 2013 2013 2013 2013 2013 2013 2013 2014 2013 2014 2013 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2009 2014 2011 2014 2009 2011 2018 2018 0.23 1.00 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 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 0,91 37 877 1 500 37 877 1 500 42 287 97 153 63 183 42 287 46 521 97 153 36 398 63 183 45 717 46 521 40 220 36 398 34 848 45 717 15 212 40 220 43 649 34 848 38 646 15 212 11 477 43 649 1 782 38 646 1 773 11 477 1 782 1 773 2031 a) 2031 a) 2031 a) 2031 a) Euribor 3M + 0.40% Euribor 3M + 0.60% Euribor 3M + 0,40% Euribor 3M + 0,60% Ireland Ireland Ireland Ireland 2043 2043 2043 2043 2048 2049 2049 2051 2051 2048 2052 2046 2044 2021 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% Fixed rate 3.5% Fixed rate 3.5% Zero Coupon Fixed rate 3.5% Zero Coupon 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% 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 XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX 100.00 415 234 2023 a) 8.5% XDUB 100,00 415 234 973 477 2023 a) 8.5% XDUB 973 477 Debt securities issued From 3 months to 1 year From 1 to 5 years More than 5 years Subordinated debt From 1 to 5 years Financial liabilities associated to transferred assets Undetermined maturity NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 of Euros) 31.12.2021 31.12.2020 270 017 335 338 448 953 1 054 308 415 394 415 394 44 451 44 451 1 514 153 - 1 773 556 470 558 243 415 234 415 234 44 451 44 451 1 017 928 - 85 - - 84 - (in thousands Euros) 31.12.2021 31.12.2020 - - - - 47 935 10 883 ( 58 818) - The residual duration of debt securities issued and subordinated liabilities, as at 31 December 2021 and 2020, is as follows: The residual duration of debt securities issued and subordinated liabilities, as at 31 December 2021 and 2020, is as follows: The residual duration of debt securities issued and subordinated liabilities, as at 31 December 2021 and 2020, is as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The component of fair value attributable to the credit risk of debt issue at fair value through profit or loss, is as follows: The component of fair value attributable to the credit risk of debt issue at fair value through profit or loss, is as follows: 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 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, in accordance with IFRS 9 (see Note 37). 248 The Group did not present capital or interest defaults on its debt issued in the financial years of 2021 and 2020. NOTE 34 – PROVISIONS As at 31 December 2021 and 2020, the caption Provisions presents the following changes: Balance as at 31 December 2019 Charge / (Write-back) Utilization Foreign exchange differences and other (a) Balance as at 31 December 2020 Charge / (Write-back) Utilization Foreign exchange differences and other Balance as at 31 December 2021 Restructuring provision Provision for guarantees and commitments Commercial Offers Other provisions Total (in thousands of Euros) 24 044 123 915 ( 42 188) ( 8 798) 96 973 10 070 ( 60 358) 1 46 686 97 086 22 116 ( 2 188) ( 15 028) 101 986 ( 9 840) - 190 92 336 41 334 ( 629) ( 29 506) 11 199 ( 10 205) - - - 994 145 353 41 021 ( 16 578) 4 428 174 224 127 605 ( 23 373) 24 362 302 818 307 817 186 423 ( 90 460) ( 19 398) 384 382 127 835 ( 93 936) 24 553 442 834 (a) Includes Euro 8,798 thousand of restructuring provisions and Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations. In order to meet the financial needs of its customers, the Group assumes several irrevocable commitments and contingent liabilities, consisting of financial guarantees, letters of credit and other credit commitments, which may require the payment by the Group, on behalf of its customers, in the event of specific, contractually prescribed events. Although these commitments are not recorded on the balance sheet, they carry credit risk and, therefore, are part of the Group's overall risk exposure. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 85 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Debt securities issued From 3 months to 1 year From 1 to 5 years More than 5 years Subordinated debt From 1 to 5 years Financial liabilities associated to transferred assets Undetermined maturity (in thousands of Euros) 31.12.2021 31.12.2020 270 017 335 338 448 953 1 054 308 415 394 415 394 44 451 44 451 - 1 773 556 470 558 243 415 234 415 234 44 451 44 451 1 514 153 1 017 928 The component of fair value attributable to the credit risk of debt issue at fair value through profit or loss, is as follows: (in thousands Euros) 31.12.2021 31.12.2020 - - - - 47 935 10 883 ( 58 818) - 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 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 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, in accordance with IFRS 9 (see Note 37). Fair value attributable to credit risk at the end of the exercise 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 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, in accordance with IFRS 9 (see Note 37). The Group did not present capital or interest defaults on its debt issued in the financial years of 2021 and 2020. The Group did not present capital or interest defaults on its debt issued in the financial years of 2021 and 2020. NOTE 34 – PROVISIONS NOTE 34 – PROVISIONS As at 31 December 2021 and 2020, the caption Provisions presents the following changes: As at 31 December 2021 and 2020, the caption Provisions presents the following changes: Balance as at 31 December 2019 Charge / (Write-back) Utilization Foreign exchange differences and other (a) Balance as at 31 December 2020 Charge / (Write-back) Utilization Foreign exchange differences and other Balance as at 31 December 2021 Restructuring provision Provision for guarantees and commitments Commercial Offers Other provisions Total (in thousands of Euros) 24 044 123 915 ( 42 188) ( 8 798) 96 973 10 070 ( 60 358) 1 46 686 97 086 22 116 ( 2 188) ( 15 028) 101 986 ( 9 840) - 190 92 336 41 334 ( 629) ( 29 506) - 11 199 - ( 10 205) - 994 145 353 41 021 ( 16 578) 4 428 174 224 127 605 ( 23 373) 24 362 302 818 307 817 186 423 ( 90 460) ( 19 398) 384 382 127 835 ( 93 936) 24 553 442 834 (a) Includes Euro 8,798 thousand of restructuring provisions and Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations. In order to meet the financial needs of its customers, the Group assumes several irrevocable commitments and contingent liabilities, consisting of financial guarantees, letters of credit and other credit commitments, which may require the payment by the Group, on behalf of its customers, in the event of specific, contractually prescribed events. Although these commitments are not recorded on the balance sheet, they carry credit risk and, therefore, are part of the Group's overall risk exposure. In order to meet the financial needs of its customers, the Group assumes several irrevocable commitments and contingent liabilities, consisting of financial guarantees, letters of credit and other credit commitments, which may require the payment by the Group, on behalf of its customers, in the event of specific, contractually prescribed events. Although these commitments are not recorded on NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS the balance sheet, they carry credit risk and, therefore, are part of the Group’s overall risk exposure. The changes in the caption provisions for guarantees, are detailed as follows: - 86 - 249 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The changes in the caption provisions for guarantees, are detailed as follows: (in thousands of Euros) The changes in the caption provisions for guarantees, are detailed as follows: Stage 1 Stage 2 Stage 3 Total 3249 Balance as at 31 December 2020 Balance as at 31 December 2019 Balance as at 31 December 2019 14 098 (in thousands of Euros) 93 934 Total Increases due to changes in credit risk 44 897 Decreases due to changes in credit risk ( 29 457) 93 934 Utilised ( 2 188) Increases due to changes in credit risk 44 897 Other movements (a) ( 15 023) Decreases due to changes in credit risk ( 29 457) 92 163 Utilised ( 2 188) Increases due to changes in credit risk 18 764 Other movements (a) ( 15 023) Decreases due to changes in credit risk ( 31 517) 92 163 189 Other movements 18 764 Increases due to changes in credit risk 79 599 ( 31 517) Decreases due to changes in credit risk (a) Includes Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (Euro 2,360 thousand on stage 1 and Euro 12,060 thousand 189 Other movements euros on stage 3). 20 502 ( 12 830) 14 098 - 20 502 2 299 ( 12 830) 24 069 - 3 044 2 299 ( 17 833) 24 069 ( 2 361) 3 044 6 919 ( 17 833) ( 2 361) 23 309 ( 16 000) 76 587 ( 2 188) 23 309 ( 14 930) ( 16 000) 66 778 ( 2 188) 14 847 ( 14 930) ( 12 823) 66 778 2 415 14 847 71 217 ( 12 823) 2 415 1 086 ( 627) 3249 - 1 086 ( 2 392) ( 627) 1 316 - 873 ( 2 392) ( 861) 1 316 135 873 1 463 ( 861) 135 76 587 Balance as at 31 December 2020 Balance as at 31 December 2021 Stage 2 Stage 1 Stage 3 Balance as at 31 December 2021 The changes in the caption provisions for commitments are detailed as follows: (a) Includes Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (Euro 2,360 thousand on stage 1 and Euro 12,060 thousand euros on stage 3). 1 463 6 919 71 217 79 599 (in thousands of Euros) The changes in the caption provisions for commitments are detailed as follows: The changes in the caption provisions for commitments are detailed as follows: Stage 1 Stage 2 Stage 3 Total Balance as at 31 December 2019 1984 1 168 (in thousands of Euros) 3 152 - Total Stage 3 Stage 1 Stage 2 Balance as at 31 December 2019 Balance as at 31 December 2020 Balance as at 31 December 2021 Balance as at 31 December 2020 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements 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 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements 12 189 ( 5 513) 3 152 ( 5) 12 189 9 823 ( 5 513) 10 768 ( 5) ( 7 855) 9 823 1 10 768 12 737 ( 7 855) 1 The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising 12 737 Balance as at 31 December 2021 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. During 2021, a net charge of 10.1 million euros was made and Euro 60.4 million were utilized, so that on December 31, 2021, the amount of restructuring provisions The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising on the balance sheet is Euro 46.7 million. 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. During 2021, a net charge of 10.1 million euros was made and Euro 60.4 million were utilized, so that on December 31, 2021, the amount of restructuring provisions Other provisions amounting to Euro 302.8 million (31 December 2020: Euro 174.2 million), are intended to cover certain identified on the balance sheet is Euro 46.7 million. contingencies related to the Group’s activities, the most relevant being: 6 617 ( 3 875) 1984 1 093 6 617 5819 ( 3 875) 1 933 1 093 ( 1 843) 5819 647 1 933 6 556 ( 1 843) 647 5 572 ( 1 605) 1 168 ( 1 131) 5 572 4 004 ( 1 605) 6 938 ( 1 131) ( 5 979) 4 004 ( 734) 6 938 4 229 ( 5 979) ( 734) - ( 33) - 33 - - ( 33) 1 897 33 ( 33) - 88 1 897 1 952 ( 33) 88 4 229 1 952 6 556 Euro 11.1 million); • Contingencies associated with legal proceedings amounting to Euro 9.5 million (31 December 2020: 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. During 2021, a net charge of 10.1 million euros was made and Euro 60.4 million were utilized, so that on December 31, 2021, the amount of restructuring provisions on the balance sheet is Euro 46.7 million. Other provisions amounting to Euro 302.8 million (31 December 2020: Euro 174.2 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 32.2 million (31 December 2020: Euro 29.2million); • Contingencies associated with sales processes in the amount of Euro 39.3 million (31 December 32.2 million (31 December 2020: Euro 29.2million);  Contingencies associated with ongoing tax processes. To cover for these contingencies, the Group maintains provisions of Euro Other provisions amounting to Euro 302.8 million (31 December 2020: Euro 174.2 million), are intended to cover certain identified contingencies related to the Group’s activities, the most relevant being:  Contingencies associated with legal proceedings amounting to Euro 9.5 million (31 December 2020: Euro 11.1 million);  Contingencies associated with ongoing tax processes. To cover for these contingencies, the Group maintains provisions of Euro  Contingencies associated with sales processes in the amount of Euro 39.3 million (31 December 2020: Euro 41.1 million); 32.2 million (31 December 2020: Euro 29.2million);  Contingencies related to the undivided part of the Executive Committee's pension plan, in the amount of Euro 19.2 million (31  Contingencies associated with legal proceedings amounting to Euro 9.5 million (31 December 2020: Euro 11.1 million); December 2020: Euro 19.2 million), transferred from the liability items net of the value of the assets of the Pension Fund (see Note  Contingencies associated with sales processes in the amount of Euro 39.3 million (31 December 2020: Euro 41.1 million); 17);.  Contingencies related to the undivided part of the Executive Committee's pension plan, in the amount of Euro 19.2 million (31  The remaining amount, of Euro 202.6 million (31 December 2020: Euro 73.6 million), is intended to cover losses arising from the December 2020: Euro 19.2 million), transferred from the liability items net of the value of the assets of the Pension Fund (see Note Group's activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contingencies related to asset sale processes, 17);. among others. 2020: Euro 41.1 million);  The remaining amount, of Euro 202.6 million (31 December 2020: Euro 73.6 million), is intended to cover losses arising from the The increase occurred in 2021 results from the State Budget Law for 2021 ("LOE 21"), which amended the rules of the Property Group's activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contingencies related to asset sale processes, Transfer Tax Code ("IMT") and the Municipal Property Tax ("IMI"), with the extension of the scope of the aggravated rate of IMI and among others. IMT, and loss of exemptions, to real estate owned by taxpayers that are controlled, directly or indirectly, by an entity that is subject to a more favorable tax regime, included in the list approved by the Minister of Finance. The increase occurred in 2021 results from the State Budget Law for 2021 ("LOE 21"), which amended the rules of the Property At this date is pending clarification, as per the request for binding information made to the Tax Authority, the breadth of application of Transfer Tax Code ("IMT") and the Municipal Property Tax ("IMI"), with the extension of the scope of the aggravated rate of IMI and IMT, and loss of exemptions, to real estate owned by taxpayers that are controlled, directly or indirectly, by an entity that is subject to these new rules in terms of subjection to novobanco. a more favorable tax regime, included in the list approved by the Minister of Finance. At this date is pending clarification, as per the request for binding information made to the Tax Authority, the breadth of application of • Contingencies related to the undivided part of the Executive Committee’s pension plan, in the amount of Euro 19.2 million (31 December 2020: Euro 19.2 million), transferred from the liability items net of the value of the assets of the Pension Fund (see Note 17);. • The remaining amount, of Euro 202.6 million (31 December 2020: Euro 73.6 million), is intended to cover losses arising from the Group’s activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contingencies related to asset sale processes, among others. 250 these new rules in terms of subjection to novobanco. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 86 - - 86 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes At December 31, 2021, based on the opinions obtained from legal and tax experts, and as a result of internal evaluation, it is not At December 31, 2021, based on the opinions obtained from legal and tax experts, and as a result of internal evaluation, it is not considered possible, with complete assurance, to remove the doubt as to the application of the new rules referred to above, although considered possible, with complete assurance, to remove the doubt as to the application of the new rules referred to above, although it is admitted that there may be other interpretations since these are new rules, not yet applied, and therefore subject to interpretation. it is admitted that there may be other interpretations since these are new rules, not yet applied, and therefore subject to interpretation. As of this date, the calculation of the application of the increased IMI rates to all the properties directly and indirectly owned by As of this date, the calculation of the application of the increased IMI rates to all the properties directly and indirectly owned by novobanco amounts to approximately Euro 115.8 million for 2021, and there is no expectation as to the date on which clarification novobanco amounts to approximately Euro 115.8 million for 2021, and there is no expectation as to the date on which clarification will be obtained from the Tax Authority or other similar entity that will determine the existence or not of an effective increase in liabilities will be obtained from the Tax Authority or other similar entity that will determine the existence or not of an effective increase in liabilities for novobanco. Accordingly, in December 2021 a provision was set up for this contingency with a more probable risk than not of an for novobanco. Accordingly, in December 2021 a provision was set up for this contingency with a more probable risk than not of an outflow of resources incorporating economic benefits, in the above-mentioned amount of Euro 115.8 million, which is included in outflow of resources incorporating economic benefits, in the above-mentioned amount of Euro 115.8 million, which is included in Other provisions. Other provisions. NOTE 35 – OTHER LIABILITIES NOTE 35 – OTHER LIABILITIES As at 31 December 2021 and 2020, the caption Other liabilities is analyzed as follows: As at 31 December 2021 and 2020, the caption Other liabilities is analyzed as follows: Public sector Public sector Creditors for supply of goods Creditors for supply of goods Other creditors Non-controlling interests of Open Investment Funds (see Note 37) Career bonuses (see Note 17) Retirement pensions and health-care benefits (see Note 17) Other accrued expenses Deferred income Foreign exchange transactions pending settlement Other transactions pending settlement Other creditors Non-controlling interests of Open Investment Funds (see Note 37) Career bonuses (see Note 17) Retirement pensions and health-care benefits (see Note 17) Other accrued expenses Deferred income Foreign exchange transactions pending settlement Other transactions pending settlement (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2020 31.12.2021 31.12.2020 38 017 59 323 107 898 90 181 7 467 22 944 76 333 2 077 14 39 183 34 658 38 017 58 793 59 323 64 412 107 898 90 181 90 206 7 591 7 467 27 052 22 944 75 495 76 333 2 077 2 175 - 14 57 380 39 183 34 658 58 793 64 412 90 206 7 591 27 052 75 495 2 175 - 57 380 As at 31 December 2021, the caption Creditors for supply of goods includes Euro 38,673 thousand related to creditors of assets for right of use, under IFRS 16 (31 December 2020: Euro 39,826 thousand), As at 31 December 2021, the caption Creditors for supply of goods includes Euro 38,673 thousand related to creditors of assets for As at 31 December 2021, the caption Creditors for supply of goods includes Euro 38,673 thousand related to creditors of assets for whose residual maturities present the following detail: right of use, under IFRS 16 (31 December 2020: Euro 39,826 thousand), whose residual maturities present the following detail: right of use, under IFRS 16 (31 December 2020: Euro 39,826 thousand), whose residual maturities present the following detail: 417 762 443 437 417 762 443 437 As at 31 December 2021, the Bank's share capital of Euro 6,054,907,314 is represented by 9,954,907,311 registered shares with no par value and is fully subscribed and paid up by the following shareholders (December 31, 2020: share capital of Euro 5,900,000,000 represented by 9,799,999,997 registered shares): As at 31 December 2021, the Bank's share capital of Euro 6,054,907,314 is represented by 9,954,907,311 registered shares with no par value and is fully subscribed and paid up by the following shareholders (December 31, 2020: share capital of Euro 5,900,000,000 represented by 9,799,999,997 registered shares): (in thousands of Euros) 31.12.2020 (in thousands of Euros) (1) As a result of the agreements entered into between the Resolution Fund and the shareholder Lone Star in the context of the sale of 75% of the share capital of novobanco, only the Resolution Fund will see its participation diluted with the conversion of the conversion rights, pending the delivery of the shares by the Resolution Fund to Nani Holdings on December 31, 2021. When such delivery occurs, Nani Holdings' shareholding percentage will increase to 75.00% and the Resolution Fund's to 23.44%.Nani Holdings' economic interest in novobanco remains unchanged at 75%. (2) In view of the commitments assumed by the Portuguese State before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. (1) As a result of the agreements entered into between the Resolution Fund and the shareholder Lone Star in the context of the sale of 75% of the share capital of novobanco, only the Resolution Fund will see its participation diluted with the conversion of the conversion rights, pending the delivery of the shares by the Resolution Fund to Nani Holdings on December 31, 2021. When such delivery occurs, Nani Holdings' shareholding percentage will increase to 75.00% and the Resolution Fund's to 23.44%.Nani Holdings' economic interest in novobanco remains unchanged at 75%. (2) In view of the commitments assumed by the Portuguese State before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. 31.12.2020 31.12.2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2020 31.12.2021 31.12.2020 234 1 199 16 293 20 947 38 673 80 484 22 194 17 068 234 1 199 16 293 20 947 39 826 38 673 80 484 22 194 17 068 39 826 % Share Capital % Share Capital 31.12.2021 31.12.2020 31.12.2021 31.12.2020 73.83% 24.61% 1.56% 75.00% 73.83% 25.00% 24.61% - 1.56% 75.00% 25.00% - 100.00% 100.00% 100.00% 100.00% - 87 - - 87 - 251 The increase occurred in 2021 results from the State Budget Law for 2021 (“LOE 21”), which amended the rules of the Property Transfer Tax Code (“IMT”) and the Municipal Property Tax (“IMI”), with the extension of the scope of the aggravated rate of IMI and IMT, and loss of exemptions, to real estate owned by taxpayers that are controlled, directly or indirectly, by an entity that is subject to a more favorable tax regime, included in the list approved by the Minister of Finance. Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years At this date is pending clarification, as per the request for binding information made to the Tax Authority, the breadth of application of these new rules in terms of subjection to novobanco. Up to 3 months From 3 months to 1 year From 1 to 5 years At December 31, 2021, based on the opinions obtained from legal and tax experts, and as a result of More than 5 years internal evaluation, it is not considered possible, with complete assurance, to remove the doubt as to the application of the new rules referred to above, although it is admitted that there may be other interpretations since these are new rules, not yet applied, and therefore subject to interpretation. As of this date, the calculation of the application of the increased IMI rates to all the properties directly and indirectly owned by novobanco amounts to approximately Euro 115.8 million for 2021, and there is no expectation as to the date on which clarification will be obtained from the Tax Authority or other Ordinary shares At December 31, 2021, based on the opinions obtained from legal and tax experts, and as a result of internal evaluation, it is not At December 31, 2021, based on the opinions obtained from legal and tax experts, and as a result of internal evaluation, it is not similar entity that will determine the existence or not of an effective increase in liabilities for novobanco. considered possible, with complete assurance, to remove the doubt as to the application of the new rules referred to above, a lthough considered possible, with complete assurance, to remove the doubt as to the application of the new rules referred to above, a lthough Accordingly, in December 2021 a provision was set up for this contingency with a more probable risk it is admitted that there may be other interpretations since these are new rules, not yet applied, and therefore subject to i nterpretation. it is admitted that there may be other interpretations since these are new rules, not yet applied, and therefore subject to i nterpretation. As of this date, the calculation of the application of the increased IMI rates to all the properties directl y and indirectly owned by As of this date, the calculation of the application of the increased IMI rates to all the properties directl y and indirectly owned by than not of an outflow of resources incorporating economic benefits, in the above-mentioned amount novobanco amounts to approximately Euro 115.8 million for 2021, and there is no expectation as to the date on which clarification novobanco amounts to approximately Euro 115.8 million for 2021, and there is no expectation as to the date on which clarification of Euro 115.8 million, which is included in Other provisions. will be obtained from the Tax Authority or other similar entity that will determine the existence or not of an effective increase in liabilities will be obtained from the Tax Authority or other similar entity that will determine the existence or not of an effective increase in liabilities for novobanco. Accordingly, in December 2021 a provision was set up for this contingency with a more probable risk than not of an for novobanco. Accordingly, in December 2021 a provision was set up for this contingency with a more probable risk than not of an outflow of resources incorporating economic benefits, in the above-mentioned amount of Euro 115.8 million, which is included in outflow of resources incorporating economic benefits, in the above-mentioned amount of Euro 115.8 million, which is included in Other provisions. Other provisions. NOTE 35 – OTHER LIABILITIES NOTE 35 – OTHER LIABILITIES As at 31 December 2021 and 2020, the caption Other liabilities is analysed as follows: As at 31 December 2021 and 2020, the caption Other liabilities is analysed as follows: Nani Holdings, SGPS, SA (1) Fundo de Resolução (2) Direcção-Geral do Tesouro e Finanças As at 31 December 2021 and 2020, the caption Other liabilities is analysed as follows: NOTE 35 – OTHER LIABILITIES NOTE 36 – SHARE CAPITAL Ordinary shares NOTE 36 – SHARE CAPITAL Nani Holdings, SGPS, SA (1) Fundo de Resolução (2) Direcção-Geral do Tesouro e Finanças Public sector Creditors for supply of goods Other creditors Non-controlling interests of Open Investment Funds (see Note 37) Career bonuses (see Note 17) Retirement pensions and health-care benefits (see Note 17) Other accrued expenses Deferred income Foreign exchange transactions pending settlement Other transactions pending settlement Public sector Creditors for supply of goods Other creditors Non-controlling interests of Open Investment Funds (see Note 37) Career bonuses (see Note 17) Retirement pensions and health-care benefits (see Note 17) Other accrued expenses Deferred income Foreign exchange transactions pending settlement Other transactions pending settlement 31.12.2021 38 017 59 323 107 898 90 181 7 467 22 944 76 333 2 077 14 39 183 443 437 34 658 38 017 58 793 59 323 64 412 107 898 90 206 90 181 7 591 7 467 27 052 22 944 75 495 76 333 2 175 2 077 - 14 57 380 39 183 34 658 58 793 64 412 90 206 7 591 27 052 75 495 2 175 - 57 380 417 762 443 437 417 762 As at 31 December 2021, the caption Creditors for supply of goods includes Euro 38,673 thousand related to creditors of assets for right of use, under IFRS 16 (31 December 2020: Euro 39,826 thousand), whose residual maturities present the following detail: As at 31 December 2021, the caption Creditors for supply of goods includes Euro 38,673 thousand related to creditors of assets for right of use, under IFRS 16 (31 December 2020: Euro 39,826 thousand), whose residual maturities present the following detail: Up to 3 months From 3 months to 1 year 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 NOTE 36 – SHARE CAPITAL NOTE 36 – SHARE CAPITAL Ordinary shares Ordinary shares (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2020 31.12.2021 31.12.2020 234 1 199 16 293 20 947 38 673 80 484 22 194 17 068 234 1 199 16 293 20 947 39 826 38 673 80 484 22 194 17 068 39 826 As at 31 December 2021, the Bank's share capital of Euro 6,054,907,314 is represented by 9,954,907,311 registered shares with As at 31 December 2021, the Bank's share capital of Euro 6,054,907,314 is represented by 9,954,907,311 registered shares with no par value and is fully subscribed and paid up by the following shareholders (December 31, 2020: share capital of Euro no par value and is fully subscribed and paid up by the following shareholders (December 31, 2020: share capital of Euro 5,900,000,000 represented by 9,799,999,997 registered shares): 5,900,000,000 represented by 9,799,999,997 registered shares): Nani Holdings, SGPS, SA (1) Nani Holdings, SGPS, SA (1) Resolution Fund (2) Resolution Fund (2) Directorate General for the Treasury and Finance Directorate General for the Treasury and Finance % Share Capital % Share Capital 31.12.2021 31.12.2020 31.12.2021 31.12.2020 73.83% 24.61% 1.56% 75.00% 73.83% 25.00% 24.61% - 1.56% 75.00% 25.00% - 100.00% 100.00% 100.00% 100.00% (1) as a result of the agreements celebrated between the Resolution Fund and the shareholder Lone Star in the context of the sale of 75% of the share capital of novobanco, only the (1) as a result of the agreements celebrated between the Resolution Fund and the shareholder Lone Star in the context of the sale of 75% of the share capital of novobanco, only the Resolution Fund will see its participation diluted with the conversion of the conversion rights, pending the delivery of the shares by the Resolution Fund to Nani Holdings on December 31, Resolution Fund will see its participation diluted with the conversion of the conversion rights, pending the delivery of the shares by the Resolution Fund to Nani Holdings on December 31, 2021. When such delivery occurs, Nani Holdings' shareholding percentage will increase to 75.00% and the Resolution Fund's to 23.44%.Nani Holdings' economic interest in the new bank 2021. When such delivery occurs, Nani Holdings' shareholding percentage will increase to 75.00% and the Resolution Fund's to 23.44%.Nani Holdings' economic interest in the new bank remains unchanged at 75%. remains unchanged at 75%. (2) In view of the commitments assumed by the Portuguese Republic before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. (2) In view of the commitments assumed by the Portuguese Republic before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 88 - - 88 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes At December 31, 2021, based on the opinions obtained from legal and tax experts, and as a result of internal evaluation, it is not considered possible, with complete assurance, to remove the doubt as to the application of the new rules referred to above, a lthough it is admitted that there may be other interpretations since these are new rules, not yet applied, and therefore subject to i nterpretation. As of this date, the calculation of the application of the increased IMI rates to all the properties directl y and indirectly owned by novobanco amounts to approximately Euro 115.8 million for 2021, and there is no expectation as to the date on which clarification will be obtained from the Tax Authority or other similar entity that will determine the existence or not of an effective increase in liabilities for novobanco. Accordingly, in December 2021 a provision was set up for this contingency with a more probable risk than not of an outflow of resources incorporating economic benefits, in the above-mentioned amount of Euro 115.8 million, which is included in Other provisions. NOTE 35 – OTHER LIABILITIES As at 31 December 2021 and 2020, the caption Other liabilities is analysed as follows: Public sector Creditors for supply of goods Other creditors Non-controlling interests of Open Investment Funds (see Note 37) Career bonuses (see Note 17) Retirement pensions and health-care benefits (see Note 17) Other accrued expenses Deferred income Foreign exchange transactions pending settlement Other transactions pending settlement As at 31 December 2021, the caption Creditors for supply of goods includes Euro 38,673 thousand related to creditors of assets for right of use, under IFRS 16 (31 December 2020: Euro 39,826 thousand), whose residual maturities present the following detail: (in thousands of Euros) 31.12.2021 31.12.2020 38 017 59 323 107 898 90 181 7 467 22 944 76 333 2 077 14 39 183 443 437 34 658 58 793 64 412 90 206 7 591 27 052 75 495 2 175 - 57 380 417 762 (in thousands of Euros) 31.12.2021 31.12.2020 234 1 199 16 293 20 947 38 673 80 484 22 194 17 068 39 826 Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years NOTE 36 – SHARE CAPITAL NOTE 36 – SHARE CAPITAL Ordinary shares Ordinary shares As at 31 December 2021, the Bank’s share capital of Euro 6,054,907,314 is represented by 9,954,907,311 registered shares with no par value and is fully subscribed and paid up by the following shareholders (December 31, 2020: share capital of Euro 5,900,000,000 represented by 9,799,999,997 registered shares): As at 31 December 2021, the Bank's share capital of Euro 6,054,907,314 is represented by 9,954,907,311 registered shares with no par value and is fully subscribed and paid up by the following shareholders (December 31, 2020: share capital of Euro 5,900,000,000 represented by 9,799,999,997 registered shares): Nani Holdings, SGPS, SA (1) Resolution Fund (2) Directorate General for the Treasury and Finance % Share Capital 31.12.2021 31.12.2020 73.83% 24.61% 1.56% 75.00% 25.00% - 100.00% 100.00% (1) as a result of the agreements celebrated between the Resolution Fund and the shareholder Lone Star in the context of the sale of 75% of the share capital of novobanco, only the Resolution Fund will see its participation diluted with the conversion of the conversion rights, pending the delivery of the shares by the Resolution Fund to Nani Holdings on December 31, 2021. When such delivery occurs, Nani Holdings' shareholding percentage will increase to 75.00% and the Resolution Fund's to 23.44%.Nani Holdings' economic interest in the new bank remains unchanged at 75%. (2) In view of the commitments assumed by the Portuguese Republic before the European Commisson, the Resolution Fund is inhibited from exercising its voting rights. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In December 2021, a capital increase of Euro 154,907 thousand was carried out through the conversion of the conversion rights (resulting from the Special Regime Applicable to Deferred Tax Assets) for the year 2015, which gave the State a 1.56% stake in the novobanco, and which resulted in the issuance of 154,907,314 new ordinary shares (Note 37). In 2017 and following the acquisition of 75% of novobanco by Lone Star, two capital increases in the amounts of Euro 750 million and Euro 250 million, in October and December, respectively, were realised. As mentioned in Note 30, novobanco 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. 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. - 88 - The conversion rights are securities that entitle the State to require novobanco to increase its share capital by incorporating the amount of the special reserve and consequently issuing and delivering free of charge ordinary shares. It is estimated that the conversion rights to be issued and attributed to the State following the negative net results of the years 2015 to 2020 will give it a stake of up to approximately 16.63% of the share capital of novobanco, which will only dilute, in accordance with the sale agreement, the stake of the Resolution Fund. For the years 2016 and 2017, the Tax Authority has already validated the tax credit, and the final amount of conversion rights attributed to the State represents an additional stake of 4.13% of the share capital of novobanco (5.69% for the years 2015 to 2017). This conversion will be exercised in accordance with the procedures and deadlines established in the legal regime. The issuer of these rights has agreed with the shareholders that clarification will be sought from the State regarding the procedure for the conversion of these rights. As soon as this clarification is received, the conversion of the rights for the 2016 and 2017 financial years will take place. 252 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In December 2021, a capital increase of Euro 154,907 thousand was carried out through the conversion of the conversion rights (resulting from the Special Regime Applicable to Deferred Tax Assets) for the year 2015, which gave the State a 1.56% stake in the novobanco, and which resulted in the issuance of 154,907,314 new ordinary shares (Note 37). In 2017 and following the acquisition of 75% of novobanco by Lone Star, two capital increases in the amounts of Euro 750 million and Euro 250 million, in October and December, respectively, were realised. As mentioned in Note 30, novobanco 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. 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 entitle the State to require novobanco to increase its share capital by incorporating the amount of the special reserve and consequently issuing and delivering free of charge ordinary shares. It is estimated that the conversion rights to be issued and attributed to the State following the negative net results of the years 2015 to 2020 will give it a stake of up to approximately 16.63% of the share capital of novobanco, which will only dilute, in accordance with the sale agreement, the stake of the Resolution Fund. For the years 2016 and 2017, the Tax Authority has already validated the tax credit, and the final amount of conversion rights attributed to the State represents an additional stake of 4.13% of the share capital of novobanco (5.69% for the years 2015 to 2017). This conversion will be exercised in accordance with the procedures and deadlines established in the legal regime. The issuer of these rights has agreed with the shareholders that clarification will be sought from the State regarding the procedure for NOTE 37 – ACCUMULATED OTHER the conversion of these rights. As soon as this clarification is received, the conversion of the rights for the 2016 and 2017 financial years will take place. COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES NON-CONTROLLING INTERESTS NOTE 37 – ACCUMULATED OTHER COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES NON- CONTROLLING INTERESTS As at 31 December 2021 and 2020, the accumulated other comprehensive income, retained earnings and other reserves present the following detail: As at 31 December 2021 and 2020, 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 (in thousands of Euros) 31.12.2021 31.12.2020 ( 1 045 489) ( 823 420) ( 8 576 860) ( 7 202 828) 6 501 374 1 848 691 701 136 3 951 547 6 570 154 1 976 173 728 561 3 865 420 ( 3 120 975) ( 1 456 094) Other accumulated comprehensive income The movements in Other accumulated comprehensive income were as follows: Other accumulated comprehensive income The movements in Other accumulated comprehensive income were as follows: Other accumulated comprehensive income (in thousands of Euros) Impairment reserves Credit risk reserves Sales reserves Fair value reserves Other variations of other comprehensiv e income Actuarial deviations (net of taxes) Total Balance as at 31 December 2019 5 547 ( 1 669) ( 7 785) ( 85 891) ( 13 376) ( 599 137) Actuarial deviations Fair value changes, net of taxes Foreign exchange differences 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Other comprehensive income of associated companies 10 883 ( 1 852) - - - - - - - - - - - - - - - - 12 729 - - - ( 1 518) ( 124 331) - - - - - - - - - - - - ( 14 972) - - ( 2 048) Balance as at 31 December 2020 3 695 9 214 ( 22 757) ( 75 210) ( 14 894) ( 723 468) Actuarial deviations Fair value changes, net of taxes Foreign exchange differences Impairment reserves of securities at fair value through other comprehensive income Reserves of sales of securities at fair value through other comprehensive income Other comprehensive income of associated companies Balance as at 31 December 2021 - - - 12 - - - - - - - - - - - - ( 20 539) - - ( 125 801) - - - ( 252) - - 95 - - - ( 75 584) - - - - - ( 702 311) ( 124 331) 12 729 ( 1 518) 10 883 ( 1 852) ( 14 972) ( 2 048) - 88 - ( 823 420) ( 75 584) ( 125 801) 95 12 ( 20 539) ( 252) 3 707 9 214 ( 43 296) ( 201 263) ( 14 799) ( 799 052) (1 045 489) Fair value reserves 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. 253 The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analysed as follows: Balance at the beginning of the exercise 28 437 ( 103 647) ( 75 210) Changes in fair value Foreign exchange differences Disposals in the exercise Impairment in the exercise 31.12.2021 Fair value reserves (in thousands of Euros) 31.12.2020 Fair value reserves Financial assets at fair value through other comprehensive income Deferred tax Total fair reserves value reserves Financial assets at fair value through other comprehensive income Deferred tax Total fair reserves value reserves ( 200 897) 2 351 13 560 ( 1 361) - - - - ( 200 897) 2 351 13 560 ( 1 361) 60 294 13 057 95 596 ( 4 280) ( 69 652) ( 6 284) - ( 98 948) - - - - ( 4 699) ( 85 891) 95 596 ( 4 280) ( 69 652) ( 6 284) ( 4 699) Deferred taxes recognized in the exercise in reserves - 60 294 Balance at the end of the exercise ( 157 910) ( 43 353) ( 201 263) 28 437 ( 103 647) ( 75 210) 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 by the equity method Fair value reserves of discontinued activities Non-controlling Interests Total fair value reserve Deferred Taxes Fair value reserve attributable to shareholders of the Bank NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of Euros) 31.12.2021 31.12.2020 7 378 362 7 220 996 ( 157 366) 665 - ( 1 209) ( 157 910) ( 43 353) ( 201 263) 7 879 863 7 907 587 27 724 917 1 193 ( 1 397) 28 437 ( 103 647) ( 75 210) - 89 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Other accumulated comprehensive income The movements in Other accumulated comprehensive income were as follows: Other accumulated comprehensive income The movements in Other accumulated comprehensive income were as follows: Other accumulated comprehensive income Other accumulated comprehensive income variations of Actuarial Total Other (in thousands of Euros) (in thousands of Euros) Impairment Credit risk reserves reserves Sales reserves Fair value reserves Impairment Credit risk reserves 5 547 reserves ( 1 669) Sales reserves ( 7 785) Fair value reserves ( 85 891) 5 547 ( 1 669) ( 7 785) other Other comprehensiv variations of e income other comprehensiv ( 13 376) e income deviations (net of taxes) Actuarial deviations (net of taxes) ( 599 137) ( 124 331) ( 599 137) ( 124 331) 10 883 10 883 ( 14 972) 3 695 9 214 ( 22 757) ( 14 972) ( 14 894) ( 723 468) 3 695 9 214 ( 22 757) ( 75 210) ( 125 801) ( 14 894) Balance as at 31 December 2019 Actuarial deviations Balance as at 31 December 2019 Fair value changes, net of taxes Foreign exchange differences Actuarial deviations Changes in credit risk of financial liabilities at fair value, Fair value changes, net of taxes net of taxes Foreign exchange differences Impairment reserves of securities at fair value through Changes in credit risk of financial liabilities at fair value, other comprehensive income Reserves of sales of securities at fair value through other Impairment reserves of securities at fair value through net of taxes comprehensive income other comprehensive income Other comprehensive income of associated companies Reserves of sales of securities at fair value through other comprehensive income Balance as at 31 December 2020 Other comprehensive income of associated companies Actuarial deviations Balance as at 31 December 2020 Fair value changes, net of taxes Foreign exchange differences 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 Impairment reserves of securities at fair value through comprehensive income other comprehensive income Other comprehensive income of associated companies Reserves of sales of securities at fair value through other comprehensive income Other comprehensive income of associated companies Balance as at 31 December 2021 Balance as at 31 December 2021 ( 1 852) ( 1 852) - - - - - - - - - 12 - - - - - - - - - - 12 - 3 707 - - - - - - - - - - - - - - 9 214 - - - - - - - - - - - - - - - - - - - - - - ( 20 539) - ( 85 891) 12 729 12 729 - - - - - - - - - - - - ( 2 048) ( 75 210) - ( 2 048) ( 125 801) - - - ( 252) - - - - - - - - - - - ( 13 376) ( 1 518) ( 1 518) - - - - - - - - - - - - - - 95 - - - 95 - - - - - ( 43 296) ( 20 539) - ( 201 263) - ( 252) ( 14 799) Total ( 702 311) ( 124 331) ( 702 311) 12 729 ( 1 518) ( 124 331) 12 729 10 883 ( 1 518) ( 1 852) 10 883 ( 14 972) ( 1 852) ( 2 048) ( 823 420) ( 14 972) ( 2 048) ( 75 584) ( 823 420) ( 125 801) 95 ( 75 584) ( 125 801) 12 95 ( 20 539) ( 252) 12 (1 045 489) ( 20 539) ( 252) - - - - - - - - - - - ( 799 052) - - - - - - - - - - - ( 75 584) ( 723 468) ( 75 584) 3 707 9 214 ( 43 296) ( 201 263) ( 14 799) ( 799 052) (1 045 489) Fair value reserves Fair value reserves The fair value reserves represent the amount of the unrealised gains and losses arising from the The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at securities portfolio classified as at a fair value through other comprehensive income, net of impairment a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferre d losses. The amount of this reserve is shown net of deferred taxes and non-controlling interests. taxes and non-controlling interests. Fair value reserves 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. The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analysed as follows: The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analysed as follows: The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analysed as follows: (in thousands of Euros) 31.12.2021 Fair value reserves 31.12.2020 Fair value reserves (in thousands of Euros) Financial assets at fair value through other comprehensive income 31.12.2021 Deferred tax Fair value reserves reserves Total fair value reserves Financial assets at fair value through other comprehensive income 31.12.2020 Deferred tax Fair value reserves reserves Total fair value reserves Balance at the beginning of the exercise Balance at the beginning of the exercise Changes in fair value Foreign exchange differences Disposals in the exercise Changes in fair value Impairment in the exercise Foreign exchange differences Deferred taxes recognized in the exercise in reserves Disposals in the exercise Impairment in the exercise Deferred taxes recognized in the exercise in reserves Balance at the end of the exercise Financial assets at fair value through other 28 437 comprehensive income ( 200 897) 2 351 28 437 13 560 ( 200 897) ( 1 361) 2 351 - 13 560 ( 1 361) - ( 157 910) Deferred tax ( 103 647) reserves - - - - 60 294 ( 103 647) - - - - 60 294 ( 43 353) Total fair ( 75 210) value reserves ( 200 897) 2 351 ( 75 210) 13 560 ( 200 897) ( 1 361) 2 351 60 294 13 560 ( 1 361) 60 294 ( 201 263) Financial assets at fair value through other 13 057 comprehensive income 13 057 95 596 ( 4 280) ( 69 652) 95 596 ( 6 284) ( 4 280) - ( 69 652) 28 437 ( 6 284) - Deferred tax ( 98 948) reserves Total fair ( 85 891) value reserves ( 98 948) - - - - ( 4 699) - - - - ( 4 699) ( 103 647) 95 596 ( 4 280) ( 85 891) ( 69 652) 95 596 ( 6 284) ( 4 280) ( 4 699) ( 69 652) ( 6 284) ( 4 699) ( 75 210) Balance at the end of the exercise ( 157 910) ( 43 353) ( 201 263) 28 437 ( 103 647) ( 75 210) The fair value reserves are analysed as follows: The fair value reserves are analysed as follows: 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 Amortised cost of financial assets at fair value through other comprehensive income Unrealised gains / (losses) recognized in fair value reserve Market value of financial assets at fair value through other comprehensive income Fair value reserves by the equity method Unrealised gains / (losses) recognized in fair value reserve Fair value reserves of discontinued activities Fair value reserves by the equity method Non-controlling Interests Fair value reserves of discontinued activities Total fair value reserve Non-controlling Interests Deferred Taxes Fair value reserve attributable to shareholders of the Bank Total fair value reserve Deferred Taxes 31.12.2021 7 378 362 31.12.2021 7 220 996 7 378 362 ( 157 366) 7 220 996 665 ( 157 366) - 665 ( 1 209) ( 157 910) - ( 1 209) ( 43 353) ( 157 910) ( 201 263) ( 43 353) Fair value reserve attributable to shareholders of the Bank NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ( 201 263) (in thousands of Euros) 31.12.2020 (in thousands of Euros) 7 879 863 31.12.2020 7 907 587 7 879 863 27 724 7 907 587 917 27 724 1 193 917 ( 1 397) 1 193 28 437 ( 1 397) ( 103 647) 28 437 ( 75 210) ( 103 647) ( 75 210) - 89 - - 90 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Originating reserve The originating reserve results from the difference between the assets and liabilities transferred from BES to novobanco, 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 30, the special reserve was created as a result of the adhesion of novobanco 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 calculation of a negative net result in the years between 2015 and 2020, with reference to the deferred tax assets eligible at the closing date of these years, from the application of the special regime applicable to deferred tax assets, novobanco recorded a special reserve, in the same amount as the tax credit calculated, increased by 10%, which is broken down as follows: 254 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Originating reserve The originating reserve results from the difference between the assets and liabilities transferred from BES to novobanco, 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 30, the special reserve was created as a result of the adhesion of novobanco 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 calculation of a negative net result in the years between 2015 and 2020, with reference to the deferred tax assets eligible at the closing date of these years, from the application of the special regime applicable to deferred tax assets, novobanco recorded a special reserve, in the same amount as the tax credit calculated, increased by 10%, which is broken down as follows: 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) 2021 (net loss of 2020) (milhares de euros) 31.12.2021 31.12.2020 14 004 109 421 140 332 178 171 122 015 137 193 701 136 168 911 109 421 150 044 178 171 122 014 - 728 561 With regard to the reserve set up in 2016 (relating to the negative net income of 2015), taking into account the legal deadlines provided for in the Special Regime, in 2021 it was decided to increase the share capital by incorporation of reserves in the amount of Euro 154,907 thousand, with the remaining amount of the reserve in the amount of Euro 14,004 thousand (relating to goodwill), intended With regard to the reserve set up in 2016 (relating to the negative net income of 2015), taking into to be incorporated into a special reserve subject to the legal reserve regime under the terms of article 295 of the Commercial account the legal deadlines provided for in the Special Regime, in 2021 it was decided to increase the Companies Code. share capital by incorporation of reserves in the amount of Euro 154,907 thousand, with the remaining amount of the reserve in the amount of Euro 14,004 thousand (relating to goodwill), intended to be incorporated into a special reserve subject to the legal reserve regime under the terms of article 295 of the Commercial Companies Code. Other reserves and retained earnings Following the conditions agreed in the novobanco’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 38 – 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 2021 these assets had a net value of Euro 1.7 billion, mainly as a result of losses recorded as well as payments and recoveries (31 December 2020: net value of Euro 2.1 billion). The amount related to the Contingent Capital Agreement recorded in 2020, as receivable by the Resolution Fund (Euro 598,312 thousand), differs from the amount paid as a result of disagreements, between novobanco and the Resolution Fund, regarding (i) the provision for discontinued operations in Spain and (ii) the valuation of participation units, leading to a limitation to the immediate access to this amount, which despite being recorded as receivables, the Bank deducted, as at December 31, 2021, to the regulatory capital calculation (EUR 165,442 thousand). novobanco considers this amount to be due under the Contingent Capital Agreement and is triggering the legal and contractual mechanisms at its disposal to ensure receipt of the same (see Note 38). Additionally, the variable remuneration of the Executive Board of Directors for 2019 and 2020 (Euro 3,857 thousand) was also deducted. Other reserves and retained earnings Following the conditions agreed in the novobanco’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 38 – 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 2021 these assets had a net value of Euro 1.7 billion, mainly as a result of losses recorded as well as payments and recoveries (31 December 2020: net value of Euro 2.1 billion). Taking into consideration the losses presented by novobanco at December 31, 2020, 2019, 2018 and 2017, the conditions were met that determined the payment by the Resolution Fund of Euro 429,013 thousand, Euro 1,035,016 thousand, Euro 1,149,295 thousand and Euro 791,695 thousand in 2021, 2020, 2019 and 2018, respectively. In 2021 an amount receivable by the Resolution Fund of Euro 209,220 thousand was recorded in relation to the Contingent Capital Agreement, under Other Reserves and which results, on the date of each balance sheet, from losses incurred and regulatory ratios in force at the time of their determination. As a result of the above and in line with the Regulator’s guidelines, at 31 December 2021, this value was also deducted from the regulatory capital calculation. The amount related to the Contingent Capital Agreement recorded in 2020, as receivable by the Resolution Fund (Euro 598,312 thousand), differs from the amount paid as a result of disagreements, between novobanco and the Resolution Fund, regarding (i) the provision for discontinued operations in Spain and (ii) the valuation of participation units, leading to a limitation to the immediate access to this amount, which despite being recorded as receivables, the Bank deducted, as at December 31, 2021, to the regulatory capital calculation (EUR 165,442 thousand). novobanco considers this amount to be due under the Contingent Capital Agreement and is triggering the legal and contractual mechanisms at its disposal to ensure receipt of the same (see Note 38). Additionally, the variable remuneration of the Executive Board of Directors for 2019 and 2020 (Euro 3,857 thousand) was also deducted. Non-controlling interests The caption Non-controlling interests, by subsidiary, is detailed as follows: Taking into consideration the losses presented by novobanco at December 31, 2020, 2019, 2018 and 2017, the conditions were met that determined the payment by the Resolution Fund of Euro 429,013 thousand, Euro 1,035,016 thousand, Euro 1,149,295 thousand and Euro 791,695 thousand in 2021, 2020, 2019 and 2018, respectively. Non-controlling interests The caption Non-controlling interests, by subsidiary, is detailed as follows: In 2021 an amount receivable by the Resolution Fund of Euro 209,220 thousand was recorded in relation to the Contingent Capital Agreement, under Other Reserves and which results, on the date of each balance sheet, from losses incurred and regulatory ratios in force at the time of their determination. As a result of the above and in line with the Regulator's guidelines, at 31 December 2021, this value was also deducted from the regulatory capital calculation. NB Património a) novobanco Açores Amoreiras Other (in thousands of Euros) Balance sheet - 20 445 9 012 1 578 31 035 31.12.2021 Income statement 6 007 2 053 ( 87) ( 288) 7 685 % Non- controlling interests 43,67% 42,47% 4,76% Balance sheet - 18 451 9 099 4 496 32 046 31.12.2020 Income statement ( 7 759) 1 134 ( 123) ( 3 326) ( 10 074) % Non- controlling interests 44,17% 42,47% 4,76% a) Non-controlling interests relating to Open real estate investment funds are recorded as Other liabilities (see Note 33) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 90 - The changes occurred in the caption Non-controlling interests may be analyzed as follows: NOTE 38 – CONTINGENT LIABILITIES AND COMMITMENTS In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 31 December 2021 and 2020 are the following: Non-controlling interests at the beginning of the exercise Changes in consolidation perimeter and control percentages Changes in fair value reserves Other Net profit / (loss) for the exercise Non-controlling interests at the end of the exercise Contingent liabilities Guarantees and standby letters Financial assets pledged as collateral Open documentary credits Commitments Revocable commitments Irrevocable commitments 255 (in thousands of Euros) 31.12.2021 31.12.2020 32 046 ( 3 288) 142 ( 5 550) 7 685 31 035 36 624 ( 1 553) ( 830) 7 879 ( 10 074) 32 046 (in thousands of Euros) 31.12.2021 31.12.2020 2 234 243 13 997 048 402 332 16 666 552 5 298 799 546 458 5 845 257 2 826 190 14 101 034 410 292 17 337 516 6 389 435 631 500 7 020 935 Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Group. As at 31 December 2021, 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 amount of Euro 13.2 billion (31 December 2020: Euro 13.1 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 9.1 million (31 December 2020: Euro 9.4 million);  Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), in the amount of Euro 67.5  Securities pledged as collateral to the European Investment Bank, in the amount of Euro 651.4 million (31 December 2020: Euro  Securities delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 100.5 million (31 December 2020: Euro 70.8 million); 769.7 million); million (31 December 2020: Euro 107.0 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 91 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Non-controlling interests The caption Non-controlling interests, by subsidiary, is detailed as follows: Non-controlling interests The caption Non-controlling interests, by subsidiary, is detailed as follows: Balance sheet controlling Balance sheet 31.12.2021 Income statement NB Património a) novobanco Açores Amoreiras Other - 20 445 9 012 Balance sheet 1 578 31.12.2021 Income statement 6 007 2 053 ( 87) ( 288) 7 685 6 007 2 053 ( 87) ( 288) 31 035 - 20 445 9 012 1 578 NB Património a) a) Non-controlling interests relating to Open real estate investment funds are recorded as Other liabilities (see Note 33) novobanco Açores Amoreiras The changes occurred in the caption Non-controlling interests may be analysed as follows: The changes occurred in the caption Non-controlling interests may be analysed as follows: Other 43,67% 42,47% 4,76% a) Non-controlling interests relating to Open real estate investment funds are recorded as Other liabilities (see Note 33) 31 035 7 685 Non-controlling interests at the beginning of the exercise The changes occurred in the caption Non-controlling interests may be analyzed as follows: Changes in consolidation perimeter and control percentages Changes in fair value reserves Other Net profit / (loss) for the exercise Non-controlling interests at the beginning of the exercise Changes in consolidation perimeter and control percentages Non-controlling interests at the end of the exercise Changes in fair value reserves Other NOTE 38 – CONTINGENT LIABILITIES AND COMMITMENTS Net profit / (loss) for the exercise % Non- interests 43,67% 42,47% 4,76% % Non- controlling interests - 18 451 9 099 Balance sheet 4 496 (in thousands of Euros) 31.12.2020 Income statement % Non- controlling interests 31.12.2020 ( 7 759) 1 134 ( 123) ( 3 326) Income statement (in thousands of Euros) 44,17% 42,47% 4,76% % Non- controlling interests 32 046 - 18 451 9 099 4 496 ( 10 074) ( 7 759) 1 134 ( 123) ( 3 326) 32 046 ( 10 074) 31.12.2021 31.12.2020 (in thousands of Euros) 44,17% 42,47% 4,76% 36 624 ( 1 553) ( 830) 7 879 ( 10 074) 36 624 ( 1 553) 32 046 ( 830) 7 879 ( 10 074) (in thousands of Euros) 31.12.2021 31.12.2020 32 046 ( 3 288) 142 ( 5 550) 7 685 32 046 ( 3 288) 31 035 142 ( 5 550) 7 685 NOTE 38 – CONTINGENT LIABILITIES AND COMMITMENTS 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 31 December 2021 and 2020 are the following: 31 035 32 046 NOTE 38 – CONTINGENT LIABILITIES AND COMMITMENTS (in thousands of Euros) 31.12.2021 31.12.2020 In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 31 December 2021 and 2020 are the following: In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 31 December 2021 and 2020 are the following: Contingent liabilities Guarantees and standby letters Financial assets pledged as collateral Open documentary credits 2 234 243 13 997 048 402 332 2 826 190 (in thousands of Euros) 14 101 034 410 292 31.12.2020 31.12.2021 Contingent liabilities Guarantees and standby letters Commitments Financial assets pledged as collateral Revocable commitments Open documentary credits Irrevocable commitments 16 666 552 2 234 243 13 997 048 5 298 799 402 332 546 458 16 666 552 5 845 257 17 337 516 2 826 190 14 101 034 6 389 435 410 292 631 500 17 337 516 7 020 935 Commitments Revocable commitments Irrevocable commitments Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Group. 5 298 799 546 458 6 389 435 631 500 As at 31 December 2021, 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 5 845 257 7 020 935 amount of Euro 13.2 billion (31 December 2020: Euro 13.1 billion); Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Group. Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Group.  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 9.1 million (31 December 2020: Euro 9.4 million); As at 31 December 2021, 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  Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), in the amount of Euro 67.5 (“Sistema de Indemnização aos Investidores”), in the amount of Euro 9.1 million (31 December 2020: Euro 9.4 million); • Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), As at 31 December 2021, the caption financial assets pledged as collateral includes: amount of Euro 13.2 billion (31 December 2020: Euro 13.1 billion); million (31 December 2020: Euro 70.8 million); Em 31 de dezembro de 2021, a rubrica de ativos financeiros dados em garantia inclui:  Securities pledged as collateral to the Portuguese Securities and Exchange Commission (“Comissão do Mercado de Valores  Securities pledged as collateral to the European Investment Bank, in the amount of Euro 651.4 million (31 December 2020: Euro Mobiliários” (CMVM)) in the scope of the Investors Indemnity System (“Sistema de Indemnização aos Investidores”), in the amount 769.7 million); of Euro 9.1 million (31 December 2020: Euro 9.4 million);  Securities delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 100.5  Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), in the amount of Euro 67.5 million (31 December 2020: Euro 769.7 million); in the amount of Euro 67.5 million (31 December 2020: Euro 70.8 million); • Securities pledged as collateral to the European Investment Bank, in the amount of Euro 651.4 • 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 13.2 billion (31 December 2020: Euro 13.1 billion); million (31 December 2020: Euro 107.0 million). million (31 December 2020: Euro 70.8 million); • Securities delivered as collateral in connection with derivatives trading with a central counterparty • 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  Securities pledged as collateral to the European Investment Bank, in the amount of Euro 651.4 million (31 December 2020: Euro 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 .  Securities delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 100.5 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. million (31 December 2020: Euro 107.0 million). 769.7 million); in the amount of Euro 100.5 million (31 December 2020: Euro 107.0 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS collateral due to changes in the minimum required amounts. - 92 - 256 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 91 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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. 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. 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. 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. 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: 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 Adicionalmente, as responsabilidades evidenciadas em contas extrapatrimoniais relacionadas com a prestação de serviços bancários são como segue: 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) 31.12.2021 31.12.2020 31 739 971 197 567 620 091 652 518 35 469 555 233 699 697 905 1 519 011 33 210 147 37 920 170 a. All credits related to preferred shares issued by vehicle companies established by BES and sold Pursuant to the resolution measure applied to BES by resolution of Bank of Portugal of 3 August 2014 (point 1., point b), subparagraph (vii) of Annex 2), as amended by the decision of Bank of Portugal of 11 August 2014, the “excluded liabilities” of transfer to novobanco include “any obligations, guarantees, liabilities or contingencies assumed in the commercialization, financial intermediation and distribution of debt instruments issued by entities that are part of the Espírito Santo Group (…) ”. Pursuant to the resolution measure applied to BES by resolution of Bank of Portugal of 3 August 2014 (point 1., point b), subparagraph (vii) of Annex 2), as amended by the decision of Bank of Portugal of 11 August 2014, the “excluded liabilities” of transfer to novobanco include “any obligations, guarantees, liabilities or contingencies assumed in the commercialization, financial intermediation and distribution of debt instruments issued by entities that are part of the Espírito Santo Group (…) ”. Pursuant to point and subparagraph above and subpoint (v), liabilities excluded also include “any liabilities or contingencies, namely those arising from fraud or violation of regulatory, criminal or administrative offenses or provisions”. novobanco; by BES; Pursuant to point and subparagraph above and subpoint (v), liabilities excluded also include “any liabilities or contingencies, namely those arising from fraud or violation of regulatory, criminal or administrative offenses or provisions”. On December 29, 2015, Bank of 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 Bank of Portugal of 3 August 2014 (8 pm), as amended by the Resolution of Bank of Portugal of 11 August 2014 (5 pm) ”. Under the terms of this resolution, Bank of Portugal came: Seguros de Vida, S.A; On December 29, 2015, Bank of 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 Bank of Portugal of 3 August 2014 (8 pm), as amended by the Resolution of Bank of Portugal of 11 August 2014 (5 pm) ”. Under the terms of this resolution, Bank of Portugal came: (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 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 provider of financial and investment services; in which BES was the lender; 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 e. All credits and indemnities related to the alleged cancellation of certain loan agreement clauses b. All credits, indemnities and expenses related to real estate assets that have been transferred to f. All indemnities and credits resulting from the cancellation of operations carried out by BES as a (ii) Clarify that the following BES liabilities have not been transferred from BES to novobanco: g. Any responsibility that is the subject of any of the processes described in Appendix I of said 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 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 executed before 8:00 pm on August 3, 2014; lender; 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 novobanco; c. All indemnities related to non-compliance with contracts (purchase and sale of real estate and other assets) signed and resolution. 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 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 novobanco legal liabilities, these liabilities will be retransmitted from novobanco to BES, with effect from 8:00 pm on August 3, 2014. ii. Clarify that the following BES liabilities have not been transferred from BES to novobanco: and investment services; f. All indemnities and credits resulting from the cancellation of operations carried out by BES as a provider of financial g. Any responsibility that is the subject of any of the processes described in Appendix I of said resolution. In the preparation of its consolidated financial statements for 31 December 2021 (as well as in the previous financial statements), novobanco incorporated the determinations resulting from the (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 novobanco legal liabilities, these liabilities will be retransmitted from novobanco to BES, with effect from 8:00 pm on August 3, 2014. In the preparation of its consolidated financial statements for 31 December 2021 (as well as in the previous financial statements), novobanco 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 Bank of Portugal of 29 December 2015, in particular, regarding the clarification of the non-transmission to novobanco of contingent and unknown liabilities and clarifications relating to the liabilities contained in paragraph (ii) above, including the lawsuits listed in that resolution. 257 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 92 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 Bank of Portugal of 29 December 2015, in particular, regarding the clarification of the non-transmission to novobanco 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 Bank of Portugal of 29 December 2015, it was decided that the Resolution Fund is responsible for neutralizing, at the level of novobanco, the effects of decisions that are legally binding, outside the will of novobanco 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 novobanco, as defined by Bank of 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 Bank of 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 Bank of 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 Bank of 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 novobanco. 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 novobanco, 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 are still pending before the Supreme Court of Justice of Venezuela. In the preparation of novobanco ‘s individual and consolidated financial statements of 31 December 2021 (as well as in the previous financial statements), the Executive Board of Directors reflected the Resolution Measure and related decisions taken by Bank of Portugal, in particular the decisions of December 29, 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 novobanco, as determined by Bank of Portugal and with reference to the current legal bases and the information available at the present date. Additionally, within the scope of the novobanco sale operation, concluded on October 18, 2017, the respective contractual documents contain specific provisions that produce effects equivalent to the resolution of the Board of Directors of Bank of Portugal, of December 29, 2015, regarding the neutralization, at the level of novobanco, 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 Bank of 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 novobanco GROUP 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 novobanco and Calm Eagle Holdings, S.A.R.L. through 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 novobanco to challenge the resolution in favor of the insolvent estate of the acts of incorporation 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. novobanco 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 novobanco ‘s share capital, signed between the Resolution Fund and Lone Star on March 31, 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 novobanco 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 Contingent Capitalization Mechanism is requested; 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 Bank of 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 Bank of Portugal based essentially on the amount of its liabilities. As at 31 December 2021, the Group’s periodic contribution amounted to Euro 15,150 thousand (31 December 2020: Euro 12,743 thousand). Within the scope of its responsibility as a supervisory and resolution authority, Bank of Portugal, on August 3, 2014, decided to apply a resolution measure to BES, pursuant to paragraph 5 of article 145-G 258 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesof the General Regime of Institutions Credit and Financial Companies (RGICSF), which consisted of transferring most of its activity to novobanco, created especially for this purpose, with the capitalization being ensured by the Resolution Fund. For the realization of novobanco’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. The 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 fulfilment 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 participating 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 financing 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 March 21, 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, Bank of Portugal announced that it had selected the Lone Star Fund for the purchase of novobanco, 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 December 21, 2017. The Lone Star Fund now holds 75% of novobanco ‘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 novobanco 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 novobanco, 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 Bank of Portugal, or to the perimeter novobanco’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 39 – 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 regulations of the funds managed. As at 31 December 2021 and 2020, the value of the assets under management by the Group companies are analysed as follows: 259 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesAs at 31 December 2021 and 2020, the value of the assets under management by the Group companies are analysed as follows: Investment funds Real estate investment funds Pension funds Discretionary management (in thousands of Euros) 31.12.2021 31.12.2020 1 309 544 67 408 2 633 464 700 260 1 128 238 74 654 2 463 098 710 054 4 710 676 4 376 044 The amounts included in these captions are measured at fair value, determined at the balance sheet date. The amounts included in these captions are measured at fair value, determined at the balance sheet date. NOTE 40 – RELATED PARTIES BALANCES AND TRANSACTIONS NOTE 40 – RELATED PARTIES BALANCES AND TRANSACTIONS The group of entities considered to be related parties by novobanco 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 novobanco); (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 direct or indirect stakes equal to or exceeding 2% of the share capital or voting rights of novobanco; (v) subsidiaries consolidated for accounting purposes under the full consolidation method; (vi) associated companies, that is, companies over which novobanco Group has significantly influence on the company’s financial and operational polices, despite not having control; and (vii) entities under joint control of novobanco (joint ventures). The group of entities considered to be related parties by novobanco 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 novobanco); (ii) people or entities with a family, legal 1) Credit Operations During 2021, the following transactions with Related Parties (credit and other types) were carried out: 1) Credit Operations or business relationship with key management personnel; (iii) people or entities 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 novobanco; (v) subsidiaries consolidated for accounting purposes under the full consolidation method; (vi) associated companies, that is, companies over which novobanco Group has significantly influence on the company’s financial and operational polices, despite not having control; and (vii) entities under joint control of novobanco (joint ventures). During 2021, the following transactions with Related Parties (credit and other types) were carried out: Entities / Individuals Category Operation Amount (euros) BEST Entities / Individuals Banco Electrónico de Serviço Total S.A. BEST Banco Electrónico de Serviço Total S.A. EDENRED - Portugal S.A. EDENRED - Portugal S.A. LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. novobanco Group Category novobanco Group novobanco Group novobanco Group novobanco Group novobanco Group novobanco Group novobanco Group novobanco Group novobanco Group novobanco Group novobanco Group Novobanco dos Açores Common Management and/or Supervisory Members novobanco Group Bank Guarantee Operation Bank Guarantee 8 090 174 41 359 876 Amount (euros) Direct Debits Limits (RCE) (renewal) Bank Guarantee 410 000 8 090 174 Credit Card Limits (renewal) Bank Guarantee Credit Card Limits (renewal) Direct Debits Limits (RCE) (renewal) Current-Account Loan Account (renewal) Credit Card Limits (renewal) Trading Room Opera�ons (RCE) Direct Debits Limits (RCE) (renewal) Credit Card Limits (renewal) Leasing (renewal and reduc�on) Current-Account Loan Account (renewal) Leasing (renewal) Commercial paper (renewal) Trading Room Operations (RCE) Commercial paper (renewal) Direct Debits Limits (RCE) (renewal) Commercial paper (renewal) Leasing (renewal and reduction) Commercial paper (renewal) Leasing (renewal) Full subscrip�on of the issue of Senior Debt Securi�es (non-preferred) at the novobanco dos Açores by the novobanco Commercial paper (renewal) 24 000 10 000 2 500 000 3 000 000 4 000 000 25 000 000 43 250 000 1 000 000 4 500 000 23 000 000 50 000 000 41 359 876 410 000 24 000 10 000 2 500 000 3 000 000 4 000 000 25 000 000 43 250 000 5 000 000 1 000 000 LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. Novo Banco Group (BEST, NB Açores e NB Finance) Common Management and/or Supervisory Members novobanco Group • Interbank Limits (Trading Room Opera�ons) • Commercial Limits Commercial paper (renewal) 1 400 000 000 23 000 000 Commercial paper (renewal) 50 000 000 Commercial paper (renewal) 4 500 000 Novobanco dos Açores Unicre - Cartão Internacional de Crédito S.A. Common Management and/or novobanco Group Supervisory Members Current-Account Loan Account Full subscription of the issue of Senior Debt Current-Account Loan Account Securities (non-preferred) at the novobanco dos Açores by the novobanco Reformula�on of 3 Current Account Loans (renewal) 18 000 000 20 050 000 Up to 10 000 000 5 000 000 Novo Banco Group (BEST, NB Açores e NB Finance) Common Management and/or Supervisory Members • Interbank Limits (Trading Room Operations) • Commercial Limits 1 400 000 000 260 Unicre - Cartão Internacional de Crédito S.A. novobanco Group Current-Account Loan Account 18 000 000 Current-Account Loan Account Up to 10 000 000 Reformulation of 3 Current Account Loans (renewal) 20 050 000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 95 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 2) Services rendered and other signed contracts 2) Services rendered and other signed contracts 2) Services rendered and other signed contracts Entities / Individuals Entities / Individuals GNB Gestão de Ativos Category Category novobanco Group Operation Intra Group Services Agreement Operation GNB Soc Gestora de Fundo de Pensões S.A. GNB Gestão de Ativos novobanco Group novobanco Group Intra Group Services Agreement Real Estate Transaction GNB Soc Gestora de Fundo de Pensões S.A. novobanco Group Real Estate Transaction Amount (euros) Amount (euros) na na 22 932 300 22 932 300 The Group balances with related parties as at 31 December 2021 and 2020, as well as the respective profit and losses, can be summarised as follows: The Group balances with related parties as at 31 December 2021 and 2020, as well as the respective profit and losses, can be summarised as follows: The Group balances with related parties as at 31 December 2021 and 2020, as well as the respective profit and losses, can be summarised as follows: (in thousands of Euros) Shareholders NANI HOLDINGS Shareholders FUNDO DE RESOLUÇÃO Associated companies NANI HOLDINGS FUNDO DE RESOLUÇÃO LINEAS Associated companies LOCARENT LINEAS ESEGUR LOCARENT UNICRE ESEGUR MULTIPESSOAL UNICRE BANCO DELLE TRE VENEZIE MULTIPESSOAL EDENRED BANCO DELLE TRE VENEZIE ENKROTT EDENRED PNBC ENKROTT PNBC Other HUDSON ADVISORS PORTUGAL Other NACIONAL CONTA LDA HUDSON ADVISORS PORTUGAL INFRAMOURA NACIONAL CONTA LDA ESMALGLASS INFRAMOURA MARINA VILAMOURA ESMALGLASS MARINA VILAMOURA Other 31.12.2021 Liabilities Guarantees 31.12.2021 Income Expenses Assets 31.12.2020 Liabilities Guarantees 31.12.2020 Income (in thousands of Euros) Expenses Liabilities Guarantees Liabilities Guarantees - - - - - - - 915 - - 915 273 - - 273 62 - - 62 - - 1 250 - 1 250 - - - - - 2 - - 2 - 2 Income 332 - 332 - 2 395 1 040 2 395 - 1 040 522 - - 522 - - 2 039 - - 2 039 - - 6 328 - 6 328 - - - - - - - - - - - Expenses - 26 190 - 26 190 - 3 282 - - 3 282 - - - - - - 24 - - 24 - - 29 496 - 29 496 4 138 - 4 138 - - - - - - - 4 138 Assets - 598 312 - 598 312 64 933 115 832 64 933 2 955 115 832 22 597 2 955 2 030 22 597 - 2 030 2 - - 2 - - 806 661 - 806 661 - 295 - 114 295 - 114 - - - 409 153 - 153 - 6 505 633 6 505 1 650 633 49 1 650 31 49 94 31 81 821 94 - 81 821 - - 90 936 - 90 936 - 52 - 16 52 107 16 1 107 1 176 - - - - - - - 915 - - 915 273 - - 273 62 - - 62 - - 1 250 - 1 250 - - - - - 2 - - 2 - 2 Income 332 - 332 - 2 871 1 081 2 871 - 1 081 289 - 31 289 31 1 967 15 1 967 - 15 6 586 - 6 586 - - - - - - - - - - - Expenses - 12 743 - 12 743 - 3 806 - - 3 806 - - - - - 37 37 276 16 862 276 16 862 4 685 - 4 685 - - - - - - - 4 685 Assets Assets - 212 515 - 209 220 - 121 982 - 1 894 121 982 38 193 1 894 2 017 38 193 - 2 017 1 - - 1 - - 376 602 - 373 307 - 375 - - 375 - - - - 375 - 375 153 11 040 153 11 040 3 123 3 146 3 123 919 3 146 6 919 43 6 222 43 93 081 222 - 93 081 - - 111 733 - 111 733 - 18 - - 18 100 - - 100 118 - 118 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 2021 and 2020. The liability corresponds to the amount to be delivered to the Resolution Fund arising from an addendum made in May 2021 to the Contingent Capitalization Mechanism contract. - 2 409 Other 4 138 4 685 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 2021 and 2020. The liability corresponds to the amount to be delivered to the Resolution The amount of assets receivable from the Resolution Fund corresponds to the amount of the triggering of the Contingent Capital Fund arising from an addendum made in May 2021 to the Contingent Capitalization Mechanism contract. Agreement regarding the financial years 2021 and 2020. The liability corresponds to the amount to be delivered to the Resolution Fund arising from an addendum made in May 2021 to the Contingent Capitalization Mechanism contract. In June 2018 a contract was entered into between NANI HOLDINGS, SGPS, S.A., LSF NANI INVESTMENTS S.à.r.l. and novobanco, to provide support services for the preparation of consolidated information and regulatory reports. In June 2018 a contract was entered into between NANI HOLDINGS, SGPS, S.A., LSF NANI INVESTMENTS S.à.r.l. and novobanco, 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 Group’s activity. The liabilities relate mainly to bank The assets on the balance sheet related to associated companies included in the table above refer mainly to loans and advances, deposits taken. and shareholder loans granted, or debt securities acquired in the scope of the Group’s activity. The liabilities relate mainly to bank deposits taken. The guarantees related to associated companies included in the table above refer essentially to guarantees provided. 176 2 - In June 2018 a contract was entered into between NANI HOLDINGS, SGPS, S.A., LSF NANI INVESTMENTS S.à.r.l. and novobanco, 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 Group’s activity. The liabilities relate mainly to bank deposits taken. The 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 substantiated in accordance with the Related party transactions were carried out at arm's length, under similar terms and conditions, when compared with others ca rried Bank’s Related Party Transactions Policy. out with unrelated parties, and when these conditions were not verified, those exceptions were substantiated in accordance wi th 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 All the loans granted to related parties are included in the impairment model, being subject to the determination of impairme nt in the parties earn interest between 0% and 6.24% (the rates correspond to the rates applied according to the original currency of the asset). 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 6.24% (the rates correspond to the rates applied according to the original currency of the asset). The 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 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 parties earn interest between 0% and 6.24% (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 novobanco in 2021 and 2020, are as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 96 - - 97 - 261 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The costs with remunerations and other benefits granted to Key Management Personnel of novobanco in 2021 and 2020, are as follows: (in thousands of Euros) The costs with remunerations and other benefits granted to Key Management Personnel of novobanco in 2021 and 2020, are as follows: Short-term employment benefits Post-employment benefits Short-term employment benefits Other long-term benefits Post-employment benefits Other long-term benefits Executive Board of Directors Executive Board of Directors 2 524 2 2 524 51 2 2 577 51 31.12.2021 General and Supervisory 31.12.2021 Board General and Supervisory Board 1 183 - 1 183 50 - 1 233 50 Total Total 3 707 2 3 707 101 2 3 810 101 Executive Board of Directors Executive Board of Directors 2 676 3 2 676 33 3 2 712 33 31.12.2020 General and Supervisory 31.12.2020 Board General and Supervisory Board 993 - 993 8 - 1 001 8 (in thousands of Euros) Total Total 3 669 3 3 669 41 3 3 713 41 In 2021 and 2020, variable remuneration to the Executive Board of Directors amounted to Euro 1,600 thousand and Euro 1,860 thousand, respectively, which respects to the remuneration that does not constitute acquired rights of the respective members until after the end of the restructuring period, and its payment is subject to approval and verification of certain conditions. Additionally, in 2020, costs of Euro 320 thousand were recorded as 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. 1 001 3 810 2 712 2 577 1 233 3 713 In 2021 and 2020, variable remuneration to the Executive Board of Directors amounted to Euro 1,600 thousand and Euro 1,860 thousand, respectively, which respects to the remuneration that does not constitute acquired rights of the respective members until after the end of the restructuring period, and its payment is subject to approval and verification of certain conditions. Additionally, in In 2021 and 2020, variable remuneration to the Executive Board of Directors amounted to Euro 1,600 thousand and Euro 1,860 2020, costs of Euro 320 thousand were recorded as sign-on bonus resulting from the admission of a new Executive Director, and thousand, respectively, which respects to the remuneration that does not constitute acquired rights of the respective members until compensations for the termination of the mandate of three Executive Directors were recorded in the amount of Euro 206 thousand. after the end of the restructuring period, and its payment is subject to approval and verification of certain conditions. Additionally, in 2020, costs of Euro 320 thousand were recorded as sign-on bonus resulting from the admission of a new Executive Director, and As at 31 December 2021 and 2020, the amount of credit granted and deposits from Key Management Personnel of novobanco was compensations for the termination of the mandate of three Executive Directors were recorded in the amount of Euro 206 thousand. as follows: As at 31 December 2021 and 2020, the amount of credit granted and deposits from Key Management Personnel of novobanco was Credit Granted as follows: (i) to members of the Executive Board of Directors and their immediate relatives was Euro 317 thousand (December 31, 2020: Euro 331 thousand); and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted Credit Granted (December 31, 2020: no exposure); (i) to members of the Executive Board of Directors and their immediate relatives was Euro 317 thousand (December 31, 2020: Euro 331 thousand); and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted Deposits (December 31, 2020: no exposure); (i) members of the Executive Board of Directors and their immediate relatives was Euro 1,080 thousand; (December 31, 2020: Euro 1,312 thousand) and (ii) the members of the General and Supervisory Board and their immediate relatives was Euro 1,562 thousand Deposits (December 31, 2020: Euro 1,293 thousand). (i) members of the Executive Board of Directors and their immediate relatives was Euro 1,080 thousand; (December 31, 2020: Euro 1,312 thousand) and (ii) the members of the General and Supervisory Board and their immediate relatives was Euro 1,562 thousand (December 31, 2020: Euro 1,293 thousand). NOTE 41 – SECURITISATION OF ASSETS As at 31 December 2021 and 2020, the amount of credit granted and deposits from Key Management Personnel of novobanco was as follows: Credit Granted (i) to members of the Executive Board of Directors and their immediate relatives was Euro 317 thousand (December 31, 2020: Euro 331 thousand); and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted (December 31, 2020: no exposure); As at 31 December 2021 and 2020, the outstanding securisation transactions made by the Group were as follows NOTE 41 – SECURITISATION OF ASSETS Deposits (i) members of the Executive Board of Directors and their immediate relatives was Euro 1,080 thousand; (December 31, 2020: Euro 1,312 thousand) and (ii) the members of the General and Supervisory Board and their immediate relatives was Euro 1,562 thousand (December 31, 2020: Euro 1,293 thousand). NOTE 41 – SECURITISATION OF ASSETS As at 31 December 2021 and 2020, the outstanding securisation transactions made by the Group were as follows: As at 31 December 2021 and 2020, the outstanding securisation transactions made by the Group were as follows (in thousands of Euros) Issue Start date Original amount Lusitano Mortgages No.4 plc Issue Start date September 2005 Original amount 1 200 000 Lusitano Mortgages No.5 plc Lusitano Mortgages No.4 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.7 plc Lusitano Mortgages No.6 plc September 2006 September 2005 July 2007 September 2006 September 2008 July 2007 1 400 000 1 200 000 1 100 000 1 400 000 1 900 000 1 100 000 Current amount 31.12.2021 31.12.2020 Current amount Asset securitized (in thousands of Euros) 31.12.2021 246 943 373 147 246 943 355 513 373 147 907 327 355 513 31.12.2020 280 051 Mortgage loans (general scheme) Asset securitized 417 854 Mortgage loans (general scheme) 280 051 Mortgage loans (general scheme) 396 083 Mortgage loans (general scheme) 417 854 Mortgage loans (general scheme) 1 003 303 Mortgage loans (general scheme) 396 083 Mortgage loans (general scheme) September 2008 Lusitano Mortgages No.7 plc 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 impacts of the consolidation of these entities on the Group's accounts: In accordance with the consolidation rules established in IFRS 10, Lusitano Mortgages No. 6 plc and Lusitano Mortgages No. 7 plc (in thousands of Euros) are consolidated using the full consolidation method as from the date of their incorporation (see Note 1). The following are the main impacts of the consolidation of these entities on the Group's accounts: 1 003 303 Mortgage loans (general scheme) 31.12.2020 31.12.2021 1 900 000 907 327 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 impacts of the consolidation of these entities on the Group’s accounts: Cash, cash balances at Central Banks and other demand deposits Loans and advances to customers (net of impairment) Liabilities represented by securities (a) Cash, cash balances at Central Banks and other demand deposits Loans and advances to customers (net of impairment) (a) See note 33 Liabilities represented by securities (a) 121 856 1 255 063 31.12.2021 33 267 121 856 1 255 063 33 267 (in thousands of Euros) 122 769 1 390 316 31.12.2020 39 377 122 769 1 390 316 39 377 Additionally, Lusitano Mortgages No. 4 plc and Lusitano Mortgages No. 5 plc are not consolidated since they do not meet the rules (a) See note 33 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. 262 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 97 - - 97 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The costs with remunerations and other benefits granted to Key Management Personnel of novobanco in 2021 and 2020, are as follows: Executive Board of Directors 31.12.2021 General and Supervisory Board Total Total Executive Board of Directors 31.12.2020 General and Supervisory Board (in thousands of Euros) Short-term employment benefits 2 524 1 183 2 676 993 3 669 Post-employment benefits Other long-term benefits 2 51 - 50 3 33 - 8 3 41 2 577 1 233 2 712 1 001 3 713 3 707 2 101 3 810 In 2021 and 2020, variable remuneration to the Executive Board of Directors amounted to Euro 1,600 thousand and Euro 1,860 thousand, respectively, which respects to the remuneration that does not constitute acquired rights of the respective members until after the end of the restructuring period, and its payment is subject to approval and verification of certain conditions. Additionally, in 2020, costs of Euro 320 thousand were recorded as 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. As at 31 December 2021 and 2020, the amount of credit granted and deposits from Key Management Personnel of novobanco was (i) to members of the Executive Board of Directors and their immediate relatives was Euro 317 thousand (December 31, 2020: Euro 331 thousand); and (ii) members of the General and Supervisory Board and their immediate relatives did not had credit granted as follows: Credit Granted (December 31, 2020: no exposure); Deposits (i) members of the Executive Board of Directors and their immediate relatives was Euro 1,080 thousand; (December 31, 2020: Euro 1,312 thousand) and (ii) the members of the General and Supervisory Board and their immediate relatives was Euro 1,562 thousand (December 31, 2020: Euro 1,293 thousand). NOTE 41 – SECURITISATION OF ASSETS As at 31 December 2021 and 2020, the outstanding securisation transactions made by the Group were as follows Issue Start date Original amount Asset securitized Current amount 31.12.2021 31.12.2020 (in thousands of Euros) Lusitano Mortgages No.4 plc September 2005 1 200 000 280 051 Mortgage loans (general scheme) Lusitano Mortgages No.5 plc September 2006 Lusitano Mortgages No.6 plc July 2007 1 400 000 1 100 000 Lusitano Mortgages No.7 plc September 2008 1 900 000 246 943 373 147 355 513 907 327 417 854 Mortgage loans (general scheme) 396 083 Mortgage loans (general scheme) 1 003 303 Mortgage loans (general scheme) 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 impacts of the consolidation of these entities on the Group's accounts: Cash, cash balances at Central Banks and other demand deposits Loans and advances to customers (net of impairment) Liabilities represented by securities (a) (a) See note 33 (in thousands of Euros) 31.12.2021 31.12.2020 121 856 1 255 063 33 267 122 769 1 390 316 39 377 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 2021 and 2020, can be analysed as follows: The main characteristics of these operations, as at 31 December 2021 and 2020, can be analysed as follows: (in thousands of Euros) 31.12.2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Bonds issued Issue 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 - 97 - 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 57 000 189 071 12 515 10 539 13 174 5 100 277 689 22 729 19 141 23 926 11 301 189 723 65 450 41 800 17 600 31 900 22 000 437 435 294 500 180 500 57 000 - - - - - - - - - - 157 956 63 950 41 800 17 600 31 900 22 000 437 434 294 500 180 500 57 000 - - - - - - - - - - 152 431 61 124 33 936 12 388 8 568 - 409 580 266 902 121 349 - December 2048 AAA December 2048 AA December 2048 A+ December 2048 BBB+ NA December 2059 December 2059 AAA December 2059 AA December 2059 A December 2059 BBB+ N/A March 2060 March 2060 AAA March 2060 AA March 2060 A March 2060 BBB March 2060 BB - 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- - - - - - - - - - - - - - - - - - - A+ BBB+ BB+ CCC - A BBB- B CC - AA A BB- CCC CC - AAA - - - - - - - Aa2 A2 Ba1 Caa1 - Aa2 Baa2 Ba3 Caa3 - Aa2 Aa2 A3 B3 - - - - - - AA A- BBB- B- - AA AA BBB B - A- A- A- B D - AA A - - - - - - - - - - - - - - - - - - AAA - - - 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 - - - NOTE 42 – FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The governance model of the valuation of the Group'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. 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 98 - 263 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 42 – FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 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. The governance model of the valuation of the Group’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. 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. 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 observations 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 Group’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 analysed. 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. Note that although the valuations made available by the management companies are accepted, whenever applicable in accordance with the fund regulations, the Group requests the legal certification of accounts issued by independent auditors, in order to obtain the necessary additional comfort to the information made available by the management company. Additionally, and for the largest assets held by real estate investment funds, and according to an annual work plan previously approved by the Executive Board of Directors, a process of challenge to their valuations is carried out, consisting of a detailed technical analysis of the main assumptions considered in the valuations. This process may lead to the need for new valuations, as well as adjustments to the fair value of these assets. In the specific case of the Restructuring Funds (“Assessed Assets”), their assessment was carried out during the period of 2020 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 novobanco’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 264 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Noteseither 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. With regard to information on quantitative indicators underlying the fair value measurements of the Restructuring Funds, the following is presented: With regard to information on quantitative indicators underlying the fair value measurements of the Restructuring Funds, the following is presented: Assumption Hotels Real Estate under development Real Estate Commercial Centres Agriculture properties Min Average Max Min Average Max Min Average Max Min Average Max Min Average Max Bedroom average rate (€) With regard to information on quantitative indicators underlying the fair value measurements of the Restructuring Funds, the following n.a. is presented: n.a. n.a. n.a. n.a. n.a. n.a. n.a. 207 177 497 145 51 95 n.a. Occupancy rate % 40% 58% 78% 54% 66% 75% n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. €/square meter Assumption Hotels n.a. n.a. Min n.a. Average Max Real Estate under development 3 227 6 059 Average Max 30 Min 173 Min Real Estate 2 024 Average Max 4 610 Commercial Centres 3 460 1 007 Min Average Max Agriculture properties n.a. n.a. Average Max 4 560 Min n.a. €/Ha Bedroom average rate (€) n.a. n.a. 51 n.a. 177 n.a. 497 95 n.a. 145 n.a. 207 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 3 954 n.a. 23 088 n.a. 77 296 Discount rate Occupancy rate % 7.5% 8.2% 10.6% 40% 58% 78% 8.1% 12.1% 20.0% 54% 66% 75% 5.0% n.a. 6.0% n.a. 7.0% n.a. n.a. 9.3% n.a. 9.7% 10.6% n.a. n.a. n.a. n.a. n.a. n.a. n.a. €/square meter Valuation methodology €/Ha Notes: Discount rate n.a. n.a. Market approach Income approach n.a. n.a. n.a. n.a. 30 3 227 Market approach Income approach n.a. n.a. 6 059 n.a. 2 024 173 Market approach Income approach n.a. n.a. 4 610 1 007 n.a. n.a. 3 460 4 560 Market approach Income approach n.a. n.a. n.a. 3 954 n.a. n.a. Market approach Income approach 23 088 77 296 7.5% 8.2% 10.6% 8.1% 12.1% 20.0% 5.0% 6.0% 7.0% 9.3% 9.7% 10.6% n.a. n.a. n.a. Notes: Valuation methodology Market approach Income approach 1. all assumptions presented above were calculated based on the averages of the values considered by the external appraisers per appraised property. 2.The average presented was calculated on the weighted average per property in the sum of the value of the underlying assets per category presented 3.Hotel - Includes hotels and aparthotels currently in operation (Hotels under development or project are incorporated in Real Estate u nder 1. all assumptions presented above were calculated based on the averages of the values considered by the external appraisers per appraised Development along with their respective property property. 4. €/m2 considers the gross construction area 2.The average presented was calculated on the weighted average per property in the sum of the value of the underlying assets per category presented 3.Hotel - Includes hotels and aparthotels currently in operation (Hotels under development or project are incorporated in Real Estate u nder Development along with their respective property 4. €/m2 considers the gross construction area In addition, additional assumptions considered in the fair value measurement of the financial investments held in the restruc turing funds are presented below: Market approach Income approach Market approach Income approach Market approach Income approach Market approach Income approach In addition, additional assumptions considered in the fair value measurement of the financial investments held in the restructuring funds are presented below: In addition, additional assumptions considered in the fair value measurement of the financial investments held in the restruc turing funds are presented below: Type of Fund Discount based on P/BV observable market data Type of Fund Real estate and Tourism Real estate and Tourism/Other Real estate and Tourism Other Real estate and Tourism/Other Discount based on P/BV observable market data 14.5% 13.6% 14.5% 10.6% 13.6% In 2021, and as had been done in 2020, the observable movement in terms of the evolution of market prices of funds, companies and assets considered comparable to the underlying assets was considered to obtain an objective estimate of the evolution of the In 2021, and as had been done in 2020, the observable movement in terms of the evolution of market prices of funds, companies fair value of these assets between December 31, 2020 and December 31, 2021. and assets considered comparable to the underlying assets was considered to obtain an objective estimate of the evolution of the fair value of these assets between December 31, 2020 and December 31, 2021. Other 10.6% 265 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:  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, Foreign currency options: are valued through the front office system, which considers models such as Garman -Kohlhagen, Binomial, Black & Scholes, Levy or Vanna-Volga; 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 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 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 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; 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  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; asset and are therefore valued using market credit spreads;  Futures and Options: the Group trades these products on an organised market, but also has the possibility to trade them on th e Futures and Options: the Group trades these products on an organised market, but also has the possibility to trade them on th e OTC market. For futures and options traded on an organised market, the valuations are observable in the market, with 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 mark et, valuation being received daily through the broker selected for these products. For futures and options traded on the OTC mark et, and depending on the type of product and the underlying asset type, discrete time (binominal) or continuous time (Black & and depending on the type of product and the underlying asset type, discrete time (binominal) or continuous time (Black & Scholes) models may be used. Scholes) models may be used. The Group calculates the Credit Valuation Adjustment (CVA) for derivative instruments in accordance with the following method ology: The Group calculates the Credit Valuation Adjustment (CVA) for derivative instruments in accordance with the following method ology: expected loss and a recovery rate, considering the average duration period estimated for each exposure; (ii) Individual basis – the (i) Portfolio basis – the calculation of the CVA corresponds to the application, to the aggregate exposure of each counterpart, of an (i) Portfolio basis – the calculation of the CVA corresponds to the application, to the aggregate exposure of each counterpart, of an calculation of the CVA on an individual basis is based on the determination of the exposure using stochastic methods (Expected expected loss and a recovery rate, considering the average duration period estimated for each exposure; (ii) Individual basis – the Positive Exposure) which translates into the calculation of the expected fair value exposure that each derivative is likely t o assume calculation of the CVA on an individual basis is based on the determination of the exposure using stochastic methods (Expected over its remaining life. Subsequently, are applied to the exposure determined, an expected loss and a recovery rate. Positive Exposure) which translates into the calculation of the expected fair value exposure that each derivative is likely t o assume over its remaining life. Subsequently, are applied to the exposure determined, an expected loss and a recovery rate. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 101 - - 101 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In 2021, and as had been done in 2020, the observable movement in terms of the evolution of market prices of funds, companies and assets considered comparable to the underlying assets was considered to obtain an objective estimate of the evolution of the fair value of these assets between December 31, 2020 and December 31, 2021. 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 Group 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. 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. 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. 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 7.19). 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 price. The fair value of financial assets and liabilities and non-financial assets (investment properties) measured at fair value of the Group is as follows: 266 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe 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. 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 inte rnal 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 7.19). 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 price. 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 2021 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 Derivatives - Hedge Accounting Interest rate contracts Investment properties Assets at fair value Financial liabilities held for trading Derivatives held for trading Exchange rate contracts Interest rate contracts Other Derivatives - Hedge Accounting Interest rate contracts Liabilities at fair value At Fair Value (in thousands of Euros) Quoted market prices Valuation models based on observable market parameters Valuation models based on unobservable market parameters Total Fair Value (Level 1) (Level 2) (Level 3) 114 465 114 465 114 465 - - - - 190 252 52 532 137 607 113 7 167 814 5 761 717 1 398 899 7 198 - - - 7 472 531 - - - - - - - - 263 199 - - 263 199 29 127 225 186 8 886 22 890 50 - 22 840 9 958 - - 9 958 19 639 19 639 - 315 686 304 104 304 104 34 910 266 012 3 182 44 460 44 460 348 564 - - - - - - - 586 450 2 378 290 279 293 793 43 224 - - 43 224 - - 625 187 377 664 114 465 114 465 263 199 29 127 225 186 8 886 799 592 54 960 427 886 316 746 7 220 996 5 761 717 1 398 899 60 380 19 639 19 639 625 187 1 254 861 9 043 078 1 950 1 950 - 1 950 - - - 1 950 306 054 306 054 34 910 267 962 3 182 44 460 44 460 350 514 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 102 - 267 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 The changes occurred in financial assets and financial liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2021 and 2020, can be analysed as follows: The changes occurred in financial assets and financial liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2021 and 2020, can be analysed as follows: 31.12.2021 Financial assets held for trading Derivatives held for trading Economic hedging derivatives Financial assets mandatorily 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 2020 Acquisitions Attainment of maturity Settlements Disposals Changes in value Other movements - - - - - - - - - - - - - - - 709 231 11 200 ( 22 352) ( 122 743) - - 43 222 556 - ( 4 247) - - 592 605 1 345 058 4 973 - - ( 49 727) 31 179 46 157 16 729 ( 22 352) ( 126 990) ( 49 727) 40 935 46 157 2 158 24 117 - ( 24 117) - - 2 158 24 117 - ( 24 117) - - 8 363 1 393 ( 208) ( 208) Balance as at 31 December 2021 586 450 43 224 625 187 1 254 861 1 950 1 950 268 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 103 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income 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 Bonds issued by other entities Shares Other variable income securities Bonds issued by public entities Bonds issued by other entities Shares Other variable income securities Derivatives - Hedge Accounting Interest rate contracts Investment properties 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 (in thousands of Euros) At Fair Value Valuation models Quoted market based on prices observable market parameters (Level 1) (Level 2) Valuation models based on market parameters (Level 3) unobservable 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 - - - - - - - 552 633 552 633 45 493 501 585 16 5 539 72 543 72 543 625 176 - - - - - - - - - - - - - - - - - 709 231 77 931 273 579 357 721 43 222 43 222 592 605 2 158 2 158 2 158 2 158 655 273 267 016 267 016 388 257 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 12 972 592 605 554 791 554 791 45 493 503 743 16 5 539 72 543 72 543 627 334 Assets at fair value 8 336 235 448 106 1 345 058 10 129 399 The changes occurred in financial assets and financial liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2021 and 2020, can be analysed as follows: Financial assets held for trading Derivatives held for trading Economic hedging derivatives Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Investment properties Total assets 31.12.2021 (in thousands of Euros) Financial liabilities held for trading Derivatives held for trading Total liabilities Balance as at 31 December 2020 Acquisitions Attainment of maturity Settlements Disposals Changes in value Other movements Balance as at 31 December 2021 - - - - - - - - - - - - - - - 709 231 11 200 ( 22 352) ( 122 743) - 8 363 - 586 450 43 222 592 605 1 345 058 556 - ( 4 247) - 1 393 - 4 973 - - ( 49 727) 31 179 46 157 16 729 ( 22 352) ( 126 990) ( 49 727) 40 935 46 157 2 158 24 117 - ( 24 117) - ( 208) - 2 158 24 117 - ( 24 117) - ( 208) - 43 224 625 187 1 254 861 1 950 1 950 Financial assets held for trading Financial assets held for trading Derivatives Derivatives held for trading held for trading Economic hedging Economic hedging derivatives derivatives Financial assets Financial assets mandatorily at fair mandatorily at fair value through value through profit or loss profit or loss Financial assets at Financial assets at fair value through fair value through other other comprehensive comprehensive income income Investment Investment properties properties Total assets Total assets 31.12.2020 31.12.2020 191 191 - - - - - - - - - - - - ( 191) ( 191) - - - - 74 093 74 093 - - - - ( 80 489) ( 80 489) - - - - - - 6 396 6 396 - - - - 1 142 664 1 142 664 8 479 8 479 ( 41 302) ( 41 302) ( 1 583) ( 1 583) - - ( 27 541) ( 27 541) - - ( 371 486) ( 371 486) - - 709 231 709 231 37 179 37 179 5 125 5 125 - - ( 22 913) ( 22 913) 16 326 16 326 ( 2 685) ( 2 685) - - 10 190 10 190 - - 43 222 43 222 700 744 700 744 11 966 11 966 - - - - - - - - ( 67 581) ( 67 581) ( 101 828) ( 101 828) 49 304 49 304 592 605 592 605 1 954 871 1 954 871 25 570 25 570 ( 41 302) ( 41 302) ( 104 985) ( 104 985) 16 326 16 326 ( 30 226) ( 30 226) ( 67 581) ( 67 581) ( 456 919) ( 456 919) 49 304 49 304 1 345 058 1 345 058 (in thousands of Euros) (in thousands of Euros) Financial liabilities Financial liabilities held for trading held for trading Derivatives held for Derivatives held for trading trading Total liabilities Total liabilities 1 837 1 837 - - - - - - - - - - - - 321 - 103 - 321 - - 2 158 2 158 1 837 1 837 - - - - - - - - - - - - 321 321 - - 2 158 2 158 Balance as at 31 December 2019 Balance as at 31 December 2019 Acquisitions Acquisitions Attainment of maturity Attainment of maturity Settlements Settlements Transfers in Transfers in Transfers out Transfers out Disposals Disposals Changes in value Changes in value Other movements Other movements Balance as at 31 December 2020 Balance as at 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In fiscal years 2021 and 2020 there were no significant transfers of value between the different levels of the fair value hierarchy. In fiscal years 2021 and 2020 there were no significant transfers of value between the different levels of the fair value hierarchy. In fiscal years 2021 and 2020 there were no significant transfers of value between the different levels of the fair value hierarchy. Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value hierarchy are recorded 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 in profit or loss or revaluation reserves in accordance with the respective asset accounting policy. The amounts calculated at 31 December 2021 and 2020 were as follows: December 2021 and 2020 were as follows: 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 December 2021 and 2020 were as follows: Potential gains and losses on financial instruments and investment property classified at level 3 of Derivatives held for trading Derivatives held for trading Economic hedging derivatives Economic hedging derivatives Financial assets mandatorily at fair value through profit or loss Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income Investment properties Investment properties (in thousands of Euros) (in thousands of Euros) Recognised in Recognised in reserves reserves 31.12.2021 31.12.2021 Recognised in the Recognised in the income statement income statement Total Total Recognised in Recognised in reserves reserves 31.12.2020 31.12.2020 Recognised in the Recognised in the income statement income statement - - - - - - 9 122 9 122 - - 9 122 9 122 144 144 ( 24 117) ( 24 117) 21 662 21 662 - - 31 182 31 182 28 871 28 871 144 144 ( 24 117) ( 24 117) 21 662 21 662 9 122 9 122 31 182 31 182 37 993 37 993 - - - - - - 10 905 10 905 - - 10 905 10 905 23 605 23 605 ( 68 722) ( 68 722) ( 359 642) ( 359 642) - - ( 104 310) ( 104 310) ( 509 390) ( 509 390) Total Total 23 605 23 605 ( 68 722) ( 68 722) ( 359 642) ( 359 642) 10 905 10 905 ( 104 310) ( 104 310) ( 498 485) ( 498 485) 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 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: (in millions of Euros) (in millions of Euros) 269 31.12.2021 31.12.2021 586.5 586.5 2.4 2.4 290.3 290.3 287.5 287.5 2.8 2.8 293.8 293.8 236.5 236.5 57.3 57.3 43.2 43.2 43.2 43.2 16.2 16.2 27.0 27.0 629.7 629.7 Management company adjusted Management company adjusted Management company adjusted Management company adjusted Management company adjusted Management company adjusted valuation valuation Others Others valuation valuation valuation valuation Others Others (b) (b) (a) (a) (b) (b) (c) (c) (a) (a) Discounted cash flows Discounted cash flows Renewable Energy Tariff Renewable Energy Tariff Financial assets mandatorily at fair value through Financial assets mandatorily at fair value through profit or loss profit or loss Obligations of other issuers Obligations of other issuers Shares Shares Other variable income securities Other variable income securities Financial assets at fair value through other Financial assets at fair value through other comprehensive income comprehensive income Shares Shares Total Total the quotation by the entity the quotation by the entity Assets classified under level 3 Assets classified under level 3 Valuation Model Valuation Model Variable analysed Variable analysed Carrying Carrying book value book value Unfavorable scenario Unfavorable scenario Change Change Impact Impact Favorable scenario Favorable scenario Change Change Impact Impact Cash flow discount model Cash flow discount model Specific Impairment Specific Impairment -50% -50% ( 2.4) ( 2.4) ( 2.4) ( 2.4) +50% +50% - - - - - - - - - - - - ( 2.9) ( 2.9) ( 2.9) ( 2.9) ( 2.9) ( 2.9) - - ( 5.3) ( 5.3) 4.8 4.8 4.8 4.8 - - - - - - - - - - - - 0.1 0.1 0.1 0.1 0.1 0.1 - - 4.9 4.9 (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 (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. 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. (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 (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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 103 - - 103 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Balance as at 31 December 2019 191 74 093 1 142 664 700 744 1 954 871 1 837 1 837 Financial assets held for trading Derivatives Economic hedging held for trading derivatives Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Investment properties Total assets 31.12.2020 (in thousands of Euros) Financial liabilities held for trading Derivatives held for trading Total liabilities - - - - - - - - ( 80 489) - - - - - - - 8 479 ( 41 302) ( 1 583) ( 27 541) - - - 37 179 5 125 ( 22 913) 16 326 ( 2 685) - - - 11 966 - - - - ( 67 581) ( 101 828) 49 304 25 570 ( 41 302) ( 104 985) 16 326 ( 30 226) ( 67 581) ( 456 919) 49 304 - - - - - - - - - - - - - - ( 191) 6 396 ( 371 486) 10 190 321 321 Acquisitions Attainment of maturity Settlements Transfers in Transfers out Disposals Changes in value Other movements Balance as at 31 December 2020 709 231 43 222 592 605 1 345 058 2 158 2 158 In fiscal years 2021 and 2020 there were no significant transfers of value between the different levels of the fair value hierarchy. 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 December 2021 and 2020 were as follows: Derivatives held for trading Economic hedging derivatives Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Investment properties 31.12.2021 31.12.2020 Recognised in Recognised in the reserves income statement Total Recognised in Recognised in the reserves income statement Total (in thousands of Euros) - - - 9 122 - 9 122 144 ( 24 117) 21 662 - 31 182 28 871 144 ( 24 117) 21 662 9 122 31 182 37 993 - - - 10 905 - 23 605 ( 68 722) ( 359 642) - ( 104 310) 23 605 ( 68 722) ( 359 642) 10 905 ( 104 310) 10 905 ( 509 390) ( 498 485) 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 methods used and the impact of changing the main variables used in their valuation, when applicable: Assets classified under level 3 Valuation Model Variable analysed Financial assets mandatorily at fair value through profit or loss 31.12.2021 Carrying book value 586.5 Obligations of other issuers Cash flow discount model Specific Impairment 2.4 -50% Shares Other variable income securities Financial assets at fair value through other comprehensive income Shares Total Management company adjusted valuation Others Management company adjusted valuation Management company adjusted valuation (b) (a) (b) (c) Discounted cash flows Others Renewable Energy Tariff (a) 290.3 287.5 2.8 293.8 236.5 57.3 43.2 43.2 16.2 27.0 629.7 (in millions of Euros) Unfavorable scenario Favorable scenario Change Impact Change Impact ( 2.4) ( 2.4) +50% - - - - - - ( 2.9) ( 2.9) ( 2.9) - ( 5.3) 4.8 4.8 - - - - - - 0.1 0.1 0.1 - 4.9 (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 + 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 quotation by the entity Assets classified under level 3 Valuation Model Variable analysed Carrying book value Unfavorable scenario Favorable scenario Change Impact Change Impact 31.12.2020 (in millions of Euros) Financial assets mandatorily at fair value through profit or loss Obligations of other issuers Shares Other variable income securities Discounted cash flow model Valuing adjusted management company Specific Impairment (b) Valuing adjusted management company NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Valuation of the management company (b) (c) Financial assets at fair value through other comprehensive income Shares Total Discounted cash flow model Other Renewable energy Rates (a) -50% 709.2 77.9 273.6 357.7 225.3 132.5 43.2 43.2 16.2 27.0 752.5 ( 22.2) ( 22.2) - - - - ( 2.9) ( 2.9) ( 2.9) - ( 25.1) +50% - 103 - 12.2 12.2 - - - - 0.1 0.1 0.1 - 12.3 (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 + 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 quotation by the entity The main parameters used, at 31 December 2021 and 2020, in the valuation models were as follows: 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: 270 31.12.2021 31.12.2020 EUR USD GBP EUR USD GBP Overnight 1 month 3 months 6 months 9 months 1 year 3 years 5 years 7 years 10 years 15 years 20 years 25 years 30 years -0.5740 -0.5830 -0.5720 -0.5460 -0.5235 -0.5010 -0.1450 0.0160 0.1300 0.3030 0.4920 0.5480 0.5240 0.4790 0.0644 0.1013 0.2091 0.3388 0.4603 0.5831 1.1495 1.3460 1.4530 1.5610 1.6800 1.7708 1.7316 1.7160 0.2100 0.2400 0.3900 0.6100 0.6700 0.8246 1.2972 1.2910 1.2373 1.2095 1.1817 1.1518 1.1264 1.1030 -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 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: (basis points) Index Series 1 year 3 years 5 years 7 years 10 years 31 December 2021 CDX USD Main iTraxx Eur Main iTraxx Eur Senior Financial 31 December 2020 CDX USD Main iTraxx Eur Main iTraxx Eur Senior Financial 37 36 36 35 34 34 0.00 10.43 0.00 18.95 0.00 0.00 0.00 26.82 0.00 30.35 27.66 0.00 49.57 47.76 54.86 49.98 47.95 59.06 68.55 66.71 0.00 70.70 66.24 0.00 0.00 87.01 85.86 90.52 86.37 89.30 Interest rate volatility The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options : NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 105 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Valuation Model Valuation Model Variable analysed Variable analysed Carrying book Carrying book Unfavorable scenario Unfavorable scenario value value Change Change Impact Impact Favorable scenario Favorable scenario Change Change Impact Impact 31.12.2020 31.12.2020 (in millions of Euros) (in millions of Euros) Discounted cash flow model Discounted cash flow model Valuing adjusted management company Valuing adjusted management company Specific Impairment Specific Impairment -50% -50% +50% +50% Valuing adjusted management company Valuing adjusted management company Valuation of the management company Valuation of the management company (b) (b) (b) (b) (c) (c) 709,2 709,2 77,9 77,9 273,6 273,6 357,7 357,7 225,3 225,3 1 123,5 1 123,5 43,2 43,2 ( 22,2) ( 22,2) ( 22,2) ( 22,2) - - - - - - - - ( 2,9) ( 2,9) 12,2 12,2 12,2 12,2 - - - - - - - - 0,1 0,1 Assets classified under level 3 Assets classified under level 3 Financial assets mandatorily at fair value through Financial assets mandatorily at fair value through profit or loss profit or loss Obligations of other issuers Obligations of other issuers Shares Shares Other variable income securities Other variable income securities Financial assets at fair value through other Financial assets at fair value through other comprehensive income comprehensive income Shares Shares Discounted cash flow model Discounted cash flow model Other Other Renewable energy Rates Renewable energy Rates (a) (a) 43,2 43,2 16,2 16,2 27,0 27,0 752,5 752,5 ( 2,9) ( 2,9) ( 2,9) ( 2,9) - - ( 25,1) ( 25,1) 0,1 0,1 0,1 0,1 - - 12,3 12,3 Total Total (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 by the entity quotation by the entity The main parameters used, at 31 December 2021 and 2020, in the valuation models were as follows: The main parameters used, at 31 December 2021 and 2020, in the valuation models were as follows: The main parameters used, at 31 December 2021 and 2020, in the valuation models were as follows: 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: 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 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: represent the interest rate swap quotations for the respective periods: 31.12.2021 31.12.2021 USD USD 0.0644 0.0644 0.1013 0.1013 0.2091 0.2091 0.3388 0.3388 0.4603 0.4603 0.5831 0.5831 1.1495 1.1495 1.3460 1.3460 1.4530 1.4530 1.5610 1.5610 1.6800 1.6800 1.7708 1.7708 1.7316 1.7316 1.7160 1.7160 EUR EUR -0.5740 -0.5740 -0.5830 -0.5830 -0.5720 -0.5720 -0.5460 -0.5460 -0.5235 -0.5235 -0.5010 -0.5010 -0.1450 -0.1450 0.0160 0.0160 0.1300 0.1300 0.3030 0.3030 0.4920 0.4920 0.5480 0.5480 0.5240 0.5240 0.4790 0.4790 GBP GBP 0.2100 0.2100 0.2400 0.2400 0.3900 0.3900 0.6100 0.6100 0.6700 0.6700 0.8246 0.8246 1.2972 1.2972 1.2910 1.2910 1.2373 1.2373 1.2095 1.2095 1.1817 1.1817 1.1518 1.1518 1.1264 1.1264 1.1030 1.1030 31.12.2020 31.12.2020 USD USD 0.0776 0.0776 0.1439 0.1439 0.2384 0.2384 0.2576 0.2576 0.2995 0.2995 0.3419 0.3419 0.2370 0.2370 0.4275 0.4275 0.6478 0.6478 0.9170 0.9170 1.1835 1.1835 1.3033 1.3033 1.3680 1.3680 1.3998 1.3998 EUR EUR -0.5780 -0.5780 -0.5540 -0.5540 -0.5450 -0.5450 -0.5260 -0.5260 -0.5125 -0.5125 -0.4990 -0.4990 -0.5080 -0.5080 -0.4575 -0.4575 -0.3845 -0.3845 -0.2650 -0.2650 -0.0720 -0.0720 0.0090 0.0090 0.0090 0.0090 -0.0250 -0.0250 Overnight Overnight 1 month 1 month 3 months 3 months 6 months 6 months 9 months 9 months 1 year 1 year 3 years 3 years 5 years 5 years 7 years 7 years 10 years 10 years 15 years 15 years 20 years 20 years 25 years 25 years 30 years 30 years (%) (%) GBP GBP 0.1000 0.1000 0.0900 0.0900 0.0900 0.0900 0.1450 0.1450 0.1950 0.1950 -0.0125 -0.0125 0.0913 0.0913 0.1926 0.1926 0.2799 0.2799 0.3966 0.3966 0.5200 0.5200 0.5730 0.5730 0.5805 0.5805 0.5741 0.5741 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: 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 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 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: representative of the credit spread behaviour in the market during the year, is presented as follows: Index Index Series Series 1 year 1 year 3 years 3 years 5 years 5 years 7 years 7 years (basis points) (basis points) 10 years 10 years 31 December 2021 31 December 2021 CDX USD Main CDX USD Main iTraxx Eur Main iTraxx Eur Main iTraxx Eur Senior Financial iTraxx Eur Senior Financial 31 December 2020 31 December 2020 CDX USD Main CDX USD Main iTraxx Eur Main iTraxx Eur Main iTraxx Eur Senior Financial iTraxx Eur Senior Financial 37 37 36 36 36 36 35 35 34 34 34 34 0.00 0.00 10.43 10.43 0.00 0.00 18.95 18.95 0.00 0.00 0.00 0.00 0.00 0.00 26.82 26.82 0.00 0.00 30.35 30.35 27.66 27.66 0.00 0.00 49.57 49.57 47.76 47.76 54.86 54.86 49.98 49.98 47.95 47.95 59.06 59.06 68.55 68.55 66.71 66.71 0.00 0.00 70.70 70.70 66.24 66.24 0.00 0.00 0.00 0.00 87.01 87.01 85.86 85.86 90.52 90.52 86.37 86.37 89.30 89.30 Interest rate volatility Interest rate volatility NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 104 - - 104 - 271 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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: 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: 31.12.2021 31.12.2020 EUR USD 31.12.2021 GBP EUR 31.12.2020 USD 1 year 3 years 1 year 5 years 7 years 3 years 1 year 5 years 3 years 7 years 10 years 5 years 10 years 15 years 7 years 15 years 10 years 15 years EUR 23.16 55.79 EUR 23.16 65.81 55.79 23.16 68.34 65.81 55.79 68.34 68.98 65.81 68.98 66.28 68.34 66.28 68.98 66.28 USD 31.12.2021 73.74 59.15 USD 73.74 56.88 59.15 73.74 54.59 56.88 59.15 54.59 50.93 56.88 50.93 - 54.59 - 50.93 - GBP 76.14 63.57 GBP 76.14 71.17 63.57 76.14 79.98 71.17 63.57 79.98 88.08 71.17 88.08 - 79.98 - 88.08 - EUR 15.39 21.33 EUR 15.39 28.38 21.33 15.39 34.60 28.38 21.33 34.60 41.18 28.38 41.18 46.54 34.60 46.54 41.18 46.54 USD 31.12.2020 118.44 91.12 USD 118.44 84.06 91.12 118.44 65.41 84.06 91.12 65.41 62.77 84.06 62.77 - 65.41 - 62.77 - (%) (%) GBP (%) GBP - - GBP - - - - - - - - - - - - - - - - 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 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 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 the money) for the main currencies used in the derivatives’ valuation: 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 (%) 31.12.2021 31.12.2021 31.12.2020 31.12.2020 Foreign Foreign exchange rate exchange rate Foreign EUR/USD 1.1326 31.12.2021 1.1326 EUR/USD exchange rate 0.8403 EUR/GBP 0.8403 EUR/GBP EUR/USD 1.1326 1.0331 EUR/CHF 1.0331 EUR/CHF EUR/GBP 0.8403 9.9888 EUR/NOK 9.9888 EUR/NOK 1.0331 EUR/CHF 4.5969 EUR/PLN EUR/PLN 4.5969 9.9888 EUR/NOK 85.3004 EUR/RUB 85.3004 EUR/RUB 4.5969 EUR/PLN USD/BRL a) 5.5713 USD/BRL a) 5.5713 85.3004 EUR/RUB USD/TRY b) 13.4500 USD/TRY b) USD/BRL a) 13.4500 5.5713 USD/TRY b) a) Calculated based on EUR / USD and EUR / BRL exchange rates. a) Calculated based on EUR / USD and EUR / BRL exchange rates. 13.4500 b) Calculated based on EUR / USD and EUR / TRY exchange rates. b) Calculated based on EUR / USD and EUR / TRY exchange rates. a) Calculated based on EUR / USD and EUR / BRL exchange rates. b) Calculated based on EUR / USD and EUR / TRY exchange rates. 1.2271 31.12.2020 1.2271 0.8990 0.8990 1.2271 1.0802 1.0802 0.8990 10.4703 10.4703 1.0802 4.5597 4.5597 10.4703 91.4671 91.4671 4.5597 5.1940 5.1940 91.4671 7.4265 7.4265 5.1940 7.4265 1 month 1 month 3 months 3 months 5.15 1 month 5.15 5.13 5.13 5.15 4.33 4.33 5.13 9.01 9.01 4.33 5.43 5.43 9.01 7.51 7.51 5.43 15.91 15.91 7.51 77.79 77.79 15.91 77.79 5.38 3 months 5.38 5.63 5.63 5.38 4.63 4.63 5.63 9.18 9.18 4.63 5.60 5.60 9.18 8.07 8.07 5.60 16.24 16.24 8.07 60.35 60.35 16.24 60.35 Volatility (%) 6 months 6 months Volatility (%) 9 months 9 months 1 year 1 year 5.55 6 months 5.55 6.05 6.05 5.55 4.90 4.90 6.05 9.20 9.20 4.90 5.79 5.79 9.20 8.71 8.71 5.79 16.59 16.59 8.71 49.71 49.71 16.59 5.57 9 months 5.57 6.25 6.25 5.57 4.98 4.98 6.25 9.18 9.18 4.98 5.85 5.85 9.18 9.29 9.29 5.85 17.19 17.19 9.29 45.58 45.58 17.19 5.58 6.39 4.95 9.18 5.83 9.58 1 year 5.58 6.39 5.58 4.95 6.39 9.18 4.95 5.83 9.18 9.58 5.83 17.79 9.58 41.29 17.79 17.79 41.29 49.71 45.58 41.29 Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the valuation. Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the Regarding foreign exchange rates, the Group uses in its valuation models the spot rate observed in the market at the moment of the valuation. valuation. 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 Equity indexes The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the valuation of The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the valuation of Equity indexes Equity indexes equity derivatives: equity derivatives: The table below presents the evolution of the main market equity indexes and their respective volatilities, used in the valuation of The table below presents the evolution of the main market equity indexes and their respective equity derivatives: volatilities, used in the valuation of equity derivatives: Historical volatility Historical volatility Quotation Quotation DJ Euro Stoxx 50 DJ Euro Stoxx 50 PSI 20 DJ Euro Stoxx 50 PSI 20 IBEX 35 PSI 20 IBEX 35 FTSE 100 IBEX 35 FTSE 100 DAX FTSE 100 DAX S&P 500 DAX S&P 500 BOVESPA S&P 500 BOVESPA BOVESPA 31.12.2021 31.12.2021 31.12.2021 Quotation 31.12.2020 31.12.2020 31.12.2020 % Change % Change % Change 4 298 4 298 5 569 4 298 5 569 8 714 5 569 8 714 7 385 8 714 7 385 15 885 7 385 15 885 4 766 15 885 4 766 104 822 4 766 104 822 104 822 3 553 3 553 4 898 3 553 4 898 8 074 4 898 8 074 6 461 8 074 6 461 13 719 6 461 13 719 3 756 13 719 3 756 119 017 3 756 119 017 119 017 20.99% 20.99% 13.70% 20.99% 13.70% 7.93% 13.70% 7.93% 14.30% 7.93% 14.30% 15.79% 14.30% 15.79% 26.89% 15.79% 26.89% -11.93% 26.89% -11.93% -11.93% Historical volatility 1 month 1 month 1 month 24.38 24.38 13.34 24.38 13.34 23.88 13.34 23.88 16.62 23.88 16.62 21.77 16.62 21.77 18.23 21.77 18.23 21.59 18.23 21.59 21.59 3 months 3 months 3 months 17.81 17.81 14.68 17.81 14.68 18.20 14.68 18.20 12.21 18.20 12.21 16.10 12.21 16.10 13.84 16.10 13.84 23.76 13.84 23.76 23.76 Implied Volatility Implied Volatility Implied Volatility - - - - - - - - 11.96 - 11.96 13.76 11.96 13.76 12.53 13.76 12.53 24.48 12.53 24.48 24.48 272 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 105 - - 105 - - 105 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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, having been estimated based on the main methodologies and assumptions described below: Fair Value (in thousands of Euros) 31 December 2021 Cash, cash balances at central bank and other demand deposits Financial assets at amortised cost Debt securities Loans and advances to banks Loans and advances to customers Financial assets Assets / liabilities recorded at amortised cost Quoted market prices Valuation models based on observable market parameters Valuation models based on unobservable market parameters Total fair value (Level 1) (Level 2) (Level 3) 5 871 538 2 338 697 50 466 23 650 739 - 5 871 538 - 5 871 538 1 076 479 - - 327 192 50 466 - 1 146 334 - 24 028 198 2 550 005 50 466 24 028 198 31 911 440 1 076 479 6 249 196 25 174 532 32 500 207 Financial liabilities measured at amortised cost Deposits from banks Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities Financial liabilities 10 745 155 27 582 093 1 514 153 374 593 40 215 994 - - 1 739 388 1 739 388 10 779 351 - - - 10 779 351 - 27 582 093 77 349 374 593 28 034 035 10 779 351 27 582 093 1 816 737 374 593 40 552 774 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 Loans and advances to customers Financial assets Financial liabilities measured at amortised cost Deposits from banks Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities Financial liabilities Fair Value (in thousands of Euros) Assets / liabilities recorded at amortised cost Quoted market prices Valuation models based on observable market parameters Valuation models based on unobservable market parameters Total fair value (Level 1) (Level 2) (Level 3) 2 695 459 2 229 947 113 795 23 554 304 28 593 505 10 102 896 26 322 060 1 017 928 365 883 37 808 767 - 2 695 459 - 2 695 459 846 176 - - 846 176 - - 1 146 753 1 146 753 378 588 113 795 - 1 203 883 - 23 784 698 2 428 647 113 795 23 784 698 3 187 842 24 988 581 29 022 599 10 143 505 - 1 800 - 10 145 305 - 26 322 060 82 898 365 883 26 770 841 10 143 505 26 322 060 1 231 451 365 883 38 062 899 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. 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. 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. 273 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 106 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 43 – TRANSFER OF ASSETS 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. These 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 investment 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 remunerated 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 novobanco 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 novobanco 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: 274 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial 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 Up to 31 December 2020 Fundo Aquarius Up to 31 December 2021 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 - - 376 - - 5 389 108 481 - 24 753 1 471 5 774 602 14 156 470 3 298 644 - - 332 - 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) ( 44) 507 1 947 1 488 ( 458) 1 313 6 628 6 625 ( 3) 7 000 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) 507 1 313 7 000 - (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) 507 1 313 7 000 1 373 917 1 369 695 ( 4 222) 1 305 541 119 516 1 425 057 ( 106 333) 1 318 724 As at 31 December 2021, the Group’s total exposure to securities associated with the assignment operations amounted to Euro 524.1 thousand (31 December 2020: Euro 498.8 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: As at 31 December 2021, the Group's total exposure to securities associated with the assignment operations amounted to Euro 524.1 thousand (31 December 2020: Euro 498.8 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 31.12.2021 Shareholder loans or supplementary capital Participation units subscribed (no.) Book value Gross amount Impairment Net amount Fundo Recuperação Turismo, FCR FLIT SICAV Discovery Portugal Real Estate Fund Fundo Recuperação, FCR Fundo Reestruturação Empresarial Fundo Aquarius 261 656 282 793 259 527 206 805 80 719 167 602 87 288 34 824 ( 34 824) 158 486 129 037 46 960 29 886 72 401 14 900 - - ( 14 900) - - - - - - (in thousands of Euros) Securities 31.12.2020 Shareholder loans or supplementary capital Participation units subscribed (no.) Book value Gross amount Impairment Net amount 260 683 86 316 34 824 ( 34 824) 281 191 258 440 206 805 117 051 160 586 157 084 116 479 44 873 22 436 71 631 14 900 - - ( 14 900) - - - - - - Unrealised Subscribed Capital - - - - - - - 13 769 13 826 5 232 18 543 6 113 19 519 77 002 Unrealised Subscribed Capital - - - - - - - 12 796 12 423 3 950 18 034 5 680 21 073 73 956 1 259 102 524 058 49 724 ( 49 724) 1 284 756 498 819 49 724 ( 49 724) 275 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 109 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 34 906 23 247 291 798 ( 34 906) 258 565 ( 23 247) 21 992 36 182 2 874 (21 992) (23 000) (2 874) 73 802 74 240 438 314 ( 314) 5 389 108 517 5 389 108 481 282 121 252 866 96 196 66 272 145 564 18 552 80 769 51 809 11 066 52 983 67 836 - - - 24 883 1 471 5 348 710 14 156 555 3 261 839 - - 376 282 121 254 547 93 208 66 272 149 883 18 552 80 135 45 387 11 066 52 963 67 836 - - - 24 753 1 471 5 774 602 14 156 470 3 298 644 - - 332 1 682 (2 988) 4 319 ( 634) (6 422) ( 20) ( 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) ( 44) 507 1 947 1 488 ( 458) 1 313 6 628 6 625 ( 3) 7 000 - - - - - - - - - - - - - - - - - - - - - - - - 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) 507 1 313 7 000 256 892 235 318 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) 507 1 313 7 000 - - - - - - - - - - - - - - - - - - - - - - - - Up 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 Vallis Construction Sector Up to 31 December 2018 Fundo Aquarius FLIT SICAV Fundo Aquarius FLIT SICAV Up to 31 December 2019 Fundo Aquarius Up to 31 December 2020 Fundo Aquarius Up to 31 December 2021 Fundo Aquarius 1 373 917 1 369 695 ( 4 222) 1 305 541 119 516 1 425 057 ( 106 333) 1 318 724 As at 31 December 2021, the Group's total exposure to securities associated with the assignment operations amounted to Euro 524.1 thousand (31 December 2020: Euro 498.8 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 31.12.2021 Shareholder loans or supplementary capital Participation units subscribed (no.) Book value Gross amount Impairment Net amount 261 656 282 793 259 527 206 805 80 719 167 602 87 288 34 824 ( 34 824) 158 486 129 037 46 960 29 886 72 401 14 900 - - ( 14 900) - - - - - - 1 259 102 524 058 49 724 ( 49 724) Unrealised Subscribed Capital - - - - - - - 12 796 12 423 3 950 18 034 5 680 21 073 73 956 Securities 31.12.2020 Shareholder loans or supplementary capital Participation units subscribed (no.) Book value Gross amount Impairment Net amount 260 683 86 316 34 824 ( 34 824) 281 191 258 440 206 805 117 051 160 586 157 084 116 479 44 873 22 436 71 631 14 900 - - ( 14 900) - - - - - - 1 284 756 498 819 49 724 ( 49 724) Unrealised Subscribed Capital - - - - - - - 13 769 13 826 5 232 18 543 6 113 19 519 77 002 (in thousands of Euros) Fundo Recuperação Turismo, FCR FLIT SICAV Discovery Portugal Real Estate Fund Fundo Recuperação, FCR Fundo Reestruturação Empresarial Fundo Aquarius 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, re- mained recognized in the balance sheet under the heading of loans to customers. NOTE 44 – RISK MANAGEMENT novobanco, S.A., (www.novobanco.pt) “institutional” area in the website presents the information di- rected to investors which complements the available information presented in this document, namely, novobanco, 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. • Integrality of the risk culture, through a holistic vision and anticipation of its materialization; • 3 Lines of defense model, with the objective of detecting, measuring, monitoring and controlling in an adequate manner the materially relevant risks to which the Novobanco Group is subject to. This model implies that all employees, in their sphere of action, are responsible for risk management and control. - 108 - 44.2 Governance and risk management structure Risk Management, vital to the development of the novobanco Group’s activity, is centralized in the Risk Management Function, comprising the Global Risk Department (Departamento de Risco Global (DRG)) and the Rating Department (Departamento de Rating (DRT)), which holistically defines the principles of risk management and control, in close coordination with the other second line units of novobanco Group, as well as with the Internal Audit Department. All materially relevant risks are reported to the respective Management and Supervisory Bodies (EBD, GSB and both Risk Committees and specialized Committees), which assume responsibility for supervising, monitoring, assessing and defining the Risk Appetite and the control principles implemented. 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. Operationally, DRG centralizes the Risk Management Function of novobanco Group, namely the responsibilities inherent to the function, supervising the various materially relevant financial institutions of the Group, ensuring independence from the business areas. 44.1 - Framework Risk is implicit in the banking business and as such novobanco Group is naturally exposed to several categories of risks arising from external and internal factors, and which arise according to the characteristics of the markets in which the Bank operates and the activities it undertakes. Thus, the novobanco Group’s risk management and control is based on the following premises: novobanco Group Head of the Risk Management Function is the head of the DRG. In order to ensure greater efficiency in liaison with the DRG, a local Risk Officer has been appointed in each relevant entity of the novobanco Group. The DRG intervention is direct or of coordination in articulation with the units that assume the local Risk Management Function. The risks identified as relevant and material are quantified as part of the Internal Capital Adequacy Self-Assessment (ICAAP) exercise, the most relevant of which are: • Independence vis-à-vis the other units of the Group, in particular the risk-taking units; • Universality by application in the whole novobanco Group; • Credit risk; • Market risk; 276 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes • Liquidity risk; • Operational risk. The Risk Management Function also continuously monitors and assesses ESG (Environmental, Social and Governance) Risks in close coordination with the Sustainability area, which contributes specific knowledge to the understanding of climate and environmental risk factors and social risk factors. ESG factors, refer to climate and environmental, social or governance issues that may have a positive or negative impact on the financial performance or solvency of an entity, institution or person. The following are the main risk management guidelines for the risks identified above: • credit risk: the management and control of this type of risk is supported by the use of an internal system of risk identification, assessment and quantification, as well as internal processes for attributing ratings and scorings to portfolios and their continuous monitoring in specific decision forums; • market risk: existence of a specialized team that centralizes the management and control of market risk and balance sheet interest rate risk (IRRBB) of the Group, in line with the regulations and good risk practices; • liquidity risk: based on the measurement of liquidity outflows from contractual and contingent positions in normal or stressed situations, the management and control of this risk consists, on the one hand, in determining the size of the pool of liquidity available at each moment, and on the other hand, in planning for medium and long term stable financing sources; • operational risk: operational risk policies are defined by a specialized DRG team, with other units such as the Compliance department and the Information security office issuing specific risk policies. The effectiveness of the methodologies for the identification and control of operational risk is guaranteed through the actions of the operational risk management representatives appointed for each organic unit, who promote the risk culture in the first line of defense in continuous collaboration with the DRG. 44.3 Credit Risk Credit risk results from the possibility of financial losses arising from the default of the client or coun- terparty 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 novobanco Group. CDS are recorded at their fair value in accordance with the accounting policy described in Note 7.10.6. 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 cred- it 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 monitor- ing 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. Main events in 2021 The most relevant events during 2021 and with an impact on credit risk management policies and procedures management policies and procedures consisted in the incorporation of specific adjustments to ensure an adequate level of impairments on the universe of customers who ended the moratorium in the second half of 2021. In view of the COVID pandemic and the extension of its impact through 2021, it became imperative to ensure that the level of provisioning level would remain adequate in a post-COVID context. The level of uncertainty remains high regarding the economic recovery as well as the duration of the effects of the pandemic on the sectors of economic activity most affected by the pandemic. This uncertainty became even more pressing on the universe that benefited from moratoria, namely on the ability to fully resume and maintain compliance with their credit obligations after the end of these moratoria. For this purpose, several quantitative and qualitative criteria were identified in addition to those observed in the segmentation and segmentation and staging rules in force in the impairment model and applied them to the universe of exposures that benefited from moratoria until the second half of 2021. By verifying these criteria, these exposures could see their original stage worsened and/or their originally calculated and/or the risk notation itself considered for the purpose of calculating impairment. Therefore, novobanco defined a set of 8 additional criteria for the universe of exposures that benefited from the moratorium, on which it considered, for purposes of calculating impairment at December 2021, a stage and/or a level of risk rating aggravated risk. These criteria and the consequent adjustment are systematized in the table below: 277 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes  credit risk: the management and control of this type of risk is supported by the use of an internal system of risk identification, assessment and quantification, as well as internal processes for attributing ratings and scorings to portfolios and their continuous monitoring in specific decision forums;  market risk: existence of a specialized team that centralizes the management and control of market risk and balance sheet interest rate risk (IRRBB) of the Group, in line with the regulations and good risk practices; liquidity risk: based on the measurement of liquidity outflows from contractual and contingent positions in normal or stressed situations, the management and control of this risk consists, on the one hand, in determining the size of the pool of liquidi ty available at each moment, and on the other hand, in planning for medium and long term stable financing sources;  operational risk: operational risk policies are defined by a specialized DRG team, with other units such as the Compliance department and the Information security office issuing specific risk policies. The effectiveness of the methodologies f or the identification and control of operational risk is guaranteed through the actions of the operational risk management representatives appointed for each organic unit, who promote the risk culture in the first line of defense in continuous collaboration with the DRG. 44.3 Credit Risk Credit risk results from the possibility of financial losses arising from the default of the client or counterparty in relati on 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 novobanco Group. CDS are recorded at their fair value in accordance with the accounting policy described in Note 7.10.6. 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 introduct ion 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 subjec t to regular analysis. Main events in 2021 The most relevant events during 2021 and with an impact on credit risk management policies and procedures management policies and procedures consisted in the incorporation of specific adjustments to ensure an adequate level of impairments on the uni verse of customers who ended the moratorium in the second half of 2021. In view of the COVID pandemic and the extension of its impact through 2021, it became imperative to ensure that the level of provisioning level would remain adequate in a post-COVID context. The level of uncertainty remains high regarding the economic recovery as well as the duration of the effects of the pandemic on the sectors of economic activity most affected by the pandemic . This uncertainty became even more pressing on the universe that benefited from moratoria, namely on the ability to fully resume and maintain compliance with their credit obligations after the end of these moratoria. For this purpose, several quantitative and qualitative criteria were identified in addition to those observed in the segmenta tion and segmentation and staging rules in force in the impairment model and applied them to the universe of exposures that benefited from moratoria until the second half of 2021. By verifying these criteria, these exposures could see their original stage worsened and/or their originally calculated and/or the risk notation itself considered for the purpose of calculating impairment. Therefore, novobanco defined a set of 8 additional criteria for the universe of exposures that benefited from the moratorium, on which it considered, for purposes of calculating impairment at December 2021, a stage and/or a level of risk rating aggravate d risk. These criteria and the consequent adjustment are systematized in the table below: Nº 1 2 3 4 5 6 7 8 Criteria Debtors with credit more than 45 days overdue Individuals with signs of Unlikely to Pay Small companies with signs of Unlikely to Pay Non-rated companies Debtors with restructured credit due to financial difficulties Individuals with signs of significant deterioration of credit risk Debtors with a current rating at the threshold of significant deterioration of credit risk Stage 2 Classification Risk rating downgrade Small businesses with proposed downgrade of rating Stage 3 Classification Stage 3 Classification Stage 3 Classification Stage 2 rating and assigned the worst risk rating Risk rating downgrade Stage 2 classification and risk rating downgrade Adjustment The first three adjustments aimed to capture situations of debtors that, having benefited from a prolonged period of moratorium and consequent increase in liquidity, presented defaults after this period and/or reduced financial capacity to resume their obligations. The first three adjustments aimed to capture situations of debtors that, having benefited from a prolonged period of moratorium and consequent increase in liquidity, presented defaults after this period and/or reduced financial capacity to resume their obligations. The adjustments systematized above were incorporated into the collective impairment calculation as The remaining adjustments reflect situations of debtors who, also having benefited from a prolonged period of moratorium and consequent increase in liquidity, present less serious signs than the first three groups. Not being situations of default, they are post-model adjustments and simultaneously with the update of the calculation support scenarios, - 111 - situations of debtors who show signs of difficulty in fully complying with their responsibilities. their responsibilities. As it is not possible with the corresponding update of the forward-looking risk. to translate these difficulties into the Customer's final rating, the adjustment applied for purposes of calculating impairment is to worsen the stage to 2 and/or consider an aggravated risk notation than the current one. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The adjustments systematized above were incorporated into the collective impairment calculation as post-model adjustments and simultaneously with the update of the calculation support scenarios, with the corresponding update of the forward -looking risk. The exclusive impact of these adjustments was an increase in impairments of Euro16 million. This impact was partially mitigated by the update of the macroeconomic scenarios that support the collective impairment calculation through the forward-looking parameters. The remaining adjustments reflect situations of debtors who, also having benefited from a prolonged period of moratorium and consequent increase in liquidity, present less serious signs than the first three groups. Not being situations of default, they are situations of debtors who show signs of difficulty in fully complying with their responsibilities. their responsibilities. As it is not possible to translate these difficulties into the Customer’s final rating, the adjustment applied for purposes of calculating impairment is to worsen the stage to 2 and/or consider an aggravated risk notation than the current one. The exclusive impact of these adjustments was an increase in impairments of Euro16 million. This impact was partially mitigated by the update of the macroeconomic scenarios that support the collective impairment calculation through the forward -looking parameters. This update occurred in 2021 and the macroeconomic scenarios were taken into account as described in Note 44 - Activity Risk Management. This update occurred in 2021 and the macroeconomic scenarios were taken into account as described in Note 44 - Activity Risk Management. 42.3.1 Credit Risk Exposure novobanco Group’s maximum credit risk exposure is analyzed as follows: 44.3.1 Credit Risk Exposure novobanco Group’s maximum credit risk exposure is analysed 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 31.12.2021 (in thousands of Euros) 31.12.2020 Gross Value Impairment Net Value Gross Value Impairment Net Value 506 789 263 199 114 465 54 960 7 160 616 2 582 558 24 932 453 19 639 923 866 2 234 243 402 332 5 845 257 - ( 1 113) - - - ( 3 716) ( 246 997) (1 247 917) - ( 182 499) ( 79 599) - ( 12 737) - 505 676 263 199 114 465 54 960 7 156 900 2 335 561 23 684 536 19 639 741 367 2 154 644 402 332 5 832 520 - 617 390 388 257 267 016 160 184 7 842 835 2 432 313 25 216 809 12 972 960 708 2 826 190 410 292 7 020 935 4 798 ( 250 138) - - - ( 3 690) ( 201 237) (1 599 775) - ( 202 456) ( 92 163) - ( 9 823) - 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 45 040 377 (1 774 578) 43 265 799 48 160 699 (2 359 282) 45 801 417 For financial assets in the balance sheet, the maximum exposure to credit risk is represented by the accounting book value, net of impairment. 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 exposure is the total amount of the commitments assumed. The Group calculates impairment, on a collective or individual basis in accordance with the accounting policy as described in Note 7.16. 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, novobanco 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. 44.3.2 Impairment Models scenarios 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 judgmen t. 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 princip le 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 a bove, 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 EB A recommendations for extreme adverse scenarios, the stylized facts of economic cycles, with respect to the components of expenditure, prices, unemployment, etc. and estimates. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 112 - 278 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes For financial assets in the balance sheet, the maximum exposure to credit risk is represented by the accounting book value, net of impairment. 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 exposure is the total amount of the commitments assumed. The Group calculates impairment, on a collective or individual basis in accordance with the accounting policy as described in Note 7.16. 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, novobanco 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. 44.3.2 Impairment Models scenarios 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 (or adverse) and more favourable case. The scenarios considered and the respective evolution of the main macroeconomic variables are described in the tables below: A - Base Scenario, with a relative weight of 60%. A - Base Scenario, with a relative weight of 60% GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand Net External Demand Prices Unit Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % 2019 2.7 3.0 2.1 3.2 4.1 4.9 3.1 2020 -8.4 -5.5 0.4 -5.7 -18.6 -12.1 -5.6 2021 4.5 2022 5.3 2023 2.4 2024 2.2 4.5 4.3 5.3 9.3 9.5 4.6 4.6 1.8 8.2 10.1 8.5 4.8 2.3 0.3 5.6 4.9 5.1 2.6 2.1 0.3 4.9 4.5 4.7 2.3 EUR mn (real) 203 854 186 645 194 971 205 317 210 330 214 962 EUR mn (real) 132 018 122 677 128 197 134 095 137 179 140 059 EUR mn (real) EUR mn (real) EUR mn (real) EUR mn (real) 33 772 36 795 88 102 86 751 33 918 34 680 71 683 76 229 35 376 36 518 78 350 83 471 36 013 39 513 86 263 90 566 36 121 41 725 90 490 95 185 36 230 43 770 94 562 99 658 EUR mn (real) 202 585 191 275 200 092 209 620 215 025 220 059 EUR mn (real) 1 351 -4 546 -5 121 -4 303 -4 695 -5 097 CPI Real Estate (Residential) Real Estate (Commercial) Equity prices (incremental change) % % % % 0.3 9.6 1.9 10.2 6.6 0.0 8.4 1.7 -6.1 7.0 1.2 6.6 1.5 15.0 6.9 1.9 3.7 2.3 0.0 6.6 1.6 2.5 1.6 0.0 6.4 1.7 2.0 1.4 0.0 6.3 EUR mn (nominal) 147 925 146 873 154 364 160 692 165 192 169 322 EUR mn (nominal) 10 663 18 820 17 131 14 420 13 012 11 149 Unemployment Households Disposable Income Households Savings Households Savings Rate Household Investment (GFCF) Non Fin Corporations Gross Disposable Income (Savings) Non Financial Corporations Investment % labour force % Disp Income EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) Capital Transfers - net acquisition/disposal of assets (non-financial & non-produced) EUR mn (nominal) Non Financial Corporations Financing Capacity EUR mn (nominal) 7.2 8 472 19 452 26 905 352 -7 101 12.8 8 224 16 062 24 142 2 398 -5 682 11.1 8 553 20 302 26 508 2 800 -3 406 9.0 8 904 21 541 28 337 4 900 -1 896 7.9 9 171 22 381 29 612 4 900 -2 331 6.6 9 372 23 209 30 500 4 100 -3 191 -10.3 9.8 6.9 4.5 3.0 Euribor (annual average) Sovereign Yields (average) 10Y PGB-Bund spread 10Y-2Y PGB Spread Unit 2019 2020 2021 2022 2023 2024 3-month end-of-period 6-month end-of-period 12-month end-of-period Bund 10Y end-of-period PGB 10Y end-of-period PGB 2Y end-of-period Annual Average end-of-period Annual Average end-of-period % % % % % % % % % % % % bps bps bps bps -0.36 -0.38 -0.30 -0.32 -0.22 -0.25 -0.21 -0.19 0.77 0.44 -0.42 -0.55 98 63 119 99 -0.43 -0.55 -0.37 -0.53 -0.31 -0.50 -0.47 -0.57 0.42 0.03 -0.42 -0.73 89 60 84 76 -0.54 -0.50 -0.51 -0.48 -0.45 -0.42 -0.23 -0.10 0.30 0.52 -0.57 -0.51 53 62 87 103 -0.43 -0.35 -0.41 -0.33 -0.37 -0.31 -0.03 0.05 0.71 0.90 -0.31 -0.10 74 85 102 100 -0.17 0.01 -0.15 0.03 -0.13 0.05 0.11 0.17 1.01 1.12 0.00 0.10 90 95 101 102 0.05 0.09 0.07 0.11 0.09 0.13 0.21 0.24 1.16 1.19 0.13 0.15 95 95 103 104 279 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe baseline macroeconomic scenario translates into a projection of the Gross Domestic Product to fully recover in 2022 the level it had in 2019, continuing with moderate growth in 2023 and 2024. Re- garding reference rates, the EURIBOR would remain with negative values in 2022, although projecting with signs of returning to positive values at the end of 2023, a fact that would benefit the results of the financial sector - if low values of cost of risk persist. B - Less favourable / adverse scenario, with a relative weight of 30% B - Less favourable / adverse scenario, with a relative weight of 30% GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand Net External Demand Prices Unit Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % 2019 2.7 3.0 2.1 3.2 4.1 4.9 3.1 2020 -8.4 -5.5 0.4 -5.7 -18.6 -12.1 -5.6 2021 4.5 4.5 4.3 5.3 9.3 9.5 4.6 2022 -4.0 -4.4 0.8 -3.7 -14.3 -12.1 -3.4 2023 -1.6 2024 0.5 -1.9 0.6 -0.6 -8.8 -7.2 -1.2 1.0 0.3 1.6 4.5 5.4 1.0 EUR mn (real) 203 854 186 645 194 971 187 158 184 206 185 154 EUR mn (real) 132 018 122 677 128 197 122 557 120 228 121 430 EUR mn (real) EUR mn (real) EUR mn (real) EUR mn (real) 33 772 36 795 88 102 86 751 33 918 34 680 71 683 76 229 35 376 36 518 78 350 83 471 35 659 35 167 67 146 73 371 35 873 34 956 61 237 68 088 35 981 35 515 63 992 71 765 EUR mn (real) 202 585 191 275 200 092 193 383 191 058 192 927 EUR mn (real) 1 351 -4 546 -5 121 -6 225 -6 851 -7 772 CPI Real Estate (Residential) Real Estate (Commercial) Equity prices (incremental change) % % % % 0.3 9.6 1.9 10.2 0.0 8.4 1.7 -6.1 1.4 6.6 1.5 15.0 1.6 -11.5 -13.0 -50.0 -0.4 -8.5 -9.6 -0.1 -4.3 -4.9 -45.0 -35.0 Unemployment Households Disposable Income Households Savings Households Savings Rate Household Investment (GFCF) Non Fin Corporations Gross Disposable Income (Savings) Non Financial Corporations Investment Capital Transfers - net acquisition/disposal of assets (non-financial & non-produced) Non Financial Corporations Financing Capacity % Disp Income EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) % GDP Unit Euribor (annual average) Sovereign Yields (average) 10Y PGB-Bund spread 10Y-2Y PGB Spread 3-month end-of-period 6-month end-of-period 12-month end-of-period Bund 10Y PGB 10Y PGB 2Y Annual Average Annual Average % % % % % % % % % bps bps % labour force 6.6 7.0 6.9 10.3 11.6 11.9 EUR mn (nominal) 147 925 146 873 154 364 150 813 149 607 150 953 EUR mn (nominal) 10 663 18 820 16 860 17 257 19 112 19 285 7.2 8 472 19 452 26 905 352 -7 101 -3.3 2019 -0.36 -0.38 -0.30 -0.32 -0.22 -0.25 -0.21 0.77 -0.42 98 119 12.8 8 224 16 062 24 142 2 398 -5 682 -2.8 2020 -0.43 -0.55 -0.37 -0.53 -0.31 -0.50 -0.47 0.42 -0.42 89 84 10.9 8 553 20 302 26 508 2 800 -3 406 -1.6 2021 -0.54 -0.50 -0.51 -0.48 -0.45 -0.42 -0.23 0.30 -0.57 53 87 11.4 8 065 19 531 24 228 2 400 -2 297 -1.1 2022 -0.55 -0.60 -0.53 -0.58 -0.49 -0.55 -0.43 0.94 0.02 12.8 7 832 19 257 23 308 2 200 -1 850 -0.9 2023 -0.60 -0.60 -0.58 -0.58 -0.55 -0.55 -0.73 1.35 0.53 12.8 7 879 19 546 23 680 2 200 -1 934 -0.9 2024 -0.58 -0.55 -0.55 -0.52 -0.53 -0.50 -0.70 1.33 0.50 136 208 203 92 83 83 280 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe less favourable - or adverse - macroeconomic scenario considers that the effects of the COVID pandemic will still be felt in 2022, leading to a recession that translates into a 4% drop in Gross Domes- tic Product in 2022, registering tenuous growth in this variable only in 2024. Regarding reference rates, C - Most favourable scenario, with a relative weight of 10% C - Most favourable scenario, with a relative weight of 10% the EURIBOR would remain with negative values in all years of the projection. GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand Net External Demand Prices Unit Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % 2019 2.7 3.0 2.1 3.2 4.1 4.9 3.1 2020 -8.4 -5.5 0.4 -5.7 -18.6 -12.1 -5.6 2021 4.7 2022 6.7 2023 3.9 2024 3.2 5.1 4.6 4.9 9.5 10.1 5.0 6.3 0.5 14.3 20.4 19.6 6.7 3.5 0.4 9.2 21.1 20.6 4.1 2.8 0.4 7.1 13.2 12.8 3.3 EUR mn (real) 203 854 186 645 195 356 208 421 216 449 223 399 EUR mn (real) 132 018 122 677 128 934 137 056 141 853 145 825 EUR mn (real) EUR mn (real) EUR mn (real) EUR mn (real) 33 772 36 795 88 102 86 751 33 918 34 680 71 683 76 229 35 478 36 379 78 493 83 928 35 656 41 582 94 505 35 798 45 407 35 941 48 631 114 446 129 553 100 378 121 056 136 551 EUR mn (real) 202 585 191 275 200 791 214 294 223 059 230 398 EUR mn (real) 1 351 -4 546 -5 435 -5 873 -6 610 -6 998 CPI Real Estate (Residential) Real Estate (Commercial) Equity prices (incremental change) % % % % 0.3 9.6 1.9 10.2 0.0 8.4 1.7 -6.1 7.0 1.3 8.3 1.5 13.7 1.4 4.9 1.8 15.0 1.7 4.0 1.6 1.9 3.6 1.4 20.0 25.0 6.6 5.7 5.5 5.3 % labour force 6.6 EUR mn (nominal) 147 925 146 873 154 364 163 625 170 170 175 616 EUR mn (nominal) 10 663 18 820 16 343 14 563 13 268 11 094 Unemployment Households Disposable Income Households Savings Households Savings Rate Household Investment (GFCF) Non Fin Corporations Gross Disposable Income (Savings) Non Financial Corporations Investment % Disp Income EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) Capital Transfers - net acquisition/disposal of assets (non-financial & non-produced) EUR mn (nominal) Non Financial Corporations Financing Capacity Euribor (annual average) EUR mn (nominal) % GDP Unit Sovereign Yields (average) 10Y PGB-Bund spread 10Y-2Y PGB Spread 3-month end-of-period 6-month end-of-period 12-month end-of-period Bund 10Y end-of-period PGB 10Y end-of-period PGB 2Y end-of-period Annual Average end-of-period Annual Average end-of-period % % % % % % % % % % % % bps bps bps bps 7.2 8 472 19 452 26 905 352 -7 101 -3.3 2019 -0.36 -0.38 -0.30 -0.32 -0.22 -0.25 -0.21 -0.19 0.77 0.44 -0.42 -0.55 98 63 119 99 12.8 8 224 16 062 24 142 2 398 -5 682 -2.8 2020 -0.43 -0.55 -0.37 -0.53 -0.31 -0.50 -0.47 -0.57 0.42 0.03 -0.42 -0.73 89 60 84 76 10.6 8 553 20 302 26 508 2 800 -3 406 -1.6 2021 -0.55 -0.57 -0.52 -0.55 -0.49 -0.50 -0.31 -0.18 0.29 0.47 -0.65 -0.66 60 65 94 113 8.9 8 981 21 987 28 894 2 900 -4 006 -1.7 2022 -0.36 -0.15 -0.34 -0.13 -0.25 0.00 0.09 0.35 0.74 1.00 -0.31 0.05 65 65 104 95 7.8 9 385 23 571 30 772 2 900 -4 301 -1.8 2023 6.3 9 751 24 820 32 495 2 800 -4 875 -1.9 2024 0.10 0.35 0.12 0.37 0.21 0.42 0.58 0.80 1.18 1.35 0.21 0.37 60 55 97 98 0.64 0.93 0.67 0.96 0.74 1.05 1.09 1.38 1.57 1.78 0.56 0.74 48 40 101 104 281 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe most favourable macroeconomic scenario is similar to the baseline scenario, differing in general by considering that the recovery of the economy will be at higher levels. In this scenario the Gross Do- mestic Product projection for 2022 would reach 6.7% and have a growth above 3% in 2023 and 2024. Regarding reference rates, the EURIBOR would remain at negative values in 2022, also returning to positive values at the end of 2023. 44.3.3 Impairment Models As at 31 December 2021 and 2020, the detail of the amount of gross credit exposure and impairment assessed individually and collectively, by segment was as follows: 44.3.3 Impairment Models As at 31 December 2021 and 2020, the detail of the amount of gross credit exposure and impairment assessed individually and collectively, by segment was as follows: Corporate Mortgage loans Individual Assessment (1) Exposure Impairment 31.12.2021 Collective Assessment (2) Exposure Impairment Total Exposure Impairment 1 329 469 643 005 12 384 556 369 675 13 714 025 1 012 680 3 138 155 9 808 875 55 865 9 812 013 56 020 (in thousands of Euros) Consumer and other loans 148 390 132 298 1 258 025 46 919 1 406 415 179 217 Total 1 480 997 775 458 23 451 456 472 459 24 932 453 1 247 917 (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 Corporate Mortgage loans Individual Assessment (1) Exposure Impairment 31.12.2020 Collective Assessment (2) Exposure Impairment Total Exposure Impairment 1 667 521 951 926 12 205 537 393 094 13 873 058 1 345 020 4 551 220 10 005 902 65 625 10 010 453 65 845 (in thousands of Euros) Consumer and other loans 155 734 136 305 1 177 564 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 (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 analysed 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 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”. As at 31 December 2021 and 2020, 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 2021 and 2020, the analysis of the gross loans and advances to customers’ exposure and impairment assessed individually and collectively, by geography, is presented as follows: 31.12.2021 (in thousands of Euros) Portugal Spain United Kingdom France Switzerland Luxembourg Other Total Individual Assessment* Collective Assessment** Total Exposure Impairment Exposure Impairment Exposure Impairment 1 300 717 58 906 - - - - 121 374 683 754 8 008 - - - - 83 696 20 969 733 566 121 269 010 309 486 240 456 264 525 832 125 425 794 13 495 3 417 11 831 1 825 2 552 13 545 22 270 450 625 027 269 010 309 486 240 456 264 525 953 499 1 109 548 21 503 3 417 11 831 1 825 2 552 97 241 1 480 997 775 458 23 451 456 472 459 24 932 453 1 247 917 * 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 282 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 116 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 44.3.3 Impairment Models collectively, by segment was as follows: As at 31 December 2021 and 2020, the detail of the amount of gross credit exposure and impairment assessed individually and 31.12.2021 (in thousands of Euros) Individual Assessment (1) Collective Assessment (2) Total Exposure Impairment Exposure Impairment Exposure Impairment 1 329 469 643 005 12 384 556 369 675 13 714 025 1 012 680 3 138 155 9 808 875 55 865 9 812 013 56 020 Consumer and other loans 148 390 132 298 1 258 025 46 919 1 406 415 179 217 1 480 997 775 458 23 451 456 472 459 24 932 453 1 247 917 (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 31.12.2020 (in thousands of Euros) Individual Assessment (1) Collective Assessment (2) Total Exposure Impairment Exposure Impairment Exposure Impairment 1 667 521 951 926 12 205 537 393 094 13 873 058 1 345 020 4 551 220 10 005 902 65 625 10 010 453 65 845 Consumer and other loans 155 734 136 305 1 177 564 52 605 1 333 298 188 910 1 827 806 1 088 451 23 389 003 511 324 25 216 809 1 599 775 (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 analysed 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". As at 31 December 2021 and 2020, the analysis of the gross loans and advances to customers’ exposure and impairment assessed individually and collectively, by geography, is presented as follows: Corporate Mortgage loans Total Corporate Mortgage loans Total Portugal Spain United Kingdom France Switzerland Luxembourg Other Total 31.12.2021 (in thousands of Euros) Individual Assessment* Collective Assessment** Total Exposure Impairment Exposure Impairment Exposure Impairment 1 300 717 58 906 - - - - 121 374 683 754 8 008 - - - - 83 696 20 969 733 566 121 269 010 309 486 240 456 264 525 832 125 425 794 13 495 3 417 11 831 1 825 2 552 13 545 22 270 450 625 027 269 010 309 486 240 456 264 525 953 499 1 109 548 21 503 3 417 11 831 1 825 2 552 97 241 1 480 997 775 458 23 451 456 472 459 24 932 453 1 247 917 * 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 Portugal Spain United Kingdom France Switzerland Luxembourg Other Total 31.12.2020 (in thousands of Euros) Individual Assessment* Collective Assessment** Total Exposure Impairment Exposure Impairment Exposure Impairment 1 621 724 29 762 - - - - 176 320 938 644 17 762 - - - - 132 045 21 294 043 410 771 272 723 256 544 231 385 167 956 755 581 471 246 13 019 6 682 3 351 1 573 20 13 415 22 915 767 440 533 272 723 256 544 231 385 167 956 931 901 1 409 890 30 781 6 682 3 351 1 573 2 038 145 460 1 827 806 1 088 451 23 389 003 509 306 25 216 809 1 599 775 * Loans and advances which the final impairment was determined and approved by the Impairment Committee 44.3.3.1 Individual Credit Analysis ** Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 44.3.3.1 Individual Credit Analysis 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 ass igned The Individual Credit Analysis comprises a staging analysis and an individual impairment quantification 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 Impairm ent analysis. The staging analysis is performed for debtors previously classified as stage 1 and stage 2, with Model. Clients that have been subject to Individual Analysis, but for which an objective impairment loss was not considered, are again the purpose of evaluating the adequacy of the assigned stage with additional information obtained included in the Collective Impairment Model. The Individual Analysis of the selected clients is carried out based on the info rmation on an individual basis. The individual impairment quantification analysis aims to determine the most provided by the Commercial Structures regarding the client / Group's framework, historical and forecast cash flows (when available) appropriate impairment rate for each credit customer, regardless of the amount resulting from the and existing collateral. 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. - 116 - 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. 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. 283 Selection Criteria borrowers who: Individual Analysis (staging analysis and, when applicable, quantification of individual impairment) should be carried out fo r the  Register Stage 3 exposure equal to or greater than Euro 1,000,000;  Register Stage 2 exposure equal to or greater than Euro 5,000,000;  Register Stage 2 exposure equal to or greater than Euro 1,000,000 and have no rating assigned;  Register Stage 1 exposure equal to or greater than Euro 5,000,000 and have no rating assigned;  Register Stage 1 exposure equal or greater than Euro 25,000,000 (individually significant exposure);  Fit into the risk segment Financial Holding and liability equal to or greater than 5 million euros; NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 117 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 with the purpose of assessing the adequacy of the stage from the model taking into account qualitative information available, the results of the analysis of staging questionnares 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 materialy 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 • Are identified by the Committee itself based on another criteria that justify (e.g.; sector of activity); Individual Analysis (staging analysis and, when applicable, quantification of individual impairment) should be carried out for the borrowers who: • • 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. • Register Stage 3 exposure equal to or greater than Euro 1,000,000; • Register Stage 2 exposure equal to or greater than Euro 5,000,000; • Register Stage 2 exposure equal to or greater than Euro 1,000,000 and have no rating assigned; • Register Stage 1 exposure equal to or greater than Euro 5,000,000 and have no rating assigned; 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: • Register Stage 1 exposure equal or greater than Euro 25,000,000 (individually significant exposure); • The client registers, for the first time, one of the selection criteria for Individual Impairment Analysis, • Fit into the risk segment Financial Holding and liability equal to or greater than 5 million euros; • Fit into the Financial Holding risk segment and register exposure equal to or greater than Euro 5,000,000; • Fit into the Real Estate risk segment and register exposure equal to or greater than Euro 5,000,000; 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. 284 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe Individual Impairment Analysis can be carried out for individual customers, but should whenever possible consider the Economic Group view of the selected customers. 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. 44.3.3.2 Collective Model In line with the principles set out in accounting standard IFRS9, an entity should use information about past events, current conditions and forecasts of future economic conditions in estimating risk parameters. The historical information should accurately capture current conditions and, when measuring expected credit losses, the maximum period to be considered should be the maximum contractual period. For these reasons, the risk parameters associated with the measurement of losses under the IFRS9 accounting standard are often referred to as point-in-time (PIT) parameters. In particular, regarding the estimation of the PD risk parameter, in line with the requirements of the IRFS9 standard, namely with the provisions of paragraph [B5.5.43], the probability of default (PD) was estimated in a 12-month time horizon, but also in a long perspective, capturing the remaining life cycle, PD Lifetime. Considering the requirement of measuring losses in a maximum time horizon, it becomes necessary to estimate the PD parameter for different time horizons, greater or equal to 12 months, thus obtaining the so-called “PD term structures”, which intends to reflect the PD associated with each contract, containing a certain set of characteristics, for each reference date. The PD lifetime estimated, refers to the conditional marginal probability used in the ECL calculation, representing the probability of default of the next cash flow, while the PD structure is the cumulative probability of default, being used to estimate the PD over a defined time interval, for example, PD term structure 5 years is equivalent to the probability of default over 5 years. In the review exercise carried out, a time horizon was considered for estimating the term structure of the DP from January 2015 to December 2019 (5 years). Since 2020 and 2021 are years where the PD would be underestimated due to the moratorium concessions, the values of PD 2020 and 2021 were estimated according to the application of the forward-looking methodology - described below - based on the results effectively verified in the relevant macroeconomic variables. In line with the framework for developing the PD risk parameter under IFRS9, the primary approach for obtaining the so-called term structure of PDs is based on the estimation of Hazard curves. The hazard function h (t) also called hazard (failure) rate or mortality force represents the instantaneous death rate of an individual in the time interval t to t+1, knowing that he or she survived until time t. The use of this methodology is justified by the need to include, in the estimation process, survival effects as well as the presence of the maturity effect. This approach was used to estimate the PD parameter for each client (corporate High Default Portfolio) or for each contract (individual portfolio), as a function of the underlying rating/score class. For low default portfolios, typically without statistical significance in the number of observed defaults that allow the use of statistical methods (such as hazard curves), an alternative approach was used. This approach consists in extrapolating the PD determined and used for capital purposes (IRB), assuming a constant marginal probability but applying an adjustment for ratings below or equal to “b+”, as a consequence of the difference between the PD Through the Cycle and the observed Default Rates of the last 5 years, in these ratings versus the others. Additionally, in short term portfolios, with contractual maturities lower than 12 months, the approach followed in the estimation of the PD risk parameter, consisted in calculating the observed annual average default rate and extrapolating it in order to build the PD term structure and the PD lifetime. Just as important as forecasting Default, is the perception of the loss associated with the contract given a Default event. The loss given default is defined as the maximum loss incurred on an exposure in relation to the amount at risk on the date of default. The magnitude of the loss will depend on the time of Default, thus the following typologies of parameters are segregated: 1. LGD non-Default - estimated loss parameter applicable to contracts that are not yet in Default; 2. LGD in-Default or Expected Recovery Rate - estimated loss parameter applicable to contracts that are in Default and which depends on the best estimate for the expected loss; For the purpose of determining the LGD parameter (non-default and TRE), a specific framework was developed and approved that consists of the following methodological steps: • Determination of the RDS (Reference data Set): in this step, the contracts/clients, with entry into default in line with the new definition (nDoD- historical recovery) from January 2010 to July 2019 were selected. • Determination of the realized (or observed) LGD: for each class and each of the defined termination states, determine the associated loss amount. • Estimated LGD determination: for clients/contracts with open positions (incomplete cases), estimate by the defined workout the amount still recoverable (based on historical loss/recovery). For corporate portfolios, the estimation of incomplete cases was done using the chain-ladder method (client view), while for individual portfolios the probabilities/severities method was used (contract view). • Determination of the ERR: based on the estimated curve (0->workout) determine the expected marginal recovery at each point in time. 285 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes• In order to update the LGD and TRE parameters, the following input parameters were also updated: Haircut relative to collateral; Update rate for each portfolio; Cost model, including direct and indirect costs; Update of the workout period and its adaptation to the current and future strategy of the collections process, for each estimation segment. The incorporation of forward looking information was done through macroeconomic models, which estimate the evolution of risk parameters through the evolution of macroeconomic variables. Four PD models were developed: Large and Medium-Sized Enterprises, Small Enterprises and Start-ups, Home Loans and Other Consumer Credit, and three LGD models: Home Loans, Consumer Credit and Corporate Credit. These models are based, on the one hand, on the historical default series and, on the other hand, on the historical series of the main macroeconomic variables (GDP, inflation, interest rate, unemployment rate and house prices). Historical quarterly data since 2010 were used. Regarding the projection models of PD and LGD housing segment, the first step consisted in the multivariate analysis of the explanatory variables, for this purpose the following variables were used: GDP, unemployment rate, inflation rate, residential real estate market price growth and inflation rate. On the other hand, the historical default series were transformed using the logit function in order to ensure that the projections have values between 0 and 1, even in extremely adverse scenarios. Next, linear regression modeling was carried out considering 3 explanatory variables, with the objective of determining the regression that best explains the evolution of the risk parameter. The choice of the final model depends on the economic sense and its statistical performance. To determine the statistical performance of the models, the following indicators were taken into account: • R2: which indicates what part of the evolution of the risk parameter is explained by the explanatory variables, that is, the explanatory power of the model; • P-value of the explanatory variables: which indicates whether the explanatory variable in question is significant in explaining the evolution of the risk parameter; • Variance inflation factors (VIF): which analyzes whether the explanatory variables are correlated. If the variable has a value greater than 10 it is considered to have a high correlation with the other variables, i.e., only models with VIFs less than 10 are considered. • Normality of the residuals, which checks whether the model’s residuals are normally distributed, using the Q-Q plot and Shapiro-Wilk tests; • Homoscedasticity: which seeks to demonstrate that the variance of errors is constant, since it is one of the assumptions of modeling through linear regression, based on a regression of the risk parameter with its residues, ensuring that this same regression has a p-value greater than 5%; • Self-correlation of errors: through the Durbin-Watson test it is assured that the result is between 1.5 and 2.5. To correct auto-correlation problems of the errors, the ARIMA (autoregressive integrated moving average model) model was used and again tested the performance of the final model, through the Durbin-Watson test, after the auto-correlation correction. Regarding the LGD Individual Credit projection model, although the aforementioned methodology was followed, the results obtained proved to be counterintuitive, namely in terms of the economic interpretation of the variables versus the statistical results. For this reason, all the models developed were rejected, and a future change similar to that projected for the CH segment was assumed for this segment (based on the model developed, whose results, in addition to being statistically significant, are also interpretable from an economic point of view), considering the correlation between these segments of households. As regards the forward looking models within the scope of Corporate LGD, since the projection model was considered to be adequate both in the variables used and in its interpretation, only the macroeconomic series were updated and the projection was updated accordingly. 44.3.3.3 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. With the exception of the adjustments already described which were made on the universe that benefited from the moratorium in 2021, and whose impact we estimated in an impairment increase of Euro 16 million, the remaining adjustments that are made result mainly from the need for data review / correction. Therefore, most of the adjustments made in 2021 reflect the application of the collective impairment calculation rules but with corrected input data. 286 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes44.3.4 Credit Risk Monitoring 44.3.4.1 Internal rating models for Corporates, Institutions and shares 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: 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. Segmentation criteria Model type Description Expert Judgement Sector, Size, Product  Large enterprises  Financial institutions  Municipalities  Institucional  Local and regional administrations  Real estate (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 enterprises Semi-automatic Small enterprises Start-Up’s and individual entrepreneurs Statistical Automatic Rating model based in ﬁnancial, qualitative and behavioral information, validated by analysis. Rating model based in ﬁnancial, qualitative and behavioral information. Rating model based in qualitative and behavioral information. Regarding the credit portfolios of Large Companies, Financial Institutions, Institutional, Local and Regional Administrations and Specialized Loans - namely Project Finance, Object Finance, Commodity Finance and Acquisition Finance - the credit ratings are assigned by the novobanco’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 consolidation 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 variables. In addition to rating, these teams also monitor the customers’ loan portfolio of novobanco 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. 287 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesFinally, 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 novobanco Group, 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. 44.3.4.2 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 respective websites (www.moodys.com and www.fitchratings.com). 44.3.4.3 Internal scoring models for Individual portfolios Regarding scoring models for individual portfolios, NB has origination / concession and behavioral scoring models (applied to operations older than 6 months). 44.3.4.3 Internal scoring models for Individual portfolios 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 Regarding scoring models for individual portfolios, NB has origination / concession and behavioral These models are automatic, based on statistical models developed with internal information, considering socio-demographic scoring models (applied to operations older than 6 months). 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. These models are automatic, based on statistical models developed with internal information, The Group is authorized by Bank of Portugal to use internal models in the calculation of regulatory capital requirements for the main considering socio-demographic information, loan characteristics, behavioral information and automatic portfolios of individuals: Mortgage Loans and Individual Loans. In addition, it has origination and behavioral scorings for the Credit penalties (if there are warning signs). In the case of behavioral models, information on the remaining Card, Overdraft and Loan Accounts products, which it uses for the purposes of designing and monitoring credit quality, however, not loans of the contract holders is also considered. being IRB portfolios. The table below shows the correspondence between the external ratings S&P, Moody’s and Fitch and the equivalent external rating S&P: 44.3.5. Delinquency The table below displays the assets impaired, or overdue but not impaired: The Group 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. 31.12.2021 (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 506 789 114 465 114 465 54 960 54 960 7 137 846 5 761 717 1 376 129 2 270 371 377 335 1 893 036 23 175 161 - - - - - - - - - - - 8 506 - - - - - 22 770 - 22 770 312 187 - 312 187 1 748 786 506 789 114 465 114 465 54 960 54 960 7 160 616 5 761 717 1 398 899 2 582 558 377 335 2 205 223 24 932 453 ( 1 113) - - - - ( 3 716) ( 3 043) ( 673) ( 246 997) ( 543) ( 246 454) (1 247 917) 288 505 676 114 465 114 465 54 960 54 960 7 156 900 5 758 674 1 398 226 2 335 561 376 792 1 958 769 23 684 536 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 121 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 44.3.4.3 Internal scoring models for Individual portfolios Regarding 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. The Group 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. 44.3.5. Delinquency 44.3.5. Delinquency The table below displays the assets impaired, or overdue but not impaired: The table below displays the assets impaired, or overdue but not impaired: Neither overdue nor impaired Overdue but not impaired Impaired Total exposure Impairment Net exposure 31.12.2021 (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 506 789 114 465 114 465 54 960 54 960 7 137 846 5 761 717 1 376 129 2 270 371 377 335 1 893 036 23 175 161 - - - - - - - - - - - 8 506 - - - - - 22 770 - 22 770 312 187 - 312 187 1 748 786 506 789 114 465 114 465 54 960 54 960 7 160 616 5 761 717 1 398 899 2 582 558 377 335 2 205 223 24 932 453 ( 1 113) - - - - ( 3 716) ( 3 043) ( 673) ( 246 997) ( 543) ( 246 454) (1 247 917) 505 676 114 465 114 465 54 960 54 960 7 156 900 5 758 674 1 398 226 2 335 561 376 792 1 958 769 23 684 536 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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) - 121 - 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 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. 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. of significant deterioration in credit risk, have no objective evidence of loss or specific impairment after an individual assessment of impairment. 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 The following table presents the assets that are impaired or overdue but not impaired, split by their respective maturity or ageing (when overdue): The following table presents the assets that are impaired or overdue but not impaired, split by their respective maturity or ageing (when overdue): Securities Portfolio - debt instruments 31.12.2021 Deposits with and loans and advances to banks (in thousands of Euros) Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired - - - - - - - - - - - - - - 210 598 1 940 37 594 84 825 334 957 - - - - - - 334 957 - - - - - - - - - - - - - - - - - - - - - - - - - - 6 942 1 110 387 38 29 8 506 - - - - - - 8 506 16 199 18 033 48 558 71 646 147 118 301 554 95 322 205 485 250 897 139 442 756 086 1 447 232 1 748 786 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 289 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 122 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Neither overdue Overdue but not nor impaired 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 other entities Loans and advances to customers Bonds issued by government and other public entities 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 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): Securities Portfolio - debt instruments 31.12.2021 Deposits with and loans and advances to banks (in thousands of Euros) Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired - - - - - - - - - - - - - - 210 598 1 940 37 594 84 825 334 957 - - - - - - 334 957 - - - - - - - - - - - - - - - - - - - - - - - - - - 6 942 1 110 387 38 29 8 506 - - - - - - 8 506 16 199 18 033 48 558 71 646 147 118 301 554 95 322 205 485 250 897 139 442 756 086 1 447 232 1 748 786 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 Securities Portfolio - debt Securities Portfolio - debt instruments instruments Overdue but not Overdue but not impaired impaired Impaired Impaired 31.12.2020 31.12.2020 Deposits with and loans and Deposits with and loans and advances to banks advances to banks Overdue but not Overdue but not impaired impaired Overdue Overdue Due 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 - - 15 126 15 126 10 330 10 330 34 444 34 444 82 475 82 475 142 375 142 375 - - - - - - - - - - - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 142 375 142 375 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (in thousands of Euros) (in thousands of Euros) Loans and advances to customers Loans and advances to customers Overdue but not Overdue but not impaired impaired Impaired Impaired 5 194 5 194 1 133 1 133 357 357 290 290 302 302 7 276 7 276 - - - - - - - - - - - - 7 276 7 276 15 240 15 240 57 544 57 544 93 105 93 105 233 020 233 020 219 616 219 616 618 525 618 525 37 599 37 599 308 017 308 017 273 779 273 779 149 134 149 134 796 378 796 378 1 564 907 1 564 907 2 183 432 2 183 432 - 122 - Impaired Impaired 34 726 34 726 - - - - - - - - 34 726 34 726 - - - - - - - - 279 412 279 412 279 412 279 412 314 138 314 138 The following table shows the assets impaired or overdue but not impaired, broken down by the respective impairment Stage: The following table shows the assets impaired or overdue but not impaired, broken down by the respective impairment Stage: 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 Deposits with and loans and advances to banks Securities at fair value through other comprehensive income Securities at fair value through other comprehensive income Securities at amortised cost Securities at amortised cost Loans and advances to customers Loans and advances to customers Stage 1 Stage 1 - - - - - - 4 881 4 881 4 881 4 881 Stage 3 Stage 3 - - 22 770 22 770 312 187 312 187 1 748 786 1 748 786 2 083 743 2 083 743 Total Total - - 22 770 22 770 312 187 312 187 1 757 292 1 757 292 2 092 249 2 092 249 Stage 1 Stage 1 - - - - - - 1 679 1 679 1 679 1 679 Stage 2 Stage 2 314 138 314 138 - - - - 5 597 5 597 319 735 319 735 Stage 3 Stage 3 - - 22 770 22 770 119 605 119 605 2 183 432 2 183 432 2 325 807 2 325 807 - - - - - - 3 625 3 625 3 625 3 625 Total Total 314 138 314 138 22 770 22 770 119 605 119 605 2 190 708 2 190 708 2 647 221 2 647 221 31.12.2021 31.12.2021 Stage 2 Stage 2 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 290 Credit risk by rating grade Credit risk by rating grade Regarding assets that are neither past due nor impaired, the distribution by rating grade is presented below. For the debt instruments, Regarding assets that are neither past due nor impaired, the distribution by rating grade 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 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 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. the information, the ratings have been aggregated into five major risk groups, with the last group including the unrated exposures. Prime +High Prime +High grade Upper Medium Lower Medium Upper Medium Grade Lower Medium grade grade Grade grade 31.12.2021 31.12.2021 Non Investment Non Investment Grade Speculative + Grade Speculative + Highly speculative Highly speculative 47 728 47 728 - Deposits with and loans and advances to banks Deposits with and loans and advances to banks Securities held for trading Securities held for trading Bonds issued by government and other public entities Securities at fair value through profit/loss - mandatory 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 other entities Securities at fair value through other comprehensive income Bonds issued by government and other public entities Bonds issued by government and other public entities Bonds issued by other entities Títulos ao custo amortizado Bonds issued by other entities 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 Loans and advances to customers Bonds issued by other entities Loans and advances to customers 1 100 1 100 - - - - - - - 1 453 919 - 1 453 919 993 474 993 474 460 445 460 445 10 631 10 631 - 10 631 - 3 447 441 10 631 3 447 441 139 814 139 814 - - - - - - - 1 982 997 - 1 982 997 1 934 969 1 934 969 48 028 48 028 157 161 157 161 - 157 161 - 157 161 8 905 980 8 905 980 38 972 38 972 - - - - - - - 3 550 221 - 3 550 221 2 785 748 2 785 748 764 473 764 473 422 751 422 751 - 422 751 - 422 751 2 591 239 2 591 239 - - - - - - 1 788 - 1 788 - 1 788 - 229 072 1 788 229 072 - 229 072 - 229 072 6 953 998 6 953 998 (in thousands of Euros) (in thousands of Euros) Others Others Total Total 279 175 279 175 114 465 114 465 114 465 114 465 54 960 54 960 54 960 54 960 148 921 148 921 47 526 47 526 101 395 101 395 1 450 756 1 450 756 377 335 377 335 1 073 421 1 073 421 1 276 503 1 276 503 506 789 506 789 114 465 114 465 114 465 114 465 54 960 54 960 54 960 7 137 846 54 960 7 137 846 5 761 717 5 761 717 1 376 129 1 376 129 2 270 371 2 270 371 377 335 377 335 1 893 036 1 893 036 23 175 161 23 175 161 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 123 - - 123 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 31.12.2020 (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 - - - - - - - - - - - - - - - 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 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 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 31.12.2021 31.12.2020 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total - - - 4 881 4 881 - - - 3 625 - 22 770 312 187 1 748 786 - 22 770 312 187 1 757 292 - - - 1 679 314 138 - - 5 597 - 22 770 119 605 2 183 432 314 138 22 770 119 605 2 190 708 3 625 2 083 743 2 092 249 1 679 319 735 2 325 807 2 647 221 (in thousands of Euros) Credit risk by rating grade Regarding assets that are neither past due nor impaired, the distribution by rating grade 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. Credit risk by rating grade Regarding assets that are neither past due nor impaired, the distribution by rating grade 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. 31.12.2021 (in thousands of Euros) Prime +High grade Upper Medium Grade Lower Medium grade 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 1 100 - - - - 1 453 919 993 474 460 445 10 631 - 10 631 3 447 441 139 814 - - - - 1 982 997 1 934 969 48 028 157 161 - 157 161 8 905 980 38 972 - - - - 3 550 221 2 785 748 764 473 422 751 - 422 751 2 591 239 Non Investment Grade Speculative + Highly speculative 47 728 - - - - 1 788 - 1 788 229 072 - 229 072 6 953 998 Others Total 279 175 114 465 114 465 54 960 54 960 148 921 47 526 101 395 1 450 756 377 335 1 073 421 1 276 503 506 789 114 465 114 465 54 960 54 960 7 137 846 5 761 717 1 376 129 2 270 371 377 335 1 893 036 23 175 161 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Prime +High grade Upper Medium Grade 31.12.2020 Lower Medium grade Non Investment Grade Speculative + Highly speculative (in thousands of Euros) Others Total - 123 - Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Instrumentos de dívida - emissores públicos Securities at fair value through profit/loss - mandatory Instrumentos de dívida - emissores públicos 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 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 As at 31 December 2021 and 2020, 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 Perfoming Non-Perfoming Total Credit Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Corporate Mortgage loans Consumer and other loans 12 191 609 320 313 132 381 9 606 873 1 207 196 25 093 22 130 33 754 8 612 8 736 1 337 1 552 12 323 990 329 049 9 640 627 1 215 808 26 430 23 682 873 543 123 210 153 471 361 247 516 492 322 384 1 390 035 683 631 13 714 025 20 723 136 985 48 176 37 136 8 867 18 550 171 386 190 607 29 590 155 535 9 812 013 1 406 415 1 012 680 56 020 179 217 Total 23 005 678 367 536 174 747 11 625 23 180 425 379 161 1 150 224 518 955 601 804 349 801 1 752 028 868 756 24 932 453 1 247 917 31.12.2021 (in thousands of Euros) Segment Performing or with a delay < 30 days With a delay > 30 days Total Days of delay Total <= 90 days > 90 days Exposure Impairment Perfoming Non-Perfoming Total Credit Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Corporate Mortgage loans Consumer and other loans 12 109 249 328 589 9 723 675 1 116 057 17 526 21 113 7 200 65 067 12 129 645 1 706 2 391 12 116 449 329 234 9 788 742 1 128 186 19 232 23 504 940 235 110 577 147 730 471 147 816 374 544 639 1 756 609 1 015 786 17 312 111 134 122 182 57 382 29 301 43 224 221 711 205 112 46 613 165 406 13 873 058 10 010 453 1 333 298 1 345 020 65 845 188 910 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 31.12.2020 (in thousands of Euros) 291 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 124 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Prime +High Upper Medium Lower Medium grade Grade grade Speculative + Others Total (in thousands of Euros) 31.12.2020 Non Investment Grade Highly speculative Deposits with and loans and advances to banks 1 096 139 859 38 073 76 103 Securities held for trading Bonds issued by government and other public entities Instrumentos de dívida - emissores públicos Securities at fair value through profit/loss - mandatory Instrumentos de dívida - emissores públicos 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 1 415 572 966 035 449 537 - - - 3 734 056 - - - - 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 2 469 068 127 514 160 184 - - - - - - - - - 37 958 - 37 958 6 855 355 - - - - 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 7 820 072 6 490 076 1 329 996 2 312 708 421 249 1 891 459 23 026 101 As at 31 December 2021 and 2020, the analysis of the gross loans and advances to customers’ exposure and impairment constituted, by segment, is presented as follows: As at 31 December 2021 and 2020, 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 <= 90 days > 90 days Total Exposure Impairment Perfoming Non-Perfoming Total Credit Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Corporate Mortgage loans Consumer and other loans 12 191 609 320 313 132 381 9 606 873 1 207 196 25 093 22 130 33 754 8 612 8 736 1 337 1 552 12 323 990 329 049 9 640 627 1 215 808 26 430 23 682 873 543 123 210 153 471 361 247 516 492 322 384 1 390 035 683 631 13 714 025 20 723 136 985 48 176 37 136 8 867 18 550 171 386 190 607 29 590 155 535 9 812 013 1 406 415 1 012 680 56 020 179 217 Total 23 005 678 367 536 174 747 11 625 23 180 425 379 161 1 150 224 518 955 601 804 349 801 1 752 028 868 756 24 932 453 1 247 917 31.12.2021 (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 Perfoming Non-Perfoming Total Credit Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Corporate Mortgage loans Consumer and other loans 12 109 249 328 589 9 723 675 1 116 057 17 526 21 113 7 200 65 067 12 129 645 1 706 2 391 12 116 449 329 234 9 788 742 1 128 186 19 232 23 504 940 235 110 577 147 730 471 147 816 374 544 639 1 756 609 1 015 786 17 312 111 134 122 182 57 382 29 301 43 224 221 711 205 112 46 613 165 406 13 873 058 10 010 453 1 333 298 1 345 020 65 845 188 910 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 31.12.2020 (in thousands of Euros) As at 31 December 2021 and 2020, the analysis of the Loans and advances to customers’ portfolio, by segment and by year of reference was as follows: As at 31 December 2021 and 2020, the analysis of the Loans and advances to customers’ portfolio, by segment and by year of reference was as follows: 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 31.12.2021 (in thousands of Euros) 2004 and prior 4 099 219 797 4 585 64 530 1 322 038 10 532 717 590 54 041 11 689 786 219 1 595 876 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 769 975 1 336 1 140 851 1 003 994 1 280 1 669 1 760 2 570 3 692 6 282 7 851 47 005 171 971 284 776 473 578 200 431 170 833 184 975 242 759 415 767 2 883 29 831 50 359 24 647 24 417 19 125 48 473 41 290 77 995 314 087 110 955 626 789 122 220 648 093 879 951 1 506 020 51 245 63 746 89 004 8 057 320 861 13 477 600 300 20 113 891 891 13 553 633 292 2 725 4 098 6 739 4 542 2 452 3 204 1 221 834 438 134 455 499 199 745 85 133 130 239 1 518 94 755 164 306 373 517 675 178 899 601 737 810 1 958 3 757 3 656 10 142 12 829 23 922 19 181 11 337 17 657 19 395 25 833 23 129 21 449 6 837 7 999 11 051 9 037 17 744 24 310 18 364 15 821 25 084 21 714 266 849 705 349 8 663 794 493 1 094 1 769 615 26 890 118 868 91 085 18 968 27 281 374 703 780 270 45 371 1 187 718 33 874 1 115 907 20 933 26 875 24 696 29 481 27 552 24 969 32 173 656 309 650 642 403 084 343 713 571 090 430 556 909 963 77 401 21 746 52 072 1 099 011 42 807 48 286 94 954 57 520 144 321 6 888 6 393 63 201 1 650 083 75 259 2 549 942 8 745 8 215 4 307 2 368 2 754 1 760 2 713 5 573 8 633 9 888 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 429 806 153 837 969 282 10 070 9 349 2019 3 519 63 893 232 921 10 950 83 312 3 632 009 11 324 2 486 691 12 964 2 410 696 60 824 37 244 7 358 7 450 723 917 834 325 2 125 1 593 41 957 198 295 60 640 327 653 6 576 8 293 60 639 3 408 903 81 054 3 572 674 26 806 5 874 34 778 57 803 29 538 35 532 23 123 50 187 43 218 81 282 112 307 214 115 74 949 74 391 99 053 - 124 - 168 306 69 525 47 130 69 908 13 714 025 1 012 680 199 564 9 812 013 56 020 1 244 457 1 406 415 179 217 1 513 929 24 932 453 1 247 917 2020 2021 Total 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 292 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 31.12.2020 (in thousands of Euros) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 801 1 047 1 311 1 275 991 1 224 1 208 1 500 2 065 2 141 3 442 4 910 7 939 8 993 66 294 228 528 308 621 507 028 282 231 303 769 214 814 6 277 52 349 46 549 30 559 41 733 76 409 48 687 379 756 133 774 506 226 116 278 456 374 193 612 730 681 146 759 806 562 1 124 252 62 679 66 057 8 760 363 661 14 695 672 558 21 786 1 003 716 14 578 709 233 9 533 8 908 4 847 2 626 3 041 1 933 2 977 6 108 9 475 492 528 508 778 226 201 96 782 149 827 107 869 185 390 424 352 762 490 3 964 5 747 9 050 5 732 4 356 4 276 2 214 1 418 1 520 743 787 1 627 3 039 2 716 2 358 1 270 10 920 18 044 25 665 20 567 12 380 19 274 22 191 28 413 25 794 25 229 7 453 9 413 12 887 10 778 19 179 29 123 20 942 18 224 27 293 23 155 388 1 029 1 567 775 8 274 1 381 1 145 1 873 8 798 1 101 20 481 33 786 437 408 910 499 48 762 1 325 224 36 420 1 227 039 22 904 29 406 28 246 32 539 30 900 29 303 793 938 841 670 461 957 494 762 683 346 587 398 30 078 124 058 82 465 36 497 1 040 129 49 529 92 372 22 336 60 547 1 323 286 56 275 129 533 10 083 73 689 2 016 275 1 914 976 117 147 10 800 1 006 802 67 185 198 768 10 025 86 978 3 120 546 10 488 2 771 828 137 204 10 672 1 035 025 74 966 304 366 13 832 96 126 4 111 219 17 700 3 017 381 56 406 7 339 740 096 48 711 251 215 7 200 73 750 4 008 692 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 44 207 10 629 59 125 57 166 37 066 54 363 82 066 52 046 137 065 126 596 195 456 230 011 86 642 79 179 129 888 153 394 64 876 The figures presented include, in addition to all new operations of the reference year, renewals, interventions and restructu rings of operations originated in previous years, including the period prior to the setting up of novobanco. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 126 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, the analysis of the Loans and advances to customers’ portfolio, by segment and by year of reference was as follows: Year of production Number of operations Number of operations Amount Impairment Amount Impairment Amount Impairment Amount Impairment Number of operations Corporate Mortgage loans Consumer and other loans Total 31.12.2021 Number of operations 2004 and prior 4 099 219 797 4 585 64 530 1 322 038 10 532 717 590 54 041 11 689 786 219 1 595 876 (in thousands of Euros) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 769 975 1 336 1 140 851 1 003 994 1 280 1 669 1 760 2 570 3 692 6 282 7 851 9 349 47 005 171 971 284 776 473 578 200 431 170 833 184 975 242 759 415 767 2 883 29 831 50 359 24 647 24 417 19 125 48 473 41 290 77 995 314 087 110 955 626 789 122 220 648 093 879 951 1 506 020 51 245 63 746 89 004 8 057 320 861 13 477 600 300 20 113 891 891 13 553 633 292 8 745 8 215 4 307 2 368 2 754 1 760 2 713 5 573 8 633 9 888 438 134 455 499 199 745 85 133 94 755 164 306 373 517 675 178 899 601 2 429 806 153 837 10 070 969 282 11 324 2 486 691 12 964 2 410 696 60 824 37 244 7 358 7 450 723 917 834 325 2 725 4 098 6 739 4 542 2 452 3 204 1 221 834 737 810 1 958 3 757 3 656 3 519 2 125 1 593 130 239 1 518 10 142 12 829 23 922 19 181 11 337 17 657 19 395 25 833 23 129 21 449 42 807 48 286 6 837 7 999 11 051 9 037 17 744 24 310 18 364 15 821 25 084 21 714 94 954 57 520 144 321 266 849 705 349 8 663 794 493 1 094 1 769 615 18 968 27 281 374 703 780 270 45 371 1 187 718 33 874 1 115 907 20 933 26 875 24 696 29 481 27 552 24 969 32 173 656 309 650 642 403 084 343 713 571 090 430 556 909 963 6 888 6 393 63 201 1 650 083 75 259 2 549 942 26 890 118 868 91 085 77 401 21 746 52 072 1 099 011 63 893 232 921 10 950 83 312 3 632 009 41 957 198 295 60 640 327 653 6 576 8 293 60 639 3 408 903 81 054 3 572 674 26 806 5 874 34 778 57 803 29 538 35 532 23 123 50 187 43 218 81 282 112 307 214 115 74 949 74 391 99 053 168 306 69 525 47 130 Total 69 908 13 714 025 1 012 680 199 564 9 812 013 56 020 1 244 457 1 406 415 179 217 1 513 929 24 932 453 1 247 917 31.12.2020 (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 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 801 1 047 1 311 1 275 991 1 224 1 208 1 500 2 065 2 141 3 442 4 910 7 939 8 993 66 294 228 528 308 621 507 028 282 231 303 769 214 814 6 277 52 349 46 549 30 559 41 733 76 409 48 687 379 756 133 774 506 226 116 278 456 374 193 612 730 681 146 759 806 562 1 124 252 62 679 66 057 8 760 363 661 14 695 672 558 21 786 1 003 716 14 578 709 233 9 533 8 908 4 847 2 626 3 041 1 933 2 977 6 108 9 475 492 528 508 778 226 201 96 782 149 827 107 869 185 390 424 352 762 490 1 914 976 117 147 10 800 1 006 802 10 488 2 771 828 137 204 10 672 1 035 025 17 700 3 017 381 56 406 7 339 740 096 3 964 5 747 9 050 5 732 4 356 4 276 2 214 1 418 1 520 743 787 1 627 3 039 2 716 2 358 1 270 10 920 18 044 25 665 20 567 12 380 19 274 22 191 28 413 25 794 25 229 7 453 9 413 12 887 10 778 19 179 29 123 20 942 18 224 27 293 23 155 388 1 029 1 567 775 8 274 1 381 1 145 1 873 8 798 1 101 20 481 33 786 437 408 910 499 48 762 1 325 224 36 420 1 227 039 22 904 29 406 28 246 32 539 30 900 29 303 793 938 841 670 461 957 494 762 683 346 587 398 30 078 124 058 82 465 36 497 1 040 129 49 529 92 372 22 336 60 547 1 323 286 56 275 129 533 10 083 73 689 2 016 275 67 185 198 768 10 025 86 978 3 120 546 74 966 304 366 13 832 96 126 4 111 219 48 711 251 215 7 200 73 750 4 008 692 44 207 10 629 59 125 57 166 37 066 54 363 82 066 52 046 137 065 126 596 195 456 230 011 86 642 79 179 129 888 153 394 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 The figures presented include, in addition to all new operations of the reference year, renewals, interventions and restructu rings of operations originated in previous years, including the period prior to the setting up of novobanco. 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 novobanco. 44.3.6 Collaterals 44.3.6 Collaterals 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: 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: Amount of loans Impairment Net Value Fair value of collateral Amount of loans Impairment Net Value 31.12.2021 31.12.2020 (in thousands of Euros) Fair value of collateral Individuals - Mortgage Mortgages Pledges Not collateralized Individuals - Other Mortgages Pledges Not collateralized Corporate 9 568 808 169 020 74 185 9 812 013 250 032 263 320 893 063 1 406 415 ( 53 088) ( 307) ( 2 625) ( 56 020) ( 4 807) ( 120 324) ( 54 086) ( 179 217) Mortgages NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Pledges Not collateralized 3 527 247 2 055 529 8 131 249 13 714 025 ( 356 772) ( 162 391) ( 493 517) (1 012 680) 9 515 720 168 713 71 560 9 755 993 245 225 142 996 838 977 1 227 198 3 170 475 1 893 138 7 637 732 12 701 345 9 558 200 162 514 - 9 720 714 247 376 144 768 - 392 144 3 159 754 760 456 - 3 920 210 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 ( 58 626) ( 162) ( 7 057) ( 65 845) ( 7 618) ( 123 190) ( 58 102) ( 188 910) ( 560 905) ( 284 521) ( 499 594) (1 345 020) 9 742 937 113 540 88 131 9 944 608 211 621 143 912 788 855 1 144 388 9 786 018 113 198 - 9 899 216 216 301 148 584 - 364 885 3 061 255 1 926 162 7 540 621 12 528 038 - 126 - 3 130 712 836 026 - 3 966 738 293 11 096 1 905 18 478 13 225 2 241 155 1 565 487 506 253 312 797 654 460 762 530 515 451 567 170 322 2 183 18 528 13 225 2 241 155 1 565 421 280 868 368 460 762 530 515 451 567 170 322 Total 24 932 453 ( 1 247 917) 23 684 536 14 033 068 25 216 809 ( 1 599 775) 23 617 034 14 230 839 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 is presented as follows: Collateral intervals a) Individuals - Mortgage loans Individuals - Other loans Corporate loans Total Number Amount Number Amount Number Amount Number Amount 194 158 9 332 748 5 823 234 146 211 077 10 054 400 31.12.2021 (in thousands of Euros) 264 47 161 929 63 523 6 039 7 191 <0,5M€ >= 0,5M€ e <1,0M€ >= 1,0M€ e <5,0M€ >= 5,0M€ e <10,0M€ >= 10,0M€ e <20,0M€ >= 20,0M€ e <50,0M€ >=50M€ <0,5M€ >= 0,5M€ and <1,0M€ >= 1,0M€ and <5,0M€ >= 5,0M€ and <10,0M€ >= 10,0M€ and <20,0M€ >= 20,0M€ and <50,0M€ >=50M€ 14 3 - - - - 26 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - a) The allocation by intervals was based on the total amount of collateral per credit agreement 194 469 9 558 200 5 840 247 376 48 665 3 151 638 248 974 12 957 214 Collateral intervals a) Individuals - Mortgage loans Individuals - Other loans Corporate loans Total Number Amount Number Amount Number Amount Number Amount 202 981 9 593 284 5 107 200 866 217 836 10 299 567 31.12.2020 (in thousands of Euros) 248 36 146 377 46 357 8 552 6 883 9 748 2 202 7 537 5 979 4 014 170 1 566 505 417 264 144 839 109 401 084 477 539 471 926 171 493 2 476 7 576 5 979 4 014 170 1 566 419 073 892 349 401 084 477 539 471 926 171 493 a) The allocation by intervals was based on the total amount of collateral per credit agreement to the gross value of the individual covered credits. The values of mortgages collateral, shown above, represents the maximum coverage value of the covered assets, i.e., which concur 203 265 9 786 018 5 136 216 301 31 216 3 130 712 239 617 13 133 031 In assessing the risk of an operation or set of operations, the elements of credit risk mitigation associated with them are considered, in accordance with internal rules and procedures. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 126 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In order to mitigate credit risk, credit operations have associated guarantees, namely mortgages or pledges. The fair value o f 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: 44.3.6 Collaterals Individuals - Mortgage Mortgages Pledges Not collateralized Individuals - Other Mortgages Pledges Not collateralized Corporate Mortgages Pledges Not collateralized Total Amount of loans Impairment Net Value Amount of loans Impairment Net Value 31.12.2021 31.12.2020 (in thousands of Euros) Fair value of collateral 9 568 808 169 020 74 185 9 812 013 250 032 263 320 893 063 1 406 415 3 527 247 2 055 529 8 131 249 13 714 025 ( 53 088) ( 307) ( 2 625) ( 56 020) ( 4 807) ( 120 324) ( 54 086) ( 179 217) ( 356 772) ( 162 391) ( 493 517) (1 012 680) 9 515 720 168 713 71 560 9 755 993 245 225 142 996 838 977 1 227 198 3 170 475 1 893 138 7 637 732 12 701 345 Fair value of collateral 9 558 200 162 514 - 9 720 714 247 376 144 768 - 392 144 3 159 754 760 456 - 3 920 210 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 ( 58 626) ( 162) ( 7 057) ( 65 845) ( 7 618) ( 123 190) ( 58 102) ( 188 910) ( 560 905) ( 284 521) ( 499 594) (1 345 020) 9 742 937 113 540 88 131 9 944 608 211 621 143 912 788 855 1 144 388 3 061 255 1 926 162 7 540 621 12 528 038 9 786 018 113 198 - 9 899 216 216 301 148 584 - 364 885 3 130 712 836 026 - 3 966 738 24 932 453 ( 1 247 917) 23 684 536 14 033 068 25 216 809 ( 1 599 775) 23 617 034 14 230 839 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 t hey are associated. The details of the collateral – mortgages is presented as follows: The details of the collateral – mortgages is presented as follows: Collateral intervals a) Individuals - Mortgage loans Individuals - Other loans Corporate loans Total Number Amount Number Amount Number Amount Number Amount 31.12.2021 (in thousands of Euros) <0,5M€ >= 0,5M€ e <1,0M€ >= 1,0M€ e <5,0M€ >= 5,0M€ e <10,0M€ >= 10,0M€ e <20,0M€ >= 20,0M€ e <50,0M€ >=50M€ 194 158 9 332 748 5 823 234 146 264 47 161 929 63 523 - - - - - - - - 14 3 - - - - 6 039 7 191 - - - - 11 125 1 965 18 534 13 225 2 241 155 1 565 490 422 256 215 799 951 460 762 530 515 451 567 170 322 211 106 10 057 316 2 243 18 584 13 225 2 241 155 1 565 424 183 870 665 460 762 530 515 451 567 170 322 194 469 9 558 200 5 840 247 376 48 810 3 159 754 249 119 12 965 330 a) The allocation by intervals was based on the total amount of collateral per credit agreement Collateral intervals a) Individuals - Mortgage loans Individuals - Other loans Corporate loans Total Number Amount Number Amount Number Amount Number Amount 31.12.2020 (in thousands of Euros) <0,5M€ >= 0,5M€ and <1,0M€ >= 1,0M€ and <5,0M€ >= 5,0M€ and <10,0M€ >= 10,0M€ and <20,0M€ >= 20,0M€ and <50,0M€ >=50M€ 202 981 9 593 284 5 107 200 866 248 36 146 377 46 357 - - - - - - - - 26 3 - - - - 8 552 6 883 - - - - 9 748 2 202 7 537 5 979 4 014 170 1 566 505 417 264 144 839 109 401 084 477 539 471 926 171 493 217 836 10 299 567 2 476 7 576 5 979 4 014 170 1 566 419 073 892 349 401 084 477 539 471 926 171 493 203 265 9 786 018 5 136 216 301 31 216 3 130 712 239 617 13 133 031 a) The allocation by intervals was based on the total amount of collateral per credit agreement The values of mortgages collateral, shown above, represents the maximum coverage value of the covered assets, i.e., which concur to the gross value of the individual covered credits. The values of mortgages collateral, shown above, represents the maximum coverage value of the covered assets, i.e., which concur to the gross value of the individual covered credits. • 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. In assessing the risk of an operation or set of operations, the elements of credit risk mitigation associated with them are considered, in accordance with internal rules and procedures. In assessing the risk of an operation or set of operations, the elements of credit risk mitigation associated with them are considered, 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; NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 an indication as to the recovery rates associated with each type of collateral. - 127 - 294 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 app licable to collateral (namely financial and real estate), which cover, among others, the volatility of the collateral value, its liquidity, and 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 i n CMVM, following the The internal rules on credit powers thus have a specific chapter on this point, “Acceptance of collateral methodologies as described in Note 8.6. - techniques for mitigating the risks to which collateral is exposed, namely liquidity and volatility risks”. 44.3.7 Credit risk concentration The revaluation process for real estate is performed by independent valuation experts registered in CMVM, following the methodologies as described in Note 8.6. 44.3.7 Credit risk concentration The analysis of risk exposure by sector of activity, as at 31 December 2021 and 2020, is presented as follows: The analysis of risk exposure by sector of activity, as at 31 December 2021 and 2020, is presented as follows: 31.12.2021 (in thousands of Euros) Loans and advances to customers Financial assets held for trading Derivatives for trading and fair value option derivates Financial assets at fair value through profit or loss -mandatory Derivatives - hedge accounting Financial assets at fair value through other comprehensive income Financial assets at amortised cost Guarantees and endorsements provided Gross amount Impairment Gross amount Impairment Gross amount Impairment Gross amount Impairment 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 Devices 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 329 579 40 882 511 938 372 933 79 044 108 868 149 815 11 459 338 994 168 159 391 734 170 744 119 030 141 936 296 885 1 295 265 1 405 455 1 055 211 864 952 469 127 1 666 331 2 438 656 582 357 592 331 9 812 013 1 406 415 112 340 ( 8 977) ( 333) ( 14 257) ( 13 920) ( 728) ( 2 996) ( 10 180) ( 20) ( 5 157) ( 3 342) ( 11 974) ( 9 219) ( 3 514) ( 10 598) ( 3 323) ( 135 843) ( 48 479) ( 97 092) ( 51 401) ( 44 808) ( 144 565) ( 225 158) ( 22 872) ( 75 562) ( 56 020) ( 179 217) ( 68 362) - - - - - - - - - - - - - - - - - - - - - - 114 465 - - - - TOTAL 24 932 453 ( 1 247 917) 114 465 397 - 7 233 290 5 500 96 - 271 - 370 159 43 - 17 062 75 005 765 191 49 111 101 410 6 281 3 250 - 758 - - 2 263 199 - - - - - - - - - - - - - - - - - - - 794 368 2 751 95 - 2 378 - - - - - - - - - - - - - - - - - - - - - - 19 639 - - - - - - - 29 007 14 189 - - - - - - 19 410 - 16 235 66 078 - - 53 579 - 40 669 118 96 999 913 525 908 85 155 5 761 969 123 155 - - - ( 14) ( 13) - - - - - - ( 13) - ( 11) ( 49) - - ( 41) - ( 29) - ( 61) ( 317) - ( 45) ( 3 043) ( 80) - - - 20 249 19 391 76 401 4 298 1 501 2 199 1 497 40 793 133 694 33 754 1 299 48 010 15 046 4 983 113 203 196 417 50 398 - 43 865 479 556 178 280 655 753 377 335 84 636 - - - ( 45) ( 4) ( 196) ( 2) ( 6) ( 12) ( 4) ( 22) ( 123) ( 153) ( 62) ( 24) ( 8) ( 20) ( 3 988) ( 94 332) ( 90) - ( 191) ( 1 424) ( 33 430) ( 111 600) ( 543) ( 718) - - - 11 196 5 972 49 435 7 450 1 363 7 322 2 150 4 022 18 453 15 177 31 575 20 503 10 669 19 208 33 504 672 470 202 603 51 900 351 109 150 817 107 615 386 548 20 611 36 256 - - 16 315 799 592 19 639 7 220 996 ( 3 716) 2 582 558 ( 246 997) 2 234 243 ( 6 318) ( 205) ( 319) ( 741) ( 122) ( 259) ( 18) ( 1) ( 80) ( 305) ( 456) ( 2 248) ( 527) ( 2 821) ( 687) ( 37 764) ( 3 481) ( 1 076) ( 2 039) ( 3 380) ( 5 246) ( 10 115) ( 110) ( 955) - - ( 326) ( 79 599) 31.12.2020 (in thousands of Euros) Loans and advances to customers Financial assets held for trading Derivatives for trading and fair value option derivates Financial assets at fair value through profit or loss -mandatory Derivatives - hedge accounting Financial assets at fair value through other comprehensive income Financial assets at amortised cost Guarantees and endorsements provided Gross amount Impairment Gross amount Impairment Gross amount Impairment Gross amount Impairment 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 Devices 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 333 150 74 587 535 893 358 937 72 598 116 943 204 175 9 867 323 798 126 754 361 426 141 484 118 960 141 682 337 076 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 - - - - TOTAL 25 216 809 ( 1 599 775) 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 - - - 388 257 - - - - - - - - - - - - - - - - - - - 882 971 - 75 613 - 2 378 - - - - - - - - - - - - - - - - - - - - - - 12 972 - - - - - - - 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 ( 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 17 615 960 962 12 972 7 907 587 ( 3 690) 2 432 313 ( 201 237) 2 826 190 ( 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) ( 92 163) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 128 - 295 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Exposure to sovereign debt of “peripheral” Eurozone countries Exposure to sovereign debt of “peripheral” Eurozone countries As at 31 December 2021 and 2020, the Group’s exposure to sovereign debt of “peripheral” Eurozone countries, is presented as As at 31 December 2021 and 2020, the Group’s exposure to sovereign debt of “peripheral” Eurozone follows: countries, is presented as follows: 31.12.2021 (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 557 419 - - - 114 465 - - - 557 419 114 465 - - - - - 2 564 587 1 619 260 171 608 148 601 376 792 - - - 3 613 263 1 619 260 171 608 148 601 4 504 056 376 792 5 552 732 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 591 859 - - - 267 016 - - - 591 859 267 016 ( 16) - - - ( 16) 2 780 473 2 039 075 237 844 134 238 420 670 - - - 4 060 002 2 039 075 237 844 134 238 5 191 630 420 670 6 471 159 Portugal Spain Ireland Italy (1) Net values: receivable / (payable) Portugal Spain Ireland Italy (1) Net values: 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 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. 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. The details of the exposure regarding the securities are as follows: 31.12.2021 (in thousands of Euros) The details of the exposure regarding the securities are as follows: Nominal Amount Market quotation Accrued interest Carrying book value Impairment Fair value reserves 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 Securities held for trading Portugal Maturity exceeding 1 year 2 298 790 412 050 1 886 740 1 529 200 755 000 774 200 153 600 153 600 148 561 - 148 561 2 538 669 419 341 2 119 328 1 594 096 758 261 835 835 170 350 170 350 148 286 - 148 286 25 918 1 582 24 336 25 164 17 334 7 830 1 258 1 258 315 - 315 2 564 587 420 923 2 143 664 1 619 260 775 595 843 665 171 608 171 608 148 601 - 148 601 4 130 151 4 451 401 52 655 4 504 056 106 500 106 500 114 017 114 017 448 448 114 465 114 465 - - - - - - - - - - - - - - 86 185 2 994 83 191 46 283 1 729 44 554 13 457 13 457 215 - 215 146 140 - - - - - 375 646 375 646 375 646 425 189 425 189 1 689 1 689 425 189 1 689 376 792 376 792 376 792 543 543 543 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 128 - 296 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Exposure to sovereign debt of “peripheral” Eurozone countries As at 31 December 2021 and 2020, the Group’s exposure to sovereign debt of “peripheral” Eurozone countries, is presented as follows: Portugal Spain Ireland Italy Portugal Spain Ireland Italy (1) Net values: receivable / (payable) 557 419 114 465 4 504 056 376 792 5 552 732 Loans and advances to customers Securities held Derivative for trading instruments (1) through other comprehensive Securities at amortised cost Total 31.12.2021 Securities at fair value 557 419 114 465 376 792 - - - - - - - - - - - - income 2 564 587 1 619 260 171 608 148 601 income 2 780 473 2 039 075 237 844 134 238 - - - - - - - - Loans and advances to customers Securities held Derivative for trading instruments (1) through other Securities at comprehensive amortised cost Total 31.12.2020 Securities at fair value 591 859 267 016 ( 16) 420 670 (in thousands of Euros) (in thousands of Euros) 3 613 263 1 619 260 171 608 148 601 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 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. The details of the exposure regarding the securities are 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 Securities held for trading Portugal Maturity exceeding 1 year 31.12.2021 Nominal Amount Market quotation Accrued interest Carrying book value Impairment Fair value reserves (in thousands of Euros) 2 298 790 412 050 1 886 740 1 529 200 755 000 774 200 153 600 153 600 148 561 - 148 561 2 538 669 419 341 2 119 328 1 594 096 758 261 835 835 170 350 170 350 148 286 - 148 286 25 918 1 582 24 336 25 164 17 334 7 830 1 258 1 258 315 - 315 2 564 587 420 923 2 143 664 1 619 260 775 595 843 665 171 608 171 608 148 601 - 148 601 4 130 151 4 451 401 52 655 4 504 056 106 500 106 500 114 017 114 017 448 448 114 465 114 465 - - - - - - - - - - - - - - 375 646 375 646 375 646 425 189 425 189 1 689 1 689 425 189 1 689 376 792 376 792 376 792 543 543 543 86 185 2 994 83 191 46 283 1 729 44 554 13 457 13 457 215 - 215 146 140 - - - - - (in thousands of Euros) Nominal Amount NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Securities at fair value through other comprehensive income 31.12.2020 Market quotation Accrued interest Carrying book value Impairment Portugal Maturity up to 1 year Maturity exceeding 1 year Spain Maturity exceeding 1 year Ireland Maturity exceeding 1 year Italy Maturity exceeding 1 year Securities at amortised cost Portugal Securities held for trading Portugal Maturity exceeding 1 year 2 420 973 227 455 2 193 518 1 894 750 1 514 750 193 600 193 600 129 821 49 821 2 753 428 231 102 2 522 326 2 012 871 1 630 359 236 205 236 205 133 655 51 854 27 045 1 760 25 285 26 204 25 144 1 639 1 639 583 190 2 780 473 232 862 2 547 611 2 039 075 1 655 503 237 844 237 844 134 238 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 - - - - - - - - - - - - 419 438 419 438 419 438 478 998 478 998 1 811 1 811 478 998 1 811 480 809 480 809 480 809 579 579 579 Fair value reserves - 128 - 129 520 798 128 722 75 509 74 029 39 340 39 340 4 177 2 561 248 546 - - - - - 44.3.8 Forborne modified loans 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 2021 and 2020, are as follows: 297 Corporate Mortgage loans Consumer and other loans Total (in thousands of Euros) 31.12.2021 31.12.2020 1 274 056 149 363 138 369 1 782 137 154 216 147 775 1 561 788 2 084 128 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 129 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Securities at fair value through other comprehensive income Portugal Maturity up to 1 year Maturity exceeding 1 year Maturity exceeding 1 year Maturity exceeding 1 year Spain Ireland Italy Maturity exceeding 1 year Securities at amortised cost Portugal Securities held for trading Portugal Maturity exceeding 1 year 44.3.8 Forborne modified loans 31.12.2020 Nominal Amount Market quotation Accrued Carrying book interest value Impairment Fair value reserves (in thousands of Euros) 2 420 973 227 455 2 193 518 1 894 750 1 514 750 193 600 193 600 129 821 49 821 2 753 428 231 102 2 522 326 2 012 871 1 630 359 236 205 236 205 133 655 51 854 27 045 1 760 25 285 26 204 25 144 1 639 1 639 583 190 2 780 473 232 862 2 547 611 2 039 075 1 655 503 237 844 237 844 134 238 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 - - - - - - - - - - - - 419 438 419 438 419 438 478 998 478 998 1 811 1 811 478 998 1 811 480 809 480 809 480 809 579 579 579 129 520 798 128 722 75 509 74 029 39 340 39 340 4 177 2 561 248 546 - - - - - 44.3.8 Forborne modified loans 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 Group proceeds to the identification and register of restructured credit contracts due to the client's financial difficul ties 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 w ill 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 cancellation of a restructured credit due to the client's financial difficulties can only occur after a minimum p eriod 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 2021 and 2020, are as follows: The amounts of the restructured loans due to financial difficulties of the customer as at 31 December 2021 and 2020, are as follows: Corporate Mortgage loans Consumer and other loans Total (in thousands of Euros) 31.12.2021 31.12.2020 1 274 056 149 363 138 369 1 782 137 154 216 147 775 1 561 788 2 084 128 The details of the restructuring measures applied to loans restructured up to 31 December 2021 and 2010 are the following: The details of the restructuring measures applied to loans restructured up to 31 December 2021 and 2010 are the following: Solution Performing 31.12.2021 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 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 37 16 36 1 334 2 111 344 83 115 4 14 027 1 043 6 796 171 823 389 486 28 207 10 598 7 103 2 020 1 886 145 359 12 731 60 177 787 460 394 228 1 218 35 408 1 014 101 19 100 444 868 85 24 45 2 286 169 163 102 454 420 79 248 123 983 428 489 55 586 19 823 8 719 1 997 7 849 195 46 515 57 630 261 517 25 331 6 050 2 891 1 694 3 986 1 974 895 277 508 263 138 35 136 1 778 2 979 429 107 160 6 1 504 7 272 183 190 1 463 86 044 295 806 817 975 83 793 30 421 15 822 4 017 43 257 104 340 340 46 874 70 361 321 694 26 118 6 510 3 285 1 922 5 000 1 561 788 586 444 - 130 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5 298 666 511 78 181 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 2 063 339 101 122 5 57 740 1 104 12 994 90 212 514 009 33 881 13 859 9 698 20 1 409 47 127 3 921 159 1 002 10 130 81 700 1 504 466 787 1 1 304 150 22 181 575 921 111 30 72 2 656 177 807 107 513 2 078 123 462 231 373 590 946 60 421 65 171 39 634 2 769 9 823 1 924 74 085 145 655 382 265 28 147 23 549 21 771 2 380 1 159 193 42 225 235 547 3 182 136 456 2 058 321 585 2 984 1 104 955 450 131 194 7 2 065 94 302 79 030 49 332 2 789 56 950 111 434 2 083 75 087 155 785 463 965 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 The movement of restructured loans throughout the years 2021 and 2020 was as follows: 298 Opening balance Restructured loans in the period Loans reclassified to "normal" Loans written off Others Total 44.3.9 Moratorium (in thousands of Euros) 31.12.2021 31.12.2020 2 084 128 272 250 ( 186 700) ( 179 239) ( 564 799) 2 729 602 402 874 ( 101 157) ( 300 821) ( 646 370) 1 425 640 2 084 128 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 moratorium Gross carrying amount Accumulated impairment, accumulated negative changes in fair value resulting from credit risk Productive Non-productive Of which: instruments with a Of which: significant increase in exposures subject to credit risk since initial restructuring measures recognition but without credit impairment (Stage 2) Of which: exposures subject to Of which: Reduced probability of Of which: payment that are not exposures subject to restructuring past due or past due restructuring measures measures for <= 90 days 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 Non-productive Of which: Reduced Of which: Reduced probability Of which: probability of payment exposures subject to of payment that has not restructuring that are not been due or measures past due or has been past due for due for a <= 90 days long time <= 90 dias Of which: exposures subject to Of which: Reduced probability of payment that Entries to non- productive exhibitions restructuring are not past measures due or past due for <= 90 days 33 662 6 748 6 725 26 897 26 233 17 875 189 169 169 20 20 0 23 122 3 944 3 928 17 683 15 582 8 508 45 756 904 904 44 852 36 278 24 437 783 520 520 264 264 0 21 491 27 561 -26 267 -1 179 -564 -25 089 -11 099 -15 508 45 756 6 6 788 788 -200 -197 -96 -93 21 485 18 198 -21 325 -1 026 18 634 6 423 -13 212 -652 -768 -44 -43 -724 -720 -513 -2 -1 -1 -1 -1 0 -87 -86 -104 -104 -426 -123 -20 299 -12 560 -192 -59 -59 -133 -133 0 -1 -1 -87 -87 -11 098 -10 735 -9 787 -3 006 125 125 215 0 21 485 26 773 -26 066 -1 081 -476 -24 985 -11 098 -15 422 44 852 (in thousands of Euros) Gross carrying amount Loans and advances subject to a moratorium of which: private 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 116 696 70 940 13 495 12 591 13 141 12 237 101 688 56 836 88 275 51 998 54 900 30 463 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 130 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The details of the restructuring measures applied to loans restructured up to 31 December 2021 and 2010 are the following: The details of the restructuring measures applied to loans restructured up to 31 December 2021 and 2010 are the following: Non Performing Performing Total Solution The details of the restructuring measures applied to loans restructured up to 31 December 2021 and 2010 are the following: Transaction Transaction No. Transaction Exposure Impairment Impairment Exposure Exposure (in thousands of Euros) Impairment Principal or interest forgiveness Assets received in partial settlement of loan Solution Capitalization of interest New loan in total or partial payment of existing loan Solution Principal or interest forgiveness Extension of repayment period Assets received in partial settlement of loan Introduction of grace period of principal or interest Capitalization of interest Principal or interest forgiveness Decrease in the interest rates New loan in total or partial payment of existing loan No. 37 16 No. 36 Transaction 1 334 No. 37 2 111 Transaction 16 344 36 37 83 1 334 (in thousands of Euros) 31.12.2021 No. 101 19 31.12.2021 169 163 Non Performing 420 31.12.2021 102 454 195 138 183 190 104 340 Total 35 (in thousands of Euros) 1 463 340 No. Transaction Transaction 444 No. 101 868 19 85 100 101 24 444 100 Exposure 79 248 Impairment 46 515 No. Transaction 136 Exposure 86 044 Impairment 46 874 Non Performing 123 983 57 630 169 163 Exposure 428 489 102 454 Impairment 261 517 No. Transaction 420 55 586 79 248 169 163 19 823 123 983 195 25 331 46 515 102 454 57 630 6 050 Total 1 778 295 806 70 361 138 35 183 190 Exposure 2 979 1 463 429 136 138 86 044 183 190 817 975 Impairment 321 694 83 793 26 118 104 340 340 46 874 104 340 70 361 1 778 107 295 806 30 421 14 027 Performing 1 043 Exposure 6 796 Performing 171 823 14 027 Exposure 389 486 1 043 28 207 6 796 14 027 10 598 171 823 1 043 7 103 389 486 6 796 2 020 28 207 171 823 35 408 10 598 389 486 7 103 28 207 2 020 10 598 35 408 7 103 666 511 115 16 2 111 36 4 344 1 334 83 2 111 115 344 4 83 1 218 115 1 218 5 298 4 5 298 1 218 2 020 666 511 35 408 5 298 Performing 666 511 1 886 145 Impairment 359 12 731 1 886 Impairment 60 177 145 787 359 1 886 460 12 731 145 394 60 177 359 228 787 12 731 1 014 460 60 177 394 787 78 181 228 460 1 014 394 228 78 181 1 014 78 181 No. Transaction Exposure Impairment 43 No. Transaction 20 43 No. 44 Transaction 1 483 20 2 063 339 101 122 44 43 1 483 20 2 063 44 339 1 483 101 2 063 5 122 339 5 101 1 409 122 1 409 5 629 Performing 57 740 Exposure Performing 1 104 57 740 12 994 Exposure 90 212 1 104 514 009 12 994 57 740 90 212 1 104 33 881 514 009 12 994 13 859 33 881 90 212 9 698 13 859 514 009 20 9 698 33 881 20 13 859 47 127 9 698 47 127 780 644 159 3 921 1 002 159 10 130 1 002 3 921 81 700 10 130 159 1 504 81 700 1 002 466 1 504 10 130 787 466 81 700 1 787 1 504 1 304 1 466 1 304 787 100 974 1 100 974 1 304 2 45 19 868 100 85 444 286 24 868 45 85 1 974 2 24 286 45 1 997 8 719 420 428 489 79 248 55 586 123 983 19 823 428 489 8 719 55 586 895 277 1 997 19 823 7 849 8 719 7 849 2 891 1 694 3 986 195 261 517 46 515 25 331 57 630 6 050 261 517 2 891 25 331 1 694 6 050 3 986 2 891 508 263 7 272 1 561 788 586 444 2 1 974 286 1 974 No. Transaction 1 997 895 277 31.12.2020 7 849 Non Performing 895 277 31.12.2020 Exposure Non Performing 1 694 508 263 3 986 508 263 6 7 272 1 504 7 272 Impairment No. Transaction Exposure Impairment Total (in thousands of Euros) 3 921 Impairment No. Transaction 150 31.12.2020 177 807 Exposure Non Performing 2 078 22 107 513 1 924 Impairment No. Transaction 193 Exposure Total 42 235 547 Impairment 3 182 Impairment 150 No. Transaction 181 22 575 Exposure 177 807 123 462 2 078 231 373 107 513 74 085 Impairment 1 924 145 655 193 No. Transaction 42 225 235 547 Exposure 136 456 Impairment 111 434 2 058 3 182 321 585 2 083 155 785 6 510 3 285 1 922 5 000 15 822 4 017 43 257 35 2 979 136 429 1 778 107 2 979 160 429 6 107 1 504 160 160 6 1 504 1 463 817 975 86 044 83 793 295 806 30 421 817 975 15 822 83 793 4 017 30 421 43 257 15 822 4 017 1 561 788 43 257 340 321 694 46 874 26 118 70 361 6 510 321 694 3 285 26 118 1 922 6 510 5 000 3 285 1 922 586 444 5 000 Total 1 561 788 (in thousands of Euros) 586 444 (in thousands of Euros) 111 434 2 083 75 087 29 651 24 015 22 558 2 381 2 463 1 104 955 463 965 2 984 225 193 2 058 42 2 984 225 450 2 058 131 2 984 194 450 7 131 2 065 194 450 131 194 136 456 235 547 321 585 3 182 1 104 955 136 456 94 302 321 585 79 030 1 104 955 7 49 332 94 302 2 789 79 030 56 950 49 332 2 065 8 349 94 302 79 030 49 332 2 789 56 950 75 087 111 434 155 785 2 083 463 965 75 087 29 651 155 785 24 015 463 965 22 558 29 651 2 381 24 015 2 463 22 558 30 72 181 150 921 575 22 111 921 181 111 575 30 921 72 111 656 2 30 656 72 2 720 2 2 720 656 2 65 171 60 421 39 634 123 462 177 807 590 946 231 373 2 078 590 946 123 462 60 421 231 373 65 171 590 946 39 634 60 421 2 769 65 171 9 823 39 634 1 303 484 2 769 1 303 484 9 823 9 823 2 769 382 265 74 085 107 513 145 655 1 924 382 265 74 085 28 147 145 655 23 549 382 265 21 771 28 147 2 380 23 549 1 159 21 771 28 147 23 549 21 771 2 380 1 159 788 448 Changes of the lease payment plan Changes in the interest paymen Assets received in partial settlement of loan Extension of repayment period Capitalization of interest Introduction of grace period of principal or interest New loan in total or partial payment of existing loan Decrease in the interest rates Extension of repayment period Changes of the lease payment plan Introduction of grace period of principal or interest Changes in the interest paymen Decrease in the interest rates Other Changes of the lease payment plan Other Total Changes in the interest paymen Total Other Total Solution Solution Principal or interest forgiveness Assets received in partial settlement of loan Solution Capitalization of interest Principal or interest forgiveness New loan in total or partial payment of existing loan Assets received in partial settlement of loan Decrease in the interest rates Extension of repayment period Introduction of grace period of principal or interest Capitalization of interest Principal or interest forgiveness New loan in total or partial payment of existing loan Assets received in partial settlement of loan Extension of repayment period Capitalization of interest Introduction of grace period of principal or interest New loan in total or partial payment of existing loan Decrease in the interest rates Extension of repayment period Changes of the lease payment plan Introduction of grace period of principal or interest Changes in the interest paymen Decrease in the interest rates Other Changes of the lease payment plan Changes of the lease payment plan Changes in the interest paymen Other Total Changes in the interest paymen Total Other 5 5 629 1 409 20 780 644 47 127 2 380 788 448 1 159 7 8 349 2 065 2 789 2 084 128 56 950 2 381 889 422 2 463 2 084 128 889 422 The movement of restructured loans throughout the years 2021 and 2020 was as follows: Total The movement of restructured loans throughout the years 2021 and 2020 was as follows: 1 303 484 780 644 100 974 2 720 5 629 788 448 The movement of restructured loans throughout the years 2021 and 2020 was as follows: The movement of restructured loans throughout the years 2021 and 2020 was as follows: Opening balance Opening balance Restructured loans in the period Restructured loans in the period Opening balance Loans reclassified to "normal" Loans reclassified to "normal" Restructured loans in the period Loans written off Loans written off Loans reclassified to "normal" Others Others Loans written off Total Others Total Total 44.3.9 Moratorium 44.3.9 Moratorium 31.12.2021 31.12.2021 31.12.2021 8 349 2 084 128 889 422 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 31.12.2020 (in thousands of Euros) 2 729 602 402 874 2 729 602 ( 101 157) 402 874 ( 300 821) ( 101 157) ( 646 370) ( 300 821) 2 084 128 ( 646 370) 2 084 128 272 250 ( 186 700) ( 179 239) ( 564 799) 2 084 128 272 250 2 084 128 ( 186 700) 272 250 ( 179 239) ( 186 700) ( 564 799) ( 179 239) 1 425 640 ( 428 651) 1 425 640 2 729 602 402 874 ( 101 157) ( 300 821) ( 646 370) 2 084 128 1 561 788 2 084 128 44.3.9 Moratorium Following the recommendations of the European Banking Authority and according with Instruction no. 19/2020 on the reporting and 44.3.9 Moratorium 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), 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 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: 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: 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 moratorium 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 moratorium 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 Information on loans and advances subject to legislative and non-legislative moratorium Information on loans and advances subject to legislative and non-legislative moratorium Gross carrying amount Accumulated impairment, accumulated negative changes in fair value resulting from credit risk (in thousands of Euros) Gross carrying amount (in thousands of Euros) (in thousands of Euros) Productive Non-productive Non-productive Gross carrying amount Gross carrying amount Productive Productive Of which: exposures subject to restructuring measures Of which: instruments with a significant increase in credit risk since initial recognition but Of which: without credit instruments with a impairment (Stage 2) significant increase in credit risk since initial recognition but without credit impairment (Stage 2) 189 169 Of which: exposures subject to restructuring measures 70 940 Of which: instruments with a Of which: significant increase in exposures subject to credit risk since initial restructuring measures 33 662 recognition but without credit 6 748 impairment (Stage 2) Of which: exposures subject to restructuring measures Of which: exposures subject to restructuring measures Of which: exposures subject to restructuring measures Of which: Non-productive Non-productive Reduced probability of payment that are not past due or past due for <= 90 days Of which: Of which: Reduced probability of Reduced probability of payment that are not payment that are not past due or past due 783 past due or past due for <= 90 days for <= 90 days 45 756 904 520 23 122 3 944 Loans and advances subject to a moratorium 116 696 of which: private 13 495 12 591 of which: secured by Loans and advances subject to residential properties Loans and advances subject to a moratorium of which: non-financial a moratorium corporations of which: private 116 696 of which: private of which: secured by residential properties of which: non-financial corporations of which: small and medium- 13 495 of which: secured by sized enterprises residential properties of which: secured by of which: non-financial commercial real estate corporations 13 141 101 688 of which: small and medium- sized enterprises of which: secured by commercial real estate 88 275 of which: small and medium- sized enterprises of which: secured by commercial real estate 13 141 116 696 70 940 101 688 13 495 12 591 88 275 13 141 12 237 54 900 101 688 56 836 88 275 51 998 54 900 12 237 70 940 56 836 12 591 51 998 12 237 30 463 56 836 51 998 30 463 6 725 33 662 26 897 6 748 26 233 6 725 17 875 26 897 26 233 17 875 33 662 6 748 6 725 26 897 26 233 17 875 169 189 20 169 20 169 0 20 20 0 189 169 169 20 20 0 3 928 23 122 23 122 17 683 3 944 3 944 15 582 3 928 3 928 8 508 17 683 17 683 15 582 904 45 756 45 756 44 852 904 904 36 278 904 904 24 437 44 852 44 852 36 278 15 582 8 508 36 278 24 437 8 508 24 437 520 783 783 264 520 520 264 520 520 0 264 264 264 264 0 0 54 900 30 463 Of which: Reduced probability of payment that are not past Of which: Of which: due or past Reduced Reduced due for <= 90 probability of probability of days payment that payment that are not past are not past 27 561 due or past due or past due for <= 90 due for <= 90 788 days days -26 267 -200 Of which: exposures subject to restructurin g measures Of which: Of which: exposures exposures subject to subject to restructurin -1 179 restructurin g measures g measures -96 Accumulated impairment, accumulated negative changes in fair value resulting from credit risk Of which: exposures subject to restructuring measures Of which: Accumulated impairment, accumulated negative changes in fair value resulting from credit risk instruments with a significant increase in Of which: credit risk instruments since initial with a recognition significant but without increase in credit credit risk -768 since initial recognition -44 but without credit Of which: Reduced probability Non-productive of payment that has not Of which: been due or Of which: Reduced has been Reduced probability due for a of payment probability long time <= that has not of payment 90 dias been due or that are not -192 has been past due or due for a past due for -59 long time <= <= 90 days 90 dias Of which: Reduced probability Non-productive of payment that are not Of which: past due or Reduced past due for probability <= 90 days of payment that are not -25 089 past due or past due for -104 <= 90 days Of which: exposures Of which: subject to Reduced restructuring measures probability Of which: of payment exposures that has not subject to been due or restructuring -11 099 has been measures due for a long time <= 90 dias Of which: exposures subject to restructuring -564 measures Of which: instruments with a significant increase in credit risk since initial recognition but without credit -43 -768 Of which: exposures subject to restructuring measures Of which: Reduced probability of payment that are not past Of which: due or past due Reduced Of which: for <= 90 days probability of exposures payment that subject to are not past -15 508 restructuring due or past due measures for <= 90 days -87 -93 -1 179 -86 -564 -59 -192 -1 -2 -87 -2 -1 -1 Gross carrying amount Entries to non- productive exhibitions Of which: Entries to Reduced non- probability of productive payment that exhibitions 45 756 are not past due or past due for <= 90 days 125 788 27 561 27 561 26 773 788 788 18 198 788 788 6 423 26 773 -197 -26 267 -26 267 -26 066 -200 -200 -21 325 -197 -13 212 -26 066 -197 -1 179 -1 081 -96 -1 026 -93 -652 -1 081 -96 -93 26 773 18 198 -26 066 -21 325 -1 081 -1 026 18 198 6 423 -21 325 -13 212 -1 026 -652 6 423 -13 212 -652 -724 -44 -720 -43 -513 -724 -720 -513 -768 -44 -43 -724 -720 -513 -1 -1 -1 -1 0 -1 -1 0 -2 -1 -1 -1 -1 0 -476 -87 -426 -86 -123 -476 -426 -123 -104 -25 089 -564 -24 985 -104 -87 -20 299 -104 -86 -12 560 -24 985 -476 -20 299 -25 089 -133 -59 -104 -133 -59 -104 0 -133 -24 985 -133 -1 -11 099 -192 -11 098 -1 -59 -11 098 -1 -59 -9 787 -11 098 -133 -11 098 -87 -15 508 -11 099 -15 422 -87 -1 -10 735 -87 -1 -3 006 -15 422 -11 098 -10 735 -426 -12 560 -20 299 0 -133 -9 787 -11 098 -3 006 -123 -12 560 0 -9 787 125 45 756 -15 508 44 852 125 -87 215 125 -87 0 44 852 -15 422 215 -10 735 0 -3 006 45 756 125 125 44 852 215 0 Gross carrying amount Entries to non- productive exhibitions Of which: exposures subject to restructuring measures Of which: Of which: exposures subject to exposures subject to restructuring measures restructuring measures 21 491 6 6 21 491 21 491 21 485 6 6 21 485 6 6 18 634 21 485 21 485 21 485 21 485 18 634 18 634 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 130 - - 131 - - 130 - 299 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual term of the moratorium Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual term of the moratorium Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual term of the moratorium (in thousands of Euros) Gross carrying amount (in thousands of Euros) Number of debtors Number of debtors Loans and advances that have been offered a moratorium Loans and advances that have been offered a moratorium Loans and advances subject to a moratorium (applied) Loans and advances subject to a moratorium (applied) 40 222 40 222 40 222 40 222 of which: households of which: households of which: secured by residential properties of which: secured by residential properties 6 853 599 6 853 599 6 853 599 6 853 599 2 158 877 2 158 877 1 972 552 1 972 552 of which: non-financial corporations of which: non-financial corporations of which: small and medium-sized enterprises of which: secured by commercial real estate of which: small and medium-sized enterprises 4 672 019 4 672 019 3 170 522 3 170 522 1 438 534 of which: secured by commercial real estate 1 438 534 Of which: legislative Of which: legislative moratoriums moratoriums 5 537 108 5 537 108 1 498 128 1 498 128 1 459 404 1 459 404 4 016 297 4 016 297 2 665 001 2 665 001 1 420 647 1 420 647 Gross carrying amount Residual deadline for default Of which: expired Of which: expired Residual deadline for default <= 3 months <= 3 months > 3 months <= 6 months > 6 months <= 9 months > 6 months <= 9 months > 9 months <= 12 months > 3 months <= 6 months > 9 months <= 12 months > 1 year > 1 year > 1 year > 1 year 112 708 6 736 902 112 708 6 736 902 82 572 13 495 2 145 382 13 495 2 145 382 13 495 13 141 1 959 411 13 141 1 959 411 13 141 82 572 8 617 13 495 13 141 0 0 97 700 4 570 331 97 700 4 570 331 84 787 3 082 247 84 787 3 082 247 54 900 1 383 634 67 564 55 160 37 999 67 564 8 617 8 617 55 160 0 54 900 1 383 634 37 999 8 617 20 695 0 0 0 0 20 695 8 617 8 617 20 695 16 901 0 20 695 707 0 0 0 0 707 20 695 707 20 695 0 16 901 4 105 0 0 4 105 3 097 0 707 4 105 0 0 707 707 0 0 0 4 105 3 097 0 Information on new loans and advances granted under new public guarantee systems 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- 19 crisis Information on new loans and advances granted under new public guarantee systems introduced in response to the COVID- 19 crisis (in thousands of Euros) Gross carrying amount Accumulated impairment, accumulated negative fair value changes resulting from credit risk Productive Non Productive Productive Non Productive Maximum amount of collateral that can be taken into account Gross carrying amount Accumulated impairment, accumulated negative fair value changes resulting from credit risk of which: restructured Productive of which: instruments with significant increase in credit risk since initial recognition but no credit impairment (Stage 2) of which: restructured Non Productive of which: reduced probability of payment that are not due or are past due <= 90 days of which: restructured of which: instruments with significant increase in credit risk since initial recognition but no credit impairment (Stage 2) Productive of which: restructured of which: reduced probability of payment that are not Non Productive due or are past due <= 90 days Public guarantees received Gross carrying amount Maximum amount of Inflows for collateral new that can be financing taken into account Entries for non- productive exhibits New loans and advances subject to public guarantee systems of which: households 1 207 910 1 196 511 of which: restructured 0 0 of which: secured by residential properties 0 0 of which: instruments with 0 significant increase in credit risk since initial recognition but no credit impairment (Stage 2) 279 428 11 400 of which: restructured 0 0 of which: 100 reduced probability of payment that are not due or are past due <= 90 days 8 818 -8 897 -6 322 0 0 0 0 0 of which: restructured of which: instruments with -5 008 -2 575 significant increase in credit risk since initial recognition but no credit impairment (Stage 2) 0 0 -5 -2 072 of which: restructured of which: 997 305 reduced probability of payment that are not due or are past due <= 90 days 11 400 Public 0 guarantees received 0 0 (in thousands of Euros) Gross carrying amount Entries for non- productive exhibits Inflows for new financing New loans and advances subject to public guarantee systems of which: non-financial corporations 1 207 910 1 196 511 1 206 081 0 1 194 682 279 428 0 279 428 11 400 11 400 100 100 8 818 8 818 -8 897 -8 896 -6 321 -6 322 0 0 -5 008 -5 008 -2 575 -2 575 -5 -5 -2 072 995 792 -2 072 11 400 997 305 0 11 400 of which: households of which: small and medium-sized enterprises 0 of which: secured by residential properties of which: secured by commercial real estate 0 1 009 028 0 1 003 648 2 018 0 2 018 5 380 0 0 0 -6 280 -28 0 0 -4 685 -28 0 0 -1 595 0 0 0 5 380 0 0 0 of which: non-financial corporations 1 206 081 1 194 682 0 279 428 11 400 100 8 818 -8 896 -6 321 0 -5 008 -2 575 -5 -2 072 995 792 11 400 0 0 of which: small and medium-sized enterprises 44.4 Market risk 1 009 028 1 003 648 of which: secured by commercial real estate 2 018 2 018 5 380 0 -6 280 -4 685 -28 -28 -1 595 0 5 380 0 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. 44.4 Market risk 44.4 Market risk 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. 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 represents the potential loss resulting from an adverse change in the value of a financial instrument due to fluctuations The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which the Value at in interest rates, foreign exchange rates, equity prices, commodity prices, volatility and credit spread. Risk (VaR) methodology is used. novobanco 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 Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and Liability 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. 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. novobanco 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. 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. 300 December 31.12.2021 31.12.2020 (in thousands of Euros) 757 14 433 6 215 70 332 2 494 31 454 826 10 628 1 983 24 522 2 187 35 495 915 14 433 Exchange risk Interest rate risk Annual average Maximum Minimum Annual average Maximum Minimum December 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. novobanco 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 3 451 41 240 higher than those considered by the VaR measurement. Shares and commodities Volatility Credit spread Diversification effect Total 3 0 719 ( 4 314) 30 356 33 66 1 329 ( 3 014) 225 422 4 146 ( 7 004) 0 0 579 1 388 183 37 2 652 ( 2 411) 192 139 5 051 ( 5 289) 378 523 12 960 ( 14 596) 80 37 1 640 ( 1 138) 24 919 31.12.2021 42 480 13 421 15 809 37 775 75 812 31.12.2020 15 809 (in thousands of Euros) Exchange risk Interest rate risk Volatility novobanco Group has a VaR of Euro 30,356 thousand (31 December 2020: Euro 15,809 thousand) in respect of its trading positions. The decrease is mainly explained by the decrease in the position in derivatives to hedge interest rate risk in the banking portfolio. December Annual average Maximum Minimum December Annual average Maximum Minimum 2 494 31 454 3 0 1 983 24 522 33 66 3 451 41 240 225 422 826 10 628 0 0 915 14 433 183 37 2 187 35 495 192 139 6 215 70 332 378 523 Shares and commodities 44.4.1. Interest Rate Risk Credit spread In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, novobanco 12 960 1 329 4 146 2 652 5 051 719 579 Diversification effect Group calculates the exposure to its balance sheet interest rate risk based on the prescribed shocks, classifying all notional amounts ( 5 289) ( 14 596) ( 4 314) ( 3 014) ( 7 004) ( 2 411) 1 388 of assets, liabilities and off-balance sheet captions which are sensitive to interest rate and are not part of the trading portfolio, by re- Total pricing intervals. 30 356 24 919 42 480 13 421 15 809 37 775 75 812 15 809 757 14 433 80 37 1 640 ( 1 138) novobanco Group has a VaR of Euro 30,356 thousand (31 December 2020: Euro 15,809 thousand) in respect of its trading positions. The decrease is mainly explained by the decrease in the position in derivatives to hedge interest rate risk in the banking portfolio. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 131 - 44.4.1. Interest Rate Risk In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, novobanco 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, by re- pricing intervals. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 131 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual term of the moratorium Gross carrying amount (in thousands of Euros) Number of debtors Of which: legislative moratoriums Of which: expired Residual deadline for default <= 3 months > 3 months > 6 months > 9 months <= 6 months <= 9 months <= 12 months > 1 year > 1 year 6 853 599 6 853 599 2 158 877 1 972 552 4 672 019 3 170 522 1 438 534 5 537 108 1 498 128 1 459 404 4 016 297 2 665 001 1 420 647 112 708 6 736 902 13 495 2 145 382 13 141 1 959 411 97 700 4 570 331 84 787 3 082 247 54 900 1 383 634 82 572 13 495 13 141 67 564 55 160 37 999 8 617 20 695 707 4 105 0 0 0 8 617 8 617 0 0 20 695 20 695 16 901 0 0 707 707 0 0 0 0 4 105 3 097 Loans and advances that have been offered a moratorium Loans and advances subject to a moratorium (applied) 40 222 40 222 of which: households 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 19 crisis Information on new loans and advances granted under new public guarantee systems introduced in response to the COVID- Gross carrying amount Accumulated impairment, accumulated negative fair value changes resulting from credit risk Productive Non Productive Productive Non Productive of which: restructured of which: instruments with significant increase in credit risk since initial recognition but no credit impairment (Stage 2) of which: restructured of which: reduced probability of payment that are not due or are past due <= 90 days of which: restructured of which: instruments with significant increase in credit risk since initial recognition but no credit impairment (Stage 2) of which: restructured of which: reduced probability of payment that are not due or are past due <= 90 days Public guarantees received Entries for non- productive exhibits 1 207 910 1 196 511 279 428 11 400 100 8 818 -8 897 -6 322 -5 008 -2 575 -5 -2 072 997 305 11 400 New loans and advances subject to public guarantee systems of which: households of which: secured by residential properties 0 0 0 0 0 0 of which: small and medium-sized 1 009 028 1 003 648 5 380 enterprises estate of which: secured by commercial real 2 018 2 018 0 0 0 0 0 0 0 0 0 -6 280 -4 685 -28 -28 0 0 0 -1 595 of which: non-financial corporations 1 206 081 1 194 682 279 428 11 400 100 8 818 -8 896 -6 321 -5 008 -2 575 -5 -2 072 995 792 11 400 (in thousands of Euros) Maximum amount of collateral that can be taken into account Gross carrying amount Inflows for new financing 0 0 0 0 0 5 380 44.4 Market risk 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. novobanco 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 31.12.2021 31.12.2020 2 494 31 454 3 0 719 ( 4 314) 30 356 1 983 24 522 33 66 1 329 ( 3 014) 3 451 41 240 225 422 4 146 ( 7 004) 826 10 628 0 0 579 1 388 915 14 433 183 37 2 652 ( 2 411) 2 187 35 495 192 139 5 051 ( 5 289) 6 215 70 332 378 523 12 960 ( 14 596) 757 14 433 80 37 1 640 ( 1 138) 24 919 42 480 13 421 15 809 37 775 75 812 15 809 (in thousands of Euros) novobanco Group has a VaR of Euro 30,356 thousand (31 December 2020: Euro 15,809 thousand) in respect of its trading positions. The decrease is mainly explained by the decrease in the position in derivatives to hedge interest rate risk in the banking portfolio. novobanco Group has a VaR of Euro 30,356 thousand (31 December 2020: Euro 15,809 thousand) in respect of its trading positions. The decrease is mainly explained by the decrease in the position in derivatives to hedge interest rate risk in the banking portfolio. 44.4.1. Interest Rate Risk 44.4.1. Interest Rate Risk In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, novobanco 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, by re- pricing intervals. In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, novobanco 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, by re-pricing intervals. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Eligible amounts 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 Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Accumulated GAP 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) Total Total Total Total 5 881 890 23 967 409 9 090 420 399 920 10 741 465 27 944 598 2 583 780 259 815 (2 190 020) ( 4 829) (2 194 849) 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) 31.12.2021 3 to 6 months 6 months to 1 year 1 to 5 years More than 5 years - 131 - (in thousands of Euros) - 3 581 185 770 417 - 10 967 3 966 777 467 755 - 32 521 6 660 611 3 432 181 - 14 1 502 098 3 079 912 - Up to 3 months 5 838 388 8 256 738 1 340 156 399 920 5 675 517 16 740 547 4 234 118 992 4 697 002 2 331 540 6 476 29 086 78 751 3 941 600 293 808 55 459 130 3 676 897 698 276 56 278 290 066 1 254 015 1 580 987 - (6 704 088) 2 875 288 (3 828 800) (3 828 800) (2 712 502) 814 390 (1 898 112) (5 726 911) 75 881 ( 99 670) ( 23 789) (5 750 700) 5 693 733 (1 313 965) 4 379 769 (1 370 931) 1 456 955 (2 280 873) ( 823 918) (2 194 849) 31.12.2020 3 to 6 months 6 months to 1 year 1 to 5 years More than 5 years (in thousands of Euros) 4 150 3 709 340 335 434 598 312 4 647 236 3 959 431 2 729 378 875 25 600 6 715 284 (2 068 048) 1 548 714 ( 519 334) (4 641 753) 12 088 3 159 080 702 515 - 3 873 683 350 779 4 455 507 1 784 48 199 4 856 269 ( 982 586) ( 121 465) (1 104 051) (5 745 805) 39 456 6 930 509 4 045 230 - 11 015 195 214 911 6 312 032 - 49 721 6 576 664 4 438 532 (1 807 383) 2 631 150 (3 114 655) - 2 651 443 3 169 748 - 5 821 191 225 089 40 035 2 538 386 1 2 803 511 3 017 680 (2 190 279) 827 401 (2 287 254) 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 20 501 166 (6 710 010) 2 587 591 (4 122 419) (4 122 419) 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 31.12.2021 (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 95 122 24 364 95 122 ( 6 001) ( 11 629) 22 301 37 393 ( 11 629) ( 65 505) ( 68 842) ( 65 229) ( 73 380) 64 401 66 386 73 334 62 405 100 431 ( 159 934) 62 974 100 431 ( 99 945) ( 65 726) 44 158 ( 159 934) 31.12.2020 (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 ( 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 132 - 301 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Loans to and deposits with banks Loans and advances to customers Securities Other assets 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 Deposits from banks Due to customers Debt securities issued Balance sheet GAP (Assets - Liabilities) Other liabilities Off-Balance sheet Structural GAP Accumulated GAP Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Accumulated GAP Total Total Total Total Eligible amounts 5 881 890 Eligible 23 967 409 amounts 9 090 420 399 920 5 881 890 23 967 409 9 090 420 399 920 10 741 465 27 944 598 2 583 780 259 815 10 741 465 27 944 598 2 583 780 (2 190 020) 259 815 ( 4 829) (2 194 849) (2 190 020) ( 4 829) (2 194 849) Eligible amounts Up to 3 months 5 838 388 Up to 3 8 256 738 months 1 340 156 399 920 5 838 388 8 256 738 1 340 156 399 920 5 675 517 16 740 547 4 234 118 992 5 675 517 16 740 547 4 234 (6 704 088) 118 992 2 875 288 (3 828 800) (3 828 800) (6 704 088) 2 875 288 (3 828 800) (3 828 800) Up to 3 months (in thousands of Euros) 3 to 6 months 6 months to 1 year 1 to 5 years More than 5 (in thousands of Euros) years 10 967 6 months to 3 966 777 1 year 467 755 32 521 6 660 611 1 to 5 years 3 432 181 14 More than 5 1 502 098 years 3 079 912 31.12.2021 31.12.2021 - 3 to 6 3 581 185 months 770 417 - - 3 581 185 770 417 4 697 002 - 2 331 540 6 476 10 967 - 3 966 777 467 755 78 751 - 3 941 600 293 808 32 521 - 6 660 611 3 432 181 130 - 3 676 897 698 276 14 - 1 502 098 3 079 912 290 066 - 1 254 015 1 580 987 56 278 130 3 676 897 698 276 5 693 733 56 278 (1 313 965) 4 379 769 (1 370 931) 5 693 733 (1 313 965) 4 379 769 (1 370 931) - 290 066 1 254 015 1 580 987 1 456 955 - (2 280 873) ( 823 918) (2 194 849) 1 456 955 (2 280 873) ( 823 918) (in thousands of Euros) (2 194 849) 29 086 4 697 002 2 331 540 6 476 (2 712 502) 29 086 814 390 (1 898 112) (5 726 911) (2 712 502) 814 390 (1 898 112) (5 726 911) 55 459 78 751 3 941 600 293 808 75 881 55 459 ( 99 670) ( 23 789) (5 750 700) 75 881 ( 99 670) ( 23 789) (5 750 700) 31.12.2020 31.12.2020 3 to 6 months 6 months to 1 year 1 to 5 years More than 5 (in thousands of Euros) years 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 Deposits from banks Other assets Due to customers Debt securities issued Deposits from banks Other liabilities Due to customers Debt securities issued Balance sheet GAP (Assets - Liabilities) Other liabilities Off-Balance sheet Structural GAP Accumulated GAP Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Accumulated GAP - More than 5 2 651 443 years 3 169 748 - - 5 821 191 2 651 443 3 169 748 225 089 - 40 035 5 821 191 2 538 386 225 089 1 2 803 511 40 035 2 538 386 3 017 680 1 (2 190 279) 2 803 511 827 401 (2 287 254) 3 017 680 (2 190 279) 827 401 Sensitivity analyzes are carried out for the interest rate risk of the banking portfolio based on the current difference in t he interest rate (2 287 254) 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), Sensitivity analyzes are carried out for the interest rate risk of the banking portfolio based on the current difference in t he interest rate 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 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. 12 088 6 months to 1 3 159 080 year 702 515 12 088 - 3 873 683 3 159 080 702 515 350 779 - 4 455 507 3 873 683 1 784 350 779 48 199 4 856 269 4 455 507 1 784 ( 982 586) 48 199 ( 121 465) 4 856 269 (1 104 051) (5 745 805) ( 982 586) ( 121 465) (1 104 051) (5 745 805) 4 150 3 709 340 3 to 6 months 335 434 4 150 598 312 4 647 236 3 709 340 335 434 3 959 431 598 312 2 729 378 4 647 236 875 3 959 431 25 600 6 715 284 2 729 378 875 (2 068 048) 25 600 1 548 714 6 715 284 ( 519 334) (4 641 753) (2 068 048) 1 548 714 ( 519 334) (4 641 753) 39 456 6 930 509 1 to 5 years 4 045 230 39 456 - 11 015 195 6 930 509 4 045 230 214 911 - 6 312 032 11 015 195 - 214 911 49 721 6 576 664 6 312 032 - 4 438 532 49 721 (1 807 383) 6 576 664 2 631 150 (3 114 655) 4 438 532 (1 807 383) 2 631 150 (3 114 655) 2 706 153 Up to 3 9 063 624 months 1 365 092 2 706 153 656 287 13 791 156 9 063 624 1 365 092 5 328 425 656 287 15 019 258 13 791 156 38 502 5 328 425 114 981 20 501 166 15 019 258 38 502 (6 710 010) 114 981 2 587 591 20 501 166 (4 122 419) (4 122 419) (6 710 010) 2 587 591 (4 122 419) (4 122 419) 2 761 847 Eligible 25 513 997 amounts 9 618 019 2 761 847 1 254 599 25 513 997 9 618 019 10 078 636 1 254 599 28 556 210 2 579 547 10 078 636 238 502 28 556 210 2 579 547 (2 304 432) 238 502 17 178 (2 287 254) (2 304 432) 17 178 (2 287 254) (in thousands of Euros) Total Total 31.12.2021 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 As at 31 December Exercise minimum Exercise average Exercise maximum Exercise minimum 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 95 122 increase of 24 364 200 pb 95 122 95 122 ( 6 001) 24 364 95 122 ( 6 001) Parallel increase of 200 pb Parallel ( 71 576) increase of 109 070 200 pb 216 808 ( 71 576) ( 71 576) 109 070 216 808 ( 71 576) Parallel decrease of 200 pb Parallel ( 11 629) decrease of 22 301 200 pb 37 393 ( 11 629) ( 11 629) 22 301 37 393 ( 11 629) Parallel decrease of 200 pb Parallel 52 191 decrease of ( 13 786) 200 pb 52 191 52 191 ( 57 778) ( 13 786) 52 191 ( 57 778) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Short Rate Shock Up Short Rate Shock Down 31.12.2021 Steepener shock (in thousands of Euros) Flattener shock ( 65 505) Short Rate ( 68 842) Shock Up ( 65 229) ( 65 505) ( 73 380) ( 68 842) ( 65 229) ( 73 380) 64 401 Short Rate 66 386 Shock Down 73 334 64 401 62 405 66 386 73 334 62 405 31.12.2020 100 431 ( 159 934) Steepener Flattener 62 974 ( 99 945) shock shock 100 431 ( 65 726) 100 431 ( 159 934) 44 158 ( 159 934) 62 974 ( 99 945) ( 65 726) 100 431 (in thousands of Euros) ( 159 934) 44 158 Short Rate Shock Up Short Rate Shock Down 31.12.2020 Steepener shock (in thousands of Euros) Flattener shock ( 87 671) Short Rate 109 047 Shock Up 235 284 ( 87 671) ( 87 671) 109 047 235 284 ( 87 671) 49 728 Short Rate ( 16 353) Shock Down 49 728 49 728 ( 85 746) ( 16 353) 49 728 ( 85 746) 13 859 Steepener ( 83 437) shock 13 859 13 859 ( 180 041) ( 83 437) 13 859 ( 180 041) 8 430 Flattener 106 919 shock 182 690 8 430 8 430 106 919 182 690 8 430 - 133 - - 133 - 302 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 44.4.2 IBOR Reform 44.4.2 IBOR Reform As part of the implementation of the Commission Regulation (EU) 2021/25 of 13 January 2021 - Reform of reference interest rates, which led to the transition from EONIA to € STR, during 2020, the Group changed the discount curve of its positions in derivative financial instruments cleared with central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD SOFR. With regard to bilateral derivatives, during 2021 the Group renegotiated several CSA agreements to change to risk free rate curves, and in cases where no agreement was reached the curves were changed to EUR EURSTR + 8.5 basis points. According to the implementation principle of the referred regulation, of not occurring substantial changes to the original objective of risk management or discontinuation of the hedging relationships, the Group did not record relevant impacts on the retrospective and prospecti ve effectiveness, taking into account that all assets and liabilities involved in the hedging relationships were su bject to the same change (hedged and hedging items). Regarding other financial instruments, taking into consideration the reduced exposure of the Group to instruments in foreign currency, there were no relevant impacts. hedging relationships, the Group did not record relevant impacts on the retrospective and prospective effectiveness, taking into account that all assets and liabilities involved in the hedging relationships were subject to the same change (hedged and hedging items). Regarding other financial instruments, taking into consideration the reduced exposure of the Group to instruments in foreign currency, there were no relevant impacts. The following table presents the average interest rates for the Group’s major financial asset and liability categories, as at 31 December 2021 and 2020, as well as the respective average balances and interest for the exercise: As part of the implementation of the Commission Regulation (EU) 2021/25 of 13 January 2021 - Reform of reference interest rates, which led to the transition from EONIA to € STR, during 2020, the Group changed the discount curve of its positions in derivative financial instruments cleared with central counterparty (CCP) from EUR OIS to EUR € STR and from USD OIS to USD SOFR. With regard to bilateral derivatives, during 2021 the Group renegotiated several CSA agreements to change to risk free rate curves, and in cases where no agreement was reached the curves were changed to EUR EURSTR + 8.5 basis points. According to the implementation principle of the referred regulation, of not occurring substantial changes to the original objective of risk management or discontinuation of the The following table presents the average interest rates for the Group’s major financial asset and liability categories, as at 31 December 2021 and 2020, as well as the respective average balances and interest for the exercise: 31.12.2021 31.12.2020 Average balance of the period Interest of the exercise Average interest rate Average balance of the period Interest of the exercise Average interest rate (in thousands of Euros) Monetary assets Loans and advances to customers Securities and other 4 601 590 24 994 703 10 241 464 2 148 506 745 132 769 Financial assets and differentials 39 837 757 641 662 Monetary Liabilities Due to customers Differential liabilities 10 496 796 26 580 488 1 690 086 ( 68 036) 51 328 14 076 Financial liabilities and differentials 39 837 757 68 268 Net interest income 573 394 0.05% 2.00% 1.28% 1.59% -0.64% 0.19% 0.00% 0.17% 1.42% 2 993 238 24 939 140 10 664 515 16 361 534 229 136 602 38 596 893 687 192 9 913 212 25 787 192 1 815 289 ( 23 410) 71 688 10 128 38 596 893 132 058 555 134 0.54% 2.11% 1.26% 1.76% -0.23% 0.27% 0.00% 0.34% 1.42% 44.4.3 Foreign Exchange Risk Regarding foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December 2021 and 2020, is analysed as follows: 303 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 134 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 44.4.3 Foreign Exchange Risk Regarding foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December 2021 and 2020, is analysed as follows: 31.12.2021 Spot Forward Other elements Net exposure Spot Forward Other elements Net exposure (in thousands of Euros) 31.12.2020 USD UNITED STATES DOLLAR ( 176 696) 169 546 ( 15) ( 7 165) ( 754 078) 780 879 99 26 900 ( 66 761) 69 964 ( 2 067) GBP GREAT BRITISH POUND ( 42 582) 47 842 BRL BRAZILIAN REAL MOP MACAO PATACA 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 783 2 261 - - ( 1 340) 2 310 ( 13 138) 16 281 19 782 54 399 ( 17 728) 1 129 10 257 2 ( 19 077) ( 54 035) 21 502 ( 1 207) ( 9 990) - PLN POLISH ZLOTY 36 100 ( 35 643) MAD MOROCCAN DIRHAN ( 2 996) 2 936 MXN MEXICAN PESO AOA ANGOLAN KWANZA CVE CAPE VERDEAN ESCUDO HKD HONG-KONG DOLLAR ( 13) ( 1) ( 146) ( 1 916) 9 - - 2 434 CZK CZECH KORUNA 16 208 ( 17 041) DZD ALGERIAN DINAR 5 507 - CNY YUAN REN-MIN-BI 51 352 ( 50 975) OTHER ( 7 802) 6 785 - - - - - - - - - - - - - - - - - - - - - 5 260 783 2 261 970 3 143 705 364 3 774 ( 78) 267 2 457 ( 60) ( 4) ( 1) ( 146) 518 ( 833) 5 507 377 73 444 ( 72 362) 2 127 ( 133) ( 8 540) 19 612 46 751 ( 621) ( 35) 5 053 1 - - 10 903 ( 19 334) ( 46 086) 3 518 ( 230) ( 4 615) - 28 281 ( 29 125) ( 3 081) ( 197) 8 781 ( 81) ( 1 545) 9 573 4 447 9 427 2 984 373 - - 1 766 ( 9 979) - ( 9 487) - - 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) ( 1 017) ( 16 072) ( 11 306) Note: assets / (liabilities) ( 66 578) 81 677 ( 15) 15 084 ( 643 647) 667 863 99 24 315 44.5 Liquidity Risk 44.5 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. 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. 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 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; As at 31 December 2021, the value of the asset portfolio eligible as collateral for rediscounting operations with the ECB, after haircuts, amounted to Euro 16.5 billion (31 December 2020: Euro 16.7 billion). This amount includes all the exposure to Portuguese sovereign debt, in the total amount of approximately Euro 2.5 billion (31 December 2020: Euro 2.5 billion). • 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. During 2021, gross financing from the ECB increased by Euro 974 million to a total of Euro 8.0 billion (2020: increase in the amount of Euro 910 million for a total of Euro 7.0 billion). • 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. As at 31 December 2021, the value of the asset portfolio eligible as collateral for rediscounting operations with the ECB, af ter haircuts, amounted to Euro 16.5 billion (31 December 2020: Euro 16.7 billion). This amount includes all the exposure to Portuguese sovereign debt, in the total amount of approximately Euro 2.5 billion (31 December 2020: Euro 2.5 billion). The liquidity of novobanco 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 2021 and 2020, the calculation of the liquid contractual deficit and the counterbalancing capacity was performed following the ITS (Implementing Technical Standards) rules: 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. During 2021, gross financing from the ECB increased by Euro 974 million to a total of Euro 8.0 billion (2020: increase in the amount of Euro 910 million for a total of Euro 7.0 billion). 304 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 135 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The liquidity of novobanco 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 2021 and 2020, the calculation of the liquid contractual deficit and the counterbalancing capacity was performed following the ITS (Implementing Technical Standard s) rules: 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 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 31.12.2021 (in thousands of Euros) 756 943 9 948 705 - - - - 626 980 52 669 - - 22 055 734 888 2 514 555 6 754 500 29 491 108 390 972 567 652 478 049 5 940 - 86 929 45 222 - 93 663 423 127 - 116 964 296 774 28 505 805 43 099 11 515 25 964 33 814 24 299 432 720 41 242 456 396 912 759 132 569 460 171 578 2 893 163 36 452 212 Secured lending operations and operations associated to financial markets 172 139 - - - - 40 991 131 148 Behavioral inputs from loans and advances Exchange swaps and derivatives Own portfolio securities maturing and other entries Total Input Net contractual deficit 32 363 686 5 164 062 721 805 7 824 10 385 672 147 916 43 643 303 5 319 802 2 244 40 849 130 887 173 980 2 400 846 4 922 890 ( 585 152) 5 177 422 980 503 691 931 848 362 388 14 194 61 078 15 125 27 162 885 39 323 149 751 707 936 607 880 8 287 362 783 208 703 320 35 731 145 611 630 (2 189 843) ( 721 067) Accumulated net contractual deficit 4 922 890 4 337 738 4 700 126 5 311 756 3 121 913 2 400 846 CAPACITY TO READJUSTMENT Cash Deployable reserves from the central bank Stock Inicial Up to 7 days 151 699 4 999 674 (4 999 674) 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 7 261 006 - 432 159 ( 326 174) ( 537 314) ( 451 865) (6 233 780) Authorized facilities and not utilized received Net variation of capacity to adjustment ( 0) ( 42 401) ( 73 498) ( 226 102) ( 281 873) 1 314 154 ( 690 281) (5 042 075) 358 662 ( 552 276) ( 819 187) 862 289 (6 924 061) Accumulated capacity to readjustment 12 412 379 7 370 304 7 728 966 7 176 690 6 357 503 7 219 792 295 731 305 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 136 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 31.12.2020 (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 153 890 - - - - 9 153 881 9 161 995 68 874 106 104 53 504 150 000 264 458 8 519 055 30 328 564 625 680 550 075 302 562 110 144 116 570 144 781 147 268 283 894 140 000 174 392 423 579 29 164 193 32 623 11 515 34 865 19 374 398 560 40 820 205 481 581 367 455 624 665 368 530 722 911 38 255 064 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 30 107 412 2 106 702 897 438 12 128 378 103 389 103 580 58 182 145 071 155 916 166 741 287 285 376 999 236 943 48 500 835 242 472 123 27 066 721 71 166 242 026 898 046 9 758 595 43 336 534 2 374 589 359 168 831 025 1 120 685 1 441 335 37 209 731 2 516 329 1 893 008 ( 8 286) 206 360 752 156 718 425 (1 045 332) Accumulated net contractual deficit 1 893 008 1 884 722 2 091 081 2 843 237 3 561 662 2 516 329 CAPACITY TO READJUSTMENT Cash Deployable reserves from the central bank Stock Inicial Up to 7 days 149 205 2 030 915 (2 030 915) 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 8 033 197 Authorized facilities and not utilized received Net variation of capacity to adjustment 67 249 ( 29 275) 106 994 ( 123 762) ( 91 281) ( 587 185) (7 262 493) ( 55 212) ( 199 759) ( 350 461) ( 288 680) 923 388 (1 992 941) 51 782 ( 323 521) ( 441 743) ( 875 865) (6 339 104) Accumulated capacity to readjustment 10 213 317 8 220 376 8 272 158 7 948 636 7 506 894 6 631 029 291 924 As at 31 December 2020, there was an accumulated 1-year net contractual surplus of Euro 3,562 million, having shifted at the end of 2021 to an accumulated 1-year net contractual deficit of Euro 3,122 million. This improvement is due to that, at the end of 2021, there was a Euro 1,627 million takeover to the ECB in less than 1 year. As at 31 December 2020, there was an accumulated 1-year net contractual surplus of Euro 3,562 million, having shifted at the end of 2021 to an accumulated 1-year net contractual deficit of Euro 3,122 million. This improvement is due to that, at the end of 2021, there was a Euro 1,627 million takeover to the ECB in less than 1 year. 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. The 1-year counterbalancing capacity the end of 2021 was Euro 7,220 million, Euro 589 million more than the figure recorded at the end of 2020 (Euro 6,631 million). The 1-year counterbalancing capacity the end of 2021 was Euro 7,220 million, Euro 589 million more than the figure recorded at the end of 2020 (Euro 6,631 million). 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. The average LCR for the 12 months of 2021 was 150% which compares to 146% in 2020. The NSFR in turn stood at 117% on December 31, 2021 which compares to 112% at the end of 2020. 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 In addition, and given the importance of liquidity risk management, the regulatory legislation includes a operations, for a period of one year. liquidity coverage ratio (Liquidity Coverage Ratio - LCR) and a stable financing ratio (Net Stable Funding In accordance with current regulatory legislation, the Group is obliged to comply with a minimum limit of 100% in the LCR and NSFR. 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: The average LCR for the 12 months of 2021 was 150% which compares to 146% in 2020. The NSFR in turn stood at 117% on December 31, 2021 which compares to 112% at the end of 2020. In accordance with current regulatory legislation, the Group is obliged to comply with a minimum limit of 100% in the LCR and NSFR. The information on encumbered and unencumbered assets, as defined by Instruction no. 28/2014 of Bank of Portugal (note that t his 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: 306 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 137 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2020, there was an accumulated 1-year net contractual surplus of Euro 3,562 million, having shifted at the end of 2021 to an accumulated 1-year net contractual deficit of Euro 3,122 million. This improvement is due to that, at the end of 2021, there was a Euro 1,627 million takeover to the ECB in less than 1 year. The 1-year counterbalancing capacity the end of 2021 was Euro 7,220 million, Euro 589 million more than the figure recorded at the end of 2020 (Euro 6,631 million). 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. The average LCR for the 12 months of 2021 was 150% which compares to 146% in 2020. The NSFR in turn stood at 117% on December 31, 2021 which compares to 112% at the end of 2020. In accordance with current regulatory legislation, the Group is obliged to comply with a minimum limit of 100% in the LCR and NSFR. 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: 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 31.12.2021 (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 13 890 508 - 2 306 980 11 583 528 n/a - 2 306 980 n/a 31 052 745 1 754 771 7 361 758 21 936 216 n/a 1 754 771 7 361 758 n/a 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 31.12.2021 31.12.2020 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 (in thousands of Euros) - - - - - - - - - - - - - - - - - - - - 31.12.2021 31.12.2020 (in thousands of Euros) Encumbered assets, encumbered collateral received and associated liabilities Associated liabilities, contingent liabilities and securities loaned NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 - 136 - ABS Carrying book value of the selected financial liabilities 10 115 522 13 890 508 9 250 342 12 868 205 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. 44.6 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, systematization 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. 44.7 Capital Management and Solvency Ratio The main objective of the Group’s capital management is to ensure compliance with the Group novobanco’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 novobanco - 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 novobanco Group objectives. The capital ratios of novobanco 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. novobanco 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 novobanco 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 novobanco’s 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 novobanco Group are composed by elements of CET I and Tier II Additional information on the evolution and composition of novobanco Group's capital ratios can be found in the Group's Market Discipline Document (point 3. Capital Adequacy). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 137 - 307 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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. novobanco 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 novobanco 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 novobanco’s 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 novobanco Group are composed by elements of CET I and Tier II Additional information on the evolution and composition of novobanco 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 novobanco Group as at 31 December 2021 and 2020 are presented in the following table: 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. 44.6 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, systematization 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. 44.7 Capital Management and Solvency Ratio The main objective of the Group’s capital management is to ensure compliance with the Group novobanco’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 novobanco - 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 novobanco Group objectives. The capital ratios of novobanco 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 308 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe summary of own funds, risk weighted assets and capital ratios capital of novobanco Group as at 31 December 2021 and 2020 are presented in the following table: Realised 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) Net income for the year attributable to shareholders of the Bank not eligible 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 Other(2) B - Regulatory adjustments to equity C - Own principal funds level 1 - CET I (A+B) Other eligible instruments for additional Tier 1 D - Additional own funds Level 1 - Additional Tier 1 E - Level 1 own funds - Tier I (C+D) Subordinated liabilities elegible 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(3) (in million Euros) 31.12.2021(4) 31.12.2020(1) 6 055 ( 3 109) 159 19 3 124 - ( 13) ( 10) 237 ( 69) ( 8) ( 168) ( 325) ( 357) 2 768 1 1 5 900 ( 1 447) ( 1 329) 17 3 141 - ( 10) ( 11) 356 ( 57) ( 59) ( 62) ( 395) ( 240) 2 902 1 1 2 769 2 903 399 108 - 507 3 276 22 043 1 207 1 678 24 929 11.1% 11.1% 13.1% 399 113 - 511 3 415 23 819 1 279 1 592 26 689 10.9% 10.9% 12.8% 6.0% 6.2% (C/H) (E/H) (G/H) (1) Restated values with references to 2020. (2) Since the end of 2020 includes adjustments to CCA receivable, reflected at reserve level, and not received from the Resolution Fund. (3) The leverage ratio results from dividing Tier 1 by the exposure measure in accordance to the terms of the CRR. (4) Provisional values. 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): 309 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 140 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Credit quality of forborne exposure 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 Following the recommendations of the European Banking Authority explained in document EBA/GL/2018/10, credit institutions with foreclosed assets, according to a standard format, which we present below (we emphasize that this information is prepared from a an NPL (Non Performing Exposures) ratio greater than 5% must publish a set of information regarding NPE, restructured loans a nd prudential perspective, whose consolidation perimeter differs from the consolidation perimeter of the financial statements presented): 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): Credit quality of forborne exposure Credit quality of forborne exposure (in thousands of Euros) Accumulated impairment, accumulated negative changes Accumulated impairment, in fair value due to credit risk accumulated negative changes and provisions in fair value due to credit risk and provisions (in thousands of Euros) Collateral received and financial guarantees received on forborne Collateral received and financial exposures guarantees received on forborne exposures Gross carrying amount/nominal amount of exposures with forbearance measures Gross carrying amount/nominal amount of exposures with forbearance measures Performing forborne Performing forborne 666 511 0 666 511 5 650 0 0 5 650 431 0 524 708 431 135 722 524 708 0 135 722 4 169 0 670 679 4 169 670 679 Non-performing forborne Non-performing forborne Of which defaulted Of which defaulted 913 102 Of which subject to impairment Of which subject 913 102 to impairment 0 913 102 52 0 0 52 90 559 0 670 482 90 559 152 009 670 482 0 152 009 1 711 0 914 813 1 711 914 813 0 913 102 52 0 0 52 90 559 0 670 482 90 559 152 009 670 482 0 152 009 1 711 0 914 813 1 711 914 813 913 102 0 913 102 52 0 0 52 90 559 0 670 482 90 559 152 009 670 482 0 152 009 1 711 0 914 813 1 711 914 813 Loans and advances Central banks Loans and advances General governments Central banks Credit institutions General governments Other financial corporations Credit institutions Non-financial corporations Other financial corporations Households Non-financial corporations Debt securities Households Loan commitments given Debt securities Total Loan commitments given Total On performing forborne On performing exposures forborne exposures On non- performing On non- forborne performing exposures forborne exposures -78 116 0 -78 116 -525 0 0 -525 -16 0 73 339 -16 -4 301 73 339 0 -4 301 0 0 -78 181 0 -78 181 -524 660 0 -524 660 -52 0 0 -52 -31 848 0 -366 988 -31 848 -125 772 -366 988 0 -125 772 0 0 -524 660 0 -524 660 671 678 0 671 678 4 611 0 0 4 611 49 742 0 469 936 49 742 147 389 469 936 0 147 389 0 0 671 678 0 671 678 Of which collateral and financial Of which collateral guarantees received and financial on nonperforming guarantees received exposures with on nonperforming forbearance exposures with measures forbearance measures 294 761 0 294 761 0 0 0 0 49 447 0 221 074 49 447 24 239 221 074 0 24 239 0 0 294 761 0 294 761 (in thousands of Euros) (in thousands of Euros) Credit quality of performing and non-performing exposures by past due days Credit quality of performing and non-performing exposures by past due days Gross carrying amount/nominal amount Credit quality of performing and non-performing exposures by past due days Performing exposures Gross carrying amount/nominal amount Non-performing exposures Cash in Central Banks 5 705 902 5 705 902 Performing exposures Not past due or past due < =30 days Not past due or past due < =30 days Past due > 30 days <=90 days Past due > 30 days <=90 days 23 027 830 5 705 902 0 23 027 830 380 732 0 50 909 380 732 294 155 50 909 11 518 652 294 155 6 743 662 11 518 652 10 783 382 6 743 662 9 467 651 10 783 382 0 9 467 651 6 142 095 0 693 578 6 142 095 710 489 693 578 1 921 489 710 489 1 921 489 0 170 355 0 0 170 355 0 0 0 0 24 570 0 103 419 24 570 56 959 103 419 42 365 56 959 0 42 365 0 0 0 0 0 0 0 0 0 0 0 38 201 383 170 355 23 198 185 5 705 902 0 23 198 185 380 732 0 50 909 380 732 318 725 50 909 11 622 071 318 725 6 800 621 11 622 071 10 825 747 6 800 621 9 467 651 10 825 747 0 9 467 651 6 142 095 0 693 578 6 142 095 710 489 693 578 1 921 489 710 489 8 062 905 1 921 489 0 8 062 905 36 776 0 560 030 36 776 75 163 560 030 6 306 918 75 163 1 084 018 6 306 918 46 434 643 1 084 018 Unlikely to pay that are not past due or are past Unlikely to pay due <=90 days that are not past due or are past due <=90 days 0 Past due > 90 days <=180 days Past due > 90 days <=180 days 0 Non-performing exposures Past due > 180 days <=1 year Past due > 180 days <=1 year Past due > 1 year <= 2 years Past due > 1 year <= 2 years Past due > 2 years >=5 years Past due > 2 years >=5 years Past due > 5 years >=7 years Past due > 5 years >=7 years Past due > 7 years Past due > 7 years 0 0 0 0 0 1 260 055 0 0 1 260 055 52 0 0 52 79 049 0 904 272 79 049 585 363 904 274 276 681 585 363 197 797 276 681 0 197 797 0 0 0 0 0 0 197 797 0 197 797 55 493 0 0 55 493 0 0 0 0 1 0 40 532 1 35 646 40 532 14 960 35 646 0 14 960 0 0 0 0 0 0 0 0 0 0 62 104 0 0 62 104 1 250 0 0 1 250 247 0 40 568 247 36 691 40 568 20 039 36 691 0 20 039 0 0 0 0 0 0 0 0 0 0 89 584 0 0 89 584 0 0 0 0 17 0 71 931 17 11 546 71 931 17 636 11 546 15 179 17 636 0 15 179 0 0 0 0 0 0 15 179 0 125 799 0 0 125 799 410 0 0 410 9 015 0 106 134 9 015 64 644 106 134 10 240 64 644 39 534 10 240 0 39 534 0 0 0 0 20 420 0 19 114 20 420 77 292 0 0 77 292 0 0 0 0 2 901 0 69 273 2 901 48 516 69 273 5 118 48 516 84 825 5 118 0 84 825 0 0 0 0 2 350 0 82 475 2 350 96 751 0 0 96 751 0 0 0 0 7 611 0 71 820 7 611 56 411 71 820 17 319 56 411 0 17 319 0 0 0 0 0 0 0 0 0 0 0 0 15 179 19 114 82 475 0 1 457 852 55 493 62 104 104 763 165 333 162 117 96 751 0 1 602 252 0 0 1 767 078 1 712 0 0 1 712 63 800 0 1 175 991 98 841 739 398 1 304 531 360 748 838 818 337 335 361 993 0 337 335 0 0 0 0 22 770 0 314 565 22 770 454 376 314 565 0 454 376 0 0 259 0 8 878 259 442 894 8 878 2 345 442 894 2 393 963 2 345 Of which defaulted Of which defaulted 0 1 765 833 0 0 1 765 833 1 712 0 0 1 712 98 841 0 1 304 531 98 841 838 818 1 304 531 360 748 838 818 337 335 360 748 0 337 335 0 0 0 0 22 770 0 314 565 22 770 454 376 314 565 0 454 376 0 0 259 0 8 878 259 442 894 8 878 2 345 442 894 2 557 543 2 345 Loans and advances Cash in Central Banks Central banks Loans and advances General governments Central banks Credit institutions General governments Other financial corporations Credit institutions Non-financial corporations Other financial corporations Of which SMEs Non-financial corporations Households Of which SMEs Debt securities Households Central banks Debt securities 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 Off-balance-sheet exposures General governments Central banks Credit institutions General governments Other financial corporations Credit institutions Non-financial corporations Other financial corporations Households Non-financial corporations Total Households Total 46 434 643 38 201 383 170 355 2 558 788 1 457 852 55 493 62 104 104 763 165 333 162 117 96 751 2 557 543 310 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 139 - - 141 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Performing and non-performing exposures and related provisions Performing 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 Performing exposures – accumulated impairment and provisions Non-performing exposures – accumulated Accumulated impairment, accumulated negative changes in fair value due to credit risk impairment, accumulated negative changes and provisions in fair value due to credit risk and provisions Non-performing exposures – accumulated impairment, accumulated negative changes Das quais, in fair value due to credit risk and Stage 2 provisions Performing exposures – accumulated Das quais, impairment and provisions Stage 1 Das quais, Stage 3 Das quais, Stage 2 Das quais, Stage 2 Cash in Central Banks Loans and advances Central banks Cash in Central Banks General governments Loans and advances Credit institutions Central banks Other financial corporations General governments Non-financial corporations Credit institutions Of which SMEs Other financial corporations Households Non-financial corporations Debt securities Of which SMEs Central banks Households General governments Debt securities Credit institutions Central banks Other financial corporations General governments Non-financial corporations Credit institutions Off-balance-sheet exposures Other financial corporations Central banks Non-financial corporations General governments Off-balance-sheet exposures Credit institutions Central banks Other financial corporations General governments Non-financial corporations Credit institutions Households Other financial corporations Total Non-financial corporations Performing exposures Gross carrying amount/nominal amount Non-performing exposures Of which Performing exposures stage 1 Of which stage 2 Of which Non-performing exposures stage 2 Of which stage 3 5 705 902 5 705 902 0 0 23 198 185 0 5 705 902 380 732 23 198 185 50 909 0 318 725 380 732 11 622 071 50 909 6 800 621 318 725 10 825 747 11 622 071 9 467 651 6 800 621 0 10 825 747 6 142 095 9 467 651 693 578 0 710 489 6 142 095 1 921 489 693 578 8 062 905 710 489 0 1 921 489 36 776 8 062 905 560 030 0 75 163 36 776 6 306 918 560 030 1 084 018 75 163 46 434 643 6 306 918 Of which 18 759 615 stage 1 0 5 705 902 361 649 18 759 615 44 232 0 256 309 361 649 8 290 059 44 232 4 972 144 256 309 9 807 366 8 290 059 9 292 175 4 972 144 0 9 807 366 6 142 095 9 292 175 693 578 0 707 452 6 142 095 1 749 050 693 578 6 807 794 707 452 0 1 749 050 35 558 6 807 794 515 342 0 56 832 35 558 5 132 767 515 342 1 067 295 56 832 40 565 486 5 132 767 4 436 886 Of which stage 2 0 0 19 083 4 436 886 6 677 0 62 417 19 083 3 332 012 6 677 1 828 477 62 417 1 018 381 3 332 012 175 476 1 828 477 0 1 018 381 0 175 476 0 0 3 037 0 172 439 0 1 255 111 3 037 0 172 439 1 218 1 255 111 44 688 0 18 331 1 218 1 174 151 44 688 16 723 18 331 5 869 157 1 174 151 1 767 078 0 0 1 712 1 767 078 0 0 98 841 1 712 1 304 531 0 838 818 98 841 361 993 1 304 531 337 335 838 818 0 361 993 0 337 335 0 0 22 770 0 314 565 0 454 376 22 770 0 314 565 0 454 376 259 0 8 878 0 442 894 259 2 345 8 878 2 558 788 442 894 Of which stage 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 378 0 0 0 0 2 378 0 0 0 0 2 378 0 0 0 0 2 378 0 0 0 0 0 0 0 0 0 0 2 378 0 0 1 767 078 Of which stage 3 0 0 1 712 1 767 078 0 0 98 841 1 712 1 304 531 0 838 818 98 841 361 993 1 304 531 334 957 838 818 0 361 993 0 334 957 0 0 22 770 0 312 187 0 454 376 22 770 0 312 187 0 454 376 259 0 8 878 0 442 894 259 2 345 8 878 2 556 410 442 894 0 0 0 0 -386 911 0 0 -1 604 -386 911 -1 113 0 -9 403 -1 604 -324 005 -1 113 -148 357 -9 403 -50 786 -324 005 -47 470 -148 357 0 -50 786 -3 586 -47 470 -248 0 -1 493 -3 586 -42 143 -248 19 197 -1 493 0 -42 143 34 19 197 229 0 128 34 14 634 229 4 172 128 -415 068 14 634 Das quais, Stage 1 -64 245 0 0 -529 -64 245 -659 0 -1 435 -529 -46 258 -659 -31 287 -1 435 -15 364 -46 258 -9 187 -31 287 0 -15 364 -3 586 -9 187 -248 0 -1 105 -3 586 -4 248 -248 8 046 -1 105 0 -4 248 11 8 046 19 0 44 11 4 097 19 3 875 44 -65 386 4 097 Das quais, Stage 2 -322 667 0 0 -1 075 -322 667 -454 0 -7 968 -1 075 -277 747 -454 -117 070 -7 968 -35 422 -277 747 -38 283 -117 070 0 -35 422 0 -38 283 0 0 -388 0 -37 895 0 11 151 -388 0 -37 895 23 11 151 210 0 84 23 10 537 210 296 84 -349 799 10 537 -879 346 0 0 -1 712 -879 346 0 0 -36 277 -1 712 -656 232 0 -403 428 -36 277 -185 125 -656 232 -203 243 -403 428 0 -185 125 0 -203 243 0 0 0 0 -203 243 0 73 150 0 0 -203 243 0 73 150 0 0 3 295 0 69 684 0 171 3 295 -1 009 439 69 684 Households 1 084 018 1 067 295 16 723 2 345 0 2 345 4 172 3 875 296 171 Total Quality of non-productive exhibitions by geography 40 565 486 46 434 643 5 869 157 2 558 788 2 378 2 556 410 -415 068 -65 386 -349 799 -1 009 439 (in thousands of Euros) Collateral and financial guarantees received (in thousands of Euros) Collateral and financial On non- guarantees received performing exposures On performing exposures On performing exposures 0 On non- performing exposures 0 Accumulated partial write- off Accumulated partial write- off 0 -429 807 13 448 418 0 0 0 -429 807 0 0 -186 642 0 -242 416 0 -80 112 -186 642 -749 -242 416 0 -80 112 0 -749 0 0 0 0 0 0 0 0 0 0 -429 807 0 0 35 935 13 448 418 0 0 172 277 35 935 3 374 095 0 2 465 189 172 277 9 866 111 3 374 095 0 2 465 189 0 9 866 111 0 0 0 0 0 0 0 0 169 155 0 0 0 4 266 169 155 6 114 0 8 871 4 266 138 886 6 114 11 018 8 871 13 617 573 138 886 571 191 0 0 0 571 191 0 0 51 324 0 367 616 0 255 987 51 324 151 726 367 616 0 255 987 0 151 726 0 0 0 0 0 0 0 0 14 705 0 0 0 0 14 705 43 0 0 0 14 602 43 61 0 585 896 14 602 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 0 Das quais, Stage 3 -879 346 0 0 -1 712 -879 346 0 0 -36 277 -1 712 -656 232 0 -403 428 -36 277 -185 125 -656 232 -203 243 -403 428 0 -185 125 0 -203 243 0 0 0 0 -203 243 0 73 150 0 0 -203 243 0 73 150 0 0 3 295 0 69 684 0 171 3 295 -1 009 439 69 684 Quality of non-productive exhibitions by geography Quality of non-productive exhibitions by geography Gross carrying amount/nominal amount Gross carrying amount/nominal amount Of which non-performing Of which Of which non-performing defaulted On-balance-sheet exposures Portugal On-balance-sheet exposures Other countries Portugal Off-balance-sheet exposures Other countries Portugal Off-balance-sheet exposures Other countries Portugal Total Other countries Total Of which subject to impairment Of which subject to impairment 34 715 288 26 469 514 34 715 288 8 245 774 26 469 514 8 245 774 Accumulated impairment Accumulated impairment -1 516 971 -1 373 740 -1 516 971 -143 231 -1 373 740 -143 231 34 715 288 -1 516 971 34 770 248 2 104 413 26 482 718 1 909 643 34 770 248 8 287 530 2 104 413 194 769 26 482 718 8 517 281 1 909 643 454 376 8 287 530 7 996 918 8 517 281 520 363 194 769 452 231 454 376 2 145 7 996 918 43 287 529 452 231 2 558 788 520 363 2 145 2 104 413 Of which defaulted 1 909 643 2 104 413 194 769 1 909 643 454 376 194 769 452 231 454 376 2 145 452 231 2 558 788 2 145 43 287 529 2 558 788 2 558 788 34 715 288 -1 516 971 0 0 171 11 018 61 -1 009 439 -429 807 13 617 573 585 896 (in thousands of Euros) Provisions on off- balance-sheet commitments and Provisions on off- financial guarantees balance-sheet given commitments and financial guarantees given Accumulated negative (in thousands of Euros) changes in fair value due to credit risk on Accumulated negative non-performing changes in fair value exposures due to credit risk on non-performing exposures 0 92 347 90 100 92 347 2 247 90 100 92 347 2 247 92 347 0 0 0 0 0 0 0 311 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 140 - - 140 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Credit quality of loans and advances by industry Credit quality of loans and advances by industry (in thousands of Euros) Total Human health services and social work activities 12 926 603 246 636 1 304 531 40 994 1 304 531 40 994 12 926 303 246 636 Arts, entertainment and recreation Other services Collateral valuation – loans and advances Total Collateral valuation – loans and advances Collateral valuation – loans and advances 223 680 148 241 92 649 31 215 92 649 31 215 223 680 148 241 12 926 603 1 304 531 1 304 531 Loans and advances 12 926 303 Performing Non-performing Gross carrying amount Of which non-performing Gross carrying amount Of which defaulted Of which non-performing 8 738 8 738 Of which loans and advances subject to impairment Accumulated impairment 140 Of which defaulted 143 597 345 627 Of which loans and advances subject to impairment 44 482 2 674 309 140 143 597 16 795 8 738 13 446 140 180 792 143 597 84 200 16 795 58 548 13 446 185 908 180 792 8 157 84 200 97 904 58 548 226 236 185 908 89 976 8 157 22 173 97 904 20 226 236 3 043 89 976 40 994 22 173 92 649 20 31 215 3 043 16 795 8 738 13 446 140 180 792 143 597 84 200 16 795 58 548 13 446 185 908 180 792 8 157 84 200 97 904 58 548 226 236 185 908 89 976 8 157 22 173 97 904 20 226 236 3 043 89 976 40 994 22 173 92 649 20 31 215 3 043 280 807 345 627 185 030 44 482 1 381 721 2 674 309 1 503 999 280 807 851 326 185 030 1 115 252 1 381 721 138 601 1 503 999 632 558 851 326 1 451 105 1 115 252 1 320 537 138 601 330 595 632 558 2 327 1 451 105 49 770 1 320 537 246 636 330 595 223 680 2 327 148 241 49 770 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 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 0 0 (in thousands of Euros) 0 Accumulated impairment -11 945 -459 -107 323 -4 043 -11 945 -9 520 -459 -120 319 -107 323 -63 342 -4 043 -67 454 -9 520 -131 690 -120 319 -7 860 -63 342 -116 256 -67 454 -131 685 -131 690 -68 732 -7 860 -23 933 -116 256 -46 -131 685 -1 820 -68 732 -19 973 -23 933 -67 258 -46 -26 579 -1 820 -980 237 -19 973 -67 258 -26 579 -980 237 Unlikely to pay that are not past due or are past due <= 90 days 1 260 055 Unlikely to pay 815 500 that are not past due or are past 547 249 due <= 90 days 83 556 100 012 1 260 055 218 044 815 500 -354 076 547 249 83 556 393 125 100 012 330 073 218 044 690 295 -354 076 327 083 12 397 393 125 -40 330 073 690 295 327 083 12 397 507 022 296 112 261 024 57 218 8 755 507 022 93 675 296 112 -126 193 261 024 57 218 164 215 8 755 142 950 93 675 712 122 -126 193 222 071 911 164 215 -429 762 142 950 712 122 222 071 911 Past due > 90 days (in thousands of Euros) Loans and advances Of which past due >90 days <= 180 days Of which: past due > 180 days <= 1 Non-performing year Of which: past due > 1 years <= 2 years Of which: past due > 2 years <= 5 years Of which: past due > 5 years 55 493 62 104 Past due > 90 days 89 584 125 799 77 292 38 449 Of which past 37 050 due >90 days <= 180 days 41 123 Of which: past due > 40 544 180 days <= 1 year 53 775 Of which: past due > 1 52 111 years <= 2 years 68 459 Of which: past due > 2 54 518 years <= 5 years 21 971 Of which: past due > 5 18 059 years Of which: past due > 7 years 96 751 72 335 Of which: 58 741 past due > 7 years 96 751 72 335 -30 908 58 741 41 178 29 145 260 704 -30 908 56 612 0 41 178 -105 511 29 145 125 799 68 459 -26 445 54 518 40 238 33 294 157 434 -26 445 23 870 4 40 238 -67 013 33 294 77 292 21 971 -7 183 18 059 13 213 11 714 133 936 -7 183 17 349 0 13 213 -253 864 11 714 55 493 38 449 -20 184 37 050 17 686 17 425 38 118 -20 184 18 822 500 17 686 0 17 425 38 118 18 822 500 0 62 104 41 123 -17 982 40 544 21 961 21 916 30 259 -17 982 29 316 307 21 961 -1 891 21 916 30 259 29 316 307 -1 891 89 584 53 775 -23 491 52 111 29 938 29 455 91 671 -23 491 76 103 100 29 938 -1 482 29 455 91 671 76 103 100 -1 482 Credit quality of loans and advances by industry Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Agriculture, forestry and fishing Water supply Mining and quarrying Construction Manufacturing Wholesale and retail trade Electricity, gas, steam and air conditioning supply Transport and storage Water supply Accommodation and food service activities Construction Information and communication Wholesale and retail trade Financial and insurance activities Transport and storage Real estate activities Accommodation and food service activities Professional, scientific and technical activities Information and communication Administrative and support service activities Financial and insurance activities Public administration and defence, compulsory social security Real estate activities Education Professional, scientific and technical activities Human health services and social work activities Administrative and support service activities Arts, entertainment and recreation Public administration and defence, compulsory social security Other services Education 345 627 44 482 2 674 309 280 807 345 627 185 030 44 482 1 381 721 2 674 309 1 503 999 280 807 851 326 185 030 1 115 252 1 381 721 138 601 1 503 999 632 558 851 326 1 451 105 1 115 252 1 320 537 138 601 330 595 632 558 2 327 1 451 105 49 770 1 320 537 246 636 330 595 223 680 2 327 148 241 49 770 Of which past due > 30 days <=90 days Performing 24 965 262 23 198 185 170 355 1 767 078 16 121 730 15 010 118 13 664 886 12 856 614 Gross carrying amount Of which secured Of which secured with immovable property Of which instruments with LTV higher than 60% and lower or equal to 80% 2 630 165 2 489 391 Gross carrying amount Of which instruments with LTV higher than 80% and lower or equal to 100% Of which instruments with LTV higher than 100% Of which secured Accumulated impairment for secured assets Of which secured with immovable property Collateral Of which instruments with LTV higher than 60% and lower or equal to 80% Of which value capped at the value of exposure Of which instruments with LTV higher than 80% and lower or equal to 100% Of which immovable property Of which instruments with LTV higher than 100% Of which value above the cap Accumulated impairment for secured assets Of which immovable property Collateral Financial guarantees received Of which value capped at the value of exposure Accumulated partial write-off Of which immovable property Of which value above the cap 687 067 24 965 262 868 813 16 121 730 -706 396 13 664 886 2 630 165 13 969 255 687 067 12 882 506 868 813 24 580 690 -706 396 16 973 310 50 354 13 969 255 -429 807 12 882 506 578 300 23 198 185 557 094 15 010 118 -226 127 12 856 614 2 489 391 13 411 915 578 300 12 409 483 557 094 23 178 272 -226 127 16 424 156 37 047 13 411 915 -5 12 409 483 24 580 690 23 178 272 52 585 Of which past 52 509 due > 30 days <=90 days 170 355 52 585 -3 094 52 509 48 591 48 530 55 348 -3 094 55 036 5 48 591 -5 48 530 55 348 1 111 612 808 272 140 774 108 767 1 767 078 311 720 1 111 612 -480 269 808 272 140 774 557 340 108 767 473 023 311 720 1 402 417 -480 269 549 154 13 308 557 340 -429 802 473 023 1 402 417 Of which immovable property Changes in the stock of non-performing loans and advances Financial guarantees received 50 354 37 047 5 16 973 310 16 424 156 55 036 549 154 13 308 Accumulated partial write-off -429 807 -5 -5 -429 802 -40 -429 762 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 Initial stock of non-performing loans and advances Outflow to performing portfolio Inflows to non-performing portfolios Outflow due to loan repayment, partial or total Outflows from non-performing portfolios Outflow due to collateral liquidation Outflow to performing portfolio Outflow due to taking possession of collateral Outflow due to loan repayment, partial or total Outflow due to sale of instruments Outflow due to collateral liquidation Outflow due to risk transfer 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 Final stock of non-performing loans and advances Outflow due to other situations Outflow due to reclassification as held for sale Final stock of non-performing loans and advances NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 157 434 133 936 260 704 23 870 17 349 56 612 0 4 (in thousands of Euros) 0 -67 013 -253 864 -105 511 312 Gross carrying amount (in thousands of Euros) 2 512 984 Gross carrying amount 484 303 -1 230 209 2 512 984 -58 875 484 303 -194 938 -1 230 209 0 -58 875 -21 739 -194 938 -380 535 -21 739 -432 517 -380 535 -41 668 -432 517 1 767 078 -41 668 0 0 0 0 0 1 767 078 - 141 - - 141 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Credit quality of loans and advances by industry Electricity, gas, steam and air conditioning supply Agriculture, forestry and fishing Mining and quarrying Manufacturing Water supply Construction Wholesale and retail trade Transport and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Human health services and social work activities Arts, entertainment and recreation Education Other services Total Public administration and defence, compulsory social security Collateral valuation – loans and advances Gross carrying amount Of which non-performing Of which loans and advances subject to impairment Accumulated impairment Of which defaulted (in thousands of Euros) Accumulated negative changes in fair value due to credit risk on non-performing exposures 345 627 44 482 2 674 309 280 807 185 030 1 381 721 1 503 999 851 326 1 115 252 138 601 632 558 1 451 105 1 320 537 330 595 2 327 49 770 246 636 223 680 148 241 8 738 140 143 597 16 795 13 446 180 792 84 200 58 548 185 908 8 157 97 904 226 236 89 976 22 173 20 3 043 40 994 92 649 31 215 8 738 140 143 597 16 795 13 446 180 792 84 200 58 548 185 908 8 157 97 904 226 236 89 976 22 173 20 3 043 40 994 92 649 31 215 345 627 44 482 2 674 309 280 807 185 030 1 381 721 1 503 999 851 326 1 115 252 138 601 632 558 1 451 105 1 320 537 330 595 2 327 49 770 246 636 223 680 148 241 -11 945 -459 -107 323 -4 043 -9 520 -120 319 -63 342 -67 454 -131 690 -7 860 -116 256 -131 685 -68 732 -23 933 -46 -1 820 -19 973 -67 258 -26 579 12 926 603 1 304 531 1 304 531 12 926 303 -980 237 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Performing Non-performing Loans and advances (in thousands of Euros) Of which past due > 30 days <=90 days Unlikely to pay that are not past due or are past due <= 90 days Past due > 90 days Of which past due >90 days <= 180 days Of which: Of which: Of which: Of which: past due > past due > 1 past due > 2 past due > 5 180 days <= 1 years <= 2 years <= 5 year years years years Of which: past due > 7 years 55 493 38 449 37 050 62 104 41 123 40 544 89 584 53 775 52 111 125 799 68 459 54 518 77 292 21 971 18 059 96 751 72 335 58 741 Gross carrying amount Of which secured Of which secured with immovable property Of which instruments with LTV higher than 60% and lower or equal to 80% 2 630 165 2 489 391 Of which instruments with LTV higher than 80% and lower or equal to 100% Of which instruments with LTV higher than 100% 687 067 868 813 578 300 557 094 24 965 262 23 198 185 170 355 1 767 078 1 260 055 16 121 730 15 010 118 13 664 886 12 856 614 52 585 52 509 1 111 612 808 272 140 774 108 767 311 720 815 500 547 249 83 556 100 012 218 044 507 022 296 112 261 024 57 218 8 755 93 675 Accumulated impairment for secured assets -706 396 -226 127 -3 094 -480 269 -354 076 -126 193 -20 184 -17 982 -23 491 -26 445 -7 183 -30 908 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 13 969 255 13 411 915 12 882 506 12 409 483 24 580 690 23 178 272 16 973 310 16 424 156 50 354 -429 807 37 047 -5 48 591 48 530 55 348 55 036 5 -5 557 340 473 023 1 402 417 549 154 13 308 -429 802 393 125 330 073 690 295 327 083 12 397 164 215 142 950 712 122 222 071 911 -40 -429 762 17 686 17 425 38 118 18 822 500 0 21 961 21 916 30 259 29 316 307 -1 891 29 938 29 455 91 671 76 103 100 -1 482 40 238 33 294 13 213 11 714 41 178 29 145 157 434 133 936 260 704 23 870 17 349 56 612 4 0 0 -67 013 -253 864 -105 511 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 Outflow to performing portfolio Outflow due to loan repayment, partial or total Outflow due to collateral liquidation Outflow due to taking possession of collateral Outflow due to sale of instruments Outflow due to risk transfer Outflow due to write-off Outflow due to other situations Outflow due to reclassification as held for sale Final stock of non-performing loans and advances (in thousands of Euros) Gross carrying amount 2 512 984 484 303 -1 230 209 -58 875 -194 938 0 -21 739 -380 535 0 -432 517 -41 668 0 1 767 078 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 141 - Collateral obtained by taking possession and execution processes Collateral obtained by taking possession and execution processes Property, plant and equipment (PP&E) Other than PP&E Residential immovable property Commercial Immovable property Movable property (auto, shipping, etc.) Equity and debt instruments Other Total (in thousands of Euros) Collateral obtained by taking possession Value at initial recognition Accumulated negative changes 0 442 520 100 227 247 005 3 189 64 706 27 394 442 520 0 -205 141 -28 394 -152 969 -2 180 -10 576 -11 022 -205 141 Collateral obtained by taking possession and execution processes – vintage breakdown Total collateral obtained by taking possession Foreclosed <=2 years Foreclosed > 2 years <=5 years Foreclosed > 5 years (in thousands of Euros) Of which non-current assets held- for-sale Value at initial recognition Accumulated negative changes Value at initial recognition Accumulated negative changes Value at initial recognition Accumulated negative changes Value at initial recognition Accumulated negative changes Value at initial recognition Accumulated negative changes Collateral obtained by taking possession classified as PP&E 0 0 Collateral obtained by taking possession other than that classified as PP&E 442 520 -205 141 75 251 -17 487 110 943 -64 971 256 325 -122 684 Residential immovable property 100 227 -28 394 11 229 -1 133 26 948 -6 716 62 050 -20 545 Commercial immovable property 247 005 -152 969 20 644 -1 267 73 208 -51 550 153 152 -100 152 Movable property (auto, shipping, etc.) 3 189 -2 180 1 142 -194 2 047 -1 987 Equity and debt instruments 64 706 -10 576 14 843 -3 871 10 787 -6 705 39 076 Other Total 27 394 -11 022 27 394 -11 022 0 442 520 -205 141 75 251 -17 487 110 943 -64 971 256 325 -122 684 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 832 670 16 090 18 592 6 803 193 928 7 924 26 516 NOTE 46 –INSURANCE AND REINSURANCE MEDIATION SERVICES As of December 31, 2021 and 2020, the compensation arising from the provision of insurance or reinsurance mediation services has the following composition: (in thousands of Euros) 31.12.2021 31.12.2020 Life Insurance Unit Link and other life commissions Credit protection insurance (life) Traditional Products Non-Life Insurance Personal lines insurance Corporate insurance Credit protection insurance (non-life) Note: the income presented is net of accruals 1 828 841 15 672 18 341 7 593 178 2 274 10 045 28 386 The Group does not collect insurance premiums on behalf of the Insurers, nor does it move funds relating to insurance contracts. Accordingly, there are no other assets, liabilities, income or charges to be reported relating to the insurance mediation business carried on by the Group, other than those already disclosed. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 142 - 313 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Collateral obtained by taking possession and execution processes Collateral obtained by taking possession and execution processes Property, plant and equipment (PP&E) Other than PP&E Property, plant and equipment (PP&E) Residential immovable property Other than PP&E Commercial Immovable property Residential immovable property Movable property (auto, shipping, etc.) Commercial Immovable property Equity and debt instruments Movable property (auto, shipping, etc.) Other Equity and debt instruments Total Other Total (in thousands of Euros) Collateral obtained by taking possession (in thousands of Euros) Accumulated negative Value at initial recognition Collateral obtained by taking possession changes Value at initial recognition Accumulated negative changes 0 0 442 520 100 227 442 520 247 005 100 227 3 189 247 005 64 706 3 189 27 394 64 706 442 520 27 394 442 520 0 0 -205 141 -28 394 -205 141 -152 969 -28 394 -2 180 -152 969 -10 576 -2 180 -11 022 -10 576 -205 141 -11 022 -205 141 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 and execution processes – vintage breakdown Total collateral obtained by taking possession Foreclosed <=2 years Foreclosed > 2 years <=5 years Foreclosed > 5 years (in thousands of Euros) Of which non-current assets held- (in thousands of Euros) for-sale Collateral obtained by taking possession classified as PP&E Collateral obtained by taking possession other than that classified as PP&E Collateral obtained by taking possession classified as PP&E Residential immovable property Collateral obtained by taking possession other than that classified as PP&E Commercial immovable property Residential immovable property Movable property (auto, shipping, etc.) Commercial immovable property Equity and debt instruments Movable property (auto, shipping, etc.) Other Equity and debt instruments Total Other Value at initial recognition Value at initial recognition 0 442 520 0 100 227 442 520 247 005 100 227 3 189 247 005 64 706 3 189 27 394 64 706 442 520 27 394 Accumulated negative changes Accumulated 0 negative changes -205 141 0 -28 394 -205 141 -152 969 -28 394 -2 180 -152 969 -10 576 -2 180 -11 022 -10 576 -205 141 -11 022 Value at initial recognition Foreclosed <=2 years Total collateral obtained by taking possession Accumulated negative changes Accumulated negative Foreclosed > 2 years <=5 years changes Value at initial recognition Value at initial recognition Foreclosed > 5 years Accumulated negative changes Value at initial recognition Of which non-current assets held- for-sale Accumulated negative changes Value at initial recognition 75 251 11 229 75 251 20 644 11 229 1 142 20 644 14 843 1 142 27 394 14 843 75 251 27 394 Accumulated negative changes -17 487 -1 133 -17 487 -1 267 -1 133 -194 -1 267 -3 871 -194 -11 022 -3 871 -17 487 -11 022 Value at initial recognition 110 943 26 948 110 943 73 208 26 948 0 73 208 10 787 0 0 10 787 110 943 0 Accumulated negative changes -64 971 -6 716 -64 971 -51 550 -6 716 0 -51 550 -6 705 0 0 -6 705 -64 971 0 Value at initial recognition 256 325 62 050 256 325 153 152 62 050 2 047 153 152 39 076 2 047 0 39 076 256 325 0 Accumulated negative changes -122 684 Value at initial recognition -20 545 -122 684 -100 152 -20 545 -1 987 -100 152 0 -1 987 0 0 -122 684 0 Accumulated negative changes 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 Total 442 520 -205 141 75 251 -17 487 110 943 -64 971 256 325 -122 684 NOTE 46 –INSURANCE AND REINSURANCE MEDIATION SERVICES NOTE 46 –INSURANCE AND REINSURANCE MEDIATION SERVICES As of December 31, 2021 and 2020, the compensation arising from the provision of insurance or reinsurance mediation services has the following composition: As of December 31, 2021 and 2020, the compensation arising from the provision of insurance or reinsurance mediation services has NOTE 46 –INSURANCE AND REINSURANCE MEDIATION SERVICES the following composition: As of December 31, 2021 and 2020, the compensation arising from the provision of insurance or reinsurance mediation services has (in thousands of Euros) the following composition: 31.12.2021 31.12.2020 (in thousands of Euros) Life Insurance Life Insurance Unit Link and other life commissions Credit protection insurance (life) Unit Link and other life commissions Traditional Products Credit protection insurance (life) Traditional Products Non-Life Insurance Non-Life Insurance Personal lines insurance Corporate insurance Personal lines insurance Credit protection insurance (non-life) Corporate insurance Credit protection insurance (non-life) Note: the income presented is net of accruals 31.12.2021 1 828 841 1 828 15 672 841 18 341 15 672 18 341 7 593 178 7 593 2 274 178 10 045 2 274 28 386 10 045 31.12.2020 1 832 670 1 832 16 090 670 18 592 16 090 18 592 6 803 193 6 803 928 193 7 924 928 26 516 7 924 28 386 26 516 The Group does not collect insurance premiums on behalf of the Insurers, nor does it move funds relating to insurance contracts. Note: the income presented is net of accruals Accordingly, there are no other assets, liabilities, income or charges to be reported relating to the insurance mediation business The Group does not collect insurance premiums on behalf of the Insurers, nor does it move funds relating to insurance contracts. carried on by the Group, other than those already disclosed. Accordingly, there are no other assets, liabilities, income or charges to be reported relating to the insurance mediation business carried on by the Group, other than those already disclosed. The Group does not collect insurance premiums on behalf of the Insurers, nor does it move funds relating to insurance contracts. Accordingly, there are no other assets, liabilities, income or charges to be reported relating to the insurance mediation business carried on by the Group, other than those already disclosed. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 142 - - 142 - 314 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 47 - SUBSEQUENT EVENTS  As provided for in the agreements between the Resolution Fund and the shareholder Lone Star, on February 24, 2022, the Resolution Fund transferred ownership of shares to Nani Holdings as a result of the capital increase by conversion of the conversion rights so that Nani Holdings' shareholding in the Bank would remain at 75%, and the Resolution Fund's shareholding was diluted to 23.44%. NOTE 47 - SUBSEQUENT EVENTS • As provided for in the agreements between the Resolution Fund and the shareholder Lone Star, on February 24, 2022, the Resolution Fund transferred ownership of shares to Nani Holdings as a result of the capital increase by conversion of the conversion rights so that Nani Holdings’ shareholding in the Bank would remain at 75%, and the Resolution Fund’s shareholding was diluted to 23.44%.  On February 24, 2022, the Russian Federation began a military operation on the territory of Ukraine, which triggered a war that currently involves three countries (Russia, Ukraine and Belarus). In response, various sanctions were approved with the aim of impacting on the Russian economy, and also that of Belarus, by a group of countries, including NATO countries, the European Union and others. There is a possibility that novobanco could be impacted by losses in the assets exposed to those countries as a result of those sanctions, as well as the destruction that is taking place in Ukraine as a result of the war. The exposure of novobanco as of December 31, 2021, by type of asset and country is presented as follows: • On February 24, 2022, the Russian Federation began a military operation on the territory of Ukraine, which triggered a war that currently involves three countries (Russia, Ukraine and Belarus). In response, various sanctions were approved with the aim of impacting on the Russian economy, and also that of Belarus, by a group of countries, including NATO countries, the European Union and others. There is a possibility that novobanco could be impacted by losses in the assets exposed to those countries as a result of those sanctions, as well as the destruction that is taking place in Ukraine as a result of the war. The exposure of novobanco as of December 31, 2021, by type of asset and country is presented as follows: Russian Federation Belarus Ukraine Total 31.12.2021 (in thousands of Euros) Loans and advances to customers Securities Bonds recorded at fair value through other comprehensive income Bonds recorded at amortised cost Total Assets 5 049 43 140 22 744 20 396 48 189 209 938 - - - - - - 209 938 6196 43 140 22 744 20 396 49 336 315 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 145 - 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Separate Financial Statements 316 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesCASH FLOW STATEMENT FOR THE YEARS ENDED ON 2021 AND 2020 NOVO BANCO, S.A. CASH FLOW STATEMENT FOR THE YEARS ENDED ON 2021 AND 2020 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 income tax Corporate income taxes paid Net cash from operating activities Cash flows from investing activities Sale of investments in subsidiaries and associated companies Dividends received Acquisition of tangible fixed assets Sale of tangible fixed assets Acquisition of intangible assets Net cash from investing activities Cash flows from financing activities Contingent Capital Agreement Emissão de obrigações e outros passivos titulados 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) 31.12.2021 31.12.2020 689 622 ( 160 639) 287 013 ( 40 296) 26 310 ( 84 735) ( 40 172) ( 314 871) 741 134 ( 239 631) 279 878 ( 41 438) 29 596 ( 266 833) ( 34 766) ( 358 667) 362 232 109 273 972 363 262 479 94 905 475 983 ( 302 090) ( 26 501) 55 162 ( 330 751) 1 624 592 405 818 1 218 774 ( 2 438) (1 161 671) 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 2 326 355 ( 110 584) ( 33 557) ( 18 356) 2 292 798 ( 128 940) ( 4) 18 400 ( 116 630) 59 579 ( 25 380) - 16 928 ( 43 398) 2 790 ( 26 508) ( 64 035) ( 50 188) 429 013 575 000 ( 84 916) 1 035 016 - ( 589) 919 097 1 034 427 3 147 860 855 299 2 261 646 1 406 347 3 147 860 855 299 5 409 506 2 261 646 20 20 20 144 220 5 264 629 ( 264 955) 265 612 142 325 2 292 797 ( 263 222) 89 746 5 409 506 2 261 646 3 The accompanying explanatory notes are an integral part of the separate financial statements. The accompanying explanatory notes are an integral part of these separate financial statements 317 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 NOVO BANCO, S.A. SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 Net profit / (loss) for the year Other comprehensive income/(loss) Notes 31.12.2021 (in thousands of Euros) 31.12.2020 225 908 ( 1 374 246) 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) Total other comprehensive income/(loss) for the year a) See Statement of Changes in Interim Equity ( 83 367) ( 75 649) ( 125 636) ( 122 199) ( 7 718) ( 14 320) - ( 136 361) ( 136 361) 10 883 8 410 8 410 6 180 (1 491 472) The accompanying explanatory notes are an integral part of these separate financial statements The accompanying explanatory notes are an integral part of the separate financial statements. 318 4 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes SEPARATE BALANCE SHEET AS AT 31 DECEMBER 2021 AND 2020 NOVO BANCO, S.A. SEPARATE BALANCE SHEET AS AT 31 DECEMBER 2021 AND 2020 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 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 Property, Plant and Equipment 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 (in thousands of Euros) Notes 31.12.2021 31.12.2020 20 21 22 22 22 23 23 24 25 26 27 28 29 21 30 23 31 27 32 29 33 34 34 34 5 674 461 377 709 2 250 308 7 133 508 24 977 300 2 893 829 186 089 21 897 382 20 150 28 787 241 066 231 419 231 419 67 515 776 769 35 448 741 321 2 555 852 6 601 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 44 341 445 44 042 448 305 512 40 346 362 11 497 829 1 529 847 26 997 858 1 479 066 371 609 44 460 478 170 4 703 4 703 362 836 - 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 41 542 043 41 289 359 6 054 907 ( 968 987) (8 576 860) 6 064 434 225 908 5 900 000 ( 749 259) (7 202 828) 6 179 422 (1 374 246) 2 799 402 2 753 089 44 341 445 44 042 448 The accompanying explanatory notes are an integral part of the separate financial statements. The accompanying explanatory notes are an integral part of these separate financial statements 319 5 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes SEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 NOVO BANCO, S.A. SEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 Notes Share Capital Other Comprehensive Income Retained earnings Other reserves Net profit/(loss) for the year Total (in thousands of Euros) 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 year* Reserve of Contingent Capital Agreement Other movements Total comprehensive income for the year 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 year 34 34 15 34 34 34 - - - - - - - - - - - - - - - ( 117 226) 12 284 ( 122 199) 10 883 ( 1 838) ( 16 356) - ( 1 087 583) ( 1 087 584) - 1 - - - - - - - 598 558 - 596 315 2 243 - - - - - - - 1 087 584 1 087 584 - - ( 1 374 246) - - - - - ( 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) Balance as at 31 December 2020 5 900 000 ( 749 259) ( 7 202 828) 6 179 422 ( 1 374 246) 2 753 089 Balance as at 31 December 2020 5 900 000 ( 749 259) ( 7 202 828) 6 179 422 ( 1 374 246) 2 753 089 Capital increase by incorporation of special reserve for deferred taxes 33 154 907 - - ( 154 907) - - Other Increase / (Decrease) in Equity Appropriation to retained earnings of net profit / (loss) of the previous year Reserve of Contingent Capital Agreement Other movements Total comprehensive income for the year Changes in fair value, net of tax Remeasurement of defined benefit plans, 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 year 34 34 15 34 34 - - - - - - - - - - - - - - ( 219 728) ( 134 562) ( 75 649) 1 ( 9 518) - ( 1 374 032) ( 1 374 246) - 214 - - - - - - 39 919 - 39 920 ( 1) - - - - - - 1 374 246 1 374 246 - - 225 908 - - - - 225 908 40 133 - 39 920 213 6 180 ( 134 562) ( 75 649) 1 ( 9 518) 225 908 Balance as at 31 December 2021 6 054 907 ( 968 987) ( 8 576 860) 6 064 434 225 908 2 799 402 The accompanying explanatory notes are an integral part of the separate financial statements. The accompanying explanatory notes are an integral part of these separate financial statements 320 6 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes CASH FLOW STATEMENT FOR THE YEARS ENDED ON 2021 AND 2020 NOVO BANCO, S.A. CASH FLOW STATEMENT FOR THE YEARS ENDED ON 2021 AND 2020 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 income tax Corporate income taxes paid Net cash from operating activities Cash flows from investing activities Sale of investments in subsidiaries and associated companies Dividends received Acquisition of tangible fixed assets Sale of tangible fixed assets Acquisition of intangible assets Net cash from investing activities Cash flows from financing activities Contingent Capital Agreement Emissão de obrigações e outros passivos titulados 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) 31.12.2021 31.12.2020 689 622 ( 160 639) 287 013 ( 40 296) 26 310 ( 84 735) ( 40 172) ( 314 871) 741 134 ( 239 631) 279 878 ( 41 438) 29 596 ( 266 833) ( 34 766) ( 358 667) 362 232 109 273 972 363 262 479 94 905 475 983 ( 302 090) ( 26 501) 55 162 ( 330 751) 1 624 592 405 818 1 218 774 ( 2 438) (1 161 671) 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 2 326 355 ( 110 584) ( 33 557) ( 18 356) 2 292 798 ( 128 940) ( 4) 18 400 ( 116 630) 59 579 ( 25 380) - 16 928 ( 43 398) 2 790 ( 26 508) ( 64 035) ( 50 188) 429 013 575 000 ( 84 916) 1 035 016 - ( 589) 919 097 1 034 427 3 147 860 855 299 2 261 646 3 147 860 1 406 347 855 299 5 409 506 2 261 646 20 20 20 144 220 5 264 629 ( 264 955) 265 612 142 325 2 292 797 ( 263 222) 89 746 5 409 506 2 261 646 7 The accompanying explanatory notes are an integral part of the separate financial statements. The accompanying explanatory notes are an integral part of these separate financial statements 321 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTES TO THE SEPARATE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2021 (Amounts expressed in thousands of Euro, except when otherwise indicated) NOTE 1 – ACTIVITY NOVO BANCO, S.A. is the main entity of the financial Group novobanco 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)) , 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 novobanco (novobanco 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 novobanco, 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. The signing by the Resolution Fund of the contractual documents for the sale of the novobanco took place on 31 March 2017. On 18 October 2017, the sale process of novobanco was concluded, following the acquisition of a majority (75%) of its share capital by Nani Holdings, SGPS, S.A., a company that belongs to the North American group Lone Star, through two capital increases of 750 million euros and 250 million euros, which took place in October and December, respectively. With the conclusion of the sale process, novobanco 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 novobanco 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 2021, novobanco has a retail network comprising 292 branches in Portugal and abroad (31 December 2020: 340 branches), branches in Spain and Luxembourg and 4 representative offices in Switzerland (31 December 2020: 4 representative offices). NOTE 2 – BASIS OF PRESENTATION The separate financial statements of novobanco are presented as at 31 December 2021, expressed in thousands of euros, rounded to the nearest thousand. The accounting policies used by the Bank in the preparation are consistent with those used in the preparation of the financial statements as at 31 December 2020. The changes to the most relevant accounting policies are described in Note 5. The separate financial statements of novobanco 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. The separate financial statements and the Management Report of 31 December 2021 were approved at the Executive Board of Directors’ meeting held on 3 March 2022 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. 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. 322 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesNOTE 3 – STATEMENT OF COMPLIANCE The separate financial statements of novobanco have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted in the European Union in force on January 1, 2021, under Regulation (EC) nº 1606/2002 of the European Parliament and of the Council, of July 19, 2002, and Notice nº 5/2015 of Bank of Portugal. IFRS comprise accounting standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and its predecessor body the Standing Interpretations Committee (SIC). An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (noncurrent) is presented throughout the different balance sheet notes. NOTE 5 – CHANGES IN ACCOUNTING POLICIES In the preparation of its financial statements with reference to 31 December 2021, the Bank did not early adopt any new standard, interpretation or amendment issued, but not yet in force. The changes to the standards adopted by the Bank are as follows: NOTE 4 – PRESENTATION OF FINANCIAL STATEMENTS The Bank presents its statement of financial position in order of liquidity based on the Bank’s intention and perceived ability to recover/settle the majority of assets/liabilities of the corresponding financial statement line item. Norms, interpretations, amendments, and revisions that came into force in the fiscal year The following norms, interpretations, amendments, and revisions adopted (“endorsed”) by the European Union have mandatory application for the first time in the fiscal year beginning January 1, 2021: Norm / Interpretation Description On May 28, 2020, the amendment to IFRS 16 entitled ‘Covid-19 Related Concessions’ was issued and introduced the following practical expedient: a lessee may elect not to assess whether a Covid-19 related concession of rent is a lease modification. Lessees that choose to apply this expedient, account for the change to rental payments resulting from a Covid-19 related concession in the same way as they account for a change that is not a lease modification under IFRS 16. Amendments to IFRS 16 - Leases - COVID-19 Related Concessions for Rentals Beyond June 30, 2021 Initially, the practical expedient applied to payments originally due by June 30, 2021, however, due to the extended impact of the pandemic, on March 31, 2021, it was extended to payments originally due by June 30, 2022. The change applies to annual reporting periods beginning on or after April 1, 2021. In short, the practical expedient can be applied provided the following criteria are met: • the change in lease payments results in a revised consideration for the lease that is substantially equal to, or less than, the consideration immediately prior to the change; • any reduction in lease payments only affects payments due on or before June 30, 2022; and • there are no significant changes to other terms and conditions of the lease. Amendments to IFRS 4 - Insurance Contracts Deferral of IFRS 9 This amendment refers to the temporary accounting consequences that result from the difference between the effective date of IFRS 9 - Financial Instruments and the future IFRS 17 - Insurance Contracts. Specifically, the amendment made to IFRS 4 postpones until January 1, 2023 the expiry date of the temporary exemption from the application of IFRS 9 in order to align the effective date of the latter with that of the new IFRS 17. This temporary exemption is optional to apply and is only available to entities whose activities are predominantly insurance related. Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Reform of benchmark interest rates - phase 2 These amendments are part of the second phase of the IASB’s “IBOR reform” project and allow for exemptions related to reforming the benchmark for benchmark interest rates by an alternative interest rate (Risk Free Rate (RFR)). The amendments include the following practical expedients: • A practical expedient that requires contractual changes, or changes in cash flows that are directly required by the reform, to be treated the same as a floating interest rate change, equivalent to a movement in the market interest rate; • Allow changes required by the reform to be made to hedge designations and hedge documentation without discontinuing the hedging relationship; • Provide temporary operational relief to entities that must comply with the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component. 323 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThese standards and changes had no material impact on the Bank’s financial statements. of the change in the interest rate of reference on the estimated future cash flows. NOTE 6 – MAIN ACCOUNTING POLICIES 6.1. Foreign currency transactions 6.1.1 Functional and presentational currency The Bank’s separate financial statements are prepared in Euro, which is novobanco functional currency. 6.1.2 Transactions and balances 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. 6.2. 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 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 include 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 instruments 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 held for trading (see Note 6.5). 6.3. 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; • 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 6.2. 6.4. Measurement categories for financial assets and liabilities Dividend income is recognized when the right to receive the dividend payment is established. 6.5. Net trading income Net income from financial assets and liabilities held for trading includes changes in fair value, interest or expenses and dividends, as well as income from derivatives held for economic hedging that do not qualify as hedging derivatives. 324 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes6.6. Net gain or loss on financial assets and liabilities designated at fair value through profit or loss Net gain or loss on financial assets and liabilities designated at fair value through profit or loss includes the net gain or loss from financial assets and financial liabilities designated as at fair value through profit or loss and also from non-trading assets measured at fair value through profit or loss, as required by or elected under IFRS 9. The line item includes fair value changes, interest, dividends and foreign exchange differences. 6.7. Net gain or loss on derecognition of financial assets measured at amortized cost Net loss on derecognition of financial assets measured at amortized cost includes loss (or income) recognized on sale or derecognition of financial assets measured at amortized cost calculated as the difference between the net book value (including impairment until the recoverable amount) and the proceeds received. 6.8. Financial Instruments – Initial recognition 6.8.1. Date of recognition Financial assets and liabilities, with the exception of loans and advances to customers and balances due to customers, are initially recognized on the trade date, i.e., the date on which the Bank becomes a party to the contractual provisions of the instrument. This includes regular way trades, i.e., purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace. Loans and advances to customers are recognized when funds are transferred to the customers’ accounts. The Bank recognizes balances due to customers when funds are transferred to the Bank. 6.8.3. Day one profit When the transaction price of the instrument differs from the fair value at origination and the fair value is based on a valuation technique using only inputs observable in market transactions, the Bank recognizes the difference between the transaction price and fair value in net trading income. In those cases where fair value is based on models for which some of the inputs are not observable, the difference between the transaction price and the fair value is deferred and is only recognized in profit or loss when the inputs become observable, or when the instrument is derecognized. The Bank recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is generated, 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 Bank’s access to the (wholesale market). 6.8.4. Measurement categories for financial assets and liabilities The Bank classifies all of its financial assets based on the business model for managing the assets and the asset’s contractual terms, measured at either: • Amortized cost, as explained in Note 6.10.1; • Fair Value of through Other Comprehensive Income, as explained in Notes 6.10.1, 6.10.2 and 6.10.3; • Fair Value Through Profit or Losses, as set out in Note 6.10.4; • Mandatorily measured at fair value through profit or loss, as set out in Note 6.10.4. The Bank classifies and measures its derivative and trading portfolio at FVPL, as explained in Note 6.10.5. The Bank may designate financial instruments at FVPL, if so doing eliminates or significantly reduces measurement or recognition inconsistencies, as explained in Note 6.10.6. Financial liabilities, other than loan commitments and financial guarantees, are measured at amortized cost or at FVPL when they are held for trading and derivative. 6.8.2. Initial measurement of financial instruments The classification of financial instruments at initial recognition depends on their contractual terms and the business model for managing the instruments, as described in 6.10 Financial instruments are initially measured at their fair value (as defined in Note 6.9), except in the case of financial assets and financial liabilities recorded at FVPL, transaction costs are added to, or subtracted from, this amount. Trade receivables are measured at the transaction price. When the fair value of financial instruments at initial recognition differs from the transaction price, the Bank accounts for the Day 1 profit or loss, as described below. 6.9. Fair value of Financial Assets and Liabilities 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 Bank 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. 325 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesFor 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 Bank 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. 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 Bank considers market prices those disclosed by independent entities, assuming that these act for their own economic 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 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; 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 6.10. Financial Assets and Liabilities 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); • 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; 326 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes• Mandatorily measured at fair value through profit or loss: all cases not within the scope of SPPI; 6.10.2 Debt instruments at FVOCI • 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. The Bank classifies debt instruments at FVOCI when both of the following conditions are met: • The financial asset is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets; 6.10.1 Financial Assets at amortized cost or accounted at fair value through other comprehensive income • The contractual terms of the financial asset give rise to, on specific dates, cash flows that are solely payments of principal and interests on the principal amount outstanding. 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 part 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. 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. Debt instruments classified as fair value through other comprehensive income are subsequently measured at fair value with gains and losses arising due to changes in fair value being recognized in Other Comprehensive Income, until the assets are derecognized, at which time the accumulated amount of potential gains and losses recorded without reserves is transferred to results under the heading of gains or losses on financial assets and liabilities accounted for at fair value through profit or loss. Interest income and foreign exchange gains and losses are recognized in profit or loss in the same manner as for financial assets measured at amortized cost as explained in Note 6.2. The expected credit loss calculation for debt instruments at fair value through other comprehensive income is explained in Note 6.16. Where the Bank holds more than one investment in the same security, they are deemed to be disposed of on a first–in first–out basis. 6.10.3. Equity instruments at Fair Value through Other Comprehensive Income Upon initial recognition, the Bank occasionally elects to classify irrevocably some of its equity investments as equity instruments at FVOCI when they meet the definition of definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. Such classification is determined on an instrument-by-instrument basis. Gains and losses on these equity instruments are never recycled to profit. Dividends are recognized in profit or loss as other operating income when the right of the payment has been established, except when the Bank benefits from such proceeds as a recovery of part of the cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment. 6.10.4. Financial 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. 327 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes These assets are measured at fair value and the respective revaluation gains or losses are recognized in the income statement, with the exception of changes resulting from the change in the Group’s own risk the Debt Valuation Adjustment (DVA), which are recognized in other comprehensive income. novobanco does not records any gain arising from own credit risk. 6.10.5. Assets and liabilities held for trading The Bank classifies financial assets or financial liabilities as held for trading when they have been purchased or issued primarily for short-term profit-making through trading activities or form part of a portfolio of financial instruments that are managed together, for which there is evidence of a recent pattern of short-term profit taking. Held-for-trading assets and liabilities are recorded and measured in the statement of financial position at fair value. Changes in fair value are recognized in net trading income. Interest and dividend income or expense is recorded in net trading income according to the terms of the contract, or when the right to payment has been established. Included in this classification are debt securities, equities, short positions and customer loans that have been acquired principally for the purpose of selling or repurchasing in the near term. 6.10.6. Derivative financial instruments and hedge accounting Classification The Bank 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. Derivatives 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 28 and 32) 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 appropriate. 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. The 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 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 objective), the derivative financial instrument is transferred to the trading portfolio and hedge accounting is discontinued prospectively. The cumulative adjustment to the carrying book 328 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesvalue 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. 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. • 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 cumulative gain or loss reported in equity is recognized immediately in the income statement and the hedging instrument is reclassified to the trading portfolio. 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. • 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 6.9. 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 abovementioned conditions. 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: 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 Bank issuer’s own credit risk. a. The economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; a. A separate financial instrument with the same terms as the embedded derivative satisfies the definition of a derivative; and 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. a. 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. 6.10.7. 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) 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 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 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. 6.10.8. 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. 329 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesFinancial guarantees are initially recognized in the financial statements at fair value. Financial guarantees are subsequently 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 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. Consequently, 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 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. 6.11. Reclassifications of financial assets and liabilities 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. 6.12. Modification of financial assets and liabilities When the contractual cash flows of a financial asset are renegotiated or otherwise modified as a result of commercial restructuring activity rather than due to credit risk and impairment considerations, the Bank performs an assessment to determine whether the modifications result in the derecognition of that financial asset. For financial assets, this assessment is based on qualitative factors. When assessing whether or not to derecognize a loan to a customer, amongst others, the Bank considers the following factors: • Change in loan currency; • Introduction of an equity feature; • Change in counterparty; • Whether the modification is such that the instrument would no longer meet the SPPI criterion. If the modification does not result in cash flows that are substantially different, as set out below, then it does not result in derecognition. Based on the change in cash flows discounted at the original effective interest rate, the Bank records a modification gain or loss, to the extent that an impairment loss has not already been recorded. The Bank’s accounting policy in respect of forborne loans is set out in note 6.13. When the modification of the terms of an existing financial liability is not judged to be substantial and, consequently, does not result in derecognition, the amortized cost of the financial liability is recalculated by computing the present value of estimated future contractual cash flows that are discounted at the financial liability’s original EIR. Any resulting difference is recognized immediately in the result. For financial liabilities, the Bank considers a modification to be substantial based on qualitative factors and if it results in a difference between the adjusted discounted present value and the original carrying amount of the financial liability. 6.13. Derecognition Financial assets are derecognized from the balance sheet when (i) the Bank’s contractual rights relating to the respective cash flows have expired, (ii) the Bank has substantially transferred all the risks and benefits associated with its ownership, 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. 6.14. Forborne modified loans The Bank sometimes makes concessions or modifications to the original terms of loans as a response to the borrower’s financial difficulties, rather than taking possession or to otherwise enforce collection of collateral. The Bank considers a loan forborne when such concessions or modifications are provided as a result of the borrower’s present or expected financial difficulties and the Bank would not have agreed to them if the borrower had been financially healthy. Indicators of financial difficulties include defaults on covenants, or significant concerns raised by the Global Risk Department. Forbearance may involve extending the payment arrangements and/or the agreement of new loan conditions. If modifications are substantial, the loan is derecognized, as explained in Note 6.12. Once the terms have been renegotiated without this resulting in the derecognition of the loan, any impairment is measured using the original effective interest rate as calculated before the modification of terms. The Bank also reassesses whether there has been a significant increase in credit risk, as set out in Note 39 and whether the assets should be classified as Stage 3. 330 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesDerecognition decisions and classification between Stage 2 and Stage 3 are determined on a case- by-case basis. If these procedures identify a loss in relation to a loan, it is disclosed and managed as an impaired Stage 3 forborne asset. Once an asset has been classified as forborne, it will remain forborne for a minimum 24-month probation period. In order for the loan to be reclassified out of the forborne category, the customer has to meet all of the following criteria: • All of its facilities have to be considered performing; • The probation period of two years has passed from the date the forborne contract was considered performing; • Regular payments of more than an insignificant amount of principal or interest have been made during at least half of the probation period; • The customer does not have any contracts that are more than 30 days past due. 6.15. Offsetting of 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 novobanco, as well as in the event of default, bankruptcy or insolvency of the Bank or the counterparty. 6.16. Impairment of financial assets Impairment principles The Bank 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. Equity instruments are not subject to impairment under IFRS 9. 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. Impairment is based on the credit losses expected to arise over the life of the asset (LTECL), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ expected credit losses. The 12mECL is the portion of LTECL that represent the ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Both LTECL and 12mECL are calculated on either an individual basis or a collective basis, depending on the nature of the underlying portfolio of financial instruments. The Bank has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. Based on the above process, the Bank groups its loans into Stage 1, Stage 2, Stage 3 and POCI, as described below: • Stage 1: When loans are first recognized, the Bank recognizes an allowance based on 12mECL. Stage 1 loans also include facilities where the credit risk has improved, and the loan has been reclassified from Stage 2. • Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the LTECL. Stage 2 loans also include facilities, where the credit risk has improved, and the loan has been reclassified from Stage 3. • Stage 3: Loans considered credit impaired. The Bank records an allowance for the LTECL. • POCI: Purchased or originated credit impaired (POCI) assets are financial assets that are credit impaired on initial recognition. POCI assets are recorded at fair value at original recognition and interest income is subsequently recognized based on a credit adjusted EIR. The ECL allowance is only recognized or released to the extent that there is a subsequent change in the expected credit losses. The calculation of ECL The Bank calculates ECL based on probability-weighted scenarios to measure the expected cash shortfalls, discounted at an approximation to the EIR. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The mechanics of the ECL calculations are outlined below and the key elements are, as follows: • PD Probability of Default - The Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognized and is still in the portfolio. • EAD Exposure at Default - The Exposure at Default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. 331 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes• LGD The Loss Given Default - The Loss Given Default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral or credit enhancements that are integral to the loan and not required to be recognized separately. Scenarios As required by IFRS 9, the impairment assessment of the Bank 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, a scenario with a more favourable macroeconomic outlook and a scenario with a less favourable macroeconomic outlook); • 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). 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. 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. The mechanics of the ECL method are summarized below: • Stage 1: The 12mECL is calculated as the portion of LTECL that represent the ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. The Bank calculates the 12mECL allowance based on the expectation of a default occurring in the 12 months following the reporting date. These expected 12-month default probabilities are applied to a forecast EAD and multiplied by the expected LGD and discounted by an approximation to the original EIR. This calculation is made for each of the four scenarios, as explained above; • Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the LTECL. The mechanics are similar to those explained above, including the use of multiple scenarios, but PDs and LGDs are estimated over the lifetime of the instrument. The expected cash shortfalls are discounted by an approximation to the original EIR; • Stage 3: For loans considered credit-impaired, the Bank recognizes the lifetime expected credit losses for these loans. The method is similar to that for Stage 2 assets, with the PD set at 100%. • POCI assets are financial assets that are credit impaired on initial recognition. The Bank only recognizes the cumulative changes in lifetime ECL since initial recognition, based on a probability- weighting of the four scenarios, discounted by the credit-adjusted EIR; • letters of credit. When estimating LTECL for undrawn Irrevocable commitments and loan commitments, the Bank estimates the expected portion of the loan commitment that will be drawn down over its expected life. The ECL is then based on the present value of the expected shortfalls in cash flows if the loan is drawn down, based on a probability-weighting of the four scenarios. The expected cash shortfalls are discounted at an approximation to the expected EIR on the loan; 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). • For credit cards and revolving facilities that include both a loan and an undrawn commitment, ECL is calculated and presented together with the loan. For loan commitments and letters of credit, the ECL is recognized within Provisions. 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 The ECL for debt instruments measured at FVOCI do not reduce the carrying amount of these financial assets in the statement of financial position, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortized cost is recognized in OCI as an accumulated impairment amount, with a corresponding charge to profit or loss. The accumulated loss recognized in OCI is recycled to the profit and loss upon derecognition of the assets. 332 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesFor POCI financial assets, the Bank only recognizes the cumulative changes in LTECL since initial recognition in the loss allowance. The ongoing assessment of whether a significant increase in credit risk has occurred for revolving facilities is similar to other lending products. This is based on shifts in the customer’s internal credit grade, but greater emphasis is also given to qualitative factors such as changes in usage. The interest rate used to discount the ECL for credit cards is based on the average effective interest rate that is expected to be charged over the expected period of exposure to the facilities. This estimation takes into account that many facilities are repaid in full each month and are consequently not charged interest. The calculation of ECL, including the estimation of the expected period of exposure and discount rate is made, on an individual basis for corporate and on a collective basis for retail products. The collective assessments are made separately for portfolios of facilities with similar credit risk characteristics. 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 / Bank’s framework, historical and forecast cash flows (when available) and existing collateral. 6.17. Collateral and Financial Guarantees Valuation To mitigate its credit risks on financial assets, the Bank seeks to use collateral, where possible. The collateral comes in various forms, such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. Collateral, unless repossessed, is not recorded on the Bank’s statement of financial position. Collateral is generally assessed, at a minimum, at inception and re-assessed on a quarterly basis. However, some collateral, for example, cash or securities relating to margining requirements, is valued daily. To the extent possible, the Bank uses active market data for valuing financial assets held as collateral. Other financial assets which do not have readily determinable market values are valued using models. Non-financial collateral, such as real estate, is valued based on data provided by third parties such as mortgage brokers or based on housing price indices. 6.18. Foreclosed properties and non-current assets held for sale 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 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 Bank’s objective is to immediately dispose of all real estate property acquired as payment in kind for loans or through foreclosure, 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. For real estate properties recorded in the balance sheet of novobanco, the immediate sale value is considered to be the respective fair value. The market value of property for which a promissory contract of sale and purchase has been signed corresponds to the value of that contract. The valuation of the real estate properties received for credit recovery 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 properties 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 condition, 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 analysed 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 Bank proceeds to analysis on the assumptions used, which may imply additional adjustments to their fair value, supported by additional internal or external valuations. 333 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesFor assets of greater relevance, the challenge of the appraisals that serve as a basis for the valuation of the real estate assets is carried out by a specialized area of the Bank that is independent of this valuation process, in accordance with an annual work plan previously approved by the Executive Board of Directors. 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. Where the carrying value of non-current assets corresponds to fair value less costs to sell, the fair value level of the IFRS 13 hierarchy corresponds mostly to Level 3. 6.19. Write-offs Write-off is defined as the derecognition of a financial asset from the Bank’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 (totally or partially) as overdue credit. Exemptions from this requirement are (i) debt restructuring/ pardon carried out within the scope of extra-judicial, PER and Insolvency agreements, in which part of the credit may remain performing and the remainder of the debt will be written off by judicial/ extra-judicial decision and (ii) situations in which that despite the contract not having expired in its entirety, the Group understands that it is facing a scenario of total or partial loss; II. All the recovery efforts, considered appropriate, have been developed (and the relevant evidence gathered); III. The credit recovery expectations are very low, being necessary that the amount to be written off (whether total or partial write-off of the debt) to be fully covered by impairment and under management by the central credit recovery application. It is necessary to ensure that the amount to be written off from the asset is 100% impaired (constituted at least in the month prior to 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. 6.20. 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. 6.21. 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 6.10. 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. 6.22. Property, plant and 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. Subsequent payments received after the write-off must be recognized as subsequent write-off recoveries at other operating income. 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: 334 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesSelf-Service Buildings Leasehold improvements IT equipment Furniture and fixtures Interior installations Security equipment Machines and tools Transport equipment 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. 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. 6.23. Leases Lease Definition The Bank assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. As lessee As a lessee, the Bank leases various assets, including real estate, vehicles and IT equipment. The Bank recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. 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. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred and less any lease incentives received. The Bank presents the lease liabilities under “Other liabilities” in the statement of financial position. The lease liability corresponds to the present value of the future cash flows to be paid during the lease contract. The lease rents include fixed amounts, variable amounts that depend on an interest rate, amounts to be payable relating to guarantees on the residual value of the asset. Any options are also included if they are reasonably expected to be exercised. Variable amounts that do not depend on interest rate are recognized as cost in the period to which they relate. During the lease period, the lease liability increases by the interest accrual and decreases by the lease rents payment. The value of the lease liability changes if the terms of the lease (such as the term or the value of the index) change or if the valuation of the exercise of the option to acquire the asset changes. As Lessor 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. Revenues relating to these contracts are recognized on a straight-line basis over the lease term and recorded in “Other operating income”. 335 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes6.24. Intangible assets The costs incurred with the acquisition, production and development of software are capitalised, 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. 6.25. Impairment of non-financial assets The Bank assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asse or cash generating unit fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or cash generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Bank bases its impairment calculation on most recent budgets and forecast calculations, which are prepared separately for each of the Bank’s cash generating units to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year (perpetuity). Impairment losses of continuing operations are recognized in the statement of profit or loss in expense categories consistent with the function of the impaired asset, except for properties previously revalued with the revaluation taken to OCI. For such properties, the impairment is recognized in other comprehensive income up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Bank estimates the assets or cash generating unit recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. Intangible assets with indefinite useful lives are tested for impairment annually at the cash generating unit level, as appropriate, and when circumstances indicate that the carrying value may be impaired. The Bank assesses where climate risks may have a significant impact, such as the introduction of emissions reduction legislation that may increase production costs. These risks in relation to climate-related issues are included as key assumptions when they materially affect the impairment measurement. These assumptions have been included in the cash flow forecasts in the value in use assessment. 6.26. 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 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 336 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesreturn on the fund’s assets and the actual investment returns, are recognized in equity under the caption other comprehensive income. The 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 ACTV) 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 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 with services and/or contributions on medical assistance expenses, auxiliary diagnostic means, medication, hospital admissions and surgical interventions, in accordance with its financial resources 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, 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 Bank’s liability with post-retirement health-care benefits is similar to the calculation 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 Bank of a career bonus, due at the time immediately prior to the employee’s retirement if he retires at the Bank’s service, corresponding to 1.5 of his salary at the time of payment. These long-term service bonuses were accounted for by the Bank in accordance with IAS 19, as other long-term employee benefits. The Bank’s liability with these long-term service bonuses were periodically estimated by the Bank 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 Bank 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 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. • 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. 6.27. 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 assessments made by Management, with the support and advice of its legal advisors, both internal and external. When the effect the 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. 337 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThis 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. 6.28. Income Taxes novobanco and its subsidiaries are subject to the tax regime consigned in the Código do Imposto sobre o Rendimento 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 equity. 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 and any adjustments to prior period taxes. 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) differences arising on the initial recognition of assets and liabilities that neither affect the accounting nor taxable profit; ii) that do not result from a business combination, and iii) differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. 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 for tax purposes (including tax losses carried forward). Deferred tax liabilities are always accounted for, regardless of the performance of Bank. The taxable profit or tax loss determined by the Bank can be adjusted by the Portuguese Tax Authorities within a period of four years, except in the case of any deduction or use of tax credit, in which the expiry period is the exercise of that right (5 or 12 years in the case of tax losses, depending on the year). The Executive Board of Directors considers that any corrections, resulting mainly from differences in the interpretation of tax legislation, will not have a materially relevant 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 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. 6.29. Treasury shares Own equity instruments of the Bank which are acquired by it are deducted from equity. Consideration paid or received on the purchase, sale, issue or cancellation of the Bank’s own equity instruments is recognized directly in equity. No gain or loss is recognized on the result of the purchase, sale, issue or cancellation of own equity instruments. At 31 December 2021, the Bank does not hold own equity instruments. 6.30. Disintermediation The Bank provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity, unless recognition criteria are met, are not reported in the financial statements, as they are not assets of the Bank. 6.31. Dividends Dividends on ordinary shares are recognized as a liability and deducted from equity when they are approved by the Bank’s shareholders. Interim dividends are deducted from equity when they are declared and are no longer at the discretion of the Bank.. Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date. 6.32. Reserves The reserves recorded in equity on the Bank’s statement of financial position include: • Other Comprehensive Income: 338 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes – Fair value reserves which comprise: (i) The cumulative net change in the fair value of debt instruments classified at fair value through other comprehensive income, minus the allowance for expected credit loss, when applicable; (ii) The cumulative net change in fair value of equity instruments at fair value through other comprehensive income; – Impairment reserves of debt instruments classified at fair value through other comprehensive income; – Reserves associated with sales of equity instruments classified as fair value through other comprehensive income, which include the proceeds from sales of these securities; – Actuarial deviation reserves that correspond to actuarial gains and losses, resulting from differences between the actuarial assumptions used and the values actually verified (experience gains and losses) and from changes in actuarial assumptions and the gains and losses arising from the difference between the income expected from the fund’s assets and the values obtained; – Own credit revaluation reserve, which comprises the cumulative changes in the fair value of the financial liabilities designated at fair value through profit or loss attributable to changes in the Bank’s own credit risk; – Cash flow hedge reserve, which comprises the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge; – Foreign currency translation reserve, which is used to record exchange differences arising from the translation of the net investment in foreign operations, net of the effects of hedging; – Other capital reserve, which includes the portion of compound financial liabilities that qualify for treatment as equity. • Retained earnings, which corresponds to earnings of the Bank carried over from previous years; • Other reserves (originary reserve, special reserve and other reserves). 6.33. Earnings per share Basic earnings per share are calculated by dividing the net income attributable to the shareholders of the parent company 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 will be exercised. 6.34. The accounting standards and interpretations The accounting standards and interpretations recently issued but not yet effective and that the Bank has not yet applied in the preparation of its financial statements may be analyzed as follows: Standards, interpretations, amendments and revisions that become effective in future years: The following standards, interpretations, amendments and revisions, with mandatory application in future financial years, have, up to the date of approval of these financial statements, been adopted (“endorsed”) by the European Union: Norm / Interpretation Applicable in the European Union for fiscal years beginning on or after Description Amendments to IFRS 3 - References to the Framework for Financial Reporting 1-jan-2022 This amendment updates the references to the Framework in the text of IFRS 3, with no changes being made to the accounting requirements for business combinations. It also clarifies the accounting treatment to be adopted in respect of liabilities and contingent liabilities under IAS 37 and IFRIC 21, incurred separately versus those included in a business combination. The amendment is of prospective application. Amendments to IAS 16 - Income Earned Before Start out 1-jan-2022 Clarifies the accounting treatment given to the consideration obtained with the sale of products that result from the production in test phase of tangible fixed assets, prohibiting their deduction from the acquisition cost of the assets. The entity recognizes the income obtained from the sale of such products and the costs of their production in results. Amendments to IAS 37 - Onerous Contracts - costs of fulfilling a contract 1-jan-2022 Amendments to IFRS 1 - Subsidiary as a first-time adopter of IFRS (included in the annual improvements for the 2018-2020 cycle) Amendments to IFRS 9 - Derecognition of financial liabilities - Fees to be included in the ‘10 per cent’ change test (included in the annual improvements for the 2018 2020 cycle) Amendments to IAS 41 - Taxation and fair value measurement (included in the annual improvements for the 2018-2020 cycle) 1-jan-2022 1-jan-2022 This amendment specifies that in assessing whether or not a contract is onerous, only expenses directly related to the performance of the contract can be considered, such as incremental costs related to direct labor and materials and the allocation of other directly related expenses such as the allocation of depreciation expenses for tangible assets used to perform the contract. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly charged to the counterparty in accordance with the contract. This amendment should be applied to contracts that, at the beginning of the first annual reporting period to which the amendment is applied, still include unfulfilled contractual obligations, without restating the comparative. This improvement clarifies that when the subsidiary chooses to measure its assets and liabilities at the amounts included in the parent company’s consolidated financial statements (assuming no adjustment to the consolidation process has occurred), the measurement of the cumulative translation differences of all foreign operations can be made at the amounts that would be recorded in the consolidated financial statements, based on the parent company’s date of transition to IFRS. This improvement clarifies which fees an entity should include when assessing whether the terms of a financial liability are substantially different from the terms of the original financial liability. This improvement clarifies that, when performing derecognition tests on renegotiated liabilities, only fees paid or received between the debtor and the creditor should be included, including fees paid or received by the debtor or the creditor on behalf of the other. 1-jan-2022 This improvement eliminates the requirement to exclude tax cash flows in the fair value measurement of biological assets, ensuring consistency with the principles of IFRS 13 - Fair Value. IFRS 17 - Insurance Contracts 1-jan-2023 IFRS 17 applies to all insurance contracts (i.e. life, non-life, direct insurance and reinsurance), regardless of the type of entity that issues them, as well as some guarantees and some financial instruments with discretionary participation features. In general terms, IFRS 17 provides an accounting model for insurance contracts that is more useful and more consistent for issuers. In contrast to the requirements of IFRS 4, which are based on previously adopted local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. 339 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe Bank did not early adopt any of these standards in its financial statements for the year ended December 31, 2021. No significant impacts on the financial statements are expected as a result of their adoption. Standards, interpretations, amendments and revisions not yet adopted by the European Union The following standards, interpretations, amendments and revisions, with mandatory application in future financial years, have not been, until the date of approval of these financial statements, adopted (“endorsed”) by the European Union: Norm / Interpretation Description Amendments to IAS 1 – Presentation of financial statements - Classification of current and non-current liabilities This amendment aims to clarify the classification of liabilities as current or non-current balances depending on the rights that an entity has to defer its payment, at the end of each reporting period. The classification of liabilities is not affected by the entity’s expectations (the assessment should determine whether a right exists, but should not consider whether the entity will or will not exercise that right), or by events occurring after the reporting date, such as the breach of a “covenant”. However, if the right to defer settlement for at least twelve months is subject to certain conditions being met after the reporting date, those criteria do not affect the right to defer settlement for the purpose of classifying a liability as current or noncurrent. This amendment also includes a new definition of “settlement” of a liability and is retrospective. Amendments to IAS 8 – Definition of accounting estimates The amendment clarifies the distinction between change in accounting estimate, change in accounting policy and correction of errors. In addition, it clarifies how an entity uses measurement techniques and inputs to develop accounting estimates. Amendments to IAS 1 – Disclosure of accounting policies These amendments are intended to assist the entity in disclosing ‘material’ accounting policies, previously referred to as ‘significant’ policies. However, due to the absence of this concept in IFRS, it was decided to replace it by the concept “materiality”, a concept already known to users of financial statements. In assessing the materiality of accounting policies, the entity has to consider not only the size of the transactions but also other events or conditions and the nature of these. Amendments to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction The amendments clarify that payments that settle a liability are tax deductible, however it is a matter of professional judgment whether such deductions are attributable to the liability that is recognized in the financial statements or the related asset. This is important in determining whether there are temporary differences in the initial recognition of the asset or liability. According to these amendments, the initial recognition exception is not applicable to transactions that have given rise to equal taxable and deductible temporary differences. It only applies if the recognition of a leasing asset and a leasing liability gives rise to taxable and deductible temporary differences that are not equal. Amendments to IFRS 17 – Insurance Contracts - Initial application of IFRS 17 and IFRS 9 - Comparative Information This amendment to IFRS 17 relates to the presentation of comparative information for financial assets in the initial application of IFRS 17. The amendment adds a transition option that allows an entity to apply an ‘overlay’ to the classification of a financial asset in the comparative period(s) presented in initially applying IFRS 17. The overlay allows all financial assets, including those held in relation to non-contractual activities within the scope of IFRS 17 to be classified, instrument by instrument, in the comparative period(s) in a manner aligned with how the entity expects those assets to be classified on initial application of IFRS 9. These standards have not yet been endorsed by the European Union and, as such, have not been applied by the Bank for the year ended December 31, 2021. No significant impacts on the financial statements are expected as a result of their adoption. NOTE 7 – 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 to improve the understanding of how their application affects the reported results of the Bank and its disclosure. 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 at 31 December 2021. 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. 7.1. Impairment of financial assets at amortized cost and at fair value through other comprehensive income The critical judgements with greater impact on the recognized impairment values for the financial 340 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesassets at amortized 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 amortized cost or at fair value through other comprehensive income, assessing if it is necessary to prospectively apply any changes; 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 38. 7.3. Corporate income taxes • Significant increase on the credit risk: as mentioned on the accounting policy 6.16, 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 Bank management, constitutes a significant increase on credit risk; The Bank 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 27. • 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 novobanco and which result in performing judgements when assessing the high probability that the borrower does not fulfil its obligations within the conditions agreed with novobanco. 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 characteristics. 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. 7.2. 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 accordance 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 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. 7.4. Pensions and other employee benefits The determination of the retirement pension liabilities presented in Note 15 requires the use of assumptions and estimates, 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 novobanco 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. 7.5. 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 341 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesBoard 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. 7.7 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. 7.6. Investment properties, Foreclosed assets and Non-current assets held for sale Foreclosed assets 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 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. 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 6.18. The valuation reports are analyzed internally, namely comparing the sales values with the revalued values of the properties to maintain the valuation parameters and processes aligned with the market evolution. NOTE 8 – NET INTEREST INCOME 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. The breakdown of this caption as at 31 December 2021 and 2020 is as follows: NOTE 8 – NET INTEREST INCOME The breakdown of this caption as at 31 December 2021 and 2020 is as follows: 31.12.2021 31.12.2020 Calculated by the effective interest method Other Calculated by the effective interest method Other From assets / liabilities at amortised cost From assets / liabilities at fair value through other comprehensive income Income/expens es from negative interest rates From assets / liabilities at fair value through profit or loss Total From assets / liabilities at amortised cost From assets / liabilities at fair value through other comprehensive income Income/expens es from negative interest rates From assets / liabilities at fair value through profit or loss Total (in thousands of Euros) Interest Income Interest from loans and advances Interest from deposits with and loans and advances to banks Interest from securities Interest from derivatives 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 Other interest and similar expenses 484 946 12 922 - 497 868 508 045 13 344 - - 75 062 - 39 401 14 033 65 266 - 441 564 686 36 513 50 231 8 937 34 168 - 6 940 136 789 427 897 70 982 - - 83 904 - - - - - - - 83 904 - - 18 631 4 730 - - 1 579 - 89 095 154 879 6 309 441 19 835 59 987 - 509 76 641 23 361 748 592 588 376 - - 11 380 - 6 980 1 051 19 411 57 230 - - - 36 513 50 231 34 206 69 990 20 317 26 620 - 11 308 - 11 308 12 053 34 168 18 288 7 991 167 508 581 084 34 165 - 7 463 172 444 415 932 81 067 - - 94 411 - - - - - - - - 1 669 - - - 2 750 - 5 771 331 8 852 94 411 32 218 - - 27 709 8 545 - 521 389 59 236 168 763 10 214 509 - - - - 10 816 - 10 816 25 438 34 206 69 990 29 370 34 165 16 587 7 794 192 112 567 999 41 070 36 254 760 111 On 31 December 2021, interest from loans and advances to customers includes Euro 31 037 thousand related to financial lease operations (31 December 2020: Euro 35 385 thousand). In relation to repurchase agreement operations, interests from deposits from Other banks includes, as of December 31, 2021, the amount of Euro 2,300 thousand (31 December 2020: Euro -16 thousand in customer deposits and Euro 822 thousand in interest from deposits of other banks). 342 Interest income and expense items related to derivative interest include 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 6.10.6 e 6.10.7. NOTE 9 – DIVIDEND REVENUE The breakdown of this caption is as follows: Financial assets mandatorily at fair value through profit or loss Shares Euronext NV Visa Inc CL C Others Participation Units Explorer III B Fundo Solução Arrendamento Others Shares FLITPTREL X SIBS SGPS ESA Energia Others Unicre Locarent Edenred ESEGUR Financial assets at fair value through other comprehensive income Financial assets in investments in associates and subsidiaries (in thousands of Euros) 31.12.2021 31.12.2020 2 146 1 801 226 119 7 604 7 604 - - - 1 062 785 275 2 7 588 6 322 518 660 88 1 765 1 391 261 113 5 324 634 3 141 1 549 7 750 6 000 887 657 206 2 089 - 958 583 548 31 18 400 16 928 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 8 – NET INTEREST INCOME NOTE 8 – NET INTEREST INCOME The breakdown of this caption as at 31 December 2021 and 2020 is as follows: The breakdown of this caption as at 31 December 2021 and 2020 is as follows: 31.12.2021 31.12.2021 31.12.2020 31.12.2020 (in thousands of Euros) (in thousands of Euros) Calculated by the effective interest method Calculated by the effective interest method Other Calculated by the effective interest method Calculated by the effective interest method Other Other Other From assets / liabilities at amortised cost From assets / liabilities at fair value through comprehensive other income From assets / Income/expens From assets / es from liabilities at negative amortised cost interest rates From assets / liabilities at fair Income/expens liabilities at fair value through value through other Total es from negative comprehensive profit or loss interest rates From assets / From assets / liabilities at fair liabilities at value through amortised cost profit or loss income From assets / liabilities at fair Total value through comprehensive other income Income/expens From assets / es from liabilities at negative amortised cost interest rates From assets / liabilities at fair value through value through other income From assets / liabilities at fair Income/expens From assets / Total es from negative liabilities at fair value through Total comprehensive profit or loss interest rates profit or loss Interest Income Interest Income Interest from loans and advances Interest from loans and advances 484 946 12 922 484 946 - 12 922 - 497 868 - 508 045 - 497 868 13 344 508 045 - 13 344 - 521 389 - Interest from deposits with and loans and advances to banks Interest from securities Interest from derivatives Other interest and similar income Interest from deposits with and loans and - 14 033 advances to banks 65 266 Interest from securities Interest from derivatives - 441 Other interest and similar income 70 982 - - 75 062 14 033 65 266 - - 1 579 - 441 - - 89 095 75 062 19 835 - - 89 095 39 401 19 835 - - 59 236 39 401 70 982 18 631 - 4 730 - - 154 879 - 1 579 6 309 441 - 18 631 59 987 4 730 - 509 - 154 879 81 067 6 309 - - 441 59 987 - - 1 669 - 509 81 067 27 709 - 8 545 - - 168 763 - 1 669 10 214 509 - - - 27 709 8 545 - 521 389 59 236 168 763 10 214 509 564 686 83 904 76 641 564 686 23 361 83 904 748 592 76 641 588 376 23 361 94 411 748 592 41 070 588 376 36 254 94 411 760 111 41 070 36 254 760 111 Interest Expenses Interest Expenses Interest on debt securities issued Interest on debt securities issued 36 513 Interest on amounts due to customers Interest on amounts due to customers 50 231 - - - 36 513 - 50 231 - - - - 36 513 - 34 206 - 50 231 - 69 990 - 36 513 - - 50 231 - 34 206 - 69 990 - - - - 34 206 - 69 990 - - - 34 206 69 990 - 8 937 11 380 8 937 Interest on deposits from Central Banks and other banks Interest on subordinated liabilities Interest on derivatives Other interest and similar expenses Interest on deposits from Central Banks and other banks On 31 December 2021, interest from loans and advances to customers includes Euro 31 037 thousand 34 165 - - - - Interest on subordinated liabilities - - 5 771 11 308 6 980 Interest on derivatives related to financial lease operations (31 December 2020: Euro 35 385 thousand). 331 - 7 463 1 051 - Other interest and similar expenses 172 444 8 852 11 308 - 415 932 32 218 NOTE 10 – FEES AND COMMISSIONS INCOME AND EXPENSES 19 411 In relation to repurchase agreement operations, interests from deposits from Other banks includes, as 57 230 of December 31, 2021, the amount of Euro 2,300 thousand (31 December 2020: Euro -16 thousand in On 31 December 2021, interest from loans and advances to customers includes Euro 31 037 thousand related to financial lease customer deposits and Euro 822 thousand in interest from deposits of other banks). operations (31 December 2020: Euro 35 385 thousand). On 31 December 2021, interest from loans and advances to customers includes Euro 31 037 thousand related to financial lease The breakdown of this caption is as follows: operations (31 December 2020: Euro 35 385 thousand). NOTE 10 – FEES AND COMMISSIONS INCOME AND EXPENSES NOTE 10 – FEES AND COMMISSIONS INCOME AND EXPENSES The breakdown of this caption is as follows: The breakdown of this caption is as follows: 34 165 - 11 308 - 7 463 - - - - 10 816 - - 34 168 - 18 288 - - 7 991 34 168 18 288 7 991 - 10 816 - 34 168 - - 6 980 1 051 6 940 34 168 - 6 940 34 165 16 587 7 794 34 165 16 587 7 794 - 5 771 331 57 230 427 897 19 411 136 789 427 897 136 789 192 112 567 999 192 112 567 999 172 444 415 932 581 084 - 167 508 94 411 581 084 167 508 10 816 - 25 438 94 411 12 053 83 904 83 904 2 750 26 620 12 053 11 380 29 370 29 370 26 620 - 20 317 10 816 32 218 25 438 11 308 20 317 2 750 8 852 - - - - - - - - - - Interest income and expense items related to derivative interest include interest from hedging In relation to repurchase agreement operations, interests from deposits from Other banks includes, as of December 31, 2021, the derivatives and from derivatives used to manage the economic risk of certain financial assets and amount of Euro 2,300 thousand (31 December 2020: Euro -16 thousand in customer deposits and Euro 822 thousand in interest from Fees and commissions income deposits of other banks). liabilities designated at fair value through profit or loss, as per the accounting policies described in Notes 6.10.6 e 6.10.7. In relation to repurchase agreement operations, interests from deposits from Other banks includes, as of December 31, 2021, the amount of Euro 2,300 thousand (31 December 2020: Euro -16 thousand in customer deposits and Euro 822 thousand in interest from deposits of other banks). From banking services From guarantees provided From transaction of securities Interest income and expense items related to derivative interest include interest from hedging derivatives and from derivatives used From commitments to third parties to manage the economic risk of certain financial assets and liabilities designated at fair value through profit or loss, as per the From transactions carried out on behalf of third parties - cross-selling accounting policies described in Notes 6.10.6 e 6.10.7. Other fee and commission income Interest income and expense items related to derivative interest include 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 6.10.6 e 6.10.7. 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 income NOTE 9 – DIVIDEND REVENUE NOTE 9 – DIVIDEND REVENUE NOTE 9 – DIVIDEND REVENUE The breakdown of this caption is as follows: The breakdown of this caption is as follows: The breakdown of this caption is as follows: Fees and commissions expenses Fees and commissions expenses With banking services rendered by third parties With guarantees received With transaction of securities (in thousands of Euros) Other fee and commission income With banking services rendered by third parties With guarantees received With transaction of securities Other fee and commission income (in thousands of Euros) Financial assets mandatorily at fair value through profit or loss Financial assets mandatorily at fair value through profit or loss Shares Euronext NV Visa Inc CL C Others Shares Euronext NV Visa Inc CL C Others Participation Units Participation Units Explorer III B Fundo Solução Arrendamento Others Explorer III B Fundo Solução Arrendamento Others Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income Shares Shares FLITPTREL X SIBS SGPS ESA Energia Others FLITPTREL X SIBS SGPS ESA Energia Others Financial assets in investments in associates and subsidiaries Financial assets in investments in associates and subsidiaries Unicre Locarent Edenred ESEGUR Unicre Locarent Edenred ESEGUR 31.12.2021 31.12.2020 31.12.2021 31.12.2020 2 146 1 801 226 119 7 604 7 604 - - 1 062 - 785 275 2 7 588 6 322 518 660 88 1 765 1 391 261 113 5 324 634 3 141 1 549 2 146 1 801 226 119 7 604 7 604 - - 7 750 6 000 887 657 206 1 062 - 785 275 2 7 588 2 089 - 6 322 958 518 583 660 548 88 1 765 1 391 261 113 5 324 634 3 141 1 549 7 750 6 000 887 657 206 2 089 - 958 583 548 18 400 16 928 18 400 16 928 31 31 (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2020 31.12.2021 31.12.2020 205 914 32 654 4 657 7 997 33 434 2 357 287 013 31 309 1 564 2 195 5 228 40 296 246 717 198 376 34 762 3 718 8 062 32 254 2 706 279 878 31 497 1 755 2 259 5 927 41 438 238 440 205 914 32 654 4 657 7 997 33 434 2 357 287 013 31 309 1 564 2 195 5 228 40 296 246 717 198 376 34 762 3 718 8 062 32 254 2 706 279 878 31 497 1 755 2 259 5 927 41 438 238 440 343 32 32 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 11 – GAINS OR LOSSES ON FINANCIAL OPERATIONS NOTE 11 – GAINS OR LOSSES ON FINANCIAL OPERATIONS The breakdown of this caption is as follows: The breakdown of this caption is as follows: Gains or losses on financial assets and liabilities not measured at fair value through profit or loss Of financial assets at fair value through other comprehensive income Securities Obrigações e outros títulos de rendimento fixo Bonds and other fixed income securities De emissores públicos Issued by government and public entities De outros emissores Issued by other entities Of financial assets and liabilities at amortized cost Securities Obrigações e outros títulos de rendimento fixo Bonds and other fixed income securities De outros emissores Issued by other entities Credit Crédito Gains or losses on financial assets and liabilities held for trading Securities Títulos Obrigações e outros títulos de rendimento fixo Bonds and other fixed income securities De emissores públicos Issued by government and public entities De outros emissores Issued by other entities Derivative financial instruments Contratos sobre taxas de câmbio Exchange rates contracts Contratos sobre taxas de juro Interest rate contracts Contratos sobre ações/índices Equity / Index contracts Contratos sobre créditos Credit default contracts Outros Other Gains or losses on financial assets mandatorily at fair value through profit or loss Securities Obrigações e outros títulos de rendimento fixo Bonds and other fixed income securities De outros emissores Issued by other entities 31.12.2021 31.12.2020 Gains Losses Total Gains Losses Total (in thousands of Euros) 15 088 11 021 12 758 1 073 2 330 9 948 93 160 1 010 6 529 7 482 86 631 ( 6 472) 26 109 13 831 12 278 94 170 14 011 80 159 - 142 ( 142) 6 281 154 6 127 12 639 32 009 ( 19 370) 8 336 8 439 ( 103) 12 639 32 151 ( 19 512) 14 617 8 593 6 024 38 748 45 892 ( 7 234) 108 787 22 604 86 183 3 252 43 14 507 20 ( 11 255) 23 13 710 5 13 121 - 589 5 59 419 422 828 31 440 16 4 179 62 526 358 646 30 638 18 3 600 ( 3 107) 64 182 802 ( 2) 579 68 245 602 631 82 551 42 488 52 681 711 014 81 243 44 777 15 564 ( 108 383) 1 308 ( 2) ( 289) 521 177 469 955 51 222 767 672 858 880 ( 91 208) 26 377 6 714 19 663 17 920 90 440 ( 72 520) Shares 25 726 457 25 269 23 229 141 374 ( 118 145) Other variable income securities 46 328 48 526 ( 2 198) 1 709 332 103 ( 330 394) Gains or losses from hedge accounting Changes in fair value of the hedge instrument Interest rate contracts 98 431 55 697 42 734 42 858 563 917 ( 521 059) 89 031 41 945 47 086 75 803 97 972 ( 22 169) Changes in fair value of the hedged item attributable to the hedged risk Instrumentos financeiros derivados 9 732 41 922 ( 32 190) 43 804 33 688 10 116 Exchange rate revaluation 98 763 83 867 14 896 119 607 131 660 ( 12 053) 1 115 721 1 105 068 10 653 1 282 775 1 284 775 ( 2 000) 1 872 840 1 760 569 112 271 2 321 699 2 861 836 ( 540 137) Gains or losses on financial assets and financial liabilities held for trading In accordance with the accounting policy described in Note 6.5, 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. 344 The Bank recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is generated, 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 Bank’s access to the (wholesale market). As at 31 December 2021, gains recognized in the income statement arising from intermediation fees, which are essentially related to foreign exchange transactions, amounted to approximately Euro 1,800 thousand (31 December 2020: Euro 5,037 thousand). 33 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Gains or losses on financial assets and financial liabilities held for trading Gains or losses on financial assets mandatorily at fair value through profit or loss In accordance with the accounting policy described in Note 6.5, 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. 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). novobanco 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 22), which led to the recording of the said loss of Euro 300.2 million in 2020 (see Note 38). The Bank recognizes in its income statement the gains arising from the intermediation fee (day one profit), which is generated, primarily, through currency and derivative financial product intermediation, given that the fair value of these instruments, both at inception and subsequently, is determined based Gains or losses on hedge solely on observable market data and reflects the Bank’s access to the (wholesale market). Gains or losses on hedge accounting include the fair value variations of the hedging instrument (derivative) and the fair value variations of the hedged item attributable to the hedged risk. In the case where the hedge operations are interrupted early, there may occur the payment/receipt of compensation, which is recorded in Other operating expenses/ Other operating income. As at 31 December 2021, the amount of compensation received amounted to Euro 1,726 thousand (31 December 2020: Euro 10,181 thousand). Gains or losses on hedge 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 22), which led to the recording of the said loss of Euro 300.2 million in 2020 (see Note 38). As at 31 December 2021, gains recognized in the income statement arising from intermediation fees, which are essentially related to foreign exchange transactions, amounted to approximately Euro 1,800 thousand (31 December 2020: Euro 5,037 thousand). Gains or losses on hedge accounting include the fair value variations of the hedging instrument (derivative) and the fair value variations of the hedged item attributable to the hedged risk. In the case where the hedge operations are interrupted early, there may occur the payment/receipt of compensation, which is recorded in Other operating expenses/ Other operating income. As at 31 December 2021, the amount of compensation received amounted to Euro 1,726 thousand (31 December 2020: Euro 10,181 thousand). Exchange differences 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 6.1. Gains or losses on financial assets mandatorily at fair value through profit or loss Exchange differences 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). novobanco requested an independent The breakdown of this caption is as follows: NOTE 12 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS 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 6.1. NOTE 12 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS The breakdown of this caption is as follows: Real Estate Equipment Others (in thousands of Euros) 31.12.2021 31.12.2020 ( 5 372) 294 495 ( 4 582) 2 625 ( 307) ( 46) 2 272 In the year 2021, as part of the reorganization of the Real Estate Funds held by the novobanco Group, the Bank sold properties of its own service and received in donation to the Real Estate Funds, recording a net loss of 10.6 million euros. In the year 2021, as part of the reorganization of the Real Estate Funds held by the novobanco Group, the Bank sold properties of its own service and received in donation to the Real Estate Funds, recording a net loss of 10.6 million euros. NOTE 13 – OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES The breakdown of these captions is as follows: Other operating income Gains / (losses) on recoveries of loans Non-recurring advisory services Other income Other operating expenses Losses on the acquisition of debt issued by the Bank (see Note 29) Direct and indirect taxes Contribution to the Banking Sector (see Note 26) Membership subscriptions and donations Charges with Supervisory entities Contractual Indemnities (SPE) Other expenses Other operating income / (expenses) (in thousands of Euros) 31.12.2021 31.12.2020 26 310 355 53 088 79 753 ( 73 451) ( 3 877) ( 33 424) ( 1 923) ( 1 849) ( 1 723) ( 25 298) ( 141 545) ( 61 792) 29 596 264 57 739 87 599 ( 19) ( 5 175) ( 32 193) ( 1 580) ( 2 321) ( 86) ( 48 505) ( 89 879) ( 2 280) 345 As at 31 December 2021, the amount received as compensation for discontinued hedging operations, included in other income, amounts to Euro 1,726 thousand (31 December 2020: Euro 10,181 thousand) (see Note 11). 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 national amount of derivative financial instruments, and whose regime has been extended. As at 31 December 2021, novobanco recognized Banking Levy charges as a cost in the amount of Euro 28,334 thousand (31 December 2020: Euro 26,981 thousand). The cost recognized as at 31 December 2021 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 34 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Gains or losses on financial assets mandatorily at fair value through profit or loss 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). novobanco 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 22), which led to the recording of the said loss of Euro 300.2 million in 2020 Gains or losses on hedge accounting include the fair value variations of the hedging instrument (derivative) and the fair value variations of the hedged item attributable to the hedged risk. In the case where the hedge operations are interrupted early, there may occur the payment/receipt of compensation, which is recorded in Other operating expenses/ Other operating income. As at 31 December 2021, the amount of compensation received amounted to Euro 1,726 thousand (31 December 2020: Euro 10,181 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 6.1. NOTE 12 – GAINS OR LOSSES ON DERECOGNITION OF NON-FINANCIAL ASSETS The breakdown of this caption is as follows: (see Note 38). Gains or losses on hedge thousand). Exchange differences Real Estate Equipment Others (in thousands of Euros) 31.12.2021 31.12.2020 ( 5 372) 294 495 ( 4 582) 2 625 ( 307) ( 46) 2 272 NOTE 13 – OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES The breakdown of these captions is as follows: The breakdown of these captions is as follows: NOTE 13 – OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES In the year 2021, as part of the reorganization of the Real Estate Funds held by the novobanco Group, the Bank sold properties of its own service and received in donation to the Real Estate Funds, recording a net loss of 10.6 million euros. Other operating income Gains / (losses) on recoveries of loans Non-recurring advisory services Other income Other operating expenses Losses on the acquisition of debt issued by the Bank (see Note 29) Direct and indirect taxes Contribution to the Banking Sector (see Note 26) Membership subscriptions and donations Charges with Supervisory entities Contractual Indemnities (SPE) Other expenses Other operating income / (expenses) (in thousands of Euros) 31.12.2021 31.12.2020 26 310 355 53 088 79 753 ( 73 451) ( 3 877) ( 33 424) ( 1 923) ( 1 849) ( 1 723) ( 25 298) ( 141 545) ( 61 792) 29 596 264 57 739 87 599 ( 19) ( 5 175) ( 32 193) ( 1 580) ( 2 321) ( 86) ( 48 505) ( 89 879) ( 2 280) As at 31 December 2021, the amount received as compensation for discontinued hedging operations, included in other income, amounts to Euro 1,726 thousand (31 December 2020: Euro 10,181 thousand) (see Note 11). As at 31 December 2021, the amount received as compensation for discontinued hedging operations, included in other income, amounts to Euro 1,726 thousand (31 December 2020: Euro 10,181 thousand) (see Note 11). 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 national amount of derivative financial instruments, and whose regime has been extended. 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 national amount of derivative financial instruments, and whose regime has been extended. As at 31 December 2021, novobanco recognized Banking Levy charges as a cost in the amount of Euro 28,334 thousand (31 December 2020: Euro 26,981 thousand). The cost recognized as at 31 December 2021 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 34 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: (i)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 Bank of Portugal Notice No. 1/2019; (ii) 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 2021, novobanco recognized Banking Levy charges as a cost in the amount of Euro 28,334 thousand (31 December 2020: Euro 26,981 thousand). The cost recognized as at 31 December 2021 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 calculated balance sheet deducted from own funds and deposits covered by the Deposit Guarantee Fund guarantee and on the notional value of derivative As at 31 December 2021, the Bank recognized as an expense in relation to the Solidarity Additional on the Banking Sector the amount of Euro 5,090 thousand (31 December 2020: 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 deposits covered by the Deposit Guarantee Fund guarantee. NOTE 14 – STAFF EXPENSES The breakdown of these captions is as follows: 346 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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. covered by the guarantee of the Deposit Guarantee Fund, approved by Law No. 7-A/2016, of 30 March and by Ordinance No. 165- In 2020, following one of the measures provided for in Economic and Social Stabilization Program (SSPE) and following the art. 18 A/2016, of 14 June. 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 calculated balance sheet deducted from own funds In 2020, following one of the measures provided for in Economic and Social Stabilization Program (SSPE) and following the art. 18 and deposits covered by the Deposit Guarantee Fund guarantee and on the notional value of derivative financial instruments. Its of Law no. 27 -A / 2020, of July 24, the Solidarity Additional on the Banking Sector was created, which, similarly to what happens with settlement is carried out until the end of June of the year following the year to which the surcharge relates. A transitional regime was the Contribution on the Banking Sector, is levied on the average annual liability calculated balance sheet deducted from own funds established for the year 2020 and 2021, the settlement of which was carried out in accordance with the following rules: (i)The reserve and deposits covered by the Deposit Guarantee Fund guarantee and on the notional value of derivative financial instruments. Its base is calculated by reference to the half-yearly average of the final balances of each month, which correspond in the accounts for settlement is carried out until the end of June of the year following the year to which the surcharge relates. A transitional regime was 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 Bank of Portugal Notice No. 1/2019; established for the year 2020 and 2021, the settlement of which was carried out in accordance with the following rules: (i)The reserve (ii) Settlement is carried out by the taxable person through the declaration to be sent until 15 December 2020 and 2021, respectively, base is calculated by reference to the half-yearly average of the final balances of each month, which correspond in the accounts for with payment due on the same dates. 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 Bank of Portugal Notice No. 1/2019; As at 31 December 2021, the Bank recognized as an expense in relation to the Solidarity Additional on the Banking Sector the amount (ii) Settlement is carried out by the taxable person through the declaration to be sent until 15 December 2020 and 2021, respectively, of Euro 5,090 thousand (31 December 2020: Euro 5,212 thousand). The recognized expense was calculated and paid based on the with payment due on the same dates. 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. As at 31 December 2021, the Bank recognized as an expense in relation to the Solidarity Additional on the Banking Sector the amount of Euro 5,090 thousand (31 December 2020: 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 NOTE 14 – STAFF EXPENSES deposits covered by the Deposit Guarantee Fund guarantee. The breakdown of these captions is as follows: 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 Wages and salaries Costs with post-employment benefits (see Note 15) Remuneration Other costs Long-term service / Career bonuses (see Note 15) Mandatory social charges Costs with post-employment benefits (see Note 15) Other costs The provisions and costs related to the restructuring process are presented in Note 31. (in thousands of Euros) 31.12.2021 31.12.2020 31.12.2021 164 816 164 285 531 45 940 164 816 769 164 285 3 469 531 214 994 45 940 769 3 469 214 994 (in thousands of Euros) 31.12.2020 167 702 166 758 944 51 170 167 702 432 166 758 4 300 944 223 604 51 170 432 4 300 223 604 31.12.2021 31.12.2020 394 431 1 869 1 224 394 3 918 431 1 869 1 224 384 485 2 036 1 351 384 4 256 485 2 036 1 351 The provisions and costs related to the restructuring process are presented in Note 31. As at 31 December 2021 and 2020, the number of employees of the Bank, considering the staff and the contracted term, presents the following breakdown by professional category: The provisions and costs related to the restructuring process are presented in Note 31. As at 31 December 2021 and 2020, the number of employees of the Bank, considering the staff and the contracted term, presents the following breakdown by professional category: As at 31 December 2021 and 2020, the number of employees of the Bank, considering the staff and the contracted term, presents the following breakdown by professional category: 31.12.2021 31.12.2020 Directive functions Management functions Specific functions Administrative and other functions Directive functions Management functions Specific functions Administrative and other functions NOTE 15 –EMPLOYEE BENEFITS 3 918 4 256 NOTE 15 –EMPLOYEE BENEFITS Pension and health-care benefits As mentioned in accounting policy 6.26, the Bank has undertaken to provide its employees, or their families, with cash benefits for old-age retirement, disability and survivors’ pensions and other liabilities such as a Serviço de Assistência Médico-Social (SAMS), managed by the Union. Pension and health-care benefits As mentioned in accounting policy 6.26, the Bank has undertaken to provide its employees, or their families, with cash benefits for NOTE 15 –EMPLOYEE BENEFITS old-age retirement, disability and survivors’ pensions and other liabilities such as a Serviço de Assistência Médico-Social (SAMS), managed by the Union. Pension and health-care benefits As mentioned in accounting policy 6.26, the Bank has undertaken to provide its employees, or their families, with cash benefits for For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions consecrated old-age retirement, disability and survivors’ pensions and other liabilities such as a Serviço de Assistência Médico-Social (SAMS), under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension fund, managed by GNB – managed by the Union. 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 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 Collective Bargaining Agreement. For employees hired until 31 December 2008, the retirement pension and the disability, survival and death pensions consecrated Protection of employees in the event of maternity, paternity and adoption, as well as old age, is covered by the General Social Security under the ACT, as well as the liabilities for health-care benefits (SAMS), are covered by a closed pension fund, managed by GNB – Regime, given that with the publication of Decree-Law No. 1-A/2011, of 3 January, all banking employees who were beneficiaries of Sociedade Gestora de Fundos de Pensões, S.A.. “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated in the General Social Security Regime as from 1 January 2011. 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 Employees hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated in the General Social Security Regime as from 1 January 2011. 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 hired after 31 December 2008 are covered by the Portuguese General Social Security Regime. employees are entitled to receive a pension under the General Regime that considers the number of years of contributions under that 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. 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. 35 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 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 of 31 December 2011 at constant 35 347 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 novobanco 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 novobanco, without prejudice to the transfer of the responsibilities relating exclusively to the employment contracts with BES. 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 novobanco, 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 beneficiaries allocated to each of the entities. The split performed on these terms will result, on 3 August 2014, in a level of funding of the Complementary Plan of the Executive Commission that is equal for each of the associates of the Fund (novobanco and BES). On June 16, 2020, the Insurance and Pension Funds Supervisory Authority (“ASF”) approved the extinction of the portion that finances the Plan of the former Executive Committee and, simultaneously, the amendment of the Constitutive Contract of the novobanco Pension Fund. This approval led to the creation of three aspects of the Executive Committee’s Pension Plan: (i) 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 novobanco or BES until the final decision of the court (limit of article 402º), so NOVO BANCO transferred the amount of Euro 19,.2 million of net liabilities of the amount of the fund’s assets relating to the undivided portion for Provisions. On 1 June 2016, an amendment was made to Fundo de Pensões NB´s constitutive contract, where the complementary plan became 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 2021, the amount of Euro 553 thousand was recorded in Personnel Costs related to the defined contribution plan (31 December 2020: Euro 535 thousand). During 2021, two changes were made to the Pension Fund: • Inclusion of Social Security Pension – Pensioners Until 2020, the methodology applied considered pensions in payment by the Pension Fund for the calculation of liabilities with pensioners. In 2021, this methodology was changed for pensioners who started a pension after 2011, and do not have a Social Security pension. For this group of pensioners with age below the normal retirement age of the General Social Security Regime (RGSS), the liability arising from a Social Security pension, to be paid from the normal retirement age of the RGSS, was deducted. As for pensioners over the normal retirement age of the RGSS, the liability arising from a Social Security pension, to be paid from the moment of assessment, was deducted. • Inclusion of acquired rights (Clause 98 ACT) In 2021, liabilities with former employees who left novobanco after 2011, and who can claim rights to the Pension Fund under Clause 98 of the ACT, were included. Pension plan participants are detailed as follows: Pension plan participants are detailed as follows: Employees Pensioners and survivors Participants under Clause 98 TOTAL 31.12.2021 31.12.2020 3 995 6 914 982 4 318 6 870 - 11 891 11 188 The Bank's liabilities and coverage levels, calculated in accordance with the accounting policy defined in Note 6.26 - Employee benefits, reportable as at 31 December 2021 and 2020 are analyzed as follows: According to the policy defined in Note 6.16 - 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. The evolution of the actuarial gains and losses in the balance sheet can be analysed as follows: Retirement pension liabilities at end of exercise 1 887 967 1 892 669 (1) includes 13.019 thousands of Euros from the assets and liabilities sale of the Spanish branch 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 32) Accumulated actuarial deviations recognized in other comprehensive income 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 Social Security and Clause 98 Early retirement Foreign exchange differences and other (1) 348 (in thousands of Euros) 31.12.2021 31.12.2020 (1 887 967) (1 312 843) ( 575 124) (1 892 669) (1 345 899) ( 546 770) 1 865 405 1 867 977 ( 22 562) 781 244 ( 24 692) 705 595 (in thousands of Euros) 31.12.2021 31.12.2020 1 892 669 1 811 526 441 18 421 2 613 214 12 260 46 124 ( 75 183) - ( 35 463) 38 562 ( 12 691) 432 23 425 2 577 232 99 466 49 382 ( 72 200) ( 54 679) - 31 592 916 37 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Pension plan participants are detailed as follows: Pension plan participants are detailed as follows: 31.12.2021 31.12.2020 Employees Pensioners and survivors Participants under Clause 98 Employees Pensioners and survivors TOTAL Participants under Clause 98 31.12.2021 3 995 6 914 31.12.2020 4 318 6 870 982 3 995 6 914 11 891 982 - 4 318 6 870 11 188 - The Bank’s liabilities and coverage levels, calculated in accordance with the accounting policy defined in Note 6.26 - Employee benefits, reportable as at 31 December 2021 and 2020 are analyzed as follows: The Bank's liabilities and coverage levels, calculated in accordance with the accounting policy defined in Note 6.26 - Employee benefits, reportable as at 31 December 2021 and 2020 are analyzed as follows: 11 891 11 188 TOTAL The Bank's liabilities and coverage levels, calculated in accordance with the accounting policy defined in Note 6.26 - Employee benefits, reportable as at 31 December 2021 and 2020 are analyzed as follows: (in thousands of Euros) 31.12.2021 31.12.2020 Assets / (liabilities) recognized in the balance sheet Total liabilities Assets / (liabilities) recognized in the balance sheet Pensioners Employees Total liabilities Coverage Pensioners Fair value of plan assets Employees Coverage Net assets / (liabilities) in the balance sheet (see Note 32) Fair value of plan assets Accumulated actuarial deviations recognized in other comprehensive income Net assets / (liabilities) in the balance sheet (see Note 32) (in thousands of Euros) 31.12.2021 (1 887 967) 31.12.2020 (1 892 669) (1 312 843) ( 575 124) (1 887 967) (1 312 843) 1 865 405 ( 575 124) ( 22 562) 1 865 405 781 244 ( 22 562) (1 345 899) ( 546 770) (1 892 669) (1 345 899) 1 867 977 ( 546 770) ( 24 692) 1 867 977 705 595 ( 24 692) According to the policy defined in Note 6.16 - 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. Accumulated actuarial deviations recognized in other comprehensive income According to the policy defined in Note 6.16 - 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. According to the policy defined in Note 6.16 - 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 The evolution of the actuarial gains and losses in the balance sheet can be analysed as follows: respective pension liabilities. 705 595 781 244 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 Retirement pension liabilities at beginning of exercise Plan participants' contribution Current service cost Contributions from other entities Interest cost Actuarial (gains) / losses in the period: Plan participants' contribution - Changes in financial assumptions Contributions from other entities - Experience adjustments (gains) / losses Actuarial (gains) / losses in the period: Pensions paid by the fund / transfers and once-off bonuses - Changes in financial assumptions Amount of the responsabilities transferred to defined contribution plans - Experience adjustments (gains) / losses Social Security and Clause 98 Pensions paid by the fund / transfers and once-off bonuses Early retirement Amount of the responsabilities transferred to defined contribution plans Foreign exchange differences and other (1) Social Security and Clause 98 Early retirement Retirement pension liabilities at end of exercise Foreign exchange differences and other (1) (1) includes 13.019 thousands of Euros from the assets and liabilities sale of the Spanish branch Retirement pension liabilities at end of exercise (1) includes 13.019 thousands of Euros from the assets and liabilities sale of the Spanish branch (in thousands of Euros) 31.12.2021 31.12.2020 1 892 669 31.12.2021 (in thousands of Euros) 1 811 526 31.12.2020 441 18 421 1 892 669 2 613 441 214 18 421 2 613 12 260 214 46 124 ( 75 183) 12 260 - 46 124 ( 35 463) ( 75 183) 38 562 - ( 12 691) ( 35 463) 38 562 1 887 967 ( 12 691) 432 23 425 1 811 526 2 577 432 232 23 425 2 577 99 466 232 49 382 ( 72 200) 99 466 ( 54 679) 49 382 - ( 72 200) 31 592 ( 54 679) 916 - 31 592 1 892 669 916 1 887 967 1 892 669 349 37 37 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analyzed as follows: The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analyzed as follows: The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analyzed as follows: The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analyzed as follows: 31.12.2021 (in thousands of Euros) 31.12.2020 (in thousands of Euros) Fair value of fund assets at beginning of exercise - Share of the net interest on the assets - Return on assets excluding net interest - Share of the net interest on the assets - Share of the net interest on the assets - Return on assets excluding net interest - Return on assets excluding net interest Net return from the fund Fair value of fund assets at beginning of exercise Fair value of fund assets at beginning of exercise Net return from the fund Net return from the fund Group contributions Plan participants’ contributions Group contributions Pensions paid by the fund / transfers and once-off bonuses Group contributions Plan participants’ contributions Transfer to Undivided Party Plan participants’ contributions Pensions paid by the fund / transfers and once-off bonuses Foreign exchange differences and other (1) Pensions paid by the fund / transfers and once-off bonuses Transfer to Undivided Party Transfer to Undivided Party Foreign exchange differences and other (1) Fund balance at the end of the year Foreign exchange differences and other (1) (1) includes 13.019 thousands of Euros from the assets and liabilities sale of the Spanish branch Fund balance at the end of the year Fund balance at the end of the year (1) includes 13.019 thousands of Euros from the assets and liabilities sale of the Spanish branch Pension fund assets can be analyzed as follows: (1) includes 13.019 thousands of Euros from the assets and liabilities sale of the Spanish branch Pension fund assets can be analyzed as follows: Pension fund assets can be analyzed as follows: Pension fund assets can be analyzed as follows: 1 867 977 31.12.2021 31.12.2021 ( 1 718) 1 867 977 15 546 1 867 977 ( 1 718) ( 17 264) ( 1 718) 15 546 84 735 15 546 ( 17 264) 2 613 ( 17 264) 84 735 ( 75 183) 84 735 2 613 - 2 613 ( 75 183) ( 13 019) ( 75 183) - - 1 865 405 ( 13 019) ( 13 019) 1 865 405 1 865 405 (in thousands of Euros) 1 659 246 31.12.2020 31.12.2020 46 131 1 659 246 19 482 1 659 246 46 131 26 649 46 131 19 482 266 834 19 482 26 649 2 577 26 649 266 834 ( 72 200) 266 834 2 577 ( 35 523) 2 577 ( 72 200) 912 ( 72 200) ( 35 523) ( 35 523) 1 867 977 912 912 1 867 977 1 867 977 (in thousands of Euros) Quoted Total Quoted 31.12.2021 Unquoted 31.12.2021 31.12.2021 Unquoted Unquoted (in thousands of Euros) (in thousands of Euros) Total 31.12.2020 Unquoted 31.12.2020 31.12.2020 Unquoted Unquoted - 51 214 Quoted Quoted Equity instruments 39 034 Total Total 1 093 577 39 034 39 034 372 978 1 093 577 1 093 577 115 855 372 978 372 978 246 533 115 855 115 855 246 533 1 867 977 246 533 1 867 977 The pension fund assets used by the Bank or representative of securities issued by entities of the Group are detailed as follows: 1 867 977 Debt instruments Equity instruments Equity instruments Investment funds Debt instruments Debt instruments Real estate properties Investment funds Investment funds Cash and cash equivalents Real estate properties Real estate properties Cash and cash equivalents Total Cash and cash equivalents Total Total Total Total 1 171 603 51 214 51 214 359 503 1 171 603 1 171 603 150 344 359 503 359 503 132 741 150 344 150 344 132 741 1 865 405 132 741 1 865 405 1 865 405 1 171 603 - - 258 990 1 171 603 1 171 603 - 258 990 258 990 - - - - 1 430 593 - 1 430 593 1 430 593 1 093 577 39 034 39 034 306 217 1 093 577 1 093 577 - 306 217 306 217 - - - - 1 438 828 - 1 438 828 1 438 828 - - - 66 761 - - 115 855 66 761 66 761 246 533 115 855 115 855 246 533 429 149 246 533 429 149 429 149 - 51 214 51 214 100 513 - - 150 344 100 513 100 513 132 741 150 344 150 344 132 741 434 812 132 741 434 812 434 812 Quoted Quoted 51 214 39 034 - The pension fund assets used by the Bank or representative of securities issued by entities of the Group are detailed as follows: The pension fund assets used by the Bank or representative of securities issued by entities of the Group are detailed as follows: (in thousands of Euros) The pension fund assets used by the Bank or representative of securities issued by entities of the Group are detailed as follows: 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: 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: Cash and Cash Equivalents Real estate properties Cash and Cash Equivalents Cash and Cash Equivalents Real estate properties Total Real estate properties Total Total Actuarial Assumptions Projected rate of return on plan assets Actuarial Assumptions Discount rate Actuarial Assumptions Projected rate of return on plan assets Pension increase rate Projected rate of return on plan assets Discount rate Salary increase rate Discount rate Pension increase rate Mortality table men Pension increase rate Salary increase rate Mortality table women Salary increase rate Mortality table men Mortality table men Mortality table women Mortality table women 31.12.2021 31.12.2021 31.12.2021 41 827 31.12.2020 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 63 627 43 032 41 827 41 827 43 032 84 859 43 032 84 859 84 859 63 630 63 627 63 627 63 630 127 257 63 630 127 257 127 257 31.12.2021 31.12.2021 31.12.2021 Assumptions Assumptions Assumptions 1.35% 1.35% 1.35% 0.50% 1.35% 1.35% 0.75% 1.35% 0.50% 0.50% 0.75% 0.75% Actual Actual Actual -0.24% - -0.24% 0.36% -0.24% - 2.05% - 0.36% 0.36% 2.05% 2.05% 31.12.2020 31.12.2020 31.12.2020 Assumptions Assumptions Assumptions 1.00% 1.00% 1.00% 0.25% 1.00% 1.00% 0.50% 1.00% 0.25% 0.25% 0.50% 0.50% Actual Actual Actual 2.41% - 2.41% 1.34% 2.41% - 3.07% - 1.34% 1.34% 3.07% 3.07% TV 88/90 TV 88/90-3 years TV 88/90 TV 88/90 TV 88/90-2 years TV 88/90 Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as of 31 December 2021 and 31 December 2020 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 of 31 December Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as of 31 December 2021 and 31 December 2020 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. 2021 and 31 December 2020 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. TV 88/90-3 years TV 88/90 TV 88/90-3 years TV 88/90-2 years TV 88/90 TV 88/90-2 years of the liabilities. 350 38 38 38 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The evolution of the value of pension funds in the years ended 31 December 2021 and 2020 can be analyzed as follows: Fair value of fund assets at beginning of exercise Net return from the fund - Share of the net interest on the assets - Return on assets excluding net interest Group contributions Plan participants’ contributions Transfer to Undivided Party Foreign exchange differences and other (1) Fund balance at the end of the year Pensions paid by the fund / transfers and once-off bonuses (1) includes 13.019 thousands of Euros from the assets and liabilities sale of the Spanish branch Pension fund assets can be analyzed as follows: (in thousands of Euros) 31.12.2021 31.12.2020 1 867 977 1 659 246 ( 1 718) 15 546 ( 17 264) 84 735 2 613 ( 75 183) - ( 13 019) 46 131 19 482 26 649 266 834 2 577 ( 72 200) ( 35 523) 912 1 865 405 1 867 977 Quoted Total Quoted 31.12.2021 Unquoted 31.12.2020 Unquoted Equity instruments Debt instruments Investment funds Real estate properties Cash and cash equivalents 1 171 603 258 990 - - - 51 214 51 214 - 1 171 603 100 513 150 344 132 741 359 503 150 344 132 741 39 034 1 093 577 306 217 - - (in thousands of Euros) Total - - 39 034 1 093 577 66 761 372 978 115 855 115 855 246 533 246 533 Total 1 430 593 434 812 1 865 405 1 438 828 429 149 1 867 977 The pension fund assets used by the Bank or representative of securities issued by entities of the Group are detailed as follows: Cash and Cash Equivalents Real estate properties Total (in thousands of Euros) 31.12.2021 31.12.2020 41 827 43 032 84 859 63 627 63 630 127 257 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 31.12.2021 31.12.2020 Assumptions Actual Assumptions Actual 1.35% 1.35% 0.50% 0.75% -0.24% - 0.36% 2.05% 1.00% 1.00% 0.25% 0.50% 2.41% - 1.34% 3.07% TV 88/90 TV 88/90-3 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 of 31 December 2021 and 31 December 2020 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. Disability decreases are not considered in the calculation of the liabilities. The determination of the discount rate as of 31 December 2021 and 31 December 2020 was based on: (i) the evolution of the main indices for high quality corporate bonds and (ii) the duration of the liabilities. As at 31 December 2021 and 2020, 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: As at 31 December 2021 and 2020, 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: As at 31 December 2021 and 2020, 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: Change in the amount of liabilities due to the change: Assumptions Assumptions Discount rate Salary increase rate Discount rate Pension increase rate Salary increase rate Pension increase rate Mortality table 31.12.2021 31.12.2021 of +0.25% in the rate used Change in the amount of liabilities due to the change: of -0.25% in the rate used of +0.25% in the rate used ( 72 318) of +0.25% in the rate used 13 336 76 890 of -0.25% in the rate used ( 12 845) ( 72 395) of +0.25% in the rate used 26 348 (in thousands of Euros) 31.12.2020 31.12.2020 (in thousands of Euros) of -0.25% in the rate used 77 186 of -0.25% in the rate used ( 16 750) 38 ( 72 318) 67 955 76 890 ( 63 608) ( 72 395) 56 848 77 186 ( 52 114) 13 336 of +1 year ( 12 845) of -1 year 26 348 of +1 year ( 16 750) of -1 year 67 955 ( 67 288) ( 63 608) 67 602 56 848 ( 69 944) ( 52 114) 70 931 of +1 year of -1 year of +1 year of -1 year The evolution of actuarial deviations on the balance sheet can be analyzed as follows: Mortality table ( 67 288) 67 602 The evolution of actuarial deviations on the balance sheet can be analyzed as follows: 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 Actuarial (gains) / losses in the period: - Changes in assumptions Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period - Financial assumptions Actuarial (gains) / losses in the period: - Plan assets return (excluding net interest) - 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 Other ( 69 944) 70 931 (in thousands of Euros) 31.12.2021 31.12.2020 705 595 (in thousands of Euros) 583 396 31.12.2021 31.12.2020 705 595 12 260 63 388 1 12 260 63 388 781 244 1 583 396 99 466 22 733 - 99 466 22 733 705 595 - The costs of retirement pensions and health benefits for the years ended 31 December 2021 and 2020 can be analyzed as follows: Accumulated actuarial losses recognized in other comprehensive income at the end of the period 705 595 781 244 (in thousands of Euros) The costs of retirement pensions and health benefits for the years ended 31 December 2021 and 2020 can be analyzed as follows: 31.12.2021 31.12.2020 351 Current service cost Net interest Early retirement Current service cost Cost with post-employment benefits Net interest Early retirement The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2021 and 2020 as Cost with post-employment benefits follows: 432 3 943 - 432 4 375 3 943 - 441 2 875 328 441 3 644 2 875 328 31.12.2020 31.12.2021 4 375 3 644 (in thousands of Euros) The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2021 and 2020 as follows: At the beginning of the exercise Cost for period Actuarial gains / (losses) recognized in other comprehensive income At the beginning of the exercise Undivided transfer and reduction of responsabilities Actuarial gains / (losses) recognized in other comprehensive income Contributions made in the period Cost for period Social Security and Clause 98 Contributions made in the period Other Undivided transfer and reduction of responsabilities At the end of the exercise Social Security and Clause 98 Other At the end of the exercise In 2021, the value of early retirements amounted to Euro 38.9 million (31 December 2020: Euro 31.6 million), which are part of the Bank's restructuring process and, as such, they were recognized against the use of the provision for restructuring (see Note 31). These amounts are considered in Other in the previous table. In 2021, the value of early retirements amounted to Euro 38.9 million (31 December 2020: Euro 31.6 million), which are part of the Bank's restructuring process and, as such, they were recognized against the use of the provision for restructuring (see Note 31). These amounts are considered in Other in the previous table. (in thousands of Euros) 31.12.2021 31.12.2020 ( 24 692) (in thousands of Euros) ( 152 280) 31.12.2021 ( 3 644) 31.12.2020 ( 4 375) ( 75 649) ( 24 692) 84 735 ( 3 644) ( 75 649) 35 463 84 735 ( 38 775) - - ( 22 562) 35 463 ( 38 775) ( 22 562) ( 122 199) ( 152 280) 266 834 ( 4 375) 19 155 ( 122 199) - 266 834 ( 31 827) 19 155 ( 24 692) - ( 31 827) ( 24 692) 39 39 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, 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: As at 31 December 2021 and 2020, the sensitivity analysis to a 0.25% change in the assumptions rate used and one year in the (in thousands of Euros) mortality table results in the following changes in the current value of liabilities determined for past services: Change in the amount of liabilities due to the change: Assumptions Assumptions Discount rate Salary increase rate Discount rate Pension increase rate Salary increase rate Pension increase rate Mortality table 31.12.2021 31.12.2020 (in thousands of Euros) of +0.25% in the Change in the amount of liabilities due to the change: of +0.25% in the of -0.25% in the of -0.25% in the rate used 31.12.2021 rate used rate used 31.12.2020 rate used of +0.25% in the ( 72 318) of -0.25% in the 76 890 of +0.25% in the ( 72 395) of -0.25% in the 77 186 rate used rate used rate used rate used 13 336 ( 72 318) 67 955 13 336 67 955 ( 67 288) ( 12 845) 76 890 ( 63 608) ( 12 845) ( 63 608) 67 602 26 348 ( 72 395) 56 848 26 348 56 848 ( 69 944) ( 16 750) 77 186 ( 52 114) ( 16 750) ( 52 114) 70 931 of +1 year of -1 year of +1 year of -1 year of +1 year of -1 year of +1 year of -1 year Mortality table The evolution of actuarial deviations on the balance sheet can be analyzed as follows: ( 67 288) 67 602 ( 69 944) 70 931 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 Actuarial (gains) / losses in the period: Accumulated actuarial losses recognized in other comprehensive income at the beginning of the period - Changes in assumptions - Financial assumptions Actuarial (gains) / losses in the period: - Plan assets return (excluding net interest) - 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 Other (in thousands of Euros) 31.12.2021 31.12.2020 (in thousands of Euros) 705 595 31.12.2021 583 396 31.12.2020 705 595 12 260 63 388 1 12 260 63 388 781 244 1 583 396 99 466 22 733 - 99 466 22 733 705 595 - The costs of retirement pensions and health benefits for the years ended 31 December 2021 and 2020 can be analyzed as follows: 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 2021 and 2020 can be analyzed as follows: 781 244 705 595 The costs of retirement pensions and health benefits for the years ended 31 December 2021 and 2020 can be analyzed as follows: (in thousands of Euros) Current service cost Net interest Early retirement Current service cost Net interest Cost with post-employment benefits Early retirement 31.12.2021 31.12.2020 (in thousands of Euros) 31.12.2021 441 2 875 328 441 2 875 3 644 328 31.12.2020 432 3 943 - 432 3 943 4 375 - The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2021 and 2020 as follows: Cost with post-employment benefits The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2021 and 2020 as follows: (in thousands of Euros) The evolution of net assets / (liabilities) on the balance sheet can be analyzed in the years ended 31 December 2021 and 2020 as follows: 4 375 3 644 31.12.2021 At the beginning of the exercise Cost for period At the beginning of the exercise Actuarial gains / (losses) recognized in other comprehensive income Contributions made in the period Cost for period Undivided transfer and reduction of responsabilities Actuarial gains / (losses) recognized in other comprehensive income Social Security and Clause 98 Contributions made in the period Other Undivided transfer and reduction of responsabilities Social Security and Clause 98 At the end of the exercise Other ( 24 692) 31.12.2021 ( 3 644) ( 24 692) ( 75 649) 84 735 ( 3 644) - ( 75 649) 35 463 84 735 ( 38 775) - 35 463 ( 22 562) ( 38 775) 31.12.2020 (in thousands of Euros) ( 152 280) 31.12.2020 ( 4 375) ( 152 280) ( 122 199) 266 834 ( 4 375) 19 155 ( 122 199) - 266 834 ( 31 827) 19 155 - ( 24 692) ( 31 827) At the end of the exercise In 2021, the value of early retirements amounted to Euro 38.9 million (31 December 2020: Euro 31.6 million), which are part of the Bank's restructuring process and, as such, they were recognized against the use of the provision for restructuring (see Note 31). These amounts are considered in Other in the previous table. In 2021, the value of early retirements amounted to Euro 38.9 million (31 December 2020: Euro 31.6 million), which are part of the Bank's restructuring process and, as such, they were recognized against the use of the provision for restructuring (see Note 31). In 2021, the value of early retirements amounted to Euro 38.9 million (31 December 2020: Euro 31.6 These amounts are considered in Other in the previous table. million), which are part of the Bank’s restructuring process and, as such, they were recognized against the use of the provision for restructuring (see Note 31). These amounts are considered in Other in the previous table. 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: ( 22 562) ( 24 692) 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 Funds balance 31.12.2021 31.12.2020 31.12.2019 31.12.2018 31.12.2017 (in thousands of Euros) (1 887 967) (1 892 669) (1 811 526) (1 641 964) (1 629 305) 1 865 405 1 867 977 1 659 246 1 615 249 1 614 543 (Under) / overfunding of liabilities ( 22 562) ( 24 692) ( 152 280) ( 26 715) ( 14 762) (Gains) / losses on experience adjustments in retirement pension liabilities (Gains) / losses on experience adjustments in plan assets 46 124 17 264 49 382 63 084 ( 26 649) ( 79 888) 18 400 52 175 39 14 859 ( 91 005) 39 The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2020: approximately 16 years). The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2020: approximately 16 years). Career Bonuses As at 31 December 2021, the liabilities assumed by the Bank amounted to Euro 7,335 thousand, corresponding to the liabilities for past services subjacent to the career bonuses, as described in Note 6.26 – Employee benefits (31 December 2020: Euro 7,465 thousand) (see Note 32). In the financial year 2021, the costs recognized with career bonuses were Euro 531 thousand (31 December 2020: Euro 944 thousand) (see Note 14). NOTE 16 – OTHER ADMINISTRATIVE EXPENSES The breakdown of this caption is as follows: 352 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 Revisão Oficial de Contas Outros serviços Valor total dos serviços faturados 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 2021, rental costs includes an amount of Euro 582 thousand related to short-term operating lease contracts (31 December 2020: Euro 196 thousand), as described in Note 6.23. The fees invoiced during the years 2021 and 2020 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: (in thousands of Euros) 31.12.2021 31.12.2020 5 716 5 426 8 637 8 026 1 399 3 079 5 162 36 845 1 355 902 10 084 3 402 20 982 2 867 1 318 16 781 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 19 618 131 981 144 031 (milhares de euros) 31.12.2021 31.12.2020 1 743 1 309 3 052 2 176 738 2 914 40 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The summary of the last five years of the funds’ liabilities and the funds balances, as well as experience gains and losses, is analyzed 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: as follows: Retirement pension liabilities Retirement pension liabilities Funds balance Funds balance 31.12.2021 31.12.2021 31.12.2020 31.12.2020 31.12.2019 31.12.2019 31.12.2018 31.12.2018 31.12.2017 31.12.2017 (in thousands of Euros) (in thousands of Euros) (1 887 967) (1 887 967) (1 892 669) (1 892 669) (1 811 526) (1 811 526) (1 641 964) (1 641 964) (1 629 305) (1 629 305) 1 865 405 1 865 405 1 867 977 1 867 977 1 659 246 1 659 246 1 615 249 1 615 249 1 614 543 1 614 543 (Under) / overfunding of liabilities (Under) / overfunding of liabilities ( 22 562) ( 22 562) ( 24 692) ( 24 692) ( 152 280) ( 152 280) ( 26 715) ( 26 715) ( 14 762) ( 14 762) (Gains) / losses on experience adjustments in retirement pension liabilities (Gains) / losses on experience adjustments in retirement pension liabilities (Gains) / losses on experience adjustments in plan assets (Gains) / losses on experience adjustments in plan assets 46 124 46 124 17 264 17 264 49 382 49 382 ( 26 649) ( 26 649) 63 084 63 084 ( 79 888) ( 79 888) 18 400 18 400 52 175 52 175 14 859 14 859 ( 91 005) ( 91 005) The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2020: approximately 16 years). The average duration of defined benefit plan liabilities is approximately 16 years (31 December 2020: approximately 16 years). Career Bonuses Career Bonuses Career Bonuses As at 31 December 2021, the liabilities assumed by the Bank amounted to Euro 7,335 thousand, corresponding to the liabilities for As at 31 December 2021, the liabilities assumed by the Bank amounted to Euro 7,335 thousand, corresponding to the liabilities for past services subjacent to the career bonuses, as described in Note 6.26 – Employee benefits (31 December 2020: Euro 7,465 past services subjacent to the career bonuses, as described in Note 6.26 – Employee benefits (31 December 2020: Euro 7,465 thousand) (see Note 32). thousand) (see Note 32). In the financial year 2021, the costs recognized with career bonuses were Euro 531 thousand (31 December 2020: Euro 944 thousand) (see Note 14). As at 31 December 2021, the liabilities assumed by the Bank amounted to Euro 7,335 thousand, In the financial year 2021, the costs recognized with career bonuses were Euro 531 thousand (31 December 2020: Euro 944 In the financial year 2021, the costs recognized with career bonuses were Euro 531 thousand (31 December 2020: Euro 944 thousand) (see Note 14). thousand) (see Note 14). corresponding to the liabilities for past services subjacent to the career bonuses, as described in Note 6.26 – Employee benefits (31 December 2020: Euro 7,465 thousand) (see Note 32). NOTE 16 – OTHER ADMINISTRATIVE EXPENSES The breakdown of this caption is as follows: 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: Rentals Rentals Advertising Advertising Communication Communication Maintenance and repairs expenses Maintenance and repairs expenses Travelling and representation Travelling and representation Transportation of valuables Transportation of valuables Insurance Insurance IT services IT services Independent work Independent work Temporary work Temporary work Electronic payment systems Electronic payment systems Legal costs Legal costs Consultancy and audit fees Consultancy and audit fees Water, energy and fuel Water, energy and fuel Consumables Consumables Other costs Other costs (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2021 31.12.2020 31.12.2020 5 716 5 716 5 426 5 426 8 637 8 637 8 026 8 026 1 399 1 399 3 079 3 079 5 162 5 162 36 845 36 845 1 355 1 355 902 902 10 084 10 084 3 402 3 402 20 982 20 982 2 867 2 867 1 318 1 318 16 781 16 781 2 246 2 246 5 799 5 799 9 360 9 360 8 523 8 523 1 210 1 210 4 354 4 354 3 020 3 020 43 196 43 196 2 080 2 080 1 287 1 287 10 593 10 593 4 699 4 699 23 589 23 589 3 053 3 053 1 404 1 404 19 618 19 618 131 981 131 981 144 031 144 031 The caption Other costs includes, amongst others, specialised service costs incurred with security and surveillance, information The caption Other costs includes, amongst others, specialised service costs incurred with security and surveillance, information services, training and sundry external supplies. services, training and sundry external supplies. 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 2021, rental costs includes an amount of Euro 582 thousand related to short-term operating lease contracts (31 As at 31 December 2021, rental costs includes an amount of Euro 582 thousand related to short-term operating lease contracts (31 December 2020: Euro 196 thousand), as described in Note 6.23. December 2020: Euro 196 thousand), as described in Note 6.23. The fees invoiced during the years 2021 and 2020 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 2021, rental costs includes an amount of Euro 582 thousand related to short-term operating lease contracts (31 December 2020: Euro 196 thousand), as described in Note 6.23. The fees invoiced during the years 2021 and 2020 by the Statutory Audit Firm, according to that laid down in article 508-F of the The fees invoiced during the years 2021 and 2020 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: Portuguese Companies Code (Código das Sociedades Comerciais), have the following: Revisão Oficial de Contas Revisão Oficial de Contas Outros serviços Outros serviços Valor total dos serviços faturados Valor total dos serviços faturados 31.12.2021 31.12.2021 (milhares de euros) (milhares de euros) 31.12.2020 31.12.2020 1 743 1 743 1 309 1 309 3 052 3 052 2 176 2 176 738 738 2 914 2 914 40 40 353 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 17 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES This caption on 31 December 2021 and 2020 is analyzed as follows: NOTE 17 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES NOTE 17 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES This caption on 31 December 2021 and 2020 is analyzed as follows: This caption on 31 December 2021 and 2020 is analyzed as follows: Contribution to the Fundo Único de Resolução Contribution to the Fundo de Resolução Nacional Contribution to the Fundo Único de Resolução Contribution to the Fundo de Garantia de Depósitos Contribution to the Fundo de Resolução Nacional Contribution to the Fundo de Garantia de Depósitos 31.12.2021 31.12.2021 25 276 14 854 25 276 42 14 854 40 172 42 (in thousands of Euros) 31.12.2020 (in thousands of Euros) 31.12.2020 22 201 12 528 22 201 37 12 528 34 766 37 40 172 34 766 NOTE 18 – IMPAIRMENT NOTE 18 – IMPAIRMENT NOTE 18 – IMPAIRMENT Reinforcements 31.12.2021 Replacements 31.12.2021 Total Reinforcements (in thousands of Euros) 31.12.2020 Replacements 31.12.2020 (in thousands of Euros) Total Provisions net of cancellations (see Note 31) Reinforcements Replacements Total Reinforcements Replacements Total Provisions net of cancellations (see Note 31) Provisions for guarantees Provisions for commitments Other provisions Provisions for guarantees Provisions for commitments Other provisions Impairments or reversal of impairments on financial assets not measured at fair value through profit or loss (see Note 22) Impairments or reversal of impairments on financial assets not measured at fair value through profit or loss (see Note 22) Securities at fair value through equity Securities at amortized cost Loans and advances to credit institutions Securities at fair value through equity Loans and advances to customers Securities at amortized cost Loans and advances to credit institutions Loans and advances to customers Impairments or reversal of impairments for investments in subsidiaries, joint ventures and associates (see Note 24) Impairments or reversal of impairments for investments in subsidiaries, joint ventures and Impairments or reversal of impairments on non-financial assets associates (see Note 24) Impairments or reversal of impairments on non-financial assets Non-current assets held for sale and Discontinued operations (see Note 29) Property, plant and equipment (see Note 25) Intangible assets (see Note 26) Non-current assets held for sale and Discontinued operations (see Note 29) Other assets (see Note 28) Property, plant and equipment (see Note 25) Intangible assets (see Note 26) Other assets (see Note 28) NOTE 19 – EARNINGS PER SHARE 18 435 10 630 159 330 18 435 188 395 10 630 159 330 188 395 1 252 1 215 623 135 018 1 252 289 202 1 215 623 1 641 095 135 018 289 202 1 641 095 - - 10 000 - - 10 000 17 543 - 27 543 - 1 857 033 17 543 27 543 ( 31 191) ( 7 774) ( 37 660) ( 31 191) ( 76 625) ( 7 774) ( 37 660) ( 76 625) ( 895) ( 1 168 664) ( 133 210) ( 895) ( 142 096) ( 1 168 664) ( 1 444 865) ( 133 210) ( 142 096) ( 1 444 865) ( 49 691) ( 49 691) - ( 1 617) - - ( 13 857) ( 1 617) ( 15 474) - ( 1 586 655) ( 13 857) ( 15 474) ( 12 756) 2 856 121 670 ( 12 756) 111 770 2 856 121 670 111 770 357 46 959 1 808 357 147 106 46 959 196 230 1 808 147 106 196 230 ( 49 691) ( 49 691) 10 000 ( 1 617) - 10 000 3 686 ( 1 617) 12 069 - 270 378 3 686 12 069 44 572 11 813 270 183 44 572 326 568 11 813 270 183 326 568 3 518 738 750 320 558 3 518 791 619 738 750 1 854 445 320 558 791 619 1 854 445 48 388 48 388 170 460 2 776 - 170 460 53 588 2 776 226 824 - 2 456 225 53 588 226 824 ( 29 479) ( 5 311) ( 103 939) ( 29 479) ( 138 729) ( 5 311) ( 103 939) ( 138 729) ( 5 022) ( 696 383) ( 130 962) ( 5 022) ( 271 103) ( 696 383) ( 1 103 470) ( 130 962) ( 271 103) ( 1 103 470) ( 7 103) ( 7 103) - - - - ( 11 427) - ( 11 427) - ( 1 260 729) ( 11 427) ( 11 427) 15 093 6 502 166 244 15 093 187 839 6 502 166 244 187 839 ( 1 504) 42 367 189 596 ( 1 504) 520 516 42 367 750 975 189 596 520 516 750 975 41 285 41 285 170 460 2 776 - 170 460 42 161 2 776 215 397 - 1 195 496 42 161 215 397 1 857 033 ( 1 586 655) 270 378 2 456 225 ( 1 260 729) 1 195 496 NOTE 19 – EARNINGS PER SHARE 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 average Basic earnings per share number of ordinary shares in circulation during the financial year /period. 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 The basic earnings per share are calculated dividing the net profit attributable to the shareholders of number of ordinary shares in circulation during the financial year /period. the Bank by the weighted average number of ordinary shares in circulation during the financial year / period. (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2020 Net profit / (loss) attributable to shareholder of the Bank Weighted average number of common shares outstanding (thousands) 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 novobanco (in Euros) 31.12.2021 225 908 31.12.2020 (1 374 246) 9 800 000 225 908 9 800 000 (1 374 246) 9 800 000 0.02 9 800 000 (0.14) Basic earnings per share attributable to shareholders of novobanco (in Euros) Basic earnings per share from continuing activities attributable to shareholders of novobanco (in Euros) 0.02 0.02 (0.14) (0.14) 0.02 (0.14) Basic earnings per share from continuing activities attributable to shareholders of novobanco (in Euros) 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 Diluted earnings per share average number of ordinary shares in circulation, adjusted for the effects of all potential dilutive ordinary shares. 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. The diluted earnings per share do not differ from the basic earnings per share since there are no dilutive effects. 41 41 354 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 17 – CONTRIBUTIONS TO RESOLUTION FUNDS AND DEPOSIT GUARANTEE SCHEMES This caption on 31 December 2021 and 2020 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 NOTE 18 – IMPAIRMENT Provisions net of cancellations (see Note 31) Provisions for guarantees Provisions for commitments Other provisions profit or loss (see Note 22) Securities at fair value through equity Securities at amortized cost Loans and advances to credit institutions Loans and advances to customers Impairments or reversal of impairments on non-financial assets Non-current assets held for sale and Discontinued operations (see Note 29) Property, plant and equipment (see Note 25) Intangible assets (see Note 26) Other assets (see Note 28) NOTE 19 – EARNINGS PER SHARE Impairments or reversal of impairments on financial assets not measured at fair value through (in thousands of Euros) 31.12.2021 31.12.2020 25 276 14 854 42 40 172 22 201 12 528 37 34 766 31.12.2021 31.12.2020 Reinforcements Replacements Total Reinforcements Replacements Total (in thousands of Euros) 18 435 10 630 159 330 188 395 ( 31 191) ( 7 774) ( 37 660) ( 76 625) 1 252 1 215 623 135 018 289 202 1 641 095 ( 895) ( 1 168 664) ( 133 210) ( 142 096) ( 1 444 865) ( 12 756) 2 856 121 670 111 770 357 46 959 1 808 147 106 196 230 44 572 11 813 270 183 326 568 3 518 738 750 320 558 791 619 ( 29 479) ( 5 311) ( 103 939) ( 138 729) ( 5 022) ( 696 383) ( 130 962) ( 271 103) 1 854 445 ( 1 103 470) 15 093 6 502 166 244 187 839 ( 1 504) 42 367 189 596 520 516 750 975 - - - 10 000 17 543 27 543 ( 1 617) - - ( 13 857) ( 15 474) 10 000 ( 1 617) - 3 686 12 069 170 460 2 776 - 53 588 226 824 - - - ( 11 427) ( 11 427) 170 460 2 776 - 42 161 215 397 1 857 033 ( 1 586 655) 270 378 2 456 225 ( 1 260 729) 1 195 496 Impairments or reversal of impairments for investments in subsidiaries, joint ventures and associates (see Note 24) ( 49 691) ( 49 691) 48 388 ( 7 103) 41 285 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 novobanco (in Euros) Basic earnings per share from continuing activities attributable to shareholders of novobanco (in Euros) (in thousands of Euros) 31.12.2021 31.12.2020 225 908 (1 374 246) 9 800 000 9 800 000 0.02 0.02 (0.14) (0.14) 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 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 NOTE 20 – CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS As at 31 December 2021 and 31 December 2020, 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. As at 31 December 2021 and 31 December 2020, 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) 31.12.2021 31.12.2020 144 220 142 325 5 261 912 2 717 5 264 629 63 116 162 783 225 899 39 713 39 713 2 289 339 3 458 41 2 292 797 13 250 50 994 64 244 25 502 25 502 5 674 461 2 524 868 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 250.3 million (31 December 2020: Euro 262.2 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 2021 and 2020, the average interest rate on these deposits was 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 250.3 million (31 December 2020: Euro 262.2 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 2021 and 2020, 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 2021 was included in the observation period running from 22 December 2021 to 08 February 2022. 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 2021 was included in the observation period running from 22 December 2021 to 08 February 2022. Checks to be collected on credit institutions at home and abroad were sent for collection within the first business days following the reference dates. 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 2021, and 31 December 2020, this caption is analysed as follows: 355 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 Financial liabilities held for trading Derivatives Derivatives held for trading with negative fair value (in thousands of Euros) 31.12.2021 31.12.2020 114 465 114 465 263 244 263 244 377 709 267 016 267 016 388 311 388 311 655 327 305 512 305 512 554 343 554 343 42 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 20 – CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS As at 31 December 2021 and 31 December 2020, 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) 31.12.2021 31.12.2020 144 220 142 325 5 261 912 2 289 339 2 717 3 458 5 264 629 2 292 797 63 116 162 783 225 899 39 713 39 713 13 250 50 994 64 244 25 502 25 502 5 674 461 2 524 868 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 250.3 million (31 December 2020: Euro 262.2 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 2021 and 2020, 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 2021 was included in the observation period running from 22 December 2021 to 08 February 2022. 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 2021, and 31 December 2020, this caption is analysed as follows: NOTE 21 – FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING As at 31 December 2021, and 31 December 2020, 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 Financial liabilities held for trading Derivatives Derivatives held for trading with negative fair value (in thousands of Euros) 31.12.2021 31.12.2020 114 465 114 465 263 244 263 244 377 709 267 016 267 016 388 311 388 311 655 327 305 512 305 512 554 343 554 343 Securities held for trading In accordance with the accounting policy described in Note 6.10.5, securities held for trading are those acquired to be traded in the short-term regardless of their maturity. In accordance with the accounting policy described in Note 6.10.5, securities held for trading are those acquired to be traded in the short-term regardless of their maturity. Securities held for trading As at 31 December 2021, and 2020, the schedule of securities held for trading by maturity is as follows: As at 31 December 2021, and 2020, the schedule of securities held for trading by maturity is as follows: From one to five years More than five years 31.12.2021 (in thousands of Euros) 42 31.12.2020 - 114 465 114 465 3 734 263 282 267 016 A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 38. A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 38. Derivatives Derivatives As at 31 December 2021 and 31 December 2020, this caption is analysed as follows: As at 31 December 2021 and 31 December 2020, this caption is analysed as follows: 31.12.2021 (in thousands of Euros) 31.12.2020 Notional Fair value Assets Liabilities Notional Fair value Assets Liabilities 23 668 7 893 356 Trading derivatives Exchange rate contracts Forward - acquisition - sales Currency Swaps - acquisition - sales - acquisition - sales Currency Options - acquisition - sales Currency Interest Rate Swaps Interest rate contracts Interest Rate Swaps - acquisition - sales - acquisition - sales Interest Rate Caps & Floors Stock / index contracts Equity / Index Swaps Equity / Index Options - acquisition - sales - acquisition - sales Default risk contracts Credit Default Swaps - acquisition - sales Commodities contracts Commodities Swaps - acquisition - sales 2 702 6 872 541 169 545 093 497 717 499 124 21 083 21 083 304 349 304 349 5 645 388 5 645 388 86 436 166 554 - - - - 525 436 525 436 8 180 8 180 2 359 2 359 - - - - - - 29 633 29 633 696 696 574 574 578 826 562 420 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 - - 680 1 949 1 499 5 488 20 024 20 103 21 363 21 363 5 766 5 766 10 743 10 706 29 172 34 690 57 273 45 450 224 327 265 070 318 578 499 616 869 2 819 1 084 3 961 225 196 267 889 319 662 503 577 2 337 2 204 9 039 11 376 3 096 5 300 - - - - 16 16 - - 43 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 6.10.6 and 6.10.7, and which the Bank has not designated for hedge accounting. 263 244 305 512 388 311 554 343 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Securities held for trading short-term regardless of their maturity. In accordance with the accounting policy described in Note 6.10.5, securities held for trading are those acquired to be traded in the As at 31 December 2021, and 2020, the schedule of securities held for trading by maturity is as follows: From one to five years More than five years A breakdown of the securities held for trading, by fair value hierarchy, is presented in Note 38. Derivatives As at 31 December 2021 and 31 December 2020, this caption is analysed as follows: (in thousands of Euros) 31.12.2021 31.12.2020 - 114 465 114 465 3 734 263 282 267 016 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 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 Commodities contracts Commodities Swaps - acquisition - sales 31.12.2021 (in thousands of Euros) 31.12.2020 Notional Fair value Assets Liabilities Notional Fair value Assets Liabilities 541 169 545 093 497 717 499 124 21 083 21 083 304 349 304 349 5 645 388 5 645 388 86 436 166 554 - - 525 436 525 436 - - 29 633 29 633 2 702 6 872 680 1 949 20 024 20 103 5 766 5 766 578 826 562 420 1 010 248 1 010 906 21 390 21 390 168 095 167 870 23 668 7 893 1 499 5 488 21 363 21 363 10 743 10 706 29 172 34 690 57 273 45 450 224 327 265 070 869 2 819 6 758 221 6 759 223 89 767 165 221 318 578 499 616 1 084 3 961 225 196 267 889 319 662 503 577 - - 8 180 8 180 2 359 2 359 - - - - 696 696 574 574 30 467 30 467 662 425 684 421 2 399 2 399 - - 2 337 2 204 9 039 11 376 3 096 5 300 - - - - 16 16 - - 263 244 305 512 388 311 554 343 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 6.10.6 and 6.10.7, and which the Bank has not designated for hedge accounting. 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 6.10.6 and 6.10.7, and which the Bank has not designated for hedge accounting. In the financial year of 2021, the Bank recognized a loss of Euro -454 thousand related to the CVA of derivative instruments (31 December 2020: loss of Euro 289 thousand). The way of determining the CVA is explained in Note 38. As at 31 December 2021 and 2020, the analysis of the derivatives held for trading by maturity period is as follows: 43 357 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In the financial year of 2021, the Bank recognized a loss of Euro -454 thousand related to the CVA of derivative instruments (31 December 2020: loss of Euro 289 thousand). The way of determining the CVA is explained in Note 38. In the financial year of 2021, the Bank recognized a loss of Euro -454 thousand related to the CVA of derivative instruments (31 As at 31 December 2021 and 2020, the analysis of the derivatives held for trading by maturity period is as follows: December 2020: loss of Euro 289 thousand). The way of determining the CVA is explained in Note 38. As at 31 December 2021 and 2020, the analysis of the derivatives held for trading by maturity period is as follows: (in thousands of Euros) Derivatives held for negotiation Derivatives held for negotiation 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 From 1 to 5 years More than 5 years 31.12.2021 Notional Assets Liabilities 31.12.2021 Fair Value (net) Assets 31.12.2020 Liabilities 31.12.2020 Notional Notional Fair Value (net) (in thousands of Euros) Notional Assets 1 136 849 654 256 1 634 973 1 136 849 4 225 133 654 256 7 651 211 1 634 973 4 225 133 7 651 211 Liabilities 1 142 438 653 806 1 641 635 1 142 438 4 298 781 653 806 7 736 660 1 641 635 4 298 781 7 736 660 Fair Value (net) ( 6 115) 5 459 2 792 ( 6 115) ( 44 404) 5 459 ( 42 268) 2 792 ( 44 404) ( 42 268) Assets 1 596 056 821 366 2 329 447 1 596 056 4 574 969 821 366 9 321 838 2 329 447 4 574 969 9 321 838 Liabilities 1 596 370 805 003 2 347 986 1 596 370 4 654 958 805 003 9 404 317 2 347 986 4 654 958 9 404 317 Fair Value (net) 32 8 725 ( 23 383) 32 ( 151 406) 8 725 ( 166 032) ( 23 383) ( 151 406) ( 166 032) 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 NOTE 22 – FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, DESIGNATED COST NOTE 22 – FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, DESIGNATED AT FAIR AT FAIR VALUE THROUGH PROFIT OR LOSS, AT FAIR VALUE THROUGH OTHER COMPREHENSIVE VALUE THROUGH PROFIT OR LOSS, AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME AND AT AMORTISED As at 31 December 2021, and 31 December 2020, this caption is analysed as follows: COST INCOME AND AT AMORTISED COST As at 31 December 2021, and 31 December 2020, this caption is analysed as follows: As at 31 December 2021, and 31 December 2020, this caption is analysed as follows: (in thousands of Euros) 31.12.2021 Mandatorily at fair value through profit and loss Fair value through other comprehensive income Amortised cost 31.12.2021 Fair value changes * (in thousands of Euros) Total Securities Loans and advances to banks Loans and advances to customers Securities Loans and advances to banks Mandatorily at fair value through profit and loss 2 250 308 - Fair value through other 7 133 508 comprehensive income - - 2 250 308 2 250 308 - Amortised cost 2 893 829 186 089 21 897 382 2 893 829 24 977 300 186 089 21 897 382 Fair value changes ( 3 136) * - 31 923 ( 3 136) 28 787 - 31 923 12 274 509 Total 186 089 21 929 305 12 274 509 34 389 903 186 089 21 929 305 - 7 133 508 7 133 508 - - * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 23) Loans and advances to customers - * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 23) 31.12.2020 2 250 308 7 133 508 24 977 300 28 787 (in thousands of Euros) 34 389 903 Mandatorily at fair value through profit and loss Fair value through other comprehensive income Amortised cost 31.12.2020 Fair value changes * (in thousands of Euros) Total Securities Loans and advances to banks Loans and advances to customers Securities Loans and advances to banks Mandatorily at fair value through profit and loss 2 445 605 - Fair value through other 7 813 584 comprehensive income - - 2 445 605 2 445 605 - Amortised cost 2 873 753 245 472 21 685 258 2 873 753 24 804 483 245 472 21 685 258 Fair value changes 1 129 * - 59 847 1 129 60 976 - 59 847 13 134 071 Total 245 472 21 745 105 13 134 071 35 124 648 245 472 21 745 105 - 7 813 584 7 813 584 - - * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 23) Loans and advances to customers - * Fair value changes of the elements covered by the interest rate hedge portfolio (see Note 23) 2 445 605 7 813 584 24 804 483 60 976 35 124 648 Securities As of 31 December 2021, and 31 December 2020, the detail of securities portfolio is as follows: 358 44 44 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Securities As of 31 December 2021, and 31 December 2020, 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 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 23) (in thousands of Euros) 31.12.2021 31.12.2020 559 227 425 363 647 082 403 752 1 265 718 1 394 771 2 250 308 2 445 605 5 685 067 1 398 899 49 542 6 406 465 1 352 759 54 360 7 133 508 7 813 584 371 273 2 770 328 415 192 2 661 021 ( 247 772) ( 202 460) 2 893 829 2 873 753 ( 3 136) 1 129 12 274 509 13 134 071 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 6.10.4, based on the net book 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. 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 6.10.4, based on the net book 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. At the end of 2020, novobanco 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 observable in the market), and novobanco 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 11). 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 (see Note 38). At the end of 2020, novobanco 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 observable in the market), and novobanco 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 11). 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 (see Note 38). As at 31 December 2021 and 2020, the detail of the fair value securities through other comprehensive income is as follows: As at 31 December 2021 and 2020, the detail of the fair value securities through other comprehensive income is as follows: Cost (1) Fair value reserve Positive Negative (in thousands of Euros) Balance sheet value Impairment 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 5 484 078 2 406 121 3 077 957 1 374 554 29 609 1 344 945 398 186 328 230 69 956 3 3 204 864 86 400 118 464 30 008 63 29 945 11 810 10 567 1 243 - - ( 3 875) - ( 3 875) ( 5 663) ( 2 335) ( 3 328) ( 360 454) ( 298 226) ( 62 228) ( 3) ( 3) 5 685 067 2 492 521 3 192 546 1 398 899 27 337 1 371 562 49 542 40 571 8 971 - - 359 ( 2 995) ( 1 466) ( 1 529) ( 673) ( 3) ( 670) - - - - - 45 Balance as at 31 December 2021 7 256 821 246 682 ( 369 995) 7 133 508 ( 3 668) (1) Aquisition cost referring to shares and other equity instrum ents and am ortized cost for debt securities. 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Securities As of 31 December 2021, and 31 December 2020, 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 Securities at amortised cost Bonds and other fixed income securities From public issuers From other issuers Impairment (in thousands of Euros) 31.12.2021 31.12.2020 559 227 425 363 647 082 403 752 1 265 718 1 394 771 2 250 308 2 445 605 5 685 067 1 398 899 49 542 6 406 465 1 352 759 54 360 7 133 508 7 813 584 371 273 2 770 328 415 192 2 661 021 ( 247 772) ( 202 460) 2 893 829 2 873 753 ( 3 136) 1 129 12 274 509 13 134 071 Value adjustments for hedging operations for interest rate risk (See Note 23) 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 6.10.4, based on the net book 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. At the end of 2020, novobanco 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 observable in the market), and novobanco 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 11). 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 (see Note 38). As at 31 December 2021 and 2020, 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 (in thousands of Euros) Balance sheet value Impairment reserves 5 484 078 2 406 121 3 077 957 1 374 554 29 609 1 344 945 398 186 328 230 69 956 3 3 204 864 86 400 118 464 30 008 63 29 945 11 810 10 567 1 243 - - ( 3 875) - ( 3 875) ( 5 663) ( 2 335) ( 3 328) ( 360 454) ( 298 226) ( 62 228) ( 3) ( 3) 5 685 067 2 492 521 3 192 546 1 398 899 27 337 1 371 562 49 542 40 571 8 971 - - ( 2 995) ( 1 466) ( 1 529) ( 673) ( 3) ( 670) - - - - - Balance as at 31 December 2021 7 256 821 246 682 ( 369 995) 7 133 508 ( 3 668) (1) Aquisition cost referring to shares and other equity instrum ents and am ortized cost for debt securities. Cost (1) Fair value reserve Positive Negative (in thousands of Euros) Balance sheet value Impairment 45 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 Balance as at 31 December 2020 (1) Aquisition cost referring to shares and other equity instrum ents and am ortized cost for debt securities. 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) - - - - - 7 744 257 437 412 ( 368 085) 7 813 584 ( 3 660) During the year 2021, the Bank sold Euro 934,4 million of financial instruments classified at fair value through other comprehensive income (31 December 2020: Euro 1 295,0 million), with a gain of Euro 12,3 million (31 December 2020: gain of Euro 80,2 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 9,5 million that were transferred from revaluation reserves to sales-related reserves (31 December 2020: loss of Euro 16.4 million). The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: During the year 2021, the Bank sold Euro 934,4 million of financial instruments classified at fair value through other comprehensive income (31 December 2020: Euro 1 295,0 million), with a gain of Euro 12,3 million (31 December 2020: gain of Euro 80,2 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 9,5 million that were transferred from revaluation reserves to sales-related reserves (31 December 2020: loss of Euro 16.4 million). The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: (in thousands of Euros) Changes in impairment losses on amortized cost securities are as follows: 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 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 2021 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 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 2021 360 Impairment movement of securities at fair value through other comprehensive income Stage 1 Stage 2 Stage 3 Total 5 505 3 480 ( 5 022) ( 232) ( 64) 3 667 1 252 ( 895) ( 384) 28 3 668 - 38 - ( 44) 6 - - - - - - - - - - - - - - - - - 5 505 3 518 ( 5 022) ( 276) ( 58) 3 667 1 252 ( 895) ( 384) 28 3 668 Impairment movement of securities at amortised cost Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) 3 758 53 974 102 422 160 154 11 256 ( 10 094) 716 961 ( 682 995) ( 36) 296 ( 2) ( 318) 10 533 ( 3 294) - ( 1) 738 750 ( 696 383) ( 38) ( 23) 5 180 87 620 109 660 202 460 9 264 1 058 247 ( 8 074) ( 1 107 544) ( 12) ( 112) ( 1) ( 39) 148 112 ( 53 046) ( 1 640) 157 1 215 623 ( 1 168 664) ( 1 653) 6 6 246 38 283 203 243 247 772 In accordance with the accounting policy mentioned on Note 6.16, the Bank 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 7.1. 46 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Bonds and other fixed income securities Bonds and other fixed income securities From public issuers From public issuers Residents Residents Non residents From other issuers Non residents From other issuers Residents Residents Non residents Non residents Shares Shares Residents Residents Non residents Non residents Other securities with variable income Other securities with variable income Residents Residents Balance as at 31 December 2020 Balance as at 31 December 2020 (1) Aquisition cost referring to shares and other equity instrum ents and am ortized cost for debt securities. 7 744 257 (1) Aquisition cost referring to shares and other equity instrum ents and am ortized cost for debt securities. Cost (1) Cost (1) Fair value reserve Fair value reserve Positive Positive Negative Negative (in thousands of Euros) (in thousands of Euros) Balance sheet value Balance sheet value Impairment Impairment reserves reserves 6 050 592 6 050 592 2 571 260 2 571 260 3 479 332 3 479 332 1 286 344 1 286 344 29 605 1 256 739 29 605 1 256 739 407 319 407 319 331 888 331 888 75 431 75 431 2 2 2 2 7 744 257 356 115 356 115 125 602 125 602 230 513 230 513 68 749 68 749 107 68 642 107 68 642 12 548 12 548 11 330 11 330 1 218 1 218 - - - - ( 242) ( 242) - ( 242) - ( 242) ( 2 334) ( 2 334) ( 2 334) ( 2 334) - - ( 365 507) ( 365 507) ( 296 014) ( 296 014) ( 69 493) ( 69 493) ( 2) ( 2) ( 2) ( 2) 6 406 465 6 406 465 2 696 862 2 696 862 3 709 603 3 709 603 1 352 759 1 352 759 27 378 1 325 381 27 378 1 325 381 54 360 54 360 47 204 47 204 7 156 7 156 - - - - ( 3 095) ( 3 095) ( 1 405) ( 1 405) ( 1 690) ( 1 690) ( 565) ( 565) ( 3) ( 562) ( 3) ( 562) - - - - - - - - - - 437 412 437 412 ( 368 085) ( 368 085) 7 813 584 7 813 584 ( 3 660) ( 3 660) During the year 2021, the Bank sold Euro 934,4 million of financial instruments classified at fair value through other comprehensive During the year 2021, the Bank sold Euro 934,4 million of financial instruments classified at fair value through other comprehensive income (31 December 2020: Euro 1 295,0 million), with a gain of Euro 12,3 million (31 December 2020: gain of Euro 80,2 million), income (31 December 2020: Euro 1 295,0 million), with a gain of Euro 12,3 million (31 December 2020: gain of Euro 80,2 million), recorded in the income statement, from the sale of debt instruments and a loss of Euro 9,5 million that were transferred from recorded in the income statement, from the sale of debt instruments and a loss of Euro 9,5 million that were transferred from revaluation reserves to sales-related reserves (31 December 2020: loss of Euro 16.4 million). revaluation reserves to sales-related reserves (31 December 2020: loss of Euro 16.4 million). The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: The movements in the impairment reserves in fair value securities through other comprehensive income are presented as follows: (in thousands of Euros) (in thousands of Euros) Impairment movement of securities at fair value Impairment movement of securities at fair value through other comprehensive income through other comprehensive income Stage 1 Stage 1 Stage 2 Stage 2 Stage 3 Stage 3 Balance as at 31 December 2019 Balance as at 31 December 2019 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 2020 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 2021 Balance as at 31 December 2021 5 505 5 505 3 480 3 480 ( 5 022) ( 5 022) ( 232) ( 232) ( 64) ( 64) 3 667 3 667 1 252 1 252 ( 895) ( 895) ( 384) ( 384) 28 28 3 668 3 668 - - 38 38 - - ( 44) ( 44) 6 6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total Total 5 505 5 505 3 518 3 518 ( 5 022) ( 5 022) ( 276) ( 276) ( 58) ( 58) 3 667 3 667 1 252 1 252 ( 895) ( 895) ( 384) ( 384) 28 28 3 668 3 668 Balance as at 31 December 2019 Balance as at 31 December 2019 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 2020 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 (in thousands of Euros) (in thousands of Euros) Stage 1 Stage 1 Stage 2 Stage 2 Stage 3 Stage 3 Impairment movement of securities at amortised cost Impairment movement of securities at amortised cost Total Total 160 154 160 154 738 750 738 750 ( 696 383) ( 696 383) ( 38) ( 38) ( 23) ( 23) 202 460 202 460 1 215 623 1 215 623 ( 1 168 664) ( 1 168 664) ( 1 653) ( 1 653) 6 6 247 772 247 772 53 974 53 974 716 961 716 961 ( 682 995) ( 682 995) ( 2) ( 2) ( 318) ( 318) 87 620 87 620 1 058 247 1 058 247 ( 1 107 544) ( 1 107 544) ( 1) ( 1) ( 39) ( 39) 38 283 38 283 102 422 102 422 10 533 10 533 ( 3 294) ( 3 294) - - ( 1) ( 1) 109 660 109 660 148 112 148 112 ( 53 046) ( 53 046) ( 1 640) ( 1 640) 157 157 203 243 203 243 3 758 3 758 11 256 11 256 ( 10 094) ( 10 094) ( 36) ( 36) 296 296 5 180 5 180 9 264 9 264 ( 8 074) ( 8 074) ( 12) ( 12) ( 112) ( 112) 6 246 6 246 Changes in impairment losses on amortized cost securities are as follows: Changes in impairment losses on amortized cost securities are as follows: Changes in impairment losses on amortized cost securities are as follows: Balance as at 31 December 2021 Balance as at 31 December 2021 In accordance with the accounting policy mentioned on Note 6.16, the Bank regularly evaluate if there is any objective evidence of In accordance with the accounting policy mentioned on Note 6.16, the Bank 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 impairment in its securities portfolio at a fair value through other comprehensive income based on the judgement criteria mentioned on Note 7.1. on Note 7.1. In accordance with the accounting policy mentioned on Note 6.16, the Bank 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 7.1. 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. As at 31 December 2021, and 2020, the securities portfolio, by residual maturity period, is as follows: 46 46 361 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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. 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. As at 31 December 2021, and 2020, the securities portfolio, by residual maturity period, is as follows: As at 31 December 2021, and 2020, the securities portfolio, by residual maturity period, is as follows: (in thousands of Euros) 31.12.2021 (in thousands of Euros) 31.12.2020 Securities mandatorily at fair value through profit or loss 31.12.2021 31.12.2020 Securities mandatorily at fair value through profit or loss Up to 3 months From 3 months to 1 year Up to 3 months From 1 to 5 years From 3 months to 1 year More than 5 years From 1 to 5 years Undetermined (Overdue Loans) More than 5 years Undetermined (Overdue Loans) 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 Up to 3 months From 1 to 5 years From 3 months to 1 year More than 5 years From 1 to 5 years Undetermined (Overdue Loans) More than 5 years Undetermined (Overdue Loans) Securities at amortized cost (*) Securities at amortized cost (*) Up to 3 months From 3 months to 1 year Up to 3 months From 1 to 5 years From 3 months to 1 year More than 5 years From 1 to 5 years More than 5 years (*) Gross Value before impairment 41 741 - 41 741 2 443 - 515 043 2 443 1 691 081 515 043 2 250 308 1 691 081 2 250 308 451 043 988 943 451 043 3 021 902 988 943 2 622 078 3 021 902 49 542 2 622 078 7 133 508 49 542 7 133 508 709 932 139 547 709 932 483 503 139 547 1 808 619 483 503 3 141 601 1 808 619 12 525 417 3 141 601 75 553 32 670 75 553 39 966 32 670 498 893 39 966 1 798 523 498 893 2 445 605 1 798 523 2 445 605 216 825 760 409 216 825 3 904 755 760 409 2 877 235 3 904 755 54 360 2 877 235 7 813 584 54 360 7 813 584 754 292 113 105 754 292 267 980 113 105 1 940 836 267 980 3 076 213 1 940 836 13 335 402 3 076 213 12 525 417 13 335 402 The detail of the securities portfolio by fair value hierarchy is presented in Note 38. The detail of the securities portfolio by fair value hierarchy is presented in Note 38. The portfolio securities pledged by the bank are analysed in Note 35. The portfolio securities pledged by the bank are analysed in Note 35. The portfolio securities pledged by the bank are analysed in Note 35. (*) Gross Value before impairment The detail of the securities portfolio by fair value hierarchy is presented in Note 38. Loans and advances to Banks Loans and advances to Banks As at 31 December 2021 and 31 December 2020, the detail of Loans and advances to banks is as follows: Loans and advances to Banks As at 31 December 2021 and 31 December 2020, the detail of Loans and advances to banks is as follows: As at 31 December 2021 and 31 December 2020, the detail of Loans and advances to banks is as follows: (in thousands of Euros) 31.12.2021 (in thousands of Euros) 31.12.2020 Loans and advances to banks in Portugal Loans and advances to banks in Portugal Very short-term placements Deposits Very short-term placements Loans Deposits Other loans and advances Loans Other loans and advances Loans and advances to banks abroad Loans and advances to banks abroad Deposits Other loans and advances Deposits Other loans and advances Outstanding applications Outstanding applications Impairment losses 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. 31.12.2021 - 136 408 - 44 770 136 408 3 44 770 181 181 3 181 181 6 089 2 6 089 6 091 2 6 091 - 187 272 - 187 272 ( 1 183) 31.12.2020 4 075 136 440 4 075 30 429 136 440 4 30 429 170 948 4 170 948 10 532 279 419 10 532 289 951 279 419 289 951 34 726 495 625 34 726 495 625 ( 250 153) 186 089 ( 1 183) 245 472 ( 250 153) 186 089 245 472 362 47 47 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Investments in credit institutions are all recorded in the amortised cost portfolio. As at 31 December 2021 and 2020, the analysis of loans and advances to banks, by residual maturity is as follows: As at 31 December 2021 and 2020, the analysis of loans and advances to banks, by residual maturity is as follows: As at 31 December 2021 and 2020, the analysis of loans and advances to banks, by residual maturity is as follows: (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) Changes in impairment losses on loans and advances to banks are presented as follows: 31.12.2021 35 213 107 809 38 282 5 968 35 213 - 107 809 38 282 187 272 5 968 - (in thousands of Euros) 31.12.2020 51 484 100 259 303 188 5 968 51 484 34 726 100 259 303 188 495 625 5 968 34 726 31.12.2021 31.12.2020 Changes in impairment losses on loans and advances to banks are presented as follows: Changes in impairment losses on loans and advances to banks are presented as follows: 187 272 495 625 (in thousands of Euros) Loans and advances to banks Stage 1 Stage 2 Stage 3 (in thousands of Euros) Total Balance as at 31 December 2019 367 Loans and advances to banks 76 341 426 77 134 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 Other movements 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 Uses Other movements Increases due to changes in credit risk Decreases due to changes in credit risk Uses Other movements Balance as at 31 December 2021 Balance as at 31 December 2020 Stage 1 556 ( 477) 367 ( 1) 556 445 ( 477) 414 ( 1) ( 544) 445 ( 101 282) 101 251 414 ( 544) 284 ( 101 282) 101 251 Stage 2 2 462 ( 1 965) 76 341 ( 76 836) 2 462 2 ( 1 965) 541 ( 76 836) ( 102) 2 - 33 541 ( 102) 474 - 33 Stage 3 317 540 ( 128 520) 426 60 260 317 540 249 706 ( 128 520) 134 063 60 260 ( 132 564) 249 706 ( 167 728) ( 83 052) 134 063 ( 132 564) 425 ( 167 728) ( 83 052) Total 320 558 ( 130 962) 77 134 ( 16 577) 320 558 250 153 ( 130 962) 135 018 ( 16 577) ( 133 210) 250 153 ( 269 010) 18 232 135 018 ( 133 210) 1 183 ( 269 010) 18 232 The increase of impairment for investments in credit institutions verified in 2020 results from the degradation of the credit risk of Balance as at 31 December 2021 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. During 2021 part of this exposure was settled, with the remaining exposure being restructured and subsequently derecognized, in line with The increase of impairment for investments in credit institutions verified in 2020 results from the degradation of the credit risk of the amendment made in May 2021 to the CCA contract, which extinguished novobanco’s rights and risks on this asset. 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. During 2021 part of this exposure was settled, with the remaining exposure being restructured and subsequently derecognized, in line with the amendment made in May 2021 to the CCA contract, which extinguished novobanco’s rights and risks on this asset. Loans and advances to customers As at 31 December 2021 and 31 December 2020, the detail of loans and advances to customers is presented as follows: 1 183 474 284 425 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. During 2021 part of this exposure was settled, with the remaining exposure being restructured and subsequently derecognized, in line with the amendment made in May 2021 to the CCA contract, which extinguished novobanco’s rights and risks on this asset. 363 48 48 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Loans and advances to customers As at 31 December 2021 and 31 December 2020, 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 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 (See Note 23) Corporate Loans Individuals Residential Mortgage loans Loans to customers are all recorded in the amortised cost portfolio. (in thousands of Euros) 31.12.2021 31.12.2020 1 097 525 8 819 590 75 502 593 512 13 453 1 245 885 17 693 7 260 274 1 063 923 1 109 729 8 876 278 80 430 575 682 7 105 1 421 765 20 974 7 368 861 1 007 365 20 187 357 20 468 189 66 348 1 319 819 2 40 519 54 1 1 037 140 180 412 2 644 295 18 931 282 556 301 487 851 791 146 986 4 51 483 8 321 1 949 211 180 022 2 187 819 13 457 602 796 616 253 23 133 139 23 272 261 (1 235 757) (1 587 003) 21 897 382 21 685 258 4 035 6 774 27 888 31 923 53 073 59 847 21 929 305 21 745 105 Loans to customers are all recorded in the amortised cost portfolio. As at 31 December 2021, the caption Loans and advances to customers include Euro 6,075.1 million of mortgage loans related to the issuance of mortgage bonds (31 December 2020: Euro 6,104.8 million) (see Note 30). As at 31 December 2021, the amount of interest and commissions recorded in the balance sheet relating to credit operations amounts to Euro 17,773 thousand (31 December 2020: Euro 24,765 thousand). As at 31 December 2021, the caption Loans and advances to customers include Euro 6,075.1 million of mortgage loans related to the issuance of mortgage bonds (31 December 2020: Euro 6,104.8 million) (see Note 30). As at 31 December 2021, the amount of interest and commissions recorded in the balance sheet relating to credit operations amounts to Euro 17,773 thousand (31 December 2020: Euro 24,765 thousand). As at 31 December 2021 and 2020, the analysis of loans and advances to customers, by residual maturity period, is as follows: 364 49 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, the analysis of loans and advances to customers, by residual maturity period, is as follows: As at 31 December 2021 and 2020, the analysis of loans and advances to customers, by residual maturity period, is as follows: As at 31 December 2021 and 2020, the analysis of loans and advances to customers, by residual maturity period, is as follows: 31.12.2021 31.12.2021 31.12.2021 1 139 039 1 139 039 1 217 721 1 217 721 5 771 766 5 771 766 14 735 049 1 139 039 14 735 049 301 487 1 217 721 301 487 23 165 062 5 771 766 23 165 062 14 735 049 301 487 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 (in thousands of Euros) 31.12.2020 971 494 971 494 1 243 984 1 243 984 5 112 417 5 112 417 15 387 960 971 494 15 387 960 616 253 1 243 984 616 253 23 332 108 5 112 417 23 332 108 15 387 960 616 253 Up to 3 months Up to 3 months From 3 months to 1 year From 3 months to 1 year From 1 to 5 years From 1 to 5 years More than 5 years Up to 3 months More than 5 years Undetermined duration (Overdue) From 3 months to 1 year Undetermined duration (Overdue) From 1 to 5 years More than 5 years Undetermined duration (Overdue) 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: Changes in credit impairment losses are presented as follows: 23 332 108 (in thousands of Euros) (in thousands of Euros) Impairment movements of loans and advances to customers Impairment movements of loans and advances to customers 23 165 062 Stage 1 Total Total Stage 1 Stage 1 Balance as at 31 December 2019 (in thousands of Euros) Balance as at 31 December 2019 1 841 483 Impairment movements of loans and advances to customers Balance as at 31 December 2019 1 841 483 Financial assets derecognised ( 294 007) Total Financial assets derecognised ( 294 007) Increases due to changes in credit risk 791 619 Increases due to changes in credit risk 791 619 Decreases due to changes in credit risk ( 271 103) 1 841 483 Decreases due to changes in credit risk ( 271 103) Utilization during the period ( 439 021) Financial assets derecognised ( 294 007) Utilization during the period ( 439 021) Other movements (a) ( 41 968) Increases due to changes in credit risk 791 619 Other movements (a) ( 41 968) 1 587 003 Balance as at 31 December 2020 ( 271 103) Decreases due to changes in credit risk Balance as at 31 December 2020 1 587 003 ( 439 021) Utilization during the period ( 244 059) Financial assets derecognised Other movements (a) ( 41 968) Financial assets derecognised ( 244 059) Increases due to changes in credit risk 289 202 Increases due to changes in credit risk 289 202 Decreases due to changes in credit risk ( 142 096) 1 587 003 Decreases due to changes in credit risk ( 142 096) ( 266 472) Utilization during the period ( 244 059) Financial assets derecognised Utilization during the period ( 266 472) 12 179 Other movements 289 202 Increases due to changes in credit risk 12 179 Other movements 1 235 757 ( 142 096) Decreases due to changes in credit risk 1 235 757 ( 266 472) Utilization during the period (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 (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). 12 179 Other movements 3). 53 065 53 065 ( 2) ( 2) 38 169 38 169 ( 114 202) 53 065 ( 114 202) ( 16) ( 2) ( 16) 83 113 38 169 83 113 60 127 ( 114 202) 60 127 ( 16) ( 1 282) 83 113 ( 1 282) 21 760 21 760 ( 46 443) 60 127 ( 46 443) - ( 1 282) - 27 894 21 760 27 894 62 056 ( 46 443) 62 056 - 27 894 Stage 3 Stage 3 1 651 446 1 651 446 ( 294 005) Stage 3 ( 294 005) 417 014 417 014 ( 59 624) 1 651 446 ( 59 624) ( 438 892) ( 294 005) ( 438 892) ( 55 507) 417 014 ( 55 507) 1 220 432 ( 59 624) 1 220 432 ( 438 892) ( 239 704) ( 55 507) ( 239 704) 147 370 147 370 ( 39 120) 1 220 432 ( 39 120) ( 266 278) ( 239 704) ( 266 278) 33 730 147 370 33 730 856 430 ( 39 120) 856 430 ( 266 278) 33 730 Stage 2 Stage 2 136 972 136 972 - Stage 2 - 336 436 336 436 ( 97 277) 136 972 ( 97 277) ( 113) - ( 113) ( 69 574) 336 436 ( 69 574) 306 444 ( 97 277) 306 444 ( 113) ( 3 073) ( 69 574) ( 3 073) 120 072 120 072 ( 56 533) 306 444 ( 56 533) ( 194) ( 3 073) ( 194) ( 49 445) 120 072 ( 49 445) 317 271 ( 56 533) 317 271 ( 194) ( 49 445) Balance as at 31 December 2021 Balance as at 31 December 2021 Balance as at 31 December 2020 The increase of impairment for credit risk during the year 2021 include Euro 71.8 million, reflecting the updating of the information in the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic (31 December de 2020: Euro 218.8 million). Balance as at 31 December 2021 The increase of impairment for credit risk during the year 2021 include Euro 71.8 million, reflecting the updating of the information in The increase of impairment for credit risk during the year 2021 include Euro 71.8 million, reflecting the updating of the information in (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 the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic (31 December de 2020: Euro 218.8 million). 3). the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic (31 December de 2020: Euro 218.8 million). Credit distribution by type of rate is as follows: The increase of impairment for credit risk during the year 2021 include Euro 71.8 million, reflecting the updating of the information in Credit distribution by type of rate is as follows: (in thousands of Euros) the IFRS 9 models, anticipating the losses related to the Covid-19 pandemic (31 December de 2020: Euro 218.8 million). (in thousands of Euros) 1 235 757 856 430 317 271 62 056 Credit distribution by type of rate is as follows: Credit distribution by type of rate is as follows: Fixed rate Fixed rate Variable rate Variable rate Fixed rate Variable rate An analysis of finance lease loans, by residual maturity period, is presented as follows: (in thousands of Euros) 31.12.2021 31.12.2021 31.12.2021 3 965 414 3 965 414 19 199 648 19 199 648 23 165 062 23 165 062 3 965 414 19 199 648 31.12.2020 31.12.2020 31.12.2020 3 883 609 3 883 609 19 448 499 19 448 499 23 332 108 23 332 108 3 883 609 19 448 499 23 165 062 23 332 108 365 50 50 50 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 Gross investment in finance leases receivable Up to 1 year 1 to 5 years Up to 1 year More than 5 years 1 to 5 years More than 5 years Unrealized finance income in finance leases Unrealized finance income in finance leases Up to 1 year 1 to 5 years Up to 1 year More than 5 years 1 to 5 years More than 5 years Capital falling due Capital falling due Up to 1 year 1 to 5 years Up to 1 year More than 5 years 1 to 5 years More than 5 years Impairment Impairment 31.12.2021 31.12.2021 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 278 587 693 762 278 587 533 443 693 762 1 505 792 533 443 1 505 792 43 611 94 599 43 611 91 120 94 599 229 330 91 120 229 330 234 976 599 163 234 976 442 323 599 163 1 276 462 442 323 1 276 462 ( 226 204) ( 226 204) 1 050 258 1 050 258 270 188 761 487 270 188 571 105 761 487 1 602 780 571 105 1 602 780 44 830 67 455 44 830 32 654 67 455 144 939 32 654 144 939 225 358 694 032 225 358 538 451 694 032 1 457 841 538 451 1 457 841 ( 220 447) ( 220 447) 1 237 394 1 237 394 Sales of Credit Portfolios Sales of Credit Portfolios 2021 2021 Sale of a portfolio of non-performing loans (called Project Orion) novobanco entered into purchase and sale agreements with a consortium of funds managed by WEST INVEST UK LIMITED Sale of a portfolio of non-performing loans (called Project Orion) PARTNERSHIP and LX INVESTMENT PARTNERS III S.À.R.L. for a portfolio of non-performing loans and related assets (the Project novobanco entered into purchase and sale agreements with a consortium of funds managed by WEST INVEST UK LIMITED Orion). The net book value of the loans at the date of derecognition amounted to Euro 72,0 million (gross amount of Euro 156,7 PARTNERSHIP and LX INVESTMENT PARTNERS III S.À.R.L. for a portfolio of non-performing loans and related assets (the Project million), with an impact on the net income for the year fiscal year 2021 or circa Euro 1.8 million: Orion). The net book value of the loans at the date of derecognition amounted to Euro 72,0 million (gross amount of Euro 156,7 million), with an impact on the net income for the year fiscal year 2021 or circa Euro 1.8 million: Sales of Credit Portfolios 2021 Sale of a portfolio of non-performing loans (called Project Orion) novobanco entered into purchase and sale agreements with a consortium of funds managed by WEST INVEST UK LIMITED PARTNERSHIP and LX INVESTMENT PARTNERS III S.À.R.L. for a portfolio of non- Impact on the Income Statement Impact on the Income Statement Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Provisions or reversal of provisions Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions Impact on Net Income performing loans and related assets (the Project Orion). The net book value of the loans at the date of derecognition amounted to Euro 72,0 million (gross amount of Euro 156,7 million), with an impact on the net income for the year fiscal year 2021 or circa Euro 1.8 million: (in thousands of Euros) 31.12.2021 (in thousands of Euros) 31.12.2021 -9 329 18 395 -9 329 -7 310 18 395 -7 310 1 756 Impact on Net Income Sale of a portfolio of non-performing loans (called Project Wilkinson) On 5 March 2021, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related assets Sale of a portfolio of non-performing loans (called Project Wilkinson) (the Project Wilkinson), with a net book value of Euro 62,3 million (gross amount of Euro 210,4 million), with Burlington Loan On 5 March 2021, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related assets Management, a company owned and advised by companies affiliated and advised by Davidson Kempner European Partners, LLP. (the Project Wilkinson), with a net book value of Euro 62,3 million (gross amount of Euro 210,4 million), with Burlington Loan The impact of this operation on the net income for the fiscal year 2021 was reflected in a loss of Euro 4.5 million. Management, a company owned and advised by companies affiliated and advised by Davidson Kempner European Partners, LLP. The impact of this operation on the net income for the fiscal year 2021 was reflected in a loss of Euro 4.5 million. 1 756 Impact on the Income Statement Impact on the Income Statement Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Impact on Net Income Impact on Net Income (in thousands of Euros) 31.12.2021 (in thousands of Euros) 31.12.2021 -1 363 -3 175 -1 363 -3 175 -4 538 -4 538 366 51 51 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 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 Sales of Credit Portfolios 2021 (in thousands of Euros) 31.12.2021 31.12.2020 278 587 693 762 533 443 1 505 792 43 611 94 599 91 120 229 330 234 976 599 163 442 323 1 276 462 ( 226 204) 1 050 258 270 188 761 487 571 105 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 Sale of a portfolio of non-performing loans (called Project Orion) novobanco entered into purchase and sale agreements with a consortium of funds managed by WEST INVEST UK LIMITED PARTNERSHIP and LX INVESTMENT PARTNERS III S.À.R.L. for a portfolio of non-performing loans and related assets (the Project Orion). The net book value of the loans at the date of derecognition amounted to Euro 72,0 million (gross amount of Euro 156,7 million), with an impact on the net income for the year fiscal year 2021 or circa Euro 1.8 million: Impact on the Income Statement Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions Impact on Net Income (in thousands of Euros) 31.12.2021 -9 329 18 395 -7 310 1 756 Sale of a portfolio of non-performing loans (called Project Wilkinson) On 5 March 2021, novobanco entered into a purchase and sale agreement for a portfolio of non- performing loans and related assets (the Project Wilkinson), with a net book value of Euro 62,3 million (gross amount of Euro 210,4 million), with Burlington Loan Management, a company owned and advised Sale of a portfolio of non-performing loans (called Project Wilkinson) On 5 March 2021, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related assets (the Project Wilkinson), with a net book value of Euro 62,3 million (gross amount of Euro 210,4 million), with Burlington Loan Management, a company owned and advised by companies affiliated and advised by Davidson Kempner European Partners, LLP. The impact of this operation on the net income for the fiscal year 2021 was reflected in a loss of Euro 4.5 million. by companies affiliated and advised by Davidson Kempner European Partners, LLP. The impact of this operation on the net income for the fiscal year 2021 was reflected in a loss of Euro 4.5 million. Impact on the Income Statement Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Impact on Net Income 2020 (in thousands of Euros) 31.12.2021 -1 363 -3 175 -4 538 2020 Sale of a portfolio of non-performing loans (called Project Carter) On 23 December 2020, novobanco entered into a purchase and sale agreement for a portfolio of non- performing loans and related assets (together, the Carter Project), with a net book value of Euro 34,1 Sale of a portfolio of non-performing loans (called Project Carter) On 23 December 2020, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related assets (together, the Carter Project), with a net book value of Euro 34,1 million (gross amount of Euro 79,1 million), 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 fiscal year 2020 was reflected in a gain of Euro 2.3 million. million (gross amount of Euro 79,1 million), 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 fiscal year 2020 was reflected in a gain of Euro 2.3 million. Impact on the Income Statement Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Impact on Net Income (in thousands of Euros) 51 31.12.2020 3 310 -983 2 327 NOTE 23 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS As at 31 December 2021 and 31 December 2020, the fair value of the hedging derivatives is analysed as follows: Hedging derivatives Assets Liabilities Fair value component of the assets and liabilities hedged for interest rate risk Financial assets Securities (see Note 22) Loans and advances to customers (see Note 22) (in thousands of Euros) 31.12.2021 31.12.2020 20 150 ( 44 460) ( 24 310) 13 606 ( 72 543) ( 58 937) ( 3 136) 31 923 28 787 1 129 59 847 60 976 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. (see Note 11). The Bank calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology described in Note 38 - Financial assets and liabilities held for trading. 367 As at 31 December 2021 and 2020, fair value hedging operations may be analyzed as follows: 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 2 491 995 378 000 ( 28 494) 4 184 31 004 3 675 31 923 ( 3 136) ( 27 925) ( 4 265) 2 869 995 ( 24 310) 34 679 28 787 ( 32 190) 31.12.2021 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) Interest Rate Swap/CIRS Loans and advances to customers Interest and exchange rates Interest Rate Swap Securities at amortized cost 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 (1) Includes accrued interest (2) Attributable to the hedged risk (1) Includes accrued interest (2) Attributable to the hedged risk On 31 December 2021, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 0.2 million, was recorded in the income statement (31 December 2020: profit of Euro 4.1 million). The bank periodically conducts tests of the effectiveness of existing hedging relationships. (in thousands of Euros) Change in fair value component of item hedged in period (2) 11 189 1 130 12 319 52 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 2020 2020 Sale of a portfolio of non-performing loans (called Project Carter) Sale of a portfolio of non-performing loans (called Project Carter) On 23 December 2020, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related On 23 December 2020, novobanco entered into a purchase and sale agreement for a portfolio of non-performing loans and related assets (together, the Carter Project), with a net book value of Euro 34,1 million (gross amount of Euro 79,1 million), to a company assets (together, the Carter Project), with a net book value of Euro 34,1 million (gross amount of Euro 79,1 million), to a company owned by affiliated companies and advised by AGG Capital Management Limited and Christofferson, Robb & Company, LLC. The 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 fiscal year 2020 was reflected in a gain of Euro 2.3 million. impact of this operation on the net income for the fiscal year 2020 was reflected in a gain of Euro 2.3 million. Impact on the Income Statement Impact on the Income Statement Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Impairments or reversals of impairments on financial assets not measured at fair value through profit or loss Impact on Net Income Impact on Net Income NOTE 23 – DERIVATIVES – HEDGE ACCOUNTING AND FAIR VALUE CHANGES OF THE HEDGED ITEMS As at 31 December 2021 and 31 December 2020, the fair value of the hedging derivatives is analysed 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 As at 31 December 2021 and 31 December 2020, the fair value of the hedging derivatives is analysed as follows: As at 31 December 2021 and 31 December 2020, the fair value of the hedging derivatives is analysed as follows: Hedging derivatives Hedging derivatives Assets Liabilities Assets Liabilities Fair value component of the assets and liabilities hedged for interest rate risk Fair value component of the assets and liabilities hedged for interest rate risk Financial assets Financial assets Securities (see Note 22) Loans and advances to customers (see Note 22) Securities (see Note 22) Loans and advances to customers (see Note 22) (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 3 310 3 310 -983 -983 2 327 2 327 (in thousands of Euros) 31.12.2021 31.12.2021 (in thousands of Euros) 31.12.2020 31.12.2020 20 150 ( 44 460) 20 150 ( 44 460) ( 24 310) ( 24 310) ( 3 136) 31 923 ( 3 136) 31 923 28 787 28 787 13 606 ( 72 543) 13 606 ( 72 543) ( 58 937) ( 58 937) 1 129 59 847 1 129 59 847 60 976 60 976 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. (see Note 11). Changes in the fair value of the hedged assets and liabilities mentioned above and of the respective hedging derivatives are 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. (see Note 11). recognized in the income statement in the caption Gains and losses from hedge accounting. (see Note 11). The Bank calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology described The Bank calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology described in Note 38 - Financial assets and liabilities held for trading. in Note 38 - Financial assets and liabilities held for trading. As at 31 December 2021 and 2020, fair value hedging operations may be analyzed as follows: As at 31 December 2021 and 2020, fair value hedging operations may be analyzed as follows: The Bank calculates the “Credit Valuation Adjustment” (CVA) for derivative instruments in accordance with the methodology described in Note 38 - Financial assets and liabilities held for trading. As at 31 December 2021 and 2020, fair value hedging operations may be analyzed as follows: Derivative Derivative Hedged item Hedged item Loans and advances to customers Loans and advances to customers Securities at amortized cost Securities at amortized cost Interest Rate Swap/CIRS Interest Rate Swap Interest Rate Swap/CIRS Interest Rate Swap (1) Includes accrued interest (2) Attributable to the hedged risk (1) Includes accrued interest (2) Attributable to the hedged risk Derivative Derivative Hedged item Hedged item 31.12.2021 31.12.2021 Hedged risk Hedged risk Interest rate and exchange rate Interest rate and Interest rate exchange rate Interest rate 31.12.2020 31.12.2020 Hedged risk Hedged risk Notional Notional Fair value of derivatives (1) Fair value of derivatives (1) Change in fair value of Change in derivative in fair value of period derivative in period Fair value component of Fair value item hedged(2) component of item hedged(2) (in thousands of Euros) (in thousands of Euros) Change in fair value Change in fair component of value item hedged component of in period (2) item hedged in period (2) 2 491 995 378 000 2 491 995 378 000 2 869 995 ( 28 494) 4 184 ( 28 494) 4 184 ( 24 310) 2 869 995 ( 24 310) 31 004 3 675 31 004 3 675 34 679 34 679 31 923 ( 3 136) 31 923 ( 3 136) 28 787 28 787 ( 27 925) ( 4 265) ( 27 925) ( 4 265) ( 32 190) ( 32 190) (in thousands of Euros) Notional Notional Fair value of derivatives (1) Fair value of derivatives (1) Change in fair value of Change in derivative in fair value of period derivative in period ( 8 981) 801 ( 8 981) 801 ( 8 180) Fair value component of Fair value item hedged(2) component of item hedged(2) 59 847 1 129 59 847 1 129 60 976 (in thousands of Euros) Change in fair value Change in fair component of value item hedged component of in period (2) item hedged in period (2) 11 189 1 130 11 189 1 130 12 319 Interest Rate Swap/CIRS Interest Rate Swap Interest Rate Swap/CIRS Interest Rate Swap Loans and advances to customers Securities at amortized cost Loans and advances to customers Securities at amortized cost Interest and exchange rates Interest rate Interest and exchange rates Interest rate 3 347 176 378 000 3 347 176 378 000 3 725 176 ( 59 602) 665 ( 59 602) 665 ( 58 937) (1) Includes accrued interest (2) Attributable to the hedged risk (1) Includes accrued interest (2) Attributable to the hedged risk On 31 December 2021, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 0.2 million, was On 31 December 2021, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 0.2 million, was recorded in the income statement (31 December 2020: profit of Euro 4.1 million). The bank periodically conducts tests of the recorded in the income statement (31 December 2020: profit of Euro 4.1 million). The bank periodically conducts tests of the effectiveness of existing hedging relationships. effectiveness of existing hedging relationships. 3 725 176 ( 58 937) 12 319 60 976 ( 8 180) 368 52 52 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes On 31 December 2021, the ineffective part of the fair value hedging operations, which translated into a cost of Euro 0.2 million, was recorded in the income statement (31 December 2020: profit of Euro 4.1 million). The bank periodically conducts tests of the effectiveness of existing hedging relationships. Transactions with risk management and hedge derivatives as at 31 December 2021 and 2020, by maturity, can be analyzed as follows: Transactions with risk management and hedge derivatives as at 31 December 2021 and 2020, by maturity, can be analyzed as follows: (in thousands of Euros) Transactions with risk management and hedge derivatives as at 31 December 2021 and 2020, by maturity, can be analyzed as follows: Notional Notional Fair value (net) Fair value (net) 31.12.2020 31.12.2021 Buy Sell Buy Sell (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 From 3 months to 1 year From 1 to 5 years More than 5 years Notional Buy 65 000 76 537 425 032 868 428 65 000 1 434 997 76 537 425 032 868 428 Sell 31.12.2021 65 000 76 537 425 032 868 429 65 000 1 434 998 76 537 425 032 868 429 ( 705) ( 1 200) Fair value (net) 1 514 ( 23 919) ( 705) ( 24 310) ( 1 200) 1 514 ( 23 919) NOTE 24 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES 1 434 997 1 434 998 ( 24 310) Investments in subsidiaries, joint ventures and associates are presented as follows: NOTE 24 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Investments in subsidiaries, joint ventures and associates are presented as follows: Nominal value (euros) Nº of shares Direct participation in capital 31.12.2021 Investments in subsidiaries, joint ventures and associates are presented as follows: Impairment Net Value Nº of shares Cost of participation NOTE 24 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Notional Buy - 173 866 811 060 877 662 - 1 862 588 173 866 811 060 877 662 31.12.2020 Sell - 173 866 811 060 877 662 - 1 862 588 173 866 811 060 877 662 - ( 862) Fair value (net) ( 8 163) ( 49 912) - ( 58 937) ( 862) ( 8 163) ( 49 912) 1 862 588 1 862 588 ( 58 937) (in thousands of Euros) 31.12.2020 Direct participatio n in capital Nominal value (euros) Cost of participation Impairment Net Value Net Value Impairment - novobanco dos Açores - NB Finance ( 17 501) BEST ( 48 293) ES Tech Ventures - GNB GA ( 20 602) GNB Concessões - novobanco dos Açores ( 4 460) ESEGUR - NB Finance ( 8) ES Representações ( 17 501) BEST - Locarent ( 48 293) ES Tech Ventures ( 55 514) NB África - GNB GA - Unicre ( 20 602) GNB Concessões - Ijar Leasing Algérie ( 4 460) ESEGUR - Edenred Portugal ( 8) ES Representações ( 100) Multipessoal - Locarent - Aroleri ( 55 514) NB África ( 146 478) - Unicre - Ijar Leasing Algérie - Edenred Portugal During 2021 the associated company Ijar Leasing was transferred to non-current assets held for sale as it is in the process of selling ( 100) Multipessoal - Aroleri assets with the objective of their sale in the short term (see Note 29). The associates ESEGUR and Multipessoal were transferred from non-current assets held for sale to investments in associates, as the sales processes were not active at year end. - (in thousands of Euros) - ( 64 818) ( 50 666) - ( 20 602) - - - ( 8) ( 64 818) - ( 50 666) ( 55 514) - - ( 20 602) ( 8 035) - - ( 8) - - - ( 55 514) ( 199 643) - ( 8 035) - - - 5.00 1.00 31.12.2020 1.00 Nominal value 1.00 (euros) 5.00 5.00 5.00 - 1.00 0.16 1.00 5.00 1.00 5.00 5.00 5.00 5.00 61.94 - 0.01 0.16 - 5.00 - 5.00 5.00 61.94 0.01 - - 5.00 1.00 31.12.2021 1.00 Nominal value 1.00 (euros) 5.00 5.00 5.00 5.00 1.00 0.16 1.00 5.00 1.00 5.00 5.00 5.00 5.00 - 5.00 0.01 0.16 5.00 5.00 1.00 5.00 5.00 - 0.01 5.00 1.00 10 308 1 700 100 418 Cost of 71 500 participation 86 722 20 602 10 308 9 634 1 700 8 100 418 2 967 71 500 66 500 86 722 11 497 20 602 - 9 634 4 984 8 100 2 967 604 66 500 387 544 11 497 - 4 984 100 604 10 308 1 700 100 418 Cost of 71 500 participation 86 722 20 602 10 308 - 1 700 8 100 418 2 967 71 500 66 500 86 722 11 497 20 602 12 361 - 4 984 8 - 2 967 - 66 500 389 567 11 497 12 361 4 984 - - 57.53% 100.00% 100.00% Direct 100.00% participation 100.00% in capital 98.96% 57.53% 44.00% 100.00% 99.99% 100.00% 50.00% 100.00% 100.00% 100.00% 17.50% 98.96% - 44.00% 50.00% 99.99% 22.52% 50.00% 100.00% 100.00% 17.50% - 50.00% 22.52% 100.00% 2 144 404 100 000 62 999 700 71 500 000 Nº of shares 2 350 000 942 306 2 144 404 242 000 100 000 49 995 62 999 700 525 000 71 500 000 13 300 000 2 350 000 350 029 942 306 - 242 000 101 477 601 49 995 20 000 525 000 3 500 13 300 000 350 029 - 101 477 601 20 000 3 500 2 144 404 100 000 62 999 700 71 500 000 Nº of shares 2 350 000 942 306 2 144 404 - 100 000 49 995 62 999 700 525 000 71 500 000 13 300 000 2 350 000 350 029 942 306 122 499 - 101 477 601 49 995 - 525 000 - 13 300 000 350 029 122 499 101 477 601 - - 57.53% 100.00% 100.00% Direct 100.00% participatio 100.00% n in capital 98.97% 57.53% - 100.00% 99.99% 100.00% 50.00% 100.00% 100.00% 100.00% 17.50% 98.97% 18.85% - 50.00% 99.99% - 50.00% - 100.00% 17.50% 18.85% 50.00% - - 10 308 1 700 82 917 23 207 86 722 - 10 308 5 174 1 700 - 82 917 2 967 23 207 10 986 86 722 11 497 - - 5 174 4 984 - - 2 967 604 10 986 241 066 11 497 - 4 984 - 604 10 308 1 700 35 600 20 834 86 722 - 10 308 - 1 700 - 35 600 2 967 20 834 10 986 86 722 11 497 - 4 326 - 4 984 - - 2 967 - 10 986 189 924 11 497 4 326 4 984 - - Impairment ( 199 643) ( 146 478) Net Value 389 567 189 924 387 544 241 066 During 2021 the associated company Ijar Leasing was transferred to non-current assets held for sale as it is in the process of selling The changes in impairment losses for investments in associates are presented as follows: assets with the objective of their sale in the short term (see Note 29). The associates ESEGUR and Multipessoal were transferred (in thousands of Euros) from non-current assets held for sale to investments in associates, as the sales processes were not active at year end. The changes in impairment losses for investments in associates are presented as follows: Balance at the beginning of the exercise During 2021 the associated company Ijar Leasing was transferred to non-current assets held for sale as it is in the process of selling assets with the objective of their sale in the short term (see Note 29). The associates ESEGUR and Multipessoal were transferred from non-current assets held for sale to Charges investments in associates, as the sales processes were not active at year end. Uses Reversals Foreign exchange differences (a) Charges Uses Reversals Foreign exchange differences (a) The changes in impairment losses for investments in associates are presented as follows: Balance at the beginning of the exercise Balance at the end of the exercise (a) In the exercise of 2021, it includes 8 035 thousand Euros of impairment to Ijar Leasing transferred to Discontinued Operations (See Note 29). 31.12.2021 31.12.2020 31.12.2021 199 643 31.12.2020 182 184 (in thousands of Euros) - 48 388 ( 22 480) - ( 49 691) ( 7 103) 182 184 199 643 ( 1 346) ( 3 474) 48 388 - 199 643 146 478 ( 22 480) - ( 7 103) ( 49 691) ( 1 346) ( 3 474) Balance at the end of the exercise 146 478 199 643 (a) In the exercise of 2021, it includes 8 035 thousand Euros of impairment to Ijar Leasing transferred to Discontinued Operations (See Note 29). 53 53 369 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Transactions with risk management and hedge derivatives as at 31 December 2021 and 2020, by maturity, can be analyzed as follows: Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Notional Buy Sell 65 000 76 537 425 032 868 428 65 000 76 537 425 032 868 429 31.12.2021 31.12.2020 Fair value (net) Fair value (net) (in thousands of Euros) Notional Buy Sell - 173 866 811 060 877 662 - 173 866 811 060 877 662 ( 705) ( 1 200) 1 514 ( 23 919) ( 24 310) - ( 862) ( 8 163) ( 49 912) ( 58 937) 1 434 997 1 434 998 1 862 588 1 862 588 NOTE 24 – INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Investments in subsidiaries, joint ventures and associates are presented as follows: novobanco dos Açores NB Finance BEST ES Tech Ventures GNB GA GNB Concessões ESEGUR ES Representações Locarent NB África Unicre Ijar Leasing Algérie Edenred Portugal Multipessoal Aroleri 2 144 404 100 000 62 999 700 71 500 000 2 350 000 942 306 242 000 49 995 525 000 13 300 000 350 029 - 101 477 601 20 000 3 500 57.53% 100.00% 100.00% 100.00% 100.00% 98.96% 44.00% 99.99% 50.00% 100.00% 17.50% - 50.00% 22.52% 100.00% Nº of shares participation Direct in capital 31.12.2021 Nominal value Cost of (euros) participation Impairment Net Value Nº of shares 5.00 1.00 1.00 1.00 5.00 5.00 5.00 0.16 5.00 5.00 5.00 - 0.01 5.00 1.00 10 308 1 700 100 418 71 500 86 722 20 602 9 634 8 2 967 66 500 11 497 - 4 984 100 604 - - - - - - - - ( 17 501) ( 48 293) ( 20 602) ( 4 460) ( 8) ( 55 514) ( 100) 10 308 1 700 82 917 23 207 86 722 5 174 2 967 10 986 11 497 - - - - 604 2 144 404 100 000 62 999 700 71 500 000 2 350 000 942 306 49 995 525 000 13 300 000 350 029 122 499 - - - 4 984 101 477 601 Direct participatio n in capital 57.53% 100.00% 100.00% 100.00% 100.00% 98.97% - 99.99% 50.00% 100.00% 17.50% 18.85% 50.00% - - 31.12.2020 (in thousands of Euros) Nominal value Cost of (euros) participation Impairment Net Value 5.00 1.00 1.00 1.00 5.00 5.00 - 0.16 5.00 5.00 5.00 61.94 0.01 - - 10 308 1 700 100 418 71 500 86 722 20 602 - 8 2 967 66 500 11 497 12 361 4 984 - - ( 64 818) ( 50 666) ( 20 602) ( 8) ( 55 514) ( 8 035) - - - - - - - - - 10 308 1 700 35 600 20 834 86 722 2 967 10 986 11 497 4 326 4 984 - - - - - 387 544 ( 146 478) 241 066 389 567 ( 199 643) 189 924 During 2021 the associated company Ijar Leasing was transferred to non-current assets held for sale as it is in the process of selling assets with the objective of their sale in the short term (see Note 29). The associates ESEGUR and Multipessoal were transferred from non-current assets held for sale to investments in associates, as the sales processes were not active at year end. The changes in impairment losses for investments in associates are presented as follows: Balance at the beginning of the exercise Charges Uses Reversals Foreign exchange differences (a) Balance at the end of the exercise (a) In the exercise of 2021, it includes 8 035 thousand Euros of impairment to Ijar Leasing transferred to Discontinued Operations (See Note 29). (in thousands of Euros) 31.12.2021 31.12.2020 199 643 - - ( 49 691) ( 3 474) 182 184 48 388 ( 22 480) ( 7 103) ( 1 346) 146 478 199 643 NOTE 25 – PROPERTY, PLANT AND EQUIPMENT This caption as of 31 December 2021 and 31 December 2020 is analysed as follows: NOTE 25 – PROPERTY, PLANT AND EQUIPMENT This caption as of 31 December 2021 and 31 December 2020 is analysed as follows: Real estate properties For own use Improvements in leasehold properties Equipment Computer equipment Fixtures Furniture Security equipment Office equipment Transport equipment Other Right-of-Use Assets Real estate properties Equipment Work in progress Improvements in leasehold properties Real estate properties Others Accumulated impairment Accumulated depreciation (in thousands of Euros) 31.12.2021 31.12.2020 181 868 117 734 220 386 132 844 299 602 353 230 109 729 41 687 51 116 21 223 7 898 562 134 101 230 54 828 48 803 23 697 7 488 562 160 232 349 236 768 53 107 573 8 468 116 041 69 375 8 889 78 264 431 5 685 336 6 452 - 1 1 417 1 418 654 444 669 680 ( 12 071) ( 410 954) ( 13 385) ( 467 327) 231 419 188 968 54 370 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial 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 2019 Acquisitions Disposals / write-offs Transfers (a) Exchange variation and other movements (b) Balance at 31 December 2020 Acquisitions Disposals / write-offs (e) Transfers (d) Balance at 31 December 2021 Depreciation Balance at 31 December 2019 Depreciation Disposals / write-offs Transfers (a) Foreign exchange differences and other (c) Balance at 31 December 2020 Depreciation Disposals / write-offs (e) Transfers Foreign exchange differences and other Balance at 31 December 2021 Impairment Balance at 31 December 2019 Impairment losses Balance at 31 December 2020 Impairment losses Reversion of impairment losses Transfers Balance at 31 December 2021 Real estate properties Equipment Right-of-Use Assets Work in progress Total (in thousands of Euros) 346 552 20 966 ( 3 531) ( 1 665) ( 9 092) 353 230 30 013 ( 88 521) 4 880 262 032 11 341 ( 9 332) ( 153) ( 27 120) 236 768 24 184 ( 28 764) 161 74 691 9 645 ( 6 841) - 769 78 264 46 182 ( 8 405) - 299 602 232 349 116 041 87 1 446 - ( 115) - 1 418 16 251 ( 4 206) ( 7 011) 6 452 227 152 4 711 ( 3 528) ( 903) ( 2 272) 225 160 5 146 ( 51 182) ( 1 512) 3 268 235 093 9 002 ( 8 983) ( 143) ( 24 254) 210 715 10 044 ( 28 224) ( 137) ( 1) 180 880 192 397 10 609 2 776 13 385 3 484 ( 5 101) 303 12 071 - - - - - - - 15 756 18 720 ( 4 984) 1 960 31 452 12 412 ( 6 188) - 1 37 677 - - - - - - - - - - - - - - - - - - - - - - - - - 683 362 43 398 ( 19 704) ( 1 933) ( 35 443) 669 680 116 630 ( 129 896) ( 1 970) 654 444 478 001 32 433 ( 17 495) ( 1 046) ( 24 566) 467 327 27 602 ( 85 594) ( 1 649) 3 268 410 954 10 609 2 776 13 385 3 484 ( 5 101) 303 12 071 Net book value at 31 December 2021 106 651 39 952 78 364 6 452 231 419 Net book value at 31 December 2020 (a) 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 were transferred at net value to the appropriate balance sheet items 114 685 188 968 26 053 46 812 1 418 (b) Includes 9,005 and 27,118 thousand euros of property and equipment from the Spanish Branch transferred to discontinued activities during the year 2020 (c) 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. (d) Includes 3,471 thousand euros of fixed assets (property and equipment) and 1,650 thousand euros of accumulated depreciation related to discontinued branches that were transferred at net value to the appropriate balance sheet items . (e) Includes 66,483 thousand euros of fixed assets (real estate and equipment) and 25,068 thousand euros of accumulated depreciation referring to Own Service Real Estate that was sold to Real Estate Funds of the novobanco Group. In the fiscal year 2021, as part of the reorganization of the Real Estate Funds held by the novobanco, the Bank sold own service properties to the Real Estate Funds, recording a loss of EUR 14,751 thousand (see Note 12). These properties were subsequently leased to the Bank and are being recorded in accordance with IFRS 16. In the fiscal year 2021, as part of the reorganization of the Real Estate Funds held by the novobanco, the Bank sold own service properties to the Real Estate Funds, recording a loss of EUR 14,751 thousand (see Note 12). These properties were subsequently leased to the Bank and are being recorded in accordance with IFRS 16. NOTE 26 – INTANGIBLE ASSETS This caption as at 31 December 2021 and 2020, 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 371 (in thousands of Euros) 31.12.2021 31.12.2020 65 373 65 373 379 779 346 389 445 152 411 762 13 410 21 420 458 562 433 182 ( 391 047) ( 384 851) 67 515 48 331 55 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The changes in this caption were as follows: Exchange variation and other movements (b) Acquisition cost Balance at 31 December 2019 Acquisitions Disposals / write-offs Transfers (a) Balance at 31 December 2020 Acquisitions Disposals / write-offs (e) Transfers (d) Balance at 31 December 2021 Depreciation Balance at 31 December 2019 Depreciation Disposals / write-offs Transfers (a) Foreign exchange differences and other (c) Balance at 31 December 2020 Depreciation Disposals / write-offs (e) Transfers Foreign exchange differences and other Balance at 31 December 2021 Impairment Balance at 31 December 2019 Impairment losses Balance at 31 December 2020 Impairment losses Reversion of impairment losses Transfers Balance at 31 December 2021 Real estate properties Equipment Right-of-Use Assets Work in progress Total (in thousands of Euros) 299 602 232 349 116 041 346 552 20 966 ( 3 531) ( 1 665) ( 9 092) 353 230 30 013 ( 88 521) 4 880 227 152 4 711 ( 3 528) ( 903) ( 2 272) 225 160 5 146 ( 51 182) ( 1 512) 3 268 10 609 2 776 13 385 3 484 ( 5 101) 303 12 071 262 032 11 341 ( 9 332) ( 153) ( 27 120) 236 768 24 184 ( 28 764) 161 235 093 9 002 ( 8 983) ( 143) ( 24 254) 210 715 10 044 ( 28 224) ( 137) ( 1) - - - - - - - 74 691 9 645 ( 6 841) - 769 78 264 46 182 ( 8 405) - 15 756 18 720 ( 4 984) 1 960 31 452 12 412 ( 6 188) - 1 - - - - - - - 180 880 192 397 37 677 87 1 446 ( 115) - - 1 418 16 251 ( 4 206) ( 7 011) 6 452 - - - - - - - - - - - - - - - - - - 683 362 43 398 ( 19 704) ( 1 933) ( 35 443) 669 680 116 630 ( 129 896) ( 1 970) 654 444 478 001 32 433 ( 17 495) ( 1 046) ( 24 566) 467 327 27 602 ( 85 594) ( 1 649) 3 268 410 954 10 609 2 776 13 385 3 484 ( 5 101) 303 12 071 Net book value at 31 December 2021 106 651 39 952 78 364 6 452 231 419 Net book value at 31 December 2020 114 685 26 053 46 812 1 418 188 968 (a) 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 were transferred at net value to the appropriate balance sheet items (b) Includes 9,005 and 27,118 thousand euros of property and equipment from the Spanish Branch transferred to discontinued activities during the year 2020 (c) 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. (d) Includes 3,471 thousand euros of fixed assets (property and equipment) and 1,650 thousand euros of accumulated depreciation related to discontinued branches that were transferred at net value to the appropriate balance sheet items . (e) Includes 66,483 thousand euros of fixed assets (real estate and equipment) and 25,068 thousand euros of accumulated depreciation referring to Own Service Real Estate that was sold to Real Estate Funds of the novobanco Group. In the fiscal year 2021, as part of the reorganization of the Real Estate Funds held by the novobanco, the Bank sold own service properties to the Real Estate Funds, recording a loss of EUR 14,751 thousand (see Note 12). These properties were subsequently leased to the Bank and are being recorded in accordance with IFRS 16. NOTE 26 – INTANGIBLE ASSETS This caption as at 31 December 2021 and 2020, is analyzed as follows: NOTE 26 – INTANGIBLE ASSETS This caption as at 31 December 2021 and 2020, 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 (in thousands of Euros) 31.12.2021 31.12.2020 65 373 65 373 379 779 346 389 445 152 411 762 13 410 21 420 458 562 433 182 ( 391 047) ( 384 851) 67 515 48 331 Internally generated intangible assets include expenses incurred by the Bank’s units specializing in the implementation of IT solutions that will bring future economic benefits (see Note 6.24). Internally generated intangible assets include expenses incurred by the Bank's units specializing in the implementation of IT solutions that will bring future economic benefits (see Note 6.24). 55 The changes in this caption were as follows: 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 2019 Acquisitions Acquired from third parties Disposals / write-offs Transfers Foreign exchange differences and other (a) Balance as at 31 December 2020 Acquisitions Acquired from third parties Transfers Balance as at 31 December 2021 Amortizations 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 Amortization for the period Foreign exchange differences and other Balance as at 31 December 2021 Net balance at 31 December 2021 Net balance at 31 December 2020 429 332 2 373 ( 20) 20 161 ( 40 084) 411 762 3 209 30 181 445 152 420 735 2 600 ( 20) ( 38 464) 384 851 6 197 ( 1) 391 047 54 105 26 911 17 446 24 134 - ( 20 161) 1 21 420 22 171 ( 30 181) 13 410 - - - - - - - - 13 410 21 420 446 778 26 507 ( 20) - ( 40 083) 433 182 25 380 - 458 562 420 735 2 600 ( 20) ( 38 464) 384 851 6 197 ( 1) 391 047 67 515 48 331 (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 27 – INCOME TAXES The deferred tax assets and liabilities recognized in the balance sheet as of 31 December 2021 and 2020 may be analyzed as follows: 372 The deferred tax assets and liabilities recognized in the balance sheet in this period are as follows: Corporate tax recoverable Current tax Other Deferred tax Financial instruments Credit impairment (not covered by the special regime) Credit impairment (covered by the special regime) Other tangible assets Provisions Pensions Temporary Branch Differences Deferred tax asset / (liability) 31.12.2021 31.12.2020 Assets Liabilities Assets Liabilities (in thousands of Euros) 35 448 - 35 448 741 321 4 703 4 606 97 - 771 854 - - - 5 536 5 462 74 - 776 769 4 703 771 854 5 536 Assets Liabilities Net 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 31.12.2020 (in thousands of Euros) 91 763 337 267 267 043 82 092 48 534 - - 64 012 387 927 400 414 38 975 31 185 - - (77 349) ( 136 845) ( 8 029) ( 8 203) - - - - ( 5 611) ( 72 833) 387 927 400 414 ( 8 203) 38 975 31 185 ( 5 611) 14 414 337 267 267 043 ( 8 029) 82 092 48 534 - - 826 699 922 513 ( 85 378) ( 150 659) 741 321 771 854 - - - - - - Asset / liability set-off for deferred tax purposes ( 85 378) ( 150 659) 85 378 150 659 - Net Deferred tax asset / (liability) 741 321 771 854 - 741 321 771 854 As at 31 December 2021 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%. 56 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Internally generated intangible assets include expenses incurred by the Bank's units specializing in the implementation of IT solutions Internally generated intangible assets include expenses incurred by the Bank's units specializing in the implementation of IT solutions that will bring future economic benefits (see Note 6.24). that will bring future economic benefits (see Note 6.24). The changes in this caption were as follows: The changes in this caption were as follows: Automatic data processing system Automatic data processing system 429 332 Work in progress Work in progress Total (in thousands of Euros) Total (in thousands of Euros) Acquisition cost Balance as at 31 December 2019 Acquisitions Acquisition cost Balance as at 31 December 2019 Acquired from third parties Disposals / write-offs Acquisitions Transfers Acquired from third parties Foreign exchange differences and other (a) Disposals / write-offs Transfers Balance as at 31 December 2020 Foreign exchange differences and other (a) Acquisitions Balance as at 31 December 2020 Acquired from third parties Transfers Acquisitions Acquired from third parties Balance as at 31 December 2021 Transfers Amortizations Balance as at 31 December 2021 Balance as at 31 December 2019 Amortization for the period Amortizations Disposals / write-offs Balance as at 31 December 2019 Foreign exchange differences and other (b) Amortization for the period Disposals / write-offs Balance as at 31 December 2020 Foreign exchange differences and other (b) Amortization for the period Foreign exchange differences and other Balance as at 31 December 2020 Balance as at 31 December 2021 Amortization for the period Foreign exchange differences and other Net balance at 31 December 2021 Balance as at 31 December 2021 2 373 429 332 ( 20) 20 161 2 373 ( 40 084) ( 20) 20 161 411 762 ( 40 084) 3 209 411 762 30 181 3 209 445 152 30 181 445 152 420 735 2 600 ( 20) 420 735 ( 38 464) 2 600 ( 20) 384 851 ( 38 464) 6 197 ( 1) 384 851 6 197 391 047 ( 1) 54 105 391 047 17 446 24 134 17 446 - ( 20 161) 24 134 1 - ( 20 161) 21 420 1 22 171 21 420 ( 30 181) 22 171 13 410 ( 30 181) 13 410 - - - - - - - - - - - - - - - 13 410 - Net balance at 31 December 2020 Net balance at 31 December 2021 (a) It includes 40 083 thousand Euros of investment projects assigned to the Spanish Branch transferred to discontinued operations during the year 2020. Net balance at 31 December 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. (a) It includes 40 083 thousand Euros of investment projects assigned to the Spanish Branch transferred to discontinued operations during the year 2020. 26 911 54 105 26 911 21 420 13 410 21 420 446 778 26 507 446 778 ( 20) 26 507 - ( 40 083) ( 20) - 433 182 ( 40 083) 25 380 433 182 25 380 458 562 - - 458 562 420 735 2 600 ( 20) 420 735 ( 38 464) 2 600 ( 20) 384 851 ( 38 464) 6 197 ( 1) 384 851 6 197 391 047 ( 1) 67 515 391 047 48 331 67 515 48 331 NOTE 27 – INCOME TAXES (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 27 – INCOME TAXES The deferred tax assets and liabilities recognized in the balance sheet as of 31 December 2021 and NOTE 27 – INCOME TAXES The deferred tax assets and liabilities recognized in the balance sheet as of 31 December 2021 and 2020 may be analyzed as follows: 2020 may be analyzed as follows: The deferred tax assets and liabilities recognized in the balance sheet as of 31 December 2021 and 2020 may be analyzed as follows: 31.12.2021 31.12.2020 (in thousands of Euros) Current tax Current tax Corporate tax recoverable Other Corporate tax recoverable Deferred tax Other Deferred tax Assets Liabilities 31.12.2021 Assets 35 448 - 35 448 35 448 - 741 321 35 448 776 769 741 321 4 703 Liabilities 4 606 4 703 97 4 606 - 97 4 703 - (in thousands of Euros) Liabilities Assets 31.12.2020 Assets - - - - - 771 854 - 771 854 771 854 5 536 Liabilities 5 462 5 536 74 5 462 - 74 5 536 - The deferred tax assets and liabilities recognized in the balance sheet in this period are as follows: 776 769 4 703 771 854 5 536 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: Liabilities Assets (in thousands of Euros) Net 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 (in thousands of Euros) 31.12.2020 Financial instruments Credit impairment (not covered by the special regime) Credit impairment (covered by the special regime) Financial instruments Other tangible assets Credit impairment (not covered by the special regime) Provisions Credit impairment (covered by the special regime) Pensions Other tangible assets Temporary Branch Differences Provisions Pensions Deferred tax asset / (liability) Temporary Branch Differences Asset / liability set-off for deferred tax purposes Deferred tax asset / (liability) Net Deferred tax asset / (liability) Asset / liability set-off for deferred tax purposes Assets Liabilities Net 31.12.2021 31.12.2020 31.12.2021 31.12.2020 31.12.2021 91 763 337 267 267 043 91 763 - 337 267 82 092 267 043 48 534 - - 82 092 48 534 826 699 - ( 85 378) 826 699 64 012 387 927 400 414 64 012 - 387 927 38 975 400 414 31 185 - - 38 975 31 185 922 513 - ( 150 659) 922 513 (77 349) - - (77 349) ( 8 029) - - - - ( 8 029) - - - ( 85 378) - 85 378 ( 85 378) ( 136 845) - - ( 136 845) ( 8 203) - - - - ( 8 203) ( 5 611) - - ( 150 659) ( 5 611) 150 659 ( 150 659) 14 414 337 267 267 043 14 414 ( 8 029) 337 267 82 092 267 043 48 534 ( 8 029) - 82 092 48 534 741 321 - - 741 321 31.12.2020 ( 72 833) 387 927 400 414 ( 72 833) ( 8 203) 387 927 38 975 400 414 31 185 ( 8 203) ( 5 611) 38 975 31 185 771 854 ( 5 611) - 771 854 741 321 ( 85 378) 771 854 ( 150 659) - 85 378 - 150 659 741 321 - 771 854 - 741 321 Net Deferred tax asset / (liability) As at 31 December 2021 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 As at 31 December 2021 the deferred tax related to temporary differences was determined based on an aggregate rate of 31%, 8.5%. 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%. 741 321 771 854 771 854 - - As at 31 December 2021 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 above mentioned 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. Thus, on 31 December 2021, 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. 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 separate financial statements, there will be no additional charges of significant value. 56 56 In 31 December 2021 and 2020, NOVO BANCO 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. As of December 31, 2021, the amounts held by the Bank referring to these realities amount to approximately Euro 37 million. 373 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 On 4th September 2019, Law No. 98/2019 was published, which amended the IRC Code on the tax treatment of credit institutions' accepted for tax purposes. This Law established a transition period for the above mentioned tax regime, which allows taxpayers in impairments, creating rules applicable to impairment losses recorded in the tax periods beginning before 1st January 2019, not yet 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, accepted for tax purposes. This Law established a transition period for the above mentioned tax regime, which allows taxpayers in except if they perform the exercise of opt in until the end of October of each tax period of the adaptation regime. Thus, on 31 December 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, 2021, the Bank continued to apply Regulatory Decree nº 13/2018, of December 28, which aims to extend, for tax purposes, the tax except if they perform the exercise of opt in until the end of October of each tax period of the adaptation regime. Thus, on 31 December framework resulting from Notice Noº 3/95 of Bank of Portugal. 2021, 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. 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 The IRC payment declarations are subject to inspection and possible adjustment by the Tax Authorities for a period of four years or of determination). Thus, possible additional tax assessments may take place due essentially to different interpretations of tax 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 legislation. However, Management believes that, in the context of the separate financial statements, there will be no additional charges of determination). Thus, possible additional tax assessments may take place due essentially to different interpretations of tax of significant value. legislation. However, Management believes that, in the context of the separate financial statements, there will be no additional charges of significant value. In 31 December 2021 and 2020, NOVO BANCO 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 In 31 December 2021 and 2020, NOVO BANCO recorded deferred tax assets associated with impairments not accepted for tax profit in the periods taxation in which the conditions required for tax deductibility are met. As of December 31, 2021, the amounts held purposes for credit operations, which have already been written off, considering the expectation that these will contribute to a taxable by the Bank referring to these realities amount to approximately Euro 37 million. profit in the periods taxation in which the conditions required for tax deductibility are met. As of December 31, 2021, the amounts held by the Bank referring to these realities amount to approximately Euro 37 million. The changes occurred in the deferred tax captions are as follows: The changes occurred in the deferred tax captions are as follows: The changes occurred in the deferred tax captions are as follows: Balance at the beginning of the exercise Recognised in Results for the exercise Balance at the beginning of the exercise Recognised in Fair value reserves Recognised in Results for the exercise Conversion of Deferred taxes into Tax credits Recognised in Fair value reserves Foreign exchange differences and other 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) 31.12.2021 31.12.2020 (in thousands of Euros) 31.12.2021 771 854 28 292 771 854 58 913 28 292 ( 124 721) 58 913 6 983 ( 124 721) 741 321 6 983 31.12.2020 892 033 ( 9 185) 892 033 ( 2 544) ( 9 185) ( 107 705) ( 2 544) ( 745) ( 107 705) 771 854 ( 745) Balance at the end of the exercise (Assets / (Liabilities)) 771 854 The current and deferred taxes recognized in the income statement and in reserves, in 2021 and 2020, had the following origins: 741 321 The current and deferred taxes recognized in the income statement and in reserves, in 2021 and 2020, had the following origins: The current and deferred taxes recognized in the income statement and in reserves, in 2021 and 2020, had the following origins: Financial instruments Impairment losses on loans and advances to customers Financial instruments Other tangible assets Impairment losses on loans and advances to customers Provisions Other tangible assets Pensions Provisions Other Pensions Tax losses carried forward Other Tax losses carried forward Deferred taxes Deferred taxes Current taxes Current taxes Total tax recognised (income) / (expense) Total tax recognised (income) / (expense) (in thousands of Euros) 31.12.2021 31.12.2020 (in thousands of Euros) Recognised in the income Recognised in statement the income statement 31.12.2021 Recognised in reserves Recognised in reserves Recognised in the income Recognised in statement the income statement 31.12.2020 Recognised in reserves Recognised in reserves ( 27 975) 59 309 ( 27 975) ( 174) 59 309 ( 43 118) ( 174) ( 17 349) ( 43 118) 1 015 ( 17 349) - 1 015 - ( 28 292) ( 28 292) 4 249 4 249 ( 24 043) ( 24 043) ( 59 271) - ( 59 271) - - - - - - - - - - - ( 59 271) ( 59 271) - - ( 59 271) ( 59 271) ( 11 363) 13 324 ( 11 363) ( 174) 13 324 9 401 ( 174) ( 2 004) 9 401 - ( 2 004) - - - 9 184 9 184 ( 13 400) ( 13 400) ( 4 216) ( 4 216) The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: 4 787 - 4 787 - - - - ( 2 243) - - ( 2 243) - - - 2 544 2 544 - - 2 544 2 544 57 57 374 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: (in thousands of Euros) 31.12.2021 31.12.2020 % Value % Value Income before tax Tax rate of NOVO BANCO Tax rate of novobanco Income tax calculated based on the tax rate of novobanco The reconciliation of the corporate income tax rate, for the portion recognized in the income statement, may be analyzed as follows: (in thousands of Euros) (1 378 462) ( 289 477) 201 865 42 392 21.0 21.0 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 Income before tax Tax rate of NOVO BANCO Annulment of tax losses carried forward Tax rate of novobanco Impairments and provisions for credit Income tax calculated based on the tax rate of novobanco Impairments and fair value adjustments of securities Provisions for other risks and charges and contingencies Tax-exempt dividends Deferred tax asset not recognized on tax loss for the year Impairment on investments in subsidiaries or associated companies not subject to Participation Exemption Pension Fund Branch Tax and Tax Withheld Abroad Extraordinary Contribution and Additional Solidarity over the Banking Sector Rate differential in the generation / reversal of temporary differences Others Annulment of tax losses carried forward Total tax recognized Impairments and provisions for credit Impairments and fair value adjustments of securities Recoverability analysis of deferred tax assets 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 (0.8) (20.4) 1.1 % 15.7 - 21.0 (26.4) (18.7) (7.8) 32.3 (5.0) 3.5 (6.4) (0.8) (20.4) 1.1 15.7 - (26.4) (18.7) (7.8) 32.3 (5.0) 3.5 (6.4) (11.9) 31.12.2021 31.12.2020 42 392 ( 1 593) ( 41 203) 2 138 Value 31 650 201 865 - ( 53 201) ( 37 715) ( 15 830) 65 183 ( 10 044) 7 019 ( 12 839) ( 1 593) ( 41 203) 2 138 31 650 - ( 53 201) ( 37 715) ( 15 830) 65 183 ( 10 044) 7 019 ( 12 839) ( 24 043) 0.0 (2.9) (0.2) % 3.4 - (10.7) (7.6) (1.6) (1.2) 0.0 (0.5) 0.5 0.3 21.0 0.0 (2.9) (0.2) 3.4 - (10.7) (7.6) (1.6) (1.2) 0.0 (0.5) 0.5 ( 482) 40 166 2 902 Value ( 46 706) (1 378 462) - 147 255 104 665 21 988 15 913 ( 324) 6 760 ( 6 876) ( 289 477) ( 482) 40 166 2 902 ( 46 706) - 147 255 104 665 21 988 15 913 ( 324) 6 760 ( 6 876) ( 4 216) Deferred tax assets are recognized to the extent they are expected to be recovered with future taxable income. The bank 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 applicable to Deferred Tax Assets is not dependent on the generation of future taxable income. Total tax recognized ( 24 043) (11.9) 0.3 ( 4 216) Recoverability analysis of deferred tax assets The assessment of the recoverability of deferred tax assets is carried out annually. On December 31, 2021, the exercise was Recoverability analysis of deferred tax assets performed based on the provisional version of the Medium Term Plan ("MTP") prepared for the period 2022-2024, preliminary assessed by the General Supervisory Board in December 2021 and which, after final approval, will be referred to the European Deferred tax assets are recognized to the extent they are expected to be recovered with future taxable income. The bank has Central Bank in the end of March 2022. 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 applicable to Deferred Tax Assets is not dependent on the In the evaluation of the expectation of future taxable income generation in Portugal for the purposes of the above recovery exercise, generation of future taxable income. the following assumptions were also considered: 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 fiscal years; • Progressive recovery of interest rate benchmarks to positive levels; Deferred tax assets are recognized to the extent they are expected to be recovered with future taxable income. The bank 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 applicable to Deferred Tax Assets is not dependent on the generation of future taxable income.  The assessment of the recoverability of deferred tax assets is carried out annually. On December 31, 2021, the exercise was performed based on the provisional version of the Medium Term Plan (“MTP”) prepared for the period 2022-2024, preliminary assessed by the General Supervisory Board in December 2021 and which, after final approval, will be referred to the European Central Bank in the end of March 2022.  The assessment of the recoverability of deferred tax assets is carried out annually. On December 31, 2021, the exercise was performed based on the provisional version of the Medium Term Plan ("MTP") prepared for the period 2022-2024, preliminary assessed by the General Supervisory Board in December 2021 and which, after final approval, will be referred to the European Central Bank in the end of March 2022. In addition to the detailed estimates up to 2024, it is assumed, thereafter an increase in pre-tax results at a rate of 2.60% from 2024; Financial results moderate growth compensating the expected cost of debt issuing to meet MREL requirements as well as the continued 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 fiscal 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, focusing on the digital component; and 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:  Progressive recovery of interest rate benchmarks to positive levels;  Operating costs reduction, based on specific cost reduction plans and the implementation of a new distribution model,  In addition to the detailed estimates up to 2024, it is assumed, thereafter an increase in pre-tax results at a rate of 2.60% reflecting the favorable effect of the decrease in the number of employees and branches and, generally, the simplification from 2024; and increase in the efficiency of processes, focusing on the digital component; and  Financial results moderate growth compensating the expected cost of debt issuing to meet MREL requirements as well as  Credit impairment charges in line with the evolution of the Bank's activity and supported by macroeconomic projections, the continued development of new lines of activity and the resumption of economic activity, which is strongly affected by the bearing in mind, in particular, the significant effort made in the last few years in the provisioning of the loan portfolio and the current pandemic situation. The growth in economic activity should also provide a return to commission levels to values progressive convergence towards gradually normalized risk costs. similar to previous fiscal years; • 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. 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. 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 2024, it is assumed, thereafter an increase in pre-tax results at a rate of 2.60% from 2024; • Financial results moderate growth compensating the expected cost of debt issuing to meet MREL requirements as well as the continued development of new lines of activity and the resumption 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.  Progressive recovery of interest rate benchmarks to positive levels;  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, focusing on the digital component; and Depending on the analysis mentioned above, the amount of deferred taxes not recognized for tax losses, per year of expiry, is as follows:  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. (in thousands of Euros) Depending on the analysis mentioned above, the amount of deferred taxes not recognized for tax losses, per year of expiry, is as follows: 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 2026 and forward 31.12.2021 31.12.2020 313 192 1 163 678 1 476 870 468 903 1 124 790 1 593 693 (in thousands of Euros) 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 31.12.2021 31.12.2020 2024-2026 2026 and forward 313 192 1 163 678 1 476 870 58 468 903 1 124 790 1 593 693 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 58 375 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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. The overall amount of deferred tax assets relating to these temporary differences, not recognized in the balance sheet, on December 31, 2021 amounts to 333.5 million euros. Special Regime applicable to Deferred Tax Assets During 2014, novobanco adhered to the Special Regime applicable to deferred tax assets, after a favourable decision of the Shareholders General Meeting. 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. The overall amount of deferred tax assets relating to these temporary differences, not recognized in the balance sheet, on December 31, 2021 amounts to 333.5 million euros. The changes to the mentioned above regime, introduced by Law No. 23/2016, of August 19, limited the temporal application of the 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 negative equity variations calculated up to 31 December 2015. 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 application of the 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 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. Special Regime applicable to Deferred Tax Assets 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. During 2014, novobanco adhered to the Special Regime applicable to deferred tax assets, after a favourable decision of the Shareholders General Meeting. 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. 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. Following the determination of a negative net income for the years between 2016 and 2020, 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: Following the determination of a negative net income for the years between 2016 and 2020, 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: 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. Tax credit 124 721 110 922 161 974 127 575 99 474 2020 2019 2018 2017 2016 (in thousands of Euros) 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. NOTE 28 – OTHER ASSETS As at 31 December 2021 and 2020, the caption Other assets is analyzed as follows: NOTE 28 – OTHER ASSETS Collateral deposits placed Derivative products As at 31 December 2021 and 2020, the caption Other assets is analyzed as follows: Collateral CLEARNET and VISA Collateral deposits relating to reinsurance operations Other collateral deposits Recoverable government subsidies on mortgage loans 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 Other debtors - Shareholder loans, supplementary capital contributions a) Real estate properties and equipment received in settlement of loans and discontinued (in thousands of Euros) 31.12.2021 31.12.2020 525 229 399 631 33 092 92 457 49 11 961 934 717 209 220 591 267 132 929 47 166 9 989 357 644 3 189 70 918 22 048 2 916 277 ( 192 413) ( 2 180) ( 107 724) ( 58 108) ( 360 425) 2 555 852 806 215 655 952 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 59 376 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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. The overall amount of deferred tax assets relating to these temporary differences, not recognized in the balance sheet, on December 31, 2021 amounts to 333.5 million euros. Special Regime applicable to Deferred Tax Assets During 2014, novobanco 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 application of the 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 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. Following the determination of a negative net income for the years between 2016 and 2020, 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: 2020 2019 2018 2017 2016 (in thousands of Euros) Tax credit 124 721 110 922 161 974 127 575 99 474 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. NOTE 28 – OTHER ASSETS As at 31 December 2021 and 2020, 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 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) 31.12.2021 31.12.2020 525 229 399 631 33 092 92 457 49 11 961 934 717 209 220 591 267 132 929 47 166 9 989 357 644 3 189 70 918 22 048 2 916 277 ( 192 413) ( 2 180) ( 107 724) ( 58 108) ( 360 425) 2 555 852 806 215 655 952 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 59 The caption Collateral deposits placed includes, amongst others, deposits made by the Bank as collateral in order to celebrate certain derivative contracts on organized markets (margin accounts) and on over the counter markets (Credit Support Annex – CSA). 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. As of 31 December 2021, 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 2020: Euro 111.6 million, entirely provisioned); • Euro 60,5 million receivable relation to the sale operation of non-performing loans (Project NATA II) (31 December 2020: Euro 67.0 million); • Euro 1,1 million of receivables related to the property sale operation carried out in 2019 (called “Project Sertorius”) (31 December 2020: Euro 21.8 million); • Euro 4,2 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”). (December 31, 2020: Euro 27,4 million) (see Note 22); • Euro 29.7 million of amounts receivable related to the transaction of sale of non-productive credits carried out in 2021 (denominated “Wilkinson Project”) (see Note 22); • Euro 50.0 million of receivables related to the sale of non-performing loans in 2021 (the “Orion Project”) (see Note 22). As at 31 December 2021, the caption Deferred costs includes the amount of Euro 36,855 thousand (31 December 2020: Euro 40,800 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 securities transactions to be settled reflect the transactions with securities, recorded on the trade date, which were pending settlement, in accordance with the accounting policy described in Note 6.10. 377 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The caption Collateral deposits placed includes, amongst others, deposits made by the Bank as collateral in order to celebrate certain derivative contracts on organized markets (margin accounts) and on over the counter markets (Credit Support Annex – CSA). 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. As of 31 December 2021, 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 2020: Euro 111.6 million, entirely provisioned),  Euro 60,5 million receivable relation to the sale operation of non-performing loans (Project NATA II) (31 December 2020: Euro 67.0 million); 2020: Euro 21.8 million);  Euro 1,1 million of receivables related to the property sale operation carried out in 2019 (called “Project Sertorius”) (31 December  Euro 4,2 million receivable in relation to the sale operation of non-performing loans in 2020 (denominated “Project Carter”).  Euro 29.7 million of amounts receivable related to the transaction of sale of non-productive credits carried out in 2021 (December 31, 2020: Euro 27,4 million) (see Note 22); (denominated "Wilkinson Project") (see Note 22);  Euro 50.0 million of receivables related to the sale of non-performing loans in 2021 (the "Orion Project") (see Note 22). As at 31 December 2021, the caption Deferred costs includes the amount of Euro 36,855 thousand (31 December 2020: Euro 40,800 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 securities transactions to be settled reflect the transactions with securities, recorded on the trade date, which were pending settlement, in accordance with the accounting policy described in Note 6.10. 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. 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. The bank 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 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 bank regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the holding period for properties acquired on repayment of own credit. In the financial year of 2021, an impairment charge of Euro 4.2 million was recorded for the properties in the portfolio (31 December 2020: Euro 41.3 million). Given the uncertainty associated with the estimated value of these assets, novobanco considers the impacts of the current context of the Covid-19 pandemic as the assets are revalued. In the financial year of 2021, an impairment charge of Euro 4.2 million was recorded for the properties in the portfolio (31 December 2020: Euro 41.3 million). Given the uncertainty associated with the estimated value of these assets, novobanco considers the impacts of the current context of the Covid-19 pandemic as the assets are revalued. As described in accounting policy 6.25, the Bank evaluates at each reporting date, the recoverability of these assets and assesses for signs of impairment, with impairment losses being recognized in the income statement. The bank 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 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 bank regularly requests the Bank of Portugal’s authorization, under article 114 of RGICSF, to extend the holding period for properties acquired on repayment of own credit. The changes occurred in impairment losses are presented as follows: As described in accounting policy 6.25, the Bank evaluates at each reporting date, the recoverability of these assets and assesses for signs of impairment, with impairment losses being recognized in the income statement. 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: The changes occurred in the real estate properties were as follows: Balance at the beginning of the exercise Additions Sales Other movements (a) Balance at the end of the exercise (in thousands of Euros) 31.12.2021 31.12.2020 435 063 17 543 ( 81 568) ( 13 857) 3 244 360 425 480 046 53 588 ( 64 754) ( 11 427) ( 22 390) 435 063 (in thousands of Euros) 31.12.2021 31.12.2020 500 917 34 066 ( 123 600) ( 53 739) 357 644 562 532 25 971 ( 69 901) 60 ( 17 685) 500 917 (a) Includes 50,208 thousand euros of real estate assets sold to the Group's Real Estate Funds, with an associated gain of 4.1 million euros. As of 31 December 2021 and 2020, the detail of the real estate properties included in Other assets, by type, is as follows: As of 31 December 2021 and 2020, the detail of the real estate properties included in Other assets, by type, is as follows: 31.12.2021 Number of properties Gross value Impairment Net book value (in thousands of Euros) Fair value of assets (b) 40 333 150 231 190 564 65 410 97 329 4 133 166 872 208 11 372 109 444 120 816 36 906 27 877 1 176 65 959 5 638 28 961 40 787 69 748 28 504 69 452 2 957 100 913 26 497 43 554 70 051 30 604 78 833 2 994 112 431 ( 5 430) ( 5 430) 378 Land Urban Rural Buildings constructed Commercial Residential Others Others (a) Buildings constructed Land Urban Rural Commercial Residential Others Others (a) 73 58 131 336 1 118 134 1 588 - 257 192 449 813 1 408 - - (a) the net book value in this item is negative due to the fact that costs with real estate sales are imputed (b) Determined in accordance with accounting policy mentioned in Note 6.18 1 719 357 644 192 413 165 231 177 052 Number of properties Gross value Impairment Net book value 31.12.2020 (in thousands of Euros) Fair value of assets (b) 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) the net book value in this item is negative due to the fact that costs with real estate sales are imputed (b) Determined in accordance with accounting policy mentioned in Note 6.18 61 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The changes occurred in the real estate properties were as follows: Balance at the beginning of the exercise Additions Sales Other movements (a) Balance at the end of the exercise (in thousands of Euros) 31.12.2021 31.12.2020 500 917 34 066 ( 123 600) ( 53 739) 357 644 562 532 25 971 ( 69 901) ( 17 685) 500 917 (a) Includes 50,208 thousand euros of real estate assets sold to the Group's Real Estate Funds, with an associated gain of 4.1 million euros. As of 31 December 2021 and 2020, the detail of the real estate properties included in Other assets, by type, is as follows: Land Urban Rural Buildings constructed Commercial Residential Others Others (a) Number of properties Gross value Impairment Net book value 31.12.2021 (in thousands of Euros) Fair value of assets (b) 73 58 131 336 1 118 134 1 588 - 40 333 150 231 190 564 65 410 97 329 4 133 166 872 208 11 372 109 444 120 816 36 906 27 877 1 176 65 959 5 638 28 961 40 787 69 748 28 504 69 452 2 957 100 913 26 497 43 554 70 051 30 604 78 833 2 994 112 431 ( 5 430) ( 5 430) 1 719 357 644 192 413 165 231 177 052 (a) the net book value in this item is negative due to the fact that costs with real estate sales are imputed (b) Determined in accordance with accounting policy mentioned in Note 6.18 Land Urban Rural Buildings constructed Commercial Residential Others Others (a) Number of properties Gross value Impairment Net book value 31.12.2020 (in thousands of Euros) Fair value of assets (b) 257 192 449 813 1 408 - 2 221 - 32 033 189 977 222 010 145 717 133 048 - 278 765 11 451 142 038 153 489 71 766 35 853 - 107 619 20 582 47 939 68 521 73 951 97 195 - 171 146 21 613 48 860 70 473 75 800 107 511 - 183 311 142 6 330 ( 6 188) ( 6 188) 2 670 500 917 267 438 233 479 247 596 (a) the net book value in this item is negative due to the fact that costs with real estate sales are imputed (b) Determined in accordance with accounting policy mentioned in Note 6.18 The detail of real estate properties included in Other Assets, by ageing, is as follows: 379 61 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The detail of real estate properties included in Other Assets, by ageing, is as follows: Land Urban Rural Buildings constructed Commercial Residential Other Others (a) 31.12.2021 (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 15 945 14 15 959 1 309 3 492 6 4 807 92 71 163 2 562 4 721 2 509 9 792 5 ( 5 435) 33 14 525 14 558 8 339 19 574 173 28 086 - 12 891 26 177 39 068 16 294 41 665 269 58 228 28 961 40 787 69 748 28 504 69 452 2 957 100 913 - ( 5 430) 20 771 4 520 42 644 97 296 165 231 (a) the net book value in this item is negative due to the fact that costs with real estate sales are imputed Land Urban Rural Buildings constructed Commercial Residential Other Others (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 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 (a) the net book value in this item is negative due to the fact that costs with real estate sales are imputed As at 31 December 2021, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 9,848 thousand (31 December 2020: Euro 15,917 thousand), having the bank recorded impairment losses for these assets in the total amount of Euro 4,863 thousand (31 December 2020: Euro 8,273 thousand). As at 31 December 2021, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 9,848 thousand (31 December 2020: Euro 15,917 thousand), having the bank recorded impairment losses for these assets in the total amount of Euro 4,863 thousand (31 December 2020: Euro 8,273 thousand). NOTE 29 – 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 item on 31 December 2021 and 2020, is analyzed as follows: Assets of discontinued operations Banco Well Link (anterior NB Ásia) Banco Delle Tre Venezie ESEGUR novobanco - Spain branch Ijar Leasing Algerie Others Impairment losses Banco Delle Tre Venezie ESEGUR novobanco - Spain branch Ijar Leasing Algerie Others 380 31.12.2021 (in thousands of Euros) 31.12.2020 Assets Liabilities Assets Liabilities 2 039 - - - 12 597 50 14 686 - - - ( 8 035) ( 50) ( 8 085) 6 601 1 883 8 926 9 634 - 2 150 ( 6 626) ( 4 460) ( 166 000) - ( 2 150) ( 179 236) - - - - - - - - - - - - - - - - - - - - - - - - - 62 1 725 555 2 007 770 1 748 148 2 007 770 1 568 912 2 007 770 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The detail of real estate properties included in Other Assets, by ageing, is as follows: Buildings constructed Land Urban Rural Commercial Residential Other Others (a) Buildings constructed Land Urban Rural Commercial Residential Other Others (a) 31.12.2021 (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 15 945 14 15 959 1 309 3 492 6 4 807 92 71 163 2 562 4 721 2 509 9 792 12 891 26 177 39 068 16 294 41 665 269 58 228 28 961 40 787 69 748 28 504 69 452 2 957 100 913 5 ( 5 435) - ( 5 430) 20 771 4 520 42 644 97 296 165 231 31.12.2020 (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 33 14 525 14 558 8 339 19 574 173 28 086 - 10 565 15 370 25 935 23 163 26 024 - - 7 831 29 700 37 531 19 876 48 340 - - 20 582 47 939 68 521 73 951 97 195 - ( 6 188) 76 139 215 10 934 7 273 - 18 207 ( 6 188) 2 110 2 730 4 840 19 978 15 558 - - 35 536 49 187 68 216 171 146 (a) the net book value in this item is negative due to the fact that costs with real estate sales are imputed (a) the net book value in this item is negative due to the fact that costs with real estate sales are imputed 12 234 40 376 75 122 105 747 233 479 As at 31 December 2021, the amount related to discontinued facilities included in the caption Real estate properties amounts to Euro 9,848 thousand (31 December 2020: Euro 15,917 thousand), having the bank recorded impairment losses for these assets in the total amount of Euro 4,863 thousand (31 December 2020: Euro 8,273 thousand). NOTE 29 – NON-CURRENT ASSETS AND DISPOSAL GROUPS FOR SALE CLASSIFIED AS HELD FOR SALE NOTE 29 – NON-CURRENT ASSETS AND DISPOSAL GROUPS FOR SALE CLASSIFIED AS HELD FOR SALE AND AND LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE This item on 31 December 2021 and 2020, is analyzed as follows: This item on 31 December 2021 and 2020, is analyzed as follows: Assets of discontinued operations Banco Well Link (anterior NB Ásia) Banco Delle Tre Venezie ESEGUR novobanco - Spain branch Ijar Leasing Algerie Others Impairment losses Banco Delle Tre Venezie ESEGUR novobanco - Spain branch Ijar Leasing Algerie Others 31.12.2021 (in thousands of Euros) 31.12.2020 Assets Liabilities Assets Liabilities 2 039 - - - 12 597 50 14 686 - - - ( 8 035) ( 50) ( 8 085) 6 601 - - - - - - - - - - - - - - 1 883 8 926 9 634 1 725 555 - 2 150 1 748 148 ( 6 626) ( 4 460) ( 166 000) - ( 2 150) ( 179 236) - - - 2 007 770 - - 2 007 770 - - - - - - 1 568 912 2 007 770 Other non-current assets held for sale include shareholdings and respective shareholder loans, which were reclassified 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 under IFRS 5. Other non-current assets held for sale include shareholdings and respective shareholder loans, which were reclassified to this caption The impairment movement for non-current Assets for disposal classified as held for sale is as follow: under IFRS 5. The impairment movement for non-current Assets for disposal classified as held for sale is as follow: 62 The impairment movement for non-current Assets for disposal classified as held for sale is as follow: 31.12.2021 (in thousands of Euros) 31.12.2020 (in thousands of Euros) Balance at the beginning of the exercise Allocation / (reversals) for the exercise Balance at the beginning of the exercise Utilizations Allocation / (reversals) for the exercise Exchange differences and other Utilizations Balance at the end of the exercise Exchange differences and other As at 31 December 2021 and 2020, the results from discontinued operations is as follows: As at 31 December 2021 and 2020, the results from discontinued operations is as follows: Balance at the end of the exercise As at 31 December 2021 and 2020, the results from discontinued operations is as follows: Results from discontinued operations Results from discontinued operations novobanco - Spain branch GNB Seguros novobanco - Spain branch GNB Seguros 31.12.2021 179 236 31.12.2020 8 776 10 000 179 236 ( 164 954) 10 000 ( 16 197) ( 164 954) 8 085 ( 16 197) 8 085 170 460 8 776 - 170 460 - - 179 236 - 179 236 (in thousands of Euros) 31.12.2021 31.12.2020 (in thousands of Euros) 31.12.2021 1 091 - 1 091 1 091 - 31.12.2020 ( 40 623) 11 869 ( 40 623) ( 28 754) 11 869 381 During 2021 the associate Ijar Leasing Algérie was transferred to non-current assets held for sale as it is in the process of selling assets with a view to their disposal in the short term. The associates ESEGUR and Multipessoal were transferred from non-current During 2021 the associate Ijar Leasing Algérie was transferred to non-current assets held for sale as it is in the process of selling assets held for sale to investments in associates and the investment in Banco Delle Tre Venezie was transferred to assets at fair assets with a view to their disposal in the short term. The associates ESEGUR and Multipessoal were transferred from non-current value through other comprehensive income, as the sale processes are not active at financial year end. assets held for sale to investments in associates and the investment in Banco Delle Tre Venezie was transferred to assets at fair value through other comprehensive income, as the sale processes are not active at financial year end. Spanish Branch Following the accounting policy followed by the Bank, and in accordance with IFRS5 5 - Non-current assets held for sale and Spanish Branch discontinued operations, during 2020 the Bank transferred its activity in Spain to the caption Non-current assets and disposal groups Following the accounting policy followed by the Bank, and in accordance with IFRS5 5 - Non-current assets held for sale and classified as held for sale, as it is expected that its value will be recovered through a sale transaction and this is highly probable, and 1 091 ( 28 754) discontinued operations, during 2020 the Bank transferred its activity in Spain to the caption Non-current assets and disposal groups the respective assets are in immediate sale conditions. The determination of fair value less costs of sale, carried out by an classified as held for sale, as it is expected that its value will be recovered through a sale transaction and this is highly probable, and independent external entity, took into consideration the amounts received from potential parties interested in partial sales of this the respective assets are in immediate sale conditions. The determination of fair value less costs of sale, carried out by an activity, the cost of sale of selected credit portfolios, and the cost of discontinuing the remaining residual activity, and resulted in a independent external entity, took into consideration the amounts received from potential parties interested in partial sales of this need for impairment of 166.0 million euros. activity, the cost of sale of selected credit portfolios, and the cost of discontinuing the remaining residual activity, and resulted in a need for impairment of 166.0 million euros. On April 2, 2021, novobanco entered into an agreement to sell a number of assets and liabilities of the Spanish Branch with ABANCA CORPORACIÓN BANCARIA, S.A, which was completed on November 30, 2021 with the derecognition of the assets and liabilities On April 2, 2021, novobanco entered into an agreement to sell a number of assets and liabilities of the Spanish Branch with ABANCA sold. The assets and liabilities excluded from this transaction, of residual value, remained in the branch's balance sheet, having CORPORACIÓN BANCARIA, S.A, which was completed on November 30, 2021 with the derecognition of the assets and liabilities integrated the consolidation perimeter of novobanco, as presented below: sold. The assets and liabilities excluded from this transaction, of residual value, remained in the branch's balance sheet, having (in thousands of Euros) integrated the consolidation perimeter of novobanco, as presented below: Sold Assets / Liabilities Sold Assets / Liabilities Assets / Liabilities remaining in the (in thousands of Euros) Assets / Liabilities Branch remaining in the Branch Assets Assets Cash, cash balances at Central Banks and other demand deposits Financial assets at fair value through profit or loss Financial assets at amortized cost Cash, cash balances at Central Banks and other demand deposits Deposits Financial assets at fair value through profit or loss Investments in subsidiaries, joint ventures and associates Financial assets at amortized cost Current tax assets Investments in subsidiaries, joint ventures and associates Tax assets Deposits Deferred tax assets Tax assets Other assets Current tax assets Non-current assets and disposal groups classified as held for sale Deferred tax assets Non-current assets and disposal groups classified as held for sale Resources from Central Banks and other credit institutions Other liabilities Resources from Central Banks and other credit institutions Liabilities included in disposal groups classified as held for sale Liabilities included in disposal groups classified as held for sale Results attributable to shareholders of the parent company Total Liabilities and Equity Results attributable to shareholders of the parent company Total Assets Other assets Liabilities Total Assets Provisions Liabilities Provisions Total Liabilities Other liabilities Equity Other reserves Total Liabilities Equity Total Equity Other reserves Total Equity Total Liabilities and Equity The completion of this transaction had no impact on the income statement at the date of derecognition, since there was a provision ( 1 757 140) 89 650 recorded in the balance sheet for 176 million euros (of which 10 million euros reinforced already during 2021), which was partially The completion of this transaction had no impact on the income statement at the date of derecognition, since there was a provision recorded in the balance sheet for 176 million euros (of which 10 million euros reinforced already during 2021), which was partially ( 462 796) ( 462 796) ( 462 796) ( 462 796) ( 1 294 344) ( 1 757 140) ( 1 294 344) ( 1 757 140) ( 1 757 140) ( 1 757 140) ( 1 757 140) ( 1 757 140) ( 1 757 140) - - - - - - - - - - - - - - - - - - - - - - - - - - 5 000 2 751 33 794 5 000 33 794 2 751 604 33 794 37 910 33 794 11 929 604 25 981 37 910 9 591 11 929 - 25 981 89 650 9 591 - 33 885 89 650 6 611 28 259 33 885 - 6 611 68 755 28 259 - 19 804 68 755 1 091 20 895 19 804 89 650 1 091 20 895 63 63 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Other non-current assets held for sale include shareholdings and respective shareholder loans, which were reclassified to this caption under IFRS 5. 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 Results from discontinued operations novobanco - Spain branch GNB Seguros As at 31 December 2021 and 2020, the results from discontinued operations is as follows: (in thousands of Euros) 31.12.2021 31.12.2020 179 236 10 000 ( 164 954) ( 16 197) 8 776 170 460 - - 8 085 179 236 (in thousands of Euros) 31.12.2021 31.12.2020 1 091 - ( 40 623) 11 869 1 091 ( 28 754) During 2021 the associate Ijar Leasing Algérie was transferred to non-current assets held for sale as it is in the process of selling assets with a view to their disposal in the short term. The associates ESEGUR and Multipessoal were transferred from non-current assets held for sale to investments in associates and the investment in Banco Delle Tre Venezie was transferred to assets at fair value through other comprehensive income, as the sale processes are not active at financial year end. During 2021 the associate Ijar Leasing Algérie was transferred to non-current assets held for sale as it is in the process of selling assets with a view to their disposal in the short term. The associates ESEGUR and Multipessoal were transferred from non-current assets held for sale to investments in associates and the investment in Banco Delle Tre Venezie was transferred to assets at fair value through other comprehensive income, as the sale processes are not active at financial year end. Spanish Branch Following the accounting policy followed by the Bank, and in accordance with IFRS5 5 - Non-current assets held for sale and discontinued operations, during 2020 the Bank transferred its activity in Spain to the caption Non-current assets and disposal groups classified as held for sale, as it is expected that its value will be recovered through a sale transaction and this is highly probable, and the respective assets are in immediate sale conditions. The determination of fair value less costs of sale, carried out by an independent external entity, took into consideration the amounts received from potential parties interested in partial sales of this activity, the cost of sale of selected credit portfolios, and the cost of discontinuing the remaining residual activity, and resulted in a need for impairment of 166.0 million euros. assets are in immediate sale conditions. The determination of fair value less costs of sale, carried out by an independent external entity, took into consideration the amounts received from potential parties interested in partial sales of this activity, the cost of sale of selected credit portfolios, and the cost of discontinuing the remaining residual activity, and resulted in a need for impairment of 166.0 million euros. Spanish Branch Following the accounting policy followed by the Bank, and in accordance with IFRS5 5 - Non-current assets held for sale and discontinued operations, during 2020 the Bank transferred its activity in Spain to the caption Non-current assets and disposal groups classified as held for sale, as it is expected that its value will be recovered through a sale transaction and this is highly probable, and the respective On April 2, 2021, novobanco entered into an agreement to sell a number of assets and liabilities of the Spanish Branch with ABANCA CORPORACIÓN BANCARIA, S.A, which was completed on November 30, 2021 with the derecognition of the assets and liabilities sold. The assets and liabilities excluded from this transaction, of residual value, remained in the branch's balance sheet, having integrated the consolidation perimeter of novobanco, as presented below: On April 2, 2021, novobanco entered into an agreement to sell a number of assets and liabilities of the Spanish Branch with ABANCA CORPORACIÓN BANCARIA, S.A, which was completed on November 30, 2021 with the derecognition of the assets and liabilities sold. The assets and liabilities excluded from this transaction, of residual value, remained in the branch’s balance sheet, having integrated the consolidation perimeter of novobanco, as presented below: Assets Cash, cash balances at Central Banks and other demand deposits Financial assets at fair value through profit or loss Financial assets at amortized cost Deposits Investments in subsidiaries, joint ventures and associates Tax assets Current tax assets Deferred tax assets Other assets Non-current assets and disposal groups classified as held for sale Total Assets Liabilities Resources from Central Banks and other credit institutions Provisions Other liabilities Liabilities included in disposal groups classified as held for sale Total Liabilities Equity Other reserves Results attributable to shareholders of the parent company Total Equity Total Liabilities and Equity Sold Assets / Liabilities (in thousands of Euros) Assets / Liabilities remaining in the Branch - - ( 462 796) ( 462 796) - - - - - ( 1 294 344) ( 1 757 140) - - - ( 1 757 140) ( 1 757 140) - - - ( 1 757 140) 5 000 2 751 33 794 33 794 604 37 910 11 929 25 981 9 591 - 89 650 33 885 6 611 28 259 - 68 755 19 804 1 091 20 895 89 650 The completion of this transaction had no impact on the income statement at the date of derecognition, since there was a provision recorded in the balance sheet for 176 million euros (of which 10 million euros reinforced already during 2021), which was partially The completion of this transaction had no impact on the income statement at the date of derecognition, since there was a provision recorded in the balance sheet for 176 million euros (of which 10 million euros reinforced already during 2021), which was partially used. The remaining amount of 15.2 million euros was transferred to Provisions for other contingencies related to this transaction (advisory costs, tax contingencies and other possible claims). 63 382 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes used. The remaining amount of 15.2 million euros was transferred to Provisions for other contingencies related to this transaction used. The remaining amount of 15.2 million euros was transferred to Provisions for other contingencies related to this transaction (advisory costs, tax contingencies and other possible claims). (advisory costs, tax contingencies and other possible claims). NOTE 30 – FINANCIAL LIABILITIES MEASURED AT AMORTISED COST This caption as at 31 December 2021 and 2020 is analyzed as follows: This caption as at 31 December 2021 and 2020 is analyzed as follows: This caption as at 31 December 2021 and 2020 is analyzed as follows: NOTE 30 – FINANCIAL LIABILITIES MEASURED AT AMORTISED COST NOTE 30 – FINANCIAL LIABILITIES MEASURED AT AMORTISED COST Deposits from Central Banks and Other credit institutions Deposits from Central Banks and Other credit institutions 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 Deposits from Central Banks and other credit institutions Deposits from Central Banks and other credit institutions (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2021 31.12.2020 31.12.2020 11 497 829 11 497 829 26 997 858 26 997 858 1 479 066 1 479 066 371 609 371 609 10 778 468 10 778 468 25 778 507 25 778 507 974 996 974 996 364 013 364 013 40 346 362 40 346 362 37 895 984 37 895 984 Deposits from Central Banks and other credit institutions The balance of Deposits from Central Banks and other credit institutions is composed, as to its nature, as follows: The balance of Deposits from Central Banks and other credit institutions is composed, as to its nature, as follows: The balance of Deposits from Central Banks and other credit institutions is composed, as to its nature, as follows: Deposits from Central Banks Deposits from Central Banks From the European System of Central Banks From the European System of Central Banks Deposits Deposits Other funds Other funds Deposits from Other credit institutions Deposits from Other credit institutions Domestic Domestic Deposits Deposits Other funds Other funds Foreign Foreign Deposits Deposits Loans Loans Operations with repurchase agreements Operations with repurchase agreements Other resources Other resources (in thousands of Euros) (in thousands of Euros) 31.12.2021 31.12.2021 31.12.2020 31.12.2020 53 126 53 126 7 954 000 7 954 000 8 007 126 8 007 126 29 030 29 030 7 004 000 7 004 000 7 033 030 7 033 030 968 975 968 975 24 534 24 534 993 509 993 509 426 711 426 711 531 973 531 973 1 529 847 1 529 847 8 663 8 663 2 497 194 2 497 194 3 490 703 3 490 703 11 497 829 11 497 829 889 876 889 876 4 792 4 792 894 668 894 668 624 873 624 873 596 534 596 534 1 625 724 1 625 724 3 639 3 639 2 850 770 2 850 770 3 745 438 3 745 438 10 778 468 10 778 468 As at 31 December 2021, the caption funds from the European System of Central Banks includes Euro 7 954 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) (31 December 2020: Euro 7 004 million). 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 expectation of complying with the eligibility requirements set by the ECB. As at 31 December 2021, the caption funds from the European System of Central Banks includes Euro 7 954 million covered by As at 31 December 2021, the caption funds from the European System of Central Banks includes Euro 7 954 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 financial assets pledged as collateral, as part of the third series of longer-term refinancing operations of the European Central Bank (TLTRO III) (31 December 2020: Euro 7 004 million). The bonus introduced by the ECB in the interest rate of these Bank (TLTRO III) (31 December 2020: Euro 7 004 million). 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 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 the ECB. purposes, taking into account the Bank's expectation of complying with the eligibility requirements set by 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 6.21. The balance of the caption Repurchase agreements operations corresponds to the sale of securities with purchasing agreement 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 6.21. (repos), recorded in accordance with the accounting policy mentioned in Note 6.21. The breakdown of Resources of Central Banks and other credit institutions, by residual maturity, as at 31 December 2021 and 2020, is as follows: 383 64 64 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The breakdown of Resources of Central Banks and other credit institutions, by residual maturity, as at 31 December 2021 and 2020, is as follows: The breakdown of Resources of Central Banks and other credit institutions, by residual maturity, as at 31 December 2021 and (in thousands of Euros) The breakdown of Resources of Central Banks and other credit institutions, by residual maturity, as at 31 December 2021 and 2020, is as follows: 2020, is as follows: 31.12.2021 Deposits from Central Banks Up to 3 months From 3 months to 1 year Deposits from Central Banks Deposits from Central Banks From 1 to 5 years Up to 3 months Up to 3 months From 3 months to 1 year From 3 months to 1 year From 1 to 5 years From 1 to 5 years Up to 3 months From 3 months to 1 year From 1 to 5 years Up to 3 months Up to 3 months More than 5 years From 3 months to 1 year From 3 months to 1 year From 1 to 5 years From 1 to 5 years More than 5 years More than 5 years Deposits from Other Credit Institutions Deposits from Other Credit Institutions Deposits from Other Credit Institutions The analysis of repurchase agreements operations, by residual maturity, is as follows: 31.12.2020 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 29 030 - 7 004 000 29 030 29 030 7 033 030 - - 7 004 000 7 004 000 7 033 030 1 420 031 7 033 030 666 868 1 087 233 1 420 031 1 420 031 571 306 666 868 666 868 3 745 438 1 087 233 1 087 233 571 306 10 778 468 571 306 3 745 438 3 745 438 10 778 468 10 778 468 (in thousands of Euros) 31.12.2020 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 225 507 350 014 1 050 203 225 507 225 507 350 014 1 625 724 350 014 1 050 203 1 050 203 1 625 724 1 625 724 31.12.2021 31.12.2021 53 126 1 627 000 6 327 000 53 126 53 126 8 007 126 1 627 000 1 627 000 6 327 000 6 327 000 8 007 126 1 487 742 8 007 126 1 287 514 181 609 1 487 742 1 487 742 533 838 1 287 514 1 287 514 3 490 703 181 609 181 609 533 838 11 497 829 533 838 3 490 703 3 490 703 11 497 829 11 497 829 31.12.2021 31.12.2021 679 782 850 065 - 679 782 679 782 850 065 1 529 847 850 065 - - 1 529 847 1 529 847 Foreign Foreign Foreign Up to 3 months From 3 months to 1 year From 1 to 5 years Up to 3 months Up to 3 months From 3 months to 1 year From 3 months to 1 year From 1 to 5 years From 1 to 5 years Due to customers 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: 31.12.2021 Due to customers The balance of Deposits due to costumers is composed, as to its nature, as follows: The balance of Deposits due to costumers is composed, as to its nature, as follows: Due to customers Due to customers The balance of Deposits due to costumers is composed, as to its nature, as follows: The balance of Deposits due to costumers is composed, as to its nature, as follows: Repayable on demand Demand deposits Repayable on demand Repayable on demand Time deposits Demand deposits Demand deposits Time deposits Other Time deposits Time deposits Time deposits Time deposits Savings accounts Other Other Retirement saving accounts Other Savings accounts Savings accounts Retirement saving accounts Retirement saving accounts Other funds Other Other Other Other funds Other funds Other Other 31.12.2021 31.12.2021 31.12.2021 12 388 794 (in thousands of Euros) 31.12.2020 (in thousands of Euros) (in thousands of Euros) 31.12.2020 31.12.2020 11 475 826 12 388 794 12 388 794 9 011 648 180 9 011 828 9 011 648 9 011 648 180 180 226 003 9 011 828 9 011 828 5 125 652 5 351 655 226 003 226 003 5 125 652 5 125 652 245 581 5 351 655 5 351 655 245 581 245 581 26 997 858 245 581 245 581 245 581 26 997 858 26 997 858 11 475 826 11 475 826 9 187 317 241 9 187 558 9 187 317 9 187 317 241 241 232 741 9 187 558 9 187 558 4 673 474 4 906 215 232 741 232 741 4 673 474 4 673 474 208 908 4 906 215 4 906 215 208 908 208 908 25 778 507 208 908 208 908 208 908 25 778 507 25 778 507 384 65 65 65 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, the schedule of Due to customers, by residual maturity periods, is as follows: As at 31 December 2021 and 2020, the schedule of Due to customers, by residual maturity periods, is as follows: As at 31 December 2021 and 2020, the schedule of Due to customers, by residual maturity periods, is as follows: As at 31 December 2021 and 2020, the schedule of Due to customers, by residual maturity periods, is as follows: 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: Debt Securities issued, Subordinated Debt and Financial liabilities associated to transferred assets This caption breaks down as follows: Debt Securities issued, Subordinated Debt and Financial liabilities associated to transferred assets This caption breaks down as follows: Repayable on demand Repayable on demand Term deposits Term deposits Repayable on demand Term deposits Up to 3 months From 3 months to 1 year Up to 3 months From 1 to 5 years From 3 months to 1 year Up to 3 months More than 5 years From 1 to 5 years From 3 months to 1 year More than 5 years From 1 to 5 years More than 5 years This caption breaks down as follows: Debt securities issued Debt securities issued Debt securities issued Euro Medium Term Notes (EMTN) Bonds Euro Medium Term Notes (EMTN) Bonds Euro Medium Term Notes (EMTN) Bonds Bonds Subordinated debt Subordinated debt Financial liabilities associated to transferred assets Subordinated debt Financial liabilities associated to transferred assets Bonds Asset lending operations Bonds Asset lending operations Financial liabilities associated to transferred assets (in thousands of Euros) 31.12.2021 31.12.2020 (in thousands of Euros) 31.12.2021 12 388 794 31.12.2020 (in thousands of Euros) 11 475 826 31.12.2021 12 388 794 7 670 678 12 388 794 5 607 590 7 670 678 1 290 725 5 607 590 7 670 678 40 071 1 290 725 5 607 590 14 609 064 40 071 1 290 725 26 997 858 14 609 064 40 071 14 609 064 26 997 858 26 997 858 31.12.2020 11 475 826 7 124 178 11 475 826 5 561 554 7 124 178 1 576 564 5 561 554 7 124 178 40 385 1 576 564 5 561 554 14 302 681 40 385 1 576 564 25 778 507 14 302 681 40 385 14 302 681 25 778 507 25 778 507 (in thousands of Euros) 31.12.2021 (in thousands of Euros) 31.12.2020 31.12.2021 (in thousands of Euros) 31.12.2020 31.12.2021 445 633 573 588 445 633 1 019 221 573 588 445 633 1 019 221 573 588 415 394 1 019 221 415 394 44 451 415 394 1 479 066 44 451 31.12.2020 515 311 - 515 311 515 311 - 515 311 515 311 - 415 234 515 311 415 234 44 451 415 234 974 996 44 451 Asset lending operations 974 996 44 451 Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum amount of Euro 974 996 10,000 million, the Bank issued covered bonds which amount to Euro 5,500 million (31 December 2020: Euro 5,500 million), being Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum amount of Euro these covered bonds totally repurchased by the Bank. The main characteristics of the outstanding issues as of 31 December 2021 10,000 million, the Bank issued covered bonds which amount to Euro 5,500 million (31 December 2020: Euro 5,500 million), being and 2020 are as follows: Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a maximum amount of Euro Under the Covered Bonds Program (“Programa de Emissão de Obrigações Hipotecárias”), which has a these covered bonds totally repurchased by the Bank. The main characteristics of the outstanding issues as of 31 December 2021 10,000 million, the Bank issued covered bonds which amount to Euro 5,500 million (31 December 2020: Euro 5,500 million), being (in thousands of Euros) maximum amount of Euro 10,000 million, the Bank issued covered bonds which amount to Euro 5,500 and 2020 are as follows: these covered bonds totally repurchased by the Bank. The main characteristics of the outstanding issues as of 31 December 2021 31.12.2021 million (31 December 2020: Euro 5,500 million), being these covered bonds totally repurchased by (in thousands of Euros) and 2020 are as follows: 1 479 066 44 451 1 479 066 the Bank. The main characteristics of the outstanding issues as of 31 December 2021 and 2020 are as follows Designation Designation NB 2015 SR.1 Designation NB 2015 SR.2 NB 2015 SR.1 NB 2015 SR.3 NB 2015 SR.2 NB 2015 SR.4 NB 2015 SR.1 NB 2015 SR.3 NB 2015 SR.5 NB 2015 SR.2 NB 2015 SR.4 NB 2019 SR.6 NB 2015 SR.3 NB 2015 SR.5 NB 2019 SR.7 NB 2015 SR.4 NB 2019 SR.6 NB 2015 SR.5 NB 2019 SR.7 NB 2019 SR.6 NB 2019 SR.7 Designation Designation NB 2015 SR.1 Designation NB 2015 SR.2 NB 2015 SR.1 NB 2015 SR.3 NB 2015 SR.2 NB 2015 SR.4 NB 2015 SR.1 NB 2015 SR.3 NB 2015 SR.5 NB 2015 SR.2 NB 2015 SR.4 NB 2019 SR.6 NB 2015 SR.3 NB 2015 SR.5 NB 2019 SR.7 NB 2015 SR.4 NB 2019 SR.6 NB 2015 SR.5 NB 2019 SR.7 NB 2019 SR.6 NB 2019 SR.7 Nominal value (in thousands Nominal value of Euros) (in thousands Nominal value 1 000 000 of Euros) (in thousands 1 000 000 of Euros) 1 000 000 1 000 000 1 000 000 700 000 1 000 000 1 000 000 500 000 1 000 000 700 000 750 000 1 000 000 500 000 550 000 700 000 750 000 5 500 000 500 000 550 000 750 000 5 500 000 550 000 Carrying book value (in Carrying book thousands of value (in Euros) Carrying book thousands of - value (in Euros) - thousands of - - Euros) - - - - - - - - - - - - - - - - - - - 5 500 000 - Nominal value (in thousands Nominal value of Euros) (in thousands Nominal value of Euros) 1 000 000 (in thousands 1 000 000 of Euros) 1 000 000 1 000 000 Carrying book value (in Carrying book thousands of value (in Euros) Carrying book thousands of - value (in Euros) - thousands of Euros) 1 000 000 700 000 1 000 000 1 000 000 500 000 1 000 000 700 000 750 000 1 000 000 500 000 550 000 700 000 750 000 5 500 000 500 000 550 000 750 000 5 500 000 550 000 5 500 000 - - - - - - - - - - - - - - - - - - - - - - 31.12.2021 Issue date Maturity date 31.12.2021 Issue date 07/10/2015 Issue date 07/10/2015 07/10/2015 07/10/2015 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 07/10/2015 07/10/2015 10/12/2019 07/10/2015 22/12/2016 10/12/2019 07/10/2015 10/12/2019 22/12/2016 10/12/2019 10/12/2019 10/12/2019 Maturity date 07/10/2025 Maturity date 07/10/2024 07/10/2025 07/10/2027 07/10/2024 07/10/2022 07/10/2025 07/10/2027 22/12/2023 07/10/2024 07/10/2022 10/06/2023 07/10/2027 22/12/2023 10/12/2024 07/10/2022 10/06/2023 22/12/2023 10/12/2024 10/06/2023 10/12/2024 31.12.2020 31.12.2020 Issue date Maturity date 31.12.2020 Issue date 07/10/2015 Issue date 07/10/2015 07/10/2015 07/10/2015 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 07/10/2015 07/10/2015 10/12/2019 07/10/2015 22/12/2016 10/12/2019 07/10/2015 10/12/2019 22/12/2016 10/12/2019 10/12/2019 10/12/2019 Maturity date 07/10/2021 Maturity date 07/10/2024 07/10/2021 07/10/2020 07/10/2024 07/10/2022 07/10/2021 07/10/2020 22/12/2023 07/10/2024 07/10/2022 10/06/2023 07/10/2020 22/12/2023 10/12/2024 07/10/2022 10/06/2023 22/12/2023 10/12/2024 10/06/2023 10/12/2024 Interest payment Interest payment Quarterly Interest Quarterly payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Interest payment Interest payment Quarterly Interest Quarterly payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Interest Rate Interest Rate 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% 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% Euribor 3 Months + 0.25% Euribor 3 Months + 0.25% Interest Rate Interest Rate 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% 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% Euribor 3 Months + 0.25% Euribor 3 Months + 0.25% Market Market XDUB Market XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XMSM XDUB XDUB XMSM XDUB XMSM XDUB XMSM XMSM XMSM Market Market XDUB Market XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XDUB XMSM XDUB XDUB XMSM XDUB XMSM XDUB XMSM XMSM XMSM Rating (in thousands of Euros) Moody's Rating DBRS Rating A2 Moody's A2 Moody's A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A2 A DBRS A DBRS A A A A A A A A A A A A A A A A A A A (in thousands of Euros) 385 (in thousands of Euros) Rating (in thousands of Euros) Moody's Rating DBRS Rating A2 Moody's A2 Moody's A DBRS A DBRS A2 A2 A2 A2 A2 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 A A A A A 66 66 66 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes As at 31 December 2021 and 2020, the schedule of Due to customers, by residual maturity periods, is as follows: Debt Securities issued, Subordinated Debt and Financial liabilities associated to transferred assets This caption breaks down as follows: Repayable on demand Term deposits Up to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Debt securities issued Euro Medium Term Notes (EMTN) Bonds Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations (in thousands of Euros) 31.12.2021 31.12.2020 12 388 794 11 475 826 7 670 678 5 607 590 1 290 725 40 071 7 124 178 5 561 554 1 576 564 40 385 14 609 064 14 302 681 26 997 858 25 778 507 (in thousands of Euros) 31.12.2021 31.12.2020 445 633 573 588 1 019 221 515 311 - 515 311 415 394 415 234 44 451 1 479 066 44 451 974 996 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 2020: Euro 5,500 million), being these covered bonds totally repurchased by the Bank. The main characteristics of the outstanding issues as of 31 December 2021 and 2020 are as follows: Designation Issue date Maturity date Interest Rate Market Nominal value (in thousands of Euros) Carrying book value (in thousands of Euros) 31.12.2021 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 07/10/2015 07/10/2015 07/10/2015 07/10/2015 22/12/2016 10/12/2019 10/12/2019 07/10/2025 07/10/2024 07/10/2027 07/10/2022 22/12/2023 10/06/2023 10/12/2024 - - - - - - - - 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 - - - - - - - - Interest payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Interest payment Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly (in thousands of Euros) Rating Moody's DBRS 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 XMSM XMSM 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 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 XMSM XMSM A2 A2 A2 A2 A2 A2 A2 A A A A A A A These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in the 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, and 8/2006 and Instruction No. 13/2006 of Bank of Portugal. As at 31 December 2021, the assets that collateralize These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in the 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, and 8/2006 and Instruction No. 13/2006 of Bank of Portugal. As at 31 December 2021, the assets that collateralize these covered debt securities amount to Euro 6,075.1 million (31 December 2020: Euro 6,104.8 million) (see Note 22). these covered debt securities amount to Euro 6,075.1 million (31 December 2020: Euro 6,104.8 million) (see Note 22). The changes in the financial years of 2021 and 2020 in Debt securities issued, subordinated debt and financial liabilities associated to transferred assets was as follows: The changes in the financial years of 2021 and 2020 in Debt securities issued, subordinated debt and financial liabilities associated to transferred assets was as follows: 66 Debt securities issued Euro Medium Term Notes (EMTN) Bonds Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations Balance as at 31.12.2020 Issues Redemptions Net purchases Other movements a) Balance as at 31.12.2021 (in thousands of Euros) 515 311 - 515 311 - 575 000 575 000 415 234 44 451 - 974 996 575 000 - - - - - - ( 84 916) - ( 84 916) 15 238 ( 1 412) 13 826 445 633 573 588 1 019 221 - - 160 415 394 - 44 451 ( 84 916) 13 986 1 479 066 a) The other movements include accrued interest on the balance sheet, corrections for hedging operations, corrections of fair value and exchange rate variations. Debt securities issued Euro Medium Term Notes (EMTN) Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations Balance as at 31.12.2019 Issues Redemptions b) Net purchases Other movements a) Balance as at 31.12.2020 (in thousands of Euros) 495 989 495 989 415 069 133 387 1 044 445 - - - - - - - - ( 88 251) ( 88 251) ( 570) ( 570) 19 892 19 892 515 311 515 311 - - ( 570) 165 415 234 ( 685) 19 372 44 451 974 996 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). Liability Management Exercise (LME) On July 30, 2021, following a voluntary tender offer (Tender Offer and Solicitation Memorandum), EMTN issued by the Luxembourg branch were redeemed, with a total nominal value of 84.3 million euros (representing 31.9% of the total nominal amount issued). This operation resulted in a loss of Euro 73,415 thousand. 386 The main characteristics of the debt securities issued and the subordinated debt, as at 31 December 2021 and 2020, are as follows: (in thousands of Euros) Entity ISIN Description Currency Issue date Maturity Interest rate Market 31.12.2021 Unit price Carrying (€) Book value PTNOBIOM0014 PTNOBJOM0005 NB 3.5% 23/07/24 OBRG. NB 4.25% 09/23 OBRG. 100.00 100.00 303 571 270 017 a) 2024 2022 Fixed rate 3.5% XDUB Euribor 3M + 4.25% XDUB XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 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 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 EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2021 2021 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 Bonds novobanco novobanco Euro Medium Term Notes novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo Subordinated debt NOVO BANCO a) Date of the next call option 2043 2043 2043 2043 2048 2049 2049 2051 2051 2048 2052 2046 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 XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 42 807 98 081 63 952 47 063 33 649 40 947 11 375 15 602 10 974 37 479 36 512 7 192 1 434 615 PTNOBFOM0017 NB 06/07/2028 EUR 2018 100.00 415 394 2023 a) 8.50% XDUB 67 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes These covered bonds are guaranteed by a cover asset pool, comprising mortgage and other assets, segregated in the 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, and 8/2006 and Instruction No. 13/2006 of Bank of Portugal. As at 31 December 2021, the assets that collateralize these covered debt securities amount to Euro 6,075.1 million (31 December 2020: Euro 6,104.8 million) (see Note 22). The changes in the financial years of 2021 and 2020 in Debt securities issued, subordinated debt and financial liabilities associated 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 a) The other movements include accrued interest on the balance sheet, corrections for hedging operations, corrections of fair value and exchange rate variations. 44 451 - - 44 451 974 996 575 000 ( 84 916) 13 986 1 479 066 Balance as at 31.12.2020 Issues Redemptions Net Other Balance as at purchases movements a) 31.12.2021 (in thousands of Euros) 515 311 - 515 311 - 575 000 575 000 ( 84 916) ( 84 916) 15 238 ( 1 412) 13 826 445 633 573 588 1 019 221 415 234 160 415 394 - - - Balance as at 31.12.2019 Issues Redemptions b) Net Other purchases movements a) Balance as at 31.12.2020 (in thousands of Euros) - - - - - - - - - ( 88 251) ( 88 251) ( 570) ( 570) 19 892 19 892 515 311 515 311 - - ( 570) 165 415 234 ( 685) 19 372 44 451 974 996 Debt securities issued Euro Medium Term Notes (EMTN) Subordinated debt Bonds Financial liabilities associated to transferred assets Asset lending operations 495 989 495 989 415 069 133 387 1 044 445 - - - - - 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). Liability Management Exercise (LME) Liability Management Exercise (LME) On July 30, 2021, following a voluntary tender offer (Tender Offer and Solicitation Memorandum), EMTN issued by the Luxembourg branch were redeemed, with a total nominal value of 84.3 million euros (representing 31.9% of the total nominal amount issued). This operation resulted in a loss of Euro 73,415 thousand. On July 30, 2021, following a voluntary tender offer (Tender Offer and Solicitation Memorandum), EMTN issued by the Luxembourg branch were redeemed, with a total nominal value of 84.3 million euros (representing 31.9% of the total nominal amount issued). This operation resulted in a loss of Euro 73,415 thousand. The main characteristics of the debt securities issued and the subordinated debt, as at 31 December 2021 and 2020, are as follows: The main characteristics of the debt securities issued and the subordinated debt, as at 31 December 2021 and 2020, are as follows: (in thousands of Euros) Entity ISIN Description Currency Issue date 31.12.2021 Unit price (€) Carrying Book value Maturity Interest rate Market Bonds novobanco novobanco Euro Medium Term Notes novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo novobanco Luxemburgo Subordinated debt NOVO BANCO a) Date of the next call option 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) Subordinated debt NOVO BANCO a) Date of the next call option PTNOBIOM0014 PTNOBJOM0005 NB 3.5% 23/07/24 OBRG. NB 4.25% 09/23 OBRG. XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 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 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 EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2021 2021 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 100.00 100.00 303 571 270 017 a) 2024 2022 Fixed rate 3.5% XDUB Euribor 3M + 4.25% XDUB 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 42 807 98 081 63 952 47 063 33 649 40 947 11 375 15 602 10 974 37 479 36 512 7 192 2043 2043 2043 2043 2048 2049 2049 2051 2051 2048 2052 2046 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 XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX PTNOBFOM0017 NB 06/07/2028 EUR 2018 100.00 415 394 2023 a) 8.50% XDUB Entity ISIN Description Currency Issue date XS0869315241 XS0877741479 XS0888530911 XS0897950878 XS0972653132 XS1031115014 XS1034421419 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 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 EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 1 434 615 31.12.2020 Unit price (€) Carrying Book value (in thousands of Euros) Maturity Interest rate Market 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 2043 2043 2043 2043 2048 2049 2049 2051 2051 2048 2052 2046 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 67 XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX PTNOBFOM0017 NB 06/07/2028 EUR 2018 100.00 415 234 2023 a) 8.50% XDUB 930 545 The Bank did not present capital or interest defaults on its debt issued in the financial years of 2021 and 2020. The Bank did not present capital or interest defaults on its debt issued in the financial years of 2021 and 2020. The residual duration of debt securities issued and subordinated liabilities as at 31 December 2021 and 2020 is as follows: The residual duration of debt securities issued and subordinated liabilities as at 31 December 2021 and 2020 is as follows: The non-derecognized securitization operations mentioned above implied the recording of financial liabilities associated with transferred assets, which are detailed as follows: FLITPTREL (1) (1) asset transfer operation, with the Bank in the securities portfolio vehicle equity instruments Debt securities issued From 3 months to 1 year From 1 to 5 years More than 5 years Subordinated debt From 1 to 5 years Financial liabilities associated to transferred assets Undertimined maturity 387 (in thousands of Euros) 31.12.2021 31.12.2020 270 017 303 571 445 633 1 019 221 - - 515 311 515 311 415 394 415 394 415 234 415 234 44 451 44 451 44 451 44 451 1 479 066 974 996 (in thousands of Euros) 31.12.2021 31.12.2020 44 451 44 451 44 451 44 451 68 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Description Description Currency Issue date Currency Issue date Unit price Carrying 31.12.2020 Unit price (€) (€) Book value Carrying Book value Maturity Interest rate Market Maturity Interest rate Market 31.12.2020 (in thousands of Euros) (in thousands of Euros) Entity Entity Euro Medium Term Notes 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) 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) Subordinated debt NB (Luxembourg Branch) NOVO BANCO Subordinated debt NOVO BANCO a) Date of the next call option ISIN ISIN XS0869315241 XS0877741479 XS0869315241 XS0888530911 XS0877741479 XS0897950878 XS0888530911 XS0972653132 XS0897950878 XS1031115014 XS0972653132 XS1034421419 XS1031115014 XS1038896426 XS1034421419 XS1042343308 XS1038896426 XS1053939978 XS1042343308 XS1055501974 XS1053939978 XS1058257905 XS1055501974 XS1058257905 BES Luxembourg 3.5% 02/01/43 BES Luxembourg 3.5% 23/01/43 BES Luxembourg 3.5% 02/01/43 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg 3.5% 23/01/43 BES Luxembourg 3.5% 18/03/2043 BES Luxembourg 3.5% 19/02/2043 BES Luxembourg ZC BES Luxembourg 3.5% 18/03/2043 Banco Esp San Lux ZC 12/02/49 BES Luxembourg ZC Banco Esp San Lux ZC 19/02/49 Banco Esp San Lux ZC 12/02/49 Banco Esp San Lux ZC 27/02/51 Banco Esp San Lux ZC 19/02/49 BES Luxembourg ZC 06/03/2051 Banco Esp San Lux ZC 27/02/51 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 06/03/2051 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 03/04/48 BES Luxembourg ZC 16/04/46 BES Luxembourg ZC 09/04/52 BES Luxembourg ZC 16/04/46 PTNOBFOM0017 NB 06/07/2028 PTNOBFOM0017 NB 06/07/2028 EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2013 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2018 2018 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 1.00 1.00 1.00 42 287 97 153 42 287 63 183 97 153 46 521 63 183 36 398 46 521 45 717 36 398 40 220 45 717 34 848 40 220 15 212 34 848 43 649 15 212 38 646 43 649 11 477 38 646 11 477 2043 2043 2043 2043 2043 2043 2043 2048 2043 2049 2048 2049 2049 2051 2049 2051 2051 2048 2051 2052 2048 2046 2052 2046 Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Fixed rate 3.5% Zero Coupon 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 Zero Coupon 100.00 415 234 2023 a) 8.50% 100.00 930 545 415 234 930 545 2023 a) 8.50% XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XLUX XDUB XDUB a) Date of the next call option The Bank did not present capital or interest defaults on its debt issued in the financial years of 2021 and 2020. The Bank did not present capital or interest defaults on its debt issued in the financial years of 2021 and 2020. The residual duration of debt securities issued and subordinated liabilities as at 31 December 2021 and 2020 is as follows: The residual duration of debt securities issued and subordinated liabilities as at 31 December 2021 and 2020 is as follows: (in thousands of Euros) 31.12.2021 (in thousands of Euros) 31.12.2020 Debt securities issued From 3 months to 1 year Debt securities issued From 1 to 5 years From 3 months to 1 year More than 5 years From 1 to 5 years More than 5 years Subordinated debt From 1 to 5 years Subordinated debt From 1 to 5 years Financial liabilities associated to transferred assets Undertimined maturity Financial liabilities associated to transferred assets Undertimined maturity 31.12.2021 31.12.2020 270 017 303 571 270 017 445 633 303 571 1 019 221 445 633 1 019 221 415 394 415 394 415 394 415 394 44 451 44 451 44 451 1 479 066 44 451 1 479 066 - - - 515 311 - 515 311 515 311 515 311 415 234 415 234 415 234 415 234 44 451 44 451 44 451 974 996 44 451 974 996 The non-derecognized securitization operations mentioned above implied the recording of financial liabilities associated with transferred assets, which are detailed as follows: The non-derecognized securitization operations mentioned above implied the recording of financial liabilities associated with transferred assets, which are detailed as follows: The non-derecognized securitization operations mentioned above implied the recording of financial liabilities associated with (in thousands of Euros) transferred assets, which are detailed as follows: FLITPTREL (1) FLITPTREL (1) (1) asset transfer operation, with the Bank in the securities portfolio vehicle equity instruments (1) asset transfer operation, with the Bank in the securities portfolio vehicle equity instruments 31.12.2021 (in thousands of Euros) 31.12.2020 31.12.2021 44 451 31.12.2020 44 451 44 451 44 451 44 451 44 451 44 451 44 451 NOTE 31 – PROVISIONS As at 31 December 2021 and 2020, the caption Provisions presents the following changes: NOTE 31 – PROVISIONS As at 31 December 2021 and 2020, the caption Provisions presents the following changes: Balance as at 31 December 2019 Charges / (Write-backs) Utilizations Exchange differences and others (a) Balance as at 31 December 2020 Charges / (Write-backs) Utilizations Exchange differences and others Balance as at 31 December 2021 Provision for restructuring Provision for guarantees and commitments Commercial Offers Other Provisions Total (in thousands of Euros) 24 044 123 915 ( 42 188) ( 8 798) 96 973 10 070 ( 60 358) 1 46 686 97 103 21 595 ( 2 188) ( 15 026) 101 484 ( 9 900) - 191 91 775 41 334 ( 629) ( 29 506) - - 11 199 - ( 10 205) - 994 209 263 42 958 ( 14 569) ( 8 736) 228 916 111 600 ( 26 083) 24 282 338 715 371 744 187 839 ( 88 451) ( 32 560) 438 572 68 111 770 ( 96 646) 68 24 474 478 170 (a) Includes Euro 8,798 thousand of restructuring provisions and Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations In order to meet the financial needs of its customers, the Bank assumes several irrevocable commitments and contingent liabilities, consisting of financial guarantees, letters of credit and other credit commitments, which may require the payment by the Bank, on behalf of its customers, in the event of specific, contractually prescribed events. Although these commitments are not recorded on the balance sheet, they carry credit risk and, therefore, are part of the Bank's overall risk exposure. The changes in the caption provisions for guarantees, are detailed as follows: 388 Balance as at 31 December 2019 Increases due to changes in credit risk Decreases due to changes in credit risk Utilized Other moviments (a) Balance as at 31 December 2020 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements Balance as at 31 December 2021 thousand on stage 3). 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 Increases due to changes in credit risk Decreases due to changes in credit risk Other movements Balance as at 31 December 2021 (a) Includes Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (Euro 2,360 thousand on stage 1 and Euros 12,060 The changes in the caption provisions for commitments are detailed as follows: 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 provisions set up in 2016 and 2017 in the amount of Euro 3.4 million. During the 2021 fiscal year, a net charge of Euro 10.1 million was made and Euro 60.4 million were utilized, so that as at 31 December 2021 the amount of restructuring provisions on the balance sheet is Euro 46.7 million. Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) 3 575 830 ( 698) - ( 2 393) 1 314 596 ( 593) 128 1 445 14 061 20 441 ( 12 790) - 2 293 24 005 3 006 ( 17 826) ( 2 355) 76 387 23 301 ( 15 991) ( 2 188) ( 14 923) 66 586 14 833 ( 12 772) 2 417 94 023 44 572 ( 29 479) ( 2 188) ( 15 023) 91 905 18 435 ( 31 191) 190 6 830 71 064 79 339 Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) 1 935 6 325 ( 3 708) 1 071 5 623 1 876 ( 1 780) 636 1 145 5 488 ( 1 570) ( 1 107) 3 956 6 857 ( 5 961) ( 723) 6 355 4 129 - - - ( 33) 33 1 897 ( 33) 88 1 952 3 080 11 813 ( 5 311) ( 3) 9 579 10 630 ( 7 774) 1 12 436 69 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 31 – PROVISIONS As at 31 December 2021 and 2020, the caption Provisions presents the following changes: NOTE 31 – PROVISIONS As at 31 December 2021 and 2020, the caption Provisions presents the following changes: Provision for restructuring Provision for restructuring 24 044 Provision for guarantees and commitments Provision for guarantees and commitments 97 103 Commercial Offers Commercial Other Provisions Other Offers 41 334 Provisions 209 263 Balance as at 31 December 2019 Charges / (Write-backs) Balance as at 31 December 2019 Utilizations Charges / (Write-backs) Exchange differences and others (a) Utilizations Balance as at 31 December 2020 Balance as at 31 December 2020 Exchange differences and others (a) Charges / (Write-backs) Utilizations Charges / (Write-backs) Exchange differences and others Utilizations Balance as at 31 December 2021 Exchange differences and others 123 915 24 044 ( 42 188) 123 915 ( 8 798) ( 42 188) 96 973 ( 8 798) 10 070 96 973 ( 60 358) 10 070 1 ( 60 358) 46 686 1 21 595 97 103 ( 2 188) 21 595 ( 15 026) ( 2 188) 101 484 ( 15 026) ( 9 900) 101 484 - ( 9 900) 191 - 91 775 191 ( 629) 41 334 ( 29 506) ( 629) - - ( 29 506) 11 199 - - - 11 199 ( 10 205) - - ( 10 205) 994 - (in thousands of Euros) (in thousands of Euros) Total Total 371 744 187 839 371 744 ( 88 451) 187 839 ( 32 560) ( 88 451) 438 572 ( 32 560) 111 770 438 572 ( 96 646) 111 770 24 474 ( 96 646) 478 170 24 474 42 958 209 263 ( 14 569) 42 958 ( 8 736) ( 14 569) 228 916 ( 8 736) 111 600 228 916 ( 26 083) 111 600 24 282 ( 26 083) 338 715 24 282 Balance as at 31 December 2021 (a) Includes Euro 8,798 thousand of restructuring provisions and Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations 338 715 91 775 46 686 994 478 170 In order to meet the financial needs of its customers, the Bank assumes several irrevocable commitments and contingent liabilities, consisting of financial guarantees, letters of credit and other credit commitments, which may require the payment by the Bank, on behalf of its customers, in the In order to meet the financial needs of its customers, the Bank assumes several irrevocable commitments and contingent liabilities, (a) Includes Euro 8,798 thousand of restructuring provisions and Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations consisting of financial guarantees, letters of credit and other credit commitments, which may require the payment by the Bank, on behalf of its customers, in the event of specific, contractually prescribed events. Although these commitments are not recorded on In order to meet the financial needs of its customers, the Bank assumes several irrevocable commitments and contingent liabilities, the balance sheet, they carry credit risk and, therefore, are part of the Bank's overall risk exposure. consisting of financial guarantees, letters of credit and other credit commitments, which may require the payment by the Bank, on behalf of its customers, in the event of specific, contractually prescribed events. Although these commitments are not recorded on The changes in the caption provisions for guarantees, are detailed as follows: the balance sheet, they carry credit risk and, therefore, are part of the Bank's overall risk exposure. The changes in the caption provisions for guarantees, are detailed as follows: event of specific, contractually prescribed events. Although these commitments are not recorded on the balance sheet, they carry credit risk and, therefore, are part of the Bank’s overall risk exposure. The changes in the caption provisions for guarantees, are detailed as follows: Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) Balance as at 31 December 2019 3 575 Stage 1 14 061 Stage 2 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 Increases due to changes in credit risk Utilized Decreases due to changes in credit risk Other moviments (a) Utilized Other moviments (a) 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 2021 830 3 575 ( 698) 830 - ( 698) ( 2 393) - 1 314 ( 2 393) 596 1 314 ( 593) 596 128 ( 593) 1 445 128 20 441 14 061 ( 12 790) 20 441 - ( 12 790) 2 293 - 24 005 2 293 3 006 24 005 ( 17 826) 3 006 ( 2 355) ( 17 826) 6 830 ( 2 355) 76 387 Stage 3 (in thousands of Euros) 94 023 Total 44 572 94 023 ( 29 479) 44 572 ( 2 188) ( 29 479) ( 15 023) ( 2 188) 91 905 ( 15 023) 18 435 91 905 ( 31 191) 18 435 190 ( 31 191) 79 339 190 23 301 76 387 ( 15 991) 23 301 ( 2 188) ( 15 991) ( 14 923) ( 2 188) 66 586 ( 14 923) 14 833 66 586 ( 12 772) 14 833 2 417 ( 12 772) 71 064 2 417 (a) Includes Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (Euro 2,360 thousand on stage 1 and Euros 12,060 thousand on stage 3). Balance as at 31 December 2021 71 064 6 830 1 445 79 339 The changes in the caption provisions for commitments are detailed as follows: The changes in the caption provisions for commitments are detailed as follows: Stage 1 Stage 2 Stage 3 Total (in thousands of Euros) (a) Includes Euro 14,420 thousand of provisions for guarantees provided by the Spanish Branch transferred to discontinued operations (Euro 2,360 thousand on stage 1 and Euros 12,060 The changes in the caption provisions for commitments are detailed as follows: thousand on stage 3). Balance as at 31 December 2019 1 935 Stage 1 1 145 Stage 2 Stage 3 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 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 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 2021 6 325 1 935 ( 3 708) 6 325 1 071 ( 3 708) 5 623 1 071 1 876 5 623 ( 1 780) 1 876 636 ( 1 780) 6 355 636 5 488 1 145 ( 1 570) 5 488 ( 1 107) ( 1 570) 3 956 ( 1 107) 6 857 3 956 ( 5 961) 6 857 ( 723) ( 5 961) 4 129 ( 723) - - ( 33) - 33 ( 33) - 33 1 897 - ( 33) 1 897 88 ( 33) 1 952 88 Total 11 813 3 080 ( 5 311) 11 813 ( 3) ( 5 311) 9 579 ( 3) 10 630 9 579 ( 7 774) 10 630 1 ( 7 774) 12 436 1 (in thousands of Euros) - 3 080 Balance as at 31 December 2021 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 provisions set up in 2016 and 2017 in the amount of Euro 3.4 million. During the 2021 fiscal year, a The restructuring provisions were set up within the scope of the commitments assumed before the European Commission arising net charge of Euro 10.1 million was made and Euro 60.4 million were utilized, so that as at 31 December 2021 the amount of 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 restructuring provisions on the balance sheet is Euro 46.7 million. there was also a reversal of the provisions set up in 2016 and 2017 in the amount of Euro 3.4 million. During the 2021 fiscal year, a net charge of Euro 10.1 million was made and Euro 60.4 million were utilized, so that as at 31 December 2021 the amount of restructuring provisions on the balance sheet is Euro 46.7 million. 12 436 1 952 4 129 6 355 Other provisions amounting to Euro 338.7 million (31 December 2020: Euro 228.9 million), are intended to cover certain identified contingencies related to the Bank’s activities, the most relevant being: 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 provisions set up in 2016 and 2017 in the amount of Euro 3.4 million. During the 2021 fiscal year, a net charge of Euro 10.1 million was made and Euro 60.4 million were utilized, so that as at 31 December 2021 the amount of restructuring provisions on the balance sheet is Euro 46.7 million. • Contingencies associated with ongoing tax processes. To cover for these contingencies, the Bank maintains provisions of Euro 21.9 million (31 December 2020: Euro 20.4 million); 69 • Contingencies associated with legal proceedings amounting to Euro 4.2 million (31 December 2020: Euro 6.6 million); 69 389 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Other provisions amounting to Euro 338.7 million (31 December 2020: Euro 228.9 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 21.9 million (31 December 2020: Euro 20.4 million); • Contingencies associated with sales processes in the amount of Euro 39.3 million (31 December 2020: Euro 41.1 million); • Contingencies related to the undivided part of the Executive Committee’s pension plan, in the amount of Euro 19.2 million (31 December 2020: Euro 19.2 million), transferred from the liability items net of the value of the assets of the Pension Fund (see Note 15); • The remaining amount, of Euro 254.1 million (31 December 2020: Euro 141.6 million), is intended to cover losses arising from the Bank’s normal activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contingencies related to asset sale processes, among others.   Contingencies associated with legal proceedings amounting to Euro 4.2 million (31 December 2020: Euro 6.6 million); Other provisions amounting to Euro 338.7 million (31 December 2020: Euro 228.9 million), are intended to cover certain identified  Contingencies associated with sales processes in the amount of Euro 39.3 million (31 December 2020: Euro 41.1 million); 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  Contingencies related to the undivided part of the Executive Committee's pension plan, in the amount of Euro 19.2 million Euro 21.9 million (31 December 2020: Euro 20.4 million); (31 December 2020: Euro 19.2 million), transferred from the liability items net of the value of the assets of the Pension Fund  Contingencies associated with legal proceedings amounting to Euro 4.2 million (31 December 2020: Euro 6.6 million); (see Note 15);   Contingencies associated with sales processes in the amount of Euro 39.3 million (31 December 2020: Euro 41.1 million); The remaining amount, of Euro 254.1 million (31 December 2020: Euro 141.6 million), is intended to cover losses arising  Contingencies related to the undivided part of the Executive Committee's pension plan, in the amount of Euro 19.2 million from the Bank's normal activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contingencies related to asset sale processes, among others. (31 December 2020: Euro 19.2 million), transferred from the liability items net of the value of the assets of the Pension Fund (see Note 15); The increase occurred in 2021 results from the State Budget Law for 2021 ("LOE 21"), which amended the rules of the Property The remaining amount, of Euro 254.1 million (31 December 2020: Euro 141.6 million), is intended to cover losses arising Transfer Tax Code ("IMT") and the Municipal Property Tax ("IMI"), with the extension of the scope of the aggravated rate of IMI and from the Bank's normal activity, such as fraud, theft and robbery and lawsuits ongoing lawsuits for contingencies related to IMT, and loss of exemptions, to real estate owned by taxpayers that are controlled, directly or indirectly, by an entity that is subject to asset sale processes, among others. a more favorable tax regime, included in the list approved by the Minister of Finance. At this date, the extent of the application of these new rules in terms of subjection to novobanco is pending clarification, according to a binding information request made to the The increase occurred in 2021 results from the State Budget Law for 2021 ("LOE 21"), which amended the rules of the Property Tax Authority. Transfer Tax Code ("IMT") and the Municipal Property Tax ("IMI"), with the extension of the scope of the aggravated rate of IMI and IMT, and loss of exemptions, to real estate owned by taxpayers that are controlled, directly or indirectly, by an entity that is subject to As at 31 December 2021, based on the opinions obtained from legal and tax experts, and as a result of internal evaluation, it is not a more favorable tax regime, included in the list approved by the Minister of Finance. At this date, the extent of the application of considered possible, with complete assurance, to remove the doubt as to the application of the new rules referred to above, although these new rules in terms of subjection to novobanco is pending clarification, according to a binding information request made to the it is admitted that there may be other interpretations since these are new rules, not yet applied, and therefore subject to interpretation. Tax Authority. As of this date, the calculation of the application of the increased IMI rates to all the properties directly and indirectly owned by novobanco amounts to approximately 115.8 million euros for 2021, and there is no expectation as to the date on which clarification As at 31 December 2021, based on the opinions obtained from legal and tax experts, and as a result of internal evaluation, it is not will be obtained from the Tax Authority or other similar entity that will determine the existence or not of an effective increase in liabilities considered possible, with complete assurance, to remove the doubt as to the application of the new rules referred to above, although for Novobanco. Thus, in December 2021 a provision was set up for this contingency with a more probable risk than not of an outflow it is admitted that there may be other interpretations since these are new rules, not yet applied, and therefore subject to interpretation. of resources incorporating economic benefits, in the above-mentioned amount of 115.8 million euros, which is included in Other As of this date, the calculation of the application of the increased IMI rates to all the properties directly and indirectly owned by provisions. novobanco amounts to approximately 115.8 million euros for 2021, and there is no expectation as to the date on which clarification will be obtained from the Tax Authority or other similar entity that will determine the existence or not of an effective increase in liabilities NOTE 32 – OTHER LIABILITIES for Novobanco. Thus, in December 2021 a provision was set up for this contingency with a more probable risk than not of an outflow NOTE 32 – OTHER LIABILITIES of resources incorporating economic benefits, in the above-mentioned amount of 115.8 million euros, which is included in Other As at 31 December 2021 and 2020, the caption Other liabilities is analyzed as follows: provisions. As at 31 December 2021 and 2020, the caption Other liabilities is analyzed as follows: As at 31 December 2021, based on the opinions obtained from legal and tax experts, and as a result of internal evaluation, it is not considered possible, with complete assurance, to remove the doubt as to the application of the new rules referred to above, although it is admitted that there may be other interpretations since these are new rules, not yet applied, and therefore subject to interpretation. As of this date, the calculation of the application of the increased IMI rates to all the properties directly and indirectly owned by novobanco amounts to approximately 115.8 million euros for 2021, and there is no expectation as to the date on which clarification will be obtained from the Tax Authority or other similar entity that will determine the existence or not of an effective increase in liabilities for Novobanco. Thus, in December 2021 a provision was set up for this contingency with a more probable risk than not of an outflow of resources incorporating economic benefits, in the above-mentioned amount of 115.8 million euros, which is included in Other provisions. The increase occurred in 2021 results from the State Budget Law for 2021 (“LOE 21”), which amended the rules of the Property Transfer Tax Code (“IMT”) and the Municipal Property Tax (“IMI”), with the extension of the scope of the aggravated rate of IMI and IMT, and loss of exemptions, to real estate owned by taxpayers that are controlled, directly or indirectly, by an entity that is subject to a more favorable tax regime, included in the list approved by the Minister of Finance. At this date, the extent of the application of these new rules in terms of subjection to novobanco is pending clarification, according to a binding information request made to the Tax Authority. NOTE 32 – OTHER LIABILITIES (in thousands of Euros) 31.12.2021 31.12.2020 As at 31 December 2021 and 2020, the caption Other liabilities is analyzed as follows: Public sector Creditors for supply of goods Other creditors Career bonuses (see Note 15) Retirement pensions and health-care benefits (see Note 15) Public sector Other accrued expenses Creditors for supply of goods Deferred income Other creditors Foreign exchange transactions to be settled Career bonuses (see Note 15) Other transactions pending settlement Retirement pensions and health-care benefits (see Note 15) Other accrued expenses Deferred income Foreign exchange transactions to be settled Other transactions pending settlement 36 290 98 983 92 499 7 335 22 562 36 290 69 069 98 983 888 92 499 14 7 335 35 196 22 562 69 069 362 836 888 14 As at 31 December 2021, the caption Creditors for supply of goods includes Euro 79,998 thousand related to creditors of assets for 35 196 right of use (31 December 2020: Euro 47,973 thousand), whose maturity dates are present the following detail: 362 836 32 532 (in thousands of Euros) 65 586 62 119 7 465 24 692 32 532 67 642 65 586 955 62 119 - 7 465 53 620 24 692 67 642 314 611 955 - 53 620 31.12.2021 31.12.2020 314 611 As at 31 December 2021, the caption Creditors for supply of goods includes Euro 79,998 thousand related to creditors of assets for right of use (31 December 2020: Euro 47,973 thousand), whose maturity dates are present the following detail: (in thousands of Euros) As at 31 December 2021, the caption Creditors for supply of goods includes Euro 79,998 thousand related to creditors of assets for right of use (31 December 2020: Euro 47,973 thousand), whose maturity dates are present the following detail: 31.12.2021 31.12.2020 Up to 3 months From 3 months to one year From one to five years More than five years Up to 3 months From 3 months to one year From one to five years More than five years 31.12.2021 233 1 177 18 429 60 159 233 79 998 1 177 18 429 60 159 31.12.2020 78 (in thousands of Euros) 438 26 118 21 339 78 47 973 438 26 118 21 339 79 998 47 973 70 70 390 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 33 – SHARE CAPITAL NOTE 33 – SHARE CAPITAL Ordinary Shares As at 31 December 2021, the Bank's share capital of Euro 6,054,907,314 is represented by 9,954,907,311 registered shares with Ordinary Shares no par value and is fully subscribed and paid up by the following shareholders (31 December 2020: share capital of Euro As at 31 December 2021, the Bank’s share capital of Euro 6,054,907,314 is represented by 9,954,907,311 5,900,000,000 represented by 9,799,999,997 registered shares): registered shares with no par value and is fully subscribed and paid up by the following shareholders (31 December 2020: share capital of Euro 5,900,000,000 represented by 9,799,999,997 registered shares): Nani Holdings, SGPS, SA (1) Fundo de Resolução (2) Direcção-Geral do Tesouro e Finanças % Share Capital 31.12.2021 31.12.2020 73,83% 24,61% 1,56% 75,00% 25,00% - 100,00% 100,00% (1) as a result of the agreements celebrated betw een Fundo de Resolução and the shareholder Lone Star in the context of the sale of 75% of the share capital of novobanco, only Fundo de Resolução w ill see its participation diluted w ith the conversion of the conversion rights, pending the delivery of the shares by Fundo de Resolução to Nani Holdings on December 31, 2021. When such delivery occurs, Nani Holdings' shareholding percentage w ill increase to 75.00% and Fundo de Resolução to 23.44%. Nani Holdings' economic interest in the new bank remains unchanged at 75%. (2) In view of the commitments assumed by the Portuguese Republic before the European Commisson, Fundo de Resolução is inhibited from exercising its voting rights. In December 2021, a capital increase of Euro 154,907 thousand was carried out through the conversion of the conversion rights (resulting from the Special Regime Applicable to Deferred Tax Assets) for the year 2015, which gave the State a 1.56% stake in the novobanco, and which resulted in the issuance of 154,907,314 new ordinary shares (see Note 34). to approximately 16.63% of the share capital of novobanco, which will only dilute, in accordance with the sale agreement, the stake of the Resolution Fund. In December 2021, a capital increase of Euro 154,907 thousand was carried out through the conversion of the conversion rights (resulting from the Special Regime Applicable to Deferred Tax Assets) for the year 2015, which gave the State a 1.56% stake in the novobanco, and which resulted in the issuance of 154,907,314 new ordinary shares (see Note 34). In the financial year 2017 and following the acquisition of 75% of the share capital of novobanco by Lone Star, two capital increases in the amounts of Euro 750 million and Euro 250 million, in October and December, respectively, were realised. For the years 2016 and 2017, the Tax Authority has already validated the tax credit, and the final amount of conversion rights attributed to the State represents an additional 4.13% stake in the share capital of novobanco (5.69% for the years 2015 to 2017). This conversion will be exercised in accordance with the procedures and deadlines established in the legal regime. The issuer of these rights has agreed with the shareholders that clarification will be sought from the state regarding the procedure for the conversion of these rights. As soon as this clarification is received, the conversion of the rights for the financial years 2016 and 2017 will take place. In the financial year 2017 and following the acquisition of 75% of the share capital of novobanco by Lone Star, two capital increases in the amounts of Euro 750 million and Euro 250 million, in October and December, respectively, were realised. As mentioned in Note 30, novobanco 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. As mentioned in Note 30, novobanco 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. 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 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 entitle the State to require novobanco to increase its share capital by incorporating the amount of the special reserve and consequently issuing and delivering free of charge ordinary shares. It is estimated that the conversion rights to be issued and attributed to the State following the negative net results of the years between 2015 and 2020 will give it a stake of up to approximately 16.63% of the share capital of novobanco, which will only dilute, in accordance with the sale agreement, the stake of the Resolution Fund. NOTE 34 – ACCUMULATED OTHER COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES As at 31 December 2021 and 2020, the accumulated other comprehensive income, retained earnings and other reserves present the following detail: The conversion rights are securities that entitle the State to require novobanco to increase its share capital by incorporating the amount of the special reserve and consequently issuing and delivering free of charge ordinary shares. It is estimated that the conversion rights to be issued and attributed to the State following the negative net results of the years between 2015 and 2020 will give it a stake of up For the years 2016 and 2017, the Tax Authority has already validated the tax credit, and the final amount of conversion rights attributed to the State represents an additional 4.13% stake in the share capital of novobanco (5.69% for the years 2015 to 2017). This conversion will be exercised in accordance with the procedures and deadlines established in the legal regime. The issuer of these rights has agreed with the shareholders that clarification will be sought from the state regarding the procedure for the conversion of these rights. As soon as this clarification is received, the conversion of the rights for the financial years 2016 and 2017 will take place. 391 71 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 34 – ACCUMULATED OTHER COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES NOTE 34 – ACCUMULATED OTHER COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES As at 31 December 2021 and 2020, the accumulated other comprehensive income, retained earnings and other reserves present the following detail: As at 31 December 2021 and 2020, the accumulated other comprehensive income, retained earnings and other reserves present the following detail: Other accumulated comprehensive income Other accumulated comprehensive income Retained earnings Other reserves Retained earnings Other reserves Originating reserve Originating reserve Special reserve Other reserves and Retained earnings Special reserve Other reserves and Retained earnings Other accumulated comprehensive income 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 Comprehensive Income Other Comprehensive Income (in thousands of Euros) 31.12.2021 (in thousands of Euros) 31.12.2020 31.12.2021 ( 968 987) 31.12.2020 ( 749 259) ( 968 987) ( 8 576 860) 6 064 434 ( 8 576 860) 1 848 691 6 064 434 1 848 691 701 136 3 514 607 701 136 3 514 607 ( 3 481 413) ( 3 481 413) ( 749 259) ( 7 202 828) 6 179 422 ( 7 202 828) 1 976 173 6 179 422 1 976 173 728 561 3 474 688 728 561 3 474 688 ( 1 772 665) ( 1 772 665) (in thousands of Euros) (in thousands of Euros) Impairment Reserves Impairment Reserves Credit Risk Reserves Credit Risk Reserves Sales related Reserves Sales related Reserves Fair value Reserves Fair value Reserves Actuarial deviations (Net of Actuarial tax) deviations (Net of tax) Total Total Balance as at 31 December 2019 Balance as at 31 December 2019 Actuarial deviations Changes in fair value, net of tax Actuarial deviations Changes in credit risk on financial liabilities at fair value, net Changes in fair value, net of tax of tax Changes in credit risk on financial liabilities at fair value, net Impairment reserves of securities at fair value through other of tax comprehensive income Impairment reserves of securities at fair value through other Reserves from sales of securities at fair value through other comprehensive income comprehensive income Reserves from sales of securities at fair value through other comprehensive income Balance as at 31 December 2020 Balance as at 31 December 2020 Actuarial deviations Changes in fair value, net of tax Actuarial deviations Impairment reserves of securities at fair value through other Changes in fair value, net of tax comprehensive income Impairment reserves of securities at fair value through other Reserves from sales of securities at fair value through other comprehensive income comprehensive income Reserves from sales of securities at fair value through other comprehensive income Balance as at 31 December 2021 5 505 5 505 - - - - - - ( 1 838) ( 1 838) - - 3 667 3 667 - - - - 1 1 - - 3 668 ( 1 669) ( 1 669) - - - - 10 883 10 883 - - - - 9 214 9 214 - - - - - - - ( 8 432) ( 8 432) - - - - - - - - ( 16 356) ( 16 356) ( 24 788) ( 24 788) - - - - - - ( 9 518) ( 44 041) ( 44 041) - 12 284 - 12 284 - - - - - - ( 31 757) ( 31 757) - ( 134 562) - ( 134 562) - - - ( 583 396) ( 583 396) ( 122 199) - ( 122 199) - - - - - - - ( 705 595) ( 705 595) ( 75 649) - ( 75 649) - - - - - 9 214 ( 9 518) ( 34 306) - ( 166 319) - ( 781 244) ( 632 033) ( 632 033) ( 122 199) 12 284 ( 122 199) 12 284 10 883 10 883 ( 1 838) ( 1 838) ( 16 356) ( 16 356) ( 749 259) ( 749 259) ( 75 649) ( 134 562) ( 75 649) ( 134 562) 1 1 ( 9 518) ( 9 518) ( 968 987) 3 668 Balance as at 31 December 2021 Fair value reserve The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at Fair value reserve a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferred The fair value reserves represent the amount of the unrealised gains and losses arising from the securities portfolio classified as at taxes. a fair value through other comprehensive income, net of impairment losses. The amount of this reserve is shown net of deferred taxes. 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: ( 166 319) ( 968 987) ( 781 244) ( 34 306) 9 214 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. 31.12.2021 Balance at the beginning of the exercise Balance at the beginning of the exercise Changes in fair value Foreign exchange differences Changes in fair value Disposals in the exercise Foreign exchange differences Deferred taxes Disposals in the exercise Deferred taxes Balance at the end of the exercise Balance at the end of the exercise Fair value reserves 31.12.2021 Financial assets at fair value through Financial assets at other comprehensive fair value through income other comprehensive 70 520 income Fair value reserves Deferred tax reserves Deferred tax reserves Total fair value reserves Total fair value reserves ( 31 757) ( 31 757) ( 191 007) 2 351 ( 191 007) ( 5 177) 2 351 59 271 ( 5 177) 59 271 ( 166 319) ( 166 319) ( 102 277) ( 102 277) - - - - - - 59 271 59 271 ( 43 006) ( 43 006) 70 520 ( 191 007) 2 351 ( 191 007) ( 5 177) 2 351 ( 5 177) - ( 123 313) - ( 123 313) The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as follows: (in thousands of Euros) 31.12.2020 (in thousands of Euros) Fair value reserves 31.12.2020 Financial assets at fair value through Financial assets at other fair value through comprehensive other comprehensive 53 179 Fair value reserves Deferred tax reserves Deferred tax reserves 53 179 88 253 ( 4 372) 88 253 ( 66 540) ( 4 372) ( 66 540) - 70 520 - ( 97 220) ( 97 220) - - - - - ( 5 057) - ( 5 057) ( 102 277) 70 520 ( 102 277) 392 Total fair value reserves Total fair value reserves ( 44 041) ( 44 041) 88 253 ( 4 372) 88 253 ( 66 540) ( 4 372) ( 5 057) ( 66 540) ( 5 057) ( 31 757) ( 31 757) 72 72 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTE 34 – ACCUMULATED OTHER COMPREHENSIVE INCOME, RETAINED EARNINGS, OTHER RESERVES As at 31 December 2021 and 2020, 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 (in thousands of Euros) 31.12.2021 31.12.2020 ( 968 987) ( 749 259) ( 8 576 860) ( 7 202 828) 6 064 434 1 848 691 701 136 3 514 607 6 179 422 1 976 173 728 561 3 474 688 ( 3 481 413) ( 1 772 665) Other accumulated comprehensive income The movements in Other accumulated comprehensive income were as follows: Other Comprehensive Income (in thousands of Euros) Impairment Credit Risk Sales related Fair value Reserves Reserves Reserves Reserves Actuarial deviations (Net of tax) Total Balance as at 31 December 2019 5 505 ( 1 669) ( 8 432) ( 44 041) ( 583 396) ( 632 033) ( 122 199) 12 284 Actuarial deviations Changes in fair value, net of tax Changes in credit risk on financial liabilities at fair value, net Impairment reserves of securities at fair value through other Reserves from sales of securities at fair value through other of tax comprehensive income comprehensive income Actuarial deviations Changes in fair value, net of tax Impairment reserves of securities at fair value through other Reserves from sales of securities at fair value through other comprehensive income comprehensive income - - - - - - - 1 10 883 ( 1 838) - - - - - - - - - - - - - - - ( 16 356) ( 9 518) - - - - - - - Balance as at 31 December 2020 3 667 9 214 ( 24 788) ( 31 757) ( 705 595) ( 134 562) ( 75 649) - - - - - - - ( 122 199) 12 284 10 883 ( 1 838) ( 16 356) ( 749 259) ( 75 649) ( 134 562) 1 ( 9 518) Balance as at 31 December 2021 3 668 9 214 ( 34 306) ( 166 319) ( 781 244) ( 968 987) 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. The changes occurred in the fair value reserves, net of deferred taxes and impairment losses may be analyzed as follows: 31.12.2021 Fair value reserves (in thousands of Euros) 31.12.2020 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 Balance at the beginning of the exercise 70 520 ( 102 277) ( 31 757) Changes in fair value Foreign exchange differences Disposals in the exercise Deferred taxes The fair value reserves are analyzed as follows: Balance at the end of the exercise ( 191 007) 2 351 ( 5 177) - - - - 59 271 ( 191 007) 2 351 ( 5 177) 59 271 ( 123 313) ( 43 006) ( 166 319) 53 179 88 253 ( 4 372) ( 66 540) - 70 520 ( 97 220) - - - ( 5 057) ( 44 041) 88 253 ( 4 372) ( 66 540) ( 5 057) ( 102 277) ( 31 757) (in thousands of Euros) 31.12.2021 31.12.2020 The fair value reserves are analyzed as follows: 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 Amortised cost of financial assets at fair value through other comprehensive income Deferred Taxes Market value of financial assets at fair value through other comprehensive income Fair value reserve attributable to shareholders of the Bank Unrealised gains / (losses) recognized in fair value reserve 7 256 821 7 133 508 7 744 257 72 (in thousands of Euros) 7 813 584 31.12.2021 ( 123 313) 31.12.2020 69 327 - 7 256 821 ( 43 006) 7 133 508 ( 166 319) ( 123 313) 1 193 7 744 257 ( 102 277) 7 813 584 ( 31 757) 69 327 Originating reserve The originating reserve results from the difference between the assets and liabilities transferred from BES to novobanco, 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. Fair value reserves for discontinuing activities Originating reserve Deferred Taxes The originating reserve results from the difference between the assets and liabilities transferred from BES to novobanco, on the Fair value reserve attributable to shareholders of the Bank 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. Originating reserve The originating reserve results from the difference between the assets and liabilities transferred from BES to novobanco, 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 Special reserve independent auditor nominated by Bank of Portugal. As mentioned in Note 27, the special reserve was created as a result of the adhesion of novobanco 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. Special reserve As mentioned in Note 27, the special reserve was created as a result of the adhesion of novobanco to the Special Regime applicable Following the clearance of a negative net result in the years between 2015 and 2020, with reference to deferred tax assets eligible at to Deferred Tax Assets approved by Law No. 61/2014, of 26 August, which implied the conversion of eligible deferred tax assets into the date of closures of those financial years, the application of that special regime applicable to deferred tax assets, novobanco tax credits and the simultaneous establishment of a special reserve. recorded a special reserve, in the same amount of the tax credit calculated, increased by 10%, which has the following decomposition: Special reserve As mentioned in Note 27, the special reserve was created as a result of the adhesion of novobanco ( 166 319) ( 102 277) ( 31 757) ( 43 006) 1 193 - 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 between 2015 and 2020, 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, novobanco recorded a special reserve, in the same amount of the tax credit calculated, increased by 10%, which has the following decomposition: Following the clearance of a negative net result in the years between 2015 and 2020, 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, novobanco recorded a 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 31.12.2021 2016 (net loss of 2015) 2017 (net loss of 2016) 2018 (net loss of 2017) 2019 (net loss of 2018) 2016 (net loss of 2015) 2020 (net loss of 2019) 2017 (net loss of 2016) 2021 (net loss of 2020) 2018 (net loss of 2017) 2019 (net loss of 2018) 2020 (net loss of 2019) 2021 (net loss of 2020) (in thousands of Euros) 31.12.2021 14 004 109 421 140 332 178 171 14 004 122 015 109 421 137 193 140 332 701 136 178 171 122 015 137 193 168 911 109 421 31.12.2020 150 044 178 171 168 911 122 014 109 421 - 150 044 728 561 178 171 122 014 - With regard to the reserve set up in 2016 (relating to the negative net income of 2015), taking into account the legal deadlines provided for in the Special Regime, in 2021 it was decided to increase the share capital by incorporation of reserves in the amount of Euro 154,907 thousand, with the remaining amount of the reserve in the amount of Euro 14,004 thousand (relating to goodwill), intended to be incorporated into a special reserve subject to the legal reserve regime under the terms of article 295 of the Commercial 728 561 701 136 With regard to the reserve set up in 2016 (relating to the negative net income of 2015), taking into account the legal deadlines provided Companies Code. for in the Special Regime, in 2021 it was decided to increase the share capital by incorporation of reserves in the amount of Euro 154,907 thousand, with the remaining amount of the reserve in the amount of Euro 14,004 thousand (relating to goodwill), intended to be incorporated into a special reserve subject to the legal reserve regime under the terms of article 295 of the Commercial Other reserves and retained earnings Companies Code. Following the conditions agreed in the novobanco’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 Other reserves and retained earnings corresponds to a previously defined asset perimeter, with an initial net book value (June 2016) of around Euro 7.9 billion. As at 31 Following the conditions agreed in the novobanco’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 December 2021 these assets had a net value of Euro 1.8 billion, mainly as a result of losses recorded as well as payments and Fund makes a payment corresponding to the lower of the losses recorded and the amount necessary to restore the ratios to the recoveries (31 December 2020: net value of Euro 2.1 billion). 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 Taking into consideration the losses presented by novobanco on December 31, 2020, 2019, 2018 and 2017, the conditions were met that determined the payment by the Resolution Fund of Euro 429,013 thousand, Euro 1,035,016 thousand, Euro 1,149,295 December 2021 these assets had a net value of Euro 1.8 billion, mainly as a result of losses recorded as well as payments and thousand and Euro 791,695 thousand in 2021, 2020, 2019 and 2018, respectively. recoveries (31 December 2020: net value of Euro 2.1 billion). The amount related to the Contingent Capital Agreement recorded in 2020 as receivable by the Resolution Fund (Euro 598,312 Taking into consideration the losses presented by novobanco on December 31, 2020, 2019, 2018 and 2017, the conditions were met that determined the payment by the Resolution Fund of Euro 429,013 thousand, Euro 1,035,016 thousand, Euro 1,149,295 thousand) differs from the amount paid as a result of disagreements, between novobanco and the Resolution Fund, regarding (i) the thousand and Euro 791,695 thousand in 2021, 2020, 2019 and 2018, respectively. provision for discontinued operations in Spain and (ii) the valuation of participation units, leading to a limitation to the immediate access to this amount, which despite being recorded as receivables, the Bank deducted, as at 31 December 2021, to the regulatory The amount related to the Contingent Capital Agreement recorded in 2020 as receivable by the Resolution Fund (Euro 598,312 capital calculation (Euro 165,442 thousand). novobanco considers this amount to be due under the Contingent Capital Agreement and is triggering the legal and contractual mechanisms at its disposal to ensure receipt of the same (see Note 35). Additionally, the thousand) differs from the amount paid as a result of disagreements, between novobanco and the Resolution Fund, regarding (i) the variable remuneration of the Executive Board of Directors for 2019 and 2020 (Euro 3,857 thousand) was also deducted. provision for discontinued operations in Spain and (ii) the valuation of participation units, leading to a limitation to the immediate access to this amount, which despite being recorded as receivables, the Bank deducted, as at 31 December 2021, to the regulatory capital calculation (Euro 165,442 thousand). novobanco considers this amount to be due under the Contingent Capital Agreement and is triggering the legal and contractual mechanisms at its disposal to ensure receipt of the same (see Note 35). Additionally, the variable remuneration of the Executive Board of Directors for 2019 and 2020 (Euro 3,857 thousand) was also deducted. 73 73 393 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes With regard to the reserve set up in 2016 (relating to the negative net income of 2015), taking into account the legal deadlines provided for in the Special Regime, in 2021 it was decided to increase the share capital by incorporation of reserves in the amount of Euro 154,907 thousand, with the remaining amount of the reserve in the amount of Euro 14,004 thousand (relating to goodwill), intended to be incorporated into a special reserve subject to the legal reserve regime under the terms of article 295 of the Commercial Companies Code. Other reserves and retained earnings Following the conditions agreed in the novobanco’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 2021 these assets had a net value of Euro 1.8 billion, mainly as a result of losses recorded as well as payments and recoveries (31 December 2020: net value of Euro 2.1 billion). Taking into consideration the losses presented by novobanco on December 31, 2020, 2019, 2018 and 2017, the conditions were met that determined the payment by the Resolution Fund of Euro 429,013 thousand, Euro 1,035,016 thousand, Euro 1,149,295 thousand and Euro 791,695 thousand in 2021, 2020, 2019 and 2018, respectively. NOTA 35 – CONTINGENT LIABILITIES AND COMMITMENTS The amount related to the Contingent Capital Agreement recorded in 2020 as receivable by the Resolution Fund (Euro 598,312 thousand) differs from the amount paid as a result of disagreements, between novobanco and the Resolution Fund, regarding (i) the provision for discontinued operations in Spain and (ii) the valuation of participation units, leading to a limitation to the immediate access to this amount, which despite being recorded as receivables, the Bank deducted, as at 31 December 2021, to the regulatory capital calculation (Euro 165,442 thousand). novobanco considers this amount to be due under the Contingent Capital Agreement and is triggering the legal and contractual mechanisms at its disposal to ensure receipt of the same (see Note 35). Additionally, the variable remuneration of the Executive Board of Directors for 2019 and 2020 (Euro 3,857 thousand) was also deducted. In 2021, an amount receivable by the Resolution Fund of Euro 209,220 thousand was recorded in relation to the Contingent Capital Agreement, under Other Reserves and which results, on the date of each balance sheet, from the losses incurred and the regulatory ratios in force at the time of its determination. As a result of the above and in line with the Regulator’s guidelines, on 31 December 2021, this value was also deducted from the regulatory capital calculation. NOTA 35 – CONTINGENT LIABILITIES AND COMMITMENTS In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 31 December 2020 are the following: In 2021, an amount receivable by the Resolution Fund of Euro 209,220 thousand was recorded in relation to the Contingent Capital Agreement, under Other Reserves and which results, on the date of each balance sheet, from the losses incurred and the regulatory ratios in force at the time of its determination. As a result of the above and in line with the Regulator's guidelines, on 31 December 2021, this value was also deducted from the regulatory capital calculation. In addition to the derivative financial instruments, the balances relating to off-balance accounts as at 31 December 2020 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) 31.12.2021 31.12.2020 2 221 575 14 086 256 402 332 16 743 092 5 305 121 544 160 5 849 281 2 815 920 14 194 624 410 292 17 420 836 6 419 991 629 454 7 049 445 Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Bank. As at 31 December 2021, 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 amount of Euro 13.1 billion (31 December 2020: Euro 13.1 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 7.9 million (31 December 2020: Euro 8.1 million);  Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), in the amount of Euro 66.1 million (31 December 2020: Euro 69.5 million);  Securities pledged as collateral to the European Investment Bank, in the amount of Euro 651.4 million (31 December 2020: Euro 769.7 million);  Securities delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 100.5 million (31 December 2020: Euro 107.0 million);  Deposits delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 100.0 million (31 December 2020: Euro 100.0 million). The above-mentioned financial assets pledged as collateral are recorded in the various asset categories of the Bank’s balance sheet and may be executed in the event the Bank 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 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 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. 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. 74 394 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Guarantees and standby letters provided are banking operations that do not imply any mobilization of funds for the Bank. As at 31 December 2021, 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 amount of Euro 13.1 billion (31 December 2020: Euro 13.1 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 7.9 million (31 December 2020: Euro 8.1 million); • Securities pledged as collateral to the Deposits’ Guarantee Fund (“Fundo de Garantia de Depósitos”), in the amount of Euro 66.1 million (31 December 2020: Euro 69.5 million); • Securities pledged as collateral to the European Investment Bank, in the amount of Euro 651.4 million (31 December 2020: Euro 769.7 million); • Securities delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 100.5 million (31 December 2020: Euro 107.0 million); • Deposits delivered as collateral in connection with derivatives trading with a central counterparty in the amount of Euro 100.0 million (31 December 2020: Euro 100.0 million). 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 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 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. 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. Additionally, liabilities recorded in off-balance sheet items related to banking services provided are as follows: The above-mentioned financial assets pledged as collateral are recorded in the various asset categories of the Bank’s balance sheet and may be executed in the event the Bank does not fulfil its obligations 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) 31.12.2021 31.12.2020 31 812 211 197 907 2 018 237 537 957 35 774 785 233 938 2 118 806 1 838 050 34 566 312 39 965 579 Pursuant to the resolution measure applied to BES by resolution of Bank of Portugal of 3 August 2014 (point 1., point b), subparagraph (vii) of Annex 2), as amended by the decision of Bank of Portugal of 11 August 2014, the “excluded liabilities” of transfer to novobanco include “any obligations, guarantees, liabilities or contingencies assumed in the commercialization, financial intermediation and distribution of debt instruments issued by entities that are part of the Espírito Santo Group (…) ”. Pursuant to the resolution measure applied to BES by resolution of Bank of Portugal of 3 August 2014 (point 1., point b), subparagraph (vii) of Annex 2), as amended by the decision of Bank of Portugal of 11 August 2014, the “excluded liabilities” of transfer to novobanco include “any obligations, guarantees, liabilities or contingencies assumed in the commercialization, financial intermediation and distribution of debt instruments issued by entities that are part of the Espírito Santo 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 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: Pursuant to point and subparagraph above and subpoint (v), liabilities excluded also include “any liabilities or contingencies, namely those arising from fraud or violation of regulatory, criminal or administrative offenses or provisions”. Pursuant to point and subparagraph above and subpoint (v), liabilities excluded also include “any liabilities or contingencies, namely those arising from fraud or violation of regulatory, criminal or administrative offenses or provisions”. 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 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: 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 administrative offence decisions), regardless of (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 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 No. 1 of Appendix 2 of the Deliberation of 3 August; and 395 (ii) Clarified that the following liabilities had not been transferred from BES to novobanco: 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 novobanco; c. All indemnities related to breach of contracts (purchase and sale of real estate assets and others) signed and celebrated d. All indemnities related to life insurance contracts, in which the insurer was BES - Companhia de Seguros de Vida, S.A.; e. All liabilities and indemnities related to the alleged annulment of certain clauses in loan agreements in which BES was f. All the indemnities and liabilities arising from the cancellation of operations carried out by BES whilst financial and before 8 p.m. on 3 August 2014; the lender; investment service provider; and g. Any liability that is the object of any of the processes described in Appendix I of said deliberation. (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 novobanco 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 novobanco to BES, with effect as at 8 p.m. of 3 August 2014. In the preparation of its separate and consolidated financial statements as of 31 December 2021 (as well as in the previous financial statements), novobanco 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-transmission to novobanco 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 novobanco 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 novobanco 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, although 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 novobanco. 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 novobanco, 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, 75 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 No. 1 of Appendix 2 of the Deliberation of 3 August; and ii. Clarified that the following liabilities had not been transferred from BES to novobanco: 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 novobanco; c. All indemnities related to breach of contracts (purchase and sale of real estate assets and others) signed and celebrated before 8 p.m. on 3 August 2014; d. All indemnities related to life insurance contracts, in which the insurer was BES - Companhia de Seguros de Vida, S.A.; e. All liabilities and indemnities related to the alleged annulment of certain clauses in loan agreements in which BES was the lender; f. All the indemnities and liabilities arising from the cancellation of operations carried out by BES whilst financial and investment service provider; and g. Any liability that is the object of any of the processes described in Appendix I of said deliberation. 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 novobanco 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 novobanco to BES, with effect as at 8 p.m. of 3 August 2014. In the preparation of its separate and consolidated financial statements as of 31 December 2021 (as well as in the previous financial statements), novobanco 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-transmission to novobanco 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 novobanco 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 novobanco 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, although 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 novobanco. 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 novobanco, 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 novobanco and the main actions and precautionary seizure procedures are still pending before the Supreme Court of Venezuela. In the preparation of the separate and consolidated financial statements of the Bank as of 31 December 2021, 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 novobanco, as determined by Bank of Portugal and taking as reference the current legal bases and the information available at the present date. Additionally, within the scope of the novobanco sale operation, concluded on October 18, 2017, the respective contractual documents contain specific provisions that produce effects equivalent to the resolution of the Board of Directors of Bank of Portugal, of December 29, 2015, regarding the neutralization, at the level of novobanco, of the effects of unfavourable 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 Bank of 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 novobanco GROUP 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 novobanco and Calm Eagle Holdings, S.A.R.L. through 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; 396 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesii. Lawsuit filed by novobanco to challenge the resolution in favour of the insolvent estate of the acts of incorporation 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. novobanco 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 March 31, 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 novobanco 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; 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 of 31 December 2021 the periodic contribution made by the Bank amounted to Euro 14,854 thousand (31 December 2020: Euro 12,528 thousand). Within the scope of its responsibility as a supervisory and resolution authority, Bank of Portugal, on August 3, 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 novobanco, created especially for this purpose, with the capitalization being ensured by the Resolution Fund. For the realization of novobanco’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, 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. 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. The 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 fulfilment 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 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. According to the statement of the Resolution Fund of March 21, 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, Bank of Portugal announced that it had selected the Lone Star Fund for the purchase of novobanco, 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 December 21, 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 novobanco 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 novobanco, 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 Bank of Portugal, or to the perimeter novobanco’s assets and liabilities. 397 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesNOTA 36 – RELATED PARTIES BALANCES AND TRANSACTIONS 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. The group of entities considered to be related parties by novobanco 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 novobanco); (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 direct or indirect stakes equal to or exceeding 2% of the share capital or voting rights of novobanco; (v) subsidiaries consolidated for accounting purposes under the full consolidation method; (vi) associated companies, that is, companies over which novobanco has significantly influence on the company’s financial and operational polices, despite not having control; and (vii) entities under joint control of novobanco (joint ventures). NOTA 36 – RELATED PARTIES BALANCES AND TRANSACTIONS The group of entities considered to be related parties by novobanco 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 novobanco); (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 direct or indirect stakes equal to or exceeding 2% of the share capital or voting rights of novobanco; (v) subsidiaries consolidated for accounting purposes under the full consolidation method; (vi) associated companies, that is, companies over which novobanco has significantly influence on the company’s financial and operational polices, despite not having control; and (vii) entities under joint control of novobanco (joint ventures). Any changes in this regard and the application of these mechanisms may have relevant implications in the Bank’s financial statements. During 2021, the following transactions with Related Parties identified on 31 December 2021 (credit and other types) were carried out: During 2021, the following transactions with Related Parties identified on 31 December 2021 (credit and other types) were carried out: 1) Credit Operations 1) Credit Operations Entities / Individuals Category BEST Banco Electrónico de Serviço Total S.A. novobanco Group EDENRED - Portugal S.A. novobanco Group LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. novobanco Group LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. novobanco Group Operation Bank guarantee Bank guarantee Direct Debits Limits (RCE) (renewal) Credit Card Limits (renewal) Credit Card Limits (renewal) Current Account Loan Account (renewal) Trading Room Operations (RCE) Direct Debits Limits (RCE) (renewal) Leasing (renewal and reduction) Leasing (renewal) Commercial Paper (renewal) Commercial Paper (renewal) Commercial Paper (renewal) Commercial Paper (renewal) Novobanco dos Açores Novo Banco Group (BEST, NB Açores e NB Finance) Common Management and/or Supervisory Members Common Management and/or Supervisory Members Full subscription of the issue of Senior Debt Securities (non- preferred) at the novobanco dos Açores by novobanco • Interbank Limits (Trading Room Operations) • Commercial Limits Unicre - Cartão Internacional de Crédito S.A. novobanco Group Current Account Loan Account Current Account Loan Account Amount (Euro) 8 090 174 41 359 876 410 000 24 000 10 000 2 500 000 3 000 000 4 000 000 25 000 000 43 250 000 1 000 000 4 500 000 23 000 000 50 000 000 5 000 000 1 400 000 000 18 000 000 Up to 10 000 000 2) Services rendered and other signed contracts Reformulation of 3 Current Account Loans (renewal) 20 050 000 Entities / Individuals Category Operation GNB Gestão de Ativos novobanco Group Intra Group Services Agreement GNB Soc Gestora de Fundo de Pensões S.A. novobanco Group Real Estate Transaction Amount (Euro) na 22 932 300 398 78 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTA 36 – RELATED PARTIES BALANCES AND TRANSACTIONS The group of entities considered to be related parties by novobanco 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 novobanco); (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 direct or indirect stakes equal to or exceeding 2% of the share capital or voting rights of novobanco; (v) subsidiaries consolidated for accounting purposes under the full consolidation method; (vi) associated companies, that is, companies over which novobanco has significantly influence on the company’s financial and operational polices, despite not having control; and (vii) entities under joint control of novobanco (joint During 2021, the following transactions with Related Parties identified on 31 December 2021 (credit and other types) were carried ventures). out: 1) Credit Operations Entities / Individuals Category Amount (Euro) BEST Banco Electrónico de Serviço Total S.A. novobanco Group EDENRED - Portugal S.A. novobanco Group LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. novobanco Group LOCARENT - Companhia Portuguesa Aluguer Viaturas S.A. novobanco Group Operation Bank guarantee Bank guarantee Direct Debits Limits (RCE) (renewal) Credit Card Limits (renewal) Credit Card Limits (renewal) Current Account Loan Account (renewal) Trading Room Operations (RCE) Direct Debits Limits (RCE) (renewal) Leasing (renewal and reduction) Leasing (renewal) Commercial Paper (renewal) Commercial Paper (renewal) Commercial Paper (renewal) Commercial Paper (renewal) Novobanco dos Açores Novo Banco Group (BEST, NB Açores e NB Finance) Common Management and/or Supervisory Members Common Management and/or Supervisory Members Full subscription of the issue of Senior Debt Securities (non- preferred) at the novobanco dos Açores by novobanco • Interbank Limits (Trading Room Operations) • Commercial Limits Unicre - Cartão Internacional de Crédito S.A. novobanco Group Current Account Loan Account Current Account Loan Account 8 090 174 41 359 876 410 000 24 000 10 000 2 500 000 3 000 000 4 000 000 25 000 000 43 250 000 1 000 000 4 500 000 23 000 000 50 000 000 5 000 000 1 400 000 000 18 000 000 Up to 10 000 000 2) Services rendered and other signed contracts 2) Services rendered and other signed contracts Reformulation of 3 Current Account Loans (renewal) 20 050 000 Entities / Individuals Category Operation GNB Gestão de Ativos novobanco Group Intra Group Services Agreement GNB Soc Gestora de Fundo de Pensões S.A. novobanco Group Real Estate Transaction Amount (Euro) na 22 932 300 The Bank balances with related parties as at 31 December 2021 and 2020, as well as the respective profit and losses, can be summarized as follows: The Bank balances with related parties as at 31 December 2021 and 2020, as well as the respective profit and losses, can be summarized as follows: Assets Liabilities Guarantees Income Expenses Assets Liabilities Guarantees Income Expenses 31.12.2021 31.12.2020 (in thousands of Euros) Shareholders NANI HOLDINGS FUNDO DE RESOLUÇÃO Subsidiary companies GNB RECUPERAÇÃO DE CRÉDITO GNB CONCESSÕES GNB ACE GNB GA NOVO BANCO SERVICIOS ES TECH VENTURES BEST NB AÇORES FCR PME 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 GREENWOODS QUINTA DA AREIA VÁRZEA DA LAGOA HERDADE DA BOINA RIBAGOLFE BENAGIL IMOASCAY QUINTA DA RIBEIRA PROMOFUNDO GREENDRAIVE FIVE STARS Associated Companies LINEAS LOCARENT ESEGUR UNICRE MULTIPESSOAL OTHERS Other related entities HUDSON ADVISORS PORTUGAL NACIONAL CONTA LDA INFRAMOURA ESMALGLASS MARINA VILAMOURA Other 78 - 209 220 - 83 473 - 2 261 - 46 732 1 716 145 649 - 268 623 797 831 15 050 - - - - - - - - - - - - - - 18 - - - - - - - - - - - - - - 6 445 - 1 577 018 - 121 982 1 894 38 193 2 017 1 164 087 - 375 - - - 375 153 11 040 - 39 264 - 73 201 - 70 348 605 863 204 898 218 1 909 4 586 3 357 7 145 - 25 614 84 523 57 841 3 196 2 668 38 787 2 553 1 088 29 741 60 365 16 796 30 168 13 948 797 6 968 - 913 63 3 156 7 42 6 49 101 - 247 124 252 4 634 1 406 629 3 123 3 146 919 6 43 76 197 83 434 - 18 - 100 - 118 - - 332 - - 25 894 - 598 312 153 - - - 332 - - - - 6 - - 37 102 503 - - - - - - 1 232 35 1 182 - - - - - - - - - - - 1 820 - 71 - - - - - - - - - - 106 - 106 992 - - 915 - 273 - 1 188 - - - 2 - 2 - - - 6 486 - 2 250 967 - 287 985 - - - 45 5 681 28 25 - - - 4 - - - - - - 16 - - - - - - - - - - - - - 4 811 21 917 2 395 1 040 - 522 - 2 039 5 996 - - - - - - 42 - - - - 3 112 1 381 - - - - - - 83 3 631 4 - - 3 1 - 3 4 433 1 - 1 - 331 - - - - - - - - - - - - - 17 468 56 388 - 3 278 - - - 11 3 289 4 138 - - - - 4 138 - 83 473 - 1 723 18 511 48 738 973 139 435 - 286 687 869 975 15 414 - - - - - - - - - - - - - - 18 - - - - - - - - - - - - - - 4 923 - 2 068 182 64 933 115 832 2 955 22 597 2 030 2 208 349 - 295 114 - - 409 257 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 - - - 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 - - - - - - - 12 528 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 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 2021 and 2020. The liability corresponds to the amount to be delivered to the Resolution Fund arising from an addendum made in May 2021 to the Contingent Capitalization Mechanism contract. In June 2018 a contract was entered into between NANI HOLDINGS, SGPS, S.A., LSF NANI INVESTMENTS S.à.r.l. and novobanco, 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. The 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 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 Bank in the scope of its activity. All assets placed with related parties earn interest between 0% and 6,24% (the rates correspond to the rates applied according to the original currency of the asset). 79 399 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 2021 and 2020. The liability corresponds to the amount to be delivered to the Resolution Fund arising from an addendum made in May 2021 to the Contingent Capitalization Mechanism contract. In June 2018 a contract was entered into between NANI HOLDINGS, SGPS, S.A., LSF NANI INVESTMENTS S.à.r.l. and novobanco, 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. 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 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 Bank in the scope of its activity. All assets placed with related parties earn interest between 0% and 6,24% (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 novobanco in 2021 and 2020, are as follows: The guarantees relating to associated undertakings included in the table above mainly refer to guarantees provided. The costs with remunerations and other benefits granted to Key Management Personnel of novobanco in 2021 and 2020, are as follows: Short-term employment benefits Post-employment benefits Other long-term benefits (in thousands of Euros) Executive Board of Directors 31.12.2021 General and Supervisory Board 2 524 2 51 2 577 1 183 - 50 1 233 Executive Board of Directors 31.12.2020 General and Supervisory Board 2 676 3 33 2 712 993 - 8 1 001 Total 3 707 2 101 3 810 Total 3 669 3 41 3 713 In 2021 and 2020, the value of variable remuneration for the management bodies amounted to 1,600 thousand euros and 1,860 thousand euros, respectively, which relates to remuneration that does not constitute vested rights of the respective members until after the end of the restructuring period and is subject to deferral and verification of certain conditions. Additionally, in 2020, costs of 320 thousand euros were recorded as sign-on bonus resulting from the entry into office of a new executive director, and compensation for termination of office of three executive directors was recorded in the amount of 206 thousand euros. In 2021 and 2020, the value of variable remuneration for the management bodies amounted to 1,600 thousand euros and 1,860 thousand euros, respectively, which relates to remuneration that does not constitute vested rights of the respective members until after the end of the restructuring period and is subject to deferral and verification of certain conditions. Additionally, in 2020, costs of 320 thousand euros were recorded as sign-on bonus resulting from the entry into office of a new executive director, and compensation for termination of office of three executive directors was recorded in the amount of 206 thousand euros. Deposits (i) of members of the Executive Board of Directors and their direct relatives was Euro 1,080 thousand (31 December 2020: Euro 1,312 thousand); and (ii) of members of the General and Supervisory Board and their direct relatives was Euro 1,562 thousand (31 December 2020: Euro 1,293 thousand). As at 31 December 2021 and 2020, the value of loans and deposits of members of the Key Management Personnel of the novobanco was as follows: As at 31 December 2021 and 2020, the value of loans and deposits of members of the Key Management Personnel of the novobanco was as follows: Credit granted (i) to members of the Executive Board of Directors and their direct relatives was Euro 317 thousand (31 December 2020: Euro 331 thousand); and (ii) members of the General and Supervisory Board and their direct relatives had no credit liabilities (31 December 2020: no exposure). NOTA 37 – SECURITISATION OF ASSETS As at 31 December 2021 e 2020, the outstanding securitization transactions made by the Bank were as follows: Credit granted (i) to members of the Executive Board of Directors and their direct relatives was Euro 317 thousand (31 December 2020: Euro 331 thousand); and (ii) members of the General and Supervisory Board and their direct relatives had no credit liabilities (31 December 2020: no exposure). Deposits (i) of members of the Executive Board of Directors and their direct relatives was Euro 1,080 thousand (31 December 2020: Euro 1,312 thousand); and (ii) of members of the General and Supervisory Board and their direct relatives was Euro 1,562 thousand (31 December 2020: Euro 1,293 thousand). 400 80 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The main characteristics of these operations, as at 31 December 2021 and 2020, may be analyzed as follows: The main characteristics of these operations, as at 31 December 2021 and 2020, may be analyzed as follows: The main characteristics of these operations, as at 31 December 2021 and 2020, may be analyzed as follows: NOTA 37 – SECURITISATION OF ASSETS NOTA 37 – SECURITISATION OF ASSETS As at 31 December 2021 e 2020, the outstanding securitization transactions made by the Bank were as follows: As at 31 December 2021 e 2020, the outstanding securitization transactions made by the Bank were as follows: Issue Issue Start date Start date Original amount Original amount Current amount Current amount 31.12.2021 31.12.2021 31.12.2020 31.12.2020 (in thousands of Euros) (in thousands of Euros) Asset securitized Asset securitized Lusitano Mortgages No.4 plc Lusitano Mortgages No.4 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.7 plc Lusitano Mortgages No.7 plc September 2005 September 2005 September 2006 September 2006 July 2007 July 2007 September 2008 September 2008 1 200 000 1 200 000 1 400 000 1 400 000 1 100 000 1 100 000 1 900 000 1 900 000 246 943 246 943 373 147 373 147 355 513 355 513 907 327 907 327 280 051 Mortgage loan (general regime) 280 051 Mortgage loan (general regime) 417 854 Mortgage loan (general regime) 417 854 Mortgage loan (general regime) 396 083 Mortgage loan (general regime) 396 083 Mortgage loan (general regime) 1 003 303 Mortgage loan (general regime) 1 003 303 Mortgage loan (general regime) Current nominal Current value nominal value Interest held by Group Interest held (Nominal by Group value) (Nominal value) 31.12.2021 31.12.2021 Interest held by Group Interest held (Book value) by Group (Book value) Maturity date Maturity date Initial rating of the bonds Current rating of the bonds Initial rating of the bonds Current rating of the bonds Fitch Moody's S&P DBRS Fitch Moody's S&P DBRS Fitch Moody's Fitch Moody's Issue Issue Bonds issued Bonds issued Lusitano Mortgages No.4 plc Lusitano Mortgages No.4 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.7 plc Lusitano Mortgages No.7 plc Classe A Classe B Classe A Classe C Classe B Classe D Classe C Classe E Classe D Classe E Classe A Classe B Classe A Classe C Classe B Classe D Classe C Classe E Classe D Classe E Classe A Classe B Classe A Classe C Classe B Classe D Classe C Classe E Classe D Classe F Classe E Classe F Classe A Classe B Classe A Classe C Classe B Classe D Classe C Classe D Initial nominal Initial value nominal value 1 134 000 22 800 1 134 000 19 200 22 800 24 000 19 200 10 200 24 000 10 200 1 323 000 26 600 1 323 000 22 400 26 600 28 000 22 400 11 900 28 000 11 900 943 250 65 450 943 250 41 800 65 450 17 600 41 800 31 900 17 600 22 000 31 900 22 000 1 425 000 294 500 1 425 000 180 500 294 500 57 000 180 500 57 000 189 071 12 515 189 071 10 539 12 515 13 174 10 539 5 100 13 174 5 100 277 689 22 729 277 689 19 141 22 729 23 926 19 141 11 301 23 926 11 301 189 723 65 450 189 723 41 800 65 450 17 600 41 800 31 900 17 600 22 000 31 900 22 000 437 435 294 500 437 435 180 500 294 500 57 000 180 500 57 000 - - - - - - - - - - - - - - - - - - - - 157 956 63 950 157 956 41 800 63 950 17 600 41 800 31 900 17 600 - 31 900 - 437 434 294 500 437 434 180 500 294 500 - 180 500 - Issue Issue Bonds issued Bonds issued Initial nominal Initial value nominal value Current nominal Current value nominal value Interest held by Group Interest held (Nominal by Group value) (Nominal value) Lusitano Mortgages No.4 plc Lusitano Mortgages No.4 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.5 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.6 plc Lusitano Mortgages No.7 plc Lusitano Mortgages No.7 plc Classe A Classe B Classe A Classe C Classe B Classe D Classe C Classe E Classe D Classe E Classe A Classe B Classe A Classe C Classe B Classe D Classe C Classe E Classe D Classe E Classe A Classe B Classe A Classe C Classe B Classe D Classe C Classe E Classe D Classe F Classe E Classe F Classe A Classe B Classe A Classe C Classe B Classe D Classe C Classe D 1 134 000 22 800 1 134 000 19 200 22 800 24 000 19 200 10 200 24 000 10 200 1 323 000 26 600 1 323 000 22 400 26 600 28 000 22 400 11 900 28 000 11 900 943 250 65 450 943 250 41 800 65 450 17 600 41 800 31 900 17 600 22 000 31 900 22 000 1 425 000 294 500 1 425 000 180 500 294 500 57 000 180 500 57 000 214 891 14 224 214 891 11 978 14 224 14 973 11 978 5 100 14 973 5 100 311 465 25 494 311 465 21 469 25 494 26 836 21 469 11 900 26 836 11 900 235 906 65 450 235 906 41 800 65 450 17 600 41 800 31 900 17 600 22 000 31 900 22 000 528 003 294 500 528 003 180 500 294 500 57 000 180 500 57 000 - - - - - - - - - - - - - - - - - - - - 188 337 63 950 188 337 41 800 63 950 17 600 41 800 31 900 17 600 - 31 900 - 528 003 294 500 528 003 180 500 294 500 - 180 500 - (in thousands of Euros) (in thousands of Euros) S&P AA A- AA BBB- A- B- BBB- - B- - AA AA AA BBB AA B BBB - B - A- A- A- A- A- B A- D B - D - AA A AA - A - - - DBRS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - AAA - AAA - - - - - - - - - - - - - - - - - - - - - - - - - 152 431 61 124 152 431 33 936 61 124 12 388 33 936 8 568 12 388 - 8 568 - 409 580 266 902 409 580 121 349 266 902 - 121 349 - 31.12.2020 31.12.2020 Interest held by Group Interest held (Book value) by Group (Book value) - - - - - - - - - - - - - - - - - - - - 180 754 52 775 180 754 32 562 52 775 11 906 32 562 8 458 11 906 - 8 458 - 488 778 265 146 488 778 116 051 265 146 - 116 051 - December 2048 AAA December 2048 AA December 2048 AAA December 2048 A+ December 2048 AA December 2048 BBB+ December 2048 A+ December 2048 NA December 2048 BBB+ December 2048 NA December 2059 AAA December 2059 AA December 2059 AAA December 2059 A December 2059 AA December 2059 BBB+ December 2059 A December 2059 N/A December 2059 BBB+ December 2059 N/A March 2060 AAA March 2060 AA March 2060 AAA March 2060 A March 2060 AA March 2060 BBB March 2060 A March 2060 BB March 2060 BBB March 2060 - March 2060 BB March 2060 - October 2064 - October 2064 - October 2064 - October 2064 - October 2064 - October 2064 - October 2064 - October 2064 - December 2048 AAA December 2048 AA December 2048 AAA December 2048 A+ December 2048 AA December 2048 BBB+ December 2048 A+ December 2048 NA December 2048 BBB+ December 2048 NA December 2059 AAA December 2059 AA December 2059 AAA December 2059 A December 2059 AA December 2059 BBB+ December 2059 A December 2059 N/A December 2059 BBB+ December 2059 N/A March 2060 AAA March 2060 AA March 2060 AAA March 2060 A March 2060 AA March 2060 BBB March 2060 A March 2060 BB March 2060 BBB March 2060 - March 2060 BB March 2060 - October 2064 - October 2064 - October 2064 - October 2064 - October 2064 - October 2064 - October 2064 - October 2064 - Aaa Aa2 Aaa A1 Aa2 Baa1 A1 - Baa1 - Aaa Aa2 Aaa A1 Aa2 Baa2 A1 - Baa2 - Aaa Aa3 Aaa A3 Aa3 Baa3 A3 - Baa3 - - - - - - - - - - - Aaa Aa2 Aaa A1 Aa2 Baa1 A1 - Baa1 - Aaa Aa2 Aaa A1 Aa2 Baa2 A1 - Baa2 - Aaa Aa3 Aaa A3 Aa3 Baa3 A3 - Baa3 - - - - - - - - - - - S&P AAA AA AAA A+ AA BBB- A+ NA BBB- NA AAA AA AAA A AA BBB A N/A BBB N/A AAA AA AAA A AA BBB A BB BBB - BB - AAA BBB- AAA - BBB- - - - DBRS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - AAA - AAA - - - - - S&P AAA AA AAA A+ AA BBB- A+ NA BBB- NA AAA AA AAA A AA BBB A N/A BBB N/A AAA AA AAA A AA BBB A BB BBB - BB - AAA BBB- AAA - BBB- - - - DBRS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - AAA - AAA - - - - - A+ BBB+ A+ BB+ BBB+ CCC BB+ - CCC - A BBB- A B BBB- CC B - CC - AA A AA BB- A CCC BB- CC CCC - CC - - - - - - - - - BB BB BB BB BB CCC BB - CCC - BB BB BB B BB CC B - CC - A BBB- A B BBB- CCC B CC CCC - CC - - - - - - - - - Aa2 A2 Aa2 Ba1 A2 Caa1 Ba1 - Caa1 - Aa2 Baa2 Aa2 Ba3 Baa2 Caa3 Ba3 - Caa3 - Aa2 Aa2 Aa2 A3 Aa2 B3 A3 - B3 - - - - - - - - - - - Aa3 Baa1 Aa3 Ba3 Baa1 Caa3 Ba3 - Caa3 - A1 Baa3 A1 B3 Baa3 Ca B3 - Ca - Aa3 Baa1 Aa3 Ba3 Baa1 Caa3 Ba3 - Caa3 - - - - - - - - - - - (in thousands of Euros) (in thousands of Euros) Maturity date Maturity date Initial rating of the bonds Current rating of the bonds Initial rating of the bonds Current rating of the bonds Fitch Moody's S&P DBRS Fitch Moody's S&P DBRS Fitch Moody's Fitch Moody's S&P AA BB+ AA B+ BB+ B- B+ - B- - AA A AA BBB A B BBB - B - A- A- A- BBB+ A- CCC BBB+ D CCC - D - AA BBB AA - BBB - - - DBRS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - AAA - AAA - - - - - 81 81 401 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes NOTA 38 – 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. 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 an additional adjustment to its fair value, as well as a result of additional internal or external valuations. 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 observations 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. 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 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. Additionally, and for the major assets held by the real estate investment funds, and according to an annual work plan previously approved by the Executive Board of Directors, a process of challenge to their valuations is carried out, consisting of a detailed technical analysis of the main assumptions considered in the valuations. This process may lead to the need of new valuations as well as to adjustments to the fair value of those assets. In the specific case of the Restructuring Funds (“Assessed Assets”), their assessment was carried out during the year 2020 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 novobanco 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 402 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesbalances 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. 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 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 balances would normally be valued using the cost approach, with potential adjustments based on the market, and the consideration value-based assumptions considered were the average room rate, the occupancy rate, the GOP margin, the EBITDA margin, the of discounts and premiums, normally assessed using market data and benchmarks. 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 Underlying assets are mainly divided into Non-Real Estate assets and Real Estate assets (which can be subdivided into Hotels and in the valuation of real estate assets was determined from asset to asset (total of 149 major assets subdivided into a total of more Other Real Estate assets). For Non-Real Estate Assets, the Appraiser considered the Market approach based essentially on Market than 1,000 assets), depending on the status of the asset, the asset's historical performance, location and market competitors. 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 With regards to information on quantitative indicators underlying the fair value measurements of the Restructuring Funds, the following Capex needs and the discount rate. In relation to Other Real Estate Assets, the main assumptions of value were sales prices, is presented: 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. Assumption Real Estate under development Agriculture properties Commercial Centres Real Estate Hotels 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. With regards to information on quantitative indicators underlying the fair value measurements of the Restructuring Funds, the following is presented: With regards to information on quantitative indicators underlying the fair value measurements of the Restructuring Funds, the following is presented: Bedroom average rate (€) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 145 207 177 497 51 95 Min Average Max Min Average Max Min Average Max Min Average Max Min Average Max Occupancy rate % Assumption 40% Hotels 58% 78% 54% Real Estate under 66% development 75% n.a. Real Estate n.a. n.a. Commercial Centres n.a. n.a. n.a. Agriculture properties n.a. n.a. €/square meter Min n.a. Average Max n.a. n.a. Min 30 Average Max 3 227 6 059 Bedroom average rate (€) 51 177 497 95 €/Ha n.a. n.a. n.a. n.a. Occupancy rate % 40% 58% 78% 54% 145 n.a. 66% 207 n.a. 75% Min 173 n.a. n.a. n.a. Average Max 2 024 4 610 Min Average Max Min 1 007 3 460 4 560 Average Max n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 3 954 23 088 77 296 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Discount rate €/square meter 7.5% 8.2% 10.6% n.a. n.a. n.a. €/Ha Valuation methodology Market approach n.a. Income approach n.a. n.a. 8.1% 12.1% 20.0% 6 059 3 227 30 5.0% 173 6.0% 2 024 7.0% 9.3% 4 610 1 007 9.7% 10.6% 4 560 3 460 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Market approach Income approach n.a. n.a. Market approach n.a. Income approach n.a. n.a. n.a. Market approach n.a. Income approach n.a. 3 954 Market approach 23 088 Income approach 77 296 Discount rate 7.5% 8.2% 10.6% 8.1% 12.1% 20.0% 5.0% 6.0% 7.0% 9.3% 9.7% 10.6% n.a. n.a. n.a. Notes: 1. All the above assumptions were calculated based on the average of the values considered by the exter nal evaluators per property assessed 2. The average presented was calculated on the property-weighted average in the sum of the value of the underlying assets per category Market approach Income approach Market approach Income approach Market approach Income approach Market approach Income approach Market approach Income approach Valuation methodology presented n.a. n.a. n.a. Notes: Notes: 3. Hotel - Includes hotels and aparthotels currently in operation (Hotels under development or projects are included under Real Estate under 1. All the above assumptions were calculated based on the average of the values considered by the exter nal evaluators per property assessed 2. The average presented was calculated on the property-weighted average in the sum of the value of the underlying assets per category Development together with their respective property) are included under Real Estate under Development together with their respective property) 3. Hotel - Includes hotels and aparthotels currently in operation (Hotels under development or projects 1. All the above assumptions were calculated based on the average of the values considered by the 4. €/m2 consider the gross construction area presented external evaluators per property assessed 3. Hotel - Includes hotels and aparthotels currently in operation (Hotels under development or projects are included under Real Estate under 4. €/m2 consider the gross construction area 2. The average presented was calculated on the property-weighted average in the sum of the value In addition, additional assumptions considered in the fair value measurement of the financial investments held in the restructuring funds are presented below: 4. €/m2 consider the gross construction area Development together with their respective property) of the underlying assets per category presented In addition, additional assumptions considered in the fair value measurement of the financial investments held in the restructuring funds are presented below: Type of Fund Type of Fund In addition, additional assumptions considered in the fair value measurement of the financial investments held in the restructuring funds are presented below: Discount based on P/BV observable market data Discount based on P/BV observable market data Real estate and Tourism Real estate and Tourism/Other Real estate and Tourism Other Real estate and Tourism/Other 14.5% 13.6% 14.5% 13.6% 10.6% In 2021, and as had been done in 2020, the observable movement in terms of the evolution of market prices of funds, companies and assets considered comparable to the underlying assets was considered in order to obtain an objective estimate of the evolution In 2021, and as had been done in 2020, the observable movement in terms of the evolution of market prices of funds, companies of the fair value of these assets between December 31, 2020 and December 31, 2021. and assets considered comparable to the underlying assets was considered in order to obtain an objective estimate of the evolution of the fair value of these assets between December 31, 2020 and December 31, 2021. Other 10.6%     Derivative instruments: if these are traded on organized markets, the valuations are observable in the market, otherwise these are 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: 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, Foreign currency options: are valued through the front office system, which considers models such as Garman-Kohlhagen, Binomial, Black & Scholes, Levy or Vanna-Volga; 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, 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 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 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; 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  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; asset and are therefore valued using market credit spreads;   Futures and Options: the Bank trades these products on an organized market, but also has the possibility to trade them on 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 OTC market. For futures and options traded on an organized market, the valuations are observable in the market, with 83 83 403 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In 2021, and as had been done in 2020, the observable movement in terms of the evolution of market prices of funds, companies and assets considered comparable to the underlying assets was considered in order to obtain an objective estimate of the evolution of the fair value of these assets between December 31, 2020 and December 31, 2021. 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; • 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 time (binominal) or continuous time (Black & Scholes) models may be used. 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. The Bank 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. The validation of the valuation of financial instruments is performed by an independent area, which validates the models used and the prices assigned. More specifically, this area is responsible for carrying out independent verification of the prices for mark-to-market valuations, and for mark-to-model valuations, it validates the models used and any changes thereto, whenever they exist. For prices provided by external entities, the validation performed consists in confirming the use of correct prices. The fair value of the financial assets and liabilities and non-financial assets of the Bank measured at fair value is as follows: 404 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesthe 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. 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. The Bank 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. The validation of the valuation of financial instruments is performed by an independent area, which validates the models used and the prices assigned. More specifically, this area is responsible for carrying out independent verification of the prices for mark-to- market valuations, and for mark-to-model valuations, it validates the models used and any changes thereto, whenever they exist. For prices provided by external entities, the validation performed consists in confirming the use of correct prices. The fair value of the financial assets and liabilities and non-financial assets of the Bank measured at fair value is as follows: 31 December 2021 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 Assets at fair value Financial liabilities held for trading Derivatives held for trading Exchange rate contracts Interest rate contracts Credit default contracts Other Derivatives - Hedge Accounting Loans Liabilities at fair value (in thousands of Euros) At Fair Value Quoted market prices Valuation models based on observable market parameters (Stage 1) (Stage 2) Valuation models based on unobservable market parameters (Stage 3) Total Fair Value 114 465 114 465 114 465 - - - - 187 621 52 532 135 089 - 7 091 159 5 685 067 1 398 899 7 193 - - 7 393 245 - - - - - - - - - 263 244 - - 263 244 29 172 225 196 8 876 26 309 50 - 26 259 6 624 - - 6 624 20 150 20 150 - - - - - - - 2 036 378 506 645 290 274 1 239 459 35 725 - - 35 725 - - 377 709 114 465 114 465 263 244 29 172 225 196 8 876 2 250 308 559 227 425 363 1 265 718 7 133 508 5 685 067 1 398 899 49 542 20 150 20 150 316 327 2 072 103 9 781 675 303 562 303 562 34 690 265 939 574 2 359 44 460 44 460 1 950 1 950 - 1 950 - - - - 305 512 305 512 34 690 267 889 574 2 359 44 460 44 460 348 022 1 950 349 972 84 405 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 Assets at fair value 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 (in thousands of Euros) At Fair Value Quoted market prices 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 - - 8 250 128 - - - - - - - - - 388 311 - - 388 311 57 273 319 662 11 376 44 694 50 - 44 644 7 131 - - 7 131 13 606 13 606 - - - - - - - 655 327 267 016 267 016 388 311 57 273 319 662 11 376 2 188 519 2 445 605 564 829 273 563 1 350 127 35 733 - - 35 733 - - 647 082 403 752 1 394 771 7 813 584 6 406 465 1 352 759 54 360 13 606 13 606 453 742 2 224 252 10 928 122 552 185 552 185 45 450 501 419 16 5 300 72 543 72 543 624 728 2 158 2 158 - 2 158 - - - - 2 158 554 343 554 343 45 450 503 577 16 5 300 72 543 72 543 626 886 The changes occurred in financial assets and financial liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2021 and 2020, can be analyzed as follows: Financial assets held for trading Derivatives held for trading Economic hedging derivatives Financial assets mandatorily at fair value through profit or loss 31.12.2021 Financial assets at fair value through other comprehensive income Total assets Financial liabilities held for trading Derivatives held for trading Total liabilities (in thousands of Euros) Balance as at 31 December 2020 Acquisitions Attainment of maturity Settlements Transfers in Changes in value - - - - - - - - - - - - - - 2 188 519 81 650 ( 138 500) ( 122 392) 2 751 24 350 2 036 378 35 733 2 224 252 2 158 2 158 556 - ( 4 246) 2 300 1 382 82 206 ( 138 500) ( 126 638) 5 051 25 732 24 117 - ( 24 117) - ( 208) 24 117 - ( 24 117) - ( 208) 406 Balance as at 31 December 2021 35 725 2 072 103 1 950 1 950 85 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 Bonds issued by other entities Shares Other variable income securities Bonds issued by public entities Bonds issued by other entities Shares Derivatives - Hedge Accounting Interest rate contracts Assets at fair value 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 At Fair Value Valuation models (in thousands of Euros) Quoted market prices parameters Valuation models based based on on observable market unobservable Total Fair Value (Stage 1) (Stage 2) market parameters (Stage 3) 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 13 606 552 185 552 185 45 450 501 419 16 5 300 72 543 72 543 624 728 - - - - - - - - - - - 564 829 273 563 1 350 127 35 733 35 733 2 158 2 158 - 2 158 - - - - 2 158 655 327 267 016 267 016 388 311 57 273 319 662 11 376 647 082 403 752 1 394 771 7 813 584 6 406 465 1 352 759 54 360 13 606 13 606 554 343 554 343 45 450 503 577 16 5 300 72 543 72 543 626 886 8 250 128 453 742 2 224 252 10 928 122 Financial assets mandatorily at fair value through profit or loss 2 188 519 2 445 605 Financial assets at fair value through other comprehensive income The changes occurred in financial assets and financial liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2021 and 2020, can be analyzed as follows: The changes occurred in financial assets and financial liabilities valued based on non-observable market information (level 3 of the fair value hierarchy) during the financial years of 2021 and 2020, can be analyzed as follows: Financial assets held for trading Derivatives held for trading Economic hedging derivatives Financial assets mandatorily at fair value through profit or loss 31.12.2021 Financial assets at fair value through other comprehensive income Total assets Financial liabilities held for trading Derivatives held for trading Total liabilities (in thousands of Euros) - - - - - - - - - - - - - - 2 188 519 81 650 ( 138 500) ( 122 392) 2 751 24 350 2 036 378 35 733 2 224 252 2 158 2 158 556 - ( 4 246) 2 300 1 382 82 206 ( 138 500) ( 126 638) 5 051 25 732 24 117 - ( 24 117) - ( 208) 24 117 - ( 24 117) - ( 208) 35 725 2 072 103 1 950 1 950 Balance as at 31 December 2020 Acquisitions Attainment of maturity Settlements Transfers in Changes in value Balance as at 31 December 2021 Financial assets held for trading Derivatives held for trading Economic hedging derivatives Financial assets mandatorily at fair value through profit or loss 191 - - - - - ( 191) - 74 093 - - ( 80 489) - - 6 396 - 2 875 070 31 393 ( 162 380) ( 1 583) - ( 35 386) ( 518 595) 2 188 519 (in thousands of Euros) 31.12.2020 Financial assets at fair value through other comprehensive income Total assets Financial liabilities held for trading Derivatives held for trading Total liabilities 34 600 2 983 954 1 837 1 837 5 048 - ( 21 317) 9 738 ( 1 250) 8 914 36 441 ( 162 380) ( 103 389) 9 738 ( 36 636) ( 503 476) 35 733 2 224 252 - - - - - 321 2 158 - - - - - 321 2 158 85 Balance as at 31 December 2019 Acquisitions Attainment of maturity Settlements Transfers in Transfers out Changes in value Balance as at 31 December 2020 In the years 2021 and 2020 there were no significant transfers of value between the different levels of the fair value hierarchy. 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 on 31 December 2021 and 2020 were as follows: 407 86 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In the years 2021 and 2020 there were no significant transfers of value between the different levels of the fair value hierarchy. Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value hierarchy are recorded In the years 2021 and 2020 there were no significant transfers of value between the different levels of the fair value hierarchy. in profit or loss or revaluation reserves in accordance with the respective asset accounting policy. The amounts calculated on 31 December 2021 and 2020 were as follows: Potential gains and losses on financial instruments and investment property classified at level 3 of the fair value hierarchy are recorded (in thousands of Euros) in profit or loss or revaluation reserves in accordance with the respective asset accounting policy. The amounts calculated on 31 31.12.2021 December 2021 and 2020 were as follows: 31.12.2020 Recognised in reserves Recognised in - reserves Recognised in the income 31.12.2021 statement Recognised in 144 the income statement Total Recognised in reserves 144 Total Recognised in - reserves Recognised in the income 31.12.2020 statement Recognised in 23 605 the income statement ( 68 722) (in thousands of Euros) Total 23 605 Total Derivatives held for trading - Risk Management Derivatives Financial assets mandatorily at fair value through profit or Derivatives held for trading loss Risk Management Derivatives Financial assets at fair value through other Financial assets mandatorily at fair value through profit or comprehensive income 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 the impact of changing the main variables used in their valuation, when applicable: ( 68 722) - ( 514 186) ( 559 303) - ( 68 722) 9 632 ( 514 186) ( 549 671) 9 632 ( 24 117) - 29 501 5 528 - ( 24 117) 9 122 29 501 14 650 9 122 - 9 632 - 9 632 9 632 - 9 122 - 9 122 9 122 ( 514 186) 23 605 ( 514 186) 23 605 ( 559 303) ( 549 671) ( 68 722) ( 24 117) ( 24 117) 29 501 144 29 501 144 14 650 9 122 9 632 5 528 - - - - - 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 methods used and the impact of changing the main variables used in their valuation, when applicable: Unfavorable scenario Favorable scenario Assets classified under level 3 (in millions of Euros) 31.12.2021 Valuation Model Variable analysed Carrying book value 31.12.2021 2 036.4 Carrying book value Financial assets mandatorily at fair value through profit or loss Assets classified under level 3 Obligations of other issuers Financial assets mandatorily at fair value through profit or loss Shares Obligations of other issuers Shares Other variable income securities Other variable income securities Financial assets at fair value through other comprehensive income Shares Financial assets at fair value through other comprehensive income Total Valuation Model Variable analysed Discounted cash flow model Discounted cash flow model Specific Impairment Discount rate Valuation of the management Discounted cash flow model company (adjusted) Discounted cash flow model Others Valuation of the management Valuation of the management company (adjusted) company (adjusted) Others Valuation of the management company Valuation of the management company (adjusted) Valuation of the management company Discounted cash flows Other Specific Impairment (b) Discount rate (a) (b) (b) (a) (c) (b) (c) Renewable Energy Tariff (a) Change Impact Change (in millions of Euros) Impact Unfavorable scenario ( 37.6) Favorable scenario 58.7 Change -50% -50% 506.6 2.4 2 036.4 504.3 (-) 100 bps 290.3 506.6 2.4 287.5 504.3 (-) 100 bps 2.8 290.3 1 239.5 287.5 236.5 2.8 1 239.5 1 002.9 236.5 35.7 1 002.9 35.7 9.6 35.7 26.1 Impact Change Impact +50% (+) 100 bps +50% (+) 100 bps ( 2.4) ( 37.6) ( 35.2) - ( 2.4) - ( 35.2) - - - - - - - - - ( 1.7) - - ( 1.7) ( 1.7) - 4.8 58.7 54.0 - 4.8 - 54.0 - - - - - - - - - 0.1 - - 0.1 0.1 - Shares (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. 58.8 - 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 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 + 5.8% and -5.7% in the fair value of the restructuring funds. 58.8 Total (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 (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. quotation by the entity Renewable Energy Tariff (a) Discounted cash flows Other 2 072.1 35.7 9.6 26.1 ( 39.3) - ( 1.7) - 2 072.1 ( 39.3) (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 + 5.8% and -5.7% in the fair value of the restructuring funds. (in millions of Euros) (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 31.12.2020 -50% Impact Change Change (in millions of Euros) Change Impact 2 188.5 Carrying book value Unfavorable scenario Favorable scenario Unfavorable scenario ( 56.4) Favorable scenario 68.9 Carrying book value 31.12.2020 564.8 77.9 2 188.5 486.9 (-) 100 bps Assets classified under level 3 Valuation Model Variable analysed Financial assets mandatorily at fair value through profit or loss Assets classified under level 3 Obligations of other issuers Financial assets mandatorily at fair value through profit or loss Obligations of other issuers Shares Other variable income securities Shares Other variable income securities Financial assets at fair value through other comprehensive income Shares comprehensive income Total Shares Financial assets at fair value through other Valuation Model Variable analysed Discounted cash flow model Discounted cash flow model Valuation of the management company (adjusted) Discounted cash flow model Discounted cash flow model Valuation of the management Valuation of the management company (adjusted) company (adjusted) Valuation of the management company Valuation of the management company (adjusted) Valuation of the management company Other Other Specific Impairment Discount rate (b) (b) (b) (c) (b) (c) (a) (a) Discounted cash flows Renewable Energy Tariff Specific Impairment Discount rate -50% 486.9 (-) 100 bps ( 22.2) - ( 34.3) +50% (+) 100 bps (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. Discounted cash flows Renewable Energy Tariff (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. Total (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 (a) No sensitivity analysis was 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% 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 quotation by the entity 408 Impact Change Impact ( 22.2) ( 56.4) ( 34.3) +50% (+) 100 bps - - - - - - ( 1.7) ( 1.7) ( 1.7) - ( 58.2) - ( 1.7) - ( 58.2) 12.2 68.9 56.7 12.2 - 56.7 - - - - - 0.1 - 0.1 - 0.1 69.0 - 0.1 - 69.0 87 87 273.6 564.8 77.9 1 350.1 225.3 273.6 1 350.1 1 124.9 225.3 35.7 1 124.9 35.7 9.6 26.1 35.7 2 224.3 35.7 9.6 26.1 2 224.3 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes In the years 2021 and 2020 there were no significant transfers of value between the different levels of the fair value hierarchy. 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 on 31 December 2021 and 2020 were as follows: Recognised in reserves Total Recognised in reserves 31.12.2021 Recognised in the income statement (in thousands of Euros) 31.12.2020 Recognised in the income statement Total 23 605 ( 68 722) 23 605 ( 68 722) Derivatives held for trading Risk Management Derivatives Financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income 144 ( 24 117) 144 ( 24 117) - - - - - - 29 501 29 501 ( 514 186) ( 514 186) 9 122 - 9 122 9 632 - 9 632 9 122 5 528 14 650 9 632 ( 559 303) ( 549 671) 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: Assets classified under level 3 Valuation Model Variable analysed Carrying book Unfavorable scenario Favorable scenario value Change Impact Change Impact 31.12.2021 (in millions of Euros) Discounted cash flow model Specific Impairment -50% Discounted cash flow model Discount rate 504.3 (-) 100 bps ( 2.4) ( 35.2) +50% (+) 100 bps Financial assets mandatorily at fair value through profit or loss Obligations of other issuers Shares Other variable income securities Financial assets at fair value through other comprehensive income Shares Total (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. Other 2 036.4 506.6 2.4 290.3 287.5 2.8 1 239.5 236.5 1 002.9 35.7 35.7 9.6 26.1 2 072.1 ( 37.6) - - - - - - - - ( 1.7) ( 1.7) ( 39.3) (b) (a) (b) (c) (a) 58.7 4.8 54.0 - - - - - - 0.1 0.1 - - 58.8 Valuation of the management company (adjusted) Others Valuation of the management company (adjusted) Valuation of the management company Discounted cash flows Renewable Energy Tariff (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 + 5.8% and -5.7% 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 quotation by the entity Assets classified under level 3 Valuation Model Variable analysed Financial assets mandatorily at fair value through profit or loss Obligations of other issuers Shares Other variable income securities Discounted cash flow model Discounted cash flow model Valuation of the management company (adjusted) Valuation of the management company (adjusted) Valuation of the management company Specific Impairment Discount rate (b) (b) (c) Financial assets at fair value through other comprehensive income Shares Total (a) No sensitivity analysis was carried out for these categories as these include securities of an individually immaterial value. Discounted cash flows Other Renewable Energy Tariff (a) 31.12.2020 Carrying book value Unfavorable scenario Favorable scenario Change Impact Change Impact (in millions of Euros) 2 188.5 564.8 77.9 -50% 486.9 (-) 100 bps ( 56.4) ( 22.2) ( 34.3) +50% (+) 100 bps 273.6 1 350.1 225.3 1 124.9 35.7 35.7 9.6 26.1 2 224.3 - - - ( 1.7) - ( 1.7) - ( 58.2) 68.9 12.2 56.7 - - - 0.1 - 0.1 - 69.0 (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. (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 The main parameters used, at 31 December 2021 and 2020, in the valuation models were as follows: 87 Interest rate curves Interest rate curves The short-term rates presented reflect benchmark interest rates for the money market, whilst those 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: presented for the long-term represent the interest rate swap quotations for the respective periods: The main parameters used, at 31 December 2021 and 2020, in the valuation models were as follows: 31.12.2021 31.12.2020 EUR USD GBP EUR USD GBP (%) -0.5740 -0.5830 -0.5720 -0.5460 -0.5235 -0.5010 -0.1450 0.0160 0.1300 0.3030 0.4920 0.5480 0.5240 0.4790 0.0644 0.1013 0.2091 0.3388 0.4603 0.5831 1.1495 1.3460 1.4530 1.5610 1.6800 1.7708 1.7316 1.7160 0.2100 0.2400 0.3900 0.6100 0.6700 0.8246 1.2972 1.2910 1.2373 1.2095 1.1817 1.1518 1.1264 1.1030 -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 Overnight 1 month 3 months 6 months 9 months 1 year 3 years 5 years 7 years 10 years 15 years 20 years 25 years 30 years Credit Spreads The credit spreads used by the Bank 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: 409 Index Series 1 year 3 years 5 years 7 years 10 years (basis points) 31 December 2021 CDX USD Main iTraxx Eur Main iTraxx Eur Senior Financial 31 December 2020 CDX USD Main iTraxx Eur Main iTraxx Eur Senior Financial 37 36 36 35 34 34 0.00 10.43 0.00 18.95 0.00 0.00 0.00 26.82 0.00 30.35 27.66 0.00 49.57 47.76 54.86 49.98 47.95 59.06 68.55 66.71 0.00 70.70 66.24 0.00 0.00 87.01 85.86 90.52 86.37 89.30 Interest rate volatility The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: 31.12.2021 USD 73.74 59.15 56.88 54.59 50.93 - GBP 76.14 63.57 71.17 79.98 88.08 - EUR 23.16 55.79 65.81 68.34 68.98 66.28 (%) 31.12.2020 USD GBP 118.44 91.12 84.06 65.41 62.77 - - - - - - - EUR 15.39 21.33 28.38 34.60 41.18 46.54 1 year 3 years 5 years 7 years 10 years 15 years 88 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The main parameters used, at 31 December 2021 and 2020, in the valuation models were as follows: The main parameters used, at 31 December 2021 and 2020, 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: 31.12.2021 31.12.2020 EUR 31.12.2021 USD GBP EUR 31.12.2020 USD GBP USD 0.0644 GBP 0.2100 USD 0.0776 GBP 0.1000 Overnight Overnight 1 month 3 months 1 month 6 months 3 months 9 months 6 months 9 months 1 year 3 years 1 year 3 years 5 years 5 years 7 years 7 years 10 years 10 years 15 years 15 years 20 years 20 years 25 years 25 years 30 years 30 years EUR -0.5740 -0.5830 -0.5740 -0.5720 -0.5830 -0.5460 -0.5720 -0.5235 -0.5460 -0.5235 -0.5010 -0.5010 -0.1450 -0.1450 0.0160 0.0160 0.1300 0.1300 0.3030 0.3030 0.4920 0.4920 0.5480 0.5480 0.5240 0.5240 0.4790 0.4790 0.1013 0.0644 0.2091 0.1013 0.2091 0.3388 0.3388 0.4603 0.4603 0.5831 0.5831 1.1495 1.1495 1.3460 1.3460 1.4530 1.4530 1.5610 1.5610 1.6800 1.6800 1.7708 1.7708 1.7316 1.7316 1.7160 1.7160 0.2400 0.2100 0.3900 0.2400 0.3900 0.6100 0.6100 0.6700 0.6700 0.8246 0.8246 1.2972 1.2972 1.2910 1.2910 1.2373 1.2373 1.2095 1.2095 1.1817 1.1817 1.1518 1.1518 1.1264 1.1264 1.1030 1.1030 EUR -0.5780 -0.5540 -0.5780 -0.5450 -0.5540 -0.5450 -0.5260 -0.5260 -0.5125 -0.5125 -0.4990 -0.4990 -0.5080 -0.5080 -0.4575 -0.4575 -0.3845 -0.3845 -0.2650 -0.2650 -0.0720 -0.0720 0.0090 0.0090 0.0090 0.0090 -0.0250 -0.0250 0.1439 0.0776 0.1439 0.2384 0.2384 0.2576 0.2576 0.2995 0.2995 0.3419 0.3419 0.2370 0.2370 0.4275 0.4275 0.6478 0.6478 0.9170 0.9170 1.1835 1.1835 1.3033 1.3033 1.3680 1.3680 1.3998 1.3998 (%) (%) 0.0900 0.1000 0.0900 0.0900 0.0900 0.1450 0.1450 0.1950 -0.0125 0.1950 -0.0125 0.0913 0.0913 0.1926 0.1926 0.2799 0.2799 0.3966 0.3966 0.5200 0.5200 0.5730 0.5730 0.5805 0.5805 0.5741 0.5741 Credit Spreads The credit spreads used by the Bank 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 The credit spreads used by the Bank in the valuation of credit derivatives are those disclosed on a daily basis by Markit, representing Credit Spreads observations pertaining to around 85 renowned international financial entities. The evolution of the main indexes, understood as being The credit spreads used by the Bank in the valuation of credit derivatives are those disclosed on a daily basis by Markit, representing representative of the credit spread behaviour in the market during the year, is presented as follows: 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) Index Index 31 December 2021 CDX USD Main 31 December 2021 CDX USD Main iTraxx Eur Main iTraxx Eur Main iTraxx Eur Senior Financial iTraxx Eur Senior Financial 31 December 2020 CDX USD Main 31 December 2020 CDX USD Main iTraxx Eur Main iTraxx Eur Main iTraxx Eur Senior Financial iTraxx Eur Senior Financial Series Series 1 year 1 year 3 years 3 years 5 years 5 years 7 years 7 years (basis points) 10 years 10 years 37 37 36 36 36 36 35 35 34 34 34 34 0.00 0.00 10.43 10.43 0.00 0.00 18.95 18.95 0.00 0.00 0.00 0.00 0.00 0.00 26.82 26.82 0.00 0.00 30.35 30.35 27.66 27.66 0.00 0.00 49.57 49.57 47.76 47.76 54.86 54.86 49.98 49.98 47.95 47.95 59.06 59.06 68.55 68.55 66.71 66.71 0.00 0.00 70.70 70.70 66.24 66.24 0.00 0.00 0.00 0.00 87.01 87.01 85.86 85.86 90.52 90.52 86.37 86.37 89.30 89.30 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: Interest rate volatility The values presented below represent the implicit volatilities (at the money) used for the valuation of interest rate options: 1 year 1 year 3 years 3 years 5 years 5 years 7 years 7 years 10 years 10 years 15 years 15 years EUR EUR 23.16 23.16 55.79 55.79 65.81 65.81 68.34 68.34 68.98 68.98 66.28 66.28 31.12.2021 31.12.2021 USD USD 73.74 73.74 59.15 59.15 56.88 56.88 54.59 54.59 50.93 50.93 - - 31.12.2020 31.12.2020 USD USD 118.44 118.44 91.12 91.12 84.06 84.06 65.41 65.41 62.77 62.77 - - EUR EUR 15.39 15.39 21.33 21.33 28.38 28.38 34.60 34.60 41.18 41.18 46.54 46.54 (%) (%) GBP GBP - - - - - - - - - - - - GBP GBP 76.14 76.14 63.57 63.57 71.17 71.17 79.98 79.98 88.08 88.08 - - 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: 88 88 410 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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: Volatility (%) 31.12.2021 31.12.2020 Foreign exchange rate Foreign exchange 1.1326 EUR/USD 31.12.2021 rate EUR/GBP 0.8403 EUR/CHF 1.0331 1.1326 EUR/USD 9.9888 EUR/NOK 0.8403 EUR/GBP EUR/PLN 4.5969 1.0331 EUR/CHF 85.3004 EUR/RUB 9.9888 EUR/NOK USD/BRL a) 5.5713 EUR/PLN 4.5969 USD/TRY b) 85.3004 EUR/RUB 13.4500 USD/BRL a) 5.5713 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. 13.4500 1.2271 31.12.2020 0.8990 1.0802 1.2271 10.4703 0.8990 4.5597 1.0802 91.4671 10.4703 5.1940 4.5597 91.4671 7.4265 5.1940 7.4265 1 month 3 months 6 months 9 months Volatility (%) 1 year 1 month 3 months 6 months 9 months 5.15 5.13 4.33 5.15 9.01 5.13 5.43 4.33 7.51 9.01 15.91 5.43 7.51 77.79 15.91 5.38 5.63 4.63 5.38 9.18 5.63 5.60 4.63 8.07 9.18 16.24 5.60 8.07 60.35 16.24 5.55 6.05 4.90 5.55 9.20 6.05 5.79 4.90 8.71 9.20 16.59 5.79 8.71 49.71 16.59 5.57 6.25 4.98 5.57 9.18 6.25 5.85 4.98 9.29 9.18 17.19 5.85 9.29 45.58 17.19 77.79 60.35 49.71 45.58 1 year 5.58 6.39 4.95 5.58 9.18 6.39 5.83 4.95 9.58 9.18 17.79 5.83 9.58 41.29 17.79 41.29 Regarding foreign exchange rates, the Bank 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 Bank uses in its valuation models the spot rate observed in the market at the moment of the valuation. Regarding foreign exchange rates, the Bank 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 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: Historical volatility 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 31.12.2021 % Change 31.12.2021 % Change Quotation 31.12.2020 Quotation 31.12.2020 4 298 5 569 8 714 4 298 7 385 5 569 15 885 8 714 4 766 7 385 104 822 15 885 4 766 104 822 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 20.99% 13.70% 7.93% 20.99% 14.30% 13.70% 15.79% 7.93% 26.89% 14.30% -11.93% 15.79% 26.89% -11.93% 3 months 1 month Historical volatility 17.81 24.38 3 months 1 month 14.68 13.34 18.20 23.88 17.81 24.38 12.21 16.62 14.68 13.34 16.10 21.77 18.20 23.88 13.84 18.23 12.21 16.62 23.76 21.59 16.10 21.77 13.84 18.23 23.76 21.59 Implied Volatility Implied Volatility - - - - 11.96 - 13.76 - 12.53 11.96 24.48 13.76 12.53 24.48 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: (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 estimated based on the main methodologies and assumptions described below: Fair Value 31 December 2021 Cash, cash balances at central bank and other demand deposits Financial assets at amortised cost Debt securities 31 December 2021 Loans and advances to credit institutions Cash, cash balances at central bank and other demand deposits Loans and advances to customers Financial assets at amortised cost Debt securities Financial assets Loans and advances to credit institutions Loans and advances to customers Financial liabilities measured at amortised cost Deposits from Central Banks and other credit institutions Financial assets Due to customers Financial liabilities measured at amortised cost assets Deposits from Central Banks and other credit institutions Other financial liabilities Due to customers assets Other financial liabilities Financial liabilities Debt securities issued, subordinated debt and liabilities associated to transferred Financial liabilities Debt securities issued, subordinated debt and liabilities associated to transferred Assets / liabilities recorded at amortised cost Assets / liabilities recorded at amortised cost 5 674 461 2 893 829 186 089 5 674 461 21 897 382 2 893 829 30 651 761 186 089 21 897 382 11 497 829 30 651 761 26 997 858 1 479 066 11 497 829 371 609 26 997 858 40 346 362 1 479 066 371 609 40 346 362 Quoted market prices Valuation models based on observable market parameters Fair Value Valuation models based on unobservable market parameters Valuation models (Stage 3) based on (in thousands of Euros) Total fair value 411 (Stage 1) Quoted market prices Valuation models (Stage 2) based on observable market parameters (Stage 1) 1 065 084 - - - - - - - - - - - - 1 065 084 1 065 084 1 065 084 1 736 200 1 736 200 1 736 200 332 194 186 089 5 674 461 - 332 194 6 192 744 186 089 11 532 025 6 192 744 11 532 025 11 532 025 - - - - - - - unobservable market parameters Total fair value 5 674 461 (Stage 2) (Stage 3) - - - - - 1 729 846 22 263 293 1 729 846 23 993 139 22 263 293 23 993 139 26 997 858 44 451 - 371 609 26 997 858 27 413 918 44 451 371 609 5 674 461 3 127 124 186 089 5 674 461 22 263 293 3 127 124 31 250 967 186 089 22 263 293 11 532 025 31 250 967 26 997 858 1 780 651 11 532 025 371 609 26 997 858 40 682 143 1 780 651 371 609 89 89 1 736 200 11 532 025 27 413 918 40 682 143 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 rate EUR/USD EUR/GBP EUR/CHF EUR/NOK EUR/PLN EUR/RUB USD/BRL a) USD/TRY b) 31.12.2021 31.12.2020 1.1326 0.8403 1.0331 9.9888 4.5969 85.3004 5.5713 13.4500 1.2271 0.8990 1.0802 10.4703 4.5597 91.4671 5.1940 7.4265 a) Calculated based on EUR / USD and EUR / BRL exchange rates. b) Calculated based on EUR / USD and EUR / TRY exchange rates. Volatility (%) 1 month 3 months 6 months 9 months 1 year 5.15 5.13 4.33 9.01 5.43 7.51 15.91 77.79 5.38 5.63 4.63 9.18 5.60 8.07 16.24 60.35 5.55 6.05 4.90 9.20 5.79 8.71 16.59 49.71 5.57 6.25 4.98 9.18 5.85 9.29 17.19 45.58 5.58 6.39 4.95 9.18 5.83 9.58 17.79 41.29 Regarding foreign exchange rates, the Bank 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 indexes equity derivatives: Quotation Historical volatility 31.12.2021 31.12.2020 % Change 1 month 3 months Implied Volatility DJ Euro Stoxx 50 PSI 20 IBEX 35 FTSE 100 DAX S&P 500 BOVESPA 4 298 5 569 8 714 7 385 15 885 4 766 104 822 3 553 4 898 8 074 6 461 13 719 3 756 119 017 20.99% 13.70% 7.93% 14.30% 15.79% 26.89% -11.93% 24.38 13.34 23.88 16.62 21.77 18.23 21.59 17.81 14.68 18.20 12.21 16.10 13.84 23.76 - - - 11.96 13.76 12.53 24.48 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, having been estimated based on the main methodologies and assumptions described below: 31 December 2021 Cash, cash balances at central bank and other demand deposits Financial assets at amortised cost Debt securities Loans and advances to credit institutions Loans and advances to customers Fair Value (in thousands of Euros) Assets / liabilities recorded at amortised cost Quoted market prices Valuation models based on observable market parameters Valuation models based on unobservable market parameters Total fair value (Stage 1) (Stage 2) (Stage 3) 5 674 461 2 893 829 186 089 21 897 382 - 5 674 461 - 5 674 461 1 065 084 - - 332 194 186 089 - 1 729 846 - 22 263 293 3 127 124 186 089 22 263 293 Financial assets 30 651 761 1 065 084 6 192 744 23 993 139 31 250 967 Financial liabilities measured at amortised cost Deposits from Central Banks and other credit institutions Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities 11 497 829 26 997 858 1 479 066 371 609 - - 11 532 025 - 1 736 200 - - - - 26 997 858 44 451 371 609 11 532 025 26 997 858 1 780 651 371 609 Financial liabilities 40 346 362 1 736 200 11 532 025 27 413 918 40 682 143 Fair Value (in thousands of Euros) Assets / liabilities recorded at amortised cost Quoted market prices Valuation models based on observable market parameters Valuation models based on unobservable market parameters Total fair value 89 (Stage 1) (Stage 2) (Stage 3) 31 December 2020 Cash, cash balances at central bank and other demand deposits Financial assets at amortised cost Debt securities Loans and advances to credit institutions Loans and advances to customers Financial assets Financial liabilities measured at amortised cost Deposits from Central Banks and other credit institutions Due to customers Debt securities issued, subordinated debt and liabilities associated to transferred assets Other financial liabilities 2 524 868 2 873 753 245 472 21 685 258 27 329 351 10 778 468 25 778 507 974 996 364 013 - 2 524 868 - 2 524 868 839 673 - - 839 673 378 588 245 472 - 1 887 104 - 21 930 569 3 105 365 245 472 21 930 569 3 148 928 23 817 673 27 806 274 - - 10 819 077 - 1 143 995 - - - - 25 778 507 44 451 364 013 10 819 077 25 778 507 1 188 446 364 013 Financial liabilities 37 895 984 1 143 995 10 819 077 26 186 971 38 150 043 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. 412 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 Bank are the current interest rates used for loans with similar characteristics. The fair value of deposits from Central Banks and Deposits from credit institutions is estimated based on the discounted expected Deposits from credit institutions 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 Bank 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, Subordinated debt and liabilities associated to transferred assets The fair value of these instruments is based on quoted market prices, when available. When not available, the Bank 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. 90 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial 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. In the case where the information of the present annual report supports the information in the Market Discipline report, this information is identified through references to this report as systematized in the Annex VI of the Market Discipline Report. 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 Bank 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 Bank 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, Subordinated debt and liabilities associated to transferred assets The fair value of these instruments is based on quoted market prices, when available. When not available, the Bank 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. NOTA 39 – RISK MANAGEMENT The institutional area of the NOVO BANCO, S.A.’s website (www.novobanco.pt) presents the information directed to investors, namely, NOVO BANCO, S.A., Market Discipline Report 2021 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. 39.1 - Framework Risk is implicit in the banking business and, as such, novobanco is naturally exposed to several categories of risks arising from external and internal factors, and which arise as a result of the characteristics of the markets in which the Bank operates and the activities it carries out. Thus, the risk management and control of novobanco is based on the following premises: • Independence from the other units of the group, in particular from the risk-taking units; • Universality by application throughout novobanco; • Integrality of the risk culture, through a holistic vision and anticipation of its materialisation; • 3 Lines of defense model, with the objective of adequately detecting, measuring, monitoring and controlling the materially relevant risks to which novobanco is subject. This model implies that all employees, in their sphere of activity, are responsible for risk management and control. 39.2 - Governance and risk management structure Risk Management, being vital to the development of novobanco‘s activity, is centralized in the Risk Management Function, composed by the Global Risk Department (DRG) and the Rating Department (DRT), which defines the principles of risk management and control in a holistic manner, in close coordination with the other second-tier units of novobanco, as well as with the Internal Audit Department. All materially relevant risks are reported to the respective Management and Supervisory Bodies (EBD, GSB and both Risk and specialized Committees), which assume responsibility for supervising, monitoring, evaluating and defining the Risk Appetite and the control principles implemented. Operationally, the DRG centralizes the Risk Management Function of the novobanco, namely the responsibilities inherent the function, supervising the Bank’s various materially relevant financial institutions, ensuring independence from the business areas. The Head of the Risk Management Function at novobanco is responsible for the DRG. In order to ensure greater efficiency in liaison with the DRG, a local Risk Officer has been appointed in each relevant entity of novobanco. The intervention of the DRG is direct or of coordination in articulation with the units that assume the local Risk Management Function. The risks identified as relevant and material are quantified as part of the Internal Capital Adequacy Assessment Process (ICAAP) exercise, with the most relevant being: • credit risk; • market risk; 413 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes• liquidity risk; • operational risk. The Risk Management Function also continuously monitors and evaluates ESG (Environmental, Social and Governance) Risks in close coordination with the Sustainability area, which contributes specific knowledge to the understanding of climate and environmental risk factors and social risk factors. ESG factors, refer to climate and environmental, social or governance issues that may have a positive or negative impact on the financial performance or on the creditworthiness of an entity, institution or person. The main guidelines for managing the risks identified above are presented below: • credit risk: the management and control of this type of risk is supported by the use of an internal system of risk identification, evaluation and quantification, as well as internal processes for attributing ratings and scorings for portfolios and their continuous monitoring in specific decision forums; • market risk: existence of a specialized team that centralizes the management and control of market risk and interest rate risk in the banking book (IRRBB) of the Bank, in line with the regulations and good risk practices; • liquidity risk: based on the measurement of liquidity outflows from contractual and contingent positions in normal and stressed situations, the management and control of this risk consists, on the one hand, in determining the size of the liquidity pool available at each moment, and on the other hand, in planning medium- and long-term stable financing sources; • operational risk: the operational risk policies are defined by a specialized team of the DRG, there are other units, such as the Compliance Department and the Information Security Office that issue specific risk policies. The effectiveness of the methodologies for identifying and controlling operating risk is guaranteed through the actions of the operating risk management representatives appointed for each organic Unit, who promote a culture of risk in the first line of defense, in continuous collaboration with the DRG. 39.3 - 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 Bank 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 6.10.6. 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 Bank’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. Main events in 2021 The most relevant events during 2021 and with an impact on credit risk management policies and procedures management policies and procedures consisted in the incorporation of specific adjustments to ensure an adequate level of impairments on the universe of customers who ended the moratorium in the second half of 2021. In view of the COVID pandemic and the extension of its impact through 2021, it became imperative to ensure that the level of provisioning level would remain adequate in a post-COVID context. The level of uncertainty remains high regarding the economic recovery as well as the duration of the effects of the pandemic in the sectors of economic activity most affected by the pandemic. This uncertainty has become even more pressing on the universe that benefited from moratoria, namely in the ability to fully resume and maintain compliance with their credit obligations after the end of the moratoria. For this purpose, several quantitative and qualitative criteria were identified in addition to those observed in the segmentation and segmentation and staging rules in force in the impairment model and applied them to the universe of exposures that benefited from moratoria until the second half of 2021. By verifying these criteria, these exposures could see their original stage worsened and/or their originally calculated and/or the risk notation itself considered for the purpose of calculating impairment. Therefore, novobanco defined a set of 8 additional criteria for the universe of exposures that benefited from the moratorium, on which it considered, for purposes of calculating impairment at December 2021, a stage and/or a level of risk rating aggravated risk. These criteria and the consequent adjustment are systematized in the table below: 414 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesrepresentatives appointed for each organic Unit, who promote a culture of risk in the first line of defense, in continuous collaboration with the DRG. 39.3 - 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 Bank 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 6.10.6. 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 Bank'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. Main events in 2021 The most relevant events during 2021 and with an impact on credit risk management policies and procedures management policies and procedures consisted in the incorporation of specific adjustments to ensure an adequate level of impairments on the universe of customers who ended the moratorium in the second half of 2021. In view of the COVID pandemic and the extension of its impact through 2021, it became imperative to ensure that the level of provisioning level would remain adequate in a post-COVID context. The level of uncertainty remains high regarding the economic recovery as well as the duration of the effects of the pandemic in the sectors of economic activity most affected by the pandemic. This uncertainty has become even more pressing on the universe that benefited from moratoria, namely in the ability to fully resume and maintain compliance with their credit obligations after the end of the moratoria. For this purpose, several quantitative and qualitative criteria were identified in addition to those observed in the segmentation and segmentation and staging rules in force in the impairment model and applied them to the universe of exposures that benefited from moratoria until the second half of 2021. By verifying these criteria, these exposures could see their original stage worsened and/or their originally calculated and/or the risk notation itself considered for the purpose of calculating impairment. Therefore, novobanco defined a set of 8 additional criteria for the universe of exposures that benefited from the moratorium, on which it considered, for purposes of calculating impairment at December 2021, a stage and/or a level of risk rating aggravated risk. These criteria and the consequent adjustment are systematized in the table below: Nº 1 2 3 4 5 6 7 8 Criteria Debtors with credit more than 45 days overdue Individuals with signs of Unlikely to Pay Small companies with signs of Unlikely to Pay Non-rated companies Debtors with restructured credit due to financial difficulties Individuals with signs of significant deterioration of credit risk Debtors with a current rating at the threshold of significant deterioration of credit risk Stage 2 Classification Risk rating downgrade Small businesses with proposed downgrade of rating Stage 3 Classification Stage 3 Classification Stage 3 Classification Stage 2 rating and assigned the worst risk rating Risk rating downgrade Stage 2 classification and risk rating downgrade Adjustment The first three adjustments aimed to capture situations of debtors that, having benefited from a prolonged period of moratorium and consequent increase in liquidity, presented defaults after this period and/or reduced financial capacity to resume their obligations. The first three adjustments aimed to capture situations of debtors that, having benefited from a prolonged period of moratorium and consequent increase in liquidity, presented defaults after this period and/or reduced financial capacity to resume their obligations. The remaining adjustments reflect situations of debtors who, also having benefited from a prolonged period of moratorium and consequent increase in liquidity, present less serious signs than the first three groups. Not being situations of default, they are situations of debtors who show signs of difficulty in fully complying with their responsibilities. their responsibilities. As it is not possible to translate these difficulties into the Customer's final rating, the adjustment applied for purposes of calculating impairment is to worsen the stage to 2 and/or consider an aggravated risk notation than the current one. The exclusive impact of these adjustments was an increase in impairments of €16 million. This impact was partially mitigated by the update of the macroeconomic scenarios that support the collective impairment calculation through the forward-looking parameters. This update occurred in 2021 and the macroeconomic scenarios were taken into account as described in Note 39 - Activity Risk Management. The remaining adjustments reflect situations of debtors who, also having benefited from a prolonged period of moratorium and consequent increase in liquidity, present less serious signs than the first three groups. Not being situations of default, they are situations of debtors who show signs of difficulty in fully complying with their responsibilities. their responsibilities. As it is not possible to translate these difficulties into the Customer’s final rating, the adjustment applied for purposes of calculating impairment is to worsen the stage to 2 and/or consider an aggravated risk notation than the current one. The exclusive impact of these adjustments was an increase in impairments of €16 million. This impact was partially mitigated by the The adjustments systematized above were incorporated into the collective impairment calculation as post-model adjustments and update of the macroeconomic scenarios that support the collective impairment calculation through the forward-looking parameters. simultaneously with the update of the calculation support scenarios, with the corresponding update of the forward-looking risk. 39.3.1 - Credit risk exposure This update occurred in 2021 and the macroeconomic scenarios were taken into account as described in Note 39 - Activity Risk Management. novobanco maximum credit risk exposure is analyzed as follows: 92 The adjustments systematized above were incorporated into the collective impairment calculation as post-model adjustments and simultaneously with the update of the calculation support scenarios, with the corresponding update of the forward-looking risk. 39.3.1 - Credit risk exposure novobanco 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 Revocable and irrevocable commitments Credit risk associated with the credit derivatives' reference entities 31.12.2021 31.12.2020 Gross value Impairment Net Value Gross value Impairment Net Value (in thousands of Euros) 452 884 263 244 114 465 559 227 7 083 966 3 138 465 23 165 062 2 250 308 783 245 2 221 575 402 332 5 849 281 - ( 1 183) - - - ( 3 668) ( 247 772) (1 235 757) - ( 165 832) ( 79 339) - ( 12 436) - 451 701 263 244 114 465 559 227 7 080 298 2 890 693 21 929 305 2 250 308 617 413 2 142 236 402 332 5 836 845 - 585 371 388 311 267 016 647 082 7 759 224 3 077 342 23 332 108 13 606 621 407 2 815 920 410 292 7 049 445 4 798 ( 250 153) - - - ( 3 660) ( 202 460) (1 587 003) - ( 165 340) ( 91 905) - ( 9 579) - 335 218 388 311 267 016 647 082 7 755 564 2 874 882 21 745 105 13 606 456 067 2 724 015 410 292 7 039 866 4 798 46 284 054 (1 745 987) 44 538 067 46 971 922 (2 310 100) 44 661 822 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 Bank would have to pay if the guarantees were executed. For loan commitments and other credit-related commitments of an irrevocable nature, the maximum exposure is the total amount of the commitments assumed. Impairment is calculated on a collective or individual basis in accordance with the accounting policy described in Note 6.16. Whenever 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, the Bank does not have any overdue financial assets for which it has not performed a review regarding 415 their recoverability and the subsequent impairment recognition, when necessary. 39.3.2 – Impairment Models scenarios 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 Currently, 3 scenarios are considered for the calculation of impairment on a collective basis: base case, downside case (or adverse) and an upside case. The scenarios considered and the respective evolution of the main macroeconomic variables are described in of execution. the tables below: 93 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 Bank would have to pay if the guarantees were executed. For loan commitments and other credit-related commitments of an irrevocable nature, the maximum exposure is the total amount of the commitments assumed. Impairment is calculated on a collective or individual basis in accordance with the accounting policy described in Note 6.16. Whenever 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, the 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. 39.3.2 – Impairment Models scenarios 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 (or adverse) and an upside case. The scenarios considered and the respective evolution of the main macroeconomic variables are described in the tables below: A - Base Scenario, with a relative weight of 60%. A - Base Scenario, with a relative weight of 60% GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand Net External Demand Prices Unit Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % 2019 2.7 3.0 2.1 3.2 4.1 4.9 3.1 2020 -8.4 -5.5 0.4 -5.7 -18.6 -12.1 -5.6 2021 4.5 2022 5.3 2023 2.4 2024 2.2 4.5 4.3 5.3 9.3 9.5 4.6 4.6 1.8 8.2 10.1 8.5 4.8 2.3 0.3 5.6 4.9 5.1 2.6 2.1 0.3 4.9 4.5 4.7 2.3 EUR mn (real) 203 854 186 645 194 971 205 317 210 330 214 962 EUR mn (real) 132 018 122 677 128 197 134 095 137 179 140 059 EUR mn (real) EUR mn (real) EUR mn (real) EUR mn (real) 33 772 36 795 88 102 86 751 33 918 34 680 71 683 76 229 35 376 36 518 78 350 83 471 36 013 39 513 86 263 90 566 36 121 41 725 90 490 95 185 36 230 43 770 94 562 99 658 EUR mn (real) 202 585 191 275 200 092 209 620 215 025 220 059 EUR mn (real) 1 351 -4 546 -5 121 -4 303 -4 695 -5 097 CPI Real Estate (Residential) Real Estate (Commercial) Equity prices (incremental change) % % % % 0.3 9.6 1.9 10.2 6.6 0.0 8.4 1.7 -6.1 7.0 1.2 6.6 1.5 15.0 6.9 1.9 3.7 2.3 0.0 6.6 1.6 2.5 1.6 0.0 6.4 1.7 2.0 1.4 0.0 6.3 EUR mn (nominal) 147 925 146 873 154 364 160 692 165 192 169 322 EUR mn (nominal) 10 663 18 820 17 131 14 420 13 012 11 149 Unemployment Households Disposable Income Households Savings Households Savings Rate Household Investment (GFCF) Non Fin Corporations Gross Disposable Income (Savings) Non Financial Corporations Investment % labour force % Disp Income EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) Capital Transfers - net acquisition/disposal of assets (non-financial & non-produced) EUR mn (nominal) Non Financial Corporations Financing Capacity EUR mn (nominal) 7.2 8 472 19 452 26 905 352 -7 101 12.8 8 224 16 062 24 142 2 398 -5 682 11.1 8 553 20 302 26 508 2 800 -3 406 9.0 8 904 21 541 28 337 4 900 -1 896 7.9 9 171 22 381 29 612 4 900 -2 331 6.6 9 372 23 209 30 500 4 100 -3 191 -10.3 9.8 6.9 4.5 3.0 Euribor (annual average) Sovereign Yields (average) 10Y PGB-Bund spread 10Y-2Y PGB Spread Unit 2019 2020 2021 2022 2023 2024 3-month end-of-period 6-month end-of-period 12-month end-of-period Bund 10Y end-of-period PGB 10Y end-of-period PGB 2Y end-of-period Annual Average end-of-period Annual Average end-of-period % % % % % % % % % % % % bps bps bps bps -0.36 -0.38 -0.30 -0.32 -0.22 -0.25 -0.21 -0.19 0.77 0.44 -0.42 -0.55 98 63 119 99 -0.43 -0.55 -0.37 -0.53 -0.31 -0.50 -0.47 -0.57 0.42 0.03 -0.42 -0.73 89 60 84 76 -0.54 -0.50 -0.51 -0.48 -0.45 -0.42 -0.23 -0.10 0.30 0.52 -0.57 -0.51 53 62 87 103 -0.43 -0.35 -0.41 -0.33 -0.37 -0.31 -0.03 0.05 0.71 0.90 -0.31 -0.10 74 85 102 100 -0.17 0.01 -0.15 0.03 -0.13 0.05 0.11 0.17 1.01 1.12 0.00 0.10 90 95 101 102 0.05 0.09 0.07 0.11 0.09 0.13 0.21 0.24 1.16 1.19 0.13 0.15 95 95 103 104 416 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe baseline macroeconomic scenario translates into a projection of the Gross Domestic Product to fully recover in 2022 the level it had in 2019, continuing with moderate growth in 2023 and 2024. Regarding reference rates, the EURIBOR would remain with negative values in 2022, although projecting with signs of returning to positive values at the end of 2023, a fact that would benefit the results of the financial sector - if low values of cost of risk persist. The less favourable - or adverse - macroeconomic scenario considers that the effects of the COVID pandemic will still be felt in 2022, leading to a recession that translates into a 4% drop in Gross Domestic Product in 2022, registering tenuous growth in this variable only in 2024. Regarding reference rates, the EURIBOR would remain with negative values in all years of the projection. C - Most favourable scenario, with a relative weight of 10% B - Less favorable / adverse scenario, with a relative weight of 30% B - Less favourable / adverse scenario, with a relative weight of 30% C - Most favourable scenario, with a relative weight of 10% GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand Net External Demand Prices Unit Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % 2019 2.7 3.0 2.1 3.2 4.1 4.9 3.1 2020 -8.4 -5.5 0.4 -5.7 -18.6 -12.1 -5.6 2021 4.5 4.5 4.3 5.3 9.3 9.5 4.6 2022 -4.0 -4.4 0.8 -3.7 -14.3 -12.1 -3.4 2023 -1.6 2024 0.5 -1.9 0.6 -0.6 -8.8 -7.2 -1.2 1.0 0.3 1.6 4.5 5.4 1.0 EUR mn (real) 203 854 186 645 194 971 187 158 184 206 185 154 EUR mn (real) 132 018 122 677 128 197 122 557 120 228 121 430 EUR mn (real) EUR mn (real) EUR mn (real) EUR mn (real) 33 772 36 795 88 102 86 751 33 918 34 680 71 683 76 229 35 376 36 518 78 350 83 471 35 659 35 167 67 146 73 371 35 873 34 956 61 237 68 088 35 981 35 515 63 992 71 765 EUR mn (real) 202 585 191 275 200 092 193 383 191 058 192 927 EUR mn (real) 1 351 -4 546 -5 121 -6 225 -6 851 -7 772 CPI Real Estate (Residential) Real Estate (Commercial) Equity prices (incremental change) % % % % 0.3 9.6 1.9 10.2 0.0 8.4 1.7 -6.1 1.4 6.6 1.5 15.0 1.6 -11.5 -13.0 -50.0 -0.4 -8.5 -9.6 -0.1 -4.3 -4.9 -45.0 -35.0 GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand GDP Private Consumption Government Expenditure Investment Exports Imports Domestic Demand Net External Demand Prices % labour force 6.6 7.0 6.9 10.3 11.6 11.9 EUR mn (nominal) 147 925 146 873 154 364 150 813 149 607 150 953 EUR mn (nominal) 10 663 18 820 16 860 17 257 19 112 19 285 Unemployment Households Disposable Income Households Savings Households Savings Rate Household Investment (GFCF) Non Fin Corporations Gross Disposable Income (Savings) Non Financial Corporations Investment Capital Transfers - net acquisition/disposal of assets (non-financial & non-produced) Non Financial Corporations Financing Capacity % Disp Income EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) % GDP Unit Euribor (annual average) Sovereign Yields (average) 10Y PGB-Bund spread 10Y-2Y PGB Spread 3-month end-of-period 6-month end-of-period 12-month end-of-period Bund 10Y PGB 10Y PGB 2Y Annual Average Annual Average % % % % % % % % % bps bps 7.2 8 472 19 452 26 905 352 -7 101 -3.3 2019 -0.36 -0.38 -0.30 -0.32 -0.22 -0.25 -0.21 0.77 -0.42 98 119 12.8 8 224 16 062 24 142 2 398 -5 682 -2.8 2020 -0.43 -0.55 -0.37 -0.53 -0.31 -0.50 -0.47 0.42 -0.42 89 84 10.9 8 553 20 302 26 508 2 800 -3 406 -1.6 2021 -0.54 -0.50 -0.51 -0.48 -0.45 -0.42 -0.23 0.30 -0.57 53 87 11.4 8 065 19 531 24 228 2 400 -2 297 -1.1 2022 -0.55 -0.60 -0.53 -0.58 -0.49 -0.55 -0.43 0.94 0.02 12.8 7 832 19 257 23 308 2 200 -1 850 -0.9 2023 -0.60 -0.60 -0.58 -0.58 -0.55 -0.55 -0.73 1.35 0.53 12.8 7 879 19 546 23 680 2 200 -1 934 -0.9 2024 -0.58 -0.55 -0.55 -0.52 -0.53 -0.50 -0.70 1.33 0.50 136 208 203 92 83 83 Unit Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % Real growth % 2019 2.7 3.0 2.1 3.2 4.1 4.9 3.1 2020 -8.4 -5.5 0.4 -5.7 -18.6 -12.1 -5.6 2021 4.7 2022 6.7 2023 3.9 2024 3.2 5.1 4.6 4.9 9.5 10.1 5.0 6.3 0.5 14.3 20.4 19.6 6.7 3.5 0.4 9.2 21.1 20.6 4.1 2.8 0.4 7.1 13.2 12.8 3.3 EUR mn (real) 203 854 186 645 195 356 208 421 216 449 223 399 EUR mn (real) 132 018 122 677 128 934 137 056 141 853 145 825 EUR mn (real) EUR mn (real) EUR mn (real) EUR mn (real) 33 772 36 795 88 102 86 751 33 918 34 680 71 683 76 229 35 478 36 379 78 493 83 928 35 656 41 582 94 505 35 798 45 407 35 941 48 631 114 446 129 553 100 378 121 056 136 551 EUR mn (real) 202 585 191 275 200 791 214 294 223 059 230 398 EUR mn (real) 1 351 -4 546 -5 435 -5 873 -6 610 -6 998 CPI Real Estate (Residential) Real Estate (Commercial) Equity prices (incremental change) % % % % 0.3 9.6 1.9 10.2 0.0 8.4 1.7 -6.1 7.0 1.3 8.3 1.5 13.7 1.4 4.9 1.8 15.0 1.7 4.0 1.6 1.9 3.6 1.4 20.0 25.0 6.6 5.7 5.5 5.3 % labour force 6.6 EUR mn (nominal) 147 925 146 873 154 364 163 625 170 170 175 616 EUR mn (nominal) 10 663 18 820 16 343 14 563 13 268 11 094 Unemployment Households Disposable Income Households Savings Households Savings Rate Household Investment (GFCF) Non Fin Corporations Gross Disposable Income (Savings) Non Financial Corporations Investment % Disp Income EUR mn (nominal) EUR mn (nominal) EUR mn (nominal) Capital Transfers - net acquisition/disposal of assets (non-financial & non-produced) EUR mn (nominal) Non Financial Corporations Financing Capacity Euribor (annual average) EUR mn (nominal) % GDP Unit Sovereign Yields (average) 10Y PGB-Bund spread 10Y-2Y PGB Spread 3-month end-of-period 6-month end-of-period 12-month end-of-period Bund 10Y end-of-period PGB 10Y end-of-period PGB 2Y end-of-period Annual Average end-of-period Annual Average end-of-period % % % % % % % % % % % % bps bps bps bps 7.2 8 472 19 452 26 905 352 -7 101 -3.3 2019 -0.36 -0.38 -0.30 -0.32 -0.22 -0.25 -0.21 -0.19 0.77 0.44 -0.42 -0.55 98 63 119 99 12.8 8 224 16 062 24 142 2 398 -5 682 -2.8 2020 -0.43 -0.55 -0.37 -0.53 -0.31 -0.50 -0.47 -0.57 0.42 0.03 -0.42 -0.73 89 60 84 76 10.6 8 553 20 302 26 508 2 800 -3 406 -1.6 2021 -0.55 -0.57 -0.52 -0.55 -0.49 -0.50 -0.31 -0.18 0.29 0.47 -0.65 -0.66 60 65 94 113 8.9 8 981 21 987 28 894 2 900 -4 006 -1.7 2022 -0.36 -0.15 -0.34 -0.13 -0.25 0.00 0.09 0.35 0.74 1.00 -0.31 0.05 65 65 104 95 7.8 9 385 23 571 30 772 2 900 -4 301 -1.8 2023 6.3 9 751 24 820 32 495 2 800 -4 875 -1.9 2024 0.10 0.35 0.12 0.37 0.21 0.42 0.58 0.80 1.18 1.35 0.21 0.37 60 55 97 98 0.64 0.93 0.67 0.96 0.74 1.05 1.09 1.38 1.57 1.78 0.56 0.74 48 40 101 104 417 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe most favourable macroeconomic scenario is similar to the baseline scenario, differing in general by considering that the recovery of the economy will be at higher levels. In this scenario, the Gross Domestic Product projection for 2022 would reach 6.7% and grow above 3% in 2023 and 2024. Regarding reference rates, the EURIBOR would remain at negative values in 2022, also returning to positive values at the end of 2023. 39.3.3 - Impairment Models 39.3.3 - Impairment Models As at 31 December 2021 and 2020, the detail of the amount of gross credit exposure and impairment assessed individually and As at 31 December 2021 and 2020, the detail of the amount of gross credit exposure and impairment assessed individually and collectively, by segment was as follows: collectively, by segment was as follows: 39.3.3 - Impairment Models As at 31 December 2021 and 2020, the detail of the amount of gross credit exposure and impairment assessed individually and collectively, by segment was as follows: Corporate Corporate Mortgage loans Mortgage loans Consumer and other loans Consumer and other loans Individual Assessment (1) Individual Assessment (1) Exposure Impairment Impairment Exposure 31.12.2021 31.12.2021 Collective Assessment (2) Collective Assessment (2) Exposure Impairment Impairment Exposure (in thousands of Euros) (in thousands of Euros) Total Total Exposure Exposure Impairment Impairment 1 295 586 1 295 586 2 956 2 956 147 997 147 997 623 390 623 390 145 145 132 353 132 353 12 270 141 12 270 141 8 330 890 8 330 890 1 117 492 1 117 492 390 865 390 865 44 480 44 480 44 524 44 524 13 565 727 13 565 727 8 333 846 8 333 846 1 265 489 1 265 489 1 014 255 1 014 255 44 625 44 625 176 877 176 877 Total Total (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee (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 (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model 21 718 523 21 718 523 1 446 539 1 446 539 755 888 755 888 479 869 479 869 Individual Assessment (1) Individual Assessment (1) Exposure Impairment Impairment Exposure 31.12.2020 31.12.2020 Collective Assessment (2) Collective Assessment (2) Exposure Impairment Impairment Exposure 23 165 062 23 165 062 1 235 757 1 235 757 (in thousands of Euros) (in thousands of Euros) Total Total Exposure Exposure Impairment Impairment Corporate Corporate Mortgage loans Mortgage loans Consumer and other loans Consumer and other loans 1 666 138 1 666 138 4 368 4 368 155 734 155 734 958 934 958 934 212 212 136 305 136 305 12 057 069 12 057 069 8 390 178 8 390 178 1 058 621 1 058 621 388 758 388 758 52 649 52 649 50 145 50 145 13 723 207 13 723 207 8 394 546 8 394 546 1 214 355 1 214 355 1 347 692 1 347 692 52 861 52 861 186 450 186 450 Total Total (1) Loans and advances for which the final impairment was determined and approved by the Impairment Committee (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 (2) Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model 21 505 868 21 505 868 1 826 240 1 826 240 1 095 451 1 095 451 491 552 491 552 23 332 108 23 332 108 1 587 003 1 587 003 In the case of loans analyzed by the Impairment Committee for which the impairment determined automatically by the Impairment Model was not changed, they are included and presented in the “Collective evaluation”. As at 31 December 2021 and 2020, the detail of the amount of gross credit exposure and impairment assessed individually and As at 31 December 2021 and 2020, the detail of the amount of gross credit exposure and impairment assessed individually and collectively by geography was as follows: collectively by geography was as follows: As at 31 December 2021 and 2020, the detail of the amount of gross credit exposure and impairment assessed individually and collectively by geography was as follows: In the case of loans analyzed by the Impairment Committee for which the impairment determined automatically by the Impairment In the case of loans analyzed by the Impairment Committee for which the impairment determined automatically by the Impairment Model was not changed, they are included and presented in the "Collective evaluation". Model was not changed, they are included and presented in the "Collective evaluation". Country Country Individual Assessment * Individual Assessment * Colective Assessment ** Colective Assessment ** Total Total Exposure Exposure Impairment Impairment Exposure Exposure Impairment Impairment Exposure Exposure Impairment Impairment 31.12.2021 31.12.2021 (in thousands of Euros) (in thousands of Euros) Portugal Portugal Spain Spain United Kingdom United Kingdom France France Switzerland Switzerland Luxembourg Luxembourg Others Others 1 274 884 1 274 884 58 906 58 906 - - - - - - - - 112 749 112 749 670 486 670 486 8 008 8 008 - - - - - - - - 77 394 77 394 19 284 575 19 284 575 563 112 563 112 299 164 299 164 261 577 261 577 228 949 228 949 261 664 261 664 819 482 819 482 431 798 431 798 13 475 13 475 11 814 11 814 3 347 3 347 1 761 1 761 2 535 2 535 15 139 15 139 20 559 459 20 559 459 622 018 622 018 299 164 299 164 261 577 261 577 228 949 228 949 261 664 261 664 932 231 932 231 1 446 539 Total 1 446 539 Total * Loans and advances for which the final impairment was determined and approved by the Impairment Committee * Loans and advances for 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 ** Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model 21 718 523 21 718 523 479 869 479 869 755 888 755 888 23 165 062 23 165 062 1 102 284 1 102 284 21 483 21 483 11 814 11 814 3 347 3 347 1 761 1 761 2 535 2 535 92 533 92 533 1 235 757 1 235 757 97 97 418 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Country Individual Assessment * Colective Assessment ** Total Exposure Impairment Exposure Impairment Exposure Impairment 31.12.2020 (in thousands of Euros) Portugal Luxembourg United Kingdom Spain Cayman Islands Ireland Others 1 620 153 29 762 945 643 17 762 - - - - - - - - 176 325 132 046 19 460 490 407 101 261 837 249 092 218 943 164 976 743 429 451 730 13 001 6 599 3 294 1 531 2 024 13 373 Total 1 826 240 * Loans and advances for which the final impairment was determined and approved by the Impairment Committee 21 505 868 1 095 451 491 552 21 080 643 1 397 373 436 863 261 837 249 092 218 943 164 976 919 754 30 763 6 599 3 294 1 531 2 024 145 419 23 332 108 1 587 003 ** Loans and advances for which the final impairment was determined according to the calculation rules of the collective impairment model 39.3.3.1 - Individual impairment analysis 39.3.3.1 - Individual impairment analysis 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 for which, after conducting individual analysis, it is not concluded 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 for which, after conducting individual analysis, it is not concluded that there is an objective loss of impairment are maintained 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 / Bank's framework, historical and forecast cash flows (when available) and existing collateral. that there is an objective loss of impairment are maintained 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 / Bank’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: 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: Yes Individual Analysis The debt holder is classiﬁed in Stage 1 or Stage 2? No Staging Analysis Quantiﬁcation of individual impairment (Stage 3) Individual analysis of credit classified in stage 1 and stage 2 with the purpose of assessing the adequacy of the stage from the model taking into account qualitative information available, the results of the analysis of staging questionnares and specific information on the debtor’s ability to generate enough cash flow to service debt service 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 Are the expected future cash ﬂows for the debtor materialy impacted and insufﬁcient to cover the debt service? Yes No Collective Impairment 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 Euro 1,000,000;  Register Stage 2 exposure equal to or greater than Euro 5,000,000;  Register Stage 2 exposure equal to or greater than Euro 1,000,000 and have no rating assigned;  Register Stage 1 exposure equal to or greater than Euro 5,000,000 and have no rating assigned;  Register Stage 1 exposure equal or greater than Euro 25,000,000 (individually significant exposure); 98 419 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Selection Criteria Individual Analysis (staging analysis and, when applicable, quantification of individual impairment) should be carried out for the borrowers who: 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. • Register Stage 3 exposure equal to or greater than Euro 1,000,000; • Register Stage 2 exposure equal to or greater than Euro 5,000,000; 39.3.3.2 - Collective Model • Register Stage 2 exposure equal to or greater than Euro 1,000,000 and have no rating assigned; • Register Stage 1 exposure equal to or greater than Euro 5,000,000 and have no rating assigned; • Register Stage 1 exposure equal or greater than Euro 25,000,000 (individually significant exposure); • Fit into the Financial Holding risk segment and register exposure equal to or greater than Euro 5,000,000; • Fit into the Real Estate risk segment and register exposure equal to or greater than Euro 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 consider the Economic Group view of the selected customers. 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 / Bank’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). In line with the principles set out in accounting standard IFRS9, an entity should use information about past events, current conditions and forecasts of future economic conditions in estimating risk parameters. The historical information should accurately capture current conditions and, when measuring expected credit losses, the maximum period to be considered should be the maximum contractual period. For these reasons, the risk parameters associated with the measurement of losses under the IFRS9 accounting standard are often referred to as point-in-time (PIT) parameters. In particular, regarding the estimation of the PD risk parameter, in line with the requirements of the IRFS9 standard, namely with the provisions of paragraph [B5.5.43], the probability of default (PD) was estimated in a 12-month time horizon, but also in a long perspective, capturing the remaining life cycle, PD Lifetime. Considering the requirement to measure losses over a maximum time horizon, it becomes necessary to estimate the PD parameter for different time horizons, greater than or equal to 12 months, thus obtaining the so-called “PD term structures”, which aim to reflect the PD associated with each contract, containing a given set of characteristics, for each reference date. The PD lifetime estimated, refers to the conditional marginal probability used in the ECL calculation, representing the probability of default of the next cash flow, while the PD structure is the cumulative probability of default, being used to estimate the PD over a defined time interval, for example, PD term structure 5 years is equivalent to the probability of default over 5 years. In the review exercise carried out, a time horizon was considered for estimating the term structure of the DP from January 2015 to December 2019 (5 years). Since 2020 and 2021 are years where the PD would be underestimated due to the granting of moratoria, the values of PD 2020 and 2021 were estimated according to the application of the forward-looking methodology - described below - based on the results effectively verified in the relevant macroeconomic variables. In line with the framework for developing the risk parameter PD scope IFRS9, the primary approach for obtaining the so-called term structure of PDs, is based on estimated Hazard curves. The hazard function h (t) also called hazard (failure) rate or mortality force represents the instantaneous death rate of an individual in the time interval t to t+1, knowing that he or she survived until time t. The use of this methodology is justified by the need to include, in the estimation process, survival effects as well as the presence of the maturity effect. This approach was used to estimate the PD parameter for each client (corporate High Default Portfolio) or for each contract (individual portfolio), as a function of the underlying rating/score class. For Low Default Portfolios, typically without statistical significance in the number of observed defaults that allow the use of statistical methods (such as hazard curves), an alternative approach was used. This approach consists in extrapolating the PD determined and used for capital purposes (IRB), assuming a constant marginal probability but applying an adjustment for ratings below or equal to 420 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes“b+”, as a consequence of the difference between the PD Through the Cycle and the observed Default Rates of the last 5 years, in these ratings versus the others. Additionally, in short term portfolios, with contractual maturities lower than 12 months, the approach followed in the estimation of the PD risk parameter, consisted in calculating the observed annual average default rate and extrapolating it in order to build the PD term structure and the PD lifetime. Just as important as forecasting Default, is the perception of the loss associated with the contract given a Default event. The loss given default is defined as the maximum loss incurred on an exposure in relation to the amount at risk on the date of default. These models are based, on the one hand, on the historical default series and, on the other hand, on the historical series of the main macroeconomic variables (GDP, inflation, interest rate, unemployment rate and house prices). Historical quarterly data since 2010 were used. With regard to the projection models for PD and LGD in the housing segment, the first step consisted of a multivariate analysis of the explanatory variables, for which the following variables were used: GDP, unemployment rate, inflation rate, residential real estate price growth and inflation rate. On the other hand, the historical default series were transformed through the logit function in order to ensure that the projections present values between 0 and 1, even in extremely adverse scenarios. The magnitude of the loss will depend on the moment of Default, thus segregating the following types of parameters: Next, linear regression modeling was performed considering 3 explanatory variables, with the objective of determining the regression that best explains the evolution of the risk parameter. 1. LGD non-Default – estimated loss parameter applicable to contracts that are not yet in Default; 1. 2. LGD in-Default or Expected Recovery Rate - parameter of estimated loss applicable to contracts that are in Default and which depends on the best estimate for the expected loss; To determining the LGD parameter (non-default and TRE), a specific framework was developed and approved consisting of the following methodological steps: • Determination of the RDS (Reference data Set): in this step, the contracts/clients, with entry into default status in line with the new definition (nDoD- historical recovery) from January 2010 to July 2019 were selected. • Determining the realized (or observed) LGD: for each class and each of the defined completion The choice of the final model depends on the economic sense and its statistical performance. To determine the statistical performance of the models, the following indicators were taken into account: • R2: which indicates that part of the evolution of the risk parameter is explained by the explanatory variables, that is, the explanatory power of the model; • P- value of the explanatory variables: which indicates whether the explanatory variable in question is significant in explaining the evolution of the risk parameter; • Variance inflation factors (VIF): which analyzes whether the explanatory variables are correlated. If the variable has a value greater than 10 it is considered to have a high correlation with the other variables, i.e., only models with VIFs less than 10 are considered; states, determine the associated loss amount. • Normality of the residuals, which checks whether the model’s residuals are normally distributed, • Determination of the estimated LGD: for clients/contracts with open positions (incomplete cases), estimate up to the defined workout the amount still recoverable (based on loss/recovery history). For corporate portfolios, the estimation of incomplete cases was done using the chain-ladder method (client view), while for individual portfolios the probabilities/severities method was used (contract view). using the Q-Q plot and Shapiro-Wilk tests; • Homoscedasticity: which seeks to demonstrate that the variance of the errors is constant, since it is one of the assumptions of the modeling through linear regression, based on a regression of the risk parameter with its residues, ensuring that this same regression has a p-value greater than 5%; • Self-correlation of errors: using the Durbin-Watson test, it is ensured that the result is between 1.5 • Determination of the ERR: based on the estimated curve (0->workout) determine the expected and 2.5. marginal recovery at each point in time. • In order to update the LGD and TRE parameters, the following input parameters were also updated: o Haircut relative to collateral; o Update rate for each portfolio; o Cost model, including direct and indirect costs; o Update of the workout period and its adaptation to the current and future strategy of the collections process, for each estimation segment. The incorporation of forward-looking information was done through macroeconomic models, which estimate the evolution of risk parameters through the evolution of macroeconomic variables. Four PD models were developed: Large and Medium-Sized Enterprises, Small Enterprises and Start-ups, Home Loans and Other Consumer Credit, and three LGD models: Home Loans, Consumer Credit and Corporate Credit. In order to correct problems of autocorrelation of errors, the ARIMA (autoregressive integrated moving average model) model was used and the performance of the final model was again tested, through the Durbin-Watson test, after auto-correlation correction. With regard to the LGD Individual Credit projection model, although the aforementioned methodology was followed, the results obtained proved to be counterintuitive, namely in terms of the economic interpretation of the variables versus the statistical results. For this reason, all the models developed were rejected, and a future change similar to that projected for the CH segment was assumed for this segment (based on the model developed, whose results, in addition to being statistically significant, are also interpretable from an economic point of view), considering the correlation between these segments of households. As regards the forward-looking models within the scope of Corporate LGD, since the projection model was considered to be adequate both in the variables used and, in its interpretation, only the macroeconomic series were updated and the projection was updated accordingly. 421 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes39.3.3.3 - Collective analysis adjustments to the model’s automatic result Segmentation criteria Model type Description After processing the 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. Expert Judgement 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. With the exception of the adjustments already described which were made on the universe that benefited from the moratorium in 2021, and whose impact we estimated in an impairment increase of €16 million, the remaining adjustments that are made result mainly from the need for data review / correction. Therefore, most of the adjustments made in 2021 reflect the application of the collective impairment calculation rules but with corrected input data. Sector, Size, Product  Large enterprises  Financial institutions  Municipalities  Institucional  Local and regional administrations  Real estate (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 enterprises Semi-automatic 39.3.4 - Credit Risk Monitoring 39.3.4.1 - Internal rating models for Corporates, Institutions and shares Small enterprises 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. Start-Up’s and individual entrepreneurs Statistical Automatic Below is a summary table on the types of risk models adopted in the internal assignment of credit ratings: Rating model based in ﬁnancial, qualitative and behavioral information, validated by analysis. 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. 422 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesRegarding the credit portfolios of Large Companies, Financial Institutions, Institutional, Local and Regional Administrations and Specialized Loans - namely Project Finance, Object Finance, Commodity Finance and Acquisition Finance - the credit ratings are assigned by the novobanco 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 consolidation 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 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 novobanco 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. 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 novobanco, 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. 39.3.4.2 - 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 respective websites. 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. 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. 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 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: 423 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe 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 Rating externo equivalente 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 39.3.4.3 - Internal scoring models for Individual portfolios 39.3.4.3 - Internal scoring models for Individual portfolios With regard to scoring models for individual portfolios, novobanco has origination / concession and behavioral scoring models (applied to operations older than 6 months). With regard to scoring models for individual portfolios, novobanco has origination / concession and behavioral scoring models (applied to operations older than 6 months). The Bank 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. 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. 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. The Bank 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. The table below displays the assets impaired, or overdue but not impaired: 39.3.5 - Delinquency 39.3.5 – Delinquency The table below displays the assets impaired, or overdue but not impaired: 424 Neither overdue Overdue but not nor impaired impaired Impaired Total exposure Impairment Net exposure 31.12.2021 (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 other entities Loans and advances to customers Bonds issued by government and other public entities 452 884 114 465 114 465 559 227 559 227 7 061 196 5 685 067 1 376 129 2 826 278 371 273 2 455 005 21 448 271 - - - - - - - - - - - 8 422 - - - - - - - 22 770 22 770 312 187 312 187 1 708 369 452 884 114 465 114 465 559 227 559 227 7 083 966 5 685 067 1 398 899 3 138 465 371 273 2 767 192 23 165 062 ( 1 183) - - - - ( 3 668) ( 2 995) ( 673) ( 247 772) ( 540) ( 247 232) (1 235 757) 451 701 114 465 114 465 559 227 559 227 7 080 298 5 682 072 1 398 226 2 890 693 370 733 2 519 960 21 929 305 103 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The table below shows the correspondence between the external ratings S&P, Moody's and Fitch and the equivalent external rating S&P: Moody's Rating externo equivalente 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 Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C 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 39.3.4.3 - Internal scoring models for Individual portfolios With regard to scoring models for individual portfolios, novobanco 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. The Bank 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. 39.3.5 – Delinquency The table below displays the assets impaired, or overdue but not impaired: Neither overdue nor impaired Overdue but not impaired Impaired Total exposure Impairment Net exposure 31.12.2021 (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 452 884 114 465 114 465 559 227 559 227 7 061 196 5 685 067 1 376 129 2 826 278 371 273 2 455 005 21 448 271 - - - - - - - - - - - 8 422 - - - - - 22 770 - 22 770 312 187 - 312 187 1 708 369 452 884 114 465 114 465 559 227 559 227 7 083 966 5 685 067 1 398 899 3 138 465 371 273 2 767 192 23 165 062 ( 1 183) - - - - ( 3 668) ( 2 995) ( 673) ( 247 772) ( 540) ( 247 232) (1 235 757) 451 701 114 465 114 465 559 227 559 227 7 080 298 5 682 072 1 398 226 2 890 693 370 733 2 519 960 21 929 305 Neither overdue nor impaired Overdue but not impaired Impaired Total exposure Impairment Net exposure 103 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 - - - - - - - - - - - 6 366 314 138 - - - - 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 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. 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 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): The following table presents the assets that are impaired or overdue but not impaired, split by their respective maturity or ageing (when overdue): Securities Portfolio - debt instruments 31.12.2021 Deposits with and loans and advances to banks (in thousands of Euros) Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue Up to 3 months From 3 months to 1 year From 1 to 3 years From 3 to 5 years More than 5 years Due Up to 3 months From 3 months to 1 year From 1 to 3 years From 3 to 5 years More than 5 years - - - - - - - - - - - - - - 210 598 1 940 37 594 84 825 334 957 - - - - - - 334 957 - - - - - - - - - - - - - - - - - - - - - - - - - - 6 879 1 095 385 36 27 8 422 - - - - - - 8 422 16 132 17 628 45 925 70 988 142 392 293 065 95 219 201 267 246 010 137 820 734 988 1 415 304 1 708 369 425 104 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Neither overdue Overdue but not nor impaired 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 other entities Loans and advances to customers Bonds issued by government and other public entities 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 - - - - - - - - - - - 6 366 314 138 ( 250 153) - - - - - - 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 - - - - ( 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 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): Overdue Up to 3 months From 3 months to 1 year From 1 to 3 years From 3 to 5 years More than 5 years Due Up to 3 months From 3 months to 1 year From 1 to 3 years From 3 to 5 years More than 5 years Overdue Up to 3 months From 3 months to 1 year From 1 to 3 years From 3 to 5 years More than 5 years Due Up to 3 months From 3 months to 1 year From 1 to 3 years From 3 to 5 years More than 5 years Securities Portfolio - debt instruments 31.12.2021 Deposits with and loans and advances to banks (in thousands of Euros) Loans and advances to customers Overdue but not impaired Impaired Overdue but not impaired Impaired Overdue but not impaired Impaired - - - - - - - - - - - - - - 210 598 1 940 37 594 84 825 334 957 - - - - - - 334 957 - - - - - - - - - - - - - - - - - - - - - - - - - - 6 879 1 095 385 36 27 8 422 - - - - - - 8 422 16 132 17 628 45 925 70 988 142 392 293 065 95 219 201 267 246 010 137 820 734 988 1 415 304 1 708 369 Securities Portfolio - debt instruments 31.12.2020 Deposits with and loans and advances to banks (in thousands of Euros) 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 - - - - - - 15 179 56 905 91 301 231 222 215 280 609 887 37 231 312 428 266 246 146 644 104 758 216 1 520 765 6 366 2 130 652 The following table shows the assets that are 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 Credit risk by rating grade 31.12.2021 31.12.2020 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total - - - 4 874 4 874 - - - 3 548 - 22 770 312 187 1 708 369 - 22 770 312 187 1 716 791 - - - 1 671 314 138 - - 4 691 - 22 770 119 605 2 130 656 314 138 22 770 119 605 2 137 018 3 548 2 043 326 2 051 748 1 671 318 829 2 273 031 2 593 531 (in thousands of Euros) Regarding assets that are neither past due nor impaired, the distribution by rating grade 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. Prime +High Upper Medium Lower Medium grade Grade grade Speculative + Others Total (in thousand of Euros) 31.12.2021 Non Investment Grade Highly speculative Deposits with and loans and advances to banks 625 26 580 57 521 78 598 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 - - - - 1 449 335 988 890 460 445 10 631 - 10 631 3 130 230 - - - - 1 982 997 1 934 969 48 028 157 161 - 157 161 7 773 753 - - - - 3 478 155 2 713 682 764 473 417 707 - 417 707 2 460 371 - - - - - - 1 788 1 788 258 867 258 867 6 865 797 289 560 114 465 114 465 559 227 559 227 148 921 47 526 101 395 1 981 912 371 273 1 610 639 1 218 120 452 884 114 465 114 465 559 227 559 227 7 061 196 5 685 067 1 376 129 2 826 278 371 273 2 455 005 21 448 271 105 426 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 31.12.2020 (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 (in thousands of Euros) Overdue but not impaired Securities Portfolio - debt instruments - - - - - - - - 15 126 10 330 Impaired 34 444 82 475 142 375 - 31.12.2020 Deposits with and loans and 34 726 advances to banks Overdue but not impaired Impaired Overdue but not 153 impaired - - - - 34 726 34 726 Loans and advances to customers 5 148 912 23 130 6 366 5 148 15 179 56 905 91 301 Impaired 231 222 215 280 609 887 15 179 - - - - - - - Overdue Up to 3 months From 3 months to 1 year From 1 to 3 years From 3 to 5 years More than 5 years Overdue Up to 3 months Due From 3 months to 1 year Up to 3 months From 1 to 3 years From 3 months to 1 year From 3 to 5 years From 1 to 3 years More than 5 years From 3 to 5 years More than 5 years 15 126 - 10 330 - 34 444 - 82 475 - 142 375 - - - 142 375 - - The following table shows the assets that are impaired or overdue but not impaired, broken down by - the respective impairment stage: - - Up to 3 months From 3 months to 1 year From 1 to 3 years From 3 to 5 years More than 5 years - - - - - - - - - - - - - - - - - - Due - - - - - - - - - - - - - - - - - - - - - - - - - - 34 726 279 412 279 412 - 314 138 - - - 279 412 279 412 The following table shows the assets that are impaired or overdue but not impaired, broken down by the respective impairment stage: - 142 375 31.12.2021 - Stage 1 Stage 2 Stage 3 Total 314 138 Stage 1 31.12.2020 6 366 Stage 2 Stage 3 2 130 652 Total The following table shows the assets that are 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 3 548 Loans and advances to customers 314 138 - - 4 691 - - - 1 671 - - - 4 874 31.12.2020 31.12.2021 Credit risk by rating grade Stage 1 Stage 2 3 548 - Deposits with and loans and advances to banks - Securities at fair value through other comprehensive income Credit risk by rating grade - Securities at amortised cost 3 548 Regarding assets that are neither past due nor impaired, the distribution by rating grade is presented below. For the debt instruments, Loans and advances to customers 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. Credit risk by rating grade 1 671 - - - 1 671 4 874 - - - 4 874 2 593 531 2 043 326 2 051 748 2 273 031 318 829 1 671 3 548 4 874 Stage 2 318 829 314 138 - - 4 691 Stage 1 Regarding assets that are neither past due nor impaired, the distribution by rating grade 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. (in thousand of Euros) Regarding assets that are neither past due nor impaired, the distribution by rating grade 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. 31.12.2021 Others Total Prime +High grade Upper Medium Grade Lower Medium grade - 22 770 312 187 1 708 369 Stage 3 2 043 326 - 22 770 312 187 1 708 369 - 22 770 312 187 1 716 791 Total 2 051 748 - 22 770 312 187 1 716 791 912 - 153 - 23 - 130 - 6 366 - - - 6 366 - - - - - 56 905 37 231 91 301 312 428 231 222 266 246 215 280 146 644 609 887 758 216 1 520 765 37 231 2 130 652 312 428 266 246 146 644 758 216 1 520 765 (in thousands of Euros) - 22 770 119 605 2 130 656 Stage 3 2 273 031 - 22 770 119 605 2 130 656 314 138 22 770 119 605 (in thousands of Euros) 2 137 018 Total 2 593 531 314 138 22 770 119 605 2 137 018 31.12.2021 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 Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Bonds issued by other entities Bonds issued by government and other public entities Securities at amortised cost Securities at fair value through profit/loss - mandatory Bonds issued by government and other public entities Bonds issued by other entities Bonds issued by other entities Securities at fair value through other comprehensive income Loans and advances to customers 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 625 - - Prime +High - grade - 1 449 335 625 988 890 - 460 445 - 10 631 - - - 10 631 1 449 335 3 130 230 988 890 460 445 10 631 - 10 631 3 130 230 26 580 - - Upper Medium - Grade - 1 982 997 26 580 1 934 969 - 48 028 - 157 161 - - - 157 161 1 982 997 7 773 753 1 934 969 48 028 157 161 - 157 161 7 773 753 57 521 - - Lower Medium - grade - 3 478 155 57 521 2 713 682 - 764 473 - 417 707 - - - 417 707 3 478 155 2 460 371 2 713 682 764 473 417 707 - 417 707 2 460 371 Non Investment Grade Speculative + Highly speculative 78 598 Non Investment - Grade - Speculative + - Highly - speculative 1 788 78 598 - - 1 788 - 258 867 - - - 258 867 1 788 6 865 797 - 1 788 258 867 - 258 867 6 865 797 (in thousand of Euros) Others 289 560 114 465 114 465 559 227 559 227 148 921 289 560 47 526 114 465 101 395 114 465 1 981 912 559 227 371 273 559 227 1 610 639 148 921 1 218 120 47 526 101 395 1 981 912 371 273 1 610 639 1 218 120 Total 452 884 114 465 114 465 559 227 559 227 7 061 196 452 884 5 685 067 114 465 1 376 129 114 465 2 826 278 559 227 371 273 559 227 2 455 005 7 061 196 21 448 271 5 685 067 1 376 129 2 826 278 371 273 2 455 005 21 448 271 427 105 105 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Prime +High grade Upper Medium Grade Lower Medium grade 31.12.2020 Prime +High grade Upper Medium Grade Lower Medium grade Deposits with and loans and advances to banks Securities held for trading Bonds issued by government and other public entities Deposits with and loans and advances to banks Securities at fair value through profit/loss - mandatory Securities held for trading Bonds issued by other entities Bonds issued by government and other public entities Securities at fair value through other comprehensive income Securities at fair value through profit/loss - mandatory Bonds issued by government and other public entities Bonds issued by other entities Bonds issued by other entities Securities at fair value through other comprehensive income Securities at amortised cost 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 Securities at amortised cost Loans and advances to customers Bonds issued by government and other public entities Bonds issued by other entities 1 096 - - 1 096 - - - - 1 415 572 - 966 035 - 449 537 1 415 572 - 966 035 - 449 537 - - 3 312 685 - - 3 312 685 22 063 - - 22 063 32 670 - 32 670 - 2 335 007 32 670 2 322 904 32 670 12 103 2 335 007 51 608 2 322 904 - 12 103 51 608 51 608 7 689 385 - 51 608 7 689 385 31.12.2020 Non Investment Grade Speculative + Non Investment Highly Grade speculative Speculative + 29 657 Highly - speculative - 29 657 - - - - - - - - - - 37 958 - - - 37 958 37 958 6 757 902 - 37 958 6 757 902 9 434 267 016 267 016 9 434 - 267 016 - 267 016 3 247 135 - 2 863 559 - 383 576 3 247 135 140 510 2 863 559 - 383 576 140 510 140 510 2 375 213 - 140 510 2 375 213 (in thousands of Euros) (in thousands of Euros) Others Total Others 208 983 - - 208 983 614 412 - 614 412 - 738 740 614 412 253 967 614 412 484 773 738 740 2 727 661 253 967 415 192 484 773 2 312 469 2 727 661 1 059 906 415 192 2 312 469 1 059 906 Total 271 233 267 016 267 016 271 233 647 082 267 016 647 082 267 016 7 736 454 647 082 6 406 465 647 082 1 329 989 7 736 454 2 957 737 6 406 465 415 192 1 329 989 2 542 545 2 957 737 21 195 090 415 192 2 542 545 21 195 090 Loans and advances to customers As at 31 December 2021 and 2020, the breakdown of gross credit exposure and impairment by segment was as follows: As at 31 December 2021 and 2020, the breakdown of gross credit exposure and impairment by segment was as follows: Perfoming As at 31 December 2021 and 2020, the breakdown of gross credit exposure and impairment by segment was as follows: 31.12.2021 Segment Performing or with a delay < 30 days Segment Corporate Mortgage loans Consumer and other loans Exposure Impairment Performing or with a delay 312 746 < 30 days 12 041 900 8 166 486 Exposure 1 070 498 19 899 Impairment 23 262 With a delay > 30 days Total Exposure Perfoming Impairment Exposure Impairment Exposure Impairment With a delay > 30 days 137 406 17 497 12 179 306 Total 330 243 28 662 Exposure 8 499 1 139 Impairment 1 539 8 195 148 Exposure 1 078 997 21 038 Impairment 24 801 Days of delay 876 737 367 913 509 684 316 099 1 386 421 Total 684 012 <= 90 days 100 041 Exposure 153 151 16 894 Impairment 136 809 > 90 days 38 657 Exposure 33 341 6 693 Impairment 15 267 138 698 Exposure 186 492 23 587 Impairment 152 076 Non-Perfoming Days of delay 31.12.2021 <= 90 days > 90 days Non-Perfoming Exposure Impairment Total Exposure Impairment (in thousands of Euros) Total Credit (in thousands of Euros) Exposure Impairment Total Credit 13 565 727 Exposure 8 333 846 1 014 255 Impairment 44 265 1 265 489 176 877 23 165 062 (in thousands of Euros) 1 235 397 Total Credit (in thousands of Euros) Exposure Impairment Total Credit 13 723 207 Exposure 8 394 546 1 347 692 Impairment 52 861 1 214 355 186 450 Corporate Total Mortgage loans 12 041 900 21 278 884 8 166 486 312 746 355 907 19 899 137 406 174 567 28 662 17 497 20 175 1 139 12 179 306 21 453 451 8 195 148 330 243 376 082 21 038 876 737 1 129 929 100 041 367 913 521 616 16 894 509 684 581 682 38 657 316 099 338 059 6 693 1 386 421 1 711 611 138 698 684 012 859 675 23 587 13 565 727 23 165 062 8 333 846 1 014 255 1 235 397 44 265 Consumer and other loans 1 070 498 23 262 8 499 1 539 1 078 997 24 801 153 151 136 809 33 341 15 267 186 492 152 076 1 265 489 176 877 Total 21 278 884 355 907 174 567 20 175 21 453 451 376 082 1 129 929 521 616 31.12.2020 581 682 338 059 1 711 611 859 675 Perfoming Non-Perfoming Segment Performing or with a delay < 30 days With a delay > 30 days Total Days of delay 31.12.2020 <= 90 days Exposure Perfoming Impairment Exposure Impairment Exposure Impairment > 90 days Non-Perfoming Exposure Impairment Total Exposure Impairment Segment Corporate Mortgage loans Consumer and other loans Exposure Impairment Performing or with a delay 326 906 < 30 days 11 964 412 8 164 517 Exposure 1 001 602 13 813 Impairment 21 940 With a delay > 30 days 7 196 645 11 971 608 Total 327 551 51 700 Exposure 12 026 1 408 Impairment 2 374 8 216 217 Exposure 1 013 628 15 221 Impairment 24 314 Days of delay 942 985 478 871 808 614 541 270 1 751 599 Total 1 020 141 <= 90 days 89 546 Exposure 147 553 13 967 Impairment 122 358 > 90 days 88 783 Exposure 53 174 23 673 Impairment 39 778 178 329 Exposure 200 727 37 640 Impairment 162 136 Corporate Total Mortgage loans 11 964 412 21 130 531 8 164 517 326 906 362 659 13 813 7 196 70 922 51 700 645 4 427 1 408 11 971 608 21 201 453 8 216 217 327 551 367 086 15 221 942 985 1 180 084 89 546 478 871 615 196 13 967 808 614 950 571 88 783 541 270 604 721 23 673 1 751 599 2 130 655 178 329 1 020 141 1 219 917 37 640 13 723 207 23 332 108 8 394 546 Consumer and other loans As at 31 December 2021 and 2020, the details of the loan portfolio by segment and by reference year were as follows: Total 21 201 453 21 130 531 1 180 084 2 130 655 1 219 917 1 013 628 1 001 602 950 571 604 721 362 659 367 086 615 196 147 553 122 358 200 727 162 136 70 922 12 026 21 940 24 314 53 174 39 778 4 427 2 374 23 332 108 1 214 355 1 347 692 1 587 003 52 861 186 450 1 587 003 As at 31 December 2021 and 2020, the details of the loan portfolio by segment and by reference year were as follows: (in thousands of Euros) 31.12.2021 Year of 2004 and prior production 2005 2004 and prior 2006 Number of 3 886 operations 663 3 886 808 44 858 251 754 168 268 251 754 Amount 20 380 Impairment 1 090 237 Amount 8 193 Impairment Number of 58 196 operations 4 826 58 196 6 989 179 557 1 090 237 287 520 Number of operations Number of 736 275 operations 15 111 736 275 19 993 Amount Total Impairment 1 396 077 Amount 28 575 Impairment 230 881 1 396 077 463 287 Number of 674 193 operations 9 622 674 193 12 196 9 622 23 227 12 196 18 427 54 086 Amount 2 Impairment 6 466 54 086 7 499 6 466 9 766 7 499 8 455 269 2 808 269 526 808 304 4 602 20 380 33 528 4 602 47 712 33 528 31 258 47 712 19 262 31 258 32 221 19 262 47 648 32 221 36 521 47 648 86 678 15 111 35 098 230 881 712 560 19 993 29 799 463 287 955 491 4 826 10 832 179 557 433 898 6 989 10 340 287 520 468 928 10 832 8 099 433 898 400 808 10 340 7 720 468 928 424 284 8 099 4 146 400 808 191 270 7 720 2 307 424 284 82 796 4 146 2 686 191 270 127 725 663 1 039 44 858 268 896 808 1 032 168 268 478 108 1 039 822 268 896 192 832 1 032 953 478 108 180 669 822 968 192 832 183 065 953 1 243 180 669 235 250 968 1 587 183 065 419 132 2005 2007 2006 2008 2007 2009 2008 2010 2009 2011 2010 2012 2011 2013 2012 2014 2013 2015 2014 2016 2015 2017 2016 2018 2017 2019 2018 2020 2019 2021 2020 Total 2021 Total 23 227 10 777 9 766 16 420 526 9 222 35 098 19 698 712 560 610 060 18 427 16 591 8 455 21 945 304 555 29 799 25 264 955 491 626 898 10 777 18 055 16 420 13 257 9 222 381 19 698 23 169 610 060 387 592 16 591 24 783 21 945 11 479 555 491 25 264 28 333 626 898 329 525 18 055 22 115 13 257 19 703 381 1 815 23 169 26 388 387 592 566 560 1 243 1 653 235 250 310 977 36 521 113 995 2 307 1 710 82 796 92 430 819 719 24 783 20 551 11 479 13 349 491 424 28 333 23 914 329 525 416 756 37 831 115 138 1 587 2 457 419 132 607 522 86 678 106 205 2 686 2 633 127 725 159 906 1 653 3 564 310 977 638 085 113 995 50 094 1 710 5 459 92 430 365 317 22 115 26 067 19 703 110 583 20 551 41 939 13 349 65 244 1 815 96 719 23 583 424 26 388 31 157 566 560 878 011 89 996 203 727 23 914 50 962 416 756 1 068 646 115 138 75 629 2 457 6 104 607 522 863 002 106 205 55 074 2 633 8 457 159 906 662 614 26 067 47 247 110 583 79 283 96 719 7 392 31 157 100 343 878 011 1 604 899 203 727 66 172 3 564 7 630 638 085 1 492 690 50 094 84 909 5 459 9 644 365 317 882 450 41 939 56 365 65 244 134 694 23 583 6 847 50 962 73 639 1 068 646 2 509 834 75 629 95 350 6 104 9 113 863 002 2 399 569 55 074 147 112 8 457 9 886 662 614 955 084 47 247 62 443 79 283 218 276 7 392 11 720 100 343 81 442 1 604 899 3 572 929 66 172 162 325 7 630 10 891 1 492 690 2 452 419 84 909 59 859 9 644 7 148 882 450 709 118 56 365 40 602 134 694 170 741 6 847 6 963 73 639 58 641 2 509 834 3 332 278 95 350 68 929 9 113 12 497 2 399 569 2 378 631 147 112 37 197 9 886 7 262 955 084 819 904 62 443 58 848 218 276 304 243 11 720 8 856 81 442 78 607 3 572 929 3 502 778 162 325 47 636 10 891 66 910 13 565 727 2 452 419 59 859 1 014 255 7 148 168 340 709 118 8 333 846 2 107 44 625 40 602 1 184 048 170 741 1 265 489 6 963 176 877 1 457 833 23 165 062 3 332 278 58 641 68 929 1 235 757 12 497 2 378 631 37 197 7 262 819 904 1 583 58 848 304 243 8 856 78 607 3 502 778 47 636 66 910 13 565 727 1 014 255 168 340 8 333 846 44 625 1 184 048 1 265 489 176 877 1 457 833 23 165 062 1 516 8 193 1 715 1 516 3 331 1 715 3 221 3 331 2 351 3 221 2 898 2 351 1 121 2 898 819 1 121 1 503 1 503 803 719 1 952 803 3 706 1 952 3 594 3 706 3 493 3 594 2 107 3 493 1 583 Mortgage loans As at 31 December 2021 and 2020, the details of the loan portfolio by segment and by reference year were as follows: Number of operations Number of operations Year of production Amount Mortgage loans Amount Corporate Impairment Corporate 31.12.2021 Impairment Number of operations Amount Consumer and other loans Impairment Consumer and other loans Total (in thousands of Euros) 428 6 387 28 575 36 051 6 387 51 569 36 051 34 783 51 569 30 835 34 783 35 674 30 835 49 150 35 674 37 831 49 150 89 996 1 235 757 106 106 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 31.12.2020 Non Investment Grade Highly speculative 9 434 267 016 267 016 - - 3 247 135 2 863 559 383 576 140 510 - 140 510 2 375 213 - - - - - - - - 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 (in thousands of Euros) 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 (in thousands of Euros) (in thousands of Euros) Deposits with and loans and advances to banks 1 096 22 063 29 657 208 983 Prime +High Upper Medium Lower Medium grade Grade grade Speculative + Others Total 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 - - 32 670 32 670 2 335 007 2 322 904 12 103 51 608 - 51 608 7 689 385 As at 31 December 2021 and 2020, the breakdown of gross credit exposure and impairment by segment was 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 Perfoming Non-Perfoming Total Credit Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Corporate Mortgage loans Consumer and other loans 12 041 900 312 746 137 406 17 497 12 179 306 330 243 367 913 509 684 316 099 1 386 421 684 012 13 565 727 1 014 255 8 166 486 1 070 498 19 899 23 262 28 662 8 499 1 139 1 539 8 195 148 1 078 997 21 038 24 801 16 894 136 809 38 657 33 341 6 693 15 267 138 698 186 492 23 587 152 076 8 333 846 44 265 1 265 489 176 877 876 737 100 041 153 151 Total 21 278 884 355 907 174 567 20 175 21 453 451 376 082 1 129 929 521 616 581 682 338 059 1 711 611 859 675 23 165 062 1 235 397 31.12.2021 31.12.2020 Segment Performing or with a delay < 30 days With a delay > 30 days Total Days of delay Total <= 90 days > 90 days Exposure Impairment Perfoming Non-Perfoming Total Credit Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Exposure Impairment Corporate Mortgage loans Consumer and other loans 11 964 412 326 906 8 164 517 1 001 602 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 As at 31 December 2021 and 2020, the details of the loan portfolio by segment and by reference year were as follows: 31.12.2021 (in thousands of Euros) Corporate Mortgage loans Consumer and other loans Total Year of production Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment Number of operations Amount Impairment 2004 and prior 3 886 251 754 20 380 58 196 1 090 237 8 193 674 193 54 086 2 736 275 1 396 077 28 575 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 663 44 858 4 602 4 826 179 557 1 516 9 622 6 466 808 168 268 33 528 6 989 287 520 1 715 12 196 7 499 1 039 268 896 47 712 10 832 433 898 3 331 23 227 9 766 1 032 478 108 31 258 10 340 468 928 3 221 18 427 8 455 269 808 526 304 15 111 230 881 6 387 19 993 463 287 36 051 35 098 712 560 51 569 29 799 955 491 34 783 822 192 832 19 262 8 099 400 808 2 351 10 777 16 420 9 222 19 698 610 060 30 835 953 180 669 32 221 7 720 424 284 2 898 16 591 21 945 968 183 065 47 648 4 146 191 270 1 121 18 055 13 257 1 243 235 250 36 521 2 307 82 796 819 24 783 11 479 555 381 491 25 264 626 898 35 674 23 169 387 592 49 150 28 333 329 525 37 831 1 587 419 132 86 678 2 686 127 725 1 503 22 115 19 703 1 815 26 388 566 560 89 996 1 653 310 977 113 995 1 710 92 430 2 457 607 522 106 205 2 633 159 906 719 803 20 551 13 349 424 23 914 416 756 115 138 26 067 110 583 96 719 31 157 878 011 203 727 3 564 638 085 50 094 5 459 365 317 1 952 41 939 65 244 23 583 50 962 1 068 646 75 629 6 104 863 002 55 074 8 457 662 614 3 706 47 247 79 283 7 392 100 343 1 604 899 66 172 7 630 1 492 690 84 909 9 644 882 450 3 594 56 365 134 694 6 847 73 639 2 509 834 95 350 9 113 2 399 569 147 112 9 886 955 084 3 493 62 443 218 276 11 720 81 442 3 572 929 162 325 10 891 2 452 419 59 859 7 148 709 118 2 107 40 602 170 741 6 963 58 641 3 332 278 68 929 12 497 2 378 631 37 197 7 262 819 904 1 583 58 848 304 243 8 856 78 607 3 502 778 47 636 Total 66 910 13 565 727 1 014 255 168 340 8 333 846 44 625 1 184 048 1 265 489 176 877 1 457 833 23 165 062 1 235 757 106 429 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 31.12.2020 (in thousands of years) Year of production 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 2004 and prior 4 416 252 369 29 047 63 963 1 297 344 12 791 686 895 53 142 - 755 274 1 602 855 41 838 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 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 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 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 novobanco. 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 novobanco. 39.3.6 – Collaterals 39.3.6 – Collaterals 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: 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: 31.12.2021 31.12.2020 Credit Value Impairment Net Value Fair Value of Collateral Credit Value Impairment Net Value 8 109 060 161 599 63 186 8 333 845 243 002 213 452 809 035 1 265 489 3 485 173 2 029 706 8 050 849 13 565 728 ( 42 816) ( 286) ( 1 523) ( 44 625) ( 4 264) ( 119 813) ( 52 800) ( 176 877) ( 350 183) ( 160 203) ( 503 869) (1 014 255) 8 066 244 161 313 61 663 8 289 220 238 738 93 639 756 235 1 088 612 3 134 990 1 869 503 7 546 980 12 551 473 8 100 941 155 741 - 8 256 682 240 673 98 804 - 339 477 3 126 828 737 027 - 3 863 855 8 202 521 108 122 83 903 8 394 546 212 611 224 402 777 342 1 214 355 3 574 775 2 189 282 7 959 150 13 723 207 ( 47 784) ( 152) ( 4 925) ( 52 861) ( 7 105) ( 122 772) ( 56 573) ( 186 450) ( 552 283) ( 284 388) ( 511 021) (1 347 692) 8 154 737 107 970 78 978 8 341 685 205 506 101 630 720 769 1 027 905 3 022 492 1 904 894 7 448 129 12 375 515 Mortgage Loans Mortgages Pledges Not collaterized Other credit to individuals Mortgages Pledges Not collaterized Corporate Loans Mortgages Pledges Not collaterized 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 23 165 062 ( 1 235 757) 21 929 305 12 460 014 23 332 108 ( 1 587 003) 21 745 105 12 526 139 (in thousands of Euros) Fair Value of Collateral 8 189 574 107 653 - 8 297 227 210 025 108 797 - 318 822 3 093 988 816 102 - 3 910 090 430 107 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 31.12.2020 (in thousands of years) Year of production Number of operations Corporate Mortgage loans Consumer and other loans Total Amount Impairment Amount Impairment Amount Impairment Amount Impairment Number of operations Number of operations Number of operations 2004 and prior 4 416 252 369 29 047 63 963 1 297 344 12 791 686 895 53 142 - 755 274 1 602 855 41 838 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 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 24 178 15 969 944 28 066 571 675 194 650 3 301 717 339 134 254 2 888 180 326 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 3 073 787 127 428 739 786 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 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 novobanco. 39.3.6 – Collaterals 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: Mortgage Loans Mortgages Pledges Not collaterized Other credit to individuals Mortgages Pledges Not collaterized Corporate Loans Mortgages Pledges Not collaterized Total Credit Value Impairment Net Value Fair Value of Collateral Credit Value Impairment Net Value 31.12.2021 31.12.2020 8 109 060 161 599 63 186 8 333 845 243 002 213 452 809 035 1 265 489 3 485 173 2 029 706 8 050 849 13 565 728 ( 42 816) ( 286) ( 1 523) ( 44 625) ( 4 264) ( 119 813) ( 52 800) ( 176 877) ( 350 183) ( 160 203) ( 503 869) (1 014 255) 8 066 244 161 313 61 663 8 289 220 238 738 93 639 756 235 1 088 612 3 134 990 1 869 503 7 546 980 12 551 473 8 100 941 155 741 - 8 256 682 240 673 98 804 - 339 477 3 126 828 737 027 - 3 863 855 8 202 521 108 122 83 903 8 394 546 212 611 224 402 777 342 1 214 355 3 574 775 2 189 282 7 959 150 13 723 207 ( 47 784) ( 152) ( 4 925) ( 52 861) ( 7 105) ( 122 772) ( 56 573) ( 186 450) ( 552 283) ( 284 388) ( 511 021) (1 347 692) 8 154 737 107 970 78 978 8 341 685 205 506 101 630 720 769 1 027 905 3 022 492 1 904 894 7 448 129 12 375 515 (in thousands of Euros) Fair Value of Collateral 8 189 574 107 653 - 8 297 227 210 025 108 797 - 318 822 3 093 988 816 102 - 3 910 090 23 165 062 ( 1 235 757) 21 929 305 12 460 014 23 332 108 ( 1 587 003) 21 745 105 12 526 139 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: The details of the collateral – mortgages are presented as follows: 31.12.2021 (in tousands of Euros) Collateral Intervals a) Mortgage Loans Other Private Loans Corporate Loans Total Number Amount Number Amount Number Amount Number Amount <0,5M€ 162 672 7 875 489 5 625 227 443 >= 0,5M€ e <1,0M€ >= 1,0M€ e <5,0M€ >= 5,0M€ e <10,0M€ >= 10,0M€ e <20,0M€ >= 20,0M€ e <50,0M€ >=50M€ 264 47 161 929 63 523 - - - - - - - - 14 3 - - - - 6 039 7 191 - - - - 10 326 1 935 18 518 13 225 2 241 155 1 565 466 686 178 623 8 569 618 252 393 794 583 460 762 530 515 451 567 170 322 2 213 18 568 13 225 2 241 155 1 565 420 361 107 865 297 460 762 530 515 451 567 170 322 162 983 8 100 941 5 642 240 673 47 965 3 126 828 216 590 11 468 442 a) The allocation per intervals was made based on the total value of collateral per credit contract 31.12.2020 (in tousands of Euros) Collateral Intervals a) Mortgage Loans Other Private Loans Corporate Loans Total Number Amount Number Amount Number Amount Number Amount <0,5M€ 169 495 7 996 840 4 920 194 590 >= 0,5M€ e <1,0M€ >= 1,0M€ e <5,0M€ >= 5,0M€ e <10,0M€ >= 10,0M€ e <20,0M€ >= 20,0M€ e <50,0M€ >=50M€ 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 a) The allocation per intervals was made based on the total value of collateral per credit contract The values of mortgages collateral, 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:  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 Bank 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 7.6. 431 108 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The details of the collateral – mortgages are presented as follows: 31.12.2021 (in tousands of Euros) Collateral Intervals a) Mortgage Loans Other Private Loans Corporate Loans Total Number Amount Number Amount Number Amount Number Amount <0,5M€ 162 672 7 875 489 5 625 227 443 466 686 178 623 8 569 618 >= 0,5M€ e <1,0M€ >= 1,0M€ e <5,0M€ >= 5,0M€ e <10,0M€ >= 10,0M€ e <20,0M€ >= 20,0M€ e <50,0M€ >=50M€ 264 47 161 929 63 523 - - - - - - - - 14 3 - - - - 6 039 7 191 - - - - 10 326 1 935 18 518 13 225 2 241 155 1 565 252 393 794 583 460 762 530 515 451 567 170 322 2 213 18 568 13 225 2 241 155 1 565 420 361 865 297 460 762 530 515 451 567 170 322 162 983 8 100 941 5 642 240 673 47 965 3 126 828 216 590 11 468 442 a) The allocation per intervals was made based on the total value of collateral per credit contract 31.12.2020 (in tousands of Euros) Collateral Intervals a) Mortgage Loans Other Private Loans Corporate Loans Total Number Amount Number Amount Number Amount Number Amount <0,5M€ 169 495 7 996 840 4 920 194 590 >= 0,5M€ e <1,0M€ >= 1,0M€ e <5,0M€ >= 5,0M€ e <10,0M€ >= 10,0M€ e <20,0M€ >= 20,0M€ e <50,0M€ >=50M€ 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 a) The allocation per intervals was made based on the total value of collateral per credit contract The values of mortgages collateral, 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. The values of mortgages collateral, 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. 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. 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 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 relevant collaterals are essentially the following: The relevant collaterals are essentially the following:  Real estate, where the value considered is the correspondent to the last available valuation;  • 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 revaluation process for real estate is performed by independent valuation experts registered in CMVM, following the methodologies as described in Note 7.6. • 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 Bank 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 analysis of risk exposure by sector of activity, as at 31 December 2021 and 2020, is presented as follows: 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 Bank stipulated a set of procedures applicable to collateral (namely financial and 39.3.7 - Credit risk concentration 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 7.6. 432 108 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 39.3.7 – Credit risk concentration The analysis of risk exposure by sector of activity, as at 31 December 2021 and 2020, is presented as follows: 31.12.2021 (in thousands of Euros) Loans and advances to customers Gross amount 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 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 311 832 40 882 507 539 366 985 79 044 108 090 148 885 11 459 337 394 166 695 389 961 170 624 118 847 140 459 293 197 1 288 788 1 366 114 1 029 948 861 457 483 518 1 650 174 2 429 405 571 501 581 079 8 333 846 1 265 489 111 850 ( 8 492) ( 333) ( 14 190) ( 13 791) ( 728) ( 2 866) ( 10 071) ( 20) ( 5 155) ( 3 112) ( 11 905) ( 9 123) ( 3 514) ( 10 598) ( 3 320) ( 134 972) ( 40 405) ( 96 443) ( 51 305) ( 44 807) ( 144 160) ( 238 573) ( 22 809) ( 75 218) ( 44 625) ( 176 877) ( 68 345) - - - - - - - - - - - - - - - - - - - - - - 114 465 - - - - 397 - 7 233 290 5 500 96 - 271 - 370 159 43 - 17 062 75 005 765 191 49 111 101 455 6 281 3 250 - 758 - - 2 - - - - - - - - - - - - - - - - - - - 2 133 630 2 751 111 549 - 2 378 - - - - - - - - - - - - - - - - - - - - - - 20 150 - - - - - - - Financial assets at fair value through other comprehensive income Financial assets at amortised cost Guarantees and endorsements provided Gross amount 29 007 14 189 - - - - - - 19 410 - 16 235 66 078 - - 53 579 - 40 669 118 96 999 909 281 908 78 561 5 685 319 123 155 - - - Impairment ( 14) ( 13) - - - - - - ( 13) - ( 11) ( 49) - - ( 41) - ( 29) - ( 61) ( 317) - ( 45) ( 2 995) ( 80) - - - Gross amount 20 249 19 391 75 391 4 298 1 501 2 199 1 497 40 793 133 694 33 754 1 299 48 010 15 046 4 983 113 203 196 417 49 398 - 42 850 1 045 549 178 280 655 753 371 273 83 637 - - - Impairment Gross amount Impairment ( 45) ( 4) ( 195) ( 2) ( 6) ( 12) ( 4) ( 22) ( 123) ( 153) ( 62) ( 24) ( 8) ( 20) ( 3 988) ( 94 332) ( 53) - ( 178) ( 2 254) ( 33 430) ( 111 600) ( 540) ( 717) - - - 11 175 5 841 49 419 7 450 1 363 7 322 2 150 4 022 18 453 15 122 31 575 20 425 10 625 19 208 33 018 667 673 200 010 51 565 347 343 151 950 107 266 386 254 19 965 36 158 - - 16 223 ( 6 318) ( 183) ( 319) ( 741) ( 122) ( 259) ( 18) ( 1) ( 80) ( 297) ( 456) ( 2 248) ( 526) ( 2 821) ( 687) ( 37 863) ( 3 401) ( 1 024) ( 2 008) ( 3 408) ( 5 075) ( 10 111) ( 108) ( 959) - - ( 306) TOTAL 23 165 062 ( 1 235 757) 114 465 263 244 2 250 308 20 150 7 133 508 ( 3 668) 3 138 465 ( 247 772) 2 221 575 ( 79 339) 31.12.2020 (in thousands of Euros) Loans and advances to customers Gross amount 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 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 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 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) 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) 433 109 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Exposure to public debt in peripheral Eurozone countries As at 31 December 2021 and 2020, the Bank’s exposure to the public debt of “peripheral” countries in the Eurozone is as follows: Exposure to public debt in peripheral Eurozone countries As at 31 December 2021 and 2020, the Bank's exposure to the public debt of “peripheral” countries in the Eurozone is as follows: 31.12.2021 (in thousands of Euros) Loans to customers Securities held for trading Derivative Instruments (1) Securities at fair value through other comprehensive income Securities at amortized cost Total 546 563 - - - 114 465 - - - 546 563 114 465 - - - - - 2 492 521 1 619 260 171 608 148 601 370 733 - - - 3 524 282 1 619 260 171 608 148 601 4 431 990 370 733 5 463 751 Portugal Spain Ireland Italy (1) Amounts presented by net: receivable / (payable) 31.12.2020 (in thousands of Euros) 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 - - - 582 452 267 016 ( 16) - - - ( 16) 2 696 862 2 039 075 237 844 52 044 458 556 - - - 4 004 870 2 039 075 237 844 52 044 5 025 825 458 556 6 333 833 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. 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. The detail on the exposure to securities is as follows: (in thousands of Euros) The detail on the exposure to securities is as follows: 31.12.2021 Nominal value Quotation Value Accrued interest Book value Impairment Fair Value Reserves Securities at fair value through other comprehensive income Portugal Maturity up to 1 year Maturity over 1 year Spain Maturity up to 1 year Maturity over 1 year Ireland Italy Maturity over 1 year Maturity over 1 year Securities at amortized cost Portugal Maturity over 1 year Securities held for trading Portugal 2 231 290 411 385 1 819 905 1 529 200 755 000 774 200 153 600 153 600 148 561 148 561 2 466 964 418 663 2 048 301 1 594 096 758 261 835 835 170 350 170 350 148 286 148 286 25 557 1 581 23 976 25 164 17 334 7 830 1 258 1 258 315 315 2 492 521 420 244 2 072 277 1 619 260 775 595 843 665 171 608 171 608 148 601 148 601 369 646 369 646 418 828 418 828 369 646 418 828 1 627 1 627 1 627 370 733 370 733 370 733 106 500 114 017 106 500 114 017 448 448 114 465 114 465 - - - - - - - - - - 540 540 540 - - 434 86 400 2 986 83 414 46 283 1 729 44 554 13 457 13 457 215 215 - - - - - 110 4 062 651 4 379 696 52 294 4 431 990 - 146 355 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Exposure to public debt in peripheral Eurozone countries As at 31 December 2021 and 2020, the Bank's exposure to the public debt of “peripheral” countries in the Eurozone is as follows: (in thousands of Euros) (1) Amounts presented by net: receivable / (payable) 546 563 114 465 4 431 990 370 733 5 463 751 31.12.2021 Securities at fair value Loans to Securities held customers for trading Derivative Instruments (1) through other Securities at comprehensive amortized cost Total 546 563 114 465 370 733 income 2 492 521 1 619 260 171 608 148 601 income 2 696 862 2 039 075 237 844 52 044 - - - - - - - - 3 524 282 1 619 260 171 608 148 601 (in thousands of Euros) 4 004 870 2 039 075 237 844 52 044 - - - - - - 31.12.2020 Securities at fair value Loans to Securities held customers for trading Derivative Instruments (1) through other Securities at comprehensive amortized cost Total 582 452 267 016 ( 16) 458 556 - - - - - - - - - - - - Portugal Spain Ireland Italy Portugal Spain Ireland Italy (1) Amounts presented by net: receivable / (payable) 582 452 267 016 ( 16) 5 025 825 458 556 6 333 833 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. The detail on the exposure to securities is as follows: 31.12.2021 Nominal value Quotation Value Accrued interest Book value Impairment Fair Value Reserves (in thousands of Euros) Securities at fair value through other comprehensive income Portugal Maturity up to 1 year Maturity over 1 year Spain Maturity up to 1 year 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 2 231 290 411 385 1 819 905 1 529 200 755 000 774 200 153 600 153 600 148 561 148 561 2 466 964 418 663 2 048 301 1 594 096 758 261 835 835 170 350 170 350 148 286 148 286 25 557 1 581 23 976 25 164 17 334 7 830 1 258 1 258 315 315 2 492 521 420 244 2 072 277 1 619 260 775 595 843 665 171 608 171 608 148 601 148 601 - - - - - - - - - - 86 400 2 986 83 414 46 283 1 729 44 554 13 457 13 457 215 215 4 062 651 4 379 696 52 294 4 431 990 - 146 355 369 646 369 646 418 828 418 828 369 646 418 828 1 627 1 627 1 627 370 733 370 733 370 733 106 500 114 017 106 500 114 017 448 448 114 465 114 465 540 540 540 - - - - - - - 31.12.2020 Nominal value Quotation Value Accrued interest Book value Impairment Fair Value Reserves (in thousands of Euros) Securities at fair value through other comprehensive income 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 52 044 110 125 602 600 125 002 75 509 74 029 39 340 39 340 2 561 2 561 - - - - - - - - - 4 485 053 4 972 197 53 628 5 025 825 - 243 012 413 438 413 438 472 552 472 552 413 438 472 552 213 500 264 033 213 500 264 033 1 754 1 754 1 754 2 983 2 983 458 556 458 556 458 556 267 016 267 016 576 576 576 - - - - - - - 39.3.8 - Forborne modified loans 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 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 of 31 December 2021 and 2020, are as follows: 435 Corporate Mortgage loans Consumer and other loans Total 31.12.2021 31.12.2020 (in thousands of Euros) 1 272 621 128 219 137 276 1 778 103 129 041 146 359 1 538 116 2 053 503 The details of the restructuring measures applied to restructured loans up to 31 December 2021 and 2020 are shown below: Solution Performing No. Transaction No. Transaction Total No. Transaction Exposure Impairment Exposure Impairment Exposure Impairment 31.12.2021 Non - Performing (in thousands of Euros) 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 14 027 1 886 163 190 98 330 135 177 217 100 216 37 16 35 335 82 112 3 1 307 2 100 170 750 389 220 1 043 6 754 27 700 10 549 6 994 2 017 145 346 12 664 60 170 783 459 390 228 675 1 193 17 015 98 19 100 422 859 80 24 44 2 274 434 881 272 462 824 101 332 632 420 79 248 121 570 55 167 19 823 8 682 1 997 7 069 195 46 515 57 096 25 157 6 050 2 885 1 694 3 265 35 135 1 729 2 959 415 106 156 5 1 463 86 002 292 320 82 867 30 372 15 676 4 014 1 467 24 084 5 220 646 069 77 746 1 922 892 047 513 649 7 142 1 538 116 591 395 340 46 861 69 760 25 940 6 509 3 275 1 922 3 940 111 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Securities at fair value through other comprehensive income 31.12.2020 Securities at fair value through other comprehensive income 31.12.2020 Nominal Quotation Accrued value Value interest Book value Impairment (in thousands of Euros) Fair Value Reserves (in thousands of Euros) 2 346 882 Nominal 196 679 value 2 150 203 2 671 267 Quotation 199 933 Value 2 471 334 25 595 Accrued interest 913 24 682 2 696 862 Book value 200 846 2 496 016 Impairment Fair Value 125 602 Reserves 600 125 002 Portugal Maturity up to 1 year Maturity over 1 year Spain Portugal Maturity over 1 year Maturity up to 1 year Ireland Maturity over 1 year Maturity over 1 year Spain Italy Maturity over 1 year Maturity over 1 year Ireland Maturity over 1 year Italy Securities at amortized cost Maturity over 1 year Portugal Maturity over 1 year Securities at amortized cost Portugal Securities held for trading Maturity over 1 year Portugal 1 894 750 2 346 882 1 514 750 196 679 193 600 2 150 203 193 600 1 894 750 1 514 750 49 821 49 821 193 600 4 485 053 193 600 49 821 49 821 413 438 413 438 4 485 053 2 012 871 2 671 267 1 630 359 199 933 236 205 2 471 334 236 205 2 012 871 1 630 359 51 854 51 854 236 205 4 972 197 236 205 51 854 51 854 472 552 472 552 4 972 197 413 438 472 552 413 438 413 438 213 500 472 552 472 552 264 033 413 438 213 500 472 552 264 033 26 204 25 595 25 144 913 1 639 24 682 1 639 26 204 25 144 190 190 1 639 53 628 1 639 190 190 1 754 1 754 53 628 1 754 1 754 1 754 2 983 1 754 2 983 2 039 075 2 696 862 1 655 503 200 846 237 844 2 496 016 237 844 2 039 075 1 655 503 52 044 52 044 237 844 5 025 825 237 844 52 044 52 044 458 556 458 556 5 025 825 458 556 458 556 458 556 267 016 458 556 267 016 - - - - - - - - - - - - - - - - - - - 576 576 - 576 576 576 - 576 - 75 509 125 602 74 029 600 39 340 125 002 39 340 75 509 2 561 74 029 2 561 39 340 243 012 39 340 2 561 2 561 243 012 - - - - - - - - - Securities held for trading 39.3.8 - Forborne modified loans Portugal 213 500 264 033 2 983 267 016 - 213 500 264 033 2 983 267 016 - 39.3.8 - Forborne modified loans 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, 39.3.8 - Forborne modified loans 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 The Bank proceeds to the identification and register of restructured credit contracts due to the client's financial difficulties whenever 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 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, of the contract are more favorable than those applied to other customers with the same risk profile. 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 The cancellation of a restructured credit due to the client's financial difficulties can only occur after a minimum period of two years 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 from the date of the restructuring, provided that the following conditions are cumulatively fulfilled: (i) regular payment of capital and of the contract are more favorable than those applied to other customers with the same risk profile. 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 The amounts of the restructured loans due to financial difficulties of the customer as of 31 December 2021 and 2020, are as follows: 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 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 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 of 31 December 2021 and 2020, are as follows: - (in thousands of Euros) The amounts of the restructured loans due to financial difficulties of the customer as of 31 December 2021 and 2020, are as follows: 31.12.2021 31.12.2020 Corporate Mortgage loans Consumer and other loans 1 272 621 128 219 137 276 31.12.2021 (in thousands of Euros) 1 778 103 129 041 146 359 31.12.2020 The details of the restructuring measures applied to restructured loans up to 31 December 2021 and 2020 are shown below: The details of the restructuring measures applied to restructured loans up to 31 December 2021 and 2020 are shown below: Performing Total Solution 31.12.2021 Non - Performing 1 538 116 (in thousands of Euros) 2 053 503 Total The details of the restructuring measures applied to restructured loans up to 31 December 2021 and 2020 are shown below: Exposure Impairment Impairment Exposure No. Transaction Exposure Impairment (in thousands of Euros) No. Transaction 37 16 35 No. Transaction 1 307 14 027 1 043 Performing 6 754 Exposure 170 750 No. Transaction 1 886 145 98 31.12.2021 163 190 98 330 135 177 217 100 216 19 Non - Performing 420 195 35 346 Impairment 12 664 100 No. Transaction 422 79 248 Exposure 121 570 46 515 Impairment 57 096 135 No. Transaction 1 729 1 463 Total 86 002 Exposure 292 320 1 272 621 1 538 116 128 219 137 276 1 778 103 2 053 503 129 041 146 359 2 100 37 335 16 82 35 112 1 307 3 2 100 1 193 335 82 5 220 112 389 220 14 027 27 700 1 043 10 549 6 754 6 994 170 750 2 017 389 220 17 015 27 700 10 549 646 069 6 994 3 2 017 1 193 17 015 60 170 1 886 783 145 459 346 390 12 664 228 60 170 675 783 459 77 746 390 228 675 859 98 80 19 24 100 44 422 2 859 274 80 24 1 922 44 2 274 434 881 163 190 55 167 420 19 823 79 248 8 682 121 570 1 997 434 881 7 069 55 167 19 823 892 047 8 682 1 997 7 069 272 462 98 330 25 157 195 6 050 46 515 2 885 57 096 1 694 272 462 3 265 25 157 6 050 513 649 2 885 1 694 3 265 2 959 135 415 35 106 135 156 1 729 5 2 959 1 467 415 106 7 142 156 824 101 177 217 82 867 1 463 30 372 86 002 15 676 292 320 4 014 824 101 24 084 82 867 30 372 1 538 116 15 676 5 4 014 1 467 24 084 340 46 861 Impairment 69 760 332 632 100 216 25 940 340 6 509 46 861 3 275 69 760 1 922 332 632 3 940 25 940 6 509 591 395 3 275 111 1 922 3 940 5 220 646 069 77 746 1 922 892 047 513 649 7 142 1 538 116 591 395 111 436 Corporate Total Mortgage loans Consumer and other loans Principal or interest forgiveness Assets received in partial settlement of loan Solution Capitalization of interest New loan in total or partial payment of existing loan Extension of repayment period Principal or interest forgiveness Introduction of grace period of principal or interest Assets received in partial settlement of loan Decrease in the interest rates Capitalization of interest Changes of the lease payment plan New loan in total or partial payment of existing loan Changes in the interest paymen Extension of repayment period Other Introduction of grace period of principal or interest Decrease in the interest rates Total Changes of the lease payment plan Changes in the interest paymen Other Total 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Solution Principal or interest forgiveness Assets received in partial settlement of loan Solution Capitalization of interest New loan in total or partial payment of existing loan Principal or interest forgiveness Extension of repayment period Assets received in partial settlement of loan Introduction of grace period of principal or interest Capitalization of interest Decrease in the interest rates New loan in total or partial payment of existing loan Changes of the lease payment plan Extension of repayment period Changes in the interest paymen Introduction of grace period of principal or interest Other Decrease in the interest rates Total Changes of the lease payment plan Changes in the interest paymen Other 39.4 - Market risk Total Performing 31.12.2020 Non - Performing Exposure Impairment No. Transaction Exposure Impairment 57 740 Performing 1 104 3 922 159 Exposure 12 951 Impairment 995 87 691 57 740 513 686 1 104 33 497 12 951 13 795 87 691 9 574 513 686 15 33 497 25 256 13 795 755 309 9 574 10 024 3 922 81 688 159 1 504 995 466 10 024 783 81 688 1 1 504 1 108 466 100 650 783 31.12.2020 171 857 Non - Performing 2 043 147 21 103 632 1 893 No. 181 Transaction 549 147 908 21 106 181 30 549 71 908 2 106 640 30 2 655 71 Exposure 123 462 Impairment 74 085 228 736 171 857 585 153 2 043 60 007 123 462 65 171 228 736 39 596 585 153 2 769 60 007 19 400 65 171 1 298 194 39 596 145 098 103 632 379 784 1 893 28 009 74 085 23 549 145 098 21 771 379 784 2 380 28 009 13 865 23 549 794 066 21 771 No. Transaction 43 20 No. 43 Transaction 1 453 43 2 052 20 332 43 100 1 453 118 2 052 4 332 1 381 100 5 546 118 (in thousands of Euros) Total Exposure Impairment (in thousands of Euros) 229 597 Total 3 147 107 554 2 052 Exposure 136 413 Impairment 75 080 316 427 229 597 1 098 839 3 147 93 504 136 413 78 966 316 427 49 170 1 098 839 2 784 93 504 44 656 78 966 2 053 503 49 170 155 122 107 554 461 472 2 052 29 513 75 080 24 015 155 122 22 554 461 472 2 381 29 513 14 973 24 015 894 716 22 554 No. Transaction 190 41 No. 224 Transaction 2 002 190 2 960 41 438 224 130 2 002 189 2 960 6 438 2 021 130 8 201 189 4 15 1 2 2 769 2 380 6 2 784 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 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. 39.4 - Market risk 39.4 - Market risk 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 to fluctuations Committee) structure, being this risk monitored by the Risk Committee. 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 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 Market risk management is integrated with the balance sheet management through the CALCO (Capital Asset and Liability Risk (VaR) methodology is used. The Bank uses the Monte Carlo simulation in the VaR model, based on a confidence level of 99% Committee) structure, being this risk monitored by the Risk Committee. 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 The main measurement of market risk is the assessment of potential losses under adverse market conditions, for which the Value at higher than those considered by the VaR measurement. Risk (VaR) methodology is used. The Bank uses the Monte Carlo simulation in the VaR model, 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. December Annual average Maximum Minimum December Annual average Maximum Minimum (in thousands of Euros) Net Value Net Value 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. The Bank uses the Monte Carlo simulation in the VaR model, 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 Exchange risk Credit spread Interest rate risk Diversification effect Shares and commodities Total Volatility Credit spread Diversification effect 3 464 41 240 225 422 3 464 4 146 41 240 ( 7 032) 225 42 465 422 4 146 ( 7 032) novobanco has a value at risk (VaR) of approximately Euro 13,436 thousand (31 December 2020: Euro 15,781 thousand) for its trading positions. The decrease is mainly explained by the increase in the position in derivatives to hedge interest rate risk in the 42 465 banking portfolio. 735 14 433 80 December Annual average Maximum Minimum December Annual average Maximum Minimum 37 735 1 640 14 433 ( 1 144) 80 15 781 37 1 640 ( 1 144) 1 966 24 522 Net Value 33 66 1 966 1 329 24 522 ( 3 017) 33 24 899 66 1 329 ( 3 017) 2 138 35 495 Net Value 192 139 2 138 5 051 35 495 ( 5 290) 192 37 725 139 5 051 ( 5 290) 6 154 70 332 378 523 6 154 12 960 70 332 ( 14 746) 378 75 601 523 12 960 ( 14 746) 896 14 433 183 37 896 2 652 14 433 ( 2 420) 183 15 781 37 2 652 ( 2 420) 807 10 628 0 0 807 579 10 628 1 422 0 13 436 0 579 1 422 2 551 31 454 3 0 2 551 719 31 454 ( 4 399) 3 30 329 0 719 ( 4 399) (in thousands of Euros) 30 329 24 899 75 601 37 725 15 781 15 781 13 436 Total novobanco has a value at risk (VaR) of approximately Euro 13,436 thousand (31 December 2020: Euro 15,781 thousand) for its trading positions. The decrease is mainly explained by the increase in the position in derivatives to hedge interest rate risk in the banking portfolio. 437 112 112 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes novobanco has a value at risk (VaR) of approximately Euro 13,436 thousand (31 December 2020: Euro 15,781 thousand) for its trading positions. The decrease is mainly explained by the increase in the position in derivatives to hedge interest rate risk in the banking portfolio. 39.4.1. Interest rate risk 39.4.1 - Interest rate risk In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, novobanco 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- pricing intervals. In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, novobanco 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-pricing intervals. Eligible amounts Not sensitive Up to 3 months Loans to and deposits with banks Loans and advances to customers Securities Other assets 5 790 475 22 211 085 10 238 741 399 920 Deposits from banks Due to customers Debt securities issued Other liabilities Total Total Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Accumulated GAP 11 493 449 26 981 348 2 540 658 257 274 - (2 632 509) ( 4 829) (2 637 338) - - - - - - - - - Eligible amounts Not sensitive Up to 3 months Loans to and deposits with banks Loans and advances to customers Securities Other assets 2 693 914 23 657 850 10 866 377 1 254 599 Deposits from banks Due to customers Debt securities issued Other liabilities Total Total Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Accumulated GAP 10 776 491 27 658 208 2 529 491 236 632 - (2 728 081) 17 178 (2 710 903) - - - - - - - - - 14 774 042 4 050 213 4 804 560 10 245 347 4 766 061 (in thousands of Euros) 31.12.2021 3 to 6 months 100 000 3 148 017 802 196 - 6 months to 1 year 1 to 5 years More than 5 years 10 967 3 829 143 964 450 - 32 522 6 556 216 3 656 609 - 14 1 462 417 3 303 630 - 4 778 199 2 264 928 - 28 687 - 7 071 814 (3 021 602) 813 050 (2 208 552) (6 886 609) 31.12.2020 3 to 6 months 104 150 3 260 488 313 277 598 312 321 025 3 830 371 275 000 54 587 - 4 480 983 323 577 ( 99 357) 224 220 (6 662 389) ( 569) 3 571 640 700 000 55 517 - 4 326 588 5 918 758 (1 307 266) 4 611 492 (2 050 897) 292 767 1 215 353 1 565 658 - - 3 073 778 1 692 282 (2 278 723) ( 586 441) (2 637 338) (in thousands of Euros) 6 months to 1 year 1 to 5 years More than 5 years 12 089 3 081 189 708 929 - 39 456 6 809 586 4 464 016 - - 2 552 929 3 697 564 - 5 646 973 7 215 292 1 511 857 399 920 6 102 027 16 099 055 - 118 484 - 22 319 566 (7 545 524) 2 867 467 (4 678 057) (4 678 057) 2 538 219 7 953 658 1 682 592 656 287 12 830 756 4 276 227 3 802 207 11 313 058 6 250 493 5 852 971 14 420 502 - 114 681 - 20 388 154 (7 557 399) 2 581 791 (4 975 608) (4 975 608) 4 004 466 2 663 097 - 25 299 - 6 692 862 (2 416 634) 1 543 874 ( 872 760) (5 848 368) 475 822 4 343 730 - 47 614 - 4 867 166 (1 064 960) ( 118 153) (1 183 113) (7 031 481) 217 151 6 190 846 - 49 037 - 6 457 034 4 856 024 (1 800 054) 3 055 969 (3 975 512) 226 081 40 032 2 529 491 1 - 2 795 605 3 454 888 (2 190 279) 1 264 608 (2 710 903) 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. 438 As at 31 December Exercise average Exercise maximum Exercise minimum 31.12.2021 (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 75 258 8 175 75 258 ( 21 605) 49 546 64 196 81 887 49 546 ( 55 767) ( 59 017) ( 55 767) ( 63 163) 68 719 70 148 77 666 65 671 87 821 52 295 87 821 34 359 ( 100 929) ( 44 255) ( 15 767) ( 100 929) 113 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 39.4.1. Interest rate risk pricing intervals. 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 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 Total In accordance with the recommendations of European Banking Authority presented in the document EBA/GL/2018/02, novobanco 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- Eligible amounts Not sensitive Up to 3 months (in thousands of Euros) 31.12.2021 3 to 6 months 100 000 3 148 017 802 196 5 646 973 7 215 292 1 511 857 399 920 6 months to 1 year 1 to 5 years 10 967 3 829 143 964 450 - 32 522 6 556 216 3 656 609 - More than 5 years 14 1 462 417 3 303 630 Total 14 774 042 4 050 213 4 804 560 10 245 347 4 766 061 Balance sheet GAP (Assets - Liabilities) (2 632 509) Total 22 319 566 7 071 814 4 480 983 4 326 588 3 073 778 Eligible amounts Not sensitive Up to 3 months 6 months to 1 year 1 to 5 years More than 5 years Total 12 830 756 4 276 227 3 802 207 11 313 058 6 250 493 - - - - - - 6 102 027 16 099 055 4 778 199 2 264 928 118 484 28 687 - - 321 025 3 830 371 275 000 54 587 - ( 569) 3 571 640 700 000 55 517 - 292 767 1 215 353 1 565 658 (7 545 524) 2 867 467 (4 678 057) (4 678 057) (3 021 602) 813 050 (2 208 552) (6 886 609) 323 577 ( 99 357) 224 220 (6 662 389) 5 918 758 (1 307 266) 4 611 492 (2 050 897) 1 692 282 (2 278 723) ( 586 441) (2 637 338) (in thousands of Euros) 31.12.2020 3 to 6 months 104 150 3 260 488 313 277 598 312 4 004 466 2 663 097 - 25 299 - 6 692 862 (2 416 634) 1 543 874 ( 872 760) (5 848 368) 2 538 219 7 953 658 1 682 592 656 287 5 852 971 14 420 502 - 114 681 - 20 388 154 (7 557 399) 2 581 791 (4 975 608) (4 975 608) 12 089 3 081 189 708 929 - 39 456 6 809 586 4 464 016 - 2 552 929 3 697 564 - - 475 822 4 343 730 - 47 614 - 4 867 166 (1 064 960) ( 118 153) (1 183 113) (7 031 481) 217 151 6 190 846 - 49 037 - 6 457 034 4 856 024 (1 800 054) 3 055 969 (3 975 512) 226 081 40 032 2 529 491 1 - 2 795 605 3 454 888 (2 190 279) 1 264 608 (2 710 903) - - - - - - - - - - - - - - - - - - 5 790 475 22 211 085 10 238 741 399 920 11 493 449 26 981 348 2 540 658 257 274 - ( 4 829) (2 637 338) 2 693 914 23 657 850 10 866 377 1 254 599 10 776 491 27 658 208 2 529 491 236 632 - (2 728 081) 17 178 (2 710 903) Balance sheet GAP (Assets - Liabilities) Off-Balance sheet Structural GAP Accumulated GAP 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. 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. 31.12.2021 (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 75 258 8 175 75 258 ( 21 605) 49 546 64 196 81 887 49 546 ( 55 767) ( 59 017) ( 55 767) ( 63 163) 68 719 70 148 77 666 65 671 87 821 52 295 87 821 34 359 ( 100 929) ( 44 255) ( 15 767) ( 100 929) 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 ( 119 060) 101 005 222 085 ( 119 060) 58 714 ( 14 077) 58 714 ( 61 170) ( 79 332) 112 856 237 860 ( 79 332) 51 919 ( 17 148) 51 919 ( 87 651) ( 5 075) ( 86 325) ( 5 075) ( 177 904) 113 19 167 110 212 183 559 19 167 As at 31 December Exercise average Exercise maximum Exercise minimum As at 31 December Exercise average Exercise maximum Exercise minimum 39.4.2 - IBOR Reform 39.4.2 - IBOR Reform 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 Bank 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. Regarding bilateral derivatives, in the course of 2021, the Bank re-negotiated several CSA agreements to change to risk free rate curves, and in cases where no agreement was reached, the curves were changed to EUR €STR + 8.5 basis points. 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). In relation to other financial instruments, taking into consideration the Bank's reduced exposure to instruments in currency instruments, there were no relevant impacts. 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). In relation to other financial instruments, taking into consideration the Bank’s reduced exposure to instruments in currency instruments, there were no relevant impacts. The following table presents the average interest rates for the Bank major financial asset and liability categories, as of 31 December 2021 and 2020, as well as the respective average balances and interest for the exercise: 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 Bank 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. Regarding bilateral derivatives, in the course of 2021, the Bank re-negotiated several CSA agreements to change to risk free rate curves, and in cases where no agreement was reached, the curves were changed to EUR €STR + 8.5 basis points. In accordance with the principle of implementation of the aforementioned regulation, that no substantial changes to the original objective of risk management The following table presents the average interest rates for the Bank major financial asset and liability categories, as of 31 December 2021 and 2020, as well as the respective average balances and interest for the exercise: 31.12.2021 31.12.2020 Average balance of the period 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 4 566 715 23 162 232 11 254 711 2 653 492 762 154 879 Financial assets and differentials 38 983 658 650 294 Monetary Liabilities Due to customers Differential liabilities Net interest income 11 252 385 25 988 282 712 741 ( 66 125) 50 231 14 423 581 084 0.06% 2.10% 1.36% 1.65% -0.58% 0.19% 2.00% 0.18% 1.47% 2 964 259 23 007 206 11 859 535 17 085 517 579 168 766 37 831 000 703 430 10 739 033 25 233 793 965 587 ( 12 781) 69 990 9 851 567 999 0.57% 2.22% 1.40% 1.83% -0.12% 0.27% 1.01% 0.35% 1.48% Financial liabilities and differentials 38 983 658 69 210 37 831 000 135 431 439 114 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 31.12.2020 (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 ( 119 060) 101 005 222 085 ( 119 060) 58 714 ( 14 077) 58 714 ( 61 170) ( 79 332) 112 856 237 860 ( 79 332) 51 919 ( 17 148) 51 919 ( 87 651) ( 5 075) ( 86 325) ( 5 075) ( 177 904) 19 167 110 212 183 559 19 167 As at 31 December Exercise average Exercise maximum Exercise minimum 39.4.2 - IBOR Reform 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 Bank 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. Regarding bilateral derivatives, in the course of 2021, the Bank re-negotiated several CSA agreements to change to risk free rate curves, and in cases where no agreement was reached, the curves were changed to EUR €STR + 8.5 basis points. 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). In relation to other financial instruments, taking into consideration the Bank's reduced exposure to instruments in currency instruments, there were no relevant impacts. The following table presents the average interest rates for the Bank major financial asset and liability categories, as of 31 December 2021 and 2020, as well as the respective average balances and interest for the exercise: 31.12.2021 31.12.2020 Average balance of the period 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 4 566 715 23 162 232 11 254 711 2 653 492 762 154 879 Financial assets and differentials 38 983 658 650 294 Monetary Liabilities Due to customers Differential liabilities 11 252 385 25 988 282 712 741 ( 66 125) 50 231 14 423 Financial liabilities and differentials 38 983 658 69 210 Net interest income 581 084 0.06% 2.10% 1.36% 1.65% -0.58% 0.19% 2.00% 0.18% 1.47% 2 964 259 23 007 206 11 859 535 17 085 517 579 168 766 37 831 000 703 430 10 739 033 25 233 793 965 587 ( 12 781) 69 990 9 851 37 831 000 135 431 567 999 0.57% 2.22% 1.40% 1.83% -0.12% 0.27% 1.01% 0.35% 1.48% 39.4.3 - Exchange rate risk 39.4.3 - Exchange rate risk Regarding foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December 2021 and 2020, is analyzed as follows: Regarding foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December 2021 and 2020, is analyzed as follows: 31.12.2021 31.12.2020 (in thousands of Euros) Spot Positions Term positions Other elements Net Position Spot Positions Term positions Other elements Net Position USD UNITED STATES DOLLAR GBP GREAT BRITISH POUND 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 ( 177 489) ( 42 549) 783 ( 6 542) ( 1 353) ( 13 303) 19 751 54 362 ( 18 620) 1 128 10 216 2 2 256 ( 2 996) ( 14) ( 1) PLN POLISH ZLOTY 36 099 CZK CZECH KORUNA DZD ALGERIAN DINAR 16 208 5 507 169 546 47 842 - 6 885 2 310 16 281 ( 19 077) ( 54 035) 21 502 ( 1 207) ( 9 990) - - 2 936 9 - ( 35 643) ( 17 041) - CNY YUAN REN-MIN-BI 51 351 ( 50 975) OTHERS ( 3 337) 2 334 ( 15) - - - - - - - - - - - - - - - - - - - - ( 68 541) 81 677 ( 15) Note: assets / (liabilities) 39.5 - Liquidity risk ( 7 958) 5 293 ( 752 913) ( 67 061) 779 774 69 964 ( 72 362) 9 804 99 ( 2 067) - - - 2 067 10 903 ( 19 334) ( 46 086) 3 518 ( 230) ( 4 615) - - 2 984 373 - ( 29 125) ( 9 979) - ( 9 487) ( 19 344) - - - - - - - - - - - - - - - - 26 960 836 1 082 192 1 919 2 246 189 637 2 233 ( 270) 387 1 2 124 ( 97) 175 8 781 ( 855) 114 ( 406) 4 447 ( 68) ( 27 560) 73 444 ( 9 612) ( 148) ( 8 657) 19 523 46 723 ( 1 285) ( 40) 5 002 1 2 124 ( 3 081) ( 198) 8 781 28 270 9 573 4 447 9 419 ( 8 216) ( 643 904) 666 758 99 22 953 783 343 957 2 978 674 327 2 882 ( 79) 226 2 2 256 ( 60) ( 5) ( 1) 456 ( 833) 5 507 376 ( 1 003) 13 121 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:   value; 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 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 of 31 December 2021, the value of the asset portfolio eligible as collateral for rediscounting operations with the ECB, after haircuts, amounted to Euro 16.5 billion (31 December 2020: Euro 16.6 billion). This amount includes all the exposure to Portuguese sovereign debt, in the total amount of approximately Euro 2.5 billion. During 2021, gross financing from the ECB increased by 974 million euros to a total of 8.0 billion euros (2020: increase in the amount of Euro 910 million for a total of Euro 7,0 billion). The liquidity of novobanco 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 of 31 December 2021, and 2020, the calculation of the liquid contractual deficit and the counterbalancing capacity was performed following the ITS (Implementing Technical Standards) rules: 115 440 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 39.5 - 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 of 31 December 2021, the value of the asset portfolio eligible as collateral for rediscounting operations with the ECB, after haircuts, amounted to Euro 16.5 billion (31 December 2020: Euro 16.6 billion). This amount includes all the exposure to Portuguese sovereign debt, in the total amount of approximately Euro 2.5 billion. During 2021, gross financing from the ECB increased by 974 million euros to a total of 8.0 billion euros (2020: increase in the amount of Euro 910 million for a total of Euro 7,0 billion). The liquidity of novobanco 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 of 31 December 2021, and 2020, the calculation of the liquid contractual deficit and the counterbalancing capacity was performed following the ITS (Implementing Technical Standards) rules: 31.12.2021 (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) 710 947 Liabilities arising from secured loan operations and capital market operations 9 948 704 - - - - 626 980 52 669 - - 22 054 688 893 2 514 555 6 754 500 Behavioral exits resulting from deposits 29 286 247 459 384 316 628 213 461 216 116 575 321 27 505 337 Foreign exchange swaps and derivatives 520 853 5 940 45 222 376 528 43 099 25 734 24 330 Other outputs Total Exits Entries 478 049 - - - 11 515 33 814 432 720 40 944 800 465 324 988 830 642 658 270 730 3 171 478 35 405 780 Guaranteed loan operations and operations associated with the capital market 172 139 - - - - 40 991 131 148 Behavioral inflows resulting from loans and advances 30 327 148 5 180 565 52 796 175 110 316 874 420 764 24 181 039 Foreign exchange swaps and derivatives 675 752 7 826 40 850 376 467 61 089 39 413 150 107 Own portfolio securities to mature and Other entries 11 752 499 148 242 130 897 503 810 707 762 607 767 9 654 021 Total Entries Net contractual deficit 42 927 538 5 336 633 224 543 1 055 387 1 085 725 1 108 935 34 116 315 1 982 737 4 871 309 ( 764 288) 412 728 814 995 (2 062 541) (1 289 466) Accumulated net contractual deficit - 4 871 309 4 107 021 4 519 749 5 334 744 3 272 203 1 982 737 REBALANCE CAPACITY Coins and banknotes Central bank mobilisable reserves Stock Inicial até 7 dias 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 144 220 4 999 674 (4 999 674) Marketable and non-marketable assets eligible for central banks 7 178 648 - 432 159 ( 326 174) ( 537 314) ( 451 505) (6 154 300) Authorized and unused facilities received Net change in rebalancing capacity Accumulated rebalancing capacity - - ( 42 401) ( 73 498) ( 226 102) ( 281 873) 1 314 154 ( 690 281) (5 042 075) 358 661 ( 552 276) ( 819 187) 862 649 (6 844 581) 12 322 542 7 280 467 7 639 128 7 086 852 6 267 665 7 130 314 285 733 441 116 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 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 26 056 009 73 680 53 648 189 806 319 315 435 854 24 983 706 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 13 351 148 103 580 154 527 376 513 802 895 898 664 11 014 969 Total Entries Net contractual deficit 40 465 062 341 570 353 251 810 218 1 170 733 1 405 806 36 383 484 ( 34 446) ( 255 043) ( 250 902) 65 065 739 715 522 537 ( 855 818) Accumulated net contractual deficit - ( 255 043) ( 505 945) ( 440 880) 298 835 821 372 ( 34 446) REBALANCE CAPACITY Coins and banknotes Central bank mobilisable reserves Stock Inicial até 7 dias 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 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 As of 31 December 2020, there was an accumulated 1-year net contractual surplus of Euro 821 million (considering in Entries the cash in Central Banks, deducted from the cash reserve requirements), having shifted at the end of 2021 to an accumulated 1-year net contractual deficit of Euro 3,272 million. As of 31 December 2020, there was an accumulated 1-year net contractual surplus of Euro 821 million (considering in Entries the cash in Central Banks, deducted from the cash reserve requirements), having shifted at the end of 2021 to an accumulated 1-year net contractual deficit of Euro 3,272 million. The 1-year counterbalancing capacity the end of 2021 was Euro 7,130 million, Euro 563 million more than the figure recorded at the end of 2020 (Euro 6,567 million). The 1-year counterbalancing capacity the end of 2021 was Euro 7,130 million, Euro 563 million more than the figure recorded at the end of 2020 (Euro 6,567 million). 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 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 In accordance with current regulatory legislation, the Bank is obliged to comply with a minimum limit (Liquidity Coverage Ratio - LCR) and a stable financing ratio (Net Stable Funding Ratio - NSFR). The LCR aims to promote banks' of 100% in the LCR. The Bank continues to follow regulatory changes in order to comply with all resilience to short-term liquidity risk, ensuring that they hold high-quality liquid assets, sufficient to survive a severe stress scenario, obligations, namely the implementation of the NSFR and its limit. 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 Bank is obliged to comply with a minimum limit of 100% in the LCR. The Bank continues to follow regulatory changes in order to comply with all obligations, namely the implementation of the NSFR and its limit. 39.6 - 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, systematization 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. 442 117 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes 39.6 - 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, systematization 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. The capital ratios of novobanco 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. novobanco 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 novobanco. 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 (or 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. 39.7 - Capital Management and Solvency Ratio The total own funds of novobanco are composed by elements of CET I and Tier II. 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 novobanco - 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 novobanco objectives. The summary of own funds, risk weighted assets and capital ratios capital of novobanco as of 31 December 2021 and 2020 are presented in the following table: 443 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesThe summary of own funds, risk weighted assets and capital ratios capital of novobanco as of 31 December 2021 and 2020 are presented in the following table: 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 (2) 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(3) 31.12.2021 (4) (in millions of Euros) 31.12.2020 (1) 6 055 ( 3 481) 226 2 799 ( 10) 229 ( 68) ( 9) ( 198) ( 321) ( 377) 5 900 ( 1 773) ( 1 374) 2 753 ( 12) 349 ( 48) ( 60) ( 98) ( 267) ( 137) 2 422 2 616 - - 2 422 2 616 399 108 - 506 399 115 - 514 2 928 3 130 22 032 1 205 1 620 24 857 9.7% 9.7% 11.8% 5.2% 24 246 1 277 1 539 27 063 9.7% 9.7% 11.6% 5.4% (C/H) (E/H) (G/H) (1) Values restated with reference to the year 2020. (2) Since the end of 2020 it encompasses the adjustments to the CCA receivable, reflected at the level of reserves, and not received from the Resolution Fund. (3) The leverage ratio results from dividing Tier 1 by the exposure measure determined under the CRR. (4) Provisional values NOTE 40 –INSURANCE AND REINSURANCE MEDIATION SERVICES As at 31 December 2021 and 2020, the compensation arising from the provision of insurance or reinsurance mediation services has the following composition: NOTE 40 –INSURANCE AND REINSURANCE MEDIATION SERVICES As at 31 December 2021 and 2020, the compensation arising from the provision of insurance or reinsurance mediation services has 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 (in thousands of Euros) 31.12.2021 31.12.2020 1 828 823 14 529 17 180 7 442 178 2 249 9 869 27 049 1 832 655 15 176 17 663 6 677 193 905 7 775 25 438 119 444 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes The summary of own funds, risk weighted assets and capital ratios capital of novobanco as of 31 December 2021 and 2020 are presented in the following table: 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 (2) 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(3) (4) Provisional values (in millions of Euros) 31.12.2021 (4) 31.12.2020 (1) 6 055 ( 3 481) 226 2 799 ( 10) 229 ( 68) ( 9) ( 198) ( 321) ( 377) 399 108 - 506 22 032 1 205 1 620 24 857 9.7% 9.7% 11.8% 5.2% 5 900 ( 1 773) ( 1 374) 2 753 ( 12) 349 ( 48) ( 60) ( 98) ( 267) ( 137) 399 115 - 514 24 246 1 277 1 539 27 063 9.7% 9.7% 11.6% 5.4% 2 422 2 616 - - 2 422 2 616 2 928 3 130 (C/H) (E/H) (G/H) (1) Values restated with reference to the year 2020. (2) Since the end of 2020 it encompasses the adjustments to the CCA receivable, reflected at the level of reserves, and not received from the Resolution Fund. (3) The leverage ratio results from dividing Tier 1 by the exposure measure determined under the CRR. NOTE 40 –INSURANCE AND REINSURANCE MEDIATION SERVICES As at 31 December 2021 and 2020, the compensation arising from the provision of insurance or reinsurance mediation services has 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 (in thousands of Euros) 31.12.2021 31.12.2020 1 828 823 14 529 17 180 7 442 178 2 249 9 869 27 049 1 832 655 15 176 17 663 6 677 193 905 7 775 25 438 119 The Bank does not collect insurance premiums on behalf of the Insurers, nor does it handle funds related to insurance contracts. Therefore, there are no other assets, liabilities, income or charges to be reported relating to the insurance mediation activity carried out by the Bank, other than those already disclosed. The Bank does not collect insurance premiums on behalf of the Insurers, nor does it handle funds related to insurance contracts. Therefore, there are no other assets, liabilities, income or charges to be reported relating to the insurance mediation activity carried out by the Bank, other than those already disclosed. NOTE 41 – SUBSEQUENT EVENTS As provided for in the agreements between the Resolution Fund and the shareholder Lone Star, on February 24, 2022, the Resolution Fund transferred ownership of shares to Nani Holdings as a result of the capital increase by conversion of the conversion rights so that Nani Holdings’ shareholding in the novobanco would remain at 75%, and the Resolution Fund’s shareholding was diluted to 23.44%. NOTE 41 – SUBSEQUENT EVENTS As provided for in the agreements between the Resolution Fund and the shareholder Lone Star, on February 24, 2022, the Resolution Fund transferred ownership of shares to Nani Holdings as a result of the capital increase by conversion of the conversion rights so that Nani Holdings' shareholding in the novobanco would remain at 75%, and the Resolution Fund's shareholding was diluted to 23.44%. On February 24, 2022, the Russian Federation began a military operation on the territory of Ukraine, which triggered a war that currently involves three countries (Russia, Ukraine and Belarus). In response various sanctions were approved with the aim of impacting on the Russian economy, and also that of Belarus, by a group of countries, including NATO countries, the European Union and others. There is a possibility that novobanco could be impacted by losses in the assets exposed to those countries as a result of those sanctions, as well as the destruction that is taking place in Ukraine as a result of the war. The exposure of novobanco as at 31 December 2021, by type of asset and country is presented as follows: On February 24, 2022, the Russian Federation began a military operation on the territory of Ukraine, which triggered a war that currently involves three countries (Russia, Ukraine and Belarus). In response various sanctions were approved with the aim of impacting on the Russian economy, and also that of Belarus, by a group of countries, including NATO countries, the European Union and others. There is a possibility that novobanco could be impacted by losses in the assets exposed to those countries as a result of those sanctions, as well as the destruction that is taking place in Ukraine as a result of the war. The exposure of novobanco as at 31 December 2021, by type of asset and country is presented as follows: Russian Federation Belarus Ukraine Total 31.12.2021 (in thousands of Euros) Loans and advances to customers Securities Bonds recorded at fair value through other comprehensive income Bonds recorded at amortised cost Total Assets 5 049 43 140 22 744 20 396 48 189 209 938 - - - - - - 209 938 6196 43 140 22 744 20 396 49 336 445 120 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes Annex 446 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial 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. The opinion on European Single Electronic Format is only applicable in the Portuguese Version. 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 2021 (showing a total of 44,618,515 thousand euros and a total equity of 3,149,471 thousand euros, including a net profit for the year of 184,504 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 2021, 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 1,247,917 thousand of euros ("K€"), with an impairment loss of 149,375 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 consolidated financial statements (Notes 7.16, 8.1, 20, 24 and 44.3). Our audit approach included the execution of the following procedures: ► 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 customers, comparing it with last year and with the expectations considering the changes in the loan portfolio; 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 Statutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement In order to calculate this estimate on the impairment loss of the loans and advances to customers, 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, its use requires the treatment of a significant volume of data, which raises issues on its quality and availability. The effects of the Covid-19 pandemic may not be completely resolved nor fully martialized, with their full impact still uncertain. As so, the impairment for loans and advances to customers has to take into consideration an eventual decrease in the credit quality of the assets in the event of the risk materializing. 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 makes we consider this topic as key auditing matter. ► 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; ► analyzing the impacts estimated by the Group to reflect the end of the moratoria and the possible emergence of defaults in this population of debtors; ► 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, highlighting the following procedures: i) understanding the methodology formalized and adopted by management and comparing with the one effectively used; ii) evaluating the changes to models used by the Group to determine the parameters used in the impairment calculation; iii) on a sample basis, comparing the data used in the calculation of the risk parameters with source information, including testing the stage classification; iv) inquiries to management’s experts responsible for models and inspection of reports from internal audit and regulators; and v) inspection of the reports with the results of the operational assessment of the model (back-testing); ► testing the reasonableness of the overlays, in particular the ones to respond to the additional judgmental areas resulting from the end of 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 consolidated financial statements, based on the requirements of international financial reporting standards and accounting records. 2/8 447 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Statutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 2. Valuation of restructuring funds 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 Notes to the consolidated financial statements (Note 24), on 31 December 2021, the Group held financial assets mandatorily at fair value through profit or loss in the amount of 799,592 K€, of which €427,886 K€ and 316,746 K€ refer to, respectively, shares and other securities with variable income. Part of these financial assets, in the amount of 586,450 K€, is measured at fair value using valuation methodologies that include parameters not observable in the market (level 3) and includes the participation of the Group in restructuring funds (note 42). The valuation of these financial instruments is an estimation of fair value performed by management which uses internal models and parameters not observable in the market. During 2020, the management, with the assistance of external experts, performed an independent valuation of these financial instruments, which was reviewed in 2021 based on observed market evolution on similar markets. Management considers that this reviewed valuation corresponds to the best estimate of fair value as of 31 December 2021. 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 audit approach included the execution of the following procedures: ► 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; ► analyzing the proposals to transact these assets and comparing with the book value; ► analyzing the financial statements of the funds and testing the evolution comparing with the values considered by the Group; ► testing the review of value performed and analyzing the assumptions used; 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. 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 625,187 K€ and 198,628 K€, respectively. The accounting policies and the details of these assets are disclosed in the notes to the financial statements (notes 7.18, 7.19, 8.6, 28, 31 and 42). As disclosed in note 7.18 to the consolidated financial statements, the Other assets include real estate that were essentially obtained by credit foreclosure and for which the Group has implemented a plan pursuant to its sale. 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 experts hired by management. Our audit approach included the execution of the following procedures: ► 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; ► for a sample of real estate assets, testing the reasonableness of the methodologies and assumptions used by management’s external experts registered in CMVM. For these assets, inspection of the eventual 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 (note 28) disclose the detail and the movement of investment properties, which are held by investment funds and 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. 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. promissory sale contracts and the certificate of land register; ► inspecting the real estate sale contracts and testing 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; ► for the most significant transactions with real estate assets in the scope of the contingent capital agreement, obtaining the Resolution Fund approvals; ► inquiries to the management experts on 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. 4. Provisions and 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 As disclosed in note 34 to the consolidated financial statements, there is a contingency amounting to 115,800 K€ for which a provision was registered, additionally, the notes to the consolidated financial statements disclose the contingent liabilities (Note 38) 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 7.28 and the main estimates and assumptions in note 8.5. 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 Our audit approach included the execution of the following procedures: ► 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 management and to the legal and tax experts on the contingent liabilities 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. 3/8 4/8 448 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Statutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement 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 Star; ► 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. During 2021, the Group considered that, from the difficulty in interpretation or compliance with tax law and regulations recently enacted, there is a probable risk that an outflow of resources embodying economic benefits will be required. 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. 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. 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; ► 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. 5/8 6/8 449 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Statutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Our procedures considered the OROC Technical Application Guide (GAT 20) on report in ESEF and included, among others: ► gaining understanding of the financial reporting process, including the submission of the annual report in valid XHTML format; and ► the identification and evaluation of the risks of material distortion associated with the marking-up of the information of the financial statements, in XBRL format using iXBRL technology. This evaluation was based on the understanding of the process implemented by the Group to mark-up the information. In our opinion, the accompanying consolidated financial statements included in the annual report are presented, in all material respects, in accordance with the requirements set out in the ESEF Regulation. Lisbon, March 9, 2022 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 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 29-H 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 article 5 of the Regulation (EU) nr. 537/2014 of the European Parliament and of the Council, of 16 April 2014, and we have remained independent of the Group in conducting the audit. European Single Electronic Format (ESEF) The accompanying consolidated financial statements of Novo Banco, S.A. for the year ended 31 December 2021 must comply with the applicable requirements set out in the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 (ESEF Regulation). Management is responsible for preparing and disclosing the annual report in accordance with the ESEF Regulation. Our responsibility is to obtain reasonable assurance about whether the consolidated financial statements, included in the annual report, are presented in accordance with the requirements set out in the ESEF Regulation. 7/8 8/8 450 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial 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. The opinion on European Single Electronic Format is only applicable in the Portuguese Version. 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 2021 (showing a total of 44,341,445 thousand euros and a total equity of 2,799,402 thousand euros, including a net profit for the year of 225,908 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 2021, 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 caption loans and advances to customers includes an accumulated impairment amount of 1,235,757 thousands of euros ("K€"), with an impairment loss of 147,106 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 (Notes 6.16, 7.1, 18, 22 and 39.3) Our audit approach included the execution of the following procedures: ► 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 customers, comparing it with last year and with the expectations, considering the changes in the loan portfolio; ► selecting a sample of customers individually assessed for impairment to evaluate the assumptions used by 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 Statutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement In order to calculate this estimate on the impairment loss of the loans and advances to customers, 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, its use requires the treatment of a significant volume of data, which raises issues on its quality and availability. The effects of the Covid-19 pandemic may not be completely resolved nor fully martialized, with their full impact still uncertain. As so, the impairment for loans and advances to customers has to take into consideration an eventual decrease in the credit quality of the assets in the event of the risk materializing. 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 makes we consider this topic as key auditing matter. 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. ► analyzing the impacts estimated by the Bank to reflect the end of the moratoria and the possible emergence of defaults in this population of debtors; ► 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, highlighting the following procedures: i) understanding the methodology formalized and adopted by management and comparing with the one effectively used; ii) evaluating the changes to models used by the Bank to determine the parameters used in the impairment calculation; iii) on a sample basis, comparing the data used in the calculation of the risk parameters with source information, including testing the stage classification; iv) inquiries to management’s experts responsible for models and inspection of reports from internal audit and regulators; and v) inspection of the reports with the results of the operational assessment of the model (back-testing); ► testing the reasonableness of the overlays, in particular the ones to respond to the additional judgmental areas resulting from the end of 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 international financial reporting standards and accounting records. 2/8 451 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Statutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 2. Valuation of restructuring funds 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 Notes to the financial statements, on 31 December 2021 (note 22), the Bank held financial assets mandatorily at fair value through profit or loss in the amount of 2,250,308 K€, of which €425,363 K€ and 1,265,718 K€ refer to, respectively, shares and other securities with variable income. Part of these financial assets, in the amount of 2,063,378 K€, is measured at fair value using valuation methodologies that include parameters not observable in the market (level 3) and includes the participation of the Bank in restructuring funds (note 38). The valuation of these financial instruments is an estimation of fair value performed by management which uses internal models and parameters not observable in the market. During 2020, the management, with the assistance of external experts, performed an independent valuation of these financial instruments, which was reviewed in 2021 based on observed market evolution on similar markets. Management considers that this reviewed valuation corresponds to the best estimate of fair value as of 31 December 2021. 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 audit approach included the execution of the following procedures: ► 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; ► analyzing the proposals to transact these assets and comparing with the book value; ► analyzing the financial statements of the funds and testing the evolution comparing with the values considered by the Bank; ► testing the review of value performed and analyzing the assumptions used; 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. 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 caption Other assets includes real estate assets of 165,231 €. The accounting policies and the details of these assets are disclosed in the notes to the financial statements (notes 6.18, 7.6 and 28). As disclosed in note 6.18 to the financial statements, the Other assets include real estate that were essentially obtained by credit foreclosure and for which the Bank has implemented a plan pursuant to its sale. 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 experts hired by management. The fair value results from an estimation process by the management that relies on judgments and assumptions and is embodied in an evaluation Our audit approach included the execution of the following procedures: ► 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 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; ► for a sample of real estate assets, testing the reasonableness of the methodologies and assumptions used by management’s external experts registered in CMVM. For 3/8 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement 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. 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. these assets, inspection of the eventual promissory sale contracts and the certificate of land register; ► inspecting the real estate sale contracts and testing 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; ► for the most significant transactions with real estate assets in the scope of the contingent capital agreement, obtaining the Resolution Fund approvals; ► inquiries to the management experts on 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. 4. Provisions and 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 As disclosed in note 31 to the financial statements, there is a contingency amounting to 115,800 K€ for which a provision was registered, additionally, the notes to the financial statements disclose the contingent liabilities (note 35) 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 6.27 and the main estimates and assumptions in note 7.5. 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; Our audit approach included the execution of the following procedures: ► 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 management and to the legal and tax experts on the contingent liabilities 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. 4/8 452 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Statutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Description of the most significant assessed risks of material misstatement Summary of our response to the most significant assessed risks of material misstatement ► 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; ► 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 Star; ► 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. During 2021, the Bank considered that, from the difficulty in interpretation or compliance with tax law and regulations recently enacted, there is a probable risk that an outflow of resources embodying economic benefits will be required. 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. 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. 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. 5/8 6/8 453 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesStatutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Statutory and Auditor’s Report (Translation from the original document in Portuguese language In case of doubt, the Portuguese version prevails) 31 December 2021 Our procedures considered the OROC Technical Application Guide (GAT 20) on report in ESEF and included, among others gaining understanding of the financial reporting process, including the submission of the annual report in valid XHTML format. In our opinion, the accompanying financial statements included in the annual report are presented, in all material respects, in accordance with the requirements set out in the ESEF Regulation. Lisbon, March 9, 2022 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 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 “Corporate Governance” chapter included in the Management Report includes the information required to the Bank to provide as per article 29-H 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 5 of the Regulation (EU) nr. 537/2014 of the European Parliament and of the Council, of 16 April 2014, and we have remained independent of the Bank in conducting the audit. European Single Electronic Format (ESEF) The accompanying financial statements of the Bank for the year ended 31 December 2021 must comply with the applicable requirements set out in the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 (ESEF Regulation). Management is responsible for preparing and disclosing the annual report in accordance with the ESEF Regulation. Our responsibility is to obtain reasonable assurance about whether the financial statements, included in the annual report, are presented in accordance with the requirements set out in the ESEF Regulation. 7/8 8/8 454 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesEVALUATION REPORT FROM THE GENERAL AND SUPERVISORY BOARD ON THE ADEQUACY AND EFFECTIVENESS OF THE ORGANIZATIONAL CULTURE IN PLACE IN GROUP NOVO BANCO, S.A. AND THE GOVERNANCE AND INTERNAL CONTROL FRAMEWORKS AS DEFINED IN B) C) AND D) OF ARTICLE 58TH OF THE NOTICE FROM BANK OF PORTUGAL Nº 3/2020 INTRODUCTION ACTIVITIES PERFORMED 1. This evaluation report is presented to comply with b) c) and d) 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 December 1, 2020 to November 30, 2021. RESPONSIBILITIES 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 to; • promotes a professional conduct of prudence and responsibility 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 in the Group, both internally and in its 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 organizational 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 a yearly report on the results of that evaluation (the “Report”). 3. It is our responsibility to issue this report as described in b) c) and d) Article 58th of the Notice to include in the Report. 4. 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 and we read the minutes of the meetings of the Executive Board of Directors. During these meetings, the situation of the Group was presented to us, including matters related to the subsidiaries, which allowed us to understand the internal controls in place at Group level; • We met with the managers responsible for the Risk Management, Compliance, and Internal Audit functions at Group level; we read the annual reports of these control functions; we reviewed the statement of independence and inquired if there was any fact or circumstance which may impair that independence. Regarding the internal audit annual report, we took into consideration the validation of the classification of internal control deficiencies; • We assessed the audit plan for 2021 and the results of the internal audit actions described in the reports; • We analyzed the ‘NB Self Assessment – Conclusions & Action Plan Report on the implementation of the Notice in the Group, and met with the managers responsible for this report; • We met with the external auditor and analyzed the contents of the Audit report, Impairment Reports, Asset Safekeeping Report, Additional Report to the Supervisory Board, the interim limited review reports for March 31, June 30, and September 30 of 2021 and the preliminary version of the Factual Findings Report to be issued by Ernst & Young – Audit & Associados – SROC, S.A., including the test on the classification of the deficiencies. We reviewed the content of the communication of significant deficiencies of internal control of the Group sent by the external auditor on December 7, 2021; • 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, in addition to the procedures mentioned above. 455 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesINHERENT LIMITATIONS 5. The General and Supervisory Board is aware of the inherent limitations of any internal control framework which, irrespective of 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 financial and prudential reporting is not in 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 judgement 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 on another date on the same deficiency could reach different conclusions, and the impact of a deficiency can materialize differently from what was estimated. CONCLUSION 6. As described in the Report, there are deficiencies classified as F3 – High risk and F4 – Severe, which can lead to a high or very high impact on the financial position, capital requirements, governance, leverage, business model or risk monitoring of the Group. 7. For each of the deficiencies a mitigation plan and a proposed implementation timeline was presented to us. Considering the importance of the matter in the Group, these deficiencies are being monitored by the internal structure, by the internal control functions and by the Executive Board of Directors, and the implementation status will be regularly reviewed by the General and Supervisory Board. 8. The ‘NB Self Assessment – Conclusions & Action Plan’ report identifies several matters of the Notice where the Group is still in the process of implementing the measures to adequately comply with the Notice. 9. Considering the activities we performed, which are described in paragraph 4 above, and except for the eventual impact of the matters described in paragraphs 6 to 7, 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, 2021. • We appreciated positively the completeness status of the defined measures from December 1, 2020 to November 30, 2021 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 the procedures inherent in our responsibilities, reliable from December 1, 2020 to November 30, 2021. • 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 the procedures inherent in our responsibilities, reliable from December 1, 2020 to November 30, 2021. • The requirements to disclose information to the public resulting from applicable law or regulation and related to the matters described in the Notice were, insofar as we could appreciate due to the procedures inherent in our responsibilities, adequately complied with from December 1, 2020 to November 30, 2021. • The internal control systems of the subsidiaries were, insofar as we could appreciate due to the procedures inherent in our responsibilities, coherent with the internal control system of the parent; • The Group has no foreign branches or offshore institutions with remuneration policies, as these entities do not make payments of remuneration to any member of governing bodies or personnel. OTHER MATTERS 10. This Evaluation Report is prepared and issued solely for the information of the Executive Board of Directors of the Group and to be presented to the Bank of Portugal as required by the Notice and as an integral part of the Report. Therefore, it cannot be used for any other purpose, or read outside the context of the Report, nor can it be presented to third parties without our previous written consent. Lisbon, December 15, 2021 (This report was approved by the General and Supervisory Board at a meeting held on December 15, 2021.) 456 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesREPORT OF THE GENERAL AND SUPERVISORY BOARD AND OPINION OF THE FINANCIAL AFFAIRS (AUDIT) COMMITTEE ON THE MANAGEMENT REPORT AND ON THE SEPARATE AND CONSOLIDATED FINANCIAL STATEMENTS OF NOVO BANCO, S.A. FOR THE YEAR ENDED 31 DECEMBER 2021 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. (“novobanco”), the General and Supervisory Board (“GSB”) is required to issue the Annual Report on the activity developed and the Financial Affairs (Audit) Committee is required to issue an opinion on the Management Report and the separate and consolidated financial statements of novobanco, which comprise the separate and consolidated income statement and separate and consolidated statement of comprehensive income, separate and consolidated balance sheet, separate 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 novobanco, for the year ended on 31 December 2021. 1. Report of the General and Supervisory Board for the year 2021 1.1. Composition and scope In accordance with the applicable law, novobanco’s bylaws and best practices at the date of this Annual Report, six of the ten members who comprise the GSB, including the Chairman, are independent. The GSB has the powers given to it by law, by the Bylaws and by its own regulation, including the supervision of all matters related to risk management, compliance and internal audit. During 2021, 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 Affairs (Audit) 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 novobanco and the Regulation of the GSB. These Committees are chaired and composed by members of the GSB and can also have the presence of 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 its own regulation. The EBD informs the GSB on all relevant matters, timely and on a comprehensive written or verbal manner. 1.2. Activity undertaken in 2021 General and Supervisory Board During the year 2021, the GSB held 17 meetings, where several issues were discussed, analyzed and approved. These issues included the separate and consolidated financial statements of novobanco for the year ended 31 December 2021 and the Half Year 2021 consolidated financial statements as well as the financial results for the first and third quarters of 2021, the 2021-2023 Strategic and Medium Term-Plans, the NPA Plan for 2021-2023 and the strategy and risk appetite for 2021. Other issues included the approval and/or follow-up of the sale of novobanco’s assets, in particular, the sale of the Spanish Branch (Project Toro), the sale of NPA portfolios and related assets (Harvey, Orion and Wilkinson), the follow-up of the events and of the report of the Parliamentary Inquiry Commission, the follow-up of the Court of Auditors audit, the follow-up and approval of the PR Communication strategy, the follow-up and approval of the process of rebranding carried out in the last quarter of 2021, the follow-up of the activity of the Internal Audit Department, the follow-up of the most relevant lawsuits against the Group, the follow-up of IFRS 9 arbitration processes, the follow-up of year 2019 Special Audit and the follow-up of Tagus Park HQ Project. The GSB has also reviewed and/or approved several amendments to internal policies, such as the Code of Conduct, the Conflicts of Interest Policy, the Policy on Related Party Transactions, GSB’s own regulation, the regulation of the Remuneration Committee, as well as the changes to the Policy for Selection and Evaluation of novobanco’ Statutory Auditor, the Remuneration Policies for Management and Supervisory Bodies, and novobanco’s Succession Policy. In what concerns matters relating to the CCA Agreement, the GSB monitored regularly all issues related to year 2020 CCA call and analyzed the reports issued by the Verification Agent. The GSB also followed closely the evolution of the DGComp’s commitments, through the analysis of the various Monitoring Trustee reports, analysed the Group’s Impairment report, the Group’s Internal Control report, the Self-Assessment Reports of the Risk, Audit and Compliance Functions and approved the Internal Audit Plans of 2021 and for 2022. In terms of other interactions with the regulators, the GSB followed closely the MREL targets set by the SRB and approved the operations put in place to reach those targets, analyzed 2021’s Stress Tests results, reviewed and approved ICAAP and ILAAP, closely followed the evolution of the implementation of the Group’s ESG Strategy, was regularly updated on regulatory changes and correspondence with 457 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notesthe key stakeholders of novobanco, and approved the annual Fit and Proper revision for the Executive Board of Directors members, General and Supervisory Board members and the members of the Board of Directors of the subsidiaries Novobanco dos Açores, Banco BEST and GNB Gestão de Ativos. The GSB also approved the activity plans of the General and Supervisory Board and its Committees for 2022 (on a first approach, to be updated regularly), and followed-up on matters related to DTA and conversion rights attributed to the State for years 2015, 2016 and 2017, novobanco´s response, actions and initiatives with respect to COVID19 and the global pandemic effects in the economy, including credit moratoria. Throughout the year, the GSB was updated with respect to the operating results of the Group, evolution of retail, corporate, treasury and digital businesses, capital and liquidity position of novobanco as well as regular forecasts for the full year 2021 (capital and results). At the end of the year 2021, the General and Supervisory Board completed its evaluation report on the adequacy and effectiveness of the organizational culture in place in Group novobanco (the “Group”) and the governance and internal control framework with reference to the period from December 1, 2020 to November 30, 2021 in compliance with b) c) and d) of Article 58 of Bank of Portugal’s Notice nº 3/2020 (the “Notice”) in which the GSB acknowledged the deficiencies that were found and approved for each of those deficiencies the mitigation plans and the proposed implementation timelines presented by the Executive Board of Directors. These deficiencies included 57 deficiencies classified as F3 – High risk and 5 classified as F4 – Severe. The CEO and the Chief Financial Officer (CFO) participated in the meetings as guests. Other EBD members participated in the meetings on request for specific topics. The Monitoring Commission was present in all meetings. Under and for the purposes of analyses and verifications performed, the General and Supervisory Board requested, and obtained, documentation and clarification for the several issues raised. Financial Affairs (Audit) Committee The Financial Affairs (Audit) Committee held 23 meetings during 2021 and concentrated its activity in the assessment of the Bank’s financial statements, and reports of the statutory auditor for the financial year 2021, as well as the oversight of the Internal Audit (IA) activity. The IA oversight included, among other, discussing and analyzing related monthly status update reports (covering items such as the implementation of the agreed plan and related findings, follow-up of outstanding issues, and topics relating to IA resources and practices), and reviewing the Annual Activity execution report for 2021, as well as approving the Internal Audit Plans for 2021 and for 2022 (including Multi- year plans). Throughout 2021, the main Non-Performing Assets sales operations were monitored by the Audit Committee, namely, Project Harvey, Orion and Wilkinson, and the potential acquisition of equity (Project Molin). During 2021, the Committee also followed the evolution of several relevant projects, including the RWA review process, the MREL requirements and the operations to meet those requirements, RaRoc outputs and the Valuation Unit’s activity. The Audit Committee also monitored during 2021 the valuation of novobanco´s equity investments, including restructuring funds, as well as the calculations and details of the restructuring costs. The Committee monitored on a continued basis, the independence and the work of the external auditor, including the supervision and approval of the provision of other additional services to novobanco’s Group performed by that auditor. The meeting agendas included updates on the regulatory aspects of the Bank’s activity, the follow-up of the 2021- 2023 Medium-Term Plan and the evaluation process for supervisory purposes (SREP). The Audit Committee monitored internal control systems during the year and completed the year-end 2021 review of the assessment of the control functions in accordance with Notice 3/2020 of Banco de Portugal. The statutory auditor, as well as the Head of Internal Audit, the CEO 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 head of internal audit, without the presence of the members of the EBD. Risk Committee The Risk Committee held 17 meetings during the year 2021. In addition to the approval of loans to individual clients or groups of clients associated, according to its own Regulation, the Committee analyzed and discussed the strategy and risk appetite and limits for 2021, according to the Medium- Term Plan for 2021-2023, the NPA 2021-2023 Plan, Covid-19 Key Initiatives and Actions 2021, including credit moratoria. Other topics discussed by the Risk Committee included the main monthly indicators of risk (credit risk, market risk and operational risk) and the provisions and impairments of credit in the financial statements for the financial year of 2021, as well as the approval of the Risk Activity Plan for 2022. Non-performing loans of the Bank were also reviewed and compared with peers 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 agendas regularly included reports of the regulatory aspects relating to the risks faced by the Bank, particularly in the context of LGD’s, IRBB and the revision of the risks inherent to the sectors affected by COVID 19, revisions of economic groups highly exposed to these sectors and the conclusions of the SREP. The calculation of risk-bearing capacity of the Bank was also 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. The Risk Committee reviewed at year end 2021 the assessment of the risk management activities in accordance with Notice 3/2020 of Banco de Portugal, including the Annual Self-Assessment Report (RAA) The head of the risk function, the CEO and the Chief Risk Officer (CRO) participated in meetings as guests, where necessary. Compliance Committee The Compliance Committee held 7 meetings during 2021 and deliberated on governance, regulatory and legal issues related to the Bank’s structure and operations, having examined and discussed the issues of regulatory compliance of the Bank, including the Notice 3/2020 of Banco de Portugal and 458 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesEBA Guidelines on internal control and compliance areas implementation and the AML legislation, the legislation on data protection, whistleblowing procedures, other legal and regulatory affairs and other relevant ongoing projects. The Committee reviewed and discussed issues of related-parties transactions and conflicts of interest, as well as the more relevant lawsuits regularly accompanied by the Bank. • The completeness of the accounting records and documents that support them; • The existence of goods or values belonging to novobanco’s Group 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 novobanco. Nomination Committee The Nomination Committee held 3 meetings during the year 2021. The annual assessment (individual and collective level) of the adequacy and suitability of the members of the Executive Board of Directors and GSB of novobanco and members of the Board of Directors of the subsidiaries novobanco dos Açores, Banco BEST and GNB Gestão de Ativos was performed by the Fit & Proper Office. The Succession Plan Matrix for Key Function Holders was also analyzed. During 2021, Fit and Proper was also approved for the new Head of the Treasury and for the new Compliance Officer of novobanco, as well as for the new CEO of novobanco dos Açores. The report on gender diversity was also analyzed as well as the Selection and Evaluation Policy for the Management and Supervisory Bodies and Key Function Holders and novobanco’s Succession Policy. Remuneration Committee The Remuneration Committee held 5 meetings during the year 2021. 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 EBD and identified staff for year 2021. The Remuneration Committee also set and approved the main individual and collective performance indicators for the EBD members for the year 2021, based on the approved budget for this year and approved the 2020’s EBD KPI results. The Remuneration Committee approved the Identified Staff for year 2021 following recommendation of the EBD. It also approved the budget for 2021 variable remuneration and the amounts to be paid to identified staff and EBD members (subject to the rules approved in the respective policy). The Remuneration Committee year-end 2021 completed the review of a centralized and independent internal analysis aiming at verifying the compliance of the remuneration policies in place in accordance with the law and with Banco de Portugal Notice 3/2020. During the year of 2021, 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 Audit Committee 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 2021, 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 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 2021, having obtained from the auditors all the necessary clarifications, 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; • Restructuring funds valuation; • Pension funds liabilities valuation; • Measurement of real estate obtained through credit foreclosure; • NPA sale transactions; • Contingency on property tax; • Disclosure of other contingent liabilities; • Contingent Capital mechanism matters; and • Aviso 3/2020 Bank of Portugal matters. All these matters were monitored by the GSB and their Committees, which, on these matters, were kept updated by the EBD, by the relevant Departments 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 obtaining 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 2021 on 8 March 2022, without qualifications nor emphasis of matter, to which the GSB expresses its agreement. The 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 they have obtained all the necessary clarifications. 459 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final Notes2. Opinion of the Audit Committee 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 the 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 understanding of the asset, liabilities and the separate and consolidated financial position of novobanco, its 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; General and Supervisory Board and the Financial Affairs (Audit) Committee Byron James Macbean Haynes Chairman of the General and Supervisory Board and member of the Financial Affairs (Audit) Committee John Herbert Member of the General and Supervisory Board Karl-Gerhard Eick Vice-Chairman of the General and Supervisory Board and Chairman of the Financial Affairs (Audit) Committee Donald John Quintin Member of the General and Supervisory Board 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 main risks and uncertainties that the Bank faces; Kambiz Nourbakhsh Member of the General and Supervisory Board and member Financial Affairs (Audit) Committee Robert A. Sherman Member of the General and Supervisory Board 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. Mark Andrew Coker Member of the General and Supervisory Board Carla Antunes da Silva Member of the General and Supervisory Board Therefore, it is the Committee’s opinion to: Benjamin Friedrich Dickgiesser Member of the General and Supervisory Board William Henry Newton Member of the General and Supervisory Board a. Approve the management report as well as the other documents of account, for the year of 2021, 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 for that year issued by the audit firm; and a. Approve the proposed application of results submitted by the EBD in its Management Report. Finally, the General and Supervisory Board would like to express its appreciation to the Executive Board of Directors, to the managers in charge of the various areas of the Bank and to the remaining employees, as well as to the auditors, for the cooperation and the support in the completion of its work. Lisbon, 9 March 2022 460 1.0 MESSAGE 2.0 MANAGEMENT REPORT 3.0 SUSTAINABILITY REPORT 4.0 FINANCIAL STATEMENTS AND FINAL NOTESFinancial Statements and Final NotesAbbreviations and Acronyms ECB European Central Bank DGCOMP Directorate-General | Competition CCA Contingent Capital Agreement ESG Environment, Sustainability and Governance YTD Year-to-date - change since the start of the year YoY Year-on-Year - change on a year earlier NII Net Interest Income LCR Liquidity Coverage Ratio € euro €mn million euro €bn billion euro bps pp basis points percentage points 461 Annual Report 2021

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