Reuters: BANIF.LS Bloomberg: BANIF PL ISIN: PTBAF0AM CONSOLIDATED RESULTS. Unaudited information

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1 Reuters: BANIF.LS Bloomberg: BANIF PL ISIN: PTBAF0AM CONSOLIDATED RESULTS Lisbon, 28 February 2015 Unaudited information

2 CONSOLIDATED RESULTS: January to December 2014 Highlights: Strong recovery in operating income Higher operating income, which increased by 48.0% year-on-year, to 208 million euros. This was due to an improvement in net interest income, net commissions and the profits from financial operations. Structural streamlining with a positive impact in terms of cost savings Implementation of the cost reduction policy. In 2014, costs were cut by 4.7%, in year-on-year terms. If redundancy-related costs are excluded, structural costs came down by 10.% (-20.3 million euros). Significant improvement in operating profits Improved operating profits. In 2014, these came to +5.7 million euros, compared to million euros. This growth is explained by the recovery in banking income and the reduction in structural costs. Excluding nonrecurrent costs, the operational profit would amount to +145 million euros. Non-recurrent factors impacted on 2014 results. Non-recurrent factors impacted on 2014 results and more than outweighed the improvement in banking income and the less negative performance of the discontinued units, provisions and impairments. These non-recurrent factors amounted to in 2014 and were particularly significant in Q4. Net profits amounted to million euros, which compares favourably with net profits for the previous year ( million euros). Net provisions and impairments affected by extraordinary events Impairments reduced by 25.5%, year-on-year, to million euros. This figure reflects the increase in net provisions for impairments in relation to the domestic business. This can be largely explained by extraordinary factors relating to the setting up of impairments to cover the exposure to i) GES in the amount of 80.4 million euros 2

3 (credit impairment); ii) FINPRO in the amount of 17.9 million euros (impairment of financial assets), and also iii) real estate assets classified as Non-Current Assets Held for Sale (50.5 million euros). It is worth noting the improvement in the credit impairment, that decreased million euros vis a vis Excluding the non-recurrent impairment related to GES, the credit impairment stood at 31% of the amount recorded in 2013 (from to 91.8 million euros) representing 0.9% of the average gross credit. Strengthened liquidity Improved commercial gap: 1,310 million euros lower than at December The loan-to-deposit ratio improved by 21pp to 105.5%. Substantial reduction in reliance on ECB facility and significant increase in assets available for discount A reduction of some 1,584 million euros in ECB funding between December 2013 and December At the same time, Banif increased the value of its free assets in the ECB pool by 27%, by the end of December. Also of note is the fact that, at the beginning of October, the bank cancelled the remaining bond loans backed by the Portuguese Republic, in the amount of 595 million euros. The maturity date for the bonds was December Through this early repayment, Banif finished paying off of the full amount of 1,175 million euros that it had borrowed in the form of state-backed loans. Financial soundness: Capital ratio will benefit from ongoing asset sales Common Equity Tier 1 ratio: As at 31 December 2014, the Common Equity Tier 1 ratio, calculated in accordance with the CRD IV/CRR rules applicable in 2014 (phasing in) stood at 8.4% above the minimum level required by the regulatory authorities. This figure excludes the positive impact on the capital ratio from the ongoing asset sales, expected to have an impact of more than 100bps. This 3

4 change in the ratio can be attributed to the net losses made in These losses were heavily influenced by non-recurrent factors that affected the fourth quarter of the year and by the calculation of negative actuarial differences in the pension fund, following changes made to the actuarial assumptions at 31 December

5 Non-recurrent costs Key Indicators Dec-14 Dec-13 Restated D Results Operating income Operating costs Operating costs excluding non-recurrent costs Operating income Operating income excluding non-recurrent costs Loans impairment net of reversals and recovery Impairment of other financial assets net of reversals and recovery Impairment of other assets net of reversals and recovery Income from discontinued operations Net income % % % % % % % Dec-14 Dec-13 D Liquidity Loans-to-deposits ratio Capital Common Equity Tier 1 ratio CRD IV/CRR (phasing in-2014) 105.5% 126.4% -20.9pp 8.4% 10.9% -2.5pp Amounts in millions of euros, except where stated otherwise Operating income Net income Restructuring costs Real estate losses Devaluation of FINPRO participation Impairment related to GES exposure Exposure to Brasil Total non-recurrent costs Total excluding non-recurrent costs Amounts in millions of euros. 5

6 Highlights Results Operating income: million euros, +48.0%, year-onyear(yoy); Net Interest Income: 84.5 million euros, +3.2%, year-onyear(yoy); Net Commissions: 64.6 million euros, +2.4%, year-onyear(yoy); Gains on Financial Operations: 98.9 million euros, which compares favourably to the 31.3 million euros of Other operating income: million euros, which compares with million euros in Operating costs: million euros, -4.7%, (yoy). Excluding non-recurrent costs, operating costs fell 10.5% yoy (-20.3 million euros). Operating profit: +5.7 million euros, which compares to million euros in Excluding non-recurrent costs, the operational profit amounts to 145 million euros. Net provisions and impairments: million euros, % yoy. This figure was penalised by the impairment set up for the exposure to GES and FINPRO and real estate assets. Net losses of million euros in 2014, which compares favourably with million euros in This figure was heavily penalised by the net losses suffered in the 4th quarter of These amounted to million euros and include non-recurrent factors totalling million euros. Balance Sheet Total customer resources on the balance sheet: 6.9 thousand million euros. Loan book (gross): 7.9 thousand million euros. Substantial reduction in reliance on ECB facility: 1,584 Liquidity million euros lower than in December Loan-to-deposit ratio: 105.5%, compared to 126.4% in December Common Equity Tier 1 ratio. As at 31 December 2014, Capital calculated in accordance with the CRD IV/CRR rules applicable in 2014 (phasing in), stood at 8.4%.This figure excludes the positive impact from the ongoing asset sales, expected to have an impact of more than 100bps. 6

7 Balance Sheet (millions of euros) Dec-14 Dec-13 Cash and balances at central banks Deposits with banks Financial assets held for trading Financial assets at fair value through profit or loss Available-for-sale financial assets 1, ,782.0 Loans and advances to banks Loans and advances to customers 6, ,969.0 Held-to-maturity investment securities Financial assets with repurchase agreements Non-current assets held for sale 2, ,607.0 Investment property Other tangible assets Intangible assets Investments in associates, affiliates and joint ventures Current tax assets Deferred tax assets Other assets Total Assets 13, ,603.5 Deposits from central banks 1, ,077.6 Financial liabilities helding for trading Financial liabilities at fair value through profit or loss Deposits from banks Customer accounts and other loans 6, ,303.3 Financial liabilities 1, ,258.1 Non-current liabilities held for sale 1, Provisions Current tax liabilities Deferred tax liabilities Instruments representing capital Other subordinated liabilities Other liabilities Total Liabilities 12, ,723.9 Share capital 1, ,582.2 Issue premiums Revaluation reserves Other reserves and retained earnings Profit for the period Minority interests Total Equity Total Equity + Liabilities 13, ,

8 Profit and Loss Account (millions of euros) Dec-14 Dec-13 D 14/13 Restated (*) Interest and similar income % Interest and similar expense % Net interest income % Dividend income Net fees and commissions % % Fees and commission income % Fees and commission expense % Gains and losses in financial operations Income from assets and liabilities valued at fair value through profit or loss % Income from available-for-sale financial assets % Foreign exchange income % Other operating income Operating revenue % Personnel costs % Selling and General Administrative costs % Depreciation and amortisation % Operating Income % Provisions net of reinstatement and write-offs Loans impairment net of reversals and recovery % Impairment of other financial assets net of reversals and recovery Impairment on other assets net of reversals % Equity accounted earnings Profits before tax % Taxes Profits after tax % Income from discontinued operations (*) % Minority interests Net income for the period % (*) The holdings in Banif - Banco Internacional do Funchal (Brasil), SA, Banif Bank (Malta), PLC, Banco Caboverdiano de Negócios (BCN) and Banif Mais SGPS are classified as discontinued operational units in the consolidated profit and loss accounts, as at 31 December 2014 and

9 Business Summary Results In 2014, operating income rose by 48.0%, year-on-year, to million euros. A number of factors contributed to this, including: A 3.2% rise in net interest income, to 84.5 million euros. Despite the positive effect of the policy of reducing deposit costs, which have fallen significantly over recent quarters, due to changes made to the fundraising policy, this income was negatively affected by the following: (i) the effect of the fall in loan volumes, a consequence of the deleveraging of the non-financial sectors of the economy and the lowering of spreads on loans; (ii) reference interest rates that have remained historically low; and (iii) the cost of the interest on the CoCos, which came to 15.5 million euros in An increase of 2.4% in commissions (net), to 64.6 million euros. This positive performance reflects the new commercial focus and the reduction in costs following the cancellation of issues backed by the state. However, this performance was penalised from the 3nd quarter of 2013 onwards, by the limitations arising from the Banco de Portugal rules on banking operation commissions as well as the fall-off in the commercial and investment banking businesses. The 98.9 million euro profit from financial operations is largely a reflection of the capital gains made on the disposal of fixed income Portuguese public debt securities (113.7 million euros in 2014) and the capital losses related to the exposure to the Banif Infrastructure Fund and to FINPRO. This exposure totalled some 12.6 million euros. Other operating results stood at million euros. This can be largely accounted for by the 41.4 million euros earned on the disposal of the overdue loans portfolio (write-offs portfolio) and the losses of 93.1 million euro attributable to the devaluation and disposal of real estate assets. It is worth noting that FINPRO had a negative global impact of around 30 million euros. 9

10 Banking Income: Structure Dez-13 (*) Net interest income Net fees and comissions Other operating income Dec-14 Dividend income Gains and losses in financial operations (*) Restated Unit: (millions of euros) In 2014, operating costs totalled million euros. This is 4.7% lower than in 2013, despite being penalised by the cost of the measures implemented as part of the ongoing transformation process was marked by a significant speeding up of the measures in the restructuring plan, specifically as regards the bringing forward of the branch closure plan and the reorganisation of central services and intermediate commercial structures. Excluding the non-recurrent costs associated with the voluntary redundancy programme, branch closure and the recapitalisation process, operating costs fell 10.5% compared to 2013 (-20.3 million euros). Staff costs for 2014 were million euros. Excluding the impact of non-recurring costs arising from the staff reduction programme, staff costs fell 7.8% year-on-year. The voluntary redundancy programme and the expansion of Banif's ongoing restructuring process, particularly as regards the accelerated closure of branches, both had a positive impact on this figure. General administrative costs totalled 55.4 million euros in 2014, a drop of 17.9% year-on-year. This is despite the considerable costs incurred by the current recapitalisation and restructuring processes. This decrease can be attributed to the gains 10

11 in operational efficiency resulting from the rationalisation and optimisation strategy being applied to operating procedures and also to the renegotiation of contracts and the resizing of the distribution network, at both the domestic and international level. Among other items, it is worth highlighting the significant costs savings achieved in the areas of communications, maintenance and repair and consultancy fees. Amortisations for the period totalled 18.7 million euros at the end of 2014, 25.5% less than in the previous year. This partly reflects the downsizing of the bank s structure and the rationalisation of the investment policy to provide a better fit to the reshaped business model. Operating profits were +5.7 million euros in 2014, which compares extremely favourably with the operating losses of million euros suffered in This turnaround reflects the growth in banking income and the reduction in structural costs. This is a complete reversal of the situation in recent years and is attributable to the visible effects of the implementation of the strategic plan. It shows that the bank is on course for achieving sustainable profitability. Excluding non-recurrent costs, the operational profit would amount to +145 million euros. Net provisions and impairments for 2014 came to million euros, against the million euros recorded for 2013, a year-on-year reduction of 25.5%. This figure reflects the increase in net provisions for impairments in relation to the domestic business. This can be largely explained by extraordinary factors relating to the setting up of impairments to cover the exposure to i) GES in the amount of 80.4 million euros (credit impairment); ii) FINPRO in the amount of 17.9 million euros (impairment of financial assets), and also iii) real estate assets classified as Non-Current Assets Held for Sale (50.5 million euros). It is worth noting the improvement in the credit impairment, that decreased million euros vis a vis Excluding the non-recurrent impairment related to GES, the credit impairment stood at 31% of the amount recorded in 2013 (from to 91.8 million euros) representing 0.9% of the average gross credit. Losses at the discontinued operational units came to million euros at the end of This compares with million euros for 2013 and reflects the impact of the measures implemented at these business units to improve operational efficiency. The group maintained the following as discontinued operational units: Banco Banif Brasil, Banif Bank (Malta) and Banco Caboverdiano de Negócios. Under the purchase and sale agreement signed with COFIDIS in respect of the holding in Banif Mais SGPS, S.A., this unit was also reclassified as a discontinued operational unit. 11

12 Non-recurrent costs Tax (current and deferred) on earnings had a positive impact of 12.5 million euros in This compares with a positive impact of 40.7 million euros in The figure for 2014 includes the effect of the change in the IRC rate on deferred taxes. This had an impact of -15 million euros. Net losses for 2014 were million euros. This is significantly less negative than the result in the previous year ( million euros) and is attributable to higher banking income and the less negative performance of the discontinued operational units, provisions and impairments. This figure was heavily penalised by the net losses suffered in the 4th quarter of These amounted to million euros and include non-recurrent factors totalling million euros. Net losses were made significantly worse by the non-recurrent items that occurred in the 4th quarter. Evolution of operating and net results excluding non-recurrent costs: Operating income Net income Restructuring costs Real estate losses Devaluation of FINPRO participation Impairment related to GES exposure Exposure to Brasil Total non-recurrent costs Total excluding non-recurrent costs

13 Balance Sheet Net assets stood at 13,125.5 million euros as at 31 December 2014, slightly lower (3.5%) than at the end of Gross lending came to 7,906 million euros as at 31 December 2014, down around 13.4% on December The reclassification of Banif Mais as a discontinued unit originated a fall in the loans to customers item of million euros. This amount has been reclassified to the "non-current assets held for sale" item. This performance, despite also being affected by the credit impairments set up over the year (171.8 million euros), continues to reflect the reduction in the bank's exposure to non-strategic sectors and a lower demand for credit, which is part of the ongoing deleveraging process affecting the Portuguese economy. Nevertheless, it is important to note, in the context of Banif's support for Portuguese businesses, that the bank is developing a repositioning strategy that will allow it to focus more closely on the corporate sector (Micro and SME). One of the main drivers of this commitment is the new commercial Leads programme, which has resulted in 500 million euros of loans to SMEs in the industrial and agri-food sectors. Gross Lending to Customers (millions of euros) Dec-14 Dec-13 D Corporate 3,292 3, % Individuals 3,635 4, % Mortgage Loans 2,740 2, % Consumer Loans % Other Loans % Others 979 1, % Total 7,906 9, % Discontinued units 1, % (*) The Others item includes loans more than 30 days overdue 9,350 9, % In 2014, deposits totalled 6,499 million euros, a rise of 3.1% over December During this period, and in line with the current strategic plan, the bank is implementing a differentiated support strategy for high value private clients in the Private and Affluent segments and of the continued commercial support for mass market customers, 13

14 particularly in the autonomous regions. This includes a tight focus on customers in the emigration segment. Banif has continued to successfully follow a funding cost reduction strategy that has focused the offer on standardised savings products rather than term deposits with negotiated rates. Off-balance sheet resources totalled 1,718 million euros at 31 December Total Customer Resources (millions of euros) Dec-14 Dec-13 D Total on-balance sheet customer resources 6,866 6, % Deposits 6,499 6, % Other liabilities % Total off-balance sheet customer resources 1,718 1, % Total 8,584 8, % Discontinued units % Total 9,276 9, % Loan-to-Deposit Ratio 131.2% 128.4% 131.8% 126.4% 121.8% 118.8% 113.9% 105.5% 1Q13 2Q13 3T13 4T13 (*) 1T14 (*) 2T14 (*) 3T14 (*) 4T14 (*) (*) Since 4Q2013, this has excluded the discontinued units. As at 31 December 2014, the ratio of transformation of deposits into loans (net loans/deposits) stood at 105.5%. This significant improvement over December 2013 (126.4%) can be put down to a slight rise in customer deposits and a fall in customer loans. 14

15 Equity, before minority interests, fell by 9.3%, compared to December 2013, to stand at million euros at the end of December This fall is largely attributable to the million euro increase in capital, an increase in revaluation reserves in the amount of 79.3 million euros and net income for the period of million euros. Liquidity Management In 2014, the Banif Group increased the robustness of its financial structure, in a continuation of the trend seen throughout The broad lines of the Banif Group funding plan for 2014 were defined, bearing in mind the two main objectives: (i) to ensure there was sufficient surplus cash flow to service the expected outgoings for the year; (ii) to diversify sources of funding, reducing reliance on the ECB and extending the average maturity of the funding portfolio. A number of operations took place in 2014 to ensure that the above objectives were met: These operations included: Issue of subordinated debt in the amount of 37 million US dollars, in the form of Tier 2 subordinated bonds with a maturity of 10 years; Issue of new securitisations, on the primary market, of SME loan portfolios, SME3 (438 million euros) and SME4 (520 million euros in senior and junior tranches), with a positive impact on liquidity of approximately 600 million euros; Sale of existing securitisations - through the placement of around 537 million euros of the outstanding amount of the senior tranches of two mortgage loan securitisations (RMBS) on the secondary market. These securitisations had been held in the group's own portfolio (in the collateral pool held at the ECB). These operations resulted in an increase in liquidity of 100 million euros and provided funding with an average term of over 10 years; Monetisation of other assets through collaterised funding operations based on liquid assets (400 million euros at 3 months) and on illiquid assets (150 million euros at 2 years). Also of note is the fact that, at the beginning of October, the Group cancelled the remaining bond loans backed by the Portuguese Republic, in the amount of

16 million euros. The maturity date for the bonds was December Through this early repayment, Banif finished paying off of the full amount of 1,175 million euros that it had borrowed in the form of state-backed loans. Additionally, the growth in customer resources and gross lending to customers over 2014 led to a narrowing of the commercial gap by some 1,310 million euros. The factors presented above have allowed the bank to increasingly reduce its need to rely on central bank resources. This reduction began in the 4th quarter of 2013 and has continued despite the bank repaying 875 million euros in state-backed bonds issued by the group. Over 2014, the reliance on ECB funding fell by over half, to stand at 1,493.7 million euros at December At the same time, free assets in the ECB pool increased by 27% over the year. Total resources: 31 December December % 3% 6% 3% Customer resources Own debt funds 51% Central banks 11% 7% 6% 3% 14% Deposits from Banks 18% 55% Equity Other resources 16

17 Solvency As at 31 December 2014, the Common Equity Tier 1 ratio, calculated in accordance with the CRD IV/CRR rules applicable in 2014 (phasing in) stood at 8.4%, which is above the minimum levels required by the regulatory authorities. This figure excludes the positive impact on the capital ratio from the ongoing asset sales, expected to have an impact of more than 100bps. CRD IV/CRR Phasing in (2014) Dec-14 Sep-14 Dec-13 Common Equity Tier Activos ponderados pelo risco Rácio Common Equity Tier 1 8.4% 9.7% 10.9% Unit: (billions of euros) This change in the ratio was penalised by the net losses made in 2014, particularly in the 4th quarter. These losses were caused by non-recurrent factors and by the calculation of negative actuarial differences in the pension fund, following changes made to the actuarial assumptions at 31 December Pension liabilities: Impact of the change in actuarial assumptions in December 2014: Dec-14 Dec-13 Discount rate 2.5% 4.0% Return on the Funds Assets Salary growth rate Pension growth rate 2.5% 4.0% 1.0% 1.0% 0.5% 1.0% (millions of euros) Actuarial losses /gains Pension liabilities Pension Fund Note that total pension fund liabilities are funded at 100.9%. 17

18 Commercial network and Staffing Due to the ongoing transformation process, 2014 was marked by a significant speeding up of the measures in the restructuring plan, specifically as regards the bringing forward of the branch closure plan and the reorganisation of central services and intermediate commercial structures. Despite the negative impact in terms of restructuring costs for 2014, these measures were deemed to be critical to the bank's ability to readjust its business model, given the current regulatory and economic environment. These measures will result in significant cost reductions from 2015 onwards. There were 72 fewer bank branches in December 2014 than in December As regards staffing numbers, 2,733 people were employed by the group as at December This compares with a staff complement of 3,196 as at December 2013, a reduction of 14.5%. In terms of Banif S.A. (domestic business), the reduction was even more expressive. At the end of 2014, the bank employed 1,935 staff, compared to the 2,328 employees it had in December 2013, a fall of 17%. This objective was largely achieved through a programme of voluntary redundancies, pre-retirements and early retirements that involved around 400 staff. 18

19 Key Events in January 2014: Launch of the Pay service, an online corporate payment management solution. 24 January 2014: Placement on the international market of the 438 million euro Atlantes SME3 securitisation operation, based on portfolios of SME loans originated in Portugal. 17 March 2014: Announcement of the voluntary redundancy programme for up to 300 employees and the closure of 60 branches in 2014, thus bringing forward the targets in the restructuring plan. 11 April 2014: Repurchase of the 2nd tranche of CoCos from the Portuguese State, in the amount of 125 million euros. 14 April 2014: Announcement of a partnership with IBM for infrastructure services provision in the areas of information technology and application management. This 10-year outsourcing contract should yield a cumulative saving of 15 million euros. 14 April 2014: Announcement of a public offering to increase share capital by up to million euros, planned for completion by the end of May May 2014: Publication of the prospectus for the public offering to increase the share capital by million euros. This offering was aimed at the public in general, with priority being given to existing shareholders. The subscription period ran from 16 to 30 May June 2014: Disclosure of the results of the million euro capital increase operation. The offer, which was fully subscribed, led to the issue of 13,850,477,957 new shares. Demand exceeded the amount on offer by 141%. 4 June 2014: Registration at the Commercial registry Office of the million euro increase in capital, through a public subscription to 13,850,477,957 new shares at a unit of June 2014: Changes to the board of directors and the audit committee. The general meeting, held on 30 May 2014, voted to make a number of changes to the articles of 19

20 association. These meant switching from the classical monistic governance model to the Anglo-Saxon model. Thus, the supervisory board was abolished on this same date and the members of the board relinquished their posts. At the same time, an audit committee was set up under the aegis of the board of directors. The former members of the supervisory board took up seats on the board of directors, so that they could then become members of the audit committee. 25 June 2014: Sale of a Banif, SA portfolio of overdue loans to an international institutional investor. The nominal value of the debt involved totalled around 485 million euros. The operation had an impact on equity of some 40 million euros 30 June 2014: Announcement of the first period for the exercise of the facility to acquire shares from the Portuguese State. This facility was open to shareholders as at 25 January 2013, in accordance with paragraph 9 of Decree no B/2013, of 23/01. The subscription period ran from 3 to 16 July July 2014: For the second time in a row, Banif Gestão de Activos won World Finance magazine's Best Asset Management Company in Portugal award. 18 July 2014: Disclosure of the results of the first period for the exercise of the facility to acquire shares from the Portuguese State, as per paragraph 9 of Decree no B/2013, of 23 January. No shares in Banif were sold. 22 July 2014: Amortisation, in the amount of 280 million euros, of all the bonds issued on 19 July 2011, as part of the Portuguese Republic's programme for statebacked bond loans to the Portuguese banking sector. 19 September 2014: Announcement of the placement with international institutional investors of 520 million euros worth of bonds resulting from the securitisation of SME loan portfolios 1 October 2014: Early cancellation of the bond loan backed by the Portuguese state, in the amounts of 500 million euros (Banif, SA) and 95 million euros (Banif Banco de Investimento, SA). 25 November 2014: Publication of the base prospectus for public offerings for the distribution and/or listing for trading of debt securities up to an amount of 1,500,000,

21 28 November 2014: Shareholder's general meeting at which, on proposal of the board of directors, it was decided to approve the use by Banif Banco Internacional do Funchal, S.A. of the special scheme applicable to deferred tax assets provided for in Law no. 61/2014, of 26 August, and respective annexe, including all decisions associated with such use. 12 December 2014: Banif Banco Internacional do Funchal, S.A. announced an agreement for the purchase and sale of its 85.92% holding in Banif Mais SGPS, S.A., the company which owns 100% of Banco Banif Mais, S.A. The Board of Directors Banif Banco Internacional do Funchal, SA Limited Liability Company Registered Office: Rua de João Tavira, Funchal Share Capital: 1,720,700,000 euros Single Registration and Corporate Taxpayer Number