NATIXIS -2020 Universal Registration Document

FINANCIAL DATA Consolidated financial statements and notes

Any contractual option that creates risk exposure or cash-flow volatility that is not consistent with a basic lending arrangement, such as exposure to fluctuations in the price of stocks or of a market index, or the introduction of leverage, would make it impossible to categorize contractual cash flows as “SPPI”. Non-SPPI financial assets include mutual fund units and convertible bonds or mandatory convertible bonds with a fixed conversiornatio. Natixis has introduced the operational procedures necessary to analyze the SPPI status of financial assets when they are initially recognized. A specific cash flow analysis is also carried out for securitization fund units or any other financial assets issued by structures that establish an order of payment priority between bearers and create concentrations of credit risk (tranches). Determining the SPPI status of these instruments requires an analysis of the contractual cash flows and credit risk of the assets concerned and of the portfolios of underlying financial assets (according to the look-through approach). Financial assets at amortized cost 5.1.3 Financial assets recognized at amortized cost correspond to debt instruments, in particular loans and receivables due from credit institutions and customers as well as securities carried at amortized cost such as treasury bills and bonds. They are measured at amortized cost if they meet the following two conditions: the asset is held in a business model whose objective is to collect V contractual cash flows; and the contractual terms of the financial asset give rise to cash flows V that are solely payments of principal and interest on the outstanding amount due, on specific dates. In this case, the asset is considered basic and its cash flows are categorized as SPPI. They are initially recorded at fair value plus or minus transaction costs. In the case of loans, transaction costs include fees and any expenses directly attributable to setting up the loan. On subsequentbalance sheet dates, they are measuredat amortized cost using the effective interest method. The “effective interest rate” is the rate that discounts estimated future cash flows (payments or receipts) to the value of the debt instrument at inception. This rate includes any discounts and any external transaction income or costs directly related to the issue of the loans, which are treated as an adjustment to the effectivyeield. When loans are granted at below-market interest rates, a discount corresponding to the difference between the face value of the loan and the sum of future cash flows discounted at the market interest rate is deducted from the face value of the loan. The market rate of interest is the rate applied by the vast majority of financial institutionsat any given time for instrumentsand counterpartieswith similar characteristics. Interest accrued or received on debt instruments is recorded in income under “Interest and similar income” using the effective interest rate method. If the instruments are sold, the gain or loss is recorded in the income statement under “Net gains or losses resulting from the derecognition of instruments at amortizecdost”.

Specific case of loans restructured due to the debtor’s financial situation

“Restructured” loans correspond to loans with modified terms under which Natixis grants a concession to borrowers facing or likely to face financial difficulties. They are a combination of a concession granted by Natixis and financial difficulties experienced by the borrower. The modified terms of “restructured” loans must put the borrower in a more favorable situation (e.g. suspension of interest or principal payment, extension of term, etc.) and are confirmed by the use of amendments that modify the terms of an existing contract or by the full or partial refinancing of an existing loan. Financial difficulties are determined by observing a number of criteria such as amounts past due for more than 30 days or an at-risk rating. The implementation of “restructuring” does not necessarilymean the counterpartyconcerned by the restructuring is to be classified in the Basel defaults category. The default classification of the counterparty depends on the result of the viability testcarried out during the restructuring of the counterparty. For loans restructured by amending the terms of the existing contract, with no derecognition of the initial asset, a discount must be recorded, corresponding to the difference between: the present value of the contractual cash flows initially expected; V and the present value of the revised contractual cash flows discounted V at the original effective interest rate. The discount is recorded in the income statement under “Provision for credit losses”, taking into account the characteristicsof the loan prior to the restructuring operation (non-performing loan). It is written back to net interest income in the income statement over the remaining life of the loan. If the discount is not material, the effective interest rate of the restructured loan is changed and no discount is recognized. The restructured loan is reclassified as performing based on expert opinionwhen no uncertaintyremains as to the borrower’scapacity to honor the commitment. A loan is no longer considered as restructured once the following conditions are met: a period of two years has passed since the date of the V restructuring; the loan is recognized as a performing loan at the reporting date; V no loan is past due by more than 30 days; V regular and material repayments (principal and interest) have been V made over a period of at least one year. For restructured loans either fully or partially converted into a substantially different asset (such as an equity instrument or an instrument changing from fixed rate to variable rate and vice versa)

5

or that have given rise to a change of counterparty: the new instruments are booked at fair value; V

the difference between the carrying amount of the derecognized V loan and the fair value of the assets received in exchange is recorded in income under the provision for credit losses; any provision previously recorded on the loan is adjusted and fully V reversed if the loan is fully converted into a new asset.

281

www.natixis.com

NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020