Banco Comercial Português S A : Millennium bcp Earnings release as at 30 June 2021

26 July 2021

Millennium bcp Earnings release as at 30 June 2021

Profitability

Resilience of the business model; favourable performance of profit before impairment and provisions

Capital and Liquidity

Capital at adequate levels; reinforced liquidity position

Business performance and Credit quality

Strong dynamics of growth in customer resources; continued increase of the loan portfolio; comfortable coverages levels

• Net income of the Group amounted to 12.3 million euros in the first half of 2021, including 214.2 million euros in provisions for legal risk on loans granted in Swiss francs in Poland and specific items of 87.2 million euros in Portugal, mainly related to restructuring costs.
• Core income up by 2.4%; Recurring operating costs down by 4.3%.
• Profit before impairment and provisions up 5.1%, to 530.9 million euros. Impairment and other provisions totaled 461.9 million euros in the first six months of 2021.
• Estimated Fully-implemented Core Equity Tier 1 ratio and Total capital ratio at 11.6% and 14.9%, respectively, both above regulatory requirements (11.8% and 15.1%, respectively, on a pro forma basis considering the expected impact of the ongoing sale of the Swiss subsidiary).
• High liquidity levels, comfortably above regulatory requirements. Eligible assets for ECB funding of 25.9 billion euros.
• Performing loans up by 1.9 billion euros in Portugal, +5.4% from June 2020, with NPE reduction of 0.8 billion euros, in adverse context. General improvement in credit quality indicators. Total customer funds of the Group up by 7.2 billion euros. Off- balance sheet customer funds of the Group up by 14.2%, to 20.7 million euros.
• Growing Customer base, mobile Customers standing out (+567,000, of which +211,000 in Portugal).
• Leading bank in Customer satisfaction with digital channels (Basef 5 largest banks).

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FINANCIAL HIGHLIGHTS (1)

			Euro million
	30 Jun. 21	30 Jun. 20	Change
	21/20
BALANCE SHEET
Total assets	91,365	86,519	5.6%
Loans to customers (net)	55,885	53,687	4.1%
Total customer funds	90,351	83,163	8.6%
Balance sheet customer funds	69,621	65,009	7.1%
Deposits and other resources from customers	68,101	63,464	7.3%
Loans to customers (net) / Deposits and other resources from customers (2)	82.1%	84.6%
Loans to customers (net) / Balance sheet customer funds	80.3%	82.6%
RESULTS
Net interest income	768.2	762.9	0.7%
Net operating revenues	1,122.6	1,053.4	6.6%
Operating costs	591.8	548.6	7.9%
Operating costs excluding specific items (3)	504.6	527.4	-4.3%
Loan impairment charges (net of recoveries)	156.9	237.3	-33.9%
Other impairment and provisions	304.9	114.0	167.4%
Income taxes	103.0	58.3	76.7%
Net income	12.3	76.0	-83.9%
PROFITABILITY AND EFFICIENCY
Net operating revenues / Average net assets (2)	2.5%	2.5%
Return on average assets (ROA)	-0.1%	0.2%
Income before tax and non-controlling interests / Average net assets (2)	0.2%	0.4%
Return on average equity (ROE)	0.4%	2.6%
Income before tax and non-controlling interests / Average equity (2)	2.1%	4.5%
Net interest margin	1.92%	2.05%
Cost to core income (2) (3)	45.0%	48.2%
Cost to income (2)	52.7%	52.1%
Cost to income (2) (3)	44.9%	50.1%
Cost to income (Portugal activity) (2) (3)	44.1%	51.6%
Staff costs / Net operating revenues (2) (3)	25.6%	28.4%
CREDIT QUALITY
Cost of risk (net of recoveries, in b.p.)	55	85
Non-Performing Exposures / Loans to customers	5.2%	7.0%
Total impairment (balance sheet) / NPE	66.6%	57.8%
Restructured loans / Loans to customers	4.3%	5.5%
LIQUIDITY
Liquidity Coverage Ratio (LCR)	270%	249%
Net Stable Funding Ratio (NSFR)	148%	137%
CAPITAL (4)
Common equity tier I phased-in ratio	11.7%	12.1%
Common equity tier I fully implemented ratio	11.6%	12.1%
Total fully implemented ratio	14.9%	15.6%
BRANCHES
Portugal activity	458	493	-7.1%
International activity	876	967	-9.4%
EMPLOYEES
Portugal activity	6,937	7,154	-3.0%
International activity (5)	9,984	11,016	-9.4%

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Notes:

1. Some indicators are presented according to management criteria of the Group, which concepts are described and detailed at the glossary and at "Alternative Performance Measures" chapter, being reconciled with the accounting values published in the consolidated financial statements. Following the agreement concluded on 29 June 2021 with Union Bancaire Privée, UBP SA regarding the sale of the entire share capital of Banque Privée BCP (Suisse) SA ("Banque Privée"), the contribution of this subsidiary to the consolidated results of the Group is reflected as income from discontinued operations in the international activity and the historical information has been restated in order to ensure its comparability, as defined in the IFRS5. The accounting of assets and liabilities of Banque Privée BCP (Suisse) S.A. was not changed compared to the criteria considered in the financial statements published in previous periods. In this context, and taking into account the immateriality of the balance sheet balances of the Swiss subsidiary in the Group, the calculation of the indicators relating the performance of the profit and loss account to the balance sheet items was not adjusted, with the exception of net interest margin, that reflects the fact that the assets of that subsidiary were no longer considered interest earning assets in the current period or in historical information.
2. According to Instruction from the Bank of Portugal no. 16/2004, as the currently existing version.
3. Excludes specific items: negative impact of 87.2 million euros in the first half of 2021, mainly related to restructuring costs, recognized as staff costs in the activity in Portugal, including a provision to cover the costs related to the current adjustment of headcount in the amount of 81.4 million euros. In the first half of 2020, the impact was also negative, in the amount of 21.2 million euros, of which 13.2 million euros related to restructuring costs and compensation for temporary remuneration of employees cuts, both recognized as staff costs in the activity in Portugal and 7.9 million euros related to acquisition, merger and integration of Euro Bank S.A., recognized by the Polish subsidiary (5.4 million euros as staff costs, 2.3 million euros as other administrative costs and an 0.2 million euros as depreciation). In the efficiency indicators, the specific items included in the net operating revenues in the first half of 2020, in the amount of 0.1 million euros, related to costs with the acquisition, merger and integration of Euro Bank S.A., recognized in the Polish subsidiary are also not considered.
4. As at 30 June 2021 and 30 June 2020, capital ratios include the positive cumulative net income of each period. Ratios as of 30 June 2021 are estimated and non-audited.
5. Of which, in Poland: 7,286 employees as at 30 June 2021 (corresponding to 7,148 FTE - Full-time equivalent) and 8,283 employees as at 30 June 2020 (corresponding to 8,141 FTE - Full-time equivalent).

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RESULTS AND ACTIVITY IN THE FIRST HALF OF 2021

The results achieved by Millennium bcp, in the first half of 2021, demonstrate the resilience of the Bank in a challenging context, which still reflects some of the impacts caused by the pandemic associated with COVID-19, which emerged at the end of the first quarter of 2020. The lifting of the restrictive measures from the second half of March 2021, along with the ongoing vaccination process and the maintenance of initiatives to support the economy, have allowed, despite some uncertainty, an improvement in the economic activity. Millennium bcp showed, since the beginning, an enormous capacity for adaptation, reacting promptly to the evolution of the pandemic, remained at the forefront in supporting the economy, reinforcing its presence with companies, while ensuring constant support to families. The growth of the customer base and external recognition, materialized in the various awards and distinctions that the Bank has received, are proof of the resilience of the Bank's business model, whose digital capabilities are especially valued in times of pandemic. The Group will continuously assess the situation, in order to adapt itself to the evolution that the pandemic may assume, always bearing in mind the protection of employees and customers as well as the reinforcement of the social support.

Banco Comercial Português, S.A. informed, on 29 June 2021, by an announcement that it had concluded on that day an agreement with Union Bancaire Privée, UBP SA regarding the sale of the entire share capital of Banque Privée BCP (Suisse) SA ("Banque Privée"). The completion of the transaction is subject to the verification of the usual conditions for carrying out this type of transaction, including the non-opposition of the relevant local supervisory bodies. BCP estimates that the sale price and the (positive) impact on consolidated results for the current year, on a pro forma basis as of 31 March 2021, between 119 and 128 million euros and 41 and 50 million euros. These amounts are subject to adjustments arising from the evolution of assets under management and the activity of Banque Privée BCP (Suisse) SA, and will only be definitively fixed after the date of completion of the transaction. The sale of Banque Privée will allow the BCP Group to pursue the strategy of focusing resources and management on core geographies, enhancing their development and thus creating value for stakeholders. Following this agreement and as defined in IFRS5, the contribution of the Swiss subsidiary to the consolidated results of the Group is reflected as income from discontinued operations in the international activity and the historical information has been restated since January 2020, in order to ensure its comparability. The accounting of assets and liabilities of Banque Privée BCP (Suisse) S.A. was not changed compared to the criteria considered in the financial statements published in previous periods. In this context, and taking into account the immateriality of the balance sheet balances of the Swiss subsidiary in the Group, the calculation of the indicators relating the performance of the profit and loss account to the balance sheet items were not adjusted, with the exception of net interest margin, that reflects the fact that the assets of that subsidiary were no longer considered interest earning assets in the current period or in historical information.

During the first half of 2021, the Group changed the presentation of provisions booked by Bank Millennium for foreign exchange mortgage legal risk, that were previously recorded in liabilities in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets", starting to recognize it as a reduction of the gross carrying amount of loans for which a decrease in future cash flows is expected according to IFRS 9 Financial Instruments. In this sense, the Group restated the financial information previously published for all periods beginning on 1 January 2020, reducing both the book value of the credit portfolio and other provisions presented under liabilities, compared to the financial position previously disclosed by the Group. Provisions according to the framework provided for in IAS 37 will be applied only regarding disputes related to already repaid receivables not included in the balance sheet of the Group. In addition, Bank Millennium changed the presentation of interest on derivatives not covered by formal hedge accounting in accordance with IFRS9. Bearing in mind that these instruments, although they are included in the trading book, are mainly settled in order to establish economic

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hedging against the risk of other financial assets or liabilities, the Polish subsidiary, from the first half of 2021, presents the interest as part of the net interest income, previously recorded as net trading income. In this sense, the financial statements of the Group published in previous periods were restated from 1 January 2020 in order to ensure the comparability of the information.

Following the guidelines on Alternative Performance Measures published by the European Securities and Markets Authority (ESMA), the relevant indicators that allow a full understanding of the evolution of the Group's economic and financial position are detailed at the end of this document, being reconciled with the accounting values published in the consolidated financial statements.

RESULTS

Millennium bcp showed a consolidated net income net income of 12.3 million euros in the first six months of 2021, lower than the 76.0 million euros achieved in the first half of 2020, with this evolution being determined by the contribution of the international activity, in particular the Polish subsidiary, strongly penalized by the significant increase of impairment and provisions booked for foreign exchange mortgage legal risk, which in the first half of 2021 amounted to 214.2 million euros (net of the amount originated by the operations of Euro Bank S.A., to be reimbursed by Société Générale, S.A.) compared to 38.0 million euros which had been recognised in the same period of the previous year. On the other hand, the contribution of the activity in Portugal to the consolidated net income of the Group was at a similar level to that recorded in the first half of the previous year, despite being strongly influenced by the recognition of a provision in the amount of 81.4 million euros, to cover restructuring costs, following the current adjustment of the headcount. This provision, considered as specific item resulted from the analysis of the needs of the Bank in relation to the existing capacity, also taking into account the adaptation of models and business processes to the new technologies. Although the need for adjustment of the headcount has already been identified under the Mobilising 2018/2021 strategic plan and this adjustment was foreseen for 2020, the emergence of the pandemic associated to COVID-19 and its effects on the economy and life of families led the Bank to postpone its implementation.

It should be noted that despite the extraordinary impact mentioned above related to the provision for the restructuring of the headcount recognised as staff costs, which greatly affected the net income of the activity in Portugal, profit before impairments and provisions of the Group reached 530.9 million euros in the first half of 2021, showing a growth of 5.1% compared to the same period of 2020, supported, on the one hand, by the resilience of core income and, on the other hand, by the favorable evolution of net trading income.

Consolidated core operating profit of Millennium bcp, excluding specific items1, achieved 616.3 million euros in the first half of 2021, above the previous year.

Furthermore, the net income of the Group also reflects a lower level of loans impairment, and has also benefited, albeit to a lesser extent, by results associated with other net operating income, while equity accounted earnings and dividends from equity instruments stood at a lower level.

1 The specific items referred to totaled 87.2 million euros in the first half of 2021, were fully recognised in the activity in Portugal and are mainly related to restructuring costs, including the provision booked as a result of the current headcount adjustment that amounted to 81.4 million euros. In the first half of 2020, the specific items of the Group totaled 21.2 million euros, recognized both in the activity in Portugal and in the international activity, and they are associated respectively with restructuring costs and with compensation costs for the temporary adjustment of remuneration of the employees and costs with the acquisition, merger and integration of Euro Bank S.A.

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