NATIXIS // 2021 Universal Registration Document

5 CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2021 Consolidated financial statements and notes

currency) is recognized in equity. These changes in fair value are offset against the translation adjustments recognized when the entity was consolidated (see Note 2.9) . The ineffective portion of changes in fair value is recognized in income. Unrealized gains or losses recognized directly in equity are transferred to income when all or part of the net investment is sold. Internal contracts Many internal contracts involving derivatives used in hedge accounting exist between Natixis and its subsidiaries. To ensure that the transactions meet the hedge accounting criteria for consolidation purposes, Natixis regularly verifies that they have been correctly hedged on the market. Credit derivatives Credit derivatives used by Natixis are not considered as financial guarantees but as derivatives falling within the scope of IAS 39. They are classified as assets or liabilities at fair value through profit or loss. currencies The method used to account for assets and liabilities relating to foreign currency transactions entered into by Natixis depends upon whether the asset or liability in question is classified as a monetary or a non-monetary item. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the spot rate prevailing at the reporting date. Exchange differences resulting from this conversion are recognized in profit or loss. There are two exceptions to this rule: only the portion of the foreign exchange gains and losses V calculated based on the amortized cost of financial assets at fair value through other comprehensive income is recognized in income, the remainder being recognized in “Gains and losses recognized directly in equity”; foreign exchange gains and losses from monetary items V designated as cash flow hedges or part of a net investment in a foreign entity are recognized in “Gains and losses recognized directly in equity”. Non-monetary items denominated in foreign currencies and measured at historical cost are translated at the exchange rate on the transaction date (or the date of reclassification in equity for undated deeply subordinated notes issued: see Note 11.3.1 ). Non-monetary items denominated in foreign currencies and measured at fair value are translated at the prevailing exchange rate at the end of the reporting period. Gains or losses on a non-monetary item (e.g. equity instruments) denominated in a foreign currency are recognized as income if the asset is classified as “Financial assets at fair value through profit or loss” and in equity if the asset is classified as “Financial assets at fair value through equity”, unless the financial asset is designated as a hedged item in a fair value hedge, in which case foreign exchange gains and losses are recorded in income. Transactions in foreign 5.5

Fair value hedging Fair value hedging is intended to hedge the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment. Overall hedging of interest rate risk The subsidiary Natixis Financial Products LLC documents overall hedging of its interest rate risk in accordance with fair value hedging rules. To account for these transactions, the subsidiary applies the carve-out provisions of IAS 39 as adopted by the European Union. The accounting treatment of derivative financial instruments designated for accounting purposes as structural fair value hedges is similar to that applied to fair value hedging derivatives. Changes in the fair value of portfolios of hedged instruments are reported on a specific line of the balance sheet (“Revaluation adjustments on portfolios hedged against interest rate risk”), with a corresponding entry in income statement. Hedging of fixed-rate loans and borrowings Natixis uses plain vanilla interest rate swaps lending at fixed rates to protect itself against the impact of unfavorable changes in interest rates on its fixed-rate borrowings and issues. Plain vanilla swaps borrowing at fixed rates are used to protect it from the impact of unfavorable changes in interest rates on its fixed-rate loans and securities. Documentation of fair value hedges Prospective hedge effectiveness tests involve verifying that the financial characteristics of the hedged item and the hedging instrument are virtually identical: value date, maturity date, notional amount, fixed rate, and payment frequency. Retrospective hedge effectiveness tests are used to verify whether the hedge was effective at different reporting dates. At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypothetical assets and liabilities hedged (synthetic instruments representative of hedged assets or liabilities). Changes in the fair value of hedging instruments must offset changes in the fair value of hedged items within a range of 80-125%. Outside these limits, the hedge no longer qualifies for hedge accounting under IFRS. Accounting for fair value hedges Changes in the fair value of the derivatives are recognized as income for both the effective and ineffective portions. Symmetrically, changes in the fair value of the hedged items are recognized as income. Accordingly, only the ineffective portion of the hedge affects income statement. Changes in the fair value of hedging derivatives excluding accrued interest are recorded in income under “Net gains or losses on financial instruments at fair value through profit or loss”. Accrued interest relating to these instruments is recorded under “Interest and similar income” or “Interest and similar expenses”. When a hedging relationship is discontinued, the hedging instrument is reclassified in “Financial instruments at fair value through profit or loss”, while the unrealized gain or loss on the hedged item is fixed at its amount on the date the hedge is discontinued and recorded in income through to maturity.

5.6

Fair value of financial

instruments

Hedging of a net investment in a foreign operation

General principles The fair value of an instrument (asset or liability) is the price that would be received to sell an asset or paid to transfer a liability in a standard arm’s length transaction between market participants at the measurement date. Fair value is therefore based on the exit price.

Net investment hedges are used to hedge the exchange risk arising on net foreign currency investments (consolidated subsidiary or investment). They are accounted for in the same way as cash flow hedges. The effective portion of changes in the fair value of hedging instruments (monetary derivative or liability denominated in foreign

300

NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2021