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Lusltano Mortgages No.2 Public Limited Company and Subsidiary

Dlrectors report and audited financial statements

For the year ended 31 December2014

Rqhtned number 374631

Lusitano Mortgages No.2 Public Limited Company and Subsidiary

ContentsPage(s)

Directors and other informationI

Directors report2-5

Statement of directors’ responsibilities 6

Independent audito?s report7-8

Group Statement of comprehensive income 9

Group Statement of financial position 10

Company Statement of financial position II

Group and Company Slatement of changes in equity 12

Group Statement of cash flows 13

Company Statement of cash flows 11

Notes to the financial statements 15-38

Lusitano Mortgages No. 2 Public Limited Company and Subsidiary

Page IDirectors and other information

Directors Fimir McGrathDavid McGuinness

Registered Office (Asfronz 20 October 20I4 (Until 19 October 2011)6th Floor 5 Harbourmaster PlacePinnaclc 2 International Financial Services CentreEastpoint Business Park Dublin IDublin 3 IrelandIreland

Administrator & Deutsche tntemational Corporate Services tireland) LimitedCompany Secretary (Asfrom 20 October 2014 ((hi/il /9 October 2013,)

6th Floor 5 Harbourmaster PlacePinnacle 2 International Financial Services CentreEastpoint Business Park Dublin IDublin 3 IrelandIreland

Trustee Deutsche Trustee Company LimitedWinchester I-louseI Great Winchester StreetLondon EC2N 2DBUnited Kingdom

Independent Auditor KPMGChartered Accountants, Statutory Audit FirmI Harbourmaster PlaceInternational Financial Services CentreDublin IIreland

Bankers Deutsche Bank AG London Bank of IrelandWinchester House 2 Burlington PlanI Great Winchester Street Burlington RoadLondon LC2N 2DB Dublin 4United Kingdom Ireland

Solicitor Matheson70 Sir John Rogerson’s QuayDublin 2Ireland

Custodian and Novo Banco, S.A. (formerly Banco Espirito Santo, SA.)Servicer Avenida da Liberdade. 195. 1250-142

LisbonPortugal

Swap Counterparty Credit Agricole Indosuez9. quai Paul Downer92920 Paris La DefenseFrance

Lusitano Mortgages No. 2 Public Limited Company and Subsidiary Page 2

Directors’ reportThe directors present their annual report and audited financial statements of Lusitano Mortgages No. 2 PLC (the “Company”) andsubsidiary (together the “Group”) for the year ended 31 December2014.

Principal activitiesThe principal activity’ of the Group is the investment in a portfolio of mortgage receivables in Portugal. through the purchase of 100% oFthe units in Lusitano Mortgages No 2 Fundo. (the “Fundo”) a Portuguese securitisation fund. The portfolio consists of loans originated byBanco Internacional de Credito S.A. (131C”) and its subsidiary that continue to service the loans. The Fundo acquired the receivablesfrom HIC and granted to the unitholder (the Company) ownership interests in its assets. The Fundo is managed by a fund managementcompany in Portugal, Finantia SGFTC S.A. (“Finantia”). Finantia acts on behalf of the unitholder and provides supervisory services suchas supervising the acquisition of the assets, notification of the borrowers in the event of a mortgage asset sale notification event, issuanceof the units and determination of the unit distribution,

The transaction was financed through the issuance of five tranches of mortgage backed floating rate notes, Classes A, H. C. 13 and E (the“Senior Notes”) to an agaregate amount olE 1,000,000,000. The Company has also issued Class F Notes (together with the Senior Notes.the “Notes”) to an aggregate amount of €9,000,000. The repayment of principal and interest on the Notes is linked to the performance ofthe portfolio of mortgage receivables.

The Company owns 100% of the units issued by the Fundo. As such the directors of the Company have prepared consolidated financialstalements incorporating the Fundo’s results.

There has been no significant change in those activities outlined above during the year. The directors do not anticipate any materialchanges to the nature or volume of the business in the foreseeable future.

Business reviewDuring the year:• the Group made no profit or loss (2013: €nil);• there were no credit events that affected the Group:• Class A Mortgage Hacked Floating Rate Notes due 2036 were partially redeemed by €31,129,120 (2013: €32,465,972): and• the net loss from derivative financial instruments amounted to €1,802,149 (2013: €50.286).

As at 31 December 2014:• the Group’s total indebtedness was €322,439,185 (2013: €359.399.254):• the Company had the following notes in issue:

- €215,482,676 Class A Mortgage Hacked Floating Rate Notes due 2036- € 30.000,000 Class H Mortgage Backed Floating Rate Notes due 2046- € 26,000,000 Class C Mortgage Backed Floating Rate Notes due 2046- € 16.000,000 Class 13 Mortgage Backed Floating Rate Notes due 2046- f 6,000,000 Class £ Mortgage Backed Floating Rate Notes due 2046- € 9,000,000 Class F Mortgage Backed Floating Rate Notes due 2046

The directors expect the current level of activity to continue in the foreseeable future. The Company will continue to utilise thecollections from the fUlly amortised mortgage loan portfolio to redeem the outstanding loan notes during the lifetime of the transaction.

Key performance indicators 2014 2013€ €

Profit after tax Nil NilNet assets 40.000 40,000

Mortgage porfoIioWeighted average interest rate 1.637% 1.719%Number of loans 9.779 10.179Current LTV (outstanding loan amount/initial valuation) 48.99% 51.65%Original LTV (initial loan amount/initial valuation) 73.49% 73.49%Portfolio Trigger Event (maximum 4.5%): Arrears ratio 0.889% 0.934%Mortgage loans in arrears (>30 days) € 13,774.871 € 13.385.716No. of loans in arrears 365 40!


Directors’ report (continued)

Key performance indicators (continued)The directors of the Company manage their credit risk exposure of loans and receivables by monitoring the loan to value ratios, mortgagearrears balances and related ratios. The loan to value ratio is a mathematical calculation which expresses the current principal balance ofa mortgage as a percentage of the total initial value of the property. The arrears ratio is the ratio of the principal outstanding balance ofmortgage loans in arrears between 90 to 365 days divided by the principal outstanding balance of initial mortgage backed credit portfolioas at the determination date.

Future developmentsThe board will continue to seek new opportunities for the Company and will continue to ensure proper management of the currentportlblio of notes of the Company.

Results and dividends for the yearThe results lbr the year are set out on page 9. The directors do not recommend the payment of a dividend for the year under review (2013:nil).

Changes in directors, secretary and registered officeOn 6 November 2014. the registered office of the Company changed from 5 I larbourmaster Place, IFSC. Dublin I. Ireland to 6th Floor.Pinnacle 2, Eastpoint Business Park, Dublin 3, Ireland.

There were no other changes in directors, secretary or registered office during the year and/or since the year end

Directors and secretary and their interestsThe directors and secretary. who held office on 31 December 2014, did not hold any shares in the Company at that date, or during theyear. There were no contracts of any significance in relation to the business of the Company in which the directors had any interest, asdefined in the Companies Act 1990, at any time during the year.

Principal risks and uncertaintiesThe Group and Company are subject to various risks. The key risks facing the Group and Company and the manner in which these riskshave been dealt with are disclosed in note 25 of the financial statements.

Going concernThe group’s financial statements for the year ended 31 December 2014 have been prepared on a going concern basis. The directorsanticipate that the loans and receivables will continue to generate enough cash flow on an ongoing basis to meet the Company liabilitiesas they fall due. Majority of the Notes in issue as at 31 December 2014 will mature in 2046. For these reasons, the directors believe thatthe going concern basis is appropriate.

Operational riskOperational risk is the risk of director indirect loss arising from a wide variety of causes associated with an entity’s processes. personneland infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatoryrequirements and generally accepted standards of corporate behaviour.

Operational risks arise from all of the Group’s operations. The Company was incorporated with the purpose of engaging in those activitiesoutlined in Note 1. The aroup limits its exposure to operational risks by outsoureing all management and administration flinctions toDeutsche International Corporate Services (Ireland) Limited (“DICSIL”) Ibr the Company.

The Fundo is managed by a fund management company in Portugal, Finantia SGFTC S.A.

Credit riskCredit risk is the risk of the financial loss to the Group and Company if counterparty to a financial asset Ibils to meet its contractualobligations, and arises principally from the Group and Company’s credit linked assets.

During the li(b of the transaction, the originator (Banco lntemacional de Credito SM is able to modify the terms and conditions of someof the loans on a limited basis or substitute some loans.

These changes may have an impact on the risk profile of the pool. The originator’s ability to make changes to the terms and conditions ofthe loans securitised is limited by permitted variations and substitutions language included in the securitisation documentation.

Any reduction in the value of the mortgage receivables will be matched by a reduction in the repayment obligations of the Notes. Becauseof the ring-fenced nature of the debt issued by the Company any such losses would ultimately be borne by either the swap counterparty orthe noteholders.



Corporate Governance Statement

IntroductionThe Company is subject to and complies with Irish Statute comprising the Companies Acts 1963102013 and the Listing rules of the IrishStock Exchange. The Company does not apply additional requirements in addition to those required by the above. Each of the seiwiceproviders engaged by the Company is subject to their own corporate governance requirements.

Financial Reporting ProcessThe Board of Directors (“the Board”) is responsible fbr establishing and maintaining adequate internal control and risk managementsystems of the Company in relation to the financial reporting process. Such systems arc designed to manage rather than eliminate the riskof failure to achieve the Companys linancial reporting objectives and can only provide reasonable and not absolute assurance againstmaterial misstatement or loss.

The Board has established processes regarding internal control and risk management systems to ensure its effective oversight of thefinancial reporting process. These include appointing the Administrator. DIUSIL. to maintain the accounting records of the Companyindependently of the Arranger and the Custodian. The Administrator is contractually obliged to maintain proper books and records asrequired by the Corporate Administration agreement. To that end the Administrator performs reconciliations of its records to those of theArranger and the Custodian. The Administrator is also contractually obliged to prepare for review and approval by the Board the annualreport including financial statements intended to give a true and fair view.

The Board evaluates and discusses significant accounting and reporting issues as the need arises. From time to time the Board alsoexamines and evaluates the Administrator’s financial accounting and reporting routines and monitors and evaluates the external auditors’perlbrmance. qualifications and independence. The Administrator has operating responsibility for internal control in relation to thefinancial reporting process and the Administrator’s report to the Board.

Risk AssessmentThe Board is responsible for assessing the risk of irregularities whether caused by fraud or error in financial reporting and ensuring theprocesses are in place for the timely identification of internal and external matters with a potential elThct on financial reporting. TheBoard has also put in place processes to identif’ changes in accounting rules and recommendations and to ensure that these changes areaccurately reflected in the Companys financial statements.

More specifically:- The Administrator has a review procedure in place to ensure errors and omissions in the financial statements are identified and

corrected.- Regular training on accounting rules and recommendations are provided to the accountants employed by the administrator.- Accounting bulletins, issued by Deutsch Bank AG. London Branch. an entity related to DICSIL. are distributed monthly to all

accountants employed by the Administrator.

Control ActivitiesThe Administrator is contractually obliged to design and maintain control structures to managc the risks which the Board judges to besignificant fbr internal control over financial reporting. These control structures include appropriate division of responsibilities andspecific control activities aimed at detecting or preventing the risk of significant deficiencies in financial reporting for every significantaccount in the financial statements and the related notes in the Company’s annual report.

tThnitoringThe Board has an annual process to ensure that appropriate measures are taken to consider and address the shortcomings identified andmeasures recommended by the independent auditors.

Given the contractual obligations on the Administrator, the Board has concluded that there is currently no need lbr the Company to have aseparate internal audit function in order for the board to perform elThctive monitoring and oversight of the internal control and riskmanagement systems olthe Company in relation to the financial reporting process.

Capital StructureNo person has a significant direct or indirect holding of securities in the Company. No person has any special rights of control over theCompany’s share capital.

There are no restrictions on voting rights.


Lusitano Mortgages ND. 2 Public Limited Company and Subsidiary PageS

Corporate Governance Statement (continued)

Appointmen! and replacement of directors and amendment in the articles ofassociationWith regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, Irish Statutecomprising the Companics Acts. 1963 to 2013 and the Listing Rules of the Irish Stock Exchange. The Articles of Association themselvesmay be amended by special resolution of the shareholders.

Poii’ers of DirectorsThe Board is responsible for managing the business affairs of the Company in accordance with the Articles of Association. The Directorsmay delegate certain functions to the Administrator and other parties. subject to the supenision and direction by the Directors. TheDirectors have delegated the day to day administration of the Company to the Administrator.

The Articles of Association provide that the Directors may exercise all the powers of the Company to borrow money, to mortgage orcharge its undertaking property of any part thereof and may delegate these powers to the Arranger.

The instrument of transfer of any share shall be executed by or on behalf of the transftror and, in eases where the share is not fully paid.by or on behalf of the transferee. The transferor shall be deemed to remain the holder of the share until the name of the transferee enteredon the register in respect thereof. The Directors, in their absolute discretion and without assigning any reason therefore, may decline toregister any transfer of share. If the Directors refuse to register a transfer, they shall, within two months after the date on which thetransfer was lodged with the Company. send to the transferee notice of the refusal.

Audit committeeStatutory audits in Ireland are regulated by the European Communities Regulations, 2011 (S.f. 220 of 2011). According to the regulations.if the sole business of the Irish SPV relates to the issuing of asset backed securities, the SPV is exempt from the requirement to establishan audit committee (under Regulation 9 1(9) (d) of the Regulations). In this respect, the Company is not required to establish an auditcommittee.

Subsequent eventsThere has been no subsequent significant event that requires disclosures in these financial statements up to the date of signing this report.

Accounting recordsThe directors believe that they’ have complied with the requirements of Section 202 of the Companies Act, 1990 with regard to the booksof account by employing accounting personnel with the appropriate expertise and by providing adequate resources to the financialfunction. The books of account of the Company are maintained at 5 Ifarbourmaster Place. IFSC, Dublin I, Ireland.

Independent auditorIn accordance with Section 160(2) of the Companies Act, 1963, KPMG. Chartered Accountants. Statutory Audit Firm has expressed theirwillingness to continue in office.

ci( Eamir Mcçiath

Director

On behalf of the Board

Director

Date: 29 April, 2015

Statement of directors’ responsibilities


The Directors are responsible for preparing the Directors’ Report and the Group and Company financial statements in accordance withapplicable law and regulations.

Company law requires the directors to prepare Group financial statements for each financial year. Under that law the directors haveelected to prepare the Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adoptedby the EU.

The Company’s financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position andpcrlbrmance of the Group and the Company. The Companies Acts, 1963 to 2013 provide in relation to such financial statements thatreferences in the relevant parts of those Acts to financial statements giving a true and fair view are references to their achieving a fairpresentation.

In preparing each of the group and company financial statements, the directors are required to;

• select suitable accounting policies and then apply them consistently;

• makejudgments and estimates that are reasonable and prudent;

• state that the financial statements comply with IFRSs as adopted by the EU; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue inbusiness.

The Directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financialposition of the Company and enable them to ensure that its financial statements comply with the Companies Acts 1963 to 2013. They’ arealso responsible for taking such steps as are reasonably open to them to salëguard the assets of the Group and to prevent and detect fraudand other irregularities.

The Directors are also required by the Transparency (Directive 2004/109/EC) Regulation 2007 and the Transparency Rules of the IrishFinancial Services Regulatory Authority to include a Directors’ report containing a fair review of the business and a description of theprincipal risks and uncertainties facing the Group.

The Directors (who are listed on page I), confirm that. to the best of their knowledge and belieI

• they have complied with the above requirements in preparing the Group and Company financial statements;

• the Group financial statements, prepared in accordance with IFRSs as adopted by the EU. give a true and fair view of the state of theassets, liabilities, financial position and of the profit of the Group for the year then ended; and

• the Directors’ report includes a fair review of the development and performance of the business of the Group, together with adescription of the principal risks and uncertainties that it faces.


Director Director

Date: 29 April, 20:

KPMGAudit1 Hatc.srnasle PaceIFSCDbir 1Ire and

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LUSITANO MORTGAGESNO.2 PUBLIC LIMITED COMPANY AND SUBSIDIARY

We have audited the financial statements (“financial statements”) of Lusitano Mortgages No. 2 PublicLimited Company and Subsidiary for the year ended 3! December 2014 which comprise the GroupStatement of Comprehensive Income, the Group Statement of Financial Position, the CompanyStatement of Financial Position, the Group and Company Statement of Changes in Equity, the GroupStatement of Cash Flows, the Company Statement of Cash Flows and the related notes. The financialreporting framework that has been applied in their preparation is Irish law and International FinancialReporting Standards (WRS5) as adopted by the European Union and, as regards the Company financialstatements, as applied in accordance with the provisions of the Companies Acts 1963 to 2013.

This report is made solely to the Company’s members, as a body, in accordance with section 193 of theCompanies Act 1990. Our audit work has been undertaken so that we might state to the Company’smembers those matters we are required to state to them in an auditor’s report and for no other purpose.To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other thanthe Company and the Company’s members as a body, for our audit work, for this report, or for theopinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors’ Responsibilities set out on page 6, the Directorsare responsible for the preparation of the financial statements giving a true and fair view. Ourresponsibility is to audit and express an opinion on the financial statements in accordance with Irish lawand International Standards on Auditing (UK and Ireland). Those standards require us to comply withthe Financial Reporting Council’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statementssufficient to give reasonable assurance that the financial statements are free from material misstatement,whether caused by fraud or error. This includes an assessment of: whether the accounting policies areappropriate to the Group and the Company’s circumstances and have been consistently applied andadequately disclosed; the reasonableness of significant accounting estimates made by the Directors; andthe overall presentation of the financial statements. In addition, we read all the financial and nonfinancial information in the Director’s report to identify material inconsistencies with the auditedfinancial statements and to identify any information that is apparently materially incorrect based on, ormaterially inconsistent with, the knowledge acquired by us in the course of performing the audit. If webecome aware of any apparent material misstatements or inconsistencies, we consider the implicationsfor our report.

an rrt partnQsh!D and a cnembe rn, a4 1h9 KPMGre,.wa,ha r.Crcnncrt e.bEr I ml aft - an1 .tl K0’.3 e,r.acaI

I KP,C nIB’ naro’,aI a Sa,as or, v

LW

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LUSITANO MORTGAGESNO.2 PULIC LIMITED COWANY AND SUBSIDIARY (Continued)

Opinion on financial statements

In our opinion:• The Group financial statements give a true and fair view, in accordance with WRSs as adopted by

the European Union, of the state of the Group’s affairs as at 31 December2014 and of its result forthe year then ended;

• the Company Statement of Financial Position gives a true and fair view, in accordance with WRSsas adopted by the European Union and in accordance with the provisions of the Companies Acts1963 to 201 3, of the state of the Company’s affairs as at 3 I December 2014; and

• the financial statements have been properly prepared in accordance with the requirements of theCompanies Acts 1963 to 2013 and, as regards the Group financial statements, Article 4 of the lASRegulation.

Matters on which we are required to report by the Companies Acts 1963 to 2013

We have obtained all the information and explanations which we consider necessary for the purposesof our audit.

The Company’s Statement of Financial Position is in agreement with the books of account and, in ouropinion, proper books of account have been kept by the Company.

In our opinion, the information given in the Directors’ report is consistent with the financial statementsand the description in the Corporate Governance Statement of the main features of the internal controland risk management systems in relation to the process for preparing the Group financial statements isconsistent with the Group financial statements.

The net assets of the Company, as stated in the Company Statement of Financial Position, are more thanhalf of the amount of its called-up share capital and, in our opinion, on that basis, there did not exist at31 December 2014 a financial situation which under Section 40(l) of the Companies (Amendment)Act, 1983 would require the convening of an extraordinary general meeting of the Company.

Matters on which we are required to report by exception

We have nothing to report in respect of the provisions in the Companies Acts 1963 to 2013 whichrequire us to report to you ii, in our opinion, the disclosures of Directors’ remuneration and transactionsspecified by law are not made.

c o%—CoIm ClifforffFor and on behalf ofKPMGChartered Accountants, Statutory Audit FirmI Harbounnaster Place!FSC, DublinIreland

Date: 29 APRL

Lusitano Mortgages No.2 Public Limited Company and Subsidiary Page 9

Group Statement of Comprehensive IncomeFor the year ended 31 December 2014

Other incomeOther expensesProvision for impairment loss on loans and receivablesOperating results before taxation

Income tax expense

Profit lbr the year

Other comprehensive income

Total comprehensive income for the year

II

All items dealt with in arriving at the total comprehensive income for the year ended 31 December 2014 related to continuing operations.


Dav NI urn ssDirector

Date; 29 Aprit, 2015

-% iE_mifltcfraIhDirector

N

Note Year ended Year ended31-Dec-14 31-Dec-13

€ €Net income from loans and receivables 5 7,007.810 7,997,842Net finance expense on debt securities issued 6 (3,920.765) (5,872.306)Net loss on derivative financial instruments 7 (1.802,149) 50.286)

89ID

1.284,896 2,075,250

1.399.265 1,432,097(597.327) (654.813)

(2.086.834) (2.852.534)

The accompanying notes to the financial statements on pages 15 to 38 form an integral pan of these financial statements.


Group Statement of Financial PositionAs at 31 December 2014

ASSETS

Cash and cash equivalentsOther receivablesDerivative financial assetsLoans and receivables

Total Assets

Total Liabilities

EquityShare capitalRetained eaminus

Total equity

Total liabilities and equity

16IS1718

32.318.105 35.111.441449.322 500.384

- 3.788.480289.711.758 320.038.949

David McGuinnessDirector

Date: 29 r

C*athDirector

31-Dec-14 31-Dec-13€ €

Note

1213IS14

LIABILITIES AND EQUITY

LiabilitiesOther payablcsDerivative financial liabilitiesLiquidity facilityDebt securities issued

322,479,185 359,439,254

442,360 1,706,3161,710,364 186,342

17.728,961 19,596.708302,557.500 337.909.888

322,439,185 359,399,254

40.000 40,000

40,000 40,000

322,479,185 359,439,254

20


The accompanying notes to the financial statements on pages 15 to 38 fbrm an integral part of these financial statements.

Lusitano Mortgages No. 2 Public Limited Company and Subsidiary Page II

Company Statement of Financial PositionAs at 31 December 2014

ASSETS

Cash and cash equivalentsOther receivablesDerivative financial assetsLoans and receivables

Total Assets

Total Liabilities

EquityShare capitalRelained earnings

Total equity

Total liabilities and equity

12131514

16IS1718

I it—‘-Eimiritf!rath

Directo\

Note 31-Dec-14 31-Dec-13€

26.757.087 28,630,6961,277,034 1.620,365

- 3,788.480294.352.083 325,299.504

LIABILITIES AND EQUITY

LiabilitiesOther payablesDerivative financial liabilitiesLiquidity facilityDebt securities issued

322,386,204 359,339,045

339,379 1.606.1071.710.364 186.342

17.728.961 19.596.708302.557.500 337,909.886

322,346,204 359,299,045

40,000 40.000

40,000 40,000

322,386,204 359,339,045

20

rOn bebalf of the Board

CDate: 29 April, 2015

/

The accompanying notes to the financial statements on pages 15 to 38 lbrm an integral part of these financial statements.


Group and Company Statement of Changes in EquityFor the year ended 31 December 2014

Balance as at 1 January 2013

Profit for the year 2013


Total comprehensive income

Balance as at 31 December 2013

Balance as at 1 January 2014

Profit for the year 2014


Total comprehensive income

Balance ns at 31 December 2014

40,000 - 40,000

40,000 - 40,000

40,000 - 40,000

Share capital Retained Total€ € €

40,000 - 40,000

The accompanying notes to the financial statements on pages 15 to 38 form an integral part of these financial statements.


Group statement of cash flowsFor the year ended 31 December 2014

Net cash flows from operating activitiesResult from ordinary activities after taxation

66

65l07

(74.907)7.388

3,988.284(7,007.810)

2.086.8345.312.5034,312,292

(5,016)(7.274)

4,300,002

(74.907)7,388

5.939.825(7,997,842)

2,852.534(1.160.879)

(433,881)

Note Year ended31-Dec-14

\‘ear ended31 -Dcc- 13

€ €

.1djustmentsfor:Amorlisation of premiumAmortisation of issue costsInterest expense during the yearInterest income during the yearNet increase in provision for impairment loss on loans and receivablesUnrealised loss’(gain) on derivatie financial instrumentsOperating cash flow before movements in working capitalDecrease in other receivables(Decrcase)/increase in other payablesNet cash used in operating activities

Cash flows from investing activitiesCollections on portfolio of loan receivablesInterest received during the yearNet cash generated from investing activities

Cash flows from financing activitiesRepayment of liquidity facilityPayment for redemption of notesInterest paid during the yearNet cash used in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

14

‘7

12

12

6.435(427,446)

28,240.357 30,031.1707.063.888 8.14L.313

35,304,245 38,172,483

(1.867.747) (1,947,958)(35,284,869) (32,465.972)

(5,244.967) (5,221.141)(42,397,583) (39,635,071)

(2,793,336) (1,890,034)

35.111.441 37.001.475

32,318,105 35,111,441

The accompanying notes to the financial statements on pages 15 to 38 lbrm an integral pan of these financial statements.


Company statement of cash flowsFor the year ended 31 December 2014

Net cash flows from operating activitiesResult from ordinary activities after taxation

ID7

(74.907)7.388

3,988,284(7,934.337)

2.086.8345.312.5033,385,7651,615,349

(46)5,001,068

(74.907)7.388

5,939.825(8.906,182)

2.852.534(1.160.879)(1,342,221)

2,053.95611,569

723,304

Year ended31-Dec-14

€

Year ended31-Dec-13

Note

66

65

:ldjztsiiiietztsfor:Amonisation of premiumAmortisation of issue costsInterest expense during the yearInterest income during the yearNet increase in provision for impairment loss on loans and receivablesUnrealised loss/Lain) on derivative financial instrumentsOperating cash flow before movements in working capitalDecrease in othcr receivables(Decrease)/increase in other payablesNet cash generated from operating activities

Cash flows from investing activitiesCollections on portfolio of loan receivablesInterest received during the yearNet cash generated from investing activities

Cash flows from financing activitiesRepayment of liquidity facilityPayment for redemption of notesInterest paid during the yearNet cash used in financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning olthe year

Cash and cash equivalents at end of the year

14

17

12

12

28.860.587 29,677,9916.662,319 7,285.6 17

35,522,906 36,963,808

(1.867.747) (1.947.958)(35.284.869) (32,465.972)

(5.244.967) (5.221.141)(42,397,583) (39,635,071)

(1.873,609) (1,947,959)

28.630.696 30,578.655

26,757,087 28,630,696

The accompanying notes to the financial statements on pages 15 to 36 tbrm an integral part of these financial statements.


Notes to the financial statementsFor the year ended 31 December 2014

General informationLusimno Mortgages No. 2 Plc is a special purpose parent company (he Company”) incorporated and registered in Ireland withlimited liability on 13 August 2003 under registered number 374631. The consolidated financial statements for the year ended 31December 2014 consolidate the individual financial statements of the Company and its subsidiary (together referred to as “theGroup”). The principal activity of the Group is the investment in a portfolio of mortgage receivables in Portugal. through thepurchase of 100% of the units in Lusitano Mortgages No 2 (‘undo. (the Fundo”) a Portuuuese securitisation fund. The Company hascontrolling interest in the (‘undo that is consolidated into Group’s consolidated financial statements.

The Company issued €920,000,000 Class A Mortgage Backed Floating Rate Notes due 2036. €30,000,000 Class B MortgageBacked Floating Rate Notes due 2046, €28,000,000 Class C Mortgage Backed Floating Rate Notes due 2046, 16,000,000 Class BMortgage Backed Floating Rate Notes due 2046 and €6,000,000 Class F Mortgage Backed Floating Rate Notes due 2046, in orderto finance the transaction. The Company has also issued Class F Notes (together with the Senior Notes. the “Notes”) to an aggregateamount of €9,000.000. The repayment of principal and interest on the Notes is linked to the perfbrmance of the portfolio ofmortgage receivables.

The portfblio consists of loans originated by Banco Internacional de Credito S.A. (“BIC”) and its subsidiary that continue to servicethe loans. The Fundo acquired the receivables from BIC and granted to the unitholder (the Company) ownership interests in itsassets. The Fundo is managed by a Fund management company in Portugal, Finantia SGFTC S.A. (“Finantia”). Finantia acts onbehalf of the unitholder and provides supervisory services such as supervising the acquisition of the assets, notification of theborroners in the event of a mortgage asset sale notification event, issuance of the units and determination of the unit distribution.

The Company has no direct employees.

The A, B. C, U and C Notes are fisted on the Irish Stock Exchange.

2. Basis of preparation

(a) Statement of complianceThese group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issuedby the International Accounting Standards Board (IASB) as adopted by the EU. The financial statements are also prepared inaccordance with Irish Statute comprising the Companies Acts. 1963 to 2013.

The accounting policies set out below have been applied in preparing the financial statements for the year ended 3! December 2014;the comparative information fbr 2013 presented in these financial statements has been prepared on a consistent basis.

The group’s financial statements for the year ended 31 December 2014 have been prepared on a going concern basis. The directorsanticipate that the loans and receivables will continue to generate enough cash flow on an ongoing basis to meet the Companyliabilities as they fall due. Majority of the Notes in issue as at 31 December 2014 will mature in 2046. For these reasons, thedirectors believe that the going concern basis is appropriate.

(b) Basis of consolidationA subsidiary is an entity controlled by the Company. Control exists when the Company has the power, directly or indirectly, togovern the operating and financial policies of an entity in order to gain economic benefits. In assessing control. potential votingrights that are currently exercisable or convertible are taken into account. The financial statements of subsidian are included in theconsolidated financial statements from the date that control commences until the date that control ceases, Financial statements ofsubsidiary are made up to the reporting date.

Name of entity Domicile % of holdings Nature of businessLusitano Mortgage No2 Fundo Portugal 100 ln’estment fund

All significant intra-group transactions and balances are eliminated on consolidation.

(c) Functional and presentation currencyThese financial statements are presented in Euro (€) which is the Company’s and its subsidiary’s functional currency. Functionalcurrency is the currency of the primary economic environment in which the entity operates. The mortgage receivables, theinvestment in fund units, the debt securities issued and the issued share capital of the Company are denominated in Euro. TheDirectors of the Company believe that Euro most faithfully represents the economic effcts of the underlying transactions, eventsand conditions.

Lusitano Nlongages No.2 Public Limited Company and Subsidiary Page 16

Notes to the financial statements (continued)For the year ended 31 December 2014

2. Basis of preparation (continued)

(d) Use of estimates and judgementsThe preparation of financial statements in conformity with IERS requires management to make judgements. estimates andassumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income andexpenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed tobe reasonable under the circumstances, the results of which form the basis of making the judgements about carrying alues of assetsand liabilities that are not readily apparent from other sources. Actual results may diflèr from these estimates. The estimates andunderlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in whichthe estimates are revised and any tUture periods affected.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have themost significant effect on the amounts recognised in the financial statements are described in notes 4 and 25.

(e) Basis of measurementThe financial statements have been prepared on the historical cost basis except for the following:• Loans and receivables are measured at amortised cost;• Debt securities issued, including Class F with embedded derivative, are mcasured at amonised cost;• Derivative financial instruments are measured at fair value; and• Investment in lUnd units are at amortised cost.

(t New standards, amendments or interpretations

(D Effectivefor annual periods beginning on 1 Janua’y 2014

A number of new standards and interpretations are effective for annual periods beginning on or after I January 2014. Of these. thefollowing were of relevance to the Company and were considered for adoption:

The amendments to lAS 32 Financial Instruments: Presentation (Offsetting Financial Assets and Financial Liabilities) clarify theoffsetting criteria in lAS 32 by revising the guidance on when an entity currently has a legally enlbrceable right to set-off and whengross settlement is considered to be equivalent to net settlement. based on the new requirements. the Company assessed that at thistime no revisions to its previous approach to offsetting of financial assets and financial liabilities arises in the statement of financialposition.

IFRS 10 Consolidated Financial Statements establishes a new control-based model for consolidation that replaces the existingrequirements of both lAS 27 and SIC-12 Consolidation - Special Purpose Entities. Under the new standard an investor controls aninvestee when (i) t has exposure to variable returns from that investee (ii) it has the power over relevant activities of the investeethat affect those returns and (iii) there is a link between that power and those variable returns. The standard includes specificguidance on thc question of whether an entity is acting as an agent or principal in its involvement with an investee. The assessmentof control is based on all fUeLs and circumstances and is reassessed if there is an indication that there are changes in those facts and

The Directors have assessed that IFRS 10 did not have an impact on the Company.

The Directors have assessed that IFRS 12 did not have any impact on the Company as the Company does not meet the definition ofan investment entity under IFRS ID.



2. Basis of preparation (continued)

(fl New standards, amendments or interpretations (continued)

(ii) Effeethe for annual periods beginning after I Jaiu.aiy 2014

Description Effective date (periodDefined Benefit Plans: Employee Contributions (Amendments to lAS 19) I February 2015Annual Improvements to IFRSs 2010-2012 Cycle and Annual Improvements to IFRSs 2011-2013 Cycle I February 2015”Amendments to IFRS II: Accounting for acquisitions of interests in Joint Operations 1 January 2016IFRS 14: Regulatory Deferral Accounts I January 2016Amendments to lAS 16 and lAS 38: Clarification of acceptable methods of depreciation andamonisation I January 2016Amendments to lAS 16 Property, Plant and Equipment and lAS 41 Bearer Plants I January 2016Amendments to lAS 27 Equity method in Separate Financial Statements I January 2016Amendments to IFRS 10 and lAS 28: Sale or contribution of assets between an investor and itsassociate or joint venture I Januan 2016Amendments to IERS 10, IFRS 12 and lAS 28: Investment Entities: Applying the ConsolidationException I January 2016Amendments to lAS 1: Disclosure Initiative 1 January 2016Annual Improvements to IFRSs 2012-2014 C’cle I January 2016IFRS 15: Revenue from contracts with customers I Januaiw 2017IFRS 9 Financial Instruments (2009. and subsequent amendments in 2010 and 2013) I January 2018

*Where new requirements are endorsed the EU effective date is disclosed. For un-endorsed standards and interpretations, thelASH’s effective date is noted. Where any of the upcoming requirements are applicable to the Company. it will apply them fromtheir EU efTective date.

— EU endorsed

The Directors have considered the new standards, amendments and interpretations as detailed in the above table and does not plan toadopt these standards early. The application of all of these standards, amendments or interpretations will be considered in detail inadvance of a confirmed effective date by the Company. The Directors have concluded that the following may be relevant and arestill reviewing the impact of the upcoming standards to determine their impact.

lAS 24 Related Party Disclosure: This improvement relates to the identification of an entity providing key management personnel(KPM) services to the reporting entity being a related party of the reporting entity.

Amendments to lAS I: Disclosure Initiative: These amendments to lAS I Presentation of Financial statements address some of theconcerns expressed about existing presentation and disclosure requirements and ensure that the entities are able to use judgementwhere applying lAS I. The amendments relate to the following; materiality, order of the notes, subtotals, accounting policies anddisaggregation.

IFRS 9 Financial Instruments (2014): IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB’s replacement of lAS 39’sFinancial Instruments: Recognition and Measurement. The Standard includes requirements tbr recognition and measurement.impairment. derecognition and general hedge accounting.

The impact of these amendments are currently under consideration by the Company.

(Ii) Segment reportingThe Group is engaged as one segment which involves investment in a portfolio of mortgage receivables in Portugal financed throughissue of debt securities. The standard on segmental reporting puts emphasis on the management approach to reporting on operatingsegments. An operating segment is a component of the Company that engages in business activities from which it may earn revenueand incur expenses. The Directors perform regular reviews of the operating results of the group and make decisions using financialinformation at the group level considering it as one entity. Accordingly the directors believe that the Company has only onereportable operating segment. The Directors are responsible for ensuring that the Company carries out business activities in line withtransaction documents. They may delegate some of the day to day management of the business to other parties both internal andexternal to the Company. The decisions of such panics are reviewed on regular basis to ensure compliance with the policies andlegal responsibilities of the Directors.



3. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods in these linancial statements.

(a) Income from loans and receivablesIncome from loans and receivables includes interest earned on loans and receivables which is recognised using elThctive interesi ratemethod.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and ofallocating the interest income or interest expenses over the relevant period. The efThctive interest rate is the rate that exactlydiscounts estimated future cash payments and receipts through the expected lilb of the financial instrument or, when appropriate, ashorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, thecompany estimates cash flows considering all contractual terms of the financial instrument (for example. prepayment options) butdoes not consider fUture credit losses. The calculation includes all lbes and points paid or received between parties to the contractthat are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

(b) Net finance expense on debt securities issuedFinance expenses on debt securities issued held at amortised cost are charged through profit or loss using the efThctive interest ratemethod.

(c) Net gai&(loss) on derivative financial instrumentsNet gainf(loss) in derivative financial instruments relates to the interest rate swaps held by the Company for risk managementpurposes and includes realised and unrealised fair value changes. settlements and foreign exchange difThrences. It also includes fairvalue changes on derivatives which is embedded in Class F Notes.

(d) Foreign currency transactionTransactions in foreign currencies are translated to the fUnctional currency of the Company and its subsidiary’s at exchange rates atthe dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslatedto the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the ditThrencebetween amortised costs in the functional currency at the beginning of the period, adjusted for effective interest and pa)ments duringthe period, and amortised cost in foreign currency translated at the exchange rate at the end of the period. Non monetary assets andliabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at theexchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognisedthrough profit or loss in the statement of comprehensive income,

(e) Other income and expensesAll other income and expenses are accounted for on an accrual basis.

(fl Income taxIncome tax expense comprises current and deferred tax. Income tax expense is recognised in the statement of comprehensive incomeexcept to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year. using tax rates applicable to the Group’s and Company’sactivities enacted or substantively enacted at the balance sheet date, and adjustment to tax payable in respect of previous years.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which theasset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longerprobable that related tax benefit will be realised.

(g) Cash and cash equivalentsCash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments withoriginal maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by theCompany for the purpose of inserting in short term commitments rather than for investment or other purposes. Cash and cashequivalents are carried at amortised cost in the statement of financial position.

(h) Other receivablesOther receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value as reducedby appropriate allowances for estimated irrecoverable amounts. Other receivables are carried at amortised cost.

Lusitano Mortgages No.2 Public Limited Company and Subsidian’ Page 19


3. Significant accounting policies (continued)

(i) Other payablesOther payables are not interest-bearing and are stated at amortised cost.

(j) Financini instrumentsThe financial instruments held by the Group and the Company include the following:• Loans and receivables (mortgage receivables);• Derivative financial instruments;• Debt securities issued:• Investment in fund units;• Other receivables; and• Other payables.

CategorisationThe Group and Company measures all derivative financial instruments at fair value through profit or loss at initial recognition. TheGroup and Company has classified loans and receivables. investment in fund units (loan investment) and debt securities issued as atamortised cost. Loans and receivables and loan investment arc non derivative financial assets with fixed or determinable paymentsnot quoted in active market. Other receivables and other payables are measurcd at amonised cost.

initial recognitionThe Group initially recognises all financial assets and liabilities as at fur value on the trade date at which the Group becomes a partyto the contractual provisions of the instruments. Purchases and sales of’ financial assets and financial liabilities are recognised usingtrade date accounting. From trade date, any gains and losses arising from changes in fair value of the financial assets or financialliabilities at fair value through profit or loss are recorded through profit or loss in statement of comprehensive income. Financialassets and liabilities not at fair value through profit or loss are subsequently measured at amonised cost.

DerecognitionThe Group derccognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rightsto receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards ofownership of the financial asset are transferred and does not retain control of the financial assets, Any interest in transferredfinancial assets that is created or retained by the Group is recognised as a separate asset or liability.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

OffsettingFinancial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when,the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle theliability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards,

(k) Loans and receivablesThe loans and receivables are initially measured at fair value adjusted for initial direct costs and subsequently measured at amortisedcost, The Group’s investments in a portfolio of mortgage receivables in Portugal are classified as loans and receivables and arecarried at amonised cost using effbctivc interest method and adjusted for provision for impairment. Impairment provisions are madeto reduce the value of the loans and are written ofiwhere there is no longer any likelihood of fUture recovery of the balance.

(I) ImpairmentFinancial assets that are stated at amonised cost are reviewed at each year end date to determine whether there is objective evidenceof impairment. If an’ such indications exist. an impairment loss is recognised through profit or loss in the Statement ofComprehensive Income as the difference between the asset’s carrying amount and the present value of’ estimated fUture cash flowsdiscounted at the financial asset’s original effective rate.

If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases andthe decrease can be linked objectively to an event occurring after the write-down, the write don is reversed through profit or loss inthe statement of comprehensive income.



3. Significant accounting policies (continued)

(m) Investment in fund units (“loan investment”)The loan investment represents an investment in a subsidiary undertaking (the Fund) which is principally backed by a pool ofmortgage receivables.

The assets of the fund comprise cash at bank, interest receivable and the mortgage loans less provision for impairment. To the extentmortgages are prepaid and repaid, these repayments are used to repay the Company’s loan investment.

(n) Derivative financial instrumentsAll changes in its fair value are recognised immediately through profit or loss in the statement or comprehensive income as acomponent of net gain or loss on derivative financial instruments carried at fair value.

Fair values are obtained from quoted market prices in active markets, including recent market transactions and valuation techniques,and discounted cash flow models and options pricing models as appropriate. Derivatives are included in assets when their fair valueis positive and liabilities when their fair value is negative, unless there is the legal ability and intention to settle net.

Profits or losses are only recognised on initial recognition of derivatives when there are observable current market transactions orvaluation techniques that are based on observable market inputs. The best evidence of the lhir value of a derivative at initialrecognition is the transaction price (i.e. the fair value of the consideration given or received) unless the tir value of that instrumentis evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification orrepackaging) or based on a valuation technique whose variables include only data from observable markets.

(0) Debt securities issuedThe debt securities issued are initially measured at fair value adjusted lbr initial direct costs and are subsequently measured at theiramortised cost using the effective interest rate method.

The amortised cost of the financial asset or liability is the amount at which the financial asset or liability is measured at initialrecognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest rate method of anydifference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

Subsequent to initial recognition, these interest-bearing borrowings are stated at amortised cost with any difierence between cost andredemption value being recognised in the statement of comprehensive income over the period of the borrowings on an effectiveinterest rate basis.

(p) Embedded derivatives in Class F NotesDerivatives may be embedded in another contractual arrangement (a “host contract”). The Company accounts for an embeddedderivative separately from the host contract when the host contract is not itself carried at fair value through profit or loss, the termsof the embedded derivative would meet the definition of a derivative if it was contained in a separate contract, and the economiccharacteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the hostcontract. However, an embedded derivative with risks and characteristics closely related to those of host contract are not separatedand accordingly is measured as part of the overall amortised cost of the related instrument.

4. Determination or fair values

The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use ofvaluation techniques as described in Note 25 (iv) to the financial statements. For financial instruments that trade infrequently andhave little price transparency, Ihir value is less objective, and requires varying degrees of judgement depending on liquidity,concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

For more complex instruments, the Company uses proprietary models, which usually are developed from recognised valuationmodels. Some or all of the inputs into these models may not be market observable, and are derived from market prices or rates or areestimated based on assumptions.



4. Determination of fair values (continued)

Critical accounting judgements in applying the Company’s accounting policiesCritical accounting judgements made in applying thc Group’s accounting policies in relation to valuation of financial instruments isfurther described in Note 25.

Fair value measurement principlesThe determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer pricequotations for financial instruments traded in active markets, where these arc available. ha quoted market price is not available on arecognised stock exchange, the fair value of the financial instruments may be estimated by the directors based on values obtainedfrom brokers and specialist pricing vendors who may use a variety of valuation techniques such as discounted cash flow techniques,option pricing models or any other valuation techniques that provides an estimate of prices obtained should the investment be traded.If other independent prices were available Ibr the financial instruments, the valuation may be different to those presented and thosedifThrenccs could be material.

Where discounted cash flow techniques are used, estimated future cash flows are based on the directors best estimates and applyingappropriate discount rates. The discount rate used is a market rate at the statement of financial position date applicable fbr aninstrument with similar terms and conditions. Where other pricing models are used. inputs are based on market data available at thereporting date. Subsequent changes in the fair value of financial instruments at fair value through profit or loss are recognised in thestatement of comprehensive income.

Interest income on mortgage portfolio

6. Net finance expense on debt securities issued

Interest expense on debt securities issuedAmortisation of issue costsAmortisation of premium on Class F Notes

Net interest expenseLinrealised gain in fbir value of derivative financial instruments

Other income *

Bank interest income

5. Net income from loans and receivables Year ended31-Dec-14

€

Year ended31-Dec-13

€

7. Net (loss)/gain on derivative financial instruments

8. Other income

7.007,810 7.997.842

Year ended Year ended31-Dec-14 31-Dec-13

€ €(3.988.284) (5.939.825)

(7.388) (7.388)74.907 74,907

(3,920.765) (5,872.306)


€ €(645.395) (1.211.165)

(1.156.754) 1.160,879(1,802,149) (50,286)


€ €1,397,970 1,432.097

1.2951.399.265 1.432.097

* Other income mainly includes recovery of bad debts.

Lusi(ano Mortgages Na. 2 Public Limited Company and Subsidiary Page 22


9. Other expenses Year ended31-Dec-14

CommissionsFund taxesTrustee feesAdministration expensesProfessional feesAudit feesAgent feesVAT expensesBank charges

(451.813)(19.821)(25.827)(26.230)(35.763)(15.990)(10.027)(11.841)

The Company is administered by Deutsche tntemationat Corporate Services (Iretand) Limited and has no employees.

Auditor’s remuneration (exclusive of VAT)

Statutory auditOther assurance servicesTax advisory servicesOther non-audit services

Balance at beginning of the yearProvision for impairment for the yearImpairment provision utitised during the ‘earBalance at end of the year

Profit before income tax

Current tax at standard rate of 25%Current tax charge

f(496.300)(27,458)(28.0221(26.230)(36.835)(15.990)(10,000)(13.978)

The Company is charged to corporation tax at a rate of 25% (2013: 25%). Theaccordance with Section 110 of the Taxes Consolidation Act, 1997.

Company will continue to be actively taxed at 25% in

Deferred tat

Any temporary difference arising on the assets will be offset by a corresponding difference in the liabilities.

All of the Companys cash balances arc held with Deutsche bank AG. London branch (99.92%) and Bank of Ireland (0.08%). AResent Fund is contained in the Reserve account to cover any revenue shortfalls in respect of an interest period.

Year ended31-Dec-13

(IS) -

(597.327) (654.813)

Year ended31-Dec-14

(13.000)

(5.500)

10. Provision for impairment loss on loans and receivables

Year ended31-Dec-13

f(13,000)

(5,500)

11. Income lax expense

(18,500) (18.500)


E €(809,710) (931,064)

(2,086.834) (2,852.534)2.162.094 2.973.888(734.450) (809710)


€ €

12. Cash and cash equivalents

Issuer operating accountResent accountFund operating accountbank of Ireland

Group31-Dec-14

€17.729.1799.000.0015.561,018

27,907

Company31-Dec-14

€

17.729.1799.000.001

€

Company31 -Dee- 13

€

19.597.2409.000.001

Group31-Dec-13

19.597.2409.000,0016.480,745

33,45535,111.441

27,907 33,45532.318,105 26,757.087 28,630.696

Refer to Note 25(i) and (ii) for credit risk and interest rate disclosures relating to cash and cash equivalents.

Lusitano Mortgages No.2 Public Limited Company and Subsidian’ Page 23

Interest receivableUnit distributions receivablePrepayments

14. Loans and receivables

Mortgage receivables

Movement during the yearAt beginning of the yearCollection during the yearLoans and receivables written offAt end of the year

Impairment provisionAt beginning of the yearProvision made during the yearLoans and receivables ‘written offAt end of the year

Mortgage receivables at year end

Maturity analysis of loans and receivables<1 year1-2 ‘ears2-5 years> 5 years

€

444.306

5,016449,322

1.272,018

€ €500.384

5.016 -

l.277.034 500.384

up to 3 months3 to 6 months6 to 12 monthsmore than 12 months

Group31-Dec-14

€

5.593,0202.217.0101.645.0212.347,099

11.802.150

Group31-Dec-13

€

5.105.6382.656.6982.088.9033.534.477

13.385.716


13. Other receivables Group31-Dec-14

Company31-Dec-14

Group31-Dec-13

Company31-Dec-13

€

1.620.365

All other receivables are current.

Refer to Note 25(i) for credit risk disclosures relating to other receivables.

1.620.365

Group31-Dec-14

Group31-Dec-13

€ €289.71L758 320.038,949

320.848,659 353,853.717(28,240.357) (30,03 1.170)

(2.162,094) (2.973.888)290.446.208 320,848.659

(809,710) (931.064)(2,086,834) (2,852,534)

2.162.094 2.973,888(734,450) (809.710)

289.711,758 320,038,949

Group Group31-Dec-14 31-Dec-13

U €110.618 126.686494.628 430.210

16.395.730 4,000.603272,710,782 315,481,450289.711,758 320,038.949

During the year. impairment provision of €2,086,834 (2013: €2.852.534) was made for bad and doubtful debts. ‘The Directors haveestimated the level of impairment through the use of sensitivity analysis and other impairment thctors on the value of mortgagereceivables and other factors such as collateral poc1 performance, principal balance of overdue loans and written-off mortgage loans.In the Director’s opinion, this amount represents the level of impairment in the value of the mortgage receivables at 31 December

Loans and receivables that are less than three months past due are not considered impaired. As of 31 December 2014, loans andreceivables of €5.593.020 (2013: €5.105.638) were past due but not impaired. The ageing analysis of past due loans and receivablesis as follows:



14. Loans and receivables (continued)

Impairment provisionAt beginning of the yearMovement during the year

__________________________________

At end of the year

Fundo Units at 31 December

Group undertakingsThe subsidiary undertaking of the Group is Lusitano Mortgages No 2 Fundo (‘the Fundo’), a Portuguese Securitisation fundincorporated under the laws of the Portuguese Republic. The Company has invested in 100% of the units of the Fundo, being IOUunits with a nominal value of LIOm each. The principal activity of the Fundo is the investment in a portfolio of mortgage

Refer to Note 25 (i) for credit risk disclosure relating to loans and receivables.

IS. Derivative financial instruments

As of3l December2014. the Company and Group’s holdings in derivative financial instruments were as specified in the table below

As of3l December 2013, the Company and Group’s holdings in derivative financial instruments were as specified in the table below

Type of contract

Interest rate swapInterest rate swap

Notional GroupFair value

of assets31-Dec-13

€ € €Euro 16 Aug 2029 319,702,969 3,788,480 3,788.480

Fair value Fair valueof liabilities of liabilities

31-Dec-13 31-Dec-13€ € €

7.127.082 (186.342) (186.342)

31-Dec-14 31-Dec-13

€ €3.602.138 2.441,259

(5.3 12,502) 1.160,879(1.710.364) 3.602.138

Under the interest rate swap agreement with CAYLON (the “swap counterpartf) on each interest payment date, until the earlier ofthe date of maturity of the debt securities issued or the date of the early repayment of the debt securities issued, the parties to theagreement will pay as follows:

Investment in Fund Units (loan investment) Company Company31-Dec-14 31-Dec-13

(‘ost € €At beginning of the year 345,116.515 374.794.506Unit principal distributions (28,860.587) (29,677,991)At end of the year 316.255,928 345.116,515

(19.817.011) (16.964.477)(2.086.834) (2.852.534)

(21.903.845) (19.817.011)

294.352,083 325.299.504

Type of contract Currency Expiration Notional Group CompanyFair value Fair value

of liabilities of liabilities31-Dec-14 31-Dec-14

€ € €Interest rate swap Euro (6 Aug 2029 319,702.969 (1.167.339) (1.167,339)Interest rate swap Euro 16 Aug 2029 7,127,082 (543.025) (543,025)

(1,710,364) (1,710,364)

Currency Expiration CompanyFair value

of assets31-Dec-13

Interest rate swap Euro 16 Aug 2029

A !oi’ement in derivative financial instruments (Group and Company)

At beginning of the yearNet changes in fair value of derivativesAt end of year


NDtes to the financial statements (continued)For the year ended 31 December 2014

15. Derivative financial instruments (continued)

Tranciw IThe Company will pay to the swap counterpany certain amounts calculated by reference to the Weighted Average Tranche I IndexRate for a Calculation Period, that is, the rate which when applied on an ACT/360 basis to the Tranche I Notional Amount for aCalculation Period, gives rise to a cash amount equal to the Net Tranche I Collectible (the sum of the Tranche I Collectibles tbr allBIC Reference Rate Mortgages due during any Collection Period) for the immediately preceding Collection Period.

The Swap countemanv will pay to the Company Euribor plus a margin of 2.4 17% for the Interest Period corresponding to therelevant Calculation Period in respect of the Notes.

Tranche HThe Company will pay to the swap counterparty Weighted Average Tranche II Index Rate for a Calculation Period, that is, the ratewhich when applied on an ACT/360 basis to the Tranche II Notional Amount for a Calculation Period, gives rise to a cash amountequal to the Net Tranche II Collectible (the sum of the Tranche II Collectibles for all Floating Mortgages due during any CollectionPeriod) for the immediately preceding Collection Period.

The Swap counterpart will pay Euribor for the interest period corresponding to the rele’ ant Calculation Period in respect of thedebt securities issued.

16. Other payables Group Company Group Company31-Dec-14 31-Dec-14 31-Dec-13 31-Dec-13

€ € € €Accrued expenses 126,997 34,016 134,270 34.061Interest payable on debt securities issued 315.363 315,363 1.572,046 1,572.046

442,360 349.379 1,706,316 1,606.107All other payables are current.

Refer to Note 25 (i) and (iii) for credit risk and liquidity risk disclosures relating to other payables.

17. Liquidity facility Group Company Group Company31-Dec-I 4 31-Dec-I 4 31-Dec-13 31-Dec-13

€ € € €At beginning of the year 19,596.708 19,596,708 21,544,666 21,544.666Repayment during the year (1.867,747) (1.867,747) (1,947,958) (1.947.958)At end ofthe year 17,728,961 17.728,961 19.596,708 19,596,708

In 2003, the Company has entered into a Liquidity Facility Agreement with Credit Agricole for an amount of €30,000,000. During2011 the Company had drawn €24,693,362 following the downgrade of the short-term rating of the Liquidity Provider by S&P to AI. During the year. the Company partially repaid the liquidity amount by €1,867,747 (2013: €I.947.958). During the year. theCompany paid €18,808 (2013: €21,022) as commitment fee to the Liquidity Facility Provider.

IN. Debt securities issued Group Company Group Company31-Dec-14 31-Dec-14 31-Dec-13 31-Dec-13

Notes issued € € € €ClassA Mortgage Backed FloatingRateNotcsdue2o36 215.331,525 215.331.525 246.453.768 246.453.768Class B Mortgage Backed Floating Rate Notes due 2046 29.994.489 29,994,489 29,994.317 29.994.317Class C Mortgage Backed Floating Rate Notes due 2046 27,994.858 27,994,858 27.994,697 27,991,697Class D Mortgage Backed Floating Rate Notes due 2046 15,997,062 15,997,062 15.996,970 15,996,970Class E Mortgage Backed Floating Rate Notes due 2046 5,998.897 5,998,897 5.998,863 5,998.863Class F Mortgage Backed Floating Rate Notes due 2046 7.230,669 7,240.669 11,471.273 11.471.273

302,557.500 302,557,500 337,909,888 337,909,888

The A. B, C. D and E Notes arc issued on the Irish Stock Exchange.

Maturity analysis of debt securities issued Group Company Group Company31-Dec-I 4 31-Dec-I 4 31-Dec-13 31-Dec-13

€ € €1-2 ‘ears2-5 years> 5 years 302,557,500 302,557,500 337,909,888 337.909.888

302,557,500 302,557,500 337,909,888 337,909,888



IS. Debt securities issued (continued)

The Notes comprised, at issue, of €920,000.000 Class A Notes. €30.000.000 Class B Notes. €28.000.000 Class C Notes.€16,000,000 Class D Notes and €6,000,000 Class E Notes and €9,000,000 Class F Notes. Interest on the above mentioned Notes ispayable quarterly in arrears equal to the sum of EURIBOR and the Applicable Margin (as defined below) on the basis of a 360 dayyear over the actual number days elapsed. The ‘Applicable Margin’ will be as follows:

• Class A Notes: 0.21% per annum on and prior to the Step-up date (16 November 2012) and at 0.48% per annum thereafter;• Class B Notes, 0.18% per annum on and prior to the Step-up date (16 November 2012) and at 0.96% per annum thereafter:• Class C Notes, 0,64% per annum on and prior to the Step-up date (16 November 2012) and at 1.28% per annum thereafter;• Class D Notes, 1.20% per annum on and prior to the Step-up date (16November20 12) and at 2.40% per annum thereafter:• Class F Notes, 3.75% per annum on and prior to the Step-up date (16 November 2012) and at 4.75% per annum thereafter;• Class F Notes receive interest based on the remaining income of the Company after expenses.

The directors consider that the timing of the repayment of the Notes is uncertain given that the timing of such payments is dependenton the receipt of interest and principal amounts yielded by the assets. The Notes are subject to mandatory redemption in part at eachinterest payment date in an amount equal to the principal received or recovered in respect of the mortgage receivables.

If not otherwise redeemed, purchased or cancelled, the Notes will be redeemed at their principal amount outstanding on the lastinterest payment date falling in December 2036 for Class A Notes and December 2046 for Class B. C, D, F and F Notes.Accordingly. all Notes outstanding at 31 December 2014 have been classified as falling due after more than five years.

Reconciliation of debt securities issued Nominal Premium Issue costs Net proceedsInitial issuance € € F €Class A Mortgage Backed Floating Rate Notes due 2036 920,000,000 (227.948) 919,772,052Class B Mortgage Backed Floating Rate Notes due 2046 30,000.000 - (7.433) 29,992.567Class C Mortgage Backed Floating Rate Notes due 2046 28,000.000 - (6,938) 27,993.062Class U Mortgage Backed Floating Rate Notes due 2046 16,000.000 - (3,964) 15,996,036Class E Mortgage Backed Floating Rate Notes due 2046 6,000,000 - (1,487) 5.998.513Class F Mortgage Backed Floating Rate Notes due 2046 9.000,000 3,234,600 (2,230) 12.232.370

1,009,000,000 3,234,600 (250,000) 1,011,983.600

31-Dec-14Credit Cumulative Cumulative Embedded

Notes ratings Cumulative issue costs premium derivative Balance at 31issued (Moody’s) Net proceeds redemptions amortisation amortisation adjustment December 2014

€ C € € € €Class A Al 919,772,052 (704,517,324) 76,797 - - 215.331,525Class B A3 29,992,567 - 1,922 - - 29,994,489Class C Baa3 27,993.062 - 1.796 - - 27,994.858Class U BI 15.996,036 - 1.026 - - 15,997.062Class F Caa2 5,998.513 - 384 - - 5,998.897Class F Not rated 12.232.370 - 579 (836,531) (4,155,749) 7.240,669

1.011,984,600 (704.517,324) 82,504 (836,531) (4.155,749) 302,557.500

31-Dec-13

Credit Cumulative Cumulativeratings Cumulative issue costs premium Balance at 31

Notes issued (Moody’s) Net proceeds redemptions amortisation nmortisation December 2013€ € € £ F

Class A Baa3 919,772,052 (673.388.204) 69,920 - 246,453,768Class B Ba2 29,992,567 - 1.750 - 29,994.317Class C B2 27,993.062 - 1,635 - 27.994,697Class U Caal 15.996,036 - 934 - 15,996.970Class F Caa3 5,998,513 - 350 - 5,998.863Class F Not rated 12.232.370 - 527 (761,624) 11.471,273

1,011.984,600 (673,388,204) 75,116 (761,624) 337,909.888



18. Debt securities issued (continued)

Reconciliation of issue costs and set up fees 31-Dec-14 31-Dec-13

C €Issue costs and set up fees paid 250,000 250,000Cumulative amortisation (82,504) (75.116)Unamortised issue costs and set up fees at year end 167,496 174.884

Optional redemptionThe Notes issued by the Company are principally secured by vav of a first fixed security over the entire mortgaae portfolio.

The Company may redeem all (but not only some) of the Notes in each class at their principal amount outstanding together with anyaccrued interest on any interest payment date:• Ibllowing the interest payment date on which the aggregate principal outstanding balance of the mortgage receivables is equal

to or less than 10% of the agregatc principal outstanding balance of the mortgage receivables as at the collateral determinationdate; or

• following any change in tax law in either the jurisdiction of the Company or the Fund which would materially affect theCompanys rcsults; or

• if not otherwise redeemed, the notes will be redeemed at their principal amount outstanding on the last interest payment datefalling due in December 2036 for Class A Notes and December 2046 for Class 13, C. D. E and F Notes.

19. Embedded derivativeThe directors have determined that an embedded derivative exists in respect of the Class F Note. The return on the Class F Note islinked to the return on the mortgage receivables, Further, all interest amounts payable by the Company under the Class F Notes wiltbe subordinated to payment of principal and interest under the Senior Notes and will only be payable to the extent that the Companyhas sufficient funds available for the purpose.

1-lowever, it is the view of the directors of the Company that the economic characteristics and risks of the embedded derivative areclosely related to the economic characteristics and risks of the host contract therefore the embedded derivative is not separated fromthe host contract.

During the year, the return amounting to €793,912 (2013: €2.558,048) was earned by Class F noteholders. During the year, a sum of€1,956,062 (2013: €1,822,378) was paid to Class F noteholders.

The Class F Note is held by Banco lnternacional Dc Crddito. S.A.

20. Share Capital - Equity Group Company Group Company31-Dec-14 31-Dec-14 31-Dec-13 31-Dec-13

€ € €Authorised10,000,000 shares of€1 each

Issued40.000 shares of€l each

10,000,000 10,000,000 10.000,000 10,000,000

40.000 40.000 40,000 40.000

21. Ownership of the CompanyThe principal shareholders in the Company are BADB Charitable Trust Limited (13,332 shares), MFDB Charitable Trust Limited(13,332 shares), Eurydice Charitable Trust Limited (13,332 shares). In addition. Mr James Seanlon. Mr Turlough Galvin, MrWilliam Prentice and Mr Patrick Moltoy hold one share each in the Company. All shares are held under the terms of declarations oftrust dated 4 November 2003, under which the relevant share trustee holds the issued shares of the Company on trust for a charity.

The Share Trustee has appointed a Board of Directors to run the day-to-day activities of the Company. The Board of Directors haveconsidered the issue as to who is the ultimate controlling party of the Company. It has determined that the control of the day-to-dayactivities of the Company rests with the Board.



22. ChargesAs continuing security fr payment or discharge of the secured obligations (the Notes) the Company has, in favour of the Trustee:• Assigned by way of first fixed security the benefit of each Unit and all Unit Distributions• Charged by way of first fixed security the benefit of the Issuer Account and the Cash Reserve Account and any bank or other

accounts in which the Company may at any time have or acquire any benefit:• Assigned by way of first fixed security the benefit under each Issuer Document; and• Created a first floating charge over the whole of the CompanyTh undertaking and all the Company’s property, assets and rights

whatsoever and wheresoever present and future including, without limitation, the Company’s uncalled capital except to theextent otherwise charged or secured under the Trust Deed.

23. Related party and certain other transaction disclosuresThe Directors do not consider any of the panics listed on page I of the financial statements as related parties in accordance with thecriteria set out in the International Financial Reporting Standards 24 Related Party Transactions”, except as disclosed below.

The Group and Company has identified the following transactions.

Transactions with Deutsche International Corporate Services (Ireland) LimitedThe Company has entered into a Corporate Services Agreement (“CSA”) with Deutsche International Corporate Services (Ireland)Limited (DICSIL) for the provision of corporate services. Under the terms of the service agreement €26,230 (2013: £26,230) waspaid and accrued to DICSIL fbr these services during the year.

Transactions with Lusitano Mortgages No 2 Unit (“Fundo”)The Company has invested in the subsidiary company. During the year. unit distributions of €7,934.339 (2013: €8,906,182) havebeen accrued 10 the Company as interest. The unit distributions are calculated as per the requirements of the prospectus. At the yearend, the Company’s investments in Fundo units were valued at €302,555,500 (2013: €337,909,888).

24. Statement of Comprehensive Income or the CompanyIn accordance with Section 3(2) of the Companies (Amendment) Act. 1986 a separate Statement of Comprehensive income for theCompany has not been presented. The following information is relevant:

The total comprehensive income of the Company for the year was nil (2013: nil).

25. Financial risk managementhurodsiclion and overviewLusitano Mortgages No 2 PLC is a special purpose company incorporated and registered in Ireland with limited liability on 13August 2003 under registered number 374631. The principal activity of the Group is the investment in a portfolio of mortgagereceivables in Portugal. through the purchase of 100% of the units in Lusitano Mortgages No 2 Fundo. (the “Fundo”) a Portuguesesecuritisation fond.

The risk profile of the Company is such that market, credit, liquidity and other risks of the investment securities and derivativefinancial instruments held for risk management are borne fully by the holders of debt securities issued.

Risk management rrameworkThe Board of Directors have overall responsibility for the establishment and oversight of the Company’s risk managementframework.

This note presents information about the Group’s exposure to each of the above risks, the Company’s objectives, policies andprocesses for measuring and managing risk, and the Company’s management of capital and further quantitative disclosures areincluded throughout these financial statements.

The Group and Company have exposure to the fbllowing risks from its use of financial instruments:(i) Credit risk;(H) Market risk; and(Hi) Liquidity risk.


Notes lathe financial statements (continued)For the year ended 31 December 2014

25. Financial risk management (continued)

(i) Credit riskCredit risk is the risk of the financial loss to the Group and Company if counterparty to a financial asset fails to meet its contractualobligations, and arises principally from the Group and Companys credit linked assets.

During the life of the transaction, the originator (Banco Intemacional de Credito S.A) is capable of modifying the terms andconditions of some of the loans on a limited basis or substitute some loans.

These changes may have an impact on the risk profile of the pool. The originator’s ability to make changes to the terms andconditions of the loans securitised is limited by permitted variations and substitutions language included in the securitisationdocumentation.

Any reduction in the value of the mortgage receivables will be matched by a reduction in the repayment obligations of the Notes.Because of the ring-fenced nature of the debt issued by the Company any such losses would ultimately be borne by either the swapcounterparty or the noteholders.

The caffving amount of financial assets represents the maximum credit risk exposure, The maximum exposure to the credit risk atthe reporting date was:

Loans and receivablesThe Group has invested in a portfolio of mortgage receivables. The geographical concentration100% in Portugal and they are not rated.

Ox/mr receivables

of the loans and receivables are

Other receivables are mainly interest receivables from loans and receivables. The credit rating and concentration of these loans andreceivables are disclosed below.

Cash and cash equivalentsCash and cash equivalents are mainly held with Deutsche Bank AG (91.2%) and Bank of Ireland (0,08%) are rated A (2013: A) andBB± (2013: BB+) respectively by Standard and Poor’s.

Credit quality of financial assetsThe credit quality of the assets of the Group and Company as rated by the Standard and Poor’s rating agency that are neither past duenor impaired are summarised in the table below:

GroupLoans and receivablesDerivatives financial assetsCash and cash equivalentsOther receivables

Loans and receivables/Investment in fund unitsCash and cash equivalentsOther receivablesDerivative financial assets

Group Company Group Company31-Dec-14 31-Dec-14 31-Dec-13 31-Dec-13

F F F €289.71 1,758 294,352.083 320.038,949 325,299.504

32.318.105 26.757.087 35,111,441 28,630.696449.322 1.277,034 500.384 1.620.365

-- 3.788.480 3,788.480

322.479.185 322.386.204 359.439.254 359.339.045

GroupLoans and receivablesCash and cash equivalentsOther receivablesTotal

31-Dec-14 31-Dec-14Non-rated A

€ €289.711.758

31-Dec-14

BB+

€

32.290.198 33.455449.322 - -

290.161.080 32.290.198 33,455

31-Dec-13 31-Dec-13 31-Dec-13Non-rated A 88+

F € F320.038.949 - -

- 3.788.480 -

- 35.077.986 33.455500,384 - -

320.539,333 38,866,466 33,455Total




(i) Credit risk (continued)

Credit quality of financial assets (continued)

CompanyInvestment in fund unitsCash and cash equivalentsOther receivablesTotal

CompanyInvestment in fund unitsDerivatives financial assetsCash and cash equivalentsOther receivablesTotal

Any reduction in the value of mortgage receivables will he matched by a reduction in the repayment obligations on the Notes.

Page 30

As at 31 December 2013. the Group had financial assets exposed to credit risk with a total carrying amount of€322,479.185 (2013:€359.439.254). The majority of the credit risk relates to loans and receivables of €289,711,758 (2013: €320,038,949) and the Grouphas appointed Banco lnternacional Dc Crddito. S.A. (BIC) as Servicer to manage this risk on behalf of the Group.

As at 31 December 2014, the Company had financial assets exposed to credit risk with a total carlying amount of €322,386,204(2013: €359,339,045). The majority of the credit risk relates to the loan investment of €294,352,083 (2013: €325,299,504) and HICas Servicer of the underlying assets of the fund has been appointed to manage this risk on behalf of the Company.

Interest rate

less than 2%= or> 2%

31-Dec-14

€1.637%

9.77948.99%73.49%0.89%

365

31-Dec-13

€1.719%10.179

51.65%73.49%0.93%

401

OriginatorBanco Espirito Santo

Loans average residual maturity notional amount10.418 100%

31-Dec-14 31-Dec-14 31-Dec-14Non-rated A A

€ € €294,352,083 - -

- 26,729,180 27,9071,277,034 - -

295.629,117 26.729.L80 27.907

31-Dec-13 31-Dec-13 31-Dec-13Non-rated A A

€ €325,299,504 - -

- 3.788.480 -

- 28.597.241 33.4551,620,365 - -

326,9)9.869 32.385,721 33.455

The policy of the Company in relation to credit risk is to expose itself to the credit risk in relation to mortgage receivables howeverultimately this risk is borne by the Noteholders. The directors consider this risk to be of an acceptable nature. During the life of thetransaction, the originator is able to modify the terms and conditions of some of the loans on a limited basis or substitute some loans.These changes may have an impact on the risk profile of the pool. The originator’s ability to make changes to the terms andconditions of the loans sccuritised is limited by permitted variations.

The analysis of the loans and receivables/loan investment is as follows:Mortgage por1olioWeighted average interest rateNumber of loansCurrent LTV (outstanding loan amount/initial valuation)Original LTV (initial loan amount/initial valuation)Portfolio Trigger Event (maximum 4.5%): Arrears ratioNo. of loans in arrears

Loan portfolio by interest rate

Type of loansMortgageMortgage

Loan portfolio by residual maturity

31-Dec-14Loans average % of total

yearsnotional amount

16.14 31%14.68 69%

100%

31-Dec-14No. of loans /o of total

15.13



25. Financial risk management (continned)

(ii) Market riskMarket risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group andCompany’s income or its value of its holdings of financial instruments. The noteholders are exposed to the market risk of the assetsportfolio.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters whileoptimising the return on risks.

Market risk embodies the potential for both gains and losses and includes interest rate risk, currency risk and price risk.

(a) Interest rate riskThe Company has entered into an interest rate swap in order to reduce the risk of a mismatch arising between the amounts receivedfrom the unit distributions and the interest payable on the debt securities issued by the company, therefore the Company does notbear interest rate risk.

Under the interest rate swap agreement on each interest payment date, an exchange is made of the blended rate of interest rccei’ ablein respect of the mortgage receivables in Euros on a notional amount equal to the outstandingcalculated by reference to 3 months Euribor plus a spread. Payment is made on a net basis.

balance of loans, into amounts

The interest rate profile of investments and debt securities issued as at 31 December 2014 and 2013 is as follows:

31-Dec-14Group

Loans and receivablesCash and cash equivalentsOther receivablesDerivative financial instrumentsDebt securities issuedLiquidity facilityOther payablesNet interest rate risk exposure

31-Dec-13Group

Loans and receivablesCash and cash equivalentsOther receivablesDebt securities issuedDerivative financial instrumentsLiquidity facilityOther payablesNet interest rate risk exposure

31 -Dec-14Company

Investment in fund unitsCash and cash equivalentsOther receivablesDebt securities issuedDerivative financial instrumentsLiquidity facilityOther payablesNet interest rate risk exposure

- 289,711.758- 32.318.105

449.322 449.322- (1.710.364)- (302.557,500)- (17.728,961)

(442,360)30.000

Non interestbearing

31-Dec-14

€

Fixed Floatingrate rate

31-Dec-14 31-Dec-14€ €- 289,711,758- 32,318.105

- (1.710,364)- (302,557,500)- (17,728,961)

Total31-Dec-Il

€

-- (442,3601

- 33.038 6.962

Fixed Floating Non interestrate rate bearing Total

31-Dec-13 31-Dec-13 31 -Dec-I 3 31-Dec-13€ € € €- 320,038,949 - 320.038.949- 35.111,441 - 35.111.441-

- 500,384 500.384- (337,909,888) - (337,909,888)- 3.602,138 - 3,602,138- (19.596,708) - (19.596.708)-

- (1,706.316) (1.706.316)- 1.245.932 (1,205.932) 10,000

Fixed Floating Non interestrate rate bearing Total

31-Dec-14 31-Dec-14 31-Dec-14 31-Dec-13€ € € €- 294.352.083 - 294.352.083- 26,757,087 - 26.757,087-

- 1,277.034 1,277,034- (302.557.500) - (302.557.500)- (1,710,364) - (1.710.364)- (17.728,961) - (17,728.961)-

- (349,379) (349,379)- (887,655) 927,655 40,000




(ii) Market risk (continued)

fr) Interest rate risk (continued)

31-Dec-13Company

Investment in fund unitsCash and cash equivalentsOther assetsDebt securities issuedDerivative financial instrumentsLiquidity facilityOther liabilitiesNet interest rate risk exposure

Fixedrate

31-Dec-13

Floating Non interestrate bearing

31-Dec-13 31-Dec-I3

- 325.299.504- 28.630.696

1.620,365 1.620.365- (337.909.888)- 3.602.138- (19.596,708)

(1,606.107) (1.606.107)25,742 14,258 40,000

SensitiWtv anal vsisThe sensitivity analysis below have been determined based on the Company’s exposure to interest rates for interest bearing assetsand liabilities (included in the interest rate exposure tables above) at the reporting date and the stipulated change taking place at thebeginning of the financial year and held constant throughout the reporting year in the case of instruments that have floating rates.

A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) interest expense by the belowamount. For variable instruments, this analysis assumes that all other variables remain constant. The analysis is perlbrmed on thesame basis for 2013.

31-Dec-14Debt securities issued

31-Dec-13Debt securities issued

Group Company Group CompanyIncrease Increase Decrease Decrease

€ € f €39.883 39,883 (39,883) (39.883)

59.398 59.398 (59,398) (59.398)

The Group and Company does not bear any interest rate risk as the interest rate risk associated with the debt securities issued by theCompany is neutralised by entering into swap agreements whereby the swap eounterpany pays the Company amounts equal to theinterest payable to the holders of the debt securities issued in return for the interest earned by the Company and Group on itsinvestment securities. Therefore any change in the interest rates would not affect the equity or the profit or loss of the Company orthe Group.

The Group and Company has designated its fixed financial assets and liabilities at thir value through profit or loss. Any change ininterest rates would also affect the fair value of the fixed rate financial assets and liabilities which would impact on the profit or lossof the Company. 1-lowever the Group and the Company have also neutralised risk by entering into swap agreements whereby all fairvalue changes are borne by the swap counterparty.

Derivative financial instruments are transacted with Credit Agricole lndosuez which is rated A (2013: A) by rating agency Standardand Poo?s (S&P) and the directors are therefore satisfied with the current exposure.

(b) Currency riskThe Notes issued by the Company are denominated in Euro. The financial assets of the Group and Company are also denominated inEuro and therefore the Group and Company are not exposed to any significant currency exchange fluctuation. Ilence. no sensitivityanalysis has been presented.

(gi Price riskPrice risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in marketprices (other than those arising from interest rate risk or currency risk), whether those changes are caused by lhctors specific to theindividual financial instrument or its issuer or factors alThcung all similar financial instruments traded in the market.

€ € € €- 325.299.504- 28.630.696

Total31-Dec-13

(337.909,888)3,602,138

(19,596.708)




(ii) Market risk (continued)

(ci Price risk (continued)

Other price risk may include risks such as equity price risk, commodity price risk, prepayment risk (i.e. the risk that one pain to afinancial asset will incur a financial loss because the other party repays earlier or later than expected), and residual value risk.

In relation to the Group’s portfolio of mortgage loans, this is not subject to equity price risk, commodity price risk and residual valuerisk. In relation to prepayment risk, the directors do not consider this to be a significant risk as any fluctuation in the value of theloans held by the Company is borne by the note holders and/or swap counterpany.

(iii) Liquidity riskLiquidity risk is the risk that the Group and Company will not be able to meet its financial obligations as they fall due. TheCompany’s obligations under the Notes are limited to receipts of accrued interest and proceeds from the collection of the mortgagereceivables.

The Group’s and Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficientliquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or riskingdamage to the Group’s reputation. The table below contains the contractual maturities of financial liabilities at reporting date. Theamounts are gross. undiscounted and include estimated interest payments.

Less than1 year

€

Carryingamount

€(302.557.500)

(1.710.364)(17.728.961)

(442.360)(322,439.185)

Grosscontractual

cash flows

(383,692.427)

(1.710.364)(17.728.961)

(442.360)(403.574,112)

I to2years 2 toSycars

€

More than 5years

€(3.295.261) (6,590.523) (9.885,784) (363.920.859)

- -- (1.710.361)

(17.728.961)(442.360)

(21.466.582)

Group at31-Dec-14

Debt securities issuedDerivative financialliabilities

Liquidity facilityOther liabilitiesNet amount

Group at31-Dec-13

Debt securities issuedDerivative financialliabilitiesLiquidity lbcilityOther liabilitiesNet amount

Company at31-Dec-14



(6,590,523) (9.885,784) (365.631,223)

GrossCarrying contractual Less than More than 5

amount cash flows 1 year I to 2 years 2 to 5 years years£ € € € €

(337.909,868) (435,481,466) (4.001,551) (8.003.102) (12,004,653) (411.472,160)

(186,342) (186.342) - - - (186.342)(19,596,708) (19.596,708) (19.596.708) - - -

(1,706,316) (1,706.316) (1,706,316) - - -

(359,399,254) (456,970,832) (25,304,575) (8,003,102) (12,004,653) (411,658,502)

GrossCarrying contractual Less than More than 5

amount cash flows 1 year I to 2 years 2 to 5 years years€ £ £ € € €

(302.557.500) (383.692,427) (3295.261) (6,590.523) (9.865,784) (363.920,859)

(1,710,364) (1,710,364) - - - (1,710,364)(17.728,961) (17,728.961) (17.728,961) - - -

(349.379) (349.379) (349,379) - - -

(322,346.204) (403.481,131) (21.373.60)) (6,590,523) (9,885,784) (365.631,223)




(iii) Liquidity risk (continued)



The Company’s obligations under the Notes are matched withthe mortgage receivables.

The derivative balance represents the present value of all future cash flows. The directors believe that this best represents the cashflow that would have to be paid if these positions had to be closed out. Derivatives balance shown within carrying value whichmanagement believes most accurately reflects the short-term nature of these activities. The contractual maturity’ of these instrumentsmay, however, extend over significantly longer periods.

Gross contractual cashflows are computed based on indicative amortisation schedule of notes as specified in the offering circular.

Concentration riskAll loans and receivables are mortgage receivables secured on residential properties located in Portugal.

Accounting classifications and fair values

The fair values of financial assets and liabilities, together with the earning amounts shown in the statement of financial position, are

(iv) Fair values

as follows:

Company at31-Dec-13

Grosscontractual

cash flows€ €

Carryingamount

(337.909.888)

(186.342)(19.596.708)

(1,606,107)(359,299,045)

€ €(435.481.466)

(186.342)(19.596.708)

(1.606,107)(456,870,623)

Less than More than 51 year I to 2 years 2 to 5 years years

€(4.001.55t) (8.003.102) (12.004653) (411.472.16rn

(186.342)

€

(19.596.708)(1.606,107)

(25.204,366) (8,003,102) (12,004,653) (411,658,502)

the receipts of accrued interest and proceeds from the redemption of

Group Fair value Carrying value Fair value Carrying value31-Dec-14 31 -Dec-I 4 31-Dec-13 31 -Dec-13

Financial assets atfiUr value through profit and loss: € € € €DerivatIve financial assets

- - 3.788.480 3.788.480Financial assets at arnortiseil cost:Cash and cash equivalents 32.318.105 32.318.105 35.111.441 35.111.441Loans and receivables 262,688.109 289.711,758 247,262.380 320,038,949Other receivables 449,322 449,322 500,384 500,384

295,455,536 322,479,185 286,662,685 359,439,254

Financial liabilities atfair value through profit and loss:Derivative financial liabilitiesFinancial liabilities not atfair value through profit or loss:Debt securities issuedLiquidity FacilityOther payables

—

1.710.364 1.710,364 186.342 186.332

275.533.851 302.557.500 265.133,319 337.909.88817,728.96 I 17.728,961 19.596.706 19.596.708

442,360 442.360 1,706,316 1,706,316295,415,536 322,439,185 286,622,685 359.399,254




(iv) Fair values (continued)

Company Fair value Carrying value Fair value Carrying value31-Dec-14 31-Dec-13 31-Dec-13 31-Dec-13

Financial assets atfair value through profit or loss: € €Derivative financial assets

- - 3.788.480 3.788.480Financial assets at anwrtised cost:Cash and cash equivalents 26.757,087 26.757,087 28,630,696 28.630,696Loans and receivables 267,328,434 291,352,083 252,522,935 325,299,504Other receivables 1,277,034 1,277,034 1,620,365 1,620,365

295,362,555 322,386,204 286,562,476 359,339,045

Financial liabilities at fair value through profit or loss:Derivative financial liabilities 1.710.364 1.710,364 186.342 186.342Financial liabilities not atfair value through profit or loss:Debt securities issued 275.533.851 302.557.500 265.133.319 337,909.888Liquidity facility 17,728.961 17.728.961 19.596.708 19.596.708Other payables 349.379 349,379 1,606,107 1,606,107

295,322,555 322,346,204 286,522,476 359,299.045

The fair values of the derivative financial instruments represent amounts payable to or receivable from the swap eounterpafly shouldthe swaps be terminated at 31 December 2014 and 31 December 2013. The calculation of the value of the swaps is a function oftime and movement in interest rates and credit spreads.

The fair value of debt securities approximate their carrying amounts as they carry floating rates of interest and the impact ofdiscounting and changes in credit spreads is not significant.

The Group’s derivative financial instruments are carried at fair value on the statement of financial position. The fair value of thefinancial instruments can be reliably determined within a reasonable range of estimates. The carrying amounts of all the Company’sfinancial assets and financial liabilities at the reporting date approximated their fair values. Their fair values together with carryingamounts shown in the statement of financial position are disclosed above.

The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs in making themeasurements.

• Level 1: Quoted market price in an active market for an identical instrument.• Level 2: Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market

prices in active markets fbr similar instruments; quoted prices for similar instruments in markets that are considered less thanactive; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

• Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuationtechnique includes inputs not based on observable data and the unobservable inputs could have a significant effect on theinstrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments wheresignificant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The objective of the valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sellthe asset or paid to the transfer the liability in an orderly transaction between market participants at the measurement date.

Fair values of financial assets and financial liabilities that are traded in active markets. Level I. are based on quoted market prices ordealer price quotations.

Fair values of financial assets and financial liabilities that are not traded in active markets and that use only observable market datarequiring little management judgement and estimation (Level 2) are determined by using recognised valuation models. Observableprices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives andsimple over the counter derivatives eg. Asset swaps. Availability of observable market prices and model inputs reduces the need fbrmanagement judgement and estimation and also reduces the uncertainty associated with determination of fair values. Availability ofobservable market prices and inputs varies depending on the products and markets and is prone to changes based on market factorsbetwcen transaction date and the measurement date such as equity prices; exchange rates; liquidity; concentration and marketsfactors affecting the Company in the financial markets. On that basis the fair value of the derivative financial instruments have beenclassified as Level 2,





Page 36

The techniques described above outline a variety of methods used to determine the carrying amounts of the financial instruments foreach series. Due to the unique aspects of the notes in issue, and also the complex and detailed assumptions and methods used,detailed disclosure for the valuation techniques used has not been provided.

For more complex Level 3 instruments proprietary valuation models. largely based on unobservable data, are used which usually aredeveloped from recognised valuation models. Some or all of the significant inputs into these models may not be observable in themarket, and are derived from market prices or rates or are estimated based on assumptions. Examples of instruments involvingsignificant unobservable inputs include certain over the counter derivatives and certain securities for which there is no activemarket. Valuation models that employ significant unobservable inputs require a higher degree of management judgement andestimation in the determination of fair value. Management judgement and estimation are usually required for selection of theappropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued.determination of probability of counterpany default and selection of appropriate discount rates. The main assumptions underpinningthe model include equity prices, adjustments for liquidity, concentration and volatility rates.

The following table sets out fair values of the financialinto which each fair value is recognised.

Financial assetsCash and cash equivalentsLoans and receivables - Fundo unitsOther receivables

Financinl liabilitiesDerivative financial liabilitiesDebt securities issuedLiquidity facilityOther payables

Financial assetsDerivative financial assetsCash and cash equivalentsLoans and receivablesOther receivables

Financial liabilitiesDerivative financial liabilitiesDebt securities issuedLiquidity facilityOther payables

instruments of the Group and analyses the level in the fair value hierarchy

2014Level I Level 2 Level 3 Total

€ € € €32.318.l05 - - 32.318.105

- 262,688,109 - 262.688.109- 349,322 - 449.322

32,318.105 263.137,431 - 295.455,536

- (1.710,364) - (1,710,364)- (195,943,045) (79,590,806) (275,533,851)- (17.728,961) - (17,728,961)- (442.360) - (442,360)- (215.824.730) (79.590.806) (295.415.536)


€ € €- 3,788,480 - 3,788,480

35,111,441 - - 35,111,441- 247.262,380 - 247,262,380- 500,384 - 500,384

35,111,441 251,551,244 - 286,662,685

- (186,342) - (186,342)- (194,823.319) (70.310.000) (265.133,319)- (19.596.708) - (19.596,708)- (1.706,316) - (1.706.316)- (216,312,685) (70,310,000) (286,622,685)





The following table sets out fair values ofinto ‘vhich each fair value is recognised.

Financial assetsCash and cash equivalentsLoans and receivables - Fundo unitsOther receivables

Derivative financial liabilitiesDebt securities issuedLiquidity facilityOther payables

Financial assetsDerivative financial assetsCash and cash equivalentsLoans and receivables - Fundo unitsOther receivables

Financial liabilitiesDerivative financial liabilitiesDebt securities issuedLiquidity facilityOther payables

the financial instruments of the Company and analyses the level in the Ihir value hierarchy


€ € € €26.757,087 - - 26.757,087

- 267.328.434 - 267.328.434- 1.277.034 - 1.277.034

26,757.087 268.605.468 - 295.362.555

- (1.710.364) - (1.710.364)- (195.943.045) (79.590.806) (275.533.851)- (17.728,961) - (17.728.961)- (349,379) - (349.379)- (215,731,749) (79.590,06) (295.322.555)

2013Level 1 Level 2 Level 3 Total

€ € € €- 3.788,480 - 3.788.480

28.630,696 - - 28.630.696- 252.522.935 - 252.522.935- 1.620.365 - 1.620.365

28.630,696 257.931,780 - 286.562.476

- (186.342) - (486.342)- (194.823.319) (70.340.000) (265.133,3191- (19,596.708) - (19.596.708)- (1.606.107) - (1.606.107)- (216,212,476) (70,3 10,000) (286,522,476)

The Company has classified the derivative financial instruments at level 2 within the fair value hierarchy. The valuation ofderivatives has been provided by the swap counterparty. The swap counterparty has produced this valuation as of a particular timeand date on the basis of, inter alia. its proprietary valuation models which are based on net discounted cash flow model that takesinto account market interest rates, duration and relevant credit spreads. There xvere no transfers between levels during the year.

Derivative financial assets

The Company has entered into derivative transactions with swap counterpanies to eliminate the mismatch between the amountpayable in respect of the debt securities and the return from the investments securities held as collateral.

There have been no transfers from level 2 to level I during 2014 (2013: none). Debt securities issued have been classified as bothlevel 2 and level 3. The most senior tnnche. Class A mortgages. has been classified as level 2 and the other Classes B to F havebeen classified as level 3.

Derivative financial instruments are transacted with CALYON which are rated A (2013: A) by rating agency Standard and Poor’s(S&P).

The Company has entered into derivative transactions with swap counterparties to eliminate mismatch between the amount payablein respect of the debt securities and the return from collateral as investment securities held as collateral.





Although the directors believe that their estimates of fair value are appropriate, the use of different methodologies or assumptionscould lead to different measurements of fair value as fair value estimates are made at a specific point in time, based on marketconditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties andmatters of significant judgement e.g. interest rates. volatility, credit spreads, probability of defaults, estimates cash flows etc andtherefore, cannot be determined with precision.

For recognised fair values measured using significant unobservable inputs, changing one or more assumptions used to reasonablypossible alternative assumptions might impact on the value attributable to noteholders. but would not have any effect on the GroupStatement of Comprehensive Income or on equity as any change in fair value will be borne by the noteholders due to the limitedrecourse nature of the debt issued by the Company.

26. Capital risk managementThe share capital of the Company’ is €40,000. The Company is not subject to any capital requirements, other than its share capital.

27. Subsequent eventsThere have been no significant subsequent events up to the date of approval of these financial statements,

28. Approval of the financial statementsThe board of directors approved these financial statements on 29 April 2015.

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