Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 466 report information sustainability report Governance review review statements Annual Report 2022 Notes to the financial statements (continued) Assets and liabilities held at fair value Derivative credit and debit valuation adjustments Derivative credit valuation adjustments and Derivative debit valuation adjustments are incorporated into derivative valuations to reflect the impact on fair value of counterparty credit risk and Barclays’ own credit quality respectively. These adjustments are calculated for uncollateralised and partially collateralised derivatives across all asset classes. Derivative credit valuation adjustments and Derivative debit valuation adjustments are calculated using estimates of exposure at default, probability of default and recovery rates, at a counterparty level. Counterparties include (but are not limited to) corporates, sovereigns and sovereign agencies and supranationals. Exposure at default is generally estimated through the simulation of underlying risk factors through approximating with a more vanilla structure, or by using current or scenario-based mark to market as an estimate of future exposure. Probability of default and recovery rate information is generally sourced from the CDS markets. Where this information is not available, or considered unreliable, alternative approaches are taken based on mapping internal counterparty ratings onto historical or market- based default and recovery information. Derivative credit valuation adjustments increased by £107m to £(319)m as a result of widening input counterparty credit spreads. Derivative debit valuation adjustments increased by £117m to £208m as a result of widening input own credit spreads. Correlation between counterparty credit and underlying derivative risk factors, termed ‘wrong-way,’ or ‘right-way’ risk, is not systematically incorporated into the derivative credit valuation adjustments calculation but is adjusted where the underlying exposure is directly related to the counterparty. Barclays continues to monitor market practices and activity to ensure the approach to uncollateralised derivative valuation remains appropriate. Portfolio exemptions The Group uses the portfolio exemption in IFRS 13 Fair Value Measurement to measure the fair value of groups of financial assets and liabilities. Instruments are measured using the price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure or to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between market participants at the balance sheet date under current market conditions. Accordingly, the Group measures the fair value of the group of financial assets and liabilities consistently with how market participants would price the net risk exposure at the measurement date. Unrecognised gains as a result of the use of valuation models using unobservable inputs The amount that has yet to be recognised in income that relates to the difference between the transaction price (the fair value at initial recognition) and the amount that would have arisen had valuation models using unobservable inputs been used on initial recognition, less amounts subsequently recognised, is £126m (2021: £133m) for financial instruments measured at fair value and £216m (2021: £230m) for financial instruments carried at amortised cost. There are additions and FX gains of £59m (2021: £59m), and amortisation and releases of £66m (2021: £42m) for financial instruments measured at fair value and additions of £0m (2021: £0m) and amortisation and releases of £14m (2021: £17m) for financial instruments measured at amortised cost. Third-party credit enhancements Structured and brokered certificates of deposit issued by Barclays are insured up to $250,000 per depositor by the Federal Deposit Insurance Corporation (FDIC) in the US. The FDIC is funded by premiums that Barclays and other banks pay for deposit insurance coverage. The carrying value of these issued certificates of deposit that are designated under the IFRS 9 fair value option includes this third party credit enhancement. The on-balance sheet value of these brokered certificates of deposit amounted to £5,197m (2021: £790m). Comparison of carrying amounts and fair values for assets and liabilities not held at fair value The following table summarises the fair value of financial assets and liabilities measured at amortised cost on the Group’s balance sheet: 2022 2021 Carrying Carrying amount Fair value Level 1 Level 2 Level 3 amount Fair value Level 1 Level 2 Level 3 As at 31 December £m £m £m £m £m £m £m £m £m £m Financial assets Loans and advances at amortised cost 398,779 391,661 15,117 113,153 263,391 361,451 362,424 17,381 83,191 261,852 Reverse repurchase agreements and other similar secured lending 776 776 — 776 — 3,227 3,227 — 3,227 — Financial liabilities Deposits at amortised cost (545,782) (545,738) (426,016) (116,157) (3,565) (519,433) (519,436) (434,431) (83,501) (1,504) Repurchase agreements and other similar secured borrowing (27,052) (27,054) — (27,054) — (28,352) (28,358) — (28,358) — Debt securities in issue (112,881) (113,276) — (110,151) (3,125) (98,867) (100,657) — (98,364) (2,293) Subordinated liabilities (11,423) (11,474) — (11,254) (220) (12,759) (13,334) — (13,267) (67) The fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As a wide range of valuation techniques are available, it may not be appropriate to directly compare this fair value information to independent market sources or other financial institutions. Different valuation methodologies and assumptions can have a significant impact on fair values which are based on unobservable inputs.