Banco Sabadell Financial Information Bulletin Third quarter, 2005

Transcription

1 Banco Sabadell Financial Information Bulletin Third quarter, 2005

2 Contents 1 Introduction 2 Key figures 3 General information 4 Profit & loss account 5 Balance sheet 6 Business performance 7 Share performance Third quarter of 2005 Page 1

3 Disclaimer This financial information bulletin may contain forward-looking statements or estimates of the bank's business performance and results and of the evolution of the macroeconomic environment. Such forward-looking statements and estimates are an expression of Banco Sabadell's opinion and future expectations and, consequently, the actual results may differ significantly from those forwardlooking statements and estimates due to certain risks, uncertainties and other material factors. Those factors include, but are not limited to: (1) the market situation, macroeconomic factors, regulatory, political or government guidelines, (2) changes in the domestic and international securities markets, exchange rates and interest rates, (3) competitive pressure, (4) technological changes, and (5) changes in the financial situation, borrowing capacity or solvency of our customers, debtors or counterparties. The aforementioned factors might adversely impact our business and the performance of the results set out in the presentations and reports, both past and future, including those registered with the National Securities Market Commission (CNMV). The distribution of this document in other jurisdictions may be forbidden; accordingly, holders of this document should be aware of such restrictions and comply with them. By accepting this report, you agree to be bound by those limitations. This document does not constitute an offer or invitation to subscribe or buy any securities or to make or cease to make any type of economic decision, and neither this document nor any of its content shall form the basis of any contract or commitment whatsoever. 1. Introduction Macroeconomic environment General economic situation In its half-yearly report, the International Monetary Fund (IMF) forecasts 4.3% worldwide economic growth in both 2005 and 2006, maintaining the projections it issued in the spring. It downgraded growth estimates for the US, the UK and the euro area, while upgrading projected growth for Japan and emerging markets (China). The US economy continues to grow rapidly and soundly even though recent events (hurricanes and high crude prices) have deteriorated consumer and business confidence. The euro area grew only slightly in the second quarter, with Germany and France both stagnant. However, the latest economic activity and business confidence figures provided a positive surprise despite high oil prices. On the political front, following general elections in Germany, a coalition between the two big parties, CDU and SPD, appears to be the most likely option for forming a government. The UK economy remains weak. In particular, Gross Domestic Product (GDP) growth in the second quarter was at a 12-year low. In Japan, the domestic economy performed well in the second quarter and economic confidence indexes improved. On the political front, Koizumi (Democratic Liberal Party) won a wider-thanexpected majority in the general elections, which supports the ongoing reform process. Third quarter of 2005 Page 2

4 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0-1,0-2,0-3,0 1/92 6/93 10/94 3/96 7/97 12/98 4/00 8/01 1/03 5/04 10/05 US GDP Euro area GDP 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 1/92 6/93 10/94 3/96 7/97 12/98 4/00 8/01 1/03 5/04 10/05 US CPI Euro area CPI Official interest rates The US Federal Reserve increased benchmark rates twice, by a quarter-point each time, to 3.75%. The Fed considers that its monetary policy is accommodative and reiterated that the monetary stimulus can probably be removed at a measured pace. In the euro area, the European Central Bank maintained the benchmark rate unchanged at 2%, where it has been stable since June However, the ECB insisted that yields are extremely low all along the European curve and that the excess liquidity is accentuating the long-term risks to price stability. In the UK, the Bank of England cut benchmark rates by a quarter-point, to 4.5%, at its August meeting, in a context of weak consumer and capital expenditure. The governor of Japan's central bank declared that deflation could conclude by year-end and that a change in monetary policy is now more likely in fiscal Third quarter of 2005 Page 3

5 7,5 6,5 5,5 4,5 3,5 2,5 1,5 0,5 3/99 11/99 7/00 3/01 11/01 8/02 4/03 12/03 8/04 4/05 Euro area official interest rate US official interest rate Long-term interest rates The long-term public debt markets in the US ended the quarter in negative territory. The 10-year bond yield reached 4.32%, up from 3.91% at the end of June. In the euro area, the German 10-year bond yield ended the quarter at 3.15%, practically unchanged on the previous level of 3.13%. Yields generally increased towards the end of the third quarter, driven by such factors as the surprise increase in economic activity and inflation in the euro area, further progress towards a flexible exchange rate policy in China, delays in the new pension fund regulations in The Netherlands, and more aggressive statements about monetary policy in Japan. 7,5 6,5 5,5 4,5 3,5 2,5 1/99 11/99 9/00 7/01 5/02 2/03 12/03 10/04 8/05 US 10-yr bond German 10-yr bond Currency markets The dollar/euro exchange rate ended the quarter practically unchanged (USD 1.203/EUR) despite the persisting US foreign imbalance. The dollar was supported by sustained growth and contained inflation in the US, and the Fed's ongoing process of raising interest rates. The yen depreciated against the dollar, particularly in September, despite favourable economic performance. The yen ended the third quarter at JPY /USD, compared with JPY /USD at the end of June. Third quarter of 2005 Page 4

6 1,4 135 Tipo de Cambio Dólar/Euro 1,3 1,2 1,1 1,0 0, Tipo de Cambio Yen/Dólar 0, /99 2/00 3/01 4/02 5/03 6/04 7/05 USD / EUR JPY / USD Latin America Latin America's equity markets reached a new high, supported by looser domestic monetary policies. The Bank of Mexico cut official rates twice, from 9.75% to 9.25%, in a context of a negative surprise from economic growth (GDP shrank -0.4% in the second quarter, to give +3.1% growth yearon-year), while the prospects for inflation improved. Brazil's central bank also cut benchmark rates: by a quarter-point, to 19.5%. Further cuts are likely in the coming months, particularly after inflation projections were downgraded. The Consumer Price Index (CPI) was 6% in August, down from 6.6% in July. Also, for the first time ever, Brazil's Treasury issued debt in reais in the international markets. The issue, equivalent to 1.5 billion dollars, matures in 2016 and yields 12.75%. Argentina's economy registered +10.1% year-on-year growth in the second quarter, up from 8% in the first quarter of Equities The main stock market indexes have registered sizeable gains since July. Oil prices are still one of the strongest drivers of equity prices. The factors that had been pushing oil prices upward were accentuated by the interruption of supplies caused by hurricane damage in the US. In this context, oil prices increased by % in the quarter, setting a new record high. Additionally, second-quarter corporate earnings again beat market expectations. US companies continue to report strong top-line growth, although margins are coming under pressure and the outlook for the second half of 2005 is mixed. In Europe, in contrast with previous quarters, earnings growth was due mainly to strong growth in revenues rather than to cost cuts. In the US, the S&P 500 and the NASDAQ in euro gained +3.69% and 5.16%, respectively. Advance third-quarter results released in the last few weeks brought no major surprises. Moreover, the big US investment banks have generally outstripped the consensus estimates. In Europe, the Dow Jones STOXX 50 SM appreciated by +7.4%. Merger and acquisition activity was particularly intense in the third quarter, providing further support to the markets. The main transactions were France Télécom's acquisition of Amena, the purchase by Suez of the 49.9% of Third quarter of 2005 Page 5

7 Electrabel which it did not already own, and Porsche's decision to increase its stake in Volkswagen to 20%. In Spain, the IBEX 35 gained %. Spanish companies were also very active on the M&A front. The main development was Gas Natural's takeover bid for Endesa, which is conditional upon attaining 75% acceptance. Also, ACS acquired SCH's 22% stake in Unión Fenosa. The main development in Latin America was the Brazilian bourse's 34.94% appreciation in euro terms. The Mexican and Argentine indexes also appreciated strongly: % and %, respectively. In Japan, the Nikkei 300 gained % in euro terms. Business performance Banco Sabadell ended the third quarter with million euro in attributable net profit, a 43.7% increase year-on-year, evidencing excellent progress with the value and growth strategy implemented after the merger with Banco Atlántico. Very good performance by commercial and SME banking and strict control of costs and credit quality were the distinguishing features of a quarter which saw strong growth in lending and funds and a notable improvement in margins and fundamental ratios in line with the objectives of the Value and Growth Plan (ViC 07). Lending Loans and advances to customers totalled 39, million euro at the end of the third quarter, a 15.3% increase on September Mortgage loans registered outstanding 22.2% growth, diversified among private individuals, companies and property developers. Business financing performed very well in the first nine months, with sizeable growth in confirming (up 24.9% year-on-year) and factoring (up 17.6%), reflecting Banco Sabadell's strong penetration in the various segments of SME banking. At 30 September, non-performing loans represented 0.49% of computable loans (0.57% at 30 September 2004), marking a return to the excellent levels attained prior to the merger with Banco Atlántico and one of the lowest NPL ratios in the Spanish financial system. Stringent cost control and risk management led to an 89.9% decrease year-on-year in net specific NPL provisioning to 4.3 million euro. The generic provision amounted to million euro, 17.1% lower than in the same period of Funding Customer funds under management totalled 51, million euro, an increase of 10.6% in twelve months. Mutual fund assets expanded by 19.2% at consolidated level, including a 52.2% increase in equity funds. Funds under management in the bancassurance business totalled 4,799 million euro, of which 2,420 million euro were in pension plans. The number of pension plans and funds rose by 17.5% year-onyear, and there was a strong influx of funds into life annuity and structured products. Third quarter of 2005 Page 6

8 Margins and profits The consolidated profit and loss account at 30 September clearly showed the growing contribution by revenue synergies arising from the Banco Atlántico merger: attributable net profit amounted to million euro, a 43.7% increase on 9M04. Continuing growth in commercial activity in the quarter and micro-management of prices and spreads led to a 3.6% year-on-year increase in net interest income to million euro. Net commissions totalled million euro, a 6.6% increase year-on-year. The major cost restructuring conducted in the last twelve months in the process of integrating Banco Atlántico and the implementation of several programmes under the three-year Value and Growth Plan continued to bear fruit in 2005: operating costs were 3.1% lower than in 9M04. Consequently, net operating income totalled million euro, 20.7% more than in 9M04, evidencing that business volume is improving hand in hand with profitability and cost containment. The efficiency ratio improved once again in 3Q05, on target and moving towards the goal established for this first year of the three-year plan; the ratio stands at 50.52%, almost five percentage points better than in September 2004 (55.46%). Return on equity (ROE) is 15.5%, amply exceeding the 12.1% registered in 3Q05. Commercial and corporate activity Leading in quality: ISO 9001:2000 certification Banco Sabadell achieved the goal it set in 2002 under the Quality Plan and became the first Spanish financial institution to obtain overall ISO 9001:2000 certification for all the processes and activities of its financial group in Spain. Additionally, at the end of 3Q05, Sabadell ranked first among Spanish banks in the branch network objective quality index league table drawn up each year by independent consulting firm STIGA. These achievements are particular meritorious as they were attained in parallel with the process of integrating Banco Atlántico. 21 new branches in Spain and a second representative office in China In the first nine months of 2005, Banco Sabadell opened 21 new branches under its various brands: SabadellAtlántico, Banco Herrero and Solbank. Fourteen of the new branches are specialised in SME banking. The bank also inaugurated a representative office in Shanghai, its second in China. Information technology outsourcing and supplier management During the third quarter, Banco Sabadell signed a ten-year contract under which IBM will manage the bank's central computer system (mainframe). The 107 million euro contract will enable the Bank to save approximately 42 million euro over the ten-year term. The Bank also developed a new purchasing system to facilitate overall management of contracts with suppliers and the associated paperwork; the system is strongly focused on cutting costs and optimising resources. Remote banking user numbers up Usage of the various remote banking channels and services continued to rise in the first nine months of 2005, in line with the Bank's goal of maximising the number of customers who use them. At 30 September, the number of remote banking contracts had increased by 17% year-on-year to 682,983, while the number of transactions had risen by 13% to over 11.7 million. Banco Sabadell share performance The Banco Sabadell share ended the third quarter at euro, having appreciated by 23.72% since 1 January. Third quarter of 2005 Page 7

9 So far in 2005, an average of 927,010 shares changed hands each day. A 0.30 euro per share interim dividend (0.255 euro net) will be paid on 2 November; it represents a 25% increase on the interim dividend paid in Third quarter of 2005 Page 8

10 2. Key figures Figures adapted to IFRS (unaudited) YoY (%) Balance sheet ( m) Total assets ,6 Gross loans and advances to customers ,3 Total deposits ,3 Of which: customer deposits ,9 Mutual funds ,2 Pension funds ,5 Funds under management ,6 Shareholders' equity ,6 Profit and loss account ( '000) Net interest income ,6 Gross operating income ,3 Net operating income ,7 Profit before tax ,5 Group net profit ,7 Ratios (%) ROA 0,73 0,81 1,01 ROE 12,19 13,48 15,48 Cost / income (ex amortisation) (1) 58,33 57,96 53,60 Cost / income (ex amortisation) (2) 55,46 55,24 50,52 BIS ratio (%) 12,31 12,62 12,03 Tier I (%) 8,28 8,54 8,29 Asset Quality Non Performing loans ( '000) Provisions for NPLs ( '000) NPLs / Gross loans (%) 0,57 0,61 0,49 Coverage ratio (%) 342,49 326,80 382,89 Share data (period end) No. of shareholders No. of shares Share price ( ) 17,10 17,20 21,28 Market capitalisation ( '000) Earnings per share (EPS) ( ) 1,08 1,19 1,55 Price /earnings ratio (P/E) (times) 15,89 14,42 13,76 Book value per share ( ) 9,82 10,14 11,13 Price /Book value (times) 1,74 1,70 1,91 Dividend per share ( ) -- 0,50 -- Dividend Yield (%) -- 2,91% -- Pay-out ratio (%) -- 41,92% -- Other data Domestic branches Employees ATMs (1) Personnel and other general expenses / gross operating income excluding results from financial transactions and foreign exchange (2) Personnel and other general expenses / gross operating income Third quarter of 2005 Page 9

11 3. General information Regulation (EC) No. 1606/2002 of the European Parliament stipulates that, for financial years starting on or after 1 January 2005, all companies governed by the law of a Member State must prepare their consolidated accounts in conformity with international accounting standards if, at their balance sheet date, their securities are admitted to trading on a regulated market of any Member State. In order to bring the accounting standards applicable to Spanish credit institutions into line with the new accounting requirements arising from the European Union's adoption of International Financial Reporting Standards, the Bank of Spain published Circular 4/2004, dated 22 December, on standards for public and private financial information and financial statement formats. Accordingly, the Group's consolidated financial statements at 30 September 2005 contained in this report have been drawn up in accordance with the accounting principles and criteria set out in the Bank of Spain s Circular 4/2004 of 22 December, implementing International Accounting Standards (IAS).These financial statements are unaudited. Main changes as a result of the new accounting standards Changes in the scope of consolidation The new accounting standards do not allow for any exemption from the application of the full or proportionate consolidation method in consolidating the financial statements of dependent or multigroup companies which operate in areas other than the financial sector. As a result, group companies which were previously reported using the equity method are now fully consolidated. The main Group companies affected by this change are Grupo Landscape and BanSabadell Vida. Also, investments of over 3% in listed companies over which a significant influence is not exerted must be treated as financial assets available for sale instead of being accounted for using the equity method. The main holding affected is the Group s interest in Banco Comercial Português. Analysis and coverage of credit risk The philosophy of the new accounting standards is that losses due to impairment of credit risks must be covered. This is achieved through a specific provision for non-performing assets (due to customer default or other causes), and a general provision covering the inherent loss (defined as the loss incurred at the date of the financial statements, calculated on the basis of statistical procedures and pending allocation to specific transactions). On the basis of its experience and information on the Spanish banking sector, the Bank of Spain has established the method and amount of the coefficients that credit institutions must apply. The generic provision to be booked each financial year is made up of three components: the change in the value of each risk class in the period concerned, multiplied by the relevant coefficient α, plus the balance of each risk class at the end of the period, multiplied by the relevant coefficient β, minus the amount of the net provision for the specific overall coverage applied in the period. Third quarter of 2005 Page 10

12 The total general coverage balance is subject to limits, calculated on the basis of the end-of-period balance for each risk class multiplied by a coefficient α: the upper limit is 125% of this figure, the lower limit, 33%. This generic provision has replaced the former generic and statistical provisions. Provision also continues to be made for country risk, as required. Measurement and recognition of pension commitments Outsourced liabilities and those covered by insurance policies issued by non-group companies are entered on the balance sheet at the present value of those liabilities, net of the fair value of the plan assets with which these commitments are to be met. Liabilities covered by insurance policies issued by Group companies are reflected separately by an internal fund under liabilities of the present value of the liabilities, and the investments covering these commitments are shown under assets. Accrued commissions The new rules require commissions paid or received that form an integral part of the effective yield or cost of a financial transaction, with the exception of directly related costs, to be deferred in the profit and loss account and accrued over the expected duration of the transaction. Under the previous system, these commissions were recognised in the profit and loss account at the date of arrangement of the transactions. Measurement of financial instruments The new accounting standards have modified the categories into which financial instruments are classified, and in the form in which they are measured and accounted for. Financial assets are to be classified in the following categories for measurement purposes: financial assets at fair value, through profit and loss, financial assets available for sale, recognised at fair value, with changes recognised in shareholders equity until they are realised, when they are to be allocated to the profit and loss account, investment portfolio held to maturity, valued at amortised cost, and loans, also valued at amortised cost. Financial liabilities are classified in the following categories for measurement purposes: financial liabilities at fair value through profit and loss, financial liabilities at fair value with impact on equity, and financial liabilities at amortised cost. Derivative financial instruments and hedge accounting All financial derivative instruments must be recognised in the balance sheet at fair value. Traded derivatives and hedging derivatives are to be classified and accounted for separately; the application of fair value is to be distinguished from anticipated cash flows and from net investment abroad. Accounting for goodwill Goodwill arising from acquisitions is no longer amortised systematically. Goodwill is measured periodically to detect any impairment, which is adjusted against profit and loss. Third quarter of 2005 Page 11

13 Capital classified as financial liabilities The cost of preference shares which pay a contractual regular remuneration is accounted for as a financial cost. Under the previous accounting standards, this financial cost was accounted for as minority interests. Accounting for capital increase expenses Under the new standards, these expenses are deducted directly from net capital rather than being capitalised and amortised. Provision for foreclosed assets The provision for foreclosed assets existing at 1 January 2004 must be reduced to the value of the assets. Other matters Other matters whose accounting has changed under the new accounting regulations include securitised loans (only those securitised after 31 December 2003 may be kept on the balance sheet) and setup costs (no longer capitalised). Reconciliation of Equity The table shows a reconciliation to IFRS of the shareholders' equity under Spanish GAAP at 31 December 2003, 30 September 2004 and 31 December Figures adapted to IFRS (unaudited '000) Equity (Spanish GAAP) Minority interest Accrued capital increase Banco Atlántico merger fund amortisation Interim dividend Capital classified as financial liabilities New equity before adjustments Differences due to changes in consolidation scope Deferred financial commissions Pension funds Derivatives and other financial assets Setup costs Taxes and other impacts Equity (IFRS) The main differences observed in all periods are as follows: Minority interests: minority interests are part of shareholders' equity under IAS. Capital classified as financial liabilities: this refers to an issue of preference shares which, under IAS, is now accounted for as capital classified as a financial liability, i.e. no longer part of shareholders' equity, thus reducing the balance of minority interests. Differences due to changes in consolidation scope: these differences arise as a result of the changes in accounting treatment of the various balance sheet items relating to consolidation of subsidiaries and affiliates. Third quarter of 2005 Page 12

14 Deferred financial commissions: this deferral involves charging to shareholders' equity all the commissions on outstanding transactions that were charged in the past and must now be deferred. Pensions: recognition of the difference in actuarial valuations accumulated to date due to differences between Spanish GAAP and IFRS in accounting for pension obligations. Derivatives and other financial assets: recognition at fair value, as available-for-sale financial assets, of the Group's derivatives portfolio and the available-for-sale financial assets, including the former held-to-maturity portfolio. Taxes and other impacts: In addition to the tax effect of the aforementioned adjustments, this item includes amortisation of the provision for general banking risks, amortisation of capital increase expenses, and minor overprovisions for asset impairment at certain subsidiaries. Situation at Additionally, the following significant impacts are notable at 1 January The balance sheet of Banco Atlántico, S.A. was consolidated as of 31 December 2003 and, therefore, the capital increase carried out as a result of its acquisition is considered to have taken place in December 2003 and to have been pending payment by the shareholders. The Grupo Banco Atlántico acquisition is also deemed to have occurred in December 2003 because the irrevocable purchase agreement was signed in that month. Accordingly, the amortisation against paid-in surplus of the merger goodwill arising from the merger of Banco de Sabadell, S.A. and Banco Atlántico, S.A. also presented as having occurred in December Situation at There were no significant changes at that date. Situation at There were no significant changes at that date. Reconciliation of Group earnings The table below shows the reconciliation to IFRS of Group net profit under Spanish GAAP as of 30 September 2004 and 31 December Figures adapted to IFRS (unaudited '000) Group net profit (Spanish GAAP) Deferred financial commissions Pension funds Derivatives and other financial assets Provision for asset impairment Amortisation of capital increase costs Taxes and other impacts Group net profit (IFRS ) Third quarter of 2005 Page 13

15 Situation at The main differences between the accounts under Spanish GAAP and IFRS are in the provision for asset impairment and the deferral of financial commissions. In the former case, the provision for asset impairment in the period declined since the maximum provision established under IFRS had been reached. As a result, the charges to the profit and loss account are due to increases in investment during the period. In the latter case, the change is due to reversal of commission revenues, which are now deferred under IFRS. Situation at As in the previous period, the main impacts are the lower provision for asset impairment and the reversal of financial commissions collected in the past and now deferred. Additionally, as a result of amortising capital increase expenses against reserves, the amortisation in the past of this item against profit and loss is now reversed. Other aspects Changes in Group composition There were no major changes in the composition of the Group during the third quarter of 2005 apart from the aforementioned changes due to the application of IFRS. Discontinued operations The Bank's branch in Portugal was closed effective 30 June 2005; consequently, the Discontinued operations item in the profit and loss account reflects the results accumulated up to the time of closure. Subsequent events On 24 October 2005, the following communiqué was sent to the CNMV: Banco Sabadell is the first Spanish financial institution to obtain ISO 9001:2000 certification for all the processes and activities of its financial group in Spain, thus achieving the goal it set under the Quality Plan. The certificate was issued by the auditors of BVQI (Bureau Veritas Quality International), the leading private certification body in Spain and the most prestigious independent certification body in the world. Third quarter of 2005 Page 14

16 4. Profit & loss account Profit and loss account YTD Figures adapted to IFRS (unaudited '000) 9M04 9M05 YoY (%) Interest and related income ,9 Interest and related charges ,5 Net interest income before dividend income ,0 Dividend income ,3 Net interest income ,6 Income from equity method ,6 Net fees and commissions ,6 Insurance activity ,6 Results from financial transactions (net) ,8 Foreign exchange (net) ,3 Gross operating income ,3 Results from non-financial operations ,2 Other operating income ,7 Personnel expenses ,1 Other general expenses ,1 Depreciation ,2 Other operating costs ,3 Net operating income ,7 Impairment losses ,4 Provisions (net) Financial results from non-financial activities ,6 Other income ,3 Other expenses ,0 Profit before tax ,5 Income tax ,3 Profit after tax ,7 Net result from discontinued transactions Consolidated net profit ,8 Minority interest ,1 Attributable net profit ,7 Pro memoria: Average total assets Earning per share 0,81 1,16 Third quarter of 2005 Page 15

17 Profit and loss account - individual quarters Figures adapted to IFRS (unaudited '000) 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 YoY (%) Interest and related income ,3 Interest and related charges ,0 Net interest income before dividend income ,6 Dividend income ,1 Net interest income ,3 Income from equity method ,7 Net fees and commissions ,9 Insurance activity ,2 Results from financial transactions (net) ,5 Foreign exchange (net) ,4 Gross operating income ,2 Results from non-financial operations ,6 Other operating income ,7 Personnel expenses ,8 Other general expenses ,5 Depreciation ,0 Other operating costs ,5 Net operating income ,0 Impairment losses ,9 Provisions (net) ,2 Financial results from non-financial activities ,5 Other income Other expenses ,1 Profit before tax ,4 Income tax ,1 Profit after tax ,3 Net result from discontinued transactions Consolidated net profit ,3 Minority interest ,6 Attributable net profit ,9 Pro memoria: Average total assets Earning per share 0,23 0,28 0,31 0,39 0,35 0,36 0,45 Third quarter of 2005 Page 16

18 Profit and loss account as % of Average Total Assets (ATA) Figures adapted to IFRS (unaudited) 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 YoY (%) Interest and related income 3,51 3,47 3,41 3,45 3,52 3,62 3,66 0,25 Interest and related charges -1,45-1,42-1,51-1,48-1,52-1,61-1,71-0,20 Net interest income before dividend income 2,06 2,05 1,90 1,97 2,00 2,01 1,96 0,06 Dividend income 0,01 0,08 0,04 0,03 0,04 0,01 0,05 0,01 Net interest income 2,07 2,13 1,94 2,00 2,04 2,02 2,01 0,07 Income from equity method 0,03 0,00 0,02 0,01 0,02 0,05 0,03 0,02 Net fees and commissions 0,96 0,96 0,88 0,92 0,94 0,97 0,93 0,05 Insurance activity 0,09 0,08 0,08 0,11 0,09 0,09 0,09 0,01 Results from financial transactions (net) 0,10 0,08 0,05 0,06 0,10 0,14 0,05 0,01 Foreign exchange (net) 0,09 0,09 0,08 0,07 0,10 0,09 0,08 0,01 Gross operating income 3,33 3,34 3,04 3,17 3,29 3,36 3,20 0,16 Results from non-financial operations 0,13 0,10 0,24 0,24 0,14 0,13 0,21-0,03 Other operating income 0,05 0,04 0,05 0,07 0,06 0,06 0,05 0,00 Personnel expenses -1,25-1,18-1,16-1,12-1,17-1,10-1,05 0,10 Other general expenses -0,58-0,55-0,65-0,61-0,56-0,55-0,55 0,10 Depreciation -0,23-0,21-0,20-0,23-0,20-0,20-0,19 0,01 Other operating costs -0,03-0,03-0,02-0,02-0,02-0,02-0,02 0,00 Net operating income 1,42 1,51 1,29 1,49 1,54 1,68 1,65 0,35 Impairment losses -0,49-0,44-0,13-0,19-0,19-0,29-0,19-0,06 Provisions (net) 0,04-0,06 0,06-0,17 0,01-0,11 0,07 0,01 Financial results from non-financial activities -0,02-0,04-0,02-0,04-0,04-0,04-0,01 0,00 Other income 0,13 0,14 0,01 0,61 0,16 0,16 0,14 0,13 Other expenses -0,05-0,03-0,02-0,13-0,04-0,07-0,06-0,04 Profit before tax 1,04 1,08 1,20 1,57 1,44 1,32 1,60 0,40 Income tax -0,40-0,33-0,39-0,55-0,51-0,38-0,45-0,05 Profit after tax 0,64 0,75 0,81 1,02 0,92 0,94 1,15 0,35 Net result from discontinued transactions 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Consolidated net profit 0,64 0,75 0,81 1,02 0,92 0,94 1,15 0,35 Minority interest 0,01 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Attributable net profit 0,63 0,75 0,81 1,02 0,92 0,94 1,15 0,34 Third quarter of 2005 Page 17

19 Net interest income Average return on investment: Figures adapted to IFRS (unaudited '000) st Quarter 2nd Quarter 3rd Quarter 4th Quarter Average balance Rate % Profit Average balance Rate % Profit Average balance Rate % Profit Average balance Rate % Profit Cash and balance with central banks and financial institutions , , , , Loans to customers , , , , Fixed-income securities , , , , Equity securities , , , , Subtotal , , , , Tangible and intangible assets Other assets , , , , Total , , , , Figures adapted to IFRS (unaudited '000) st Quarter 2nd Quarter 3rd Quarter 4th Quarter Average balance Rate % Profit Average balance Rate % Profit Average balance Rate % Profit Average balance Rate % Profit Cash and balance with central banks and financial institutions , , , Loans to customers , , , Fixed-income securities , , , Equity securities , , , Subtotal , , , Tangible and intangible assets Other assets , , , Total , , , Average cost of funds: Figures adapted to IFRS (unaudited '000) st Quarter 2nd Quarter 3rd Quarter 4th Quarter Average balance Rate % Profit Average balance Rate % Profit Average balance Rate % Profit Average balance Rate % Profit Financial institutions , , , , Customer deposits , , , , Liabilities in the form of tradable sec , , , , Repos , , , , Subordinated liabilities , , , , Subtotal , , , , Other liabilities , , , , Shareholders' equity Total , , , , Figures adapted to IFRS (unaudited '000) st Quarter 2nd Quarter 3rd Quarter 4th Quarter Average balance Rate % Profit Average balance Rate % Profit Average balance Rate % Profit Average balance Rate % Profit Financial institutions , , , Customer deposits , , , Liabilities in the form of tradable sec , , , Repos , , , Subordinated liabilities , , , Subtotal , , , Other liabilities , , , Shareholders' equity Total , , , Third quarter of 2005 Page 18

20 4,29% 4,20% 4,02% 4,06% 4,09% 4,06% 4,06% 3,19% 3,07% 2,87% 2,94% 2,98% 2,94% 2,90% 1,96% 2,12% 2,15% 2,16% 2,15% 2,11% 2,18% 1,10% 1,13% 1,15% 1,12% 1,11% 1,12% 1,16% 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 Customer loan yield Customer deposit cost Customer spread 3-month Euribor 2,06% 2,05% 1,90% 1,97% 2,00% 2,01% 1,96% 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 Net interest income before dividend income Presented here is a comparative analysis from 1Q04 to 3Q05 of financial yields and costs as a percentage of average total assets, under IFRS. This analysis uses end-of-period balances. The various yields and costs include the effect of the related hedging instruments. The yield on customer loans was stable in 3Q05 with respect to 2Q05, and it was 4 basis points higher than in 3Q04. The cost of customer funds varied as a result of competitive pressure and reached 1.16%, i.e. slightly higher than in 2Q05 and 1 basis point higher than in 3Q04. Accordingly, the customer spread was 2.90%, while net interest income adjusted for dividend income was 1.96%. The customer spread was 3 basis points higher and the adjusted net interest income was 6 basis points higher than in 3Q04. Third quarter of 2005 Page 19

21 Net fees and commissions Figures adapted to IFRS (unaudited '000) 9M04 9M05 YoY (%) Lending commissions ,7 Asset transactions ,1 Guarantees ,6 Transferred to other entities ,5 Commissions for services ,4 Cards ,0 Payment orders ,5 Securities ,8 Demand accounts ,7 Foreign exchange ,3 Other transactions ,0 Mutual and pension fund and insurance commissions ,3 Mutual funds ,4 Pension funds ,1 Insurance brokerage ,0 Total ,6 Net fees and commissions increased by 6.6%. Commissions on risk transactions grew 1.7% due mainly to an increase in guarantees and sureties. Service commissions rose 5.4%. The migration of the Bank's ATMs to the Servired system at the end of 2004 led to the issuance of new cards to customers and had some effects such as deferral of annual fees. Additionally, securities commissions increased by 6.8% as a result of a greater trading volume and a slight increase in the administration and custody of securities. Commissions on demand accounts also increased. There was a very significant increase in commissions on mutual funds (9.4%), pension funds (28.1%) and insurance (14%). Assets managed by mutual funds increased by 19.2% to over 8.8 billion euro at the end of 3Q05, including a notable increase in guaranteed equity funds (25% increase in managed assets, 15% increase in commissions) and considerable success by the real estate investment fund. Equity mutual fund commissions rose 28%. The 28.1% increase in pension fund commissions can be attributed to the successful marketing of the Pentapensión product, which has received several awards in recent years in recognition of its high yields and leading position in its category. Insurance commissions are earned on brokering general risk insurance products (non-life). The 14% overall increase includes a 38% increase in home-owners' insurance and 31% in business insurance. Third quarter of 2005 Page 20

22 Operating expenses Figures adapted to IFRS (unaudited '000) 9M04 9M05 YoY (%) Personnel expenses ,1 Other general expenses ,1 IT ,4 Communications ,9 Advertising ,1 Premises ,2 Stationery and office supplies ,1 Taxes other than income tax ,1 Others ,5 Total ,1 Personnel expenses fell by 3.1% due to cutting 461 jobs with respect to 3Q04. General expenses decreased by 3.1% on the same period of 2004 due to cost-containment policies and synergies from the merger with Banco Atlántico. Impairment losses and provisions Figures adapted to IFRS (unaudited '000) 9M04 9M05 YoY (%) Generic provisions ,1 Specific provisions ,9 Depreciation and amortisation against P&L ,1 Recoveries on loans previously written off ,2 Country risk ,6 Others Total ,4 Asset impairment losses and provisions declined by 26.4%. There was a reduction in generic provisioning. This was due basically to the fact that the parent company and most of the subsidiaries had reached the maximum level during 2004, while the generic provisioning in 2005 was due solely to the increase in lending. Consequently, the generic provision charged in the period declined by 17.1% with respect to 9M04. There was also a significant (89.9%) decline in specific-purpose provisioning with respect to 9M04. Third quarter of 2005 Page 21

23 Extraordinary income Figures adapted to IFRS (unaudited '000) 9M04 9M05 YoY (%) Other revenues ,3 Other losses ,0 Total ,8 Other income increased by 82.3%, basically due to gains on the sale of real estate, specifically premises that were surplus to requirements after merging branches of Banco de Sabadell and Banco Atlántico. Other losses increased due to changes in a large number of line items, notably losses on the sale of certain real estate and the costs of migrating the card system to Servired. Third quarter of 2005 Page 22

24 5. Balance sheet Figures adapted to IFRS (unaudited '000) YoY (%) Cash and balance with Central Banks ,3 Trading and derivatives portfolios and other financial assets ,0 Available-for-sale financial assets ,3 Loans and advances ,5 Balances with financial institutions ,9 Loans to customers ,4 Debt securities ,6 Other financial assets ,2 Held-to-maturity portfolio Investments in associated companies ,5 Property, plant and equipment ,9 Intangible assets ,8 Other assets ,0 Total assets ,6 Trading and derivatives portfolios and other financial assets ,1 Financial liabilities at fair value with impact on equity Financial liabilities at amortised cost ,3 Balances with central banks Balances with financial institutions ,2 Customer deposits ,9 Liabilities in the form of tradable securities ,7 Subordinated liabilities ,2 Other financial liabilities ,1 Insurance contract liabilities ,4 Provisions ,4 Other liabilities ,0 Capital classified as financial liabilities ,0 Subtotal liabilities ,4 Minority interest ,1 Valuation adjustments ,2 Shareholders' equity ,6 Equity ,4 Total liabilities and equity ,6 Contingent risks ,7 Contingent liabilities ,6 Total memorandum accounts ,2 Third quarter of 2005 Page 23

25 Loans and advances Figures adapted to IFRS (unaudited '000) YoY (%) Loans to public sector ,7 Loans to residents ,6 Mortgage loans ,9 Commercial loans ,5 Personal and other loans ,3 Leasing ,8 Factoring ,7 Confirming ,4 Overdrafts and sundry accounts ,5 Reverse repos ,0 Loans to non-residents ,2 Mortgage loans ,3 Commercial loans ,5 Personal and other loans ,0 Leasing ,5 Factoring ,4 Confirming ,0 Overdrafts and sundry accounts ,5 Reverse repos Non performing loans ,7 Accruals ,5 Gross loans and advances to customers ,3 NPL and country-risk provisions ,2 Loans and advances (net) ,4 Pro memoria: total securitisation ,5 Of which: mortgage backed ,2 other securitised assets ,2 Of which: securitised after ,2 Of which: mortgage backed ,5 other securitised assets Loans to residents Loans to residents Reverse repos 1% Commercial loans 9% Factoring 2% Personal and other loans 29% Commercial loans 9% Reverse repos 0% Factoring 2% Personal and other loans 28% Mortgage loans 48% Confirming 1% Leasing 8% Overdrafts and sundry accounts 2% Mortgage loans 51% Confirming 1% Leasing 7% Overdrafts and sundry accounts 2% Third quarter of 2005 Page 24

26 Gross loans and advances to customers ( '000) Q04 4Q04 1Q05 2Q05 3Q05 Gross loans and advances increased by 15.3% year-on-year, due mainly to growth in lending to Spanish residents. There was a notable 23.9% increase in mortgage loans to residents, and increases of 10.5% in commercial credit, 13.3% in personal loans and 11.8% in financial leasing. Of the mortgage loan book, 54% relates to private individuals, 20% to companies and 20% to property developers. Lending to non-residents fell 2.2% year-on-year, mainly as a result of the divestment of foreign businesses. Non-performing loans declined by 8.7% on 9M04 and by 12.1% with respect to 31 December Third quarter of 2005 Page 25