Quarterly financial report Second quarter of 2016

Transcription

1 Quarterly financial report Second quarter of

2 Contents 1 Key figures 3 2 Summary 4 3 Performance review 6 Macroeconomic environment 6 Income statement 8 Balance sheet 16 Risk management 21 Capital management and credit ratings 24 Liquidity management 25 Results by business units 26 4 Share price performance 27 5 Other key developments in the quarter 28 6 Annex: TSB 29 Disclaimer This document is strictly for informational purposes and is not an offer of any product. No agreement or commitment should be based on this document or any part of it. Any decisions on financial transactions should take into account the client's needs and their appropriateness from a legal, tax, accounting and/or financial point of view, in accordance with the informational documents envisaged under the law in force. Investments that are commented on or recommended herein may not be of interest to all investors. The opinions, projections and estimates contained in this document are based on public information and are an evaluation by Banco de Sabadell, S.A. at the date of drafting. No assurance is given that future results or events will conform to those opinions, projections and estimates. The information is subject to change without prior notice, its accuracy is not guaranteed and it may be incomplete or summarised. Banco de Sabadell, S.A. accepts no liability whatsoever for any losses arising from the use of this document or its content or otherwise in connection herewith. Basis of presentation The consolidated profit and loss accounts at the end of June 2016 and 2015, together with the disclosures shown in this Financial Report, are presented in accordance with the accounting standards, principles and criteria defined in Note 1 to the group s consolidated annual accounts as of 30 June These interim consolidated accounts have been adapted to Circular 5/2015 of 28 October of the Spanish Securities Commission (Comisión Nacional de Mercado de Valores). On 30 June 2015, the group took control over TSB Banking Group PLC. As a result of its incorporation into the scope of consolidation, the data contained in the profit and loss account is not comparable to June Second quarter of

3 Key figures E xcl. T S B T o tal gro up C hang e ( % ) (6) C hang e ( % ) P ro fit and lo ss acco unt ( millio n) Net interest income 1,299 1, ,299 1, Gross operating income 2,960 2, ,960 2, Pre-provisions income 1,909 1, ,909 1, Provisions for NPLs and other financial assets -1, , Profit before tax Attributable net profit B alance sheet ( millio n) Total assets 164, , , , Performing gross loans 104, , , , Gross loans to customers, excluding repos 118, , , , Gross loans to customers 118, , , , On-balance sheet funds 120, , , , Of which: Customer funds (1) 95, , , , M utual funds 20,230 21, ,230 21, Pension funds and third-party insurance products 11,445 12, ,445 12, Funds under management 155, , , , Equity ,077 12, Shareholders' equity ,062 12, P ro fitability and co st-to -inco me ratio s (% ) ROA RORWA ROE ROTE Cost / income (ex amortisation) (2) R isk management Non-performing loans ( million) 13,962 10, ,215 10, NPL ratio (%) NPL coverage ratio (%) C apital management Risk weighted assets (RWA) ,810 86,760 Common Equity Tier Tier I Total capital ratio Leverage ratio (%) Liquidity management Loan-to-deposits ratio (%) (3) Share data (perio d end) Number of shareholders , ,609 Number of shares (million) ,187 5,566 Share price ( ) (4) Market capitalisation ( million) ,231 6,563 Earnings per share (EPS) ( ) (5) Book value per share ( ) (5) Price / Book value (times) (5) Price / Earnings ratio (P/E) (times) Other data Branches 2,288 2,202 2,919 2,806 Employees 17,708 17,922 26,176 25,990 (1) Includes customer deposits (ex-repos) and other liabilities placed via the branch network: Banco Sabadell non-convertible bonds, commercial paper, and others. (2) Personnel and other general administrative expenses / gross income. To calculate these ratios, gross operating income was adjusted by linearising trading income and recurrent exchange differences. Includes linear adjustments of the Deposit Guarantee Fund and National Resolution Fund. (3) The LtD ratio is defined as Gross Loans and Advances to customers / Retail funding. It is calculated by subtracting provisions and brokered loans from the numerator. (4) Without adjusting historical values. (5) Considering lineal annualised profit to date and adjusted for the accrual of the Deposit Guarantee Fund. (6) The EURGBP exchange rate used for the income statement for June 2016 is The rate used for the balance sheet is as of Second quarter of

4 Summary Good earnings performance: Net interest income continued to perform well both in Spain and in the UK, and amounted to 1,942.5 million in June 2016 (49.5% year-on-year and -0.5% quarter-onquarter). Excluding TSB, net interest income increased by 7.2% year-on-year and 0.2% quarter-on-quarter. Change YoY: 1, % +0.2% Total group +49.5% -0.5% The customer spread for June 2016 amounted to 2.81% (2.68% excluding TSB), compared with 2.84% at the end of the first quarter of , , , H15 TSB 1H16 1Q16 TSB 2Q16 Commissions showed an increase year-on-year and quarter-on-quarter due to the positive performance of assets under management. Commissions rose by 15.3% year-on-year, primarily due to the acquisition of TSB (5.3% quarter-on-quarter). Excluding TSB, income from net fees and commissions increased by 1.9% year-on-year and 4.9% quarter-on-quarter. Change YoY: % +4.9% Total group +15.3% +5.3% H15 TSB 1H16 1Q16 TSB 2Q16 Extraordinary gains during the second quarter, included in gains (losses) on financial assets and liabilities, have been neutralised through provisions. Change excl. TSB QoQ: Change excl. TSB YoY: +7.4% -48.4% 2 1, H15 1H16 1Q16 2Q16 The group s attributable income before tax as of June 2016 increased by 63.4% (9.0% excluding TSB). The group s net profit stood at million ( million excluding TSB), compared with million during the previous year, which includes negative goodwill (net of tax) generated as a result of the acquisition of TSB: Change YoY: H15 TSB H16 Total group -20.6% +20.7% -53.1% -31.2% Q16 TSB Q16 Second quarter of

5 Growth in credit volumes and continues downward trend in problematic assets: Performing loans increased by 3.2% (0.8% excluding TSB) at the end of June 2016, compared with the same period in the previous year. Compared with the previous quarter, performing loans rose by 0.8%, due mainly to the negative exchange rate performance of the pound against the euro (increasing by 1.8% considering a constant exchange rate). Excluding TSB, rose by 1.9% compared with the previous quarter, continuing with the increase in credit volume without the need for an aggressive pricing strategy and improving its mix. Loans and deposits in TSB experienced solid growth, boosted by the franchise. Ex TSB Total grupo Variación YoY: +0.8% +3.2% Variación QoQ: +1.9% +0.8% 135, , ,343 30,287 34,530 33, , , ,669 Jun 15 Mar 16 Jun 16 Ex TSB TSB On-balance sheet customer funds increased by 2.9% throughout the year (5.0% excluding TSB), increasing by 2.2% compared with the previous quarter (2.7% excluding TSB). The increase considering a constant exchange rate is 3.2% compared with the previous quarter. Ex TSB Total grupo Variación YoY: +5.0% +2.9% Variación QoQ: +2.7% +2.2% 130, , ,152 35,025 33,798 34,051 95,345 97, ,100 Jun 15 Mar 16 Jun 16 Ex TSB TSB The decline in problematic assets continued, decreasing by 3,289 million over the last twelve months and by 968 million compared with the previous quarter. Change excl. TSB QoQ: Change excl. TSB YoY: -4.6% -14.2% 2 23,189 19,900 20,867 19,900 2Q15 2Q16 1Q16 2Q16 The group s NPL ratio is at its lowest level since the first quarter of 2012, positioning the NPL ratio at 6.83% (8.54% excluding TSB) The NPL coverage ratio stood at 54.08% (53.91% excluding TSB). Coverage of foreclosed real estate assets stood at 43.1% Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Total group NPL ratio NPL coverage ratio Capital strength: The phase-in Common Equity Tier 1 (CET1) reached 11.9%, being 11.8% the fully-loaded at the end of June Phase-in: Fully loaded: Q15 1Q16 2Q16 2Q15 1Q16 2Q16 Second quarter of

6 Performance review Macroeconomic environment Global economic and financial background Internationally, the most notable event during this quarter was the holding and subsequent result of a referendum in the UK on its membership in the European Union (EU). The UK voted in favour of leaving the EU, with a 51.9% majority. This event has triggered a significant political crisis in the country. Cameron resigned as British Prime Minister and Theresa May, former Home Secretary and a supporter of continued EU membership, was the candidate selected to succeed him. Theresa May has indicated that she does not intend to trigger article 50 to start the UK s withdrawal from the EU until the end of the year. Meanwhile, a fight for leadership has unfolded at the heart of the Labour Party (the main opposition party). The EU has stated that the process of the UK s withdrawal should be orderly and is urging the British government to officially request its withdrawal, indicating that no negotiations of any kind will be held until such notification is received. There have been significant movements in the financial markets following the referendum, including the depreciation of the pound against the euro and the dollar. It is important to note that no malfunctions or liquidity problems have been observed in markets, nor have there been any increases in implicit volatility comparable to other stress periods such as at the beginning of the year. Credit rating agencies have downgraded their views on the UK s sovereign credit ratings. Macroeconomic situation in Spain The economy continued to perform well in the second quarter. Bank of Spain estimates that GDP increased by 0.7% quarter-on-quarter, compared with the 0.8% increase over the three preceding quarters. The labour market also performed well in June, with unemployment reaching its lowest level of the last seven years. In terms of the real estate market, housing prices, according to INE (Spanish National Statistics Institute), increased by 6.3% year-onyear during the first quarter, the fastest growth rate since the start of the financial crisis. As regards fiscal policy, the accumulated deficit until April by public administrations, excluding local authorities, was slightly larger than during the same period of the previous year (-1.2% vs. -1.1%). The Stability Plan contemplates a reduction in public deficit from 5.0% of GDP in 2015 to 3.6% of GDP for In politics, the failure to form government following the general elections held in December led to another election being called for 26 June. The Spanish Conservative Party, PP, was once again victorious, obtaining more votes and MPs than in December, although they failed to achieve an absolute majority. Macroeconomic situation in the UK The result of the referendum on the UK s membership of the EU has caused different investment banks to make a significant downward adjustment of British economic growth estimates for 2016, and particularly for There has been a notable deterioration in various economic sentiment indicators published after the referendum result. Previously, uncertainty surrounding the referendum had already hindered the performance of UK business activities. Bank of England indicated that this uncertainty was causing companies and families to postpone investment decisions. The real estate sector has been one of the sectors most significantly affected by the uncertainty surrounding Brexit. Various indicators have exhibited a sharp decline in the demand for housing, particularly in London, as well as a slide in housing prices in the UK capital. Given this situation, UK economic authorities have anticipated an easing of the country s fiscal and monetary policy. Macroeconomic situation in Latin America Growth forecasts for the region during the latest quarter have remained relatively stable, following downward corrections that took place in certain economies in previous quarters. Pressures of inflation have been less severe. However, financial markets have experienced significant volatility, due to abrupt changes in US monetary policy outlooks and the instability created by Brexit. The Mexican peso has been one of the currencies most affected by Brexit, with its exchange rate against the dollar reaching its lowest recorded levels at the beginning of the year. The Mexican currency has been affected by its greater liquidity and its use to cover positions in other emerging assets. As a result of this performance, the central bank of Mexico increased its benchmark interest rate by 50bp, to 4.25%. Both Mexico and Colombia carried out an early adjustment of their flexible credit line with the IMF (with no conditionality), creating a significant liquidity buffer with which to overcome external shocks. Fixed-income markets As regards the performance of central banks during the quarter, the Fed has exhibited a cautionary attitude by maintaining its benchmark interest rate at 0.25%-0.50% and lowering its forecasts about future changes to this interest rate. The ECB has maintained its wait-and-see attitude, and has focused on implementing the measures it announced in March. The first TLTRO II was held and provided net additional liquidity of close to 30 billion. Bank of Japan has maintained its accommodating monetary policy measures. Following Brexit, the main central banks in developed economies announced their willingness to adopt necessary measures to guarantee financial stability. In terms of long-term fixed-income markets, the yields of German and US government bonds have declined, with German bonds reaching negative figures for the first time. This decline was influenced by uncertainty surrounding Brexit, and in the case of Germany, by the downward slide of inflation forecasts. Following the referendum, risk premiums for sovereign bonds in the periphery increased, and in Spain and Italy they reached mid-2015 levels. However, these risk premiums have nearly returned to pre- Brexit levels. In Spain, markets reacted positively to the result of the general elections in June, whilst Italy and Portugal were affected by concerns over their financial systems and domestic political circumstances. Second quarter of

7 Equity markets Equity indices in the main advanced economies did well during the first two months of the quarter thanks to the upturn in oil prices. Conversely, the result of the UK referendum in favour of leaving the EU caused a significant decline in equity markets. However, during the last trading sessions in the quarter, stock markets recovered slightly. Overall in the quarter, S&P 500 ended with a 4.7% increase (in euro terms), whilst the UK index fell by -0.2% (in euro terms). EURO STOXX 50 declined by -4.7%, with the Italian equity index experiencing one of the most severe declines (-10.6%), and it is still being hampered by doubts concerning the measures that should be applied to address loan losses in its financial system. Spain s IBEX 35 fell by - 6.4%. Lastly, Japan s Nikkei appreciated by 4.2% (in euro terms). GDP - USA vs. Euro area (year-on-year change, %) Official interest rate USA vs. Euro area (%) US official interest rate Euro area official interest rate US GDP Euro area GDP /07 6/08 6/09 6/10 6/11 6/12 6/13 6/14 6/15 6/16 6/07 6/08 6/09 6/10 6/11 6/12 6/13 6/14 6/15 6/16 Exchange rates: Parity vs. euro Fx USD GBP MXN Second quarter of

8 Income statement Highlights: On 30 June 2015, the group took control over TSB. As a result, the profit and loss account numbers are not comparable with June The group s attributable income before tax amounted to million (increased by 63.4% year-on-year). Excluding TSB, this figure stands at million (increased by 9.0% year-on-year). The group s attributable net profit amounted to million ( million excluding TSB). Continued revenue resilience, both in net interest income and income from fees and commissions. Capacity to contain and reduce costs in a low interest rate environment. Extraordinary gains have been neutralised with additional provisions. Furthermore, they have been impacted by the impairment of BCP. The devaluation of the British sterling pound affected the group s profit by -0.3%. Profit and loss account (1) Change (% ) (2) Change (% ) (4) ( '000) 1H15 1H16 YoY 1H16 YoY Change (% ) at fixed FX Net interest income 1,298,978 1,392, ,942, Income from equity method and dividends 27,300 48, , Net fees and commissions 494, , , Results from financial transactions (net) 1,114, , , Foreign exchange (net) 41,750 14, , Other operating income/expense -16,855-82, , Gross operating income 2,960,019 2,325, ,980, Personnel expenses -615, , , Non-recurrent -24,740-14, , Recurrent -590, , , Other general expenses -292, , , Non-recurrent -2, , Recurrent -290, , , Amortization & depreciation -143, , , Pre-provisions income 1,908,571 1,262, ,460, Provisions for NPLs and other financial assets -1,181, , , Other impairments -567, , , Gains on sale of assets -3,315 35, , Badw ill 207, Profit before tax 363, , , Income tax -9, , , Consolidated net profit 353, , , Minority interest 1,684 2, , Attributable net profit 352, , , Pro memoria: Average total assets ( million) 166, , ,979 Earnings per share ( ) (3) Total group (1) In the profit and loss account for 2015, income from purchases in foreign currencies, previously classified as exchange differences, have been reclassified under net fees and commissions. (2) The EURGBP exchange rate used for the income statement is (3) Includes accrual of contributions to the Deposit Guarantee Fund. Aggregate at the end of each quarter, not annualised. (4) Changes with a constant exchange rate are calculated using a EURGBP exchange rate of Second quarter of

9 Quarterly profit and loss account Tot al group Cha nge C ha nge (4) (1) (1) (1) ( % ) (2 ) ( % ) Cha nge ( % ) ( '000) 2Q15 3Q15 4Q15 1Q16 2Q16 1Q16 1Q16 2Q16 1Q16 at f ixed FX N et interest income 655, , , , , , , Income from equity method and dividends 16,948 13,227 11,180 21,573 27, ,573 27, Net f ees and commissions 249, , , , , , , Result s f rom f inancial t ransact ions (net ) 378,019 39,844 52, , , , , Foreign exchange (net ) -4,680-1,253 13,010 2,906 11, ,906 11, Other operating income/ expense -1,781 12, ,328-16,222-65, ,694-82, Gross operating income 1,294, , ,927 1,253,207 1,072, ,567,571 1,412, Personnel expenses -314, , , , , , , Non-recurrent -19,168-7,533-3,255-6,695-7, ,787-11, Recurrent -295, , , , , , , Other general expenses -146, , , , , , , Non-recurrent -1, , ,670-5, Recurrent -144, , , , , , , Amort izat ion & depreciat ion -67,390-72,686-73,452-78,263-78, ,167-96, P re-provisions income 766, , , , , , , Provisions f or NPLs and ot her f inancial asset s -579, , , , , , , Other impairments -263,635-85, , , , , , Gains on sale of asset s -12,895-14, ,066 38, ,066 38, Badwill 207, , P rofit before tax 118, ,439 30, , , , , Income t ax 60,181-62,842 17,100-92,296-22, ,429-52, C onsolidated net profit 178, ,597 47, ,587 90, , , Minority interest ,516 1, , A ttributable net pro fit 177, ,993 46, ,297 89, , , Pro memoria: Average t ot al asset s ( million) 165, , , , , , ,153 Earnings per share ( ) (3) (1) In the profit and loss account for 2015, income from purchases in foreign currencies, previously classified as exchange differences, have been reclassified under net fees and commissions. (2) The EURGBP exchange rate used for the income statement is (3) Includes accrual of contributions relative to the Deposit Guarantee Fund. Aggregate at the end of each quarter, not annualised. (4) Changes with a constant exchange rate are calculated using a EURGBP exchange rate of Net interest income: Net interest income has stabilised during the quarter as a result of the lower for longer interest rate environment. Net interest income amounted to 1,942.5 million as of June 2016, a 49.5% increase year-on-year. In TSB, net interest income remained flat compared with the first quarter of 2016, as a result of lower interest rates, partially offset by strong mortgage lending and strong new business margins. Excluding TSB, net interest income amounted to 1,392.4 million at the end of June 2016, increasing by 7.2% year-onyear due to lower funding costs in both customer deposits and capital markets (an increase of 0.2% compared with the previous quarter). Second quarter of

10 Customer spread: The customer spread as of June 2016 stood at 2.81% (2.84% in the previous quarter) while the net interest margin as a percentage of average total assets was 1.88% (1.91% in the previous quarter). Excluding TSB, the customer spread as of June 2016 stood at 2.68% while the net interest margin as a percentage of average total assets was 1.72% (the same as in the previous quarter for both spreads). Net interest income Total group ( million) Sabadell excl. TSB ( million) % 1Q16 2Q Q15 2Q15 3Q15 4Q15 1Q16 2Q16 TSB ( million) Change YoY: Total group +7.2% +49.5% +0.2% -0.5% % -0.2% in GBP 1Q16 2Q16 Second quarter of

11 Gains and charges in the quarter st Quarter 2 nd Quarter 3 rd Quarter 4th Quarter ( million) Av ge. ba l a n c e R a t e % R e su l t s Av g e. ba l a n c e Ra t e % R e su l t s Av ge. ba l a nc e Ra t e % R e sul t s Av ge. ba l a nc e Ra t e % R e sul t s Cash and balance with central banks & fin. inst. 4, , , , Loans to customers (net) 105, , , , , ,140 Fixed-income securities 26, , , , Equity securities 1, , , , Tang. & intang. assets 3, , , , Other assets 24, , , , Total assets 166, , , , , , , ,362 Financial institutions 15, , , , Customer deposits 92, , , , Sight Accounts 37, , , , Term accounts / Fix term deposits 42, , , , Ofex inv. / Foreign S. 6, , , , Others 6, , , , Capital markets 25, , , , Repos 10, , , , Other liabilities 10, , , , Shareholders' equity 11, , , , Total funds 166, , , , Net interest income Customer spread Net interest margin as % of ATA ( million) Av ge. ba l a n c e R a t e % R e su l t s Av g e. ba l a n c e Ra t e % R e su l t s Av ge. ba l a nc e Ra t e % R e sul t s Av ge. ba l a nc e Ra t e % R e sul t s Cash and balance with central banks & fin. inst. 8, , Loans to customers (net) 138, , , ,113 Fixed-income securities 27, , Equity securities Tang. & intang. assets 4, , Other assets 24, , Total assets 204, , , ,302 Financial institutions 18, , Customer deposits 126, , Sight Accounts 46, , Term accounts / Fix term deposits 32, , Ofex inv. / Foreign S. 41, , Others 6, , Capital markets 30, , Repos 6, , Other liabilities 9, , Shareholders' equity 12, , Total funds 204, , Net interest income Customer spread Net interest margin as % of ATA st Quarter 2nd Quarter ( 1) 3 rd Quarter 4th Quarter (1) The EURGBP exchange rate used for the income statement is while that used for the balance sheet is (exchange rate as of ). Second quarter of

12 Net interest income (%) Customer spread (%) 3.47% 3.39% 3.32% 3.32% 3.20% 3.29% 3.28% 3.28% 3.21% 2.22% 2.29% 2.35% 1.36% 1.40% 1.49% 2.44% 2.47% 1.57% 1.59% 2.75% 2.67% 2.59% 2.47% 1.83% 1.83% 1.62% 1.65% 2.84% 2.81% 2.68% 2.68% 1.91% 1.88% 1.72% 1.72% 1.25% 1.10% 0.97% 0.88% 0.73% 3.06% 3.08% 3.06% 2.99% 0.62% 0.53% 0.44% 0.40% 0.59% 0.49% 0.38% 0.31% 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Customer spread Customer spread excl. TSB Net interest margin as % of ATA Net interest margin as % of ATA excl. TSB Customer loan yield Customer loan yield excl. TSB Cost of customer funds Cost of customer funds excl. TSB Income from equity method and dividends: This item amounted to 48.8 million at the end of June 2016, compared with 27.3 million at the end of the first semester These revenues are due mainly to the insurance and pension fund business. Net fees and commissions: Net fees and commissions amounted to million in June 2016 (+15.3% year-on-year). Excluding TSB, this item amounted to million in June 2016 (a 1.9% increase year-on-year). The growth in income from fees and commissions associated with assets under management increased by 30.4% compared with 2Q15. Fees and commissions have performed well during the quarter, increasing by +5.3% at Group level and +4.9% excluding TSB. Net fees and commissions Total group ( million) Sabadell excl. TSB ( million) +4.9% Q16 2Q Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Change YoY: Total group +1.9% +15.3% +4.9% +5.3% TSB ( million) Q16 2Q % +10.8% in GBP Second quarter of

13 Net fees and commissions: Total group Total group C hang e C hang e C hang e C hang e ( %) (1) ( %) (2) ( %) (1) ( %) ( '000) 1Q16 2Q16 1Q16 1Q16 2Q16 1Q16 2 Q15 2Q16 2Q15 2Q16 2Q15 Lending fees 27,719 29, ,022 54, ,401 29, , Guarantees commissions 25,255 25, ,255 25, ,829 25, , Risk transaction fees 52,974 54, ,277 79, ,230 54, , Cards 36,128 38, ,175 55, ,580 38, , Payment orders 11,690 12, ,690 12, ,090 12, , Securities 11,521 13, ,521 13, ,471 13, , Custodian mutual and pension funds 3,119 3, ,119 3, ,662 3, , Sight accounts 18,716 18, ,262 22, ,264 18, , Other transactions 38,172 36, ,160 25, ,904 36, , Commissions for services 119, , , , , , , M utual funds 34,386 37, ,386 37, ,394 37, , Pension funds and insurance brokerage 33,188 35, ,188 35, ,852 35, , Wealth management 6,024 7, ,024 7, ,312 7, , Asset Under Management commissions 73,598 80, ,598 80, ,558 80, , Total 245, , , , , , , (1) The EURGBP exchange rate used for the income statement is (2) In the profit and loss account for 2015, income from purchases in foreign currencies, previously classified as exchange differences, have been reclassified under net fees and commissions. Gains/(losses) on financial assets and liabilities (net): This item amounted to million as of June 2016 ( million excluding TSB), including, amongst others, million in gains on the sale of available-for-sale fixed-income financial assets and million from the sale of 100% of shares in Visa Europe. This item amounted to 1,114.3 million in June 2015, including 1,019.9 million in gains on the sale of availablefor-sale fixed-income financial assets. Gains/(losses) from exchange differences (net): This item amounted to 14.7 million as of June 2016, compared with 41.8 million during the same period last year. Other operating income/expenses: Other operating income/expenses amounted to million as of June 2016 ( million excluding TSB). The contribution during the quarter to the national resolution fund of million is particularly notable, as is the contribution to TSB s guarantee fund of million. In June 2015, other operating income/expenses amounted to million. Operating expenses: Operating expenses amounted to 1,325.6 million in June 2016, including 30.8 million in non-recurrent expenses. Excluding TSB, operating expenses amounted to million, including 14.2 million in non-recurrent expenses. In TSB, lower operating expenses due to more point-intime actions. Second quarter of

14 Operating expenses Excl. T SB Total group Excl. T SB Total group C hang e C hang e C hang e C hang e ( %) (1) ( %) ( %) (1) ( %) ( '000) 1Q16 2 Q16 1Q16 1Q16 2 Q16 1Q16 2 Q15 2 Q16 2 Q15 2 Q16 2 Q15 Recurrent -299, , , , , , , Non-recurrent -6,695-7, ,787-11, ,168-7, , Personnel expenses -306, , , , , , , IT and communications -37,232-38, ,191-72, ,022-38, , Advertising -9,974-10, ,510-27, ,145-10, , Premises and office supplies -36,904-37, ,872-64, ,856-37, , Taxes other than income tax -25,789-25, ,844-25, ,865-25, , Others -36,518-34, ,764-57, ,266-34, , Other general expenses -146, , , , , , , Total -453, , , , , , , (1) The EURGBP exchange rate used for the income statement is Personnel expenses Total group ( million) Sabadell excl. TSB ( million) Recurrent: -0.1% Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Recurrent Non recurrent Q16 2Q16 Recurrent Non recurrent Total group TSB ( million) Change YoY: -0.3% +34.6% +0.2% -0.6% Recurrent: Q16 2Q16 Recurrent Non recurrent -0.6% +1.5% in GBP Second quarter of

15 Administrative expenses Total group ( million) Sabadell excl. TSB ( million) Recurrent: % Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Recurrent Non recurrent Total group Change YoY: -0.1% +69.9% -0.4% -0.6% 1Q16 2Q16 Recurrent Non recurrent TSB ( million) Q16 2Q16 Recurrent Non recurrent Recurrent: -2.1% -4.1% in GBP Pre-provision income: Net profit: At the end of June 2016, pre-provision income amounted to 1,460.6 million ( 1,262.9 million excluding TSB), a 23.5% decrease year-on-year (-33.8% excluding TSB). Provisions for NPLs and other impairments: Provisions for NPLs and other impairments amounted to million in June 2016 ( 1,749.1 million in June 2015). Provisions during the second quarter of 91.9 million for the impaired shareholding in BCP are particularly noteworthy. Gains on sale of assets: Gains on sale of assets amounted to 35.3 million in June 2016 ( -3.3 million during the same period of the previous year). In 2016, it includes mainly gross gains of 52 million from sale of the subsidiary hold in Dexia Sabadell, and gains from the sale of real estate assets for own use. Net profit attributable to the group amounted to million in June 2016, a 20.7% increase compared to the same period in 2015 ( million). Excluding TSB, net profit attributable to the group amounted to million in June 2016, a -20.6% decrease compared to the same period in 2015, affected by the negative goodwill that corresponds to the badwill (net of tax) generated by the acquisition of TSB. Net profit before taxes, excluding TSB, increased by 9.0% compared to the same period in Second quarter of

16 Balance sheet Highlights: Total assets increased by 1.9% year-on-year and compared with the previous quarter. Performing loans increased by 3.2% year-on-year and 0.8% compared with the previous quarter, affected by changes in the exchange rate of the pound against the euro (increasing by 1.8% considering a constant exchange rate). Excluding TSB, rose by 1.9% compared with the previous quarter. On-balance sheet customer funds increased by 2.9% year-on-year and by 2.2% compared with the previous quarter (2.7% excluding TSB). The growth based on a constant exchange rate is 3.2% compared with the previous quarter. The position with the ECB (TLTRO) amounted to 10,000 million as of 30 June Loans and deposits in TSB experienced a solid growth, boosted by the franchise, and continuing to improve the credit mix. Balance sheet (3) C ha nge (%) ( million) Cash and balance with Central Banks 8,011 6,963 8, Trading and derivatives portfolios and other financial assets 3,060 4,146 4, Available-for-sale financial assets 23,570 24,255 22, Loans and advances 147, , , Loans to customers (net) 141, , , Balances with financial institutions 3,631 2,358 3, Debt securities 2,113 1,733 1, Investments in associated companies Property, plant and equipment 4,156 4,197 4, Intangible assets 2,011 2,011 1, Other assets 14,921 14,468 16, Total assets 203, , , Trading and derivatives portfolios 2,293 2,923 3, Financial liabilities at amortised cost 185, , , Central banks 11,008 11,020 10, Credit institutions (1) 14,567 12,958 12, Customer deposits 132, , , Debt and other tradable securities 20,103 25,120 26, Subordinated liabilities 1,475 1,436 1, Other financial liabilities 5,704 2,799 3, Liabilities under insurance contracts 2,266 2, Pro visions Other liabilities 1,720 1,625 3, Subtotal liabilities 191, , , Shareholders' equity (2) 12,062 12,539 12, Valuation adjustments M inority interest Equity 12,077 12,789 12, Total liabilities and equity 203, , , Contingent risks 8,530 8,243 8, Contingent liabilities 20,216 19,926 20, (1) Deposits in credit institutions include the following amounts of repos: 600 million as of , 595 million as of and 695 million as of (2) Deposits with central banks and credit institutions include the following amounts of repos: 5,616 million as of , 4,279 million as of and 4,541 million as of (3) Includes other capital instruments ( 736 million as of , 17 million as of and 28 million as of ), mainly mandatory convertible bonds. (4) The EURGBP exchange rate used for the balance sheet is as of and as of Assets: The Banco Sabadell group s total assets increased by 1.9% year-on-year to 207,890.7 million. Excluding TSB, total assets amounted to 164,493.0 million. Second quarter of

17 Loans and advances to customers: Performing loans amounted to 139,343.3 million at the end of June This represents a 3.2% increase yearon-year. Compared with the previous quarter, this increase was 0.8% (1.8% increase considering a constant exchange rate). Excluding TSB, performing loans amounted to 105,669.2 million at the end of June 2016, representing a 0.8% increase compared with the same period in the previous year. Compared with the previous quarter, this represents a +1.9% increase due to the increase in business activity. In TSB, the credit volume of the franchise increased compared with the previous quarter, reflecting the strength of the mortgage brokering platform. Loans and advances to customers Excl. T SB T o t al g ro up C hang e ( %) (1) (1) C hang e ( %) ( million) Mortgage loans & credits 58,909 57,450 57, ,076 89,105 88, Other secured loans & credits 2,250 2,281 2, ,250 2,281 2, Commercial loans 4,997 4,853 5, ,281 5,080 5, Leasing 2,071 2,145 2, ,071 2,145 2, Overdrafts and sundry accounts 36,571 36,995 38, ,406 39,644 41, P erfo rming gro ss lo ans to custo mers (excluding repo s and accrual adjustments) 104, , , , , , Non-performing loans 13,835 11,569 10, ,087 11,765 10, Accruals P erfo rming gro ss lo ans to custo mers (excluding repo s) 118, , , , , , Reverse repos Gro ss lo ans to custo mers 118, , , , , , NPL and country-risk provisions -7,220-6,223-5, ,482-6,362-5, Lo ans to custo mers (net) 111, , , , , , (1) The EURGBP exchange rate used for the balance sheet is as of and as of Loans to customers by product type, (%) (*) Loans to customers by customer profile, (%) (*) Ov erdraf ts and sundry accounts 30% Indiv idual borrowers 54% Mortgage loans & credits 63% Other secured loans & credits 1% Commercial loans 4% Leasing 2% SME 21% Large corporates 13% Public authorities 4% Real estate dev elopment 6% Others 2% (*) Excluding NPLs and accrual adjustments. Second quarter of

18 Gross loans and advances to customers ( million) 148, , , , ,921 14,087 13,248 12,470 11,765 10, , , , , ,043 13,835 13,025 12,254 11,569 10,537 Change YoY: Total group (*) +3.2% +0.8% 134, , , , , , , , , ,506 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Total group Loans Exc. NPL NPL Total Change YoY: (*) Excluding NPLs (*) +0.8% +1.9% Liabilities: Customer funds: At the end of June 2016, on-balance sheet customer funds amounted to 134,151.5 million ( 100,100.3 million excluding TSB), a 2.9% increase year-on-year (5.0% excluding TSB). Sight accounts amounted to 88,428.9 million ( 59,527.5 million excluding TSB), a 9.5% increase year-on-year (19.0% excluding TSB) Term deposits amounted to 43,125.6 million ( 37,975.8 million excluding TSB), a 13.4% decrease compared with the same period in the previous year (-16.6% excluding TSB) due mainly to changes in interest rates. Off-balance sheet customer funds totalled 37,555.1 million at the end of June 2016, a 6.1% increase compared with the previous year. This item increased by 1.2% quarter-onquarter. Equity in mutual funds amounted to 21,130.7 million as of 30 June 2016, representing a 4.5% increase year-on-year. In TSB, deposits increased mainly due to the continued growth of both savings and current accounts. Marketable debt securities: As of 30 June 2016, this item amounted to 26,682.7 million ( 22,778.3 million excluding TSB), representing a 32.7% increase year-on-year (13.4% excluding TSB). During this quarter, 1,050 million have been issued in covered bonds, 500 million in subordinated bonds and 727 million in TSB securitisations. Funds under management: Funds under management amounted to 198,592.3 million ( 160,137.3 million excluding TSB), compared with 191,598.8 million ( 155,506.0 million excluding TSB) one year previously, representing a 3.7% increase year-on-year (3.0% excluding TSB). Second quarter of

19 Customer funds Total group C hang e ( %) (2) C hang e ( %) ( million) On-balance sheet customer funds (1) 95,345 97, , , , , Customer deposits 96,828 96,720 98, , , , Current and Saving accounts 50,040 54,112 59, ,786 83,251 88, Fixed-term deposits 45,525 41,388 37, ,804 46,046 43, Repos 1,085 1, ,594 1, Accruals and derivative hedging adjustments Debt and other tradable securities 20,089 21,601 22, ,103 25,120 26, Subordinated liabilities , ,475 1,436 1, Liabilities under insurance contracts 2,266 2, ,266 2, On-balance sheet funds 120, , , , , , M utual funds 20,230 21,153 21, ,230 21,153 21, Equity funds 1,387 1,206 1, ,387 1,206 1, Balanced funds 3,806 4,322 4, ,806 4,322 4, Fixed-income funds 4,312 4,503 4, ,312 4,503 4, Guaranteed return funds 3,322 3,337 3, ,322 3,337 3, Real estate funds Dedicated investment companies 1,898 1,953 1, ,898 1,953 1, Venture capital funds Third-party funds 5,489 5,750 5, ,489 5,750 5, Managed accounts 3,735 3,779 3, ,735 3,779 3, Pension funds 4,362 4,194 4, ,362 4,194 4, Individual 2,858 2,706 2, ,858 2,706 2, Company 1,488 1,473 1, ,488 1,473 1, Group Third-party insurance products 7,083 7,981 8, ,083 7,981 8, Off-balance sheet customer funds 35,410 37,107 37, ,410 37,107 37, Funds under management 155, , , , , , (1) Includes customer deposits (ex-repos) and other liabilities placed via the branch network: Banco Sabadell non-convertible bonds, commercial paper, and others. (2) The EURGBP exchange rate used for the balance sheet is as of and as of Customer deposits, (%) (*) Customer funds ( million) Fixed-term deposits 32% 130, , , , ,655 15,179 15,326 15,954 15,954 16,424 20,230 20,390 21,427 21,153 21, , , , , ,707 15,179 15,326 15,954 15,954 16,424 20,230 20,390 21,427 21,153 21,131 95,345 95,576 96,227 97, , , , , , ,152 Repos 1% Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Total group On-balance sheet customer funds Mutual funds Other Off-Balance (*) Current and Saving accounts 67% (*) Excluding adjustments for accruals and hedging derivatives. (*) Total group (*) Change YoY: +5.0% Change YoY: +2.9% +2.7% (*) Change on balance sheet customer funds. +2.2% Second quarter of

20 Shareholders equity: At the end of June 2016, shareholders equity amounted to 12,861.6 million, representing a 0.6% increase compared with the end of the first quarter Shareholders equity C hange ( million) Shareholders' equity 12,062 12,539 12, Issued capital Reserves 10,400 11,819 11,619 1, Other equity (1) Less: treasury shares Attributable net profit Less: dividends and payments Valuation adjustments M inority interest Equity 12,077 12,789 12, (1) Relates mainly to the issuance of mandatory convertible bonds. Second quarter of

21 Risk management Highlights: The group s NPL ratio is at its lowest level since 1Q12, standing at 6.83% (8.54%excluding TSB). NPL coverage ratio stood at 54.08% at the end of June Problematic assets continued to decline throughout the quarter ( 968 million excluding TSB). Coverage of foreclosed real estate assets stood at 43.1% at the end of June Loan-loss ratio and coverage: The group s NPL ratio continued to decline due to the steady reduction in problematic assets during the second quarter Non-performing loans excluding TSB declined by 1,039.3 million quarter-on-quarter and by 3,327.4 million year-onyear. As of June 2016, the balance of doubtful exposures amounted to 10,634.8 million. Problematic assets declined by million quarter-onquarter and by 3,289.5 million year-on-year. As of June 2016, the balance of problematic assets amounted to 19,899.5 million. NPL ratio (%) NPL coverage ratios (%) Q15 3Q15 4Q15 1Q16 2Q16 2Q15 3Q15 4Q15 1Q16 2Q16 Total group Q15 3Q15 4Q15 1Q16 2Q16 2Q15 3Q15 4Q15 1Q16 2Q16 Total group NPL ratios by segment (*) Excl. T SB 2Q15 3Q15 4Q15 1Q16 2Q16 Real estate development and/or construction purposes 47.21% 47.84% 38.81% 37.01% 33.29% Construction purposes non-related to real estate dev. 8.74% 8.58% 14.36% 12.18% 11.76% Large corporates 6.14% 5.41% 4.62% 4.58% 3.89% SME and small retailers and self-employed 11.96% 11.38% 10.83% 10.23% 9.39% Individuals with 1st mortgage guarantee assets 8.76% 8.27% 7.83% 7.82% 7.47% NPL ratio 10.98% 10.38% 9.86% 9.45% 8.54% (*) NPL ratio is calculated including contingent risk and 20% of the APS. Second quarter of

22 Group NPL exposures excl. TSB ( million) Real estate assets excl. TSB ( million) 13,962 13,122 12,344 11,674 10,635 2Q15 3Q15 4Q15 1Q16 2Q16 9,227 9,228 9,234 9,193 9,265 2Q15 3Q15 4Q15 1Q16 2Q16 Problematic assets excl. TSB ( million) 23,189 22,350 21,579 20,867 19,900 2Q15 3Q15 4Q15 1Q16 2Q16 The table below shows the performance of the group s problematic assets, whose decline has accelerated in recent quarters. Evolution of NPLs and RE assets excl. TSB (*) ( million) 2Q 15 3Q15 4Q15 1Q16 2Q16 Entries Recoveries -1,471-1,275-1,273-1,111-1,629 Ordinary net entries Change in real estate assets Net entries plus change in real estate assets Write-offs Real estate assets and NPL quarterly change (*) Data include 20% of the APS. Second quarter of

23 Evolution of NPLs and RE assets coverage ( millio n) 2 Q15 3Q15 4Q15 1Q16 2Q16 NPL evolution 14,215 13,345 12,561 11,870 10,812 Provisio ns 7,627 7,385 6,738 6,488 5,847 NPL coverage ratio (%) 53.7% 55.3% 53.6% 54.7% 54.1% RE Assets evolution 9,227 9,228 9,234 9,193 9,265 Provisio ns 3,995 4,071 4,045 3,928 3,997 Real Estate coverage (%) 43.3% 44.1% 43.8% 42.7% 43.1% Total problematic assets 23,442 22,572 21,795 21,064 20,077 Provisio ns 11,622 11,457 10,783 10,417 9,845 Problematic assets coverage (%) 49.6% 50.8% 49.5% 49.5% 49.0% Refinanced and restructured loans The outstanding balance of refinanced and restructured loans as of 30 June 2016 is as follows: ( million) Standard risks Substandard risks Do ubtful risks To tal Public authorities Corporate and entrepreneurs 1,980 2,546 4,007 8,533 Of which: Financing for construction and real estate development ,654 2,257 Individual borrowers 1,587 1,669 1,690 4,946 Total 3,629 4,217 5,703 13,549 Provisions ,370 3,083 Real Estate portfolio breakdown by asset class: The breakdown, as of 30 June 2016, by asset class of the real estate portfolio and developer loans is as follows: Foreclosed assets, Developer loans, Land; 42% Others (1); 13% Land; 25% Under construction; 5% Finished buildings; 53% Under construction; 5% Finished buildings; 57% (1) Includes other guarantees. Second quarter of

24 Capital management and credit ratings Highlights: The phase-in Common Equity Tier 1 (CET1) ratio reached 11.9%, being 11.8% the fully-loaded at the end of June The minimum CET1 ratio required by the regulator is 9.25%. The leverage ratio stood at 4.91% as of June Capital ratios ( million) Issued capital Reserves 10,540 11,642 11,737 M inority interest Deductions -1,131-2,043-2,123 Common Equity Tier 1 10,082 10,298 10,330 Common Equity Tier % 11.9% 11.9% Preferred Shares and convertible bonds Deductions Primary capital 10,082 10,298 10,330 Tier I 11.5% 11.9% 11.9% Secondary capital 1,363 1,139 1,631 Tier II (1) 1.5% 1.3% 1.9% Total capital 11,445 11,437 11,961 M inimum capital requirement 7,025 6,904 6,941 Capital surplus 4,420 4,533 5,020 Total capital ratio 13.0% 13.3% 13.8% Risk weighted assets (RWA) 87,810 86,299 86,760 Leverage ratio (%) (1)Includes the issuance of subordinated debt of 500 million pending authorisation by the ECB to confirm its eligibility. Credit ratings: Agency Date Long term Short term Outlook DBRS BBB (high) R-1 (low ) Stable Standard & Poor's (1) BB+ B Stable Moody's Ba1 NP Stable (1) Copyright by Standard & Poor s, A division of the McGraw-Hill Companies, Inc. Reproduced with permission of Standard & Poor s. Second quarter of

25 Liquidity management Highlights: The adjusted loan-to-deposits ratio as of 30 June 2016 was 103.2% (104.5% excluding TSB) with a balanced retail funding structure. The Liquidity Coverage Ratio (LCR) was above 100% as of 30 June ( million) (1) Gross loans to customers, excluding repos 148, , ,921 NPL and country-risk provisions -7,482-6,362-5,709 Brokered loans -6,624-5,748-5,813 Adjusted net loans and advances 134, , ,399 On-balance sheet customer funds 130, , ,152 Loan-to-deposits ratio (%) (1) The EURGBP exchange rate used for the balance sheet is as of and as of Funding structure, Wholesale funding breakdown, Wholesale funding 14.2% ECB 5.9% Securitisation 23.8% GGB 4.1% ICO f inancing 2.9% Repos 3.0% ECP 12.2% Retail issues 2.8% Deposits 71.2% Pref erred Shares and Subordinated Debt 6.4% Senior Debt 5.5% Cov ered bonds 48.0% Wholesale maturity calendar Outs tanding ( million) >2022 balanc e Covered bonds (CH) 0 2,022 1,560 1,124 2,165 2,108 1,119 2,314 12,413 GGB 0 1, ,058 Senior Debt 1, ,427 Preferred Shares and Subordinated Debt ,611 Other mid- and long-term financial instruments Total 1,326 3,203 1,678 1,124 2,590 2,625 1,144 2,854 16,543 Maturities and new issues of wholesale activity New issues detail 2,500 2,000 1,500 1,000 2, ,277 1,155 ( million) 1T16 2T16 Covered bonds (CH) 650 1,050 Subordinated debt Securitisation Total 650 2, Q16 2Q16 3Q16 4Q16 Maturities New issues Second quarter of

26 Results by business units The tables below summarise earnings and other indicators of the group s business units. The information presented here is based on the separate financial statements of each group company, on consolidation eliminations and adjustments, and on analytical accounting of revenues and expenses in cases in which a business is spread over more than one legal entity, to enable customer revenues and costs to be assigned to specific units. Each business unit is treated as an independent business and transactions between them for the product distribution or the provision of services and systems are priced on an arm s-length basis. The aggregate impact on the group profit and loss account is zero. Each business bears its own direct costs, on the basis of general and analytical accounting, as well as the indirect costs of corporate units. Moreover, capital is assigned such that each business has capital equivalent to the regulatory amount required to reach the group s target ratios on the basis of its risk assets. Gross Profit Cost / operating before ROE income Employees Domestic income tax ratio branches ( '000) ( '000) Banking business Spain 2,834, , % 44.6% 16,011 2,205 Real Estate asset transformation -9, , % Banking business UK (1) % 0.0% 0 0 Banking business America (2) 115,792 44, % 54.5% ,586 (3) Gross Profit Cost / operating before ROE income Employees Domestic income tax ratio branches ( '000) ( '000) Banking business Spain 2,121, , % 43.3% 15,968 2,141 Real Estate asset transformation 43, , % Banking business UK (1) 648, , % 64.5% 8, Banking business America (2) 150,805 53, % 50.2% ,840 (3) (1) The exchange rate used for the balance sheet is GBP and that for the income statement is GBP (average). Accounting own funds are used for ROE purposes. (2) The exchange rate used for the balance sheet is USD and MXN and for the income statement is USD and MXN (average). (3) The reconciliation with total group results must include other geographies not shown here, and the tax effect. Second quarter of

27 Share price performance Change (%) YoY Shareholders and trading Number of shareholders 260, , , Number of shares 5,187,356,283 5,439,244,992 5,566,261, Average daily trading volume (number of shares) 33,768,117 32,559,343 31,852, Share price ( ) (1) Opening session (of the year) High (of the year) Low (of the year) Closing session (end of quarter) Market capitalisation ( '000) 11,230,626 8,604,886 6,562,623 Stock market multiples Earnings per share (EPS) ( ) (2) Book value per share ( ) Price / Book value (times) Price / Earnings ratio (P/E) (times) (1) Without adjusting historical values. (2) Considering lineal annualised profit to date and accrual of shares of the Deposit Guarantee Fund. Shareholders structure Institutional investors 45.0% Retail shareholders 55.0% Source: GEM, data as of 30 June Second quarter of

28 Other key developments in the quarter Transfer of the full holding of Banco Sabadell in Dexia Sabadell S.A. to Dexia Crédit Local, S.A. On 14 April 2016, Banco Sabadell transferred its full holding (20.994% of its share capital) in Dexia Sabadell, S.A. to Dexia Crédit Local, S.A. (Dexia), at a price of 52,390,600.50, representing gross gains for Banco Sabadell in the same amount, under the terms ratified by the arbitration award. This transfer was the result of Banco Sabadell exercising its sale option on 6 July 2012 to Dexia, holder of the remaining share capital of the above-referred institution. The transfer of shares by Banco Sabadell and their acquisition by Dexia occurred after having sent the relevant communications to the corresponding regulatory authorities. Formalisation of shareholder remuneration: Further to the significant event dated 1 April 2016 (under registration number ), Banco Sabadell states the results of the negotiation period for free assignment rights. The holders of 79.40% of free assignment rights have opted to receive their remuneration in new shares. Therefore, the final number of ordinary shares at par value issued in the capital increase was 127,016,761, corresponding to 2.28% of the share capital available following this increase, and the capital increase amount was 15,877, The new shares were admitted to trading on the Barcelona, Bilbao, Madrid and Valencia Stock Exchanges via the Spanish electronic trading system (Mercado Continuo) on 5 May The holders of the remaining 18.57% of free assignment rights have accepted the irrevocable purchase commitment undertaken by Banco Sabadell. In consequence, Banco Sabadell acquired 1,010,122,734 rights totalling 48,485, (gross). Banco Sabadell has renounced its free assignment rights thus acquired, as well as 110,552,365 free assignment rights of shares owned by the Bank corresponding to the other 2.03% of free assignment rights. Second quarter of

29 Annex: TSB The performance of TSB s income statement and balance sheet is shown below: Income statement: (GBP millions) 1Q16 2Q16 % QoQ 1H15 1H16 % YoY Franchise (1) % % Mortgage enhancement (2) % % Portfolio UKAR (3) % Net Interest Income % % Franchise (1) % % Mortgage enhancement (2) % % Portfolio UKAR (3) % Other operating income % % Total income % % Total operating expenses (excl. one-offs) % % Franchise (1) % % Mortgage enhancement (2) Portfolio UKAR (3) % Impairment on loans & advances % % Management profit (excl. one-offs) % % Other operating income Tax income % Statutory Profit after Tax % % 1Q16 2Q16 QoQ 1H15 1H16 YoY Franchise NIM 3.38% 3.24% pp 3.69% 3.31% pp (1) Franchise comprises the retail banking business carried out in the United Kingdom, which offers a broad range of retail financial services. (2) Mortgage enhancement is a separate portfolio of mortgage assets which was assigned to TSB with effect from 28 February This segment was established in response to a review by the Office of Fair Trading of the effect on competition of the divestment of TSB and is designed to increase TSB s profitability. (3) UKAR Portfolio is a GBP 2,7 billion portfolio of former UKAR mortgage loans and unsecured loans which was acquired from Cerberus Capital Management group with effect from 7 December Balance sheet: (GBP millions) 2Q15 1Q16 2Q15 % YoY %QoQ Core mortgages 16,866 20,200 20, % 3.6% Mortgage enhancement 2,554 2,157 2, % -5.0% Portfolio UKAR 0.0% 2,873 2, % Other net customer lending 2,235 2,200 2, % 0.6% Total Customer lending (Net) (1) 21,655 27,430 27, % 1.8% Savings deposits 16,698 17,605 18, % 6.5% Current account deposits 7,284 8,191 8, % 2.5% Business banking deposits % 4.2% Total customer deposits (1) 24,905 26,744 28, % 5.2% Jun-15 Mar-16 Jun-16 YoY QoQ Common Equity Tier 1 Capital ratio 19.5% 17.7% 17.2% pp pp (1) Total net loans and advances and customer deposits exclude adjustments of coverage at market value. Second quarter of

30 Investor relations For further information, contact: Investor Relations Second quarter of