Arnaud Journois

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1 Rating Report Ratings Maria Rivas mrivas@dbrs.com Arnaud Journois AJournois@dbrs.com Elisabeth Rudman erudman@dbrs.com Issuer Debt Rating Rating Action Trend Senior Unsecured Long Term Debt & Deposit BBB (high) Confirmed Stable Short-Term Senior Debt & Deposit R-1 (low) Confirmed Stable See page 1 for full list of ratings Rating Considerations Franchise Strength Strong commercial banking franchise in Spain with significant trade finance activities focused on SMEs, corporates and affluent individuals. Long-track record of integrations of domestic banking acquisitions. Major international expansion in the United Kingdom (UK) through TSB Banking Group (TSB). Earnings Power: Improved profitability supported by resilient core revenues, and significantly lower asset provisions. Revenues from fixed income portfolios have supported profits. Risk Profile: Acceleration of nonperforming assets (NPAs) reduction, primarily helped by improved economic conditions and active management. Concentration to the real estate sector reducing but still significant. Funding and Liquidity: Sound funding position, supported by franchise strength in Spain and UK and consistent growth of retail customer deposits. Regular access to the wholesale market for funding. Capitalization: Sound capital levels, supported by improved internal capital generation. Rating Drivers Factors with Positive Rating Implications Positive rating pressure on the ratings could arise from a continued sharp reduction of NPAs to more normalised levels together with a longer track record of sustained improved core profitability. Factors with Negative Rating Implications Negative rating pressure on the ratings could occur from weaker underlying earnings generation negatively affecting the Group s internal capital generation. A significant increase of the Group s risk profile together with a substantial increase in non-performing assets would also put downward pressure on the ratings. Financial Information Banco de Sabadell, SA 3/6/216 31/12/215 31/12/214 31/12/213* Total Assets 27,891 28, , ,523 Equity 12,862 12,768 11,216 1,216 Pre-provision operating income (IBPT)** 1,428 2,883 2,919 1,82 Net Income Net Interest Income / Risk Weighted Assets (%) 4.48% 3.61% 3.4% 2.49% Risk-Weighted Earning Capacity (%)** 3.27% 3.53% 3.96% 2.46% Post-provision Risk-Weighted Earning Capacity (%)** 1.9% 1.66% 1.55% 1.% Efficiency Ratio (%)** 52.1% 47.37% 39.19% 52.49% Impaired Loans % Gross Loans *** 7.13% 8.13% 13.26% 19.5% Common Equity Tier 1 (As-reported)**** 11.9% 11.5% 11.77% 12.% All figures are in EUR unless otherwise noted. * Restated ** Includes pension and contingent risks provisions *** Impaired loans exclude the 8% of impaired loans covered by the APS from 214 **** 1H16, 215 and 214 refers to Basel III CET1 ratio (phase-in); for 213 refers to CT1 Source: SNL, Company Financials, DBRS

2 Rating Report DBRS.COM 2 Issuer Description (Sabadell or the Group) is a Spanish banking group largely focused on individuals, small and medium sized businesses (SMEs) and corporates, with a major presence in Spain and more recently in the UK through the acquisition of TSB. With total assets of EUR 28 billion at end-june 216, the Bank is the 4 th largest bank in Spain. Rating Rationale Sabadell s ratings are underpinned by the Bank s franchise strength in Spain, particularly in the trade finance segment to SMEs and corporates. Sabadell s ratings reflect the Group s resilient core profitability despite the low interest rate environment, largely supported by the Bank s capacity to strengthen core revenues and significantly reduce asset provisions. Moreover, Sabadell has demonstrated its capacity to reduce NPAs, to a higher degree than its comparable domestic peers. Whilst this improvement in asset quality partly reflects the improved economic environment in Spain it also reflects the Group s proactive management to sell foreclosed assets (FAs) and dispose of some lending portfolios, which is also supported by the Group s strong coverage levels of NPAs. The ratings also take into account the Group s sound liquidity position, reduced risk profile and good capitalisation, further reinforced by improved internal capital generation. The Group acquired TSB Banking Group in June 215 and DBRS considers that the integration of TSB is going smoothly. In addition, DBRS considers the Group to be well positioned to face regulatory and operating challenges both in Spain and the United Kingdom. The ratings also consider the Group s high level of NPAs, albeit much reduced in 1H16, as well as the Bank s still significant, albeit reducing, exposure to real estate developers. Franchise Strength Since its inception in 1881, Sabadell s focus was to facilitate trade, particularly international trade, and to support small and medium-sized businesses (SMEs) based in Northern Spain. In 215, the Group achieved its major international acquisition when it acquired 1% of TSB Banking Group (TSB), a medium-sized retail bank based in the United Kingdom (UK), largely focused on low risk residential mortgages. The Group s growth strategy has been supported by a succession of successful banking acquisitions over the past 3 years. To date its major domestic banking acquisition was Banco CAM in 212. Banco CAM multiplied the Group s size by 1.75x but also increased its exposure to construction and real estate assets (including loans and FAs). The acquisition was assisted by the Fondo de Reestructuración Ordenada Bancaria (FROB) and included a capital injection of EUR 5.2 billion by the Spanish Deposit Guarantee Fund (DGF), EUR 12.5 billion in liquidity support guarantees from the FROB, and a 1-year asset protection scheme (APS) provided by the DGF covering up to 8% of losses generated in an specific portfolio totalling EUR 24.6 billion of CAM s exposure. In June 215, Sabadell acquired TSB, which had total assets of EUR 39 billion and EUR 2.3 billion of equity at end-june 215. As a result of the integration of TSB, the Group increased its international presence to around 25% of its total assets, up from 5% at end-214. TSB represented about 2% of gross loans and 27% of the customer deposits of Sabadell at end-june 215. TSB is the first large international acquisition for the Group and since end-june 215 TSB has been fully consolidated into the Group. In August 215 the Group obtained a banking license to operate as a commercial bank in Mexico, but it was not until 216 when Banco Sabadell began its operations. Up to August 215, Sabadell s presence in Mexico was limited to a representative office and since 214 the Group started to provide funding to large Mexican corporates through its subsidiary Sabadell Capital, sociedad financiera de objeto multiple. Sabadell s strategic goal in Mexico is to initially focus on corporate banking and to subsequently move to private individuals. Sabadell s activities are still largely concentrated in Spain, where it had an 8% market share for loans and 7% for customer deposits at end-june 216. The Group has a strong presence in Catalonia, Valencia, Murcia and Asturias where it has regional market shares of between 11%-17%. Sabadell operates over four lines of business: Banking business in Spain, Real estate asset transformation (REAT), banking business UK and banking business America. 1. Banking business Spain (EUR 2.1 billion/ 71% of total gross operating income in 1H16) This segment includes the Group s activities in Spain of commercial banking, corporate banking and private banking. In Spain, the Group has 2,141 branches and 16 thousand employees a. Commercial banking focuses on providing financial products, including bancassurance, and services to corporates, SMEs, individuals and professionals. b. Corporate Banking offers a range of products and services to large corporates and financial institutions in Spain and abroad. Activities include corporate banking, structured finance, corporate finance, capital development, international

3 Rating Report DBRS.COM 3 trade and consumer finance. Sabadell has a strong market share in trade finance business of around 12.8% at end-june 216. c. Private Banking offers various savings and investment products to customers, including investment advice as well as wealth, succession, company and tax planning. d. Investment Management combines a number of integrated areas of activity: investment, products and research as well as treasury and capital market activities, including a wide range of activities from researching alternatives investment to trading in securities, active management of assets and custodian services. 2. Banking business UK (EUR 648 million/ 22% of total gross operating income in 1H16) This segment includes the Group s activities in TSB. TSB had at end-june 216 a total of 65 branches and 8,68 employees. 3. Banking business America (EUR 15.8 million/ 5% of total gross operating income in 1H16) - BS America includes corporate banking, private banking and commercial banking areas, which are managed from Miami, Florida, where Sabadell has a fullservice international branch that has been in operation since Sabadell s operations in Florida were reinforced with the acquisition of the international private banking business of Lloyds TSB Bank in Miami in November 213 and JGB Bank in July 214. This segment also includes the business in Mexico. 4. REAT (EUR 43.7 million/ 1% of total gross operating income in 1H16) - Sabadell manages its real estate activity in two areas: on one hand, all the servicing capabilities (administration, commercialisation, development and property management) are managed under its fully-owned subsidiary Solvia. On the other hand, the Group has its own Real Estate Investment Department where strategies for foreclosed assets and real estate are defined and implemented. Solvia provides a Real Estate Services to the Group s foreclosed assets portfolio in Spain. Breakdown of business volumes by gross operating income in 1H16 5% 1% Banking business Spain Breakdown of business volumes by income before taxes in 1H16* Banking business 5% 1% Spain 22% Real Estate asset transformation 16% Real Estate asset transformation Banking business UK Banking business UK 1% Banking business America Banking business America 71% Other (Andorra) 78% Other (Andorra) Source: DBRS, Company Reports Source: DBRS, Company Reports; *excludes REAT s income before taxes. Earnings Power Sabadell reported net attributable income of EUR 78.4 million in 215, much improved from EUR million in 214. These results were supported both by the improved performance of Sabadell ex-tsb s (net profit of EUR million, up 58% YoY) and the increased perimeter from the TSB acquisition (net profit of EUR 122 million in 215). Net results continued to be supported by substantial capital gains on the sale of sovereign debt, although these were lower than in 214. In 1H16, the Group reported net attributable income of EUR million, up 2.7% YoY as results benefited from core revenue growth and the integration of TSB. TSB s net attributable profit was EUR million, 34% of the Group s net attributable income. Cost control and significantly lower loan loss and other financial assets provisions also supported profits in 1H16. Also, Sabadell s 1H16 results were affected by some one-offs such as the sale of TSB and Sabadell s stake in Visa Europe (gross capital gains of EUR 19 million) and the sale of the last tranche of Dexia Sabadell (capital gain of EUR 52 million). These capital gains helped to offset one-off impairments in 1H16 largely associated with the new provisioning requirements, and the write down of the Group s stake in Banco Comercial Português, S.A for EUR 92 million. DBRS sees Sabadell s NII as performing better than most domestic peers, partly supported by continuing growth in its strong franchise in trade finance businesses with Small and medium sized enterprises (SMEs) in Spain as well as TSB s mortgage lending growth. On a like

4 Rating Report DBRS.COM 4 for like basis (excluding TSB), net interest income (NII), the Bank s main source of revenue, grew 7% YoY in 1H16, mostly helped by the continued reduction of funding costs in Spain, both from retail and wholesale funds. Also fees and commissions were up 2% YoY on the back of strong growth of assets under management, despite the high market volatility in 1H16. Sabadell s gross operating income (Ex- TSB) was however down by 21% YoY mostly as a result of lower capital gains on the sale of fixed income portfolios and the EUR 48 million contribution to the European Resolution Fund booked in 2Q16. On a like for like basis (excluding TSB), operating costs (staff costs, other operating expenses and amortisations) were contained, increasing only by 1% in 1H16 YoY. The cost to income ratio, as calculated by DBRS and excluding contingent and pension provisions was 51% in 1H16, slightly weakened, but still sound, from 48% in 215. EUR million Profitability evolution / 1H15-1H H15 1H16 Core Revenues (lhs) Total Operating Costs (lhs) IBPT (lhs) Asset provisions* (lhs) ROE (rhs) Cost to income ratio (rhs) 6% 5% 4% 3% 2% 1% % *Assets provisions include loan loss and other assets provisions Source: Company reports, DBRS 1% 8% 6% 4% 2% % H15 1H16-2% NII Tradings gains Fees & Commissions Dividends & Equity Method Other Source: DBRS, Company Reports Risk Profile Gross Operating Income.% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Financial income (lhs) Financial expense (lhs) NII (lhs) NIM (rhs) Customer loan yield (rhs) Customer deposits yield (rhs) Source: DBRS, Company Reports; NIM as calculated by DBRS Sabadell s main risk is credit risk largely arising from its lending exposures, guarantees and third party commitments. Sabadell has effective risk management processes that address the major categories of risk: credit, market and operational risk, as well as market and interest rate risk. Sabadell s risk profile is dominated by the credit risk encompassed within its commercial banking activities. Interest rate risk is modest with market risk mostly arising from the Group s fixed-income portfolio, including a large sovereign debt portfolio. The Group is also exposed to foreign exchange risk (GBP) through its ownership of TSB. Credit Risk Sabadell s credit profile has changed significantly over time as a result of the different acquisitions undertaken. The Group s credit profile has steadily evolved from a pure commercial loan book made up of corporates and SMEs and a lesser exposure to mortgages to individuals, to a more retail type of bank as a result of the acquisitions of Banco CAM in 212 and TSB in 215. With TSB, the Group increased the proportion of residential mortgages. EUR Million NII and NIM 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%

5 Rating Report DBRS.COM 5 At end-215, around 47% of the Group s net loans related to residential mortgages, 35% to SMEs and corporates, 5% to consumer and the rest is widely split in public sector and other loans. This compares to pre-tsb acquisition at end-214 when residential mortgages represented 34% and SMEs and corporates represented 42%. Sabadell has made good progress in reducing its exposure to real estate developers. Excluding the part covered by the APS, the Group s gross lending exposure to real estate developers, including loans financing real estate and construction activities and foreclosed assets (FAs), represented 9.1% of total gross loans and FAs at end-june 216 (11.6% if TSB is excluded). Net Loans at end-215 5% 4% 4% Real estate developers Civil works 47% 4% 1% Large corporates SMEs 17% Residential mortgages Consumer lending Public Sector 18% Others Source: DBRS, Company Reports Asset Quality Trends During 215 and 1H16 the Group accelerated the reduction of Non-Performing assets (NPAs) significantly, helped by lower new nonperforming loans (NPL) entries, higher recoveries and increased sales of FAs. Total NPAs have been reducing quarter-on-quarter (QoQ) since 4Q13 with a total reduction of EUR 1.7 billion in 1H16 and around EUR 2.9 billion in 215 (EUR 3.2 billion in 215 excluding TSB and as calculated by DBRS). The strong reduction in NPAs was assisted by improved economic conditions and real estate market in Spain but was also accelerated through active management. This continued in 1H16, and the Group sold EUR 1.3 billion of FAs (of which EUR 37 million were to institutional investors). Nevertheless, DBRS views the level of Sabadell s NPAs as still significant, totalling EUR 2 billion, but much reduced YoY to represent 12.5% of loans and FAs at end-june 216. Ex TSB, the NPA ratio was slightly weaker at 15.8% at end-june 216 (17% at end-215). The Group s NPL ratio 1, excluding TSB, improved to 9.1% at end-june 216, down from 1.4% at end-215 and 13.3% at end-214. Including TSB, the NPL ratio improved to 7.1% at end-june 216. By segment, Sabadell s NPL ratio 2 (ex TSB) stood at 9.4% for SMEs and 3.9% for corporates at end-june 216, which compares well to most of its domestic peers. This could be partly explained by the geographical location of Sabadell s portfolio, which is very much concentrated in Catalonia, a region with strong SMEs and better than average economic conditions. Asset Quality Evolution* Asset Quality Evolution Ex-TSB* EUR million 3, 25, 2, 15, 1, 5, 19.3% 13.3% 12.5% 13.3% 8.1% 7.1% H16 25.% 2.% 15.% 1.% 5.%.% EUR million 3, 25, 2, 15, 1, 5, 19.3% 17.% 15.8% 13.3% 1.4% 9.1% H16 25.% 2.% 15.% 1.% 5.%.% NPLs Foreclosed Assets NPLs Foreclosed Assets NPL ratio NPA ratio NPL ratio NPA ratio Source: DBRS, Company Reports *Excluding 8% of non-performing loans covered by the APS 1 Proforma excluding 8% of non-performing loans covered by the APS from total non-performing loan portfolio 2 Excluding 8% of non-performing loans covered by the APS

6 Rating Report DBRS.COM 6 The NPL ratio (ex-tsb) for retail mortgages was 7.5%, slightly weaker than the average of the system, partly explained by the weaker quality of Banco CAM s residential mortgage book. These ratios have consistently improved quarter on quarter, with the largest improvement in NPLs to SMEs and large corporates, largely helped by improved economic conditions. DBRS considers NPLs and NPAs adequately covered by reserves. NPLs were 53% covered by reserves at end-june 216 and NPA 48.6% at end-june 216. The Group expects new provisioning requirements of the Bank of Spain to be fully covered by the extraordinary EUR 35 million provisions built in 1H16. Around 9% of Sabadell s gross loan book was subject to some kind of restructuring or forbearance at end-june 216, 73% out of which were already classified as either NPL or substandard. Substandard loans are performing loans that have been flagged as at-risk for nonperforming and as such have been provisioned. Sovereign Debt Exposure At end-june 216, Sabadell s sovereign debt portfolio totalled EUR 2.6 billion, 45% of which related to Spain, 27% to Italy, 8% to United States, 9% to UK, 5% to Portugal and 4% to Mexico. Sabadell s exposure to peripheral European sovereign debt of EUR 15.9 billion at end-june 216 represented 1.2x of the Group s equity, in line with most similarly rated domestic peers. Nevertheless, in DBRS view, the relatively high exposure to these countries makes the Group vulnerable to sovereign developments in Europe. In addition, the Group has EUR 9.4 billion of public sector loans at end-june 216. At end-june 216 the Group had an ALCO portfolio of EUR 24.4 billion with a duration of 3.8 years. Market, FX and Interest Rate Risk Market risk for Sabadell mostly arises from interest rate risk from its large sovereign debt portfolio due to the longer-term duration of the exposure. Sabadell s exposure to interest rate risk is evaluated through balance sheet sensitivity versus the interest rate curve, utilising various scenarios. Sabadell estimates that at end-215, a parallel shift of 1 basis points rise on the EUR yield curve would have a negative impact of.1% on the Group s NII. Conversely, a parallel shift of 1 basis points rise on the GBP yield curve would have a positive impact of 2% on the Group s NII. Trading risk is small given limited involvement in capital markets activities. The aggregated average Value-at-Risk (VaR), based on a 99% confidence level, 1 day time period, was relatively low EUR 1.7 million at end-215. Sabadell also uses stress testing to complement VaR. Funding and Liquidity Sabadell s funding and liquidity position is supported by a sound net loan to deposit ratio, good levels of liquid assets and regular access to wholesale markets for funding. TSB reinforced the Group s retail deposit base as TSB had deposits of EUR 34 billion at end-june 216, which fully fund the loan book. Sabadell s main source of funding is retail deposits underpinned by its domestic franchise. At end-june 216, customer deposits accounted for around 7% of total funding (excluding repos and covered bonds accounted as retail deposits). Sabadell s customer deposits grew by 1.34% in 1H16. Total off balance sheet funds totaled EUR 37.6 billion at end-june 216 at group level, having remained fairly flat since end-215. The Group has a sound net loan to deposit (LTD, excluding repos and covered bonds) ratio of 112% (as calculated by DBRS) at end-june 216 (116% ex-tsb). Funding from the European Central Bank (ECB) totaled EUR 1.7 billion representing 5.1% of the Group s total assets at end-june 216, which is a much lower figure than the EUR 23.9 billion borrowed at end-212. The majority of ECB funding relates to the Targeted Long Term Refinancing Operation II (TLTRO II) facility. EUR million Net Loans to Deposits ratio (ex-repos) 2, 143% 122% 12% 115% 112% 15, 1, 5, 16% 12% 8% 4% Q16 % Customer deposits (ex repos and ex covered bonds) Net loans (ex repos) Net LTD Source: Company reports, DBRS; Excludes covered bonds accounted for as customer deposits

7 Rating Report DBRS.COM 7 The Group s wholesale funding is well diversified by instrument and maturity. Long-term debt instruments mostly include covered bonds, securitizations, and senior and subordinated debt. Short-term funds in the form of commercial paper, represented a fairly substantial 16% of total debt securities issued (including covered bonds accounted for as customer deposits) at end-june 216. The Group has regularly accessed the wholesale markets for funding throughout most of the financial crisis and has regularly tapped the wholesale markets since then. In May 216, the Group issued EUR 5 million of Tier 2 subordinated debt, The Group also issued during 1H16 EUR 9 million of senior debt, EUR 1.7 billion of covered bonds and EUR 682 million securitization through TSB. Sabadell s refinancing risk for the next three years is manageable with wholesale funding maturities totalling EUR 6.2 billion, of which EUR 1.3 billion in the remaining part of 216; EUR 3.2 billion in 217, EUR 1.7 billion in 218. The Group also has EUR 1.3 billion maturing beyond 218. A large part of the refinancing needs up to 218 relate to covered bonds (EUR 3.6 billion) which DBRS understands could be added back as collateral for liquidity purposes once they mature. EUR 1.1 billion of total maturities relate to government guaranteed bonds that mature in 217. The Group had EUR 26.9 billion (post hair-cut) of unpledged liquid assets at the end-june 216, which covers 4.3x upcoming wholesale refinancing needs until 218. Unpledged liquid assets represented around 13% of total assets at that date. The Group has capacity to issue additional EUR 9.1 billion of covered bonds at end-june 216. Capitalisation Sabadell s capital position is sound, supported by an improved risk profile after the TSB acquisition, its proven track record of regular access to capital markets and much improved internal capital generation through retained earnings. Sabadell reported a phased-in Common Equity Tier 1 (CET1) capital ratio of 11.9% at end-june 216 and a fully-loaded CET1 capital ratio of 11.8%, relatively flat compared to 1Q16 but up around 4 bps compared to end-215. The tangible common equity to tangible asset ratio (as calculated by DBRS) was 5.2% at end-june 216. Sabadell is required to maintain a minimum the transitional Minimum CET1 ratio requirement for 216 of 9.25% as outlined by the Single Supervisory Mechanism (SSM) following the Group s Supervisory Review and Evaluation Process (SREP). The Central Bank of Spain has advised that the Group will be required to maintain an O-SII (Other Systemically Important Institution) buffer, which will be phased-in. For Sabadell, the buffer was set at % for 216. During 215, the Group also converted EUR 789 million of convertible bonds into shares but with no impact on regulatory capital ratios. Sabadell had EUR 5.5 billion of deferred tax assets (DTAs) that are guaranteed by the Spanish Government at end-june 216. According to the Spanish regulation, tax credits related to loans and FAs impairments are not deducted from the calculation of CET1 capital but are added up to the level of risk weighted assets. Sabadell s guaranteed DTAs represents a significant 54% of its CET1 phase-in capital. EUR million 9, 75, 6, 45, 3, 15, 12.% 11.7% 11.5% 1.1% Regulatory capital 11.5% 11.9% 11.4% 11.8% 5.2% 4.8% 4.9% H16 Risk-Weighted Assets CET1 (phased-in) ratio (%) Leverage Ratio (fully loaded) CET1 (fully loaded) ratio ( %) Source: Company reports, DBRS 14.% 12.% 1.% 8.% 6.% 4.% 2.%.%

8 Rating Report DBRS.COM 8 Banco de Sabadell, SA 3/6/216 31/12/215 31/12/214 31/12/213* EUR EUR EUR EUR EUR Millions IFRS IFRS IFRS IFRS Balance Sheet Cash and deposits with central banks 8,472 7,343 1,19 3,22 Lending to/deposits with credit institutions 3,776 5,2 4,623 3,526 Financial Securities** 25,33 26,74 24,293 22,554 - Trading portfolio 1, At fair value Available for sale 22,484 23,46 21,96 19,278 - Held-to-maturity - Other 1,268 1,732 2,436 2,535 Financial derivatives instruments 2,786 2,217 2,492 1,882 - Fair Value Hedging Derivatives Mark to Market Derivatives 2,69 1,58 1,582 1,289 Gross lending to customers 15, , , ,33 - Loan loss provisions 5,79 6,61 7,716 12,374 Insurance assets NA Investments in associates/subsidiaries Fixed assets 4,217 4,189 3,983 3,935 Goodwill and other intangible assets 1,999 2,81 1,591 1,52 Other assets 16,726 14,551 13,813 13,352 Total assets 27,891 28, , ,523 Total assets (USD) 23, , , ,3 Loans and deposits from credit institutions 22,917 26,291 23,49 23,85 Repo Agreements in Deposits from Customers 857 1,951 1,292 1,347 Deposits from customers 131,76 13,941 96,917 98,16 - Demand 88,463 84,536 31,99 26,261 - Time and savings 43,91 46,391 65,572 71,41 Issued debt securities 26,69 26,423 2,196 21,167 Financial derivatives instruments 3,513 2,183 2,78 1,825 - Fair Value Hedging Derivatives 1, Other 2,145 1,485 1,55 1,299 Insurance liabilities 51 2,218 2,39 2,134 Other liabilities 7,563 4,413 4,755 4,643 - Financial liabilities at fair value through P/L Subordinated debt 1,68 1, Hybrid Capital Equity 12,862 12,768 11,216 1,216 Total liabilities and equity funds 27,891 28, , ,523 Income Statement Interest income 2,635 4,842 4,513 4,863 Interest expenses 692 1,64 2,254 3,48 Net interest income and credit commissions 1,942 3,23 2,26 1,815 Net fees and commissions 57 1, Trading / FX Income Net realised results on investment securities (available for sale) 49 1,52 1,721 1,427 Net results from other financial instruments at fair value 2 Net income from insurance operations Results from associates/subsidiaries accounted by the equity me Other operating income (incl. dividends) Total operating income 2,98 5,478 4,81 3,831 Staff costs 829 1,457 1,23 1,135 Other operating costs Depreciation/amortisation Total operating expenses 1,553 2,595 1,881 2,11 Pre-provision operating income 1,428 2,883 2,919 1,82 Loan loss provisions*** 6 1,529 1,78 1,8 Post-provision operating income 828 1,355 1,14 74 Impairment on tangible assets Impairment on intangible assets 1 Other non-operating items**** Pre-tax income (-)Taxes (-)Other After-tax Items (Reported) (+)Discontinued Operations (Reported) (-)Minority interest Net income Net income (USD) *Restated, **Includes derivatives when breakdown unavailable, ***LLP includes Impairments on financial assets, ****Incl. Other Provisions Note: Deposits from customers include covered bonds

9 Rating Report DBRS.COM 9 Banco de Sabadell, SA 3/6/216 31/12/215 31/12/214 31/12/213* EUR EUR EUR EUR EUR Millions IFRS IFRS IFRS IFRS Off-balance sheet and other items Asset under management 22,998 23,766 19,26 14,463 Derivatives (notional amount) NA NA NA NA BIS Risk-weighted assets (RWA) 86,76 88,769 74,418 72,876 No. of employees (end-period) 25,99 26,9 17,529 18,77 Earnings and Expenses Earnings Net interest margin [1] 2.11% 1.89% 1.59% 1.23% Yield on average earning assets 2.86% 2.85% 3.17% 3.28% Cost of interest bearing liabilities.76%.89% 1.59% 2.13% Pre-provision earning capacity (total assets basis) [2] 1.39% 1.55% 1.79% 1.9% Pre-provision earning capacity (risk-weighted basis) [3] 3.27% 3.53% 3.96% 2.46% Net Interest Income / Risk Weighted Assets 4.48% 3.61% 3.4% 2.49% Non-Interest Income / Total Revenues 34.82% 41.54% 52.93% 52.63% Post-provision earning capacity (risk-weighted basis) 1.9% 1.66% 1.55% 1.% Expenses Efficiency ratio (operating expenses / operating income)* 52.1% 47.37% 39.19% 52.49% All inclusive costs to revenues [4] 6.1% 58.76% 5.73% 65.2% Operating expenses by employee 119,477 99,459 17, ,255 Loan loss provision** / pre-provision operating income 42.% 53.1% 6.96% 59.35% Provision coverage by net interest income (x) Profitability Returns Pre-tax return on Tier 1 (excl. hybrids) 11.57% 7.33% 6.12% 2.9% Return on equity 6.63% 5.56% 3.33% 1.44% Return on average total assets.41%.38%.23%.9% Return on average risk-weighted assets.97%.87%.5%.2% Dividend payout ratio [5] NA NA NA NA Internal capital generation [6] NA NA NA NA Growth Loans -3.17% 32.46% -1.85% 3.27% Deposits -.41% 35.32% -1.16% 2.49% Net interest income*** 49.54% 41.74% 24.52% -2.85% Fees and commissions*** 25.59% 16.55% 13.32% 2.83% Expenses*** 47.45% 37.92% -6.45% 35.17% Pre-provision earning capacity*** % -1.22% 6.39% 19.53% Loan-loss provisions*** -49.2% -14.1% 64.74% % Net income*** 2.75% 9.61% % 78.18% Risks RWA% total assets 41.73% 42.55% 45.56% 44.57% Credit Risks Impaired loans % gross loans 7.13% 8.13% 13.26% 19.5% Loss loan provisions % impaired loans 53.28% 53.% 49.1% 5.65% Impaired loans (net of LLPs) % pre-provision operating income [7] % 23.25% 274.% % Impaired loans (net of LLPs) % equity 38.92% 45.9% 71.31% 118.3% Liquidity and Funding Customer deposits % total funding 71.65% 7.% 67.92% 67.85% Customer repos % total funding.47% 1.4%.91%.93% Total wholesale funding % total funding [8] 27.89% 28.95% 31.18% 31.22% - Interbank % total funding 12.46% 14.6% 16.46% 15.98% - Debt securities % total funding 14.51% 14.13% 14.15% 14.65% - Subordinated debt % total funding.91%.77%.56%.59% Short-term wholesale funding % total wholesale funding NA NA NA NA Liquid assets % total assets 17.93% 18.42% 18.43% 17.91% Net short-term wholesale funding reliance [9] NA NA NA NA Adjusted net short-term wholesale funding reliance [1] NA NA NA NA Customer deposits % gross loans 87.72% 85.34% 81.75% 78.22% Capital [11] Tier % 11.5% 11.7% 11.96% Tier 1 excl. All Hybrids 11.82% 11.41% 1.59% 1.78% Core Tier 1 (As-reported) 11.9% 11.5% 11.77% 12.% Tangible Common Equity / Tangible Assets 5.24% 5.15% 5.46% 4.89% Total Capital 13.79% 12.86% 12.82% 12.76% Retained earnings % Tier 1 4.8% 38.4% 38.64% 35.51% * Restated [1] (Net interest income + dividends)% average interest earning assets. [2] Pre-provision operating income % average total assets. [3] Pre-provision operating income % average total risk-weighted assets [4] (Operating & non-op. costs) % (op. & non-op. revenues) [5] Paid dividend % net income. [6] (Net income - dividends) % shareholders' equity at t-1. [7] We take into account the stock of LLPs in this ratio. [8] Whole funding excludes corporate deposits. [9] (Short-term wholesale funding - liquid assets) % illiquid assets [1] (Short-term wholesale funding - liquid assets- loans maturing within 1 year) % illiquid assets[11] Capital ratios of Interim results exclude yearly profits Note: Operating expenses include pension and contingent risks provisions; Impaired loans exclude the 8% of impaired loans covered by the APS from 214; Av. Earning Assets calculated as the average for the last four quarters **LLP includes Impairments on financial assets *** Growth comparison in 1H16 year -on-year is distorted by the fact TSB's Contribution was only included in 1H16 Source: SNL, Company Financials, DBRS

10 Rating Report DBRS.COM 1 Methodologies The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (July 216). Other applicable methodologies include the DBRS Criteria Support Assessments for Banks and Banking Organisations (March 216) and DBRS Criteria: Rating Bank Capital Securities Subordinated, hybrid, Preferred & Contingent Capital Securities (February 216) and the Critical Obligations Criteria (February 216). Ratings Issuer Debt Rating Action Rating Trend Senior Unsecured Long-Term Debt & Deposit Confirmed BBB (high) Stable Short-Term Debt & Deposit Confirmed R-1 (low) Stable Long Term Critical Obligations Rating Confirmed A Stable Short Term Critical Obligations Rating Confirmed R-1 (low) Stable Ratings History Senior Long-Term Notes - EUR 5 billion EMTN Programme Subordinated Tier 2 Notes - EUR 5 billion EMTN Programme - XS Commercial Paper Programme (EUR 7 billion and expandable to EUR 9 billion) Confirmed BBB (high) Stable Confirmed BBB Stable Confirmed R-1 (low) Stable Issuer Debt Current Senior Unsecured Long-Term Debt & Deposit BBB (high) Short-Term Debt & Deposit R-1 (low) BBB (high) R-1 (low) A (low) A (low) A (low) Long Term Critical Obligations Rating A Short Term Critical Obligations Rating R-1 (low) R-1 (low) R-1 (low) R-1 (low) Senior Long-Term Notes - EUR 5 billion EMTN Programme Subordinated Tier 2 Notes - EUR 5 billion EMTN Programme - XS BBB (high) BBB Notes: Commercial Paper Programme (EUR 7 billion and expandable to EUR 9 billion) R-1 (low) All figures are in EUR unless otherwise noted. For the definition of Issuer Rating, please refer to Rating Definitions under Rating Policy on Generally, Issuer Ratings apply to all senior unsecured obligations of an applicable issuer, except when an issuer has a significant or unique level of secured debt. 216, DBRS Limited, DBRS, Inc. and DBRS Ratings Limited (collectively, DBRS). All rights reserved. The information upon which DBRS ratings and reports are based is obtained by DBRS from sources DBRS believes to be reliable. DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, reports and any other information provided by DBRS are provided as is and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or(2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. Ratings and other opinions issued by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness or recommendations to purchase, sell or hold any securities. A report providing a DBRS rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS receives compensation for its rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON