ANNUAL REPORT 2004
BancSabadell dAndorra ANNUAL REPORT 2004 INFORME ANUAL
BancSabadell dAndorra ANNUAL REPORT 2004
Auditors Report page 51
Consolidated Financial 52 Statements
Board of Directors and 82 Management Team
Addresses of BancSabadell dAndorra 83 50 AUDITORS REPORT
51 BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPOSING THE BANCSABADELL DANDORRA GROUP
Consolidated Balance Sheets as of December 31, 2004 and 2003 (Thousands of euros)
ASSETS 2004 2003
Cash and due from OECD banks 6,796 6,923
Due from INAF (Note 4) 6,220 6,220
Demand balances due from financial intermediaries (Note 5) 2,618 2,017
Loans (Note 6) 316,556 307,051
Due from banks 141,339 171,190 Customer loans and credits 170,283 129,081 Customer overdrafts 2,441 2,582 Bill portfolio 4,010 5,637 Allowance for loan losses (1,517) (1,439)
Investment securities (Note 7) 42,606 30,006
Debentures and other fixed-income securities 42,140 30,091 Allowance for loan losses (205) (146) Securities fluctuation allowance - - Shares and other equity securities 88 88 Securities fluctuation allowance (27) (27) Shareholding in Group companies consolidated by equity accounting 610 -
Intangible assets and deferred charges (Note 8) 1,261 1,884
Intangible assets and deferred charges 4,859 4,556 Accumulated amortization (3,598) (2,672)
Premises and equipment (Note 9) 12,030 12,010
Premises and equipment 14,801 14,097 Accumulated depreciation (2,771) (2,087)
Accrual accounts 2,358 1,809
Uncollected accrued interest 2,266 1,778 Prepaid expenses 92 31
Other assets (Note 18) 4,123 2,234
Current transactions 2,740 1,126 Options acquired 211 90 Other 1,172 1,018
TOTAL ASSETS 394,568 370,154
The accompanying Notes 1 to 23 form an integral part of the Consolidated Financial Statements.
52 CONSOLIDATED FINANCIAL STATEMENTS
BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPOSING THE BANCSABADELL DANDORRA GROUP
Consolidated Balance Sheets as of December 31, 2004 and 2003 (Thousands of euros)
LIABILITIES AND SHAREHOLDERS EQUITY 2004 2003
Due to INAF (Note 4) 6,223 6,223
Deposits 345,852 312,525
Due to banks (Note 10) 1,049 642 Customer deposits (Note 11) 344,803 311,883
Debt securities (Note 12) 10,000 17,402
Provision for contingencies and expenses - -
General risk provision (Note 13) 162 162
Subordinated debt (Note 14) 1,572 5,779
Accrual accounts 1,515 1,098
Unpaid accrued expenses 1,499 1,087 Unearned revenue 16 11
Other liabilities (Note 18) 2,517 2,595
Current transactions 1,705 1,847 Trade and other accounts payable 812 748
Capital stock (Note 15) 30,068 30,068
Capital stock 30,068 30,068
Reserves (Note 15) 491 87
Voluntary reserves 1 1 Consolidation reserves 194 86 Revaluation reserves 296 -
Loss (Note 16) (3,832) (5,785)
Consolidated profit 2,061 771 Accumulated consolidated losses from previous years (5,893) (6,556)
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 394,568 370,154
The accompanying Notes 1 to 23 form an integral part of the Consolidated Financial Statements.
53 BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPOSING THE BANCSABADELL DANDORRA GROUP Consolidated Memorandum Accounts as of December 31, 2004 and 2003 (Thousands of euros)
2004 2003
Contingent liabilities 59,506 53,627
Pledges, sureties and guarantees given 58,820 53,364 Documentary letters of credit issued or received and confirmed to customers 686 263
Commitments and contingencies 50,684 37,603
Operational commitments and contingencies 50,684 37,603
Futures (Note 19) 145,469 91,581
Outstanding currency sales and purchases 117,405 58,894 Financial forward transactions 28,064 32,687
Securities and other assets held in safekeeping (Note 20) 481,071 333,240
Third-party securities and other assets held in safekeeping 437,486 302,130 Own securities and other assets held in safekeeping 43,585 31,110
Other memorandum accounts held solely for Administrative control purposes (Note 20) 5,579 4,480
Pledges and commitments received 1,653 989 Other memorandum accounts 3,926 3,491
TOTAL MEMORANDUM ACCOUNTS 742,309 520,531
The accompanying Notes 1 to 23 form an integral part of the Consolidated Financial Statements.
54 CONSOLIDATED FINANCIAL STATEMENTS
BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPOSING THE BANCSABADELL DANDORRA GROUP Consolidated Balance Sheets as of December 31, 2004 and 2003 (Thousands of euros)
2004 2003 Interest and similar income 9,937 10,004 Demand balances due from INAF and financial intermediaries 145 139 On loans 8,483 8,627 On debentures and other fixed-income securities 1,309 1,238
Interest and similar charges (6,100) (6,525) Due to INAF and financial intermediaries (151) (124) On customer deposits (5,057) (5,546) On debt securities (770) (707) On subordinated debt (122) (148)
Income from equity securities 12 3 Shares and other equity investments 4 3 Net income from companies consolidated by equity accounting 8 -
NET INTEREST INCOME 3,849 3,482
Net service fees 3,899 2,552 Fees for services provided 4,363 2,903 Fees for services received (464) (351)
Gains on financial transactions 1,639 1,391 Allocations to the securities fluctuation allowance - 22 Exchange gains 197 128 Gains on securities transactions 1,442 1,241
Other ordinary income 74 85
NET ORDINARY INCOME 9,461 7,510
Personnel expenses (2,714) (2,541) Employees, indemnities (2,095) (2,003) Social Security (264) (262) Other personnel expenses (355) (276)
Overheads (2,946) (2,456) Material (120) (84) External services (2,015) (1,590) Taxes other than on income (737) (698) Other (74) (84)
Depreciation and amortization net of recoveries (1,628) (1,531) Depreciation and amortization (1,628) (1,531) Recoveries - -
Provisions for decline in value of assets net of recoveries - - OPERATING PROFIT 2,173 982 Provisions for loan losses net of recoveries (137) (211) Provisions to allowance for loan losses (618) (226) Recoveries from the allowance for loan losses 481 15 Provisions for contingencies and expenses net of recoveries - - General risk provision - - ORDINARY PROFIT 2,036 771 25 - Extraordinary profit CONSOLIDATED PROFIT FOR THE YEAR 2,061 771
The accompanying Notes 1 to 23 form an integral part of the Consolidated Financial Statements. 55 BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPOSING THE BANCSABADELL DANDORRA GROUP
Consolidated Statement of Source and Application of funds for the years ended December 31, 2004 and 2003 (Thousands of euros)
SOURCE OF FUNDS 2004 2003
From operations 3,811 2,493 Profit for the year 2,061 771 Net allocation to the allowance for loan losses 139 211 Net allocation to the securities fluctuation allowance - (22) Depreciation and amortization 1,628 1,531 (Loss)/Profit on the sale of fixed assets (17) 2
Positive change of liabilities minus assets 29,784 2,100 INAF and financial intermediaries (Liabilities - Assets) 29,657 450 Cash and OECD Central Banks 127 - Other (Liabilities Assets) - 1,650
Increase net of liabilities 32,920 45,492 Creditors: customers 32,920 45,299 Debt securities - 143 Subordinate liabilities - 50
Sale of permanent investments 379 - Sale of fixed assets 379 -
TOTAL SOURCE OF FUNDS 66,894 50,085
APPLICATION OF FUNDS
Positive change of assets minus liabilities 2,099 - Banks and financial institutions (Assets Liabilities) - - INAF and financial institutions (Assets Liabilities) - - Other (Assets Liabilities) 2,099 -
Decrease net of liabilities 11,609 - Debt securities 7,402 - Subordinated debt 4,207 -
Net increase of assets 51,485 48,995 Cash and OECD Central Banks - 2,913 Loans: customers 39,436 44,615 Investment portfolio less equity investment 12,049 1,467
Permanent investment purchases 1,701 1,090 Purchases of equity investments 610 - Purchases of fixed assets 1,091 1,090
TOTAL APPLICATION OF FUNDS 66,894 50,085
The accompanying Notes 1 to 23 form an integral part of the Consolidated Financial Statements.
56 CONSOLIDATED FINANCIAL STATEMENTS
BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPOSING THE BANCSABADELL DANDORRA GROUP
Notes to the Consolidated Financial Statements for the year ended December 31, 2004 (Thousands of euros)
1. NATURE O BUSINESS
BancSabadell dAndorra, S.A. (hereinafter BancSabadell dAndorra or the Bank) is an andorran bank which was incorporated on April 10, 2000 and started operations on June 3, 2000.
On October 30, 1998, the Banks sponsor, Entitat Promotora de la Constitució de lEntitat Bancària BancSabadell Internacional dAndorra, S.A. (hereinafter, the Sponsor,), informed the Government of Andorra of its interest in setting up a new bank. The reply to the Sponsors application was provided in ruling 01/C/99 of August 31, 1999, which gave clearance for the incorporation of the institution subject to prior compliance with the conditions established in the Law of June 30, 1998 governing the creation of new banking institutions in Andorra (and other applicable regulations).
The Government of Andorra authorized the creation of BancSabadell dAndorra in ruling 7064/1999.
On November 9, 2000, as a result of the creation of BancSabadell dAndorra, the Sponsor was wound up and its assets and liabilities were integrated in the Banks financial statements at their book value.
The Banks corporate purposes is that of a banking institutions as defined in Article 2 of the Law regulating the operations of the various components of the andorran financial system. The Bank may also engage in activities ancillary to its corporate purposes with the aim of improving its performance.
The Bank is the controlling institution of the BancSabadell dAndorra Group, and Sabadell dAndorra Inversions Societat Gestora, S.A., Sabadell dAndorra Borsa, S.A. and Asegurances Segur Vida, S.A. are dependent companies.
Sabadell dAndorra Inversions Societat Gestora, S.A. is an andorran corporation which was set up on November 23, 2000, in compliance with the requirements established in the law regulating the operations of the various components of the financial system, approved by the General Council of Andorra on December 19, 1996. The corporate
57 purpose of this company is to engage in the activities of investment institutions as specified in the Law, within the specialized area of management of investment schemes.
Sabadell dAndorra Borsa, S.A. is an andorran corporation which was set up on November 23, 2000, in compliance with the requirements established in the law regulating the operations of the various components of the financial system, approved by the General Council of Andorra on December 19, 1996. The corporate purpose of this company is to engage in the activities of financial intermediaries as specified in the Law, within the specialized area of management of investment schemes. In January 2004, in accordance with the resolution of the Board of Directors of the Bank adopted on October 10, 2003, euros 4,828 thousand in deposits and other securities held for safekeeping were transferred from Sabadell dAndorra Borsa, S.A. to BancSabadell dAndorra, S.A. leaving the latter dormant as of February 3, 2004.
Assegurances Segur Vida, S.A. is an andorran corporation which was set up on March 8, 2004, in compliance with the requirements established in the law regulating the operations of the various components of the financial system, approved by the General Council of Andorra on December 19, 1996. The corporate purpose of this company consists in undertaking the activities of life insurance entities sanctioned by current legislation. The company has been dormant in 2004.
2. BASIS OF PRESENTATION AND CONSOLIDATION PRINCIPLES
True and fair view The accompanying consolidated financial statements were obtained from the accounting records of the Bank and companies comprising the Banc Sabadell dAndorra Group (hereinafter, the Group) and are prepared in accordance with the formats, principles, criteria and standards established in the chart of accounts of the andorran financial system approved by the Government of Andorra on January 19, 2000 and give a true and fair view of the Groups net worth, financial position and consolidated income.
The 2004 consolidated annual accounts of the Bank and of the Companies comprising the Group, which were prepared by the Banks Board of Directors and the Companies Sole Directors, will be submitted to the respective Shareholders Meetings for approval and the Directors anticipate that they will be approved without changes.
58 CONSOLIDATED FINANCIAL STATEMENTS
Accounting principles
The accompanying consolidated financial statements were prepared in accordance with the generally accepted accounting principles described in Note 3. All significant accounting principles affecting these financial statements have been complied.
Consolidation principles
Subsidiary companies in which the Bank holds more than 50% of the share capital, whose activities do not differ from that of the Bank, and which in conjunction with the latter form a single decision-making unit, have been fully consolidated.
Subsidiary companies in which the Bank holds between 20% and 50% of share capital, or if holding more than 50% but whose activity differs from that of the Bank, are consolidated by equity accounting.
The full consolidation method consists basically in replacing the net book value of the shareholding and the flows deriving from this situation by the assets and liabilities, income and expenses of the investee companies. In other words, the balances of the subsidiaries to be consolidated forming part of the group are added to the balance sheet and statement of operations of the parent company, substituting the net book values of the shareholdings by the assets and liabilities of the companies to be consolidated.
Full consolidation means that the figures in the balance sheet and statement of operations of the investee company have been aggregated, and the shareholding eliminated, after having first been temporarily homogenized and homogenized in value terms and after eliminating the internal operations.
Equity accounting consists in replacing the net book value at which the investment is carried under assets by the percentage the Bank holds of the capital and reserves of the investee company. The results contributed by companies consolidated by equity accounting are taken to profit and loss.
59 Details of the consolidated companies as of December 31, 2004 are given below in thousands of euros:
Sabadell dAndorra Sabadell dAndorra Assegurances Segur Company Inversions, Societat Gestora, S.A. (a) Borsa, S.A. (b) Vida, S.A. (b)
Carretera de lObac 12, Carretera de lObac 12, Registered Avinguda del Fener, 7 office Ed. El Forestal B, Ed. El Forestal B, Oficina 4 - Andorra la Vella Andorra la Vella Oficina 4 - Andorra la Vella
Line of Manager of investment Financial broker Insurance Company business schemes
% Held directly 100% 100% 100%
Consolidation Fully consolidated Fully consolidated Equity accounting method Thousands of euros Capital stock 30 31 602
Reserves 176 18 - Results for 2004 174 (2) 8
Interim - - - dividend
(a) Audited company (b) Dormant company
3. ACCOUNTING PRINCIPLES AND VALUATION CRITERIA
The following accounting principles and valuation criteria were applied in the preparation of the accompanying consolidated financial statements.
a) Accrual basis
Income and expenses are recorded on an accrual basis, and the interest method is used for transactions spanning more than twelve months. Nevertheless, in accordance with conservative accounting principles and as required by applicable legislation, all interest accrued on loans classified as doubtful or very doubtful are recognized as revenue when they are collected.
b) Recording basis
In accordance with banking practice, transactions (including both on- and off-balance-sheet transactions) are recorded as of the date they take place, which may differ from the value date as of which interest income and expenses are computed.
60 CONSOLIDATED FINANCIAL STATEMENTS
c) Foreign currency
Foreign currency assets and liabilities and spot currency purchase-sale operations for hedging purposes contracted and not matured have been translated into euros at the mid-market exchange rates prevailing at year-end as determined by the Andorran Bankers Association. Any exchange gains or losses arising on transactions covered by forward exchange contracts are recognized over the life of such contracts. All other exchange gains or losses arising over the year are recorded in the accompanying consolidated statement of operations. d) Allowance for loan losses
The allowance for loan losses was set up to cover potential losses on the recovery of investments with financial intermediaries, loans and other risks. This allowance is increased by provisions charged against income and reduced by charge-offs and recoveries of amounts previously provided for.
The allowance for loan losses was determined on a case-by-case basis under highly conservative criteria and it is kept at the required level to cover all potential losses. In order to cover any losses which may arise in the future on risks not individually identified as being likely to cause problems at present, provisions have been made to the general- purpose allowance equal to 0.5% of net loans to banks and 1% of net loans to customers (excluding the portion covered by cash pledged as collateral and mortgage loans for dwellings) and fixed-income securities.
The country-risk allowance is calculated on the basis of a consolidated analysis of the aforementioned risks under highly conservative criteria determining the necessary coverage. The evolution of the balance of payments, the debt level, quotations of debts in international secondary markets, and other country indicators and circumstances are taken into consideration in the overall evaluation of the risk. e) Investment securities
Fixed-income and equity securities may be classified, according to their purposes, as trading, available-for-sale, or held to maturity securities.
Trading securities include listed securities and investment schemes, which the Bank intends to sell in the short term with the aim of making a profit from price fluctuations, are carried at market value.
The securities in the held-to-maturity portfolio include fixed-income securities that the Group has decided to hold to maturity provided it has the ability to do so.
61 These securities are stated at adjusted cost price: cost price is adjusted each month by accruing the difference between cost and redemption value over the remaining life of the related security.
Available-for-sale securities include all of the other securities not falling under the above categories, including investment schemes, where appropriate, are shown at adjusted cost price. In addition, a calculation is made of the difference between the market value and the adjusted cost price, and a provision is made to the security price fluctuation allowance which is charged to the statement of operations, equal to the sum of any losses less the sum of any gains to the extent of such losses.
Equity securities carried under the available-for-sale securities portfolio are recorded in the balance sheet at the lesser of their acquisition price or market value. In order to recognize the respective losses, a securities fluctuation allowance has been set up as lesser assets on the accompanying Consolidated Balance Sheet.
Variable income securities carried under permanent investments are stated in the accompanying balance sheet at the lower of their cost of acquisition or market value. If the latter were lower, a provision must be se up to reflect the loss in value to the securities fluctuation reserve. Unlisted securities of Group companies are stated at the value of the fraction they represent of the net equity of the shareholding adjusted by the amount of the potential capital gains at the time of the acquisition that are still in effect up to the limit of the acquisition price.
f) Premises and equipment
Premises and equipment are stated at cost, less the related depreciation.
Expenditure on expansion, modernization or improvement is capitalized as an increased cost of the related assets provided that it increases productivity, capacity or efficiency, or extends the useful lives of these assets.
The Group depreciates its premises and equipment on a straight-line basis over the years of estimated useful life of each asset as follows:
YEARS OF ESTIMATED USEFUL LIFE
Buildings 50 Furniture and fittings 10 Data processing equipment 5
62 CONSOLIDATED FINANCIAL STATEMENTS
Non-operating assets include land and buildings not directly involved in banking activity, which are stated at their cost of acquisition and written off over their useful lives in the same percentages as operating assets. g) Intangible assets
The balance of this caption basically relates to payments to external suppliers for various computer programs and incorporation expenses. Both the cost of the programs and the incorporation expenses are amortized on a straight-line basis over five years. h) Provisions for pensions and similar obligations
The Group has no system in place for its employees to supplement old-age pensions paid by the Andorran Social Security system. i) Futures contracts
These instruments are basically used to hedge the Groups equity positions and are recorded in the memorandum accounts at the par value of the related contracts (see Note 19).
Transactions whose purpose and effect is to eliminate or substantially reduce the currency, interest rate or market risks associated with equity positions or other transactions are considered as hedges. Gains or losses on hedging transactions are accrued symmetrically to the revenues or expenses relating to the item hedged.
The Group has not carried out any non-hedging transactions (also called trading transactions). j) General risk provision
The general risk provision includes the amounts that the Entity deems necessary to cover general banking risk and is allocated to cover risks inherent in banking and finance activity. k) Accrual of interest
The Entity uses the interest method (i.e., based on the internal profitability rate or resulting cost) to calculate the accrual of interest of both assets and liabilities maturing in more than 12 months.
The Group can choose between the above method and straight-line accrual for operations maturing in less than 12 months.
63 4. INAF
This caption in the accompanying consolidated balance sheets as of December 31, 2004 and 2003, broken down by demand or time deposit, is as follows:
Thousands of euros Assets 2004 2003 Demand - - Time 6,220 6,220 6,220 6,220
Liabilities Demand 2 2 Time 6,221 6,221 6,223 6,223
On 27 March 2003 the Bank set up reserves guaranteeing deposits totaling euros 6,010 thousand, as stipulated by the INAF in its circular no. 150.
As of December 31, 2004 there are no balances in foreign currency in this caption.
5. DEMAND BALANCES DUE FROM FINANCIAL INTERMEDIARIES
Set out below is a breakdown of this caption under assets in the accompanying consolidated
Thousands of euros 2004 2003 By currency: In euros 2,044 1,132 In foreign currency 574 885 2,618 2,017 By type: Correspondent accounts 2,618 2,017 2,618 2,017
Demand balances are balances which can be withdrawn at any time without notice or which are subject to 24-hour or one business day withdrawal notice.
There has been no movement in the loan loss provision during the year.
64 CONSOLIDATED FINANCIAL STATEMENTS
6. LOANS
Set out below is a breakdown of this asset caption in the accompanying consolidated balance sheet, by currency and sector, excluding the allowance for loan losses:
Thousands of euros 2004 2003 By currency In euros 256,022 273,797 In foreign currency 62,051 34,693 318,073 308,490
By sector Loans to banks 141,339 171,190 Andorran public sector Central government 3,395 1,795 Local government 2,657 4,488 Private sector 170,682 131,017
318,073 308,490
Set out below is a breakdown of loans according to residual maturity at year-end:
Thousands of euros 2004 2003 By maturity: Due 435 187 Up to one month 141,515 161,296 From one month to three months 10,544 18,108 From three months to one year 22,097 17,819 From one year to five years 34,840 21,937 Over five years 106,590 86,770 Unspecified maturity (*) 2,052 2,373 318,073 308,490
(*) Relates to overdrafts in customer accounts (not including either those considered as due or doubtful loans or overdrafts).
65 Set out below is the breakdown of this caption, not including loans to banks, by type of collateral and degree of risk, excluding the allowance for loan losses:
Thousands of euros 2004 2003 By type of collateral: Secured Mortgage 113,336 80,428 Cash 3,988 2,755 Securities 2,086 2,249 Personal guarantees 57,324 51,868 176,734 137,300 By degree of risk: Ordinary 176,299 137,113 Past due 140 177 Doubtful 295 10 176,734 137,300
Movement in the allowance for loan losses in 2004 was as follows:
Thousands of euros Specific Generic Allowance Allowance Total Opening balance 65 1,374 1,439 Add: Period provisions, net 176 334 510 Less: Bad debt allowance used 2 - 2 Allowance released - 430 430
Closing balance year 2004 239 1,278 1,517
7. INVESTMENT SECURITIES
Set out below is a breakdown of the Investment securities caption under assets in the accompanying consolidated balance sheet as of December 31, 2004 and 2003, by type of security and listing status, excluding the allowance for loan losses and the security fluctuation allowances:
66 CONSOLIDATED FINANCIAL STATEMENTS
Thousands of euros 2004 2003 By type: Available-for-sale Debentures and other fixed-income securities 23,724 11,505 Equity securities 26 26
Held-to-maturity Government debt securities 1,082 1,082 Debentures and other fixed-income securities 17,327 17,344
Trading Debentures and other fixed-income securities 7 160
Permanent investments 62 62 Shareholding in Group companies consolidated by equity accounting 610 - 42,838 30,179 By listing status: Listed 42,115 28,860 Unlisted 723 1,319
42,838 30,179
The methods used to categorize securities are detailed in Note 3.
On December 28, 2001, the Government of Andorra approved a decree to issue government debt securities on December 31, 2001, maturing on December 31, 2005, and earning variable interest. The Bank subscribed to euros 1,082 thousand of this issue.
In 2003 the Bank acquired a 0.238% interest in Semtee, S.A. totaling euros 62 thousand, included in Permanent investments.
Shareholding in Group companies consolidated by equity accounting relates totally to Assegurances Segur Vida, S.A.
The market value at the year end of ordinary investments totals euros 23,793 thousand (euros 11,548 thousand 2003), investments held to term, excluding Public Debt, totals euros 18,025 thousand (euros 18,197 thousand 2003) while the trading portfolio totals euros 7 thousand.
67 Set out below is a breakdown of the available-for-sale and the held-to-maturity securities portfolio (Government debt securities and Debentures and other fixed income securities) by residual maturity:
2004 - Thousands of euros
Available-for-sale Debentures and other Government fixed-income securities debt securities From one to three months 1,000 - - From three months to one year 44 - 1,082 From one year to five years 9,869 17,327 - Over five years 12,811 - -
23,724 17,327 1,082
2003 - Thousands of euros
Available-for-sale Debentures and other Government fixed-income securities debt securities
From three months to one year 1,015 - - From one year to five years 10,490 17,344 1,082 Over five years - - - 11,505 17,344 1,082
Movement in the allowance for loan losses in 2004 was as follows:
Thousands of euros
Opening balance 146
Add: General-purpose provisions to the allowance, net 110 Less: Bad debt allowance used - Allowance released 51 Transfers and other -
Closing balance year 2004 205
68 CONSOLIDATED FINANCIAL STATEMENTS
Movement in the securities fluctuation allowance in 2004 has been as follows:
Thousands of euros
Opening balance 27 Add: Provisions to the allowance, net - Less: Securities fluctuation allowance used - Allowance released - Transfers and other -
Closing balance year 2004 27
8.INTANGIBLE ASSETS AND DEFERRED CHARGES
Movement in the cost of intangible assets in 2004 and the related accumulated amortization are shown below:
2004 - Thousands of euros Opening Reclassifi- Closing balances Additions Disposals cations balance Cost of acquisition Software 3,513 317 - - 3,830 Others 1,043 - (14) - 1,029
Subtotal 4,556 317 (14) - 4,859
Accumulated amortization Software (1,955) (718) - - (2,673) Others (717) (208) - - (925)
Subtotal (2,672) (926) - - (3,598)
Total 1,884 (609) (14) - 1,261
69 9. PREMISES AND EQUIPMENT
Movement in the premises and equipment accounts in 2004 and the related accumulated depreciation are shown below:
2004 - Thousands of euros Opening Reclassi- Revalua- Closing Cost balance Additions Disposals fications tions balance
Assets assigned to operations
Land 3,564 - - (521) - 3,043 Buildings 5,522 - - (897) - 4,625 Furniture 1,043 2 - - - 1,045 Installations 2,427 397 - - - 2,824 Computer and data processing equipment 1,066 366 - - - 1,432 Vehicles 23 - - - - 23 Artistic assets 72 23 - - - 95
Assets not assigned to operations
Buildings 215 - (215) 580 127 707 Land 165 - (165) 838 169 1,007 Others -
Subtotal 14,097 788 (380) - 296 14,801
Accumulated depreciation
Assets assigned to operations
Buildings (295) (107) - 48 - (354) Furniture (330) (105) - - - (435) Installations (750) (247) - - - (997) Computer and data processing equipment (688) (235) - - - (923) Vehicles (9) (5) - - - (14) Artistic assets ------Assets not assigned to operations Buildings (15) (3) 18 (48) - (48) Subtotal (2,087) (702) 18 - - (2,771)
Total 12,010 86 (362) - 296 12,030
70 CONSOLIDATED FINANCIAL STATEMENTS
On 30 December 2004 the INAF authorized the Bank to revaluate its assets in the amount of euros 296 thousand (see Note 15).
No interest or exchange gains or losses relating to premises and equipment were capitalized in 2004.
At 31 December 2004 non-operating assets relate to rental housing owned by the Bank.
10. DEPOSITS DUE TO BANKS
The breakdown of Deposits Due to banks under liabilities in the accompanying consolidated balance sheet, by currency and type, is shown below:
Thousands of euros 2004 2003 By currency: In euros 1,020 434 In foreign currency 29 208
1,049 642 By type: Demand 1,049 441 Time - 201
1,049 642
Demand balances are balances which can be withdrawn at any time without notice or which are subject to 24-hour or one business day withdrawal notice.
Set out below is a breakdown by maturity from the balance sheet date of the time deposits recorded in this caption of the accompanying consolidated balance sheet:
Thousands of euros 2004 2003 Up to one month - 201
71 11. CUSTOMER DEPOSITS
The breakdown of this liability caption in the accompanying consolidated balance sheet, by currency and type is shown below:
Thousands of euros 2004 2003 By currency: In euros 281,447 274,905 In foreign currency 63,356 36,978 344,803 311,883 By type: Demand deposits Checking accounts 68,242 60,677 Savings accounts 11 962 Time deposits Certificates of deposit 276,550 250,244
344,803 311,883
Set out below is a breakdown by maturity from the balance sheet date of the deposits recorded in this caption in the accompanying consolidated balance sheet:
Thousands of euros 2004 2003
Up to one month 176,824 162,546 From one month to three months 62,752 56,520 From three months to one year 36,808 31,178 From one year to five years - - Over five years - - Unspecified maturity (*) 68,419 61,639 344,803 311,883
(*) Relates to customer demand deposit balances.
72 CONSOLIDATED FINANCIAL STATEMENTS
12. DEBT SECURITIES
The breakdown of this caption in the accompanying balance sheet by residual maturity is as follows:
Thousands of euros 2004 2003 Up to three months - - From three months to one year 1,000 8,302 From one year to five years 9,000 9,100 Over five years - - 10,000 17,402
13. GENERAL RISK PROVISION
The amount of the provisions set up in this liability caption in the accompanying consolidated balance sheet relates to funds that the Group has set aside, under conservative principles, to cover the risks inherent in banking and financial activities.
Under the chart of accounts of the andorran financial system, this provision is considered as equity for the purpose of calculating the capital ratio.
There has been no movement in this caption in 2004.
14. SUBORDINATED DEBT
On 20 December 2004 saw the maturity of the subordinated debt of euros 4,207 thousand issued by BancSabadell dAndorra, S.A. under the authorization of the INAF of 19 December 2000.
BancSabadell dAndorra, S.A. paid euros 87 thousand in 2004 in respect of interest on this subordinated debt issue, which was recorded under Interest and similar charges in the accompanying consolidated statement of operations.
On January 28, 2002 a participating loan was signed with Banco de Sabadell, S.A. for an amount of euros 1,500 thousand, maturing on January 21, 2012. Of the interest accrued since the formation of the loan, the Bank capitalized the interest relating to the first half of 2002 amounting to euros 22 thousand and the interest relating to the second half of 2002 and first half of 2003 totaling euros 50 thousand.
BancSabadell dAndorra, S.A. paid euros 34 thousand in 2004 in respect of interest on this participating loan, which was recorded under Interest and similar charges in the accompanying consolidated statement of operations.
73 15. MOVEMENT IN EQUITY
Set out below is a breakdown, in Thousand euros, of movement in the Groups equity accounts in 2004:
Thousands of euros Accumulat Reserve for Consolida- Consoli- Revalua- Capital Total stock ed losses redenomina- tion dated profit tion (*) tion in euros reserves / (loss) reserves equity
Balance at December 31, 2003 30,068 (6,556) 1 86 771 - 24,370
Appropriation of 2003 loss - 663 - 108 (771) - -
Profit for 2004 - - - 2,061 - 2,061
Revaluation of fixed assets - - - - 296 296
Balance at December 31, 2004 30,068 (5,893) 1 194 2,061 296 26,727
(*) Accumulated losses from previous years
On 30 December 2004 the INAF authorized the revaluation of certain buildings not under operation at below market value, as per an independent experts valuation (see note 9) prepared in December 2004. The revaluation has totaled euros 296 thousand, charged against reserves, and has not been taken to profit and loss.
Capital stock
The capital stock figure shown in these consolidated financial statements relates to BancSabadell dAndorra, S.A. and comprises 500,305 fully subscribed and paid shares with a par value of euros 60.10 each. The shares are divided into series A shares (255,000) and series B shares (245,305). The series A shares (51% of the Bank) are owned by Banc Sabadell, S.A. and the series B shares (49% of the Bank) are owned by andorran minority shareholders.
Both the series A shares and the series B shares are freely transferable only in cases specified by the Banks by-laws.
74 CONSOLIDATED FINANCIAL STATEMENTS
Movement in the consolidation reserves in 2004 have been as follows:
Thousands of euros Sabadell dAndorra Sabadell Inversions, Societat dAndorra Total Gestora, S.A. Borsa, S.A.
Opening balance 78 8 86
Distribution of 2003 results 98 10 108
Balance at 31 December 2004 176 18 194
The breakdown of consolidated results for 2004 by Company is as follows:
Thousands of euros BancSabadell dAndorra, S.A. 1,881 Sabadell dAndorra Inversions, Societat Gestora, S.A. 174 Sabadell dAndorra Borsa, S.A. (*) (2) Assegurances Segur Vida, S.A. (*) 8 2,061
(*) Dormant
16. ALLOCATION OF PROFIT
The Board of Directors will recommend that the following allocation (in Thousands of euros) of the results of BancSabadell dAndorra, S.A. be approved by the General Meeting of Shareholders:
Thousands of euros
Profit for the year 2004 1,881
Appropriation to: Accumulated results from previous years 1,881
17. ASSETS AND LIABILITIES IN CURRENCIES OTHER THAN THE EURO
As indicated in Note 3-c, the exchange rates used are determined by the Andorran Bankers Association.
There are no significant items in non-euros currencies other than those set out in Notes 5, 6, 10 and 11.
75 18. OTHER BALANCE SHEET AND STATEMENT OF OPERATIONS ACCOUNTS
The breakdown of this caption as of December 31, 2004 is as follows:
Thousands of euros
Checks sent to be offset 796 Drafts sent to be offset 783 Operations with securities pending redemption 632 Other 529
Total current transactions 2,740
Options acquired 211
Credit card operations pending settlement 1,089 Other 83
Total other 1,172
The breakdown of Other liabilities on the accompanying balance sheet at 31 December 2004 is as follows:
Thousands of euros
Checks sent pending offset 730 Operations with securities pending redemption 602 Others 373
Total current transactions 1,705
Suppliers and other creditors 507 Provision for employee remuneration 170 Others 135
Total trade and other accounts payable 812
19. FINANCIAL DERIVATIVES
The table below gives details of the notional values of outstanding futures as of December 31, 2004 and 2003, classified according to the purpose of the contract:
76 CONSOLIDATED FINANCIAL STATEMENTS
2004 - Thousands of euros
Forward currency sales and purchases 117,405 Interest rate swaps 20,064 Stock options 8,000 145,469
2003 - Thousands of euros
Forward currency sales and purchases 58,894 Interest rate swaps 28,687 Stock options 4,000 91,581
The par value of the existing contracts does not reflect the total risk held by the Group, since the net position in respect of these financial instruments is determined by their composition and/or combination.
The above interest rate swaps consist entirely of hedging transactions related to various products sold by the Bank.
As of December 31, 2004 and 2003 none of the financial derivatives are traded in official markets. The maturity structure of futures transactions are as follows:
Thousands of euros 2004 2003 Currency sales and purchases and swaps: Up to one year 117,405 58,894 From one year to five years - - Over five years - - 117,405 58,894 Interest rate swaps: Up to one year 222 8,285 From one year to five years 17,300 17,766 Over five years 2,542 2,636 20,064 28,687 Stock options: Up to one year 2,000 - From one year to five years 6,000 4,000 Over five years - - 8,000 4,000
77 20. MEMORANDUM ACCOUNTS
a) Securities and other assets held in safekeeping
Securities deposits include as of December 31, 2004 an amount of euros 13,809 thousand as a guarantee on various asset and own risk operations.
As of December 31, 2004 individual customer equity managed by the Bank is recorded under Third-party securities and other assets held in safekeeping in the memorandum accounts and other assets held in safekeeping and creditor accounts under liabilities in the Balance Sheet. The revenues recorded for equity management services are included in the caption Services for fees provided.
b) Other memorandum accounts
The Other memorandum accounts basically consists of guarantees and sureties received as security (euros 1,653 thousand), a trust deposit in pounds sterling (euros 1,456 thousand) and foreign drafts and checks sent for collection (euros 2,381 thousand).
21. TRANSACTIONS WITH RELATED PARTIES AND GROUP INSTITUTIONS
The breakdown of balances with Group subsidiaries and with shareholders and entities related to the shareholders representing more than 10% of the shareholders equity stated on the Balance Sheet is as follows:
Thousands of euros Other shareholders and Group Entities related to the shareholders Demand balances due from financial intermediaries Assets 1,597 - Liabilities - - Banks and financial intermediaries Assets 6,106 - Liabilities - - Customers deposits - 35,351 Investment securities 9,012 - Participating loan 1,572 - Accrual accounts Assets 646 - Liabilities 546 - Loans - 20,855 Memorandum accounts 79,949 37,223
78 CONSOLIDATED FINANCIAL STATEMENTS
Thousands of euros
Other shareholders and Group entities related to the shareholders Interest and similar revenue 811 139 Interest and similar charges (826) (7) Net service fees 4 9
22. RISK MANAGEMENT
The Cash and Investments unit, under the supervision of the Deputy General Manager, is in charge of monitoring and managing currency and interest rate risk in the balance sheet, market risk in the Groups own portfolio and concentration risk in cash operations.
Currency risk
It is Group policy to match currencies of assets and liabilities to minimize currency risk. Foreign currency positions are monitored daily.
Interest rate risk
It is Group policy to invest assets in the interbank market so as to match the maturity structure of assets and liabilities, thereby minimizing interest rate risk. Items subject to interest rate risk are monitored bi-weekly.
Concentration risk
Cash positions are monitored daily according to the limits established by current legislation and the Board of Directors.
In general, notwithstanding any specific coverage provided, there is no coverage aimed at reducing the Groups overall risk position in its management of assets, liabilities and other transactions, since the Institutions policy, both regarding currency risk and interest rate risk, is to match its assets and liability transactions in order to minimize those risks.
79 23. COMPLIANCE WITH LEGISLATION
Law Regulating the Capital and Liquidity Requirements for Financial Institutions
On February 29, 1996, the General Council of Andorra passed a law regulating the liquidity and capital requirements for financial institutions.
This law specifies that banks must maintain a capital ratio of at least 10%, as recommended by the Basle Committee on Banking Regulation and Supervisory Practices. The law also established a mandatory liquidity ratio of at least 40%.
The Groups capital and liquidity ratios, which were determined in accordance with the provisions of this law, stood at 14.37% and 72.25%, respectively (as of December 31, 2003, 14.52% and 84.83%).
The Law Regulating the Capital and Liquidity Requirements for Financial Institutions also limits the concentration of risks in a single beneficiary to 20% of the companys equity. Under this law, the aggregate risks individually exceeding 5% of equity may not exceed 400% of equity. Likewise, the Banks risk on transactions with members of the Board of Directors may not exceed 15% of equity. The risks set out above are weighted in accordance with the provisions of said law.
In 2004, the Group met all the requirements contained in this Law, and the highest risk exposure reached with one beneficiary was 17.75% of Group equity. Loans and other transactions entailing a risk exceeding 5% of equity with the same beneficiary did not exceed an accumulated total of 293.69% in 2004.
Law on international cooperation on penal matters and the campaign against the laundering of money or valuables which are the proceeds of international crime
On December 29, 2000, the General Council of Andorra passed the Law on international cooperation on penal matters and the campaign against the laundering of money or valuables which are the proceeds of international crime. This law was published in the Official Gazette of Andorra on January 24, 2001 and came into force in 2001.
The aforesaid law implements the rules in the Vienna and Strasbourg conventions into andorran legislation, aims to maximize the effectiveness of andorran legislation on this topic and repeals the Law on the protection of banking secrecy and the prevention of the laundering of money or valuables which are the proceeds of crime, dated May 11, 1995.
80 CONSOLIDATED FINANCIAL STATEMENTS
Under article 52 of this Law, the Group established a series of internal communication and control procedures aimed at protecting banking secrecy and preventing and stopping money laundering transactions. Thus, the Group has implemented staff training programs specifically addressing these topics.
Law on Indirect Tax on Banking and Financial Services
On May 14, 2002, the General Council of Andorra passed the Law on Indirect Tax on banking and financial services. The objective of this law is to tax the services that entities in the financial sector provide to their customers.
The tax payable is calculated objectively in accordance with the provisions of the Law on Indirect Taxation on the provision of banking and financial services and on the basis of the tax returns filed.
The amount recorded as of December 31, 2004 under Taxes Other Than on Income in the Statement of Operations for this Indirect Tax was euros 543 thousand.
81 BOARD OF DIRECTORS AND MANAGEMENT TEAM
Board of Directors
Chairman of the board Robert Cassany i Vila
Directors Miquel Alabern i Comas Llibert Barcons i Freixas Albert Borràs i Ferré Miquel Àngel Canturri i Montanya Joan Llonch i Andreu Josep Permanyer i Cunillera Josep Anton Ribes i Roca Josep Vilanova i Trias
Management team
General Manager Miquel Alabern i Comas Deputy General Manager Josep Segura i Solà
Retail Banking Manager Antoni Canes i Soldevila Private Banking Manager Antoni Masip i Mestre Personal Banking Manager Josep Pallerola i Segon Investment Manager Jaume Santaeulària i Lozano Operations Manager Santiago Tiana i Tous
El Fener branch Manager Mercè Alavedra i Riera Meritxell branch Manager Pere Valero i Macias El Pas de la Casa branch Manager Lluís Gaztelu i Guitard La Massana branch Manager Joan Pla i Oliva
82 ADDRESSES OF BANCSABADELL DANDORRA
El Fener branch Av. del Fener, 7 Andorra la Vella Tel. 73 56 80 Fax 73 56 81
Meritxell branch Av. Meritxell, 85 Andorra la Vella Tel. 80 36 00 Fax 80 36 01
La Massana branch Avinguda de Sant Antoni, s/n Edifici lAcacia La Massana Tel. 73 86 00 Fax 73 86 01
El Pas de la Casa branch Carrer de les Abelletes, 8 El Pas de la Casa Tel. 75 56 00 Fax 75 56 01
Head Office Av. del Fener, 7 Andorra la Vella Tel. 73 56 00 Fax 73 56 01
Direct Banking 'A directe - Tel. 73 56 66 'A On line - www.bsa.ad
83