ANNUAL REPORT 2006 INFORME ANUAL
BancSabadell dAndorra ANNUAL REPORT 2006
Auditors Report page 55
Consolidated Financial 56 Statements
Board of Directors and 88 Management Team
Addresses of BancSabadell dAndorra 89
BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPRISING THE BANCSABADELL DANDORRA GROUP
Consolidated Balance Sheets as of December 31, 2006 and 2005 (Thousand euros)
ASSETS 2006 2005
Cash and due from OECD banks 4,566 4,685
Due from INAF (Note 4) 6,220 6,220
Demand balances due from financial intermediaries (Note 5) 27,488 4,917
Loans (Note 6) 384,703 359,438
Due from banks 127,707 132,606 Customer loans and credits 254,337 224,123 Customer overdrafts 446 730 Bill portfolio 3,480 3,332 Allowance for loan losses (1,267) (1,353)
Investment securities (Note 7) 81,229 57,073
Debentures and other fixed-income securities 79,720 56,611 Allowance for loan losses (354) (239) Securities fluctuation allowance - - Shareholding in Group companies consolidated by equity accounting 633 616 Other shareholdings 62 62 Shares and other equity securities 1,168 23 Securities fluctuation allowance - -
Intangible assets and deferred charges (Note 8) 1,877 1,331
Intangible assets and deferred charges 6,746 5,684 Accumulated amortization (4,869) (4,353)
Premises and equipment (Note 9) 16,778 13,074
Premises and equipment 21,179 16,642 Accumulated depreciation (4,401) (3,568)
Accrual accounts 3,759 2,837
Uncollected accrued interest 3,711 2,796 Prepaid expenses 48 41
Other assets (Note 19) 5,867 5,320
Current transactions 5,528 4,481 Options acquired 121 211 Other 218 628
TOTAL ASSETS 532,487 454,895
The accompanying Notes 1 to 27 form an integral part of the Consolidated Financial Statements.
56 CONSOLIDATED FINANCIAL STATEMENTS
BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPRISING THE BANCSABADELL DANDORRA GROUP
Consolidated Balance Sheets as of December 31, 2006 and 2005 (Thousand euros)
LIABILITIES AND SHAREHOLDERS EQUITY 2006 2005
Due to INAF (Note 4) 6,338 6,248
Deposits 480,734 401,342
Due to banks (Note 10) 1,290 143 Customer deposits (Note 11) 479,444 401,199
Debt securities (Note 12) 2,000 7,000
Provision for contingencies and expenses (Note 13) 25 -
Provisions for post-employment benefits 25 -
General risk provision (Note 14) - -
Subordinated debt (Note 15) - 1,572
Accrual accounts 2,019 1,775
Unpaid accrued expenses 2,000 1,758 Unearned revenue 19 17
Other liabilities (Note 19) 5,135 6,830
Current transactions 3,668 5,823 Trade and other accounts payable 1,467 1,007
Capital stock (Note 16) 30,068 30,068
Capital stock 30,068 30,068
Reserves (Note 16) 963 671
Voluntary reserves 1 1 Consolidation reserves 666 374 Revaluation reserves 296 296
Profit (Note 16 and 17) 5,205 (611)
Consolidated profit 6,108 3,401 Accumulated consolidated losses from previous years (903) (4,012)
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 532,487 454,895
The accompanying Notes 1 to 27 form an integral part of the Consolidated Financial Statements.
57 BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPRISING THE BANCSABADELL DANDORRA GROUP Consolidated Memorandum Accounts as of December 31, 2006 and 2005 (Thousand euros)
2006 2005
Contingent liabilities 26,424 26,088
Pledges, sureties and guarantees given 26,161 25,015 Documentary letters of credit issued or received and confirmed 263 1,073 to customers
Commitments and contingencies 92,071 61,045
Operational commitments and contingencies 92,071 61,045
Futures (Note 20) 152,882 111,546
Outstanding currency sales and purchases 143,776 85,807 Financial forward transactions 9,106 25,739
Securities and other assets held in safekeeping (Note 22) 787,989 652.878
Third-party securities and other assets held in safekeeping 718,683 606,731 Own securities and other assets held in safekeeping 69,306 46,147
Other memorandum accounts held solely for Administrative control purposes (Note 22) 19,521 15,262
Pledges and commitments received 6,469 1,026 Other memorandum accounts 13,052 14,236
TOTAL MEMORANDUM ACCOUNTS 1,078,887 866,819
The accompanying Notes 1 to 27 form an integral part of the Consolidated Financial Statements.
58 CONSOLIDATED FINANCIAL STATEMENTS
BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPRISING THE BANCSABADELL DANDORRA GROUP Consolidated Statement of Operations for the years ended December 31, 2006 and 2005 (Thousand euros) 2006 2005 Interest and similar income 17,452 12,442 Demand balances due from INAF and financial intermediaries 286 167 On loans 14,248 10,204 On debentures and other fixed-income securities 2,918 2,071 Interest and similar charges (11,614) (7,882) Due to INAF and financial intermediaries (196) (151) On customer deposits (11,084) (7,054) On debt securities (317) (640) On subordinated debt (17) (37) Income from equity securities 28 5 Shares and other equity investments 28 5 Net income from companies consolidated by equity accounting - - NET INTEREST INCOME 5,866 4,565 Net service fees 8,169 5,545 Fees for services provided 8,761 6,134 Fees for services received (592) (589) Gains on financial transactions 1,732 1,562 Allocations to the securities fluctuation allowance - (201) Exchange gains 257 350 Gains on securities transactions 1,458 1,407 Net income from companies consolidated by equity accounting 17 6 Other ordinary income 78 61 NET ORDINARY INCOME 15,845 11,733 Personnel expenses (4,115) (3,319) Employees, directors and indemnities (3,298) (2,681) Social Security (405) (336) Other personnel expenses (412) (302) Overheads (4,152) (3,615) Material (98) (105) External services (2,704) (2,222) Taxes other than on income (1,298) (1,230) Other (52) (58) Depreciation and amortization net of recoveries (1,349) (1,552) Depreciation and amortization (1,349) (1,552) Recoveries - - Provisions for decline in value of assets net of recoveries - - OPERATING PROFIT 6,229 3,247 Provisions for loan losses net of recoveries (138) 130 Provisions to allowance for loan losses (876) (853) Recoveries from the allowance for loan losses 738 983 Provisions for contingencies and expenses net of recoveries - - General risk provision - - ORDINARY PROFIT 6,091 3,377 Extraordinary profit 17 24 CONSOLIDATED PROFIT FOR THE YEAR 6,108 3,401
The accompanying Notes 1 to 27 form an integral part of the Consolidated Financial Statements. 59 BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPRISING THE BANCSABADELL DANDORRA GROUP
Consolidated Statement of Source and Application of funds for the years ended December 31, 2006 and 2005 (Thousand euros)
SOURCE OF FUNDS 2006 2005
From operations 7,494 4,862 Profit for the year 6,108 3,401 Net allocation to the allowance for loan losses 138 (130) Net allocation to the securities fluctuation allowance - 201 Net allocation to other provisions (Post-employment) 25 - Depreciation and amortization 1,349 1,552 (Loss)/Profit on the sale of fixed assets - - Profit contributed by companies consolidated by equity accounting (17) - Others (109) (162)
Positive change of liabilities minus assets 119 10,561 INAF and financial intermediaries (Liabilities - Assets) 119 5,553 Cash and OECD Central Banks - 2,111 Other (Liabilities Assets) - 2,897
Increase net of liabilities 78,245 56,396 Creditors: customers 78,245 56,396 Debt securities and subordinate liabilities - -
Decrease in net assets - -
Sale of permanent investments - - Sale of fixed assets - -
Funds generated by financing activities 17 - Dividends collected from controlling shareholdings 17 -
TOTAL SOURCE OF FUNDS 85,875 71,819
APPLICATION OF FUNDS 2006 2005
Positive change of assets minus liabilities 19,355 - INAF and financial institutions (Assets Liabilities) 16,435 - Other (Assets Liabilities) 2,920 -
Decrease net of liabilities 6,572 3,000 Creditors: customers - - Debt securities and Subordinated debt 6,572 3,000
Net increase of assets 54,349 66,153 Cash and OECD Central Banks - - Loans: customers 30,078 51,451 Investment portfolio less equity investment 24,271 14,702
Permanent investment purchases 5,599 2,666 Purchases of equity investments - - Purchases of fixed assets 5,599 2,666
TOTAL APPLICATION OF FUNDS 85,875 71,819
The accompanying Notes 1 to 27 form an integral part of the Consolidated Financial Statements. 60 CONSOLIDATED FINANCIAL STATEMENTS
BANCSABADELL DANDORRA, S.A. AND COMPANIES COMPRISING THE BANCSABADELL DANDORRA GROUP
Notes to the Consolidated Financial Statements for the year ended December 31, 2006 (Thousand euros)
1. NATURE OF 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: 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,
61 approved by the General Council of Andorra on December 19, 1996. The corporate 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 began its activity in May 2005.
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 BancSabadell 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 2006 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.
62 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.
63 Details of the consolidated companies as of December 31, 2006 are given below in Thousand Euros:
% Registered share Conso- Profit Interim Company office Activity Holding lidation Capital Reserves for dividend (*) method 2006 Crta. de lObac Sabadell 12, Edifici dAndorra El Forestal B, Investment 100% Full 30 213 567 (480) Inversions, Oficina 4 manage- consoli- Societat Andorra la ment dation Gestora, S.A. (a) Vella
Sabadell Full Av. del Fener, 7 Financial dAndorra 100% consoli- 31 15 (1) - Borsa, S.A. Andorra la brokering dation (b) Vella
Crta. de lObac Assegurances 12, Edifici Segur Vida S.A. Insurance Equity 14 17 El Forestal B, Company 100% 602 - (a) Andorra la accounting Vella
(*) Percentage of direct shareholding (a) Audited companies (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.
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.
64 CONSOLIDATED FINANCIAL STATEMENTS
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. There are three types of loan loss allowances: specific, generic and country risk.
The loan loss allowance, as per the Andorran chart of account for the financial system, is calculated under the following criteria:
The specific provision, corresponding to all types of assets and memorandum accounts, is determined on the basis of individual studies of the quality of the risks contracted with the main debtors and borrowers, depending mainly on the guarantees given, the time that has transpired as from the default on payment at maturity, and as prudently as possible.
The generic allowance consists of a provision of 0.5% of the net loans and fixed income securities of banking institutions and 1% of the net loans to customers and fixed income securities, except for the part pignorated by cash guarantees and the risks guaranteed by pignorated listed securities, up to the limit of the market value of these securities, mortgage-backed loans and credit facilities and bond issues of central governments of OECD countries or bonds expressly guaranteed by these same bodies.
The country risk allowance is determined by an analysis of these risks using highly prudent criteria to determine the coverage necessary. The overall risk valuation takes into account the evolution of the balance of payments, debt level, debt servicing charges, trading of debt on international secondary markets and other indicators and circumstances of the country. 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.
65 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 securities 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
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.
66 CONSOLIDATED FINANCIAL STATEMENTS
The revaluation of certain assets authorised by the Administration is carried under the Revaluation reserve in section 10 of the liability side of the balance sheet under Reserves. 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 set up a Retirement Plan on 1 November 2006 contemplating supplementary, separate benefits to those set down in the public Social Security System of Andorra, to the benefit of the participating employees that wish to join the plan and who qualify as beneficiaries under the plans regulations (length of service in the company over 14 months at the date of the contributions, February of each year).
The plan promoters will contribute to the plan an annual amount of 1% of the total gross salary actually received by each participant during the previous year. They will also contribute an additional 1% in the event that the employee makes voluntary contributions to a collective insurance policy written by a non-group Company. These contributions from the promoters will be allocated to the acquisition of participations in the BSA Prudent Investment Fund managed by Sabadell dAndorra Inversions Societat Gestora, S.A. (related entity). A special contribution has been made for those participants who have joined the plan as Group employees before 1 January 2005 of a fixed amount depending on the year they joined the Group.
The contingencies covered by the plan are: retirement, total and permanent disability and death. If any of these contingencies covered by the Plan arise, the beneficiary will receive the respective benefit consisting of the value of his/her participations in said fund. i) Futures contracts
These instruments are basically used to hedge the Groups equity customer positions and are recorded in the memorandum accounts at the par value of the related contracts (see Note 20).
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).
67 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.
4. INAF This caption in the accompanying consolidated balance sheets as of December 31, 2006 and 2005, broken down by demand or time deposit, is as follows:
Thousand euros Assets 2006 2005 Demand - - Time 6,220 6,220 6,220 6,220 Liabilities Demand 118 28 Time 6,220 6,220 6,338 6,248
On 27 March 2003 the Group set up reserves guaranteeing deposits totalling euros 6,220 thousand, as stipulated by the INAF in its circular no. 150.
As of December 31, 2006 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 balance sheet, by currency and type of transaction:
Thousand euros By currency: 2006 2005 In euros 24,353 2,761 In foreign currency 3,135 2,156 27,488 4,917 By type: Correspondent accounts 27,488 4,917 27,488 4,917
68 CONSOLIDATED FINANCIAL STATEMENTS
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.
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:
Thousand euros
Set out below is a breakdown of loans according to residual maturity at year-end:
Thousand euros 2006 2005 By maturity: Due 232 353 Up to one month 128,328 108,387 From one month to three months 20,618 55,937 From three months to one year 35,250 35,436 From one year to five years 50,038 27,601 Over five years 151,149 132,969 Unspecified maturity (*) 355 108 385,970 360,791
(*) Relates to overdrafts in customer accounts (not including either those considered as due or doubtful loans or overdrafts).
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:
69 Thousand euros 2006 2005
Movement in the allowance for loan losses in 2006 was as follows:
Thousand euros
7. INVESTMENT SECURITIES
The breakdown of Investment securities on the asset side of the accompanying consolidated balance sheets at 31 December 2006 and 2005, by currency, excluding the allowance for loan losses and the securities fluctuation allowance, is as follows:
Thousand euros 2006 2005 By currency: In Euros 57,322 57,312 In foreign currency 24,261 - 81,583 57,312
70 CONSOLIDATED FINANCIAL STATEMENTS
Set out below is a breakdown of the Investment securities caption under assets in the accompanying consolidated balance sheet as of December 31, 2006 and 2005, by type of security and listing status, excluding the allowance for loan losses and the security fluctuation allowances:
Thousand euros By type: 2006 2005 Available-for-sale Debentures and other fixed-income securities 58,547 18,989 Equity securities - -
Held-to-maturity Government debt securities 8,807 8,807 Debentures and other fixed-income securities 12,270 27,729
Trading Debentures and other fixed-income securities 96 1,086 Shares and other equity securities 1,168 23
Shareholding in Group companies 633 616 Permanent investments 62 62 81,583 57,312 By listing status: Listed 70,913 46,955 Unlisted 10,670 10,357
81,583 57,312
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.
This issue reached maturity on 31 December 2005. The Government, through a Decree on that same date, approved a new issue of public debt with a floating interest rate, of which the Bank subscribed Euros 8,807 thousand maturing on 31 December 2006 . At 31 December 2006 this issue was renewed, maturing on 31 December 2007.
In 2003 the Bank acquired a 0.238% interest in Semtee, S.A. totalling euros 62 thousand, included in Permanent investments.
Shareholding in Group companies relates totally to Assegurances Segur Vida, S.A.
71 The value of the investment securities at market prices and at the year end exchange rate totals Euros 58,582 thousand, the held-to-maturity securities, excluding Public Debt, totals Euros 10,629 thousand, while the trading portfolio totals Euros 1,264 thousand .
The cost of acquisition of the trading portfolio totals Euros 1,264 thousand.
The unrecorded gains on the available-for-sale securities total Euros 34 thousand.
During the year no transfers have been made from the available-for-sale securities portfolio to the held-to-maturity portfolio.
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:
2006 - Thousand euros Held-to-maturity securities portfolio Available-for-sale Debentures and other Government fixed-income securities debt securities From one to three months - - - From three months to one year - - 8,807 From one year to five years 30,184 3,986 - Over five years 28,363 8,284 -
58,547 12,270 8,807
2005 - Thousand euros Held-to-maturity securities portfolio Available-for-sale Debentures and other Government fixed-income securities debt securities From one to three months - - - From three months to one year - 17,311 8,807 From one year to five years 3,497 3,975 - Over five years 15,492 6,443 -
18,989 27,729 8,807
72 CONSOLIDATED FINANCIAL STATEMENTS
Movement in the allowance for loan losses in 2006 was as follows:
Thousand euros
Opening balance 239 Add: General-purpose provisions to the allowance, net 192 Less: Bad debt allowance used - Allowance released (77) Transfers and other -
Closing balance year 2006 354
During the year there have been no movements in the securities fluctuation allowance.
8. INTANGIBLE ASSETS AND DEFERRED CHARGES
Movement in the cost of intangible assets in 2006 and the related accumulated amortization are shown below:
Thousand euros Opening Reclassifi- Closing balances Additions Disposals cations balance Cost of acquisition Software 4,641 1,062 - - 5,703 Others 1,043 - - - 1,043
Subtotal 5,684 1,062 - - 6,746
Accumulated amort. Software (3,310) (516) - - (3,826) Others (1,043) - - - (1,043)
Subtotal (4,353) (516) - - (4,869)
Total 1,331 546 - - 1,877
During 2006 fully amortised assets total Euros 1,552 thousand, Euros 1,043 thousand for formation expenses included under Others and Euros 509 thousand carried under Software.
73 9. PREMISES AND EQUIPMENT
Movement in the premises and equipment accounts in 2006 and the related accumulated depreciation are shown below:
Thousand euros Opening Disposals Closing Cost balance Additions balance
Assets assigned to operations Land 3,043 - - 3,043 Buildings 5,135 1,222 - 6,357 Furniture 1,130 55 - 1,185 Installations 3,773 492 - 4,265 Computer and data processing equipment 1,687 396 2,083 Fixed assets in construction - 2,372 - 2,372 Vehicles 65 - - 65 Artistic assets 95 - - 95
Assets not assigned to operations Buildings 707 - 707 Land 1,007 - - 1,007 - Subtotal 16,642 4,537 21,179 - Accumulated depreciation
Assets assigned to operations Buildings (449) (111) (560) Furniture (547) (115) - (662) Installations (1,342) (396) - (1,738) Computer and data processing equipment (1,146) (184) - (1,330) Vehicles (22) (13) (35) Artistic assets - - - - - Assets not assigned to operations - Buildings (62) (14) (76)
Subtotal (3,568) (833) - (4,401)
Total 13,074 3,704 - 16,778
During 2006 fully depreciated premises and equipment totalled Euros 157 thousand, Euros 133 thousand for Computer equipment and Euros 24 thousand under Vehicles.
No interest or exchange gains or losses relating to Premises and Equipment were capitalized in 2006.
74 CONSOLIDATED FINANCIAL STATEMENTS
At 31 December 2006 assets not assigned to operations relate to the Banks own dwellings, which it rents out.
At 31 December 2006 there are no significant circumstances that affect the premises and equipment.
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:
Thousand euros 2006 2005 By currency: In euros 1,270 143 In foreign currency 20 -
1,290 143 By type: Demand 1,290 143 Time - -
1,290 143
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.
11. CUSTOMER DEPOSITS
The breakdown of this liability caption in the accompanying consolidated balance sheet, by currency and type is shown below:
Thousand euros 2006 2005 By currency: In euros 393,491 309,942 In foreign currency 85,953 91,257 479,444 401,199 By type: Demand deposits Checking accounts 113,005 95,623 Savings accounts 516 804 Time deposits Certificates of deposit 365,923 304,772
479,444 401,199
75 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:
Thousand euros 2006 2005
Up to one month 230,233 191,525 From one month to three months 81,388 77,035 From three months to one year 54,818 28,302 From one year to five years - 8,271 Over five years - - Unspecified maturity (*) 113,005 96,066 479,444 401,199
(*) Relates to customer demand deposit balances.
12. DEBT SECURITIES
The breakdown of this caption in the accompanying balance sheet by residual maturity is as follows:
Thousand euros
2006 2005 Up to one month 2,000 1,000 From one month to three months - - From three months to one year - 4,000 From one year to five years - 2,000 Over five years - - 2,000 7,000
During the year issues totalling Euros 5,000 thousand have matured. The average cost of the issues during 2006 has been 3.33%.
13. PENSION FUND
As explained in 3h) the Group has set up a pension fund for Group employees. At 31 December 2006 the parent Entity has made a contribution of Euros 25 thousand for pension funds. At the year end these funds have yet to be invested in participations in the BSA Prudent investment fund. The Group plans to make this investment at the beginning of 2007.
The movement in the pension fund during 2006 has been as follows:
76 CONSOLIDATED FINANCIAL STATEMENTS
Thousand euros Opening balance - Charge for the year 25 Utilisation during the year - Return for the year - Extraordinary charges - 2006 year end balance 25
14. GENERAL RISK PROVISION
There has been no movement in this account this year.
15. SUBORDINATED DEBT
On 28 January 2002 a participating loan agreement was concluded with Banco de Sabadell, S.A., totalling Euros 1,500 thousand, maturing on 21 January 2012.
On 8 May 2006 BancSabadell dAndorra has carried out an early redemption of this participating loan with Banco de Sabadell, S.A.
BancSabadell dAndorra has paid in 2006 Euros 17 thousand for interest on this participating loan, which has been recorded under Interest and like charges in the Profit and Loss Account.
16. MOVEMENT IN EQUITY
Set out below is a breakdown, in Thousand euros, of movement in the Groups equity accounts in 2006:
Thousand euros Accumula- Reserve for Consolida- Consoli- Revalua- Capital Total stock ted losses redenomina- tion dated profit tion (*) tion in euros reserves / (loss) reserves equity Balance at 31 December 30,068 (4,012) 1 374 3,401 296 30,128 de 2005
Distribution of - 3,109 - 292 (3,401) - - profit for 2005
2006 profit - - - - 6,108 - 6,108
Revaluation of fixed assets ------
Balance at 31 December 2006 30,068 (903) 1 666 6,108 296 36,236
(*) Accumulated losses from previous years 77 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.
Series B shares can be freely transferred provided that the operation is carried out in accordance with current legislation in force, especially financial legislation, and the acquiring party is acceptable under said criteria.
Revaluation reserve
On 30 December 2004 the INAF authorised a revaluation of certain real estate units not related to operations at lower than market value in accordance with the report of an independent expert dated December 2004. The total revaluation was Euros 296 thousand, and, accordingly, reserves were revaluated by this amount.
Legal reserve
Companies must allocate at least 10% of their net annual income to an obligatory legal reserve until this fund reaches 10% of share capital.
Consolidation reserves
Movement in the consolidation reserves in 2006 have been as follows:
Thousand euros
Sabadell dAndorra Sabadell Assegurances BancSabadell Inversions, Societat dAndorra Segur Vida, dAndorra, S.A. Total Gestora, S.A. Borsa, S.A. S.A.
Opening balance 350 16 8 - 374
Distribution of 2005 results 287 (1) 6 - 292
Dividend charged to reserves (424) - - 424 -
Balance at 31 December 2006 213 15 14 424 666
78 CONSOLIDATED FINANCIAL STATEMENTS
Consolidated profit for the year The breakdown of consolidated profit for 2006, by Company, is as follows:
Thousand euros
BancSabadell dAndorra, S.A. 6,429 Final dividend Sabadell dAndorra Inversions, (424) Societat Gestora, S.A. Sabadell dAndorra Inversions, Societat Gestora, S.A. 567 Interim dividend Sabadell dAndorra Inversions, (480) Societat Gestora, S.A. Sabadell dAndorra Borsa, S.A. (*) (1) Assegurances Segur Vida, S.A. 17 6,108
(*) Dormant
17. ALLOCATION OF PROFIT
The Board of Directors will recommend that the following allocation (in Thousand Euros) of the results of BancSabadell dAndorra, S.A. be approved by the General Meeting of Shareholders:
Thousand euros
2006 profit 6,429 Distribution: Retained earnings 903 Legal reserve 3,007 Voluntary reserve 17 Dividends 2,502
18. ASSETS AND LIABILITIES IN CURRENCIES OTHER THAN THE EURO
The breakdown of assets and liabilities by currency is as follows:
Thousand euros 2006 2005 Currency: In euros 449,208 363,239 In foreign currency 83,279 91,656
532,487 454,895
As indicated in Note 3-c, the exchange rate used are set by the Andorran Bankers Associations.
79 There are no significant accounts in non-Euro currencies apart from those mentioned in Notes 5, 6, 7, 10 and 11 to these consolidated accounts.
19. OTHER BALANCE SHEET AND STATEMENT OF OPERATIONS ACCOUNTS The breakdown of this caption as of December 31, 2006 is as follows:
Thousand euros Checks sent to be offset 3,106 Trade bills sent to be offset 292 Credit card transactions 506 Others 1,624 Total operations underway 5,528 Options acquired 121 Others 218
The breakdown of Other liabilities on the accompanying balance sheet at 31 December 2006 is as follows:
Thousand euros Checks sent to be offset 1,134 Securities operations sent 115 Others 2,419 Total operations underway 3,668 Public administrations 977 Suppliers 140 Provisions for remuneration 284 Others 66 Total suppliers and other creditors 1,467
20. FINANCIAL DERIVATIVES
The table below gives details of the notional values of outstanding futures as of December 31, 2006 and 2005, classified according to the purpose of the contract:
Thousand euros 2006 2005 Forward purchase and sale of currencies 143,776 85,807 Interest rate swaps 6,552 19,739 Share options 2,000 6,000 Futures 554 - 152,882 111,546
80 CONSOLIDATED FINANCIAL STATEMENTS
The nominal amount of the contracts do not reflect the total risk borne by the Group, since the net position in these financial instruments is determined by their composition and/or combination.
Interest rate swaps and share options consists entirely of hedging operations related to certain products sold by the Group.
The operations contracted with financial derivatives are final.
At 31 December 2006 and 2005 no financial derivatives are being traded on official markets, except for the futures. The maturities of the futures operations are as follows:
Thousand euros 2006 2005 Purchase-sale and currency swaps: Up to one year 143,776 85,807 From one to five years - - More than five years - - 143,776 85,807 Interest rate swaps: Up to one year - 17,300 From one to five years 1,931 - More than five years 4,621 2,439 6,552 19,739 Stock options Up to one year 2,000 4,000 From one to five years - 2,000 More than five years - - 2,000 6,000 Futures Up to one year 554 - From one to five years - - More than five years - - 554 -
21. ASSETS GIVEN IN GUARANTEE
At 31 December 2006 no assets have been given in guarantee for commitments or commitments of third parties.
22. MEMORANDUM ACCOUNTS a) Securities and other assets held in safekeeping Securities deposits include as of December 31, 2006 an amount of Euros 120,270 thousand as a guarantee on various asset and own risk operations.
81 As of December 31, 2006 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
Other memorandum accounts includes guarantees and guarantees received as guarantees (Euros 6,469 thousand), loans written off (Euros 122 thousand), unlisted securities and own shares (Euros 10,670 thousand) and foreign trade bills and being processed for collection (Euros 2,260 thousand).
This year unlisted securities and own shares are stated in this account instead of under Securities and other assets held in safekeeping in the memorandum accounts. In order to improve their presentation, the figures for unlisted securities and own shares have been reclassified in 2005 from Securities and other assets held in safekeeping to Other memorandum accounts in the amount of Euros 10,357 thousand.
23. 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:
Thousand euros
BancSabadell Shareholders and entities d’Andorra Group related to the shareholders Financial intermediaries held at call Assets - 605 Liabilities (Banks and other credit institutions) - - Customers deposits 33,375 533 Banks and credit institutions Assets - 19,601 Liabilities - - Securities portfolio 633 - Accrual accounts Assets - 399 Liabilities - 290 Other loans - - Loans - 3,661 Memorandum accounts 5,012 63,714
82 CONSOLIDATED FINANCIAL STATEMENTS
The breakdown of transactions with Group subsidiaries and with shareholders and entities related to the shareholders representing more than 5% of results for the year is as follows:
Thousand euros BancSabadell Shareholders and entities d’Andorra Group related to the shareholders
Interest and similar income - 1,061 Interest and similar charges 14 710 Net commissions for services - 35
24. RISK MANAGEMENT
M ONITORING AND SUPERVISION
The monitoring and supervision of risk is divided into two major sections: Market Risk, which includes exchange risk, interest rate risk and own portfolio risk; and, on the other hand, Credit Risk, which includes concentration risk with financial intermediaries or debt issuers and loan risk with customers.
The Treasury and Investment Area, under the supervision of the Assets and Liabilities Committee, is in charge of monitoring and managing balance sheet exchange rate and interest rate risk, market risks affecting the Banks own portfolio and concentration risks in treasury and investment.
The Risk Analysis and Monitoring department, under the supervision of the Risk committee, is responsible for the monitoring of investments and loans risk with Customers, following the mandate and policies of the Delegated Risk Committee of the Board of Directors.
M ARKET RISK
Exchange risk Group policy is designed to systematically balance assets and liabilities in foreign currency by hedging at market rates its transactions undertaken for customers. Thus, the maximum short or long open position established for each currency must have a counter-value lower than Euros 100,000.
As for commitments to purchase or sell forward currency the Bank follows the same policy as for hedging positions for customers, by contracting the opposite transaction for the same term at market rates.
83 There is no overall maximum exposure for all currencies in which positions are held.
The Middle Office department verifies on a daily basis that the exchange rate risk exposure is confined to these limits.
Interest rate risk
Group policy is to minimise this risk through investment in interbank funds, so assets and liabilities match by maturity using the same point of reference for both.
The Middle Office department makes a monthly simulation of the impact of a variation in the interest rate curve of 1% on Group Financial Margin and verifying that it is never over 5% of this margin; so that equity capital would not be significantly affected.
At the same time, the balance sheet gap that could be sensitive to interest rate fluctuations is obtained monthly.
Own portfolio risk
The Banks own portfolio is invested only in Fixed Income securities as follows:
Financial sector bonds with the following features: - Floating bond indexed to the market rate (Euribor), which limits interest rate risk. - Minimum rate of issues by S&P: A. - Minimum volume issued of Euros 500 million or equivalent in US Dollars.
For an appropriate diversification of risk, the maximum amount to be invested in the same issue cannot exceed Euros 4 million or equivalent in US Dollars.
Monthly, the Middle Office department verifies the exposure to price and concentration risk of a single issue, using the criteria mentioned above.
C REDIT RISK
Concentration risk
As a general rule, and based on current legislation in force, the maximum exposure for any portfolio or interbank operation can never exceed 20% of equity capital.
The risk concentration risk breaks down as follows:
84 CONSOLIDATED FINANCIAL STATEMENTS
Investments of Banks portfolio: Maximum concentration in the same issuer is determined on the basis of the rating given by S&P as follows: - Rating of the issuer A or AA: Euros 8 million or equivalent in US Dollars - Rating of the issuer A AA: Euros 12 million or equivalent in US Dollars
Interbank operations: This group includes the risks arising from the following operations as a whole: - Interbank deposits - Forward currency purchase and sale - Interest rate swaps - Other operations (guarantees)
The risk weighting factors for each of the above operations are set down by current legislation in force.
Operations with the parent company of the BancSabadell Group: There are no special concentration limits with the BancSabadell Group, and the same limits are applied as for the other accounts.
The Middle Office department checks that the exposure of the different items falls within the established limits.
L OAN RISK
Customer loans are studied and approved on the basis of the following parameters: type of operation, type of guarantee, term and amount; while independence of decision making is established at different levels.
The maximum exposure that the Bank accepts with a Risk Group (a group of inter-related Customers with whom the Bank is exposed) cannot exceed 20% of equity capital.
The appropriate formalisation of operations approved is supervised by the Risk Analysis and Monitoring department, which provides oversight for full and appropriate compliance with the conditions of approval; especially obtaining the pertinent guarantees. For those operations where the guarantee is based on equity securities, there is a monthly verification that the market price of the collateral duly covers the risk incurred, as well as controls on certain operations.
The aforementioned Risk Analysis and Monitoring department, under the supervision of the Risk Committee, is in charge of ongoing verification of the proper completion of current operations and detecting possible incidences.
85 25. 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 solvency and liquidity ratios for the Bank, under this Law, were, at 31 December 2006 14.44% and 64.70%, respectively (at 31 December 2005, 14.66% and 52.68%).
The Act on the Regulation of Solvency and Liquidity Criteria for Financial Institutions also limits the concentration of risk in a single beneficiary to 20% of the Companys equity capital. On the other hand, this law stipulates that the accumulation of risk that individually exceed 5% of equity capital cannot exceed the limit of 400% of said equity capital. Finally the risk with members of the Board of Directors cannot exceed 15% of equity capital. These risks are weighted in accordance with the aforementioned law.
In 2006 the Bank complied with all the requirements set down in this Law. The maximum risk concentration in a single beneficiary was 14.77% of the Banks equity capital. The loans, or other operations that involve risk in a single beneficiary, which exceeds 5% of equity capital, has not exceeded an aggregate risk accumulation of 222.90% of equity capital in 2006.
Law on International cooperation on penal matters and the campaign against the laundering of money or valuables which are the proceeds of international crime
The General Council of the Principality of Andorra adopted a law on 29 December 2000 entitled the Act on International Penal Cooperation and the Fight against Money and Securities Laundering Resulting from International Delinquency. This law was published in the Official State Gazette of Andorra on 24 January 2001 and came into force in 2001.
This law, which adapts Andorran legislation to the Conventions of Vienna and Strasbourg, seeks the maximum effectiveness of Andorran law in this area and repeals the Bank Secret Protection and Anti-Money and Securities Laundering Prevention Act of 11 May 1995.
As per article 52 of said law, the Group has established a series of internal control and communication procedures in order to Project bank secrecy and prevent and impede money laundering operations. Thus, it has carried out specific personnel training programs.
86 CONSOLIDATED FINANCIAL STATEMENTS
Law on Indirect Tax on Banking and Financial Services
The M.I. Consell General del Principat dAndorra adopted on 14 May 2002 the Indirect Tax on Bank and Financial Services Act. This purpose of this law is to tax the services that entities in the financial sector provide to their customers.
The tax payable for this tax is calculated according to the objective determination system, in accordance with the Indirect Tax on Bank and Financial Services Act, and the returns filed for these taxes.
The amount recorded at 31 December 2006 for this tax has totalled Euros 1,343 thousand, Euros 974 thousand of which have been carried under Taxes, under General Expenses, in the Statement of Operations while the rest has been transferred explicitly to the participants in the investment funds managed by Sabadell dAndorra Societat Gestora, S.A.
The calculation of the tax is based on the difference between the amount resulting from the tax return for the consolidated figures and the sum of the amount of the individual returns of the investee companies.
Agreement between the Principality of Andorra and the European Community in relation to the establishment of measures equivalent to those set down in Directive 2003/48/CE of the Council in relation to the tax on returns on savings in the form of interest payment
The M.I. Consell General del Principal dAndorra, on 21 February 2005, ratified the Agreement between the Principat dAndorra and the European Community in relation to the establishment of measures equivalent to those set down in Directive 2003/48/CE of the Council in relation to the tax on returns on savings in the form of interest payment. Furthermore, at its meeting of 13 June 2005, it adopted the Law pursuant to this Agreement.
During the year the Bank, as a paying agent, has complied with the obligations set down in the Agreement and in its own law pursuant thereto, and has settled the amount withheld following the aforementioned legislation.
26. SUBSEQUENT EVENTS
There have been no relevant subsequent events.
27. OTHER POINTS OF INTEREST
As at 31 December 2006 there are no other points of interest worthy of mentioning.
87 BOARD OF DIRECTORS AND MANAGEMENT TEAM
Board of Directors
Chairman Robert Cassany i Vila
Directors Miquel Alabern i Comas Marcel Albós i Riba Llibert Barcons i Freixas Miquel Àngel Canturri i Montanya Joan Llonch i Andreu Josep Permanyer i Cunillera Josep Anton Ribes i Roca Josep Vilanova i Trias
Secretary Joan Roca i Sagarra
Management team
General Manager Miquel Alabern i Comas Deputy General Manager Josep Segura i Solà
Retail Banking Manager Antoni Canes i Soldevilla Private Banking Manager Antoni Masip i Mestre Personal Banking Manager Josep Pallerola i Segon Investment Manager Joan Vidal i Fregola Operations Manager Jordi Vilardebó i Costa Fund Manager Division Sandra Estebe i Jové
Branch Managers Mercè Alaveda i Riera Pere Valero i Macias Lluís Gaztelu i Guitart Joan Pla i Oliva Núria Costoya i Cos
88 ADDRESSES OF BANCSABADELL DANDORRA
El Fener branch Av. del Fener, 7 AD500 Andorra la Vella Tel. 73 56 80 Fax 73 56 81 [email protected]
Meritxell branch Av. Meritxell, 85 AD500 Andorra la Vella Tel. 80 36 00 Fax 80 36 01 [email protected]
El Pas de la Casa branch Carrer de les Abelletes, 8 AD200 El Pas de la Casa Tel. 75 56 00 Fax 75 56 01 [email protected]
La Massana branch Av. de Sant Antoni, s/n AD400 La Massana Tel. 73 86 00 Fax 73 86 01 [email protected]
Encamp branch Av. Copríncep Episcopal, 4 AD200 Encamp Tel. 73 26 00 Fax 73 16 01 [email protected]
Sant Julià branch Av. Francesc Cairat, 22 AD600 Sant Julià de Lòria Tel. 74 26 00 Fax 74 26 01 [email protected]
Head Office Av. del Fener, 7 AD500 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
89