Quarterly financial report Second quarter, 2014 1 WorldReginfo - 43adb42a-378c-4c7a-9b7d-ece2ed7978a9 Key figures 3 Introduction 4 Profit & loss account 9 Balance sheet 15 Results by business units 21 Share price performance 22 Disclaimer Banco Sabadell cautions that this presentation may contain forward-looking statements or estimates relating to the business performance and results of the Banco Sabadell Group. While these forward-looking statements or estimates represent our judgment and future expectations concerning the development of our business, a certain number of risks, uncertainties and other important factors may cause actual results to materially differ from our expectations or estimates. This document may contain unaudited or summarized information; accordingly, recipients are invited to consult the public information held with the Spanish Securities and Exchange Commission (CNMV). 2 Second quarter, 2014 WorldReginfo - 43adb42a-378c-4c7a-9b7d-ece2ed7978a9 Key figures (7) (7) Change (%) 30.06.13 31.12.13 30.06.14 YoY Balance sheet (€ '000 ) Total assets 170,751,307 163,441,470 161,557,118 -5.4 Gross loans and advances to customers, excluding repos 125,893,181 124,614,933 122,837,619 -2.4 Gross loans and advances to customers 126,382,212 125,302,943 123,314,424 -2.4 On-balance sheet funds 122,447,097 123,753,008 124,591,233 1.8 Of which: Customer-based funding on balance sheet (1) 92,950,513 94,497,187 95,043,236 2.3 Mutual funds 9,692,948 11,018,570 13,704,818 41.4 Pension funds and third-party insurance products 11,005,951 12,423,646 12,291,374 11.7 Funds under management 144,536,656 149,122,858 153,187,977 6.0 Shareholders' equity 9,066,111 10,226,534 10,231,035 12.8 Profit and loss account (€ '000 ) Net interest income 865,828 1,814,694 1,075,987 24.3 Gross operating income 2,197,194 3,976,794 2,598,054 18.2 Net income before provisions 1,281,607 2,062,286 1,558,978 21.6 Attributable net profit 123,418 247,832 167,686 35.9 Ratios (%) ROA 0.17 0.16 0.21 ROE 2.79 2.68 3.47 ROTE 3.07 2.96 3.86 Cost / income (ex amortisation) (2) 60.04 59.58 55.57 Cost / income ratio excluding non-recurrent expenses (2) 59.64 59.08 53.30 Core capital / Common equity (3) 9.6 12.0 11.4 Tier I (3) 9.6 12.0 11.4 BIS ratio (3) 10.3 12.8 12.4 Risk management Non -performing loans (€ '000 ) (4) 12,591,051 16,021,491 15,488,081 NPLs / Gross loans (%) (4) 10.62 13.63 13.35 Reserves for NPLs and real estate (€000 ) 18,107,763 18,341,298 18,457,194 Overall coverage ratio (%) (5) 13.4 13.6 13.8 Share data (period end) Number of shareholders 242,647 262,589 232,799 Number of shares 2,959,555,017 4,011,481,581 4,012,262,708 Share price (€) 1.275 1.896 2.492 Market capitalisation (€ '000 ) 3,773,433 7,605,769 9,998,559 Earnings per share (EPS ) ( €) (6) 0.08 0.06 0.08 Book value per share (€) 3.06 2.55 2.55 Price /Book value (times) 0.42 0.74 0.98 Price /earnings ratio (P/E) (times) 15.16 30.69 29.57 Including conversion of convertible bond: Fully diluted number of shares including conversion of convertible bond 3,183,840,590 4,298,634,476 4,283,285,994 Earnings per share (EPS ) ( €) (6) 0.08 0.06 0.08 Book value per share (€) 2.85 2.38 2.39 Price /Book value (times) 0.45 0.80 1.04 Other data Branches 2,382 2,418 2,336 Employees 17,253 18,077 17,698 (1) Includes customer deposits (ex-repos) and other liabilities placed via the branch network: mandatory convertible bonds and non-convertible bonds issued by Banco Sabadell, as well as commercial paper, etc. (2) Personnel and other general administrative expenses / gross operating income. To calculate these ratios, gross operating income was adjusted considering only trading income and recurrent exchange differences. The historical series was restated on this basis. (3) 2013 ratios in accordance with Basel II. June 2014, according to Basel III and applying the modifications envisioned in Bank of Spain Circular 2/2014. (4) Figures and percentages do not include assets covered by the Asset Protection Scheme (APS). Figures as of 31.12.13 include the effect of revising the classification of refinanced risks. (5) Expressed with respect to total exposure to loans and real estate. (6) Earnings YTD annualised on a linear basis. (7) Businesses added to the consolidation scope in 2013: BMN-Penedès (as from 1 June), Sabadell Solbank (as from 30 June) and Banco Gallego (as from 31 October). 3 Second quarter, 2014 WorldReginfo - 43adb42a-378c-4c7a-9b7d-ece2ed7978a9 Introduction Key developments in 2Q14 In general : the year-on-year comparison of P&L and balance sheet figures of Banco Sabadell and its group were affected by the consolidation, at different dates in 2013, of BMN-Penedès (as from 1 June), Sabadell Solbank (as from 30 June), and Banco Gallego (as from 31 October). Net interest income : €1,076.0 million. This item increased by 24.3% in year-on-year terms, primarily due to the lower cost of funding and expansion of the consolidation scope. In the second quarter of 2014, net interest income increased for the fourth consecutive quarter, to €545.9 million (€530.0 million in 1Q 2014), and the customer spread was 2.22% (+16bp compared with 1Q 2014). Net fees and commissions : €414.5 million. In year-on-year terms, net fees and commissions in the first half of 2014 expanded by 16.2%, due to positive business performance, favoured particularly by off-balance sheet funds, the focus on selling more profitable products, and the consolidation of the above-mentioned businesses. In 2Q14, net fees and commissions totalled €213.5 million, i.e. 6.2% more than in 1Q14. Profit/(loss) on financial operations : €1,132.9 million. Income from financial transactions included €1,083.5 million on the sale of available-for-sale fixed-income financial assets and €31.0 million from transactions in the trading portfolio. In the first half of 2013, income from financial transactions amounted to €1,013.0 million, including €536.3 million in gains on the sale of available-for-sale fixed-income assets and €437.3 million on the sale of held-to-maturity investments. Administrative expenses (personnel and general): -€903.1 million. The technological integration of Banco Gallego and Sabadell Solbank was completed in 1Q14. Recurrent costs declined in 2Q14, falling by 5.6% in 1H14 at constant exchange rates in comparison with 1H13. Specifically, personnel expenses decreased by 2.6% and general expenses by 11.0%. Income before provisions : €1,559.0 million, compared with €1,281.6 million in 1H13, i.e. a 21.6% year-on-year increase. Provisions for NPLs and other impairments : -€1,415.3 million, compared with -€1,073.3 million in 1H13, due to additional provisions in both years in connection with non-recurrent results in the same period. Capital gains on asset disposals : this year this item includes an extraordinary gain of €80 million from the signature of a reinsurance agreement with SCOR Global Life for Mediterráneo Vida's individual death benefit portfolio. Attributable profit : €167.7 million, compared with €123.4 million in 1H13 (+35.9%). Customer loans and funds : loan performance reflects a recovery in demand for credit, mainly in the business segment, while the performance of customer funds was driven by the sharp increase in mutual funds. On 30 June 2014, Banco Sabadell group's ratio of non-performing loans (NPLs) to total computable loans, excluding assets protected under the Asset Protection Scheme (APS), was 13.35%, i.e. 22 basis points lower than at the end of 1Q14 and 28 basis points lower than at the beginning of the year. The balance of NPLs and problematic assets maintained the downward trend seen in previous quarters. The NPL coverage ratio , expressed with respect to total exposure to loans and real estate, is 13.8%, or 9.7% excluding the APS. Core capital at 30.06.14 : 11.4% (according to Basel III and applying the modifications envisioned in Bank of Spain Circular 2/2014). 4 Second quarter, 2014 WorldReginfo - 43adb42a-378c-4c7a-9b7d-ece2ed7978a9 Macroeconomic environment Global economic and financial background lending. Along those lines, it reduced the base rate to 0.15% (a record low) and made the marginal deposit rate In the Euro area, inflation remained very low (0.5% year- negative. It also announced the implementation of liquidity on-year in June 2014), especially in non-core countries. operations conditional upon granting loans, as well as This was influenced by the performance of services and plans to commence an ABS purchasing programme. It also unprocessed food prices. The economy continued to left the door open to the adoption of additional measures, if recover, albeit moderately and unequally between necessary. The Bank of Japan announced changes in its countries: GDP expanded by just 0.2% quarter-on-quarter asset purchasing programme to give it more flexibility in in the first quarter. In terms of quarterly growth, Germany purchases and enable it to take account of market (0.8%) and Spain (0.4%) stood out. Elections to the conditions. The Bank of England started to prepare the European Parliament concluded with gains by Eurosceptic market for the possibility of a base rate hike and parties and by parties at the extremes of the political announced the implementation of macroprudential spectrum.