2q16 results presentation - grupbancsabadell.com · 1q16 2q16 695.7 696.7 1q16 2q16 tsb euros in...

Sabadell2Q 2016 Results

July 22, 2016

12Q take-aways

2Profitability and efficiency

3Commercial activity

5TSB results

4Solvency and asset quality

2Q take-aways

Commercial activity

� Growing loan book without the need of an aggressive pricing strategy

� Continued improvement in lending mix

� Ongoing market share increase across products in Spain with high standards in service quality

� Leading innovation, simplifying processes and gaining efficiencies

� Sabadell has launched successfully its activities in Mexico and it is gaining momentum

Profitability and efficiency

� Continued revenue resilience, both in NII and fees

� Cost containment and capacity to further lever costs in a lower for longer rates environment

� We have continued to offset extraordinary income with higher provisions bar BCP €92M charge

� Sterling devaluation effect of -0.3%1 at group net income level

TSB

� Referendum result does not change Sabadell’s plans for the UK

� Lending growth YoY at +29% and deposits at +13% explained by natural market share gains

� Average mortgage book at 55% LTV and buy-to-letat 14% of production confirms low risk profile

� Migration plans are progressing as expected with target deadline of November 2017

Solvency and asset quality

� NPL ratio at 6.8%, the lowest rate since 1Q 2012

� Strong capital position with fully loaded CET1 standing at 11.8%

� Accelerated sale of real estate assets is a successful strategy that will continue

2Q take-aways

41 Impact assuming constant FX during 2Q 16.

Profitability and efficiency

Euros in million2Q 2015 1Q 2016 2Q 2016 %QoQ %QoQ

constant FX%YoY 1Q 2016 2Q 2016 %QoQ %YoY

Net interest income 655.9 973.9 968.6 -0.5% 0.1% 49.5% 695 .7 696.7 0.2% 7.2%

Equity method & dividends 16.9 21.6 27.3 26.3% 26.3% 78.9% 21.6 27.3 26.3% 78.9%Commissions 249.8 277.8 292.4 5.3% 5.5% 15.3% 245.9 257.9 4.9% 1.9%Trading income & forex 373.3 311.0 206.5 -33.6% -33.6% -55.2% 306.3 156.3 -49.0% -60.0%Other operating results -1.8 -16.7 -82.2 --- 393.4% --- -16.2 -65.9 --- ---Gross operating income 1,294.2 1,567.6 1,412.6 -9.9% -9. 5% 0.7% 1,253.2 1,072.2 -14.4% -21.4%

Personnel costs -314.5 -415.5 -413.1 -0.6% 0.0% 34.6% -306.7 -307.3 0.2% -0.3%Administrative costs -146.2 -249.2 -247.8 -0.6% 0.4% 69.9% -146.4 -145.8 -0.4% -0.1%Depreciation & amortisation -67.4 -97.2 -96.8 -0.4% 0.1% 35.2% -78.3 -78.0 -0.3% 8.9%Pre-provisions income 766.2 805.7 654.9 -18.7% -18.5% -23 .5% 721.9 541.1 -25.0% -33.8%

Total provisions & impairments -842.6 -434.9 -466.9 7.4% 7.4% -48.4% -434.9 -466.9 7.4% -48.4%Gains on sale of assets -12.9 -3.1 38.3 --- --- --- -3.1 38.3 --- ---Negative goodwill 207.4 0.0 0.0 --- --- -100.0% 0.0 0.0 --- -100.0%Profit before taxes 118.0 367.7 226.3 -38.5% -38.2% 63.4% 283.9 112.5 -60.4% 9.0%

Taxes and others 60.2 -114.4 -52.2 -54.4% -54.3% --- -92.3 -22.4 -75.7% ---Minority interest 0.6 1.3 0.8 -41.0% -41.0% 21.8% 1.3 0.8 -41.0% 21.8%

Attributable net profit 177.6 252.0 173.3 -31.2% -30.8% 2 0.7% 190.3 89.3 -53.1% -20.6%

Sabadell, ex-TSBSabadell group

Quarterly Income Statement

Note: The EURGBP exchange rate of 0.7782 used for the P&L is the daily average rate of 1H 2016.1 2015 commissions have been restated to include FX commissions, which were previously included in trading income and forex. Before this restatement, 2Q15 commissions amounted to €228.2M.2 %YoY calculated as the growth rate of 1H 2016 vs. 1H 2015.

Sustained revenue resilience continues to allow for additional provisioning effort

6

1

2 2

YoY growth: +49.5%

QoQ growth: -0.5%, +0.1% in constant FX

278.2 271.9

1Q16 2Q16

695.7 696.7

1Q16 2Q16

TSBEuros in million

Stabilising net interest income…

Group net interest income evolutionEuros in million

Sabadell, ex-TSBEuros in million

QoQ growth: +0.2%

Note: The EURGBP exchange rate of 0.7782 used for the P&L is the daily average rate of 1H 2016.1 %YoY calculated as the growth rate of 1H 2016 vs. 1H 2015.2 Assuming constant exchange rate.

QoQ growth: -2.3%-0.2% in GBP2

7

655.9

941.3 962.5 973.9 968.6

2Q15 3Q15 4Q15 1Q16 2Q16

1

… as a result of the lower for longerinterest rate environmentNet interest margin evolutionIn percentage

Customer loan yield and cost of fundsIn percentage

Customer spread

Customer spread, ex-TSB

Net interest margin as % of ATANet interest margin as % of ATA, ex TSB

Customer loan yield

Customer loan yield, ex-TSB

Cost of customer funds

Cost of customer funds, ex-TSB

Euribor 12M8

2.22% 2.29% 2.35% 2.44% 2.47%2.67% 2.75% 2.84% 2.81%

2.47%2.59% 2.68% 2.68%

1.62% 1.65% 1.72% 1.72%1.36% 1.40% 1.49% 1.57% 1.59%1.83% 1.83% 1.91% 1.88%

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

3.47%3.20%

3.06% 3.08% 3.06% 2.99%

0.59%0.49% 0.38% 0.31%

0.57%0.44% 0.33% 0.25% 0.17% 0.16% 0.09% 0.01% -0.02%

3.47% 3.39% 3.32% 3.32%3.20% 3.29% 3.28% 3.28% 3.21%

1.25%1.10%

0.97% 0.88%0.73% 0.62% 0.53% 0.44% 0.40%

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

1 Quarterly average.

1

31.9 34.6

1Q16 2Q16

61.6 70.2 81.4 73.6 80.3

54.283.0

82.1 79.3 79.3

134.0

142.5 134.1124.9

132.9

249.8

295.7 297.6 277.8

292.4

2Q15 3Q15 4Q15 1Q16 2Q16

245.9

257.9

1Q16 2Q16

Asset Mgmt3

Positive evolution in commissions

Note: The EURGBP exchange rate of 0.7782 used for the P&L is the daily average rate of 1H 2016.1 %YoY calculated as the growth rate of 1H 2016 vs. 1H 2015.2 2015 commissions have been restated to include FX commissions, which were previously included in trading income and forex. Before this restatement, 2Q15 commissions amounted to €228.2M, 3Q15 commissions amounted to €274.2M and 4Q15 amounted to €275.1M.3 Includes mutual funds commissions and pension funds, insurance brokerage and wealth management.4 Assuming constant exchange rate.

QoQ growth: +8.4%+10.8% in GBP4


YoY growth: +15.3%

QoQ growth: +5.3%

Group commission income evolutionEuros in million

QoQ growth: +4.9%

Investment Services

TSBEuros in million

2 2 2

9

1

102.8 102.1

6.1 3.7

1Q16 2Q16

295.3

407.6 419.1 402.7 401.8

19.2

9.2 5.9 12.8 11.3

2Q15 3Q15 4Q15 1Q16 2Q16

300.0 299.7

6.7 7.5

1Q16 2Q16

TSBEuros in million

Stable personnel expenses...


Recurrent QoQ growth: -0.6%, +1.5% in GBP2

YoY growth: +34.6%

QoQ growth: -0.6%

Group personnel expenses evolutionEuros in million

Recurrent QoQ growth: -0.1%

314.5

416.8 425.0 415.5 413.1

306.7 307.3

108.9 105.9

Recurrent Non-recurrent

Recurrent Non-recurrentRecurrent Non-recurrent


10

1

101.196.9

1.7 5.0

1Q16 2Q16

145.0

264.2 250.8 247.5 242.7

1.2

1.0 20.71.7 5.0

2Q15 3Q15 4Q15 1Q16 2Q16


146.4 145.8

1Q16 2Q16

TSBEuros in million

... and reduction in administrative expenses


Recurrent QoQ growth: -4.1%, -2.1% in GBP2

YoY growth: +69.9%

QoQ growth: -0.6%

Group general expenses evolutionEuros in million

Recurrent QoQ growth: -0.4%

102.8 101.9

146.2

265.2 271.5249.2 247.8

Recurrent Non-recurrent

Recurrent

Recurrent Non-recurrent11

1

Commercial activity

Total assets 203,959 204,021 207,891 1.9% 1.9% 2.7% 164,23 6 161,189 164,493 0.2% 2.0%Of which:Gross loans to customers ex repos 148,963 149,828 149,921 0.6% 0.1% 1.0% 118,416 115,087 116,043 -2.0% 0.8%

Performing loans 134,875 138,063 139,206 3.2% 0.8% 1.9% 104,581 103,518 105,506 0.9% 1.9%Fixed income portfolio 25,741 27,041 24,389 -5.3% -9.8% -9.5% 24,323 25,217 22,440 -7.7% -11.0%

Total liabilities 191,883 191,232 195,029 1.6% 2.0% 2.9% 1 54,769 150,939 154,129 -0.4% 2.1%Of which:

On-balance sheet customer funds 130,370 131,290 134,152 2.9% 2.2% 3.2% 95,345 97,493 100,100 5.0% 2.7%

Term funds1 49,584 48,039 45,723 -7.8% -4.8% -4.4% 45,276 43,381 40,573 -10.4% -6.5%Current & Saving accounts 80,786 83,251 88,429 9.5% 6.2% 7.7% 50,069 54,112 59,527 18.9% 10.0%0.0%

Wholesale funding 22,361 24,486 25,798 15.4% 5.4% 6.1% 21,786 20,438 21,428 -1.6% 4.8%ECB funding 11,000 11,000 10,676 -2.9% -2.9% -- 11,000 11,000 10,676 -2.9% -2.9%

Off-balance sheet funds 35,410 37,107 37,555 6.1% 1.2% 1. 2% 35,410 37,107 37,555 6.1% 1.2%Of which:

Mutual funds 20,230 21,153 21,131 4.5% -0.1% -0.1% 20,230 21,153 21,131 4.5% -0.1%Pension funds 4,362 4,194 4,147 -4.9% -1.1% -1.1% 4,362 4,194 4,147 -4.9% -1.1%Third party insurance products 7,083 7,981 8,735 23.3% 9.5% 9.5% 7,083 7,981 8,735 23.3% 9.5%

Sabadell, ex-TSB

Euros in million%YoY %QoQ %YoY %QoQJun-16Mar-16Jun-15 Jun-15 Mar-16 Jun-16%QoQ

constant FX

Sabadell group

Balance sheet dynamicsCustomer funds and loans evolution

Note: The EURGBP exchange rate of 0.826582 used for the balance sheet is the closing rate as of June 30 2016.1 Term funds include term deposits and other funds placed in the retail network. Exclude repos and deposits from institutional clients.

13

17,808 18,415

26,318

5,128

27,464

32,428 32,237

26,964

7,115

27,390

1Q16 New lending Attrition 2Q16

Corporates SMEs Mortgages Others

Balance sheet dynamics

14

Performing loans evolution by customer type - Sabade ll, ex-TSBEuros in million

1Q16 New lending Attrition 2Q16 Var. %Corporates 17,808 2,518 -1,911 18,415 3.41%SMEs 26,318 3,318 -2,172 27,464 4.35%Mortgages 32,428 560 -751 32,237 -0.59%Others 26,964 719 -294 27,390 1.58%Total 103,518 7,115 -5,128 105,506 1.92%

103,518 105,506

1 Refers to residential mortgages only.2 Others include other mortgages, loans to developers, construction sector, Real Estate sector and others.

2

1

21

LoansTotal export transactions

PoSinstalled Transact.

11.38% 12.84% 14.54% 9.81%

11.40% 12.26% 13.55% 9.76%

Market shares by product in Spain continue to increase …

Sources include ICEA (life insurance), BdE (loans, PoS installed, credit card turnover, household current acc.), Iberpay (transact.) y Swiftwatch (total export transactions).Note: 2016 data as of June 2016 or last month available. 1 Transaction calculated per volume.2 Insurance calculated per number of contracts.

Market shares by productIn percentage

Companies

Individuals

Jun- 16

Jun- 15

Credit card turnover Life insurance

Household current acc. Mutual funds

7.36% 5.27% 5.85% 5.95%

7.15% 4.90% 5.57% 5.72%

Jun- 16

Jun- 15

2222

1111

15

6.907.03

7.21

7.427.51

7.39

7.697.80 7.84

7.94

6.23 6.26

6.15

6.48

6.736.55

6.746.91 7.05

7.14

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Sabadell Sector

Level of service qualityEvolution of Sabadell quality index vs. sector

… with high standards in quality of service

Source: STIGA, EQUOS (Objective Quality Analysis in Banking Networks, 2Q 2016).

Maintaining the quality gap versus the sector

16

We are wholeheartedly promoting the digital transformation …

∆ Efficiency

Transformation plan

“There, wherever you are”

Key milestones achieved during the Triple plan:

� 85% of transactions through remote channels� 18% of sales through digital channels� More than 15 monthly connections per client

through the Mobile App

∆ Productivity

∆ Client service

TripleClients - MobileThousands

Clients - Web

820

1,470

2013 2Q 2016

Thousands

1,5291,828

2013 2Q 2016

294 k Mobile Only customers

638 k Digital Signature adoption

+79% +19%

17

… leading innovation

� Increase remote product and customer contracting

Plan for 2016

� Kelvin e-commerce

Proteo Mobile

Kelvin Retail

Sabadell Mobile new version

� Increase remote contracting capabilities and mobile payment services

Launched in April 2016

Launched in April 2016

Launched in June 2016

• Remote banking services:� 3,500 tablets distributed in the network

� Aimed at business segment and personal and private banking

� Main features: sales visits, risk records, simulations, new customer registration

• Improved users’ experience on:� Commercial information of the main

products

� Opening new contracts process

Data service for businesses and freelance workers that makes

users' customised indicators available on their transactions and their customer profiles

18

New services for our clients based on Big Data - Kelvin Retail

Kelvin is an information system aimed at SME that provides users with customised indicators of their

operations and customers’ profile

� Statistics : sales, transaction, average sale,...

� Consumer behaviour : frequency, loyalty, profile (i.e. gender, age, nationality),...

“It is the one servicetruly differential in SME

Banking”

“It has helped me tobetter understand my

business and mycustomers”

ClientManager

Increasecustomers’ loyalty

DATA BASE

Analyse &take decisions

IncreaseSales

+

+

+

19

Kelvin Retail

� Manage 230,000 customers with the new model

� Increase digital capabilities to support remote management

� Reduce the average sign up time by 15%

Active Management

Credit process

Simplifying and gaining efficiency

Simplebank � Simplify contract process to more products

• Manage our customers closer and more efficiently:

� Increased management capacity (x2 portfolio size)

� Customer satisfaction (90% customers more satisfied than with their usual branch)

• Simplification and optimisation of mortgage processes:

� Redesigned and transformed operating model

� Integrated and automated end to end process transparent to customers

• Offer a simpler registration process to new customers:

� New registration process for customers (Pack Cuenta Expansion):

� Shorten contract from 40 to 4 pages� Simplify process from 7 to 3 signatures� Reduce time from 15 to 5 minutes

Plan for 2016

20

Project size and implementation Excellent market reaction

Strong presence

• Record timing in the unfolding of the banking project, starting from scratch…

3 milestones for

Mexico

1 2

3

• …taking advantage of the Group’s technology and expertise in managing complex projects

• Significantly surpassed the expected growth in volumes…

• …validating our value proposition, which is based on achieving a higher service quality

• Banco Sabadell aspires to be a relevant player in the Mexican market with ambitious plans for future expansion and growth

Banco Sabadell has successfully launched its activities in Mexico…

Record timing in obtaining the licence

New technology platform to support growth

MXN 23,735M loan portfolio

Top 7 in Corporate Banking’s portfolio growth in 2016

144 employees1 6 SME centers and 3 corporate centers

146 corporate clients1

Note: Data as of June 30th 2016.1 Including aggregate data from Banco Sabadell and Sofom. 21

…achieving very strong momentum

97

1,341

Dec-14 Jun-15 Dec-15 Jun-16

391

755

1,158

1,348

YTD placement volumeUSD in million

� Sabadell positioned as Top 7 in terms of Corporate and SME loan portfolio growth (from Jul-14 to Dec-15)

� High quality portfolio focused on Tier 1 and Tier 2 companies with high credit ratings

+957M+245%

Corporate

SME

22

Solvency and asset quality

Common Equity Tier 1 phase-in evolutionIn percentage

Strong capital position

Common Equity Tier 1 fully-loaded (June-16) at 11.8%

11.5% 11.6% 11.5% 11.9% 11.9%

Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

24

Wholesale lending activity

New issues and maturities in 2016Euros in million

Recent issues by product

� Wholesale funding plans for 2016 havebeen front loaded

� Sabadell will tap the market accordingto investors’ interests and grouprequirements

25

2,185

967

280

1,155

650

2,277

0

500

1,000

1,500

2,000

2,500

1Q16 2Q16 3Q16 4Q16

Maturities New issues

Euros in million 1Q16 2Q16Covered Bonds 650 1,050Subordinated debt 0 500Securitisation (incl. TSB) 0 727Total 650 2,277

8.51%

7.79%7.50%

6.83%

10.98%10.38%

9.86%9.45%

8.54%

NPL continues to decline and stands at 6.8%

Note: NPL ratio is calculated including contingent risk and 20% of the APS.

Sabadell, ex-TSBIn percentage

Sabadell groupIn percentage

NP

L co

vera

geN

PL

ratio

NPL ratio has come down to 6.83% from 13.63% since December 2013

52.8%54.5%

53.1%54.4% 53.9%

2Q15 3Q15 4Q15 1Q16 2Q16

55.3%53.6% 54.7% 54.1%

3Q15 4Q15 1Q16 2Q16

26

25,878 25,860 25,347 24,75823,922

23,18922,350

21,57920,867

19,900

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

17,727 17,386 16,777 15,910 14,863 13,962 13,122 12,344 11,674 10,635

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

8,151 8,474 8,569 8,848 9,059 9,227 9,228 9,234 9,193 9,265

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Discipline in NPL reduction continues

NPL evolution, ex-TSB Euros in million

On-balance sheet RE assets evolution, ex-TSBEuros in million

Note: NPLs include contingent risk. Data includes 20% of APS.

Total problematic assets, ex-TSBEuros in million

€1,039M further reduction of NPLs during 2Q16

NPAs decreased by €968M in 2Q16

€-6bn

27

775,300

552,080

413,388 439,584359,824

319,058 311,414 319,389354,132

117,651 134,312

2007 2008 2009 2010 2011 2012 2013 2014 2015 Cum. Abr-15

Cum. Abr-16

Recovery in the Spanish real estate market...

Source: INE, CIS (Consumer confidence index).

Market situation

Reduction of NAV discounts and overall price increases are signs of a recovering cycle

� Ongoing symptoms of a new real estate cycle with improvement in prices and sales units.

� Prices continue to show a moderate recovery both in new construction and resale

� Upward trend in city centers such as Madrid and Barcelona, the Mediterranean coast and the islands.

� Ongoing growth on home sale transactions has continued, although still at low levels.

� Home sale numbers have raised for 9 consecutive months.

New property transaction evolutionIn units

-29% -25% +6% -18% -11% +3% +11%-2% +14%

% YoYgrowth

Price expectations for individuals% of surveyed individuals who think house prices will fall, hold or raise (CIS survey)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16

Rise

Hold/NA

Fall

28

Jun-16

… leads to an improvement in real estate assets salesNumber of foreclosed assets soldIn units

Significant institutional sales

Foreclosed assets soldEuros in million

29

409 374

515 499

475165

307

2Q15 3Q15 4Q15 1Q16 2Q16

2,9162,428

2,807 2,750

2,8071,095 1,275

2Q15 3Q15 4Q15 1Q16 2Q16

3,902 4,025

680

805

TSB results

� Sabadell is fully committed to its investment in the UK

� The short term synergies for TSB are driven by the migration, which is an endogenous process and independent of the referendum results

� Migration plans are progressing as expected with target deadline of November 2017

� The evolution of the British pound since the EU referendum would imply a -0.3%1 net income impact at the group level

Plans for TSB are evolving positively

31

1 Impact assuming constant FX during 2Q 16.

TSB continues to perform ahead of budget

1 NPS is based on the question “On a scale of 0-10, where 0 is not at all likely and 10 is extremely likely, how likely is it that you would recommend TSB to a friend or colleague?”2 By market research company, BDRC, in an independent benchmark study covering all major banks.

Strong first half of the year

� Solid asset and deposit growth driven by franchise business

� Quarterly net profit adjusted to reflect lower for longer interest rate environment

� Reduction in costs have mitigated the impact of a more challenging trading environment

� PCA’s market share at 7.0% of new accounts in the first half, well ahead of the 6.0% target

� Positive NPS1 progress, which increased to its highest rate ever at a 24 score

� Recently been voted Britain’s Most Recommended High Street Bank2

32

The integration and migration plan continues to be on track

33

TSB income statement

1 Franchise comprises the retail banking business carried out in the UK which offers a broad range of retail financial services.2 Mortgage Enhancement is a separate portfolio of mortgage assets which was assigned to TSB with effect from 28 February 2014. This segment was established in response to a review by the Office of Fair Trading of the effect on competition of the divestment of TSB and is designed to enhance TSB’s profitability.3 Acquired UKAR Assets is a £2.7 billion portfolio of former UKAR mortgages and unsecured loans for which beneficial interest was acquired from Cerberus Capital Management group with effect from 7 December 2015.4 %YoY calculated as the growth rate of 1H 2016 vs. 1H 2015.

� Net Interest Income remained flat QoQ as a result of lower interest rates , partially offset by strong mortgage lending growth and strong new business margins

� Lower operating expenses due to more point-in-time actions

� Impairments continue to be aligned with previous quarters

� One-offs include capital gains on TSB Share of Visa Europe Sale proceeds

34

GBP in million1Q 2016 2Q 2016 1H 2015 1H 2016 %QoQ %YoY

Franchise1 183.2 184.1 346.2 367.3 0.5% 6.1%

Mortgage enhancement2 14.8 13.6 39.0 28.4 -8.1% -27.2%

Portfolio UKAR3 20.5 19.4 0.0 39.9 -5.4% --

Net Interest Income 218.5 217.1 385.2 435.6 -0.6% 13.1%

Franchise1 28.6 29.6 66.1 58.2 3.5% -12.0%

Mortgage enhancement2 -2.2 -1.8 -5.3 -4.0 -18.2% -24.5%

Portfolio UKAR3 -1.9 -0.8 0.0 -2.7 -57.9% --

Other operating income 24.5 27.0 60.8 51.5 10.2% -15.3%

Total income 243.0 244.1 446.0 487.1 0.5% 9.2%

Total operating expenses (excl. one-offs) -164.0 -175 .0 -362.5 -339.0 6.7% -6.5%

Franchise1 -18.5 -19.5 -39.5 -38.0 5.4% -3.8%

Mortgage enhancement2 0.0 0.0 0.0 0.0 -- --

Portfolio UKAR3 -0.6 -1.8 0.0 -2.4 200.0% --

Impairment on loans & advances -19.1 -21.3 -39.5 -40.4 11.5% 2.3%

Management profit (excl. one-offs) 59.9 47.8 44.0 107.7 -20.2% 144.8%

One-offs and others -7.3 25.0 -20.8 17.7 -- --

Tax income -13.4 -18.5 -3.5 -31.9 38.1% --

Statutory Profit after Tax 39.2 54.3 19.7 93.5 38.5% 374. 6%

1Q 2016 2Q 2016 1H 2015 1H 2016 %QoQ %YoYFranchise NIM 3.38% 3.24% 3.69% 3.31% -0.14 pp -0.38 pp

4

4

TSB balance sheet

Note: Customer lending and customer deposits exclude fair value hedge accounting adjustment.

� Positive balance sheet trend continues with Franchise lending driven by Mortgage Intermediary growth supported by continuing deposit growth

� Franchise mortgage lending increased to £20.9bn (c.+4% QoQ) reflecting the continuing strength of the Mortgage Intermediary business

� Customer deposits grew by 5% QoQ to £28.1bn primarily due to continued growth in Savings balances . Encouragingly, net inflow has been stronger than expected post the EU referendum

� In addition, deposit growth has also been supported by current account balances , which continue to be above plan

� Healthy average LTV of 55% across the mortgage book

� Recently increased rental cover requirement for buy-to-letmortgages to 145% (from 125%)

� Strong capital position with CET1 at 17.2%

35

GBP in millionJun-15 Mar-16 Jun-16 % YoY % QoQ

Core mortgages 16,866 20,200 20,926 24.1% 3.6%

Mortgage enhancement 2,554 2,157 2,049 -19.8% -5.0%

Portfolio UKAR 0 2,873 2,733 --- -4.9%

Other net customer lending 2,235 2,200 2,213 -1.0% 0.6%

Total Customer lending (net) 21,655 27,430 27,921 28.9% 1.8%

Savings deposits 16,698 17,605 18,748 12.3% 6.5%

Current account deposits 7,284 8,191 8,397 15.3% 2.5%

Business banking deposits 922 948 988 7.2% 4.2%

Total Customer deposits 24,905 26,744 28,133 13.0% 5.2%

Jun-15 Mar-16 Jun-16 % YoY % QoQ

Common Equity Tier 1 Capital ratio 19.5% 17.7% 17.2% -2 .3 pp -0.5 pp

NPS evolution

More people than ever would recommend TSB

Note: Net Promoter Score (NPS) is based on the question “On a scale of 0-10, where 0 is not at all likely and 10 is extremely likely, how likely is it that you would recommend TSB to a friend or colleague?” NPS is the percentage of TSB customers who score 9-10 after subtracting the percentage who score 0-6. Reported 6 months period to date.

NPS improved 10 points from 14 (Jun 15) to 24 (Jun 16)

36

-9

14

24

-20

-10

0

10

20

30

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

2014 2015 2016

Euros in million1H 2015 1H 2016 %YoY 1H 2016 %YoY

Net interest income 1,299.0 1,942.5 49.5% 1,392.4 7.2%

Equity method & dividends 27.3 48.8 78.9% 48.8 78.9%Commissions 494.6 570.2 15.3% 503.8 1.9%Trading income & forex 1,156.0 517.5 -55.2% 462.5 -60.0%Other operating results -16.9 -98.9 --- -82.1 ---Gross operating income 2,960.0 2,980.2 0.7% 2,325.4 -21. 4%

Personnel costs -615.5 -828.7 34.6% -613.9 -0.3%Administrative costs -292.5 -497.0 69.9% -292.3 -0.1%Depreciation & amortization -143.5 -194.0 35.2% -156.3 8.9%Pre-provisions income 1,908.6 1,460.6 -23.5% 1,262.9 -33 .8%

Total provisions & impairments -1,749.1 -901.8 -48.4% -901.8 -48.4%Gains on sale of assets -3.3 35.3 --- 35.3 ---Negative goodwill 207.4 0.0 -100.0% 0.0 -100.0%Profit before taxes 363.5 594.0 63.4% 396.3 9.0%

Taxes and others -9.6 -166.6 --- -114.7 ---Minority interest 1.7 2.1 21.8% 2.1 21.8%

Attributable net profit 352.2 425.3 20.7% 279.6 -20.6%

Sabadell group Sabadell, ex-TSB

Half year income statement

Note: The EURGBP exchange rate of 0.7782 used for the P&L is the daily average rate of 1H 2016.1 2015 commissions have been restated to include FX commissions, which were previously included in trading income and forex. Before this restatement, 1H15 commissions amounted to €454M.

Sustained revenue resilience continues to allow for additional provisioning effort

39

1

Gross lending by product type



40Note: Data as of June 2016.

Mortgages63%

Loans and credits

30%

Loans and credits with other

warranties1%

Working Capital4%

Leasing and renting

2%

Mortgages54%

Loans and credits37%

Loans and credits with

other warranties

2%

Working Capital5%

Leasing and renting

2%

Business mix by customer type




Corporates13%

SMEs21%

Individuals54%

Public Sector4%

Real Estate Developers

6%

Others2%

Corporates17%

SMEs27%

Individuals41%

Public Sector8%

Real Estate Developers

7%

Credit spreads evolution

Back book loan spreads by segment, ex-TSBIn basis points

SME

Corporates

Total

Mortgages to individuals

Evolution of loan spreads by key segments, ex-TSBIn basis points

178 176 175 175 178

95 96 98 98 101

282 282 281 281 284

219210 202 195 195

2Q15 3Q15 4Q15 1Q16 2Q16

42

Back book

Front book

Back book

Front book

Back book

Front book

Back book

Front book

Back book

Front book

Mortgages to individuals 95 173 96 175 98 178 98 175 101 158

SME 282 417 282 414 281 401 281 412 284 386

Corporates 219 233 210 225 202 213 195 194 195 206

3Q15 4Q15 1Q16 2Q162Q15

Deposits71.2%

Retail issues2.8%

Repos 3.0%

ICO funding2.9%

Wholesale funding14.2%

ECB5.9%

Funding structure, Sabadell group

Wholesale funding breakdownIn percentage

Funding structureIn percentage

Covered bonds48.0%

Senior debt5.5%

Preference + Subordinated

6.4%

ECP12.2%

Securitisation23.8%

GGB4.1%


1.19%0.99%

0.76%0.64%

0.45%0.37% 0.32% 0.34%

0.24%0.18%

Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

Term deposits: contractual rates and maturities

Maturities of term depositsEuros in million

Stock New production/renewals

Contractual rates on term deposits, ex-TSBIn percentage

Maturity Volume Average cost

3Q16 8,853 0.69%4Q16 7,026 0.54%1Q17 5,232 0.51%2Q17 5,866 0.32%3Q17 569 0.57%

>3Q17 1,651 0.62%

44

Wholesale funding cost evolution

Wholesale funding cost evolutionIn percentage

Wholesale funding cost Wholesale funding cost, ex-TSB

3.51%

3.41%

3.05%

2.71%

2.56%

2.28%

2.28%

2.12%

1.93%

2.35%

2.27%

2.12%

1.89%

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

45

Note: Including TSB.

The size of the bubble represents the volume of maturities. The percentage number is the current level of coupon payment

Wholesale funding maturities

Maturity by product type, Sabadell group Euros in million

Wholesale funding maturities, Sabadell groupEuros in million

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2016 2017 2018 2019 2020 2021 2022 >2022

1,326 1.44%

3,2033.48% 1,678

3.41%

1,1242.75%

2,590 2.05%

2,6252.31%

1,144 3.17%

2,854 1.91%

46

2016 2017 2018 2019 2020 2021 2022 >2022 Outst. Amount

Covered Bonds (CH) 0 2,022 1,560 1,124 2,165 2,108 1,119 2,314 12,413GGB 0 1,058 0 0 0 0 0 0 1,058Senior Debt 1,246 57 100 0 0 0 25 0 1,427Preferred Shares and Subordinated Debt 80 66 0 0 425 506 0 533 1,611Other mid- and long-term financial instruments 0 0 18 0 0 10 0 6 34

Total 1,326 3,203 1,678 1,124 2,590 2,625 1,144 2,854 16,543

ALCO portfolio

Fixed income portfolio evolutionEuros in billion

ALCO portfolio, Sabadell groupEuros in billion

ALCO portfolio, Sabadell, ex-TSBEuros in billion

ALCO portfolio, ex-TSB TSB

21.4 22.9 22.4

1.71.8 1.9

Dec-15 Mar-16 Jun-16

47

ALCO portfolio 21.4 22.9 22.4% of total assets 12.7% 14.2% 13.6%Duration (yrs) 3.5 3.6 3.7


ALCO portfolio 23.1 24.7 24.4% of total assets 11.1% 12.1% 11.7%Duration (yrs) 3.9 3.6 3.8


ALCO portfolio composition

ALCO portfolio composition evolution, Sabadell grou pEuros in billion

Spanish Public Debt 7.55 9.70 9.36Italian Government Debt 6.06 4.84 5.60US Government Debt 2.34 2.35 1.53UK Government Debt 1.69 1.79 1.95Other Government 1.54 1.93 2.17of which: Portuguese Government 0.68 0.78 0.99 Mexican Government 0.58 0.77 0.85 Netherlands Government 0.08 0.08 0.00Agencies 1.41 1.41 1.47Covered Bonds 0.66 0.65 0.35Corporates & Financials 1.82 2.00 1.96

Total 23.1 24.7 24.4

Jun-16Dec-15 Mar-16

48

Evolution of NPLs and RE assets

Evolution of NPLs and RE assets, ex-TSB Data includes 20% of APS. Euros in million

49

Gross entries 1,091 755 740 735 729 654 660Recoveries -1,660 -1,557 -1,471 -1,275 -1,273 -1,111 -1,629Ordinary net entries -569 -802 -731 -540 -544 -457 -969

Change in RE assets 279 211 167 1 7 -41 71Net entries + Change in RE assets -290 -591 -564 -539 -5 37 -498 -898

Write-offs 298 245 170 300 234 213 70

Real estate and NPL quarterly change -588 -836 -734 - 839 -771 -711 -968

2Q164Q14 1Q15 2Q15 3Q15 4Q15 1Q16

NPL ratio breakdown

NPL ratios by segment, ex-TSBIn percentage

Note: NPL ratio is calculated including contingent risk and 20% of the APS. 50

2Q15 3Q15 4Q15 1Q16 2Q16Real Estate development and/or construction purposes 47.21% 47.84% 38.81% 37.01% 33.29%Construction purposes non-related to real estate dev. 8.74% 8.58% 14.36% 12.18% 11.76%Large corporates 6.14% 5.41% 4.62% 4.58% 3.89%SME and small retailers and self-employed 11.96% 11.38% 10.83% 10.23% 9.39%

Individuals with 1st mortgage guarantee assets 8.76% 8.27% 7.83% 7.82% 7.47%

NPL ratio, Sabadell ex-TSB 10.98% 10.38% 9.86% 9.45% 8.5 4%

1Q14 2Q14 3Q14 4Q14 1Q15

Real Estate development and/or construction purposes 52.56% 52.11% 51.47% 52.17% 49.21%Construction purposes non-related to real estate dev. 8.38% 7.41% 7.35% 8.08% 9.03%Large corporates 6.19% 6.13% 6.30% 6.46% 6.55%SME and small retailers and self-employed 13.08% 13.08% 13.11% 12.60% 12.20%

Individuals with 1st mortgage guarantee assets 9.85% 9.75% 9.23% 9.25% 9.12%

NPL ratio, Sabadell ex-TSB 13.94% 13.85% 13.44% 12.74% 1 1.68%

Overview of coverage ratios, Sabadell Group

51

NPL evolutionEuros in million

2Q15 3Q15 4Q15 1Q16 2Q16

NPL evolution 14,215 13,345 12,561 11,870 10,812Provisions 7,627 7,385 6,738 6,488 5,847Coverage ratio (%) 53.7% 55.3% 53.6% 54.7% 54.1%

RE assets evolutionEuros in million

2Q15 3Q15 4Q15 1Q16 2Q16

RE assets evolution 9,227 9,228 9,234 9,193 9,265Provisions 3,995 4,071 4,045 3,928 3,997Coverage ratio (%) 43.3% 44.1% 43.8% 42.7% 43.1%

Total problematic assets evolutionEuros in million

2Q15 3Q15 4Q15 1Q16 2Q16

Total problematic assets 23,442 22,572 21,795 21,064 20,077Provisions 11,622 11,457 10,783 10,417 9,845Coverage ratio (%) 49.6% 50.8% 49.5% 49.5% 49.0%

Note: includes 20% of APS.

80%

20%

9,301 7,602 6,138 6,073

7,4805,819

3,893 3,031

8,096

8,848

9,234 9,265

24,87722,269

19,265 18,369

Dec-13 Dec-14 Dec-15 Jun-16

Sabadell real estate exposure

Balance sheet (real estate exposure), ex-TSBEuros in million

Note: Date as of June 2016. Contingent exposures included. 1 Unsecured assets or with pledge, personal or 2nd mortgage guarantees.2 It does not include capital instruments.

Mortgage guarantee(1st mortgage)

Other guarantees1

From No RED

From RED

Foreclosed assets²Developer credit (Performing)

Developer credit (Non Performing)

52

16,78113,421

10,031 9,104

87%

13%

Real Estate portfolio breakdown by asset classReal estate portfolio break-down, ex-TSBEuros in million (gross value)

Developer credit break-down, ex-TSB Euros in million (gross value)

Note: Data as of June 2016.Contingent exposures included. It does not include capital instruments. First mortgage guarantees and other guarantees. 1 It does not include capital instruments.2 Other guarantees. 53

Foreclosed assets 1 9,265 100%

Finished property 53%

Under construction 5%

Land 42%

Developer loans 9,104 100%

Finished property 57%

Under construction 5%

Land 25%

Others2 13%

Total RE related exposure 18,369

June 2016 %

Developer loans 9,104 50%

Normal 5,544 61%

Substandard 530 6%

Non performing 3,031 33%

56%

5%

34%

5%

Jun-16

Real Estate portfolio breakdown by asset class and regionPortfolio breakdown by maturity, ex-TSBIn percentage

Portfolio breakdown by region

Note: Data as of June 2016.1 Other guarantees.

>80% of finished properties in coastal areas and Madrid

Finished product

Under construction

Land

Others1

54

Residential76%

Industrial9%

Commercial6%

Hotels2%

Others8%

REOs/Foreclosed assets segmentation

Foreclosed assets by use, ex-TSBIn percentage

Foreclosed assets by location, ex-TSBIn percentage


Catalonia31%

Center17%

Levante36%

South16%

For any additional information, please contact:

[email protected]

+44 2071 553 853

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