Comparative summary of financial data for the last two years Crèdit Andorrà Group

Transcription

1 Annual Report 2011

2 Comparative summary of financial data for the last two years Crèdit Andorrà Group Key balance sheet figures (Amounts shown in thousand euros) Cash and at banks 430, ,280 Loan investments 3,112,228 3,109,696 Customer deposits 4,315,606 4,181,704 Securities and other instruments on deposit with third parties (*) 4,696,938 4,815,879 Securities managed by group companies and held in custody by third parties 1,074, ,112 Total 5,771,390 4,978,991 Ratios (%) Equity / Deposits Equity / Loans Loans / Deposits Profits / Average capital + Reserves Profits / Average total assets: ROA (**) Solvency Liquidity Efficiency (Operating Costs / Ordinary margin) Other figures Number of employees Number of branches Fitch Ratings Long-term A A Short-term F2 F1 Individual B/C B Support 5 4 (*) See note 18 of Annual Report. (**) As per ANIF Memorandum 141/02.

3 Contents Comparative summary of financial data for the last two years Introduction Letter from the Board of Directors 2 Governance structure 4 Financial statements Crèdit Andorrà Group Consolidated balance sheets 6 Consolidated off-balance-sheet records 9 Consolidated profit and loss account 10 Statement of source and application of funds 12 Notes on the consolidated financial statements 14 Auditors report 62 Branch network 64

4 Introduction The worldwide economic and financial context in 2011 was characterised by two big events. The first, the crisis in the European Union, reflected in the sovereign debt crisis and in doubts regarding the monetary system itself; the second, the continuing shift of the world s economic centre towards the east, specifically to the Pacific area; a fact that highlights the growing weight of emerging countries. There has been a certain slowdown in the world economy and the IMF estimates growth of 3.3% in Among the emerging countries, China, Brazil and Mexico have moderated their respective growth rates due to the financial tensions in Europe and shrinking domestic demand. In Europe, political and economic leaders established a series of measures in 2011 to safeguard monetary union and restore confidence among investors and markets. The gap between the weakness of peripheral countries and the strength of central ones, led by Germany, has created two speeds. Sovereign debt problems have spread and, as a consequence, Portugal and Greece have fallen into significant recession while Italy and Spain have seen the cost of financing their respective sovereign debt soar. The United States has consolidated its economic recovery. Among the most notable indicators of activity is the increase in new employment contracts, improving consumer confidence and the business climate. Its GDP is expected to grow by 1.8% in Nevertheless, uncertainty still hovers over the next few years. With regard to Andorra, the solvency of the country s economy has been endorsed by it keeping its A/A 1 rating on the part of Standard & Poor s. Institutionally, Andorra is facing two big challenges. The first, to develop measures to reactivate the economy through policies that encourage innovation and open up the country to a higher degree of foreign investment. The second, to decide on the most suitable model to fit with the European Union. The most notable actions undertaken have been the new foreign investment act, which eliminates the current limitations in favour of a more open economy; the fiscal reform, introducing a tax on companies and reformulating value added tax; the effort made to contain public spending and the reform of Andorra s Social Security system. In spite of widespread economic uncertainty, these measures should bring Andorra s economy in line with European standards. And as part of the structural reforms required overall, they should help to diversify our economy and boost our country s growth. In 2011, at the Crèdit Andorrà Group we maintained leadership of the Andorran financial sector. On an international scale, we increased our presence in new financial marketplaces in Europe and America. We achieved a substantial solvency ratio (17.39% with a TIER 1 of 14.02%) and liquidity ratio (51.81%), above the legally established minimums of 10% and 40%, respectively. The consolidated balance sheet for the Crèdit Andorrà Group as at December 31, 2011 shows a total business volume of 13,199 million euros, representing a 7.5% increase on the previous year. Total assets under management stand at 10,087 million euros, 10% more than in 2010, and loan investments total 3,112 million euros. Total operating income reached million euros, the financial margin was million euros and the net profit from operations came to million euros. Thanks to rationalisation and strict cost control, we have managed to maintain an excellent efficiency ratio of 48.56%. After having applied a prudent and conservative policy of provisions for insolvency, the Crèdit Andorrà Group recorded a consolidated net profit of million euros. In 2011 we started up our fundamental, a strategic plan that sets down the lines of action for the coming years, resulting from the effort and contribution of all the professionals in our Group. The Plan s initiatives are aimed at innovation, quality and a service orientation as fundamental values to lead our financial business and ensure best banking practices. We ve continued working to grow internationally and guarantee the strength and solidity our customers expect from the leading financial group in Andorra. This expansion has enabled us to be present on two continents, Europe and America, with differentiated projects offering great added value. Recent operations have reinforced our position in the international financial system with a global private banking project. 2 Financial statements

5 Introduction In Europe, the acquisition of Banque de Patrimoines Privés, in Luxembourg, has allowed us to channel our banking and financial business through a well-established banking platform. The company offers investment consultancy and tax planning services, as well as safeguarding and administering investment funds and the Group s two SICAVs. The subsequent purchase of Banco Alcalá, SA has introduced us into the Spanish private banking market, where we provide wealth management services to private and institutional customers via its head offices in Madrid and the recently opened branch in Barcelona. In our insurance business, we have continued to expand our holding ERM (Enterprise Risk Management) by opening another branch in Madrid. Regarding our American expansion, we should note that we are the first Andorran bank to be given a broker/dealer licence in the United States. We carry out our business through the firm Beta Capital Management LP, based in Miami. Once again, our efforts to bring our work in line with the best international practices and standards have been rewarded by important distinctions and classifications. Fitch Ratings has renewed our ratings and we have maintained a long-term rating A, a short-term rating F2, a B/C individual rating and a support 5 rating, with a stable outlook. We have renewed our two international certificates again, the ISO 9001:2008 for Crèdit Andorrà Asset Management, the Group s fund investment manager, and for the bank s departments of Treasury and Capital Markets and Market Administration and Control. Crèdit Andorrà Asset Management has also once again seen its fund management quality endorsed, renewing its GIPS certificate (Global Investment Performance Standards), and has also been the first Andorran fund management company to form part of the Executive Committee. It has also met the requirements of AIMA (Alternative Investment Management Association). On the other hand, the Bank has kept its leading position among Andorran institutions in the Top 1000, an international ranking produced by The Banker according to the strength and capitalisation of different institutions. In the area of the environment, we have renewed our ISO certificate 14001:2004. With regard to the social responsibility strategy of the Crèdit Andorrà Group, we have maintained our presence in the areas of economy, environment, society and education, with an overall investment of 1.8 million euros, representing 2.53% of the total net profit. In 2011, one of the core aspects of our activity was to boost the economy to promete research and training and to spread corporate management knowledge. Over the years, the important work being carried out by the Crèdit Andorrà Foundation has embodied our firm commitment to the country; a history of engagement that celebrates its 25th anniversary in Since it was founded in 1987, the foundation s areas of action have been extended, although always from an educational orientation. Its scholarship programme for young people now has 173 beneficiaries. Also of note are the courses for senior citizens, initiatives to improve the population s quality of life, support for the disabled and our backing for music and art. The Crèdit Andorrà Foundation is the main private foundation in the country, both in terms of the number of programmes it directs as well as the funds allocated directly to social responsibility actions. To conclude this report, we would like to reaffirm our founding commitment of service to our customers and our country. Within this difficult context, we must respond with closeness and efficiency. We aspire to continue leading this great project, with an international presence in Europe and America, contributing progress and new opportunities to our Group and Andorra. The Board of Directors Financial statements 3

6 Governance structure At December 31, 2011 BOARD OF DIRECTORS Chairman of the Board of Directors Antoni Pintat Santolària Vice-Chairman Jaume Casal Mor Chief Executive Officer / Secretary Josep Peralba Duró Member of the Board Rosa Pintat Santolària Member of the Board Maria Reig Moles Member of the Board Josep Vidal Martí EXECUTIVE COMMITTEE MEMBERS Chief Executive Officer / General Manager Josep Peralba Duró Business Deputy General Manager Xavier Cornella Castel International Private Banking division Director David Betbesé Aleix Insurance group Director Josep Brunet Niu Commercial Banking division Director Sílvia Cunill Calvet Financial division Director José Luis Dorado Ocaña General Secretary to the C.E.O. Agustí Garcia Puig Loans department Director Frederic Giné Diumenge Accounting, Reporting and Corporate Risk Control Director Francesc Jordà Blanes Resources division Director Ramon Lladós Bernaus Private Banking division Director - Europe Frank Martínez Sánchez Private Banking division Director - America José Antonio Monreal Hurtado Risk and Regulatory Compliance division Director Andrés Roldán Cubas 4 Financial statements

7 Financial statements Crèdit Andorrà Group

8 Consolidated balance sheets as at December 31, 2011 and 2010 Crèdit Andorrà Group ASSETS Euros (thousands) (*) Cash and deposits with OECD central banks 33,602 37,566 Andorran National Institute of Finance (ANIF) (notes 4, 5 and 19) ,245 Financial intermediaries (notes 4 and 5) 395, ,937 Financial intermediaries at sight 215, ,317 Due from banks on time deposit 180, ,397 Provision for insolvencies Loan investments (notes 4 and 5) 3,090,775 3,084,616 Customer loans and credits 3,084,980 3,057,165 Overdrafts on customer accounts 12,787 36,008 Customer bills discounted 14,461 16,522 Provision for insolvencies 21,453 25,079 Securities portfolio (notes 5 and 6) 1,426,527 1,235,854 Bonds and other fixed-income instruments (note 4) 1,358,488 1,130,481 Provision for insolvencies 2,466 1,279 Provision for market fluctuations 5 47 Investments in group companies 8,262 32,222 Other investments 17,167 17,831 Provision for market fluctuations Shares and other equity securities 11,635 16,243 Provision for market fluctuations Investment funds 33,751 40,525 Provision for market fluctuations Consolidation gains 40,576 Consolidation gains 42,039 Accumulated amortisation 1,463 Intangible assets and expenses to be written off (notes 2.4 and 7) 46,053 41,095 Goodwill Intangible assets and expenses to be written off 87,264 71,630 Accumulated amortisation 41,211 30,535 Fixed assets (note 7) 281, ,752 Fixed assets 417, ,078 Accumulated depreciation 128, ,576 Provision for depreciation 7,413 6,750 Accrued income and prepaid expenses (note 12) 55,840 46,547 Income accrued but not collected 55,096 46,458 Prepaid expenses Other assets 47,142 38,268 Operations in course 44,157 34,551 Stock Options purchased 2,667 3,101 Total assets 5,418,095 5,224,880 (*) Shown solely for purposes of comparison. Notes 1 to 21 herewith form an integral part of the consolidated financial statements. 6. Financial statements

9 LIABILITIES Euros (thousands) (*) Andorran National Institute of Finance (ANIF) (notes 4 and 5) 6,651 57,104 Creditors (notes 4 and 5) 4,451,678 4,284,286 Banks and lending institutions 128,900 99,459 Other financial intermediaries 7,172 3,123 Customer deposits 4,315,606 4,181,704 Bonds issued (note 4) 206, ,327 Provision for risks and contingencies (note 8) 2,541 3,382 Provision for pensions and similar obligations Provision for contingent liabilities 1,238 1,525 Other provisions 1,303 1,857 Provision for general banking risks (note 11) 8,154 23,232 Subordinated liabilities (note 11) 150, ,000 Accrual accounts (note 12) 42,082 33,956 Accrued expenses 20,723 15,474 Deferred income 21,359 18,482 Other liabilities 29,753 17,700 Operations in course 12,867 5,440 Options issued 1,781 2,390 Suppliers and other creditors 15,105 9,870 Minority interest 4, Share capital (note 11) 70,000 70,000 Reserves (note 11) 410, ,524 Legal reserve 14,000 14,000 Guarantee reserve 39,311 33,063 Voluntary reserve 207, ,380 Revaluation reserve 109, ,306 Consolidation reserve 40,722 39,775 Exchange rate differences 129 Income (notes 10 and 11) 35,628 42,816 Income for year 70,628 77,816 Income from previous years awaiting allocation Dividends paid out in advance 35,000 35,000 Total liabilities 5,418,095 5,224,880 (*) Shown solely for purposes of comparison. Notes 1 to 21 herewith form an integral part of the consolidated financial statements. Financial statements 7

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11 Consolidated off-balance-sheet records as at December 31, 2011 and 2010 Crèdit Andorrà Group Euros (thousands) (*) Contingent liabilities 198, ,561 Guarantees given 196, ,394 Documentary letters of credit issued or received with notification to customers 1,977 5,167 Commitments and contingent risks 418, ,763 Operating commitments and risks 391, ,074 Actuarial commitments and risks 11,747 11,897 Other contingent commitments and risks 15,110 16,792 Forward operations (note 14) 1,397,793 1,327,416 Forward foreign exchange transactions 767, ,123 Forward transactions on other financial instruments 630, ,293 Customer securities held in custody (note 18) 5,476,298 5,528,058 Securities held in custody by third parties 4,696,938 4,815,879 Securities held in own custody 779, ,179 Other off-balance-sheet records exclusively for management control (note 18) 1,280,845 1,161,403 Guarantees and commitments obtained 412, ,755 Other off-balance-sheet records 868, ,648 (*) Shown solely for purposes of comparison. Notes 1 to 21 herewith form an integral part of the consolidated financial statements. Financial statements 9

12 Consolidated profit and loss account for years ended December 31, 2011 and 2010 Crèdit Andorrà Group Euros (thousands) (*) Interest and related income 114, ,518 ANIF and financial intermediaries at sight 1, On loan investments 87,633 75,700 On bonds and other fixed-income securities 25,724 28,321 Interest and related expenses 47,748 33,358 ANIF and financial intermediaries On customer deposits 38,308 25,329 On bonds 3,091 1,939 On subordinated liabilities 5,441 5,545 On internal pension fund Income from equity securities From other investments From shares and other equity securities From investment funds 181 Financial margin 67,471 71,405 Commissions, net (note 12) 93,468 88,848 Commissions on services supplied 105,229 98,295 Commissions on services received 11,761 9,447 Results of financial transactions 12,759 14,939 Net provision for market fluctuations (note 6) 121 1,950 Foreign exchange earnings 5,299 5,178 Income from securities transactions 3,442 3,533 Income from forward transactions Share in losses / profits of companies accounted for by equity method (note 2.3) 4,177 4,483 Other Other ordinary profit Ordinary margin 174, ,657 (*) Shown solely for purposes of comparison. Notes 1 to 21 herewith form an integral part of the consolidated financial statements. 10 Financial statements

13 Euros (thousands) (*) Ordinary margin 174, ,657 Personnel costs 39,938 33,842 Personnel, Board of Directors and indemnities 31,548 26,937 Social Security 3,394 2,512 Ordinary allocations to other insurance institutions (notes 3.9 and 9) 2,911 2,603 Other personnel costs 2,085 1,790 General expenses (note 12) 44,780 43,470 Supplies External services 24,171 23,750 Taxes 19,634 19,230 Depreciation expenses, net (note 7) 20,209 20,856 Depreciation allowed on intangible and tangible fixed assets 20,209 20,856 Provision for depreciation of fixed assets, net Allocation of provision for depreciation of fixed assets Recovery of provisions Operating margin 68,828 77,280 Provision for insolvencies, net (notes 5 and 6) 8,429 15,731 Allocations to provision for insolvencies 9,208 17,969 Recovery of provisions for insolvencies 779 2,238 Provision for risks and contingencies, net (note 8) 330 1,298 Allocations to provision for risks and contingencies 1,298 Recovery of provisions for risks and contingencies 330 Provision for general banking risks (note 11) Ordinary profit 60,729 60,251 Extraordinary profit (note 12) 9,644 17,414 Recovery of provisions for general banking risks (note 11) 15,078 17,581 Other extraordinary profit 5, Profit for the year 70,373 77,665 Profit attributed to minority interest Profit attributed to the group 70,628 77,816 (*) Shown solely for purposes of comparison. Notes 1 to 21 herewith form an integral part of the consolidated financial statements. Financial statements 11

14 Statement of source and application of funds for years ended December 31, 2011 and 2010 Crèdit Andorrà Group SOURCES OF FUNDS Euros (thousands) (*) Funds generated by operations 80,645 98,286 Profit for the year 70,628 77,816 Net provision for insolvencies 8,429 15,731 Net provision for asset depreciation 707 6,465 Net provision for market fluctuations 1,950 Allocations to other funds Other 15,078 16,390 Depreciation of tangible and intangible fixed assets 20,209 20,856 (Profit)/Loss on sale of fixed assets Profits from other companies accounted for by equity method 4,177 4,483 Positive change in liabilities over assets 55, ,204 Cash ANIF and financial intermediaries 55, ,204 Other headings Net increase in liabilities 203,185 65,122 Creditors - Customers 133,902 Subordinated liabilities Bonds issued 69,283 65,122 Net decrease in assets 3, ,680 Cash 3,964 Securities portfolio less investments 107,680 Sale of permanent investments 4,439 Sale of investments Sale of fixed assets 4,439 Funds generated by financing operations 4,771 External contributions to capital 3,909 Other equity amounts 862 Dividends received from permanent investments Total source of funds 352, ,292 (*) Shown solely for purposes of comparison. Notes 1 to 21 herewith form an integral part of the consolidated financial statements. 12 Financial statements

15 APPLICATION OF FUNDS Euros (thousands) (*) Funds applied to operations 14,180 7,472 Applied from other funds 511 Other 13,669 7,472 Positive change in assets over liabilities 4,417 12,746 ANIF and financial intermediaries 4,417 1,511 Other headings 11,235 Net decrease in liabilities 192,045 Creditors - Customers 192,045 Bonds issued Net increase in assets 189, ,081 Cash 7,641 Loan investments - Customers 2,144 99,440 Securities portfolio less investments 187,683 Purchase of permanent investments 73,917 53,217 Purchase of investments 6,269 Purchase of tangible and intangible fixed assets 73,917 46,948 Funds applied to financing operations 70, ,731 Supplementary dividend for previous year 35,000 35,000 Preliminary dividend for current year 35,000 35,000 Other equity amounts 68,731 Total application of funds 352, ,292 (*) Shown solely for purposes of comparison. Notes 1 to 21 herewith form an integral part of the consolidated financial statements. Financial statements 13

16 Notes on the consolidated financial statements at December 31, 2011 and 2010 Crèdit Andorrà Group Note 1 Identity of the bank and its activities Crèdit Andorrà SA (hereinafter the bank), authorised in 1949, is a limited company engaged in banking activities which it carries out as a commercial bank and as a private bank, and is subject to the rules and regulations governing financial institutions operating in Andorra. However, on April 11, 2011, the Andorran National Institute of Finance (ANIF) approved the application to widen the bank s corporate object to include the investment and auxiliary services established in articles 5 and 6 of Act 13/2010, of May 13. The bank s registered offices are at Avinguda Meritxell, 80, Andorra la Vella, Principality of Andorra. Crèdit Andorrà SA is the parent company in the group and, together with its subsidiaries, set out in Notes 2.4 and 6.1, form part of the Crèdit Andorrà Group (hereinafter the group). Note 2 Bases of presentation and consolidation principles 2.1 Approval by the General Shareholders Meeting The group s annual consolidated financial statements for the year ending December 31, 2010 were approved by the bank s General Shareholders Meeting on April 28, The annual consolidated financial statements of the group, of the bank and of almost all the companies that form part of the group for the year 2011 are pending approval by their respective General Shareholders Meetings. Nevertheless, the bank s Board of Directors believes they will be approved without any changes. 2.2 Presentation and Application of the Accounting Plan of the Andorran Financial System These consolidated financial statements have been drawn up by the bank s administrators based on the accounting records of the banks and companies that go to make up the group, and have been prepared according to the Accounting Plan of the Andorran Financial System approved by the government of Andorra on January 19, 2000, so that they show a true and fair view of the consolidated equity, consolidated financial position, consolidated results and resources obtained and applied by the group. The consolidated financial statements are presented in thousands of euros, which is the currency used for the group s operations and presentations, rounded up or down to the nearest thousand. The Andorran National Institute of Finance (ANIF) is the body charged with the supervision and control of those entities that go to make up the Andorran Financial System, as well as the implementation and application of the Accounting Plan of the Andorran Financial System and those regulations applicable to these entities. Note 3 summarises the accounting principles and policies and the most significant valuation criteria applied in preparing these consolidated financial statements. No mandatory accounting principle or valuation criterion having a significant effect on these consolidated financial statements has been excluded. 2.3 Critical aspects of valuation, estimating uncertainty and relevant opinions made when applying accounting policy The preparation of the consolidated financial statements requires the use of relevant accounting estimates, the application of opinion and processes of estimation and hypothesis. In this respect, below is a summary 14 Financial statements

17 providing details on those aspects that have involved a greater degree of opinion and complexity or for which the hypotheses and estimates are significant in preparing these consolidated financial statements. Useful life and intangible assets and expenses that can be depreciated. Fair value of certain assets and liabilities not listed. Calculation of provisions made. Although the estimates made by the bank s Administrators as at December 31, 2011 have been carried out according to the best available information to date, events that may take place in the future may require these to be modified in the next few years. This modification would be carried out prospectively, recognising the effects of the change in estimate in the corresponding consolidated profit and loss accounts. 2.4 Consolidation principles According to the Accounting Plan of the Andorran Financial System, there is a relationship of control by a dominant entity over a dependent entity when the former, either directly by itself or indirectly through other persons or entities acting on its behalf or in agreement with the former: holds a majority of the voting rights or is able to make use of, pursuant to an agreement with other shareholders, a majority of the voting rights of the latter; has the right or has actually exercised the right to appoint or remove the majority of the members of the governing body; has appointed, exclusively with its votes, at least half plus one of the members of the governing body of the latter; or controls the governing body because at least half plus one of the members of the governing body of the latter are board members or senior management, directly or indirectly, of the former. The same economic group is made up of those entities that, irrespective of their legal form, activity or company domicile, constitute: a decision-making unit so that one of these entities exercises, directly or indirectly, the sole management of the other entities or the aforementioned management is exercised by one or more individuals acting systematically and co-ordinately; and an economic unit of risk because its solvency, capacity to generate funds or future viability depends closely on any of its components. In any case, dominant entities and their dependent entities are understood as an economic group. Multigroup entities are those not included in the economic group but which are managed by one or more entities of the group and which form part of its share capital, together with one or more other entities which are not related to it. Entities are understood to be managed jointly when, in addition to forming part, directly or indirectly, of the capital, any of the following circumstances apply: joint management has been established in the company articles of association; or there are pacts or agreements that allow shareholders to exercise their right to veto in taking company decisions. Associated entities are those not included in the economic group but which meet both the following requirements: one or more group entities form a part, directly or indirectly, of the entity s share capital; and a long-lasting relationship has been created that contributes to its activity. Financial statements 15

18 These requirements are deemed to have been met when one or more group entities hold a direct or indirect share in the company s capital of at least 20%, or 3% if it is quoted on a regulated market. Consolidation methods Full integration is applied when the entity to be consolidated carries out a non-differentiated activity (entities from the financial system or instrumental and/or auxiliary entities, fundamentally) and when it belongs to the economic group. According to the full integration method, the book value of investments and flows resulting from this situation is replaced with the assets and liabilities, and with the income and expenditure of the investee company, i.e. the items of the subsidiaries to be consolidated that form part of the group are included within or added to the balance sheet and to the profit and loss account of the parent company, replacing the book value of the investment with the assets and liabilities of the companies to be consolidated. All significant balances from the balance sheet and the off-balance-sheet accounts, i.e. loans, debts and claims existing between group entities, have been eliminated. Income and expenditure related to significant transactions between consolidated entities have been eliminated and do not affect the group s results. Results produced by internal transactions have been eliminated and deferred until realised via third parties. The difference between the book value of companies consolidated by the fully-integrated method and their equity at year-end is included in the consolidation reserves. The accounts of the consolidated entities are governed by the same rules of classification, valuation, depreciation and supply. The consolidation of the profit or loss generated by subsidiaries acquired in a financial year is carried out by taking only into consideration the results for the period between the date of acquisition and the date this period ends. In the case of the fully-integrated consolidation method, in the consolidated profit or loss, the part corresponding to the group, according to the group s percentage investment, is differentiated from the part corresponding to the minority, i.e. that which does not belong to the group. In the liabilities of the balance sheet, the heading Minority interest reflects the part that does not form part of the equity and that corresponds to minority shareholders. The equity method is applied when the entity to be consolidated is an associated company, when it belongs to the economic group but carries out a differentiated activity and when it is a multigroup company with a differentiated activity. In the equity consolidation method, the book value of the investment is replaced by the corresponding percentage of equity in the investee company, with adjustment to liabilities, if necessary, of the differences between the investment and the equity of the company consolidated via the equity method. As established by ANIF Memorandum 162/05, in subsequent consolidations any variations in equity (if negative, up to the difference between the equity of the previous consolidation and the book value of the investment) are presented within the section Share in (losses) / profits of companies accounted for by equity method of the profit and loss account of the financial statements for the part corresponding to the profit or loss of the investee company. In other cases, variations in equity have a direct balancing entry in liabilities under Consolidation reserves. 16 Financial statements

19 Annual accounts provided in foreign currencies of entities included within the consolidation are converted to the reference currency of the consolidated financial statements according to the following criteria: Assets and liabilities on the balance sheet are converted at the exchange rate on the date of closing the annual accounts. With regard to drawing up the consolidated profit and loss account, profit and loss accounts of subsidiaries are converted at the average exchange rate for the period. Items of capital, reserves and remainder not eliminated in the consolidation process are converted at the historic exchange rate for the date on which they were generated. Any differences arising from the different conversion methods are charged to the item Exchange rate differences of liabilities. Consolidated entities These consolidated financial statements include the following investee companies, consolidated by the fully and proportionally integrated method (in thousand euros): 2011 Domicile Activity Auditor % participation Equity Profits / Losses Dividends paid out Crediinvest SA Andorra Fund Manager KPMG 100% 3, Crèdit Iniciatives SA Andorra Venture capital 100% 9,923 4,271 Patrigest Andorra Instrumental 100% 1,001 5 Crèdit Capital Immobiliari SA Andorra Instrumental 100% 99, ,925 Crèdit Andorrà Preference Limited Cayman Financial 100% 1 Valira Asset Management SL Spain Investment advice KPMG 60% 1, Crèdit Andorrà (Panama) Panama Banking, securities and stock market KPMG 100% 8, Informàtica Crèdit Andorrà SLU Andorra Instrumental 100% 33, Banque de Patrimoines Privés, SA Luxembourg Banking KPMG 100% 20, Banco Alcalá, SA Spain Banking KPMG 85% 24,186 2,135 CA Holding Luxembourg, SARL Luxembourg Property 100% 13 Beta Capital Management LP United States Securities firm KR&Co 80% Crèdit Andorrà US GP LLC United States Property KR&Co 100% Beta Capital Advisors SARL Switzerland Investment advice 100% Note: KR&Co: Kaufman, Rosin & Co Domicile Activity Auditor % participation Equity Profits / Losses Dividends paid out Crediinvest SA Andorra Fund Manager KPMG 100% 2,080 1, Crèdit Iniciatives SA Andorra Venture capital 100% 14, Patrigest Andorra Instrumental 100% Crèdit Capital Immobiliari SAU Andorra Instrumental 100% 10, Valira Asset Management SL Spain Investment advice KPMG 60% 1, Crèdit Andorrà (Panama) Panama Banking, securities and stock market KPMG 100% 8,171 2,648 Crèdit Andorrà Preference Ltd. Cayman Financial 100% 1 Financial statements 17

20 Comments regarding the above tables: Percentage participation corresponds to the percentages of direct and indirect participation. In the case of company subgroups, the name provided is that of the subgroup s parent company. Equity (including the detailed results for the year in a separate column), profits/losses and dividends paid are given in total amounts, without deducting the corresponding minority shareholders. In the case of subgroups, the information provided corresponds to the subgroup s data and not only that of the parent company. For companies acquired during the year, the figure given corresponds to the calendar year irrespective of when the company joined the group. At December 31, 2011 and 2010, the group had not integrated any company via the proportional method. Below is a brief description of the object and composition (if applicable) of the companies and subgroups as at December 31, 2011: Crediinvest SA is a fund management company, for which Crèdit Andorrà SA acts as a sales entity. Crèdit Andorrà SA is the depository for the Andorran investment funds and Banque de Patrimoines Privés, SA, SA, for Luxembourg investment funds. This company, and the various investment bodies it manages, comes under the supervision and control of the ANIF. The products offered by Crediinvest SA are sold under the name of Crèdit Andorrà Asset Management. On February 8, 2011, the ANIF approved the request by Crediinvest SA to extend its activities in order to carry out the discretional, individualised management of portfolios and to provide investment advice. In 2011, the capital of Crediinvest SA was increased by a total of 1,140 thousand euros (of which 240 thousand euros correspond to the capital increase released against reserves and the rest to a capital increase of 900 thousand euros which includes an issue premium of 802 thousand euros), to provide the company with a suitable degree of solvency for its volume of operations and the requirements contained in Act 13/2010, of 13 May, on the legal regime of financial investment institutions and mutual fund management companies. Crèdit Iniciatives SA is a venture capital company. As at December 31, 2011, this subgroup s portfolio of investee companies was made up of SPA SA (25%) and CLIGE SA (25%) (see note 6.2). Patrigest SA is a property asset management company. As at December 31, 2011, this subgroup s portfolio of investee companies was made up of Cassamanya Ltd. (Malta) (100%), Private Investment Management (Switzerland) (100%) and CA México Asesores Patrimoniales (Mexico) (51%). Crèdit Capital Immobiliari SA (formerly CaixaBank) is a property company whose only activity is holding and managing the group s property. Up to December 31, 2010, all the property on its balance sheet came from the acquisition of CaixaBank SA on July 31, 2005, and on which Crèdit Andorrà SA exercised a call option in However, on December 30, 2011, ANIF authorised a capital increase of up to 98,885 thousand euros (60 thousand euros in capital before the increase), with almost all this amount coming from property (87,989 thousand euros). The allocation was subscribed by Crèdit Andorrà SA and Patrigest SAU, leading to Crèdit Capital Immobiliari SAU losing its status as a single shareholder company. Since the property provided did not come from the group, this allocation has not resulted in any capital gains nor has it involved the release of unavailable reserves related to the aforementioned assets. As detailed in the previous table, in 2011 Crèdit 18 Financial statements

21 Capital Immobiliari SA paid dividends totalling 9,925 thousand euros to Crèdit Andorrà SA (sole shareholder on the date of distribution). Crèdit Andorrà Preference Ltd. is a 100% owned subsidiary of Crèdit Andorrà, established in December 2005 for the issue of preferred shares (see note 11). Valira Asset Management SL, established in January 2007 with its head offices in Madrid (Spain), is a company with a complete structure for investment management and advisory services in the area of Hedge Funds. It currently has its own instruments to manage and control risks. In September 2007, Crèdit Andorrà SA joined this company as a majority shareholder with a 60% share. On January 15, 2008, Valira Asset Management SL, with the prior authorisation of Spain s National Securities Commission (hereinafter the CNMV), established a 100% owned Mutual Fund Institutions Management Society under the name of Valira Capital Asset Management S.G.I.I.C. SAU. Its corporate purpose consists of advising on eligible counterparties, the administration, representation, management of investments and management of the subscriptions and reimbursement of investment funds and companies, as established by article 40 of Spanish Act 35/2003, dated November 4. On November 3, 2009, once it had registered with ANIF, Valira Asset Management SL applied to the CNMV for permission to extend its activities in order to be able to manage traditional investment funds and OEIC (open-ended investment companies), as well as custody and administration activities. On January 22, 2010, Spain s CNMV approved the modification to the activities programme of Valira Capital Asset Management, SGIIC, SAU and it was entered in the corresponding ANIF registers on February 12, Crèdit Andorrà Panamá Holding SA is a 100% owned subsidiary of Crèdit Andorrà SA whose sole corporate purpose is to carry out the functions of a parent company for the subgroup Crèdit Andorrà Panamá, the vehicle used by the bank to channel the expansion of its Latin American business. In September 2008, the Republic of Panama Superintendency of Banks (the supervising authority in that country) authorised an international banking licence for Crèdit Andorrà. Subsequently, on November 17, 2008, Banco Crèdit Andorrà (Panamá) SA was set up, 100% owned by Crèdit Andorrà Panamá Holding SA, and started operations with the main purpose of carrying out asset management, offering customers a wide variety of financial services and global advice. In 2009, the Crèdit Andorrà Group was granted a licence by the National Securities Commission of the Republic of Panama to operate through the securities firm Crèdit Andorrà Panamá Securities SA. This subsidiary, 100% owned by Crèdit Andorrà Panamá Holding SA, focuses its services on brokerage and financial investment. In addition to the above-mentioned companies, as at December 31, 2011, the subgroup Crèdit Andorrà Panamá, which can be consolidated, is also made up of the following companies: Crèdit Andorrà Panamá Patrimonial SA (100%), Crèdit Andorrà Panamá Call Center SA (100%) and Crèdit Andorrà Uruguay SA (formerly Patrigest Uruguay SA), a representative office in Montevideo, Uruguay (100%). Informàtica Crèdit Andorrà SLU. Once approved by the ANIF, on April 15, 2011 Crèdit Andorrà set up this new subsidiary with a share capital of 3 thousand euros (100% owned by the bank) to centralise the ownership and management of IT-related fixed assets (both tangible and intangible). Subsequently, on November 28, 2011, Crèdit Andorrà SA subscribed 100% of the capital increase totalling 33,365 thousand euros, of which 30,136 thousand corresponds to the contribution of intangible assets (IT applications) and 3,229 thousand Financial statements 19

22 euros to tangible assets (IT equipment). Given that these tangible and intangible assets have not left the group, this contribution has not led to any capital gains. On December 12, 2011, the ANIF entered this capital increase in its registers. Banque de Patrimoines Privés, SA. After receiving authorisation from the regulators (CSSF and ANIF), on April 20, 2011 Crèdit Andorrà concluded the process to acquire 100% of the capital of the Luxembourg bank Banque de Patrimoines Privés, SA. The acquisition of Banque de Patrimoines Privés, SA is a strategic move whose aim is to reinforce the group s presence in the European market and particularly in international private banking. In this respect, the group s entry into this European financial marketplace (Luxembourg) aims to channel international banking and financial business via a solid bank platform that is already in place. On October 19, 2011, Crèdit Andorrà SA subscribed 100% of the capital increase of Banque de Patrimoines Privés, SA to the sum of 10,000 thousand euros, up to a total share capital of 20,000 thousand euros. On December 30, 2011, the ANIF entered this capital increase in its registers. Banco Alcalá, SA. Having received authorisation from the Andorran National Institute of Finance, the Bank of Spain, Spain s National Securities Commission and the Spanish Directorate of Insurance and Pension Funds, on October 11, 2011 Crèdit Andorrà concluded the acquisition of 85% of the capital of the Spanish bank, Banco Alcalá, SA and its subsidiaries Gesalcalá, SA, SGIIC and Alcalá Pensiones EGFP, SA (both 100% owned by Banco Alcalá, SA). Banco Alcalá, SA focuses on global asset management for private and institutional customers and has branches in Barcelona and Madrid. With this acquisition, the Crèdit Andorrà Group has reinforced its expansion in the euro area, started with the purchase of Banque de Patrimoines Privés, SA in Luxembourg. CA Holding Luxembourg SARL is a holding company domiciled in Luxembourg that was set up on September 29, 2011 as part of the corporate organisation designed by the group in order to maximise the efficiency of its new business in the euro area. Nevertheless, at December 31, 2011, the Crèdit Andorrà Group had still not channelled ownership of any of the group s companies via CA Holding Luxembourg SARL. Beta Capital Management LP. Having received authorisation from the Andorran National Institute of Finance (ANIF) and from the Financial Industry Regulatory Authority (FINRA), on September 30, 2011 Crèdit Andorrà concluded the acquisition of 80% of the share capital of Beta Capital Management LP, a securities firm based in Miami (United States of America). Additionally, in the same operation, Crèdit Andorrà also acquired 80% of Beta Capital Management LLC (United States) and 100% of Beta Capital Advisors, SARL (Switzerland). Crèdit Andorrà US GP LLC was set up to be the subgroup s holding company. The group entities consolidated by the equity method are mentioned in notes 6.1 and Comparing the information The information contained in these financial statements for 2011 referring to 2010 is only presented for comparative purposes and therefore does not constitute the group s consolidated financial statements for Note 3 Accounting principles and valuation guidelines applied The accounting principles and policies and the valuation criteria established by the ANIF in the Accounting Plan of the Andorran Financial System have been applied in preparing these financial statements for These principles are as follows: 20 Financial statements

23 3.1 Going concern premise In preparing the consolidated accounts, it has been assumed that the management of the entities within the group will continue in the future. The application of the accounting rules has therefore not been aimed at determining the value of the net consolidated equity for the purposes of its total or partial transfer, nor the resulting amount in the case of it being dissolved. 3.2 Accrual accounting Income and expenditure are recorded according to the accrual period, applying the financial method for those transactions with a liquidation date of more than twelve months. The only exception relates to interest on very doubtful loans, which is recorded as income only when collected. In applying this principle, accrual accounts show income/expenditure accrued but not collected/paid, and income/expenditure collected/prepaid. 3.3 Recording principle Following banking practice, transactions are recorded on the date they take place, which may be different from the corresponding value date, which is taken as the basis for calculating income and expenditure for interest. 3.4 Conversion of foreign currencies Assets and liabilities expressed in foreign currencies other than the euro are converted to euros at the exchange rate current on the balance sheet date, obtained from reliable market sources. Income and expenditure are converted at exchange rates current on the date transactions take place. Below are details of the key exchange rates at December 31, 2011: US dollars Swiss francs Pounds sterling Japanese yen Canadian dollars Provision for insolvencies A. Specific provisions The determination of specific provisions is based on quantitative and qualitative regulatory guidelines and on a detailed analysis of exposure to credit risk, carried out by the entity itself, bearing in mind experience of actual loan losses and other relevant factors. B. General provisions The group carries a general provision fund for insolvencies regarding loan investments as follows: 1% of loan investments to customers. This includes loan investments to the public sector, as well as operations which, pursuant to that established in ANIF Memorandum 198/10 on the Evaluation of land and property under mortgage guarantee, cannot be considered as effective mortgage cover since no appraisal has been carried out by an independent professional. 0.5% of bank loan investment to banks. Loan investments for the part covered by financial guarantee contracts and loans secured by the pledge of listed securities, with the limit of the market value of these securities, and loans and mortgage loans with sufficient mortgage cover, pursuant to that established in ANIF Memorandum 198/10 on the Evaluation of land and property under mortgage guarantee, are not recorded under general provisions. Financial statements 21

24 The group also carries a general provision for insolvency for the institutional securities portfolio: 1% of the bonds issued by non-bank entities. 0.5% of the bonds issued by banks. Bonds issued by the central administrations of OECD countries and Andorra or those expressly guaranteed by these organisms are not recorded under general provisions. C. Provisions for country risk The group operates only with correspondent banks and lending institutions established in Andorra and in OECD countries. Risks regarding an institution s branches abroad are considered as being in the parent company s country of residence. The securities portfolio is made up of issues carried out in Andorra and the OECD, except in the case of the odd issue traded in recognised financial markets. With regard to these bonds, no country risk provision is made, given that they are regularly traded with daily market quotations reflecting their real value. 3.6 Securities portfolio The securities that go to make up the bank s securities portfolio are presented, according to their classification, in line with the following criteria: Fixed income The fixed-income securities that form part of the group s portfolio are presented, according to their classification, in line with the following criteria: a) Securities classified as part of the trading portfolio, which are bonds the group expects to see before maturity in order to benefit in the short term from price variations, are brought into account at their market value. The profit or loss arising from the valuation of these bonds, without taking into account the accrued interest, is recorded net in the profit and loss account under the item Results of financial transactions Income from securities transactions in the enclosed profit and loss account. Interest accrued after acquisition is recorded under Interest and related income Bonds and other fixed-income securities. b) Securities within the held-to-maturity portfolio are bonds that the group has decided to keep until they mature, being capable of doing so. These securities are recorded at their adjusted cost price. The cost price is adjusted daily by the amount resulting from accruing the negative or positive difference between the reimbursement value and cost price during the remaining life of the security. The result of this accrual is recorded under Interest and related income Bonds and other fixed-income securities. On the disposal of securities, any losses arising are carried to the profit and loss account as extraordinary profit or loss; in the case of profit, this accrues lineally throughout the remaining life of the security sold as a result of financial transactions. c) The rest of the securities are classified in the ordinary investment portfolio and are valued at their cost price. However, the difference between the market or fair value and the cost price is calculated and provision is made, charged to the profit and loss account, to the provision for market fluctuation, which is equal to the sum of the different losses less the sum of the gains up to the amount of the losses. The market value of unlisted fixed-income securities has been determined using a model (an evaluation study carried out by an independent professional of renowned prestige or by the valuation section of the department of Financial and Operational Risk). Valuation using a market model is largely based on the determination and recording of movements in market values related to credit risk. These movements are shown under the provision for market fluctuations mentioned above. Securities from the trading portfolio are transferred to any other portfolio at market price, deducting the accrued interest, if necessary. Securities are transferred from the ordinary investment portfolio to the held- 22 Financial statements

25 to-maturity portfolio at cost price or market value, whichever is lower, and any losses arising are written off, if necessary. Permanent investments As established by ANIF Memorandum 123/01, as a general rule, securities classified in the permanent investment portfolio are valued on the balance sheet at cost price or market value, whichever is lower. If the latter is lower, the necessary provision is made to reflect the amortisation of the provision for market fluctuation. The market value of listed shares is determined by the share price on the last day of the year and, for unlisted shares, by the underlying book value of the investment based on the latest available balance sheet. With regard to the unlisted shares of group companies, they are recorded by the value of the fraction represented by the net equity de the investment adjusted by the amount of potential capital gains existing at the time of acquisition up to the limit of the cost price. In the presentation of the balance sheet, the provision for fluctuation for these shares will reduce the entry corresponding to the assets in question. Equity and investment funds Shares and parts of investment funds that make up the trading portfolio are recorded at market value. Shares and parts of investment funds that are assigned to the ordinary investment portfolio are stated at cost price or market value, whichever is lower, and any negative differences in value are recorded in a provision for market fluctuation. Market value is determined in accordance with the following criteria: Listed shares: share price on the last day of the year. Unlisted shares: underlying book value, based on the latest available balance sheet. Parts of investment funds: latest values provided by the managing companies and/or depositories of the investment funds. 3.7 Consolidation differences, intangible assets and amortisable expenses Consolidation differences record the difference between the price paid for the subsidiary s assets and the part of the equity corresponding to it. Intangible assets, basically corresponding to the cost of IT applications, consolidation differences and amortisable expenses, are stated at the price paid and amortised over their useful life (see note 7.1) which, except in exceptional cases authorised by the ANIF, is up to a maximum of 5 years. In this respect, given its significance and the fact that the specific characteristics of this kind of application, not comparable to other more standard applications, determine that its useful life (and therefore the period of contribution to the process of generation income for the Group) is longer than 10 years, the Executive Council of ANIF agreed to grant the bank exceptional authorisation to extend the period of amortisation from 5 to 10 years of the cost of the new Core Banking application (28,588 thousand euros). However, taking into account the fact that authorising amortisation over 10 years would allow a better correlation of income and expenditure, the Executive Council of ANIF granted the bank authorisation to extend the years of amortisation for the consolidation differences (42,039 thousand euros) originating during 2011 as a consequence of acquiring new subsidiaries (see note 7.1). Financial statements 23

26 With regard to amortisable expenses, the group s policy is to activate only those expenses that may be affected in more than one year, such as expenditure related to the start-up of new subsidiaries or businesses. In this respect, the group s policy is to activate expenditure directly related to the start-up of new subsidiaries and/or businesses until these are fully operational, from which time such expenses are recorded in the profit and loss account for the year in which they occur. 3.8 Fixed assets Fixed assets are recorded at cost, updated if necessary, less accumulated depreciation, which is spread over the useful life of each individual asset. Land where buildings and other constructions are located has an indefinite life and is therefore not depreciated. Provision for depreciation is made when a reversible loss of economic value of the fixed asset is apparent. At June 12, 2008, and with the prior presentation of valuations carried out by an independent expert, the ANIF authorised Crèdit Andorrà SA to revalue certain working fixed assets (basically property) by 30% and nonworking fixed assets by 90% of the difference between the market value established in this valuation and the book value of the assets at December 31, The revaluation totalled 101,628 thousand euros, recorded with a balancing entry in a revaluation reserve, as established by the Accounting Plan of the Andorran Financial System (see note 11). Moreover, premises acquired or built before December 31, 1989 appeared on the balance sheet at their estimated market value, as established by an independent expert in November 1989 (see note 11). Revaluation reserves are limited until the asset effectively leaves the Group and/or ANIF. Upkeep and maintenance costs of fixed assets that do not improve their use or lengthen their useful life are charged to the profit and loss account when they occur, under general expenses. Individual fixed assets are depreciated using the straight-line method in accordance with the following terms: Years Buildings 30 to 50 Installations 8 to 10 Furniture 4 to 6 IT equipment 3 to 5 Vehicles 5 Other properties acquired through partial or full foreclosure on loans are recorded under Non-working fixed assets at the book value of the loan foreclosed at the time of acquisition or the estimated market value, whichever is lower. Subsequently, assets acquired through foreclosure on unrepaid loans that are not applied to buildings / equipment for own use or that remain unsold within a period of 3 years are depreciated, as of the date of foreclosure, according to the following cumulative depreciation percentages: Between 3 and 4 years 25% Between 4 and 5 years 50% Between 5 and 6 years 75% More than 6 years 100% 24 Financial statements

27 The book value of repossessed land and property must be certified by an updated valuation (at least every two years), carried out by an independent appraisal organisation. Any reductions in value are recorded in the profit and loss. 3.9 Provision for risks and contingencies A. Specific provisions on contingent liabilities Provisions for contingent liabilities contain the amounts to cover contingent payments or contingencies of a specific nature. B. Provision for pensions and similar obligations At December 31, 2011, obligations with all Crèdit Andorrà employees and their beneficiaries related to such contingencies as retirement, death and incapacity (defined contribution system with regard to the bank) are currently outsourced to an independent Andorran foundation (Previfun), established in 1998, and are governed under the Regulation of Mutual Funds for Benefit and Aid to Crèdit Andorrà Employees, approved by the Ordinary General Assembly of Mutual Fund Members of October 23, Provision for general banking risks The group makes provision for general banking risks corresponding to funds allocated by the bank for reasons of prudence, given the risks inherent in its banking activity Financial derivatives The group uses these instruments, principally futures or forward currency contracts, to hedge its balance positions in currencies other than the euro, recorded in off-balance sheet accounts at the nominal exchange amount at maturity of the respective contracts (see note 14). Transactions undertaken in order to eliminate or significantly reduce exchange rate, interest rate or market risks in equity positions or other operations are considered hedging transactions. Any profit or loss generated by these hedging transactions is accrued in the profit and loss account symmetrically as income or expenditure for the item hedged. Non-hedging operations, i.e. trading transactions undertaken in regulated markets, are stated at their listed value and fluctuations are recorded in the profit and loss account. Any profit or loss from trading transactions undertaken outside these markets is not recorded in the profit and loss accounts until effectively settled. Notwithstanding this, positions are assessed every month and, if necessary, any potential net losses are charged to the profit and loss for each type of risk that may have resulted from these assessments. The types of risk considered for this purpose are interest rate, market price and exchange risk Indirect tax on banking and financial services In its meeting on May 14, 2002, the General Council of the Principality of Andorra approved the Indirect Taxation on Banking and Financial Services Act. This Act came into force in 2002 and its object was to levy taxes on services provided by banking and financial entities. Subsequently, on July 10, 2002, the Government of Andorra approved the regulations related to the Indirect Taxation on Banking and Financial Services Act. The rate is calculated according to a system that estimates, based on economic and financial data, the value of the services provided. On February 21, 2005, the General Council of the Principality of Andorra passed the Act to Modify the Indirect Tax Rate on Banking and Financial Services, raising the rate from 7% to 12%, applicable as of April 1, Subsequently, on March 30, 2005, it approved the amendment to the regulation governing the Indirect Tax Rate on Banking and Financial Services. Financial statements 25

28 Accrued expenditure for indirect tax on banking and financial services in 2011 (ISI in Catalan) amounted to 17,056 thousand euros (16,396 thousand euros in 2010), and is recorded under the heading General expenses Taxes in the profit and loss account (see note 12.4). The net amount due, having deducted payments on account, is recorded under the heading Other liabilities Suppliers and other creditors on the enclosed balance sheet. Should the group be entitled to a tax refund, this is recorded under the heading Accrued Income Prepaid expenses. This tax will be paid during the first quarter of Unused lines of credit Lines of credit granted to customers are recorded in the balance sheet at the amount provided, and the amounts available in off-balance sheet accounts are recorded under the heading Commitments and contingent risks Operating commitments and risks. 26 Financial statements

29 Note 4 Maturity of financial assets and liabilities and breakdown by currency 4.1 Distribution of maturity of financial assets and liabilities The residual maturity of certain assets and liabilities at December 31, 2011 and 2010 is as follows (in thousand euros): 2011 Due and doubtful Up to 1 month From 1 to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Total Assets ANIF Financial intermediaries - sight, gross 215, ,890 Financial intermediaries - forward, gross 150,349 15,369 15, ,861 Loan investments, gross 120, , , , ,037 1,319,349 3,112,228 Bonds and other fixedincome instruments 39,952 92, , , ,089 1,358,488 Total 120, , , ,033 1,244,404 1,866,438 4,867,677 Liabilities ANIF 1,231 5,420 6,651 Banks and lending institutions 128, ,900 Other financial intermediaries 7,172 7,172 Customer deposits 2,008, ,223 1,353,693 28, ,543 4,315,606 Bonds issued 2, ,796 50,891 30, ,610 Total 2,145, ,823 1,481,909 79, ,866 4,664, Due and doubtful Up to 1 month From 1 to 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Total Assets ANIF 46,245 46,245 Financial intermediaries - sight, gross 273, ,317 Financial intermediaries - forward, gross 80,816 14,521 48, ,397 Loan investments, gross 153, , , , ,597 1,162,613 3,109,695 Bonds and other fixed - income instruments , , ,627 1,130,481 Total 153, , , ,406 1,464,934 1,604,240 4,703,135 Liabilities ANIF 57,104 57,104 Banks and lending institutions 99,459 99,459 Other financial intermediaries 3,123 3,123 Customer deposits 1,695,789 1,005,392 1,341,491 56,688 82,344 4,181,704 Bonds issued 8, ,754 52,528 33, ,327 Total 1,863,849 1,005,992 1,384, , ,415 4,478,717 Interest rates on variable rate customer loans with maturity of more than one year are indexed at the one-year interbank market interest rate. At 31 December, 2011 and 2010 there were no amounts without maturity date. Financial statements 27

30 4.2 Currency breakdown Details of the currency breakdown of certain assets and liabilities as at December 31, 2011 and 2010 (in thousand euros) are as follows: 2011 US Swiss Pounds Japanese Canadian Other Euros dollars francs sterling yen dollars currencies Total Assets ANIF Financial intermediaries, at sight 89,052 53,589 1,489 43,240 8, , ,890 Banks and lending institutions 42,021 44,175 48,509 13,375 32, ,861 Provision for insolvencies ( ) Total financial intermediaries, net 130,169 97,764 1,489 91,749 8,004 14,170 52, ,847 Customer loans and credits 2,907,789 80,379 66,879 4,655 23,848 1, ,084,980 Overdrafts on customer accounts 9, , ,787 Customer bills discounted 14,461 14,461 Provision for insolvencies ( ) 20, ,453 Total loan investments, net 2,910,443 80,215 67,399 4,925 26,362 1, ,090,775 Securities portfolio, net 1,042, ,571 38,822 1,426,527 Total assets 4,082, ,550 68, ,496 34,366 15,445 52,658 4,913,359 Liabilities ANIF 6,651 6,651 Banks and lending institutions 95, , ,900 Other financial intermediaries 6, ,172 Customer deposits 3,490, ,733 48, ,688 2,150 15,433 52,743 4,315,606 Bonds issued 198,559 8, ,610 Total liabilities 3,797, ,355 48, ,030 34,417 15,440 52,887 4,664, Financial statements

31 2010 US Swiss Pounds Japanese Canadian Other Euros dollars francs sterling yen dollars currencies Total Assets ANIF 46,245 46,245 Financial intermediaries, at sight 165,417 35,120 2,362 45, ,279 18, ,317 Banks and lending institutions 5,985 83,689 19,967 12,558 21, ,397 Provision for insolvencies ( ) Total financial intermediaries, net 170, ,809 2,362 65, ,837 39, ,937 Customer loans and credits 2,875,030 87,972 66,484 9,528 16,447 1, ,057,165 Overdrafts on customer accounts 25, , , ,008 Customer bills discounted 16,522 16,522 Provision for insolvencies ( ) 24, ,079 Total loan investments, net 2,892,458 88,588 70,097 9,773 21,945 1, ,084,616 Securities portfolio, net 820, ,969 74,815 1,235,854 Total assets 3,929, ,366 72, ,708 22,818 20,386 39,517 4,782,652 Liabilities ANIF 57,104 57,104 Banks and lending institutions 5,445 44,483 27, ,663 4, ,459 Other financial intermediaries 2, ,123 Customer deposits 3,422, ,650 45, ,449 5,196 16,098 39,451 4,181,704 Bonds issued 135, , ,327 Total liabilities 3,622, ,466 72, ,883 22,859 20,379 39,798 4,478,717 Financial statements 29

32 4.3 Bonds issued The bank has different financing programmes and instruments to appropriately plan the management of liquidity. Within these programmes, the bank used both short-term and long-term structured products, channelled through securities. All the bonds issued have been sold to the bank s customers. The movement in the years 2011 and 2010 was as follows: Opening balance for the year 137,327 72,206 Issues 146, ,692 Amortisation 78,399 51,268 Valuation adjustments Closing balance for the year 206, ,327 The balance for this item at December 31, 2011 was mainly made up of 122,699 thousand euros corresponding to structured credit whose underlying assets form part of the bank s own portfolio (28,717 thousand euros in 2010), 38,126 thousand euros corresponding to structured credit charged by the bank via credit derivative contracts with independent financial institutions (60,361 thousand euros in 2010) and 30,794 thousand euros corresponding to structured products via which their holders acquire the risks and benefits of certain venture capital holdings in the bank s own portfolio (33,100 in 2010). Note 5 Loan investments and financial intermediaries 5.1 Analysis of loan investments and financial intermediaries The evaluation of loan investments and financial intermediaries with regard to minimum legal requirements and internal criteria, according to the breakdown as at December 31, 2011 and 2010 (in thousand euros), is set out as follows: 2011 Insolvency Net Normal Past due Doubtful Total provision amount Financial intermediaries, at sight 215, , ,890 Due from banks on time deposit 180, , ,957 Total financial intermediaries 396, , ,847 Customer loans and credits 2,969,120 22,028 93,832 3,084,980 20,131 3,064,849 Overdrafts on customer accounts 8,135 2,027 2,625 12,787 1,177 11,610 Customer bills discounted 14,461 14, ,316 Loan investments - customers 2,991,716 24,055 96,457 3,112,228 21,453 3,090, Financial statements

33 2010 Insolvency Net Normal Past due Doubtful Total provision amount Financial intermediaries, at sight 273, , ,317 Due from banks on time deposit 143, , ,620 Total financial intermediaries 416, , ,937 Customer loans and credits 2,912,291 50,577 94,297 3,057,165 22,893 3,034,272 Overdrafts on customer accounts 26,892 4,840 4,276 36,008 2,021 33,987 Customer bills discounted 16,522 16, ,357 Loan investments - customers 2,955,705 55,417 98,573 3,109,695 25,079 3,084, Provision for insolvencies Movements in provision for insolvencies of forward financial intermediaries and loan investments during 2011 and 2010 (in thousand euros) were as follows: 2011 Opening Allocations / Amounts Other Closing balance (Recoveries) applied movements balance Financial intermediaries Provision banks on time deposit Loan investments Specific loan investment provisions 15,627 8,021 11, ,720 General loan investment provisions 9, ,733 Total loan investment provisions 25,079 7,115 11, ,453 Total provisions 25,856 7,242 11, , Opening Allocations / Amounts Other Closing balance (Recoveries) applied movements balance Financial intermediaries Provision banks on time deposit 2,519 1, Loan investments Specific loan investment provisions 17,787 17,969 20, ,627 General loan investment provisions 9, ,452 Total loan investment provisions 27,514 17,572 20, ,079 Total provisions 30,033 15,769 20, ,856 At December 31, 2011, the group had an NPL coverage ratio of 22.24% (25.44% in 2010) not including loans secured by mortgage collateral, and % (110.56% in 2010) taking mortgage secured loans into account. Financial statements 31

34 5.3 Collateral security for loan investment Collateral security obtained for loan investments as at December 31, 2011 and 2010 (in thousand euros) is broken down as follows: 2011 Cash Total deposits Securities Mortgages secured Unsecured Total Loan investments, gross Customer loans and credits 97, ,452 1,893,259 2,226, ,533 3,084,980 Overdrafts on customer accounts 12,787 12,787 Customer bills discounted 14,461 14,461 Total security for loan investments 97, ,452 1,893,259 2,226, ,781 3,112, Cash Total deposits Securities Mortgages secured Unsecured Total Loan investments, gross Customer loans and credits 65, ,529 1,837,980 2,150, ,931 3,057,165 Overdrafts on customer accounts 36,008 36,008 Customer bills discounted 16,522 16,522 Total security for loan investments 65, ,529 1,837,980 2,150, ,461 3,109,695 At December 31, 2011, the heading Customer loans and credits included housing loans that, according to current legislation, were granted for a total of 321 thousand euros (446 thousand euros in 2010) (see note 19.3). There are also loans granted as part of a programme classified as of national and social interest, focusing on the preferential financing of newly created firms and businesses, firms related to innovation, reconversion and enterprising projects, passed by the government of Andorra on March 3, 2010, for a total of 1,116 thousand euros (378 thousand euros in 2010) (see note 19.3). Loan investment at 31 December, 2011 with the investment fund managed by the group totalled 25,455 thousand euros (68,515 thousand euros in 2010). Given that appraisals are being carried out and no valuation is available carried out by an independent professional, pursuant to ANIF memorandum 198/10, at December 31, 2011 the group had 114,913 thousand euros of mortgage loans classified as not secured by property (151,983 thousand euros in 2010) (see note 3.5). 5.4 Loan investments to the public sector Breakdown of loan investments to public sector entities as at 31 December, 2011 and 2010 (in thousand euros): Loan investments to the public sector Loans secured by the state of Andorra 61,300 57,729 Loans on counties in the Principality of Andorra 84,520 88,526 Other Andorran public bodies and para-public entities 63,865 62,357 Total 209, , Financial statements

35 The balance of Other Andorran public bodies and para-public entities basically corresponds to the loan operation between the bank and the para-public society, Centre de Tractament de Residus d Andorra SA. In accordance with applicable legislation, the bank calculates a general provision of 1% of the total balance of these loan operations to the public sector (see note 3.5). Note 6 Securities portfolio 6.1 Holdings in group companies The group has direct holdings in the following group companies, consolidated according to the equity method (in thousand euros), at December 31, 2011 and 2010: 2011 % 2011 Dividends Book Domicile Activity holding Capital Equity Earnings paid out value Crèdit Assegurances SAU Andorra Insurance 100% 4,000 36,517 4,404 28,256 8,262 8,262 Note: The equity figure detailed in the above table includes the earnings for 2011, which are presented in a separate column % 2010 Dividends Book Domicile Activity holding Capital Equity Earnings paid out value Crèdit Assegurances SAU Andorra Insurance 100% 4,000 32,222 5,249 32,222 32,222 Note: The equity figure detailed in the above table includes the earnings for 2010, which are presented in a separate column. The corporate purpose of Crèdit Assegurances SAU, parent company of the subgroup Crèdit Assegurances, is to carry out insurance actions and cover risks based on contracts of private law, including the life assurance branch in any of its types. It comes under the legal provisions established in the Act governing the actions of insurance companies of the Principality of Andorra, dated May 11, Its sole shareholder is Crèdit Andorrà SA. At December 31, 2011 subgroup Crèdit Assegurances included the following Spanish companies: ERM SA (76%), ERM Consultoría, SA (76%), ERM Reinsurance Broker, SL (76%), ERM Gerencia Integral de Riesgos Correduría de Seguros, SL (76%), Gerencia de Riesgos Correduría de Seguros, SA (76%), Davante Correduría de Seguros, SL (76%) and AMK Ibérica & Principado Correduría de Seguros, SL (19%), and the following Andorran companies: Vincles SA (100%), Actiu Assegurances SA (55%), Financera d Assegurances SA (25%), Línia Asseguradora Andorrana SL (12,75%), Consell Assegurador SL (20%) and Patrigest Informació Financera SL (100%). On December 29, 2011 the ANIF approved the application presented by Crèdit Andorrà to increase the share capital of Crèdit Assegurances SAU by 5,000 thousands euros, subject to the subsequent entry in this Institute s registers, which had yet to be carried out at December 31, The holding in Crèdit Assegurances SAU has been consolidated by the equity method as the insurance activity is deemed to be different from banking. Financial statements 33

36 As detailed in the above table, in 2011 Crèdit Assegurances SAU paid dividends against reserves totalling 28,256 thousand euros to Crèdit Andorrà SA. 6.2 Other investments and qualified holdings The group had the following direct Other investments and Qualified holdings as at December 31, 2011 and 2010 (in thousand euros): 2011 Net % Dividends book holding Activity Domicile Capital Equity Earnings paid out value Other investments ENSISA 49.57% Services Andorra 23,385 33, ,691 Administració i Serveis 25.00% Services Andorra Seguriser 39.57% Services Andorra 1,663 1, ,167 Qualified holdings SEMTEE SA 17.05% Services Andorra 25,242 40,345 2,012 5,715 Other (*) 5,919 11,635 (*) Includes the rest of the indirect holdings: Naturtec, SA, SPA SA, Clige SA, Mutua Eléctrica Sant Julià, etc. Notes: Information refers to the latest financial statements available without adjusting by the percentage of the share held by the group. The equity figure detailed in the above table includes the earnings for 2011, which are presented in a separate column Net % Dividends book holding Activity Domicile Capital Equity Earnings paid out value Other investments ENSISA 49.57% Services Andorra 23,385 35,284 1, ,305 Administració i Serveis 25.00% Services Andorra Seguriser 39.57% Services Andorra 1,663 1, ,831 Qualified holdings SEMTEE SA 17.05% Services Andorra 25,242 38,333 2,266 5,715 Other (*) 10,528 16,243 (*) Includes the rest of the indirect holdings: Naturtec, SA, SPA SA, Clige SA, Mutua Eléctrica Sant Julià, etc. Notes: Information refers to the latest financial statements available without adjusting by the percentage of the share held by the group. The equity figure detailed in the above table includes the earnings for 2010, which are presented in a separate column. Other investments are consolidated by the equity method. Qualified holdings are recorded at cost price or market value, whichever is lower. Esports de Neu Soldeu-Incles SA (ENSISA) manages the ski resort Soldeu-el Tarter, at Canillo (Andorra), and also owns 50% of Neus de Valira SA (Nevasa), an Andorran company whose purpose is the commercialisation of Grandvalira. 34 Financial statements

37 The holding in Seguriser SA (Seguretat i Serveis SA) was consolidated by the equity method, as established by Memorandum 145/02, dated November 20, 2002, of the Andorran National Institute of Finance. Qualified holdings in a company are those in which the entity holds, directly or indirectly, at least 5% of its capital or of its voting rights, or in which the entity can appoint, directly or indirectly, at least 20% of the members of the Board of Directors of the company or in which the entity exercises significant influence. Significant influence is understood as participation in the financial and operational decisions of a company, although these may not be controlled, and this may be exercised in various ways, usually via representation on the governing body, with participation in the process of establishing policies, important transactions, changing directors or technological dependence. Significant influence can be secured via participation in ownership or via agreements. It is assumed that significant influence is exercised when the holding company holds, directly or indirectly, more than 20% of the voting rights or of the capital of the investee company or 3% if listed on regulated markets. Society d Economia Mixta Termolúdic Escaldes-Engordany, SA (SEMTEE SA) manages the thermal water centre Caldea, located at Escaldes (Andorra). On February 10, 2010, with a prior request to the ANIF, the latter exceptionally authorised, given the financial situation of the company with a negative equity of more than six million euros and most of whose credit transactions were granted by the bank, to increase the holding of the subsidiary Crèdit Iniciatives SA in the share capital of the company NATURA i TECNOLOGIA INDÚSTRIES SA up to 53.45% (4,542 thousand euros), as well as to take a direct part in its management. This authorisation was temporary in nature and had to be reduced to a maximum of 25% within a maximum period of two years. In this respect, in 2011 Crèdit Iniciatives SA made provision for 100% of its positions in NATURTEC (see note 12.5), subsequently selling all its shares in this company (for which provisions had been made). However, given that the terms for collecting this payment are based on a series of uncertain conditions at the time of sale, and applying the principle of prudence, Crèdit Iniciatives SA has not recorded any profit from this operation. In 2011, dividends totalled 255 thousand euros (2010: 413 thousand euros), brought into account from Other investments and Qualified holdings. 6.3 Investment funds A breakdown of holdings in investment funds at December 31, 2011 and 2010 is as follows (in thousand euros): Investment funds: Group-related entities 2,107 6,572 Entities not related to the group 31,351 33,842 33,458 40,414 The balance at December 31, 2011 of the investment funds managed by entities not related to the group includes 30,794 thousand euros corresponding to holdings of venture capital firms, the risks and profits of which have been acquired by the bank s customers by taking out structured products (33,100 at December 31, 2010) (see note 4.3). Financial statements 35

38 6.4 Portfolio evaluation The book value of those securities classified in the valuation categories set out in note 3.6 as at December 31, 2011 and 2010 is given below (in thousand euros): Trading portfolio: 1, Fixed income instruments 11 Equity instruments Investment funds 1,128 Held-to-maturity portfolio 1,344,780 1,117,244 Permanent investments 25,429 50,053 Ordinary investment portfolio: 57,966 69,994 Fixed income instruments 13,708 13,226 Equity instruments 11,635 16,243 Investment funds 32,623 40,525 Total 1,429,303 1,237, Listed securities 907, ,466 Unlisted securities 521, ,836 Total 1,429,303 1,237,302 Market fluctuation fund Provision for insolvencies ( ) 2,466 1,279 Total 1,426,527 1,235,854 The held-to-maturity portfolio is principally made up of issues of government bonds from OECD countries and other bonds and fixed-income securities issued by banks with a public guarantee, as well as structured products with capital secured against underlying government bonds from OECD countries. The acquisition cost of instruments in the trading portfolio as at December 31, 2011 was 1,093 thousand euros (12 thousand euros at December 31, 2010). The market value or fair value, at December 31, 2011, of the held-to-maturity portfolio was 1,269,382 thousand euros (1,058,410 thousand euros in 2010), of which 904,209 thousand euros was for listed securities while the rest, 365,173 thousand euros, was securities valued as per the model or unlisted (677,518 thousand euros and 380,892 thousand euros respectively at December 31, 2010). Pursuant to the Act governing mandatory investment ratios (see note 19.3), at December 31, 2011 the group had subscribed 103,430 thousand euros to government bonds of the Principality of Andorra, issued on December 30, This bond issue matures on December 31, 2013, at the official one-year Euribor interest rate of the European Central Bank, established on the first working day of each calendar year. The amount subscribed by the group is recorded under the heading Securities portfolio Bonds and other fixed-income securities in the consolidated balance sheet included here, within the held-to-maturity portfolio, as an unlisted security and not included in the calculation of the liquidity ratio. 36 Financial statements

39 The market value of the ordinary investment portfolio held in fixed-interest instruments as at December 31, 2011 was 13,822 thousand euros (13,245 thousand euros in 2010), all of which corresponds to unlisted securities and where the market value is estimated based on the mark-to-model (see note 3.6). The market value of the ordinary investment portfolio held in equity shares as at December 31, 2011 was 13,559 thousand euros (18,473 thousand euros in 2010). The market value, at December 31, 2011, of the ordinary investment portfolio in collective investment management firms was 34,454 thousand euros (40,584 thousand euros in 2010), of which 1,594 thousand euros correspond to listed securities and the rest, 32,860 thousand euros, to unlisted securities (7,379 thousand euros and 33,205 thousand euros respectively at December 31, 2010). 6.5 Provision for market fluctuation Movements in provision for market fluctuation in 2011 and 2010 (in thousand euros) were as follows: 2011 Opening Amounts Other Closing balance Allocations applied movements balance Securities portfolio Bonds and other fixed-income instruments Other holdings Shares and other equity instruments Investment funds Total movements for year Opening Amounts Other Closing balance Allocations applied movements balance Securities portfolio Bonds and other fixed-income instruments Other holdings Shares and other equity instruments 2,109 2, Investment funds Total movements for year 2,114 1, In line with the applicable accounting regulations, the bank also has a general provision fund for insolvencies, whose details are as follows: 2011 Opening Allocations / Amounts Other Closing balance Recoveries applied movements balance Securities portfolio Bonds and other fixed-income instruments 1,279 1,187 2, Saldo Dotacions / Altres Saldo inicial (recup.) Aplicacions mov. final Securities portfolio Bonds and other fixed-income instruments 1, ,279 Financial statements 37

40 Note 7 Fixed assets 7.1 Intangible assets and amortisable expenses The movements in intangible assets and amortisable expenses for last year were as follows (in thousand euros): Acquisition cost Additions Retirements Transfers / Other Consolidation gains 42,039 42,039 Total 42,039 42,039 Provision for depreciation Consolidation gains 1,463 1,463 Total provision for depreciation 1,463 1,463 Total consolidation gains 40,576 40,576 Acquisition cost Goodwill IT applications 56,396 7, ,813 Amortisable expenses 15,234 8,217 23,451 Total intangible assets 71,630 15, ,264 Provision for depreciation Goodwill IT applications 25,552-6,929 32,481 Amortisable expenses 4,983 3,747 8,730 Total provision for depreciation 30,535 10,676 41,211 Total, net 41,095 5, ,053 Additions under Consolidation gains correspond to the positive differences from the first consolidation resulting from the acquisition of new subsidiaries in Luxembourg (Banque de Patrimoines Privés, SA, 10,973 thousand euros), Spain (Banco Alcalá, SA 7,241 thousand euros) and the United States (Beta Capital Management 23,825 thousand euros) (see note 2.4). Given its long-lasting nature, and in accordance with that established by the Accounting Plan of the Andorran Financial System and with prior authorisation from the ANIF, the aforementioned Goodwill is amortised over a period of 10 years. Additions under Amortisable expenses correspond mainly to expenses incurred in acquiring new subsidiaries (start-up costs). Pursuant to that established by the Accounting Plan of the Andorran Financial System, these amortisable expenses are amortised over a period of 5 years (see note 3.7). 38 Financial statements

41 7.2 Fixed assets The movements in fixed assets for 2011 were as follows (in thousand euros): Acquisition cost Additions Retirements Transfers / Other Working fixed assets Land 52, ,666 Buildings 76,589 3,063 1,175 78,477 Installations 67,933 2, ,161 Furniture 17, ,315 IT equipment 15,652 3, ,930 Vehicles Fixed assets in progress Subtotal 230,280 10,117 1,406 1, ,278 Non-working fixed assets Land 130,458 1, ,269 Buildings 35,848 9,584 5,126 1,175 41,481 Art funds 6, ,635 Subtotal 172,798 11,075 5,201 1, ,385 Total fixed assets 403,078 21,192 6, ,663 Provision for depreciation Working fixed assets Buildings 35,908 3, ,790 Installations 45,174 4,917 1,122 48,969 Furniture 16, ,385 IT equipment 12,365 2,324 14,689 Vehicles Other Subtotal 110,767 11,659 1, ,399 Non-working fixed assets Buildings 6,734 1, ,328 Art funds Subtotal 6,809 1, ,328 Total provision for depreciation 117,576 13,085 1, ,727 Provisions for depreciation 6, ,413 Total fixed assets, net 278,752 7,400 4, ,523 At December 31, 2011, the item Provisions for depreciation included 6,212 thousand euros corresponding to the depreciation of non-working fixed assets that were revalued in 2008 (6,256 thousand euros at December 31, 2010) (see note 11). Financial statements 39

42 Land and buildings classified as non-working fixed assets are largely made up of acquisitions carried out with the entity s own funds and, at December 31, 2011 a total of 14,355 thousand euros was granted in rent to third parties (14,712 thousand euros at December 31, 2010). Of the total additions and retirements of non-working fixed assets, 9,428 thousand euros correspond to property acquired by the bank by a process of repossession or datio in solutum of assets in lieu of payment of debt during 2011 (see note 5.2). The total retirements of non-working assets, 5,126 thousand euros, correspond to sales of land and property acquired by the bank by a process of repossession or datio in solutum of assets in lieu of payment of debt. At December 31, 2011, all property was fully available. The fully depreciated fixed assets as at December 31, 2011 totalled 88,881 thousand euros (73,517 thousand euros in 2010). Note 8 Provision for risks and contingencies Movements in provision for risks and contingencies in 2011 and 2010 (in thousand euros) are given below: 2011 Opening Amounts Other Closing balance Allocation Recoveries applied movements balance Provision for contingent liabilities 1, ,238 Other provisions 1, ,303 3, , Opening Amounts Other Closing balance Allocation Recoveries applied movements balance Provision for contingent liabilities 308 1, ,525 Other provisions 2, ,857 2,707 1, ,382 Other provisions includes the necessary provisions resulting from early retirement commitments as at December 31, 2011 and Note 9 Pension fund and other funds At December 31, 2011 and 2010, obligations with all Crèdit Andorrà employees and their beneficiaries related to such contingencies as retirement, death and incapacity, are outsourced to a Mutual Fund of benefits and aid for the employees of Crèdit Andorrà (hereinafter the Fund ), a separate economic asset without legal personality that was set up in September 1962 in order to administrate and manage the financial resources of its members to ensure the payment of benefits established by the Mutual Fund Regulations, approved by the Assembly of Mutual Fund Members at the meeting on December 21, 1999 and revised on October 23, Financial statements

43 The management and administration of the Fund is delegated to the Private Company Benefit Foundation of Employees of Crèdit Andorrà (Previfun), whose executive body is its board of trustees. On October 23, 2006, Crèdit Andorrà SA and the abovementioned foundation established the specific contributions, of a compulsory nature, which both Crèdit Andorrà and the employees themselves would make every year. The group has recorded an expenditure of 2,911 thousand euros under this item in 2011 (2,603 thousand euros in 2010). Voluntary contributions in 2011 to the Employees Fund (Previfun) totalled 500 thousand euros (500 thousand euros in 2010). Note 10 Distribution of profits The proposed distribution of profits of Crèdit Andorrà SA for the year 2011 to be presented by the Board of Directors to the General Shareholders Meeting for approval (in thousand euros) is as follows: Group profits for the year 70,628 77,816 Profits awaiting application Consolidation adjustments: For dividends 38, For other (net) 1,880 3,287 Profit available for distribution from the bank 110,689 75,148 Dividend payments 55,000 70,000 Transfer to voluntary reserves 55,689 5,148 Profits awaiting application In 2011 Crèdit Andorrà SA distributed interim dividends from the profits of 2011 totalling 35,000 thousand euros (35,000 thousand euros in 2010). The profit from the group s consolidated companies will be distributed in the manner agreed by their respective Shareholders Meetings. Financial statements 41

44 Note 11 Movements in shareholders equity In 2011 and 2010, the following movements (in thousand euros) took place in Shareholders Equity: 2011 Share capital Legal reserve Guarantee reserve Revaluation reserve Voluntary reserve Consolidation reserve Conversion differences Profit Total Balance at beginning of year before distribution 70,000 14,000 33, , ,380 39,775 42, ,340 Supplementary dividend 35,000 35,000 Application of 2010 profits / transfer to reserves 5,148 5,148 Consolidation adjustments 2,668 2,668 Balance at beginning of year following distribution 70,000 14,000 33, , ,528 39, ,672 Profits for ,628 70,628 Interim dividend ,000 35,000 Extraordinary dividend Adjustment guarantee deposit reserves 6,248 6,248 Adjustment consolidation reserves Adjustment revaluation reserves Adjustment conversion reserves Total 70,000 14,000 39, , ,280 40, , , Financial statements

45 2010 Share capital Legal reserve Guarantee reserve Revaluation reserve Voluntary reserve Consolidation reserve Conversion differences Profit Total Balance at beginning of year before distribution 70,000 14,000 33, , ,164 37,466 41, ,910 Supplementary dividend 35,000 35,000 Application of 2009 profits / transfer to reserves 5,216 5,216 Consolidation adjustments 1,439 1,439 Balance at beginning of year following distribution 70,000 14,000 33, , ,380 37, ,471 Profits for Interim dividend Extraordinary dividend Provision for amortisation Consolidation reserves 2,309 2,309 Total 70,000 14,000 33, , ,380 39,775 42, ,340 Share capital Share capital is represented by 790,000 A series shares and 210,000 E series shares, each of 70 euros, fully subscribed and paid up. Both series have the same economic and policy-making rights, the latter being syndicated. Legal reserve In compliance with the Act governing companies passed by the General Council on October 18, 2007, a legal reserve must be established of a minimum of 10% of the profit until 20% of the share capital has been reached. At December 31, 2011, the bank had this reserve totally set up. Guarantee reserve In accordance with Andorran legislation passed in 1995, at December 31, 2010 Crèdit Andorrà SA had established a restricted guarantee reserve for deposits and other operational obligations of 33,063 thousand euros. However, at December 31, 2011, Crèdit Andorrà, in compliance with that established by Act 1/2011 on the creation of a deposit guarantee system by banks, had a restricted guarantee reserve totalling 39,311 thousand euros, hedged by an equivalent amount to the public debt issued by the Andorran government (see notes 19.3 and 19.4). Voluntary reserve These reserves correspond to profits from previous years that have not been distributed by the General Shareholders Meeting. Pursuant to article 23 of Act 20/2007 of October 18, on public limited companies ( societats anònimes and de responsabilitat limitada in Catalan), the bank has set up a restricted reserve for loans granted to shareholders. In addition, the group also holds, at all times, restricted reserves for an amount equivalent to goodwill and amortisable expenses pending amortisation (see note 7.1). Financial statements 43

46 As shown by the movement in share capital for 2010, on July 28, 2010 the Extraordinary General Shareholders Meeting of Crèdit Andorrà SA, on a proposal by the Board of Directors, approved the payment of an extraordinary dividend charged to the reserves totalling 70,000 thousand euros. Revaluation reserve This restricted reserve corresponds to two revaluations: The first, totalling 13,934 thousand euros, corresponds to revaluations of buildings for own use of property acquired or built before December 31, The second, totalling 101,628 thousand euros, corresponds to the revaluation authorised by the ANIF on June 12, 2008 of the land, building work and installations of working and non-working fixed assets, as detailed below: Book value before revaluation Appraised value Percentage revaluation Revaluation Working land 16,828 53,354 30% 10,958 Working buildings: 14, ,351 30% 27,138 Amount building revaluation corresponding to land 6,813 Amount building revaluation corresponding to building 20,325 Non-working land 27,656 89,630 90% 55,777 Non-working buildings: 3,208 11,825 90% 7,755 Amount building revaluation corresponding to land 5,725 Amount building revaluation corresponding to building 2,030 Total 62, , ,628 At December 31, 2010, the Bank registered a provision of 6,256 thousand euros for the effect of certain nonworking fixed assets that have lost their fair realised value since they were revalued, calculated according to updated valuations carried out by independent experts. However, on December 31, 2011, the bank reversed 45 thousand euros of this provision according to updated valuations. Both effects, in line with the applicable accounting practice at the time of revaluation, were carried out against the revaluation reserves. Consolidation reserves The consolidation reserves correspond to accrued profits in previous years by group companies forming part of the consolidation perimeter from the date of their acquisition or constitution up to December 31, 2011 that have not been distributed as dividends. Consolidation reserves Companies consolidated by the fully-integrated method 7,768 10,588 Companies consolidated by the equity method 32,954 29,187 40,722 39,775 The consolidation reserves by the fully-integrated method at December 31, 2011 correspond principally to: 7,830 thousand euros of Crèdit Capital Immobiliari SA (9,585 thousand euros in 2010), 2,236 thousand euros of Crediinvest SA (677 thousand euros in 2010), 1,188 thousand euros of Crèdit Iniciatives SA (938 thousand euros in 2010) and 3,903 thousand euros of the Crèdit Andorrà Panamà group ( 1,332 thousand euros in 2010). 44 Financial statements

47 The consolidation reserves by the equity method at December 31, 2011 correspond mainly to: 28,113 thousand euros of Crèdit Assegurances SAU (22,973 thousand euros in 2010) and 4,975 thousand euros of ENSISA (6,213 thousand euros in 2010). Subordinated liabilities On October 26, 2005, the ANIF Board of Governors agreed to authorise the issue of preference shares by Crèdit Andorrà SA Preference Ltd., to be accounted for as Tier 1 type regulatory capital of the Crèdit Andorrà Group. In accordance with this ANIF authorisation, on December 22, 2005 Crèdit Andorrà Preference Ltd. carried out an issue of 100 million euros in preference shares, without voting rights and with a specified annual dividend of 5% in the first three years following issue and then variable annually with reference to the CMS 10-year rate plus 30 basis points, with a maximum of 8%, adjusted for the number of days during the year when the CMS 10-year rate is equal to or higher than the CMS 2-year rate. On January 25, 2006, the ANIF Board of Governors agreed to authorise an increase in the preference share issued by Crèdit Andorrà Preference Ltd. amounting to an additional 50 million euros, given that the other components of the equity of Crèdit Andorrà SA continued to account for around 70% of the group s total shareholder equity. These preference shares are identical in nature to those of the first issue. Crèdit Andorrà Preference Ltd. is a wholly-owned subsidiary of Crèdit Andorrà and the issue mentioned has the joint and several and irrevocable guarantee of Crèdit Andorrà, as indicated in the corresponding information folder for the issue. This issue of a perpetual nature was fully taken up by third parties outside the group and may be fully written off should the issuing company so decide, and with authorisation from the ANIF, after a period of six years following it being paid up. The variable coupon paid in the period between December 23, 2010 and December 22, 2011 was 3.647% (3.698% for the period between December 22, 2009 and December 22, 2010). In 2011, Fitch Ratings maintained the BBB rating for this preference share issue. Provision for general banking risks The Group makes provision for general banking risks corresponding to funds allocated by the Bank for reasons of prudence, given the risks inherent in its banking activity. The movements in 2011 and 2010 were as follows: Opening balance for the year 23,232 40,855 Allocation to fund Recoveries 15,078 17,581 Other 42 Closing balance for the year 8,154 23,232 Financial statements 45

48 Note 12 Other balance sheet and profit and loss account items Other significant items in the balance sheet and profit and loss account for the years ended December 31, 2011 and 2010 (in thousand euros) are shown below: 12.1 Asset accrual accounts The details of this item on the balance sheet are as follows (in thousand euros): Accrued income 55,096 46,458 Interest 34,216 27,393 Commissions 20,880 19,065 Other Prepaid expenses Commissions Other ,840 46, Liability accrual accounts The details of this item on the balance sheet are as follows (in thousand euros): Accrued expenses 20,723 15,474 Interest 15,526 11,962 Commissions 1,966 Other 3,231 3,512 Before-due receipts 21,359 18,482 42,082 33,956 At December 31, 2011, the group had recorded, under the heading Before-due receipts, the interest paid in advance for certain structure products, totalling 17,333 thousand euros (15,475 thousand euros at December 31, 2010). 46 Financial statements

49 12.3 Commissions for services The details of these items in the profit and loss account (in thousand euros) are as follows: Commissions on services supplied 105,229 98,295 For transactions with securities and other instruments to third parties 78,259 70,572 For loan transactions 7,978 7,951 For foreign exchange transactions Other 18,838 19,694 Account administration and maintenance 12,477 14,672 Other 6,361 5,022 Commissions on services received 11,761 9,447 For transactions with financial intermediaries 8,919 6,633 Other 2,842 2,814 Net service commissions 93,468 88, General expenses and taxes The details of these items in the profit and loss account (in thousand euros) are as follows: General expenses Supplies External services 24,171 23,750 Research and development Leases 1,714 1,213 Repairs and conservation (maintenance) 4,210 3,466 Services from independent professionals 5,714 6,930 Fund security and transport services 1,741 1,570 Insurance premiums Advertising and public relations 3,131 2,376 Utilities 2,727 3,151 Other 4,354 4,526 Taxes 19,634 19,230 Indirect taxes on banking services (ISI) 17,056 16,396 Other taxes 2,578 2,834 44,780 43,470 Financial statements 47

50 12.5 Extraordinary profit The details of this item in the profit and loss account (in thousand euros) are as follows: Recovery provision for general banking risks (note 11) 15,078 17,581 Extraordinary profit 1,097 1,290 Extraordinary loss (see note 6.2) 6,274 1,322 Net profit (loss) from disposal of tangible and intangible assets ,644 17,414 Note 13 Net foreign currency positions At year-end 2011 and 2010, the group held the following significant foreign currency positions (in thousand euros): 2011 Assets Liabilities Net position Euro 4,553,627 4,554, US dollar 557, ,917 21,664 Swiss franc 69,197 46,726 22,471 Pound sterling 135, , Japanese yen 34,446 34, Canadian dollar 15,455 15,446 9 Other currencies 52,173 52, ,418,095 5,418, Assets Liabilities Net position Euro 4,368,111 4,367, US dollar 551, , Swiss franc 72,820 72, Pound sterling 149, , Japanese yen 22,860 22,863 3 Canadian dollar 20,389 20,383 6 Other currencies 39,658 39, ,224,880 5,224,880 Exchange rates applied at year-end are those obtained from reliable market sources (see note 3.4). 48 Financial statements

51 Note 14 Financial derivatives 14.1 Analysis of financial derivatives As at December 31, 2011 and 2010, the group held the following positions in financial derivatives, not listed on organised markets (face value in thousand euros): 2011 Less than From More than 1 year 1 to 5 years 5 years Total Firm transactions Foreign exchange transactions 767, ,515 Interest rate swaps 55,085 39, , ,168 Credit default swap 11,000 19,000 30,000 Futures Option transactions Options 3,614 2,846 46,650 53, ,214 60, ,603 1,397, Less than From More than 1 year 1 to 5 years 5 years Total Firm transactions Foreign exchange transactions 585,908 17, ,123 Interest rate swaps 23,930 82, , ,479 Credit default swap 85,804 18, ,804 Futures Option transactions Options 3,245 1,622 49,143 54, , , ,775 1,327,416 At year-end, these positions in financial derivatives were being used as hedge instruments for group assets and liabilities or to offset open customer positions (see notes 3.11 and 14.2). At December 31, 2011 and 2010 there were no transactions under contract in regulated markets Treatment of hedges Financial derivatives used to hedge specific market risks are individually assigned to those assets, liabilities or off-balance sheet positions being hedged and are initially recorded at cost. Forward foreign currency contracts are later adjusted at market value, applying these fluctuations to the profit and loss account. Market fluctuations of these hedge positions are monitored and controlled using RiskMetrics and ALM II models (assets and liabilities management). Financial statements 49

52 Note 15 Pledged assets At December 31, 2011, Crèdit Andorrà had on its books a total of 3,993 thousand euros (12,263 thousand euros in 2010) in guarantees required for futures transactions undertaken in regulated markets on account of third parties. It also had a total of 47,129 thousand euros on deposit with financial intermediaries as pledged assets as a guarantee for its own obligations (44,919 thousand euros in 2010). Additionally, at December 31, 2011 the group had temporary pledged asset contracts with independent third parties affecting 154,567 thousand euros of the held-to-maturity portfolio (at December 31, 2010 there were no temporary pledged asset contracts). These temporarily pledged assets earn an interest rate of between 0.45% and %. Note 16 Transactions with entities or persons related to the group or group entities Details follow of the operations with entities or persons related to the group or with group entities, which have not been consolidated by the fully-integrated method, and account for more than 10% of equity as shown in the balance sheet or 5% of the result for the year in the profit and loss account: 2011 Shareholders General Board of Directors Management Nonshareholders Shareholders Companies Other related parties Individuals 2 Corporations Balances Assets 167,472 Loan investments, banks and lending institutions 167,472 Accrual accounts Liabilities 1,013 Banks and financial intermediaries Deposits 1,013 Accrual accounts Transactions with main shareholder Interest and income - assimilated Interest and income - liable to assimilation Other Off-balance-sheet records 24,738 At December 31, 2011, there was no transaction with any shareholder or member of the Board of Directors and/ or Executive Committee (non-shareholders) that, on an individual level, accounted for more than 10% of equity as shown in the balance sheet or 5% of the result for the year as shown in the profit and loss account. At year-end, there was one transaction with a shareholder that exceeded 10% of equity as shown on the balance sheet (see note 11). All transactions with related entities and people are carried out under market conditions. 50 Financial statements

53 Note 17 Risk control and management The management and control of risk has always been a priority objective of Crèdit Andorrà and we have developed the necessary infrastructure, internal methods and controls with this in mind. The bank maintains a conservative profile in all its investments and activities. Policy and limits for risks are established and supervised by a committee called the Assets, Liabilities and Risks Committee (with functions equivalent to those of ALMCO, Assets and Liabilities Management Committee). Among other functions, this committee approves risk policies affecting the management of the bank s assets and liabilities and management mandates. The committee also sets and revises the limits of balancing entries with banks and supranational entities and/or private entities. With the aim of avoiding a concentration of risk, it also establishes limits for issuers of financial instruments, whether within or outside the Crèdit Andorrà balance sheets. This committee also approves the methodologies employed, either in valuing assets or in the risk models implemented by the different activities and relevant factors, so that they can be measured, monitored and controlled. The Assets, Liabilities and Risks Committee has also provided a global, integrating view of the risk resulting from the international expansion carried out by the Crèdit Andorrà Group. All steps taken by this committee bear in mind the rules of ANIF, the Andorran national body that regulates, controls and supervises the country s financial activity and new regulatory trends, in compliance with the directives of the New Basle Capital Accord, which emphasises increasing awareness of risk and risk management. For some years, and without putting aside conventional methods of risk control, Crèdit Andorrà has applied Valueat-Risk (VaR) methodology to all areas of risk management. By means of statistical and stochastic techniques, VaR provides a measurement of risk. Formally, VaR is a synthetic figure that indicates the maximum loss to be expected for a specific interval of confidence in the value of a portfolio over a fixed time span. Managing market risk Market risk arises as a consequence of operations carried out in financial markets via financial instruments whose value can be affected by variations in market conditions, reflected in changes in the different assets and factors of financial risk. In all cases, market risk relates to a potential loss in the profitability or value of the portfolio resulting from unfavourable movements in market rates or prices. Regarding the measurement, control and management of the different risks, Crèdit Andorrà tracks market risk using the VaR methodology, this being the market s basic and standard variable. Regarding the methodology employed to obtain these measurements, this has been the historic VaR, which calculates the impact on the current portfolio value of historic variations in risk factors, taking into account the variations from the last 250 days and with a confidence interval of 95%. The market VaR is calculated daily for a timescale of one day and with a confidence interval of 95% for portfolios of the entity as a whole. A detailed report indicating the VaR, with various timescales and confidence intervals, is periodically sent to members of the Executive Committee and the Assets, Liabilities and Risks Committee. These VaR measurements, along with others, provide a test of integrity and consistency. For the securities portfolios as a whole, the average daily VaR, calculated at a 95% level of confidence, was 5,664.1 thousand euros, with a maximum and minimum of 6,511.1 thousand euros and 4, thousand euros respectively, compared with the authorised risk limit of 17 million euros. Financial statements 51

54 An analysis of this report is supported by Backtesting tests. In 2011, Backtesting showed that gains and losses performed in accordance with what would be statistically expected. For investment portfolios as a whole, the daily VaR, with a 95% level of confidence, was exceeded by 1.56% of all cases throughout the year. In order to monitor and control the market risks assumed by the bank, the Assets, Liabilities and Risks Committee approves an overall structure of limits implemented through the following: Limits to investment; limited by volume. Limits to investment by issuer rating, maturity and portfolio or sub-portfolio. Limits to investment by issuer concentration. Limits via market risk; VaR per portfolio and overall VaR. Limits via maximum cumulative loss per year, quarter and month. The department of Financial and Operational Risk is responsible for monitoring and controlling these limits and the risks assumed. Daily VaR (2011) 7 (in millions of euros) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Managing foreign currency risk Another source of risk is the risk of structural change, which results essentially from exposure to variations in exchange rates arising from positions in a currency other than the investment currency. The Assets, Liabilities and Risks Committee is responsible for defining and supervising hedges to limit the impact of possible exchange rate variations on assets and solvency, in line with their expected trends, and ensures the counter value in euros of the profit in the currency that is expected from the aforementioned investments. Regarding foreign currency risk, the trading position is monitored on a daily basis (aggregating the position at-sight and at term) and a maximum position in terms of volume is applied for all currencies. For the purposes of calculating currency risk exposure, the net position is used for each currency. At December 31, 2011, the overall open position in foreign currency risk amounted to 593 thousand euros, as against the established limit of 5 million euros. 52 Financial statements

55 Managing country risk Country risk is the risk incurred by counterparties resident in a specific country due to circumstances other than those related to the customary commercial risk. According to the economic development of countries, their political situation, regulatory and institutional framework and the rating given by credit ratings agencies for each country, Crèdit Andorrà classifies its operations carried out with third parties and assigns to each group the percentage provisions for insolvency resulting from this analysis. With regard to exposure by geographical area, the Assets, Liabilities and Risks Committee establishes percentage limits of maximum exposure at the level of country or group of countries, as applicable. Additionally, and in terms of concentration by country, the investment guidelines approved by the Assets, Liabilities and Risks Committee establish that the maximum exposure in a specific country must not account for more than 35% of the total country risk exposure. In the consolidated figure in euros, calculated for each country, the on or off-balance sheet investments are included that involve exposure to a certain country. Managing credit risk At the end of 2011, interbank deposits accounted for 8.0% of the total exposure to credit risk and the securities portfolio 28.9%, while customer loans accounted for the remaining 63.1%. With regard to interbank deposits and the securities portfolio, Crèdit Andorrà also introduced the loan VaR as a management and control tool. This is calculated by applying the so-called CreditManager, programme developed by J. P. Morgan. Crèdit Andorrà tracks the loan VaR with a timescale of one year and a confidence level of 99%. At year-end, the loan VaR for the securities portfolio and interbank deposits was 17,094.4 thousand euros out of a total risk exposure of 1,332,445.9 thousand euros. This loan VaR is below the risk limit of 22,000 thousand euros set by the Assets, Liabilities and Risks Committee. This loan VaR level would be equivalent to having a portfolio with an average rating of AA. Under credit risk, special attention is given to balancing-entry risk and country risk, as well as diversification in terms of sector. These risks are regularly monitored, always keeping within established limits. Managing counterparty risk In order to control counterparty risk, and to a large extent the risk of concentration in financial institutions, the Assets, Liabilities and Risk Committee approves interbank limits for different timescales on and off-balance. By means of an internal model to assign interbank lines, whose aim is to establish internal, objective criteria to measure the credit quality of different interbank counterparties, Crèdit Andorrà attempts to classify the maximum exposure limit in line with the range of limits being applied at any particular time. With regard to the off-balance sheet exposure of financial counterparties, a scale of ratios has been established based on asset maturity order to weight the consumption of securities concentrated off the balance sheet. A ceiling has also been established per financial counterparty, adding the total consumption off and on-balance sheet. The department of financial and operational risk also monitors and controls settlement risk by assigning settlement risk limits for each financial credit institution. Settlement risk is the risk that one of the financial counterparties does not deliver a security or its value in cash on the settlement date agreed when the security was traded with the other counterparty. The settlement risk limit for a financial credit institution is the maximum exposure assigned by the interbank line model. Financial statements 53

56 Managing interest rate risk The Crèdit Andorrà Group has traditionally paid particular attention to maintaining a very strict relation between investment and how it is financed in order to facilitate the management of interest rate risk. Exposure to interest rate risk should be seen as the possible adverse variation in economic value and/or profit due to an unexpected variation in the market interest rate. The Assets, Liabilities and Risks Committee is responsible for defining the targets for managing interest rate risk, as well as determining portfolio investment strategies, hedging strategies and taking decisions concerning proposals to manage structural risk. Sensitivity and scenario analysis techniques are used in order to analyse, measure and control the interest rate risk assumed, and limits are established to avoid risk exposure levels that might significantly affect the bank. The department of financial and operational risk is responsible for measuring and reporting on a monthly basis regarding the interest rate risk of the Crèdit Andorrà Group. The main techniques used by the Crèdit Andorrà Group to measures interest rate risk are static and dynamic gaps, as well as sensitivity to financial margin and economic value. Static gap shows the distribution of maturities and interest rate reviews at a specific date. For balance sheet items without a contract maturity date, their sensitivity to interest rates is analysed, together with their expected maturity date, considering the possibility that the customer may settle early. Dynamic gap consists of the same aforementioned rules but also including expected budget operations and/or financial planning of institutions, with a future projection of the upcoming reviews and maturities of operations involving the bank s assets and liabilities. This analysis can predict potential asset liability mismatches, helping to anticipate possible future tensions. Financial margin sensitivity shows the impact on the balance sheet s composition caused by changes in the interest rate curve. This sensitivity is measured by comparing the simulation of the most probable financial margin with other scenarios assuming a rise or fall in interest rates and movements in the curve. At year-end, financial margin sensitivity at one year of the sensitive balance sheet assets and liabilities, assuming a rising interest rate scenario and another falling interest rate scenario of 100 base points each, was +3.3% and 3.5%, respectively. Interest rate sensitivity of economic value measures the impact of interest rate variations on the current balance sheet value. This sensitivity is measured by comparing the calculated economic value of the bank and the economic value taking into account variations in the market interest rate and dividing the result by the bank s shareholders equity. At year-end, economic value sensitivity (over shareholders equity), assuming a rising interest rate scenario and another falling interest rate scenario of 100 base points each, was 4.6% and +5.5%, respectively. Financial margin sensitivity focuses on the short and medium term while economic value sensitivity focuses on the medium and long term. These measures complement each other and provide an overall view of the bank s structural risk. Managing liquidity risk Liquidity risk is the risk resulting from potential difficulties in meeting obligations associated with financial liabilities that are settled by paying cash or through another financial asset. Liquidity risk is therefore the risk of not having enough liquidity to be able to fulfil, on the date due, payment obligations to third parties or having to do so at a higher cost. The Assets, Liabilities and Risks Committee is responsible for defining the liquidity management targets, determining investment strategies for portfolios and taking decisions on proposals for managing liquidity risk. 54 Financial statements

57 The fundamental objective related to liquidity risk is to have the necessary instruments and processes at all times to ensure the bank can meet its payment obligations on time as well as carry out its business to achieve the strategic goals of the Crèdit Andorrà Group. The capacity to maintain sufficient levels of liquidity to meet payments is also analysed in stress scenarios. The measurement of liquidity risk is tackled from the point of view of liquidity requirements; i.e. decisions must be taken regarding how to cover these needs. These measures must cover the short, medium and long term and always with a global view of the balance sheet, covering both minority and majority positions. The Crèdit Andorrà Group has drawn up a Liquidity Risk Contingency Plan that establishes an action plan for the different crisis scenarios (systemic and specific), detailing measures at a commercial and institutional level to tackle this kind of situation. The department of financial and operational risk is responsible for measuring the bank s liquidity ratio on a daily basis. Managing operational risk The Basel Committee defines operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. Crèdit Andorrà has continued to develop its organisational structure and establish the capacities required to guarantee compliance with the Basel Capital Accord with regard to the measurement and management of operational risk. Financial statements 55

58 Note 18 Other off-balance-sheet records Details of the composition by type of security and other securities deposited and held in trust with third parties at year-end are set out below (in thousand euros): Equity instruments 1,442,211 1,411,224 Fixed income instruments 1,677,751 1,460,130 Parts of investment funds 1,214,845 1,681,056 Other 362, ,469 4,696,938 4,815,879 In compliance with Memorandum 216/11, below are details of the composition of customer funds managed (on and off balance) differentiating between those held in custody by the bank and those by third parties (in thousand euros): Custody / deposited by bank (by group) Custody / deposited by third parties Total Custody / deposited by bank (by group) Custody / deposited by third parties Mutual funds 248, , , ,186 Individual client portfolios managed via mandate 1,761,892 1,761,892 1,861,150 1,861,150 Other individual clients 7,001,978 1,074,452 8,076,430 6,566, ,112 6,729,359 9,012,544 1,074,452 10,086,996 8,997, ,112 9,160,695 Total The details of Other off-balance-sheet records exclusively for management control at year-end (in thousand euros) were as follows: Guarantees and obligations received 412, ,755 Unlisted own shares and those held in trust 805, ,962 Very doubtful loans 62,806 52,183 Pending products due, for doubtful securities Other 163,112 1,280,845 1,161,403 In compliance with explanatory memorandum 169/06 provided by the ANIF Accounting Plan of the Andorran Financial System, published on October 12, 2006, in Clause V. Other off-balance-sheet records with functions exclusively related to administrative control, bonds issued by the government of Andorra are recorded under Unlisted own shares and shares of Crèdit Andorrà SA, shown at face value, are recorded as Those held in trust. 56 Financial statements

59 Note 19 Compliance with regulations 19.1 Act governing the solvency and liquidity criteria of financial entities At its session held on February 29, 1996, the General Council of the Principality of Andorra passed the Act governing the solvency and liquidity criteria of financial entities (hereinafter the Act ). In accordance with this Act, the Group must maintain an ordered financial structure to ensure its capacity to meet its obligations. This capacity can be observed essentially from a dual perspective: on the one hand, by quantifying the sufficiency of its equity (solvency ratio); on the other, by means of a suitable period of time between the maturities of obligations and the availability of investments (liquidity ratio). The Crèdit Andorrà Group must maintain specific ratios with regard to quantitative measurement of the amounts of assets, liabilities and certain off-balance-sheet records calculated under accounting criteria, as well as qualitative options on the various components, valuation of risk and other factors. This Act makes it obligatory to maintain a solvency ratio, made up according to the recommendations of the Basel Committee on Banking Supervision, with a minimum of 10% of the weighted risk of assets. It also obliges financial entities to maintain a minimum liquidity ratio of 40%. The requirements regarding minimum equity are calculated according to the Group s exposure to credit risk (depending on the assets, commitments and other off-balance-sheet records with this risk, in terms of their amounts, characteristics, counterparts, guarantees, etc.), to counterpart risk and the position and liquidation of the trading portfolio, to exchange risk and the position in gold (according to the overall net position in currency and net position in gold) and to commodity risk. Below are details of the adjusted consolidated equity as at December 31, 2011 and 2010 and the corresponding solvency ratios Capital and reserves 386, ,034 Preferred shares 150, ,000 Provision for general banking risks 8,154 23,232 Intangible assets 86,629 41,095 Tier 1 458, ,171 Revaluation reserve 109, ,306 General provision loan investment banks Tier 2 110, ,083 Total adjusted equity 568, ,254 Risk-adjusted assets 3,270,160 3,271,056 Tier 1 (%) 14.02% 15.44% Tier 2 (%) 3.37% 3.37% Solvency ratio (%) 17.39% 18.81% Financial statements 57

60 Below are details of the solvency and liquidity ratios in comparison with the aforementioned legal requirements: Bank s current ratio Legal minimum ratio Solvency ratio 17.39% 18.81% 10% Liquidity ratio 51.81% 54.68% 40% It should be noted that the calculation of the solvency ratio is carried out according to ANIF Memorandum no. 159/04 on Equity Requirements. This memorandum, which is technically binding, complements the Act governing the solvency and liquidity criteria of financial entities of February 29, 1996, and is designed to foster greater security and stability in the Andorran financial system by incorporating the hedging of market risks. The Act also limits the concentration of risks in favour of any one beneficiary to 20% of the Bank s equity. It also establishes that the concentration of risks that individual exceeds 5% of equity cannot go beyond the limit of 400% of this equity. Similarly, the balances or transactions maintained with members of the Board of Directors cannot be above 15% of equity. In 2011, the group met the requirements set out in this Act. The highest concentration of risk in favour of any single beneficiary was 17.29% (16.47% in 2010) of the group s equity. Total loans, discounts and other transactions creating individual credit risk in excess of 5% of the group s equity did not go above % (108.24% in 2010) Act on international cooperation on crime and the fight against money or security laundering arising from international crime On July 24, 2001, the current Act on international cooperation on crime and the fight against money and security laundering arising from international crime came into force, replacing the previous Act protecting bank secrecy and preventing money or security laundering resulting from international crime, of In compliance with this Act, the Bank has established a number of internal control and reporting procedures aimed at protecting bank secrecy and at foreseeing and preventing money laundering operations and the financing of terrorism. Specific training programmes have been carried out in this area. At its session on December 11, 2008, the General Council of the Principality of Andorra passed the Act amending the Act on international cooperation on crime and the fight against money and security laundering arising from international crime. This amendment of Andorran legislation against laundering and against the financing of terrorism updates the previous Act, adapting it to international standards in this area and harmonising it with the equivalent laws in Europe Act governing mandatory investment ratios At its session on June 30, 1994, the General Council of the Principality of Andorra passed the Act governing mandatory investment ratios. This Act obliges entities whose activities include receiving public deposits and which use these in granting loans and other investments to maintain an investment ratio in Andorran public funds. On December 9, 2009, the Decree was passed that amends the Decree regulating the Act governing mandatory investment ratios of August 22, 1994, which obliges entities to maintain an investment ratio of 2% in public funds in their assets. 58 Financial statements

61 Government bonds In compliance with this ratio, as at December 31, 2011, Crèdit Andorrà SA had subscribed 103,430 thousand euros to government bonds of the Principality of Andorra, issued on December 30, 2009 and maturing on December 31, 2013 at a one-year Euribor interest rate, established on the first working day of each year (103,430 thousand euros in 2010). This figure is recorded under the heading Securities portfolio Bonds and other fixed-income instruments of the enclosed balance sheet (see note 6.4). Housing funding programme Also included in calculations as public funds are loans granted as part of a programme classified as of national and social interest, aimed at the preferential funding of housing, approved by the government of Andorra on April 26, As at December 31, 2011 and 2010, the loans granted under this programme amounted to 321 and 446 thousand euros, respectively, and they are recorded under the heading Loan investments Customer loans and credits on the balance sheet. These loans accrue a fixed annual interest of 6% (see note 5.3). Programme aimed at the preferential funding of newly created firms and businesses, firms related to innovation, reconversion and enterprising projects Also included in calculations as public funds are loans granted as part of a programme classified as of national and social interest, aimed at the preferential funding of newly created firms and businesses, firms related to innovation, reconversion and enterprising projects, passed by the government of Andorra on March 3, The loans granted under this programme amounted to 1,116 thousand euros at December 31, 2011 and are recorded under the heading Loan investments Customer loans and credits on the balance sheet. These loans accrue an annual interest equivalent to the one-year Euribor rate, with the government acting as guarantor (see note 5.3). Guarantee reserves Until the new Act 1/2011 came into force, creating a system of deposit guarantees for banks (see note 19.4), all institutions in the Andorran financial system were subject to the Act governing the guarantee reserves for deposits and other operational duties to be maintained and deposited by entities operating in the financial system. This Act made it compulsory for entities involved in the Andorran financial system to maintain, among their permanent resources, minimum equity reserves to guarantee their operational obligations of up to 4% of the entities total investments, after deducting investments made using shareholders equity or funds from financial institutions. In accordance with the aforementioned Act, entities involved in the Andorran financial system must mandatorily set up and maintain guarantee reserves deposited with the ANIF. Specifically, the Crèdit Andorrà Group, until the new deposit guarantee system for banks came into force, had investments totalling 46,245 thousand euros, corresponding to 33,063 thousand euros of Crèdit Andorrà SA, 12,972 thousand euros in compliance with the commitments undertaken with the purchase in 2005 of the banking entity CaixaBank SA and 210 thousand euros from the investment fund management company Crediinvest SA; although, since the new system has come into force, applicable to banks, the amount invested corresponds only to the guarantee reserves of the group s management company. Financial statements 59

62 In 2011 and 2010, the balance and return from these deposits with the ANIF (in thousand euros) were as follows: 2011 Interest Mandatory investment Deposit rate Period Crèdit Andorrà SA 46, % December 31, August 31, 2011 Crediinvest SA % December 31, December 31, Interest Mandatory investment Deposit rate Period Crèdit Andorrà SA 46, % December 31, December 31, 2010 Crediinvest SA % December 31, December 31, Act 1/2011 creating a deposit guarantee scheme for banks On 2 February 2011, the General Council of the Principality of Andorra passed Act 1/2011, creating a deposit guarantee scheme for banks in order to guarantee the return of funds in cash and securities deposited to the depositors. This Act establishes that, so that the guarantee scheme can comply with the obligations attributed by this Act, all banks authorised to operate in Andorra must set up and maintain a restricted reserve in order to comply with the guarantees covered and that an amount equivalent to this reserve must be held invested in secure, liquid securities that comply with a series of requirements established by the Act. In this respect, at December 31, 2011, Crèdit Andorrà, complying with that established by article 7 Calculating the mandatory reserve and investment of the amount of the aforementioned Act, had a restricted guarantee reserve of 39,311 thousand euros, hedged by an equivalent amount of Andorran government bonds Act to apply the Accord between the Principality of Andorra and the European Union regarding the taxation of savings income in the form of interest payments At its meeting held on February 21, 2005, the General Council of the Principality of Andorra approved the Accord between the Principality of Andorra and the European Union regarding the establishment of measures equivalent to those contained in Council Directive 2003/48/EC on the taxation of savings income in the form of interest payments. At its meeting held on June 13, 2005, it also approved the Act applying this Accord. In 2011, Crèdit Andorrà, as a payment agent, complied with the obligations contained in the Accord and its Act of application and paid the withholding tax in accordance with that provided for in the aforementioned legislation Act 14/2010 of May 13, on the legal regime of banking institutions and the basic administrative regime of entities operating within the financial system On May 20, 2010, the General Council of the Principality of Andorra approved Act 14/10 on the legal regime of banking institutions and on the basic administrative regime of entities operating within the financial system in order to maintain a structurally and functionally solid financial system. This annulled the Act in force on the basic administrative regime of banking institutions of June 30, Act 14/2010 contains the principles established in EU Directive 2004/39/EEC of the European Parliament and the Council, of April 21, 2004, known as the MiFiD (Markets in Financial Instruments Directive). 60 Financial statements

63 Note 20 Significant events following year-end With the aim of ensuring the future viability of the pensions of Crèdit Andorrà employees, on December 19, 2011, the Assembly of Mutual Fund Members agreed to start the process of transforming the Mutual Fund from a collective scheme with defined benefits to an individual scheme with defined contributions (except for the aforementioned Act with regard to passive mutual fund members and a number of members who are still working but close to retirement, for whom the former conditions will be maintained). In this respect, on January 30, 2012, by means of an extraordinary assembly, the mutual fund members approved the dissolution and subsequent liquidation of the Mutual Fund. However, since the Mutual Fund has been dissolved, the management of the present and future assets of the mutual fund members, as well as the management of the undertakings mentioned in the previous paragraph, have been outsourced to the insurance company of the Crèdit Andorrà Group (Crèdit Assegurances, SAU). After year-end, and once all the necessary requirements had been met, the capital increase of Crèdit Assegurances, SAU was entered in the ANIF registers. Note 21 Other matters of interest Fundació privada Crèdit Andorrà Crèdit Andorrà SA established the Fundació Privada Crèdit Andorrà by means of public deed dated December 15, 1987, for an indefinite period of time. The Foundation has its own legal identity, is of Andorran nationality and of a private nature. Pursuant to Act 11/2008, of June 12, this has been entered in the Foundation Register under number 7/2010. This foundation, which is a non-profit organisation, aims to contribute to improving the quality of economic, cultural and social life in Andorra by taking on, programming, funding and carrying out specific goals. Among these goals, of particular note is the granting of study scholarships to those who deserve them in order to help them get the best possible education in whatever areas that may have an influence on the bettering of the economic, scientific, educational, cultural and services structure of the country. In 2011, and always with the aim of adapting its work to the needs of the country, the activities carried out by the Fundació Privada Crèdit Andorrà focused on three major areas: social programmes, particularly those aimed at the elderly and organisations dealing with the disabled; educational activities, particularly granting scholarships, and also cultural activities, dealing with pedagogical aspects and all those areas directly related to the country, its history and its natural environment. Legal context On December 1, 2011, the General Council of the Principality of Andorra passed Act 17/2011, amending Act 95/2010, of December 29, on corporate tax (published in BOPA number 80, on December 28, 2011), according to which limited companies are subject to a general tax rate of 10%, which is 5% in the first year of application. This Act came into force the day after it was published in the Official Gazette (BOPA) of the Principality of Andorra and is applied to tax periods starting January 1, The coming into force of this Act has not had any impact on these annual accounts. Note 22 English translation These consolidated financial statements are a free translation of the consolidated financial statements originally issued in Catalan. In the event of a discrepancy, the Catalan language version prevails. These consolidated financial statements are presented in conformity with the accounting principles and valuation criteria established by the Accounting Plan of the Andorran Financial System. Certain accounting practices applied by the Group that conform with the Accounting Plan of the Andorran Financial System may not conform with generally accepted accounting principles in other countries. Financial statements 61

64 AUDITORS REPORT Crèdit Andorrà Group 62 Financial statements

65 Financial statements 63

66 Crèdit Andorrà branch network in Andorra Head Office Av. Meritxell, 80 AD500 Andorra la Vella Principality of Andorra Tel.: Fax: Swift: CRDA AD AD Branches Andorra la Vella MAIN BRANCH Av. Meritxell, 80 AD500 Andorra la Vella Tel.: Fax: Tel. Corporate banking: hour branch PLAÇA REBÉS Pl. Rebés, 3 AD500 Andorra la Vella Tel.: Fax: Tel. Corporate banking: hour branch PRADA RAMON C/ Maria Pla, 30 AD500 Andorra la Vella Tel.: Fax: Tel. Corporate banking: hour branch PRAT DE LA CREU C/ Prat de la Creu, 83 AD500 Andorra la Vella Tel.: Fax: SANTA COLOMA Av. d Enclar, 53 AD500 Andorra la Vella Tel.: Fax: Canillo CANILLO C/ Peu del Carrer AD100 Canillo Tel.: Fax: Encamp PAS DE LA CASA C/ Sant Jordi, 7 AD200 Pas de la Casa Tel.: Fax: hour branch PLAÇA DEL CONSELL Plaça del Consell, 7 AD200 Encamp Tel.: Fax: hour branch La Massana SANT ANTONI Av. Sant Antoni, 34 AD400 La Massana Tel.: Fax: hour branch Ordino ORDINO C/ Major AD300 Ordino Tel.: Fax: Sant Julià de Lòria PLAÇA LAURÈDIA Av. Verge de Canòlich, 55 AD600 Sant Julià de Lòria Tel.: Fax: hour branch Escaldes-Engordany ESCALDES Av. Carlemany, 42 AD700 Escaldes-Engordany Tel.: Fax: Tel. Corporate banking: hour branch FITER I ROSSELL Av. Fiter i Rossell, 22 AD700 Escaldes-Engordany Tel.: Fax: Automatic branches ILLA CARLEMANY Illa Carlemany shopping centre (Escaldes-Engordany) SOLDEU Ctra. General, s/n. Soldeu (Canillo) ARINSAL Ctra. General d Arinsal. Arinsal (La Massana) Hotline 24 h: Financial statements

67 Crèdit Andorrà Group in the world Banking and financial services CRÈDIT ANDORRÀ Head office Av. Meritxell, 80 AD500 Andorra la Vella Principality of Andorra Tel.: Banco Alcalá, SA C/ Ortega y Gasset, 7 4a planta Madrid Spain Tel.: Banque de patrimoines privés, SA 30, Boulevard Royal L-2449 Luxembourg Tel.: BANCO CRÈDIT ANDORRÀ (PANAMÁ) Regus Business Centre Torres de las Américas Torre A, piso 10 Punta Pacífica Panamá, Rep. de Panamá Tel.: OFICINA DE REPRESENTACIÓN DE CRÈDIT ANDORRÀ Y DE BANCO CRÈDIT ANDORRÀ (PANAMá) EN URUGUAY (REPRESENTATIVE OFFICE) Edificio Quantum Oficina 506 A Ruta 8, km (Zonamérica) Montevideo Uruguay Tel.: Asset Management CRÈDIT ANDORRÀ ASSET MANAGEMENT Crediinvest SA C/ Bonaventura Armengol, 6-8 AD500 Andorra la Vella Principality of Andorra Tel.: ALCALÁ DE PENSIONES C/ Goya, Madrid Spain Tel.: GESALCALÁ SGIIC C/ Goya, Madrid Spain Tel.: VALIRA CAPITAL ASSET MANAGEMENT C/ Moreto, Madrid Spain Tel.: INVESTCREDIT SICAV CREDIINVEST SICAV Sociétés d investissement à capital variable Registered Office: Aerogolf Center, 1A Hoehenhof, L-1736 Senningerberg, Luxembourg PRIVATE INVESTMENT MANAGEMENT PIM Private Investment Management SA Case Postale 539 Rue du Général-Dufour 20 CH Genève 17 Tel.: Beta Capital Management LP 777 Brickell Avenue Suite 1201 Miami, Florida United States of America Tel.: CA méxico asesores patrimoniales Torre Tres Picos Arquímedes N. 19 piso 1 y 2 Col. Bosque de Chapultepec Delegación Miguel Hidalgo México DF México Tel. +52 (55) CRÈDIT ANDORRÀ PANAMÁ SECURITIES Regus Business Centre Torres de las Américas Torre A, piso 10 Punta Pacífica Panamá, Rep. de Panamá Tel.: Insurance CRÈDIT ASSEGURANCES C/ Bonaventura Armengol, 6-8, 2n AD500 Andorra la Vella Principality of Andorra Tel.: VINCLES C/ Bonaventura Armengol, 6-8, 2n AD500 Andorra la Vella Principality of Andorra Tel.: ERM HÒLDING C/ Caravel la La Niña, 12, 9è Barcelona Spain Tel.: Social activity Crèdit Andorrà Foundation Av. Meritxell, 80 AD500 Andorra la Vella Principality of Andorra Tel.: Financial statements 65

68 Av. Meritxell, 80 AD500 Andorra la Vella Principat d Andorra Design, page make-up and printing ISBN: DL: AND

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