6-K 1 d418935d6k.htm FORM 6-K Form 6-K
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UNITED STATES SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the six months ended June 30, 2012

Commission file number: 1-10110

 

 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(Exact name of Registrant as specified in its charter)

BANK BILBAO VIZCAYA ARGENTARIA, S.A.

(Translation of Registrant’s name into English)

 

 

Plaza de San Nicolás, 4

48005 Bilbao

Spain

(Address of principal executive offices)

Eduardo Ávila Zaragoza

Paseo de la Castellana, 81

28046 Madrid

Spain

Telephone number +34 91 537 7000

Fax number +34 91 537 6766

(Name, Telephone, E-mail and /or Facsimile Number and Address of Company Contact Person)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F            X                         Form 40-F

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes                              No                X

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes                              No                X

 

 

 


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TABLE OF CONTENTS

 

Certain Terms and Conventions

     1        

Cautionary Statement Regarding Forward-Looking Statements

     1        

Presentation of Financial Information

     2        

Selected Financial Data

     4        

Business Overview

     6        

Selected Statistical Information

     12       

Operating and Financial Review and Prospects

     29       

Major Shareholders

     49       

Other Information

     50       

Unaudited Interim Consolidated Financial Statements

     F-1       

This Form 6-K is incorporated by reference into BBVA’s Registration Statement on Form F-3 (File No. 333-167820) filed with the Securities and Exchange Commission.

CERTAIN TERMS AND CONVENTIONS

The terms below are used as follows throughout this report:

 

   

BBVA”, “Bank”, the “Company”, the “Group” or the “BBVA Group” means Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

 

   

BBVA Bancomer” means Bancomer S.A. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

 

   

BBVA Compass” means Compass Bancshares, Inc. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

 

   

Interim Consolidated Financial Statements” means our unaudited interim consolidated financial statements as of June 30, 2012 and for the six months ended June 30, 2012 and 2011 prepared in accordance with the International Financial Reporting Standards adopted by the European Union (“EU-IFRS”) required to be applied under the Bank of Spain’s Circular 4/2004, and in compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB).

 

   

Latin America” refers to Mexico and the countries in which we operate in South America and Central America.

First person personal pronouns used in this report, such as “we”, “us”, or “our”, mean BBVA.

In this report, “$”, “U.S. dollars”, and “dollars” refer to United States Dollars and “” and “euro” refer to Euro.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as “believe”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this report on Form 6-K, including, without limitation, the information under:

 

  Ÿ  

“Business Overview”,

 

  Ÿ  

“Selected Statistical Information” and

 

  Ÿ  

“Operating and Financial Review and Prospects”

identifies important factors that could cause such differences.


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Other important factors that could cause actual results to differ materially from those in forward-looking statements include, among others:

 

  Ÿ  

general political, economic and business conditions in Spain, the European Union (“EU”), Latin America, the United States and other regions, countries or territories in which we operate;

 

  Ÿ  

changes in applicable laws and regulations, including increased capital requirements;

 

  Ÿ  

the monetary, interest rate and other policies of central banks in Spain, the EU, the United States, Mexico and elsewhere;

 

  Ÿ  

changes or volatility in interest rates, foreign exchange rates (including the euro to U.S. dollar exchange rate), asset prices, equity markets, commodity prices, inflation or deflation;

 

  Ÿ  

ongoing market adjustments in the real estate sectors in Spain, Mexico and the United States;

 

  Ÿ  

the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation;

 

  Ÿ  

changes in consumer spending and savings habits, including changes in government policies which may influence investment decisions;

 

  Ÿ  

our ability to hedge certain risks economically;

 

  Ÿ  

the success of our acquisitions divestitures, mergers and strategic alliances,

 

  Ÿ  

our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that cannot be captured by the statistical models we use; and

 

  Ÿ  

force majeure and other events beyond our control.

Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business, strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.

PRESENTATION OF FINANCIAL INFORMATION

Accounting Principles

BBVA’s consolidated annual and interim financial statements are prepared in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and in compliance with IFRS-IASB.

The financial information included in this report on Form 6-K is unaudited and has been prepared by applying EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and in compliance with IFRS-IASB on a consistent basis with that applied to BBVA’s consolidated annual and interim financial statements.

This report on Form 6-K should be read in conjunction with the consolidated financial statements and related notes (the “Consolidated Financial Statements”) included in BBVA’s 2011 Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the “SEC” or “Commission”) on April 26, 2012 (the “2011 Form 20-F”).

The Interim Consolidated Financial Statements have been presented in the same format as that used in the Consolidated Financial Statements included in the 2011 Form 20-F. This format differs from that required by the SEC for the consolidated financial statements of bank holding companies.

 

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Business Areas

As mentioned in Note 6 to our Interim Consolidated Financial Statements, the main change in the reporting structure of the BBVA Group’s business areas in 2012 relates to the transfer of the assets and liabilities of a branch located in Houston from our Mexico business area to our United States business area. This was done to reflect the increasingly geographical orientation of the Group’s reporting structure. Despite this change and other insignificant changes, the composition of the business areas in 2012 has remained very similar to their composition in 2011. Nevertheless, business area data relating to June 30, 2011 and December 31, 2011 contained in this report has been presented on a uniform basis consistent with our organizational structure in 2012 to ensure like-for-like comparisons (see “Business Overview”).

Statistical and Financial Information

The following principles should be noted in reviewing the statistical and financial information contained herein:

 

  Ÿ  

Average balances, when used, are based on the beginning and the month-end balances during each period. We do not believe that such monthly averages present trends that are materially different from those that would be presented by daily averages.

 

  Ÿ  

The book value of BBVA’s ordinary shares held by its consolidated subsidiaries has been deducted from equity.

 

  Ÿ  

Unless otherwise stated, any reference to loans refers to both loans and leases.

 

  Ÿ  

Interest income figures include interest income on non-accruing loans to the extent that cash payments have been received in the period in which they are due.

 

  Ÿ  

Financial information with respect to subsidiaries may not reflect consolidation adjustments.

 

  Ÿ  

Certain numerical information in this report on Form 6-K may not sum due to rounding. In addition, information regarding period-to-period changes is based on numbers which have not been rounded.

 

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SELECTED FINANCIAL DATA

The historical financial information set forth below for the six months ended June 30, 2012, and 2011 has been selected from, and should be read together with, the Interim Consolidated Financial Statements included herein. For information concerning the preparation and presentation of the financial information contained herein, see “Presentation of Financial Information”.

 

                                                                          
    For the Six Months Ended June 30,  
Consolidated statement of income data   2012     2011     Change  
   

 

 

(In Millions of Euros, Except Per Share/ADS Data (In Euros)

 

Interest and similar income

    12,768        11,501        11.0%   

Interest and similar expenses

    (5,428)        (5,112)        6.2%   

Net interest income

    7,340        6,389        14.9%   

Dividend income

    338        282        19.9%   

Share of profit or loss of entities accounted for using the equity method

    371        243        52.7%   

Fee and commission income

    2,994        2,745        9.1%   

Fee and commission expenses

    (563)        (464)        21.3%   

Net gains (losses) on financial assets and liabilities

    766        729        5.1%   

Net exchange differences

    63        359        (82.5)%   

Other operating income

    2,854        2,028        40.7%   

Other operating expenses

    (2,756)        (1,886)        46.1%   

Gross income

    11,407        10,425        9.4%   

Administration costs

    (4,803)        (4,433)        8.3%   

Depreciation and amortization

    (470)        (404)        16.3%   

Provisions (net)

    (230)        (234)        (1.7)%   

Impairment losses on financial assets (net)

    (3,267)        (1,986)        64.5%   

Net operating income

    2,637        3,368        (21.7)%   

Impairment losses on other assets (net)

    (269)        (184)        46.2%   

Gains (losses) on derecognized assets not classified as
non-current asset held for sale

    22        24        (8.3)%   

Negative goodwill

    -        -     

Gains (losses) in non-current assets held for sale not classified as discontinued operations

    (286)        (65)        340.0%   

Income before tax

    2,104        3,143        (33.1)%   

Income tax

    (272)        (558)        (51.3)%   

Income from continuing transactions

    1,832        2,585        (29.1)%   

Income from discontinued transactions (net)

    -        -     

Net income

    1,832        2,585        (29.1)%   

Net income attributed to parent company

    1,510        2,339        (35.4)%   

Net income attributed to non-controlling interests

    322        246        30.9%   

Per share/ADS (1) Data

     

Net operating income(2)

    0.53        0.75     

Numbers of shares outstanding (at period end)

    5,382,108,140        4,551,602,570     

Net income attributed to parent company (3)

    0.29        0.48     

Dividends declared

    0.100        0.100     

 

 

(1) Each American Depositary Share (“ADS”) represents the right to receive one ordinary share.

 

(2) Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period excluding the weighted average number of treasury shares during the period (4,941 million and 4,474 million shares for the six months ended June 30, 2012 and 2011, respectively). See Note 5 to the Interim Consolidated Financial Statements.

 

(3) Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period including the average number of estimated shares to be converted and, for comparative purposes, a correction factor to account for the capital increases carried out in October 2011 and April 2012, and excluding the weighted average number of treasury shares during the period (5,386 million and 4,897 million shares for the six months ended June 30, 2012 and 2011, respectively). See Note 5 to the Interim Consolidated Financial Statements.

 

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As of and
for the six
months
ended June

30, 2012

    

As of and

for the year

ended
December

31, 2011

    

As of and
for the six
months
ended June

30, 2011

 
  

 

 

 
    

(in Millions of Euros, Except

Percentages)

 

Consolidated balance sheet data

        

Total assets

     622,359         597,688         568,705    

Common stock

     2,637         2,403         2,230    

Loans and receivables (net)

     390,654         381,076         371,314    

Customer deposits

     274,285         282,173         278,496    

Debt certificates and subordinated liabilities

     90,078         97,349         104,259    

Non-controlling interest

     2,100         1,893         1,562    

Total equity

     43,050         40,058         37,643    

Consolidated ratios

        

Profitability ratios:

        

Net interest margin(1)

     2.4%         2.3%         2.3%   

Return on average total assets(2)

     0.6%         0.6%         0.9%   

Return on average equity (3)

     7.4%         8.0%         12.9%   

Credit quality data

        

Loan loss reserve

     10,559         9,470         9,389    

Loan loss reserve as a percentage of total loans and receivables (net)

     2.7%         2.5%         2.5%   

Non-performing assets ratio (NPA ratio)(4)

     4.0%         4.0%         4.0%   

Substandard loans and advances to customers

     16,243         15,647         15,515    

Substandard contingent liabilities to customers(5)

     238         219         275    
  

 

 

 
     16,481         15,866         15,790    
  

 

 

 

Loans and advances to customers

     368,986         361,310         355,526    

Contingent liabilities to customers

     40,159         39,398         35,854    
  

 

 

 
     409,145         400,709         391,380    
  

 

 

 

 

 

(1) Represents net interest income as a percentage of average total assets. In order to calculate “Net interest margin” for the six months ended June 30, 2012 and 2011, respectively, net interest income is annualized.

 

(2) Represents net income as a percentage of average total assets. In order to calculate “Return on average total assets” for the six months ended June 30, 2012 and 2011, respectively, net income is annualized.

 

(3) Represents net income attributed to parent company as a percentage of average equity. In order to calculate “Return on average equity” for the six months ended June 30, 2012 and 2011, respectively, net income attributed to parent company is annualized.

 

(4) Represents the sum of substandard loans and advances to customers and substandard contingent liabilities to customers divided by the sum of loans and advances to customers and contingent liabilities to customers.

 

(5) We include contingent liabilities in the calculation of our non-performing assets ratio (NPA ratio). We believe that substandard contingent liabilities should be included in the calculation of our NPA ratio where we have reason to know, as of the reporting date, that they are impaired. The credit risk associated with contingent liabilities (consisting mainly of financial guarantees provided to third-parties on behalf of our customers) is evaluated and provisioned according to the probability of default of our customers’ obligations. If substandard contingent liabilities were not included in the calculation of our NPA ratio, such ratio would generally be higher for the periods covered, amounting to approximately 4.4%, 4.3%, and 4.4%, as of June 30, 2012, December 31, 2011 and June 30, 2011 respectively.

 

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Exchange Rates

Spain’s currency is the euro. Unless otherwise indicated, the amounts that have been converted to euro in this report have been done so at the corresponding exchange rate published by the European Central Bank (“ECB”) at the end of each relevant period.

For convenience in the analysis of the information, the following tables describe, for the periods and dates indicated, information concerning the noon buying rate for euro, expressed in dollars per 1.00. The term “noon buying rate” refers to the rate of exchange for euros, expressed in U.S. dollars per euro, in the City of New York for cable transfers payable in foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes.

 

Year ended December 31

         Average(1)    

2007

     1.3797

2008

     1.4695

2009

     1.3955

2010

     1.3216

2011

     1.4002

2012 (through September 21, 2012)

     1.2876

 

(1) Calculated by using the average of the exchange rates on the last day of each month during the period.

 

Month ended

          High                     Low          

March 31, 2012

    1.3336            1.3025       

April 30, 2012

    1.3337            1.3064       

May 31, 2012

    1.3226            1.2364       

June 30, 2012

    1.2703            1.2420       

July 31, 2012

    1.2620            1.2062       

August 31, 2012

    1.2583            1.2149       

September 30, 2012 (through September 21, 2012)

    1.3142            1.2566       

The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per 1.00, on September 21, 2012, was $1.2990.

As of June 30, 2012, approximately 40% of our assets and approximately 38% of our liabilities were denominated in currencies other than euro. See Note 2.2.16 to our Interim Consolidated Financial Statements.

For a discussion of our foreign currency exposure, please see Note 7.2 to our Interim Consolidated Financial Statements “Market Risk – Structural Exchange Rate Risk”.

BUSINESS OVERVIEW

BBVA is a highly diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. We also have investments in some of Spain’s leading companies.

Business Areas

The main change in the reporting structure of the BBVA Group’s business areas in 2012 relates to the transfer of the assets and liabilities of a branch located in Houston from our Mexico business area to our United States business area.This was done to reflect the increasingly geographical orientation of the Group’s reporting structure. Despite this change and other insignificant changes the composition of the business areas in 2012 has remained very similar to their composition in 2011. Nevertheless, business area data relating to June 30, 2011 and December 31, 2011 contained in this report has been presented on a uniform basis consistent with our organizational structure in 2012 to ensure like-for-like comparisons.

 

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The Group’s businesses are structured into the following business areas, which are further broken down into the business units:

 

   

Spain

 

   

Eurasia

 

   

Mexico

 

   

United States

 

   

South America

In addition to these business areas, we have a “Corporate Activities” area. This area handles our general management functions, which mainly consist of structural positions for interest rates associated with the euro balance sheet and exchange rates, together with liquidity management and shareholders’ funds. This area also books the costs from central units that have a strictly corporate function and makes allocations to corporate and miscellaneous provisions, such as early retirement and others of a corporate nature. It also includes the Industrial and Financial Holdings Unit and the Group’s Spanish real estate business.

The breakdown of the BBVA Group’s total assets by business segment as of June 30, 2012 and December 31, 2011 is as follows:

 

     Millions of Euros  
         As of June 30,    
2012
     As of December 31,
2011
 

Spain

     307,910          311,987    

Eurasia

     52,872          53,354    

Mexico

     79,677          72,488    

South America

     71,768          63,444    

The United States

     59,518          57,207    

Subtotal Assets of Business Areas

     571,745          558,480    

Corporate Activities

     50,615          39,208    

Total Assets of BBVA Group

     622,359          597,688    

The following table sets forth information relating to the net income attributed to the parent company by each of our business areas for the six months ended June 30, 2012 and 2011, respectively:

 

    

Net Income/(Loss) Attributed to

Parent Company

    

% of Net

Income/(Loss)

Attributed to Parent

Company

 
  

 

 

 
     For the six months ended June 30,  
  

 

 

 
     2012      2011      Change      2012      2011  
  

 

 

       

 

 

 
     (in Millions of Euros)      2012-2011      (in Percentage)  
  

 

 

 

Spain

     (221)         896         (124.7)%         (10.2)         30.7   

Eurasia

     576         447         28.9%         26.6         15.3   

Mexico

     865         870         (0.6)%         39.9         29.8   

South America

     703         526         33.7%         32.4         18.0   

The United States

     245         180         36.1%         11.3         6.2   
  

 

 

 

Subtotal Business Areas

     2,168         2,919         (25.7)%         100.0         100.0   
  

 

 

 

Corporate Activities

     (658)         (579)         13.6%         
  

 

 

 

Income attributed to the BBVA Group

     1,510         2,339         (35.4)%         
  

 

 

 

 

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On May 24, 2012, we announced we decided to initiate a strategic review of alternatives for our mandatory pension fund administrators business in Latin America. The alternatives contemplated in this process include the partial or total sale of the Pension Fund Administrators Companies (so called “AFPs”) in Chile, Colombia and Peru, as well as the Mexican Pension Fund business (“Afore”). The review is ongoing and the outcome of this review may or may not result in the sale of any of these businesses.

Spain

The business area of Spain includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Activities area. The main business units included in this business area are:

 

   

Spanish Retail Network: including the segments of individual customers, private banking, small companies and businesses in the domestic market.

 

   

Corporate and Business Banking (CBB): which manages the small and medium sized enterprises (“SMEs”), companies and corporations, public institutions and developer segments in Spain.

 

   

Corporate and Investment Banking (CIB): responsible for business with large corporations and multinationals and treasury and distribution activities in the Spanish market.

 

   

Other units: which include the insurance business unit in Spain (BBVA Seguros), and the Asset Management unit, which manages Spanish mutual funds and pension funds.

The following table sets forth information relating to the activity of this business area as of June 30, 2012 and December 31, 2011:

 

                                                               
     Millions of Euros  
Spain        As of June 30,    
2012
     As of December 31,
2011
 

Total Assets

     307,910         311,987   

Loans and advances to customers

     211,264         214,277   

Total customer deposits

     108,914         109,421   

Off-balance sheet funds

     40,746         43,796   

Economic capital allocated

     10,283         10,558   

NPA ratio (%)

     5.1         4.8   

As of June 30, 2012, the “Loans and advances to customers balance was 211,264 million, 1.4% lower than as of December 31, 2011 (214,277 million), in line with the deleveraging process in Spain.

As for the asset quality of BBVA’s portfolio in Spain, the NPA ratio was 5.1% as of June 30, 2012, 34 basis points higher than as of December 31, 2011, due to the difficult economic situation in Spain and the deleveraging process underway which has reduced lending at a faster pace than non-performing assets. The coverage ratio as of June 30, 2012 was 50% (compared with 44% as of December 31, 2011) due to increased provisions made for the greater impairment of assets associated with real estate development.

“Total customer deposits” totaled 108,914 million as of June 30, 2012, 0.5% lower than as of December 31, 2011, due to a fall in certain types of wholesale business products, which are highly dependent on BBVA’s rating, which declined during the period. By contrast deposits in the retail segment performed well.

“Off-balance sheet funds” managed by the area totaled 40,746 million as of June 30, 2012, and fell from 43,796 million as of December 31, 2011, as a result of a reduction in the assets under management due to turmoil in the markets. Of these funds, 19,656 million correspond to mutual funds and 17,181 million are pension funds, which are in line with the relevant amounts as of December 31, 2011.

 

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As of June 30, 2012, total customers funds both on-balance sheet (including promissory notes distributed through the branch network) and off-balance sheet (including mutual funds, pension funds and portfolios under management), totaled 149,660 million, 2.3% lower than as of December 31, 2011(153,217 million).

Eurasia

This business area covers the Group’s activity in Europe (excluding Spain) and Asia. Accordingly, it includes BBVA Portugal, Consumer Finance Italy and Portugal, the retail business of the branches in Paris, London and Brussels, and the retail and wholesale activity carried out within the various regions comprised in this business segment. It also includes the Group’s interest in Türkiye Garanti Bankasi A.Ş (Garanti), which is proportionally consolidated, and its equity-accounting holdings in China National Citic Bank (“CNCB”) and CITIC International Financial Holding Ltd. (“CIFH”).

The following table sets forth information relating to the business activity of this business area as of June 30, 2012 and December 31, 2011:

 

                                                               
     Millions of Euros  

Eurasia

 

       As of June 30,    
2012
     As of December 31,
2011
 

Total Assets

     52,872          53,354    

Loans and advances to customers

     33,834          34,740    

Total customer deposits

     19,981          21,142    

Off-balance sheet funds

     1,153          1,036    

Economic capital allocated

     4,569          4,245    

NPA ratio (%)

     1.4          1.5    

As of June 30, 2012, the balance of “Loans and advances to customers” totaled 33,834 million, a 2.6% decrease compared with December 31, 2011 (34,740 million). Performance has varied among the various regions comprised in this business segment. In Turkey, Garanti performed well in the first half of the year, with increases in mortgage loans (which increased by 5.8% since December 31, 2011), automobile finance (which increased by 6.2%) and general purpose loans (including personal loans, which increased by 9.9% since December 31, 2011). Gross lending to customers increased by 4.3% since the end of December 2011. Garanti continues to give priority to growth in those products offering higher return, emphasizing profitability over volume. However, in Portugal and in BBVA branches in the rest of Europe, loans and advances to customers fell over the first half of the year, as a result of difficult economic conditions.

As of June 30, 2012, “Total customer deposits” totaled 19,981 million, a 5.5% decrease compared with December 31, 2011 (21,142 million). While Turkey performed well, wholesale deposits in the Paris, London and Brussels branches fell as a result mainly of the difficult economic conditions in the euro zone, which has resulted in wholesale financial markets being affected by the high volatility of the risk premiums of EU peripheral countries and by the successive reviews of sovereign ratings, which have also had an impact on the ratings of their financial institutions.

Mexico

The Mexico business area comprises the banking, pension and insurance businesses conducted in Mexico by the BBVA Bancomer financial group. The business units included in the Mexico area are:

 

   

Retail and Corporate banking, and

 

   

Pensions and Insurance.

 

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The following table sets forth information relating to the business activity of this business area as of June 30, 2012 and December 31, 2011:

 

                                                               
     Millions of Euros  

Mexico

 

       As of June 30,    
2012
     As of December 31,
2011
 

Total Assets

     79,677          72,488    

Loans and advances to customers

     38,252          34,084    

Total customer deposits

     39,953          37,097    

Off-balance sheet funds

     35,951          30,755    

Economic capital allocated

     4,663          4,236    

NPA ratio (%)

     4.0          3.7    

As of June 30, 2012, the balance of “Loans and advance to customers” totaled 38,252 million, 12.2% higher than as of December 31, 2011 (34,084 million). Excluding the impact of exchange rates, there would have been growth of 4.9%, driven mainly by increased retail finance activity. There was a good performance of loans to small businesses, consumer lending (including credit cards) which were positively affected by the increased use of bank cards and an increase in residential mortgages (which increased by 4.3%). In the wholesale segment, loans to SMEs and the public sector performed well, contributing to the growth of this portfolio and offsetting a fall in the developer portfolio.

“Total customer deposits” totaled 39,953 million as of June 30, 2012, 7.7% higher than as of December 31, 2011. Customer deposits in current and savings accounts continued to grow, totaling 24,282 million as of June 30, 2012, 22.3% higher than as of December 31, 2011.

In the pension fund business, Afore Bancomer continued to perform well, supported by the positive rate of growth in its activity, and closed the first half of 2012 with 15,840 million in assets under management, 20.6% higher (12.8% higher at constant exchange rates) than as of December 31, 2011, and with a period-on-period increase of 6.2%.

South America

The South America business area manages the BBVA Group’s banking, pension and insurance businesses in the region.The business units included in the South America business area are:

 

   

Retail and Corporate Banking: includes banks in Argentina, Chile, Colombia, Panama, Paraguay, Peru, Uruguay and Venezuela.

 

   

Pension businesses: includes pension businesses in Bolivia, Chile, Colombia, Ecuador and Peru.

 

   

Insurance businesses: includes insurance businesses in Argentina, Chile, Colombia, and Venezuela.

The following table sets forth information relating to the business activity of this business area as of June 30, 2012 and December 31, 2011:

 

                                                               
     Millions of Euros  

South America

 

       As of June 30,    
2012
     As of December 31,
2011
 

Total Assets

     71,768          63,444    

Loans and advances to customers

     45,331          40,219    

Total customer deposits

     50,761          45,767    

Off-balance sheet funds

     56,572          50,855    

Economic capital allocated

     2,976          2,912    

NPA ratio (%)

     2.3          2.2    

 

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As of June 30, 2012, “Loans and advances to customers” totaled 45,331 million, 12.7% higher than as of December 31, 2011 (40,219 million). All countries performed well, with significant increases in consumer finance and cards. A strict implementation of our risk screening policies and the management of foreclosures have resulted in a gradual improvement of the loan portfolio’s quality and, therefore, in a positive performance of the main risk indicators. The NPA ratio was 2.3% as of June 30, 2012, slightly higher than in December 31, 2011 and 18 basis points lower than at June 30, 2011, while the coverage ratio was 139% as of June 30, 2012, slightly lower than in December 31, 2011, due to the portfolio’s high growth.

“Total customer deposits” totaled 50,761 million as of June 30, 2012, 10.9% higher than as of December 31, 2011. The increased weight of lower-cost deposits, such as current accounts, is particularly noteworthy.

In “Off-balance sheet funds”, pension fund assets grew 11.6% on December 2011, partly due to foreign currency movements (the increase is 5.3% at constant exchange rates).

United States

This business area encompasses the Group’s business in the United States and Puerto Rico. BBVA Compass accounted for approximately 82% of the area’s balance sheet as of June 30, 2012. Given its weight, most of the comments below refer to BBVA Compass. This business area also covers the assets and liabilities of the BBVA office in New York, which specializes in transactions with large corporations.

In June 28, 2012, we reached an agreement with Oriental Financial Group Inc. to sell our business in Puerto Rico, which includes a 100% of the share capital of BBVA Puerto Rico Holding Corporation and BBVA Securities of Puerto Rico, Inc., for a total price of $500 million. The closing of the transaction is subject to obtaining the required authorizations from the competent regulatory authorities.

The business units included in the United States business area are:

 

   

BBVA Compass Banking Group, and

 

   

Other units: BBVA Puerto Rico and Bancomer Transfers Services (“BTS”).

The following table sets forth information relating to the business activity of this business area as of June 30, 2012 and December 31, 2011:

 

                                                               
     Millions of Euros  
The United States        As of June 30,    
2012
     As of December 31,
2011
 

Total Assets

     59,518         57,207   

Loans and advances to customers

     40,326         38,775   

Total customer deposits

     36,837         35,320   

Off-balance sheet funds

     6,588         6,199   

Economic capital allocated

     3,152         3,379   

NPA ratio (%)

     2.8         3.5   

The analysis of the changes in the main headings of this business area should take into account that the balance sheet for our business in Puerto Rico has been reclassified to “Non-current assets held for sale” in light of its pending sale. For this reason, although the “Total Assets” figures in the above table include the balances of our business in Puerto Rico both as of June 30, 2012 and as of December 31, 2011, the “Loans and advances to customers” and “Total customer funds” headings for both periods do not include the Puerto Rico balances in order to ensure like-for-like comparisons.

 

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As of June 30, 2012, the balance of “Loans and advances to customers” totaled 40,326 million, 4.0% higher than as of December 31, 2011 (38,775 million). There has been a selective growth of the loan book at BBVA Compass, which is leading to a switch of the portfolio’s mix toward lower-risk products, as a result of our focus on customer loyalty, asset quality, the promotion of cross-selling and customer profitability. The residential real estate portfolio increased by 9% at constant exchange rates over the six-month period ended June 30, 2012. Loans to companies increased 4% at constant exchange rates during the same period, due mainly to the rise in loans linked to healthcare, and stronger activity with auto dealers.

The quality of the loan portfolio has performed well over the six-month period ended June 30, 2012, with the NPA ratio dropping 72 basis points to 2.8%, and the coverage ratio rising to 82%. Finally, the accumulated risk premium decreased 63 basis points since December 2011, also as a result of the changes in our portfolio mix.

As of June 30, 2012, “Total customer deposits” totaled 36,837 million, 4.2% higher than as of December 31, 2011 (35,320 million). There was an increase in current accounts, the lowest-cost funds, which increased by 3.9% at constant exchange rates.

SELECTED STATISTICAL INFORMATION

The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our calculation that our foreign operations are significant according to Rule 9-05 of Regulation S-X.

Average Balances and Rates

The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each period. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages. Interest income figures, when used, include interest income on non-accruing loans to the extent that cash payments have been received. Loan fees are included in the computation of interest revenue.

 

    

Average Balance Sheet - Assets and Interest from Earning

Assets

 
  

 

 

 
    

For the Six Months Ended

June 30, 2012

    

For the Six Months Ended

June 30, 2011

 
  

 

 

 
     Average
Balance
     Interest      Average
Yield
(1)
     Average
Balance
     Interest      Average
Yield
(1)
 
  

 

 

 
     (In Millions of Euros, except Percentages)  

Assets

                 

Cash and balances with central banks

     23,227         111         0.96%         20,381         129         1.27%   

Debt securities, equity instruments and derivatives

     161,132         2,297         2.87%         136,002         2,026         3.00%   

Loans and receivables

     377,260         10,270         5.47%         366,794         9,277         5.10%   

Loans and advances to credit institutions

     25,939         252         1.95%         27,565         314         2.30%   

Loans and advances to customers

     351,321         10,019         5.73%         339,229         8,963         5.33%   

In euro(2)

     213,411         3,688         3.48%         220,969         3,594         3.28%   

In other currencies(3)

     137,910         6,330         9.23%         118,260         5,369         9.16%   

Other financial income

     -         89         -         -         70         -   

Non-earning assets

     41,530         -         -         34,958         -         -   
  

 

 

       

 

 

    

Total average assets

     603,149         12,768         4.26%         558,135         11,501         4.16%   
  

 

 

       

 

 

    

 

(1)  Rates have been presented on a non-taxable equivalent basis.
(2)  Amounts reflected in euro correspond to predominantly domestic activities.
(3)  Amounts reflected in other currencies correspond to predominantly foreign activities.

 

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Table of Contents
     Average Balance Sheet - Liabilities and Interest Paid on  Interest Bearing
Liabilities
 
    

For the Six Months Ended

June 30, 2012

    

For the Six Months Ended

June 30, 2011

 
  

 

 

 
     Average
Balance
     Interest      Average
Yield
(1)
     Average
Balance
     Interest      Average
Yield
(1)
 
  

 

 

 
     (In Millions of Euros, except Percentages)  

Liabilities

                 

Deposits from central banks and credit institutions

     97,495         1,147          2.37%         69,895         900          2.60%   

Customer deposits

     279,542         2,536          1.82%         276,723         2,623          1.91%   

In euro(2)

     146,569         985          1.35%         152,589         1,127          1.49%   

In other currencies(3)

     132,973         1,551          2.35%         124,134         1,496          2.43%   

Debt securities and subordinated liabilities

     103,041         1,395          2.72%         112,724         1,236          2.21%   

Other financial costs

     -         349          -         -         353          -   

Non-interest-bearing liabilities

     81,591                 -         60,982                 -   

Stockholders’ equity

     41,481                 -         37,811                 -   
  

 

 

       

 

 

    

Total average liabilities

           603,149         5,428          1.81%               558,135         5,112          1.85%   
  

 

 

       

 

 

    

 

(1)  Rates have been presented on a non-taxable equivalent basis.
(2) Amounts reflected in euro correspond to predominantly domestic activities.
(3)  Amounts reflected in other currencies correspond to predominantly foreign activities.

Changes in Net Interest Income-Volume and Rate Analysis

The following table allocates changes in our net interest income between changes in volume and changes in rate for the six months ended June 30, 2012 compared to the six months ended June 30, 2011. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from the following table are interest payments on loans which are made in a period other than the period during which they are due. Loan fees were included in the computation of interest income.

 

                                         
    For the Six Months Ended June 30, 2012/June 30, 2011  
    Increase (decrease) Due to Changes in  
    Volume(1)     Rate(1)(2)     Net Change  
    (In Millions of Euros)  

Interest income

     

Cash and balances with central banks

    18        (36)        (18)   

Debt securities, equity instruments and derivatives

    381        (109)        272   

Loans and advances to credit institutions

    (18)        (44)        (62)   

Loans and advances to customers

    345        711        1,056   

In euros

    (113)        208        95   

In other currencies

    910        51        961   

Other financial income

    13        6        19   
 

 

 

   

 

 

   

 

 

 

Total income

    962        305        1,267   
 

 

 

   

 

 

   

 

 

 

Interest expense

     

Deposits from central banks and credit institutions

    359        (111)        248   

Customer deposits

    34        (121)        (87)   

In euros

    (41)        (100)        (142)   

In other currencies

    111        (56)        55   

Debt certificates and subordinated liabilities

    (103)        262        159   

Other financial costs

    121        (124)        (4)   
 

 

 

   

 

 

   

 

 

 

Total expense

    428        (111)        316   
 

 

 

   

 

 

   

 

 

 

Net interest income

    534        416        951   
 

 

 

   

 

 

   

 

 

 

 

(1) Variances caused by changes in both volume and rate have been allocated proportionally to volume and rate.

(2) Rates have been presented on a non-taxable equivalent basis.

 

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    For the Six Months Ended June 30, 2011/June 30,  2010  
    Increase (decrease) Due to Changes in  
        Volume(1)            Rate(1)(2)             Net Change      
    (In Millions of Euros)  

Interest income

     

Cash and balances with central banks

    4        10        14   

Debt securities, equity instruments and derivatives

    (159)        193        34   

Loans and advances to credit institutions

    15        58        73   

Loans and advances to customers

    230        706        936   

In euros

    37        11        48   

In other currencies

    289        599        888   

Other financial income

    10        (22)        (12)   
 

 

 

   

 

 

   

 

 

 

Total income

    68        976        1,044   
 

 

 

   

 

 

   

 

 

 

Interest expense

     

Deposits from central banks and credit institutions

    (106)        274        167   

Customer deposits

    126        1,034        1,160   

In euros

    136        625        761   

In other currencies

    (149)        548        399   

Debt certificates and subordinated liabilities

    (103)        201        98   

Other financial costs

    (4)        171        167   
 

 

 

   

 

 

   

 

 

 

Total expense

    23        1,569        1,592   
 

 

 

   

 

 

   

 

 

 

Net interest income

    45        (593)        (548)   
 

 

 

   

 

 

   

 

 

 

 

(1)  Variances caused by changes in both volume and rate have been allocated proportionally to volume and rate.
(2)  Rates have been presented on a non-taxable equivalent basis.

Interest Earning Assets—Margin and Spread

The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the periods indicated.

 

    For the Six Months Ended June 30,  
    2012 (*)     2011 (*)  
    (In Millions of Euros, except Percentages)  

Average interest earning assets

    561,619        523,177   

Gross yield(1)

    2.27%        2.20%   

Net yield(2)

    2.12%        2.06%   

Net interest margin(3)

    1.31%        1.22%   

Average effective rate paid on all interest-bearing liabilities

    1.13%        1.11%   

Spread(4)

    1.14%        1.09%   

 

(*)

Ratios are not annualized.

(1) Gross yield represents total interest income divided by average interest earning assets.
(2) Net yield represents total interest income divided by total average assets.
(3) Net interest margin represents net interest income as percentage of average interest earning assets.
(4) Spread is the difference between gross yield and the average cost of interest-bearing liabilities.

ASSETS

Interest-Bearing Deposits in Other Banks

As of June 30, 2012, interbank deposits represented 4.27% of our assets. Of such interbank deposits, 29.9% were held outside of Spain and 70.1% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. Such deposits, however, are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.

 

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Table of Contents

Securities Portfolio

As of June 30, 2012, our securities were carried on our consolidated balance sheet at a carrying amount of 103,844 million, representing 16.7% of our assets. 29,425 million, or 28.3%, of our securities consisted of Spanish Treasury bonds and Treasury bills. The average yield for the six months ended June 30, 2012 on investment securities that BBVA held was 3.6%, compared to an average yield of approximately 5.5% earned on loans and receivables for the six months ended June 30, 2012. The market or appraised value of our total securities portfolio as of June 30, 2012, was 102,831 million. See Notes 10, 12 and 14 to the Interim Consolidated Financial Statements. For a discussion of our investments in affiliates, see Note 17 to the Interim Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.2.1 and 8 to the Interim Consolidated Financial Statements.

The following table analyzes the carrying amount and market value of our debt securities as of June 30, 2012 and December 31, 2011. Our trading portfolio is not included in the table below because the amortized costs and fair values of these items are the same. See Notes 10 and 17 to the Interim Consolidated Financial Statements.

 

     As of June 30, 2012  
DEBT SECURITIES        Amortized Cost      Fair Value (1)      Unrealized Gains      Unrealized    
Losses
 
  

 

 

 
     (In Millions of Euros)  

AVAILABLE FOR SALE PORTFOLIO

           
  

 

 

 

Domestic

     27,164         25,276         86         (1,974)   
  

 

 

 

Spanish Government

     19,584         17,872         37         (1,749)   

Other debt securities

     7,580         7,404         49         (225)   

Issued by credit institutions

     6,325         6,211         14         (128)   

Issued by other institutions

     1,255         1,193         35         (97)   
  

 

 

 

International

     36,373         36,592         1,230         (1,011)   
  

 

 

 

Mexico -

     8,561         9,162         625         (24)   

Mexican Government and other

government agencies debt

securities

     7,768         8,275         530         (23)   

Other debt securities

     793         887         95         (1)   

Issued by credit institutions

     317         370         54         (1)   

Issued by other institutions

     476         517         41         -   

The United States-

     7,963         8,139         274         (98)   

U.S. Treasury and other U.S.

Government agencies

     198         189         -         (9)   

States and political subdivisions

     429         453         24         -   

Other debt securities

     7,336         7,497         250         (89)   

Issued by credit institutions

     549         643         96         (2)   

Issued by other institutions

     6,787         6,854         154         (87)   

Other countries -

     19,849         19,291         331         (889)   

Securities of other foreign

Governments

     11,076         10,657         200         (619)   

Other debt securities

     8,773         8,634         131         (270)   

Issued by Central Banks

     2,014         2,012         -         (2)   

Issued by credit institutions

     4,895         4,805         97         (187)   

Issued by other institutions

     1,864         1,817         34         (81)   
  

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     63,537         61,868         1,316         (2,985)   
  

 

 

 

HELD TO MATURITY PORTFOLIO

           
  

 

 

 

Domestic

     7,271         6,300         -         (971)   
  

 

 

 

Spanish Government

     6,479         5,570         -         (909)   

Other debt securities

     792         730         -         (62)   

Issued by credit institutions

     234         218         -         (16)   

Issued by other institutions

     558         512         -         (46)   
  

 

 

 

International

     2,886         2,844         23         (65)   
  

 

 

 

Securities of other foreign Governments

     2,746         2,708         19         (57)   

Other debt securities

     140         136         4         (8)   
  

 

 

 

TOTAL HELD TO MATURITY PORTFOLIO

     10,157         9,144         1,339         (4,021)   
  

 

 

 
           
  

 

 

 

TOTAL DEBT SECURITIES

     73,694         71,012         2,665         (7,006)   
  

 

 

 

 

(1) Fair values for listed securities are determined on the basis of their quoted values at the end of the period. Appraised values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to the Interim Consolidated Financial Statements.

 

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Table of Contents
    As of December 31, 2011  
      Amortized cost           Fair Value(1)           Unrealized Gains         Unrealized Losses   
    (In Millions of Euros)  

DEBT SECURITIES -

       

AVAILABLE FOR SALE PORTFOLIO

       

Domestic

    25,023        23,522        183        (1,684)   

Spanish Government and other government agencies debt securities

    20,597        19,271        58        (1,384)   

Other debt securities

    4,426        4,251        125        (300)   

Issued by central banks

    -        -        -        -   

Issued by credit institutions

    3,307        3,140        80        (247)   

Issued by other institutions

    1,119        1,111        45        (53)   

International

    29,573        29,392        1,038        (1,219)   

Mexico

    4,815        4,991        176        -   

Mexican Government and other government agencies debt securities

    4,742        4,906        164        -   

Other debt securities

    73        85        12        -   

Issued by central banks

    -        -        -        -   

Issued by credit institutions

    59        70        11        -   

Issued by other institutions

    14        15        1        -   

United States

    7,355        7,363        243        (235)   

U.S. Treasury and other U.S. government agencies debt securities

    487        483        8        (12)   

States and political subdivisions

    509        537        28        -   

Other debt securities

    6,359        6,343        207        (223)   

Issued by central banks

    -        -        -        -   

Issued by credit institutions

    631        617        22        (36)   

Issued by other institutions

    5,728        5,726        185        (187)   

Other countries

    17,403        17,038        619        (984)   

Securities of other foreign Governments

    11,617        11,296        345        (666)   

Other debt securities

    5,786        5,742        274        (318)   

Issued by central banks

    849        855        6        -   

Issued by credit institutions

    3,080        2,998        184        (266)   

Issued by other institutions

    1,857        1,889        84        (52)   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

    54,596        52,914        1,221        (2,903)   
 

 

 

   

 

 

   

 

 

   

 

 

 

HELD TO MATURITY PORTFOLIO

       

Domestic

    7,373        6,848        1        (526)   

Spanish Government and other government agency debt securities

    6,520        6,060        1        (461)   

Other debt securities

    853        788        -        (65)   

Issued by central banks

    -        -        -        -   

Issued by credit institutions

    255        244        -        (11)   

Issued by other institutions

    598        544        -        (54)   

International

    3,582        3,342        12        (252)   

Securities of other foreign Governments

    3,376        3,149        9        (236)   

Other debt securities

    206        193        3        (16)   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL HELD TO MATURITY PORTFOLIO

    10,955        10,190        13        (778)   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL DEBT SECURITIES

    65,551        63,104        1,234        (3,681)   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Fair values for listed securities are determined on the basis of their quoted values at the end of the period. Appraised values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to the Interim Consolidated Financial Statements.

 

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During the first half of 2012, the credit ratings of the issuers of debt securities in the available-for-sale portfolio was materially adversely affected by several downgrades of the Kingdom of Spain and issuers in Spain by rating agencies during the period.

The following table analyzes the carrying amount and market value of the equity securities we owned as of June 30, 2012 and December 31, 2011, respectively. Our trading portfolio and investments in affiliated companies consolidated under the equity method are not included in the table below because the amortized costs and fair values of these items are the same. See Notes 10 and 17 to the Interim Consolidated Financial Statements.

 

     As of June 30, 2012  
       Amortized Cost            Fair Value(1)            Unrealized Gains          Unrealized Losses    
     (In Millions of Euros)  

EQUITY SECURITIES

           

AVAILABLE FOR SALE PORTFOLIO

           

Domestic

     3,349         3,060         58         (347)   

Equity listed

     3,323         3,034         58         (347)   

Equity unlisted

     26         26         -         -   

International

     967         906         15         (76)   

United States

     571         562         -         (9)   

Equity listed

     46         37         -         (9)   

Equity unlisted

     525         525         -         -   

Other countries

     396         344         15         (67)   

Equity listed

     330         272         8         (66)   

Equity unlisted

     66         72         7         (1)   
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     4,316         3,966         73         (423)   
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL EQUITY SECURITIES

     4,316         3,966         73         (423)   
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENT SECURITIES

     78,010         74,978         1,412         (4,444)   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Fair values for listed securities are determined on the basis of their quoted values at the end of the period. Appraised values are used for unlisted securities based on our estimates or on unaudited financial statements, when available.

 

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Table of Contents
     As of December 31, 2011  
       Amortized Cost            Fair Value(1)            Unrealized Gains          Unrealized Losses    
     (In Millions of Euros)  

EQUITY SECURITIES

           

AVAILABLE FOR SALE PORTFOLIO

           

Domestic

     3,838         4,304         468         (2)   

Equity listed

     3,802         4,268         468         (2)   

Equity unlisted

     36         36         -         -   

International

     999         926         18         (91)   

United States

     601         591         2         (12)   

Equity listed

     41         29         -         (12)   

Equity unlisted

     560         562         2         -   

Other countries

     398         335         16         (79)   

Equity listed

     320         246         5         (79)   

Equity unlisted

     78         89         11         -   
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     4,837         5,230         486         (93)   
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL EQUITY SECURITIES

     4,837         5,230         486         (93)   
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENT SECURITIES

     70,388         68,334         1,720         (3,774)   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Fair values for listed securities are determined on the basis of their quoted values at the end of the year. Appraised values are used for unlisted securities based on our estimates or on unaudited financial statements, when available.

 

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The following table analyzes the maturities of our debt investment and fixed income securities, excluding trading portfolio, by type and geographical area as of June 30, 2012.

 

    Maturity at One
Year or Less
    Maturity After One
Year to Five Years
    Maturity After Five
Years to 10 Years
    Maturity After 10
Years
    Total  
    Amount     Yield %
(1)
    Amount     Yield %
(1)
    Amount     Yield %
(1)
    Amount     Yield %
(1)
    Amount  
    (In Millions of Euros, Except Percentages)  

DEBT SECURITIES

                 

AVAILABLE-FOR-SALE PORTFOLIO

                 

Domestic

    3,357        2.4        14,487        2.8        3,962        4.3        3,470        5.1        25,276   

Spanish Government and other government agencies debt securities

    1,428        2.6        9,841        3.1        3,576        4.6        3,027        5.1        17,872   

Other debt securities

    1,928        2.4        4,647        2.2        386        3.0        443        5.2        7,404   

International

    5,068        2.8        18,834        3.3        6,035        5.9        6,655        5.1        36,592   

Mexico

    336        9.0        4,129        5.7        1,366        6.5        3,332        7.7        9,162   

Mexican Government and other government agencies debt securities

    308        9.0        3,947        5.6        1,167        6.6        2,854        4.1        8,275   

Other debt securities

    28        9.1        182        6.2        199        5.8        478        7.7        887   

United States

    476        3.4        4,891        3.0        1,900        3.0        872        5.8        8,139   

U.S. Treasury and other U.S. government agencies debt securities

    113        0.5        28        4.6        31        3.7        16        3.8        189   

States and political subdivisions

    46        6.1        242        4.6        140        4.7        25        5.0        453   

Other debt securities

    317        4.7        4,621        2.9        1,728        2.8        831        5.9        7,497   

Other countries

    4,257        2.3        9,814        2.2        2,769        7.6        2,452        4.5        19,291   

Securities of other foreign
Governments (2)

    1,780        1.3        5,563        2.3        2,143        8.7        1,171        4.3        10,657   

Other debt securities

    2,477        3.0        4,251        2.0        625        3.8        1,280        4.7        8,634   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL AVAILABLE-FOR-SALE

    8,424        2.6        33,321        3.0        9,997        5.3        10,125        5.1        61,868   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

HELD-TO-MATURITY PORTFOLIO

                 

Domestic

    122        4.4        1,746        3.5        2,102        4.6        3,301        3.0        7,271   

Spanish government

    39        5.1        1,164        3.3        1,975        4.7        3,301        3.0        6,479   

Other debt securities

    83        4.1        582        4.0        127        3.8        -        -        792   

International

    47        4.2        2,028        4.2        797        4.1        13        0.4        2,886   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL HELD-TO-MATURITY

    169        4.4        3,775        3.9        2,899        4.5        3,314        3.0        10,157   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL DEBT SECURITIES

    8,593        2.7        37,096        3.1        12,896        5.1        13,439        4.6        72,025   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Rates have been presented on a non-taxable equivalent basis.

 

(2) Securities of other foreign Governments mainly include investments made by our subsidiaries in securities issued by the Governments of the countries where they operate.

Loans and Advances to Credit Institutions

As of June 30, 2012, our total loans and advances to credit institutions amounted to 28,676 million, or 4.6% of total assets. Net of our valuation adjustments, loans and advances to credit institutions amounted to 28,763 million as of June 30, 2012, or 4.6% of our total assets.

Loans and Advances to Customers

As of June 30, 2012, our gross loans and advances to customers amounted to 367,130 million, or 59% of total assets. Net of our valuation adjustments, loans and advances to customers amounted to 358,332 million as of June 30, 2012, or 57.6% of our total assets. As of June 30, 2012 our loans in Spain amounted to 207,266 million. Our foreign loans amounted to 159,864 million as of June 30, 2012.

 

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Table of Contents

Loans by Geographic Area

The following table analyzes, by domicile of the customer, our net loans and leases as of each of the dates indicated:

 

         As of June    
30, 2012
     As of
    December 31,    
2011
         As of June    
30, 2011
 
     (In Millions of Euros)  

Domestic

     207,266         198,948         212,852   

Foreign

        

Western Europe

     30,776         32,445         31,974   

Latin America

     86,245         81,205         70,521   

United States

     37,373         41,222         34,257   

Other

     5,471         6,035         4,889   

Total foreign

     159,864         160,907         141,641   
  

 

 

    

 

 

    

 

 

 

Gross loans and advances to customers

     367,130         359,855         354,493   

Valuation adjustments

     (8,798)         (7,955)         (8,271)   
  

 

 

    

 

 

    

 

 

 

Total loans and advances to customers

     358,332         351,900         346,222   
  

 

 

    

 

 

    

 

 

 

Loans by Type of Customer

The following table analyzes by domicile and type of customer our net loans and leases at each of the dates indicated. The analysis by type of customer is based principally on the requirements of the regulatory authorities in each country.

 

         As of June    
30, 2012
     As of
    December    
31, 2011
         As of June    
30, 2011
 
     (In Millions of Euros)  

Domestic

        

Government

     27,334         25,372         25,827   

Agriculture

     1,506         1,526         1,551   

Industrial

     17,299         16,286         16,182   

Real estate and construction

     28,467         29,261         28,600   

Commercial and financial

     24,583         21,800         30,271   

Loans to individuals(1)

     88,263         85,207         89,277   

Other

     19,814         19,496         21,144   
  

 

 

    

 

 

    

 

 

 

Total domestic

     207,266         198,948         212,851   
  

 

 

    

 

 

    

 

 

 

Foreign

        

Government

     9,909         9,718         9,259   

Agriculture

     3,207         3,315         2,170   

Industrial

     19,101         20,931         18,613   

Real estate and construction

     19,949         21,728         21,827   

Commercial and financial

     33,818         33,948         25,330   

Loans to individuals

     56,237         53,856         46,931   

Other

     17,643         17,411         17,512   
  

 

 

    

 

 

    

 

 

 

Total foreign

     159,864         160,907         141,642   
  

 

 

    

 

 

    

 

 

 

Gross loans and advances to customers

     367,130         359,855         354,493   
  

 

 

    

 

 

    

 

 

 

Valuation adjustments

     (8,798)         (7,955)         (8,271))   
  

 

 

    

 

 

    

 

 

 

Total loans and advances to customers

     358,332         351,900         346,222   
  

 

 

    

 

 

    

 

 

 

 

  (1) Includes mortgage loans to households for the acquisition of housing.

 

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Table of Contents

The following table sets forth a breakdown, by currency, of our net loan portfolio as of each of the dates indicated:

 

         As of June    
30, 2012
     As of
    December    
31, 2011
         As of June    
30, 2011
 
     (In Millions of Euros)  

In euros

     216,470         216,889         225,898   

In other currencies

     141,862         135,011         120,324   
  

 

 

    

 

 

    

 

 

 

Total loans and advances to customers

     358,332         351,900         346,222   
  

 

 

    

 

 

    

 

 

 

As of June 30, 2012, loans by BBVA and its subsidiaries to associates and jointly controlled companies amounted to 381 million, compared to 372 million as of December 31, 2011. Loans outstanding to the Spanish government and its agencies amounted to 27,334 million, or 7.0% of our total loans and leases as of June 30, 2012, compared to 25,372 million, or 7.1% of our total loans and leases as of December 31, 2011. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.

Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our two largest borrowers as of June 30, 2012, excluding government-related loans, amounted in the aggregate to 9,632 million or approximately 2.62% of our total outstanding loans and leases. As of June 30, 2012 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and leases, other than by category as disclosed in the table above.

Maturity and Interest Sensitivity

The following table sets forth an analysis by maturity of our total loans and leases by domicile of the office that issued the loan and type of customer as of June 30, 2012. The determination of maturities is based on contract terms.

 

                                                                                                                                           
     Maturity  
     Due in One Year
or Less
     Due After One Year
Through Five  Years
     Due After Five
Years
     Total  
     (In Millions of Euros)  

Domestic

           

Government

     13,236         7,615         6,483         27,334   

Agriculture

     628         543         335         1,506   

Industrial

     12,877         2,929         1,493         17,299   

Real estate and construction

     13,567         8,182         6,719         28,467   

Commercial and financial

     14,524         3,899         6,159         24,583   

Loans to individuals

     10,903         15,895         61,466         88,263   

Other

     13,237         4,083         2,494         19,814   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Domestic

     78,973         43,145         85,148         207,266   
  

 

 

    

 

 

    

 

 

    

 

 

 

Foreign

           

Government

     1,463         1,896         6,551         9,909   

Agriculture

     2,157         821         229         3,207   

Industrial

     8,085         6,530         4,486         19,101   

Real estate and construction

     8,129         6,060         5,760         19,949   

Commercial and financial

     17,014         13,745         3,059         33,818   

Loans to individuals

     9,036         13,215         33,985         56,237   

Other

     9,092         5,892         2,659         17,643   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Foreign

     54,976         48,159         56,728         159,864   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross loans and advances to customers

     133,949         91,305         141,876         367,130   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following table sets forth a breakdown of our fixed and variable rate loans which had a maturity of one year or more as of June 30, 2012.

 

     Interest Sensitivity of Outstanding Loans and
Leases Maturing in More Than One Year
 
     Domestic      Foreign      Total  
     (In Millions of Euros)  

Fixed rate

     25,875          48,866          74,741    

Variable rate

     102,418          56,021          158,439    
  

 

 

    

 

 

    

 

 

 

Gross loans and advances to customers

     128,293          104,887          233,180    
  

 

 

    

 

 

    

 

 

 

Loan Loss Reserve

For a discussion of loan loss reserves, see Note 2.2.1 to the Interim Consolidated Financial Statements.

The following table provides information, by domicile of customer, regarding our loan loss reserve and movements of loan charge-offs and recoveries as of each of the dates indicated.

 

  

 

 

 
     As of June
30, 2012
     As of
December 31,
2011
     As of June
30, 2011
 
     (In Millions of Euros, except Percentages)  

Loan loss reserve at beginning of period:

        

Domestic

     4,714         4,935         4,935   

Foreign

     4,755         4,539         4,539   
  

 

 

 

Total loan loss reserve at beginning of period

     9,470         9,474         9,474   

Loans charged off

        

Government and other Agencies

     -         -         -   

Real estate and loans to individuals

     (1,043)         (1,822)         (1,016)   

Commercial and financial

     (187)         (155)         (129)   

Other

     -         -         -   

Total domestic

     (1,230)         (1,977)         (1,145)   

Foreign

     (897)         (2,062)         (934)   
  

 

 

 

Total loans charged off

     (2,127)         (4,039)         (2,079)   
  

 

 

 

Provision for possible loan losses

        

Domestic

     2,296         2,229         984   

Foreign

     1,081         2,299         1,137   
  

 

 

 

Total Provision for possible loan losses

     3,377         4,528         2,121   

Acquisition and disposition of subsidiaries

     -         305         -   

Effect of foreign currency translation and other

     (161)         (797)         (126)   

Loan loss reserve at end of period

        

Domestic

     5,694         4,714         4,712   

Foreign

     4,865         4,755         4,677   
  

 

 

 

Total loan loss reserve at end of period

     10,559         9,470         9,389   
  

 

 

 
Loan loss reserve as a percentage of total loans and receivables at end of period      2.7%         2.5%         2.5%   
Net loan charge-offs as a percentage of total loans and receivables at end of period      0.5%         1.1%         0.6%   

When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.

The loans charged off amounted to 2,127 million as of June 30, 2012 compared to 2,079 million as of June 30, 2011. The increase was primarily due to an increase in loans charged off in Spain.

 

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Table of Contents

Our loan loss reserves as a percentage of total loans and leases increased to 2.7% as of June 30, 2012 from 2.5% as of June 30, 2011, principally due to an increase in our loan loss reserve in Spain.

Substandard Loans

As described in Note 2.2.1 to the Interim Consolidated Financial Statements, loans are considered to be impaired loans when there are reasonable doubts that the loans will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed upon, taking into account the guarantees received by the consolidated entities to assure (in part or in full) the performance of transactions.

Amounts collected in relation to impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the principal not yet repaid. The approximate amount of interest income on our substandard loans which was included in net income attributed to parent company for the six months ended June 30, 2012 and 2011 was 105.2 million and 98.1 million, respectively.

The following table provides information regarding our substandard loans, by domicile and type of customer, as of the dates indicated:

 

        As of June 30,      As of December 31,    
 

 

 

 
    2012      2011  
 

 

 

 
    (In Millions of Euros, Except %)  

Substandard loans

    

Domestic

    11,531         11,043    

Public sector

    133         130    

Other resident sector

    11,398         10,913    

Foreign

    4,748         4,642    

Public sector

    18           

Other non-resident sector

    4,730         4,637    
 

 

 

 

Total Substandard loans

    16,279         15,685    
 

 

 

 

Total loan loss reserve

    (10,559)         (9,470)    
 

 

 

 

Substandard loans net of reserves

    5,721         6,214    

Our total substandard loans amounted to 16,279 million as of June 30, 2012, compared to 15,685 million as of December 31, 2011.

As mentioned in Note 2.2.1 to the Interim Consolidated Financial Statements, our loan loss reserve includes loss reserve for impaired assets and loss reserve for not impaired assets but which present an inherent loss. As of June 30, 2012, the loss reserve for impaired assets amounted to 7,639 million, compared to 6,378 million as of December 31, 2011. As of June 30, 2012, the loss reserve for not impaired assets amounted to 2,920 million, compared to 3,091 million as of December 31, 2011.

 

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The following table provides information, by domicile and type of customer, regarding our substandard loans and the loan loss reserves to customers taken for each substandard loan category, as of June 30, 2012.

 

    

    Substandard

Loans

    

Loan Loss

Reserve

    

Substandard Loans  

as a Percentage of

Loans in Category

 
  

 

 

 
     (In Millions of Euros, Except %)  

Domestic:

        

Government

     133         (10)          0.49%   

Credit institutions

     -                 -   

Other sectors

     11,398         (5,267)          6.33%   

Agriculture

     134         (49)          8.89%   

Industrial

     844         (408)          4.88%   

Real estate and construction

     6,000         (3,182)          21.08%   

Commercial and other financial

     950         (396)          3.86%   

Loans to individuals

     2,777         (817)          3.15%   

Other

     692         (415)          3.49%   
  

 

 

    

Total Domestic

     11,531         (5,277)          5.45%   

Foreign:

        

Government

     18         (4)          0.18%   

Credit institutions

     29         (16)          0.12%   

Other sectors

     4,701         (2,341)          3.13%   

Agriculture

     205         (99)          6.39%   

Industrial

     176         (134)          0.92%   

Real estate and construction

     1,506         (564)          7.55%   

Commercial and other financial

     861         (491)          2.55%   

Loans to individuals

     1,748         (839)          3.11%   

Other

     206         (214)          1.17%   
  

 

 

    

Total Foreign

     4,748         (2,361)          2.58%   

General reserve

        (2,920)       
  

 

 

    

Total substandard loans

     16,279         (10,559)          4.11%   
  

 

 

    

Potential Problem Loans

The identification of “Potential problem loans” is based on the analysis of historical delinquency rates trends, categorized by products/clients and geographical locations. This analysis is focused on the identification of portfolios with delinquency rates higher than our average delinquency rates. Once these portfolios are identified, we segregate such portfolios into groups with similar characteristics based on the activities to which they are related, geographical location, type of collateral, solvency of the client and loan to value ratio

The delinquency rate in our domestic real estate and construction portfolio was 21.1% as of June 30, 2012, substantially higher than the average delinquency rate for all of our domestic activities (5.5%) and the average delinquency rate for all of our consolidated activities (4.0%) as of such date. Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a delinquency rate of 23.0% as of such date. Given such delinquency rate, we performed an analysis in order to define the level of loan provisions attributable to these loan portfolios (see Note 2.2.1 to our Interim Consolidated Financial Statements). The table below sets forth additional information on our “Potential problem loans” and domestic substandard loans as of June 30, 2012:

 

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Table of Contents
         Book Value      Allowance for
Loan Losses
     % of Loans    
in Each    
Category to    
Total Loans     
to Customers    
 
  

 

 

 
     (In Millions of Euros, Except Percentages)  

Domestic(1)

        

Substandard loans

     4,750         2,190         1.3%   

Potential problem loans

     1,729         306         0.5%   

 

 

  (1) Potential problem loans outside of Spain as of June 30, 2012 were not significant.

Foreign Country Outstandings

The following table sets forth, as of each of the dates indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 1% of our total assets as of June 30, 2012 and December 31, 2011. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our subsidiaries in South America, Mexico and United States.

 

         As of June 30, 2012      As of December 31, 2011  
  

 

 

 
     Amount      % of Total
Assets
     Amount      % of Total
Assets
 
  

 

 

 
     (In Millions of Euros, Except Percentages)  

United Kingdom

     5,939         0.95%         6,258         1.1%   

Mexico

     1,521         0.24%         1,885         0.3%   

Other OECD

     7,403         1.19%         7,521         1.3%   
  

 

 

 

Total OECD

     14,863         2.39%         15,664         2.6%   

Central and South America

     2,812         0.45%         3,161         0.5%   

Other

     5,381         0.86%         4,568         0.8%   
  

 

 

 

Total

     23,056         3.70%         23,393         3.9%   
  

 

 

 

The following table sets forth the amounts of our cross-border outstandings as of June 30, 2012 and December 31, 2011 by type of borrower where outstandings in the borrower’s country exceeded 1% of our total assets.

 

    

 

    Governments

     Banks and
Other
Financial
Institutions
     Commercial,
Industrial and
Other
    

 

Total    

 
  

 

 

 
     (In Millions of Euros)  

As of June 30, 2012

           

Mexico

     5         48         1,468         1,521    

United Kingdom

     -         4,214         1,725         5,939    
  

 

 

 

Total

     5         4,262         3,193         7,460    
  

 

 

 

As of December 31, 2011

           

Mexico

     31         210         1,644         1,885    

United Kingdom

     -         4,145         2,113         6,258    
  

 

 

 

Total

     31         4,355         3,757         8,143    
  

 

 

 

 

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The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.

The following table shows the minimum required reserves with respect to each category of country for BBVA’s level of coverage as of June 30, 2012.

 

Categories(1)

   Minimum Percentage of Coverage
(Outstandings Within Category)
 

Countries belonging to the OECD whose currencies are listed in the Spanish foreign exchange market

     0.0   

Countries with transitory difficulties(2)

     10.1   

Doubtful countries(2)

     22.8   

Very doubtful countries(2)(3)

     83.5   

Bankrupt countries(4)

     100.0   

 

 

(1) Any outstanding which is guaranteed may be treated, for the purposes of the foregoing, as if it were an obligation of the guarantor.

 

(2) Coverage for the aggregate of these three categories (countries with transitory difficulties, doubtful countries and very doubtful countries) must equal at least 35% of outstanding loans within the three categories. The Bank of Spain has recommended up to 50% aggregate coverage.

 

(3) Outstandings to very doubtful countries are treated as substandard under Bank of Spain regulations.

 

(4) Outstandings to bankrupt countries must be charged off immediately. As a result, no such outstandings are reflected on our consolidated balance sheet. Notwithstanding the foregoing minimum required reserves, certain interbank outstandings with an original maturity of three months or less have minimum required reserves of 50%. We met or exceeded the minimum percentage of required coverage with respect to each of the foregoing categories.

Our exposure to borrowers in countries with difficulties (the last four categories in the foregoing table), excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to 370 million and 340 million as of June 30, 2012 and December 31, 2011, respectively. These figures do not reflect loan loss reserves of 11.9%, and 13.2% respectively, against the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of June 30, 2012 did not in the aggregate exceed 0.1% of our total assets.

The country-risk exposures described in the preceding paragraph as of June 30, 2012 and December 31, 2011 do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, non-transfer, non-convertibility and, if appropriate, war and political violence. The sums insured as of June 30, 2012 and December 31, 2011 amounted to $56 million and $58 million, respectively (approximately 44 million and 45 million, respectively, based on a euro/dollar exchange rate on June 30, 2012 of $1.00 = 0.79 and December 31, 2011 of $1.00 = 0.77).

 

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Table of Contents

LIABILITIES

Deposits

The principal components of our customer deposits are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits by principal geographic area for the dates indicated, disregarding any valuation adjustments and accrued interest.

 

     As of June 30, 2012  
           Customer      
Deposits
     Bank of Spain and
Other Central Banks
           Other Credit      
Institutions
               Total             
     (In Millions of Euros)  

Total domestic

     119,957         48,507         10,545         179,009   

Foreign

           

Western Europe

     28,251         5,974         28,943         63,168   

Mexico

     37,226         -         13,651         50,877   

South America

     49,032         546         4,187         53,765   

United States

     37,528         -         6,529         44,057   

Other

     1,102         -         580         1,683   

Total foreign

     153,139         6,520         53,890         213.550   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     273,097         55,028         64,435         392,560   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31, 2011  
           Customer      
Deposits
     Bank of Spain and
Other Central  Banks
           Other Credit      
Institutions
               Total             
     (In Millions of Euros)  

Total domestic

     124,929         24,570         9,230         158,729   

Foreign

           

Western Europe

     37,136         8,098         27,547         72,781   

Mexico

     36,393         -         11,320         47,713   

South America

     43,399         228         3,593         47,220   

United States

     37,199         241         6,318         43,757   

Other

     1,925         -         1,040         2,965   

Total foreign

     156,052         8,566         49,817         214,435   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     280,981         33,136         59,047         373,164   
  

 

 

    

 

 

    

 

 

    

 

 

 

For an analysis of our deposits, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 23 to the Interim Consolidated Financial Statements.

As of June 30, 2012, the maturity of our time deposits (excluding interbank deposits) in denominations of $100,000 (approximately 78,939 considering the noon buying rate as of June 30, 2012) or greater was as follows:

 

     As of June 30, 2012  
         Domestic              Foreign              Total      
     (In Millions of Euros)  

3 months or under

     9,133         19,213         28,346   

Over 3 to 6 months

     3,976         2,371         6,346   

Over 6 to 12 months

     8,328         2,592         10,918   

Over 12 months

     7,991         5,878         13,869   

Total

     29,428         30,053         59,481   
  

 

 

    

 

 

    

 

 

 

Time deposits from Spanish and foreign financial institutions amounted to 33,661 million as of June 30, 2012, substantially all of which were in excess of $100,000 (approximately 78,939 considering the noon buying rate as of June 30, 2012).

 

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Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by currency of customer deposits as of June 30, 2012 and December 31, 2011, see Note 23 to the Interim Consolidated Financial Statements.

Short-term Borrowings

Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity as of June 30, 2012, December 31, 2011, and June 30, 2011.

 

     As of and for the
Six Months Ended
June 30, 2012
     As of and for the
Year Ended
December 31,
2011
     As of and for the
Six Months Ended
June 30, 2011
 
     Amount     

Average

rate

     Amount     

Average

rate

     Amount     

Average

rate

 
  

 

 

    

 

 

    

 

 

 
     (In Millions of Euros, Except Percentages)  

Securities sold under agreements to repurchase (principally Spanish Treasury bills):

                 

As of end of period

     54,414         1.97%         59,738         2.06%         52,194         2.10%   

Average during period

     51,238         1.63%         49,670         1.95%         47,626         2.03%   

Maximum quarter-end balance

     54,414         -         59,738         -         52,194         -   

Bank promissory notes:

                 

As of end of period

     1,478         1.57%         2,362         1.82%         12,020         1.21%   

Average during period

     2,059         1.52%         9,582         1.18%         13,816         1.18%   

Maximum quarter-end balance

     2,345         -         14,300         -         14,262         -   

Bonds and Subordinated debt :

                 

As of end of period

     13,388         3.60%         11,736         3.88%         12,359         3.61%   

Average during period

     14,974         2.87%         11,945         3.98%         10,629         3.11%   

Maximum quarter-end balance

     16,621         -         15,738         -         12,359         -   
  

 

 

    

 

 

    

 

 

 

Total short-term borrowings as of end of period

     69,280         2.28%         73,835         2.34%         76,573         2.20%   
  

 

 

    

 

 

    

 

 

 

Return on Equity

The following table sets out our return on equity ratios:

 

         As of June 30,      
2012
           As of December 31,    
2011
         As of June 30,    
2011
 
     (In Percentages)  

Return on equity (1)

     7.4         8.0         12.9   

Return on assets(2)

     0.6         0.6         0.9   

Equity to assets ratio(3)

     6.9         6.8         6.8   

 

(1) Represents net income attributed to parent company for the period as a percentage of average stockholder’s funds for the period. For June 30, 2012 and June 30, 2011 data, net income attributed to parent company is annualized by multiplying the net income attributed to parent company for the period by two.

 

(2) Represents net income as a percentage of average total assets for the period. For June 30, 2012 and June 30, 2011 data, net income is annualized by multiplying the net income for the period by two.

 

(3) Represents average total equity over average total assets.

 

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OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Summary Economic Background to Results of Operations

In the first half of 2012 the global economy was affected by a new outbreak of financial tensions resulting from the debt and institutional crisis in Europe. Such a prolonged period of uncertainty seems to be having a significant impact in terms of economic activity in all the regions, and has held back the economic recovery process which, although moderate, had been seen in previous years. Thus, global GDP growth slowed down in the first half of 2012, from the 3.9% average annual growth recorded in 2011. Even so, economic performance by regions continues to vary. While in the United States (“U.S.”) and the emerging economies the slowdown has been more or less intense, but maintaining growth, the economy has stagnated in Europe as a whole, and several countries have once again entered a recession.

The events in Europe have been the fundamental reason for the worsening of the global economic activity. The European authorities have implemented a number of measures aimed at tackling the current tensions. On the one hand, an agreement was reached at the beginning of the year for restructuring the Greek debt with the participation of the private sector and new fiscal adjustment plans. At the same time, the new fiscal compact, which ratifies the commitment by the various European countries to fiscal consolidation and growth, was approved, and the capacity of the European stabilization mechanism was boosted. Implementation of this mechanism has been brought forward to July, with a lending capacity of up to 500,000 million. In addition, the European Central Bank (“ECB”) has maintained its long-term liquidity support measures in order to reduce the uncertainty surrounding the European financial system. Particularly, the second auction of long-term (3 years) unlimited loans took place in 2012 at an interest rate of 1%, and the official interest rate was lowered to 0.75% in July. Finally, the peripheral countries, especially Spain, have set in motion structural reforms which have been highly valued by the European institutions.

However, all this has not been enough to dissipate tensions. First, doubts remain about the effectiveness of the fiscal consolidation processes underway, due not only to the limited progress made in some countries, particularly in Spain, but also to the difficulties in making fiscal consolidation compatible with economic growth. Secondly, doubts have arisen about the impact that the restructuring process of some financial institutions could have on the public finances of some countries. Specifically, this has been the case in Cyprus and Spain, generating tensions throughout the six-month period that have only relaxed partially with the request by the Spanish government of European financial aid and the implementation of independent evaluations of the banks’ balance sheets. Thirdly, the six-month period has been marked by the political uncertainty derived from the result of the two elections held in Greece. The uncertainty surrounding the possibility that Greece may be forced to leave the euro created an extremely tense situation, with capital outflows from the peripheral countries, higher spreads and stock-market falls that mainly affected the banks in peripheral countries.

The situation improved in part towards the end of the six-month period. A government committed to remaining in the euro zone was finally formed in Greece. The independent appraisals of the Spanish banking system have produced figures showing that capital is needed for the entire system within the expected range, and have highlighted the strength of the largest institutions. Finally, the European summit held in late June had positive results. Progress has been made toward the creation of a European banking supervisor, although the scope of its powers has yet to be defined. Moreover, the European stability mechanism will be in charge of recapitalizing the banks directly (which should ease the pressure on the public finances of the affected countries, particularly Spain) and its loans will not be considered senior. Later on, in September, the ECB announced unlimited sovereign bond purchases in case countries request aid, with no seniority status.

Thus, the European economy has suffered especially in this situation of uncertainty, and the slowdown process has intensified. The Eurozone did not have a strong second quarter, as it continued to reel from a deep financial and economic crisis, especially in the peripheral countries, and its macroeconomic indicators continued to deteriorate after an upturn in the first quarter. If the foreseen measures of the European summit and by the ECB are implemented, financing troubles should start to diminish after the summer. The Eurozone should grow timidly in 2013, although the periphery will remain in recession.

 

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Table of Contents

Although the recovery in the U.S. was not being particularly vigorous, up to the first quarter of 2012 it still showed an acceptable level of dynamism, with quarterly growth of 0.5% thanks to the better shape of state and local finances, improved lending and a certain recovery of the residential construction sector. Advanced second quarter growth points to lower rates, due to decelerating personal consumption expenditures (PCE) and lower growth in residential and non-residential fixed investment. This is due to the increased uncertainty surrounding economic activity (and which seems to be holding back household and company spending), as pointed out by different sources. The intense slowdown seen in the main emerging economies, together with increased risks coming from Europe, is generating a less favorable external environment. We should also point out the uncertainty surrounding the fiscal stimulus programs that will expire at the end of 2012, which unless a political agreement is reached for their total or partial renewal could bring about a large fiscal contraction and cause the U.S. economy to slide into another recession.

The emerging economies have also been hit by the financial tensions coming from Europe (although to a different extent) as regards both financial flows and real economic activity. South America has continued to show strong growth in the first half of 2012, supported by vigorous domestic demand and a relative improvement of some determining factors in the international economic landscape, particularly in the maintenance of high commodity prices. However, this is expected to be reflected in a certain upward pressure on inflation, especially in countries whose central banks have set inflation targets (including Peru, Chile and Colombia). The foregoing is expected to therefore lead those central banks to maintain a bias toward a slacker monetary policy. Growth is expected to slow down compared to previous years, but still be strong (around 3.2% in 2012 for the main 7 economies).

Economic activity in Mexico shows stronger growth than in late 2011, with a GDP growth of 4.3% year-on-year for the six-month period ended June 30, 2012. Inflation is expected to close 2012 at 4% (recent upturns are due to non-core components), thus consolidating the view that the monetary policy reference rates will be maintained.

In China, growth has continued to slow down to 7.6% year-on-year in the second quarter, from 8.1% in the previous quarter. Part is due to the slump in exports, given the lower demand in Europe, but the figures announced for the second quarter suggest that this slowdown will intensify. In any event, the slowdown has been more severe than the authorities expected, which together with reduced inflation has given the authorities more room to implement economic stimulus policies, should the global scenario deteriorate further. The Chinese authorities have announced major infrastructure to support growth.

Finally, economic activity in Turkey suffered intensely in the first half of the year, due to the country’s exposure to the euro zone economy. Even so, the current account deficit has been adjusted over the same period. Equally, inflation figures have been somewhat better than expected by the authorities

Factors Affecting the Comparability of our Results of Operations and Financial Condition

We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas certain of our subsidiaries keep their accounts in other currencies, principally Mexican pesos, U.S. dollars, Argentine pesos, Chilean pesos, Colombian pesos, Venezuelan bolivars fuerte and New Peruvian Soles. For example, if Latin American currencies and the U.S. dollar depreciate against the euro, when the results of operations of our subsidiaries in the countries using these currencies are included in our interim consolidated financial statements, the euro value of their results declines, even if, in local currency terms, their results of operations and financial condition have remained the same or improved relative to the prior period. Accordingly, declining exchange rates may limit the ability of our results of operations, stated in euro, to fully describe the performance in local currency terms of our subsidiaries. By contrast, the appreciation of Latin American currencies and the U.S. dollar against the euro would have a positive impact on the results of operations of our subsidiaries in the countries using these currencies when their results of operations are included in our interim consolidated financial statements. We are also exposed to fluctuations of the Turkish lira and the Chinese yuan, as a result of our investments in Garanti and CIFH and CNCB, respectively.

The assets and liabilities of our subsidiaries which maintain their accounts in currencies other than the euro have been converted to the euro at the period-end exchange rates for inclusion in our Interim Consolidated Financial Statements. Income statement items have been converted at the average exchange rates for the period. The following table sets forth the exchange rates of several Latin American currencies, the U.S. dollar, the Turkish lira and the

 

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Table of Contents

Chinese yuan against the euro, expressed in local currency per 1.00 for the six months ended June 30, 2012 and 2011, respectively and as of June 30, 2012 and December 31, 2011 according to the European Central Bank (“ECB”).

 

     Average Exchange Rates      Period-End Exchange Rates  
  

 

 

 
         For the Six Months
ended June 30, 2012
     For the Six Months
ended June 30, 2011
     As of June 30, 2012      As of December 31,  
2011
 
  

 

 

 

Mexican peso

     17.1839         16.6864         16.8754         18.0512     

U.S.dollar

     1.2965         1.4032         1.2590         1.2939     

Argentine peso

     5.6942         5.6815         5.6923         5.5679     

Chilean peso

     638.9776         667.1114         641.8485         674.7638     

Colombian peso

     2,325.5814         2,577.3196         2,272.7273         2,512.5628     

Peruvian new sol

     3.4673         3.9036         3.3546         3.4890     

Venezuelan bolivar

     5.5682         6.0265         5.4070         5.5569     

Turkish lira

     2.3362         2.2081         2.2834         2.4432     

Chinese yuan

     8.1905         9.1755         8.0011         8.1588     

The June 2012 period-end exchange rates of all currencies whose fluctuation may have an impact on the Group’s financial statements have appreciated against the euro with respect to the June 2011 period-end exchange rates with the exception of the Turkish lira. In terms of average exchange rates, only the Mexican and Argentine pesos have depreciated period on period, with an appreciation of the rest of currencies. Thus the overall effect of changes in exchange rates on the period-on-period comparison of the Group’s income statement and balance sheet is positive.

In addition, our results of operations for the six months ended June 30, 2012 include the proportional consolidation of our approximately 25% interest in Garanti during the entire six months ended June 30, 2012 compared with during only three months during the six months ended June 30, 2011.

BBVA Group Results of Operations for the Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30, 2011

The changes in the Group’s consolidated income statements for the six months ended June 30, 2012 and 2011 were as follows:

 

        For the Six Months  
Ended June 30,
      
          2012              2011              2012/2011    
     (In Millions of Euros)      (in %)

Interest and similar income

     12,768         11,501       11.0

Interest expense and similar charges

     (5,428)         (5,112)       6.2
  

 

 

    

Net interest income

     7,340         6,389       14.9
  

 

 

    

Dividend income

     338         282       19.9

Share of profit or loss of entities accounted for using the equity method

     371         243       52.7

Fee and commission income

     2,994         2,745       9.1

Fee and commission expenses

     (563)         (464)       21.3

Net gains (losses) on financial assets and liabilities

     766         729       5.1

Net exchange differences

     63         359       (82.5)

Other operating income

     2,854         2,028       40.7

Other operating expenses

     (2,756)         (1,886)       46.1
  

 

 

    

Gross income

     11,407         10,425       9.4
  

 

 

    

Administration costs

     (4,803)         (4,433)       8.3

Personnel expenses

     (2,808)         (2,582)       8.8

General and administrative expenses

     (1,995)         (1,851)       7.8

Depreciation and amortization

     (470)         (404)       16.3

Provisions (net)

     (230)         (234)       (1.7)

 

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        For the Six Months  
Ended June 30,
      
          2012              2011              2012/2011    
     (In Millions of Euros)      (in %)

Impairment losses on financial assets (net)

     (3,267)         (1,986)       64.5
  

 

 

    

Net operating income

     2,637         3,368       (21.7)
  

 

 

    

Impairment losses on other assets (net)

     (269)         (184)       46.2

Gains (losses) on derecognized assets not classified as non-current assets held for sale

     22         24       (8.3)

Negative goodwill

     -         -       -

Gains (losses) in non-current assets held for sale not classified as discontinued operations

     (286)         (65)       n.m.1
  

 

 

    

Income before tax

     2,104         3,143       (33.1)
  

 

 

    

Income tax

     (272)         (558)       (51.3)

Income from continuing transactions

     1,832         2,585       (29.1)
  

 

 

    

Income from discontinued transactions (net)

     -         -       -

Net income

     1,832         2,585       (29.1)
  

 

 

    

Net income attributed to parent company

     1,510         2,339       (35.4)

Net income attributed to non-controlling interests

     322         246       30.9

 

 

  (1) Not meaningful.

Net interest income

The following table summarizes the principal components of net interest income for the six months ended June 30, 2012 compared to the six months ended June 30, 2011.

 

     For the Six Months Ended June 30,       
    

2012

    

2011

     Change
     (In Millions of Euros)      (In %)

Interest income

     12,768         11,501        11.0

Interest expense

     (5,428)         (5,112)        6.2
  

 

 

    

Net interest income

     7,340         6,389        14.9
  

 

 

    

Net interest income increased 14.9% to 7,340 million for the six months ended June 30, 2012 from 6,389 million for the six months ended June 30, 2011 due to the reduction of the cost of deposits in Spain and in certain emerging countries, the proportional consolidation of Garanti during all of the six months ended June 30, 2012 compared with during only three months during the six months ended June 30, 2011, and strong business activity in Mexico and South America.

Dividend income

Dividend income increased 19.9% to 338 million for the six months ended June 30, 2012 from 282 million for the six months ended June 30, 2011, due primarily to dividends from Telefónica, S.A.

Share of profit or loss of entities accounted for using the equity method

Share of profit or loss of entities accounted for using the equity method increased to 371 million for the six months ended June 30, 2012 from 243 million for the six months ended June 30, 2011 due to the increased profit of CNCB.

 

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Fee and commission income

The breakdown of fee and commission income for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 is as follows:

 

     For the Six Months Ended  June
30,
      
    

2012

    

2011

     Change
     (In Millions of Euros)      (In %)

Commitment fees

     88         60        47.3

Contingent Liabilities

     174         154        13.0

Documentary credits

     29         27        7.6

Bank and other guarantees

     145         127        14.1

Arising from exchange of foreign currencies and banknotes

     15         15        2.1

Collection and payment services

     1,458         1,261        15.6

Bills receivables

     36         32        12.2

Current accounts

     203         172        18.3

Credit and debit cards

     885         738         19.8

Checks

     111         117        (4.7)

Transfer and other payments orders

     159         143       10.9

Rest

     64         59        8.2

Securities services income

     855         835        2.3

Securities underwriting

     42         39        8.6

Securities dealing

     98         103        (5.4)

Custody securities

     164         174        (5.7)

Investment and pension funds

     478         449        6.5

Rest assets management

     73         71        3.3

Counseling on and management of one-off transactions

     4               (35.4)

Financial and similar counseling services

     19         32        (41.2)

Factoring transactions

     20         17        22.2

Non-banking financial products sales

     54         51        6.5

Other fees and commissions

     307         314        (2.4)
  

 

 

    

Fee and commission income

     2,994         2,745        9.1
  

 

 

    

Fee and commission income increased by 9.1% to 2,994 million for the six months ended June 30, 2012 from 2,745 million for the six months en